Essay Exampl: The Long-Term Prospects of the Capesize Dry Bulk Industry

Do you expect daily spot rates to increase or decrease next year?

Spot rates depend on the demand of capsizes in the market due to the oil and iron industries. The average daily spot rates would decrease due to the decrease in iron ore vessel shipments in the following year. According to Linn, an increase in iron ore production would result from an increase in demand for capsizes. In the following year, iron ore vessel shipments get estimated to decrease from 440 to 436 shipments. Data presented on worldwide iron ore vessel shipment also indicates trends in the increase of fleets and spot rates.

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The expected increase of fleet size would influence an increase in spot rates. Historically iron ore vessels get connected with charter rates, and in the current situation, fleet size also influences the spot rates in the market. Despite the emerging trend in fleet size, the relationship between the daily rates and iron ore vessel shipment would remain due to demand. The demand for the capesizes would decreases due to the decline in the iron industry despite the fleet size.

What factors drive average daily rates?

The market conditions, age of the ships, and discounts offered by Ocean Carriers determine the daily rates. The worldwide market gets influenced by the ore and coal market. Capesize main operations include carrying iron and coal products, and an increase or decrease in their markets affects the demand of the capesizes. The demand for the capesizes would get also influenced by the trade patterns in the market. The adoption of longer routes by the market leads to increased demand for capesizes, hence higher daily spot rates. For instance, changing the route from Europe and Australia would increase the demand for capsizes would increase.

Spot charter rates get influenced by the age of the vessels. New vessels get considered more efficient and economical. New vessels were faster, fuel-efficient, and had larger capacity making their demand high. The higher the demand of the vessels, the higher the daily spot rates of the capesizes. In the case of old capsizes, the daily spot rates got influenced by the discount offered. Old vessels offered higher discount rates due to their low demands in the market. The amount agreed between the owner and the charterer on hiring the vessel is the charter rate and gets affected by iron ore vessel shipments and the vessels' efficiency, capacity, and age.

How would you characterize the long-term prospects of the Capesize dry bulk industry?

The long-term prospects for capesize dry bulk get determined according to the historical trend in the industry. The industry needs new vessels due to an increase in scrapping due to the vessels' age and efficiency. The forecast indicates a decrease in dry bulk capesizes through time. The trend gets influenced by the reduced scrapping and adoption of new vessels in the industry, which have a higher lifespan than the previous vessels. The forecast does not, however, does not reflect Linn's optimistic attitude towards the market.

The forecast is unreliable because more capesizes would get ordered if the market was improving. The capesizes would get used to meet the increasing demand in the market for iron and coal products. Despite the decrease in scrapping, the industry's current trends influenced by fleet size, growth of basic industries, and adaption of more efficient should directly get reflected by the number of capesizes in Ocean Carriers. Despite the dropping of iron ore vessel shipments after 2005, dry bulk capsizes should increase since they can get utilized through scrapping to turn them into revenue though the company would lose the time value of money. The money may get used by Ocean Carriers to improve its current situation by acquiring and ordering vessels for the current operation.