Ocean Carriers

Case 7: Ocean Carriers

1. Assess the demand and supply of the capesize dry bulk industry. What do you expect to happen to demand relative to supply over the next four or five years? Please thoroughly explain and justify. What do you expect to happen to prices over both the short-run and the long-run?

According to Ocean Carriers, supply and demand of capesizes determined daily hire rates. The demand and supply of capesizes was largely determined by the amount of shipping capacity needed in areas around the world. When market demand for shipping capacity was high, the demand for capesizes increased and owners would try to keep the vessels in operation as long as possible. The opposite was true whenever shipping capacity around the world decreased. The supply of capesizes was also affected by shipping capacities. As capesizes increased in size and efficiency, less and less vessels were needed to haul cargo. As a result, the demand for dry bulk capesizes was mostly a product of the world economy. When the economic atmosphere was healthy, the demand for these capsizes increased. Trade patterns also help to determine the demand expected of dry bulk capesizes.

In the next four to five years, we expect that the demand to be significantly higher than the supply of dry bulk capesizes. The case states that Australia and India will increase their roles in the iron ore industry, which gives one an optimistic view on the future demand of capesize vessels. The production of iron ore in Australia is expected to increase; and the export of iron ore from India is also supposed to rise. This new possibilities for expansion should increase the demand of Ocean Carriers’ dry bulk capesizes and increase the amount of trading volume done by the company around the world. As for supply, the increase in technologies and manufacturing concerning capesizes will surely reduce the number of new vessels that need to be built each year. With the capesize fleet mostly under...