Ocean Carriers

Cases in Corporate Finance

HARVARD ~

BUSINESS

SCHOOL

9-202-027

REV, APRIL 18, 2002

ERIK

STAFFORD LUCHS CHAO

KATHLEEN ANGELA

Ocean Carriers

In January 2001,..' nn Vice President of Finance for Ocean Carriers, a shi in company with offices in New York and Hon Kon, was evaluating a propose ease 0 a shi for a three- ear ,.period, beginnin~ in early 2003. The customer was eager to ma ize t e contract to meet his own commitments and offered very attractive terms. Na..ship in Ocean Carrier's current fleet met the customer's requirements. Linn, therefore.jiad to decide whether Ocean Carriers should immediatetr commission a new capesize carrier that would be corrwleted two years hence and could be leased to ~customer.

Ship Operations

Ocean Carriers Inc. .owned and operated capesjze dry bulk carriers that majnly carried iron ore worldwide. This type of vessel ranged in size from 80,000 deadweight tons to 210,000 dt;dweight tons of cargo carrying capacity. ~esize carriers were too large to transit the Panama Canal and therefore had to sail around Cape Horn to travel between the Atlantic and Pacific Oceans. In January 2001, there were 553 capesizes in service in the world. Ocean Carriers' vessels were mostly chartered on a "time charter" basis for a period such as one year, three years, or five years, although the spot charter market was used on occasion. The 'company that chartered the ship was called the "charterer." The charterer paid Ocean Carriers a daily hire rate for the entire length of the contract, determined what cargo the vessel carried, and controlled where the vessel loaded and unloaded. The company, in turn, supplied a seaworthy vessel that complied with international regulations and manned the vessel with a fully qualified and certified crew. Operations also included ensuring adequate supplies and stores were onboard, supplying lubricating oils, scheduling repairs, conducting overall maintenance of the vessel, and placing all...