Ocean Carriers Questions 1

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

Daily hire rates are determined by supply and demand.

Number of ships available = Number of vessels in service the previous year + New ships delivered – Scrapings and Sinkings

When market demand for shipping capacity is high, the owners keep a vessel in operation as long as possible. When market demand is low, scraping rises.

Supply is affected by the increases in size and efficiency the newer ships offered. As ships get bigger, faster and more fuel efficient, fewer ships are needed to carry the same amount of cargo. There have been very few scrapings in recent years and most of the capacity of the worldwide fleet of capsizes are fairly young.

Estimates of future orders for vessels are not entirely reliable, esp. projections spanning more than two or three years in the future. If market sentiment is optimistic, more vessels are added to the order book. If the market outlook is poor, then vessels are cancelled or converted to other types of vessels.

With Australian production in iron ore expected to be strong and Indian iron ore exports expected to take off in the next few years, the company has an optimistic view of long-term market demand for capsizes. On the other hand, the company anticipates that spot rates will fall over next two years because of the delivery of 63 new vessels and stagnant imports of iron ore and coal over next two years. After two years, the Australian and Indian ore exports will begin and these new supplies will significantly increase trading volumes. Demand for capsizes will increase with these higher trading volumes, possibly boosting spot prices.

The forecast of daily hire rates prepared by the shipping industry consulting firm indicates that the long-term forecast for worldwide iron ore vessel shipments was for 2% annual growth during 2005 to 2005 and then dropping to 1.5% thereafter. But for 2001, the forecast indicates a negative growth in the...