Ocean Carriers

OCEAN CARRIERS

Suggested Questions and Analysis

Questions:

Ocean Carriers uses a 9% discount rate.

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

Spot Charter rates fluctuated based on market conditions. Exhibit 3 displays the current order book for dry capsizes for upcoming years--much larger when compared with the current fleet size per exhibit 2. When the market demand for dry bulk capsizes is high, carriers can demand higher spot charter rates. When market demand is low, carriers accept lower spot charter rates. Due to 63 new vessels scheduled for commission and imports of iron ore and coal projected to be stagnant, spot rate were anticipated to fall over the next two years.

2. What factors derive average daily hire rates?

The daily hire rate is determined by supply and demand. Thus, we looked at the supply of capsize vessels. Exhibit 2 shows the existing capsize carriers. Future supply of the capsize vessels is the sum of current vessels, minus the vessels that will be scraped, plus new ships delivered.

In addition to the number of vessels, market demand in basic industries like iron ore, changes in trade patterns, and age of vessels are all factors that drive daily hire rates.

3. How would you characterize the long-term prospects of the capesize dry bulk industry?

The long-term the dry bulk industry is expected to grow. Prospects for growth from 1994-2000 on average are +2.3%. The projections on exhibit 6 trend toward +1.5% y/y increase, which are in-line with data from previous years. In addition, over 85% of the cargo carried by capsizes is iron ore and coals. Given that India and Austrailian production in iron ore is expected to be strong, exports are expected to increase in the years immediately following y2000. Therefore, we should expect the same positive forecast/prospects of demand of vessel service over the long term.

Availability of fleet in the market and the availability of transports good drives average daily hire rates. The daily hire rates would increase if Australia and India ore export starts in coming years. This would bring big business. In absence of a new business, due to increasing number of fleet and based on order booking, the average daily rates may drop.

There are 2million tons of capsize with the age over 24 years. We can expect that these old vessels would be soon scrapped, which in turn would reduce the supply of the capsize vessels. However, such old vessels were small portion of the total exisiting vessels. SO we would not expect a large reduction in supply due to the scraping of old vessels.

Exhibit 3 shows the current