FEIMI10-1 23H Maritime Industry Cost, Revenue & Cashflow PDF Autumn 2024

FEIMI10-1 23H Introduction to the Maritime Industry Autumn 2024 $ Cost, Revenue and Cashflow - In a brief glance https://www.youtube.com/watch?v=60y2uh0V86c Cost, Revenue and Cashflow Introduction Objective: Understand the basic financial concepts in the shi...

FEIMI10-1 23H Introduction to the Maritime Industry Autumn 2024 $ Cost, Revenue and Cashflow - In a brief glance https://www.youtube.com/watch?v=60y2uh0V86c Cost, Revenue and Cashflow Introduction Objective: Understand the basic financial concepts in the shipping industry Key Terms: Costs, Revenue, Cash Flow 9/11/2024 Costs, Revenue, Cash Flow 2 Cost, Revenue and Cashflow Stopford’s Four Markets 1. Newbuilding Market: 2. Freight Market: 3. Sale and Purchase Market: 4. Demolition Market 9/11/2024 Costs, Revenue, Cashflow 3 Cost, Revenue and Cashflow Newbuilding Market: This is where shipowners order new ships from shipyards. The market is influenced by factors like shipbuilding capacity, technological advancements, and future shipping demand 9/11/2024 Costs, Revenue, Cashflow 4  Cost, Revenue and Cashflow Freight Market: This market deals with the transportation of goods. Shipowners and charterers negotiate freight rates, which are influenced by supply and demand for shipping capacity, fuel prices, and global trade patterns. 9/11/2024 Costs, Revenue, Cashflow 5 Cost, Revenue and Cashflow Sale and Purchase Market: Here, ships are bought and sold. Prices in this market are affected by the age and condition of the ships, current and future freight rates, and the overall economic outlook. 9/11/2024 Costs, Revenue, Cashflow 6  Cost, Revenue and Cashflow Demolition Market: This market involves the scrapping of old ships. Factors influencing this market include steel prices, the age of the fleet, and environmental regulations. 9/11/2024 Costs, Revenue, Cashflow 7  Cost, Revenue and Cashflow Costs in Shipping Fixed Costs: Expenses that do not change with the level of goods transported. o Examples: Ship purchase/lease, insurance, salaries of permanent staff. Variable Costs: Expenses that vary with the level of goods transported. o Examples: Voyage costs as fuel, port fees, maintenance, crew wages. 9/11/2024 Costs, Revenue, Cash Flow 8 Cost, Revenue and Cashflow 9/11/2024 Costs, Revenue, Cashflow Martin Stopford, 2009:220 Cost, Revenue and Cashflow Some goods require customized fastening devices 9/11/2024 Costs, Revenue, Cashflow 10 Cost, Revenue and Cashflow Ship age and the supply price of freight within a fleet of similar sized ships, it is usual to find that the old ships have a different cost structure from the new ones. Indeed, this relationship between cost and age is one of the central issues in shipping market economics. 9/11/2024 Costs, Revenue, Cashflow 11  Cost, Revenue and Cashflow Analysis of the major costs of running a bulk carrier Source: Compiled by Martin Stopford from various sources Note: This analysis is for a 10- year-old Capesize bulk carrier under the Liberian flag at 2005 prices. Relative costs depend on many factors that change over time, so this is just a rough guide. Martin Stopford, 2009:225 9/11/2024 Costs, Revenue, Cashflow 12 Cost, Revenue and Cashflow Revenue in Shipping Freight Revenue: Income from transporting goods Factors Influencing Freight Rates: Distance, cargo type, market demand o Other Revenue Sources: o Chartering: Leasing out ships to other companies o Ancillary Services: Storage, logistics, and handling fees 9/11/2024 Costs, Revenue, Cash Flow 13 Cost, Revenue and Cashflow Cash Flow in Shipping Cash Inflows: Money received from freight charges, charters, and other services. Cash Outflows: Money spent on operating expenses, maintenance, and loan repayments. Net Cash Flow: Difference between cash inflows and outflows. Positive Cash Flow: More money coming in than going out. Negative Cash Flow: More money going out than coming in. 9/11/2024 Costs, Revenue, Cashflow 14  Cost, Revenue and Cashflow Managing Costs, Revenue, and Cash Flow Cost Management: o Efficiency: Optimize routes and fuel usage. o Maintenance: Regular checks to avoid costly repairs. Revenue Management: o Market Analysis: Understand demand and adjust pricing. o Diversification: Offer additional services. Cash Flow Management: o Budgeting: Plan for regular expenses and unexpected costs. o Reserves: Maintain a cash reserve for emergencies. 9/11/2024 Costs, Revenue, Cashflow 15 Cost, Revenue and Cashflow Conclusion Summary: Effective management of costs, revenue, and cash flow is crucial for the profitability and sustainability of shipping companies. Final Thought: Stay informed about market trends and continuously seek efficiency improvements. 9/11/2024 Costs, Revenue, Cashflow 16 Cost, Revenue and Cashflow Voyage charter This system is used in the voyage-charter market, the specialist bulk market and in a rather different way in the liner trades The freight rate is paid per unit of cargo transported, for example $20 per ton Under this arrangement, the shipowner generally pays all the costs, except possibly cargo handling, and is responsible both for managing the running of the ship and for the planning and execution of the voyage The ship owner takes both the operational and the shipping market risk If no cargo is available, if the ship breaks down, or if it has to wait for cargo he loses out 9/11/2024 Costs, Revenue, Cashflow 17 Cost, Revenue and Cashflow Time charter The charter hire is specified as a fixed daily or monthly payment for the hire of the vessel, for example $5,000 per day Under this arrangement, the owner still takes the operational risk, since if the ship breaks down, he does not get paid. The charterer pays fuel, port charges, stevedoring and other cargo-related costs. He takes the market risk, paying the agreed daily hire regardless of market conditions (unless the charter rate is linked to the market in some way) 9/11/2024 Costs, Revenue, Cashflow 18 Cost, Revenue and Cashflow Bare boat charter This is essentially a financial arrangement in which the charter hire only covers the financing cost of the ship The owner finances the vessel and receives a charter payment to cover expenses. All operating costs, voyage costs and cargo-related costs are covered by the charterer, who takes both the operational and the shipping market risk 9/11/2024 Costs, Revenue, Cashflow 19 Cost, Revenue and Cashflow Finance Different methods offering a variety of options depending on the specific needs and circumstances of the shipowner. “Oceanis pointed out that there remain serious questions over the long-term earnings of older vessels in the spot market, which is reducing lender willingness to provide funds for acquisitions without firm employment and resulting in lower loan-to-valuations becoming common”. (Carly Fields, 2023) 9/11/2024 Costs, Revenue, Cashflow https://www.balticexchange.com/en/news-and-events/news/baltic-magazine/2023/ship-finance-markets-wide-open.html 20  Cost, Revenue and Cashflow Finance 1. Traditional Bank Loans 2. Leasing 3. Bareboat Charter 4. Operating Lease 5. Syndicated Loans 6. Export Credit Agencies 7. Private Equity 8. Venture Capital 9. Bonds 10. Government Grants 9/11/2024 Costs, Revenue, Cashflow 21 Cost, Revenue and Cashflow 1 - Traditional Bank Loans: o Pros: Lower interest rates, longer repayment terms. o Cons: Strict eligibility requirements, extensive documentation needed. o Details: Interest rates typically range from 3-6%, with repayment terms of 10-20 years1. 9/11/2024 Costs, Revenue, Cashflow 22 Cost, Revenue and Cashflow 2 - Leasing: o Pros: Lower upfront costs, flexible terms, maintenance often included. o Cons: Higher long-term costs, ownership not transferred until lease end. o Details: Upfront cost is usually 10-20% of the ship’s value, with lease terms of 5-15 years1. 9/11/2024 Costs, Revenue, Cashflow 23 Cost, Revenue and Cashflow 3 - Bareboat Charter: o Pros: No large initial capital outlay, option to purchase at the end. o Cons: High monthly payments, responsible for maintenance. o Details: Monthly cost is 0.8-1.5% of the ship’s value, with charter terms of 5-10 years1. 9/11/2024 Costs, Revenue, Cashflow 24 Cost, Revenue and Cashflow 4 - Operating Lease: o Pros: Flexibility in fleet management, lower risk exposure. o Cons: No ownership, potentially higher costs over time. o Details: Monthly cost is 0.5-1.2% of the ship’s value, with lease terms of 3-7 years1. 9/11/2024 Costs, Revenue, Cashflow 25 Cost, Revenue and Cashflow 5 - Syndicated Loans: o Pros: Large funding amounts, shared risk among lenders. o Cons: Complex arrangement, higher costs due to fees. o Details: Loan amounts range from $50M-$500M, with interest rates of 4-7%1. 9/11/2024 Costs, Revenue, Cashflow 26 Cost, Revenue and Cashflow 6 - Export Credit Agencies: o Pros: Competitive interest rates, support for local shipbuilders. o Cons: Tied to specific exporters, long approval process. o Details: Interest rates range from 2-4%, with repayment terms of 10-15 years1. https://www.tradefinanceglobal.com/export-finance/export-credit-agencies-eca/eksfin-norway-eca/ 9/11/2024 Costs, Revenue, Cashflow 27 Cost, Revenue and Cashflow 7 - Private Equity: o Pros: Access to substantial capital, potential for higher returns. o Cons: Dilution of ownership, high risk. o Details: Investment sizes range from $10M-$100M, with expected returns of 15-25%1. 9/11/2024 Costs, Revenue, Cashflow 28 Cost, Revenue and Cashflow 8 - Venture Capital: o Pros: Access to expert advice, can be used for innovative projects. o Cons: Loss of control, high expectations for growth. o Details: Investment sizes range from $5M-$50M, with expected returns of 20-30%1. 9/11/2024 Costs, Revenue, Cashflow 29 Cost, Revenue and Cashflow 9 - Bonds: o Pros: Fixed interest rates, long-term financing. o Cons: Need for strong credit rating, regular interest payments. o Details: Bond sizes range from $100M-$1B, with interest rates of 3-6%1. 9/11/2024 Costs, Revenue, Cashflow 30 Cost, Revenue and Cashflow 10 - Government Grants: o Pros: Non-repayable, supports innovation and sustainability. o Cons: Highly competitive, specific criteria must be met. o Details: Grant sizes range from $100K-$5M, with success rates of 10-30%1. 9/11/2024 Costs, Revenue, Cashflow 31