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Published byErin Caroline Lester Modified over 8 years ago
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Financial Elements 1
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Firm’s Main Objective is Value Creation for Shareholders and Other Stakeholders
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Financial Management/Decision Shipping is Capital & Technology Intensive Return on Investment (ROI), Return on Capital (ROC) has to be competitive (Risk/Return) e.g Disposal of Container and Bulkers (70 vessels) vs Oil Terminal Tg. Bin Petronas/MISC/Vittol Holland – Financial and Management Decision?? Amortized over the life of the vessel Amortization & Financial Implication Amortization on Refurbishment/Modification MASB 20 (the Malaysian accounting standards board) 3
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KEY VARIABLES Key to survival in the shipping business is “ How to manage the financial performance of your company” There are three (3) variables ship owner can work with: -Charter Revenue; -Vessel Operating Costs; -Financing Methods. 4
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Financial Return Charter Hire/Freight/Revenue/Income MUST be able to pay for the equity/debt financing, interest, voyage costs, (bunkers, port charges), fleet management costs(crew costs, catering and consumable stores, vessel maintenance, drydocking and refurbishment, survey & repairs, lubricants, insurance, communication, training, and other running costs) Deficits or Surplus?....Profit or (Loss)? Corporate Office Overhead?......Dividend?....... Cash flow is critical 5
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Direct Maintenance Costs Painting Chemicals Deck, engine, store supplies repairs and maintenance Dry docking Machinery spares Lubricants and grease Surveys 6
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Global Ship Building 7
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8 Expanded World Fleet as a result of increase global seaborne trade Driven by robust China economic growth>8% Shipbuilding market has increased drastically over the past 10 years Korea (29), Japan (18), China (25) account > 75% (source: Lloyd Register) A shift from traditional Europe to Asia….why?....factors?
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9 Korea is No.1, developing new and high tech vessels (LNG, VLCC, Jumbo Container, Offshore) – Innovation & sophisticated Shipping Technology…….Daewoo HI, Hyundai HI, Samsung HI, Hanjin HI China is fast growing & expanding its market share with aggressive plan & government support & lower labour costs. China target No.1 in 2015, 35% market share, Japan No.2, but slowing down, shortage in manpower
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10 Ship building prices increased substantially since 2003 Source of financing/capital a) Equity….shareholder injection/pump-in b) Bond e.g Islamic bond Sukuk c) Long Term Loan e.g Private, Government d) Suppliers’ Credit e) Internal Generated Fund f) Venture Capital Size, Financial Standing, Reputation is critical Look for High Quality Charterers/Long Term Contract ( e.g Petronas/MISC Bhd)
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New Ship Building Process 11
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Process 1) Contract signing 2) Production design - working on production schedules, drawing, molds are developed, all computerized -naval architects -final plan approved by Class 3) Material purchase - the steel for hull arrives at the factory from the iron mills by ship - volume/timing of delivery 4) Production plan - work volume, erection operations at the “building berth” 12
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Process 5) Cutting of steel - cutting of steel of various sizes and shapes -prior to processing operation, the steel is surface- treated to prevent corrosion - 2 nd payment 6) Processing of steel - the shape of the hull is formed in this phase 7) Assembly - the steel parts assembly phase 7a) Block assembly - assemble the block, testing watertight for “tightness” 13
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Process 8) Launching - the most thrilling moment fill the dock with water,….the ship float and slide into the sea - third payment 9) Finishing the vessel - pipes and equipment are installed in the blocks, fitting out, and installing the main and auxiliary machinery 10) Sea trial - ship’s performance is tested/confirmed by sea trial 14
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Process 11) Naming and delivery ceremony - after the completion of all construction procedures, the naming and delivery ceremony is held for the ship, and the ship is delivered to the owner……a new ship is born…..maiden voyage - final payment is done 12) Warranty - warranty period is usually 12-24 months depending on the contract 15
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