Analysing Annual Contract Of Affreightment Engineering Essay

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This is Scenario where we have to analyze annual Contract of Affreightment (COA) to supply 1,750,000 tonnes of iron ore to the Isdemir iron & steel work, Turkey. COA contract where ship owner agrees to carry a series of cargo parcels for a fixed price per ton (Stop ford M, 2009, pg.183) or it is an agreement between an owner and a charterer to transport a given quantity of cargo or quantity as required by the charterer during a given period of time. The owner is free to decide which vessel he will use. As Operation manager of Company we have to find out whether to bid for this contract or not. In the contract two loading ports are Ponda da Madeira (Brazil) for 810,000 tonnes and East intercourse Is, Dampier (Australia) for 940,000 iron ore.

Based on the estimation, Manager has to find the low Time charter rate by best possible operation of the bulk carrier. For finding Time charter equivalent value we have to consider several factors bunkers, port charges, canal dues. Stowage factor for iron ore is 0.40 m3 per tonne. All Cargo holds are of equal volume and alternate holds 2, 4, 6& 8 are empty. In this scenario port charges for Isdemir and Ponta da Madeira is given. Dampier port cost to be calculated only considering port dues and pilotage only. Ship bunker is to be planned once in a round voyage. It is to be taken wherever price is cheaper. Current market value is attached in appendix.

Now, I will discuss the each question in detail one by one as follows.

Task 1:

Calculate the maximum quantity of iron ore that can be carried from each loading port, based on the ship's design draft deadweight, and the ship's hold utilization

For the calculation of Maximum quantity of iron that ship can carry depends on the deadweight of the ship. Deadweight is commonly denotes Ship carrying capacity in tonnes .Deadweight includes weight of Fuel, stores, water ,constant which required onboard ship.

Deadweight of this bulk carrier is given as 137,000 tonnes

Dwt of ship =137,000t

Constant = 500t

Fresh water = 300t

Since Constant and Fresh water required all the time on-board ship. So, we subtract it from ship carrying capacity.

Now, Ship can carry = 136, 200t

This value also includes the Fuel weight for one round voyage

Round voyage ponta da Madeira(Brazil)-Isdemir(turkey) -ponta da Madeira(Brazil):

Sea Distance between Isdemir- ponta da Madeira = 5201 nm (via Gibraltar)

(Please refer to http://e-ships.net/dist.htm viewed on 24th Sep. 2010)

Round the voyage distance = 10,402 nm

Ship speed= 14.2-------- (Given)

Total Sea time required cover above distance = 30.5 days

Considering 10% possible delay's= 33.6 days ---------- (1)

Port Time

According to the Appendices 1 & 2 of the contract loading/Discharging rate shall be 40,000 W.M.T (Wet Metric Tonnes) per weather working day.

If we consider cargo that ship can carry with constant and fresh Water = 136, 200t----------- (3)

Loading rate at Ponda da Madeira = 40,000 w.m.t.

Approximate laytime in port Ponda da Madeira = 3.05 days

Discharging rate at Isdemir = 40,000 w.m.t

Approximate Laytime in Isdemir = 3.05 days

Total time in ports = 6.1 days

Considering 10% possible delay's = 6.7 days------------- (2)

From (1) and (2)

Total number of days for one voyage = 40.3 days

As main engine fuel consumption is 42.4t of IFO per day at MCR and 10t of MDO per day at sea and in port.

IFO required for 33.6 days = 1424 t--------------------- (1a)

MDO required for 33.6 days = 336 t---------------- (2a)

MDO required in port for 6.7 days = 67 t ----------- (2c)

Total Tonnes of fuel Required =1826 t--------------------------- (4)

From (3) & (4)

Now, Maximum iron ore that Ship can carry for this routes = 134, 374t

(b) Round voyage Dampeir (Australia)--Isdemir (turkey)--Dampier (Australia)

Sea Time

Sea Distance between Isdemir- Dampeir (Australia) = 6479nm (via Suez)

(Please refer to http://e-ships.net/dist.htm viewed on 24th Sep. 2010)

Round the voyage distance = 12,958 nm

Ship speed = 14.2-------- (Given)

Total Sea time required cover above distance = 3 8.0 days

Considering 10% possible delay's = 41.8 days ---------- (5)

Port Time

According to the Appendices 1 & 2 of the contract loading/Discharging rate shall be 40,000 W.M.T (Wet Metric Tonnes) per weather working day.

If we consider cargo that ship can carry with constant and fresh Water = 136, 200t

Loading rate at Dampier = 40,000 w.m.t.

Approximate laytime in port Dampier = 3.05 day

Discharging rate at Isdemir = 40,000 w.m.t

Approximate Laytime in Isdemir = 3.05 days

Total time in ports = 6.1 days

Considering 10% possible delay's = 6.7 days------------- (6)

From (5) and (6)

Total no of days for one voyage = 48.5 days

Total Requirement of Fuel for One Round Voyage:

At Sea:

As main engine fuel consumption is 42.4t of IFO per day at MCR and 10t of MDO per day at sea and in port.

IFO required for 41.8 days = 1424 t------------------------ (7a)

MDO required for 41.8 days = 336 t-------------------------- (7b)

MDO required in port for 6.7 days = 67 t ---------------------------- (7c)

Total Tonnes of fuel Required =2,258 t---------------------------------------- (7)

From (3) & (7)

Now, Maximum iron ore that Ship can carry for this routes = 133, 942t

Task 2:

Calculate the cost per tonne of cargo from each loading port to Isdemir. The round voyage costs per tonne are required for and 'up and running' service, commencing at the load ports.

For the calculation of Cost per tones in each voyage we have to find out cost incurred by port operation, fuel usage, canal transit, running the vessel. On the basis of Voyage cost, running cost and cargo carried by ship we can find the Cost per tonne. Now we will find Voyage cost and running cost based on given data and results of question 1.

(a)Ponda da Madeira -Isdemir-Ponda da Madeira:

We will find the Fuel cost first. We know Total tones of IFO and MDO required for one round voyage

From (1a), (2b) & (2c)

Total tones of IFO required = 1424 t

Total tones of MDO required =403 t

IFO=$435 /tones

MDO= $ 640 /tones

(Please refer http://www.bunkerworld.com viewed on 24th Sep.2010)

Cost for 1424 t of IFO = $619, 440

Cost for 403 t of MDO = $257, 920

Total fuel cost = $877, 360 -------------------- (8)

Port Cost:

Port cost given for these two ports are as follows:

Ponda da Madeira (Brazil) = $45,000

Isdemir (Turkey) = $35,000

Total port cost =$80,000--------------------- (9)

On this route there will not be any canal dues as vessel will sail via GIBRALTAR, so there is no canal cost on this route.

There is no CANAL DUES

So, from (8) & (9)

Voyage Cost = $957, 360------------------------------- (10)

Running Cost:

AS Ship running cost given as $6000 per day which include wages of crew, maintenance of ship, store, insurance, administration etc.

From (1) & (2) total no of days for one round voyage = 40.3 days

Running cost for 40.3 days =$ 241,553------------- (11)

From (10) & (11)

RUNNING COST + VOYAGE COST =$1, 19 8,193----------------------------- (12)

Now from (3) & (4)

Maximum cargo that ship can carry = 134, 374t-------------------------- (13)

So, from (12) & (13)

We have total voyage cost, running cost and cargo that ship can carry for round the voyage.

Cost per tonne =$8.91

(b)Voyage Dampier (Australia)-Isdemir (Turkey) - Dampier (Australia):

FUEL COST:

From the (7a), (7b), (7c) we can easily find the total quantity of IFO and MDO required for one round Voyage

Total tones of IFO needed =1773 t

Total tones of MDO needed=485t

Taking market average bunker price as follows;

IFO=$435 /tones

MDO= $ 640 /tones

(Please refer http://www.bunkerworld.com viewed on 24th Sep.2010)

Total cost for 1773t of IFO =$771, 255

Total cost for 485 t of MDO=$310, 400

Total fuel cost =$ 1081655 ---------------------- (14)

PORT COST:

Port cost for Isdemir (Turkey) =$35,000 ------------------------ (given)

Port cost Dampier is to be calculated on the considering port dues and pilotage charges only. We can access schedule charges by Dampier port authority by visiting following site which is also attached in appendix and mentioned in references.

(http://www.dpa.wa.gov.au/Port-Facilities/Schedule-of-DPA-Charges.aspx/ HYPERLINK "http://www.dpa.wa.gov.au/Port-Facilities/Schedule-of-DPA-Charges.aspx/ Access on Sep. 24"Access on Sep. 24, 2010)

As GT of ship is given 73,999t

Port due charges are to be calculated=0.1916/tonnes

Port dues will be=$14178.20------------------------------ (15)

We will not consider Lay-up fee as vessel has order doesn't need to be at anchor

PILOTAGE CAHRGES;

For the vessel entering and departing from the port greater than 10,000 GRT the pilotage charges are $ 8,846.64 for both ways. We will also consider the pilotage Exemption fee $ 810.

So, Total pilotage charges would be =$9656.64---------------------- (16)

From (15) & (16)

Port cost at Dampier = $23, 834-------------------------------------- (17)

So when calculate the Port cost for Isdemir (Turkey) with Port cost at Dampier

Total port cost round the voyage = $58834 ------------------------- (18)

Canal Cost:

On this routes vessel would be passing through Suez Canal, so we have to find the Toll charges by canal authority on both way that is with laden ship and ballast ship.

Suez Canal net tonnage (SCNT) =67,109t

(Referring http://www.suezcanal.gov.eg/calc.aspx Access on Sep. 24th 2010)

On this official site of Suez Canal one can find approximate toll charges per transit based on SCNT. These are as follows:

Dampier - Isdemier (laden ship) = $151, 995,

Isdemier - Dampier (ballast ship) = $129, 288

These values are calculated with the help of official Suez Canal site which attach in appendix of this report.

Total cost Canal dues round the voyages= $281283------------------- (19)

From (14), (18), (19).

Voyage cost=$1, 421, 772-------------------------- (20)

RUNNING COST:

Total no of days for one round voyage =48.5 days

As running cost per day for ship=$6000 --------- (given)

Running cost for voyage for 48.5 days=$291, 000--------------------------- (21)

Voyage cost + Running cost together will give total expenses for desired number of cargo.

From (20) & (21)

Voyage cost + Running cost= $1, 712, 722--------------------------------- (22)

Now, we have Voyage cost, running cost, iron ore that ship can carry so we can find out the Cost per unit.

Maximum cargo that ship can carry=134, 374t

From (22)

Cost per tonne = $12.75--------------------------------------------- (23)

Task 3

Calculate the time charter equivalent (TCE) for each route, assuming a COA freight rate of $15 per tonne(ex Ponta da Madeira) and $20 per tonne (ex Dampier)(include 3% broker's commission on the time charter).

Ponda da Madeira -Isdemir-Ponda da Madeira:

Freight rate given for this Voyage is $15 per tonne. If we consider that ship carries Maximum cargo in a voyage.

From (13)

Maximum cargo that ship can carry= 134, 374t

Rate =$15per tonne

So, Total freight for 134, 374t of iron ore = $2, 015, 610 gross------------------------- (24)

This Gross value includes the 3%broker commission, hence deducting that from gross value.

Net freight value =$1, 955, 142 net---------------------------------------------------- (25)

Now, in order to find out Time charter equivalent (TCE) that includes the voyage cost and doesn't include the running cost. TCE is a standard industry measure of the average daily revenue performance of a vessel. The TCE rate achieved on a given voyage is expressed in US$/day and is generally calculated by subtracting voyage expenses, including bunkers and port charges, from voyage revenue which will give Gross voyage surplus. Then dividing by total no of days in voyage will give Gross daily surplus.

From (10) & (25)

Gross Voyage surplus=$997, 782

Dividing this value by no of days in voyage will give us Gross daily surplus

Total no of days 40.3 days

Gross daily surplus =$24, 758

Now, if we include 3% broker commission then it will give us

Time charter Equivalent =$742, 74 per day

(b)Voyage Dampier (Australia)-Isdemir (Turkey) - Dampier (Australia) :

Freight rate for this voyage given is $20 per tonne; in the same we can find the Time charter value for this route

Maximum cargo that ship can carry=133, 942t

Rate=$20 per tonne

Freight earned in one round voyage=$267, 8840 gross

Subtracting 3% broker commission from above gross value = 259, 847, 5 ----------------- (26)

Deducting voyage expenses from above will give us gross voyage surplus

From (20) & (26) 1, 421, 772

Gross voyage surplus value= $1, 176, 703

If we divide this by no of days in a voyage then it will give us

Gross daily surplus =$24, 261

Adding 3% broker commission to above will give us Time charter equivalent value

Time charter value=$7, 278, 3 per day

Task 4

Calculate the number of the shipments needed to complete the total iron ore tonnages from each loading port and the ship speeds required for equally spaced sailings throughout the year.

(a)Ponda da Madeira -Isdemir-Ponda da Madeira:

Number of shipments needed on this route to complete the contract can found on the basis of ship carrying capacity.

On this route maximum cargo that ship can carry = 134, 374t

Iron ore to transported through this route = 810,000t----- (Given)

If we divide Iron ore quantity to the maximum cargo that ship can carry, that will give us number of shipments required to complete the contract.

No of shipments = 7

Here, Ship requires sailing of 7 times with loaded cargo and 6 times as ballast ship in order to complete the contract.

Ship speed on this route can be adjusted to 14.0 knots which will give 44 day's round voyage sailing. This way, it can be 44 days of equally spaced sailing over approximately 295 days.

(b)Voyage Dampier (Australia)-Isdemir (Turkey) - Dampier (Australia):

Same way, we can find for this route too.

Maximum cargo that ship can carry=121102t

Total quantity of Iron ore to be transported=940,000t

Dividing quantity of iron ore by maximum cargo that ship can carry will give us:

No of shipments=8

In this case ship is required to transit Suez Canal 8 times with loaded cargo and 7 times as ballast ship for the completion of contract. So, canal dues are different for loaded ship and ballast ship, hence to be considered carefully.

Ship speed on this route can be adjusted to 14.1 knots with loaded cargo and 14.2 knots with ballast ship which will give 52 days of round voyage sailing. So, each voyage could be of equally spaced 52 days. On this route, at least one shipment required to be completed by another ship which could be the ship on Ponda da Madeira route. . If 52 days round voyage sailing is to be considered with one ship, it will take approximately 395 days which is beyond the contracted period. Initially, one ship can start the cargo work on this route and later, can be joined by ship which will run on the Ponda da Madeira route.

Total 2 ships will be required for completion of required tonnage of iron ore and contract.

Task 5

Summarize the carrier's contractual obligations in respects of:

     a) Requirements for ships on the contract

     b) Nominating ships for each shipment

     c) Maintaining the loading lay can schedule and consequences for not

     d) Delays and deviations en route

     e) Notification on arrival at load and discharge ports.

This is contract issued by General directorate of ISDEMIR for pellets, lump and fine iron ore. Duration of the contract is clearly mentioned in the contract. Quantity tonnage allowance is given as ±10% to be considered for concluding the contract between ISDEMIR and Carrier. There are several issue which may affect the services over the period of time. It may be type of vessel, shipment, penalty, freight rate, payment, and third party involvement, cancellation of contract, force majeure, and performance bond. This issue can be discussed in summarized form as below:

Requirement for ships on the contract:

Carrier has to use the ship which he enlisted in his offer or any alteration should be done with permission of ISDEMIR and seller. If ship is of foreign flag then it will requires approval of Import department. Ship should not be of south Cyprus flag in any case. Ship has to be with clean holds and ready for loading in all aspects. Ship's cargo hold hatches should be certified for water tightness by classification of society. Vessel should have P&I club insurance to cover the charter period. Final requirement for ship is that it should have class throughout the contractual period certified by classification of society.

Nominating ship for each shipment

Nomination of vessel shall take place 20 days prior to commencement date of loading laycan. In failure to do so ISDEMIR has all right to affect the transport on the basis of name and account of carrier. All the right to regarding cancellation of date of lay days is reserved by ISDEMIR, Carrier has agreed to revised lay days. Loading laycan schedule has to be agreed by three party ISDEMIR, seller and carrier. Loading laycan agreed upon by ISDEMIR and carrier before contract should not deviate. However, if carrier request alteration of loading laycan then ISDEMIR will have all right to accept or reject it. It will be treated as without loading laycan even if it is approved by ISDEMIR. The entire demurrage claim by seller which may arise due to alteration in loading laycan schedule shall be borne carrier. If ISDEMIR rejects the alteration then carrier has to follow original laycan otherwise it may leads heavy penalty, cancellation of contract. It is discussed in following section.

Maintaining the loading laycan schedule and consequences for not

Loading laycan factor is very important in this contract as it is involved with maintaining schedule, alteration of vessel, or any delay which may affect schedule of particular vessel. Any delay which is caused by vessel without informing ISDEMIR may result in severe penalty or termination of contract. All the losses, damages or any claim by seller should be borne by carrier under this condition irrespective of original laycan. If the loading laycan is affected except the force majeure, carrier will be liable to pay USD $3,000 for each day up to 5 days, from 5th day onwards he will pay US $ 6,000 per day. If the delay period exceeds 15 days ISDEMIR has right to cancel the contract. ISDEMIR has the right to get the same transport deal done by another ship-owner/charterer. If loading laycan schedule is effected by force majeure event then vessel will not annul any liabilities due to this. Any delay should not exceed more than 15 days otherwise ISDEMIR will have all right and same deal may be fulfilled by same carrier or another ship-owner/charterer. Any delay occurred should be approved by ISDEMIR and constantly reported to them otherwise again carrier will be liable for all losses, damages and claims.

Delays and deviations en route

Any delay which will occur during the contract period excluding force majeure event liable for penalty if it is not approved by ISDEMIR. Carrier should make sure that any change in loading laycan reported to ISDEMIR duly approved. In any case delay period should not exceed 15 days if this happens ISDEMIR will have all right to take any action which they think appropriate. If the delay occurred at loading port carrier shall be liable to pay US $5,000 per day and US $10,000 per day after 10th day.

In the contract under General term section 12 it is clearly mentioned that deviation from direct route should not occur except for the fuel refilling or force majeure without ISDEMIR approval. Once vessel is loaded it should direct sail to unloading port without calling any port.

Notification of arrival at load and discharge ports

Carrier or shipmaster has to give the definite ETA and tonnage to be loaded. Vessel arriving at loading port should give the confirmation to ISDEMIR, seller of 10 days, 7days, 48 hrs, 24 hrs prior arrival to loading port. In case of discharging port it has to follow same procedure that is inform seller and ISDEMIR , amount loaded definitive ETA for ISDEMIR port prior 10 days, 7days,48 hrs and 24 hrs .

All the notification or readiness at load port should be received during weekdays Monday-Friday between 08:00 to 17:00 hrs and on Saturday between 09:00 to 13:00 hours. Any notice after 13:00 hours on Saturday shall be count as 08:00 hours of next working day. Notice of readiness can be tendered everyday between 08:00 to 17:00 hours and any notice after this time will considered at 08:00 hours of next day. Laytime will be counted after 24 hours of tendering and acceptance of the notice of readiness.

Task 6

Summarize your reservation regarding costs and revenue, completing the shipments to schedule and the suitability of the ships for the COA. Recommend, with reason, whether the company should or should not submit a bid for this contract, based on current freight market conditions and any other relevant considerations.

The contract invites freight offers $15 per tonne (ex Ponda da Madeira) and $20 per tonne (ex Dampier) for the 810,000 and 940,000 tonnage of iron ore respectively. In the voyage estimation cost per tonne for ex pond da Madeira and ex Dampier comes $10.57 and $ 16.65 respectively (please see the excel sheet). Gross voyage surplus for ex Ponda da Madeira route is $748,623 and gross daily surplus is $16,983 per day whereas Gross voyage surplus on ex Dampier route is $644,958 and gross daily surplus is $12,412 per day. Now, if Net voyage surplus to be discussed on ex Ponda da Madeira route again it gives very sound figure with $484,138 while on ex Dampier route it is $333,175.The net daily surplus on ex Ponda da Madeira route is $10,983 per day and on the ex Dampier route it is $6,412 per day (please see excel sheet) Here, this is clear that ex Ponda da Madeira route is more profitable asnet daily surplus on this route higher than ex Dampier route. Ex Ponda da Madeira route more money generating and can be easily completed with equally spaced sailing over the contract period.

Shipments required on the both the route ex Ponda da Madeira and ex Dampier route are 7 and 8. On the ex Ponda da Madeira route it will take 295 days with 44 days equally spaced sailing which can be easily fulfilled. On the other hand, on the ex Dampier route it will take 395 days complete the contract with one ship. So, it is required to have one shipment get done with another ship. This could be the ship which runs on ex Ponda da route. The ship which will run on the ex Ponda da Madeira route will have enough time to complete the required tonnage of iron ore hence can be easily do one shipment on the ex Dampier route. Capsize ship will be most suitable for this contract as they can easily lift the over 100,000 tonnes of cargo. Capsize ship

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