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Recommendations for the types and the distribution of vesselsUsing the data from 2005 to 2016, the demand for each category for year 2018 has calculated using moving average method and exponential smoothing method.(Please refer page 3 for Forecast table)Under moving average method, demand for year 2018 has calculated under 2 ways, considering all the data points, 3-year moving average and 6-year moving average. When comparing 2 techniques, 3-year moving average is better as it has the lower total error as shown in the figure. Therefore, under moving average method;Oil & gasMain bulksDry cargo other than main bulksVolume in million tons (2018)298931314032Distribution in 201829.44%30.84%39.71%Distribution in 201629.7%30.84%39.46%Change in distribution from 2016 to 2018-0.26%0%0.25%According to the above analysis, it’s recommended not to invest on main bulk carriers. Also, more investment on Dry cargo is recommended as its share is estimated to increase compared to remaining cargo types.TL3043 Page 3Year Oil -yearMovingAverage6-yearMovingAverageError for3-yearMovingAverageError for6-yearMovingAverageMainbulks3-yearMovingAverage6-yearMovingAverageError for3-yearMovingAverageError for6-yearMovingAverageDrycargo3-yearMovingAverage6-yearMovingAverageError for3-yearMovingAverageError for6-yearMovingAverage2005 2422 1709 29782006 2698 1814 31882007 2747 2622 125 1953 1825 128 3334 3167 1672008 2742 2729 13 2065 1944 121 3422 3315 1072009 2642 2710 -68 2085 2034 51 3131 3296 -1652010 2772 2719 2671 53 102 2335 2162 1994 173 342 3302 3285 3226 17 762011 2794 2736 2733 58 62 2486 2302 2123 184 363 3505 3313 3314 192 1912012 2841 2802 2756 39 85 2742 2521 2278 221 464 3614 3474 3385 140 2292013 2829 2821 2770 8 59 2923 2717 2439 206 484 3762 3627 3456 135 3062014 2825 2832 2784 -7 41 2985 2883 2593 102 392 4033 3803 3558 230 4752015 2932 2862 2832 70 100 3121 3010 2765 111 356 3971 3922 3698 49 2732016 3055 2937 2879 118 176 3172 3093 2905 79 267 4059 4021 3824 38 2352017 2937 2975 2903 -37 34 3093 3129 3006 -36 87 4021 4017 3910 4 1112018 2975 2989 2 926 – 14 4 9 3129 3131 3070 -3 58 4017 4032 3977 -15 40Total Error for 3-yearMoving Average2594 Total Error for 6-yearMoving Average5456TL3043 Page 4Under exponential smoothing method, forecasts have calculated assuming the smoothing factor, alpha as 0.1. Then the Square Sum of Error has been calculated for each category so that the most suitable smoothing factor could be determined using solver which gives minimum Square Sum of Error. Using that smoothing factor, demand for year 2018 is calculated as follows;L = Level, F = Forecast, e = errorTL3043 Page 5In contradiction to moving average analysis, this analysis shows increase in main bulk share and decrease of oil & gas share. This may due to smoothing effect and the most suitable smoothing factor for main bulks and dry cargo other than main bulks being 1, which result in demand value for the forecast.Even though mathematically, it is possible to have alpha value as 1, it is not practical. Additionally, even at the optimum alpha level, an error of 4907 exists. Therefore, it can be concluded that the usage of exponential smoothing method is not suitable for forecasting the fleet of vessels with the available data. Hence, forecasted values through moving average can be assumed to reflect more accurate future seaborne trade.02000400060008000100001200000.20.40.60.811.2Variation of error with alpha valueVariation of error with alpha value Variation of error with alpha value Variation of error with alpha value Variation of error with alpha valueVariation of error with alpha value Variation of error with alpha value Variation of error with alpha valueVariation of error with alpha value Variation of error with alpha value Variation of error with alpha valueVariation of error with alpha value Variation of error with alpha valueVariation of error with alpha value Variation of error with alpha valueVariation of error with alpha value Variation of error with alpha valuee (oil & gas)e (oil & gas) e (oil & gas)e (oil & gas)e (oil & gas)e (oil & gas) e (oil & gas) e (oil & gas)e (main bulk)e (main bulk) e (main bulk) e (main bulk)e (main bulk)e (main bulk)e (main bulk)e (main bulk)e (dry cargo)e (dry cargo) e (dry cargo)e (dry cargo)e (dry cargo) e (dry cargo) e (dry cargo)e (dry cargo)Total errorTotal errorTotal error Total error Total error Total errorTotal errorOil & gasMain bulksDry cargo other than main bulksVolume in million tons (2018)298331724059Distribution in 201829.21%31.06%39.73%Distribution in 201629.7%30.84%39.46%Change in distribution from 2016 to 2018-0.49%0.22%0.27%TL3043 Page 6Hence, by analysing the variation of distribution of cargo over the past few decades and with the 3-year moving average forecasting techniques, it is recommended for the ship owner to purchase, 29% of Oil & gas tankers, 31% of main bulk carriers and 40% of dry cargo carriers.01000200030004000500019701980199020002010Variation of 3 point moving averageVariation of 3 point moving average Variation of 3 point moving average Variation of 3 point moving average Variation of 3 point moving averageVariation of 3 point moving average Variation of 3 point moving average Variation of 3 point moving averageVariation of 3 point moving average Variation of 3 point moving average Variation of 3 point moving averageVariation of 3 point moving averageVariation of 3 point moving averageVariation of 3 point moving average Variation of 3 point moving average Variation of 3 point moving averageOil & GasOil & GasOil & GasOil & Gas Oil & GasOil & GasMain Bulk Main BulkMain Bulk Main BulkMain BulkMain BulkDry Cargo Dry Cargo Dry Cargo3 per. Mov. Avg. (Oil & Gas) 3 per. Mov. Avg. (Oil & Gas)3 per. Mov. Avg. (Oil & Gas) 3 per. Mov. Avg. (Oil & Gas) 3 per. Mov. Avg. (Oil & Gas)3 per. Mov. Avg. (Oil & Gas)3 per. Mov. Avg. (Oil & Gas)3 per. Mov. Avg. (Oil & Gas) 3 per. Mov. Avg. (Oil & Gas)3 per. Mov. Avg. (Oil & Gas)3 per. Mov. Avg. (Oil & Gas)3 per. Mov. Avg. (Oil & Gas) 3 per. Mov. Avg. (Oil & Gas) 3 per. Mov. Avg. (Oil & Gas) 3 per. Mov. Avg. (Oil & Gas)3 per. Mov. Avg. (Main Bulk) 3 per. Mov. Avg. (Main Bulk)3 per. Mov. Avg. (Main Bulk) 3 per. Mov. Avg. (Main Bulk) 3 per. Mov. Avg. (Main Bulk)3 per. Mov. Avg. (Main Bulk)3 per. Mov. Avg. (Main Bulk)3 per. Mov. Avg. (Main Bulk) 3 per. Mov. Avg. (Main Bulk)3 per. Mov. Avg. (Main Bulk)3 per. Mov. Avg. (Main Bulk)3 per. Mov. Avg. (Main Bulk)3 per. Mov. Avg. (Main Bulk) 3 per. Mov. Avg. (Main Bulk)3 per. Mov. Avg. (Main Bulk)3 per. Mov. Avg. (Main Bulk)3 per. Mov. Avg. (Main Bulk)3 per. Mov. Avg. (Dry Cargo) 3 per. Mov. Avg. (Dry Cargo)3 per. Mov. Avg. (Dry Cargo) 3 per. Mov. Avg. (Dry Cargo) 3 per. Mov. Avg. (Dry Cargo)3 per. Mov. Avg. (Dry Cargo)3 per. Mov. Avg. (Dry Cargo)3 per. Mov. Avg. (Dry Cargo) 3 per. Mov. Avg. (Dry Cargo)3 per. Mov. Avg. (Dry Cargo) 3 per. Mov. Avg. (Dry Cargo)3 per. Mov. Avg. (Dry Cargo)010203040506019701980199020002010Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in Variation of distribution cargo types in seaborne trade over years seaborne trade over years seaborne trade over yearsseaborne trade over years seaborne trade over years seaborne trade over years seaborne trade over years seaborne trade over years seaborne trade over years seaborne trade over yearsseaborne trade over years seaborne trade over yearsOil & GasOil & GasOil & GasOil & Gas Oil & GasOil & GasMain Bulk Main BulkMain Bulk Main BulkMain BulkMain BulkDry Cargo Dry Cargo Dry CargoTL3043 Page 7Derivation of the estimated total number of vessels required in seaborne tradeFor Oil tankers and other vessels;Assumption: Vessels under “others” category mainly contain gas tankers (source: Review of Maritime Transport 2016, UNCTAD)201520162018Amount of Cargo loaded (mn ton)293230552983*Total number of vessels189731929519107 (Proof given below)*value extracted from the forecastAverage distribution of Oil tankers and other vesselsOil tankers = (13587 + 13733)/ (13587 + 13733 + 5386 + 5562) = 71.39%Other vessels = (5386 + 5562)/ (13587 + 13733 + 5386 + 5562) = 28.61%Hence, Total number of Oil tankers required for 2018 = 13640 (19107*0.7139)Total number of other vessels required for 2018 = 5467 (19107*0.2861)Number of vessels per million of tonne of cargo=(19295 – 18973)/ (3055 – 2932)=2.617886179Difference of amount of cargo between 2018 and 2015 (mn ton)=2983-2932=51Hence, increased number of vessels for 2018=51*2.617886179=133.5121951Therefore, Total number of tankers required for 2018=18973 + 134=19107TL3043 Page 8For Dry bulk carriers;201520162018Amount of Cargo loaded (mn ton)312131723131*Total number of vessels211572121521168 (Proof given below)*value extracted from the forecastFor General cargo, container cargo carriers;201520162018Amount of Cargo loaded (mn ton)397140594032*Total number of vessels839587128615 (Proof given below)*value extracted from the forecastNumber of vessels per million of tonne of cargo=(21215 – 21157)/ (3172 – 3121)=1.137255Difference of amount of cargo between 2018 and 2015 (mn ton)=3131-3121=10Hence, increased number of vessels for 2018=10*1.137255=11.37255Therefore, Total number of Dry bulk carriers required for 2018=21157+11=21168Number of vessels per million of tonne of cargo=(8712 – 8395)/ (4059 – 3971)=3.602272727Difference of amount of cargo between 2018 and 2015 (mn ton)=4032-3971=61Hence, increased number of vessels for 2018=61*3.602272727=219.7386363Therefore, Total number of vessels required for 2018=8395 + 220=8615TL3043 Page 9Average distribution of General cargo, container cargo carriersContainer Cargo carriers = (6357 + 6645)/ (6357 + 6645 + 2038 + 2067) =76.00%General Cargo carriers = (2038 + 2067)/ (6357 + 6645 + 2038 + 2067) =24.00%Hence,Total number of Container Cargo carriers required for 2018= 6547 (8615*0.7600)Total number of General Cargo carriers required for 2018 = 2068 (8615*0.2400)Therefore, in summary, number of vessels required for 2018 in each category;Oil tankers = 13640Dry bulk carriers = 21168Container Cargo carriers = 6547General Cargo carriers = 2068Other vessels = 5467TL3043 Page 10Age Distribution of the Vessel TypesBefore buying ships in 2018, it is also necessary to observe and analyse the age distribution of vessels. As operation of vessels more than its accepted maximum limits could be non-profitable for the operators. The age distribution of vessel types in 2017 was as follows.(%)0-4yrs5-9yrs10-14yrs15-19yrs20+yrsBulk (10yrs)35.7733.812.059.339.05Container (15yrs)18.6330.522.7215.6612.5General Cargo (25yrs)7.6816.510.27.5458.08Oil Tankers (12yrs)16.0322.5115.467.7438.26Other14.3718.6510.68.4347.96When observing the graph, it can be seen that the majority of oil tankers have exceeded the maximum age limit of 12 years. While bulk and container ships majority remain profitable, general cargo vessels could possess a serious threat in near future as majority exceeds 20 plus years which can be assumed include ships more than or almost 25 years.0102030405060700-4 0-45-9 5-910-14 10-1410-1415-19 15-1915-1920+ 20+Bulk BulkContainer Container Container ContainerContainerGeneral CragoGeneral CragoGeneral CragoGeneral CragoGeneral Crago General Crago General Crago General CragoOil Tanker Oil Tanker Oil TankerOil TankerOil TankerOther OtherOtherOtherTL3043 Page 11Therefore, according to this a major requirement to buy new vessels to avoid losses and operate with a profitable age distribution in fleet lies with oil tankers and general cargo. However, when compaired the average ages increment from 2016 to 2017 and extrapolated to 2018, it can be viewed that, unlike bulk and container vessels which would still remain below the maximum limit for each in 2018, general cargo fleet would exceed the average age of 25 years in 2018 with the same fleet as 2017. And for, oil tankers, even the increment is almost same as container vessels, the average age of the fleet has already well exceeded the profitable age.(Years)201620172018Bulk8.88.88.8Container11.111.5512General Cargo24.4425.2125.98Oil Tanker18.3618.7619.16(Years)2016-20172017-2018Bulk00Container0.450.05General Cargo0.760.77Oil tanker0.40.4051015202530Bulk BulkContainer Container Container ContainerContainerGeneral CargoGeneral CargoGeneral CargoGeneral CargoGeneral Cargo General Cargo General Cargo General CargoOil Tanker Oil Tanker Oil TankerOil TankerOil TankerYearsYearsAvg AgeAvg AgeAvg Age Avg Age Avg Age2016 20162017 20172018 201800.20.40.60.811.21.41.61.8Bulk BulkContainer Container Container ContainerContainerGeneral CargoGeneral CargoGeneral CargoGeneral CargoGeneral Cargo General Cargo General Cargo General CargoOil tanker Oil tanker Oil tankerAvg Age ChangeAvg Age ChangeAvg Age Change Avg Age Change Avg Age ChangeAvg Age ChangeAvg Age ChangeAvg Age ChangeAvg Age Change Avg Age ChangeAvg Age Change2017-2018 2017-2018 2017-20182016-2017 2016-2017 2016-2017TL3043 Page 12From the age change of the fleet from 2016 to 2017 and from there to 2018, again it is evidential that general cargo and oil tankers will be affected more adversely from current mix of fleet.When observing the graph besides, unlike other types of vessels, general cargo vessels greater than 20 years ship major share of DWT. Therefore, a significant replacement is essential, but it could even interrupt the current operations if more time is consumed for the switch and not replaced identically.Finally, when considering the vessel sizes with age, more recent vessels have increased capacities. Hence all types of ships need lower number of ships to acquire than they dispose.01020304050600-4 0-45-9 5-910-14 10-1410-1415-19 15-1915-1920+ 20+PercentagePercentagePercentagePercentagePercentagePercentage of DWTPercentage of DWT Percentage of DWTPercentage of DWT Percentage of DWTPercentage of DWT Percentage of DWT Percentage of DWT Percentage of DWTPercentage of DWTPercentage of DWTBulk BulkContainer Container Container ContainerContainerGeneral CargoGeneral CargoGeneral CargoGeneral CargoGeneral Cargo General Cargo General Cargo General CargoOil Tanker Oil Tanker Oil TankerOil TankerOil TankerOther OtherOtherOther010000 1000020000 2000030000 3000040000 4000050000 5000060000 6000070000 7000080000 8000090000 90000100000 1000000-4 0-45-9 5-910-14 10-1410-1415-19 15-1915-1920+ 20+DWTDWTAvg Vessel SizeAvg Vessel SizeAvg Vessel Size Avg Vessel SizeAvg Vessel Size Avg Vessel Size Avg Vessel SizeAvg Vessel SizeBulk BulkContainer Container Container ContainerContainerGeneral CargoGeneral CargoGeneral CargoGeneral CargoGeneral Cargo General Cargo General Cargo General CargoOil Tanker Oil Tanker Oil TankerOil TankerOil TankerOther OtherOtherOtherTL3043 Page 13The acquiring number is very less for oil tankers and container ships, somewhat low for bulk ships and almost same for general cargo ships when compared to the selling number.Therefore, when age factor is involved in the analysis of purchasing vessels, prior distribution of vessels types can be differed. Year 2018 is not suitable to go for a massive purchasing. But, it doesn’t necessarily mean to stop purchasing fleet. Hence, from the above analysis, it can be recommended to buy following percentages of cargo carriers to buy;Oil & Gas tankers – 14% (Large size allowing to facilitate more Oil & Gas)General cargo carriers – 67% (High potential for growth)Containerised cargo carriers – 7% (Most carriers still being new)Dry bulk carriers – 12% (Steady age distribution)However, other minor yet important factors for demand for cargo and cargo carriers, like price of the carriers, economic condition must also be considered when finalising on the distribution of the vessels to be purchased.For an example, the ship building and acquiring real practices were being behaved as follows and expected not to deviate much in 2018.TL3043 Page 14