Ocean Carriers In January 2001, Mary Linn, Vice President of Finance for Ocean Carriers, a shipping company with offices in New York and Hong Kong, was evaluating a proposed lease of a ship for a three-year period, beginning in early 2003. The customer was eager to finalize the contract to meet his own commitments and offered very attractive terms. No ship in Ocean Carrier's current fleet met the customer's requirements. Linn, therefore, had to decide whether Ocean Carriers should immediately commission a new capesize carrier that would be completed two years hence and could be leased to the customer. Ship Operations Ocean Carriers Inc. owned and operated capesize dry bulk carriers that mainly carried iron ore worldwide. This type of vessel ranged in size from 80,000 deadweight tons to 210,000 deadweight tons of cargo carrying capacity. Capesize carriers were too large to transit the Panama Canal and therefore had to sail around Cape Horn to travel between the Atlantic and Pacific Oceans. In January 2001, there were 553 capesizes in service in the world. Ocean Carriers' vessels were mostly chartered on a "time charter" basis for a period such as one year, three years, or five years, although the spot charter market was used on occasion. The company that chartered the ship was called the "charterer." The charterer paid Ocean Carriers a daily hire rate for the entire length of the contract, determined what cargo the vessel carried, and controlled where the vessel loaded and unloaded. The company, in turn, supplied a seaworthy vessel that complied with international regulations and manned the vessel with a fully qualified and certified crew. Operations also included ensuring adequate supplies and stores were onboard, supplying lubricating oils, scheduling repairs, conducting overall maintenance of the vessel, and placing all insurances for the vessel. For a new ship coming on line in early 2003, operating costs were expected to initially average $4,000 per day, and to increase annually at a rate of 1% above inflation. Charterers were not charged a daily rate for the time the vessel spent in maintenance and repair, although operating costs were still incurred. Initially, 8 days a year were scheduled for such work. The time allotted to maintenance and repairs increased to 12 days per year after five years of operation, and to 16 days a year for ships older than ten years.