The initial scenario A French container operator runs a regular liner shipping service on a weekly basis between South African and Far Eastern ports. This operator supports this service with a fleet (a "string") of seven identical 6,000 TEU container vessels. These vessels are all modern units completed within the last three years, and all are fully-owned by the carrying line and are not chartered tonnage. The vessels fly the Panamanian flag and employ French officers and Polish ratings. The vessels are equipped with exhaust scrubbers, so are able to utilise cheaper, higher-sulphur marine fuels (bunker fuel). This shipping service carries a total of some 200,000 TEUs annually, and with each vessel performing seven round voyages per year, this container traffic represents an average vessel capacity utilisation of some 70%, but since inward cargo from the Far East to South Africa (on the "denser" westbound leg of the service) is approximately one-third higher than container volumes on the outward or eastbound return voyages to the Far East (the "thinner" leg), vessel capacity utilisation is higher on the westbound, inward voyages. Average cargo values of inward (westbound) containers are also higher than the average value of outward (eastbound) boxes transported from South Africa to the Far East. The annual costs associated with this liner service are set out (at least in terms of Total Costs) in Table 1, below. Use the information set out above, and in Table 1, where appropriate, to answer the questions that follow. Table 1 Annual Operating, Voyage, Capital and Total Costs for a S A/Far East container service (all magnitudes in millions of US dollars - $ million) OPERATING COSTS ($ million) Cost item Total % TC Fixed % Variable % VC costs costs FC costs (VC) (TC) (FC) Manning costs (wages & 12.50 8.9 social benefits) Ship and crew stores 1.50 1.1 Routine maintenance costs 1.25 0.9 Repair costs 1.35 1.0 Hull & Machinery (H&M) 2.50 1.8 insurance Shoreside admin, agency & 8.20 5.8 overhead costs Total Operating costs 27.30 19.5 VOYAGE COSTS ($ million) Marine fuel (bunker costs) 26.50 Port Charges 7.50 5.4 Cargo-handling charges 9.00 6.4 Total Voyage Costs 43.00 30.7 CAPITAL COSTS ($ million) Interest & Repayment costs 69.70 49.8 Total Capital Costs 69.70 49.8 TOTAL ANNUAL COSTS 140.00 100.0 18.9 Question 1 (e) In the current COVID-affected trading climate of 2020, container volumes on the South Africa-Far East liner trade route, as on all other major international container trade routes, have fallen below recently-recorded levels, but in the longer term, the large French container operator in question here needs to plan carrying capacity into the future. Its market analysis indicates that post-COVID container volumes will recover quite quickly, and that longer-term SA/Far East seaborne trade prospects are likely to improve as the Chinese economy regains strength, and as benefits flow from South Africa's membership of BRICS. They are also encouraged by Transnet's commitment to provide additional deeper-water container berths in the port of Durban. The company therefore plans to increase future carrying capacity on the Far East route on a more permanent basis. (1) If the company increases capacity by placing orders to replace its full current fleet of seven 6,000 teu vessels with seven larger 8,000-teu ships of new construction, would you expect potential sea transport costs, in terms of $/teu/day, to increase, decrease or be unaffected? Provide full reasons and argument to support your answer. (15 marks) Would your analysis and expectation be different if the increased carrying capacity was achieved by adding an eighth vessel of the same size and operational specifications as each of the original vessels? Once again, provide reasons for your conclusions. (5 marks) The initial scenario A French container operator runs a regular liner shipping service on a weekly basis between South African and Far Eastern ports. This operator supports this service with a fleet (a "string") of seven identical 6,000 TEU container vessels. These vessels are all modern units completed within the last three years, and all are fully-owned by the carrying line and are not chartered tonnage. The vessels fly the Panamanian flag and employ French officers and Polish ratings. The vessels are equipped with exhaust scrubbers, so are able to utilise cheaper, higher-sulphur marine fuels (bunker fuel). This shipping service carries a total of some 200,000 TEUs annually, and with each vessel performing seven round voyages per year, this container traffic represents an average vessel capacity utilisation of some 70%, but since inward cargo from the Far East to South Africa (on the "denser" westbound leg of the service) is approximately one-third higher than container volumes on the outward or eastbound return voyages to the Far East (the "thinner" leg), vessel capacity utilisation is higher on the westbound, inward voyages. Average cargo values of inward (westbound) containers are also higher than the average value of outward (eastbound) boxes transported from South Africa to the Far East. The annual costs associated with this liner service are set out (at least in terms of Total Costs) in Table 1, below. Use the information set out above, and in Table 1, where appropriate, to answer the questions that follow. Table 1 Annual Operating, Voyage, Capital and Total Costs for a S A/Far East container service (all magnitudes in millions of US dollars - $ million) OPERATING COSTS ($ million) Cost item Total % TC Fixed % Variable % VC costs costs FC costs (VC) (TC) (FC) Manning costs (wages & 12.50 8.9 social benefits) Ship and crew stores 1.50 1.1 Routine maintenance costs 1.25 0.9 Repair costs 1.35 1.0 Hull & Machinery (H&M) 2.50 1.8 insurance Shoreside admin, agency & 8.20 5.8 overhead costs Total Operating costs 27.30 19.5 VOYAGE COSTS ($ million) Marine fuel (bunker costs) 26.50 Port Charges 7.50 5.4 Cargo-handling charges 9.00 6.4 Total Voyage Costs 43.00 30.7 CAPITAL COSTS ($ million) Interest & Repayment costs 69.70 49.8 Total Capital Costs 69.70 49.8 TOTAL ANNUAL COSTS 140.00 100.0 18.9 Question 1 (e) In the current COVID-affected trading climate of 2020, container volumes on the South Africa-Far East liner trade route, as on all other major international container trade routes, have fallen below recently-recorded levels, but in the longer term, the large French container operator in question here needs to plan carrying capacity into the future. Its market analysis indicates that post-COVID container volumes will recover quite quickly, and that longer-term SA/Far East seaborne trade prospects are likely to improve as the Chinese economy regains strength, and as benefits flow from South Africa's membership of BRICS. They are also encouraged by Transnet's commitment to provide additional deeper-water container berths in the port of Durban. The company therefore plans to increase future carrying capacity on the Far East route on a more permanent basis. (1) If the company increases capacity by placing orders to replace its full current fleet of seven 6,000 teu vessels with seven larger 8,000-teu ships of new construction, would you expect potential sea transport costs, in terms of $/teu/day, to increase, decrease or be unaffected? Provide full reasons and argument to support your answer. (15 marks) Would your analysis and expectation be different if the increased carrying capacity was achieved by adding an eighth vessel of the same size and operational specifications as each of the original vessels? Once again, provide reasons for your conclusions