Investigation into the optimal fleet employment strategy with concentration on the supramax bulk carrier east of Suez market (volume three)

• Main Author: Tay, Yu Xing
• Other Authors: Soon Wan Mei
• Format: Final Year Project
• Language: English
• Published: 2014
• Subjects: DRNTU::Engineering::Maritime studies
• Online Access: http://hdl.handle.net/10356/61266
• Institution: Nanyang Technological University

Part Three of the research report will focus on the process of determining the optimal portfolio mix for a ship-owner with 10 Supramax bulk-carriers trading east of Suez from the period of 2006 to 2012. An optimal portfolio has been defined as one that creates the highest amount of returns at the lowest amount of risks. The optimality of a particular portfolio is directly affected by the ship-owner’s choice of acquisition methods and employment strategies. This paper will consider a total of 13 acquisition-employment options, generating 646,646 unique portfolios. Each portfolio would be judged and ranked according to their return characteristics, measured by Net Profit Margin; and their risk profiles, measured by Degree of Total Leverage. The two matrices will also be combined to provide a corresponding Return – Risk Ratio, which will ultimately determine the optimality of the individual portfolios. The optimality of the portfolios will also be examined across five different levels of debt-equity ratios (0%, 25%, 50%, 75%, 100%) to encompass a wide array of financing scenarios. The results of the research report show that the optimal portfolio or strategy for a ship-owner would naturally change in accordance to his objectives. If the ship-owner is purely pursuing profitability, he should acquire all his vessels by way of Newbuilds, and then employ them under a T/C (1,1,3,1,1) strategy to maximize returns. Alternatively, if the ship-owner is purely pursuing risk mitigation, he should acquire all his vessels by a combination of Newbuilds and T/C (1,1,1,1,1,1,1), and then employ his vessels under a combination of a T/C (1,1,1,1,1,1,1) and a T/C (1,3,3) strategy to minimize risks. However, the results of the report also show that the risk – return relationship of the portfolios are not directly proportional. Across a certain threshold (150% DTL) where it is no longer advantageous for the ship-owner to take on more risks, as returns also started to exhibit a downward trend. Therefore if a ship-owner is seeking the most optimal portfolio, he should strive to balance both profitability and risk mitigation. The results of the research report show that the most optimal approach for a ship-owner would be to acquire all his vessels by way of Newbuilds, and then employ them under a combination of T/C (1,1,3,1,1) and Spot-Charter strategy. This strategy has been shown in the paper to generate the highest amount of returns at the lowest corresponding amount of risks. Overall, the paper seeks to procedurally catalogue the decision-making process of an enterprising ship-owner in a quantitative manner. It serves as a stepping-off point for further research in real-world investors’ behavior in the maritime landscape.