Dynamics of national development - Simulation models for maritime planners in developing countries

p

DEVELOPMENT

simulation models for maritime planners ¡n

developing countries

PRO E FS CHAI FT

TER VERKRIJGING VAN DE GRAAD VAN DOCTOR

IN DE TECHNISCHE WETENSCHAPPEN AAN DE

TECHNISCHE HOGESCHOOL DELFT, OP GEZAG VAN DE RECTOR MAGNIFICUS PROF. IR. L. HUISMAN, VOOR EEN KOMMISSIE AANGEWEZEN DOOR HET

KOLLEGE VAN DEKANEN TE VERDEDIGEN OP

MAANDAG 20 JUNI 1977 DES MIDDAGS 0M 16.00 UUR

door

NIKO WIJNOLST civieI ingenieur geboren te Rotterdam

Copyright () Niko Wijnolst, 1977

illustrations Pob Corter, Schiedam

to Véronique, whose feedback system is itore irrrtant tone

than the ones found

in

any sinulation

Contents

page

Preface 3

INTFODUCTION 4

1.1 Overview 4

1.2 Introduction to rrdel structure 5

1.3 Preview of nDiel behaviour 12

DDBUFLDING S'rEP BY STEP

STEP 1: CASH FLOW M3DELS OF i SHIP 15

2.1 Model i - cash flow rrodel of 1 ship 15

2.2 rel 2 - cash flow nìDdel of i ship with tax parents 21

2.3 Model 3 - cash flow ntxdel of i ship financed by a loan 23

2.4 Model 4 - cash flow rrcdel of 1 ship with replacemant of ship 26

2.5 Mdel 5 - cash flow nel of i ship with pararreter changes 28

QUICK STEP: P3ECT EVALUATION OF SHIPPING INVESTYIENTS 31

3.1 The applicability of the UNIIX) and Little & Mirrlees evaluation cetheds 31

to shipping investrents

32

3.2 Objectives of a national fleet

STEP 2: IDDFL 6 - CASH FLOW DDFL OF i SHIP WITH DECISION CRITERIA 39

STEP 3: CASH FLOW M3DFLS OF 6 SHIPS 52

5.1 Model 7 - cash flow rrdel of 6 ships 52

5.2 el 8 - cash flow madel of 6 ships of different age 58

5.3 Itxiel 9 - cash flow rrKxiel of 6 ships of different age, financed by loans 64 5.4 Model 10 - cash flow nodel of 6 ships with changing operating costs 71

5.5 Model 11 - cash flow rrodel of 6 ships of class x and y 76

STEP 4: SEABOPNE TRADE MODELS 81

6.1 &xiel 12 - seaborne trade forecasting raodel 81

6.2 1'bdel 13 - national shipping line's share of trade 87

STEP 5: ENIX)GENDUS FLEET ANS ION MODET 92

7.1 Model 14 - endogenous fleet expansion 1 92

7.2 rbdel 15 - endogenous fleet expansion 2 97

STEP 6: MODEL 16 - CONGESTION IN NATIONAL POET 109

THE USE OF SINtJIATION MODFTFS IN MARITIME PLANNING 115

9.1 Policy analysis in shipping: the need for a system's view 115

9.2 Paraneter changes and raodel behaviour 118

9.3 Paraneter selection in relation to national objective maximization 121

LIMITS OF THE SIMIJLATION MODFTrS 125

ii. GUIDELINES POR NATIONAL FLEET DEVEWMT STUDIES 130

12. CONCLUSIONS 132

Appendix A - Paraireter changes and madel behaviour 133

Appendix B - How to read dynaiTe-flow diagrams, equations and graphical outputs. 159

Appendix C - )'rchant fleets of developing _countries 166

Appendix D - References, rates. 175

PREFACE

The distribution of world ship tonnage shows little correlation with the seaborne expert and

ingnrt cargo flows from the individii1 countries. The discrepancy is particularly large in the

case of developing countries (see Appendix C). This has led to a resolution at UNCI7D-III

(Santiago, 1972) in which is stated that the developing countries should own at least 10 percent of the world fleet by l98O.

In the past years the developing countries have indeed expanded their fleets (in absolute terms),

but their share in the world tonnage declined. Apparently, the establisIrrnt and expansion of

national fleets is core easily said than done.

st developing countries start out in shipping by establishing liner fleets. Although many

books2 have been written on this subject, there exist few publications which provide guidelines and quantitative mathods for the evaluation of shipping projects in developing countries. In fact, only the Shipping Secretariat of LINCEAD has published reports on ti-us matter3. However, in none

of the publications liner shipping is looked upen as a system with dynamic properties. For this

reason I decided to develop a sirruilation mJel of national fleet developrent. With the help of this ntxiel the maritima planner in a developing country can evaluate shipping projects at the company and national level.

The approach to ntxielbuilding which is used in this study, is called 'system dynamics'4, a cothod developed by J.W. Forrester.

My early ideas on the codel concepts are published in a nuther of articles5. In 1976 I worked

in Kenya and was able to gather information6 on the national fleet develont plans of that

country. On this basis I constructed the present codels. Although cost of the data is from the

real world, it was inevitable that nurrerous assumptions had to be made.

chapter 1 - TNPDDtXTION

1.1 OVERTIBJ

This thesis presents system dynamics rrels of national liner shipping in developing countries. The puroese of the ntxlels is:

to create insight in the system of liner shipping,

to sirailate patenti al liner shipping developrent and the quantitative effects at the company level and the national economy level of a developing country.

Thus, the maritirre planner in a developing country, who evaluates the establisbxrent or expansion of a national liner fleet, can adriress three kinds of questions to the nodels:

what are the impacts over tine of a liner fleet with a pre-determined nisnber of ships at the company level ai-d the national econorrrj level,

what is the patent i a i developrent of the liner fleet and what are the impacts at the company level and the national econarrj level, when the developing country decides to adopt cargo reservation neasures as propased in the Cede of Conduct-1975,

what are the impacts at the company and national economy level of changes in the paraneters of the liner shipping system, such as freight rates, load factors, loans on ships, growth of national exports and imparts, level of cargo reservation, etc.

The nodels provide the mariti-re planner with a tool with which he can evaluate shipping projects in an instant, provided the necessary information is available (a tool which up to now did rot exist). Although the rrodels are processed in a conter, the required knowledge of mathematics and canpiters

for understanding the rrodel structure is nil. Only the writing of the rrodel equations in the sijrulation language DYNN't) requires knowledge of the elerrentary rules of algebra.

The irodels are presented according to the 'educational approach'. This rreans that thebase-model of i ship (model 1), is built up step by step to a complicated endogenous fleet expansion rrcdel (rrcdel 15), in order to show the simplicity of each rrodel extension. The mariti-re planner can thus choose the elements which are relevant to his study and pat therm together.

Ibiel 16 contains a simple part rrodel which enables the calculation of part congestion costs. I La parpase is to draw the attention of the rreriti-re planner to the economic costs of congestion in the national part (s), and to show him the order of magnitude in money terms. In this light national part invesbrents might have priority over national fleet investhents.

Chapter 1 provides an intreduction to the model structure and a preview of the model behaviour. Chapter 2 - 8 examines the structure of the models and the output in detail.

Chapter 9 analyzes the effects of changes in parameters on the overall par forrnance of the rrrdels, ai-d selects variables which are nest relevant to the attainment of the national objectives

Chapter 10 discusses the liirrits of the models and the passibilities for application outside liner shipping.

Chapter 11 provides guidelines for the execution of national fleet develoirent studies. Chapter 12 contains the conclusions

VDYA EXPEThDITURES

- +Y

-NETT INCCME OF SHIP

JRKING CJ\PITAL OF SHIPPING LINE

+ INTEREST ON WORKINGI< tJCAL INTEREST RATE

CAPITAL +

A government-owned company buys one ship and starts a liner service between the country nder study in Africa and NW Europe. The ship is purchased with noney borruwed on the local capital market. The nett income of the ship is used for the repayment of the borrowed sum and the interest. When the borrowed sum is paid back, the surplus will not be invested in core ships, but lent to other businesses which pay an interest rate equal to the local interest rate.

The nett income of the ship increases with an increase of the gross freight revenues; it decreases with an increase in the voyage expenditures, the operating cost of the ship, and the administrative and management cost. The vrking capital increases with an increase in income of the ship and the

interest on the working capii-. The interest increases with an increase in the local interest rate.

N.B. The polarity of the causal influence is indicated by a + or - nr the head of the arrow. A positive polarity means that an increase in the first element will cause an increase in the

second (and a decrease will cause a decrease). A negative poi rity signifies that an increase

in the first element will produce a decrease in the second (and a decrease will produce an

increase).

rrtdel. 2 - cash flow rodel of 1 ship with tax payments

The only difference with rodel 1 is that the shipping line is treated as a private company which

has to pay tax. The taxable income is determined by the nett income of the ship and the interest paid/received on the working capital of the shipping line. The tax paid depends on the taxable income and the company tax percentage in the country concerned.

OPERATING COST OF SHIP 1.2 INIDUCTION 10 IDELSTRUCTURE

The structure of the rrodels is illustrated with the help of causal-loop diagrams. These causal-loops show the aggregated functioning of the rrodels. A detailed description of each rodel can be found in the following chapters.

rrei i - cash flow rodei of 1 ship

NLT INODME OF SH1

+ +

j

TAXABLE INCE > TAX PAID

>

RKING CAPITAL

+ O3MPANY TAX PTP

INI'EREST ON IORKING/

_<

INTEREST

CAPITAL + PATE

ntxel 3 - cash flow rodel of i ship financei by a loan LOAN INTEREST IRATE

The difference with rrtxlel i is that the ship is purchasod with the help of a loan fran abroad. The loan covers a large part of the purchase price of the ship; the rest of the coney is berrowed on

the leal capital market. The loan raist be repaid within a certain period. Every year an equal part of the loan must be repaid. Over the raining loan interest irust be paid

Wnen the loan increase s ,the loan interest payrrents and the loan repants increase. When the loan repayrrents increase, the loan decreases; an increase in the repay period decreases the annual loan repaymants; an increase in the loan interest rate increases the loan interest payrrents; an increase in the loan interest payrrents and the loan repayments, decreases the working capi 1.

rrcdel 4 - cash flow nïxel of i ship with replacerent of ship

RENAINING LIFa OF SHIP Tfl 1

PUREHASE P LOEMENT SHIP

SCRAP VALUE

OLD SHIP

1JRKING CAPITAL

The rxdel is identical with raxiel 1, except that the ship must be replacod aft-er a number of years. This number of yeaxs depends on the remaining lifetiire of the ship at the trottent of purchase. The old ship has a certain scrap value, which increases the working capital; the purchase of the replacement ship decreases the working capital.

+

LOAN INTEREST NETT 101v1E OF SHIP

PAY9ENTS

LOAN ON SHIP

VflRKING CAPITAL

lOAN REPAYMENTS +

+ r

INTEREST ON 'DRKING

(

INTEREST

RATE

+ CAPITAL ±

rirdel 5 - cash flow rrade]. of i ship; it bas no structural changes, only pararrter changes. ntxel 6 - cash flow rrodel of i ship with decision criteria

A shipping project, like any project in a developing country, will be tested against the national objectives. The impact of a shipping line on the national objectives cannot often be ireasured directly but only indirectly, using indicators. The calculation structure of three indicators is presented below; the other indicators are discussed in the following chapters.

a) discounted costs and benefits

DISCOUNT PATE TIME INCIDENCE 0F TRANSPORT COST DISCOUNT FACIOR

7+

FOREIGN (CHAN 2ONENTS DISCOUNT RATE

\\

\

+'v

DISCOUNT FACIOR ) SHALXDW PRICED DISCOUNTED SHAWW PRICE FOREIGN

TIME _{COST.) & BENEFITS} EXCHANGE

The nett incoire of the ship is separated in foreign exchange and leal currency ccnponents. The foreign exchange ccxnponents are rrultiplied with a shadow price of foreign exchange before they are discounted.

NETT INCC'4E OF SHIP WORKING CAPITAL INTEREST

1IONENTS

++y

DISCOUNTED COSTS & BENEFITS

The nett inooire of the ship and the interest on the working capital are discounted with a discount factor to the base-year. The discount factor decreases with an increase of the discount rate and with an increase in tiire.

b) foreign exchange be lance

GPOSS FREIGHT REVENUES VOYACE EKPENDTTURES OPERATING COST SHIP

+ FOREIGN (CHANCE FOREIGN EXCHANGE

EARNINGS ' EXPENDITURES

The foreign exchange earnings at the national level are determined by the gross freight revenues of the shipping line and the incidence of transport cost of the corruodities which are shipped. The voyage expenditures and the operating cost of the ship determine the foreign exchange expenditures. The foreign exchange balance is the difference between earnings and expenditures.

c) shadow priced discounted costs and benefits

rrodel 7 - cash flow rixxlel of 6 ships

Nrr INIE PER SHIP

INTERESE RATE + + / REPLACIMENT 0F I SHIPS NtIBER OF SHIPS + TIME ¿ PURASE OF SHIPS

The only difference with nrdel 4 is that instead of 1 ship, 6 ships are purchased and brought into service. The vrking capit1 growth f mn ship operation depends on the number of ships and the nett incaie per ship. The orking capital decreases when ships are purchased and replaced.

xaxiel 8 - cash flow rrodel of 6 ships of different age

The ships in nudel 7 are zrletely identical. The ships in rrodel 8 are identical as far as load capacity, load factor, etc. is concerned, but their age and purchase price differ. The nrslel contains

an ageing rrechanism for each ship separately.

irodel 9 - cash flow rtodel of 6 ships financed by loans

LLETT IN PER SHIP I)RKING C.PITPL

INTEREST +

I

NLFBER OF SHIPS

RERLACIMENT SHIP

N-PAf

OF SHIPS +

PURcHASE OF SHIPS

The difference with the assurtptions of niel 8 is that the ships are purchased with the help of loans

f roa abroad. The loan is given up to a certain percentage of the purchase price of the ship, and rrurst

be repaid over a certain pericd. Interest nnst be paid over the rerreining loan acount. wien the ship is purchased, the shipping line has tomake a down-parnt which is equal to the difference between

purchase price and the loan.

Replacemant ships are entirely financed by the shipping line.

LAJAN INTEREST PAYMENTS + fDAN O LOAN REPAYMENTS 1JRKING CAPITAL INTEREST +

)RKING CPPIThL GRJWTH ''flRKING CPPIThL

FÑJM SHIP OPERATION

7

DRKING CAP ITPL G1JWPH +

I

FECM SHIP OPERATION > )RKING CAPITAL

rrodel 10 - cash f low nndel of 6 ships with changing operating cost

RE4AINING LiJfhIThIE OF SHIP Tfl

OPERATIENG COST OF SHIP

'IL

NETT IN(fl'IE OFSHIP

When a ship ages, the operating cost like maintenance and repairs on beard, generally increase. Although this increase is not spectacular, the increase will decrease the nett incarne of the ship. The riodel assumptions are identical to the ones of raxlel 8.

rrcdel 11 - cash flow rrodel of 6 ships of class x and y

NETT INX'1E SHIP CLASS X NETT INCCME SHIP CLASS Y

OF SHIPS CLASS

/

OF SHIPS SS Y

+ +

VORKING CAPITAL GR) FR)M SHIP OPERATION

A liner fleet usually consists of ships of different tonnage, and thus with different freight revenues, voyage expenditures, operating cost, etc.

Any combination of ship classes can be impinted in the rTÌDdel. This rrodel is an example with two ship classes, called x and y.

The rrodel assusptions are identical to the ones of iîodel 8. rrodel 12 - nxJel of seaberne trade flows through national pert

+

GROWTH RATE

>

/THRORr GENERAL CAROO FLOWS

TFUGH NATIONAL RORT

TRADE ROtfrE

)

oRT/ThRT DRT/ThRT RT/ThRT

DIVISION CI½ROO ON ROUTE CAF«X) ON ROUTE CAROO ON OTHER

'IO NW-EUROPE 'IO FAR EAST ROUTES

The developing country under study has one main ocean pert. The seakorne trade flows through this pert are relevant for a national shipping line, as they give an indication of the petential cargo market. When these flows are -rall/big then the fleet size of the national shipping line will probably becono

small/big. Thus, the expert and impert ra rgo flows through the national pert detezmine indirectly the upper limit of the fleet size, as the shipping line cannot transtort rrore than the share it can claim according to its cargo reservation pelicy. Forecasts of seaborne trade flows are thus essential for the assessment of the petential developrent of the national shipping line. However, the construction of a trade forecasting nodel in a developing country is quite difficult. But the purpese of the

simulation rrodels is to show the dynamics of national fleet developrent and not to construct an elaborate trade forecasting redel. In order to show the impact of different forecasts on the develop-rent of the national shipping line, a sliriple rodel shich can generate a number of scenario' s of

realistic developrent patterns of seatorne trade flows through the national part will suffice. The national shipping line is only interested in general cmìrgo trades. The two major general cargo

trade routes are to NWEurope and the Far East; the other trades are toe erell to be of interest -For the time being the shipping line wants to participate in the NW-Europe

trade, but it is interested

in the developrent of the other routes.

The total cargo flow in the base-year gns annii1 ly with a certain percentage. Scenariot s are made of this growth rate. The tota i cargo flow has to be divided into three categories: NW-Europe, Far

East, and Other routes.

nciel 13 - national shipping line' s share of national seahorne trade

NATIONAL CNX)

>

PATIO ( NATIONAL

+

+1.

DISCREPANCY

+

L

RKING CAPITAL ) PURIHASE OF SHIP

+

NIIBER OF SHIPS

NATIONAL CAÑEO CARRIED/SHIP

NATIONAL CARCD CARRIED BY SHIPPING LINE

CARD CARRIED BY NATIONAL oRV/oRV ci::o

SHIPPING LINE ON F&XJE IO NW-EUroPE

TRANSFER CNO + >RATIOK TRANSFER CAÑ3O

cross PE CA13J

The expart/impart rrgo on the route to NW-Europe through the national part, can be divided into two flows: national cargo (nrgo with oriin or destination the country under study) and transfer cargo

(cargo which passes through the national part to and fturn land-lcxked neighbouring oeuntries).

The ships of the national shipping line will transpart besides national cargo, transfer cargo and cross-trade cargo (between parts within the range of the national part).

The ratio of the national cargo carried by the shipping line and the national cargo flows through the national part on the route to NW-Europe is, in caTlparisàn with the cargo reservation goal of the oeuntry, an indicator for the patential fleet developient. This information will be used in the endogenous fleet expansion ncdel 14.

madel 14 - cash flow irodel of endogenous fleet expansion 1

NATIONAL oRT/INpo}r CAROD RESERVATION (DAL

CA13J ON IOUTE IO NW-EtJR)PE

NATIAL CA IAL

In the rrodel i - 11 the fleet expansion decision is made exogenously. This ireans that there is no riechanism in the mudel that determines, depending on develLopiients within the riodeiL, the expansion of the national fleet. The disadvantage of the exogenously determined fleet expansion is that no direct relation is made with the potential fleet expansion, which in turn is related to the national cargo potenti The latter is determined by the voluire of national exports and imports and the rrgo reservation goal. The number of ships in the fleet and the national cargo carried, per ship determine the national caigo carried by the shipping line. The discrepancy between the national cargo poten-tial and the national cargo carried determines the purchase of n ships. If the discrepancy is bigger than the national caigo carried/ship/year, a new ship is purchased, at least, when there is enough working capital available to finance such an expenditure. As the imbalance in imports and exports in the country under study is rather small, the difference in ship-preductivity for exports and imports is ignored.

nrxiel 15 - cash flow model of endogenous fleet expansion 2

rkxlel 15 is an extension of rrodel 14 with the following elerrents: loans on the ships, changing operating cost of the ships, ships of class x and y. The causal-loop diagram of this model is a combination of the ones shown under models 9, 10, 11, and 14.

rirdel 16 - model of ship queueing cost in national port

QUEUEING COSTS T/flO I

CARGIJ ELOWS I

S/DAY +

+U TIO

QG TSS

OF CS

AVER I

-

î

+

+

MER OF GGSS

NTh1]BER OF BEITHS > BI'H CXIUPANCY -< VESSEL SEJI TI1' I

- +

-W H/GNG

Many ports in developing countries suffer from congestion. A persistent congestion will increase the freight rates for gonds which are shippod to and from the country. The national economic costs are thus not limited to the port, but also affect the rest of the economx. The purpose of the rrcxJel is to provide the maritime planner with a simple tool that can give him an indication of tha occurrence of port congestion, and the order of magnitude of the costs involved.

Description of the causal-loop diagram.

The voliire of export ari import cargo flows through the national port determines, together with the average cargo per vessel, the number of calls in the port. The average rrgo per vessel, together with the number of gang-shifts per vessel .and the tonnage handled per gang, determines the vessel

service tirre. The vessel service time and the number of berths in the port determine the berth occupancy. The berth occupancy and the number of berths determine the queueing tine per vessel. The gueueing time per vessel, the nunber of calls and the cost per vessel r day, determine the queueing cost in the port.

1.3 PREVIEW OF )DEL BEHAVIOUR

Sorre output of two rrodels will be present in order to show briefly the kind of results that can be exectbe in the following chapters.

riedel 9 - cash flow riedel of 6 ships of different age, financeS by loans

The ships are purchaseS at intervals of one quarter of a year. The tot1 loan on the ships increases

likewise. Fach loan is repaid over a period of 8 years.

20 years 16 12 8 4 O O 6 £ 15 0M -EBOM I 1976 nurrber of ships 1976 2000 1976 2000

The ships have different ages at the rierrent of purchase. After a number of years each ship riust be replaceS by another (second-hand) one. The riedel contains an ageing sechanisrn for each ship. The

"rexriaining lifetirre' of the ships and the rrxrent of replacerent are illustrateS in the graph below (left). The tot-1 book value of the 6 ships changes with the ageing and replacerrent process. With

a straight line depreciation the total book value varies as indicateS in the graph below (right).

retaining lifetine of ships to?-1 book value of ships

3\

ohin 2 3 £ 15M E1OM E5M O O E15M £1OM E5M E3M o -E3M -E6M -E9M

total loan on ships

A

1976 2000 1976 2000

The figure on the left shows the developsent of the working capital of the shipping line. The one on the right shows the foreign exchange balance tot1, the sum of all the foreign exchange earnings

and expenditures at the national level.

working capi1 foreign exchange balance tct i

2000

The figure on the left shows the discounted costs and henef its and the shadow priced discounted costs and benefits (foreign exchange) discounted at a rate of 16 percent per yer. The one on the right shows the total arount of expenditures and profits of the shipping line which are ploughed back into the econciny of the country. (see Qiapter 4)

E1OM o o 20 16 12 8 4 o 80,000 tons

discounted costs and benefits

,

/

sha

'rice

O 40% 30% 20% 10% o

The other figures are similar to the ones shown under nedel 9. £80M

O

800,000 tons

incczre ploughed back in mtry

2

flat. cargn pfitential -10M

1976 2000 1976 2000

rrdel 14 - cash flow rrcdel of endogenous fleet expansion i

The nunber of ships in the fleet of the shipping line increases with an increase in the national impart and expert cargo flows.

nurrber of ships _{national expDrts+irrlpDrts (1)}

1976 2000 1976 2000

The discrepancy between the national cargo patential (= rrgo reservation x national expJrts+impjrts) and the national cargo carried, by the shipping line decreases over tine. The ratio of the national cargo carried by the shipping line and the national cargo petential alrrost reaches the cargo reser-vation goal (40 percent).

discrepancy _ratio

I,

FREIGHT PATE EXPORTS - + GHJSS REVENUE ON EXPORT'S FRE freight rate exports + + + +

EXPORT TONNAUE/ ( LOAD CAPACITY _{) IMPORT IONNT/}

ÑJUNOTRIP UNUT'RIP

+

load factor expDrts ODELBUILDING STEP BY STIP

Chapi-r 2 - STEP 1: CASH FLOW MODFLS OF i SHIP

2.1 DFL 1 - CASH FLOW M)DEL OF i SHIP

The causal-loop diagram of the itodel can be found in paragraph 1.2.

The calculation structure of the variables 'gross freight revenues' and 'voyage exponditures' will be shown in core detdl

gross freight revenues: calculation structure

LOAD FACTOR EXPORTS lIJAD FACTOR IMPORTS

+

-.4'. +

GPOSS .REVENUES/

RJUNDTPIP

The rds 'exports/imports' are used instead of north- and southlound etc.

The export tonnage/ship/roundtrip deponds on the load capacity and the load factor of the ship. The export tonnage multiplied by the average freight rate of exports gives the gross revenue on

exports/roundtrip. The saca calculation procedure applies to gross revenues on imports.

The gross revenues on exports plus irrprts cake up the total gross revenues por ship per roundtrip.

gross freight revenues: dynarto-flow diagram

Load capacity GR gross revenue FREIGHT RATE IORTS GPOSS REVENUE ON IMPORTS +

load factor imports

FRI freight rate imports

gross freight revenues: parater vaL ìs

The unit of tine in the calculations is a quarter of a year. The tirre-horizon of the c culations is 1976 - 2000, 24 yrs or 96 quarters.

The unit of rroney is the local £ currency.

All values rin constant over tirre, unless stat otherwise.

The load capecity of the ship is 14,000 ntric taris. The load factor of the ship is assurr1 to be 40 percent at the start of the operation and will increase up to 80 percent over 8 quarters, arid

rerain constant thereafti-.

The average freight rate of experts is £25/ton and the average freight rate of irrrts is £35/ton. The difference between the tw is explainI by the nature of the carirx3ities ship in this trade.

The expert ocirmïties of the developing country usrvil ly have a l value in relation to their weight/

volune; the irripert cmxlities have a higher value, arid thus have a higher freight rate.

gross freight revenues: docrrentor listing

E T. LC *LFE

Lc=1300

ET - FXPPT flNNAGE /SF1IP/PDUNflT ¡p TO NS

- LflAi) CPACTTY OF SHIP TONS

LFE - tOAr) FAITaP FXPORTS DIM'LES

LF[.K=TABLE(LFFT,TIMF.K,C,95,8)

LFET=.4/.8f.q/.8/.f.8/.8/.o/.8/.8/.e/.8/.3

LFE - 10Ml FCfl EXPORTS OIM'LF'

TABLE - DYN1fl FItNITI(N - SFE MANUAL LFET - LOAf) FACTOR EXPOFTS TABIF IT. K=LC *LFI K

IT - TMPf)P TONNCE /SHIP/FOUNDflTP TONS

LC - LOAf) CPA(TTY OF SHIP TONS

1F! - IOA') FMTOP IPUFTS DIM'Lrc!

LFI.K=TAB1EflrrYT,TTMr.K,C,ç,,8)

LFIT'.4/.8/.8f.8/./.8/.E/.8/.8/.8/.8/.8f.0 LFI - 104f) ('flP IMPUFTS flIM'LFS TAFLE - YNPMfl FUNCTILN - SEE MANUAL LEIT - LOAf) FAC'PP UPOFTS TABIF GRE.K=FT. K*FP

FSE=25

GRE - DFVNU1 CN EXPDPTS/H!P/PflUNnTRIP

f

FT - CXPOPT 'ONNAGE /5HIP/ROUNflTIP TONS

- rpFTrHT

P'[

XPCPTS f/TON

GRI .K=i T. K*FD T

FRI =5

ORI - rprS pçr4jj ON IMPJRT /!IP/PouNrTPIP f

IT - TVPiPT NACI. /$HIP/POUNDT!P TONS

FRI - Fr!GH PATE IMPORTS

f/Q

GR. X=GRF K+G° I

SR - GF3SÇ PrVFNUE/SHIP/ROLJNOTPIP

f

GRE - GPI3S OCINIJE ON [xPOP,TS/SHIP/°JUNOTRIP

f

voyage expenditures: calculation structure

GlOSS VENUE/lONPTRIP EORT+IMPORT INNA/lOUNm'RIP

+

AGENCY COMMISSIONS CPJX CLAIMS STEVEFORING COST SUEZ CANAL CHARGES

or cwis

BUNKERS

+ -+ + ₊

VOYAGE EXPENDITURES

The agency cormiissions are a percentage of the gross freight revenues. The cargo clai.ins, stevedoring

costs and Suez Canal charges can be expressed in S/ton and are thus dependent upen the expert+impert

tonnage per ship per roundtrip.

The pert charges and bunkers axe fixed airounts, as they are related to the characteristics (size, speed) of the ship.

voyage expenditures: dynarro-f1CM diagram

GR gruss revenue

G-ACS agency corrniissions share - -

-PC pert charges

voyage expenditures: paraneter values

The agency comnissions share is pit at 5.5 percent of the gross freight revenues. The stevedoring cust rer ton is on the average £6.25 (the cost per ton is higher in NW-Europe than in the national pert). The cargo claLus are on the average £0.4 per ton, and the Suez Canal charges are £1 per ton. The port charges aid bunkers per roundtrip are £45,000 and £58,000 respectively.

voyage expenditures: docurrentor listing tC. Kr GP K

ACS=. D55

- Ar,E1(Y CflMMJSIONS/SH!P/POUNDTRIP

f

GR

-

PD VNUE/H1P/R0UNDTPIP

f

ACS - AGF!'ICY rOMMIIQNS SHARE TM'1ESS

/

-e--SCT SC

stevedoring - Suez Canal

roundtrip

te

OD ofrating \ days

o

SC. K=( E T K+IT.K) *çr i-SCT=. 25 s: - vr'TNr CLST/SHIP/POUNDP1P f

ET - XP2PT TONNAGE /S}-iIP/ROUNDTI flNe

IT - !9PriPT flNN4G1 /SHIP/PDUNPTPTP TONS

SCT - 'TFvF[)OPTN( CLST/TON f CC. K( E T.K+!T.K) CCT

CCT=. 4

CC - CAPf',fl s

ET - roqT TONNAGE /SHIP/POUNCT1P TONS

TI- - F)1 TONNAGE /5F4IP/POUNDTJP TONS

CCI - CAC,O rLATTMS/TUN f

5CC K=( ET K+I'. K)

S CC Tr i 5 =5 83 DC PC=45000

SCC - IJZ CNT CHtr-GF5/5HIP/PDL'NPP1P f

ET - YP(1PT TONNAGE /SHIP/ROUNrflIP TONS

IT - TPDPT 'lNNAG[ /SHTP/POUNDTP TONS

SCCT - SI)FZ CNA1 LHAGFS/TL3N f B - BJN1KEQ/SHF/ DUNETRIP

f

PC - PflQT CH'FS /SHIP/RDUNDTPTP

f

VE.KAC.KSC.K+CC.K4cCr.K.E,-PC VE - VOY'flF XP!N[JtUF15/5HIP f AC - AGENCY CUMMISION5/SHIP/POUN2TR!P

f

SC - 5TFVflrYNG CEST/SHTP/FDUNTPIP f CC - CP,O rt.ATMS/SHIP/POUNPTRIP

f

SCC - 5UF7 C"NE. ChRGE5/SHIP/PcUJ.iPTPTP f

B - BUNK/!I1TP/F OUNETRIP f

PC - PUI?' CHAFS /HIP/ROUNDTPIP f

rrodel 1: dynara-f1c diagram

GR gross revenue Woe working capital rating cost administrative & xrenaqernt cost rking capital interest

'E

IR interest WC

>

rking capital

psrarreter values

The nett incone of the ship per quarter of a year is arrive3. at by rrniltiplying the difference between the gross revenue and voyage expenditures, by the ratio of the number of operating days of the ship per quarter and the roundtrip tine. The operating days of the ship are 350 per yr or 87.5 per

quarter. The rourûtrip tine is 118 days.

Sesides, the operating cost of the ship (£110,000 per quarter) and the administrative and managenent

cost (220,000 per quarter) must be deducted.

The leal interest rate is 12 percent per year or 3 percent per quarter.

dunntor listing NIS.K=(((GR.K_vF.K)*or)/Rr)_oC_AMC 03=87.5 RT=118 0c= 110 000 Af4C20000

I!S - NFT' INCOME SFIP I/QUAPTE

GP - OS PrVNUE/5H!P,FQUNflTpIp f

VF - VoyE;F XFNCITUPES/SHIP -r

CiD - nPFAT!NG PAYS OF SHIP 0YS/QUAPTER

- P3IiNflTIP 'IME CAYS

OC - OPAT!NC CLST 0F SHIP f/Q1J'rFP

AMC - AMTNIçrpIvr f MANAGEMENT COST 5/

QLJAPF

WC. WC J +DT* ( WCG. J WC. JI

wc= -p p s

PPS=2. 5E

WC - woRKN(; CpITt1

f

DT - COMPLJTTfl IFTFPVA1 QUAPIEP

WCG - WOKTN( CAPITAL OFOWIH f/11RTEP

CI - WORKINC, CAPITL INTEREST $QUAPTF1P

PPS - PtiRRAF PPIC[ SHIP f

WCG. KL=CL ¡P t N! .K,fl T Mr. K, OT)

WCG - WOPVIN( CAPITAL CF0WTtI ffUAPFP

CLIP - flYNPMO FurJrTILN - SEE MANUEL - NFT' !NCPMF SHIP _FIQUARTFQ

DT - COMPUTTTON IKTEPVAL QUAPTEP

WCI. KL IP t tWE K*IP) , K, 01') IR=.D?

WC! - WORK INC, CAPITAL INTEREST f/QUR'E CLIP - r)YNM0 tJNCTI[N - SEE MANUEL

WC - WORKINC CAPITLL f

IR - INTnPFÇT DATE /QUAPTFP

DT - COMPUTA'TON It.TEFVAI QUAPTEP

MO1'L I - CASH FLOW MOOEL 13F i SHIP NOiF NFT1 I4CUME/SHIP/QUAPTF A FT.K-t.C1FF.K C LC140O0 A LFF.K1AELE(LFET.TIMF.K,O, 96,8) i LFF1=.4/.81.8/.8/.8/.8/.8/.8/.8/.8/.81.8/.8 A !T.K=LCtFI.K A LFI.K=TA8L[ (LFIT.TIMF.K,0,96,8) 1 LFI'=.41. BI. 81.8/. 81.81.81. 8/.81.8/.81. 8/.8 A GDE.KT.K*FRE C FF7.25 A OPT .7.IT.kFRj C FF7.35 A GP.l(=GRF.K+GRI.)1 A AC.l(CR.K*A1.5 C ACS.055 A ÇC.K=(F1.k4.IT.K)*SCT C SC'=6.25 A CC.K=(FT.IÇ+IT.K)*CCT C CC1=. 4 A Cr.K=(FT.K1T.K)*sCCT C SCCT=1 C 7.58000 C PC45000 A VF.I(=AC.7.5C.K+CC.k+SCC.K.B+PC A NXS.K=(((1P .K-VE.K)*OÛ) /81)-OC-AMC C 0fl575 C =L18 r oc-li0000 C MC2000C NOTF WC1RKTNC, CAPITAL L WC.K=WC.JiOT*(WCG.JK+WCI.JK.I N W7.-PÇ C PPS.56 P wCc-.KLrLn (NIS.K,O,TTMF.K,CT) P WC1.K1CLIP( (WC.K*IR),C,1IMF.K,flT) C 'P.03 PFC LFNG'H=96/DT.25/PRTPFP2/P11PER2 PRINT WC,WCC,WCI,GP,VF PI_O' WC/WCC/WC1 PUN -1O.M .0 .0 50.1 -300.7 .0 0 2 e _ - a a _{a a} -a_a_a aaa _{- a a} _ _{aa - a} 20. 40. 60. 80. VE 8+03 207.16 233.20 259.24 285.28 311.32 311.32 311.32 301.32 311.32 301.32 311.32 311.32 '11.32 311.32 '11.32 311.32 311.32 311.32 311.32 311.32 311.32 311.32 311.32 311.32 301.32 31.1.32 311.32 311.32 311.32 311.32 311.32 311.32 301.32 311.32 311.32 311.32 311.32 3'1.32 311.32 311.32 311.32 311.32 '11.32 311.32 311.32 311.32 311.32 311.32 311.32

F

I-30.M O 200.7 1 9QQT 2 02 02 02 02 02 02 02 - 02 02 02 02 02 02 02 02 02 02 02 22 02 02 02 02 02 0' 02 02 02 02 02 02 02 02 02 02 02 02 01 02 02 02 02 02 02 02 02 02 02 TIME WC WCC WCI GR 8.00 F406 F+03 E403 7.03 .0 -2.500 .00 .00 336.00 2. -2.658 8.52 -79.73 420.00 4. -2.766 51.50 -82.97 504.00 6. -2.792 94.47 -83.77 588.00 8. -2.732 117.45 -81.96 672.00 10. -2.618 137.45 -78.54 672.00 12. -2.497 137.45 -74.92 672.00 14. -2.369 137.45 -71.06 672.00 16. -2.232 137.45 -66.91 672.00 18. -2.088 137.45 -62.63 672.00 20. -1.934 137.45 -58.02 672.00 22. -1.771 137.45 -53.13 672.00 24. -1.598 117.45 -47.94 672.00 26. -1.414 137.45 -42.42 672.00 28. -1.209 137.45 -36.57 672.00 30. -1.012 137.45 -30.35 672.00 32. -.792 137.45 -23.76 672.00 34. -.558 137.45 -16.75 672.00 36. -. 311 1.37.45 -9.32 672.00 38. -.047 137.45 -1.42 672.00 '0. .'32 31745 6.96 677.00 42. .528 137.45 15.85 672.00 44. .843 037.45 25.29 672.00 46. 1.177 137.45 35.32 672.00 48. 1.532 137.45 45.96 672.00 50. 1.909 137.45 57.26 672.00 52. 2.308 137.45 09.25 672.00 54. 2.733 l37.45 81.99 672.00 56. 1.183 '37.45 95.50 672.00 58. 3.662 137.45 109.85 672.00 60. 4.170 117.45 125.09 672.00 62. 4.709 137.45 141.26 672.00 64. 5.281 137.45 158.43 672.00 66. 5.888 137.45 176.65 672.00 68. 6.533 137.45 196.00 672.00 70. 7.218 137.45 216.54 672.00 02. 7.945 137.45 238.35 672.00 74. 8.717 '37.45 261.50 672.00 76. 9.536 137.45 286.07 672.20 78. 10.405 137.45 312.16 672.00 80. 11.329 137.45 139.86 672.00 82. 12.309 137.45 369.26 672.00 84. 13.349 137.45 400.47 672.00 86. 14.454 137.45 433.61 672.00 88. 15.626 137.45 468.78 672.00 90. 16.871 '37.45 506.13 672.00 92. 18.192 137.45 545.77 672.00 94. 19.595 137.45 587.85 672.00 96. 21.084 137.45 632.53 672.00 10.M 20 M 100.1 L 50.T 300.1 600.7

2.2 2 - CASH FLOW DFL OF i SHIP WTI'H TX PAYMTS

The causal-loop diagram of the xrx3el can be found in paragraph 1.2

The figure below is the dynarro-f low diagram of the working capital sector of codal 1, extended with

the tax pamnt auxiliaries.

working

capital

grokh

parairter values

The company tax parcentage is 45.

The other parartter values

/

/

/ / WCG

-are identical with the ones of nodel 1. (21? corrny tax parcentage

>

_{working capital}

><

WC' working capitil interest

>0

IR

4

interest Trate

As the nodel looks only at cash-flows, the ship is considered entirely depreciated at the norrent of pirchase.

docurtentor listing of the relevant equations

WCG.KL=L IP(( NT S. K-TP .K) TIME .K, DI)

4CG - Wf1RK T N( P1T L CF ÍJWTH

f/jI

' 'P

CLIP - flVMfl FINCTILN - SEE MNL'AL

- 1FT' INCOM, $HIP f/QUP'E

TP - TX PAYMFNTS F/cUAETFP, DT - flMPUTION IrTEFV4I QUPTCP

TI. K=CL I P ( ( I S .K+WC '.JK), o, T IC ., DI)

T' - AXB TNUM(

f

CLI P - OYNAMO FUNrTJCN - SEE MrJF'

\IS - NrrTT INCOM SHIP fFQUPF

C I - WOPKINC, CAPITAL INTEPIST 1/QURTFR

DT - CtJMPIJTPTTflN INTEFVAL QUAPTP

TP. K=CL IP( ( CTP»r'.K) O ,TI.V eD I

CTP=. 45

TP - X PAYrFNT5 f/ÇUAETFP

CLIP - YNPAO FUNITILN - SEE MtNUAL

CTP - COAPANY TX FEPCFNTAGE O!M'LFSS TI - TX?'BL TNrIJME

f

40. 60. 80. '''t 1

---I 5 . I I . II Q .24 t 24

:fr-I 13 !-?t

'¼.

1F : *4 I 02 s O?

s.

,-e'.

/

_\

/

*5

s'

.4 5' 3 4000.' 3 200.' 1 103.' 2 300.' 3 200.' 4 .4 12 23 03 M011a 2 - i SHIP WITH TAX PAYMENTS TIME WC WOO WC! NOS TI TP

ElDO FiOP p40? E.03 F+03 E+03 5+03

* OPI 2 - i SHIP WI'H 'AX PAYMENTS .0 -2500.0 .01' .000 -34.46 .00 .00 NOTE NF1T INLJMF/SHLP/QUAPIFP 2. -2651.7 8.52 -79.732 5.52 -70.65 .00 A 4. -2765.8 51.50 -82.974 51.50 -31.20 .00 C 1C=14ll00 6. -2792.8 89.67 -53.785 94.47 10.67 4.80 A LFX.K'AALE(LFET, 1!MF.K,0,06, B 8. -2760.0 P2.95 -82.799 137.'5 54.45 24.50 LEE'.4/.8/.IA/.8i.8/.8I.8/.8I.BI.8I.8I.8I.8 10. -2698.8 112.14 -80.963 137.45 56.26 25.32 A ''.K1CLFI.I( 12. -2635.5 111.29 -79.065 137.45 58.15 26.17 A LFT .K.TABLE( LF 1T,1IMF.K,O,96,8 14. -2570. 110.41 -77.103 137.45 60.10 27.05 T LPT'.4I.6/.B/.6/.8f./.9F.8/.AI.8I.8/.8/.8 16. -2502.5 IflO.50 -75.076 137.45 62.12 27.95 A 18. -2432.7 108.56 -72.980 137.45 64.21 28.89 C PF25 20. -2360.5 107.59 -70.814 137.45 66.36 29.86 ,RT.I(l'.KFRI 22. -2285.8 106.50 -68.575 137.45 68.59 30.87 C FRT'S 24. -2209.7 '05.55 -66.260 137.45 70.90 31.90 A GP.K=GOF.Iç+GFcI.K 26. -2129.0 104.48 -63.869 137.45 73.28 32.98 A AC.k.K*4CS 28. -2046.6 103.37 -61.397 137.45 75.74 34.08 C ACS. 055 30. -1961.4 102.22 -58.842 137.45 78.29 35.23 A ÇC.K={P'.K+IT.K)SSCT 32. -1873.4 101.04 -56.201 137.45 80.02 36.41 C SCT6.25 34. -1782.4 09.82 -53.471 137.45 83.64 37.64 A _{CC.E(AT.K.IT.t(I*CCT} 36. -1658.3 98.55 -50.650 137.45 86.45 38.90 C CC'.4 38. -1591.1 97.25 -47.733 137.45 89.35 40.21 A cCC.I(UT.)+IT.K)*SCCT 40. -1490.6 95.8° -44.719 137.45 92.35 41.56 C ccc'i 42. -1386.8 94.51' -41.603 137.45 95.45 42.95 C 0A800O 44. -1279.4 03.06 -38.383 137.45 98.66 44.40 C PC4S000 46. -1169.5 91.56 -35.055 J37.45 101.98 45.89 A "F.KAC.IÇ+1C.K+CC.K+5CC.K45+pC 48. -1053.8 90.02 -31.615 137.45 105.40 47.43 A _{Nf S.W=I(l&F.X-VE.K)*OD)/RT)-OC-AMC} 50. -935.3 85.47 -28.059 137.45 108.94 49.02 C í87.S 52. -812.8 86.75 -24.384 137.45 112.60 50.67 C PT15 54. -656.2 55.08 -20.585 137.45 116.39 52.37 C OC-110000 56. -555.3 83.32 -16.659 137.45 120.30 54.13 C AMC2OX'C)C 58. -420.0 81.50 -12.601 137.45 124.34 55.95 NOTE WOOKING CAPITAL 60. -280.2 79.6' -8.407 137.45 178.53 57.83

L WC.KWC.J+ITS(WCG.JK+WcI.JK) 62. -135.7 77.68 -4.071 137.45 132.93 59.77 N WC-PP 64. 13.6 75.67 .409 137.45 137.29 61.78 C PPT2.5F6 66. 168.0 73.60 5.041 137.45 141.91 63.86 WCG.I(L=CLIP( (NI5.K-TP.K),0,TTMF.K,OT) 68. 327.6 71.45 0.828 137.45 146.67 66.00 wcI.KL=rLIp( (6C.f(*IP1,C,TTME.K,OTJ 70. 402.5 69.77 34.776 137.45 151.60 68.22 I TP=.03 72. 663.0 66.94 19.890 137.45 156.69 70.51 A T1.KCLTP((NIS.K+WCI.J5),0,T!MF.K,0T) 74. 839.2 64.97 25.176 137.45 161.96 72.88 A TP.I1CLTP((CTP*TI.k),0,T! .Ic.0) 76. 1321.3 62.12 30.639 137.45 167.40 75.33 C CTP. 45 78. 1209.5 59.50 36.286 137.45 173.02 77.86 SPEC tPNCTH9ó/0T. 25/PRTPFF-2/P1TPFR2 80. 1404.1 56.98 42.123 137.45 175.84 80.48 PRTN' WC,WC&,WCI,NIS,T!,'P 82. 1605.2 54.21 48.156 137.45 184.84 83.18 PL0 wr/wrG/lCl/TI/Tp 84. 1813.0 51.48 54.391 537.45 191.05 85.97 PJN 86. 2027.9 48.59 60.836 137.45 197.47 88.86 88. 2249.9 45.60 67.497 137.45 204.11 91.85 90. 2479.4 42.52 74.383 137.45 210.96 94.93 92. 2116.6 39.3? 81.499 137.45 218.05 98.12 94. 2961.8 36.03 68.855 137.45 225.38 101.42 96. 3215.2 32.63 96.457 137.45 232.95 104.83 0. 2000.7 100.7 150.1 .0 50.1 100.' 200.7 1C.T 1 50.' 2 -4000. T -U00. T .0 50.7 -100.1 -SC.T -100.7 .0 .0 50.1 .0,

2.3 MOD 3 - CASH FLOW M1)DEL OF i SHIP FINPNCED BY A WAN

The causa1-lcxp diagram of the rrrdel can be found in paragrath 1.2.

The figure below is the dynairc-f low diagram of the rking capital sector and the loan sector.

LIR

loan interest rate

¿, \/

LIP loan interest

rraIIter values

The loan percentage of the purchase price 8 percent per

yr

or 2 percent per quart The loan is repaid over 32 quarters. Fach done with a puse function. This function

interval DT. RP repay pericx

PSLPS

LR loan repayments (Tflvl!E) I PPS -purcbase price 'ship LPPS loan percentage price ship

of the ship is 75 percent. The loan interest rate is er.

4 quarters 1/8 of the loan is repaid. In dynanc this is

gives a pulse with the height 1/8 over the computation

vrking 'N working IR capital growth capital interest i +interest rate payments

I

rking capital

><>0

docimntor listing of the relevant equations vC.KrWC .J,DT*(w ;.JK4wrT.JL1 .J-L I P.J<) 1-LP PS) PPS LPPS= 75 PPS=2 5ES - WrìPKTN APITtL f

DT - Cfl tJ'O I?.TEPVL QUTrI

- TN( rßPIT L GPCWTH f/2UF'P

C.I - 4flKTN( rPITi.1 INTEREST f/QLIPPTrP

LP

- LM

u/QPTR

LIP - 10PM rMrprST P4YMENT f/QUtF

LPPS - I flPJ PPCFNTLE PLI- SHIP )7'1r5Ç

PPS - IP.CHt r'pI(( SHIP f

L.K=LS.J+)T*(-L'.JK/) L S=LP P5 *P PS

LS - Lfl'I flM 5H11 f

DT - jPU'A'Tfl IT1VL

QtIrr

LP - '1A

prpypI[T

f/CUAIT

LPPS - L)A'i PrPCrJT(-tI I-( SHIV Ir*trç

ppc - r',j per PPI(J 5H11-'

i

T1E.K)

PP=8

LP - Ifl,N P0A,Y1rr f/LUFTF CLIP - 'NMI) FUNCTIL - 5 F MtNL'L

PLJLSF - nYN11P F''CT1Lr, - SIE I1NL

- FPTCP YFAPS

LI-PS - IMAM PrPCTt(F PII- SHIP

Mt1r5

Pp5 _{- 'IPIHA5}

I[t SHIP f

LIP.KLL pç*1 'r

LIP=.C2

LIP - Lfl4M TlTrFST EAY1!sT

f/ITP

-

t'N IJ'I HP f

02 34 02,34 . 02,34 . 02,34 Saa _{aa a_} - - ___ __ :

r

: : 02,34 02,34 J 02,34 02,34 i 01,34 "0, - 34 34 20.

Lrj

60.3 3 3 3 3 3 3 3 80.3 3 3 3 3 O

* MOOEL 3 - i SHIP FINANCED BY A LOAN TIME WC WCG WC) LS LE LIP

NOECF NETT INCOME/SHIP/QU8RTER E+OO E+O6 F+03 8+03 8+03 8+03 8+03

A 1.KLC*l.FE.I( _.0 -.625 .01' .0 1875.0 .00 37.500

C 10=14000 2. -.759 8.52 -22.8 1875.0 .00 37.500

A 1FP.KT8UILFET,TIMF.K,0,96, 8) 4. -.827 51.50 -24.8 1875.0 234.38 37.500

IFFT*.4/.8/.8/.8/.8/.8/.B/.81.81.8/.8/.8/.8 _{6. -.865} 94.47 -25.9 1640.6 .00 32.812

A !T.KLC*IFI.K 8. -.753 17.45 -22.6 1640.6 234.38 32.812

A LEI .K=TABLE (LFIT,TIME.K,0,96,8) 10. -.638 137.45 -19.1 1406.3 .00 28.125

' LF!'= .41.81.8/ .8/.8/.8/ .81.81.8/. 81.81.81.8 12. -.453 337.45 -13.6 1406.3 24.38 28.125 A GRF.KF.K*FRE 14. -.309 137.45 -9.3 1171.9 .00 23.437 C FPFDS 16. -.094 137.45 -2.8 1171.9 234.38 23.437 P GRI.K*I.KFRI 18. .08) 137.4 2.4 937.5 .00 18.750 C FR135 20. .329 137.45 9.9 937.5 234.38 18.750 A GP.K=GPF.K+GP.I.K _22. .540 137.45 16.2 703.1 .00 14.062 A AC.E=GR.Ic*tCS 24. .827 137.45 24.8 703.1 234.38 14.062 C 805.055 26. 1.077 137.45 32.3 468.8 .00 9.375 A cr=T.K+IT.K)*$C _28. 1.407 137.45 42.2 468.8 234.38 9.375 C cC'T6.25 30. 1.703 137.45 51.1 234.4 .00 4.687 A (ET.K+jT.K)*CÇT 32. 2.081 137.45 62.4 234.4 234.38 4.687 C C.C'=.4 34. 2.428 137.45 72.8 .0 .00 .000 A CC .K=IPT.E+I T.KI *SCCT 36. 2.860 137.45 85.8 .0 .00 .000 C CC'=1 38. 3.318 137.45 99.5 .0 .00 .000 C P=58000 40. 3.805 137.45 114.1 .0 .00 .000 C PC=45ØQ3 42. 4.321 137.45 129.6 .0 .00 .000 A VP.K=AC.K1C.K+CC.K+SCC.(+B+PC 44. 4.870 17.45 146.1 .0 .00 .000 P NTS.K(((CF .KVE.K)*O0)/P1)_OC_AMC 46. 5.452 137.4 163.6 .0 .00 .000 C fl057.5 48. 6.070 137.4 182.1 .0 .00 .000 C TI18 50. 6.726 53745 201.8 .0 .00 .000 C 0C=llnN'o 52. 7.423 137.45 222.7 .0 .00 .000 C !MC=20000 54. 8.562 137.45 244.9 .0 .00 .000 MOT WflPKTNG CAPITAL 56. 8.947 137.45 268.4 .0 .00 .000 L WC.KWC.JtPT*(WCC.JK+WCI.J}(-LR.JK-LIP.Jk) 58. 9.781 137.45 293.4 .0 .00 .000 N WC=_I!_LPPS)*FPS 60. 10.665 137.45 320.0 .0 .00 .000 C LPPS=.75 62. 11.604 137.45 348.1 .0 .00 .000 C PPS2.5F6 64. 12.602 137.45 378.0 .0 .00 .000 P WCC..KLCLIPtNIS.K,O,1 !MF.K,DT) _{66. 13.660 137.45 409.8 .0 .00 .000}

P WCT.vL=(LIPI (WC.K*IPI ,C',T!ME.K,t'T) _68. 14.784 137.45 443.5 .0 .00 .000

C !P=.0' 70. 15.977 137.45 479.3 .0 .00 .000

L LS.KL5.J+(T*I-LR.JK/D'I 72. 17.243 137.45 517.3 .0 .00 .000

N LS=LPPSPPS 74. 18.587 137.45 557.6 .0 .00 .000

P 1p.KL=rLIp( ((PULSE((1/PP),4,4))*LPPSPPSI ,O,32,TTUF.KJ 76. 20.014 137.45 600.4 .0 .00 .000

.0 PP=A 78. 21.529 137.45 645.9 .0 .00 .000

P. L1P.PLLS.I*LIF 80. 23.138 197.45 604.1 .0 .00 .000

C L!P.02 82. 24.845 137.45 745.4 .0 .00 .000

SPPC LEN H=9L/DT*.25/PPTPEP2/PLTPEP.*2 84. 26.658 137.45 799.7 .0 .00 .000 PFINT WC ,WCC,,WCI ,LS, LE, LIP _{85. 28.582 137.45 857.5 .0 .00 .000}

PLO' WtfWCG/Cl/LS/LIP 88. 30.625 137.45 918.7 .0 .00 .000 RUN 90. 32.703 137.45 983.8 .0 .00 .000 92. 35.096 137.45 1052.9 .0 .00 .000 94. 37.540 137.45 1126.2 .0 .00 .000 96. 40.134 137.45 1204.0 .0 .00 .000 20.M 500.T 40.M 150.T j0O.T 1000.1 1000.1 30.1 20.1 1500.1 .0 -20.M 50.1 .0 0. -500.1 500.1 .0 0. 10.1 6O.M O 200.1 1 1500. 2 2000.1 3 43,T 4

2.4 lODEL 4 - CASH FLOW )DEL OF i SHIP WITH PTJvIDJT OF SHIP The causal-loop diagram of the rrodel can be found in paragraph 1.2.

The figure below is the dynant-f low diagram of the working capit1 sector.

WCG working canii i

Q

working capital SVS

scrap value ship

Vourchase - -(TT)

Areplacnt

ship

--PPHS ourchase price replacerrent ship

><

working capital interest IR interest rate paraireter values

The ship is purchased second-hand. At that r1tIrnt it has a remaining lifetirre' of 64 qnrtcrs. Thus, a replacerrent ship must be purchased after this Fericy3.

The equation of the rate PRS oontains a clip and a pulse function. The result is that after 64 quarters a pulse with a height of 1 is given.

The purchase price of the replaceirent ship is £4 million, ahi the scrap value of the old ship is £250,000.

The other rramatr values are identical to the ones of mxiel 1.

docurntor listing of relevant equations

WC.K= -Pk S.JK/O')

C -P P 5 PS2. 5ES

- wTNr, CPITAL

f

- CflMD!I'' Í' ITF VAI

QL AP 1FF

-

rKTr ÇAÇTt

( ETII f/2U

- WflVTN' ç.PlT INTrRFS!

,/iUtp'-r

- PLC rirter S H P

f

PP

- rIrH -r

PIC[ SHIP f

PPkS=4E b S VS =2O UDO

- OtJPjfrÇF r1-L C IMF NT SHI P

f

:LIP - flyAMO rIJN(TILN - 5FF MANL'L

PUt. SE - flYNI MI) F!JNrTIç, - 5FF MN1'AL

PP S - PljRrHß F I CF F E PL C[MFT H! P f

20. 40. 60. BO. 50. T .0 EflÍuflIeIflUI 5.M l00.T 200.T 10.M 1 50 400.1 15.M O 200.1 1 600.1 2 01 rIME WC WCG WC!

E#OO Ri06 F403 E+03

.0 -2.500 .00 .00

* _{MOtORI 4 - 1 SHIP WITH REPLACEMENT OF SHIP} 2. -2.650 8.52 _-79.73

NOTC NET' INCOME/SHIP/QUARIER 4. -2.166 51.50 -82.97

A Er.I(*LC*LFE.K 6. -2.792 94.47 -83.77 t: LC'4OOO 8. -2.732 137.45 -81.96 A LFF.K'88LF(LFET,TIME .K,O,96,BI 10. -2.618 137.45 -78.54 T LT..4J.8/.8/.8/.8I.8/.8/.8/.8/.8/.8.B/.8 12. -2.497 137.43 -74.92 A !T.VLC*LFI.K 14. -2.369 137.45 -71.06 A LP! .K*TABLE(LFIT,T!MF .K,O,96,81 16. -2.232 137.45 -66.97 ¶ _{LFTT= .41.8/.8I.8/.81. 8/.8/.8f.8f.8f.8.8I.8} 18. -2.038 137.45 -62.63 A ORE.K*FT.K*FR1 20. -1.934 137.45 -58.02 C FRE25 22. -1.771 137.45 -53.13 I IR!.K=IT.K*FR! 24. -1.598 137.45 -47.94 C PR!35 26. -1.414 137.45 -42.42 A R.KGRR.K+GRl.K 28. -1.29 3745 -36.57 A _AC.KGP.K*ACS 30. -1.012 131.45 -30.35 t: 6C5.035 32. -.792 137.45 -23.76 A SC.K(F1.K+IT.K)*SCT 34. -.558 137.45 -16.15 C SC'6.2R 36. -.311 137.45 -9.32 A CC.K(PT.K+IT.K)*Ct:T 38. -.047 131.45 -1.42 C CCT. 4 40. .232 137.45 6.96 A CC .K(Ç'1.k+!T.K) 'SCCT 42. .528 137.43 15.85 C SCCT=l 44. .843 l7.45 25.29 C 858000 46. 1.177 137.45 35.32 C PC45000 48. 1.532 137.45 45.96 A VF.I7.AC.K+SC.K+t:C.K+St:C.K+B+PC 50. 1.909 137.45 57.26 A _{NT.KU(GP.K-VF.K1*Ot))/RT)-OC-AMC} 52. 2.308 137.45 69.25 t: 00=87.5 54. 2.733 107.45 81.99 C R=I18 56. 3.183 137.45 95.50 C 0C=iïO0O 58. 3.662 137.45 109.85 C AMC700f'O 60. 4.170 '37.45 125.09 NO WORKONt, CAPITAL 62. 4.709 137.45 141.26 L WC.K=WC.J+L T(WCG.JKGWC I. JK-PPS.JK/0T1 64. 5.281 537.45 158.43 N WC=-PPS 66. 1.937 137.45 58.11 C PPS=2.5F6 68. 2.339 137.45 70.16 P _{WCt:.KL=CLIP(NI5.K,0,TIME.K, 01)} 70. 2.765 137.45 82.95 P Wt:t.KL=CL1P (WC.K*IR) ,O,TIME.K,0T) 72. 3.217 137.45 96.52 C IP=.03 74. 3.698 137.45 110.04

R PPS.KLICL1P(0,PULSE( 1,64,1),TJME.K,65) )*IPPRS-SVS) 76. 4.208 17.45 126.24

C PRS4A6 78. 4.149 137.45 242.48 t: cV.25O000 80. 5.324 137.45 159.72 IRRt: _{LFNCTH=96/E'T=.Z5IPRIPFR=2/PLTPEF=2} 82. 5.934 137.45 178.03 PEIN1 Wt:,WCG,Wt:! 84. 6.582 137.45 107.46 PLOT %./WCG/WCI 86. 1.770 137.45 218.09 R liN 88. 8.000 137.45 239.99 90. 8.715 137.45 263.24 92. 9.598 137.45 287.93 94. 10.471 137.45 314.13 96. 11.398 137.43 341.95 02 02

2.5 4JDFL 5 - CASH FWW ?il)EL OF i SHIP WITH PARAMETER CHANGES

All the paraIretcrs of nïxlel i can he thang aM their impacts calculat& by simply replacing a fe

pinchcrds. This process is easy to illustrate but contributes little to a better understanding. Therefore, it is limit to only one example: thste9 of constant freight rates, fluctuating freight

rates. t)jnarro provides a function NGPMEN which generates random numbers norrreily distribut& with

a certain rrean aM a standard deviation. The numbers do not exce1 2.4 standard deviation.

The constant freight rates of rrodel i are taken as cean, and the standard deviation is £3/ton.

docrrentor listing of relevant equations

GRE K=F T. K*FQF. K

SRE - r,ps PFVFNUE ON EXPORTS/SHTP/POUNDTRIP

Er - FXPORT TONNAGE /SHIP/ROUNtTIP TONS

FPE - FREIGHT Rß'E EXPOFTS f/TON

FRE .K=NDRMRM(AFR , TPV)

AFRE=25 STD V=3

FRE - FREIGHT P&E EXPOFTS f/TON 4ORMRN - OYNAMO FUNCTILN - SEE MANUAL

FRE - AVERAGE RFI&HT PtTE EXPORT! STOV - CTANOAPP FVIATION

GRI.KET. K*FRT .K

RI - GROSS PFVNUE ON IMPDPTS /SHIP/ROUMDTPIP

FT EXPOPT 'ONNAGE /SHIP/POUNOTR!P TONS

FRI FRFIGH1 PATE IMPDPTS f/TO

FRI .KNORMRN(AFRT ,TflV)

4FR 1= 35

FRI - FRF!GHT P$'E IMPORTS f/TON

NQRMN - OYNMO UNCTIÛM - SEE MANUAL

AFRi - AVFDAGC FFJGIiT RATE IMPORTS STDV - STA.NPO nrfl(Jgj

20. 40. 80.

Mb>

a --s-_a--.

0'

s -2 02 02 02 02 02 02 02 02 02 02 02 02 02 02 02 02 02 02 02 02 02 02 02 02 02 02 012 02 02 02 012 02 02 02 02 02 02 02 02 02 02 - 02 02 02 02 - 02 - 02 02 * MODEL 5 - i SHIP WITH PARAMETER CHANGES E+00_.0

NOTE _2.

NOTE F1UCUATING FREIGHT RATES _4.

NOTE _6.

MOTE NETT INCOM1SHIP/QUARIFR _8.

A ET.I(.LC*LFE.I( _10. C LC=14000 _12. A LEE.KTABLE(LFET,t1ME.K,O,96,8) 14. T t_EFT=.4/.8/.8/.8/.8/.81.8/.8f.8/.8f.Bf.8/.8 16. A IT.K=LC*LFI.K 18. A LET .KTA8L[(LFjT,TIMR .E ,0,96,8 _23. T 1FIT .4/.8/.81.8/.8/.81.8/.81.81.8/.8/.8/.8 22. A GE.KE.KFRE.I( _26. A FRE.KNORNPN(AfRE,STOV) _26. C AFRE=25 _28. C $111V3 30. A GRT.Ic.ET.K*FRI.K _32. A FET.,KNORMPN(AFPI,STDV) _34. C 8FR I35 36. A GR.KGRF.K+GRI.K _38. A AC.KGR.KACS _40. C 4C1. 055 _42. A SC.KIET.K+IT.K*SCT _44. C ¶CT=6.25 46. A CC.K=IRT.K+IT.K)*CCT _48. C CC1.4 _50. A SCC.KIFT.K+IT.K1*5CCT 52. r scc'rT _54. C B58000 _56. C PC45OOO 58. A VE.K=AC.Ic4.SC.K+CC.K*SCC.K+8+PC _60. A NIS.K=((&F .Ic-vE.)*ODI/9T)-OC-AMC _62. C OD87.9 _64. C RT118 _66. C OC=110000 68. C AMC=20000 70. Nt3TF WODE1NI CAPITAL 72. L WC.(=WC.J+CT*(WCG.JK,WCI.JK) 74. M WC-PPÇ 76. C PPS=2.586 78. R wcG.x1=CLIp(MIS.K,O,TIpr. K,DT) _80. P WCT.K1CLH((WC.E*IP).0,TIME.K,DTi _82. C tR=.73 _84. SPEC LFNGTH96/DT.25/PRTPIR2/PL'PER2 86. PRINT WC,WCG,WCI 88. PLOT WC/WC&/WCI _90. RUN _92. 94. 96. P+06 F+03 E+03 -2.500 .00 .00 -2.670 13.70 -80.11 -2.797 10.62 -83.91 -2.809 143.80 -84.28 -2.715 166.5e -81.46 -2.569 154.91 -77.06 -2.435 146.98 -73.05 -2.293 101.40 -68.80 -2.182 108.!7 -65.45 -2.066 140.06 -61.97 - 1.932 108.24 -57.95 -1.711 145.20 -53.13 -1.590 93.90 -47.70 -1.451 132.55 -43.54 -1.253 113.69 -37.60 -1.024 206.53 -30.73 -.808 164.63 -24.23 -.575 145.30 -17.24 -.309 156.49 -9.28 -.036 135.39 -1.07 .257 89.54 7.70 .161 130.64 16.82 858 149.72 25.74 1.199 127.36 35.96 1.557 138.83 46.70 1.949 181.95 58.48 2.389 118.39 71.68 2.804 126.68 84.11 3.248 105.54 97.43 3.777 168.97 113.30 4.283 155.70 128.48 4.864 146.02 145.92 5.437 57.83 163.11 5.999 199.76 179.96 6.653 137.93 199.58 7.333 133.32 219.99 8.063 147.44 241.90 8.853 176.3! 265.58 9.697 157.15 290.92 10.596 109.71 317.88 11.519 1'4.58 047.37 12.562 108.42 376.85 13.626 170.65 408.78 [4.774 167.02 443.23 15.983 169.48 479.48 17.289 109.74 518.68 18.636 202.50 559.08 20.060 117.14 601.81 21.585 90.15 647.55 20.M 30.M 0 300.7 400.7 1 600.1 900.T 2 10.M 200.1 300.1 -10. M .0 LOO. T .0 -300. T o.. .0 2

QUICI(

Uapter 3 - QUICK STEP: PROJECT EVALUPFION OF SHIPPING INESThENTS

Many developing countries bave piblished Developrnt Plans. These plans are attts to define a planning strategy which, given the scarce resources, fulfills best the objectives of the country. Of course, if there were no limitation to the resources available, there would hardly be a need for planning, project selection and project evaluation. The sama holds for a country that has Î

objec-tives; in that case any project will do.

Project evaluation at the national level is often called social cost benefit analysis (SCHA).

One of the main problems that the project evaluator encounters in doing SCPA is the fact that market prices in developing countries do not always reflect the true opportunity cost values of inputs and outpats of a particular investmant. Alternative values or shadow prices' bave to be used in pref

e-rance to market prices. Focal paints of shadow pricing in SCEA are foreign exchange, unskilled labour, transfer paymants, consumption and investmant.

The adj ustmants to market prices can be made in a variety of ways. Many project analysts make ad hoe adj ustmants as best as they can in a fairly unsystematic way. However, in recent years, two mathods bave been prorroted by the international financing agencies which attempt to approach SCBA in a systematic way: the UNItO and Little & Mirrlees methods. Although both of these systems seek in

principle to take account of the sama typas of necessary adj ustment, they differ in their choice of numaraire, the basic unit in which all costs and benefits of a project should be expressed for so-cial appraisal.

Paragraph 3.1 contains a brief description of both methods and discusses the applicability to the evaluation of shipping investments in developing countries.

Paragraph 3.2 discusses the objectives of a national fleet in a developing country, and formalates indicators for the measuremant of the impact of a national fleet on these national objectives. 3.1 THE APPLICABILITY OF ThE UNItO AND LITTLE & MIRPLEES EVALUATION THODS TO SHIPPING INVESThENTS 1O)

The UNICO mathod9takes aggregate consumption benefits as its basis of value. This means that all values should be expressed in terms of dorrestic prices, which reflect consumar willingness-to-pay

for consumption. Under this system a premium is added to foreign exchange effects, reflecting the fact that they cay be under-valued in domestic market prices, whilst a 'negative-cost' premium is applied to unskilled labour to allow for the extent to which wages exceed oppartunity costs. Subsequently, an 'investment premium' is applied to all increases or decreases in savings made by different classes of beneficiary as a result of the project to reflect the fact that savings are mare valuable than increased present consumption.

8

The Little & Mirrlees method for project appraisal takes as its numeraire disposable income in the hands of government, valued on the basis of world prices for internationally tradable goods. It is assumed that marginal resources freely available to the government will be used for investrent or for soma purpose which is valued as highly as increased investhent. Thus, all tradable corrnodities used or produced by the project are valued on the basis of their border prices as imports or exports. Non-tradable inputs are valued at their costs of production, which are (through analysis) expressed

in terms of border prices and domestic factor payments. Unskilled labour is valued on the basis of its opportunity cost, but the value of the benefits in terms of increased consumption accruing to people is reduced to allow for the fact that incremental consumption is less valuable than invest-ment. Savings, which are equated directly with inveshnent, are not counted as cost. As _{a result of} these adjustments, non-tradable corrirrodities that do not contain subsidies in their price stricture are given a social cost lower than their market prices.

The two approaches for social cost benefit analysis bave been particularly designed for use in the appraisal of industrial projects.Ajtjicugh shipping is often called an industry, its characteristics differ widely from land-based industries. Some of these differences are:

industrial product,

there are few dcinestic inputs in the production of the service: the ships are often purchased

abroad, like rost of the bucers, spare parts, etc.,

the service is sold on an international market to relatively few shippers of goods (tue consurors of the service).

Confrontation of the characteristics of shipping with the basic pririples of the UNID3 and Little & Mirrlees approach to SCB?, reveals some interesting aspects:

- UNIIX) rrthcd: The willingness-to-pay for the shipping service exists, but it works indirectly. The liner ship transports general carao which is uswfl ly consumar goods of high value. The transport cost form a small percentage of the total sales price of the goedson the market. The wiilinness'-to-pay of the consumer is thus not a measure for the willingness-to-pay for the transport

i1 but

for the willingness-to-pay of the good.sas such.

One might arque that one should look at the shippers' (e:;:p.rters, importers) willingness-to-pay. But it is easy to prove that the shipp. rs will cnly export or import when there is a demand for their products, thus when the consars are willing to pay. The willingness-to-pay for shipping services is thus difficult to compaia with ithe wiJ lincjrìess-to-pay for conauirer and producer goods as defined in the UNIIX)-rrethod.

- Little & Mirrlees method: all tradable goods used or produced by the project are valued on the basis of their border prices as imports or exports. For a shipping inveshnent this is alrrst a

trivial exercise, as rost of the 'goods' used and produced are already expressed in border prices as they are purchased and/or sold on the international market.

The two factors make it less attractive to follow the guidelines for evaluation of the UNIW and Little & Mirrlees approaches in the case of shipping investments. Therefore, another procedure for evaluation ts adopted which is discussed in the following paragrath.

3.2 O&JITIVES OF A NATIONAL FLE

The importance of transportation to a country's economy and develorent has often been stated, nevertheless, the emergence of shipping fleets in many, treviously non-maritime countries is not so widely understood. According to tue UNCTZ'D report 'Establishment or expansion of rorchant marines in developing countries' four factors appear to have been responsible:11)

the disruption of shipping services caused by withdrawal of tonnage from coimrercial services during the second world war,

the balance of payments problens in the years following the second world war placed a premium on the saving of foreign exchange and gave rise to a great number of bilateral arrangements, many of which contained a shipping clause,

the attainment of independence by colonial territories and the consequent emergence of national consciousness,

the conscious efforts being made by countries with low capiti1 inca to develop and diversify their economies

In general, the objectives for the establishment of a national fleet by a developing country can be forrailated as follows:

contribution to national income creation; under this heading fall the

effect of the initial

in-vesthent in ships (if domestic resources are used) and the wages and profits which arise from the operation of the national fleet.

foreign exchange earningn; The ato of reli.evino nressure on the halance of payments has ranked high arong the aims which has led, and iill lead, developing countries toestablish shippincr f lec'ts

The reason is that all countries r.ist sec to attain and iralntain equilibrium in the halanco of

payments, and shipping is one of the industries that is aur'pased to earn or save a lot of foreign

3 .

ìip1ont ;

Shipping investrrcnts create re1ativ1y little emp1oynnt in comparison with other industries ( a high capit1 /errp1ont ratio) . On th other hand, this employrrent is a

diversifica-tion which is often nee , bause the econarties of the developing countries ar 'heavily influenced

by conditions in aratively few crkets with the result that unfavourable developrnts in these can bave widespread consequences . owver, diversification of errplont does

rt necessìrily entail

the esRblishrïnt of a national rrrchant narine . To scrc extent the enlornt rrerket for seairn is international in nature.

4 . influence on conference decisions ; The suspicion that countries bave of shiçxner operating in liner conference trades to their parts , rry be compared with the riore widely known attitude to cartels in industry . It is sontflis felt by developing countries that the elenent of ccnopoly pMer inherent in the conference system, together with the particular cost structure of liner

ship-ping , gives shipDners a considerable discretion in the rate policy they choose to follow . These

countries consider that the existence of liner services oîrated by national flag vessels is a

rtans of ensuring that the discretionaxy elerrent in conference riffs is exercised in a way that

is nore favourable, or at least rt detrinnt1 ,

to their searne

trae)2

5 . avoidence of disruptions of services during hostilities ; In major wars services are disrupted sncl freight rates rise due to the difficulties and dangers of operation. Theavailability of a national

fleet during such periods is ari inprtant factor for countries that are not thenselves involved in

the hostilities.

-. reduction of economic dependence ; A country having no fleet of it:s own is entirely at the mercy

of shipowners of other flags for the f li of its trade. Corrrnerciai profitability is the primary consideration of an individual shiprier, and thus, should services to a given country not prove profitable enough for various reascns, ti iere is always the r:ossibility that the service miqht be withdrawn or provided inold or unsuitable vessels, or only at. a very high price, thereby

jeopardi-zing that country t5 foreign trade. 13V having its own merchant fleet a country can minimize this ever present risk to its foreign trade.

prometion of exports; A country may try to establish a new market for a prcduct, or exoarìd an existing one. It is usually necessary to lower the price of the cocuiity in order to achieve these results. However, profit margins are small on nest of the exports of developing countries (primary comrrodities). Therefore, the transport costs riust be lowered. As transport cost of primary corrrodi-ties make up a great portion of the c. i. f. price, a small reduction may cause a relatively big

increase in the expart of the conrodity. In the end this may result in an overall increase in the incoma of the country, although the shipping activity itself may show a deficit.

econcanic integration; This objective may colTrise integration within a country and between neigh-beur ing countries (regional integration). Integration within a country can be illustrated by Iridonesi without a national fleet the 3000 pocailate3 islands of the archipelago weuld bave a structure like

sand grains without cement. Some countries bave a longccontline in relation to their area, e.g. Chile and Australia, and thus coastal shipping becomes an essential element in the transportation system of the country.

Countries nay establish regional 3ii')ni.ng conso s which stinulato rogional economic co-operation and integration.

realisation of ornparative advantages; It is obvious that trade is advantageous when absolute differences exist in cost of preduction arid also wher. there are relative cost differences between countries. This latter is defined as the coninarative cost princini.c. Stuchte3 has .thvestigatsid as to whether these advantages exist between countries in the field of shipping. After some empirical research into the cost structure of shipping in a great number of countries, he councludes, with many reservations: .. at this rrorrent none of the developing countries seem to have a comparative costs advantage compered. to the traditional maritin countriest.

stimulation of forward and backward linkages of the shipping industry; The positive effect of the establishment of a national fleet on the count y s economy need not be limited to shipping only, but cray also stimulate the develorcnt of related adustries like ship repairing and -construction.

In order to evaluate national fleet projects on the national level, all the impacts of these projects on the above rrention national objectives must be establishf. As must of the impacts can not be measured directly, it is necessary to develop indicators for each objective. The indicators are

discussed below.

i . contribution to national income creation; A government that is considering whether to establish or expand shipping oparations must spend considerable sians on the acquisition of tonnage . lfitional expenditures will be called for throughout the working life of the vessels to cover oparating costs.

Equally, the oparation of the vessels will give rise to a stream of revenues during each year of the

vessel ' s life in the foim of freight earnings . The basic question that confronts the management of

a shipping enterprise in the field of investhnt evaluation is whether the difference between these streams of costs and benefits over the life of the ship are sufficiently large to justify the expen-diture involved in the acquisition of the vessel. In order to make costs and benefits which arise at different peints in tine suitable for cciparison, they bave to be discounted to a base-yìr.

In the medal the discounted costs arid benefits are calculated over the tine-horizon of the project,

and it will be used as the indicator for the attainment of the inccre-creation objective.

foreign exchanqe earnings; A national fleet project creates foreign excharqe earnings arid

expen-ditures, and thus bas an impact on the balance of payments of the country. The problem is to identi-fy the passible sources for improvement to the balance of parents from the establishment of a

natio-nal fleet. The subject is caiiplex, as the patential nett gain is the sun of many actual flows of

parnts and receipts recorded in the balance of payments accounts, as well as many other flows which do not appear in that account as such. In order to establish the impact of a national fleet

project on the foreign exchange objective, every expenditure and earning must _be analysed and divi-ded in dastic currency and foreign exchange compJnents. In the rrridel this is done, not only on a year to year basis, but over the tiii-horizon of the shipping project as well.

1. + 2. shadow priced discounted costs and beneits; The market price of foreign currency is the exchange rate. If the exchange rate between two countries' currencies were freeto seek its own

level, it would rrcve to that value at which the demand of one country for the goods of the other

equaled the demand of the latter for the goods of the fonrer. However, in the real world exchange rates are not free to respand to supply and demand in this manner. For a variety of reasons, govern-ments attempt to stabilize their exchange rates. Given a fixed market exchange rate, it is passible

for one country' s currency to become ' overvalued' relative to another' s. That is, at the market

exchange rate, the citizens of the overvalued currency country desire to spend or invest mere of

their meney in another country than the citizens of the latter country wish to spend in the former.

Such a country is said to have a balance of payments deficit. What bas happened is that the social

cost to this economy of utilizing a unit of foreign currency is greater than the market price.

Foreign currency has been underpriced.

One way of compensating the underpricing of foreign exchange in social cost-benefit analysis is the use of shadow or accounting prices for foreign exchange. In the country under study, the Wnrld Bank bas determined a shadow price of 130% for the foreign exchange. If, for example, the official

exchancîe rate for US$ 1 is 0.5 local L, the shadow priced equivalent will _be US$ 1 = 1.3 x L0.5=L0.65.

The shadow price is thus 30% higher than the official exchange rate.

In the nidel the costs and benefits which arise from the purchase and operation of the ships are

separated in local currency and foreign exchange elements. The foreign exchange elements are

multi-plied by the shadow price of foreign exchange and these nixiif led costs and benefits are discounted. This is _an impartant indicator for a developing country.

employment; There are two types of emplont opportunities generated by a national shipping line,

resulting from the manning of the ships and the administrative and management staff. Both are cal