Many shipping companies as well as warships of navies of all countries to develop their services and at the same time follow technological developments choose either the construction of new ships (or surface ships and sub-surface sea ships when we refer to a navy) or the acquisition of used ships and the possible upgrading of them by carrying out extensive maintenance/upgrading work.
The answer, however, rather the correct answer to this dilemma as to whether a new ship should be built or acquired second-hand, is based on a series of precise answers which should be given to a series of questions, which concern current and future needs, available resources, any financing-repayment and the resources accompanying it, the quality of programming, etc.
by Thanos S. Chonthrogiannis
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In this analysis we will present how to approach the correct answer to this dilemma.
The choice of buying and upgrading the used ship
The second-hand ship is acquired by those companies (or naval warships) that do not have the financial resources to buy the same type of ship as new, or the pressure of needs leaves them no time to wait for the construction of a new type of ship even if they have the available resources to buy a new one.
If the financial resources are available but due to the pressing needs there is no time required, then it means that the planning of the maritime operation and/or the planning of the navies of entire countries, if we are talking about warships, is not correct.
In this case, it is essential to improve the company’s planning system so that the same mistake does not happen again in the future.
If the total cost during its exploitable life period is lower and at the same time the corresponding return (economic) it offers for the same always exploitable period-life is the same or greater than the corresponding type of new ship then the option of acquiring the second-hand ship is the right one for those companies that do not have capital or access to financing for the acquisition of the same type of new ship.
The correct decision should be based on a detailed economic and technical study covering and accurately providing all responses to the management of the shipping company. Whether the ship to be acquired is new or used and acquired by purchase of a paid price or used acquired at a minimum or zero price (free concession) the economic and technical study is necessary.
Each ship has an initial purchase price and an annual cost of use and maintenance that accompanies it from the day of its acquisition.
The older a ship is and more generally an asset acquired as used, the more the cost of its use and maintenance will increase, due to the increased number of faults and the increased degree of frequency of occurrence of these faults and the fewer the days of its exploitation and use will be.
At the same time, the older the ship, the less value its equipment will have.
On all acquired ships and more generally acquired assets there is a break-even point where from one day of use and beyond its maintenance becomes awfully expensive for what it can offer.
This means that shipping companies will have to pay large sums of money for infrastructure, training, maintenance, and crew manning.
If the same funds (total funds including the acquisition price and the cost of using/maintaining a second-hand ship) with the appropriate financing-borrowing scheme a shipping company had used them to buy new or new ships, what would be the return/cost for its total operating time?
And always compared this return/cost relation with the corresponding return/cost of the services that a used ship of the same type would provide for the same period.
What will be the cost of each option per exploitable day and how many days a year are those exploitable days in each option?
The importance of economic and technical study as a basis for decisions
Each company should follow an economic and technical study-methodology that accurately estimates the return/cost ratio of each ship, accompanied by numeromarkers (ratios) that will scan this return/cost ratio at any time.
There should be a detailed check of various positive or negative scenarios during the exploitable duration of use of the ship and whether the evolution of these scenarios has an impact on the evolution of the company.
In any case, this study-methodology will take all obvious or non-obvious parameters such as current lending and deposit rates, interest rates on swaps contracts, inflation rate, etc.
The estimates and assumptions included in the economic and technical study will be answered in detail by users/officers and mechanics and more generally the executives of the shipping company, while the economists who will undertake the preparation of the economic and technical study will analyse and compile the other parts of the study.
The more accurate these estimates and assumptions are, the more precise the outcome of the economic and technical study will be. More generally, you should be aware that a shipping company withdraws a ship when it considers that it does not have much more to offer.
The choice to build a new ship
Since the economic and technical study favours from its conclusions that it would be preferable to build a new ship rather than to buy and acquire a second-hand ship, the decision seems to be easier.
But in this case too some risks are unknown, and some are known. There should therefore be a general idea of their scope. For each of these risks, there should be proposed alternative options and procedures in place for each of these risks, and in what area priority should be given.
For example, give priority to
- Compliance with the timetable (e.g. parallel work, greater number of staff while increasing costs, etc.)
- Cost (e.g. discounts on specifications)
- The completeness of the achievement of the specifications (which means more time and money)
In addition, after the purchase-acquisition of a ship, the question of when is the ideal time for the shipping company to upgrade a new or used ship while at the same time to achieve the minimising of the cost of its use/maintenance should be answered before its acquisition,.
No shipping company now leaves its ships and its assets in general unless it exploits them fully first.
The post-pandemic Covid-19 era, among other things, what it has brought to the business world is the increased degree of uncertainty in all business actions.
Trust Economics (https://trusteconomics.eu) has developed such methodologies applied to economic and technical studies for each asset regardless of the industry in which a business operates.Alwayswiththebestcustomersatisfaction in mind,Trust Economics constantly improves its methodologies to achieve the completesatisfactionofitsclient.
