Understanding the limitations of the Discounted Cash flow Methodology (DCF) has resulted in increased usage of the real option analysis for ship investment decisions under uncertainty. In this paper, our contribution is twofold: We propose an equilibrium model for explaining aggregate investment behaviour in the new building industry for tankers and provide a framework for testing the real option markup hypothesis in our model for investment decisions in new tanker vessels. Under relevant aggregation assumptions, count data models are employed to test the robustness of the real options hypothesis and its impact on investment decisions.
Since the pioneering work of Koopmans (1939) and Mossin (1968) in Maritime Economics, the market for new vessels, the market for second-hand vessels, the freight rate market and finally the market for scrap have been considered as different markets where price is formed under the laws of supply and demand. In this paper, we consider the prices of new vessels and the charter rates as sufficient statistics for the value of second-hand vessels. Using modern finance theory, we derive a closed formula for the prices of second-hand vessels taking into consideration their Real Option value. We introduce two explanatory variables for second-hand prices and derive equilibrium prices in a partial equilibrium framework. Our model fits the data and provides some structural insight into the functional form of second-hand prices. Maritime Economics & Logistics (2003) 5, 251–267. doi:10.1057/palgrave.mel.9100084
Since the pioneering work of Zannetos in maritime economics, it has been well understood that prices of new vessels are non-stabilising. In the earlier literature, most of this behaviour has been attributed to market imperfections and externalities. In this paper, we test empirically the stabilising role of the prices of new vessels through the application of advanced econometric tests. Finally, we challenge the assertion that the sub-optimal behaviour of new building prices is due to market anomalies, such as subsidies, and propose a perfectly competitive paradigm that can successfully accommodate the observed patterns of new building price behaviour. Maritime Economics & Logistics (2004) 6, 312–321. doi:10.1057/palgrave.mel.9100115
Managers can improve their investment decisions in a cyclical market, such as the tanker market, by using system-dynamics models. We developed and implemented a system-dynamics model for the tanker market for Niver Lines. We combine entry, exit, and lay-up decisions, and determine the flow of transportation supply. Then, we compare supply and demand and calibrate the system. We derived time-charter rates from the interaction of supply and demand using historical data from 1980 through 2002. Our results reveal the key factors that affect tanker rates and unforeseen dynamics. The model is a powerful tool for modeling the impact of changes in various factors on time-charter rates.
Heracles General Cement Company, a member of Lafarge Group, is the largest producer of cement in Greece. In 2005, the corporation decided to improve the efficiency of its supply chain. To help manage this process, we developed a platform for supply chain optimization and planning (SCOP) using mathematical programming. Today, Heracles management uses SCOP to guide its supply chain operations, determine optimal operational response policies to fluctuations in demand and production, perform mid- and long-term planning, evaluate what-if scenarios, address network optimization problems, and identify the best tactics for implementing strategic decisions. SCOP has enabled Heracles to improve its global performance in supply chain management and achieve substantial savings at the operational and strategic levels.
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