A French container operator runs a regular liner shipping service on a weekly basis between South...

 

 
 

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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 (S milion) Fixed costs (FC) Cost item Total % TC % Variable % VC costs FC costs (VC) (TC) 12.50 8.9 Manning costs (wages & social benefits) Ship and crew stores Routine maintenance costs Repair costs Hull & Machinery (H&M) insurance Shoreside admin, agency & 1.50 1.25 1.1 0.9 1.0 1.8 1.35 2.50 8.20 5.8 overhead costs Total Operating Costs 27.30 19.5 VOYAGE COSTS ($ million) Marine fuel (bunker costs) Port Charges Cargo-handling charges Total Voyage Costs 26.50 18.9 7.50 5.4 9.00 6.4 30.7 CAPITAL COSTS ($ million) 49.8 43.00 Interest & Repayment costs Total Capital Costs TOTAL ANNUAL COSTS 69.70 69.70 49.8 140.00 100.0 Question One Question 1 (a) If this container operator adheres strictly to its published sailing schedule of named- day arrivals and departures from its various ports of call, which of these cost items identified in Table 1 (or which typical proportions of the respective items of cost), could reasonably be seem as fixed costs in this short-run situation, and which could be viewed as variable costs? I am looking for a full, reasoned argument for each cost item shown in the Table. (25 marks) 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 (S milion) Fixed costs (FC) Cost item Total % TC % Variable % VC costs FC costs (VC) (TC) 12.50 8.9 Manning costs (wages & social benefits) Ship and crew stores Routine maintenance costs Repair costs Hull & Machinery (H&M) insurance Shoreside admin, agency & 1.50 1.25 1.1 0.9 1.0 1.8 1.35 2.50 8.20 5.8 overhead costs Total Operating Costs 27.30 19.5 VOYAGE COSTS ($ million) Marine fuel (bunker costs) Port Charges Cargo-handling charges Total Voyage Costs 26.50 18.9 7.50 5.4 9.00 6.4 30.7 CAPITAL COSTS ($ million) 49.8 43.00 Interest & Repayment costs Total Capital Costs TOTAL ANNUAL COSTS 69.70 69.70 49.8 140.00 100.0 Question One Question 1 (a) If this container operator adheres strictly to its published sailing schedule of named- day arrivals and departures from its various ports of call, which of these cost items identified in Table 1 (or which typical proportions of the respective items of cost), could reasonably be seem as fixed costs in this short-run situation, and which could be viewed as variable costs? I am looking for a full, reasoned argument for each cost item shown in the Table. (25 marks)

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