Shipping Finance Research Papers - Academia.edu (original) (raw)

This is an earlier and substantially lengthier version of the European Commission’s Green Paper on Ports and Maritime Infrastructure, which I had prepared as a member of Commissioner Neil Kinnock’s wise men group. The Green Paper has... more

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- Business, Management, Economic History, Transport Economics

This paper investigates the dynamics of stock price volatility for different vessel-type segments of the U.S, water transportation industry. We measure market exposure by a portfolio of tanker, dry bulk, container, and gas stocks to examine tail behavior and tail risk dependence. The role of mixture distributions in predicting future volatility is studied from both statistical and economic perspectives. We further test for predictability in co-movements in the tails of sectors returns. Findings indicate that large losses are strongly correlated, supporting asymmetric transmission processes for financial contagion. Finally, using a non-parametric approach, we extend the model to the multivariate case and assess the value of volatility and correlation timing in optimal portfolio selection. The results can help to improve the understanding of time-varying volatility, correlation and tail systemic risk of shipping stock markets, and consequently, have implications for risk management and asset allocation practices, as well as regulatory policies.

- by panos pouliasis
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- Urban And Regional Planning, Shipping Finance
- by Nikolaos Zahariadis
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior

• Due to recent economic situation, Multi Finance Companies have been through rough situation and merely some of them can survive. There only a handful of Multi Finance Companies focusing in Shipping and Maritime Industry. Some of them are designed by ship yards to support their customers.
• Bare Boat Hired Purchase is one of the most popular business model as financial solution in shipping industry, where it takes shipping company at one end, and Multi Finance Company at the other end. Cost of fund is the most important factor in Multi Finance Business. Therefore an access to competitive cost of fund is a key to success in the business.
• Due to the surviving market, there is an opportunity to take over existing Multi Finance Companies. Never the less careful due diligence is an important prerequisite. Take over existing company will give time benefit, although may give higher risk.

- by Furqon Herdiana
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- Corporate Finance, Shipping Finance

The International Handbook of Shipping Finance is a one-stop resource, offering comprehensive reference to theory and practice in the area of shipping finance. In the multibillion dollar international shipping industry, it is important to understand the various issues involved in the finance of the sector. This involves the identification and evaluation of the alternative sources of capital available for financing the ships, including the appraisal and budgeting of shipping investment projects; legal and insurance aspects of ship finance; the financial analysis and modelling of investment projects; mergers and acquisitions; and the commercial and market risk management issues involved. Technical where appropriate, but grounded in market reality, this is a "must-have" reference for anyone involved in shipping finance, from bank practitioners and commodity trading houses, to shipbrokers, lawyers and insurance houses as well as to university students studying shipping finance.

- by Ilias Visvikis
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- Shipping Finance

This report presents an overview and trends of the ship finance practices in major shipbuilding economies. Ship finance is a broad term that involves corporate financial management of shipping companies and shipyards as well as new-building finance. Shipping companies need funds in order to refinance their debts, to sustain their working capital and to acquire vessels. Shipyards also need to finance their working capital before delivering orders and receiving full payments. There are two main sources of capital allowing shipping companies to finance their businesses; raising money through equity financing (sales of shares) or debt (loans and bonds). In the case of shipbuilding, debt financing includes using leasing schemes. Given the fact that the maritime industry is highly capital intensive, and with the 2008 Global Financial Crisis’ depressing effects on global economy and international trade, its financing has become critical for the shipbuilding sector and shipping companies around the world.

- by Cenk Ufuk Yıldıran
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- Shipping Finance
- by Hercules Haralambides
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- Management, Economics, Econometrics, Supply Chain Management

This article presents results from the first statistically significant study of cost escalation in transportation infrastructure projects. Based on a sample of 258 transportation infrastructure projects worth US$90 billion and representing different project types, geographical regions, and historical periods, it is found with overwhelming statistical significance that the cost estimates used to decide whether such projects should be built are highly and systematically misleading. Underestimation cannot be explained by error and is best explained by strategic misrepresentation, that is, lying. The policy implications are clear: legislators, administrators, investors, media representatives, and members of the public who value honest numbers should not trust cost estimates and cost-benefit analyses produced by project promoters and their analysts.

- by Bent Flyvbjerg
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior

Theoretical chapter of an EU study on the economic impact of the European shipping sector.

- by Hercules Haralambides
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- Business, Management, Economic History, Transport Economics

Megaproject Planning and Management: Essential Readings contains the seminal articles from the growing body of research on megaproject planning and management along with an original introduction by the editor, Bent Flyvbjerg. The leading and most cited authority in the field, Flyvbjerg has used crowdsourcing and 25 years of experience to cherry-pick from several hundred articles and books the writings that define the field. This volume will be an indispensable source for those wishing to speak with authority about how megaprojects are prepared, delivered, and fought over. The target audience is students, academics, practitioners, and media pundits alike, as well as communities affected by megaprojects.

- by Bent Flyvbjerg
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- Critical Theory, Entrepreneurship, Organizational Behavior, Information Systems

Back cover text: Megaprojects and Risk provides the first detailed examination of the phenomenon of megaprojects. It is a fascinating account of how the promoters of multi-billion dollar megaprojects systematically and self-servingly misinform parliaments, the public and the media in order to get projects approved and built. It shows, in unusual depth, how the formula for approval is an unhealthy cocktail of underestimated costs, overestimated revenues, undervalued environmental impacts and overvalued economic development effects. This results in projects that are extremely risky, but where the risk is concealed from MPs, taxpayers and investors. The authors not only explore the problems but also suggest practical solutions drawing on theory, experience and hard, scientific evidence from the several hundred projects in twenty nations and five continents that illustrate the book. Accessibly written, it will be the standard reference for students, scholars, planners, economists, auditors, politicians and interested citizens for many years to come.

- by Bent Flyvbjerg
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- Critical Theory, Business, Entrepreneurship, Entrepreneurship

The article first describes characteristics of major infrastructure projects. Second, it documents a much neglected topic in economics: that ex ante estimates of costs and benefits are often very different from actual ex post costs and benefits. For large infrastructure projects the consequences are cost overruns, benefit shortfalls, and the systematic underestimation of risks. Third, implications for cost–benefit analysis are described, including that such analysis is not to be trusted for major infrastructure projects. Fourth, the article uncovers the causes of this state of affairs in terms of perverse incentives that encourage promoters to underestimate costs and overestimate benefits in the business cases for their projects. But the projects that are made to look best on paper are the projects that amass the highest cost overruns and benefit shortfalls in reality. The article depicts this situation as ‘survival of the unfittest’. Fifth, the article sets out to explain how the problem may be solved, with a view to arriving at more efficient and more democratic projects, and avoiding the scandals that often accompany major infrastructure investments. Finally, the article identifies current trends in major infrastructure development. It is argued that a rapid increase in stimulus spending, combined with more investments in emerging economies, combined with more spending on information technology is catapulting infrastructure investment from the frying pan into the fire.

- by Bent Flyvbjerg
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior
- by Hercules Haralambides
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- Management, Transport Economics, Econometrics, Supply Chain Management

This thesis aims to examine the correlation between the Baltic Dry Index which is published by Baltic Exchange in London daily and in terms of global trade is considered as one of the most important indicators by many and Crude Oil Prices for which the Brent Crude Oil Prices to be taken as a reference variable.
The research expects to put forth the spillover effect that the Brent Crude Oil price fluctuations have upon the Baltic Dry Index through the cost of shipping directly affecting the vitality of international trade and production. In this context, the study firstly conducts a thorough review of available literature to establish the conclusion that by means of MV DCC-GARCH volatility approach, there is volatility transmission from Brent Crude Oil prices to the BDI. Afterward, respective variables were explained and volatility models were discussed. And ultimately, the test results for the selected model were explained and interpreted.
Empirical findings indicate that as the cost of energy for ocean transportation accounts for a significant amount of total costs, concordantly fluctuations of oil prices for several reasons directly affect the performance of the Index on a global scale.

- by Nikolaos Astras
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- Shipping/ Transport Logistics, Shipping Management, Shipping, Shipping Finance

As megaprojects have become ubiquitous, their real benefits and costs have come under increased scrutiny. We interviewed Bent Flyvbjerg, who has extensively studied megaproject development. Flyvbjerg has found systematic problems in the development process: by intentionally misrepresenting information and deliberately disregarding risks, proponents instigate projects that result in fewer benefits and higher costs than promised.

- by Renia Ehrenfeucht
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior

The Supplementary Green Book Guidance on Optimism Bias (HM Treasury 2003) with reference to the Review of Large Public Procurement in the UK (Mott MacDonald 2002) notes that there is a demonstrated, systematic, tendency for project appraisers to be overly optimistic and that to redress this tendency appraisers should make explicit, empirically based adjustments to the estimates of a project’s costs, benefits, and duration. HM Treasury recommends that these adjustments be based on data from past projects or similar projects elsewhere, and adjusted for the unique characteristics of the project in hand. In the absence of a more specific evidence base, HM Treasury has encouraged departments to collect data to inform future estimates of optimism, and in the meantime use the best available data. In response to this, the Department for Transport (henceforth DfT), has contracted Bent Flyvbjerg in association with COWI to undertake the consultancy assignment "Procedures for dealing with Optimism Bias in Transport Planning". The present Guidance Document is the result of this assignment.

- by Bent Flyvbjerg
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior

This is the book by which, with Neil Kinnock and Glenda Jackson (then UK transport minister), we introduced the Quality Shipping campaign, as well as the European Commission’s “Towards a New Maritime Strategy” document, appended in the... more

"Over budget, over time, over and over again" appears to be an appropriate slogan for large, complex infrastructure projects. This article explains why cost, benefits, and time forecasts for such projects are systematically over-optimistic in the planning phase. The underlying reasons for forecasting errors are grouped into three categories: delusions or honest mistakes; deceptions or strategic manipulation of information or processes; or bad luck. Delusion and deception have each been addressed in the management literature before, but here they are jointly considered for the first time. They are specifically applied to infrastructure problems in a manner that allows both academics and practitioners to understand and implement the suggested corrective procedures. The article provides a framework for analyzing the relative explanatory power of delusion and deception. It also suggests a simplified framework for analyzing the complex principal-agent relationships that are involved in the approval and construction of large infrastructure projects, which can be used to improve forecasts. Finally, the article illustrates reference class forecasting, an outside view de-biasing technique that has proven successful in overcoming both delusion and deception in private and public investment decisions.

- by Bent Flyvbjerg
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior

This article presents results from the first statistically significant study of traffic forecasts in transportation infrastructure projects. The sample used is the largest of its kind, covering 210 projects in 14 nations worth U.S.$59 billion. The study shows with very high statistical significance that forecasters generally do a poor job of estimating the demand for transportation infrastructure projects. For 9 out of 10 rail projects, passenger forecasts are overestimated; the average overestimation is 106%. For half of all road projects, the difference between actual and forecasted traffic is more than ±20%. The result is substantial financial risks, which are typically ignored or downplayed by planners and decision makers to the detriment of social and economic welfare. Our data also show that forecasts have not become more accurate over the 30-year period studied, despite claims to the contrary by forecasters. The causes of inaccuracy in forecasts are different for rail and road projects, with political causes playing a larger role for rail than for road. The cure is transparency, accountability, and new forecasting methods. The challenge is to change the governance structures for forecasting and project development. Our article shows how planners may help achieve this.

- by Bent Flyvbjerg
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior

In response to the significant emission reduction potential of ocean transport, researchers and industry stakeholders have come up with green solutions for addressing the industry's environmental challenges. The variety of technical measures and the even wider range of their potential combinations call for generalized financing approaches to support technological driven environmental progress. This article is one of the first to present a financing model based on export credit schemes (ECS) that could be applied to retrofits of existing ships and green new build ships alike. A market evidence analysis followed by an event study based on 20 ECS loans and stock returns over an approximately 5 years period is carried out in the context of the cruise industry to introduce ECS concepts to the area of transportation research and to develop empirically grounded model assumptions. A scenario-simulation based model application using an empirical sample of bond spread curves from the leisure and transport industry indicates that the potential capital structure benefit is highest for the retrofit case. The importance of a constant dialogue between technical and financial decision-makers is emphasized, as ECS are linked to technical decisions such as selection of shipyards and manufacturers.

- by Orestis Schinas
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- Shipping Finance, Export Credit, Ship Finance

Do different types of megaprojects have different cost overruns? This apparently simple question is at the heart of research at the University of Oxford aimed at understanding the characteristics of megaprojects, particularly in terms of how they are established, run and concluded. In this study, we set out to investigate cost overruns in the Olympic Games. To do so, we examined the costs of the Games over half a century, including both summer and winter Olympics. We looked at the evolution of final reported costs and compared these to the costs established in the Games bids, submitted to the International Olympic Committee (IOC) up to seven years before the Games occurred. In so doing we established the largest dataset of its kind, and documented for the first time in a consistent fashion the costs and cost overruns for the Olympic Games, from 1960 to 2012. We discovered that the Games stand out in two distinct ways compared to other megaprojects: (1) The Games overrun with 100 per cent consistency. No other type of megaproject is this consistent regarding cost overrun. Other project types are typically on budget from time to time, but not the Olympics. (2) With an average cost overrun in real terms of 179 per cent – and 324 per cent in nominal terms – overruns in the Games have historically been significantly larger than for other types of megaprojects, including infrastructure, construction, ICT, and dams. The data thus show that for a city and nation to decide to host the Olympic Games is to take on one of the most financially risky type of megaproject that exists, something that many cities and nations have learned to their peril. For the London 2012 Games, we find that: (1) With sports-related real costs currently estimated at USD14.8 billion, London is on track to become the most costly Olympics ever. (2) With a projected cost overrun of 101 per cent in real terms, overrun for London is below the historical average for the Games, but not significantly so. (3) The London cost overrun is, however, significantly higher than overruns for recent Games since 1999. London therefore is reversing a positive trend of falling cost overruns for the Games.

- by Bent Flyvbjerg
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior

- by Bent Flyvbjerg
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior

"The paper examines shipping finance in the Republic of Ragusa during the French Wars, a period of high risks and equally high profits for seafarers in the Mediterranean, focusing on maritime loans, a diachronic credit and insurance instrument which dominated daily practices of the maritime business in Ragusa and other ports. The material, which derives from maritime loan contracts dating between 1783 and 1805, preserved in the State Archives of Dubrovnik, is examined on the basis (a) of the basic parameters, terms and conditions in the market of Ragusa, and (b) of the protagonists themselves, looking at their social, cultural and economic background and the relationships, co-operation and disputes that aroused between them, through their contractual agreements.
Although there is abundance of primary sources of this type, mainly notarial documents, historical studies on the use and importance of maritime loan as credit and finance device in the Modern Period remain rather limited. The present study of the case of Ragusa, one of the last Mediterranean Maritime Republics, is a contribution in this direction, demonstrating that maritime loan was fully integrated in the shipping business mechanism and a very profitable investment for the individuals involved."

- by Apostolos Delis
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- Maritime History, Shipping, History of the Mediterranean, Shipping Finance

Back cover text: This book aims to enlarge the understanding of decision-making on mega-projects and suggest recommendations for a more effective, efficient and democratic approach. Authors from different scientific disciplines address various aspects of the decision-making process, such as management characteristics and cost-benefit analysis, planning and innovation and competition and institutions. The subject matter is highly diverse, but certain questions remain at the forefront. For example, how do we deal with protracted preparation processes, how do we tackle risks and uncertainties, and how can we best divide the risks and responsibilities among the private and public players throughout the different phases of the project? - Presenting a state-of-the-art overview, based on experiences and visions of authors from Europe and North America, this unique book will be of interest to practitioners of large-scale project management, politicians, public officials and private organisations involved in mega-project decision-making. It will also appeal to researchers, consultants and students dealing with substantial engineering projects, complex systems, project management and transport infrastructure.

- by Bent Flyvbjerg
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior

This paper focuses on problems and their causes and cures in policy and planning for large infrastructure projects. First, it identifies as the main problem in major infrastructure development pervasive misinformation about the costs, benefits, and risks involved. A consequence of misinformation is massive cost overruns, benefit shortfalls, and waste. Second, the paper explores the causes of misinformation and finds that political-economic explanations best account for the available evidence: planners and promoters deliberately misrepresent costs, benefits, and risks in order to increase the likelihood that it is their projects, and not the competition's, that gain approval and funding. This results in the "survival of the unfittest," where often it is not the best projects that are built, but the most misrepresented ones. Finally, the paper presents measures for reforming policy and planning for large infrastructure projects, with a focus on better planning methods and changed governance structures, the latter being more important.

- by Bent Flyvbjerg
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior

Risk, including economic risk, is increasingly a concern for public policy and management. The possibility of dealing effectively with risk is hampered, however, by lack of a sound empirical basis for risk assessment and management. This article demonstrates the general point for cost and demand risks in urban rail projects. The article presents empirical evidence that allow valid economic risk assessment and management of urban rail projects, including benchmarking of individual or groups of projects. Benchmarking of the Copenhagen Metro is presented as a case in point. The approach developed is proposed as a model for other types of policies and projects in order to improve economic and financial risk assessment and management in policy and planning.

- by Bent Flyvbjerg
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior

Out-of-control information technology (IT) projects have ended the careers of top managers, such as EADS CEO Noël Forgeard and Levi Strauss’ CIO David Bergen. Moreover, IT projects have brought down whole companies, like Kmart in the US and Auto Windscreen in the UK. Software and other IT is now such an integral part of most business processes and products that CEOs must know their IT risks, which are typically substantial – and overlooked. The analysis of a sample of 1,471 IT projects showed that the average cost overrun was 27% — but that figure masks a far more alarming “fat tail” risk. Fully one in six of the projects in the sample was a Black Swan, with a cost overrun of 200%, on average, and a schedule overrun of almost 70%. This highlights the true pitfall of IT change initiatives: It’s not that they’re particularly prone to high cost overruns on average – it is that there are a disproportionate number of Black Swans. By focusing on averages instead of the more damaging outliers, most managers and consultants have been missing the real risk in doing IT. In conclusion, the article outlines ideas as to what can be done to avoid Black Swans.

- by Bent Flyvbjerg
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior
- by Zahasher Hossain
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- Shipping/ Transport Logistics, Shipping Management, Shipping, MARINE POLLUTION

2008. 352 pp. r150.00 (hardcover). This volume is intended to explain why major investment projects (the so-called mega-projects) often are not completed on time and cost more than originally budgeted. Drawing from experiences of European and North American countries, the book also suggests ways to avoid such failures. Although the topic is rather specific, the book is worth reading for both experts and nonexperts as infrastructure development continues to be a major key to economic expansion across the globe.g row_486 380.. 408 For those who only have a vague idea of what a mega-project is, the book begins by introducing the topic and reviewing the most important recent literature. The first part of the volume, then, provides numerous insights on the complexity of mega-projects, starting from the large number of reasons why mega-projects might fail. For example, the project might be "underdesigned," thus less costly but less robust to unforeseen developments, or it might be "overdesigned," when a large number of weaknesses and possible problems are considered in advance, and solutions are evaluated before the problem actually occurs. Overdesigned projects are more robust, less likely to fail, but are much more costly. The project might involve the use of innovative technologies that have never been applied to a similar context, and that involve more uncertain implementation costs and results. Most projects have an impact on the environment and might face opposition for example from environmentalist groups. If representative of these groups have not been directly involved in the design of the project, they might try to stop it, thus causing delays and increasing costs. Finally, because of incorrect predictions of 380 GROWTH AND CHANGE, JUNE 2009

- by Srinivasan Srini
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior

This paper focuses on problems and their causes and cures in policy and planning for large-infrastructure projects. First, it identifies as the main problem in major infrastructure developments pervasive misinformation about the costs, benefits, and risks involved. A consequence of misinformation is cost overruns, benefit shortfalls, and waste. Second, it explores the causes of misinformation and finds that political-economic explanations best account for the available evidence: planners and promoters deliberately misrepresent costs, benefits, and risks in order to increase the likelihood that it is their projects, and not those of their competition, that gain approval and funding. This results in the ‘survival of the unfittest’, in which often it is not the best projects that are built, but the most misrepresented ones. Finally, it presents measures for reforming policy and planning for large-infrastructure projects with a focus on better planning methods and changed governance structures, the latter being more important.

- by Bent Flyvbjerg
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior

The chapter seeks to model the benefits and costs involved in the decision to flag out, and to provide arguments for alternative (national) policies, aiming to counteract this age-long phenomenon. Based on the analysis of the evolution of worldwide and Chinese flagging-out, the emphasis in the chapter is on a ‘comprehensive effect’ assessment of flagging out and the required adjustments in national policies. China is used as a case study. To identify the determinants of such an adjustment, the chapter introduces fuzzy set theory and related models, aimed to assess the economic effects of flagging out through the use of ‘context-dependent’ economic and societal indicators (factors). The degree to which such indicators contribute to the choice of flag is assessed via an international survey. In parallel, and in the context of the determinant analysis of fuzzy models, the chapter probes into the ‘policy competition’ and ‘government intervention’ issues that ought to be considered in national efforts to counteract flagging out. In the same context, a comparative analysis of shipping policies between China and ‘traditional maritime countries’ is undertaken, in an effort to assess the current ‘openness’ of Chinese shipping policies and explore possible policy alternatives. The chapter concludes that the preferred policy alternative for China would be the establishment of second international ship register.

- by Hercules Haralambides
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- Management, Mathematics, Economics, Transport Economics

A major source of risk in project management is inaccurate forecasts of project costs, demand, and other impacts. The paper presents a promising new approach to mitigating such risk, based on theories of decision making under uncertainty which won the 2002 Nobel prize in economics. First, the paper documents inaccuracy and risk in project management. Second, it explains inaccuracy in terms of optimism bias and strategic misrepresentation. Third, the theoretical basis is presented for a promising new method called "reference class forecasting," which achieves accuracy by basing forecasts on actual performance in a reference class of comparable projects and thereby bypassing both optimism bias and strategic misrepresentation. Fourth, the paper presents the first instance of practical reference class forecasting, which concerns cost forecasts for large transportation infrastructure projects. Finally, potentials for and barriers to reference class forecasting are assessed.

- by Bent Flyvbjerg
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior

The growth in liner shipping capacity; the degree of containerisation of general cargo trades; and the average and maximum size of containerships have all been increasing at a remarkable rate during the past 20 years. Futurologists, naval... more

- by Hercules Haralambides
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- Management, History, Geography, Economics

Dan Lovallo and Daniel Kahneman must be commended for their clear identification of causes and cures to the planning fallacy in “Delusions of Success: How Optimism Undermines Executives’ Decisions” (July 2003). Their look at overoptimism, anchoring, competitor neglect, and the outside view in forecasting is highly useful to executives and forecasters. However, Lovallo and Kahneman underrate one source of bias in forecasting—the deliberate “cooking” of forecasts to get ventures started. My colleagues and I call this the Machiavelli factor.

- by Bent Flyvbjerg
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior

Results from the first statistically significant study of the causes of cost escalation in transport infrastructure projects are presented. The study is based on a sample of 258 rail, bridge, tunnel and road projects worth US$90 billion. The focus is on the dependence of cost escalation on: (1) the length of the project‐implementation phase, (2) the size of the project and (3) the type of project ownership. First, it was found, with very high statistical significance, that cost escalation was strongly dependent on the length of the implementation phase. The policy implications are clear: decision‐makers and planners should be highly concerned about delays and long implementation phases because they translate into risks of substantial cost escalations. Second, projects have grown larger over time, and for bridges and tunnels larger projects have larger percentage cost escalations. Finally, by comparing the cost escalation for three types of project ownership - private, state‐owned enterprise and other public ownership - it was shown that the oft‐seen claim that public ownership is problematic and private ownership effective in curbing cost escalation is an oversimplification. The type of accountability appears to matter more to cost escalation than type of ownership.

- by Bent Flyvbjerg
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior

- by panos pouliasis
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- Urban And Regional Planning, Shipping Finance

This paper explores how theories of the planning fallacy and the outside view may be used to conduct quality control and due diligence in project management. First, a much-neglected issue in project management is identified, namely that the front-end estimates of costs and benefits – used in the business cases, cost-benefit analyses, and social and environmental impact assessments that typically support decisions on projects – are typically significantly different from actual ex post costs and benefits, and are therefore poor predictors of the actual value and viability of projects. Second, it is discussed how Kahneman and Tversky’s theories of the planning fallacy and the outside view may help explain and remedy this situation through quality control of decisions. Third, it is described what quality control and due diligence are in the context of project management, and an eight-step procedure is outlined for due diligence based on the outside view. Fourth, the procedure is tested on a real-life, multibillion-dollar project, organized as a public-private partnership. Finally, Akerlof and Shiller’s recent discussion in economics of “firing the forecaster” is discussed together with its relevance to project management. In sum, the paper demonstrates the need, the theoretical basis, a practical methodology, and a real-life example for how to de-bias project management using quality control and due diligence based on the outside view.

- by Bent Flyvbjerg
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- Critical Theory, Business, Entrepreneurship, Organizational Behavior

Another prediction come true. When the discussions about NOL taking over Hapag Lloyd were taking place, I had calculated (and published) that Hapag Lloyd was asking two billion dollars over its market value at those market conditions.... more

- by Hercules Haralambides
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- Management, Economics, Transport Economics, Supply Chain Management

Take the 2014, 2015 annual and H1/2016 consolidated reports of the following shipping companies
A.
Diana Shipping Inc (http://www.dianashippinginc.com)
B. Safe Bulkers (http://www.safebulkers.com)
QUESTIONS-PART A:
After reading thoroughly, compare and contrast the 2 groups and try to emphasize on the following areas:

Business overview, Fleet profile (capacity, type of vessels, age, etc) and new building projects (if any) – 15%
Past financial performance, risks (Balance Sheet, Income Statement,Cash Flow statement, Debt evolution, uses of debt etc) and market prospects– 35%
QUESTIONS-PART B:
Imagine you are a shipping analyst in a major Greek bank. Diana Shipping is interested in acquiring an additional vessel (b/c, 2010 built, 60.000 DWT, 10.000 LWT) from the secondhand market that currently costs $12 million (the “Project”).

A) Taking into consideration the prevailing market conditions, Diana’s credit profile, what would be the optimum level/range of debt that the bank can provide for such vessel? -10%
B) Would the level of debt change if Safe Bulker was the borrower instead of Diana? If yes, suggest the ideal debt amount-10%
Prepare an indicative termsheet/offer letter mentioning the key terms and conditions of the envisaged financing (amount, tenor, repayment schedule, spread/margin, fees, security package, covenants, major clauses etc). Briefly explain your rationale-20%
Prepare a cash flow projection for the vessel based on the assumptions below. Comment if the project is viable and provide alternatives if needed - 10%
For the cash flow projections assume the following (simplified scenario/figures)
a) Tenor: 5 years
b) Debt: 65% of the vessel’s value, payable in five (5) annual installments of USD 780,000 and a
balloon payment of USD 3,900,000. Installments are paid at the end of each year.
c) Spread 6,00% p.a.
d) LIBOR for the next 5 years at 0.5% p.a.
e) Vessel is employed in the spot market
f) Employment and opex days at 350 and 360 per annum respectively
g) Projected freight rates and operating expenses (all operating expenses include management
fees and provisions for intermediate/special survey cost).
h) No inflation to be applied in the opexes (steady at USD 6,000 per day)
i) Employment rates: 2017 & 2018: USD 11,000 per day; 2019: USD 12,000 per day. Assume
same employment rates for 2019 onwards.
j) we assume vessel’s values to depreciate (straight line) at such rate so as to reach scrap level
of USD 250/Lwt, upon the vessel’s 25th anniversary. (no sale of vessels to be assumed)
k) ALL projections should start from 01/01/2017 and finish at 31/12/2021
Important clarification:
In relation to Question 1 & 2 of Part B, your personal opinion is requested, regardless the assumptions
provided for Question 3 of Part B

- by EIRINI PAPARAKI
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- Shipping Finance