Question

Based on the attached article and relevant references, complete the following two tasks. a) Explain why U-Ming signed the 25-year Contract of Affreightment (COA).

b) Discuss how the delivery of two very large ore carriers (VLOC) may affect UMing’s operations and the shipping market.

U-MING ORDERS TWO VLOCS FROM QINGDAO BEIHAI

U-Ming Marine Transport (Singapore), a subsidiary of U-Ming Marine Transport Corporation, has signed a 25-year Contract of Affreightment (COA) with Vale International SA of Switzerland.
The COA is the biggest and longest commitment in U-Ming’s history and the total contract value is anticipated to be more than USD 600 million.
In order to support the contract, U-Ming has ordered two 325,000 dwt very large ore carriers (VLOC) from China’s Qingdao Beihai Shipbuilding Heavy Industry. The two ore carriers will feature an LNG-Ready design for retrofitting to dual-fuel in the future. The vessels are expected to be delivered in 2020.
U-Ming added that each vessel will be equipped with an ecoefficient main engine, SO2 scrubber features, digital optimization systems, and comply with the International Maritime Organization’s 2020 sulphur cap of 0.5% with effect from 2020.
“The signing of this long-term contract has further enhanced the cooperation and relationship between Vale International SA and U-Ming. The COA will commence in 2020 until 2045 for transporting Brazilian iron ore to China. We have been able to secure a bigger portion of long-term charters with stabilized revenue and profit for the company,” a U-Ming spokesman said.
The company added that the deal comes on the back of a significant recovery of the dry bulk shipping market in 2017, driven by higher demand from China and increasing iron production from mining companies in Australia and Brazil.
“This COA is contracted to meet the iron ore demand growth especially in China and other developing countries; and with UMing’s prudent management and customer service oriented vision to create a win-win for both parties,” the company’s spokesperson added.
According to Australia official estimates, the world iron ore total export in 2019 will reach 1.378 billion tons, a 7 pct growth as compared to 2017, of which Vale’s new S11D mine will reach a nominal capacity of 90 million tons per annue by 2020 with an iron content of up to 66.7 percent.
The total iron ore export from Brazil in 2019 is expected to be 10 percent higher than in 2017.
(Source: World Maritime News, January 31, 2018. https://worldmaritimenews.com/archives/242460/u-ming-orders-two-vlocs-from-qingdaobeihai/)

Answer 1

a) Explain why U-Ming signed the 25-year Contract of Affreightment (COA).

U-Ming Marine Transport (Singapore)is a subsidiary of U-Ming Marine Transport Corporation. It has signed 25-year

Contract of Affreightment (COA). It will gain in following ways:

• It helps company to be in maritime transport business for 25 years.
• It will add two 325,000 dwt very large ore carriers to its carrier fleet.
• This deal has enhanced the cooperation and relationship between Vale International SA and U-Ming.
• This deal has stabilized revenue and profit for the company,
• There is a growing demand for maritime carriers in the world.
• This deal with increased carrying capacity will create new business opportunities for U-Ming globally.(Refer: higher demand from China and increasing iron production from mining companies in Australia and Brazil. )

b) Discuss how the delivery of two very large ore carriers (VLOC) may affect UMing’s operations and the shipping market.

As explained above in point numbers 2, 4 and 5. Carriers will be able to carry more load and explore new markets.

It is also a expected that the total iron ore export from Brazil in 2019 is expected to be 10 percent higher than in 2017. China is having higher demand and hence this will boost profits for U-Ming through more carriage.

However, it also needs to be considered that company has to pay for these two carriers and there are fluctuations in iron ore demand and is susceptible to change according to global financial conditions. Iron is a basic industry and its demand depends on so many factors. This deal may create problems if U-Ming is not able to generate more business.