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The Harper Petersen Charter Rate Index The HARPEX Concept

The Harpex Concept Contents 1.

Preliminary remarks.................................................................................................... 3

2.

The structure of Harpex .............................................................................................. 3

3.

2.1

Classes of vessel and the recording of charter parties ..............................................3

2.2

Index values...................................................................................................................4

2.3

Base rates ......................................................................................................................4

2.4

Weighting of the classes of vessel .............................................................................5

2.5

Determination of index values ...................................................................................6

Weekly report ............................................................................................................. 7

Annexes............................................................................................................................. 8

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1.

Preliminary remarks

HARPEX is the container ship index of the ship brokers Harper Petersen & Co. (GmbH & Cie. KG). The work of compiling the index was carried out in the year 2004 by staff of Harper Petersen & Co. and Nordcapital Holding and by Professor Berthold Volk of the Department of Shipping at the university of applied science Oldenburg/ Ostfriesland/ Wilhelmshaven. For eight classes of all-container ships, rate changes in the time charter market are recorded weekly in both nominal and indexed terms. On the basis of the weighted individual indices, an additional overall index is calculated for the whole of the container ship market. Using about 10,000 data records, it has also been possible to calculate the indices retrospectively back to the year 1986.

2.

The structure of Harpex

2.1 Classes of vessel and the recording of charter parties HARPEX currently distinguishes between eight classes of all-container vessel by the criteria of capacity (nominal TEU) and minimum speed. The classes range from 750 TEU to the Panamax class (5.200 TEU). For each class of vessel, all time charter parties with a defined minimum or maximum term are included in the index (see Table). Charter parties entered into in connection with a newbuilding project, sale-and-lease-back arrangements or the exercise of options are not included. The recording period is in each case one calendar week (Monday to Saturday). Table: Classes of vessel and periods recorded Class

Range from

To

Speed (min.)

Period (months)

kt

min – max

I

750

-

999

TEU

17.0

3 – 24

II

1,000

-

1,299

TEU

17.0

3 – 24

III

1,300

-

1,699

TEU

18.0

6 –36

IV

1,700

-

1,999

TEU

19.0

6 – 36

V

2,000

-

2,299

TEU

20.0

6 – 36

VI

2,300

-

2,999

TEU

21.0

6 – 36

VII

3,000

-

3,999

TEU

22.0

12 – 48

VIII

4,000

-

Panamax

TEU

24.0

12 – 48

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2.2 Index values For each class of vessel, an index value is determined weekly, showing the variance as against the base rate and the change as against the previous week. In addition, a weighted overall index is calculated every week.

2.3 Base rates The base rate for each class of vessel is the sum of the cost of capital and the ship operating costs. Cost of capital includes return on equity as well as interest on loan capital. For each class of vessel, the base rate is represented by the index value of 1.000 points.

2.3.1 Cost of capital The cost of capital for each class of ship is determined on the basis of the following assumptions: 1. Average newbuilding price* for the years 1997-2003 2. Loan capital quota...................................................... 70% 3. Return on equity......................................................... 12% p.a. 4. Interest on loan capital ............................................... 6% p.a. 5. Amortisation period ................................................... 15 years 6. Service life of the ship................................................ 25 years 7. Scrap value ................................................................ 5% of the newbuilding costs * From the known average newbuilding prices for the individual sizes of ship during the

reference period, the average newbuilding price per class of vessel is determined using exponential regression analysis.

2.3.2 Ship operating costs The ship operating costs are derived from the experience values of E.R. Schiffahrt, Rickmers Reederei, Harper Petersen & Co. and Nordcapital. They include all the management costs of the shipping companies and those of managing the ships, brokers’ fees, crewing, insurance, provisions and equipment, repairs and maintenance work, class rating and docking. Here too, the average operating costs per class of vessel are calculated using exponential regression analysis. It is assumed that ship operating costs increase by 3.0% annually.

2.3.3 Charter revenues By definition, a charter rate of 1.000 index points (= the base rate of the class of vessel concerned) will cover all the costs of purchasing, financing and operating the ship. As old ships earn lower charter rates than new ships, the assumption is made that the charter rate that can be obtained remains constant up to the 15th year of the ship’s life, and thereafter decreases linearly to a figure of 75% in the ship’s 25th year. In addition, an off-hire time of 10 days per year is assumed.

2.4 Weighting of the classes of vessel In order to determine an overall index, the average weekly charter rates of the individual classes of vessel are weighted. The following two-stage procedure is applied:

Firstly, the size of the existing charter fleet in the year to which the data refer is determined. Only those ships are included that are actually available on the charter market. Thus tonnage owned by the liner companies is not included, and nor are newbuildings for which charter parties have already been concluded. Since this definition makes it difficult to determine the size of the charter fleet precisely, it is arrived at approximately on the basis of the following figures (relating in each case to the fleet as at January 1st of the year concerned): •

for Classes I and II, the previous year’s charter fleet

•

for Classes III and IV, the charter fleet of 2 years previously

•

for Classes V and VI, the charter fleet of 3 years previously

•

for Classes VII and VIII, the charter fleet of 4 years previously.

In a second step, the base rate per class of vessel is multiplied by the number of charter vessels available. The rate values thus determined are added together and this figure is

considered to represent 1.000 index points. The weighting of a class of vessel is arrived at by dividing the rate value of the individual class by sum total of the rate values. The weighting is redetermined each year. This is intended to ensure that the overall index continually takes account of the increasing average size of the container vessel fleet, and so avoid the need to make sudden large adjustments to the index. The following shows as an example how the weighting per class of vessel was determined for the year 2004: Table: Determination of weighting per class of vessel for the year 2004

Klasse

Range (TEU)

I II III IV V VI VII VIII Gesamt

750-999 1.000-1.299 1.300-1.699 1.700-1.999 2.000-2.299 2.300-2.999 3.000-3.999 4.000-Panamax

Basisjahr Anzahl (1.1.) Schiffe 2003 2003 2002 2002 2001 2001 2000 2000

[Die Tabelle kann nicht bearbeitet werden] Class Range (TEU) Base year (1.1) Punkt = Komma

119 206 201 105 82 133 89 43 978

No. of ships

Durchschnittliche Basisrate 2001-2003, $/Tag 9.867 11.295 12.905 14.355 15.503 17.273 19.978 22.959

Average base rate 2001-2003, $/day Punkt = Komma

Ratenwert ($/Tag*Anz)

Anteil (Ratenwert)

1.174.173 2.326.770 2.593.905 1.507.275 1.271.246 2.297.309 1.778.042 987.237 13.935.957

8,4% 16,7% 18,6% 10,8% 9,1% 16,5% 12,8% 7,1% 100,0%

Rate value ($/day x no.)

Proportion (rate value)

Punkt = Komma

Komma = Punkt

Total

2.5

Determination of index values

In weeks in which few charter parties are concluded there is a danger of the index values being distorted by statistical anomalies. The concept therefore provides for the index to be calculated on the basis of at least ten charter parties per class of vessel and calendar week. If in any particular calendar week less than ten charter parties are recorded for any class of vessel, the procedure described in the annex is invoked. The annexes also contain the formulae used for calculating the base rates.

3.

Weekly report

For each class of vessel, the following information is determined each calendar week: •

the average time charter rate, in USD per day,

•

the number of actual charter parties recorded per week,

•

the average period of the charter parties concluded in weekly report and

•

the index value.

Additionally the concerned fixtures of each class are reported as well.

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Annexes HARPEX

Class 1

Class 2

Class 3

Class 4

750 999 17.0 3 24

1,000 1,299 17.0 3 24

1,300 1,699 18.0 6 36

1,700 1,999 19.0 6 36

8.5% 9,867

16.1% 11,295

19.1% 12,905

10.7% 14,335

from TEU to TEU kt (min) Period (min) Period (max) Weighting Base rate

2003 US$ pd No.

Date

year/ week

Av. Av. Index rate period Cl. 1 US$ pd month

Rate of No. change to prev. week

HARPEX week:

0337

4

9,000

9

878

2.6%

1st iteration

0338

6

8,745

10

886

0.9%

1st deviation

-1.1%

2nd iteration

0338

6

8,745

10

879

HARPEX

9

888

3.2%

11

9,400

9

832

-6.3%

0.1% 11

9,400

9

832

-6.3%

Av. Av. Index rate period Cl. 3 US$ pd month

Rate of No. change to prev. week

Av. Av. Index rate period Cl. 4 US$ pd month

4 15,063

11 1,145

1.2%

2 15,550

24 1,078

0.1%

25

1,145

0.0%

4

18

1,176

9.1%

25 1,138

-0.7%

18 1,110

3.0%

14,775

4 14,775

16,888

4 16,888

Class 7

Class 8

2,300 2,999 21.0 6 36

3,000 3,999 22.0 12 48

4,000 5,199 23.0 12 48

9.3% 15,503

15.8% 17,273

13.4% 19,978

7.1% 22,959

No.

Av. Av. Index Cl. 5 rate period US$ pd month

HARPEX week:

0337

2 18,913

1st iteration

0338

18,913

1st deviation

-1.1%

2nd iteration

0338

18,913

21 1,212 21

1,212

21 1,198

Rate of No. change to prev. week 0.1%

Av. rate US$ pd

1 21,500 10

22,460

-1.1% 10 22,460

Av. Index period Cl. 6 month 24 1,269 25

Rate of No. change to prev. week -0.3%

1,300

2.5%

25 1,300

2.5%

Rate of change to prev. week

4

Class 6

2003

year/ week

Rate of No. change to prev. week

2,000 2,299 20.0 6 36 US$ pd

Date

7 10,168

Av. Index period Cl. 2 month

Class 5

from TEU until TEU kt (min) Period (min) Period (max) Weighting Base rate

Av. rate US$ pd

Example of calculation: Class 2,1st I = 832 = 9400 / 11295 * 1000

1

Av. Av. Index rate period Cl. 7 US$ pd month 25,000

24 1,323

23,500

36

1 23,500

Rate of No. change to prev. week

Av. Av. Index rate period Cl. 8 US$ pd month

0.0%

2 29,250

1,176

-11.1%

29,250

36 1,295

-2.1%

29,250

36 1,449 36

Rate of HARPEX change to prev. week -3.0%

1,449

36 1,432

-1.1%

Rate of change to prev. week

1,145 1,132

-1.1%

1,137

-0.7%

1st

For each class of vessel it is determined, by the application of the restrictive criteria, how many of the charter parties reported as having been concluded are to be included in the calculation and how high the resulting average rate is. If there are no new charter parties that qualify for inclusion, the previous week's rate figure is taken over. As an additional indicator, the average term of the qualifying charter parties is determined.

2nd

The current rate figure is divided by the base rate of the class of vessel concerned, giving the provisional index level for that class of vessel in the first iteration. If there are no new charter parties for that class of vessel that qualify for inclusion, the previous week's index value. The rate of change shows the provisional percentage change in the class index as against that of the previous week.

3rd

The provisional overall index is arrived at by calculating the weighted average on the basis of the predetermined weightings of the various classes of vessel. In addition, the average overall rate of change of the provisional overall index as against the previous week is determined.

See box of this colour in Class 1

See box of this colour in Class 2

See box of this colour

4th A. In view of the criteria by which vessels are allocated to classes, it may be the case, especially if there are only a very small number of charter parties qualifying for inclusion in a

given week, that factors such as differing types of vessel or varying charter party terms lead to average rates being arrived at which do not truly reflect the average rates actually prevailing, thus distorting the index figure. For this reason, in cases where there are less than ten qualifying charter parties per class the deviation of the overall index determined in the first iteration is used to calculate the final rate of change of a class index. The provisional overall deviation is afforded a degree of influence in accordance with the number of qualifying charter parties, so that in the example in Class 4 above the figure 9.1% (provisional rate of change for that class of vessel) is given a 40% weighting and the overall deviation of -1.1% a weighting of 60%. The final value for the class index is then calculated on the basis of the final rate of change to the previous week. See box of this colour 4th B. If ten or more qualifying charter parties are included in the calculation for a class of vessel, the method of computation described in 4.A. is not applied (see example in Class 6).

See box of this colour in Class 6 5th

The final overall index is also arrived at by calculating the weighted average on the basis of the predetermined weightings of the various classes of vessel. In addition, the average overall rate of change of the final overall index as against the previous week is determined. See box of this colour

Hamburg, September 13th 2004

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