NAME 457 maritime economics and management Ship Design

1. NAME 457 Ship Economics and Management Part – 5: Economics in Ship Design Conducted by: Cdre M Muzibur Rahman, (E), psc, PhD, BN Cdre Muzib, psc, PhD

2. Sequential Engineering Design Concurrent Engineering Design Cdre Muzib, psc, PhD

3. The engineer is working with conflicting requirements Example Physical – minimum weight Economic – minimum cost Social/Sociopolitical – maximum safety Environmental/Polution – minimum impact Commercial – maximum efficiency Esthetic – maximum stylishness Etc. • • • • • • • The engineer resolves these conflicts and searches for “optimum” solutions in the design process. Cdre Muzib, psc, PhD

4. Ship Design Methodology Ship design is solving a problem with many VARIABLES. It is an ITERATIVE process. Prior to 1970, designers used The DESIGN SPIRAL. DESIGN SPIRAL: • Hull form • Appropriate dimensions • Hull prismatic coefficients • Power estimates • Weight estimates - Hull - Machinery - Outfitting • Deadweight capacity Cdre Muzib, psc, PhD

5. Ship Design Methodology Design Spiral: J H Evans (1959) introduced the concept of design spiral, which represents the sequential and iterative aspects of the process Cdre Muzib, psc, PhD

6. Ship Design Methodology Buxton (1972), introduced the economical aspects in ship design Andrews (1981), added the time dimension in Buxton design model Cdre Muzib, psc, PhD

7. Ship Design Methodology Taggart 1980 Cdre Muzib, psc, PhD

8. Ship Design Methodology Taggart 1980 Find out the cost of design for the man-hour cost of Tk 75.00 Cdre Muzib, psc, PhD

9. Ship Design Methodology Levander and Papanikolaou 2009 Cdre Muzib, psc, PhD

10. Time Scale of Ship Design Stages Cdre Muzib, psc, PhD

11. Economical aspect of Ship dimensioning Cdre Muzib, psc, PhD

12. Determination of the Design Variables • Parametric Studies – The independent variables are obtained by variation between the lower and upper limits assumed – Require more computing time when the number of design variables is high – No guarantees that the solution found is the optimal • Optimization Methods – The independent variables are obtained from an optimization algorithm – Possible to find a better and faster solution – Only provides information about the optimal point found (single objective methods) Cdre Muzib, psc, PhD

13. Size of ship is determined by number of physical restrictions. Few of them are: Shipbuilding facilities Docking and undocking capacity Shallow water en route / Canal /Straights Conditions of loading and unloading ports Cargo type and availability Computers permit multiple criteria – multi variate search patterns. “New ships should be • 25% novelty • 75% well proven practice.” - Baker Cdre Muzib, psc, PhD

14. Economic Analysis Cdre Muzib, psc, PhD

15. MARINE COST ESTIMATING Marine cost estimating is not an exact science. It has grown through application of methods and historical data. It is an area where significant improvement would help all shipyards as it is really pricing of estimated quantities of raw material and equipment. World class shipyards use parametric estimating plans and in most shipyards, Engineering is very involved in the estimating process, usually responsible for material take-off and definition of system design and associated equipment. Cdre Muzib, psc, PhD

16. MARINE COST ESTIMATING In addition, Engineering must estimate how much man hours and material it will require to design and build the ship. Because of the time and cost of preparing estimates, shipbuilders usually are selective on what the will bid on. Most shipyards management have a "Bid- No Bid" meeting for each invitation to bid. Bid decision is based on: - ongoing work - product fit to facilities and capabilities - extent of competition Cdre Muzib, psc, PhD

17. Methods of Estimating shipbuilding Cost Bottom-up Cost Estimation: Most detailed methods of estimating the ship building costs and are sometimes referred to as grass root or engineering build up estimating. These methods are only valid after the design has reached a level of significant technical maturity. It would have been a subject of accounting where the material cost of every parts and their assembly or labor cost is known and summarized to a total shipbuilding cost by the estimator. Bottom-up estimations may be based on drawings, bills of materials, historical vendor costs, and existing quotes. Also called analogous methods or Top-down extrapolation models. These methods are based on the comparison and extrapolation of known data from objects, in this case ships with a satisfying technical similarity are considered. These methods are used in the earliest design phases like concept design and preliminary design where there is less detailed information available. Top-down methods are used when the amount of information available are enough to recognize a similarity to previous objects. It is up to the estimator to judge whether a new-building project has unique design characteristics or if it is comparable to historical data. Some top-down methods therefore rely on “expert judgments”. Cost Estimation: Cdre Muzib, psc, PhD

18. Methods of Estimating shipbuilding Cost Parametric Cost Estimation: Between the global top-down methods and the accounting bottom-up methods we find parametric cost estimation. The basis for parametric cost estimation methods is the use of cost estimating relationships (CER). CERs are mathematical expressions or formulas relating cost as the dependent variable to selected, independent cost-driving variables. These relations between costs and relevant parameters are based on regression of historical data. “The implicit assumption of parametric cost estimating is that the same forces that affected cost in the past will affect cost in the future”. If the CERs calculate the total cost based on global parameters like length overall (LOA) or deadweight (DWT), some would call this a top-down approach. The opposite would be if costs of every little subsystem were found by CERs and then used an accounting bottom- up approach. In reality, most parametric cost estimation methods are considered closest to top-down methods because of the independent cost drivers chosen and the use of parametric estimation in early phases of design. Cdre Muzib, psc, PhD

19. Cdre Muzib, psc, PhD

20. Fig. 24 Optimal Ship Size Page 97 (Buxton 1976) Cdre Muzib, psc, PhD

21. Optimal Ship Speed Page 98 (Buxton 1976) Cdre Muzib, psc, PhD

22. Fig. 25 Optimal Ship Speed Page 99 (Buxton 1976) Cdre Muzib, psc, PhD

23. Factors influencing higher optimal speed : Economic Cdre Muzib, psc, PhD

24. Factors influencing higher optimal speed :Technical Cdre Muzib, psc, PhD

25. Cdre Muzib, psc, PhD

26. Cdre Muzib, psc, PhD

27. Economic Measures of Merit • Initial ship cost – The initial ship cost is not by itself a good indicator, some design options only become economically advantageous on the long run. • Other criteria can be used considering running costs of the ship along its entire operational life • The most common measures are: – Required Freight Rate (RFR) – Net Present Value (NPV) – Internal Rate of Return (IRR) – Modified Internal Rate of Return (MIRR) • To evaluate these criteria the knowledge of the typical ship voyage is required. Cdre Muzib, psc, PhD

28. Economic Measures of Merit • The specification of the typical ship voyage allows a more comprehensive analysis of the economic aspects. • It may include: – The number of ports visited during the round trip – The distance between ports – The cargo-handling capabilities available and the corresponding handling rates and costs – Port fees and taxes Cdre Muzib, psc, PhD

29. Ship Economics: Cost Estimating • Ship Acquisition Cost • Costs in Shipping • Ship Acquisition Cost: Initial Investment, I =Q⋅ (1+ Ka) with: Q: Ship acquisition cost = (CH + CE + CM + CX) (1 + Kb ) CH : Hull/Steel Cost, CE : Equipment (Nav/Comm/Domestic) Cost CM : Machinery (propulsion/auxiliary) Cost, CX : Special Equipment (survey/surveilance/rescue) Cost Ka : Owner’s expenses during shipbuilding and acquisition, expressed as percentage of the acquisition cost, generally of about 5 – 15%. Kb : Profit Margin of the shipyard, in percentage Cdre Muzib, psc, PhD

30. Profit Margin of the Shipyard This value can be estimated as follows: 1. Estimate the shipbuilding cost of a reference ship (QR) by the previous expressions 2. Obtain the actual ship cost from the current market (QM) 3. The nominal profit margin can then be obtained by: If the Kb value is too low or too high, for instance, outside of the interval [-30%, +30%] the cost formulas should be reviewed and updated. Cdre Muzib, psc, PhD

31. Light Ship Weight for cost estimation   . 5 . 0 . WS k V Hull Steel Weight:  V k  9 . 0. / 3 4 . WE Equipment Weight:  V k  3. / 2 3 . WM Machinery Weight: Cdre Muzib, psc, PhD

32. Methods to Estimate the Hull Weight 1. Methods that consider the weights as function of the main characteristics of the hull • Appropriate to be used in processes for the optimization of the main dimensions 2. Methods based on the existence of data from existing ships – More precise estimates – Results not satisfactory when dealing with new types of ships 3. Methods based on surfaces. – When the hull form, the general arrangement and the subdivision are already roughly known 4. Methods based on the midship section modulus. – Based on the scantlings of the midship section Cdre Muzib, psc, PhD

33. Methods to Estimate the Hull Weight • Most estimate methods consider separately the weights of the hull and of the superstructure • For the purpose of cost estimation, the hull weight should be subdivided into: – Weight of structural steel (hull structure) – Weight of outfit steel (foundations, ladders, steps, etc.) • Each of these components should be subdivided into: – Weight of plates – Weight of stiffeners • For the purpose of cost estimation, and due to the waste from the cutting process, margin/factor should be used: Gross Steel Weight = 1.08 ~ 1.12 x Net Steel Weight Cdre Muzib, psc, PhD

34. Hull Weight estimation From statistical analysis regression D’Almeida (2009) Cudina et al (2010) [Tanker and bulk carrier] f1 – reduction of hull weight due to use of high tensile steel Cdre Muzib, psc, PhD

35. Propulsion Machinery Weight estimation From statistical analysis regression Cdre Muzib, psc, PhD

36. Equipment weight estimation from statistical analysis regression D’Almeida (2009) The coefficients k1 and k2 are characteristic of each ship type, obtained from statistical regression analysis Cudina et al (2010) [Tanker and bulk carrier] Cdre Muzib, psc, PhD

37. Equipment Weight Cdre Muzib, psc, PhD

38. Ship Acquisition: Hull Steel Cost Cdre Muzib, psc, PhD

39. Ship Acquisition : Equipment Cost Cdre Muzib, psc, PhD

40. Cdre Muzib, psc, PhD

41. Cdre Muzib, psc, PhD

42. Cdre Muzib, psc, PhD

43. Cdre Muzib, psc, PhD

44. Ship Acquisition : Machinery Cost Cdre Muzib, psc, PhD

45. Ship Acquisition Cost (Alternative) Total cost, CT = CH + CE + CM + GE + S + EC with: CH - Cost of hull CE - Cost of equipment CM - Cost of machinery GE - General expenses (about 90% labor cost) S - Profit of the shipyard (about 5% labor cost) EC - Extra Costs Each component can be divided into two parts: - cost of materials or equipments, and - labor cost. Cdre Muzib, psc, PhD

46. Costs in Shipping Operating cost - expenses involved in day-to-day running of the ship: essentially costs for crew, stores and maintenance. Periodic maintenance cost - incurred when the ship is dry- docked for major repairs, usually at the time of its special survey. In older ships this expenditure, so shipping companies often include a ‘dry- docking provision’ in their operating costs. may involve considerable Voyage cost - variable costs associated with a specific voyage and include such items as fuel, port charges and canal dues. Capital cost - depend on how the ship is financed. They may take the form of dividends to equity or interest and capital payments on debt finance. Cargo handling cost - expenses of loading, stowing and discharging cargo. Cdre Muzib, psc, PhD

47. Costs in Shipping: Crew Costs Crew cost includes basic salaries and wages, social insurance, repatriation expenses, victuals, recruitment and training and others Cdre Muzib, psc, PhD

48. Costs in Shipping: Crew Complements Cdre Muzib, psc, PhD

49. Complement: The term “complement” is used to describe the number of people who will be manning the ship. This is an important variable when predicting the size or complexity of the vessels because the distance between ports increases the space needed to store supplies and waste. Cdre Muzib, psc, PhD

50. Costs in Shipping: Stores Costs Cdre Muzib, psc, PhD