Name 457 maritime economics and management ship design

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

Sequential Engineering Design
Concurrent
Engineering Design

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.

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

Design Spiral:
J H Evans (1959)
introduced the
concept of design
spiral, which
represents the
sequential and
iterative aspects
of the process

Buxton (1972), introduced the economical aspects in ship design
Andrews (1981), added the time dimension in Buxton design model

Taggart 1980

Taggart 1980
Find out the cost of design for the man-hour cost of Tk 75.00

Levander and
Papanikolaou
2009

Time Scale of Ship Design Stages

Economical aspect of Ship dimensioning

• 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)
Determination of the Design Variables

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

Economic
Analysis

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.

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

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.
Top-down Cost Estimation: Also called analogous methods or
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”.
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.
Methods of Estimating shipbuilding Cost

Fig. 24 Optimal Ship Size
Page 97 (Buxton 1976)

Optimal Ship Speed

Fig. 25 Optimal Ship Speed

Factors influencing higher optimal speed : Economic

Factors influencing higher optimal speed :Technical

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.

• 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
Economic Measures of Merit

• Ship Acquisition Cost • Costs in Shipping
Ship Economics: Cost Estimating
• 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

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.
Profit Margin of the Shipyard

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

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
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
Methods to Estimate the Hull Weight

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

Propulsion Machinery Weight estimation From statistical
analysis regression

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

Equipment Weight

Ship Acquisition: Hull Steel Cost

Ship Acquisition : Equipment Cost

Ship Acquisition : Machinery Cost

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.

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 may involve considerable
expenditure, so shipping companies often include a ‘dry-
docking provision’ in their operating costs.
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

Costs in Shipping: Crew Costs
Crew cost includes basic salaries and wages, social insurance,
repatriation expenses, victuals, recruitment and training and others

Costs in Shipping: Crew Complements

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.

Costs in Shipping: Stores Costs

Costs in Shipping: Maintenance Costs

Costs in Shipping: Insurance Costs

Costs in Shipping: Admin Costs

Costs in Shipping: Docking Costs

Costs in Shipping: Voyage Costs
Variable costs associated to a specific voyage
CVOY = CFO + CPD + CTP + CD
with:
CFO – fuel costs for main and auxiliary machinery
CPD – port and light dues
CTP – tug and pilotage costs
CD – canal dues
SFC for Medium-speed diesel engines = 0.200~0.250
[kg/kW.h]

Costs in Shipping: Cargo Handling Costs
CCH = CLOAD + CDISC + CCLM
with:
CLOAD – cargo loading charges
CDISC – cargo discharge costs
CCLM – allowance for cargo claims
Information about charge/discharge rates can be generally
obtained from the Internet sites of the ports.

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