Estimation of the Fleet Renewal Desirability Under the Conditions of a Life Cycle Contract

Abstract

Currently, the life cycle contract (LCC) is one of the most modern forms of public-private partnership. This form of contract between the owner of the property and the organization operating the facility has proven itself well both abroad and in the Russian economic space. This paper presents the results of calculations of economic results for three main options for financing the acquisition of a vessel: credit, leasing and life cycle contract. The calculations were performed for the representative vessel for the entire period of its useful life. As the planning horizon for all 3 financing options, the useful life of the vessel is taken equal to 24 years. The calculation step is 1 years. The purpose of this study is to study the issue of financing the fleet renewal on the terms of a life cycle contract using the example of a cargo vessel of mixed navigation of RSD44 project of the “✠M-PR 2.5 (ice 20) A” Russian River Register class. It is concluded that the fleet renewal on the basis of a life cycle contract is a competitive alternative to leasing. The advantages of the LCC are lower monthly (or annual) payments in comparison with a lease agreement, as well as a higher profitability in the first 10–15 years of vessel operation due to a faster exit from the loss zone to the profit zone. The inclusion of the costs of all types of repair and maintenance in the LCC can improve the quality of repair and maintenance due to stricter control of these processes by the lessor. The profitability level of a shipping company when using LCC can be higher for newly built vessels, compared to vessels of traditional designs.KeywordsFleet renewalInland waterway transportCreditLeasingLife cycle contractPublic-private partnership