Abstract

Economic life of ships varies depending on types and sizes, maintenance, technological advancements, compliance to international guidelines, and other factors like foundered (sunk), wrecked/stranded (grounded), fire on board, accidents, loss of propulsion, failures of machineries, Non-Accidental Structural Failures (NASF), etc. affecting ship’s seaworthiness or efficiency. Age replacement models, random replacement models, and combination of such models like Replacement First (RF) and Replacement Last (RL) have been suggested making assumptions about failure distributions, replacement costs, nature of random working cycles, etc. Avoiding models, the paper suggests an assumption-free approach to assess economic viability of Extending Service Life (ESL) of a ship by through repairing action or replacement. Based on year wise investment, expected O&M costs and expected revenue, Internal Rate of Return (IRR) is found for which NPV= 0. Decision regarding replacement or repair of a ship can be accepted depending on IRR_Replace > or < IRR_ESL IRR and NPV may rank the projects differently and overlook “flexibility” of the Shipping Company. IRR under different scenarios needs further sensitivity analysis due to uncertainties about future costs, actual available service life and demand of the ship. IRR and sensitivity analysis should be specific to a vessel.

Keywords:Life cycle cost; Failure costs; Environmental emissions; Extend service life; Replacement; IRR; NPV method