📊 Shipbuilding by the Numbers: Mastering Financial Modelling for Newbuild Investments

My name is Davide Ramponi, I’m 21 years old and currently training as a shipping agent in Hamburg. On my blog, I take you with me on my journey into the exciting world of shipping. I share my knowledge, my experiences, and my progress on the way to becoming an expert in the field of Sale and Purchase – the trade with ships.

Ordering a new Vessel is one of the boldest moves a shipowner can make. It's a long-term bet on the future — of freight rates, fuel technology, regulation, and financing. But beneath the big decisions lies something equally important: a solid, well-built financial model.

Financial modelling is where strategy meets structure. It helps owners answer the key questions:

• Will this vessel make money — and how much?

• What assumptions are driving our projections?

• How sensitive is our return to fuel costs, hire rates, or capex overruns?

• Can we convince a bank — or an investor — to back the project?

In this post, we break down the essential elements of robust modelling for newbuild investments — from formulas and forecasts to tools and templates.

🔍 In this post, I’ll walk you through:

📦 What makes a financial model “fit for purpose” in shipbuilding decisions

📈 How to run sensitivities on charter rates, fuel prices, and capex

🔍 The differences between IRR, DCF, and payback period — and when to use each

🏦 How financial models support loan approvals and investor trust

💻 The best tools and software for shipping-specific modelling

Let’s fire up Excel and plot a smart course through the economics of fleet growth.

⚙️ The Core Components of a Strong Financial Model

A good financial model does more than crunch numbers — it tells a story. It links commercial logic, technical details, and financing strategy in a transparent, testable way.

🔑 Key Building Blocks:

1. Capex & Financing Structure

   • Newbuild price (incl. design upgrades, owner’s supply, supervision)

   • Equity/debt split

   • Loan terms: tenor, interest rate, repayment profile (e.g., bullet or annuity)

2. Operating Assumptions

   • OPEX breakdown (crew, insurance, maintenance, provisions)

   • Drydocking cycles and costs

   • Daily management fee or overhead

3. Revenue Forecasts

   • TCE rates (spot vs. time charter, realistic vs. optimistic scenario)

   • Idle time assumptions

   • Charterer quality and counterparty risk

4. Fuel Consumption & Costs

   • Engine spec and fuel type (VLSFO, LNG, methanol, etc.)

   • Consumption by speed and load

   • Carbon tax estimates (IMO 2027, ETS coverage)

5. Residual Value / Scrap

   • Expected life of vessel (typically 20–25 years)

   • Conservative scrap pricing or resale value

6. Returns & Metrics

   • Cash flows (by month or year)

   • IRR, NPV, payback period

   • Debt service coverage ratio (DSCR) for lenders

💡 Tip: 

Always include a “scenario sheet” — showing best case, base case, and worst case outcomes.

🧪 Sensitivity Analysis: Stress-Testing the Business Case

Even a perfect model is only as good as its inputs. Markets change — and so do costs. That’s why sensitivity analysis is a non-negotiable part of financial modelling.

📊 Variables You Must Stress-Test:

1. Charter Rates

   • +/- 20% shift in TCE can swing IRR from +15% to negative

   • Build 3–5 rate scenarios: bearish, neutral, bullish, and recovery lag

2. Fuel Costs

   • Model bunker price volatility (especially if dual-fuel)

   • Explore “carbon cost” inclusion for emissions-intensive fuels

3. Capex Overruns

   • Shipyard delays or spec upgrades can inflate cost by 10–20%

   • Model delivery date slippage and interest during construction (IDC)

4. Operating Costs Inflation

   • Wages, spare parts, insurance premiums — especially post-COVID

   • Model 3–4% annual OPEX inflation

5. Residual Value Drop

   • Discount future scrap or resale values by 25–30% to stay conservative

   • Can shift payback periods by multiple years

📌 Use a tornado chart to visualize which inputs impact IRR and NPV the most — a great tool for investor presentations.

📉 IRR, DCF, Payback: Measuring Returns the Right Way

Once your model is built, it's time to evaluate the economics.

🔁 Internal Rate of Return (IRR)

• Measures the discount rate at which NPV = 0

• Common threshold for investment: 12–15% IRR, depending on risk

• Pros: Intuitive and widely accepted

• Cons: Can be distorted by timing of large cash flows (e.g., resale in year 20)

💰 Net Present Value (NPV)

• Shows the absolute dollar value created over cost of capital

• Positive NPV = wealth-generating investment

• Better for comparing projects of different sizes or durations

⏳ Payback Period

• How long it takes to recover initial investment

• Important for liquidity-sensitive owners or short-cycle fleets

• Doesn’t capture long-term upside — but shows risk buffer

📌 Best practice:

Include all three metrics in your summary sheet. Each appeals to different decision-makers (e.g., CFO, investor, lender).

🏦 Using Financial Models in Loan and Investor Discussions

Shipbuilding isn’t cheap. Getting funding means presenting a clear case — and your model is the cornerstone of that case.

For Banks:

• Show DSCR above minimum threshold (typically >1.2x)

• Demonstrate conservative charter assumptions

• Highlight vessel efficiency vs. peers

• Include downside scenario with stress-tested serviceability

For Investors:

• Emphasize equity IRR and long-term upside

• Include exit strategies (e.g., resale, refinancing)

• Align with green finance standards if applicable

• Be transparent about risk factors — it builds credibility

💡 Pro tip: 

Accompany your model with a 1-page Executive Summary — clear, visual, and jargon-free.

💻 Tools and Software to Build Better Models

Financial modelling for newbuilds doesn’t require fancy tools — but the right platform improves accuracy and presentation.

🔧 Recommended Tools:

1. Excel (with shipping-specific templates)

   • Still the industry standard

   • Use macros for scenario switches and charting

2. Argus or Veson IMOS

   • Commercially focused tools for voyage economics, linked to financial plans

3. Orbital Ship Finance Model

   • Shipping-focused SaaS platform for deal structuring and investor presentations

4. Custom-built templates

   • Many S&P brokers or consultants offer white-label models for their clients

📌 Reminder: 

Clean formatting, version control, and clear inputs vs. outputs are just as important as the numbers themselves.

📦 Conclusion: Build the Model — Build the Confidence

A strong financial model is more than a spreadsheet — it’s a strategic asset. It turns market instincts and technical specs into a quantifiable investment case. It prepares you for tough questions, sharpens your assumptions, and secures funding when the time comes.

Key Takeaways 🎯

✅ A solid model integrates capex, opex, chartering, and financing into a clear cash flow forecast

📊 Sensitivity analysis on TCE, fuel, and capex is crucial — not optional

📉 IRR, NPV, and payback all provide different angles on project value

🏦 Strong modelling helps convince banks, investors, and internal boards

💻 Excel remains king — but specialized platforms are gaining ground

Before you order your next vessel, make sure the math supports the mission.

👇 What do you thing?

Do you model for upside — or stress-test for downside first?

💬 Share your thoughts in the comments — I look forward to the exchange!

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