Summary

This paper aims at determining the optimum viable solution of an investment on a

suburban coastal shipping system in the area of Athens. More specifically it refers to

the development of a sea transport system, alternative to the existing road one, that

would connect Piraeus with the southern suburban coastal area of Athens. The best

viable solution of such an undertaking is considered to be the one, which under the

existing constraints maximises the total profit that derives from this investment. The

variables used for the formation of the constraints are the number of vessels used, the

routing and the price of the services. The article after presenting the methodology of

the market analysis, focuses on the financing alternatives of the project and their

impact on its economic efficiency and concludes with the best viable scenarios and

optimum solution.

1. Introduction

The paper’s main objective is to determine the optimum solution of an investment

undertaking that includes an alternative transportation system, that is a suburban

coastal transport system in the south region of Athens. Such a system is believed that

can offer a possible solution to the transport problems of congestion, which

characterise the existing overloaded road network of Athens.

Suburban coastal shipping has a special character. First there are not many examples

### The Essay on Systems Analysis And Design

... by current information systems and determine what improvements ... exactly how the current system operates, to determine and document what the system should do, and to recommend alternative solutions. -define all functions performed ...

of cities that use an analogous transport system. Secondly, the main competitor of sea

transport is road transport or fixed track systems (train, tram).

It should be mentioned

that the current transportation system despite its deficiencies in terms of time, cost as

well as externalities remains a strong travel alternative and consequently a constraint

for the development of the proposed seaborne transport. This is due to the several

advantages it offers to its users like door to door services, flexibility and speed. City of

Athens disposes a road system as the main one satisfying the transport demand to and

from the suburban areas.

The best economic solution for an investment of this kind is determined as the one that

maximises the profit of the investor, under the constraints that the current transport

system sets. In this context, in order to format the constrains of the system, a market

analysis has been conducted taking all the above into consideration in order to

examine the possible demand for such a system versus the existing road transport one

(Greek Bank of Industrial Development, 1995).

However, the question is whether an

enterprise in this field would be economically viable and which would be the required

demand of that service, in order to be able to equalise the marginal costs with the

marginal revenue.

2. A methodology for the development of a suburban coastal transportation

system in Athens urban area

2.1 The survey

It is obvious that the greatest part of the demand for sea transportation would come

from the coastal suburbs that lie mostly in the eastern and southern part of Piraeus and

their most important feature is that they constitute areas of permanent residence.

These suburbs include Alimos, Voula, Vouliagmeni, Glyfada, Elliniko, Kalithea,

Moschato, Piraeus and P. Faliro. They constitute the districts of direct interest for this

analysis (see figure 1).

The case of the nearby districts that are situated northern than

the coastal ones is also examined (Ag. Dimitrios, Argyroupolis, Vari, Ilioupolis,

Koukaki, N. Smirni etc).

This case obviously refers to the current car owners who can

drive their cars up to the terminal station and then embark on the sea vessels after

parking their cars (park and ride).

The first step in estimating the potential demand for a suburban coastal transportation

### The Essay on Transport System Systems Agriculture Food

... the Africans. Transport systems at this time were designed to have raw materials exported from coastal areas and ... delayed the arrival for inadequate transport systems. An appropriate definition for inadequate transport systems could be defined as: attempting ... agricultural development and offer reasons why an adequate transport system is necessary. African agricultural development history can be ...

system was to proceed to the determination of the total movements in the above

mentioned area. This led to the development of the analogous Trip Distribution Model

(Sambracos 2001) that shows the movements between the examined suburbs by

private car and by bus. Data for the creation of the model was gathered by several

origin – destination surveys that have taken place over the last years in addition with

the records of the National Statistics Services on the population of the suburbs.

Figure 1: Suburban coastal shipping operation in the south region of Athens

The second step was to proceed to a Modal Split Model (Abacoumcin 1990,

Giannopoulos 1981) and to determine the alternative means of transport that could

satisfy the transport demand in and between the suburbs in question. In order to create

such a model, the ‘stated preference’ method was used, a technique that uses and

analyses the alternative scenarios, the questioned passengers state that they would

prefer (Pearmain et.al, 1990, Bristow et.al, 2000).

The questioned person is asked to

choose between alternative situations/solutions, some of which may not yet be known

to him, such as the proposed coastal transport system. The reason for using this

method is mainly the fact that it can show results based on small samples (Koppelman

et al, 1983).

Thus the classic revealed preference method show disadvantages since it

cannot be used in demand forecasting under existing conditions and cannot use

qualitative criteria (such as the comfort of a transport means).

The survey was conducted with the use of questionnaires on June 1994 in the two

main centres of interest, Piraeus and Glyfada. The questionnaire included 13 questions

that had to do with:

– the used transport means,

– the origin and destination of the trip,

– the purpose of the trip,

– the frequency of the movement,

– the preference towards sea transport,

– the ability to use a car,

– the minimum and maximum time for the users of private cars and buses,

– the parking fees,

### The Term Paper on International Transport and Distribution

... and maintenance costs. Leasing or renting vehicles is an alternative. It gives you more control over transporting your goods ... new territory arranging and operating multi-modal transport systems - using several different transport methods for a shipment as required Selecting ... negotiate preferential shipping rates charter rates for other vessels depend on supply and demand conditions prevailing at ...

– the walking distance between the parking area or the bus station and the final

destination.

Besides the questions there were six different scenarios, that referred to combinations

of four main factors that determine the choice of a transport means. These are:

– the time of the trip (from door to door),

– the price of the ticket,

– the possible delays in the arrival of the vessel,

– the sea/weather condition.

Additionally, data regarding the sex, age and other demographic characteristics were

taken into consideration.

In order to determine the demand allocation between the alternative transport means

the Logit analysis was conducted (Ortuzar et. al., 1990) using as inputs the mentioned

six scenarios and as variables the time of the trip (by bus/car and ship), the cost of the

trip (by bus/car and ship), the delays (by ship), and the weather conditions of the

coastal shipping alternative as well as the characteristics of the users (age, sex,

purpose of the trip etc).

Above them the time, cost of the trip and the weather

conditions were statistically the most important variables.

2.2. Designing the system

In order to design the suburban coastal shipping system there are several factors of

both quantitative and qualitative character to consider, using as data the outputs of the

origin-destination model and the conducted survey (stated preferences).

The first factor was the ports that should be used to format the system, the number of

stops between the main ports of Piraeus and Glyfada in combination with several

levels of ticket prices. Three scenarios were examined:

1. Piraeus port – P. Faliro – Glyfada

2. Piraeus port – Zea port – P. Faliro – Glyfada and

3. Piraeus – Glyfada

The results from the survey showed that more mid stops would make the system

unattractive and inefficient compared to the existing road one since they would

increase the travel time. Additionally, more vessels would be required increasing

therefore the cost of the system.

The price levels examined for each scenario referred to a sea fare of 300, 400, 500,

### The Term Paper on Will The Rising Cost Of Gasoline Ever Stop

... , in particular, cumulative and regional supply and demand, prices, and transportation costs become extremely controversial issue in terms of its development ... than absolute levels According to continuous debate regarding gasoline cost and price performance, one of the major problematic issues in this ... Will the rising cost of gasoline ever stop In the context of contemporary world economy and industry, ...

600 and 700 GRDrh respectively. The results of the stated preference model for a 12

hour and a peak hour transport work showed that the higher the number of mid stops

the higher the demand for travelling. Based in that conclusion the third alternative was

abandoned.

The second factor was the vessels type and the necessary number of vessels to cover

the two and three mid stops alternatives. The number of vessels depends on the

demand for each alternative on a 12h and peak hour (PD) basis, the time of the trip and

consequently the maximum number of trips the vessel can perform (FB), the

frequency of embarkations (FL), the capacity of the vessel (C = PD/FL) and equals to

the ratio:

FB

FL

n =

As for the type of the vessels, the choice was based on four factors:

– the purchase and operational cost

– the operational reliability, speed and flexibility

– the friendliness towards the environment

– the safety and comfort for the passenger

The proposed type of the vessel based on the above factors was the flying dolphin

type. Its characteristics on speed (33knots/h) and capacity (110 pas.) prove that for the

one mid stop scenario two vessels are requested and for the two mid stop scenario

three vessels.

3. Defining the optimum solution

The best viable solution of such an undertaking is determined as the solution that

maximises the Profit (P) of the undertaker. According to the economic theory

maximising the Profit means maximising the difference between Revenues (R) and the

Cost (C) that derive form the operation of the company. In other words it is:

P = R-C

max (P) = max (R-C)

The constraints of the above profit maximisation consist of the existing alternative

solutions, which derive from the market analysis on demand patterns towards the

undertaking.

3.1 Cost of the suburban coastal transport system

The total cost, that such a transport company will face is a function of (Karvounis

2000:

– the investment cost (i),

### The Term Paper on Cost Centres, Profit Centres, Investment Centres

... long-term investment decisions. Managerial performance is measured ... from profit and investment centres. Managers of cost centres are accountable only for controllable costs and are not responsible for level of activity or ...

– the operating cost (o)

– the financial cost (m)

– the depreciation cost (d)

Therefore we have,

C = f(i, o, m, d)

The total cost depends on the number of stops the vessels make. The more the stops

the bigger the roundtrip time and consequently a bigger number of vessels is required

in order to maintain a high level of service. This increases the investment cost since

more capital is required to cover not only the acquisition of the vessels but also their

operating expenses. Therefore, it is essential to determine the level up to which we

must invest. There are different alternative scenarios that are based on the market

analysis on origin – destination in order to determine the best alternatives for this

system. The market survey already indicated two main alternatives using as a variable

(i) the number of stops and the number of vessels to be employed:

•Scenario 1: one stop between the ports of origin and destination, using two vessels

on pick hours

•Scenario 2: two stops between the ports of origin and destination, using three

vessels on pick hours

That is Si, where i= 1,2 stops

Considering these scenarios, the main cost elements are estimated as following:

a. Investment and operating costs

The estimation of the investment and operating costs is presented in the table 1 below.

The investment cost consists of Founding & Organisation cost, Fixed investments

(facilities etc), Working Capital, Unforseen expenses

The operating cost consists of Fuels, lubricans etc, Personnel, Office expenses,

Maintenance Expenses, Port duties, Insurance, Advertisement

Table: 1 Investment and operating cost for the two scenarios (in 000GRDrh)*

Costs Scenario 1 Scenario 2

a. Total investment costs 1.150.000 1.500.000

Founding – Organization 10.000 10.000

Fixed investments 940.000 1.240.000

### The Business plan on Case Study – Angus Cartwright III

... estate investor to weigh the level of risks in relation to his investment objectives. In this case, Fowler had the highest leverage ... to-day operations of potential investment properties. Risk Analysis consisting of a review of financial leverage (loan to value ratio) and ... future income, depreciation, estimated sales price and cash flows, loan and its rate and amortization, taxes and etc. The 1st ...

Starting Capital 187.367 243.100

Unforeseen expenses 12.633 6.900

b. Total Annual Operating Cost 562.100 729.300

Fuels 281.000 337.000

Personnel 130.000 182.000

Office expenses 3.000 3.000

Maintenance Expenses 13.500 18.000

Port duties 45.000 80.000

Insurance 13.500 18.000

Advertisement 25.000 25.000

Unforeseen 51.100 66.300

*The estimation of the costs is based on market prices as of 1995

b. Depreciation cost

The cost of depreciation is estimated for both scenarios, using the depreciation rates,

4% for building and offices, 10% for the vessels and 20% for the rest equipment, as

following:

•Scenario 1: annual depreciation for the first five years is 93,2mil.GRDrh and for

the other five 91,2 mil.GRDrh.

•Scenario 2: annual depreciation for the first five years is 123,2mil.GRDrh and for

the other five 121,2mil.GRDrh.

c. Financial cost

The financial cost for the development of this transport system deals with the

financing of the investment costs for its development. Several scenarios of financing

are proposed that include:

– different % of loaning and own capital

– several levels of loaning interest

3.2 Revenues of a suburban coastal transport system

The revenues from the operation of this system are a function of the demand (q) and

the price of the ticket (p).

R = f (p, q)

The level of demand and the possible ticket price levels were examined during the

market research. Although all price levels are possible the research showed that a

range between 500GRDrh and 700GRDrh is the most viable one. Above this level the

demand is low in favour of road transport and below it is economically unprofitable

for the company. The two scenarios therefore are:

Sj, where j= 700GRDrh, 500GRDrh

It is assumed that for the working days the total revenues are:

2 x Í x Ñ

where, Ñ is the price of the ticket and

Í the corresponding total daily number of passengers.

For the weekends (2 X 52=104 days per year) the passenger traffic is estimated to be

70% of the traffic during working days. Therefore the total annual income is:

(261+0,7 x 104) x 2 x Í x Ñ = 667,6 x Í x Ñ

Using the above mentioned scenarios Si and Sj, four cases result:

-Case Á: S1,700 (1 mid-stop & price of the ticket 700GRDrh)

-Case : S2,700 (2 mid-stops & price of the ticket 700GRDrh)

-Case C: S1,500 (1 mid-stop & price of the ticket 500GRDrh)

-Case D: S2,500 (2 mid-stops & price of the ticket 500GRDrh)

Taking the above into consideration the total annual revenues are for each case:

– S1,700: 913 mil. GRDrh.

– S2,700: 961 mil. GRDrh.

– S1,500: 828 mil. GRDrh.

– S2,500: 875 mil. GRDrh.

In order to forecast the total revenues for the years to come there is the assumption that

the traffic natural increase rate is 1,5% annually, therefore all the above amounts for

the future year e should be multiplied by 1,015(e-1) (e=1, the first year of evaluation).

4. Financial analysis of the system

4.1 Evaluation of the financial cost

The determination of the best financial solution that maximises the profit of the

Coastal Transport Company is the next step of the investment evaluation of the

system. The financial cost (m) of the undertaking is determined by two variables:

– l: the percentage (%) of a loan to cover the investment cost and

– n: the level of the interest rate

Therefore m is a function of l and n, or

m = f (l, n)

and so C= f (i, o, l, n, d)

All cost components have been determined for all Sij. Assuming that the variables in

the above function are l and n, we will try to maximise it by using all possible

combinations of l and n.

In order to evaluate the financial efficiency (Goulielmos 1997) based on the above

variables of this initiative we use the method of the Net Present Value and the Internal

Rate of Return. Using a discount factor of 4%, the target is to find the alternative Sij

that gives the higher Net Present Value (NPV) as well as IRR.

Using the above variables we proceed to a 10 years simulation in order to format the

equation that proves the relationship between the percentage of loan for all possible

levels of loan interest and the NPV, IRR results. The results for all cases and the final

equations are included for each case in table 2. The general form of the derived

equations, as resulted from the simulation, is a first degree one, with the following

formation:

Y = a – bX

Where Y = NPV

X = the percentage of loan at different levels of interest rate

a, b = constants

The main conclusion is that S1,700 is the optimum solution, since it shows the greatest

Net Present Value and Internal Rate of Return for all different levels of interest (Table

2).

Regarding the financing of the project, it is concluded that in every level of the

interest rate, the best solution is to self-finance the project.

Another important observation is that in S1,700, the percentage of loan that makes the

NPV equal or less than zero (which means that the project is economically a non

viable solution) is the highest, in comparison with the other Cases. For example for

S1,700 (see table 2 and figure 2), in the case of a loan interest of 4% the company can

take a loan that does not exceed 97,62% of the investment cost. In all other cases, this

percentage is much lower, which means bigger financial risk and danger, in the case of

inability to self-finance a significant proportion of the investment cost. The same

conclusion can be derived for all levels of interest loan. Taking the above into

consideration, the second viable solution is S1,500, where for a 4% of loan interest, the

total loan must not exceed 70,03% of the investment cost.

Table 2: Financial viability of the project for Sij

S1,700 S2,700

Loaning

Interest

Rate

Equation

(y=a-bX)

% of Loan

that makes

NPV=0

Equation

(y=a-bX)

% of Loan

that makes

NPV=0

2% Y=2.352.749-2.363.779X 99,53% y=1.299.424-3.083.191X 42,14%

4% Y=2.352.749-2.410.128X 97,62% y=1.299.424-3.143.645X 41,33%

6% Y=2.352.749-2.456.477X 95,78% y=1.299.424-3.204.100X 40,55%

8% Y=2.352.749-2.502.825X 94,00% y=1.299.424-3.264.555X 39,80%

10% y=2.352.749-2.549.174X 92,29% y=1.299.424-3.325.009X 39,08%

15% y=2.352.749-2.665.045X 88,28% y=1.299.424-3.476.146X 37,38%

S1,500 S2,500

Loaning

Interest

Rate

Equation

(y=a-bX)

% of Loan

that makes

NPV=0

Equation

(y=a-bX)

% of Loan

that makes

NPV=0

2% y=1.687.936 – 2.363.780X 71,41% y=626.789 – 3.083.191X 20,33%

4% y=1.687.936 – 2.410.128X 70,03% y=626.789 – 3.143.645X 19,9%

6% y=1.687.936 – 2.456.477X 68,71% y=626.789 – 3.204.100X 19,56%

8% y=1.687.936 – 2.502.825X 67,44% y=626.789 – 3.264.555X 19,20%

10% y=1.687.936 – 2.549.174X 66,21% y=626.789 – 3.325.009X 18,85%

15% y=1.687.936 – 2.665.045X 63,34% y=626.789 – 3.476.146X 18,03%

Figure 2: Financial viability of the project

4.2 Sensitivity analysis

Another important relationship is observed between the level of the loan and the

economic effectiveness of the project (Theofanides, 1985).

It is also essential to

recognise the risk of such an investment (we choose the optimum solution S1,700).

Since

the calculation of the costs is based on real data, while the approach of the revenues is

based on demand forecasts, a sensitivity analysis is performed, on different levels of

demand. The results are presented in figure 3.

Figure 3 shows that, the lower the loan, the lower the danger for all different levels of

demand, which we normally expected. A 10% reduction in revenues has no impact on

the viability of the project. On the other hand a loan of 30% or more of the investment

cost shows great sensitivity if the revenues reduce for 20% and higher.

Loan Interest and % of Loan

0,00%

20,00%

40,00%

60,00%

80,00%

100,00%

2% 4% 6% 8% 10% 15%

Loan Interest

% of Loan

Case A

Case B

Case C

Case D

Figure 3: Sensitivity analysis for S1,700

5. Conclusion

From the above analysis it is concluded that the implementation of a suburban coastal

transport system in the southern Athens area is economically viable. This can be

achieved with one or two mid stops and different price ticket levels. The optimum

though economic solution is accomplished when we apply the smallest number of mid

stops and the higher ticket price level. In the examined case study, an one mid stop

system with a 700GRDRh ticket (S1,700 ), is the most efficient financial solution since

it shows the higher NPV and IRR. That means that the investor has bigger profit by

offering the minimum service (1 mid. stop) with the highest price of the range

examined (500 – 700 GRDrh).

If he increased the stops and offer more service, and if

he reduced the ticket price, then he would attract more customers. But, according to

the above analysis the best solution is S1,700, that means less service, less passengers

and higher ticket price.

Thus, the percentage of Loan that makes NPV=0 is higher in case S1,700, in every level

of loan interest. That means that offering lower service with the higher price holds

minimum financial risk for the investor. Additionally, the sensitivity analysis shows

that the higher the level of uncertainty in the total revenues (reduction in demand) the

lower the percentage of the loan, that the investor should take. From that point of view

the case S1,700, proves to be the most secure one.

Sensitiviry Analysis

-4000000

-3000000

-2000000

-1000000

1000000

2000000

3000000

4000000

0 30% 50% 70% 100% % of Loan

NPV

40% reduction in Revenues 30% reduction in Revenues

20% reduction in Revenues 10% Reduction in Revenues

6. References – Bibliography

1. Abacoumkin K. (1990) Transport Systems Planning , Symmetria, pp27-43

2. Bristow A., Nellthorp J. (2000) Transport project appraisal in the European

Union, Transport Policy, Volume 7, Issue 1, pp51-60

3. Giannopoulos G. (1981) Transport Planning and Traffic techniques Athens

pp.187-212

4. Goulielmos A. (1997) Financing Maritime Companies Publ. Stamoulis, Athens,

pp. 358-365 (in Greek)

5. Greek Bank of Industrial Development (1994) Investigation of the operation of a

coastal shipping transport network between Piraeus and the South suburban

area”

6. Karvounis S. (2000) Economic & Technical Studies, Publ. Stamoulis (in Greek),

pp 723-740

7. Koppelman F.S., Chu C. (1983) Effect of Sample Size on Disaggregate Choice

Model Estimation and Prediction, Transportation Research Record 944,

Washington D.C.

8. Ortuzar J, Willumsen L.G. (1990) Modeling Transport, John Wiley and Sons

9. Pearmain D., Kroes E., (1990) Stated Preference Techniques: a guide to practice,

Steer Davies & Gleave Ltd, Hague consulting Group

10. Sambracos E. (2001) Introduction on Transport Economics Publ. Stamoulis,

Athens, pp 248-251 (in Greek)

11. Theofanides S. (1985) Manual for the Evaluation of Investment Projects, Greek

Bank of Industrial Development, Publ. Papazisis, pp. 256-260 (in Greek)