4th edition Traveller trade issues

[Mgellis]

I was playing around with ideas for ships using the GT:IW system (which I am adapting for a Third Imperium setting) and I noticed something...

As far as I can tell, unless I am doing the math wrong, it is really hard for a simple cargo vessel to make any money.

A Hero-class costs $M69 new. It carries 87 dtons of cargo. Even assuming a full cargo bay and two-parsec jumps every single time it travels, if the ship is only shipping cargoes for other people, the annual income is about $M2.9. (This presumes $700 per dton per parsec).

Even if it was FREE to run the ship, and there was NO interest on the bank loan, etc., it will take the ship more than twenty years just to break even. Since fuel, salaries, berthing fees, annual overhauls, etc. take about $M1.4 every year, it works out to more like 40 years. And that's if there is no interest from a loan, etc.

And if you're stuck with one-parsec jumps, you might never pay off the ship.

Even with a large (and more efficient) cargo hauler like a 2000-dton branch freighter, it takes, assuming no interest payments, about 17 years to pay off the initial cost of the ship (this assumes all two-parsec jumps but includes salaries, etc.).

Admittedly, in a long-lived, conservative, tradition- and family-oriented society like the Imperium, this might make sense...the original visionary puts up the money and works hard with the assumption that he may not be rich, but he will end up with his own ship, free and clear, and his children are likely to be rich as a result, and they put up more money, work hard, etc. so that their children (or grandchildren) will have the chance of having enough wealth to become de facto or actual nobles. And ships last 100 years or more, so they usually do make a significant profit in the long run. Even so, it seems a bit iffy that people would tolerate investments with such long time periods for some kind of profit.

Possible solutions, etc...

The most obvious one is that free traders (and even large cargo vessels) are meant to engage in speculative trade where one can make big profits and pull in a lot more money than just hauling cargo for someone else.

Change the rates for cargo. Perhaps it should be $1500 per dton per jump, regardless of distance. This really makes more sense, as what matters is not how far the ship goes but how long it takes to get there, as this determines how many cargoes a ship can carry in a year.

Buying an older ship is cheaper. That might solve the problem for a free trader (if you're only paying off a $M34.5 loan instead of a $M69 loan, you can do it just hauling cargo), but why would anyone ever build or buy a new free trader? Unless the Imperium subsidizes shipbuilding to maintain trade and civilization by building lots of small merchants and running them on smaller trade routes for 50 years or so and then selling them cheap to entrepreneurs who want to try their luck at being private captains (which actually kind of makes sense, at least for the Traveller universe)...

Any other thoughts or ideas?

Mark

[Fred Brackin]

Originally Posted by Mgellis

Any other thoughts or ideas?

Mark

What about passenger income?

Aside from that specific, it has been the general case that small freighters have seldom made economic sense in the history of Traveller.

When GT:ISW basically turned the proto-Free Trader into a Far Trader by boosting it to Jump-2 from Jump 1 it didn't help. The J-1 Free Trader from the 3e GT book was quite a bit cheaper.

[Mgellis]

Originally Posted by Fred Brackin

What about passenger income?

Aside from that specific, it has been the general case that small freighters have seldom made economic sense in the history of Traveller.

When GT:ISW basically turned the proto-Free Trader into a Far Trader by boosting it to Jump-2 from Jump 1 it didn't help. The J-1 Free Trader from the 3e GT book was quite a bit cheaper.

Yes, it is. In fact, I'm working on a JTAS article for a bare bones J-1 free trader using the GT:IW system. It will carry about 64 dtons of cargo (almost as much as the Hero-class) but only cost about $30M, less than half the price of a Hero-class. I'll probably be sending the article in sometime in the next couple of weeks.

Mark

[jim.maclean]

Originally Posted by Mgellis

As far as I can tell, unless I am doing the math wrong, it is really hard for a simple cargo vessel to make any money.

I didn't design the trade system for GT:IW, but I was involved in some of the initial discussions and I wrote the trade material for GT:FT. The simple answer to your issue is that small vessels like the Hero aren't _supposed_ to make money hauling other people's freight. There are both economic and game design reasons for this.

Economically, larger freighters are more efficient and therefore they will push small ships like the Hero out of the market on any route big enough to support larger freighters. This means Heroes need to also make money on passengers, speculative cargo, and specialized freight that they can earn extra $ on (in FT this would be small routes, hazardous cargo, etc.). Larger freighters need to follow fixed routes and therefore can't adjust to explot these opportunities the way free traders can. This opens a niche for small ships like the Hero.

Game-wise, hauling other people's freight is less adventure-friendly than hauling passengers and speculative cargo. It was decided to emphasize these aspects in GT:IW for just this reason. This is also why new ship finance options were introduced, so players wouldn't be slaves to their mortgage payments.

GT:FT is a bit more "simulationist" than GT:IW and free traders can make a living hauling freight in certain routes in GT:FT. I think IW introduced so worthy and game-friendly innovations that are worth keeping. But if you want something more simulationist, then I encourage you to take a look at FT.

[thrash]

Originally Posted by Mgellis

As far as I can tell, unless I am doing the math wrong, it is really hard for a simple cargo vessel to make any money.

A Hero-class costs $M69 new. It carries 87 dtons of cargo. Even assuming a full cargo bay and two-parsec jumps every single time it travels, if the ship is only shipping cargoes for other people, the annual income is about $M2.9. (This presumes $700 per dton per parsec).

Even if it was FREE to run the ship, and there was NO interest on the bank loan, etc., it will take the ship more than twenty years just to break even. Since fuel, salaries, berthing fees, annual overhauls, etc. take about $M1.4 every year, it works out to more like 40 years. And that's if there is no interest from a loan, etc.

That's a relief to hear, since that was precisely the intent. There basically aren't any loans to be had in the Interstellar Wars era, so "standard" freight rates work out to break-even costs.

And if you're stuck with one-parsec jumps, you might never pay off the ship.

Shouldn't happen very often, away from the cooked-up mains on the Classic era Traveller maps. Average separation between stars in this part of the galaxy is 2.5 pc.

The most obvious one is that free traders (and even large cargo vessels) are meant to engage in speculative trade where one can make big profits and pull in a lot more money than just hauling cargo for someone else.

Correct! Exploratory trade is the name of the game.

Change the rates for cargo. Perhaps it should be $1500 per dton per jump, regardless of distance.

Realistically, this doesn't work: if freight rates are much above break-even, someone will always cut their profit margin to get the contract -- until the rate drops to break-even again.

But if that works for the kind of game you want to run, go for it.

Buying an older ship is cheaper. That might solve the problem for a free trader (if you're only paying off a $M34.5 loan instead of a $M69 loan, you can do it just hauling cargo), but why would anyone ever build or buy a new free trader? Unless the Imperium subsidizes shipbuilding to maintain trade and civilization by building lots of small merchants and running them on smaller trade routes for 50 years or so and then selling them cheap to entrepreneurs who want to try their luck at being private captains (which actually kind of makes sense, at least for the Traveller universe)...

Hold that thought...

Originally Posted by Mgellis

In fact, I'm working on a JTAS article for a bare bones J-1 free trader using the GT:IW system. It will carry about 64 dtons of cargo (almost as much as the Hero-class) but only cost about $30M, less than half the price of a Hero-class.

The Classic-era Beowulf/Empress Marava (of which GT:IW's Hero is a hybrid) are lousy freighters, but great for adventurers. The backstory on the Hero specifies that the Imperium ran them on smaller trade routes to maintain contact, not to make a profit -- much like subsidized merchants of the Classic era. It also strongly implies that most of the ones in Terran hands were captured from the Imperium and refitted.

[Anthony]

Originally Posted by Mgellis

Buying an older ship is cheaper. That might solve the problem for a free trader (if you're only paying off a $M34.5 loan instead of a $M69 loan, you can do it just hauling cargo), but why would anyone ever build or buy a new free trader?

Realistically, depreciation will be caused by actual loss of value. If a ship is cheaper, it's because of increased upkeep, increased breakdown chance, or expectations of such problems in the future (e.g. the jump drive is good for 1,000 jumps, you've gone through 800, so you have to budget for major repairs in another 200 jumps).

From a GMing perspective, breakdowns are particularly useful; it's very useful to temporarily disable the PCs getaway craft, or force them to acquire the MacGuffin.

[Brett]

Originally Posted by thrash

That's a relief to hear, since that was precisely the intent. There basically aren't any loans to be had in the Interstellar Wars era, so "standard" freight rates work out to break-even costs.

I don't follow you there. Even if capital doesn't have a market price, it still has an opportunity cost. In fact, if a failure of the banking and finance industry makes it difficult to obtain sufficient capital to commission the construction of a ship, then ships will be in short supply, shipping rates will be high, and ship-owners will earn [super-normal] profits.

Realistically, this doesn't work: if freight rates are much above break-even, someone will always cut their profit margin to get the contract -- until the rate drops to break-even again.

That only works if there is excess shipping capacity, or in a long-run equilibrium in which investors find that they get a better return on their capital by investing it building ships than otherwise. Therefore "break even" includes an interest charge on the capital invested, imputed to the owner but behaving exactly like a cost.

It also strongly implies that most of the ones in Terran hands were captured from the Imperium and refitted.

Well, if the Terrans captured a glut of ships then vendors will bid down their price until such a ship earns an economic rate of return on its price. Whereas if their captured too few such ships to satisfy their needs there will be a shortage of shipping capacity and the freight rates will be bid up to the point where the ships are just fulling employed, the ships will earn profits, and their price will be bid up to the point where they earn an economic return on their price. (And shipyards will start turning out ships.)

If captured ships are plentiful the transport market will be glutted with capacity, freight rates will be bid down, the price of ships will fall to the expected net present value of their earnings, and ship-owners will get a normal return on their investment after allowing for taxes, expenses, depreciation, and risk. If captured ships are plentiful the transport market will be scanted of capacity, freight rates will be bid up, the price of ships will rise to the expected net present value of their earnings, and ship-owners will get a normal return on their investment after allowing for taxes, expenses, depreciation, and risk. (In this case, part of the return will be a rent, and not expected to last once the shipyards increase shipping capacity to a long-run equilibrium. In no case will investors put up money to buy a ship that they do not expect to earn them a competitive on their capital net of other costs.

If captured

[nik1979]

As an entrepreneurship student I've always thought that the free traders have to be best of the best to make things work. I never imagined them as "routines" with every project being vastly different.

My basic business strategy for free trader not as a trader but an entrepreneur who can transport capital and skilled personnel in developing markets. The way venture capitalists fly in to start a business in a market that would be great for the service or product.

So amber zones with huge populations but relatively undeveloped markets will be the perfect place for both adventure and business. Dealing with a different culture, different market, the red tape, the politics, and trying to make the business work is part of the fun.

The difference of just being a glorified medieval trader versus today's perception of a globalized entrepreneur is the ballzy approach to strange cultures and challenges. We have reached a new renaissance in economic theory with the help of advances in game theory, powerful information gathering and processing tools, market psychology and the rich economic history that provides enormous insight making business a science.

My default situation: A Business will want to open an on planet with a rich potential market (the way developing countries are always untapped markets that require incredible ability for an outsider to penetrate). There are political, cultural, and market barriers to penetrate. PCs of sufficient abilities travel with all capital on hand thanks to the 200-400Dton ship.

Market Barriers are the least problematic for the PCs since the GM can just make them roll their Business related skill for that (usually these skills will at LEAST be at 12 with cutting edge analysis equipment at +2).

The PCs go off in adventures making deals and getting caught up with the nitty and gritty political process which involves corrupt official or competitors that will try to sabotage their efforts. These adventures fit the classic RPG adventure format but they have to meet some reasonable business objectives: like Macguffins which usually fall in a social and intelligence category.

Then there are the situations at large, force majeur and other things that always happen when a business is starting up. Pcs overcome them and potentially ride long and hard enough for the business to settle or break even.

Either way, they get something out of it: more business contacts, more lessons, discovering an interesting element from the developing market that has possibilities for business with someone near by etc. (which could be a culture more inclined for X production, special or abundant resource, certain tax benefits etc etc.)

My wife works in a foreign investment firm and they invest roughly $5-10M and get their expected returns in 4 years (she gave me the idea of how much money there can be mad with certain investments). Thus the $69M 200Dton (or $75M for my 400dton subsidized merchant) is meant to carry roughly 30-100% of the ship's value in equivalent of investment resource into a planet make it run with a returns of x1.3 to x2 in 2-3 years. (as long as the profits exceed Inflation, and the other opportunity cost of the risks)

The PCs are the ones taking most of the risk, they certainly take a huge chunk of the profits relative to their capital and service investment. In the course of 2-3 years (which can be done in 2-3 sessions) the PCs make certain business-adventure objectives, dodge or make good with the curveballs real world business risks throw, and end up either on-top, break even or at a loss.

Being at a loss is not so bad, if the performance was good. Investors can still understand how force majeur and enemy action doesn't entirely mean the PC was unbankable. Experience matters a lot and always in high demand. (the way people who crashed markets can still find a job)

Then Rinse, Lather, Repeat on the next venture capital investment. Note, there is a psychological difference between managers and entrepreneurs. PCs usually fall under the entreps. Entreps are actually = to Adventurers (and may be good starting a business but not running it over time).

[far_trader]

So, free-traders as interstellar angel investors? Interesting. I wonder if I could sell that to a group of players? Sounds more interesting than the usual merchant routine of freight and pax and payments with a little speculative trade on the side.

[nik1979]

what else is great about using this format is I get to use my wife's and my old school material or the 'adventure' premise.
Below is a quickly converted typical business-adventure

Johnson Mikeals is the owner of En-r-Vyv manufacturing in Forbolden. He has been keeping track of the news regarding Roup negotiated by Regina. Slowly accumulating Intelligence and entrepreneur contacts, he feels confident that his venture will do well given the huge demand of basic energy utilities.

Now that the talks are reach fruition, He has also called in favors and sent inquiries for the personnel he will need to make the venture possible and was able to make a fact finding trips to see if he can start a solar cell manufacturing plant, using special materials supplied by Forbolden.

His trips were successful, save for the usual problems. He has found some markets where he can start his business unmolested and endorsed by the local politicians as long as he come to an agreement with them.

The crucial early stages of the start up is delicate and he can't do this alone. Fortunately, several of his favors are returned in kind when several highly capable entrepreneurs lend their strengths to him for a decent cut of the ownerships.

+ this business has the potential to raise the quality of life and productivity of the market. More energy access for farmers allows for more food production stability, reducing the instability variables of the area. Such investments in basic infrastructures quickly finds the business with a more productive market (and thus a large market that can afford their goods).

curve-balls. (comes mixed)
Government changing their mind (or a change of Administration)
Local Political unrest affecting market or the hired factory workers
Political or Business Rivals trying to sabotage the business.
PCs get caught up in local or personal affairs.

safety net.
Imperial Advocates. Given the logistics of maintaining fleet strength and bureaucratic efficiency the Imperium will have some way to protect entrepreneurs. Legal elements in place to "cover' their retreat or a way to "fix" the agreements are usually around to help the entreps.