04 martin stopford marine money 21st feb 2013.pdf

Marine Money 21st Feb 2013 20/2/2013

Martin Stopford, President, Clarkson Research 1

Ship Finance at the CrossroadsMarine Money Hamburg

21st February 2013

What toExpect

From the shippingmarkets

Martin StopfordPresident,

Clarkson Research

Futurevision

ofm

aritime

Industry

1. Long Cold Winter2. Costly Bunkers, Cheap Ships3. Geopolitical Change4. Evolving Offshore Era?5. New Container Business Model

So Manychallenges, so

manyexpectations

What makes the business climate so difficult today is that shipping investors must dealwith several major changes taking place simultaneously. What are the challenges, howwill they interact and where they might lead?



1. Ship owners are restless

What shall Ibuy now?

5. Governments intervening

ShippingsWild West isbeing tamed

4. Financiers are VERY fragile

Shall we say30 cents inthe $, Sir? What about

our $1.2billion loan?

Increasinginvestments isnot the plan"

3. Shippers happy2. Shipbuilders...??!!

We buildships.. so

please ORDERSOME!

WHERE

ARE

WE

TODAY?

It is the 22nd troughsince 1741 and coulddrag on

Take it seriously

Expectation 1: Long, Cold Winter?The immediate challenge is to get through the recession in one piece.

It's gonna becold, it's gonnabe grey, and it's

gonna last



0

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1120

1220

13

Cla

rkse

aIn

dex

$000

/day

Clarksea Index : weighted average earnings by tankers, bulkers, containerships & gas

2004$39,000/day

2008$50,000/day

$22,800/day

2000$24,000/day

Wow

$8,500/day $12,000/day$14,000/day $9,938/day

Shipping Cycle 1965-2013

2013$7,910

New low of $7,900 per day in Feb 2013

Not Much Laid Up Tonnage

0.010.020.030.040.050.060.070.080.090.0

100.0

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

Mdw

t

0%

10%

20%

30%

40%

50%60%

70%

80%

90%

100%Bulkers Tankers % Tanker TCShows tonnage of ships laid up on a monthly basis

Laid up tonnage (notreally tracked) is still low.

Surplus absorbed byslow steaming, waiting

etc

% on T/C

In the1970s the

spotmarket

was small-most of the

fleet oncharter

Copenhagen BLUE Business & ShippingConference

25/01/2013


0

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1120

12

Cla

rkse

aIn

dex

$000

/day

(Clarksea Index is a weighted average of earnings bytankers, bulkers, containerships & gas.) 2004

$39,000/day

2008$50,000/day

$22,800/day

2000$24,000/day

Extraordinarilyprosperous

$8,500/day $12,000/day$14,000/day $9,938/day


0

5

10

15

20

25

30

35

40

45

50

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1966

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2010

2011

2012

2013

Cla

rkse

aIn

dex

$000

/day

(Clarksea Index is a weighted average of earnings bytankers, bulkers, containerships & gas.) 2004

$39,000/day

2008$50,000/day

Here

$22,800/day

2000$24,000/day

Wow

$8,500/day $12,000/day$14,000/day $9,938/day




Three Speed Trade

-5%

0%

5%

10%

15%19

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0020

0120

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0320

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0520

0620

0720

0820

0920

1020

1120

12

Major Bulks Crude Oil ImportsContainer Linear (Container)

% growth Container cargo still growing very fast

Containers

FORECAST

The Merchant Shipbuilding Cycle

020406080

100120140160

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Deliveries Scrapping

Deliveries61 m dwt in

1976

Deliveries162.8 m dwtin 2012 (est)

Last phaseof 1970s

scrapping!

Million DwtShipyards expand to replace the ships built in the 1970s boom


25/01/2013


0

200

400

600

800

1000

1200

1400

1600

180019

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0120

0320

0520

0720

0920

1120

1320

15

M. Dwt

-15%-10%-5%0%5%10%15%20%25%30%35%40%45%

% SurplusWorld Cargo Fleet 1963-2013

Demand for seatransport runs

ahead of supply

Surplus shippingcapacity (% right axis)

From 2009 world fleet (midyear) surges ahead of

demand

World Shipping Supply/Demand

Change 2: The Cost Of Energy

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

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1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

$/day cost

Bunker cost 1 Year TC Rate

THE SHIP USED TO COST MUCH MORE THAN BUNKERS BUT. TODAY BUNKERS COST MORE THAN THE SHIP.

2005Ship costs

3x fuel

2012Ship costs

half fuel

Based on Aframax tanker, 1 year TC rate and Rotterdam bunker price


25/01/2013


Shipbuilding Deliveries Now 10% fleet

-5%-3%-1%1%3%5%7%9%

11%19

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7719

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0120

0320

0520

0720

0920

11

Trade growth (5 yr average) Deliveries % Fleet

Compares the % growth of trade with shipyard deliveries % fleet% perannumgrowth

Three Speed Trade

-5%

0%

5%

10%

15%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Major Bulks Crude Oil ImportsContainer Linear (Container)

% growth Container cargo still growing very fast

Containers


25/01/2013


FORECAST

The Merchant Shipbuilding Cycle

020406080

100120140160

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Deliveries Scrapping

Deliveries 61m dwt in 1976

Deliveries169.3 mdwt in

2012 (est)

Last phaseof 1970s

scrapping!

Million DwtShipyards expand to replace the ships built in the 1970s boom

Sea Trade Growing About 3% a Year

-5%-3%-1%1%3%5%7%9%

11%

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

% perannumgrowth

Graph shows 5 year moving average of % growth of sea trade

Trend about 3% pa

Note surge to 5% pa in 2000s



World Shipbuilding Shares

0%5%

10%15%20%25%30%35%40%45%50%

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

%CG

TDe

liver

ies

Europe

Japan

Korea

China

China overtakes Korea

Orderbook in 2013 Nearly the 1990s

10% 10% 11% 11% 11%14% 14% 14%

20%24% 25%

33%

47%51%

41%36%

16%

0%

10%

20%

30%

40%

50%

60%

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

%fle

et(D

wt)

Orderbook % Fleet (Dwt)



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0020

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12

M. Dwt shipdemand

Chart shows Trade expansion each year converted into dwt demand

Expansion demand

The Expansion Demand For New Ships

Expansion demand

1967-1973 tradegrew at 203 mtonnes a year

2002-2008 tradegrew at 267 mtonnes a year

This chart suggests that the need for new ships to expandthe fleet did not grow all that fast in the last decade,especially when troughs are taken into account

-30

-10

10

30

50

70

90

110

130

150

170

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1952

1954

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1960

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1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

M. Dwt

Now add the tonnage of ships replaced eachyear to give the total requirement for newships. The average 2003-2012 was 56m dwt

Expansion demand

Now Add Replacement Demand

Expansion demand

Average 56 m dwt pa



DELIVERIESDWARF DEMANDSO IT WILL TAKE

A WHILE TO CLEAR THEBACKLOG

Expansion demand

Now Compare Demand With deliveries

Expansion demand

Expectation 2: Cheap Ships, Costly Energy

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

$/day cost

Bunker cost 1 Year TC Rate

THE SHIP COST MORE BUNKERS BUT TODAY BUNKERS COST MORE

Based on Aframax tanker, 1 year TC rate and Rotterdam bunker price

2005Ship costs

3x fuel

2012Ship costs

half fuel



Fuel Consumption Ships

Fuel consumption ofships has not improvedmuch in the last 13years

The containershipconsumption was about140 tpd at 24.5 knots(latest 136 tpd)

The bulker was about35 tpd at 14.5 knots(latest 33 tpd) 80

90

100

110

120

130

140

150

1999

2001

2003

2005

2007

2009

2011

Panamax bulker

Panamax containership

Index of fuel consumption in MPG(higher is better)

Fuel Consumption Cars

Fuel consumption ofcars did not improvemuch until last year

The Ford Focus 1.6Zedtec averaged about39 mpg.

The 2011 modelspushed that up to 47mpg and the 2012model to 56 mpg

80

90

100

110

120

130

140

150

1999

2001

2003

2005

2007

2009

2011

Ford FocusPanamax bulkerPanamax containership

Index of Miles Per Gallon



Fuel Consumption Cars

Fuel consumption ofcars did not improvemuch until last year

The Ford Focus 1.6Zedtec averaged about39 mpg.

The 2011 modelspushed that up to 47mpg and the 2012model to 56 mpg

80

90

100

110

120

130

140

150

1999

2001

2003

2005

2007

2009

2011

Ford FocusPanamax bulkerPanamax containership

Index of Miles Per Gallon

2 4

10

23

10 10

2024

12 14 11

19

138

33

18 20

13

73 3

05

101520253035404550

unde

r8.5

8.5-

99-

9.5

9.5-

1010

-10.

510

.5-1

111

-11.

511

.5-1

212

-12.

512

.5-1

313

-13.

513

.5-1

414

.14.

514

.5-1

515

-20

20-2

525

-30

30-3

535

-40

40-4

545

-50

Numberof months

Clarksea Index earnings band $000/day

BOOMNORMALSLUMPtoday we are here, thelowest since 1990

Months since 1990 that Clarksea Index fellin each earnings band shown below

fasterslower need flexi-speed?

Less Horsepower, Less LossesIndex covers tankers, bulkers, LPG and containers

More Horsepower, More Profits

slower

faster



My Expectation For the Future is Flexible77,000 Dwt Panamax Bulk Carrier

14.2metresdraft

Main engine12,670 HP at 89rpm

Side rollinghydraulic

hatch covers

7 cargo holds, each with capacity for 12-13,000 m3 or 10 -11,000 tons depending

on density of cargo being carried

Corrugated bulkhead

Water line

Double bottom used for water ballast

No 4 hold floodable for extrawater ballast in heavy weather

No 1 hold12,600m3

No 2 hold13,300m3

No 3 hold13,000 m3

No 4 hold12,300 m3floodable

No 5 hold13,000 m3

No 6 hold13,000 m3

No 7 hold12,200 m3

Crane

Steering gearroom

Anchor

Prop shaft

Hatchcoaming

225 m LOA, 77,000 dwt

2. New propellertuned to revised

engine spec

1. De-rate enginefor improvedgrams/kWh

3. Cut out oneturbo charger &slide injectors

5. Tune Enginewith electroniccontrol system

7. Improved trimmanagement

4. Waste heatrecovery system

6. Improved lowload cylinderlubrication

8. Hull coatings,less ballast, airresistance etc.

07/03/2013 Martin Stopford 20

Expectation 3: Changing Geopolitical SceneTHE OECD COUNTRIES NO LONGER DOMINATE SEA TRADE



M. East3%Africa5%S America5%

China2% W Europe

36%

N America16%

Japan18%

SE Asia14%

Oceania1%

The World is Changing 1990

OECD 70%

M. East3%Africa5%

S America5%

China22%

W Europe21%

N America11%

Japan9%

SE Asia23%

Oceania1%

The World is Changing 2012

OECD 41%



Expectation 4: Dominant Offshore Flag Era

237 255294 311

323 335359

383407 407

441 451468 480 486

501552

603649

699748

800852

995

-

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

1,000.0

198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012

National & Foreign Flag Fleets M GT, , 0%

Nationalflag 396 mdwt, 28%

ForeignFlag 995mdwt, 72%

National flag fleet

Foreign flag fleet

72% OF THE WORLD FLEET FLAGGED ABROAD & GROWING

Flag State Regulation Will Get MoreTechnical (like airlines?)

Requirement that new ships mustcomply with the EEDI, attemptsto drive efficiency improvements

The focus on air emissions ballast water; recycling; energy efficiency and the carbon footprint.

The dilemma of gas oil versusscrubbers and the uncertaintyover of which ballast watersystem technology do not help

Many shipyards, after a decadewhen they were able to sellstandard ships, are struggling torespond.



Expectation 5: New Container Business Model?

Over the centuries technicaldevelopments in liner shippinghas been not so much acontinuous process as anoccasional leap forwardprecipitated by a compellingcall for change.

In between there have beenlong periods of conservatism".Ronnie Swayne, Chairman OCL 1973 y = 6.5684e

0.0888x

0.00.20.40.60.81.01.21.41.61.8

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

Billion tons

This chart shows containercargo growing to 1.5 billiontonnes today. In 2009 thetrade had its first seriouswobble.

Will the exponentialtrend of 8.8% trendcontinue?

The Container Business Model is Tired

General Cargo Transport In the 1950s, the ocean-going freighter was dying. The

general forecast was that it would be replaced by air freight,except for bulk commodities.

Costs were rising and it took longer to get merchandisedelivered by freighter as one port after another became badlycongested.

This, in turn, increased pilferage at the docks. In response the industry built faster ships, and ships that

required less fuel and a smaller crew. It concentrated on theeconomics of the ship while at sea and in transit from oneport to another costs that were already low

The solution was to uncouple loading from stowing. Do theloading on land, where there is ample space and where it canbe performed before the ship is in port, so that all that has tobe done is to put on and take off pre-loaded freight.



0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Jan-

96Ja

n-97

Jan-

98Ja

n-99

Jan-

00Ja

n-01

Jan-

02Ja

n-03

Jan-

04Ja

n-05

Jan-

06Ja

n-07

Jan-

08Ja

n-09

Jan-

10Ja

n-11

Jan-

12

Billio

nto

nnes

ofca

rgo

..

SeriveOperatorOwned

50%

CharterOwner50%

Container Fleet Oct 2012

Container Fleet By Ownership

OWNED BY SERVICE OPERATORS

Conclusions on Managing Change1. Key strands in strategy are:-2. Manage through the supply

overhang: Lower earnings in comingdecade will make cost control key,so play the margins.

3. Adjust to bunker cost regime: itschanging the balance of maritimeeconomics

4. Adapt to Change: The world ischanging - remember thatrecessions are there to driveshipping to respond to thesechanges

Amarillo Slim, was fourtimes the World Pokerchampion. His tips are:-


25/01/2013


The Ship Speed & Consumption Matrix

0

20

40

60

80

100

120

15 14 13 12 11 10 9 8 7

Ship

cost

chan

ge$0

00as

ship

slow

s

Speed of ship (knots)

21

3

4

Shows effect on fuel cost (green lines) & the cost of shipping capacity (brown line) of changingship operating speed in 1 knot increments on a 5000 mile voyage)

Future of Fuel will be Frugal

Higher cost is changing the economic balanceand behaviour will change

Things that did not work will now work, but itwill take time and committment

Charterers will become more fuel conscious. Look for the pressure points:-

Direct consumption v indirect consumption Measurement of efficiency Marketing and public image


25/01/2013


25/01/2013 Martin Stopford 19

Change 3: Geography & Political Hegemony

0.20

0.6

0.8

3.80

6.30

7.50

0 1 2 3 4 5 6 7 8 9 10 11 12Tonnes of sea imports per person a year

Japan

Europe

N. America

China

S America

Africa

2000-20506 billion Non-OECDpopulation want to

consume at OECD levels

1950-2000OECDs 1.3 billion

population

The Changing World


25/01/2013


The Changing World of Trade0

500

1,00

0

1,50

0

2,00

0

2,50

0

Million tons imports

W EuropeN America

JapanSE Asia

ChinaS America

AfricaM. East

Oceania

M. East3%

Oceania1%

SE Asia23%

Japan9%

N America11%

W Europe21%

China22%

S America5%

Africa5%

Sea Trade in 2011

OECD42%

NonOECD58%

World Sea Trade ScenarioWill Sea Trade will grow from 10 billion tons to 27 billion tons?

0

3

6

9

12

15

18

21

24

27

30

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

2055

Bill

ion

tons

trad

e

Total TradeSea Trade Scenario

27 billion tons of tradein 2057 looks extreme.If it happens, will it putpressure on resources


25/01/2013


The Future Geopolitical Landscape The USA Hegemony was a

major driver ofglobalization.

It has been fading since the1970s and this will weakenfuture trade

China is different lessdominant, more imperialist

The future has less lowhanging fruit, more conflictsof interest, more activetrading partners.

Change 4: Flag State Regulation Escalating

Requirement that new ships mustcomply with the EEDI, a clearattempt to drive efficiencyimprovements

The focus on air emissions ballast water; recycling; energy efficiency and the carbon footprint.

The dilemma of gas oil versusscrubbers and the uncertaintyover of which ballast watersystem technology do not help

Many shipyards, after a decadewhen they were able to sellstandard ships, are struggling torespond.


25/01/2013


Merchant Shipping Offshore Trend Continues

Offshore Flag TonnageNudges 1 Billion GT

72% of the merchantfleet is now registeredoffshore

Up from 42% 23 yearsago

We are evolving into atruly stateless industry W orld fle e t M dwtOwne rship 1989 1997 2009 2012

Na tiona l 334.3 295.0 347.0 396.5Fore ign 237.2 407.3 748.0 995.3T ota l 571.5 702.4 1,105.0 1,391.8

Na tiona l 58% 42% 31% 28%Fore ign 42% 58% 68% 72%T ota l 100% 100% 100% 100%

-

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

1,000.0

198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012

Foreign Flag

National Flag

National & Foreign Flag Fleets M GT

Top Shipowning Nations 2012National Foreign Total Foreign %

Japan 20.5 197.2 217.7 91%Greece 64.9 159.1 224.1 71%Germany 17.3 108.3 125.6 86%China 51.7 72.3 124.0 58%USA 7.2 47.5 54.6 87%S Korea 17.1 39.1 56.2 70%Chinese 4.1 35.0 39.0 90%Bermuda 2.3 27.7 30.0 92%Norway 15.8 27.3 43.1 63%Denmark 13.5 26.5 40.0 66%Canada 2.5 19.4 21.8 89%Taiwan 28.9 16.6 45.5 36%Singapore 22.1 16.5 38.6 43%UK 2.0 16.4 18.4 89%Russia 5.4 15.0 20.4 73%

Flag of RegistrationM GT


25/01/2013


Top FLAG STATES IN 2012

Top 10 Flag StatesStatus 2008 2012 % Increase

Panama Open 182.9 227.5 24%Liberia Open 81 128.5 59%Marshall Is Open 44.1 84.6 92%Hong Kong Open 39.3 77.2 96%Singapore Open 40.3 58.2 44%Bahamas Open 47.5 54.7 15%Malta Open 29.2 44.1 51%China National 27.2 43.6 60%Greece National 36.7 43.1 17%Cyprus Open 20.4 20.5 0%

548.6 782.0 43%

The Future of Regulation

The UN based system isfragile and strugglingwith complex technicalchallenges

The Port state regime isimpulsive, proactive andpolitically motivated

Surge of piracy has raisedmany issues about thepolicing of trade lanes


25/01/2013


Change 5: Information & Communications

Fibre optic cable network

GordonMoore

Invented Moores Law

Conclusions on Strategy1. Key strands in strategy are:-2. Manage through the supply

overhang: Lower earnings in comingdecade will make cost control key,so play the margins.

3. Adjust to bunker cost regime: itschanging the balance of maritimeeconomics

4. Adapt to Change: Ship designschanging due to regulations. Makesure todays eco-ship isnttomorrows White Elephant.

Amarillo Slim, was fourtimes the World Pokerchampion. His tips are:-


25/01/2013


Amarillo Slims Advice

1. Play the players, not the cards.2. Watch them from the minute

you sit down.3. Play fast in a slow game , slow in

a fast game.4. Never get out when you are

winning.5. Look for the sucker and, if you

dont see one , get up and leavebecause the sucker is you

04 martin stopford marine money 21st feb 2013.pdf

Documents

weighted average earnings

bulkers tankers

dayshipping cycle

business climate

containerships gas2004

itsgonna lastmarine

new low

ship finance