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1
Maritime Economics 3rd Edition
Wonders are many on earth,and the greatest of these is man,
who rides the ocean and takes his way
through the deeps, through wind-swept
valleys of perilous seas
that surge and sway.
The chorus in Sophocles Antigone
422BC Trans. R. C. Jebb
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Overview of
ShippingMarketswill Greek Shipping
Support Chinese yards?
Martin StopfordPresident,
Clarkson Research
5th Hydra Shipping ConferenceMaritime Greece in the Privatization Era
Saturday 14th September 2013
FIVE YEARS AGO TODAY
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1. The Shipping Cycle2. Global Dynamics
3. Changing Ownership4. Energy & the Environment5. Information & Communications
What makes the business climate so difficult today is that shipping investors mustdeal with several major changes taking place simultaneously. What are thechallenges, how will they interact and where they might lead?
New era orjust
anothercycle?
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I LOVE
SHIPPINGI still dont
seem to bemaking any
money
Bankersarrested
my ships
I mademillions on
timecharters
I can onlypay the
interest, sir
Issue 1: The Shipping Cycle
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0
10
20
30
40
50
60
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
ClarkseaIn
dex$000/da
Source: Clarkson Research Services Ltd
The Great
Shipping Boom1980s Recession
$8,500/day
$12,000/day
$22,800/day
DEPRESSION LOW RETURNS BOOM!
Bulk Shipping Fundamentals balance
BUST
$9,500/day
Ship Earnings Super-Cycle(Clarksea Index is a weighted average of earnings by tankers, bulkers, containerships & gas.)
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0
10
20
30
40
50
60
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
ClarkseaIndex$000/dayand$milli
Source: Clarkson Research Services Ltd
The Great
Shipping Boom1980s Recession
$8,500/day
$12,000/day
$22,800/day
Bulk Shipping Fundamentals balance
Ship Earnings Super-Cycle(Clarksea Index is a weighted average of earnings by tankers, bulkers, containerships & gas.)
Newbuilding priceof Panamax bulkcarrier $ million
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0
10
20
30
4050
60
70
8090
100
Jan-
80
Jan-
82
Jan-
84
Jan-
86
Jan-
88
Jan-
90
Jan-
92
Jan-
94
Jan
'96
Jan-
98
Jan-
00
Jan-
02
Jan-
04
Jan
'06
Jan
'08
Jan
'10
Jan
'12
price$millio
New Panamax
Panamax bulk carrier 5 year old
Panamax peak$90MM
June 2008Market Prices Edging Down
Source CRSL
Panamax $21 MM
NewPanamax
Second hand prices still trying to find a levelas potential sellers avoid distress sales.
But the downward pressure is building
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0%
20%
40%
60%
80%100%
120%
140%
160%
180%200%
Jan-
80
Jan-
82
Jan-
84
Jan-
86
Jan-
88
Jan-
90
Jan-
92
Jan-
94
Jan
'96
Jan-
98
Jan-
00
Jan
'02
Jan
'04
Jan
'06
Jan
'08
Jan
'10
Jan
'12
5yearo
ld%ne
wpricem
illio
Panamax 5 year
Panamax Bulker on Trend
Source CRSL
Not as cheapas 1980s
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-10%
-8%
-6%
-4%
-2%
0%2%
4%
6%
8%
10%
12%
14%
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
Economic Cycles & Sea TradeWorld GDP (red line) and sea trade (blue line)
Crisis 119731st OilCrisis
2001Dot.comcrisis
Crisis 219792nd OilCrisis
1991FinancialCrisis
1997AsiaCrisis
Crisis 62007CreditCrisis
% change Oil Crisis Credit Crisis
3.9%
trend
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23/09/2013 10
FORECAST
The Shipbuilding Cycle
0
20
40
60
80
100
120
140
160
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 Scra in
Deliveries 61
m dwt in 1976
Deliveries
162.5 m
dwt in
2012
Last phase
of 1970s
scrapping!
Million Dwt
Shipyards expand to replace the ships built in the 1970s boom
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0
10
20
30
4050
60
70
8090
100
1902
1907
1912
1917
1922
1927
1932
1937
1942
1947
1952
1957
1962
1967
1972
1977
1982
1987
1992
1997
2002
2007
2012
%
totalshipslaunche
Korea
Japan
EuropeBritain
Other
Scandin-avia
USA China
REGIONAL STRUCTURE OF WORLD SHIPBUILDINGSee: page 616
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0
200
400
600
800
1,000
1,200
1,4001,600
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
2011
World Merchant Fleet GrowthMillion dwt (year end)
Fleet Growth isspeeding up
Between 1990 and2004 fleet growthaveraged 2.2% perannum
Between 2004 and2012 the fleetdoubled, most ofthe growth cameafter the market
collapsed
Fleet grew30% in 20
years
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0
200
400
600
800
1,000
1,200
1,400
1,600
1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
Fleet M dwt 1st Jan
Source: Fearnleys Annual Review (cargo), CRSL (fleet)
Tanker
BulkcarrierOther
OBOs
Index of sea trade (black line) compared with fleet area chart (m dwt)
Shipping Supply Crisis: Brief History
1973-2000
Shipping caughtin pincers ofsupply bubbleand demand
collapse
2000-2008Supply lagsdemand &triggers aninvestment
bubble
1960sSupply lagsdemand &
triggers
investmentbubble
1967-73
2010sSupply bubble
still delivering,trade OK
OtherShiptypes
Fleet
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VLCC Cost & Revenue 1990-2013
0
20
40
60
80
100
120
Jan-9
0
Jan-9
1
Jan-9
2
Jan-9
3
Jan-9
4
Jan-9
5
Jan-9
6
Jan-9
7
Jan-9
8
Jan-9
9
Jan-0
0
Jan-0
1
Jan-0
2
Jan-0
3
Jan'04
Jan'05
Jan'06
Jan'07
Jan'08
Jan'09
Jan'10
Jan'11
Jan'12
Jan'13
$000/day
DepreciationInterest + spread
OPEX
VLCC Earnings (12 month average)
Operating cost, plus interest at LIBOR + spread on new cost, plus depreciation
INTEREST on
New cost at LIBOR + spread
Depreciation over 20 yrs
Revenue based on 12
month earnings. Shipsgenerating much cash
in the 2000s
OPEX
Earningsclose tooperating
costs
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23/09/2013 Martin Stopford 15
Issue 2: Global Dynamics
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0.20
0.6
1.5
3.80
6.30
7.50
0 1 2 3 4 5 6 7 8 9 10 11 12
Tonnes of sea imports per person a year
Japan
Europe
N. America
China
S America
Africa
Who Imports the Most Cargo By Sea?
2000-20506 billion Non-OECDpopulation moving
towards OECD levels
1950-2000OECDs 1.3billion
populationdominate sea
trade
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OECD & Non OECD Share of Sea Trade
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
%
Wo
rldSea
Tra
d
OECD % Trade Non OECD % Trade
..
OECD declinestarted in1974
Non OECDovertook OECD
in 2008
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237 255
294 311 323 335
359383
407 407441 451
468 480 486 501
552
603
649
699
748
800
852
995
y = 237.72e0.054x
-
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
1,000.0
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
National & Foreign Flag Fleets M GT
National
flag 396 m
dwt, 28%
Foreign
Flag 995m
dwt, 72%
National flagfleet
Foreign flagfleet
72% OF THE WORLD FLEET FLAGGED ABROAD & GROWING
Issue 3: Ownership Patterns
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Top Ten Shipowning Nations
Foreign Flag TonnageNudges 1 Billion GT
72% of the merchantfleet is now registeredoffshore
Europe owns 32%
Shipping is evolvinginto a truly global
industry
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Top ShippingFleets 1999-2013
The shipping fleet ischanging.
Greece and Japan arethe two biggest fleetsneck and neck
China has overtakenGermany to take thethird position and thefleet is growing rapidly
German shipping facesthe problems of the
future of the KG system
Million Gross Tonnes
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Regulatory Challenge
IMO moving into areasinvolving technical designand operation of the ship
EEDI; air emissions;ballast water; recycling;
energy efficiency andcarbon footprint raisetechnical issues andCHOICES.
The industry lacks acoherent technical baseto resolve these issue
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Issue 4: Energy & the Environment
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
2005Ship costs
3x fuel
2012Ship costs
half fuel
Based on Aframax tanker, 1 year TC rate and Rotterdam bunker price
FUELSHIP
FUELSHIP
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The Future - Economical & Green Ships77,000 Dwt Panamax Bulk Carrier
14.2metres
draft
Main engine
12,670 HP at 89rpm
Side rolling
hydraulic
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 lin
Double bottom used for water ballast
No 4 hold floodable for extrawater ballast in heavy weather
No 1 hold
12,600m3
No 2 hold
13,300m3No 3 hold
13,000 m3
No 4 hold
12,300 m3
floodable
No 5 hold
13,000 m3
No 6 hold
13,000 m3
No 7 hold
12,200 m3
Crane
Steering gearroom
Anchor
Prop shaft
Hatch
coaming
225 m LOA, 77,000 dwt
2. New propellertuned to revised
engine spec
1. De-rate enginefor improvedgrams/kWh
3. Turbo chargercut-out & slide
injectors
5. Tune Enginewith electroniccontrol system
7. Improved trimmanagement
4. Waste heat
recoverysystem
6. Improved lowload cylinder
lubrication
8. Hull coatings,less ballast, airresistance etc.
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Engine Upgrade Kit
3. LubricatorUpgradeSaves 140 lt/dayat 10%MCR
1.Slide fuelvalves cut exhaust valve deposits (see
Photo below after 890 hours with new valves)
Old valve Slide valve
2. Turbo chargercut-out
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De-rating Engine
Modify engine components:-1. Fuel & exhaust cam positions
2. Fuel atomisers
3. Fuel valves
4. Height between x-head & piston rod
5. Wave cut of cylinder liner
6. Re-match turbochargers
7. New technical file
8. Propeller exchange
The top end performance is lost, butbetter low output performance
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Fuel Consumption 60,000 dwt Bulkers
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
1965
1973
1976
1978
1981
1982
1983
1984
1987
1989
1993
1996
2005
2006
2008
2009
2009
2010
2010
2011
2011
2011
2012
2012
2012
Consumption 65-75
Consumption 65-75
Year of Build
Fuel consumption TPD at 14.5 knots
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10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
1965
1973
1976
1978
1981
1982
1983
1984
1987
1989
1993
1996
2005
2006
2008
2009
2009
2010
2010
2011
2011
2011
2012
2012
2012
Consumption 65-75 Consumption 76-88
Year of Build
Fuel Consumption 60,000 dwt BulkersFuel consumption TPD at 14.5 knots
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Fuel Consumption 60,000 dwt Bulkers
Year of Build
Fuel consumption TPD at 14.5 knots
New Japanese60k dwt suprama
28 m bpd
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Issue 5: Information & Communications
Fibre optic cable network
GordonMoore
Invented Moores Law
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Has Shipping Learnt its Lesson?
1. This looks like being a long cyclewhich will change shipping. Nomagic solutions.
2. Ownership is moving offshore ata rate of 1% a year, and newfinancial structures emerging
3. Shipping is struggling with astrategy to deal with recession,fuel prices & regulatory issues.
4. Information technology massively
important and the basis for majorchanges in shipping.
5. So plenty of new lessons!
Professional pokerplayers soon learn that
they make the big profitsby winning from other
players
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The statistical, graphical information contained in this paper are drawn from
the Clarkson Research Services Limited ("CRSL") database and othersources. CRSL advises that: (i) some information in CRSL's database isderived from estimates or subjective judgments; and (ii) the information in thedatabases of other maritime data collection agencies may differ from theinformation in CRSL's database; and (iii) whilst CRSL has taken reasonablecare in the compilation of the statistical and graphical information and believesit to be accurate and correct, data compilation is subject to limited audit and
validation procedures and may accordingly contain errors; and (iv) CRSL, itsagents, officers and employees do not accept liability for any loss suffered inconsequence of reliance on such information or in any other manner; and (v)the provision of such information does not obviate any need to makeappropriate further enquiries; (vi) the provision of such information is not anendorsement of any commercial policies and/or any conclusions by CRSL; and(vii) shipping is a variable and cyclical business and anyone who thinks they
can forecast it needs their head examining. Where views are expressed theyare in the context of this general presentation and should not be used or reliedon in any other context without appropriate investigation, validation and thewritten permission of the author
Disclaimer