fold, hold, double up - which hand to play...

Fold, Hold, Double Up - which hand to play next?James Frew - Maritime Strategies International (MSI)2017 Capital Link New York Maritime Forum

© Maritime Strategies International www.msiltd.com2

AgendaFold, Hold, Double Up - which hand to play next?

1. Demand

2. Supply

3. Earnings

4. Scenarios

5. The Winning Hand?

6. The real risk

DemandFold, Hold, Double Up

© Maritime Strategies International www.msiltd.com


Seaborne Cargo Growth - Positive

Positive cargo growth across the board


Historical 2012-2016

Forecast 2017-2021

Average Annual Cargo Growth –Relative Ranking

Ranking Movement (Forecast v Historical)


Cargo Growth Only Presents Part of the Picture

How Many Ships?


Routes Distance

Size ChangesCarrying CapacityBallast Ratio

Waiting/Port TimeSpeed

Operating Days


Differentiating HandsDry Bulk Effective Speed*

* Calculation is representative of port‐to‐port speed, including slow steaming, anchoring, waiting etc.

Deck stacked against older

tonnage?

Incremental Vessel Requirements (H2 2017-2019)*


-50

0

50

100

150

200

250

300

350C

rude

Oil

Prod

uct

Che

mic

als

LPG

LNG

Bul

ker

Con

tain

er

PCTC

Cru

ise

AH

TS

# of Vessels

* Assuming a current supply‐demand equilibrium


Full Picture Includes Supply

Supply


Fold, Hold, Double Up

Vessel Requirements (H2 2017-2019)v’s Current Orderbook


-100

-50

0

50

100

150

200

250

300

350

400C

rude

Oil

Prod

uct

Che

mic

als

LPG

LNG

Bul

ker

Con

tain

er

PCTC

Cru

ise

AH

TS

# of Vessels Ships Required Ships on order

Over supply


Supply Side - 3 Card Trick


Contracting as % of Fleet

* Includes MSI’s forecast assessments for contracting, scrapping, slippage and cancellations

Contracting historically low


Cancellations -

Cancellations generally trending down


Fleet Age Profile

Youngest Fleet Oldest Fleet

When to Fold -Average Age At Scrap

17

10

15

20

25

30

35

40

1980

1985

1990

1995

2000

2005

2010

2015

Average Age

Oil Tanker Bulker Chem TankersLPG Carriers Containerships Dry CargoReefer Vehicle Carrier



Average Annual Fleet Growth

* Includes MSI’s forecast assessments for contracting, scrapping, slippage and cancellations

Supply odds favourable

Earnings



Where on the Earnings Cycle Are We?


Cru

de a

nd P

rodu

ct T

anke

r

LPG

Car

rier

OSV

s

PC

TC

Bul

ker

LNG

MPP

Con

tain

er

Che

mic

al T

anke

r

RoR

o

Rig

s

Schematic for illustrative purposes only!


Earnings

Scenarios



Policy shifts impacting trade


Two Scenarios


• Some efforts to control pricing• Import when it makes

economic sense• Some attention paid to the

environment• More balanced economic

growth

Resource Nationalism

• Maximise use of national resources

• Limit imports• Low priority given to

environmental issues• Strong demand for resources

(in the short-run at least)

Base Case

Coal trade is finely balanced…


-200

-100

0

100

200

3000.0

0.5

1.0

1.5

2.0

2.5

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Mn TBn T

Net Difference (Inverted, RHAxis)Chinese Coal Production

Chinese Coal Consumption

Policy shifts can have a massive impact…


0

50

100

150

200

250

300

35020

11

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Chinese Coal Imports, MnT

Base Case


Assuming China maximises its own coal production rather than relying on imports

has severe implications for coal trade

…And take the zip out of a recovery


0

5

10

15

20

2520

11

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

$ k/Day

Base CaseResource Nationalism

Only changing our assumption on coal trade, 2018 becomes a downturn and even in 2020 earnings are still 6% below the BC

China’s domestic chemical production key


0

5

10

15

20

25

30

35

40

45

50

0

20

40

60

80

100

120

140

160

180

20020

10

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Mn TMn T

Implied Deficit (RH Axis)ProductionConsumption

China’s chems consumption outpacing consumption

creates a healthy demand environment for chem tankers

0

1

2

3

4

5

6

7

820

12

2013

2014

2015

2016

2017

2018

2019

2020

2021

Mn Dwt

Base Case


Impact of full utilisation on vessel demand


Strong chems imports relies on Chinese chemical

production capacity operating at less than 100% utilisation

Chemical Tanker Earnings Clobbered


If China’s chemical production can somehow run

at full nameplate capacity, there won’t be a chemical

tanker market recovery

Not all doom and gloom – crude booms!


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

0

10

20

30

40

50

60

7020

16

2017

2018

2019

2020

2021

YoY Ch$/bblOil Price (Base Case)Oil Price (Resource Nationalism)Oil Demand (Base Case, RH Axis)Oil Demand (Resource Nationalism, RH Axis)

VLCC earnings – back to 2015?


0

10

20

30

40

50

6020

12

2013

2014

2015

2016

2017

2018

2019

2020

2021

VLCC 1 Yr T/C($ k/Day)

Base Case


The ‘Resource Nationalism’ scenario assumes aggressive crude production

causing an oil price drop in turn triggering strong demand and thus a VLCC market spike

The Winning Hand?



MSI - FMV


• MSI Forecast Marine eValuator (FMV) is the first web-based tool to provide forecast and historical price data covering virtually all of the deepsea shipping fleet.

• Data includes forecasts of newbuilding, second-hand prices, 1 year timecharter rates and operating costs for specific vessels.

• MSI FMV draws on MSI’s proven, proprietary models and a consistent cross-sectional view across all principal shipping sectors. It puts asset values in the context of the near term market to enable reliable benchmarking with outputs based on annual averages.

• Coverage:Crude Oil Tanker

Product Oil Tanker

Dry Bulk Carrier

Chemical Tanker

LPG Carrier

LNG Carrier

Multi Purpose

Containership

PCC/PCTC

www.msiltd.com/fmvAHTS PSV


Pure Asset Play

Base Case Including Cashflows


Impact of resource nationalism


The bigger risk



Consolidating excess capacity key


0

10

20

30

40

50

60

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Shipbuilding Capacity, Mn CGT

OtherN. AmericaE. EuropeW. EuropeChinaS. KoreaJapan

What happens if consolidation is slower?


0

2

4

6

8

10

12

14

16

1820

15

2016

2017

2018

2019

2020

2021

2022

Mn CGT

Japan - Scenario S.Korea - Scenario China - ScenarioJapan - Base Case S.Korea - Base Case China - Base Case

The impact for asset play is significant


For over 30 years, MSI has developed integrated relationships with a diverse clientbase of financial institutions, ship owners, shipyards, brokers, investors, insurersand equipment and service providers.

MSI’s expertise covers a broad range of shipping sectors, providing clients with acombination of sector reports, forecasting models, vessel valuations and bespokeconsultancy services.

MSI is staffed by economists and scientists offering a structured quantitativeperspective to shipping analysis combined with a wide range of industryexperience.

MSI balances analytical power with service flexibility, offering a comprehensivesupport structure and a sound foundation on which to build investment strategiesand monitor/assess exposure to market risks.

MSI Background


While this document has been prepared, and is presented, in good faith, MaritimeStrategies International assumes no responsibility for errors of fact, opinion ormarket changes, and cannot be held responsible for any losses incurred or actionarising as a result of information contained in this document.

The copyright and other intellectual property rights in data, information or advicecontained in this document are and will at all times remain the property ofMaritime Strategies International.

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