shipping supply analysis : planting the seeds of recovery

Contact : Daejin Lee / [email protected] / www.JinreSearch.com

Dry Bulk Supply Review- The Seeds of Recovery

2016.06.28

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Summary

Seaborne dry bulk trade declined 0.1% in 2015 largely due to a 6% drop in coal trade and is unlikely to show any significant recovery in the medium term.

However, record levels of demolition and minimal new orders have given some hope for fundamental recovery, even though fleet supply is expected to increase in the near term because of the existing orderbook.

Support for recovery

High slippage and cancellation of contracts

Absence of new orders / Shipyard defaulting

Tonnage adjustment through slow-steaming

Difficulties

Highly fragmented ownership across many geographical regions

Massive remaining orderbook / Government backed Shipyards

Low fuel oil cost2



Dry Bulk Fleet Size Distribution as of 1st June 2016

According to Clarksons, the current trading fleet of bulkers over 10,000 dwt consists of 10.728 units equivalent to about 781 million dwt, as of 1st June 2016. This includes 1625 Capesize(100k+) vessels, 2453 Panamax(65-100k) vessels, 3360 Supramax(40-65k) vessels, and 3290 Handysize(10-40k) vessels.

3



Baltic Dry Index - at bottom ?

BDI at historical lows with lots of Orderbook & Shipyard capacity, over-supply continues

The general consensus is that market is at or near the floor and now focus on the shape of the downturn – namely how long will the downturn last? Is there hope this year?

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Baltic Dry Index

Super Cycle 2003-2008China Demand Boom with Lack of Ship & Shipyards capacity

In line with Shipping CycleOver-supply continues

4



World Seaborne Dry Bulk Trade Demand

After strong demand growth averaged around 5 percent y-o-y over the last decade, seaborne dry trades declined by nearly 0.1 percent last year and is forecast to remain largely flat this year.

0

1,000

2,000

3,000

4,000

5,000

6,000

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Mil

lio

n t

on

ne

s

Dry

Tra

de

Gro

wth

(Y

r/Y

r)

Dry Trade Growth Seaborne Dry Trade Volume

Cargo

5※ Source : Clarkson



Capesize development & Earning

The stagnant dry trade growth led Capesize earnings even more correlated to fleet development (r=-0.80)

Supply-side adjustment helps to support rates at the moment, and supply development will be critical for the fundamental recovery of the dry bulk freight market.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

(3)

(2)

(1)

0

1

2

3

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May

2015 2016

Ca

pe

size

, $

/d

ay

Mil

lio

n D

wt

Fleet Change Cumulative C5TC 2M+

C5TC

6

Fleet



Fleet by Size

There was a notable shift away from some of traditional sectors in recent years, with relatively fewer Panamax(65-80k) and Handymax(40-50k) sectors being delivered, in favor of a larger portion of Kamsarmax and Ultramax delivery.

0

50

100

150

200(Million Dwt)

Handysize Supramax Panamax Capesize

7



Fleet by Age

With earnings currently at OPEX or below, even 15 YR Old vessels are near at scrap value

Tonnage volume of age beyond 15 years which has become pure candidate for demolition is coincidently matching the size of Orderbook(15% of total fleet).

0

50

100

150

200

250

300

On Order 0-4 years 5-9 years 10-14 years 15-19 years 20+ years

(Million Dwt)

Capesize Panamax

Supramax Handysize

8



Old Fleet in No.

Around 130 Mdwt were identified that could be removed from the market in the medium term based on elderly vessels(15.8% of total fleet) approaching their five year special surveys and/or interim surveys over the next two or three years.

Pre85

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00' 01'

Handysize 185 35 18 9 17 22 16 23 18 25 67 78 96 59 63 45 62

Supramax 35 17 6 3 13 17 17 8 1 45 64 61 67 60 40 41 98

Panamax 18 2 1 1 9 12 5 5 16 33 36 25 55 46 60 55 111

Capesize 0 2 1 4 2 4 14 26 22 18 9 17 6 18 25 26

0

50

100

150

200

250

300

Nu

mb

er

of

vess

els

~2001 Mdwt No. 노후선비중

Cape 38.8 194 12.5%

PMX 36.2 490 18.5%

SMX 27.8 593 15.2%

Handy 20.4 838 21.9%

Total 123.2 2115 15.8%

9※ Source : Clarkson, HJS



Scrap Volume in No.

The demolitions have been very high this year, and as of 1st Jun, the volume reached 21Mdwt which was 10% higher than year-ago level

Low earning and poor outlook for the dry bulk sector provide no incentives for ship owners to retain their vessels.

0

10

20

30

40

50

60

70

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5

2015 2016

Nu

mb

er

of

Ve

sse

ls

Capesize Panamax

Handymax Handysize

10



Recycled Fleet Size & Age Distribution since 2012

The trend of reduction in the scrapping age has continued, with total 10.8 Mdwt(53%) of the tonnage leaving the fleet aged less than 20 years.

The average demolition age usually follows the state of market, and unsurprisingly it dropped to 23.5 years in 2016, almost two years younger than last year.

Av. Age 2014 2015 2016

Cape 23.6 20.8 20.6

PMX 25.0 23.0 21.0

SMX 26.7 26.0 22.8

Handy 29.1 28.5 29.0

Total 27.3 25.2 23.5

11※ Source : Clarkson, HJS

(Dwt)



Scrap & Earning

Even though, demolition is the only possible solution for ship owners to survive, the slower pace of scrapping vessels is expected in the short-term with onset of the monsoon, the fall in scrap prices, and the hope of seasonal rise in freight rate for the final quarter of the year.

0

10,000

20,000

30,000

40,000

50,000

60,000

0

5

10

15

20

25

1-10

5-10

9-1

0

1-11

5-11

9-1

1

1-12

5-12

9-1

2

1-13

5-13

9-1

3

1-14

5-14

9-1

4

1-15

5-15

9-1

5

1-16

5-16

9-1

6

($/day)(Number of vessels, Million $)

Cape Scrap (Number, 3MA)

Scrap Forecast

Scrap and old ship value spread $Million

Capesize 4TC average (RHS)

12



Dry Bulk New Building Contracting & BDI

BDI and Dry Bulk NB contracting activities are highly correlated with each other (r=0.7)

Contracting of bulkers is unlikely to significantly increase in the near term, due to the current weak prospects in the freight market.

0

100

200

300

400

500

600

700

800

900

1000

(4,000)

(2,000)

0

2,000

4,000

6,000

8,000

10,000

12,000

1-0

0

7-0

0

1-0

1

7-0

1

1-0

2

7-0

2

1-0

3

7-0

3

1-0

4

7-0

4

1-0

5

7-0

5

1-0

6

7-0

6

1-0

7

7-0

7

1-0

8

7-0

8

1-0

9

7-0

9

1-1

0

7-1

0

1-1

1

7-1

1

1-1

2

7-1

2

1-1

3

7-1

3

1-1

4

7-1

4

1-1

5

7-1

5

1-1

6

(No.)

(Pts, $Million)

Contracting Value ($Million)

Contracting Number(RHS)

Baltic Dry Index

13



New Building Contracts by Ship type

In 2014 Jan-May, there were 712 new vessels ordered. In 2015 Jan-May, there were 503, this year has been 120 orders placed so far in world shipyards.

For Dry bulk carriers, in 2015 Jan-May, there were 135 new Vessels ordered. This year has been only 4 ships if excluding 30 Valemax orders in Chinese shipyards.

30 Valemax

14

(Dwt)



Dry Bulk Orderbook by Size

Order being placed for 2016 and 2017 are fairly spread across the size sectors from Capesize to Handysize

New orders beyond 2018 are mainly focused on Capesize with about 65% and 80% of Capesize orders being placed in 2018 and 2019 respectively

0% 20% 40% 60% 80% 100%

2016

2017

2018

2019

Capesize Panamax Supramax Handysize

15



Dry Bulk Orderbook as of 1st June 2016

Despite record levels of demolition and minimal new orders, fleet supply is expected to increase because of the existing orderbook.

The large amount of existing contracts that are to be delivered over the next few years focused on Year 2016 and 2017

112

44 40

15

175

99

32

3

289

170

28

7

160

112

39

17

0

50

100

150

200

250

300

350

2016 2017 2018 2019

On Order

Num

ber

of

vess

els

Capesize (100k+) Panamax (65-100k)

Supramax (40-65k) Handysize (10-40k)

16



Dry Bulk NB Contracting by Country of Build

In 2016, all 30 Valemax ships ordered in Chinese Shipyards, which will be scheduled for delivery across 2018/2019 while none of dry bulk vessel ordered in Korean Yard

Japanese yards has become increasingly more competitive due to the depreciation in the Yen versus the US dollar, thereby securing large new building orders for 2017-2018

30 Valemax

17

(Dwt)



Dry Orderbook by Country of Build

Dry bulk ships are being ordered primarily in China and to a lesser extent, Japan

It is expected that almost half of the orders placed in China will likely be either cancelled or delayed this year while most of the orders in Japan will be delivered on schedule.

0

10

20

30

40

50

60

2016 2017 2018 2019 2016 2017 2018 2019 2016 2017

China Japan Korea

(Mdwt)

백만

Capesize

Panamax

Supramax

Handysize

18



Fleet & Orderbook Change in 2016 so far

The pace of cancellations and new building contract renegotiations has continued at the strong level, with 90 vessels being adjusted from the orderbook which will be scheduled for delivery this year. (310 delivered / 400 removed from the schedule in 2016)

310

-400

9552 24 6

-223-157

-500

-400

-300

-200

-100

0

100

200

300

400

2016 2017 2018 2019 2020

Delivery in

2016

On Order On Order

Summary

Total

Num

ber

of

vess

els

Capesize (100k+) Panamax (65-100k) Supramax (40-65k) Handysize (10-40k) Sum

19



Fleet & Orderbook Change - Capesize

New 30 Valemax ships ordered which will be scheduled for delivery across 2018/2019.

12 Capesize vessels being adjusted from the orderbook which will be scheduled for delivery this year. (61 delivered / 73 removed from the schedule in 2016)

61

-73

922

130

-29-35

-80

-60

-40

-20

0

20

40

60

80

2016 2017 2018 2019 2020

Delivery in

2016

On Order On Order

Summary

Total

Num

ber

of

vess

els

VLOC(260k+) Large Cape(200-260k) Capesize(160-200k) Small Cape (100-160k) Total (100k+)

30 Valemax in Chinese Shipyard

20



Delivery Volume in Number

In the first five months of 2016, Clarksons reported the delivery of 295 units over 10,000 dwt, for a total of 24.7 million dwt. This included 56 Capesize vessels of 10.4Mdwt, 65 Panamax of 5.3Mdwt, 103 Supramax of 6.3Mdwt, 71 Handysize of 2.6Mdwt.

0

20

40

60

80

100

120

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5

2015 2016

Nu

mb

er

of

vess

els

Capesize Panamax Handymax Handysize

21



Delivery rate in 2016

Compared to the orderbook at the beginning of 2016, which indicated 92.7m dwt to be delivered this year, the number of new deliveries of Chinese yard and Japanese yard so far showed a delivery rate of about 33%(by dwt) and 80% in 2016 respectively.

80%

33%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0%

20%

40%

60%

80%

100%

120%

140%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Mil

lio

n D

wt

Japan Delivery Rate China Delivery Rate

Japan Delivery(RH) China Delivery(RH)

22



Slow steaming, Bunker cost & Earning

10.5

10.7

10.9

11.1

11.3

11.5

11.7

11.9

0

20

40

60

80

100

120

140

160

9-14 10-14 11-14 12-14 1-15 2-15 3-15 4-15 5-15 6-15 7-15 8-15 9-15 10-15 11-15 12-15 1-16 2-16 3-16 4-16 5-16

Ve

sse

l sp

ee

d,

Kn

ots

Bre

nt,

&C

5TC

In

de

x 1

00

=20

14.0

9

Brent C5TC Speed (right)

Multiple correlation(R=0.78) among Brent price, Capesize speed, and earning explains that either of higher earning or lower bunker cost could result in speed acceleration which would unlock further capacity onto the market, delaying any longer term sustained freight recovery.

상관계수 속도 유가 운임

속도 1 -0.49 -0.42

유가 -0.49 1 0.66

23



Dry Fleet Outlook

The severity of the freight market weakness forced owners to recycle their ships in near record level last year and is forecast to do so this year. However, considering the large amount of existing contracts, dry fleet will continue to expand albeit at a slower pace for next 2-3 years.

3%4%

3% 2%

7% 7% 7% 7% 7%

10%

17%

15%

11%

6%4%

2%1% 1%

4%

-10%

-5%

0%

5%

10%

15%

20%

(60)

(40)

(20)

0

20

40

60

80

100

120

Mil

lio

n d

wt

of

Ve

ssel

s

Dry

Dry Deliveries Dry Demolition Orderbook Total Growth

Removal

Delivery

24



Capesize Outlook

Last year, while the fleet has shrunk by five vessels, the larger size of new builds led 0.3% fleet growth in dwt term and for now is forecast to increase modestly around 0~1% across 2016/2017 before facing 30 Valemaxes in 2018

5% 5%3%

5%

9% 9% 9% 9% 9%

19%

23%

19%

12%

5% 5%

0% 0% 0%

3%

-10%

-5%

0%

5%

10%

15%

20%

25%

(20)

(10)

0

10

20

30

40

50

Mil

lio

n d

wt

of

Ve

ssel

s

Cape

Cape Deliveries Cape Demolition Orderbook Growth

Removal

Delivery

25



Panamax Outlook

파나막스 섹터는 연비가 높은 대형 캄사르막스(80-84k)선형의 유행으로 2010-2013년까지연평균 10%수준의 매우 높은 선복 증가율을 기록했으나 지난해부터 인도량 감소와 해체량증가로 1%대로 성장율이 하락함. 현재 섹터 중 가장 저조한 수익을 보이고 있어 해체량이더욱 증가할 것으로 예상 됨에 따라 당분간 증가율은 약 0~1%에 머물 것으로 전망됨

7%9%

4%1%

8% 8% 8%6% 6% 5%

12% 12% 12%

9%

4%

1%0%

1%3%

-10%

0%

10%

20%

30%

(10)

0

10

20

30

Mil

lio

n d

wt

of

Ve

ssel

s

PMX

PMX Deliveries PMX Demolition Orderbook Growth

Removal

Delivery

26



Supramax Outlook

수프라막스 섹터는 지난해 다른 선형들이 모두 약 0~1% 수준의 낮은 선복 증가율을 보였음에도 홀로 8%의 매우 높은 성장율을 기록함. 여전히 막대한 신조 주문 잔량이 남아 있고 현존 선대 역시 대부분 2010년 이후 인도된 모던 선박들로 구성되어 해체량 규모 역시 기대하기 힘들어 2017년까지도 약 4~5% 수준의 높은 선복 증가율이 유지 될 것으로 예상됨.

2%

9% 8%

5%7%

9%7% 7%

8%

11%

20%18%

12%

7%5%

8%

5%4%

7%

-10%

0%

10%

20%

30%

(10)

0

10

20

30

Mil

lio

n d

wt

of

Ve

ssel

s

SMX

SMX Deliveries SMX Demolition Orderbook Growth

Removal

Delivery

27



Previous Reports : includes freight forecasts

(1) Bulk Supply : The Seeds of Recovery (Korean / English) (2) Tanker Supply : Oil Prices and Oversupply (Korean) (3) Coal Trade Market : The end of the coal era, soon or yet? (Korean / English)(4) Iron Ore Trade Market : Chinese steel market (Korean) (5) Understanding Bulk Shipping Market (Korean)(6) Shipping Market Chartpack(7) Shipping Supply Chartpack

We invite any comments and/or questions you may have. if you need bespoke reports & analysis, we would love to meet specific client needs. To discuss any individual requirements please contact below

Daejin Lee / Commodity Research / Shipping / FFA

Mob: +82-10-3462-5311Email: / [email protected]

Thank you




shipping supply analysis : planting the seeds of recovery

Data & Analytics