the platou report 2013

the platou report2013

Contents

introduCtion ....................................................................................................... 3

the shipping environment ................................................................................ 7

the shipbuilding market ................................................................................. 12

the tanker market ........................................................................................... 16

the dry bulk market ........................................................................................ 21

the Container ship market ............................................................................. 26

the Car Carrier market ................................................................................... 28

the lng market .................................................................................................. 29

small-sCale lng ................................................................................................ 30

the demolition market ..................................................................................... 31

mobile offshore drilling units ..................................................................... 32

the offshore support vessel market ........................................................... 35

the offshore ContruCtion vessel market .................................................... 38

offshore Wind ................................................................................................. 40

rs platou markets ............................................................................................ 42

rs platou finans ............................................................................................... 45

rs platou real estate ....................................................................................... 48

statistiCs ............................................................................................................ 50

ContaCts ............................................................................................................. 56

Cover photo: farstad shipping

ShippingCommercial shipping companies transport 90 percent of global goods by weight and volume. Considering its importance, if the world was just ONE country, shipping would most likely have been a public utility!

Instead, private owners and capital dominate international shipping. It is up to them to solve the logistical challenges that arise in our constantly changing markets.

For example, there is currently an intense debate in the US Congress over whether to approve exports of (shale gas) LNG from the US. The Department of Energy has approved several LNG export licenses, but the majority of Democrats, and quite a few Republicans, would like to keep this “new” gas inside na-tional borders.

Meanwhile, independent ship owners have ordered additional LNG tonnage in anticipation of US exports from 2015/16. The world needs all the energy it can get from politically low-risk countries, so it is important that Washington does not ham-string oil and gas exploration and production in the US. The country’s stunning transformation from the world’s biggest im-porter of petroleum products to its (almost) biggest exporter, feeding the emerging economies in Latin America and Africa, is a case in point.

The prospect of serious long-haul LNG volumes coming out of Canada also looks very promising. It raises the question, could Canada be the new Qatar of the Americas?

The first quarter of 2013 is characterized by a mixture of signifi-cant uncertainty and opportunity for shipowners and investors. The markets are in a bottom cycle, with second hand and new building prices at cyclically low levels. At the same time, the world economy is showing some potential for a strong recovery soon, and new fuel-efficient designs are an added incentive for calling the shipyards. Taking this into consideration, we may well see a nascent recovery in most shipping markets in 2014 and 2015.

shipping & offshore:

shaping the World of energy

peter m. anker, managing partner & Ceo

OffShOreThe recent tragedy at the gas produc-tion facility in Algeria brought home the vulnerability of onshore installa-tions in North Africa and the Middle East when it comes to terrorist at-tacks. The Arab Spring has turned into a shaky Winter, as unrest continues to spread and escalate in this important energy- exporting region.

Some oil company executives believe offshore energy production is easier to defend from terrorist attacks, than for example onshore installations in North Africa and the Middle East.

There was a succession of major off-shore discoveries during 2012 and we continue to believe in increased ac-tivity for offshore rigs in general and ultra-deep water rigs in particular. The growth in demand for subsea construc-tion vessels will continue to accelerate in the years to come. The fleet is not only growing by numbers, but also by complexity of the vessels. We are entering into the development phase of many deep water projects that demands larger subsea structures and more complex installation operations.

COnCluSiOnWhile the world has been focused on various macroeconomic cri-ses during the last few years, the energy markets have undergone dramatic changes in supply and trading patterns ‘under the radar’.

We believe these changes will become much clearer once the world economy picks up steam, and could offer positive sur-prises for both the shipping and offshore markets.

Yours Sincerely,Peter M. Anker, Managing Partner & CEO, RS Platou ASA

3 introduCtion

PROJECT FINANCEINVESTMENT BANKINGSHIPBROKING OFFSHORE

OSLO

LONDON

ABERDEEN

HOUSTON

RIO DE JANEIROPERTH

NEW YORK

ACCRA

AVENEG

CAPE TOWN MELBOURNE

MOSCOW

DUBAI

SHANGHAI

PIRAEUS

SINGAPORE

SYDNEY

THE WORLD ACCORDING TO RS PLATOU

4

PROJECT FINANCEINVESTMENT BANKINGSHIPBROKING OFFSHORE

OSLO

LONDON

ABERDEEN

HOUSTON

RIO DE JANEIROPERTH

NEW YORK

ACCRA

AVENEG

CAPE TOWN MELBOURNE

MOSCOW

DUBAI

SHANGHAI

PIRAEUS

SINGAPORE

SYDNEY

THE WORLD ACCORDING TO RS PLATOUthe World aCCording to rs platou

5

6 the shipping environment

Nevertheless, the past year was not without bright spots, despite the very challenging conditions for many segments. Most obvi-ously, the fact that both the tanker and dry bulk freight markets saw periodic rallies through the year is a clear indication that the level of over-capacity is relatively moderate, compared to what was seen in the 1970s and ‘80s. This is partly due to ton-nage demand having enjoyed a surprisingly strong year despite an overall weak world economy, as the increased weight of the commodity intensive non-OECD economies offset weaknesses in the OECD.

Another important development was the continued sharp de-cline in the fleet orderbook which declined from 20 percent of the fleet a year ago to 14 percent at the end of 2012, as new or-ders fell to a decade low. Whatever the reasons for this – more prudent owners, insufficient cash flow, continued challenging financial conditions – the fact that fleet capacity is responding rationally to market conditions raises hope that the industry will avoid a repeat of the protracted structural downturn seen in the past.

TOnnage demand SlOwed leSS Than The wOrld eCOnOmy2012 was yet another year dominated by crisis headlines on the economic front, as the Euro Crisis not only rolled on but gath-ered in strength through the first half of the year. Despite world GDP growth coming in at a lackluster 3.2 percent, tonnage de-mand registered a healthy rise of 7.1 percent, down from 7.7 percent in 2011. The year gave us important demonstrations of

the fascinating complexities of tonnage demand. Most notably, there were significant shifts in transportation distances for both tankers (longer) as well as dry bulk (moderately shorter), while the markedly longer distances seen in the LNG market in 2011 were sustained in 2012. Furthermore, fleet productivity fell in response to higher bunker prices and increased average vessel size. Lastly, it was a big year for inventory swings with both tank and dry bulk seeing bigger than normal inventory related trade movement in response to geopolitical factors (tank) and rela-tive commodity prices (dry bulk).

anOTher year Of abOve-Trend fleeT grOwTh, buT delivery pipeline iS empTyingThe world’s merchant fleet continued its pattern of robust growth, adding another 7.8 percent, only slightly less than the record 8.2 percent seen in 2011. This marked the eighth con-secutive year where growth exceeded 7 percent. The contribu-tors to growth were widely spread among key segments, with dry bulk in front at 12.6 percent and LNG carriers in the back at a modest 1.4 percent, which made that segment the place to be for the second straight year.

Overall fleeT uTilizaTiOn drOpped by 1 perCenTage pOinT TO 84 perCenTA sizable 4 percent drop in dry bulk fleet utilization, the larg-est segment of the merchant fleet, dragged down overall fleet capacity utilization. The container fleet also contributed to this decline, while improvements for the LNG, car carrier and tanker segment moderated the drop.The level of 84 percent uti-

2012 turned out to be just as difficult for the shipping markets as we feared it would be. the performance of the world economy was even weaker than reflected in downbeat expectations at the start of the year, while fleet expansion remained above any reasonably sustainable long-term growth trend for the fourth consecutive year. despite another stellar performance from the lng market and a modest tightening of the tanker market, capacity utilization for the world’s merchant fleet fell by an estimated 1 percentage point to 84 percent, the lowest level since the full force financial Crisis hit in 2009.

the shipping environment

World shipping 2012;doWn, but not out

➤


lization is nonetheless weak. According to our records it is the second lowest level seen in the past decade, although it is still well above the bottom level of 82 percent, seen in 2009.

aSSeT valueS COnTinued falling buT raTe Of deCline eaSedIt was yet another year of falling asset values, but the pace of decline slowed and the performance across sectors was more varied than in 2011. The least variation was seen in newbuilding prices, which fell across the board by 5 - 10 percent for most size classes. Secondhand values declined as well, due not only to the weaker freight market but also because of the emergence of fuel efficient newbuildings, a possibly important shift in shipping technology and design. Values declined, with dry bulk vessels recording significant declines of 20-30 percent, tankers fell by 5-10 percent. It was the fourth straight year of declining asset values, and accompanied by poor cash flows it put the indus-try’s balance sheets under further, severe pressure.

TankerS in 2012: liTTle relief, deSpiTe demand bOOmThe tanker market experienced some improvement, although this was unevenly spread between segments and seasons, dem-onstrating the fragile nature of this market. The good news was an estimated 8 percent spike in tonnage demand. This was due to a combination of increased volume growth and longer dis-tances as importers rushed to cover the loss of Iranian oil. Pro-ductivity also fell, as it did for all other segments. These factors boosted the crude market during the first months of the year, and the clean market during the last months. The period in be-tween, on the other hand, was dismal, with most crude carriers in particular consistently trading at, or below, operating costs. Fleet growth remained high at 7.2 percent, which prevented any sustained increase in rates. For the year, our Tanker Index of av-

erage earnings rose from $14,800 per day in 2011, to $17,100 per day in 2012.

dry bulk in 2012: SubSTanTial drOp in freighT raTeSMarket fundamentals deteriorated further during 2012 caused by another year with record high deliveries. Even though scrap-ping also rose to the highest level registered, the net fleet ex-pansion was above 12 percent from the year before. Despite weaker global economic growth, tonnage demand increased by a healthy 7 percent thanks to China, which utilized huge ar-bitrage in iron ore and coal prices, importing much more dry bulk commodities than the underlying demand for steel, energy and so forth would suggest. However, the fleet utilization rate dropped from 87 percent in 2011 to 83 percent in 2012, and this caused a drop in freight rates of between 40 and 50 percent and in ship values by 20- 30 percent.

The COnTainer markeT in 2012: bOx raTeS and TimeCharTer raTeS parT COmpanyThe container ship market in 2012 was characterized by higher average box rates than in 2011, but substantially lower char-ter rates. Operators managed to raise the utilization rate, and thereby freight rates, of the operating fleet by idling more ton-nage and creating a higher demand increase through lower fleet productivity. Non-operating owners faced a very difficult year as liners had limited need for the chartering of extra tonnage. Total container ship capacity increased by 7.7 percent, while the operating fleet grew by 4.5 percent. Tonnage demand is estimat-ed to have escalated by around 7 percent, with 5 percent higher trade volume and a drop of 2 percent in fleet productivity. The low growth in container movements was related to a drop of 3 percent in European containerized imports.

World merchant fleet 2003–2012annual changes

tonnage demand groWth vs World economic groWth 2003–2012

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Tonnage demand growth world merchant fleet, annual changes in percent

World output growth

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lng in 2012: lOnger and STrOngerThe LNG shipping market tightened further during 2012 de-spite the fact that demand growth slipped into single digits for the first time in seven years. The 6 percent growth in tonnage demand was mainly due to longer average distances, as the inter-basin trade from the Atlantic to the Pacific continued to expand. Trade volume, in fact, declined by 1 percent. Lower fleet productivity also contributed to the demand increase. Productivity fell by an estimated 2 - 3 percent owing to high bunker prices and increased average vessel size. The LNG fleet grew only 4 percent and thus lifted the fleet utilization rate to 95 percent, which resulted in an average spot rate of $125,000 per day, up from $93,000 per day in 2011.

Car CarrierS: uneven imprOvemenTThe car carrier market has seen another year of fluctuations in tonnage demand. 2012 started off well with export volumes rising from the recovery of the Japanese automobile industry, strong Korean exports and growing US auto sales. However, the Euro crisis took its toll on European car sales and along with strikes in Korea, contributed to a fall in export volumes dur-ing the second half of the year. Due to reasonably modest fleet growth, the average market balance improved somewhat from 2011, climbing to an estimated 84 percent fleet utilization rate. Prospects for tonnage demand going forward depend heavily on the economic development in key sales markets, as well as the possibility of relocation of car production from Japan to overseas markets as a result of the strong Yen.

wOrld eCOnOmy and wOrld Shipping2012 was not a good year for the world economy with, growth slipping to little more than 3 percent, the lowest level for a de-cade, barring the Financial Crisis. Under these circumstances, it came as no surprise that the year also witnessed a slowdown in tonnage demand growth. That said, growth of 7.1 percent was better than might have been expected, as it represented a more moderate slowdown than that experienced by GDP. While there were some special situations, as always, we view this relatively strong performance in trade growth as a con-firmation of the changing, and more shipping intensive, composition of the world economy. The commodity inten-sive non-OECD economies are increasing in size in relation to the mature, service-oriented OECD economies. Based on the IMF’s current forecasts the former group is on course to overtake the latter in absolute size, in 2013. This long-term trend will underpin overall shipping demand in the years to come and gives reasons for optimism regarding recovery. The increasing weight of the non-OECD economies was ably demonstrated this year by the extent to which mere inventory swings in iron ore and coal in China moved the entire dry bulk market.

STaTuS and prOSpeCTS fOr The wOrld eCOnOmy2012 began with forecasters in a downbeat and highly uncer-tain mood, after 2011 turned into yet another false dawn for the world economy. Most notably it became clear that politicians were still behind the curve in the Eurozone crisis. In addition, ➤


World seaborne trade and economic groWth 1970-2012

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Index 1970=100

World output

Seaborne dry trade

Seaborne oil trade

annUal groWth in real gdP Percentage change from PrevioUs year

Jan 2012 Jan 2013 Jan 2013 forecast estimates forecast 2012 2012 2013USA 1.8 2.3 2.0JAPAN 1.7 2.0 1.2EURO AREA -0.5 -0.4 -0.2C AND E EUROPE 1.1 1.8 2.4RUSSIA 3.3 3.6 3.7CHINA 8.2 7.8 8.2INDIA 7.0 4.5 5.9ASEAN 5.2 5.7 5.5M EAST AND N AFRICA 3.2 5.2 3.4SUB-SAHARA AFRICA 5.5 4.8 5.8L AMERICA 3.6 3.0 3.6WORLD 3.3 3.2 3.5

source: imf

the US seemed unable to move out of its 2 percent sluggish growth rate range, regardless of any kind of monetary stimulus thrown at it, while, in the face of all this, China (as well as other emerging markets) was showing signs of a significant slow-down. Forecasters turned out to be relatively accurate in their downbeat view of the world economy, as (preliminary) full year growth figures show an estimated 3.2 per cent increase, not too far off the 3.3 percent forecast at the start of the year. Prospects for 2013 are for a moderate pickup in growth but this will still be below the long-term trend.

The challenges for the world economy differ between the ma-ture economies of the OECD and the ‘growth’ economies of the non-OECD. The former group is struggling with the very difficult combination of reducing national debts and deficits, while at the same time avoiding a relapse into recession, mak-ing that very task next to impossible. Emerging economies, on the other hand, are feeling some growth pains from their force-ful response to the Financial Crisis, which boosted inflationary pressures in the respective economies via higher commodity and property prices.

The more positive sentiment visible at the start of 2013 can be attributed to two main factors. Number one, that key econo-mies were pushed to the brink in 2012 – and survived. Sec-ondly, leadership changes in the world’s two largest economies went smoothly, reinforcing the notion that the leaders in the US and China are firmly committed to sustained and uninterrupted growth.

eurOpe and The uS: muddling ThrOughIn terms of ‘stress tests’, Europe was in the spotlight, as talk of a ‘Grexit’ increasingly dominated the front pages, while, for every new ‘crisis’ meeting, it became clear that the politicians were, if

anything, falling farther behind the curve. It took a more prag-matic approach from the ECB with regards to supporting the region’s bond markets, in order to nudge politicians into agree-ing on several difficult issues, including debt write down and continued restructuring of the most fragile economies. That in turn improved market sentiment regarding the risk of a breakup of the entire Eurozone.

The troubles in Europe shielded the US from the storm for most of the year, but the country’s tepid, and disappointing, growth of around 2 percent slowed further in the fourth quarter, as poli-ticians battled over how to avoid the Fiscal Cliff of automatic tax hikes and spending cuts. Although a last minute deal was reached, unsurprisingly, no fundamental problems were solved and the challenges of dealing with the deficit and national debt are set to re-emerge in 2013.

emerging markeTS beCame emerging riSkS TO grOwThA year ago, we discussed the risk of a slowdown in emerging markets and the impact on tonnage demand. The scenario turned out to be all too realistic, as 2012 featured a broad based slowdown across-the- board in such countries: China’s growth slowed from 9.5 percent in 2011 to a run rate of 7.5 percent in 2012. India slowed from 7 percent to 5 percent; Brazil from 4 percent to 1 percent; and Russia from 5 percent to 4 percent. The combination of tighter monetary policy, due to budding inflationary pressures in recent years and weaker export mar-kets, had visible effects and combined to bring GDP growth for the group classified as ‘developing economies’ below 6 percent for only the second time in a decade. This, unsurprisingly, had a negative impact on trade growth due to the commodity inten-sive nature of these economies.


sUPPly, demand and Utilization rate 1990-2012World merchant fleet

Mill cgtSupply

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Utilization rate

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global economic groWth 2003-2013forecasts and actUal groWth rates

Percent change

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source: imf (forecast per oct. the year before)

SignS Of enCOuragemenT aS 2013 gOT underwayThe improvement in sentiment seen at the start of 2013 reflects stronger underlying data. The biggest, and for shipping, most important, change is in China. When the economy first began to slow authorities appeared hesitant to do anything to stimu-late growth, most likely worried about the lingering inflationary pressures which came as a result of the truly giant stimulus pack-age in 2009. However, in September another stimulus package was revealed and, combined with a softening of banks’ capital requirements, this led to an improvement in the tone of the eco-nomic data.

In the US, the severely deflated housing market gradually im-proved through the year and, combined with continued growth in the auto and energy producing industries, overall labor mar-ket conditions began to show signs of more consistent improve-ment late in 2012.

Expectations for the world economy in 2013 are muted. Growth is expected to nudge up to 3.5 percent, still well below its long-term potential. However, calmer financial markets signal an im-provement in overall business and consumer confidence - vital factors when it comes to making investment decisions that pro-mote growth and employment. The relative stability of the oil market, despite the fact that the 2012 average price for Brent was the highest on record - also contributed to a moderately improved growth situation and the hope that the worst is over.

Shipping markeT prOSpeCTS: CyCliCaliTy iS nOT deadOn the face of it, there seem to be few reasons to expect much improvement for world shipping markets in 2013. However, we believe there are reasons to think that a change is, if not in the air, certainly visible on the horizon. The cautiously improved

tone in the world economy, discussed above, is obviously a very important factor. The ability for the world economy to influence shipping must in turn be seen against the backdrop of current overcapacity conditions that are far more moderate than in the dark days of the 1980s. The various freight markets’ demon-strated ability to respond to changes in trading conditions during 2012 is a key sign in that regard. The most positive surprise may have been on the supply side of the market, however, which has responded very rationally to the weak business climate by sharply reducing new orders. The overall orderbook thus fell steadily and ended the year at 14 percent of the fleet, the lowest relative level in fifteen years and down from 20 percent a year ago.

Finally, the structure of the world economy continues to be-come more shipping intensive. Chinese import growth re-mained close to GDP growth, even during a year of slowdown. Furthermore, the size of the economy is such that even tactical considerations, like stock building and/or arbitrage inspired trades, can move entire markets. Also, the shale energy revolu-tion in the US has contributed to a net rise in shipping activity, by raising the country’s exports of refined oil products and coal (and, soon, LNG), while also contributing to longer trading dis-tances for crude oil.

Market conditions are likely to remain difficult in 2013 for the segments that struggled in 2012. However, we believe there are good reasons to hope that shipping has retained its cyclicality through this difficult period, and will be able to share the fruits of any improvement in the world economy, once it arrives, rela-tively quickly.

Ole-Rikard HammerHead of Research RS Platou Economic Research


12 the shipbuilding market

The level of new orders amounted to less than 50 percent of our estimated building capacity at the time of delivery. This resulted in a continued decline in average delivery time and, as a con-sequence, downward pressure on newbuilding prices. During 2012, our newbuilding price index fell by 12 percent and ended at the lowest level seen in ten years measured in real terms.

demand fOr new TOnnage Demand for newbuildings was slow in the first half of 2012, with only 3 mill compensated gross tons (cgt) of new orders regis-tered per quarter. During the second half of the year, the order-ing activity picked up to above 5 mill cgt per quarter, which was still significantly below the estimated quarterly building capac-ity of 8 to 9 mill cgt.

The ordering activity has historically been closely correlated with our freight rate index based on earnings for tankers, bulk

carriers and container ships. However, based on a freight in-dex of $13,000 per day in 2012, we would have expected a higher ordering activity than the 16 mill cgt recorded. An-other factor that affected demand was the availability of capi-tal. The banks have become quite restrictive for new loans to shipowners.

We have roughly estimated that owners invested 30 bill USD in conventional ships in 2012, a significant reduction from the previous year’s 50 bill USD.

Chinese shipyards were awarded 40 percent of all orders this year, closely followed by the Koreans, who took 38 percent. A third of all new orders in China were from domestic owners, while in Korea the share was only 10 percent. Japanese yards took 15 percent of the orders, of which three quarters were from domestic accounts.

the shipbuilding market

building priCes at a ten-year loW

ordering activity fell by 30 percent in 2012, for the second year in a row. the main issues were slower economic growth and high fleet growth in most shipping segments, resulting in low freight rates and thus lower demand for newbuildings.

bUilding Prices for bUlk carriers 2003–2012

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bUilding Prices for tankers 2003–2012

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Korean yards have traditionally been the dominant builder in this segment, but in 2012 Chinese yards secured 53 percent of all new orders, while Korea took 38 percent.

lngLNG was a segment where freight rates reached historical high levels in 2012 and, subsequently, the demand for new tonnage remained high. Th is year we registered 33 new orders and, since only two vessels were delivered, the orderbook grew signifi cantly. It ended the year at 92 vessels, or 27 percent of the existing fl eet.

Korean shipbuilders were awarded 76 percent of all new LNG carrier orders.

building CapaCiTy Th e trend in deliveries of tonnage, measured as a 12 months moving average, held fairly steady at a level of 4 mill cgt per month from the middle of 2010 to half way through 2012. Deliveries peaked in June 2012, due to the fact that all new ves-sels delivered aft er 30 June had to be in compliance with IMO’s Performance Standard for Protective Coating (PSPC) for bal-last water tanks. During the second half of the year, deliveries declined to an average of 2.4 mill cgt per month.

If we compare the orderbook for each of the major shipbuilding countries at the beginning of the year to what they actually de-livered, the slippage (the ratio not delivered) in 2012 is surpris-ingly similar to what we registered in 2011. Chinese yards deliv-ered 71 percent of the orderbook, while Korean and Japanese yards were able to deliver 80 and 93 percent, respectively. In to-tal, 80 percent of the orders scheduled for 2012 were delivered.

According to the orderbook, a further decline in deliveries in the coming years should be expected. At the end of 2012, some 32 mill cgt was due to be delivered in 2013, representing a 20

TankerSDuring 2012, we registered 15 mill dwt of new orders for tank-ers, representing a 40 percent increase from 2011 - a much high-er growth rate than the 17 percent seen in our tanker rate index. Th e shipyards delivered 32 mill dwt and towards the end of the year the orderbook amounted to 51 mill dwt, representing 10 percent of the existing fl eet.

In 2012, Korean and Chinese shipyards maintained their 60 and 30 percent respective market shares in the tanker segment, while Japan took 8 percent of the orders measured in dwt. A new fea-ture this year was the fact that Korean owners were the most ac-tive and were responsible for 16 percent of all new contracts.

bulk CarrierSTh e number of bulk carriers ordered in 2012 declined by almost 40 percent from the year before - in line with the decline in freight rates - and was tallied at 19 mill dwt. During the year, 98 mill dwt was delivered and at the end of 2012 the orderbook amounted to 105 mill dwt, equivalent to 14 percent of the existing fl eet.

Chinese shipbuilders were again the most active in this segment in 2012, securing 59 percent of all new orders. Almost all other contracts, 38 percent, went to Japanese yards. An estimated 21 percent of the orders came from Japanese owners, followed by Greek and Chinese owners, who had a share of 13 and 11 per-cent, respectively.

COnTainer ShipSDemand for container ships in 2012 declined to less than a third of the level seen in 2011 (in line with a subdued freight market) and totaled 0.47 mill TEU. During the year, 1.25 mill TEU was delivered from the shipyards and at the end of 2012 the orderbook stood at 3.4 mill TEU, representing 20 percent of the existing fl eet.

bUilding Prices for container shiPs 2003–2012

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neW orders in mill cgt 2003–2012

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deliveries, neW orders and orderbooks by vessel tyPe

new Order percent deliveries orders book of fleet Type Capacity 2012 2012 end 2012 end 2012Tankers Mill. dwt 31.4 14.2 49.4 10.7Bulk carriers Mill. dwt 97.6 18.6 105.4 16.1Container ships Mill. teu 1.25 0.5 3.4 21.0LNG Mill. cbm 0.03 5.1 12.6 27.0LPG Mill. cbm 0.6 1.5 2.5 12.7Car carriers 1,000 cars 209 986 273 7.4Chemical carriers Mill. dwt 0.5 0.9 1.6 4.4Cruise 1,000 berths 16.1 18.3 74.3 14.8

percent decline from 2012. As we assume that some slippage will also take place in 2013, we expect the decline in deliveries to be even more than the 20 percent indicated by the orderbook.

Slippage per SegmenTIn the tanker segment, the orderbook at the start of 2012 indicated that 45.6 mill dwt was due to be delivered that year. A tally at the end of the year showed that only 31.9 mill dwt was actually built. The difference can be explained by the fact that orders amounting to 11.1 mill dwt were postponed, 4 mill dwt cancelled or converted to other ship types, and 1.5 mill dwt of ‘new’ contracts were delivered.

According to the dry bulk orderbook, in early 2012 we expect-ed 138.8 mill dwt to enter the market that year. The amount of tonn age actually delivered amounted to 97.6 mill dwt, as 33.6 mill dwt was delayed and 12.9 mill dwt was cancelled, removed or converted. In addition, 5.4 mill dwt of completed vessels were not in the orderbook at the start of the year, and are there-fore registered as ‘new’ contracts.

The orderbook for container ships showed that 1.58 mill TEU of capacity was due for delivery in 2012. At the end of 2012 we recorded 1.25 mill TEU of actual deliveries. The residual amount can be explained by the 0.35 mill TEU postponed, 0.02 mill TEU cancelled and 0.43 mill TEU of ‘new’ orders that were delivered in 2012.

building COSTNewbuilding prices have been on a downward trajectory since the second half of 2008, caused by an overcapacity in the new-building market and declining building costs.

Steel is one of the most important materials in shipbuilding and from 2008 to 2012 our steelplate price index fell by 40 percent.

The steelplate price varies from country to country, and for a typical Aframax tanker in Korea this has resulted in an 8 mill USD reduction in direct steel costs.

The price for main engines has remained at a very low level, as there has been a huge overcapacity in the production of main engines since 2008. In Korea, engine prices have maintained a level of about 185 USD per BHP from the previous year, while the prices in China have been recorded at even lower levels.

The development of a shipbuilder’s currency against the dollar is also an important aspect of the building cost. During 2012, the Chinese Yuan remained almost unchanged against the dollar, while the Korean Won strengthened by some 8 percent. There was relief for Japanese builders, as the Yen weakened 13 percent against the dollar towards the end of the year.

In total, we have estimated that overnight building costs re-mained almost unchanged during 2012, but were still around 20 percent below the record high level estimated for a Korean builder in 2008.

expeCTaTiOnS fOr 2013 The main driver of the shipping industry, world GDP growth, is expected to be marginally higher in 2013 than it was in 2012, namely 3.4 percent. Based on the historical correlation between the world GDP growth and tonnage demand for the world mer-chant fleet, we expect a healthy growth of 5-6 percent in demand for 2013. We anticipate fleet growth at the same level, taking into account some delays and cancellations of orders, combined with a continued high level of removals. We therefore expect the utiliza-tion rate for the merchant fleet to remain at 84 percent in 2013. This should result in freight rates below break-even in the major shipping sectors and thereby mitigate owners’ willingness to or-der new ships. Another obstacle for owners who want to order

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new tonnage is securing finance, as banks have become more reluctant to finance projects without any charter commitments.

With low demand from the major segments, a higher focus may be seen on smaller, industrial segments. We also see an increas-ing interest in new eco-designed ships. However, all in all we expect total demand to remain subdued. According to our esti-mates, demand may reach 20 - 25 mill cgt in 2013.

Building capacity is expected to decline, as shipbuilders are struggling in a low price environment. At the present price lev-el, we have estimated that building capacity may be reduced to

roughly 35 mill cgt, within a couple of years as some shipbuild-ers will cease to exist and others will do their utmost to reduce capacity in order to survive.

In conclusion, we therefore expect a continued downward pres-sure on newbuilding prices in 2013. However, as the price level at the end of 2012 is getting close to the variable cost level, we do not expect a significant drop in the already low prices, unless there is a meaningful change in input prices or exchange rates.

Jørn BakkelundRS Platou Economic Research


the tanker market

spike in tonnage demand offers only partial relief

The year was split in two for the crude and the clean segments. Crude tanker rates experienced a fairly strong start to the year, particularly for VLCCs, as Saudi Arabia raised production and importers scrambled to build inventory and adjust to the EU’s pending embargo of Iranian oil. Once the market had made these adjustments, tonnage demand growth slowed and freight rates for VLCCs and Suezmaxes immediately collapsed through the summer before experiencing a modest seasonal rebound in the fourth quarter.

The clean market experienced the opposite development: the first half of the year was weak and uneventful but trade growth picked up in the second half as the rise in crude supply which took place in the first half of the year passed through refineries. Then, Hurricane Sandy hit the US East Coast in late October,

disrupting refineries, locking up tonnage and rerouting trade flows, a combination of factors that caused fundamentals to tighten further. Spot market rates rose markedly, particularly in the Atlantic Basin, but TC rates remained relatively stable.

For the full year, our tonnage-weighted Tanker Index of freight rates rose from $14,800 per day to $17,200 per day, a rise of 16 percent. With the exception of Suezmaxes, which bore the brunt of the decline in US imports, all segments contributed to the increase. For the crude carrier segment, VLCCs saw the largest improvement going from $15,000 to $21,000 per day, a rise of 40 percent. Meanwhile, for clean tankers LR1 earnings rose more than 50 percent from $11,000 to $17,000 per day.

aSSeT valueS STill under preSSure, buT SOme divergenCeSVessel prices remained under pressure during the year. While newbuilding prices fell across-the-board by 5 to 10 percent, trends in secondhand values were more mixed than in 2011. Values for modern VLCCs and Suezmaxes saw only moderate declines, while prices for Aframaxes and smaller vessels fell by a further 10 to 20 percent. Values for units 10 years and older,

tanker freight rates improved in 2012 from the exceptionally weak levels of 2011. statistics show a spike in tonnage demand, but the majority of participants may not have felt it this way. We estimate that tonnage demand jumped by an exceptional 8 percent, but the most tangible part of demand growth, trade volume, made only a modest contribution. longer average distance and reduced productivity were more important contributory factors. Continued high fleet growth, even higher than 2011, restricted the improvement in average fleet utilization to a modest 1 percentage point, virtually all of it during the first half of 2012.

average freight rates $1,000 Per daysingle voyage

2010 2011 2012VLCC 34.8 14.9 20.9Suezmax 28.0 16.7 14.7Aframax 21.4 12.9 15.4LR 2 product 16.2 12.5 14.3MR product 8.9 11.3 13.0

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16 the tanker market

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freight rates – single voyage 2003–2012clean carriers

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which had been converging on scrap value, experienced some improvement.

a STrOng buT uneven year fOr TOnnage demand grOwThTonnage demand rose markedly during the first months of the year, but was unable to sustain this rate of growth, as the main driver had been oil inventory building rather than consumption.

Longer trading distances made a major contribution to tonnage demand growth, increasing by an estimated 3 percent, com-pared to trade growth of 1 percent. Average trading distances lengthened to China and, particularly, to the US. The latter was surprising, given the focus on reduced overall imports. How-ever, all of the reduction came from light, sweet oil imports, mainly from West Africa, while long- haul imports from the Middle East increased market share and allowed average dis-tances to the US to rise by 9 percent ( January to September). The shift still had important freight market consequences, how-ever, as VLCCs benefitted at the expense of Suezmaxes.

Asian imports had yet another strong year, as China, Japan, In-dia and Korea all increased imports. All countries, at least pe-riodically, reduced imports from Iran and replaced these with increased imports from West Africa and Latin America. As a result, average trading distances increased to this region, as well.

Europe, on the other hand, reduced its average distances. In contrast to the US, import volume increased, mainly due to lower North Sea production, but the impact on ton-miles was more than negated by the return of short-haul Libyan crude. The Iranian embargo also allowed for increased shorter haul im-ports from West Africa and Russia. reduCed fleeT prOduCTiviTy COnTribuTed TO demand grOwThThere were important developments in the opaque area of fleet productivity. Most obviously, average fleet speed continued to de-cline, falling by an estimated 0.5 knots, to 12 knots. Higher bunker prices, particularly early in the year, caused a significant drop in optimal vessel speed. Changes in average vessel size and ballast time also contributed. To surmise, we estimate that fleet produc-tivity was reduced by an estimated 3 to 4 percent, which increased tonnage demand by the same amount. For more details on this and the complexities of fleet productivity, please see the enclosed box article ‘Is the tanker market driven by fundamentals?’

Oil markeT remained STubbOrnly TighTWorld oil production rose by 2.9 percent in 2012, the largest increase since 2004. This easily overtook the increase in world oil demand, which rose by only 1.1 percent, thanks to the weak world economy. However, the increase in production failed to dent prices, which remained stubbornly high for most of the year. Brent averaged 113 USD per barrel, a record high. The

EU’s announcement in January that it would undertake an em-bargo of Iranian oil effective from 1 July 2012 triggered a rush to build inventories, notably in China. Oil prices jumped as the market refocused on the supply risk in an environment of low spare production capacity.


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The increase in production was driven by Libya, but also by the US. For the tanker market, the latter restricted the increase in seaborne trade to a moderate 1 percent, a smaller figure than might normally have been expected from the observed rise in oil production.

fleeT CapaCiTy grOwTh: high, gOing On higher, buT OrderbOOk drOp COnTinueSFleet growth developed in line with expectations and was, if any-thing, somewhat faster than anticipated. Although newbuilding deliveries fell to 31 mill dwt, down from the record 40 mill dwt in 2011, average fleet growth accelerated from 5.8 percent to 7.2 percent. This was due to the relatively low level of scrapping, less than 15 mill dwt. With single hull tankers having been removed from the active fleet, the average age of the fleet has declined to about eight years and there is thus a shortage of natural scrapping candidates. A drop in scrap prices, combined with a moderate in-crease in asset values for the oldest vessels, as the freight market improved, made scrapping decisions more difficult for owners.

The real news was another year of exceptionally low ordering, 14 mill dwt, far below the rate of deliveries, which caused the order-book to decline further. The fact that yet another drop in new-building prices failed to attract more interest only serves as an in-dication of the tough financing conditions for shipping at present.

Given these developments, the tanker orderbook tumbled from 75 mill dwt to 49 mill dwt through the course of the year - the lowest level, relative to the size of the fleet, in twelve years.

markeT OuTlOOk: Challenging 2013, buT finally SOme lighT aT The end Of The Tunnel?A year ago we said the market in 2012 would be ‘flat, but not the without potential for surprises.’ We outlined the potential for a restocking of oil inventories as a possible surprise scenario. That indeed turned out to be the case, except to a much stronger degree than expected.

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In 2013 we predict relatively similar developments to what we forecast a year ago, but with the important caveat that it will be more difficult to repeat the many positive surprises of 2012. We expect tonnage demand growth to slow significantly, as OPEC’s biggest producer, Saudi Arabia, already began to scale back pro-duction in late 2012.

Fleet growth will, finally, begin to slow, but probably not rapidly enough to improve capacity utilization significantly already this year. Deliveries should be lower than in 2012 and we also expect an increase in scrapping. However, both of these assumptions may prove tenuous. Deliveries will be affected by slippage, both from 2012 and 2013. Meanwhile, scrapping has proved difficult to get off the ground, because of the relatively young fleet. We expect the volume to increase, as more vessels are due for special survey from 2012 onwards. However, any positive sentiment with regards to an impend-ing freight market recovery will also affect owners of older tonnage and possibly delay their scrapping decisions. We ex-pect fleet growth to slow from 7 percent to less than 4 percent, the lowest rate in four years.

China, iran and The uS Capable Of markeT SurpriSeSPositive surprises are again more likely to come from the de-mand side of the market. Chinese oil imports may increase more than expected as the economy appears to be picking up steam, and, particularly, if plans for significant increases in re-finery capacity go ahead. Likewise, any resolution to the Iranian conflict would most likely increase the volume of seaborne oil trade, at least temporarily.

On the negative side, if US production of light, tight crude con-tinues to beat expectations, seaborne imports will come under further pressure. Global tanker demand will suffer unless the displaced oil can find other markets with at least equal trans-portation distances or unless Middle East exporters to the US can continue to increase their market share.

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tanker market balance 2005-2012

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tanker overcaPacity 1973-2012

Analysts are not only struggling with the prospects for the tanker market, they are also working hard to explain the past. The tanker fleet is now 42 percent larger than in 2005, while seaborne trade, in terms of volume, is up only 6 percent. In 2005, we estimated the utili-zation rate for the tanker fleet to be close to the 90 percent we regard as full capacity utilization. On this basis, we should apparently have had a huge overcapacity of 20-25 percent this year, with permanent lay-up rates as a consequence. Even if 2012 definitely was a difficult year for tanker owners, it was not that bad. We now estimate the overcapacity in 2012 to have been 6-7 percent, which we describe as moderate, not in the neighborhood of what we experienced in the 1970s and 1980s (see chart). The current overcapacity could be de-scribed as a typical cyclical one, not the type of structural overcapac-ity tanker owners fought against some decades ago.

This gives us reason to ask if the tanker market is now decoupled from fundamentals? We believe not. The simple comparison be-tween the change in the fleet and the change in trade volumes does not tell the whole story. There are obviously a number of additional factors. Let us try to explain:

• TransportdistancesAccordingtoourestimates,averagedis-tances increased by 8 percent from 2005 to 2012, resulting in a 14 percent increase in ton-miles in the same period.

• FloatingstorageemploymentOvertheperiodfrom2005to2012, there have been several years with significant use of tank-ers for storage purposes, in addition to their traditional trading employment.

• FleetproductivityfactorsThesefactorsarethemostchallengingto identify and estimate. Normal productivity can be defined as the number of ton-miles produced per deadweight ton, per year, at a 90 percent utilization rate. Since our goal is to measure the utilization rate of the fleet, we have to differentiate between market-dependent changes in productivity and structural changes. For example: In a weakening market, operators want to reduce vessel speed because optimum speed is falling. This

results in a market-dependent decline in productivity, which is a part of the overcapacity to be measured. Normally, an increase in bunker prices also leads to lower speed, but we regard this as a structural drop in productivity. In other words, an increase in bun-ker prices at a constant dollar rate will lead to slower speed and the need for more tankers to carry out the same transportation work. Speed is the most complicated element to handle when estimating over capacity. Interested readers can find more about speed optimi-zation in RS Platou Monthly, March 2012.

• Another(structural)productivityelementistheloadfactor,defined as the cargo size divided by the deadweight ton of a vessel. There has been a consistent trend over many years towards larger Aframaxes, Suezmaxes and VLCCs, while the cargo sizes have been more or less unchanged. This means that we need more dead-weight tons to take the same cargo as before. We have estimated that this element has reduced the productivity of the fleet by 0.6 percent per year, over the last 10 years.

• Theballastfactordescribestheshareofdaysinballastcomparedwith the total days at sea. Significant and rapid changes in the worldwide trade pattern normally lead to more repositioning of the fleet, more ballast days and consequently lower (structural) productivity. In the last few years, the stop and go of Libyan exports, the sharp drop in exports from Iran and the drastic cuts in US oil import are typical drivers of more ballasting and reduced productivity.

Our analysis points to a decline of 13 percent in (structural) produc-tivity and a tanker demand growth of 32 percent from 2005 to 2012, compared to the tiny 6 percent growth in seaborne oil trade volumes. Thus we ended up with a utilization rate in 2012 of 83.5 percent - or an overcapacity of 6.5 percent - a level quite in line with freight mar-ket conditions in 2012.

Erik M. AndersenSpecial AdviserRS Platou Economic Research

iS The Tanker markeT driven by fundamenTalS?

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Crude and Clean markeTS likely TO COnTinue TO TraCk eaCh OTherProduct tanker rates increasingly outperformed crude rates during the second half of 2012, and have begun 2013 on a stronger note. We see the improvement in clean rates as es-sentially a cyclical phenomenon, resulting from the high level of crude production and imports in the fi rst half of the year. Without a signifi cant recovery in oil demand, trade growth is thus likely to slow for the clean market as well in 2013. How-ever, trading patt erns are becoming more complex because of tightening product specifi cations. In addition, the reduction in refi nery capacity in the Atlantic Basin, including Venezuela, has made seaborne imports a more important swing factor. Tonnage demand is less transparent in this segment and may off er upside surprises.

Fleet capacity growth for product tankers will likely increase in 2013, however, as the level of newbuilding deliveries is sched-uled to rebound. Th e relatively low average age of the clean

tanker fl eet, fi ve years vs eight for crude, argues against a surge in scrapping.

OddS fOr a CyCliCal upTurn have imprOved, buT STrOnger wOrld eCOnOmy neededWe expect that the much-reduced orderbook will lead to a pro-nounced slowdown in fl eet capacity growth to less than 3 per-cent per annum over the next three years. In such a scenario, fl eet utilization should begin to improve from 2014 and poten-tially accelerate in 2015. However, this development depends on several assumptions, of which the most important is that the world economy embarks on a self-sustaining recovery in line with its long-term growth potential. When that happens, but probably not before, oil demand and trade can be expected to accelerate and a cyclical recovery in the crude and clean mar-kets will arrive. Ole-Rikard HammerRS Platou Economic Research


freighT raTeS and Ship valueSConsidering the year as a whole, our weighted dry bulk index averaged $9,400 per day in 2012, down from $15,200 per day in 2011. The Capesize sector saw a drop in earnings from $16,200 to $9,700 per day, while Panamaxes obtained $8,100 per day compared with a day rate of $14,600 the year before. Supra-maxes earned $9,400 per day against $14,400 per day in 2011, while Handysize day rates fell from $10,500 in 2011 to $7,600 per day in 2012.

Capesize tonnage was negatively affected by a slowdown in Bra-zilian iron ore exports to Asia during the first part of the year. Almost all growth in Asian iron ore imports was covered by Australia in this period, significantly impacting upon the ton-mile growth parameter. In the last quarter, however, Brazilian iron ore shipments to Asia recovered substantially, which con-tributed to a significant upturn in Capesize earnings. The pat-

tern for other segments was the reverse; with a relatively weaker second half compared with the first half.

Ship values fell steadily throughout the year even though sales activity, especially for the larger sizes, increased significantly compared with the year before. We also registered high activity in re-sales of newbuildings, mostly from Chinese yards. Values

the dry bulk market

substantial drop in freight rates

average freight rates $ 1,000/day triP charter

2010 2011 2012Capesize 32.8 16.2 9.7Panamax 25.8 14.6 8.1Supramax 22.4 14.4 9.4Handysize 16.4 10.5 7.6

dry bUlk imPorts by coUntry/region2003–2012

market fundamentals deteriorated further during 2012, as a result of another year with record high deliveries. despite weaker global economic growth, tonnage demand increased at a healthy rate thanks to China, which utilized huge arbitrage in iron ore and coal prices, importing far more dry bulk commodities than the underlying demand for steel, energy and so forth would usually dictate.

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21 the dry bulk market

22 THE DRY BULK MARKET22 the dry bulk market

for re-sales dropped 15-20 percent, while 5-10 year old tonnage saw values decrease by 20-30 percent.

SeabOrne Trade and TOnnage demand On a global basis, steel makers raised their output by only 1 percent from 2011 to 2012. Asia, the Middle East and North America recorded moderate increases, while other regions reg-istered lower production. The largest setback was experienced in the European region, with 3.5 percent lower production. Preliminary data suggests that seaborne transportation of dry bulk commodities rose above 5 percent from the year before. Real tonnage demand is estimated to have increased around 7 percent. In addition to somewhat below 5 percent growth in ton miles, the rise in Chinese coastal trade contributed to some additional demand. Fleet productivity appears to have dropped around 2 percent. Among commodities, a 5 percent jump was registered in the iron ore trade, while coal shipments increased by 7 percent. Trade in grain and soybean escalated 3 percent, while shipments of other commodities climbed 2 percent.

China increased its dry bulk imports by 12 percent, of which iron ore imports escalated by more than 8 percent, coal by 28 percent and other cargoes by a total of 6 percent. In the group of other commodities, the most pronounced jump was recorded in grain, nickel ore and soybeans. The growth in Chi-nese dry bulk imports was surprisingly strong taking into ac-count only modest increases in domestic steel and energy de-mand. Significantly lower world market prices of iron ore and coal - compared to higher domestic prices in China - provided strong incentives for Chinese industries to cover a higher share of their raw material demand through overseas import.

In the rest of the world, dry bulk import rose by around 3 per-cent from the year before. India continued its impressive growth in dry bulk imports, mainly in coal, registering a 12 percent es-calation. Far East Asian countries, excluding China, recorded only 2 percent higher total imports. European dry bulk imports fell by 1 percent, as a result of 8 percent lower iron ore imports. The impact of this was partly negated by 4 percent higher coal imports.

In terms of the key exporters of iron ore, Australia raised exports by 13 percent, while Brazil reduced its activity by 1 percent. In coal transportation, Australian shipments escalated 13 percent, while Indonesia raised its volume by 5 percent. In grain and soy-bean trade, Brazilian export volumes jumped 16 percent, while US exports fell by 11 percent. Sailing diSTanCeSOn average, we registered slightly shorter hauls in iron ore loads, caused by reduced Brazilian market share in the Asian iron ore market. In coal transportation, the average sailing distance was marginally lower. This can be attributed to higher growth in intra-Pacific coal shipments, compared with trade between the Atlantic and the Pacific regions.

More long hauls were registered in the grain and soybean trade. This was a result of increased South American exports in rela-tion to the activity of other key exporters.

pOrT COngeSTiOnSlower growth in the dry bulk trade slightly reduced waiting times in ports compared with 2011. Chinese, South American and Indian congestion was lower than the year before, while both Australia and Indonesia experienced longer average port

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waiting times. As a whole, the volume of ships constantly wait-ing longer than normal fell moderately from 2011 to 2012.

fleeT prOduCTiviTyCargo movements from the Atlantic to the Pacific continued to increase at a much greater rate than movements in the opposite direction, further worsening the imbalance in trade. In order to cover cargo commitments in the Atlantic Basin, ship opera-tors had to ballast ships more frequently from the Pacific to the Atlantic. We also registered a general slowdown in the average speed during 2012, which was a result of lower freight rates and higher bunker prices.

fleeT grOwThDeliveries of new ships rose to 98 mill dwt in 2012, while re-movals totaled 33 mill dwt. As a result, the dry bulk fleet in-creased in size by more than 12 percent from 2011 to 2012.

By segment, the Panamax/post Panamax fleet was enlarged by 17 percent, while the Capesize and Supramax segments ex-panded 13 percent. The Handysize fleet grew by a more moder-ate 4 percent.

bUlk carrier fleet 2003–2012average annUal changes

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markeT prOSpeCTS

laST year’S prediCTiOnThe actual fleet growth of 12 percent was slightly more than we predicted. Both delivery and scrapping rates were somewhat higher than we had initially forecasted. Our assumption of a 5-6 percent increase in seaborne trade was not far from the actual market reality. In addition, we expected a further reduction in fleet productivity and a further rise in Chinese coastal trade was also anticipated. However, we were wrong in our assumptions of longer sailing distances in iron ore and coal and that port con-gestion would increase.

TOnnage demand in 2013The prevailing forecasts for the world economy in 2013 suggest slightly higher growth than in 2012. In line with this, it is ex-pected that dry bulk trade will also grow somewhat more than last year. Again, China’s economic growth rate will be of vital importance for dry bulk demand. With a share of nearly 40 percent of the world deep-sea trade in dry bulk commodities, Chinese economic growth that isn’t in line with forecasts could have significant impact on the growth rate in tonnage demand. A crucial development this year would also be the advent of ar-bitrage in iron ore and coal prices, which will create incentives for China to source a relatively higher share of its raw material demand from the international market, instead of utilizing high cost domestic capacity.

The transportation of other commodities, especially in the min-erals sector, should expand in tandem with economic growth. It is perhaps premature to say anything with absolute certainty about the grain and soybean trade; nevertheless, the droughts in the US and Russia in 2012 hampered grain exports in the last

part of the year and will also negatively impact upon the first months of this year. However, it is important to take into ac-count that record high grain prices over the last year have cre-ated strong incentives to increase production this year, which could result in higher shipments in the second half of 2013.

In terms of forest products, wood pellet transportation is an-ticipated to escalate further, especially from North America to Europe. We also predict a further increase in wood transpor-tation to China, both in woodchips and logs. Enlarged paper production capacity and higher construction activity will most likely require higher imports in these products, due to restricted increase in domestic supply.

In total, we predict seaborne dry bulk trade to increase by 5-6 percent from 2012 to 2013 Sailing distances in grain, soybeans and forestry products are expected to rise due to a stronger in-crease in South American exports to Asia, in relation to other exporting countries. In iron ore and coal, we assume small changes in the sailing distances. World logistical capacity is projected to expand by around 5-6 percent and port congestion is therefore expected to remain relatively unchanged. The Chi-nese cabotage trade is anticipated to increase further, but at a lower rate than in the most recent years. This is subject to China sourcing a relatively higher share of raw material demand from the world market. In addition, we expect fleet productivity to continue dropping.

fleeT TrendSome 81 mill dwt of new ships are scheduled to become opera-tional in 2013. However, it is plausible that a significant volume of newbuilding deliveries will be postponed until 2014. The dif-ficult financial situation will probably force ship owners to try

delaying deliveries. In 2012, about 70 percent of the delivery program at the start of the year ended up entering operation. If we assume some 20-25 percent of the scheduled deliveries will be pushed back into 2014, around 60 mill dwt will go into op-eration this year. Scrapping will, to a large extent, be a function of the ships’ earnings. We estimate scrapping to reach about a similar level as last year.

Based on these assumptions, a fleet growth rate of about 7 per-cent can be expected.

COnCluSiOnThe supply and demand situation indicates that fleet expansion and growth in tonnage demand will run fairly parallel this year. However, the slowing trend in fleet growth during the course of the year should create some upside potential for improving fundamentals in the second half. Prospects for tonnage demand are also uncertain, but there is some recent evidence of stronger economic data in China and the USA. However any immediate upturn in freight rates, due to stronger than expected recovery in tonnage demand, will be quickly offset by lower scrapping and a higher fleet growth than expected. Therefore, any poten-tial upsides appear moderate in the short term.

A further slowdown in deliveries, combined with a gradual re-covery in the world economy, should bode well for a fundamen-tal upturn in 2014.

Bjørn BoddingRS Platou Economic Research

deliveries and removals of bUlk carriers* 2003–2012

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the Container ship market

another Weak year

freighT raTeS and CharTer raTeSFreight rates per TEU rose about 25 percent from the previ-ous year, calculated on a yearly average basis. However, strong volatility was registered, especially on the Asia to Europe string, with sharply escalating rates during the first six months of 2012, but with an equally dramatic drop during the second half of the year. In other services, the same general pattern was observed, but with far less volatility. Charter rates were on average between 40 and 50 percent lower than the year before. After a weak start to 2012, somewhat firm-er rates were recorded in the middle of the year, as some opera-tors secured extra tonnage ahead of the expected peak season trading period. However, this was only a short-term trend, and softer rates were noted in the latter part of the year.

COnTainer mOvemenTS and TOnnage demandPreliminary statistics suggest global container ship demand has increased by around 7 percent from 2011 to 2012. Box move-ments increased by some 5 percent. Assessing trends by region, in the US containerized imports were up 2 percent from the pre-

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the container ship market in 2012 saw higher average box rates than in 2011, but substantially lower charter rates. operators managed to raise the utilization rate of the operating fleet by idling more tonnage and creating a higher demand through lower fleet productivity. non-operating owners faced a very difficult year, as liners had limited needs to charter extra tonnage.

vious year. The volume of laden boxes from Asia remained basi-cally unchanged, while other regions noticed higher shipments to the US than in the year before. US exports of laden containers rose by 7 percent, and all trades recorded higher volumes than in the previous year.

Container traffic into Europe declined in total by about 4 per-cent. Volumes were relatively stable in the first half of the year, but dropped significantly during the latter part. Far East Asian volume to Europe dropped 3 percent year-on-year, while traffic from the US and South America dropped by 10 and 7 percent, respectively. The only trading region with higher container traf-fic into Europe than last year was India, with a 5 percent escala-tion in volume. European container exports rose by nearly 10 percent, with volumes to Asia up 7 percent, while traffic to the US climbed 4 percent.

Within Asia, container shipments jumped 8 percent, while Far East Asia raised containerized exports to the Middle East by 5 percent. In other emerging market trades, we registered a 6 percent escalation in box movements from the Far East to East

26 the Container ship market

27 the Container ship market

Coast South America and a 12 percent jump to West Africa. Chinese import and export activity was slow during the first part of 2012, but showed increasing growth trends in the final part of the year.

fleeT prOduCTiviTyFleet productivity decreased significantly in 2012, as a result of the increased use of ‘extra slow steaming’ on major routes. For example, on the Asia to Europe service, round trips were extended from a typical 63 days, with the use of 10 ships on a weekly basis, to 72 days and, in some cases, even 84 days. This necessitated the use of either 11 or 12 ships respectively to maintain weekly sailings. The Asia to US loops also saw in-creased slow steaming, but to a lesser extent than between Asia and Europe.

fleeT TrendAbout 1.25 mill TEU of new container ship capacity entered operation in 2012. This was 300,000 TEU less than planned. Deliveries were basically in line with the program until midway through the year, but slowed down significantly in the latter part of 2012, in tandem with falling freight rates.

Removals totaled nearly 300,000 TEU of capacity, a new record in container shipping. The average age of ships sold for scrap-ping decreased substantially, from 30 years in 2011 to 23 years in 2012. Most ships sent to breaking last year were in the smaller size segments. The net fleet expansion was 7.7 percent, calcu-lated on a yearly average basis. At the end of the year, a capacity of close to 500,000 TEU was reported to be idle.

With a fleet expansion of nearly 8 percent and a demand growth of 7 percent, the capacity utilization rate for the total fleet fell nearly 1 percentage point. However, the operating fleet grew only 4 percent, leading to an increased operating fleet utiliza-tion rate of nearly 3 percentage points.

laST year’S prediCTiOnSOur expectation of a fairly parallel increase in supply and de-mand was not far from the market reality of 2012. We also point-ed out that operators had the potential to increase earnings by idling more ships and through higher use of slow steaming, and that box rates were likely to increase somewhat during the year.

Historically, container traffic has increased between 2.2 and 2.7 times the world GDP. In 2012, the ratio was only 1.7, the lowest registered increase in decades. This is probably related to exten-sive inventory depletions along with lower economic activity, especially in Europe, where historical growth in container im-port has been very high compared to GDP growth.

markeT OuTlOOk The prevailing forecasts for world GDP in 2013 suggest an increase in world container traffic of nearly 7 percent. This is based on a factor to global GDP of 2.0. However, European GDP is forecast to remain stagnant and this will probably limit the growth potential in container trade to Europe. Global trade growth could therefore increase less than the overall macro economic forecasts suggests. We expect higher US container imports this year than last and we also anticipate trades with emerging markets to show stronger growth rates.

New ships with a capacity of around 1.9 mill TEU are sched-uled to begin operation in 2013. Weak market conditions will most likely cause some slippage. It should also be noted that the ships becoming operational are within the largest size catego-ries. These ships are destined to operate on the Asia to Europe service, the trade with potentially the lowest growth in terms of box movements.

Scrapping is expected to remain at a similar or potentially higher level than in 2012, resulting in a further drop in the age of ships sent to the beaches. Scrapping potential is anticipated to be highest for vessels smaller than 3,000 TEU.A fleet expansion in the region of 7 percent is expected in 2013.

Based on the above discussion, we expect to see a relatively bal-anced growth in the supply and demand parameters in 2013, and consequently only small changes in the utilization rate for the total fleet. Container carriers could again work to restore profitability by adjusting the operating fleet size, which can be done by more idling of ships and by a further reduction in fleet productivity by, for example, implementing extra slow steaming on certain trades. In any case, we foresee another difficult year for the container ship industry, especially for non-operating owners, who will experience another year with low demand for charter tonnage from liners.

Bjørn BoddingRS Platou Economic Research

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28 the Car Carrier market

the Car Carrier market

a troublesome reCovery were reduced in the third quarter. Furthermore, Japanese exports did not seem to recover the volumes lost in 2011, and fourth quarter exports were significantly down compared to the year before. This is likely to be a consequence of relocation of produc-tion, with auto makers seeking to cut production in Japan, due to the strong Yen and weak domestic demand, and instead produce closer to their sales markets.

As a consequence, demand growth developed negatively towards the end of 2012. Annualized demand growth is estimated at 8 percent, which is lower than we had expected. Given the cur-rent macroeconomic uncertainties, we estimate that demand will grow by around 4 percent in 2013.

The car carrier fleet at year-end consisted of 713 vessels, of which 36 were delivered in 2012. Only five vessels were removed from the fleet, resulting in a fleet growth of 6.5 percent. The order book stood at 42 vessels, representing 7 percent of the active fleet. Only 19 vessels are scheduled for delivery in 2013, indicating a fleet growth of 4 percent.

27 vessels were added to the order book in 2012, a massive in-crease from previous years. 10 of these will be of Post-Panamax design. In addition to fleet renewal programs, owners are taking advantage of the low newbuilding prices and as a consequence we may see further orders for 2014 deliveries, currently standing at 19 vessels.

Given the development throughout 2012, we saw only a minor improvement in the market balance: Fleet utilization is estimated at 84 percent, compared to 83 percent in 2011. Due to challeng-ing market conditions, outlook for 2013 indicates a flat develop-ment, or possibly a small improvement, due to the limited fleet growth. We estimate an annual average fleet utilization of 84-85 percent. Along with economic growth and its influence on auto sales, the most critical factor going forward is the possibility of further relocation of production out of Japan. Although we have seen a recent weakening of the Yen, some auto makers have al-ready made their decisions to move parts of production overseas, and we believe that a weaker Yen must be seen over the long-term in order for this tendency to change. Ole Gustav Eriksen RS Platou Economic Research

It has been a story of ups and downs for the car carrier market in 2012. The year started off well, with very positive US auto sales, high export volumes out of Korea and a full recovery of Japanese exports, after the difficulties experienced in 2011. Charter rates firmed up, but as we moved into the second half several factors impacted negatively on tonnage demand, pulling rates down to-wards the end of the year.

Sales in the US continued trending positively throughout the year, ending at 14.5 mill light vehicles, up 13 percent from 2011. Forecasts for 2013 indicate another 3-4 percent growth across the next 12 months. The story of European sales is completely different; The Euro crisis has scared consumers away from show rooms, and sales are down 8 percent in Western Europe, to levels not seen since 1993. The economic outlook does not seem to in-dicate any improvement in 2013, and forecasts indicate a further 3-5 percent sales decline this year.

Auto sales mirror the production situation: While North Ameri-can capacity is being increased and new facilities are in the pipe-line, many European plants suffer from overcapacity and at least five factories are expected to be closed over the next years.

In other markets sales are generally growing, with the BRIC coun-tries in particular subject to attention from auto makers, both in terms of sales and as locations for new production facilities.

Tonnage demand developed positively during the first half of the year. However, as strikes hit Korean factories, export volumes

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the lng market

another reCord yearThe double-digit growth trend in supply and demand we have seen in the LNG shipping market since 2006 finally came to an end in 2012. Our estimates suggest that demand growth was 6 percent and the fleet grew by less than 4 percent. This resulted in a 3 percentage points rise in the utilization rate, and a subsequent hike in the average spot rate for modern standard sized steamship to $125 000 per day.

On the demand side, the development in transported volumes proved rather disappointing in 2012. We have estimated a mar-ginal decline of 1 percent in volumes, inferior to the 6 percent growth we expected in this report a year ago. The main explana-tory factors were delay in the inauguration of Angola LNG which was postponed a full year from first quarter 2012. A second cause was technical issues that restrained production in various lique-faction plants. Several explosions along the feedgas pipeline to Yemen LNG hampered their production, Tangguh LNG’s sec-ond train were shut after a fire during maintenance of the first train. Snohvit LNG in Norway also experienced unplanned stops in production. Algeria, Egypt, Indonesia and Oman lowered their LNG exports in 2012.

The second ingredient of the ton-mile demand, transported dis-tance, is estimated to have grown by 3 percent in 2012. The main driver of this parameter has been a 25 percent increase in inter-basin trades between the Atlantic and the Pacific basin. This was caused by an increased demand for LNG in Japan following the shut-down of its nuclear power plants. Most of these power plants remained dormant during 2012 as the last active reactor since the

Fukushima meltdown in 2011 were shut in early May for periodic maintenance. However, two reactors at Kansai Electric’s Ohi plant passed the new stress test and were restarted in July. These reactors represent 5 percent of Japans nuclear power generating capacity.

We have further estimated that the productivity factor of the LNG shipping fleet declined by 2 to 3 percent in 2012. A regime of higher bunker cost and an increase in ship size that is not al-ways utilized are the rationale behind this change in productivity. Thus, in sum the tonnage demand for LNG carriers increased by 6 percent this year.

The active average LNG carrier fleet in 2012 grew by 4 percent. Two new vessels entered into service and three vessels were re-moved. During the the year we have estimated that 0.8 mill cbm of carrying capacity was laid-up.

For 2013 we expect transported volumes to increase by 3 percent. Two new LNG projects are expected to start production, Angola LNG and Sonatrach’s Skikda project. However, Indonesia has announced a cut in LNG exports by 13.8 percent due to higher domestic demand for natural gas.

The most difficult factor to forecast is the development in trans-port distance. For 2013 we anticipate a decline of 1 percent as we believe the inter-basin trade will continue at a high level. However, since the middle of 2011, an increasing share of the LNG produc-tion in the Middle East has been sold East of Suez. Should this trend prevail, it is likely to do so on the expense of the inter-basin trade volume and could thus lead to shorter transport distances. Coupled with an assumption of a small decline in the fleet’s pro-ductivity, we expect tonnage demand to grow by 3 percent in 2013.

According to the orderbook there will be 23 vessels delivered from the shipyards in 2013 and we expect only a limited number of old vessels removed from the market. As most of these new-buildings will come in the second half of the year, the average LNG fleet is only expected to grow by 2.5 percent this year.

In conclusion, after taking into consideration the above assump-tions, we forecast that the fleet utilization rate should increase marginally to 96 percent in 2013, which indicates yet another tight year in the LNG shipping market.

Jørn Bakkelund RS Platou Economic Research

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29 the lng market

small-sCale lng

a neW market emerging

SignifiCanT evenTSIn 2012, we have experienced some notable ‘world first’ events for small-scale LNG, such as:

• Theworld’sfirstdedicatedLNGbunkerbargewasorderedand commissioned in Norway by AGA. It will be in operation by January 2013 in Stockholm, Sweden

• Theworld’s ‘largest’ small-scaleLNGvesselwith aTypeCtank was christened Coral Energy in December 2012. This vessel will be operating on a long-term charter for Skangass of Norway

• Theworld’sfirstLNG-fuelledRO-PAXvesselswerelaunched.They will go into operation in 2013 for Viking Line and Fjord-Line

• Theworld’sfirstLNG-fuelledcontainervessels(3,100TEU)were contracted by TOTE. The vessels will operate between Florida and Puerto Rico from 2015

• Several important shipping hubs – including Singapore,Rotter dam, Zeebrugge and Gothenburg – announced plans to follow Stockholm, and several smaller Norwegian ports, in making LNG available as marine fuel

• SupermajorShellacquiredNorwegiansmall-scaleLNGplay-er Gasnor. This is an example of major LNG players showing firm interest in this segment.

The small-scale LNG market mainly serves the following types of consumers/purposes:

• Small to medium sized businesses where LNG is used forheating, or as feedstock

• Asaroadtrafficandmarinetransportfuel

The latter is becoming increasingly important. In 2012, there was a sharp increase of consumption of LNG as a marine fuel, although from a very low level.

RS Platou estimates that, based upon existing orders at ship-yards for ships capable of burning LNG as fuel, this increase will be even stronger in 2013 and the years that follow (see graph below).

prediCTiOnS The push for small-scale LNG will be strong in Europe, due to both environmental and economic drivers. In the US, we expect an even stronger push for LNG as fuel in the coming years, driv-en by the considerable cost difference between LNG and other fuels, both on land and at sea.

An increase in the use of LNG as a marine fuel will result in more demand for LNG transportation by sea, in smaller par-cels. We therefore believe that there will be increasing need for small-scale LNG feeder vessels, and also LNG Bunkering ves-sels, in the coming years.

At a time when many shipping segments are experiencing real challenges, and with very low newbuilding volumes, prices are also expected to be very attractive for shipowners deciding to enter this new market in 2013.

Egil RokstadRS Platou Shipbrokers

annUal consUmPtion of lng as marine fUel

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in many ways, 2012 will be remembered as the year when the small-scale lng market ‘shifted into second gear’. the market developed from being a small, exotic and local market (mainly in norway, sweden and Japan) employing only a handful of vessels, into a hot topic discussed worldwide.

30 small-sCale lng

The year was characterized by fluctuations in currencies and steel price, resulting in very volatile demolition prices. India, in particular, was troubled by a very unstable currency and prices that shifted throughout the year, starting above $500/ldt for tankers and container ships. They remained fairly healthy un-til May, when they dropped by $100/ldt and hovered between $380 and $450/ldt for the rest of the year, ending around $450/ldt.

Close to 800 vessels were beached on the subcontinent alone, with India taking the majority, while Pakistan turned out to have the healthiest appetite for large tankers and Capesize bulk carriers. China and Turkey were also active in the market and claimed a solid share in 2012.

Tanker demolition increased by 24 percent from 2011, to 11.7 mill dwt, of which 3 mill dwt was single-hull tonnage. 10 VLCCs, 21 Suezmaxes and 35 Aframaxes were scrapped, with an average age of 23 years, down from 25 years in 2011.

The quantity of bulk carriers sold for recycling increased by more than 50 percent from 2011, to 33 mill dwt, primarily as a consequence of the very poor freight market. Despite being a high number, this represents only one third of deliveries from

the demolition market

Weak markets pull reCyCling up

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2012 was a busy year for recycling, surpassing 2011 volumes by more than 40 percent. Weak freight markets within the tank, dry bulk and container segments were the key drivers. however, due to massive deliveries of new capacity from shipyards, the high scrapping activity could not prevent a strong fleet growth.

yards in the same period, and therefore did not prevent a sub-stantial fleet growth within this segment. It is worth noting that the average age of bulk carriers scrapped came down from 30 years in 2011 to 27 years in 2012, with the average age of the 74 Capesizes scrapped being only 22 years. 67 Panamax/Post-Panamaxes, 151 Handymaxes/Supramaxes and 220 Handy-sizes were also beached during the year. Prospects for the dry bulk market in 2013 indicate a substantial potential for further recycling, and we may also see the average vessel age decrease further.

The situation in the container ship market also accelerated de-molition. 159 vessels were scrapped in 2012, compared to 57 in 2011, representing an increase of 160 percent in terms of capac-ity, to 300,000 TEU. However, with one exception, these vessels were all below 4,000 TEU, and amount to only one quarter of the capacity delivered in the same period. As for bulk carriers, the average age of recycled vessels has been reduced, from an average of 30 years in 2011, to 23 years in 2012.

Delivery rates for these three large segments are expected to re-main high this year, while the freight markets are not expected to greatly improve. As a result, we expect another busy year for recycling in 2013, with further high demolition volumes.

31 the demolition market

mobile offshore drilling units

hitting neW heightsday raTeS/uTilizaTiOn: review Of The yearThe jack-up market tightened considerably in 2012 and we ob-served the active jack-up utilization rate increase 6 percentage points to 92 percent. While modern Independent Cantilever units built after 1998 (modern units) were still enjoying basi-cally full active utilization in 2012, the older Independent Can-tilever units (built prior to 1998, standard units) experienced a comeback, driving up the overall active utilization rate. As the jack-up fleet approached full utilization, day rates of both stan-dard and modern units increased substantially. Global average day rates of standard units averaged 102,000 USD in 2012, an increase of 30 percent compared to 2011, while global average day rates of modern units averaged 147,000 USD in 2012, a rise of 15 percent over the previous year.

The floater market also tightened and active utilization in-creased by 2 percentage points, averaging nearly 96 percent in 2012. The tightening of the market was seen in all sub-seg-ments, although mostly in the Ultra-Deepwater (UDW) sector. The UDW active utilization rate remained close to 100 percent throughout 2012. The few available UDW units in 2012 were easily absorbed in the market and, as fixing activity added to the gains achieved in 2011, the annual average day rate increased to 606,000 USD in 2012, from 478,000 USD the year before. It should also be noted that contract lengths were stretched considerably. On the back of the strength of the UDW market, active utilizations of both Mid-water (MW) units and Deep-water (DW) units increased to 92 and 96 percent respectively.

In 2012, the global annual average day rates for MW units in-creased by 5 percent to 235,000 USD, while the global annual average day rates of DW units increased by 14 percent year-on-year, rising to 305,000 USD.

On a regional basis, the strength of the North Sea, and espe-cially the Norwegian sector, continued unabated through 2012. As a consequence of the opening of the Barents Sea to explo-ration, and recent major new discoveries on the Norwegian Continental Shelf, offshore activity increased. The Norwegian MODU fleet has experienced 100 percent utilization for some time and the volume of new fixtures is boosting the contract backlog of rig owners. Typically, the annual average day rates of high-specification floaters rose from 460,000 USD a year ago, to currently close to 590,000 USD. demandAlong with oil prices, which were basically unchanged, demand growth for jack-ups slowed down, but nevertheless achieved a substantial increase. At the end of last year (2011) we recorded 353 jack-ups on contract, while 374 jack-ups were on contract as this year (2012) came to a close. This equates to an annual increase of nearly 6 percent, which is down from the 18 percent growth observed last year, but still well above the long-term demand growth of the last 25 years (1.8 percent per annum). Demand increases for jack-ups in the same period were ob-served in many regional markets, but were particularly strong in West Africa (+19 percent), the Middle East (+10 percent)

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32 mobile offshore drilling units


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and South East Asia (+11 percent). In the same period, jack-up demand in the North Sea and Gulf of Mexico was virtually flat. Reserves under development in shallow water – a major market driver – also increased significantly in 2012, with the Middle East and South East Asia acting as the main regional contribu-tors to jack-up demand growth. It is also interesting to note that ‘average days per well in shallow water’ is a factor that has been increasing substantially across the last few years. There are many ways of interpreting this data, but with the delivery of new jack-ups oil companies are able to drill more complex, but also more time consuming, wells than before.

Floater demand strengthened progressively through 2012. At the end of last year we recorded 222 units on contract, while 254 floaters were on contract at the end of 2012. The major-ity of the increase in demand was concentrated in the Gulf of Mexico, South America and the North Sea. Floater activity in The Gulf of Mexico has now surpassed pre-Macondo levels. Fixing activity of floaters (as measured in rig years), which is a more forward looking indicator, increased in 2012 by 18 per-cent compared to 2011 (excluding the fixtures from Petrobras’ newbuilding program in 2011/2012). We estimate that the ac-cumulated length of contracts signed in 2012 was nearly 300 rig years, which easily exceeds the 254 floaters on contract at the end of 2012. The different floater segments produced very dif-ferent results. While UDW units increased fixing activity by 67 percent, fixing activity of MW and DW units declined 16 per-cent and 30 percent respectively. It is noteworthy that the large increase in UDW fixing activity was achieved without Petrobras entering the international markets (with the exception of one floater contract).

Most of the MW and DW units are of course built in the 70s and 80s and, as charterers have become more safety conscious and demanding (perhaps due to higher well complexity), these units are, to a certain extent, being crowded out by more mod-

ern UDW units. As an example of this, the number of MW units operating in both West Africa and Brazil has declined in the last year, while the quantity of UDW units on contract has increased. UDW demand is, of course, supported by a string of major discoveries. These discoveries are also broadening in geo-graphical scope and can be highly profitable. This trend was re-inforced in 2012, with major discoveries in, for example, pre-salt formations in Angola and East Africa. Furthermore, many of the discoveries made in the last 10 years are moving into develop-ment, which should propel UDW demand further.

fleeT TrendThe increase in jack-up utilization was aided by a more dynamic supply side than usual. At the start of the year, jack-up order books indicated that 29 units were to be delivered in 2012. However, at the end of the year only 11 newbuilds had come into operation. This appears to have been the modus operandi of yards during the last few years. It seems that many (possibly inexperienced) yards were forced to postpone delivery dates significantly, but it should also be mentioned that many units were intended to be delivered towards the end of the year, with delivery now expected in the first months of 2013. At the same time, a number of jack-ups were either sold out of the market, mainly to accommodation, or scrapped - although it should be noted that several standard IC units were reactivated from cold stacking as the jack-up market improved. By the end of 2012, fleet adjustments had mitigated a potentially large increase in supply. Our figures indicate that the total jack-up fleet increased by only five units, or 1 percent, in 2012.

The process of jack-up renewal slowed down in 2012, with 24 re-corded new orders, substantially down from the 46 orders made in 2011. The fairly large orderbook, combined with more difficult access to capital, worked to slow down ordering activity.

The floater fleet grew more or less as expected, with 18 of 20 units delivered. We estimate the floater fleet to have expanded

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end 95 end 00 end 05 end 08 end 09 end 10 end 11 end 12Oil price (Brent, $/barrel) 17.8 25.5 56.8 40.2 74.3 91.7 108 109.6Gas price (Henry Hub, $/bcf) 2.57 8.90 13.05 5.82 5.35 4.25 3.20 3.34Oil consumption (mbd) 70.0 79.2 83.3 85.5 86.9 90.8 90.2 91.6Total rig demand 413 461 488 552 496 508 576 628Total rig supply 513 560 562 622 667 701 726 753Rig utilization (on total supply) 80.5% 82.3% 86.8% 88.7% 74.4% 72% 79% 83%

rig market key figUres

by 23 units, or 8.5 percent, in 2012. The newbuilding market for floaters was seemingly active in 2012, with 38 drill ships and 15 semi-submersibles ordered. The level of semi-submersible ordering was influenced by the tight market on the Norwegian Continental Shelf. A further breakdown reveals, however, that 26 of the units were part of the Petrobras newbuild program and many units were options declared. Furthermore, the five Ocean Rig floaters, which were part of Petrobras’ newbuilding program, seem to have been cancelled. Outside of Brazil, the majority of contracts were once again placed at Daewoo, Hyun-dai and Samsung.

markeT prOSpeCTS

fixing aCTiviTy and rig demandGiven the current economic climate and oil supply dynamics, oil prices are expected to decline somewhat (~10 percent) in 2013. Oil prices are, unsurprisingly, vital to rig demand, as the link between oil and gas companies’ incomes and the level of rig fixing activity has historically been strong. Total rig fixing activ-ity is therefore expected to decline by 5-10 percent in 2012. Jack-up fixing activity, and the resultant demand, is therefore currently moving into a cyclical headwind. Although shallow water fields under development have been rising in recent years, a softer macro environment could slow down growth. Oil and gas discoveries in maturing shallow water basins have also been following a flat/declining trend for a number of years, thus removing upside for jack-up demand. However, more time consuming, complex wells could add to jack-up demand and es-pecially demand for modern units. Given the above, demand is expected to increase between 2 and 4 percent in 2012.

We expect a continued increase in preference for deepwater plays among oil and gas companies. Floater demand is therefore expected to grow substantially. Demand will, to a large extent, be governed by the growth of the floater fleet itself, as close to 100 percent utilization is expected. Lower rig productivity, as a result of difficult geology and increasing complexity in deeper waters, could add to rig demand.

fleeT TrendThe current jack-up orderbook indicates that 63 units will be delivered in 2013 and 23 units will be delivered in 2014. De-lays, which were widespread in 2011 and 2012, are gradually expected to subside in 2013, as a larger proportion of units will be delivered from established/experienced yards. That said, a recent accident at an established jack-up yard raises questions about delivery certainty from even the most experienced yards. It is, as ever, difficult to estimate the scrapping/removal of older standard units, but there has been an increasing trend to re-move them. In 2012, close to 15 units were removed and it will come as no surprise if that number is surpassed in 2013. This means the jack-up fleet is expected to grow by close to 7 percent in 2013, before slowing down to 4 percent in 2014.

The current floater orderbook indicates 20 units will be deliv-ered in 2013 and 23 units in 2014. There have, historically, been fewer delays at floater yards and we expect this trend to con-tinue in 2013 and 2014. Scrapping/removals are also expected to be insignificant. The floater fleet should therefore grow by 9-10 percent in 2013 and by 4-5 percent in 2014.

COnCluSiOnSActive jack-up utilization in 2013 is expected to average be-tween 87-90 percent, which is 2-4 percentage points below the active utilization of 2012. In 2013, short-term strength is likely to be followed by weakness, as a consequence of substantial fleet expansion. Modern units are still likely to command high utilizations, but, as older units come off contract, day rates are likely to come under pressure for both types of assets. A weak-ening of fundamentals may give owners the impetus to remove parts of the standard units built in the 70s and 80s.

Active utilization for floaters is also expected to remain at a high level in 2013. Fixing activity should be more than sufficient to fully employ most units this year. Close to full utilization is ex-pected in most segments, and particularly the UDW segment.

Sven ZieglerRS Platou Offshore Research


the offshore support vessel market

unfulfilled expeCtationspSvsIncreasing pessimism among owners spread through the OSV market in 2012, especially towards the latter half of the year. The North Sea was symptomatic of the global trends. Average annual spot rates dropped by 16 percent for medium-sized tonnage to 9,800 GBP in 2012, while large-sized tonnage dropped even more - by 18 percent to 12,700 GBP. Annual average term rates show a different picture, rising 4 percent and dropping 3 percent for medium and large-sized tonnage respectively. However, closer scrutiny shows that term rates declined steeply from the middle of the year, as market expectations were lowered.

North Sea fleet utilization rates were also dropping through 2012. Medium-sized PSV utilization in the North Sea decreased from 85 percent in 2011, to 82 percent in 2012. Large-sized PSVs av-eraged 97 percent fleet utilization in 2011, but dropped to 92 percent in 2012. Although North Sea PSV demand was increas-ing, the influx of vessels from Norwegian yards, which raised the North Sea fleet by 23 units (or close to 13 percent), sent the PSV utilization and day rates lower.

In previous years, surplus PSVs in the North Sea have moved to other relatively more attractive regions, thus rebalancing the mar-ket. However, two main factors were blocking this rebalancing in 2012. Global floater activity, which is one of the main drivers of PSV demand, grew substantially in the first half of 2012, but was flat in the second half, thus limiting PSV demand growth. At the same time, Petrobras, which has previously been a major taker of vessels internationally, basically stopped fixing new vessels, as new management reassessed logistical needs offshore. As a result, term rates for PSVs in both Brazil and West Africa started drop-ping towards the end of the year, making shifting tonnage out of the North Sea less attractive.

One region where demand continued to rise on the back of in-creasing UDW demand was the Gulf of Mexico. Term rates in the Gulf of Mexico rose by close to 30 percent during 2012, to an average of 27,000 USD per day for large PSVs. As a result, some Jones Act vessels returned for operations in US waters.

ahTSThe large AHTS market in the North Sea disappointed in 2012. Owners’ expectations were raised after the weather-induced mar-ket of the second half of 2011 saw a series of spot fixtures above

150,000 GBP. Term rates of large AHTS vessels were also driven upwards at the start of the year, to such an extent that they pulled the annual average up by 15 percent in 2012. As expectations were lowered through the year, term rates fell substantially. An-nual averages for spot rates of large AHTS vessels declined by 30 percent to 22,400 GBP. The decline in day rates was reflected in utilizations, with the total North Sea AHTS vessel utilization rate dropping to 66 percent in 2012, compared to 76 percent the previous year. Clearly demand did not live up to expectations and was held back by several factors. Although the North Sea rig count increased in 2012, the number of wells drilled was flat. In other words, there were fewer rig moves than expected. The additional rig capacity that was expected to enter the North Sea was also delayed. Furthermore, a softer PSV market resulted in AHTS vessels being out-competed for cargo work. Finally, the North Sea weather proved much better in 2012 than 2011, thus facilitating easier operations.

Elsewhere, the large AHTS market was largely unchanged. Term rates for all sizes of AHTS vessels in Brazil increased by an average of 7-10 percent, but the net effect was not considerable, given the increases in operational costs. In West Africa AHTS term rates were also close to unchanged.

The market balance for smaller AHTS vessels tightened moder-ately in 2012, especially in SE Asia. We observed that term rates for smaller AHTS (5,150 BHP) increased by 8 percent to 8,800 USD in 2012. Term rates for their larger siblings (12,000 BHP) increased even more, climbing by 19 percent to 18,800 USD. Jack-up demand, which is a main driver of such tonnage, also grew considerably in both the Middle East and SE Asia, where many of the vessels are located. In addition, deliveries of AHTS vessels slowed down in 2012.

demand: review Of 2012 and prOSpeCTSGlobal OSV demand is estimated to have increased by close to 9 percent in 2012 - a similar level to the demand growth seen in 2011. The increase in OSV demand in 2012 came on the back of continued rising global E&P spending, which is estimated to have escalated by 15 percent in 2012.

Rising rig demand was again symptomatic of the increasing OSV demand. As reported in the rig section, jack-ups on contract globally increased from 353 units at the end of 2011 to 374 units ➤

35 the offshore support vessel market


in December 2012, a rise of 6 percent. Similarly, fl oater activity was signifi cantly higher and our fi gures show global demand in-creased 12 percent - from 226 units at the end of 2011, to 254 units a year later. As mentioned earlier, the number of rising fl oat-ers on contract was greater towards the fi rst half of 2012. Th e fl oater fl eet was close to fully utilized during the year, with an in-crease in working units resulting mainly from newbuilds entering operation. Th e second half of 2012 experienced a temporary lull in fl oater newbuilds entering the market, thus impacting nega-tively on OSV demand growth.

Global OSV demand is expected to continue to grow by between 8 and 10 percent in 2013. OSV demand growth is likely to be driven by a further focus on exploring and developing deepwater assets. From the second quarter of 2013, we expect an additional 23 UDW fl oaters to be delivered over the course of the year. As vessels per rig serviced in deepwater tend to be relatively high, and distances from shore-base to off shore locations tend to be further, demand for OSVs is expected to receive an additional boost. On a regional basis, we expect OSV demand growth to be driven strongly by additional deepwater activity in West and East Africa and the Gulf of Mexico. In South America, Petrobras is un-likely to be the same driver of tonnage demand, as it is now close to having contracted its stated goal of deepwater off shore rigs. Further gains in jack-up demand in the Middle East and South East Asia will also boost demand of small/mid-size AHTS vessels (see rig section).

fleeT Trend and new OrderSTh e fl eet grew considerably less than the orderbook suggested at the start of 2012. Our records show 119 AHTS vessels and 105 PSVs were delivered in 2012, while, at the start of the year, 200 AHTS and 170 PSVs were scheduled for delivery. Inexperience, especially in the fi nal construction stages, is quoted as the main reason for delays. Many new yards are located in the Asian region and they appear to be responsible for the majority of delays. Once

more, scrapping was insignifi cant in 2012. Our fi gures indicate only fi ve AHTS vessels and two PSVs were scrapped. As a result of these developments, total fl eet growth in 2012 was 6 percent and 9 percent for the AHTS and PSV fl eets respectively.

Trends in new orders in 2012 showed a continued divergence in preference regarding tonnage. Our records show that 187 PSVs and 86 AHTS were ordered in 2012. Most of the AHTS ordered were in the smallest category (66 units), with few new orders of larger AHTS vessels. Th e record levels of PSV investments should be seen in relation to increasing expectations for deepwater activ-ity, and the growing preference for investments in UDW fl oaters.

Th e current AHTS orderbook indicates that 131 units will be delivered in 2013 and 21 units will be delivered in 2014. How-ever, it is expected that delays at yards, which have been exten-sive over the last few years, will continue in 2013 and mitigate some of the fl eet growth. Scrapping/removal of tonnage is ex-pected to remain insignifi cant, despite a large part of the fl eet being built as early as the 70s/80s. Although, it must be said, there is an increased focus from charterers on the age of ves-sels and vessel specifi cations. Many charterers are, for example, demanding vessels that are no older than 10-15 years, while DP II has become the industry standard. Many of the older, lower specifi cation vessels are therefore removed from actively par-ticipating in the off shore markets. Due to their low scrapping value they are not sent to the breakers, but rather ‘idled’. Th e competitive fl eet may therefore be smaller than indicated in the fl eet counts. Th is also applies to the PSV fl eet. Given the above, we expect the total AHTS fl eet will probably grow by close to 4 percent in 2013.

Th e current PSV orderbook indicates that 230 units will be de-livered in 2013 and 116 units in 2014. However, signifi cant de-lays are also expected for PSVs in 2013. Yards have managed to deliver a maximum of 25-30 vessels per quarter over the last few

north sea tonnage 2003–2012ahts average t/c rates (rePorted and estimated)

north sea tonnage 2003–2012Psv average t/c rates (rePorted and estimated)

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10,000

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20,000

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03 04 05 06 07 08 09 10 11 12

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deck area

03 04 05 06 07 08 09 10 11 120

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in service orderbook total totalAHTS 4-7,999 BHP 1,140 89AHTS 8-9,999 BHP 212 6AHTS 10-15,999 BHP 314 26AHTS 16-19,999 BHP 112 19AHTS 20,000+ BHP 67 13ahts total 1,845 153PSV <500 m2 364 56PSV 500-749 m2 436 47PSV 750-899 m2 91 109PSV 900+ m2 245 148Psv total 1136 360total orderbook 2981 513

ahts/Psv fleet overvieWahts/Psv neW orders Per year

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years. However, if the productivity of new yards, especially the Chinese yards, improves, then the delivery rate per quarter has the potential to increase. We currently expect the PSV fleet to grow by 120 vessels, or 10 percent, in 2013. If yard productivity improves this figure might prove to be conservative.

COnCluSiOnSOn a global basis, OSV day rates and fleet utilization for OSVs are forecast to rise moderately in 2013. This means the loosen-ing of the OSV balance, seen in particular during the second half of 2012, is expected to be reversed in 2013. The main driver of the change will be new UDW floaters entering service, espe-cially from the second quarter of 2013, resulting in increased demand for additional DP II PSVs.

The North Sea PSV market will still see additional units being delivered from Norwegian yards. However, increasing income differentials between the North Sea and other regions will probably lead to vessels leaving the North Sea, thus tightening the supply-demand balance.

Seasonal demand drivers, such as new Greenland campaigns, will not kick in before 2014 and 2015. Past experience of similar campaigns has shown a pattern of high vessel intensity per rig, which could work to boost OSV demand. The North Sea AHTS market balance is therefore unlikely to tighten considerably before 2014. However, as before, the harsh environment and weather will have the final say in the strength of the large AHTS market in the North Sea. Elsewhere, this market could be fur-ther marginalized as ageing, conventionally-moored floaters are being crowded out by new, dynamically-positioned UDW float-ers. The conventionally-moored floaters are of course a main demand driver in the large AHTS market.

Day rates for smaller/medium-sized AHTS vessels in the main markets of Asia and West Africa should be fairly balanced in 2013, given the number of expected deliveries in relation to in-creasing jack-up demand.

Sven ZieglerRS Platou Offshore Research


order activity in the two first quarters was due to contractors being selective with regard to which projects to take on. We an-ticipate a very strong fourth quarter in 2012, based on several large contract awards for the two main contractors in the subsea segment.

The current DP construction fleet consists of 364 vessels in ser-vice and 50 vessels on order. 20 vessels were delivered in 2012, producing a fleet growth of almost 6 percent. Newbuilding ac-tivity has been very high, as a result of increasing day rates and a positive outlook for the subsea market.

Day rates for modern subsea tonnage have been climbing in 2012, due to increased activity and only moderate fleet growth. Vessels with 150 to 250 ton cranes have been achieving rates of around $45,000-65,000 per day. For vessels with a 400 ton crane, rates are in the range of $90,000-110,000 per day. There is a significant disparity in the specification of the different Div-ing Support Vessels, but day rates for modern tonnage are esti-mated to be around $100,000-140,000 per day.

Norwegian yards have had a high order intake thanks to a sub-stantial number of new orders in the subsea segment. In total, 17 subsea vessels (with LOA over 80 meters) have been or-dered. Siem Offshore has been the most active player, ordering fournewvesselsatSTXyardsandonenewlightconstruction/renewables vessel at Fjellstrand. Some of the newbuildings have been fixed on long-term charters, but the majority of the newbuildings is still open for charter. In terms of vessels with LOA of more than 150 meters, the large contractors have been committing to long-term charters in order to increase the sup-ply side of the market. However, in the past almost all subsea vessels were built ‘on speculation’ by Norwegian owners. The strained financial market and the high capital cost of larger high-end vessels are believed to be the main reasons for the increased willingness from contractors to commit to newbuildings.

Compared to 2011, the number of subsea, fixed platform and floating platform installations has increased. Asia/Pacific, Northern Europe and West Africa have all been growth mar-kets, while the subsea installation sector in the Gulf of Mexico has been struggling due to a lack of contract awards between 2008 and 2011. This reduced activity is mainly a result of the Macondo accident, and partly down to repercussions from the financial crisis of 2007-2008.

It is anticipated that there will be strong development in the subsea and floating production installation market in the next few years. The increase will be driven by high activity in Asia/Pacific and West Africa, and a normalization in the Gulf of Mexico region. The fixed installation market is expected to see a reduction of activity in the long run, as a result of depleting shallow water reserves.

Order intake for subsea contractors was not particularly strong in the first two quarters of 2012, but the third quarter enjoyed strong ordering levels. It has been speculated that the drop in

the offshore ConstruCtion vessel market

neWbuilding bonanza2012 has been an active year in the subsea market, especially in terms of the number of newbuilding orders at norwegian yards, and collaboration arrangements between contractors. the growth in the subsea construction fleet will continue to accelerate in the years to come. the fleet is not growing only by numbers but also by complexity of the vessels, which is driven by larger projects and larger subsea structures in increasing water depths.

order backlog and inboUnd ordersselcted sUbsea comPanies

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38 the offshore ConstruCtion vessel market

Against the backdrop of reduced activity in the conventional shipbuilding market, many yards have shown interest in vessels with an LOA of more than 150m. If the conventional shipping market continues to be weak, there could be a shift from North-west Europe to the Far East in terms of shipbuilding location.

In 2012, several noteworthy alliances were formed, with Tech-nip and Heerema signing a worldwide agreement on the ultra-deepwater subsea construction market. McDermott also signed an exclusive alliance with Ocean Installer on rigid pipe laying in the North Sea just prior to the end of the year. This means that McDermott is making a return to the North Sea, while Ocean In-staller can now compete for EPC/EPCI projects in the area.

In addition, EMAS AMC took control over Caesar and Express from Helix, enabling them to deliver a wider service in the rigid pipe laying market. The mergers and ventures between larger sub-sea contractors has open up a window for new players to enter the scene, those new entrants are supported by the end clients in order to generate competition. The new players consist of con-tractors lower down in the food chain that now would like to have a bigger bite of the market. However, in order to do so they need new and additional vessels that can perform the required work.

Ocean Installer, the newcomer in the SURF segment, has en-joyed great success establishing itself as a serious player in the market. In June this year, the firm teamed up with Solstad for a new high-specification subsea construction vessel, which will be an important asset in its portfolio when delivered.

With increased E&P spending and a high oil price, global oil and gas companies are expected to take on new projects and increase activity in the subsea construction market. Deep-wa-ter demand is expected to be particular strong as the trend for more and more equipment being put on the seabed will con-tinue. One factor that will contribute to increase the growth in demand for subsea vessels is the renewable market, which has absorbed several vessels during 2012. Conclusion is that the market will continue to need even larger and more sophisticat-ed vessels in the years to come. This has and will continue to be confirmed by the fact that all speculative large new buildings to date have found a “home” before delivery from the yard. Bård Thuen Høgheim RS Platou Offshore Research

39 the offshore ConstruCtion vessel market

Global installed capacity to date is 4.9 GW, which is equiva-lent to the annual consumption of just over 2.8 mill European households. Added capacity is in excess of 800 MW, which amounts to an annual growth rate of approximately 20 percent. The added capacity originates mainly from the UK, where Sher-ingham Shoal and Greater Gabbard were the biggest projects to come onstream in 2012. Greater Gabbard is probably the most problematic offshore wind project to date, and was supposed to have been onstream in 2010. Legal proceedings with regards to financial responsibility will probably continue for some time as a result of the difficulties experienced by the project. No commercial projects have been finalized in regions other than Northern Europe, but China had some pilot projects coming onstream in 2012. Going forward, Germany and the UK will drive growth, but it will require more time than first anticipat-ed. German projects are delayed by at least 12 months on the North Sea side, due to cabling issues and submarine cable sup-ply. Other countries that will supplement the expected growth in Northern Europe will be Belgium, Denmark, Sweden and the Netherlands. In Asia, China, Japan, Korea and Taiwan will be the fastest growing markets. In the US, Cape Wind will be the first project, with several other projects being lined up for development.

The prevalent market driver in the offshore wind sector is, and will continue to be, government subsidies. In order to reach grid parity, technological progress, which is driven by large-scale government support, is essential.

Several governments are adjusting their policies in order to en-courage offshore wind farm development. Germany has taken a step in the right direction by addressing issues of power grid connection, while the USA will open competitive tenders for three projects next year. Meanwhile, Denmark is pushing for 20% community ownership of near-shore wind farms, in order to create local enthusiasm for the projects.

Several of the UK’s Round 3 projects have been delayed; for example, East Anglia was planned for 2017, but is now pushed

offshore Wind

maturing market

back to 2018, due to issues with the power transmission. Delays seem to be the rule, rather than the exception, for Round 3 pro-jects, due to uncertainties regarding consenting, financing and technology. The first Round 3 project will most likely be Dong’s and SMart Wind’s Hornsea Project, which is expected to start construction in 2015.

There is a drive towards reducing the cost of energy and many market players are choosing increased integration. As an example, Areva has already established close links with HGO Infra Sea of SolutionsandsignedanLOIwithSTXFranceon the founda-tions side. Generally speaking, there is a trend towards indus-trialization of the industry, in a bid to reduce the overall cost of development. Repower has also urged closer supply chain col-laboration, in order to deliver more cost efficient products.

In addition, there has also been increased interest from the Oil & Gas players, demonstrated by Siem Offshore’s order of a new Operation & Maintenance wind farm vessel from Fjellstrand.

Technically speaking, grid connections are still the major hur-dle in offshore wind developments – a factor that has caused long delays in the German North Sea projects, as well as de-laying developments in the UK. High Voltage Direct Current (HVDC) transmission platforms are one of the biggest supply chain bottlenecks, due to a low number of providers and high construction risk.

Another major obstacle in offshore wind development is secur-ing financing for projects. Construction risk is often the main concern from the financiers’ point of view. The Green Invest-ment Bank has now decided that it will only finance projects that are constructed, refusing to take on any construction risk. This will favor developed players who can demonstrate good track records and solid balance sheets.

Tiv & CTv – day raTeSEarnings for second generation Turbine Installation Vessels (TIVs) have been in the range of €140,000 to €160,000 per day

there have been a few ups and downs in the offshore wind market in 2012, but overall it has been a satisfactory year. growth in 2012 was again driven by the uk, but new megawatts are being lined up elsewhere in europe, asia and north america. delays in current and future projects are still due to cabling issues, with germany experiencing the biggest problems.

40 offshore Wind

for short-term contracts, with long-term rates anticipated to be between €110,000 and €130,000 for 2012. However, there have not been many fixtures in the long-term segment. First genera-tion TIVs earned between €80,000 and €120,000 per day last year. At present, there is not much available vessel capacity in the market, however, due to delays in the German sector, con-tracts may be cancelled and some vessels may be freed up.

Spot day rates for the Crew Transfer Vessels (CTVs) that are classified to work in international waters have been steady in 2012, with day rates for 12 pax vessels in the range of €3,000 to €4,500 (depending on 12/24 hours service). Vessels that are only fit to work in the UK have been trading at between €1,500 and €2,500 per day. Bigger vessels with 24 pax (LOA above 20 meters) have achieved day rates in the range €4,500 to €5,000 for long-term rates, with even higher earnings from spot jobs.

Tiv & CTv – fleeT TrendS and newbuildingThere are currently 22 dedicated Turbine Installation Vessels (TIVs) in service and six on order. Eight new TIVs were de-livered during 2012, facilitating a fleet growth of 50 percent. During 2012 three new orders were placed; two at European yards and one at a Chinese yard. The TIV market is expected to be firm towards 2015 and the beginning of 2016, but it is

then anticipated that a significant amount of capacity will be released, as dedicated foundation installation vessels enter the market. Monopiles are currently the most common founda-tion type, but these have water depth restrictions of around 30 meters. As wind farms are developed in deeper waters, a new type of foundation is required and we anticipate jacket foun-dations to capture a significant market share, as monopiles are phased out.

OffShOre wind - TranSaCTiOnSIn May 2012, Marubeni Corporation and Innovation Network of Japan jointly completed the acquisition of Seajacks Inter-national, in a deal that was valued at a reported 850 mill USD. There were also other Japanese companies active in the offshore wind sector in 2012. Mitsubishi partnered up with TenneT on offshore grid connections in Germany. The transaction involved Mitsubishi taking a 49 percent share in BorWin1 and 2, mark-ing a ‘first of its kind’ transaction in the German market. Other noteworthy transactions included Dong’s sale of 50 percent of the Borkum Riffgrund 1 offshore wind farm to the parent com-pany of Lego and Oticon Foundation. The reported price for the 277,2MW project was 790 mill USD.

Bård Thuen Høgheim RS Platou Offshore Research

41 offshore Wind

42 rs platou markets


After several years of upheaval, 2012 finally gave investors a year many had wished for. The year featured slow and steady gains, as the stock market overcame a world of worries.

The first quarter of 2012 started optimistically, with a posi-tive development in the financial markets for both shares and corporate bonds, and especially high-yield bonds. However, the crisis in Europe spoiled the party somewhat, despite an improving outlook for stronger economic growth in the Unit-ed States. By April 2012, the party was definitely over. During the second quarter, equity markets were hit by news out of Europe, as investors worried about the ability of several Euro-pean countries to repay their sovereign debt, and that a weak European economy could trigger a U.S. recession. Despite these uncertainties, many companies took advantage of the low interest rates to refinance debt. During the first quarter, RS Platou Markets completed five high-yield debt transac-tions with a total value of approximately NOK 3.7 billion.

Stock markets dropped sharply in May, as investors realized that the Euro crisis was developing into something far more serious, eroding their appetite for risk. At the same time, gov-ernment bond yields in the United States, Germany, Sweden and Norway dropped to historically low levels. The first half of 2012 ended as it had started, with a fateful summit in the Eu-rozone. Despite the generally difficult market conditions, RS Platou Markets participated in four equity transactions during the second quarter of the year, raising a total of approximately NOK 2 billion. In addition, we participated in various M&A transactions, including one together with our parent compa-ny, RS Platou ASA, showing the strengthening collaboration between the companies.

rs platou markets

a Quiet bull market on a turbulent rollerCoaster ride

Following a difficult second quarter, global equity markets re-versed course again and advanced during the third quarter of 2012, assisted by additional monetary policies announced in Europe and the United States to accommodate for the gener-ally weak economic backdrop. The world’s leading central banks stole the spotlight this quarter, as weak global growth, high un-employment rates and rumblings about a potential collapse of the Eurozone created a climate for yet another bank interven-tion, which came with a ‘whatever it takes’ approach from the European Central Bank. The back-and-forth between risk-tak-ing and risk-aversion in the fixed income market continued dur-ing the third quarter, and riskier, higher-yielding assets returned to favor. Investor demand for yield, combined with additional monetary easing, fueled the gains.

The third quarter was a difficult quarter, with many bumps in the road. However, RS Platou Markets advised, and had a role in, a total of six transactions, both of debt and equity raising and M&A, with a total value of NOK 1.7 billion.

The fourth quarter mirrored the second quarter’s weakness, in the aftermath of the central bank-driven rally. Companies be-gan to take a more cautious approach, wary of the presidential election, uncertainty of the Congressional budget negotiations and the fiscal cliff. Despite a sideways Norwegian stock market, global stock markets rallied yet again, paving the way for a trans-action effective quarter.

RS Platou Markets participated in eight transactions, divided equally between debt and equity. One deal of note was a USD 132 million registered directed offering in the US-listed Scorpio Tankers Inc.

2012 will go down in the history books as one of the most turbulent financial years in memory, with governmental intervention, a presidential election and an imminent fiscal cliff hanging like a dark cloud over the slow global economy. despite the bumpy ride, global equity markets grew between 15 and 17 percent from the beginning of the year, while the oil price remained steady at a high level.

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Despite this rollercoaster ride in the financial markets, the OSE Benchmark Index gained approximately 15 percent during the year, compared to the S&P500 with 16 percent. The Interna-tional Equity markets also performed very well, with gains rang-ing from 15 to 17 percent.

The high oil price has been stable throughout 2012 and there are no signals that this should change in the immediate future. Unlike during the financial crisis in 2008 and 2009, the oil price has this time withstood the economic turbulence.

In a market with a high degree of uncertainty and reduced risk appetite, companies with a desire to list have endured a chal-lenging year. We have seen some periods with increased opti-mism, producing occasional windows of opportunities, but taken as a whole, global IPO issuance suffered in 2012. The year started off slowly in the IPO market, but picked up somewhat by the fourth quarter, with over 200 deals recorded for a total value of approximately USD 100 billion. The US market ac-counted for 80 IPOs, with a total deal value of approximately USD 40 billion, greatly helped by the massive USD 16 billion Facebook listing. In Europe, approximately USD 10 billion was raised from 12 IPOs, while Asia counted approximately 90, with a value of approximately USD 42 billion. As a comparison, Norway only had eight listings this year, with a total value of ap-proximately USD 2 billion.

Other noteworthy news in 2012 was the sale of NYSE Euron-ext to the Intercontinental Exchange for USD 8.2 billion. The deal, announced in December 2012, is still pending regula-tory approvals. In Norway, the Oslo Stock Exchange changed its opening hours and is now closing at 16:30 CET. This has helped investment banks in Norway, who can now contact investors earlier during capital raisings outside the opening hours of the stock exchange. The new opening hours are cur-rently subject to a six month trial period, which expires in February 2013. However, it is expected that the Oslo Stock Exchange will introduce these opening hours on a permanent basis.

OuTlOOk fOr 2013 2012 has cleared up many political and economic uncertainties. Although political and economic risks remain, they are signifi-cantly reduced due to US growth in fundamentals such as con-sumer goods and housing markets. Another important driver of global growth is Chinese GDP growth which is estimated to have bottomed out in 2012 at its lowest level since 2009 and

edging higher into 2013. Lastly, European officials have turned more positive to the economic outlook which adds to the mar-ket sentiment.

Corporations may take advantage of a fixed income market re-turning to more healthy interest rates both for investment grade and high-yield issuers. 2012 was a year where several issuers used the Norwegian bond market to refinance maturing debt. At time of writing, high-yield bond market spreads are at the lowest since 2011. This may lead to new first time issuers of corporate bond debt entering the market. A trend which mushroomed during 2012 was the switch from bank debt to bond debt. Banks are reducing balance sheets to stay compliant with new regulations and risk measures which lead to corporates seeking other financ-ing sources. As the new regulations are becoming tighter rather than looser, we could expect this trend to continue through 2013. With “risk-free” interest rates expected to stay subdued, inves-tors should continue to inject funds into risky asset classes such as equities and high yield bonds. Furthermore, at some point we are bound to see a reversal of the unconventional relationship of tight safe-haven yields combined with high returns in equities and tighter high yield spreads.

We also expect stock markets to continue to grow throughout 2013, as Europe is stabilizing, Chinese growth is strengthening and there is political stability. However, there can be no assur-ance that these factors will endure.

We expect an average oil price for 2013 of USD 100 per barrel. This will translate into an E&P spending growth of between 6 and 7 percent. This is yet another sign that we are in an oil ser-vices super-cycle, despite the fact that this growth is somewhat down from 2012. Increased oil demand, combined with higher depletion rate in existing producing fields, forces E&P compa-nies to increase their efforts to reverse this trend. Although we are experiencing a sharp increase in output from the shale oil/gas play in North America, we do not expect this to have a nega-tive effect on our oil price scenario, or on E&P spending. As a result, we expect the increased E&P spending to have a positive effect on the oil services stock during 2013.

Following several years with a depressed shipping market, we expect 2013 to be a turning point. Fleet growth is expected to slow considerably during 2013/14, which should have a posi-tive effect on freight rates. With ship values already at a 20 year low, we believe that the stage is now set for a revaluation of ship-ping stocks.

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rs platou finans

proJeCt finanCe is still at Challenge in all

shipping marketshow do we structure project finance when the time charter levels in most shipping markets barely cover operating costs?When ‘ks’ financing re-emerged in the early 2000s, the typical deal was based on sale/leaseback structures, whereby the shipowner sold a second hand vessel to swap book equity with cash and reinvesting in new tonnage. the deal would also generate a positive cashflow to the shipowner, based on operating income, less operating costs, on top of the agreed bareboat rate.

This is not the case today. The average annual time charter earn-ings for tankers, bulkers and container vessels are entering a fifth consecutive year where the rates do not cover the financial and operating costs for modern tonnage.

At the same time, most shipping banks are taking a hit on existing shipping loans and have limited capacity to consider new busi-ness. The big drop in the US interest rate level does not compen-sate for the increased margins now being offered by the banks.

On top of this, the tightening of conditions required in order to get bank financing is limiting the number of possible sale/leaseback deals. The conditions/criteria for financing include, among others; only modern vessels, only assets that are easy to sell, only charterers with a strong balance sheet, short loan pro-file, low gearing level and higher arrangement fees.

The likely alternative is therefore to find other sources of fund-ing.

Many shipowners have decided to test the bond market. This has become a competitive alternative, with flexible terms and better cashflow. However, bond financing is more difficult to ar-range for project finance, as most bond investors will require backing from a strong balance sheet.

The likely alternative in the present financial climate is to fi-nance new projects with 100 percent equity. As long as the time

charter earnings are covering the operating costs, the equity in-vestors are willing to wait for improved market conditions and make a profit on the basis of an ‘asset play’ scenario.

In addition, the equity is less exposed when there is no mort-gage on the vessel.

Both newbuilding and second hand prices have dropped to a historical low level. The potential upside is exciting and it is all a question about buying the right vessel at the right time.

RS Platou Finans believes the KS market will enter a period with various asset play projects being offered to shipping inves-tors. Both the dry bulk and container markets are showing signs of improvement. More buyers are inspecting vessels and the volume of transactions is picking up.

A growing share of Norwegian KS projects have been invest-ments in the offshore sector. A stable oil price, financially strong end users, and long-term time charter and bareboat contracts (with a profit margin for both the investors and the operators) have continued throughout the financial crisis.

All the KS houses have experienced projects with financial dif-ficulties within the majority of shipping markets during the last four years. However, offshore projects with long-term charter contracts have been performing well, and have been able to pay the investors a steady dividend throughout the same period.

45 rs platou finans

total ProJects by segments

Product tankers 7%Other 5%

Reefer vessels 9%

Cable layers 4%

Bulk carrier 16%

LPG/Chemical tankers 16%

Offshore/ Supply 39%

Shipping founds 4%

total ProJects by emPloyment

Funds 4%Asset play 4%

Timecharter 16%

Bareboat 76%

The nOrwegian kS markeT in 2012Th e reported project volume among the top four KS houses in 2012 was in excess of 600 mill USD. Th e level of activity is still limited compared to the top year of 2007, when the total in-vestments reached 5 bill USD. However, the trend is positive, despite the lack of bank funding, and 2012 was the year with the highest activity since the start of the fi nancial crisis.

About 75 percent of the projects were related to off shore invest-ments, with a mix of newbuilding asset play deals and long-term bareboat contracts involving modern OSVs. Th e banks still have some funding available for these projects, as long as the end user is a fi nancially strong company.

Th e expected interest in asset play deals in the traditional shipping segments did not materialize last year. Th e recover-ies in container, dry bulk and tanker markets were postponed for another year, with analysts now expecting the fi rst half of 2014 to be the period with improving utilization rates and bett er earnings.

Apart from the off shore projects and a couple of container asset play deals, the project houses concluded some long-term char-ter projects in other industrial shipping markets.

rS plaTOu finanS’ pOrTfOliO Of prOJeCTSTen projects in RS Platou Finans’ exsiting portfolio were sold last year. Some projects made a good return, but there were also some losses. Aft er several years with very bad market con-ditions, all the reefer projects ended with the majority of eq-uity lost. Th e specialized reefer vessels have been replaced by container vessels and, even with a large number of vessels be-

ing scrapped and few newbuildings being delivered, the market conditions have remained weak.

Two bulk projects were merged into a new company and the investors injected fresh equity. At the same time, a new charter agreement was made and the bank restructured the debt. Th e new company is now performing well.

On the positive side, we sold some PSVs and a cement ship with good returns to the investors. Th e second shipping fund that was established prior to the fi nancial crisis also ended with a positive return, despite investment in some loss making projects.

Th e majority of existing projects are now performing well aft er some years with restructuring and sales. Dividends are paid out on a regular basis and the charterers are paying on time.

A total of four new projects were completed in 2012, includ-ing two off shore projects, one bulker and one small passenger vessel.

In total, RS Platou Finans is now the corporate manager of 45 projects, consisting of more than 90 vessels with a value close to 2 bill USD. Th e portfolio is dominated by off shore projects, but we expect the activity level in the traditional shipping markets to pick up in the near future.

Th e corporate management also includes some projects limited to pure accounting services. Th ere is a market for professional independent corporate management services and RS Platou Finans has been appointed by several domestic and foreign shipowners to perform this job.

46 rs platou finans

sUmmary ks-hoUses 2005 - 2012 (fearnleys, nrP, Pareto, PlatoU)

Mill $

0

500

1000

1500

2000

2500

3000

3500

4000

20122011201020092008200720062005

Total Project Price

Paid in Equity

Uncalled capital

MS Nordstjernen has sailed with the Coastal Express for 56 years and was preserved by the Directorate for Cultural Heritage in 2012. She is now owned by a company under RS Platou Finans management. Copyright notice: Hurtigruten ASA/Bri� a Ludwig.

47 rs platou finans

48 rs platou real estate

prime assets that generate a predictable low-risk cash fl ow, or high-risk conversion/development projects with a potential for higher returns. Due to a very strong housing market fueled by high demand and marginal supply, many professional, fi nancial, investors are pursuing opportunities in the housing-develop-ment market. Following this trend, Platou Real Estate is also involved in the largest housing transformation plan initiated by the municipality of Oslo - the Ensjøplan. At present, we are de-veloping approximately 200 residential units, and actively look-ing for additional projects in the Ensjø area.

finanCingTh e fi nancing diffi culties we experienced in 2011 intensifi ed in 2012, and even some of Norway’s largest, industrial real estate players did not get traditional bank fi nancing. For example, the Sector Shopping transaction was fi nanced both in the bank and the bond market. Th e banks, in general, are adapting to new EU regulations regarding risk and equity and are offl oading their balances for real estate. Th e fi nancial climate and lack of tradi-tional bank credit has boosted the private bond market, which was fi ft een times higher in 2012 than in 2011. Both institutional and private investors revealed a growing appetite for 5-7 year single asset real estate bonds, yielding from 5-7 percent per an-num. As regards restructuring of existing funds, larger entities, and/or other real estate vehicles, falling interest rates have made the interest derivatives too expensive to break up and contri-buted to an expectant market.

The eurOpean real eSTaTe markeT 2012The eurOpean real eSTaTe markeT – CharaCTeriSTiCS Of 2012As Europe fell back into recession at the close of the year, the commercial real estate market suff ered as a result. Investment activity decreased and was particularly hit by the lack of avail-ability of debt fi nancing, as banks focused on managing their ex-

nOrwegian markeT 2012In 2012, Platou Real Estate concluded 12 projects with an in-vestment value of 1.5 bill NOK – making us one of the largest syndicate players in the market. Th e total transaction market appeared to exceed around 50 bill NOK, and was dominated by large single asset transactions; such as the new Statoil ASA headquarters (3.0 bill NOK), the new DNB Bank ASA head-quarters (4.8 bill NOK) and in addition a portfolio of shopping centers in central parts of Norway – Sector Shopping (7.0 bill NOK).

In spite of the challenging market conditions, RS Platou Real Estate has also sold two projects during 2012. Both have deliv-ered solid returns to the shareholders, with an internal rate of return (IRR) of 12 percent and 35 percent respectively.

As we reported last year, professional investors dominate the equity market. Most of them are searching for either secure

rs platou real estate

2012 transaCtion market dominated by large

single assets

source: rs platou

transaction market volUme - norWay (billion nok)

0

20

40

60

80

13E121110090807060504

Retail

Professional

isting loans and adjusting to new, stricter capital requirements. At the same time, the investment market remains tight in the major markets of Northern Europe, such as the UK, Germany and Scandinavia. While peripheral markets are experiencing a low appetite for investment, considerable equity is chasing se-cure, income-producing core assets in Northern Europe, keep-ing prime yields at low levels. Th e fl avor of the investment mar-ket is very much characterized by an aversion to risk.

Th e occupier market is suff ering from the economic slowdown, and the focus remains on cost cutt ing. Generally, rents in prime markets are stable or slightly increasing, while more peripheral markets are experiencing the opposite. Th e retail market is suf-fering as a consequence of low income growth, increasing un-employment and falling consumer confi dence. In the logistics market, weak trade volume and economic uncertainty has re-duced demand for logistics space.

Th e trend for lower new-building levels over the past few years is now functioning as a partial cushion against reduced demand. However, in the light of the economic uncertainty and restric-tive fi nancing conditions, we expect 2013 to continue in much the same way as 2012 ended.

rS plaTOu’S eurOpean real eSTaTe fundSSince 2007, RS Platou Fund Management has managed two pan-European, opportunistic real estate funds. Despite the negative developments in the European real estate market, the funds have delivered performances in the top quartile. We have succeeded in off sett ing the eff ects of the negative mar-kets by active asset management, repositioning and develop-ment. Main exposures are in France and Germany, as well as two development projects in Poland. We expect 2013 to con-tinue to be challenging, but are seeing some signs of market improvement.

Seeing greaT OppOrTuniTieS in The SeCOndary real eSTaTe markeTSince 2009, RS Platou Fund Management has launched three funds investing in the Nordic secondary real estate market. Th ese investments capitalize on mispricing in the secondary market. Exploiting the management’s unique insight into Nor-dic unlisted real estate vehicles, the funds have great value appre-ciation potential. Th e track record aft er four years is very good with a two digit IRR. As we continue to see great potential in the secondary market, RS Platou Fund Management will carry on building platforms upon which our investors can participate in this opportunity. We are increasingly experiencing appetite among international investors for this investment strategy.

Piastow O� ce Centre in Szczecin, Poland – an 18,000 sqm o� ce building under construction. � e development project is managed by RS Platou Fund Management. Its � rst phase will be � nalized in Q1 2013.

Grenseveien 97: a housing project under development in a joint venture between Platou Real Estate and Scandinavian Development (one of the most experienced and well-respected developers in Norway).

49 rs platou real estate

World fleet develoPmentmill dwt chemical bulk combined start tankers carriers carriers* carriers others total

2003 270.7 23.1 289.1 12.6 181.2 776.8 2004 279.1 25.0 297.4 12.1 189.6 803.3 2005 295.0 25.7 314.9 11.6 200.5 847.6 2006 317.7 26.9 336.0 11.6 213.3 905.4 2007 334.7 29.0 359.2 11.2 232.5 966.7 2008 352.3 31.7 387.1 11.2 254.2 1 036.4 2009 369.0 34.0 415.0 10.4 278.3 1 106.7 2010 396.2 35.8 453.4 9.6 300.0 1 194.9 2011 413.1 36.1 527.7 6.8 315.1 1 298.8 2012 439.0 36.5 609.2 330.9 1 415.6 2013 460.5 36.6 673.5 350.1 1 520.7

1

deliveries mill dwt chemical bulk combined tankers carriers carriers* carriers others total

2003 27.9 2.0 11.8 0.2 11.2 53.1 2004 26.4 0.8 18.3 - 11.9 57.4 2005 28.0 1.5 22.3 - 13.8 65.6 2006 23.0 2.4 25.5 - 20.3 71.1 2007 28.7 3.0 28.6 - 23.0 83.3 2008 33.2 2.9 32.6 - 28.4 97.2 2009 45.7 2.2 48.3 - 28.4 124.7 2010 38.9 1.7 80.6 0.6 22.7 144.5 2011 39.7 1.0 99.2 1.0 22.7 163.6 2012 31.4 0.5 98.2 19.2 149.4

2

neW orders mill dwt chemical bulk combined tankers carriers carriers carriers others total

2003 47.9 1.4 27.9 - 27.5 104.7 2004 34.0 2.2 28.8 - 28.1 93.1 2005 24.0 0.9 16.8 - 25.9 67.6 2006 74.7 6.8 39.0 - 25.7 146.2 2007 42.1 10.1 161.6 3.4 52.4 269.6 2008 47.4 2.7 91.4 - 20.4 161.9 2009 10.3 0.8 33.6 - 1.5 46.2 2010 38.5 1.6 83.5 - 10.8 134.4 2011 9.2 0.5 28.0 - 25.7 63.3 2012 14.2 0.9 18.6 - 11.1 44.8

3

order book mill dwt chemical bulk combined start tankers carriers carriers carriers others total

2003 45.3 10.8 30.3 0.2 22.9 109.5 2004 65.1 10.2 48.4 - 41.2 164.8 2005 72.0 11.6 60.6 - 56.2 200.4 2006 76.5 3.3 61.4 - 68.1 209.3 2007 128.7 11.0 78.9 - 80.0 298.6 2008 147.7 19.0 216.1 3.4 105.7 491.9 2009 164.0 18.4 286.3 3.4 92.2 564.3 2010 120.6 13.9 268.7 3.4 70.5 477.1 2011 113.4 9.7 246.5 2.76 53.7 426.0 2011 75.0 1.4 191.5 53.7 321.5 2012 49.4 1.6 105.4 54.6 211.0

4

* from 2012 combined carriers incl. in bulk carrier fl eet

statistics

* incl. conversions

50 statistiCs

tonnage sold for scraPPing, lost and other removalsmill dwt chemical bulk combined tankers carriers carriers carriers others total

2003 19.5 0.1 3.5 0.7 2.8 26.6 2004 10.6 0.1 0.8 0.5 1.0 13.0 2005 5.3 0.3 1.2 0.0 1.0 7.8 2006 6.0 0.2 2.2 0.3 1.1 9.8 2007 11.1 0.4 0.7 0.0 1.4 13.6 2008 16.6 0.5 4.7 0.8 4.3 26.9 2009 18.4 0.5 9.9 0.9 6.7 36.4 2010 22.0 1.3 6.3 0.1 7.7 37.3 2011 13.8 0.6 23.2 6.9 44.5 2012 11.7 0.8 34.8 11.6 59.0

5

6tanker fleet by size (incl. chemical carriers) mill dwt

start 10-69,999 70-119,999 120-199,999 200,000+ total

2003 64.3 63.8 35.0 130.7 293.8 2004 66.0 69.9 37.5 130.9 304.1 2005 68.8 75.6 39.7 136.6 320.7 2006 73.4 83.5 42.9 144.6 344.5 2007 79.4 89.6 46.2 148.6 363.7 2008 85.9 97.1 48.4 152.6 383.9 2009 93.6 103.6 47.8 157.9 403.0 2010 106.5 108.5 59.4 157.6 432.0 2011 109.1 116.0 62.6 161.5 449.3 2012 112.2 121.0 68.2 174.2 475.6 2013 114.3 123.8 72.8 186.2 497.1

7 TANKER DELIVERIES BY SIZE (incl. chemical carriers) Mill dwtTANKER DELIVERIES BY SIZE (incl. chemical carriers) Mill dwt 10-69,999 70-119,999 120-199,999 200,000+ total

2003 5.2 9.7 4.2 10.7 29.9 2004 5.8 8.6 3.7 9.1 27.2 2005 6.7 9.6 4.0 9.1 29.5 2006 8.1 7.9 4.0 5.5 25.4 2007 9.4 8.6 4.2 9.5 31.7 2008 11.2 10.3 2.2 12.4 36.1 2009 16.4 7.3 13.3 11.0 48.0 2010 8.4 9.9 5.7 16.6 40.5 2011 5.9 8.4 7.0 19.4 40.7 2012 3.4 5.8 7.4 15.4 32.0

8

tanker deliveries by size (incl. chemical carriers) mill dwt

neW orders of tankers by size (incl. chemical carriers) mill dwt

10-69,999 70-119,999 120-199,999 200,000+ total

2003 10.0 15.2 8.7 15.5 49.3 2004 7.8 10.9 4.5 13.0 36.2 2005 7.0 5.8 1.1 11.0 24.9 2006 16.2 21.6 13.3 30.3 81.5 2007 15.4 13.5 8.3 15.0 52.2 2008 6.3 5.3 5.8 32.8 50.1 2009 1.4 0.6 3.3 5.8 11.1 2010 2.1 6.8 11.3 19.9 40.1 2011 2.7 1.9 2.8 2.2 9.6 2012 6.1 1.1 2.5 5.3 15.1

51 statistiCs

9 neW orders of tankers by size - QUarterly (incl. chemical carriers) mill dwt and number of vessels

10-69,999 70-119,999 120-199,999 200,000+ total dwt no dwt no dwt no dwt no dwt no

2011 1 0.3 13 0.3 4 1.0 7 2.2 7 3.9 31 2 0.7 16 0.5 5 1.5 10 0.0 0 2.7 31 3 0.7 24 1.0 10 0.2 1 0.0 0 1.9 35 4 0.9 18 0.1 1 0.1 1 0.0 0 1.1 20 2012 1 1.0 23 0.3 3 0.2 1 1.3 4 2.8 31 2 1.3 27 0.6 6 0.3 2 0.6 2 2.8 37 3 1.3 26 0.1 1 0.2 2 0.3 1 1.9 30 4 2.6 56 0.1 1 1.8 14 3.2 10 7.7 81

10 tankers sold for scraPPing by size (incl. chemical carriers) mill dwt

10-69,999 70-119,999 120-199,999 200,000+ total

2003 3.5 3.5 1.8 9.0 17.8 2004 2.8 2.6 1.3 1.5 8.2 2005 1.9 1.5 0.4 0.0 3.8 2006 2.0 1.2 0.0 0.0 3.2 2007 2.6 0.7 0.2 0.0 3.5 2008 1.8 0.8 0.2 1.3 4.0 2009 3.0 1.3 1.1 2.4 7.7 2010 5.3 1.8 1.4 3.4 11.9 2011 2.4 2.6 1.0 3.0 9.0 2012 1.1 3.7 3.2 2.8 10.8

11

12

bUlk carrier fleet by size mill dwt

start 10-59,999 60-79,999 80,000+ total

2003 120.5 75.1 93.6 289.1 2004 123.1 75.8 98.4 297.4 2005 128.5 81.1 105.3 314.9 2006 135.1 86.5 114.5 336.0 2007 140.6 90.8 127.8 359.2 2008 149.3 94.8 143.1 387.1 2009 156.5 97.6 160.9 415.0 2010 163.6 98.9 190.9 453.4 2011 184.0 102.8 240.9 527.7 2012 204.4 106.5 294.5 605.5 2013 219.0 108.3 343.3 670.7

bUlk carriers deliveries by size mill dwt

10-59,999 60-79,999 80,000+ total

2003 5.1 1.3 5.4 11.8 2004 6.1 5.3 6.9 18.3 2005 7.3 5.6 9.4 22.3 2006 6.7 4.9 13.9 25.5 2007 9.2 4.1 15.3 28.6 2008 9.1 4.1 19.4 32.6 2009 13.5 3.2 31.6 48.3 2010 23.3 4.3 53.0 80.6 2011 27.3 7.6 64.3 99.2 2012 26.0 9.4 62.8 98.2

* incl. converted tonnage

52 statistiCs

13

14

NEW ORDERS OF BULK CARRIERS BY SIZE Mill dwtNEW ORDERS OF BULK CARRIERS BY SIZE Mill dwt 10-59,999 60-79,999 80,000+ total

2003 7.7 7.7 12.6 27.9 2004 9.5 4.5 14.8 28.8 2005 6.0 1.8 9.0 16.8 2006 14.6 2.3 22.2 39.0 2007 38.6 7.1 115.9 161.6 2008 31.7 5.1 54.6 91.4 2009 11.8 3.4 18.4 33.6 2010 21.1 6.3 56.0 83.5 2011 16.2 8.0 3.8 28.0 2012 7.4 4.5 6.8 18.6

15

neW orders of bUlk carriers by size - QUarterlymill dwt and number of vessels 10-59,999 60-79,999 80,000+ total dwt no dwt no dwt no dwt no

2011 1 9.2 70 3.3 68 1.0 14 13.6 152 2 2.7 23 0.8 21 0.5 7 4.0 51 3 2.8 19 1.4 33 1.3 18 5.5 70 4 1.5 10 2.4 59 0.9 13 4.9 82 2012 1 0.8 26 0.9 13 2.2 15 4.0 54 2 2.3 57 1.4 21 0.5 6 4.2 84 3 2.7 69 1.5 23 1.9 16 6.1 108 4 1.6 38 0.6 9 2.2 18 4.4 65

16

neW orders of bUlk carriers by size mill dwt

bUlk carriers sold for recycling by sizemill dwt

10-59,999 60-79,999 80,000+ total

2003 2.4 0.5 0.6 3.4 2004 0.6 0.1 0.1 0.8 2005 0.6 0.2 0.2 1.1 2006 1.1 0.6 0.5 2.2 2007 0.5 0.1 0.1 0.7 2008 1.8 1.2 1.5 4.6 2009 6.3 1.8 1.6 9.8 2010 2.7 0.4 2.9 5.9 2011 6.6 3.7 10.7 21.1 2012 11.4 7.6 14.0 33.0

age Profile for tankers mill dwt (incl. chemical carriers) - 1.1.2013 year of built -92 93-97 98-02 03-07 08-12 total

10-69,999 12.9 9.0 15.2 36.8 40.4 114.3 70-119,999 6.2 8.2 17.3 43.7 48.4 123.8 120-199,999 2.0 6.2 14.8 20.2 29.6 72.8 200,000+ 1.1 16.3 43.4 44.5 80.9 186.2 total 22.3 39.6 90.7 145.1 199.3 497.1

53 statistiCs

17

18

age Profile for bUlk carriersmill dwt - 1.1.2012 year of built -92 93-97 98-02 03-07 08-12 total

10-59,999 37.5 21.8 24.2 31.1 104.5 219.0 60-79,999 14.9 19.1 24.9 20.7 28.9 108.3 80,000+ 24.8 36.7 21.9 51.3 208.5 343.3 total 77.1 77.6 71.0 103.1 341.9 670.7

19

20

orderbook by year of delivery - tankers mill dwt (incl. chemical carriers)- 1.1.2013 delivery schedule size total on order 2013 2014 2015+

10-69,999 11.5 6.2 3.6 1.8 70-119,999 5.6 3.7 1.9 0.0 120-199,999 12.6 8.2 1.5 2.9 200,000+ 21.2 14.6 6.3 0.3 total 51.0 32.7 13.2 5.0

orderbook by year of delivery - bUlk carriers mill dwt - 1.1.2013 delivery schedule size total on order 2013 2014 2015+

10-59,999 25.5 19.4 4.5 1.6 60-79,999 15.5 12.3 2.9 0.2 80,000+ 64.5 49.6 13.3 1.6 total 105.4 81.3 20.7 3.4

orderbook by year of delivery - container shiPs1,000 teu - 1.1.2013 delivery schedule size total on order 2013 2014 2015+

below 1,000 1.8 1.8 0.0 0.0 1,000 - 1,999 80.1 52.0 25.8 2.2 2,000 - 3,999 247.4 180.7 26.5 40.3 4,000+ 3 091.3 1644.8 1070.1 376.4 total 3 420.6 1879.4 1122.4 418.9

54 statistiCs

21

22

second hand Prices of 5 year old tankers mill $

start mr Product aframax suezmax vlcc

2003 19.5 26.5 37.0 51.0 2004 28.0 38.0 48.0 72.0 2005 39.0 56.0 71.5 106.0 2006 45.0 61.5 75.0 113.5 2007 45.0 64.0 81.0 118.0 2008 50.0 68.0 93.0 136.0 2009 38.0 53.0 71.0 102.0 2010 25.0 40.0 56.0 82.0 2011 27.0 40.0 58.0 85.0 2012 27.0 35.0 45.0 62.0 2013 24.0 28.0 44.0 60.0

second hand Prices of 5 year old bUlk carriers mill $

start handymax Panamax capesize

2003 14.8 16.5 27.5 2004 20.5 27.5 45.0 2005 31.0 38.0 64.0 2006 25.5 29.0 55.0 2007 40.5 45.5 80.0 2008 73.0 88.0 138.0 2009 26.5 30.0 49.0 2010 28.0 34.0 55.0 2011 31.5 37.5 52.0 2012 25.0 26.0 38.0 2013 19.0 19.0 31.0

55 statistiCs

ContaCtsoslors Platou asaHaakon VII’s gate 10N-0119 OsloNorwayTel: +47 2311 2000 Fax: +47 2311 2300 [email protected]

rs Platou shipbrokers Tel: +47 2311 2000 Fax: +47 2311 2300 [email protected]

Sale and Purchase +47 2311 2500 [email protected] +47 2311 2650 [email protected] Cargo +47 2311 2450 [email protected] +47 2311 2600 [email protected] Economic Research +47 2311 2000 [email protected] rs Platou offshore Tel: +47 2311 2700 Fax: +47 2311 [email protected]

Drilling Units +47 2311 2700 [email protected] Field Development +47 2311 2700 [email protected] Offshore Support Vessels +47 2311 2700 [email protected] Chartering +47 2311 2700 [email protected] Specialized vessels +47 2311 2700 [email protected] SnP and Newbuilding +47 2311 2700 [email protected] Operations +47 2311 2700 [email protected] Research +47 2311 2700 [email protected]

rs Platou markets as Tel: +47 2201 6300 Fax: +47 2311 6310 [email protected] rs Platou finans as Tel: +47 2311 2000 Fax: +47 2311 2327 [email protected] rs Platou real estate as Tel: +47 2311 2000 Fax: +47 2311 2323 [email protected]

aberdeen the stewart group limitedCity Wharf Shiprow Aberdeen AB11 5BY United Kingdom Tel: +44 1224 256 600 [email protected] accra stewart group (ghana) limited No.33 Sir Arku Korsah Road Airport Residential Area Accra Ghana Tel: +44 1224 256 650 [email protected] caPe toWn rs Platou africa limited 7C4 Somerset Square High Field Road, Green Point Cape Town South Africa Tel: +27 21 418 1896 Fax: +27 21 418 1902 [email protected] dUbai rigships fzco Building W3, Office 512 Dubai Airport Free Zone Dubai, P.O. Box 371014 United Arab Emirates Tel: +971 4299 7885 [email protected] geneva rs Platou geneve sa 19, Rue de la Corraterie CH-1204 Geneva Switzerland Tel: +41 22 715 1800 Fax: +41 22 715 1820 [email protected]

hoUston lone star rs Platou inc. 363 N. Sam Houston Parkway E. Suite 125, Houston Texas 77060 USA Tel: +1 281 445 5600Fax: +1 281 445 [email protected] [email protected] [email protected] [email protected] rs Platou (Usa) inc. 15995 N. Barkers LandingSuite 310, HoustonTexas 77079USA Tel: +1 281 260 9980Fax: +1 281 260 [email protected] london rs Platou london Floor 38A, Tower 4225 Old Broad Street London EC2V 1HQ United Kingdom Tel: +44 20 7448 7110 Fax: +44 20 7448 7111 [email protected] [email protected]

lUxemboUrgrs Platou fund management as 16, rue Beck L-1222 Luxembourg Tel: +352 2621 1767 Fax: +352 26 21 17 69 [email protected] melboUrne rs Platou melbourne sa Office 2, Level 10 499 St. Kilda Melbourne 3004 Victoria, Australia Tel: +61 613 9867 1466 Fax: +61 613 9820 0106 [email protected]

56 ContaCts

hoUston lone star rs Platou inc. 363 N. Sam Houston Parkway E. Suite 125, Houston Texas 77060 USA Tel: +1 281 445 5600Fax: +1 281 445 [email protected] [email protected] [email protected] [email protected] rs Platou (Usa) inc. 15995 N. Barkers LandingSuite 310, HoustonTexas 77079USA Tel: +1 281 260 9980Fax: +1 281 260 [email protected] london rs Platou london Floor 38A, Tower 4225 Old Broad Street London EC2V 1HQ United Kingdom Tel: +44 20 7448 7110 Fax: +44 20 7448 7111 [email protected] [email protected]

lUxemboUrgrs Platou fund management as 16, rue Beck L-1222 Luxembourg Tel: +352 2621 1767 Fax: +352 26 21 17 69 [email protected] melboUrne rs Platou melbourne sa Office 2, Level 10 499 St. Kilda Melbourne 3004 Victoria, Australia Tel: +61 613 9867 1466 Fax: +61 613 9820 0106 [email protected]

moscoW rs Platou asa, moscow Bronnaya Plaza, Bldg. 1, Floor 7 32, Sadova-Kudrinskaya St. Moscow 123001 Russia Federation Tel: +7 495 787 9922 Fax: +7 495 787 9929 [email protected] neW york rs Platou markets inc. 410 Park Avenue, 7th floor, Suite 710 New York, NY 10022 United States Tel: +1 212 317 7080 Fax: +1 212 207 [email protected] Perthrs Platou Perth sa 8/38 Colin St. West Perth 6005 WA, Australia Tel: +61 618 9226 0618 Fax: +61 618 9486 8120 [email protected] PiraeUs rs Platou hellas ltd. 1-3 Filellinon Str. 185 36 Piraeus Greece Tel: +30 210 4294 070 Fax: +30 210 4294 071 [email protected] [email protected] rio de Janeiro rs Platou (brasil) ltda. Av. Rio Branco 89, Sala 1601 CEP 20.040-004 Centro Rio de Janeiro Brazil Tel: +55 21 2233 3840 [email protected]

shanghai rs Platou asa shanghai repr. office Lippo Plaza, Unit 2212-2213 222 Huai Hai Zhong Road Shanghai 200021, People’s Republic of China Tel: +86 21 5396 5959 Fax: +86 21 5396 5665 [email protected] [email protected] [email protected] singaPore rs Platou (asia) Pte. ltd. 3 Temasek Avenue # 20-01 Centennial Tower Singapore 039190 Tel: +65 6336 8733 Fax: +65 6336 8740 [email protected] [email protected] [email protected] [email protected]

rs Platou finans singapore Pte. ltd. 3 Temasek Avenue# 20-01 Centennial Tower Singapore 039190Tel: +65 6306 3400 Fax: +65 6306 8890 [email protected] sydney rs Platou sydney sa Ground Floor, 174 Willoughby Road Crows Nest, Sydney 2065 NSW, Australia Tel: +61 612 9937 8800 Fax: +61 612 9437 0036 [email protected]

www.platou.com