Ship Earnings Super-Cycle 60 Bulk Shipping Fundamentals balance - PDF document

SMM Press Conference - Shipbuilding SMM Advance Press Conference 23th May 2012 World Shipbuilding Dr Martin Stopford Managing Director, Clarkson Research CLARKSON RESEARCH SERVICES LTD How do you play this hand? 1. The Shipping Market 2. Shipyard Capacity & the Fleet 3. Four Future Challenges 4. Conclusions Is shipping more than just “the worlds biggest crap game?” CLARKSON RESEARCH SERVICES LTD Martin Stopford 1

SMM Press Conference - Shipbuilding We just build ships.. What so ORDER SOME! shall I buy now? 3. Shipbuilders 1. Ship owners Time to Shall we say drop your 30 cents in pants, boys What about the $, Sir? our $1.2 billion loan? 2. Shipping Bankers 4. Investment Funds CLARKSON RESEARCH SERVICES LTD Ship Earnings Super-Cycle 60 Bulk Shipping Fundamentals balance DEPRESSION LOW RETURNS BOOM! BUST (Clarksea Index: av earnings by tankers, bulkers, containerships & gas.) 50 Clarksea Index $000/day 40 30 $22,800/day 20 $12,000/day $13,278/day $8,500/day 10 The Great Shipping Boom 1980s Recession 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Clarkson Research Services Ltd CLARKSON RESEARCH SERVICES LTD Martin Stopford 2

SMM Press Conference - Shipbuilding Ship Earnings Super-Cycle 60 Bulk Shipping Fundamentals balance DEPRESSION LOW RETURNS BOOM! BUST (Clarksea Index: av earnings by tankers, bulkers, containerships & gas.) 50 Clarksea Index $000/day 40 30 $22,800/day 20 $12,000/day $13,278/day 10 $8,500/day The Great Shipping Boom 1980s Recession 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Clarkson Research Services Ltd CLARKSON RESEARCH SERVICES LTD VLCC Cost & Revenue 1990-2012 Operating cost, plus interest at LIBOR + spread on new cost, plus depreciation $000/day 120 12 month earnings way above cost 100 Depreciation Interest + spread OPEX 80 VLCC Earnings (12 month average) IN THE RED 60 Depreciation – 40 over 20 yrs 20 INTEREST on New cost at LIBOR + spread OPEX 0 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan '04 Jan '05 Jan '06 Jan '07 Jan '08 Jan '09 Jan '10 Jan '11 Jan '12 CLARKSON RESEARCH SERVICES LTD Martin Stopford 3

SMM Press Conference - Shipbuilding Wold GDP & Sea Trade Growth World GDP (red line) and sea trade (blue line) % change Oil Crisis Credit Crisis 14% 12% 10% 8% 6% 4% 2% 0% -2% 1991 1997 2001 -4% Financial Asia Dot.com -6% Crisis Crisis crisis -8% -10% 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Crisis 1 Crisis 2 Crisis 6 2007 1973 1979 1 st Oil 2 nd Oil Credit Crisis Crisis Crisis CLARKSON RESEARCH SERVICES LTD Oil Price 1965 to 2035 $2009/bbl Current Oil price (2009 $) 150 $140/bl 450 Scenario 140 New Policies ! $100+ oil prices 130 Current Policies New 120 change the $118/bl 110 100 economic 450 90 $92/bl framework for ship 80 design 70 60 ! Today’s fleet is 50 40 partially obsolete 30 20 ! But responding to 10 this change is 0 tricky 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 Figure 2: The IEA Oil price scenarios 2010 CLARKSON RESEARCH SERVICES LTD Martin Stopford 4

SMM Press Conference - Shipbuilding Bunker Oil Price RISING FUEL COSTS TURN SHIP ECONOMICS ON ITS HEAD 800 $/tonne Rotterdam 700 600 500 400 300 200 100 0 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 LIBOR (6 Month) 1980-2012 CLARKSON RESEARCH SERVICES LTD The LIBOR Interest Rate THANKS TO CRISES THE COST OF CAPITAL FELL 40% IN THE 2000S % pa 20% In the 1980s LIBOR (average) interest rates Today 18% were the killer LIBOR .7% 16% 14% 12% 1990-1999 10% Average 5.5% 2000-2010 Average 3.2% 8% 6% 4% 2% 0% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 CLARKSON RESEARCH SERVICES LTD Martin Stopford 5

SMM Press Conference - Shipbuilding Bulk Trade Trends % growth Major Bulks Crude Oil Imports 15% 10% 5% 0% In the 2000s dry trade grew faster and oil trade slower -5% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 CLARKSON RESEARCH SERVICES LTD Bulk Trade Trends % growth Major Bulks Crude Oil Imports 15% 10% 5% 0% In the 2000s dry trade grew faster and oil trade slower -5% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 CLARKSON RESEARCH SERVICES LTD Martin Stopford 6

SMM Press Conference - Shipbuilding Future Trade Scenarios High case 17 7% 16 Globalization has a way to go, seaborne imports billion tonnes 15 which is good, but 14 A) The next phase will be different Base Case 13 B) The Credit Crisis is not over yet 3-4% 12 4% pa trend 11 1991-2001 10 9 Low Case 8 1% scenario 7 6 5 4 3 China Imports 2 World less China 1 7% i 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Figure 3 World & China’s seaborne imports with scenarios for future growth CLARKSON RESEARCH SERVICES LTD The shipyards are Winding down from the biggest boom ever 8 Wheel Shipyard – armed and dangerous! CLARKSON RESEARCH SERVICES LTD Martin Stopford 7

SMM Press Conference - Shipbuilding Investment falls to $90 billion in 2011 Investment In New Ships 1996-2011 1. Investment in new Bill $ Others 3,600 TEU Orders Container $MM ships was $90 300 65 LPG 280 billion in 2011 60 LNG 260 240 Bulk 55 61 220 Tankers 200 50 Cruise New 3600 TEU $MM Tanker 180 Gas 47 45 Bulker 160 5 140 42 40 40 120 17 28 100 35 1 33 105 80 9 21 Container 27 30 25 68 43 60 13 28 21 8 1 40 22 Offshore 16 12 9 25 19 14 2 34 12 7 14 14 11 9 11 13 55 20 3 17 7 7 2 3 4 39 1 10 9 3 0 6 6 35 1 5 5 4 13 1 3 7 23 10 5 0 21 21 3 7 13 13 11 15 0 8 7 10 7 6 20 5 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Investment in new ships & newbuilding prices CLARKSON RESEARCH SERVICES LTD World Shipbuilding 35 Year Cycle Period 1 Period 2 Period 3 Period 4 Period 5 1886-1919 1920-1940 1945-1973 1973-1987 1988-2010 Rapid growth of Trade growth & Over capacity & Shortages of yard Yard overcapacity sea trade driven yard expansion trade slump capacity at start & post and trade slump Peak 12 forward by a 100 triggered by 1930s war trade boom series of cycles depression 2011 New record Million GT Deliveries 80 100.9 million GT The last shipbuilding peak 3 Mini- was in 1975 when output 60 cycles reached 36 million GT Peak 10 36 m GT 40 Peak 1 Peak 8 20 m GRT 20 Peak 11 Peak 4 Peak 7 m GRT 9 Peak Peak Peak Peak Peak 3 7 2 5 6 0 Source Maritime Economics 3 rd Ed Martin Stopford (2009) 1902 1912 1922 1932 1942 1952 1962 1972 1982 1992 2002 2012 CLARKSON RESEARCH SERVICES LTD Martin Stopford 8

SMM Press Conference - Shipbuilding Shipbuilding Deliveries by Country 2011 Million CGT Output 2011 0 5 10 15 20 25 China 18.4 212 yards S. Korea 15.8 24 yards Japan 8.9 51 yards Germany 0.4 Italy 0.3 What is CGT? 0.6 Philippines CGT is the Gross Tonnage (GT) 0.5 Norway of the ship weighted to reflect its Turkey 0.3 work content per GT. For Spain 0.2 example the weight for a containership might be 1.0 and 0.3 Netherlands the weight for a big tanker 0.25) Others 0.6 Source: Clarkson Research CLARKSON RESEARCH SERVICES LTD Orderbook in 2011 - Falling Orderbook % Fleet By Ship Type (Dwt) 60% Orderbook % Fleet 51% 50% 47% 41% 40% 33% 30% % fleet 30% 25% 24% 21% 20% 20% 10% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 CLARKSON RESEARCH SERVICES LTD Martin Stopford 9