Singapore Seminar 25 October 2016 @StandardPandI The Standard - PowerPoint PPT Presentation

What are the risks faced by shipowners? • Piracy - illegal acts of violence or detention on the high seas for private ends • Terrorism - politically motivated violence • War - war, civil war, revolution, rebellion, insurrection or civil strife arising therefrom 31

How does P&I cover respond? • Piracy - covered under P&I rules - subject to being a covered risk arising from an act of piracy 32

How does P&I cover respond? • Terrorism / war - an excluded risk under P&I cover - primary war / terrorism cover insured separately under standalone policy (typically H&M or specialised war clubs) - excess P&I war / terrorism cover, up to a limit of US$500m, provided by the club in excess of the greater of: • US$50,000; or • the proper value of the ship or US$100 million where the value of the ship exceeds US$100 million; or • the amount recoverable under any other policy of insurance 33

Standard Club – cover solutions • Piracy - K&R - loss of hire (where no damage to ship) • War and terrorism - primary H&M / P&I war and terrorism - loss of hire (where there is damage to ship) 34

Singapore War Risks Mutual (SWRM) • A mutual war risks insurer, commenced underwriting 20 February 2015 • Providing primary P&I / H&M war cover to shipowners with a Singapore connection • Singapore’s first national war risks provider insuring over 400 ships entered by 26 owners • Developed in conjunction with the Singapore Shipping Association 35

Key benefits and aims • Enhanced security for Singapore shipowners • Competitive rating • Build on Singapore’s reputation as an International Maritime Cluster • Real-time service to shipowners in Singapore • Build up reserves over time 36

Additional premium areas 37

Conclusion • Piracy, war and terrorism: a real threat • Shipowners should remain vigilant • Appropriate insurance cover should be purchased • The club is able to assist with a range of cover solutions 38

Shipping market review David Jordan Research Manager, Clarksons Platou Asia Pte Limited (Singapore)

Shipping Market Review Market Overview, Trends & Outlook Presentation for The Standard Club’s Singapore Seminar By David Jordan, Clarksons Platou Asia Pte Limited (Singapore) Strictly For Internal Reference Only 25 th October 2016

Clarksons Platou: A World Leader • Clarksons Platou is the world’s leading integrated shipping services group • 163 years experience of providing seamless end-to-end shipping services through a global network • Broking – Financial – Support – Research • Listed on the London Stock Exchange ( CKN.L ) • Member of the FTSE 250 October 2016 www.clarksons.com 41

Leading Provider of Insight & Execution in the Industry Broking Financial Support Research Our shipbroking services are Leading investment bank Our port services team Our research is respected unrivalled – in terms of the within the shipping and oil provides the highest levels of worldwide as the most number and caliber of our services markets globally, support with 24/7 attendance authoritative provider of brokers, our breadth of market following issuers and investors to vessel owners, operators intelligence on global shipping coverage, geographical spread in all major markets. Derivative and charterers at a wide range and depth of intelligence products that have been of strategically located ports in resources pioneered at Clarksons as well the UK and Egypt as project finance 163 49 c. 1,450 20 years offices employees countries October 2016 www.clarksons.com 42

Market Overview October 2016 www.clarksons.com 43

Shipping Cycle 1965-2016: ClarkSea Index The ClarkSea Index: A weighted average of earnings for the tanker, bulkcarrier, containership and gas carrier markets US$’000/day 60 2008 US$47,000/day 50 1990s Avg: $12,018/day 2004 c. US$40,000/day 2000s Avg: $21,690/day 40 2015 Avg: $14,410/day 30 th Sep 2016: US$8,238/day 2016 YTD Avg: US9,172/day Weak bulker earnings, 2000 weakness in LPG sector 30 c. US$22,000/day and containership charter market 20 10 0 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 October 2016 www.clarksons.com 44

Shipping Since the Financial Crisis The ClarkSea Index, 2008 - Present US$’000/day ClarkSea Index OPEX Index 50 (US$/day) (US$/day) 45 2008 32,654 6,823 40 2009 11,330 6,597 35 2010 15,489 6,789 30 2011 12,312 6,931 30 th Sep 2016 25 US$8,238/day 2012 9,576 6,722 20 2013 10,263 6,672 15 2014 11,743 6,593 10 2015 14,410 6,589 5 2016* 9,172 6,586 0 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 2016* = Year-To-Date Note: OPEX Index basis Moore Stephens’ published statistics, weighted using ClarkSea assumptions. October 2016 www.clarksons.com 45

Market Cycle Position: September 2016 Market Cycle Position: Average earnings for each ship type, compared to the average earnings since January 2009 Tanker markets coming off, VLCC but slight improvements in Suezmax recent weeks Aframax Clean Products (MR) SS Chem Tanker 20k dwt Capesize Bulkcarrier sector remains Panamax very depressed Handymax Handy Containership rates back in the doldrums, PCC Container 4,500 teu weak, Ro Ro firm Container 2,500 teu PCC 6,500 ceu Ro-Ro 3,500 lm LPG and LNG sectors LPG weak LNG Offshore - Jackups Offshore sector weak Offshore - Floaters Offshore - PSV -100% -80% -60% -40% -20% 0% 20% 40% 60% % deviation from 2009 - 2016 average October 2016 www.clarksons.com 46

Secondhand Market: Price Easing Back Aframax Tanker 5 Year Old US$ million 100 Panamax Bulkcarrier 5 Year Old 3,500 TEU Narrow Beam Containership 5 Year Old % y-o-y Index 90 200 20% 10% 80 175 0% 150 70 -10% 125 60 Secondhand price Trends -20% Divergent. 100 -30% 50 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 40 30 20 10 Prices edging down but most yards not dumping prices due to cost / financial constraints. 0 Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 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 Jan-13 Jan-14 Jan-15 Jan-16 October 2016 www.clarksons.com 47

Secondhand Prices: Depreciation Curves VLCCs Capesize Bulkers US$ million US$ million 100 60 Sep-16 Sep-16 Jan-14 Jan-14 50 80 40 60 30 40 20 20 10 0 0 -3 -1 1 3 5 7 9 11 13 15 17 19 21 23 25 -3 -1 1 3 5 7 9 11 13 15 17 19 21 23 25 Age (years) Age (years) October 2016 www.clarksons.com 48

World Fleet: Supply-Demand Balance % Fleet Surplus (LHS) m dwt 30% 2000 World Fleet (RHS) Demand (RHS) From 2009 world fleet 25% 1800 surges ahead of demand after financial crisis and 20% 1600 delivery peak: downward Surplus shipping market pressure capacity (%, left axis) 15% 1400 10% 1200 5% 1000 0% 800 -5% 600 -10% 400 Build up of fleet surplus: partly absorbed by trade growth & -15% 200 changing vessel productivity (e.g. slow steaming) -20% 0 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 October 2016 www.clarksons.com 49

When Will the Recovery Happen? The ClarkSea Index: Indexing the Lows • The graph to the left shows the progress of the ClarkSea Index 125 Index through selected major downward movements over the Feb-91 last 25 years. The x-axis shows the number of weeks following Jan-01 Nov-04 the point of time indicated in the legend, indexed to 100 at that 100 May-08 point in time. Jul-15 • So, how much longer is the pain going to last? 75 • Over the last 25 years, major downward movements have tended to be reversed around 12-18 months after they began, • But, the picture is complicated by a number of factors, such as 50 seasonality or the risk of a “dead - cat bounce” similar to the one that took place in the aftermath of the 2008 crisis. • There is evidence that the market learnt their lesson from the 25 last downturn. Let’s take a closer look at the supply/demand factors… 0 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 Year 1 Year 2 Year 3 October 2016 www.clarksons.com 50

Seaborne Trade October 2016 www.clarksons.com 51

Global Seaborne Trade: Where are we Now? Energy – 38% Energy Crude Oil Products Steam Coal Gas Steel Coking Iron Ore Other Ores Metal Industry Metal Industry – 25% Products Coal Agriculture – 11% Agricultural Container – 16% Container Seaborne Trade in 2015 10.8 billion tonnes Other – 10% Other Dry Chemicals Other Cargo 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 Million Tonnes of Cargo, 2015 October 2016 www.clarksons.com 52

Global Seaborne Trade: A Historical Perspective Global Seaborne Trade Global Seaborne Trade per Capita (2015) tonnes pp bn tonnes tonnes pp 12.0 1.50 7.0 1950-2000 Trade Driver 11.0 Milestone 2 OECD’s 1.3bn population 1.40 2013: Trade 6.0 10.0 reaches 10bt 9.0 1.30 5.0 Seaborne Trade (LHS) Trade per Capita (RHS) 8.0 1.20 4.0 7.0 2000-2050 Trade Driver 6.0 1.10 c. 6bn non-OECD population want to 3.0 consume at OECD levels 5.0 1.00 2.0 4.0 3.0 0.90 1.0 Milestone 1 2.0 2000: Trade passes 0.80 1t per person 0.0 1.0 Japan Europe N. America China S America Africa India 0.0 0.70 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016f October 2016 www.clarksons.com 53

Seaborne Trade in the Context of Industrial Expansions million tonnes 1999 - 2014 CAGR 6.0 Oil Trade = 1.9% Oil Trade Dry Bulk = 5.4% Dry Bulk Trade 5.0 1980 – 1999 CAGR 4.0 Oil Trade = 1.1% 1950-1980 CAGR Dry Bulk = 2.7% Oil Trade = 7.7% Dry Bulk = 6.3% 3.0 2.0 1.0 0.0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 OECD – US, Europe & Japan Smaller Expansion China, India, etc. ( S Korea & Taiwan) Africa/Asia? October 2016 www.clarksons.com 54

Global Seaborne Trade: What Does the Future Hold? IMF: Historical & Forecast GDP Growth What Will This Mean for Global Seaborne Trade? % Growth bn tonnes 12.0% 15.0 Base Case: 2-3% growth p.a. World Low Case: 1-2% growth p.a. Advanced Economies 10.0% High Case: 3-4% growth p.a. Emerging/Developing Economies 13.0 Base Case 8.0% Low Case High Case 6.0% 11.0 4.0% 9.0 2.0% 0.0% 7.0 -2.0% -4.0% 5.0 2000 2002 2004 2006 2008 2010 2012 2014 2016f 2018f 2020f 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 October 2016 www.clarksons.com 55

The World Fleet October 2016 www.clarksons.com 56

The World Fleet: Where Do We Stand? The World Fleet & Orderbook above 100 GT Oil Tankers Bulk Carriers Combined Carriers Containerships MPP Ro-Ro Other Dry Cargo Chemical Tankers Bulk Cargo (20,912 + 1,835) Spec Tankers General Cargo (24,756 + 679) LPG Carriers Specialised (8,051 + 596) LNG Carriers Vehicle Carriers Non-Cargo (38,694 + 1,286) Reefers TOTAL: 92,413 In Service Offshore 4,396 On Order Dredgers Tugs Cruise Ferries Other Non-Cargo 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 No. Ships, 1 st October 2016 October 2016 www.clarksons.com 57

Contracting: Historically Low Levels Global Contracting by Ship Type No. Ships million GT 180 18,000 Others 160 16,000 Gas Carriers Orderbook down from Containerships 140 14,000 5,774 to 4,396 vessels Tankers since start year Bulkcarriers 120 12,000 Orderbook, End Period (RHS) 100 10,000 80 8,000 60 6,000 40 4,000 20 2,000 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD October 2016 www.clarksons.com 58

Contracting: Fewer Orders at Fewer Yards Number of Shipyards to Take at Least One Order No. Yards 700 Other Europe 600 Japan South Korea China 500 400 300 200 100 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD October 2016 www.clarksons.com 59

The Issue of Non-Deliveries Bulkcarriers: • Up from 42% in 2015 54% Tankers: Overall Non-Delivery 25% • Down from 31% in 2015 in YTD 2016: 44% Boxships: • Up from 14% in 2015 43% Up from 32% in 2015 Gas Carriers: • Up from 21% in 2015 28% All figures in GT Offshore: 50% • Up from 41% in 2015 October 2016 www.clarksons.com 60

Demolition: It’s a Bumper, Bulker Year Global Demolition by Ship Type million GT 40 Others 35 Gas Carriers Containerships Tankers 30 Bulkcarriers In the first nine 25 months of 2016, 13.7 m GT of 20 bulkcarriers were reportedly 15 scrapped. 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD October 2016 www.clarksons.com 61

How is the Fleet Going to Develop Moving Forwards? million GT y-o-y % change 1,400 10% Fleet growth peaked at Fleet has grown by 50% c. 9% in 2010 1,300 since financial crisis 9% Fleet Forecast, end year Fleet, end year 1,200 8% Fleet Growth % (RHS) 1,100 7% 1,000 6% 900 5% 800 4% 700 3% 600 2% Fleet Forecast for 2016 : 1% in No. Ships 500 1% 3% in GT 400 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f October 2016 www.clarksons.com 62

The World Fleet: Growth by Ship Type Historical and Projected Short-Term Growth by Ship Type Tankers 2009-2015 CAGR 2016 2017 Bulk Carriers Containerships LPG Carriers LNG Carriers 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% % Growth October 2016 www.clarksons.com 63

Emerging Trends in Global Shipping • Slow Steaming • Vessel Upsizing • Panama Canal Expansion • China – Not Done Yet • The Rise of Asia • Environmental Regulations • Ecoships and “Smart Shipping” October 2016 www.clarksons.com 64

The Fleet is Still Slow Steaming • Weaker earnings currently keeping speeds low despite reduced bunker costs. • Lower fuel price environment has increased uncertainty over extent of continued slow steaming. Despite the oil price drop, there has not yet been a clear or significant increase in vessel productivity. • However any increase in speed will unlock further capacity onto the market, delaying any longer term sustained recovery. Long-Term Speed Index by Ship Type Speed Index Since Start 2014 105 102 Tankers Bulkers Containerships 100 100 Slow steaming by 2 98 knots reduces 95 tonnage moved per ship by c. 11% 96 90 No significant change in 94 speeds during 2015 Tankers 85 92 Bulkers Containerships 80 90 2008 2009 2010 2011 2012 2013 2014 2015 2016f Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 October 2016 www.clarksons.com 65

Vessel Upsizing (1): Vessels are Getting Bigger Average fleet size Average end 2015: size of removals 23,362 GT 2016-28: 24,295 GT Average size of deliveries 2016-28: 37,654 GT Average fleet size end 2028: 28,325 GT October 2016 www.clarksons.com 66

Vessel Upsizing (2): The Current Bulkcarrier Fleet October 2016 million DWT 10 20 30 40 50 60 70 80 90 0 10-14 15-19 Handy 20-24 25-29 30-34 35-39 Supra/ Ultra Handymax/ 40-44 45-49 50-54 55-59 Current Fleet <15Yr 60-64 65-69 70-74 Panamax/ 75-79 Post Size & Age Profile of the Bulkcarrier Fleet 80-84 85-89 90-94 95-99 DWT Grouping (5,000 DWT Increments) 100-104 105-109 Cape Mini 110-114 115-119 Current Fleet >15Yrs 120-124 125-129 130-134 135-139 Old Cape 140-144 145-149 150-154 155-159 160-164 165-169 170-174 175-179 180-184 On Order 185-189 190-194 Modern Cape/VLOC 195-199 200-204 205-209 210-214 215-219 www.clarksons.com 220-224 225-229 230-234 235-239 240-244 245-249 >250 67

Panama Canal Expansion (1): Overview • New, larger third set of locks at the Panama Canal opened on 26 th June. • The new locks will enable many additional vessels to transit. The maximum permissible beam will initially be raised to 49m, up from 32.3m at the old locks, while the maximum LOA and draft at the new locks will be 366m and 15.2m. • Vessel upsizing trends in recent decades had increased the number of ships that were too large to transit the canal. 45% of world fleet capacity was capable of transiting old locks. Opening of the new locks means 79% of capacity is now able to pass through the canal based on ‘New Panamax’ dimensions. October 2016 www.clarksons.com 68

Panama Canal Expansion (2): Impact on Shipping % World Fleet Capable of Transiting Locks • Impact expected to be greatest on the containership 100% sector. 63% of total boxship fleet capacity was too large to transit old locks, but just 15% of capacity is unable to 90% transit the new locks. 80% • Containerships of up to and around 13,500 TEU will be 70% able to transit, up from 4-5,000 TEU previously. Shifts in 60% containership deployment, especially on the Transpacific 50% trade, are expected. 40% • All LPG carriers in the fleet, including all VLGCs, will be 30% able to transit. 20% • Many more LNG carriers will be able to transit the Now Able To Transit New Locks Can Transit Old Locks canal, which is likely to lead to an increase in LNG 10% vessels passing through the canal, typically with LNG 0% WORLD FLEET Containership LPG Carrier LNG Carrier Car Carrier Bulkcarrier imports from the US. WORLD FLEET • All car carriers will be able to transit the canal. Note: ability to transit the canal based on current official Data shown in dwt for the world fleet and bulkcarriers, in TEU for containerships, dimension restrictions. cubic metres for LPG and LNG carriers, and vehicle capacity for car carriers. Statistics as at 20th June 2016. October 2016 www.clarksons.com 69

China’s Pivotal Role Value added What Percentages does China Account For Globally? Turning point growth 2 China ? Population 19% GDP (market) 15% PPP measure Resource For the shipping of world GDP intensive 17% GDP (PPP) industry the key growth issue is the economy timing of the two Seaborne Trade 20% 1 undeveloped turning points Trade Growth 45% of trade growth in 2005-15 Source: Maritime Economics Martin Stopford (1997) Stage 1 Stage 3 Stage 2 Share of world 11% World Fleet Early Industrial Transitional Mature shipbuilding Key factors driving future trade growth scenarios : 35% of deliveries (CGT) Deliveries • Management of economy & stabilisation of current trends • Future pace of growth in the economy and in domestic 36% shipyard orderbook (CGT) Orderbook demand • Extent of change in energy mix and pollution control 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% • Rate of change in construction activity and steel output • Extent of regional contagion • Competitiveness of exports October 2016 www.clarksons.com 70

China’s New Silk Road Chinese Investment in Southeast Asia Country US$ m Main Projects Energy, power plants, port, 1. Pakistan 46,000 roads, rail 2. Myanmar 35,500 Energy, pipeline, railway 3. Indonesia 21,600 Steel mills 4. Bangladesh 14,885 Ports 5. Nepal 6,916 Energy, rail Infrastructure, steel, aluminium, 6. Malaysia 6,316 property 7. Sri Lanka 5,009 Port, power plants 1 5 2 4 8. Brunei 4,000 Petrochemical plant 9 10 7 8 6 9. Vietnam 3,835 Power plants 3 10. Thailand 1,700 Metal, minerals Note: Total amounts include plans from 2010 to present. Not all plans have been implemented yet. October 2016 www.clarksons.com 71

Changing Geography & the Rise of Asian Owners Regional Ownership: Europe vs. Asia Regional Ownership: Top Five Countries % Global Flt million GT 50% 250 China Greece Japan 200 Germany 45% United States Europe Asia/Pacific 150 40% 100 35% 50 *Start of Year 30% 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 October 2016 www.clarksons.com 72

Consolidation of Ownership: Major Centres Major Centres of Ship Ownership • Owners based in the top ten cities account for over Athens, 50% of world tonnage. Piraeus • The largest city zone is Athens, with owners based Tokyo here controlling a combined fleet of 4,554 vessels of Hamburg 171m GT. Singapore • The next largest city is Tokyo, which controls a fleet Bulkers of 97m GT. Hong Kong, Oil Tankers Shenzhen • Hamburg has the largest liner fleet of any city, 48m Liner Seoul Specialised GT, accounting for 70% of the cities total. Non-Cargo • Asian cities account for 6 of the top 10 owner zones Imabari globally. Shanghai The graph shows the top ten ‘owner zones’ by the size of the fleet in terms of GT. Copenhagen The ‘owner zones’ are defined as the combined fleet of all shipowners who have a head office address that is within an approximate 40km radius of each major city. The data is based on the recorded location of the ‘beneficial owner’, defined as the London ship owning company with the main commercial responsibility for the ship. 0 50 100 150 200 October 2016 www.clarksons.com 73

The Changing Financial Landscape Bank’s Portfolio Sizes as at July 2016 (US$ billion) DnB NOR HSH Nordbank (Core) Nordea KfW IPEX-Bank • European ship finance banks are significantly less active today. ICBC (Including Leasing) There is no KG activity today. Bank of China China Exim • Increasing regulation. DVB Credit Agricole CIB • More conservative terms: Top tier owners KEXIM Credit Suisse • More export credit and leasing (especially China). SuMi TRUST BNP Paribas • Private equity investment 2012-2014 but not now. NORD/LB BTMU • Capital markets “window” largely closed in 2015. ABN AMRO • Market stress and restructuring including for recent loans and Citigroup China Development Bank offshore. SMBC RBS • Weak activity in 2016 to date. EksportKreditt HSBC Deutsche Bank Bremer Landesbank Danske Bank 0 5 10 15 20 25 30 Source: Clarksons, Marine Money, Petrofin, Industry Sources October 2016 www.clarksons.com 74

Environmental Regulation Timeline Key Ballast Water Convention Date Baltic Sea ECA in effect 2006 Hong Kong Convention 2007 SOx 2008 Global NOx Tier I Limit North Sea ECA in effect NOx 2009 1.0% ECA Sulphur Limit 2010 EEDI for newbuildings formally adopted MRV 2011 Global NOx Tier II Limit ECA North American ECA entered into force 2012 3.5% global sulphur limit EEDI 2013 EEDI & SEEMP Mandatory (Phase 0) 2014 0.1% ECA Sulphur limit US Caribbean ECA enters into force 2015 ECA NOx Tier III emission limit takes effect* 2016 Lower EEDI reference line (Phase 1) Ratification of Ballast Water Management Convention 2017 EU Monitoring, Reporting & Verification 2018 Ballast Water Convention enters into force 2019 MRV becomes mandatory in EU ports Potential entry into force of Hong Kong Convention 2020 2021 MRV certification comes into force 0.5%** global sulphur limit 2022 Lower EEDI reference line (Phase 2) 2023 *At the MEPC 66 it was decided that, as of 1st September 2015, Tier III limits within future ECAs will only apply to ships built after the date of adoption of the ECA, or a later date as 2024 may be specified in the amendment designating the NOx Tier III ECA. ** Subject to review 2025 Lower EEDI reference line (Phase 3) into availability of low sulphur fuel, with option to delay implementation to 2025. October 2016 www.clarksons.com 75

Ballast Water Management Convention • Following Finland’s ratification of the BWMC at start September, the IMO’s BWMC will enter into force on 8 th September 2017. • There are a range of potential market impacts, including accelerated demolition, accelerated IOPP certificate renewals and/or surveys, “lumpy” or “bottleneck” requirements for BWMS. BWMS Equipped Vessels in the Global Fleet Scenario: How Many Vessels Need to be Outfitted? ‘000 Ships Cruise/ 100 - 3,001 Passenger Other - 40,021 1% 90 Gas 9% 6% 80 70 Offshore 11% 60 -14,529 Bulkers 3,001 50 37% vessels 92,265 40 30 Boxships 19% 20 34,714 10 0 Tankers Fleet Equipped Small Ships Ships >20 Projected 17% BWMS yrs October 2016 www.clarksons.com 76

Retrofitting BWMS: The Practicalities 1 System Selection 2 System Installation There are over 90 approved BWMS from 75 Survey & Modelling manufacturers. The types available include: 55-60 I - Desktop survey days - 3D scan and full ship survey Mechanical - Modelling  Filtration Approval  Hydro-cyclone II 7 days Approval from shipowner & BWMS manufacturer Physical Engineering  Thermal 90-95  Ultraviolet III - Full Engineering days  Ultrasound - Material Purchase  Cavitation - Prefabrication  De-oxygenation 25-30 IV Installation days Chemical  Disinfection Commissioning & IOPPC Renewal 6 days V  Biocide  Electro-chlorination TOTAL TIME: 6 MONTHS October 2016 www.clarksons.com 77

BWMS: Potential Issues • One solution does not fit all. It is likely that ships will have to be retrofitted on a case-by-case basis . • Some of the key issues that owners need to be aware of are detailed below. • There are a lot of options for ship owners to consider. In simplistic terms, UV systems are best for System Type 1 smaller ships & electro-chlorination for larger ships. Chemical systems can be adopted across the board; although they have lower CAPEX, their OPEX will be higher. • Substantial investment required. Estimated CAPEX range from US$750,000 to US$2.25+ million Cost 2 depending on vessel type/size, BWMS system and associated materials. • Many ships are designed to operate two generators at optimum efficiency. Power 3 • BWMS may require a third generator, increasing costs and maintenance requirements, but compromising operational integrity through the loss of redundancy. • BWMS are bulky. Finding space to install all of the components can be challenging. Particularly Space 4 relevant to some ship types, e.g. bulkers. • Designing an ergonomic installation that does not impact access to, or maintenance of, the Ergonomics 5 existing plant can be a challenge. • Some systems have components that are larger than existing access hatches. Also, access to the Access 6 desired installation locations can present challenges. • The is a largely untested technology on the scale required. A lot of questions remain regarding Operation 7 operational parameters, on-going maintenance and associated costs. The United States 8 • All IMO approved BWMS have been given AMS, but there are no USCG Type Approved systems. October 2016 www.clarksons.com 78

Percentage Time Spent in Active ECAs (2016 YTD) None <10% 10-40% 40-70% 70%+ % Fleet Total Fleet 45% 21% 22% 4% 8% 100% 16/15 Change +3.5pp -2.9pp -0.7pp 0.0pp 0.0pp 70%+ 90% -1.4% 40-70% Percentage point difference between 2016 YTD and FY 2015 10-40% 80% <10% -7.5% -0.4% -2.4% 70% -3.5% -4.9% 60% -1.9% -2.4% -4.2% 50% -6.5% -2.7% -1.8% 40% -1.8% -1.0% -9.1% -2.0% 30% 20% 10% 0% Crude & Prod Chem Tanker Misc Tanker Bulkers LPG LNG Cont MPP Ro-Ro PCC Gen Cargo Passenger Cruise Offshore Misc Reefer Tanker Source: Clarksons SeaNet, September 2016 Note (1): Includes vessels above 2,000 DWT/GT. Coverage on Clarksons SeaNet is approximately 85% of the total fleet. October 2016 www.clarksons.com 79

Which Vessels have the Most Exposure to ECAs? Percentage of the Fleet that has Spent 50%+ of its Operational Time in ECAs (2016 YTD) % Fleet 30% 25% 20% 15% 27% 26% 23% 23% 22% 10% 14% 14% 5% 9% 9% 8% 7% 6% 6% 5% 3% 1% 0% Crude & Prod Chem Tanker Misc Tanker Bulkers LPG LNG Cont MPP Ro-Ro PCC Gen Cargo Passenger Cruise Offshore Misc Reefer Tanker Source: Clarksons SeaNet, September 2016 Note (1): Includes vessels above 2,000 DWT/GT. Coverage on Clarksons SeaNet is approximately 85% of the total fleet. October 2016 www.clarksons.com 80

“LNG Capable” Fleet Development Scenarios No. Ships 2,000 Medium-Term Low Case 1,750 Base Case High Case 1,500 1,250 1,000 Historical Short-Term 750 500 250 0 2010 2011 2012 2013 2014 2015 2016f 2017f 2018f 2019f 2020f 2021f 2022f 2023f High level demand scenarios for ‘LNG Capable’ ships take into account: i. price differential between the cost of traditional marine bunker fuels and LNG ii. the exposure of different ship types and sizes to designated ECAs prior to the introduction of the global sulphur cap iii. the implementation date of the global sulphur cap iv. the level of general market acceptance (including designs to deal with reduced capacity, investment costs, CAPEX & returns) October 2016 www.clarksons.com 81

From Ecoships… • In recent years, there has been an emphasis on “Ecoships” in response to high bunker cost environment and increasing stringent environmental regulations. Features of Ecoships typically include:  More efficient underwater form, e.g. bow designs  Ducts or other devices  More efficient & economical engines • Ecoships are an important step, but they do not address other issues that ship owners face… Challenges Issues 1. Increasing amount of cargo to transport 2. Energy costs 1. Limited Technical Potential 3. Climate Change: Lower emissions 2. Outdated Personnel System and Future Crew Shortages 4. Increasing Emphasis on Safety 3. Weak Customer Relationship 5. Low Financial Returns More Focus on a “Service” Industry 6. October 2016 www.clarksons.com 82

…to the Internet of Things and “Smart Shipping” The Internet of Things “Smart Shipping” Shipping (“IoT”) • • A proposed development of the Internet In shipping, value can be created by 1. Deliver cargo more efficiently in which everyday objects have using information technology to  Automation of operations & navigation network connectivity, allowing them to automate, de-skill and integrate ship  Personnel management send and receive data. operations and management.  Integrated fleet systems  Using big data to improve delivery & reduce • • incidents The question is: how can it create real Big data can be used to make for more  Information management in real time on economic value? informed decisions. performance indicators • • This question can only be answered by Transition from ships trading as self- 2. Operate more safely addressing systems issues, including contained business units to an interoperability. integrated management fleet. 3. Develop new global transport systems October 2016 www.clarksons.com 83

Smart Shipping: Toolbox vs. Troubles • Telematics : “Sensors" generate digital information about equipment & ship - cheaper and better than ever. • Satellite Communication : New INMARSAT Ka band global systems (99% reliable) broad band data to be collected, processed & beamed ashore. Telephone too. • Data Storage & Analysis: The Cloud provides storage for data generated by Toolbox sensors. Analyse “Big Data” to improve performance. • Smart Phone-Style Apps : Do specific jobs without big computer systems & management information • Information Systems : Management knows exactly what is going on and performance levels. • Automation : Feedback loops allow automation of many tasks (navigation, maintenance, operations etc) • A clear value proposition and how it may be developed • A lack of centralised platforms Troubles • Inter-device compatibility • The future of human capital • Security, privacy and piracy October 2016 www.clarksons.com 84

Key Takeaways October 2016 www.clarksons.com 85

Key Takeaways 1. Stressed Market Conditions . The Clarksea Index is at low levels, ranging from US$7,500-8,500/day with very weak sentiment; possibly some of the toughest years since financial crisis for shipping. Oversupply continues after ordering in 2010 and 2013. Stress in bulkers; tankers are okay but easing back. Pressures in container market building and major stress across offshore driven by oil price collapse. Better markets in some niches (Cruise, Ferry, Ro-Ro). 2. Shipping will Remain at the Heart of Trade . World economy now sluggish and risks building. Trade impacted by Chinese economy & oil prices. But 85% of trade is by sea and long term growth potential. 3. Shipyard Pressure . Shipyard ordering very weak and pressures building for further consolidation and capacity reductions. Weakest ordering since 1980s expected in 2016 – continued weakness in 2017 anticipated with focus on small and niche (not offshore). There is still long term newbuild demand, but the timing is very volatile and low investment is anticipated in the short term. 4. Fleet Growth Slowing. Still 50% bigger than after financial crisis so opportunities for service sector. Steady deliveries in 2016 and 2017 and higher demolition. Delivery levels in 2018 uncertain and “non - delivery continues”. 5. Ownership Change. Ownership consolidation & more Asian. 6. Financing Change . Big change in financial landscape & restructuring increasing. Is limiting short term investment and orders. 7. Environment & Technology Change . Environment still on the agenda & Technology and innovation opportunities with e- commerce, data, IT and satellite communication to ships to support productivity and regulation. October 2016 www.clarksons.com 86

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Coffee Break @StandardPandI The Standard P&I Club www.standard-club.com

Iran trading and sanctions: risk and best practice Atousa Khakpour Claims Executive, CTMMA Iain Anderson Partner, RPC Premier Law

Contents 1 Introduction to sanctions 2 Club rules and cover 3 Due diligence 4 US 5 EU 6 UN 7 Practical challenges 8 Checklist 90

What are sanctions? • Used as a tool of foreign policy • Alternative to military action • Two approaches - embargo (arms / trade / economic / financial) - designated individuals or entities • Problems - lack of clarity - enforcement is uneven and unpredictable 91

Sanction regimes UN EU US FINES FORECLOSURE REPUTATIONAL DAMAGE LOSS OF INSURANCE IMPRISONMENT COVERS SHUT OUT FROM MARKETS 92

Who must comply with UN sanctions? UN sanctions apply: • member states - e.g. Singapore: UN Regulations, MAS Regulations 93

Who must comply with EU sanctions? EU sanctions apply: • within the territory of the EU • all persons and entities doing business in the EU (whole / part) • all entities incorporated or constituted under the laws of an EU member state when doing business outside the EU • all EU nationals 94

Who must comply with US sanctions? US primary sanctions apply to: • all US nationals • any person (individual or entity) in the US • all entities organised under US laws (including foreign branches) • all US subsidiaries of non-US companies • all companies owned or controlled by a US person US secondary sanctions apply extra-territorially 95

Club rules Rule 4.8 sanctionable conduct exclusion Rule 6.22 write-down clause Rule 17.2(5) automatic cessation Rule 26 definition of “ sanctionable ” 96

Club rules: rule 4.8 Unlawful 4.8 No claim is recoverable if it arises out of or is consequent upon the No claim is recoverable sanctionable ship blockade-running or being employed in an unlawful, prohibited and hazardous or sanctionable carriage, trade, voyage or operation , or if the sanctionable carriage, trade, voyage or operation trades provision of insurance for a carriage, trade, voyage or operation provision of insurance for a carriage, trade, voyage or operation is or becomes unlawful, prohibited or sanctionable or if the board determines that the carriage, trade, voyage or operation was imprudent, unsafe, unduly hazardous or improper. 97

Club rules: rule 6.22 Sanctions 6.22 The member shall in no circumstances be entitled to recover from the club that part of any liabilities which is not recovered by the not recovered by the club from parties to the Pooling Agreement and/or under any club Pooling Agreement and/or under any reinsurance(s) reinsurance(s) because of a shortfall in recovery from the parties shortfall in recovery or reinsurers thereunder by reason of any sanction, prohibition or by reason of any sanction, prohibition or adverse action against them by any state or international adverse action organisation or the risk thereof if payment were to be made by such parties or reinsurers … 98

Club rules: rule 17.2(5) Cessation of 17.2 A member shall cease to be insured by the club in respect of any cease to be insured insurance ship entered by him if: (5) the ship is employed by the member in a carriage, trade, carriage, trade, voyage or operation which will thereby in any way howsoever voyage or operation expose the club to the risk of being or becoming subject to expose the club to the risk of being or becoming subject to any sanction, prohibition or adverse action in any form any sanction, prohibition or adverse action whatsoever by any state or international organisation, or if the if the provision of insurance for a carriage, trade, voyage or provision of insurance for a carriage, trade, voyage or operation is or becomes unlawful, prohibited or sanctionable, operation unless the managers shall otherwise determine. 99

Due diligence Members must carry out their own due diligence 100