Genuine Opportunities and Unjustified Optimism...For 30 years, MSI has developed integrated...

Genuine Opportunities and Unjustified

Optimism

Dr Adam Kent - Maritime Strategies International (MSI)

28th Annual Marine Money Money Week – New York City June 16th to 18th 2015

Agenda

© Maritime Strategies International www.msiltd.com2

Genuine Opportunities and Unjustified Optimism

1. Demand

2. Supply

3. Earnings

4. Newbuilding Prices

5. Secondhand Prices

6. Opportunities?

Demand

Opportunities & Optimism

© Maritime Strategies International www.msiltd.com

Seaborne Cargo Compared


60%

70%

80%

90%

100%

110%

120%

130%

140%

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Index (2014 = 100)

Crude TankProd TankBulkerFCCChem TankLPGLNGPCCCruiseAHTSPSV

LNG

LPG

Container

Cruise

Prod Tanker

Chem Tanker

Bulker

PCC

Crude Tanker

PSV

AHTS

Hot

Cold

Positive demand story

for almost all sectors

OSV

Market

suffering

CAGR Trade


0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%C

rud

e T

an

k

Pro

d T

an

k

Bu

lke

r

FC

C

Ch

em

Ta

nk

LP

G

LN

G

PC

C

Cru

ise

AH

TS

PS

V

CAGR History (2011-14) Forecast (2015-2018)

How Many Ships?


Routes Distance

Size ChangesCarrying CapacityBallast Ratio

Waiting/Port TimeSpeed

Operating Days

Incremental Vessel Requirements (2015-2018)*


-100

0

100

200

300

400

500C

rud

e O

il

Pro

du

ct

Ch

em

ica

ls

LP

G

LN

G

Bu

lke

r

Co

nta

ine

r

PC

TC

Cru

ise

AH

TS

PS

V

# of Vessels

Bulkers attractive if looking

at demand in isolation

AHTS set

to suffer

* Assuming a current supply-demand equilibrium

Supply



9

Contracting Drivers

Cargo Demand Replacement Tonnage Earnings

Herd Mentality Calculated StrategyMarket Insight

www.msiltd.com

Obsolescence

An Investment Thesis

Incremental Vessel Requirements (2015-2018)


-100

100

300

500

700

900

1100C

rud

e O

il

Pro

du

ct

Ch

em

ica

ls

LP

G

LN

G

Bu

lke

r

Co

nta

ine

r

PC

TC

Cru

ise

AH

TS

PS

V

# of Vessels

Ships Required Ships on order/delivered 2015

Over supply

Wet sectors

looking

balanced

+ additional orders

squeezed in 2018

Orderbook (Over) Exposure*


-40%

-20%

0%

20%

40%

60%

80%

100%C

rud

e O

il

Pro

du

ct

Ch

em

ica

ls

LP

G

LN

G

Bu

lke

r

Co

nta

iner

PC

TC

Cru

ise

AH

TS

PS

V

100%+ 100%+100%+ 100%+ 100%+

*Demand H2 2015 to 2018 versus orderbook 1st June 2015

In Addition to Current Under Utilisation


Not forgetting the current surplus of vesselsEmployment rates 80%-90% in 2014

Age Profile Consideration

13© Maritime Strategies International Ltd.

www.msiltd.com

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%C

rud

e

Pro

du

ct

Bu

lke

r

Co

nta

ine

r

Ch

em

ica

l

LP

G

LN

G

PC

TC

Cru

ise

AH

TS

25+ Yrs old 20-24 Yrs old 15-19 Yrs old

10-14 Yrs old 5-9 Yrs old 0-4 Yrs old

Average Age At Scrap

14

10

15

20

25

30

35

40

1980

1985

1990

1995

2000

2005

2010

Average Age

Oil Tanker Bulker Chem Tankers

LPG Carriers Containerships Dry Cargo

Reefer RoRo Vehicle Carrier


Capesize Replacement Requirement


www.msiltd.com

0

5

10

15

20

25

30

35

40

45

50

Ju

ne

Ju

ly

Au

gu

st

Se

pte

mb

er

Oc

tob

er

No

ve

mb

er

De

ce

mb

er

Ja

nu

ary

Fe

bru

ary

Ma

rch

Ap

ril

Ma

y

Ju

ne

Ju

ly

Au

gu

st

Se

pte

mb

er

Oc

tob

er

No

vem

ber

De

ce

mb

er

Mn Dwt25+ years 20-24 years 15-19 years

2015 2016

Cancellation Relief?


www.msiltd.com

0

10

20

30

40

50

60

70p

re 2

00

7

2007

2008

2009

2010

# of Vessels

Year of Contract

Crude Tanker Product Tank Bulker FCC

Chemical LPG Offshore

Earnings



Earnings Development v Historical*


*Annual average

Probability of Default


Newbuilding Prices



Effective Shipyard Capacity (Merchant)


0

10

20

30

40

50

60

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Mn CGT Other Europe China Korea Japan

Elastic Capacity

Chinese Orders – By Yard Type


0

20

40

60

80

100

120

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011

2012

2013

2014

# Yards% Share

Year of Contract

Tier 2 Tier 1 Yards Taking Orders (RHA)

2013 offered many yards a

lifeline

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%2009

2010

2011

2012

2013

2014

Other Container Bulker Tanker

Chinese Contracting Mix


www.msiltd.com

Only 2MnDwt bulkers

contracted so far in

2015

Pressure from Chinese

yards on other sectors

not as significant

NB Price Development - Drivers


40

50

60

70

80

90

100

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Cost IndexYears

Year of Contract

Forward Cover Yard Cost Index

Costs will help to

mitigate falls in forward

cover

Reduction in yard forward

cover will put downward

pressure on newbuilding

prices

Secondhand Prices



Secondhand Price Development


60%

70%

80%

90%

100%

110%

120%

130%

140%

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Index (2014 = 100)

Small Bulker Large Bulker Prod Tanker

Crude Tanker Small FCC Large FCC

Chem Tanker LPG LNG

Opportunities?



Place Your Bets - New or Old?


0 Year Old Purchase in 2015

10 Year Old Purchase in 2015

Summary


• Demand outlook positive for all sectors (apart from OSV)

• In isolation incremental demand for ships appears encouraging

• Orderbook is casting a long shadow over some sectors

• Age profile offering little in the way of scrapping candidates but age of scrap is

decreasing

• Cancellations will help but only at the margins for most sectors

• Some sectors will see earnings improve in next 3 years but for most they will

remain significantly below the historical upper quartile

• Yard elasticity will put a lid on newbuilding prices

• Yard costs will set a floor to how low they can go

• Bulkers remain most exposed to Chinese capacity changes

• Secondhand prices outlook are not uniform across sectors

• Opportunities exist – it’s just question of timing and risk profile

For 30 years, MSI has developed integrated relationships with a diverse client baseof financial institutions, ship owners, shipyards, brokers, investors, insurers andequipment and service providers.

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

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

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

MSI Background


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

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

Disclaimer


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Genuine Opportunities and Unjustified Optimism...For 30 years, MSI has developed integrated...

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