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CLARKSON RESEARCH SERVICES LTD

1

Maritime Economics 3rd Edition

Wonders are many on earth,and the greatest of these is man,

who rides the ocean and takes his way

through the deeps, through wind-swept

valleys of perilous seas

that surge and sway.

The chorus in Sophocles Antigone

422BC Trans. R. C. Jebb

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Overview of

ShippingMarketswill Greek Shipping

Support Chinese yards?

Martin StopfordPresident,

Clarkson Research

5th Hydra Shipping ConferenceMaritime Greece in the Privatization Era

Saturday 14th September 2013

FIVE YEARS AGO TODAY

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1. The Shipping Cycle2. Global Dynamics

3. Changing Ownership4. Energy & the Environment5. Information & Communications

What makes the business climate so difficult today is that shipping investors mustdeal with several major changes taking place simultaneously. What are thechallenges, how will they interact and where they might lead?

New era orjust

anothercycle?

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I LOVE

SHIPPINGI still dont

seem to bemaking any

money

Bankersarrested

my ships

I mademillions on

timecharters

I can onlypay the

interest, sir

Issue 1: The Shipping Cycle

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0

10

20

30

40

50

60

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

2013

ClarkseaIn

dex$000/da

Source: Clarkson Research Services Ltd

The Great

Shipping Boom1980s Recession

$8,500/day

$12,000/day

$22,800/day

DEPRESSION LOW RETURNS BOOM!

Bulk Shipping Fundamentals balance

BUST

$9,500/day

Ship Earnings Super-Cycle(Clarksea Index is a weighted average of earnings by tankers, bulkers, containerships & gas.)

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0

10

20

30

40

50

60

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

2013

ClarkseaIndex$000/dayand$milli

Source: Clarkson Research Services Ltd

The Great

Shipping Boom1980s Recession

$8,500/day

$12,000/day

$22,800/day

Bulk Shipping Fundamentals balance

Ship Earnings Super-Cycle(Clarksea Index is a weighted average of earnings by tankers, bulkers, containerships & gas.)

Newbuilding priceof Panamax bulkcarrier $ million

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0

10

20

30

4050

60

70

8090

100

Jan-

80

Jan-

82

Jan-

84

Jan-

86

Jan-

88

Jan-

90

Jan-

92

Jan-

94

Jan

'96

Jan-

98

Jan-

00

Jan-

02

Jan-

04

Jan

'06

Jan

'08

Jan

'10

Jan

'12

price$millio

New Panamax

Panamax bulk carrier 5 year old

Panamax peak$90MM

June 2008Market Prices Edging Down

Source CRSL

Panamax $21 MM

NewPanamax

Second hand prices still trying to find a levelas potential sellers avoid distress sales.

But the downward pressure is building

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0%

20%

40%

60%

80%100%

120%

140%

160%

180%200%

Jan-

80

Jan-

82

Jan-

84

Jan-

86

Jan-

88

Jan-

90

Jan-

92

Jan-

94

Jan

'96

Jan-

98

Jan-

00

Jan

'02

Jan

'04

Jan

'06

Jan

'08

Jan

'10

Jan

'12

5yearo

ld%ne

wpricem

illio

Panamax 5 year

Panamax Bulker on Trend

Source CRSL

Not as cheapas 1980s

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-10%

-8%

-6%

-4%

-2%

0%2%

4%

6%

8%

10%

12%

14%

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

Economic Cycles & Sea TradeWorld GDP (red line) and sea trade (blue line)

Crisis 119731st OilCrisis

2001Dot.comcrisis

Crisis 219792nd OilCrisis

1991FinancialCrisis

1997AsiaCrisis

Crisis 62007CreditCrisis

% change Oil Crisis Credit Crisis

3.9%

trend

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23/09/2013 10

FORECAST

The Shipbuilding Cycle

0

20

40

60

80

100

120

140

160

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

2016

2018

Deliveries Scra in

Deliveries 61

m dwt in 1976

Deliveries

162.5 m

dwt in

2012

Last phase

of 1970s

scrapping!

Million Dwt

Shipyards expand to replace the ships built in the 1970s boom

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0

10

20

30

4050

60

70

8090

100

1902

1907

1912

1917

1922

1927

1932

1937

1942

1947

1952

1957

1962

1967

1972

1977

1982

1987

1992

1997

2002

2007

2012

%

totalshipslaunche

Korea

Japan

EuropeBritain

Other

Scandin-avia

USA China

REGIONAL STRUCTURE OF WORLD SHIPBUILDINGSee: page 616

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0

200

400

600

800

1,000

1,200

1,4001,600

1963

1967

1971

1975

1979

1983

1987

1991

1995

1999

2003

2007

2011

World Merchant Fleet GrowthMillion dwt (year end)

Fleet Growth isspeeding up

Between 1990 and2004 fleet growthaveraged 2.2% perannum

Between 2004 and2012 the fleetdoubled, most ofthe growth cameafter the market

collapsed

Fleet grew30% in 20

years

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0

200

400

600

800

1,000

1,200

1,400

1,600

1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012

Fleet M dwt 1st Jan

Source: Fearnleys Annual Review (cargo), CRSL (fleet)

Tanker

BulkcarrierOther

OBOs

Index of sea trade (black line) compared with fleet area chart (m dwt)

Shipping Supply Crisis: Brief History

1973-2000

Shipping caughtin pincers ofsupply bubbleand demand

collapse

2000-2008Supply lagsdemand &triggers aninvestment

bubble

1960sSupply lagsdemand &

triggers

investmentbubble

1967-73

2010sSupply bubble

still delivering,trade OK

OtherShiptypes

Fleet

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VLCC Cost & Revenue 1990-2013

0

20

40

60

80

100

120

Jan-9

0

Jan-9

1

Jan-9

2

Jan-9

3

Jan-9

4

Jan-9

5

Jan-9

6

Jan-9

7

Jan-9

8

Jan-9

9

Jan-0

0

Jan-0

1

Jan-0

2

Jan-0

3

Jan'04

Jan'05

Jan'06

Jan'07

Jan'08

Jan'09

Jan'10

Jan'11

Jan'12

Jan'13

$000/day

DepreciationInterest + spread

OPEX

VLCC Earnings (12 month average)

Operating cost, plus interest at LIBOR + spread on new cost, plus depreciation

INTEREST on

New cost at LIBOR + spread

Depreciation over 20 yrs

Revenue based on 12

month earnings. Shipsgenerating much cash

in the 2000s

OPEX

Earningsclose tooperating

costs

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23/09/2013 Martin Stopford 15

Issue 2: Global Dynamics

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0.20

0.6

1.5

3.80

6.30

7.50

0 1 2 3 4 5 6 7 8 9 10 11 12

Tonnes of sea imports per person a year

Japan

Europe

N. America

China

S America

Africa

Who Imports the Most Cargo By Sea?

2000-20506 billion Non-OECDpopulation moving

towards OECD levels

1950-2000OECDs 1.3billion

populationdominate sea

trade

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OECD & Non OECD Share of Sea Trade

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

%

Wo

rldSea

Tra

d

OECD % Trade Non OECD % Trade

..

OECD declinestarted in1974

Non OECDovertook OECD

in 2008

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237 255

294 311 323 335

359383

407 407441 451

468 480 486 501

552

603

649

699

748

800

852

995

y = 237.72e0.054x

-

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

1,000.0

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

National & Foreign Flag Fleets M GT

National

flag 396 m

dwt, 28%

Foreign

Flag 995m

dwt, 72%

National flagfleet

Foreign flagfleet

72% OF THE WORLD FLEET FLAGGED ABROAD & GROWING

Issue 3: Ownership Patterns

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Top Ten Shipowning Nations

Foreign Flag TonnageNudges 1 Billion GT

72% of the merchantfleet is now registeredoffshore

Europe owns 32%

Shipping is evolvinginto a truly global

industry

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Top ShippingFleets 1999-2013

The shipping fleet ischanging.

Greece and Japan arethe two biggest fleetsneck and neck

China has overtakenGermany to take thethird position and thefleet is growing rapidly

German shipping facesthe problems of the

future of the KG system

Million Gross Tonnes

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Regulatory Challenge

IMO moving into areasinvolving technical designand operation of the ship

EEDI; air emissions;ballast water; recycling;

energy efficiency andcarbon footprint raisetechnical issues andCHOICES.

The industry lacks acoherent technical baseto resolve these issue

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Issue 4: Energy & the Environment

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

$/day cost

Bunker cost 1 Year TC Rate

2005Ship costs

3x fuel

2012Ship costs

half fuel

Based on Aframax tanker, 1 year TC rate and Rotterdam bunker price

FUELSHIP

FUELSHIP

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The Future - Economical & Green Ships77,000 Dwt Panamax Bulk Carrier

14.2metres

draft

Main engine

12,670 HP at 89rpm

Side rolling

hydraulic

hatch covers

7 cargo holds, each with capacity for 12-13,000 m3 or 10 -11,000 tons depending

on density of cargo being carried

Corrugated bulkhead

Water lin

Double bottom used for water ballast

No 4 hold floodable for extrawater ballast in heavy weather

No 1 hold

12,600m3

No 2 hold

13,300m3No 3 hold

13,000 m3

No 4 hold

12,300 m3

floodable

No 5 hold

13,000 m3

No 6 hold

13,000 m3

No 7 hold

12,200 m3

Crane

Steering gearroom

Anchor

Prop shaft

Hatch

coaming

225 m LOA, 77,000 dwt

2. New propellertuned to revised

engine spec

1. De-rate enginefor improvedgrams/kWh

3. Turbo chargercut-out & slide

injectors

5. Tune Enginewith electroniccontrol system

7. Improved trimmanagement

4. Waste heat

recoverysystem

6. Improved lowload cylinder

lubrication

8. Hull coatings,less ballast, airresistance etc.

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Engine Upgrade Kit

3. LubricatorUpgradeSaves 140 lt/dayat 10%MCR

1.Slide fuelvalves cut exhaust valve deposits (see

Photo below after 890 hours with new valves)

Old valve Slide valve

2. Turbo chargercut-out

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De-rating Engine

Modify engine components:-1. Fuel & exhaust cam positions

2. Fuel atomisers

3. Fuel valves

4. Height between x-head & piston rod

5. Wave cut of cylinder liner

6. Re-match turbochargers

7. New technical file

8. Propeller exchange

The top end performance is lost, butbetter low output performance

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Fuel Consumption 60,000 dwt Bulkers

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

1965

1973

1976

1978

1981

1982

1983

1984

1987

1989

1993

1996

2005

2006

2008

2009

2009

2010

2010

2011

2011

2011

2012

2012

2012

Consumption 65-75

Consumption 65-75

Year of Build

Fuel consumption TPD at 14.5 knots

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-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

1965

1973

1976

1978

1981

1982

1983

1984

1987

1989

1993

1996

2005

2006

2008

2009

2009

2010

2010

2011

2011

2011

2012

2012

2012

Consumption 65-75 Consumption 76-88

Year of Build

Fuel Consumption 60,000 dwt BulkersFuel consumption TPD at 14.5 knots

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Fuel Consumption 60,000 dwt Bulkers

Year of Build

Fuel consumption TPD at 14.5 knots

New Japanese60k dwt suprama

28 m bpd

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Issue 5: Information & Communications

Fibre optic cable network

GordonMoore

Invented Moores Law

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Has Shipping Learnt its Lesson?

1. This looks like being a long cyclewhich will change shipping. Nomagic solutions.

2. Ownership is moving offshore ata rate of 1% a year, and newfinancial structures emerging

3. Shipping is struggling with astrategy to deal with recession,fuel prices & regulatory issues.

4. Information technology massively

important and the basis for majorchanges in shipping.

5. So plenty of new lessons!

Professional pokerplayers soon learn that

they make the big profitsby winning from other

players

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The statistical, graphical information contained in this paper are drawn from

the Clarkson Research Services Limited ("CRSL") database and othersources. CRSL advises that: (i) some information in CRSL's database isderived from estimates or subjective judgments; and (ii) the information in thedatabases of other maritime data collection agencies may differ from theinformation in CRSL's database; and (iii) whilst CRSL has taken reasonablecare in the compilation of the statistical and graphical information and believesit to be accurate and correct, data compilation is subject to limited audit and

validation procedures and may accordingly contain errors; and (iv) CRSL, itsagents, officers and employees do not accept liability for any loss suffered inconsequence of reliance on such information or in any other manner; and (v)the provision of such information does not obviate any need to makeappropriate further enquiries; (vi) the provision of such information is not anendorsement of any commercial policies and/or any conclusions by CRSL; and(vii) shipping is a variable and cyclical business and anyone who thinks they

can forecast it needs their head examining. Where views are expressed theyare in the context of this general presentation and should not be used or reliedon in any other context without appropriate investigation, validation and thewritten permission of the author

Disclaimer

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