the platou report

2013

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

shipping & offshore:

shaping the World of energy

Shipping OffShOre

Commercial 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 national 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 hamstring oil and gas exploration and production in the US. The countrys stunning transformation from the worlds biggest importer 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 significant 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.

The recent tragedy at the gas production facility in Algeria brought home the vulnerability of onshore installations in North Africa and the Middle East when it comes to terrorist attacks. 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 offshore discoveries during 2012 and we continue to believe in increased activity for offshore rigs in general and peter m. anker, managing partner & Ceo ultra-deep water rigs in particular. The growth in demand for subsea construction 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.
COnCluSiOn

While the world has been focused on various macroeconomic crises 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 surprises for both the shipping and offshore markets. Yours Sincerely, Peter M. Anker, Managing Partner & CEO, RS Platou ASA
introduCtion 3

OSLO
ABERDEEN LONDON

NEW YORK

GENEVA HOUSTON

RIO DE JANEIRO ACCRA

THE WORLD ACCORDING TO RS PLATOU

the World aCCording to rs platou

MOSCOW SHANGHAI DUBAI

SINGAPORE PIRAEUS SYDNEY

CAPE TOWN PERTH

MELBOURNE

SHIPBROKING

OFFSHORE

INVESTMENT BANKING

PROJECT FINANCE
5

the shipping environment

the shipping environment

World shipping 2012; doWn, but not out

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 worlds merchant fleet fell by an estimated 1 percentage point to 84 percent, the lowest level since the full force financial Crisis hit in 2009.
Nevertheless, the past year was not without bright spots, despite the very challenging conditions for many segments. Most obviously, 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 tonnage 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 decline 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 orders 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 eCOnOmy

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 relative commodity prices (dry bulk).
anOTher year Of abOve-Trend fleeT grOwTh, buT delivery pipeline iS empTying

The worlds 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 consecutive year where growth exceeded 7 percent. The contributors 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 perCenT

2012 was yet another year dominated by crisis headlines on the economic front, as the Euro Crisis not only rolled on but gathered in strength through the first half of the year. Despite world GDP growth coming in at a lackluster 3.2 percent, tonnage demand registered a healthy rise of 7.1 percent, down from 7.7 percent in 2011. The year gave us important demonstrations of

A sizable 4 percent drop in dry bulk fleet utilization, the largest 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-

the shipping environment

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 eaSed

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 raTeS

It 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 industrys balance sheets under further, severe pressure.
TankerS in 2012: liTTle relief, deSpiTe demand bOOm

Market fundamentals deteriorated further during 2012 caused by another year with record high deliveries. Even though scrapping also rose to the highest level registered, the net fleet expansion 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 arbitrage 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 COmpany

The tanker market experienced some improvement, although this was unevenly spread between segments and seasons, demonstrating 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 distances as importers rushed to cover the loss of Iranian oil. Productivity 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 between, 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-

The container ship market in 2012 was characterized by higher average box rates than in 2011, but substantially lower charter rates. Operators managed to raise the utilization rate, and thereby freight rates, of the operating fleet by idling more tonnage 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 estimated 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.

tonnage demand groWth vs World economic groWth 20032012

Tonnage demand growth world merchant fleet, annual changes in percent 12 10 8 6 4 2 0 -2 -4 -1 09 0 1 2 3 4 5 6 World output growth 12/08 11 05 03

World merchant fleet 20032012 annual changes

Percent 9 04 07 06 8 7 6 5 4 3 2 1 0
03 04 05 06 07 08 09 10 11 12

10

the shipping environment

lng in 2012: lOnger and STrOnger

wOrld eCOnOmy and wOrld Shipping

The LNG shipping market tightened further during 2012 despite 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 imprOvemenT

The 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 during 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.

2012 was not a good year for the world economy with, growth slipping to little more than 3 percent, the lowest level for a decade, 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 confirmation of the changing, and more shipping intensive, composition of the world economy. The commodity intensive non-OECD economies are increasing in size in relation to the mature, service-oriented OECD economies. Based on the IMFs 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 eCOnOmy

2012 began with forecasters in a downbeat and highly uncertain 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,

the shipping environment

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 slowdown. 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 mature 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, making that very task next to impossible. Emerging economies, on the other hand, are feeling some growth pains from their forceful 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 economies were pushed to the brink in 2012 and survived. Secondly, leadership changes in the worlds 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 ThrOugh

anything, falling farther behind the curve. It took a more pragmatic approach from the ECB with regards to supporting the regions bond markets, in order to nudge politicians into agreeing 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 countrys tepid, and disappointing, growth of around 2 percent slowed further in the fourth quarter, as politicians 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 grOwTh

In 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

A 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: Chinas 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 markets, 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 intensive nature of these economies.

World seaborne trade and economic groWth 1970-2012

Index 1970=100 500 450 400 350 300 250 200 150 100 50 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

annUal groWth in real gdP Percentage change from PrevioUs year

World output Seaborne dry trade Seaborne oil trade

Jan 2012 forecast 2012 USA 1.8 JAPAN 1.7 EURO AREA -0.5 C AND E EUROPE 1.1 RUSSIA 3.3 CHINA 8.2 INDIA 7.0 ASEAN 5.2 M EAST AND N AFRICA 3.2 SUB-SAHARA AFRICA 5.5 L AMERICA 3.6 WORLD 3.3
source: imf

Jan 2013 estimates 2012 2.3 2.0 -0.4 1.8 3.6 7.8 4.5 5.7 5.2 4.8 3.0 3.2

Jan 2013 forecast 2013 2.0 1.2 -0.2 2.4 3.7 8.2 5.9 5.5 3.4 5.8 3.6 3.5

10

the shipping environment

SignS Of enCOuragemenT aS 2013 gOT underway

The 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 stimulate growth, most likely worried about the lingering inflationary pressures which came as a result of the truly giant stimulus package 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 economic data. In the US, the severely deflated housing market gradually improved through the year and, combined with continued growth in the auto and energy producing industries, overall labor market conditions began to show signs of more consistent improvement 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 longterm potential. However, calmer financial markets signal an improvement in overall business and consumer confidence - vital factors when it comes to making investment decisions that promote 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 dead

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 demonstrated 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 become more shipping intensive. Chinese import growth remained 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 revolution in the US has contributed to a net rise in shipping activity, by raising the countrys exports of refined oil products and coal (and, soon, LNG), while also contributing to longer trading distances 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, relatively quickly. Ole-Rikard Hammer Head of Research RS Platou Economic Research

On 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

global economic groWth 2003-2013 forecasts and actUal groWth rates

Percent change 6 5 4 3 2 1 0 -1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Forecast Actual

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

Mill cgt 500 400 300 200 100 0

Utilization rate 130 120 110 100 90 80

Supply Demand Utilization rate

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

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

the shipping environment

11

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.
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 consequence, 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

carriers and container ships. However, based on a freight index of $13,000 per day in 2012, we would have expected a higher ordering activity than the 16 mill cgt recorded. Another factor that affected demand was the availability of capital. 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 years 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.

Demand for newbuildings was slow in the first half of 2012, with only 3 mill compensated gross tons (cgt) of new orders registered per quarter. During the second half of the year, the ordering activity picked up to above 5 mill cgt per quarter, which was still significantly below the estimated quarterly building capacity 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

bUilding Prices for bUlk carriers 20032012

Mill $ 100 90 80 70 60 50 40 30 20 10 03 04 05 06 07 08 09 10 11 12

bUilding Prices for tankers 20032012

Mill $ 170 150 130 110 90 70 50 30 10 03 04 05 06 07 08 09 10 11 12

Capesize Panamax Handymax

VLCC Suezmax Aframax MR Clean

12

the shipbuilding market

TankerS

During 2012, we registered 15 mill dwt of new orders for tankers, representing a 40 percent increase from 2011 - a much higher growth rate than the 17 percent seen in our tanker rate index. The 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 fleet. 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 feature this year was the fact that Korean owners were the most active and were responsible for 16 percent of all new contracts.
bulk CarrierS

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.
lng

LNG was a segment where freight rates reached historical high levels in 2012 and, subsequently, the demand for new tonnage remained high. This year we registered 33 new orders and, since only two vessels were delivered, the orderbook grew significantly. It ended the year at 92 vessels, or 27 percent of the existing fleet. Korean shipbuilders were awarded 76 percent of all new LNG carrier orders.
building CapaCiTy

The 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 fleet. 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 percent, respectively.
COnTainer ShipS

The 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 vessels delivered after 30 June had to be in compliance with IMOs Performance Standard for Protective Coating (PSPC) for ballast 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 delivered, the slippage (the ratio not delivered) in 2012 is surprisingly similar to what we registered in 2011. Chinese yards delivered 71 percent of the orderbook, while Korean and Japanese yards were able to deliver 80 and 93 percent, respectively. In total, 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

Demand 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 fleet.

bUilding Prices for container shiPs 20032012

Mill $ 120 110 100 90 80 70 60 50 40 30 20 10 03 04 05 06 07 08 09 10 11 12

neW orders in mill cgt 20032012

Mill cgt 80 70 60 50 40 30 20 10 0
03 04 05 06 07 08 09 10 11 12

6,000 teu 4,500 teu 3,000 teu 1,700 teu 1,000 teu

Others LNG Container Bulk carriers Tankers

the shipbuilding market

13

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 SegmenT

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 shipbuilders 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 remained 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

In 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 expected 138.8 mill dwt to enter the market that year. The amount of tonnage 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 therefore 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 COST

Newbuilding prices have been on a downward trajectory since the second half of 2008, caused by an overcapacity in the newbuilding 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 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 merchant 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 utilization 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 order new ships. Another obstacle for owners who want to order

World market Price for heavy steel Plates 20032012 10 mm+ deliveries, neW orders and orderbooks by vessel tyPe new orders 2012 14.2 18.6 0.5 5.1 1.5 986 0.9 18.3 Order book end 2012 49.4 105.4 3.4 12.6 2.5 273 1.6 74.3 percent of fleet end 2012 10.7 16.1 21.0 27.0 12.7 7.4 4.4 14.8
$/ton 1,400 1,200 1,000 800 600 400 200 03 04 05 06 07 08 09 10 11 12

Type Capacity Tankers Mill. dwt Bulk carriers Mill. dwt Mill. teu Container ships LNG Mill. cbm LPG Mill. cbm Car carriers 1,000 cars Chemical carriers Mill. dwt Cruise 1,000 berths

deliveries 2012 31.4 97.6 1.25 0.03 0.6 209 0.5 16.1

14

the shipbuilding market

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 increasing interest in new eco-designed ships. However, all in all we expect total demand to remain subdued. According to our estimates, 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 level, we have estimated that building capacity may be reduced to

roughly 35 mill cgt, within a couple of years as some shipbuilders 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 pressure 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. Jrn Bakkelund RS Platou Economic Research

the shipbuilding market

15

the tanker market

spike in tonnage demand offers only partial relief

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.
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 EUs 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,
freight rates single voyage 20032012 crUde carriers
1,000 $/day 200

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 divergenCeS

VLCC Suezmax Aframax

Vessel 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,

150

100

average freight rates $1,000 Per day single voyage VLCC Suezmax Aframax LR 2 product MR product 2010 34.8 28.0 21.4 16.2 8.9 2011 14.9 16.7 12.9 12.5 11.3 2012 20.9 14.7 15.4 14.3 13.0

50

03

04

05

06

07

08

09

10

11

12

16

the tanker market

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

a STrOng buT uneven year fOr TOnnage demand grOwTh

Tonnage 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, compared 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. However, 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 distances to the US to rise by 9 percent ( January to September). The shift still had important freight market consequences, however, as VLCCs benefitted at the expense of Suezmaxes. Asian imports had yet another strong year, as China, Japan, India and Korea all increased imports. All countries, at least periodically, 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 imports from West Africa and Russia.
reduCed fleeT prOduCTiviTy COnTribuTed TO demand grOwTh

EUs announcement in January that it would undertake an embargo 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.

tanker market index 20032012 annUal averages (Weighted by dWt)

1,000 $/day 70 60 50 40 30 20 10 0 03 04 05 06 07 08 09 10 11 12

tanker fleet 20032012 average annUal changes

Percent 8 7 6 5 4 3 2 1 0 03 04 05 06 07 08 09 10 11 12

There were important developments in the opaque area of fleet productivity. Most obviously, average fleet speed continued to decline, 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 productivity 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 TighT

freight rates single voyage 20032012 clean carriers

1,000 $/day 90 80 70 60 50 40 30 20 10 0 03 04 05 06 07 08 09 10 11 12

85/110,000 dwt 70/85,000 dwt 45,000 dwt

World 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

the tanker market

17

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 COnTinueS

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 OPECs biggest producer, Saudi Arabia, already began to scale back production 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 impending freight market recovery will also affect owners of older tonnage and possibly delay their scrapping decisions. We expect 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 SurpriSeS

Fleet growth developed in line with expectations and was, if anything, 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 increase 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 orderbook to decline further. The fact that yet another drop in newbuilding prices failed to attract more interest only serves as an indication 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?

Positive surprises are again more likely to come from the demand 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 refinery 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 continues 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 transportation distances or unless Middle East exporters to the US can continue to increase their market share.
World oil ProdUction and trade 20032012
MBD 55

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.
deliveries and removals of tankers 20032012 exclUding chemical carriers
Mill dwt 50 45 40 35 30 25 20 15 10 5 0 03 04 05 06 07 08 09 10 11 12

Removals Deliveries

Non-OPEC production World oil trade OPEC production

45

35

25

15

03

04

05

06

07

08

09

10

11

12

18

the tanker market

iS The Tanker markeT driven by fundamenTalS?

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 utilization 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 described as a typical cyclical one, not the type of structural overcapacity 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 between 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: Transport distances According to our estimates, average distances increased by 8 percent from 2005 to 2012, resulting in a 14 percent increase in ton-miles in the same period. Floating storage employment Over the period from 2005 to 2012, there have been several years with significant use of tankers for storage purposes, in addition to their traditional trading employment. Fleet productivity factors These factors are the most challenging to 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 bunker 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 overcapacity. Interested readers can find more about speed optimization in RS Platou Monthly, March 2012. Another (structural) productivity element is the load factor, 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 deadweight 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. The ballast factor describes the share of days in ballast compared with 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) productivity 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 market conditions in 2012. Erik M. Andersen Special Adviser RS Platou Economic Research

tanker market balance 2005-2012

Mill dwt (lines) 450 Utilization rate (bars) 100

tanker overcaPacity 1973-2012

Overcapacity in percent of total fleet 40 36 32 28 24 20 16 12 8 4 0 -4
73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10 11 12

Supply Total demand (Based on ton-miles, productivity and floating storage) "Simple demand" (Based on trade volumes) Utilization rate (Based on total demand) Utilization rate (Based on simple demand)

400

90

350

80

300

70

250

05

06

07

08

09

10

11

12

60

the tanker market

19

Crude and Clean markeTS likely TO COnTinue TO TraCk eaCh OTher

Product 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 essentially a cyclical phenomenon, resulting from the high level of crude production and imports in the first half of the year. Without a significant recovery in oil demand, trade growth is thus likely to slow for the clean market as well in 2013. However, trading patterns are becoming more complex because of tightening product specifications. In addition, the reduction in refinery 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 offer upside surprises. Fleet capacity growth for product tankers will likely increase in 2013, however, as the level of newbuilding deliveries is scheduled to rebound. The relatively low average age of the clean

tanker fleet, five years vs eight for crude, argues against a surge in scrapping.
OddS fOr a CyCliCal upTurn have imprOved, buT STrOnger wOrld eCOnOmy needed

We expect that the much-reduced orderbook will lead to a pronounced slowdown in fleet capacity growth to less than 3 percent per annum over the next three years. In such a scenario, fleet utilization should begin to improve from 2014 and potentially 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 markets will arrive. Ole-Rikard Hammer RS Platou Economic Research

sUPPly, demand and Utilization rate 20032012 tanker fleet

Mill dwt 500 450 400 350 300 250 200 150 100 03 04 05 06 07 08 09 10 11 12 Utilization rate 150 140 130 120 110 100 90 80 70 Supply Demand Utilization rate

market valUes of tankers 20032012 5 years old

Mill $ 180 160 140 120 100 80 60 40 20 0 03 04 05 06 07 08 09 10 11 12

VLCC Suezmax Aframax MR Product

20

the tanker market

the dry bulk market

substantial drop in freight rates

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.
freighT raTeS and Ship valueS

Considering 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. Supramaxes 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 Brazilian 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 tonmile growth parameter. In the last quarter, however, Brazilian iron ore shipments to Asia recovered substantially, which contributed to a significant upturn in Capesize earnings. The patdry bUlk imPorts by coUntry/region 20032012
Mill tons/year 1,400 1,200 1,000 800 600 400 200 0 03 04 05 06 07 08 09 10 11 12 China Japan Oth Asia W.Europe India

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

average freight rates $ 1,000/day triP charter Capesize Panamax Supramax Handysize 2010 32.8 25.8 22.4 16.4 2011 16.2 14.6 14.4 10.5 2012 9.7 8.1 9.4 7.6

t/c rates bUlk carriers 20032012 12 months

1,000 $/day 180 160 140 120 100 80 60 40 20 0 03 04 05 06 07 08 09 10 11 12 Capesize Panamax Supramax Handysize

the dry bulk market

21

22 THE DRY BULK MARKET 22 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 registered 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 Chinese dry bulk imports was surprisingly strong taking into account only modest increases in domestic steel and energy demand. 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 percent from the year before. India continued its impressive growth in dry bulk imports, mainly in coal, registering a 12 percent escalation. 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 soybean trade, Brazilian export volumes jumped 16 percent, while US exports fell by 11 percent.
Sailing diSTanCeS

On 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 relation to the activity of other key exporters.
pOrT COngeSTiOn

Slower 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

sUPPly, demand and Utilization rate 20032012 dry bUlk fleet

Mill dwt 700 650 600 550 500 450 400 350 300 250 200 150 03 04 05 06 07 08 09 10 11 12 Utilization rate 180 170 160 150 140 130 120 110 100 90 80 70

market valUes of bUlk carriers 20032012 5 years old

Supply Demand
Utilization rate Mill $ 180 160 140 120 100 80 60 40 20 0 03 04 05 06 07 08 09 10 11 12 Capesize Panamax Supramax

the dry bulk market

23

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

markeT prOSpeCTS
laST yearS prediCTiOn

Cargo 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 operators 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 grOwTh

The 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 congestion would increase.
TOnnage demand in 2013

Deliveries of new ships rose to 98 mill dwt in 2012, while removals totaled 33 mill dwt. As a result, the dry bulk fleet increased 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 expanded 13 percent. The Handysize fleet grew by a more moderate 4 percent.

The prevailing forecasts for the world economy in 2013 suggest slightly higher growth than in 2012. In line with this, it is expected that dry bulk trade will also grow somewhat more than last year. Again, Chinas 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 isnt 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 arbitrage 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 minerals 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

bUlk carrier fleet 20032012 average annUal changes

Percent 16 14 12 10 8 6 4 2 0 03 04 05 06 07 08 09 10 11 12

neW orders of bUlk carriers 20032012

Mill dwt 180 160 140 120 100 80 60 40 20 0 03 04 05 06 07 08 09 10 11 12

24

the dry bulk market

part of the year and will also negatively impact upon the first months of this year. However, it is important to take into account that record high grain prices over the last year have created 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 anticipated to escalate further, especially from North America to Europe. We also predict a further increase in wood transportation 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 increase 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 Chinese 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 Trend

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 operation 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 percent can be expected.
COnCluSiOn

The 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 potential upsides appear moderate in the short term. A further slowdown in deliveries, combined with a gradual recovery in the world economy, should bode well for a fundamental upturn in 2014. Bjrn Bodding RS Platou Economic Research

Some 81 mill dwt of new ships are scheduled to become operational in 2013. However, it is plausible that a significant volume of newbuilding deliveries will be postponed until 2014. The difficult financial situation will probably force ship owners to try

deliveries and removals of bUlk carriers* 20032012

Mill dwt 100 90 80 70 60 50 40 30 20 10 0 03 04 05 06 07 08 09 10 11 12

Removals Deliveries

*incl. conversions

the dry bulk market

25

the Container ship market

another Weak year

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.
freighT raTeS and CharTer raTeS

Freight rates per TEU rose about 25 percent from the previous 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 firmer rates were recorded in the middle of the year, as some operators 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 demand

vious year. The volume of laden boxes from Asia remained basically 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 percent. 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 traffic into Europe than last year was India, with a 5 percent escalation 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

Preliminary statistics suggest global container ship demand has increased by around 7 percent from 2011 to 2012. Box movements increased by some 5 percent. Assessing trends by region, in the US containerized imports were up 2 percent from the pre-

deliveries of cellUlar container shiPs 20032012

1,000 teu 1,500 1,250 1,000 750 500 250 0 03 04 05 06 07 08 09 10 11 12

container imPorts - selected regions 20032012

Mill teu 60 50 40 30 20 10 0 03 04 05 06 07 08 09 10 11 12

Asia EU USA

26

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 prOduCTiviTy

laST yearS prediCTiOnS

Fleet 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 increased slow steaming, but to a lesser extent than between Asia and Europe.
fleeT Trend

Our expectation of a fairly parallel increase in supply and demand was not far from the market reality of 2012. We also pointed 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 extensive inventory depletions along with lower economic activity, especially in Europe, where historical growth in container import has been very high compared to GDP growth.
markeT OuTlOOk

About 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 scrapping 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, calculated 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 utilization rate of nearly 3 percentage points.

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 scheduled 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 categories. 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 balanced 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. Bjrn Bodding RS Platou Economic Research
the Container ship market 27

t/c rates container shiPs 20032012 12 months

1,000 $/day 60 50 40 30 20 10 0

4,500 teu 3,000 teu 1,700 teu 1,000 teu

03

04

05

06

07

08

09

10

11

12

the Car Carrier market

a troublesome reCovery
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 towards 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 indicate any improvement in 2013, and forecasts indicate a further 3-5 percent sales decline this year. Auto sales mirror the production situation: While North American capacity is being increased and new facilities are in the pipeline, 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 countries 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 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 production, 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 current 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 increase 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 challenging market conditions, outlook for 2013 indicates a flat development, 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 already 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
03 04 05 06 07 08 09 10 11 12

JaPanese and korean aUtomobile exPort 20032012

Mill vehicles 8 7 6 5 4 3 2 1 0

Japan Korea

28

the Car Carrier market

the lng market

another reCord year

The 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 marginal decline of 1 percent in volumes, inferior to the 6 percent growth we expected in this report a year ago. The main explanatory 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 liquefaction plants. Several explosions along the feedgas pipeline to Yemen LNG hampered their production, Tangguh LNGs second 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 distance, is estimated to have grown by 3 percent in 2012. The main driver of this parameter has been a 25 percent increase in interbasin 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 Electrics 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 always 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 removed. 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 Sonatrachs 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 transport 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 production 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 fleets productivity, 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 newbuildings 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 assumptions, 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.
05 06 07 08 09 10 11 12

short term rate for lng carriers 2005 - 2012

$/day 160 000 140 000 120 000 100 000 80 000 60 000 40 000 20 000 0

Jrn Bakkelund RS Platou Economic Research

the lng market 29

small-sCale lng

a neW market emerging

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.
SignifiCanT evenTS

In 2012, we have experienced some notable world first events for small-scale LNG, such as: The worlds first dedicated LNG bunker barge was ordered and commissioned in Norway by AGA. It will be in operation by January 2013 in Stockholm, Sweden The worlds largest small-scale LNG vessel with a Type C tank was christened Coral Energy in December 2012. This vessel will be operating on a long-term charter for Skangass of Norway The worlds first LNG-fuelled RO-PAX vessels were launched. They will go into operation in 2013 for Viking Line and FjordLine The worlds first LNG-fuelled container vessels (3,100 TEU) were contracted by TOTE. The vessels will operate between Florida and Puerto Rico from 2015 Several important shipping hubs including Singapore, Rotterdam, Zeebrugge and Gothenburg announced plans to follow Stockholm, and several smaller Norwegian ports, in making LNG available as marine fuel Supermajor Shell acquired Norwegian small-scale LNG player 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 for heating, or as feedstock As a road traffic and marine transport fuel 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 shipyards 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, driven 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 parcels. We therefore believe that there will be increasing need for small-scale LNG feeder vessels, and also LNG Bunkering vessels, 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 Rokstad RS Platou Shipbrokers

annUal consUmPtion of lng as marine fUel

Mill mt 1,2 1,0 0,8 0,6 0,4 0,2 0 06 07 08 09 10 11 12 13 14 15 16 17

Projects under development Vessels beiing quoted by yards Vessels under construction Vessels in-service

30

small-sCale lng

the demolition market

Weak markets pull reCyCling up

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.
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 until 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 yards in the same period, and therefore did not prevent a substantial 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/PostPanamaxes, 151 Handymaxes/Supramaxes and 220 Handysizes 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 demolition. 159 vessels were scrapped in 2012, compared to 57 in 2011, representing an increase of 160 percent in terms of capacity, 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 remain 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.

demolition Prices tankers 20032012

$/ldt 800 700 600 500 400 300 200 100 0 03 04 05 06 07 08 09 10 11 12

tonnage sold for recycling 20032012

Mill dwt 60 50 40 30 20 10 0
03 04 05 06 07 08 09 10 11 12

India/ Bangladesh Far East

Others Bulk carriers Tankers

the demolition market

31

mobile offshore drilling units

hitting neW heights

day raTeS/uTilizaTiOn: review Of The year

The jack-up market tightened considerably in 2012 and we observed 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 basically full active utilization in 2012, the older Independent Cantilever 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 standard 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 increased by 2 percentage points, averaging nearly 96 percent in 2012. The tightening of the market was seen in all sub-segments, 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 Deepwater (DW) units increased to 92 and 96 percent respectively.
market develoPment 20032012 floaters
No. of rigs 320 280 240 200 160 120 80 40 03 04 05 06 07 08 09 10 11 12 Utilization rate 150 140 130 120 110 100 90 80 Total supply Active supply Demand Active utilization

In 2012, the global annual average day rates for MW units increased by 5 percent to 235,000 USD, while the global annual average day rates of DW units increased by 14 percent year-onyear, rising to 305,000 USD. On a regional basis, the strength of the North Sea, and especially the Norwegian sector, continued unabated through 2012. As a consequence of the opening of the Barents Sea to exploration, 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.
demand

Along 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 observed in many regional markets, but were particularly strong in West Africa (+19 percent), the Middle East (+10 percent)
market develoPment 20032012 Jack-UPs
No. of rigs 500 450 400 350 300 250 200 Utilization rate 190 170 150 130 110 90 70 Total supply Active supply Demand Active utilization

03

04

05

06

07

08

09

10

11

12

32

mobile offshore drilling units

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 contributors 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 jackups 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 majority 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 percent compared to 2011 (excluding the fixtures from Petrobras newbuilding program in 2011/2012). We estimate that the accumulated 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 different results. While UDW units increased fixing activity by 67 percent, fixing activity of MW and DW units declined 16 percent 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 geographical scope and can be highly profitable. This trend was reinforced 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 development, which should propel UDW demand further.
fleeT Trend

The 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 recorded 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

day rate of rigs 20032012

1,000 $/day 700 600 500 400 300 200 100 0 03 04 05 06 07 08 09 10 11 12

neWbUilding Price of rigs 20032012

Mill $ Semi/Drillship 800 700 600 500 400 300 200 100 0 03 04 05 06 07 08 09 10 11 12

Deepwater, High Midwater, High Midwater, Low Jackup, High Spec Jackup, 300ft

Drillship (10,000ft WD) Semi (Harsh Environment) Jackup (400ft Premium) Jackup (350ft Premium)

mobile offshore drilling units

33

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, Hyundai and Samsung.

fleeT Trend

markeT prOSpeCTS
fixing aCTiviTy and rig demand

The current jack-up orderbook indicates that 63 units will be delivered in 2013 and 23 units will be delivered in 2014. Delays, 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 remove 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 delivered in 2013 and 23 units in 2014. There have, historically, been fewer delays at floater yards and we expect this trend to continue 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.
COnCluSiOnS

Given 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 activity 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 especially 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.

Active jack-up utilization in 2013 is expected to average between 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 weakening 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 expected in most segments, and particularly the UDW segment. Sven Ziegler RS Platou Offshore Research

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

34

mobile offshore drilling units

the offshore support vessel market

unfulfilled expeCtations
pSvs

Increasing 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 averaged 97 percent fleet utilization in 2011, but dropped to 92 percent in 2012. Although North Sea PSV demand was increasing, 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 market. 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 dropping 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 increasing 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.
ahTS

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. Annual 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 moderately 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 prOSpeCTS

Global 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

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

35

the offshore support vessel market

in December 2012, a rise of 6 percent. Similarly, floater activity was significantly higher and our figures show global demand increased 12 percent - from 226 units at the end of 2011, to 254 units a year later. As mentioned earlier, the number of rising floaters on contract was greater towards the first half of 2012. The floater fleet was close to fully utilized during the year, with an increase in working units resulting mainly from newbuilds entering operation. The second half of 2012 experienced a temporary lull in floater newbuilds entering the market, thus impacting negatively 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 floaters 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 offshore 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 unlikely to be the same driver of tonnage demand, as it is now close to having contracted its stated goal of deepwater offshore 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 OrderS

more, scrapping was insignificant in 2012. Our figures indicate only five AHTS vessels and two PSVs were scrapped. As a result of these developments, total fleet growth in 2012 was 6 percent and 9 percent for the AHTS and PSV fleets 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. The record levels of PSV investments should be seen in relation to increasing expectations for deepwater activity, and the growing preference for investments in UDW floaters. The current AHTS orderbook indicates that 131 units will be delivered in 2013 and 21 units will be delivered in 2014. However, it is expected that delays at yards, which have been extensive over the last few years, will continue in 2013 and mitigate some of the fleet growth. Scrapping/removal of tonnage is expected to remain insignificant, despite a large part of the fleet being built as early as the 70s/80s. Although, it must be said, there is an increased focus from charterers on the age of vessels and vessel specifications. 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 specification vessels are therefore removed from actively participating in the offshore markets. Due to their low scrapping value they are not sent to the breakers, but rather idled. The competitive fleet may therefore be smaller than indicated in the fleet counts. This also applies to the PSV fleet. Given the above, we expect the total AHTS fleet will probably grow by close to 4 percent in 2013. The current PSV orderbook indicates that 230 units will be delivered in 2013 and 116 units in 2014. However, significant delays 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 20032012 Psv average t/c rates (rePorted and estimated)

The fleet 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 final 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
north sea tonnage 20032012 ahts average t/c rates (rePorted and estimated)
/day 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 03 04 05 06 07 08 09 10 11 12 20,000+ BHP 16-19,999 BHP 10-15,999 BHP 8-9,999 BHP

/day 30000 25000 20000 15000 10000 5000 0

900+ m2 deck area 750-899 m2 deck area 500-749 m2 deck area 3,100+ dwt 2,200 -3,099 dwt 2,200+ dwt

03

04

05

06

07

08

09

10

11

12

36

the offshore support vessel market

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.
COnCluSiOnS

On a global basis, OSV day rates and fleet utilization for OSVs are forecast to rise moderately in 2013. This means the loosening 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, especially 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 further marginalized as ageing, conventionally-moored floaters are being crowded out by new, dynamically-positioned UDW floaters. 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 increasing jack-up demand. Sven Ziegler RS Platou Offshore Research

ahts/Psv neW orders Per year ahts/Psv fleet overvieW

No. of vessels 250 200 150 100 50 0 AHTS PSV

03

04

05

06

07

08

09

10

11

12

AHTS 4-7,999 BHP AHTS 8-9,999 BHP AHTS 10-15,999 BHP AHTS 16-19,999 BHP AHTS 20,000+ BHP ahts total PSV <500 m2 PSV 500-749 m2 PSV 750-899 m2 PSV 900+ m2 Psv total total orderbook

in service total 1,140 212 314 112 67 1,845 364 436 91 245 1136 2981

orderbook total 89 6 26 19 13 153 56 47 109 148 360 513

the offshore support vessel market

37

the offshore ConstruCtion vessel market

neWbuilding bonanza
2012 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.
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 markets, 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
order backlog and inboUnd orders selcted sUbsea comPanies
25 20
Subsea backlog BNUSD

order activity in the two first quarters was due to contractors being selective with regard to which projects to take on. We anticipate 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 service and 50 vessels on order. 20 vessels were delivered in 2012, producing a fleet growth of almost 6 percent. Newbuilding activity 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 Diving Support Vessels, but day rates for modern tonnage are estimated to be around $100,000-140,000 per day. Norwegian yards have had a high order intake thanks to a substantial number of new orders in the subsea segment. In total, 17 subsea vessels (with LOA over 80 meters) have been ordered. Siem Offshore has been the most active player, ordering four new vessels at STX yards and one new light construction/ 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 supply 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 highend vessels are believed to be the main reasons for the increased willingness from contractors to commit to newbuildings.

7 6 5
Inbound orders BNUSD

Inbound orders Order backlog

15 10 5 0

4 3 2 1 03 04 05 06 07 08 09 10 11 12 0

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 Northwest Europe to the Far East in terms of shipbuilding location. In 2012, several noteworthy alliances were formed, with Technip and Heerema signing a worldwide agreement on the ultradeepwater 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 Installer 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 subsea 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 contractors 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 enjoyed 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-water demand is expected to be particular strong as the trend for more and more equipment being put on the seabed will continue. 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 sophisticated 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. Brd Thuen Hgheim RS Platou Offshore Research

the offshore ConstruCtion vessel market

39

offshore Wind

maturing market
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.
Global installed capacity to date is 4.9 GW, which is equivalent 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 Sheringham 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 anticipated. German projects are delayed by at least 12 months on the North Sea side, due to cabling issues and submarine cable supply. 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 encourage 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 UKs Round 3 projects have been delayed; for example, East Anglia was planned for 2017, but is now pushed
40 offshore Wind

back to 2018, due to issues with the power transmission. Delays seem to be the rule, rather than the exception, for Round 3 projects, due to uncertainties regarding consenting, financing and technology. The first Round 3 project will most likely be Dongs and SMart Winds 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 Solutions and signed an LOI with STX France on the foundations side. Generally speaking, there is a trend towards industrialization of the industry, in a bid to reduce the overall cost of development. Repower has also urged closer supply chain collaboration, in order to deliver more cost efficient products. In addition, there has also been increased interest from the Oil & Gas players, demonstrated by Siem Offshores order of a new Operation & Maintenance wind farm vessel from Fjellstrand. Technically speaking, grid connections are still the major hurdle in offshore wind developments a factor that has caused long delays in the German North Sea projects, as well as delaying 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 securing financing for projects. Construction risk is often the main concern from the financiers point of view. The Green Investment 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 raTeS

Earnings for second generation Turbine Installation Vessels (TIVs) have been in the range of 140,000 to 160,000 per day

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 generation 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, contracts 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 newbuilding

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 foundation 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 foundations to capture a significant market share, as monopiles are phased out.
OffShOre wind - TranSaCTiOnS

There are currently 22 dedicated Turbine Installation Vessels (TIVs) in service and six on order. Eight new TIVs were delivered 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

In May 2012, Marubeni Corporation and Innovation Network of Japan jointly completed the acquisition of Seajacks International, 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, marking a first of its kind transaction in the German market. Other noteworthy transactions included Dongs sale of 50 percent of the Borkum Riffgrund 1 offshore wind farm to the parent company of Lego and Oticon Foundation. The reported price for the 277,2MW project was 790 mill USD. Brd Thuen Hgheim RS Platou Offshore Research
offshore Wind 41

42

rs platou markets

rs platou markets

a Quiet bull market on a turbulent rollerCoaster ride

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.

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 positive 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 United 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 European 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 transactions 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, government 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 Eurozone. 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 company, RS Platou ASA, showing the strengthening collaboration between the companies.

Following a difficult second quarter, global equity markets reversed 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 generally weak economic backdrop. The worlds leading central banks stole the spotlight this quarter, as weak global growth, high unemployment rates and rumblings about a potential collapse of the Eurozone created a climate for yet another bank intervention, which came with a whatever it takes approach from the European Central Bank. The back-and-forth between risk-taking and risk-aversion in the fixed income market continued during 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 quarters weakness, in the aftermath of the central bank-driven rally. Companies began 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 transaction 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.

43

rs platou markets

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 International Equity markets also performed very well, with gains ranging 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 challenging year. We have seen some periods with increased optimism, 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 accounted 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 approximately USD 2 billion. Other noteworthy news in 2012 was the sale of NYSE Euronext to the Intercontinental Exchange for USD 8.2 billion. The deal, announced in December 2012, is still pending regulatory 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 currently 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

edging higher into 2013. Lastly, European officials have turned more positive to the economic outlook which adds to the market sentiment. Corporations may take advantage of a fixed income market returning 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 financing 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, investors 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 assurance 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 services 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 companies 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 negative 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 positive 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 shipping stocks.

2012 has cleared up many political and economic uncertainties. Although political and economic risks remain, they are significantly reduced due to US growth in fundamentals such as consumer 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

44

rs platou markets

rs platou finans

proJeCt finanCe is still at Challenge in all shipping markets

how 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 earnings 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 business. The big drop in the US interest rate level does not compensate 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 profile, low gearing level and higher arrangement fees. The likely alternative is therefore to find other sources of funding. 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 arrange 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 finance new projects with 100 percent equity. As long as the time charter earnings are covering the operating costs, the equity investors 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 mortgage 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 investors. 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 investments 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 difficulties 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.

rs platou finans

45

The nOrwegian kS markeT in 2012

The reported project volume among the top four KS houses in 2012 was in excess of 600 mill USD. The level of activity is still limited compared to the top year of 2007, when the total investments 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 financial crisis. About 75 percent of the projects were related to offshore investments, with a mix of newbuilding asset play deals and long-term bareboat contracts involving modern OSVs. The banks still have some funding available for these projects, as long as the end user is a financially strong company. The expected interest in asset play deals in the traditional shipping segments did not materialize last year. The recoveries in container, dry bulk and tanker markets were postponed for another year, with analysts now expecting the first half of 2014 to be the period with improving utilization rates and better earnings. Apart from the offshore projects and a couple of container asset play deals, the project houses concluded some long-term charter projects in other industrial shipping markets.
rS plaTOu finanS pOrTfOliO Of prOJeCTS

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. The new company is now performing well. On the positive side, we sold some PSVs and a cement ship with good returns to the investors. The second shipping fund that was established prior to the financial crisis also ended with a positive return, despite investment in some loss making projects. The majority of existing projects are now performing well after 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, including two offshore 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. The portfolio is dominated by offshore projects, but we expect the activity level in the traditional shipping markets to pick up in the near future. The corporate management also includes some projects limited to pure accounting services. There 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.

Ten projects in RS Platou Finans exsiting portfolio were sold last year. Some projects made a good return, but there were also some losses. After several years with very bad market conditions, all the reefer projects ended with the majority of equity lost. The specialized reefer vessels have been replaced by container vessels and, even with a large number of vessels be-

total ProJects by emPloyment

total ProJects by segments

Asset play 4% Timecharter 16%

Funds 4% Product tankers 7% Shipping founds 4% Cable layers 4% Bareboat 76% Reefer vessels 9%

Other 5%

Offshore/ Supply 39%

Bulk carrier 16%

LPG/Chemical tankers 16%

46

rs platou finans

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.

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

Mill $ 4000 3500 3000 2500 2000 1500 1000 500 0 2005 2006 2007 2008 2009 2010 2011 2012

Total Project Price Paid in Equity Uncalled capital

rs platou finans

47

rs platou real estate

2012 transaCtion market dominated by large single assets

nOrwegian markeT 2012

In 2012, Platou Real Estate concluded 12 projects with an investment value of 1.5 bill NOK making us one of the largest syndicate players in the market. The 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 headquarters (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 delivered 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

prime assets that generate a predictable low-risk cash flow, 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, financial, investors are pursuing opportunities in the housing-development market. Following this trend, Platou Real Estate is also involved in the largest housing transformation plan initiated by the municipality of Oslo - the Ensjplan. At present, we are developing approximately 200 residential units, and actively looking for additional projects in the Ensj area.
finanCing

transaction market volUme - norWay (billion nok)

80 Retail Professional

60

The financing difficulties we experienced in 2011 intensified in 2012, and even some of Norways largest, industrial real estate players did not get traditional bank financing. For example, the Sector Shopping transaction was financed both in the bank and the bond market. The banks, in general, are adapting to new EU regulations regarding risk and equity and are ooading their balances for real estate. The financial climate and lack of traditional bank credit has boosted the private bond market, which was fifteen 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 annum. 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 contributed to an expectant market.
The eurOpean real eSTaTe markeT 2012 The eurOpean real eSTaTe markeT CharaCTeriSTiCS Of 2012

40

20

04

05

06

07

08

09

10

11

12

13E

As Europe fell back into recession at the close of the year, the commercial real estate market suffered as a result. Investment activity decreased and was particularly hit by the lack of availability of debt financing, as banks focused on managing their ex-

source: rs platou

48

rs platou real estate

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). 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 secure, income-producing core assets in Northern Europe, keeping prime yields at low levels. The flavor of the investment market is very much characterized by an aversion to risk. The occupier market is suffering from the economic slowdown, and the focus remains on cost cutting. Generally, rents in prime markets are stable or slightly increasing, while more peripheral markets are experiencing the opposite. The retail market is suffering as a consequence of low income growth, increasing unemployment and falling consumer confidence. In the logistics market, weak trade volume and economic uncertainty has reduced demand for logistics space. The 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 restrictive financing conditions, we expect 2013 to continue in much the same way as 2012 ended.
rS plaTOuS eurOpean real eSTaTe fundS Seeing greaT OppOrTuniTieS in The SeCOndary real eSTaTe markeT

Since 2009, RS Platou Fund Management has launched three funds investing in the Nordic secondary real estate market. These investments capitalize on mispricing in the secondary market. Exploiting the managements unique insight into Nordic unlisted real estate vehicles, the funds have great value appreciation potential. The track record after 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.

Since 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 offsetting the effects of the negative markets by active asset management, repositioning and development. Main exposures are in France and Germany, as well as two development projects in Poland. We expect 2013 to continue to be challenging, but are seeing some signs of market improvement.

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.
rs platou real estate 49

statistics

1 2 3 4
50 statistiCs

World fleet develoPment mill dwt start 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 tankers 270.7 279.1 295.0 317.7 334.7 352.3 369.0 396.2 413.1 439.0 460.5

chemical carriers 23.1 25.0 25.7 26.9 29.0 31.7 34.0 35.8 36.1 36.5 36.6

bulk carriers* 289.1 297.4 314.9 336.0 359.2 387.1 415.0 453.4 527.7 609.2 673.5

combined carriers 12.6 12.1 11.6 11.6 11.2 11.2 10.4 9.6 6.8

others 181.2 189.6 200.5 213.3 232.5 254.2 278.3 300.0 315.1 330.9 350.1

total 776.8 803.3 847.6 905.4 966.7 1 036.4 1 106.7 1 194.9 1 298.8 1 415.6 1 520.7

* from 2012 combined carriers incl. in bulk carrier fleet

deliveries mill dwt 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
* incl. conversions

tankers 27.9 26.4 28.0 23.0 28.7 33.2 45.7 38.9 39.7 31.4

chemical carriers 2.0 0.8 1.5 2.4 3.0 2.9 2.2 1.7 1.0 0.5

bulk carriers* 11.8 18.3 22.3 25.5 28.6 32.6 48.3 80.6 99.2 98.2

combined carriers 0.2 0.6 1.0

others 11.2 11.9 13.8 20.3 23.0 28.4 28.4 22.7 22.7 19.2

total 53.1 57.4 65.6 71.1 83.3 97.2 124.7 144.5 163.6 149.4

neW orders mill dwt 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 tankers 47.9 34.0 24.0 74.7 42.1 47.4 10.3 38.5 9.2 14.2

chemical carriers 1.4 2.2 0.9 6.8 10.1 2.7 0.8 1.6 0.5 0.9

bulk carriers 27.9 28.8 16.8 39.0 161.6 91.4 33.6 83.5 28.0 18.6

combined carriers 3.4 -

others 27.5 28.1 25.9 25.7 52.4 20.4 1.5 10.8 25.7 11.1

total 104.7 93.1 67.6 146.2 269.6 161.9 46.2 134.4 63.3 44.8

order book mill dwt start 2003 2004 2005 2006 2007 2008 2009 2010 2011 2011 2012 tankers 45.3 65.1 72.0 76.5 128.7 147.7 164.0 120.6 113.4 75.0 49.4

chemical carriers 10.8 10.2 11.6 3.3 11.0 19.0 18.4 13.9 9.7 1.4 1.6

bulk carriers 30.3 48.4 60.6 61.4 78.9 216.1 286.3 268.7 246.5 191.5 105.4

combined carriers 0.2 3.4 3.4 3.4 2.76

others 22.9 41.2 56.2 68.1 80.0 105.7 92.2 70.5 53.7 53.7 54.6

total 109.5 164.8 200.4 209.3 298.6 491.9 564.3 477.1 426.0 321.5 211.0

5 6 7 8

tonnage sold for scraPPing, lost and other removals mill dwt chemical bulk tankers carriers carriers 2003 19.5 0.1 3.5 2004 10.6 0.1 0.8 2005 5.3 0.3 1.2 2006 6.0 0.2 2.2 2007 11.1 0.4 0.7 2008 16.6 0.5 4.7 2009 18.4 0.5 9.9 2010 22.0 1.3 6.3 2011 13.8 0.6 23.2 2012 11.7 0.8 34.8

combined carriers 0.7 0.5 0.0 0.3 0.0 0.8 0.9 0.1

others 2.8 1.0 1.0 1.1 1.4 4.3 6.7 7.7 6.9 11.6

total 26.6 13.0 7.8 9.8 13.6 26.9 36.4 37.3 44.5 59.0

tanker fleet by size (incl. chemical carriers) mill dwt start 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 10-69,999 64.3 66.0 68.8 73.4 79.4 85.9 93.6 106.5 109.1 112.2 114.3 70-119,999 63.8 69.9 75.6 83.5 89.6 97.1 103.6 108.5 116.0 121.0 123.8 120-199,999 35.0 37.5 39.7 42.9 46.2 48.4 47.8 59.4 62.6 68.2 72.8 200,000+ 130.7 130.9 136.6 144.6 148.6 152.6 157.9 157.6 161.5 174.2 186.2 total 293.8 304.1 320.7 344.5 363.7 383.9 403.0 432.0 449.3 475.6 497.1

tanker deliveries by size (incl. chemical carriers) TANKER DELIVERIES BY SIZE (incl. chemical carriers) mill dwt Mill dwt 10-69,999 70-119,999 120-199,999 2003 5.2 9.7 4.2 2004 5.8 8.6 3.7 2005 6.7 9.6 4.0 2006 8.1 7.9 4.0 2007 9.4 8.6 4.2 2008 11.2 10.3 2.2 2009 16.4 7.3 13.3 2010 8.4 9.9 5.7 2011 5.9 8.4 7.0 2012 3.4 5.8 7.4

200,000+ 10.7 9.1 9.1 5.5 9.5 12.4 11.0 16.6 19.4 15.4

total 29.9 27.2 29.5 25.4 31.7 36.1 48.0 40.5 40.7 32.0

neW orders of tankers by size (incl. chemical carriers) mill dwt 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 10-69,999 10.0 7.8 7.0 16.2 15.4 6.3 1.4 2.1 2.7 6.1 70-119,999 15.2 10.9 5.8 21.6 13.5 5.3 0.6 6.8 1.9 1.1 120-199,999 8.7 4.5 1.1 13.3 8.3 5.8 3.3 11.3 2.8 2.5 200,000+ 15.5 13.0 11.0 30.3 15.0 32.8 5.8 19.9 2.2 5.3 total 49.3 36.2 24.9 81.5 52.2 50.1 11.1 40.1 9.6 15.1

statistiCs

51

9 10 11 12

neW orders of tankers by size - QUarterly (incl. chemical carriers) mill dwt and number of vessels 10-69,999 dwt no 0.3 13 0.7 16 0.7 24 0.9 18 1.0 23 1.3 27 1.3 26 2.6 56 70-119,999 dwt no 0.3 4 0.5 5 1.0 10 0.1 1 0.3 3 0.6 6 0.1 1 0.1 1 120-199,999 dwt no 1.0 7 1.5 10 0.2 1 0.1 1 0.2 1 0.3 2 0.2 2 1.8 14 200,000+ dwt no 2.2 7 0.0 0 0.0 0 0.0 0 1.3 4 0.6 2 0.3 1 3.2 10 dwt 3.9 2.7 1.9 1.1 2.8 2.8 1.9 7.7 total no 31 31 35 20 31 37 30 81

2011

2012

1 2 3 4 1 2 3 4

tankers sold for scraPPing by size (incl. chemical carriers) mill dwt 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 10-69,999 3.5 2.8 1.9 2.0 2.6 1.8 3.0 5.3 2.4 1.1 70-119,999 3.5 2.6 1.5 1.2 0.7 0.8 1.3 1.8 2.6 3.7 120-199,999 1.8 1.3 0.4 0.0 0.2 0.2 1.1 1.4 1.0 3.2 200,000+ 9.0 1.5 0.0 0.0 0.0 1.3 2.4 3.4 3.0 2.8 total 17.8 8.2 3.8 3.2 3.5 4.0 7.7 11.9 9.0 10.8

bUlk carrier fleet by size mill dwt start 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 10-59,999 120.5 123.1 128.5 135.1 140.6 149.3 156.5 163.6 184.0 204.4 219.0 60-79,999 75.1 75.8 81.1 86.5 90.8 94.8 97.6 98.9 102.8 106.5 108.3 80,000+ 93.6 98.4 105.3 114.5 127.8 143.1 160.9 190.9 240.9 294.5 343.3 total 289.1 297.4 314.9 336.0 359.2 387.1 415.0 453.4 527.7 605.5 670.7

bUlk carriers deliveries by size mill dwt 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
* incl. converted tonnage

10-59,999 5.1 6.1 7.3 6.7 9.2 9.1 13.5 23.3 27.3 26.0

60-79,999 1.3 5.3 5.6 4.9 4.1 4.1 3.2 4.3 7.6 9.4

80,000+ 5.4 6.9 9.4 13.9 15.3 19.4 31.6 53.0 64.3 62.8

total 11.8 18.3 22.3 25.5 28.6 32.6 48.3 80.6 99.2 98.2

52

statistiCs

13 14 15 16

neW orders of bUlk carriers by size NEW ORDERS OF BULK CARRIERS BY SIZE mill dwt Mill dwt 10-59,999 2003 7.7 2004 9.5 2005 6.0 2006 14.6 2007 38.6 2008 31.7 2009 11.8 2010 21.1 2011 16.2 2012 7.4

60-79,999 7.7 4.5 1.8 2.3 7.1 5.1 3.4 6.3 8.0 4.5

80,000+ 12.6 14.8 9.0 22.2 115.9 54.6 18.4 56.0 3.8 6.8

total 27.9 28.8 16.8 39.0 161.6 91.4 33.6 83.5 28.0 18.6

neW orders of bUlk carriers by size - QUarterly mill dwt and number of vessels 10-59,999 dwt no 2011 1 9.2 70 2 2.7 23 3 2.8 19 4 1.5 10 2012 1 0.8 26 2 2.3 57 3 2.7 69 4 1.6 38

60-79,999 dwt no 3.3 68 0.8 21 1.4 33 2.4 59 0.9 13 1.4 21 1.5 23 0.6 9

80,000+ dwt no 1.0 14 0.5 7 1.3 18 0.9 13 2.2 15 0.5 6 1.9 16 2.2 18

dwt 13.6 4.0 5.5 4.9 4.0 4.2 6.1 4.4

total no 152 51 70 82 54 84 108 65

bUlk carriers sold for recycling by size mill dwt 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 10-59,999 2.4 0.6 0.6 1.1 0.5 1.8 6.3 2.7 6.6 11.4 60-79,999 0.5 0.1 0.2 0.6 0.1 1.2 1.8 0.4 3.7 7.6 80,000+ 0.6 0.1 0.2 0.5 0.1 1.5 1.6 2.9 10.7 14.0 total 3.4 0.8 1.1 2.2 0.7 4.6 9.8 5.9 21.1 33.0

age Profile for tankers mill dwt (incl. chemical carriers) - 1.1.2013 10-69,999 70-119,999 120-199,999 200,000+ total -92 12.9 6.2 2.0 1.1 22.3 93-97 9.0 8.2 6.2 16.3 39.6

year of built 98-02 03-07 15.2 36.8 17.3 43.7 14.8 20.2 43.4 44.5 90.7 145.1

08-12 40.4 48.4 29.6 80.9 199.3

total 114.3 123.8 72.8 186.2 497.1

statistiCs

53

17 18 19 20

age Profile for bUlk carriers mill dwt - 1.1.2012 10-59,999 60-79,999 80,000+ total -92 37.5 14.9 24.8 77.1 93-97 21.8 19.1 36.7 77.6

year of built 98-02 03-07 24.2 31.1 24.9 20.7 21.9 51.3 71.0 103.1

08-12 104.5 28.9 208.5 341.9

total 219.0 108.3 343.3 670.7

orderbook by year of delivery - tankers mill dwt (incl. chemical carriers)- 1.1.2013 size 10-69,999 70-119,999 120-199,999 200,000+ total total on order 11.5 5.6 12.6 21.2 51.0 2013 6.2 3.7 8.2 14.6 32.7

delivery schedule 2014 2015+ 3.6 1.8 1.9 0.0 1.5 2.9 6.3 0.3 13.2 5.0

orderbook by year of delivery - bUlk carriers mill dwt - 1.1.2013 size 10-59,999 60-79,999 80,000+ total total on order 25.5 15.5 64.5 105.4 2013 19.4 12.3 49.6 81.3

delivery schedule 2014 2015+ 4.5 1.6 2.9 0.2 13.3 1.6 20.7 3.4

orderbook by year of delivery - container shiPs 1,000 teu - 1.1.2013 size below 1,000 1,000 - 1,999 2,000 - 3,999 4,000+ total total on order 1.8 80.1 247.4 3 091.3 3 420.6 2013 1.8 52.0 180.7 1644.8 1879.4

delivery schedule 2014 2015+ 0.0 0.0 25.8 2.2 26.5 40.3 1070.1 376.4 1122.4 418.9

54

statistiCs

21 22

second hand Prices of 5 year old tankers mill $ start 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 mr Product 19.5 28.0 39.0 45.0 45.0 50.0 38.0 25.0 27.0 27.0 24.0 aframax 26.5 38.0 56.0 61.5 64.0 68.0 53.0 40.0 40.0 35.0 28.0 suezmax 37.0 48.0 71.5 75.0 81.0 93.0 71.0 56.0 58.0 45.0 44.0 vlcc 51.0 72.0 106.0 113.5 118.0 136.0 102.0 82.0 85.0 62.0 60.0

second hand Prices of 5 year old bUlk carriers mill $ start 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 handymax 14.8 20.5 31.0 25.5 40.5 73.0 26.5 28.0 31.5 25.0 19.0 Panamax 16.5 27.5 38.0 29.0 45.5 88.0 30.0 34.0 37.5 26.0 19.0 capesize 27.5 45.0 64.0 55.0 80.0 138.0 49.0 55.0 52.0 38.0 31.0

statistiCs

55

ContaCts
oslo
rs Platou asa Haakon VIIs gate 10 N-0119 Oslo Norway Tel: +47 2311 2000 Fax: +47 2311 2300 office@platou.com rs Platou shipbrokers Tel: +47 2311 2000 Fax: +47 2311 2300 office@platou.com Sale and Purchase Newbuilding Dry Cargo Car Economic Research rs Platou offshore Tel: +47 2311 2700 Fax: +47 2311 2388 off@platou.com Drilling Units Field Development Offshore Support Vessels Chartering Specialized vessels SnP and Newbuilding Operations Economic Research rs Platou markets as Tel: +47 2201 6300 Fax: +47 2311 6310 office@platou.com rs Platou finans as Tel: +47 2311 2000 Fax: +47 2311 2327 finans@platou.com rs Platou real estate as Tel: +47 2311 2000 Fax: +47 2311 2323 realestate@platou.com +47 2311 2700 +47 2311 2700 +47 2311 2700 +47 2311 2700 +47 2311 2700 +47 2311 2700 +47 2311 2700 +47 2311 2700 rig@platou.com fpso@platou.com off@platou.com osv.chartering@platou.com osv.special@platou.com osv.projects@platou.com osv.operations@platou.com ofr@platou.com +47 2311 2500 +47 2311 2650 +47 2311 2450 +47 2311 2600 +47 2311 2000 snp@platou.com new@platou.com dry@platou.com car@platou.com ecr@platou.com

aberdeen
the stewart group limited City Wharf Shiprow Aberdeen AB11 5BY United Kingdom Tel: +44 1224 256 600 aberdeen@stewartgroup.co.uk

hoUston
lone star rs Platou inc. 363 N. Sam Houston Parkway E. Suite 125, Houston Texas 77060 USA Tel: +1 281 445 5600 Fax: +1 281 445 1090 tankers@lsrsp.com ops@lsrsp.com snp@lsrsp.com gas-chems@lsrsp.com rs Platou (Usa) inc. 15995 N. Barkers Landing Suite 310, Houston Texas 77079 USA Tel: +1 281 260 9980 Fax: +1 281 260 9981 offshore@platouusa.com

accra
stewart group (ghana) limited No.33 Sir Arku Korsah Road Airport Residential Area Accra Ghana Tel: +44 1224 256 650 accra@stewartoffshoreghana.com

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 africa@platou.com

london
rs Platou london Floor 38A, Tower 42 25 Old Broad Street London EC2V 1HQ United Kingdom Tel: +44 20 7448 7110 Fax: +44 20 7448 7111 snp@platoulondon.com gas@platoulondon.com

dUbai
rigships fzco Building W3, Office 512 Dubai Airport Free Zone Dubai, P.O. Box 371014 United Arab Emirates Tel: +971 4299 7885 info@rig-ships.com

lUxemboUrg
rs Platou fund management as 16, rue Beck L-1222 Luxembourg Tel: +352 2621 1767 Fax: +352 26 21 17 69 realestate@platou.com

geneva
rs Platou geneve sa 19, Rue de la Corraterie CH-1204 Geneva Switzerland Tel: +41 22 715 1800 Fax: +41 22 715 1820 dry@platou.ch

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 drycargo.australia@platou.com

56

ContaCts

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 moscow@platou.com

shanghai
rs Platou asa shanghai repr. office Lippo Plaza, Unit 2212-2213 222 Huai Hai Zhong Road Shanghai 200021, Peoples Republic of China Tel: +86 21 5396 5959 Fax: +86 21 5396 5665 pshang@platoushanghai.com new@platoushanghai.com snp@platoushanghai.com

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 9043 office@platou.com

singaPore
rs Platou (asia) Pte. ltd. 3 Temasek Avenue # 20-01 Centennial Tower Singapore 039190 Tel: +65 6336 8733 Fax: +65 6336 8740 snp@platou.com.sg newbuild@platou.com.sg dry@platou.com.sg offshore@platou.com.sg rs Platou finans singapore Pte. ltd. 3 Temasek Avenue # 20-01 Centennial Tower Singapore 039190 Tel: +65 6306 3400 Fax: +65 6306 8890 finans@platou.com.sg

Perth
rs Platou Perth sa 8/38 Colin St. West Perth 6005 WA, Australia Tel: +61 618 9226 0618 Fax: +61 618 9486 8120 drycargo.australia@platou.com

PiraeUs
rs Platou hellas ltd. 1-3 Filellinon Str. 185 36 Piraeus Greece Tel: +30 210 4294 070 Fax: +30 210 4294 071 snp@platou.gr dry@platou.gr

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 drycargo.australia@platou.com

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 south.america@platou.com

www.platou.com