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Maritime Economics

3rd Edition

Wonders are many on earth,


and the greatest of these is man,
who rides the ocean and takes his way
through the deeps, through wind-swept
valleys of perilous seas
that surge and sway.
The chorus in Sophocles Antigone
422BC Trans. R. C. Jebb

1
CLARKSON RESEARCH SERVICES LTD

Martin Stopford
President,
Clarkson Research

Overview of
Shipping
Markets
will Greek Shipping
Support Chinese yards?
FIVE YEARS AGO TODAY

5th Hydra Shipping Conference


Maritime Greece in the Privatization Era
Saturday 14th September 2013
CLARKSON RESEARCH SERVICES LTD

New era or
just
another
cycle?

1.
2.
3.
4.
5.

The Shipping Cycle


Global Dynamics
Changing Ownership
Energy & the Environment
Information & Communications

What makes the business climate so difficult today is that shipping investors must
deal with several major changes taking place simultaneously. What are the
challenges, how will they interact and where they might lead?
CLARKSON RESEARCH SERVICES LTD

Issue 1: The Shipping Cycle

I made
millions on
timecharters

Bankers
arrested
my ships

I still dont
seem to be
making any
money

I LOVE
SHIPPING

I can only
pay the
interest, sir

CLARKSON RESEARCH SERVICES LTD

Ship Earnings Super-Cycle


60

(Clarksea Index is a weighted average of earnings by tankers, bulkers, containerships & gas.)
Bulk Shipping Fundamentals balance
BOOM!
DEPRESSION
LOW RETURNS
BUST

Clarksea Index $000/day

50

40

30
$22,800/day

20
$12,000/day

10

$9,500/day

$8,500/day
1980s Recession

The Great
Shipping Boom

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

Source: Clarkson Research Services Ltd


CLARKSON RESEARCH SERVICES LTD

Ship Earnings Super-Cycle


Clarksea Index $000/day and $ million

60

50

40

(Clarksea Index is a weighted average of earnings by tankers, bulkers, containerships & gas.)
Bulk Shipping Fundamentals balance

Newbuilding price
of Panamax bulk
carrier $ million

30
$22,800/day

20
$12,000/day

10

$8,500/day
1980s Recession

The Great
Shipping Boom

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

Source: Clarkson Research Services Ltd


CLARKSON RESEARCH SERVICES LTD

100
90
80
70
60
50
40
30
20
10
0

New Panamax
Panamax bulk carrier 5 year old
Second hand prices still trying to find a level
as potential sellers avoid distress sales.
But the downward pressure is building

New
Panamax

Panamax $21 MM

Jan-80
Jan-82
Jan-84
Jan-86
Jan-88
Jan-90
Jan-92
Jan-94
Jan '96
Jan-98
Jan-00
Jan-02
Jan-04
Jan '06
Jan '08
Jan '10
Jan '12

price $ million

Market Prices Edging Down

Panamax peak
$90MM
June 2008

Source CRSL

CLARKSON RESEARCH SERVICES LTD

Jan-80
Jan-82
Jan-84
Jan-86
Jan-88
Jan-90
Jan-92
Jan-94
Jan '96
Jan-98
Jan-00
Jan '02
Jan '04
Jan '06
Jan '08
Jan '10
Jan '12

5 year old % new pricemillion

Panamax Bulker on Trend


200%
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
Panamax 5 year

Not as cheap
as 1980s

Source CRSL
CLARKSON RESEARCH SERVICES LTD

Economic Cycles & Sea Trade


% change

Oil Crisis

Credit Crisis

3.9%
trend
1991
Financial
Crisis

1997
Asia
Crisis

2001
Dot.com
crisis

1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014

14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%

World GDP (red line) and sea trade (blue line)

Crisis 1
1973
1st Oil
Crisis

Crisis 2
1979
2nd Oil
Crisis

Crisis 6
2007
Credit
Crisis
CLARKSON RESEARCH SERVICES LTD

The Shipbuilding Cycle


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

160
140
120
100

Deliveries 61
m dwt in 1976

80

Deliveries

Scrapping
Deliveries
162.5 m
dwt in
2012

FORECAST

Last phase
of 1970s
scrapping!

60
40
20

1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018

23/09/2013

10
CLARKSON RESEARCH SERVICES LTD

REGIONAL STRUCTURE OF WORLD SHIPBUILDING


See: page 616

100
USA

Other
China

80

Korea

70
60
50
40

Scandinavia

30
20
10

Britain

Japan

Europe

0
1902
1907
1912
1917
1922
1927
1932
1937
1942
1947
1952
1957
1962
1967
1972
1977
1982
1987
1992
1997
2002
2007
2012

% total ships lau nch ed

90

CLARKSON RESEARCH SERVICES LTD

World Merchant Fleet Growth


Million dwt (year end)

1,600
1,400
1,200
1,000

Fleet grew
30% in 20
years

800
600
400
200
0
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
2011

Fleet Growth is
speeding up
Between 1990 and
2004 fleet growth
averaged 2.2% per
annum
Between 2004 and
2012 the fleet
doubled, most of
the growth came
after the market
collapsed

CLARKSON RESEARCH SERVICES LTD

Shipping Supply Crisis: Brief History


Fleet M dwt 1st Jan

1,600
1,400
1,200
1,000
800
600

Index of sea trade (black line) compared with fleet area chart (m dwt)
1973-2000

Shipping caught
in pincers of
supply bubble
and demand
1960s
collapse
Supply lags
demand &
triggers
investment
Other
bubble
1967-73

2010s
Supply bubble
2000-2008 still delivering,
Supply lags
trade OK
demand &
triggers an
investment
bubble

Fleet
Other
Ship
types

Bulk
carrier

OBOs

400
Tanker

200
0
1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
Source: Fearnleys Annual Review (cargo), CRSL (fleet)
CLARKSON RESEARCH SERVICES LTD

VLCC Cost & Revenue 1990-2013


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

120
100
80

$000/day

Revenue based on 12
month earnings. Ships
generating much cash
in the 2000s

Depreciation
Interest + spread
OPEX
VLCC Earnings (12 month average)

60
40

Depreciation
over 20 yrs

20

INTEREST on
New cost at LIBOR + spread

OPEX

Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan '04
Jan '05
Jan '06
Jan '07
Jan '08
Jan '09
Jan '10
Jan '11
Jan '12
Jan '13

Earnings
close to
operating
costs

CLARKSON RESEARCH SERVICES LTD

Issue 2: Global Dynamics

23/09/2013

Martin Stopford

15
CLARKSON RESEARCH SERVICES LTD

Who Imports the Most Cargo By Sea?


7.50

Japan

6.30

Europe
3.80

N. America
China
S America
Africa

1.5
0.6
0.20

1950-2000
OECDs 1.3
billion
population
dominate sea
trade

2000-2050
6 billion Non-OECD
population moving
towards OECD levels

0 1 2 3 4 5 6 7 8 9 10 11 12
Tonnes of sea im ports per person a year
CLARKSON RESEARCH SERVICES LTD

OECD & Non OECD Share of Sea Trade


90%

OECD % Trade

Non OECD % Trade


Non OECD
overtook OECD
in 2008

70%
60%

OECD decline
started in.
1974

50%
40%
30%
20%
10%

2010

2005

2000

1995

1990

1985

1980

1975

1970

1965

1960

1955

0%
1950

% World Sea Trade

80%

CLARKSON RESEARCH SERVICES LTD

Issue 3: Ownership Patterns


72% OF THE WORLD FLEET FLAGGED ABROAD & GROWING
1,000.0

National & Foreign Flag Fleets M GT

995

y = 237.72e0.054x

900.0

852

National
flag 396 m
dwt, 28%

800.0
700.0

800
748
699

Foreign
Flag 995m
dwt, 72%

600.0

649
603
552

500.0

441 451

400.0
323 335
294 311

300.0
237

359

383

486 501
468 480

407 407

National flag
fleet

255

200.0

Foreign flag
fleet

100.0
-

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

CLARKSON RESEARCH SERVICES LTD

Top Ten Shipowning Nations

Foreign Flag Tonnage


Nudges 1 Billion GT
72% of the merchant
fleet is now registered
offshore
Europe owns 32%
Shipping is evolving
into a truly global
industry

CLARKSON RESEARCH SERVICES LTD

Top Shipping
Fleets 19992013

Million Gross Tonnes

The shipping fleet is


changing.
Greece and Japan are
the two biggest fleets
neck and neck
China has overtaken
Germany to take the
third position and the
fleet is growing rapidly
German shipping faces
the problems of the
future of the KG system

CLARKSON RESEARCH SERVICES LTD

Regulatory Challenge
IMO moving into areas
involving technical design
and operation of the ship
EEDI; air emissions;
ballast water; recycling;
energy efficiency and
carbon footprint raise
technical issues and
CHOICES.
The industry lacks a
coherent technical base
to resolve these issue

CLARKSON RESEARCH SERVICES LTD

Issue 4: Energy & the Environment


2005
Ship costs
3x fuel

$/day cost

40,000

SHIP
FUEL

FUEL

35,000

2012
Ship costs
half fuel

SHIP

30,000
25,000
20,000
15,000
10,000

Bunker cost

1 Year TC Rate

5,000
2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

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


CLARKSON RESEARCH SERVICES LTD

The Future - Economical & Green Ships


77,000 Dwt Panamax Bulk Carrier
1. De-rate engine
for improved
grams/kWh

3. Turbo charger
cut-out & slide
injectors

5. Tune Engine
with electronic
control system

7. Improved trim
management

Crane

Steering gear
room

Side rolling
hydraulic
hatch covers

Hatch
No 4 hold floodable for extra
coaming water ballast in heavy weather

7 cargo holds, each with capacity for 1213,000 m3 or 1011,000


tons depending
on density of cargo being carried

Anchor

Water line
No 7 hold
12,200 m3

Prop shaft

No 6 hold
13,000 m3

Main engine
12,670 HP at 89rpm

2. New propeller
tuned to revised
engine spec

No 5 hold
13,000 m3

No 4 hold
12,300 m3
floodable

No 3 hold
13,000 m3

No 2 hold
13,300m3

No 1 hold
12,600m3

Double bottom used for water ballastCorrugated bulkhead

4. Waste heat
recovery
system

6. Improved low
load cylinder
lubrication

14.2
metres
draft

8. Hull coatings,
less ballast, air
resistance etc.

225 m LOA, 77,000 dwt


CLARKSON RESEARCH SERVICES LTD

Engine Upgrade Kit

1. Slide fuel valves cut exhaust valve deposits (see


Photo below after 890 hours with new valves)

3. Lubricator Upgrade Old valve


Saves 140 lt/day
at 10%MCR

Slide valve
2. Turbo charger cut-out
CLARKSON RESEARCH SERVICES LTD

De-rating Engine
Modify engine components:1.
2.
3.
4.
5.
6.
7.
8.

Fuel & exhaust cam positions


Fuel atomisers
Fuel valves
Height between x-head & piston rod
Wave cut of cylinder liner
Re-match turbochargers
New technical file
Propeller exchange

The top end performance is lost, but


better low output performance

CLARKSON RESEARCH SERVICES LTD

Fuel Consumption 60,000 dwt Bulkers


Fuel consumption TPD at 14.5 knots
80.0

Consumption 65-75

70.0
60.0
50.0
40.0
30.0
20.0
10.0

Consumption 65-75
1965
1973
1976
1978
1981
1982
1983
1984
1987
1989
1993
1996
2005
2006
2008
2009
2009
2010
2010
2011
2011
2011
2012
2012
2012

Year of Build
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Fuel Consumption 60,000 dwt Bulkers


Fuel consumption TPD at 14.5 knots
80.0

70.0
60.0
50.0
40.0
30.0
20.0
10.0

Consumption 65-75

Consumption 76-88

1965
1973
1976
1978
1981
1982
1983
1984
1987
1989
1993
1996
2005
2006
2008
2009
2009
2010
2010
2011
2011
2011
2012
2012
2012

Year of Build
CLARKSON RESEARCH SERVICES LTD

Fuel Consumption 60,000 dwt Bulkers


Fuel consumption TPD at 14.5 knots

New Japanese
60k dwt supramax
28 m bpd

Year of Build
CLARKSON RESEARCH SERVICES LTD

Issue 5: Information & Communications


Gordon
Moore

Invented Moores Law

Fibre optic cable network


CLARKSON RESEARCH SERVICES LTD

Has Shipping Learnt its Lesson?


1. This looks like being a long cycle
which will change shipping. No
magic solutions.
2. Ownership is moving offshore at
a rate of 1% a year, and new
financial structures emerging
3. Shipping is struggling with a
strategy to deal with recession,
fuel prices & regulatory issues.
4. Information technology massively
important and the basis for major
changes in shipping.
5. So plenty of new lessons!

Professional poker
players soon learn that
they make the big profits
by winning from other
players

CLARKSON RESEARCH SERVICES LTD

Disclaimer
The statistical, graphical information contained in this paper are drawn from
the Clarkson Research Services Limited ("CRSL") database and other
sources. CRSL advises that: (i) some information in CRSL's database is
derived from estimates or subjective judgments; and (ii) the information in the
databases of other maritime data collection agencies may differ from the
information in CRSL's database; and (iii) whilst CRSL has taken reasonable
care in the compilation of the statistical and graphical information and believes
it to be accurate and correct, data compilation is subject to limited audit and
validation procedures and may accordingly contain errors; and (iv) CRSL, its
agents, officers and employees do not accept liability for any loss suffered in
consequence of reliance on such information or in any other manner; and (v)
the provision of such information does not obviate any need to make
appropriate further enquiries; (vi) the provision of such information is not an
endorsement of any commercial policies and/or any conclusions by CRSL; and
(vii) shipping is a variable and cyclical business and anyone who thinks they
can forecast it needs their head examining. Where views are expressed they
are in the context of this general presentation and should not be used or relied
on in any other context without appropriate investigation, validation and the
written permission of the author
CLARKSON RESEARCH SERVICES LTD