Cycle Drivers In The Shipping
Markets
Autumn 2003
Agenda
• Historical Overview
• Analysis by Market
• Summary
2
Cycles Across Market
Sectors (1 Year TC Rates)
30,000
25,000
$/day
20,000
15,000
10,000
5,000
0
80.1
82.1
84.1
86.1
88.1
90.1
P an am ax B ulker (69,000 dw t)
92.1
94.1
96.1
98.1
00.1
02.1
Afram ax T an ker (98,000 d w t)
G eared C on tainership (1500 TE U )
3
Performance Over Cycles
50%
RoI by Market Cycle, 1980-2000
40%
Bulker
30%
% p.a.
Tanker
20%
Feeder
10%
0%
-10%
Strong Markets
Weak Markets
-20%
4
What Drives The Cycle?
• Fleet Utilization Rate Is Key
• Fleet Utilization Rate = Dwt Demand/Fleet
Size
• Fleet Size Easy To Measure
• Dwt Demand More Difficult
– Closely Related To Tonne-Mile Demand
– Fleet Productivity Also Plays A Role
5
28,000
100
24,000
95
20,000
90
16,000
85
12,000
80
8,000
75
4,000
70
80.1
82.1
84.1
86.1
88.1
Afram ax TC Rate
90.1
92.1
94.1
96.1
98.1
00.1
Utilization Rate, %
TC Rates, $/day
Tanker Rates vs.
Fleet Utilization
02.1
Tanker Fleet Utilization Rate
6
Key Cycle Drivers, Part 1
• Trade Demand
– Linked To Economic Activity
• Booms Often Followed By Busts
– Other Exogenous Factors
• OPEC Policies In The Early 1980s
• Japanese Nuclear Power Problems In 2002
• Emergence Of China As Manufacturing Hub In 2003
• Shift From Long-Haul Middle East Oil To Short-Haul
Russian Supplies Likely In 2004
7
Key Cycle Drivers, Part 2
• Fleet Developments
– Over-Ordering A Perpetual Problem
• Delivery Lag Of 2-3 Years Results In Delayed
Feedback
– Scrapping Helps Balance Market
• Low Freight Rates Lead To Increased Activity
• Regulations Also Have Impact
8
World Economic Growth
5
2003:
C h in e s e
Boom
Annual GDP Growth, %
4
3
2
1
E a rly 8 0 s :
G lo b a l
R e c e s s io n
1 9 9 1 -9 2 :
OECD
R e c e s s io n
1 9 9 7 -9 8 :
A s ia n
C ris is
0
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
9
Global GDP/Trade Link
Annual Growth
1990-2002 2003 (Thru Sept)
Economic Growth
3.1%
3.1%
Oil Trade
2.8%
4.1%
Dry Bulk Trade
2.7%
5.1%
Container Trade
6.5%
10.5%
10
China Becomes Global
Manufacturing Hub
• Takes In Large Amounts Of Raw Materials
– Oil, Iron Ore, Steel Imports Soar
• Adds Cheap Labor
• Churns Out Huge Volume Of Finished Goods
– Exports Up 34% In First Half Of 2003 (In $)
• Shipping Demand Skyrockets
– Bulkers & Tankers Boosted By Import Activity
– Containership Market Driven By Exports
11
China Spurs Shipping Boom:
Growth From 02Q1-03Q1
60%
50%
50%
40%
40%
38%
30%
20%
9%
10%
3%
2%
0%
D ry B ulk Im port G row th
C hina
O il Im port G row th
C ontainer E xport G row th
R est of W orld
12
Agenda
• Historical Overview
• Analysis by Market
– Tanker
– Bulker
– Containership
• Summary
13
Tanker Market Cycles
Post Iranian Revolution Era:
27,000
High Oil Prices
24,000
1990: Tanker Orderbook
Exceeds 15% of Fleet
End 1997: Orderbook
Exceeds 15% of Fleet
USD/Day
21,000
18,000
15,000
12,000
1999: OPEC cutbacks
1991-1992: OECD
Recession
9,000
6,000
End 1985:
OPEC Expands Output
Oil Prices Tumble
3,000
0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
Aframax TC Rate
14
Tanker Demand
11,000
1993-2000
2% annual growth
Tonne-Miles (billion)
10,000
9,000
1980-1986
(8%) annual decline
8,000
7,000
6,000
1986-1993
7% annual growth
5,000
4,000
1980
1982
1984
1986
Tanker Tonne-Miles
1988
1990
Trend '80-86
1992
1994
1996
Trend '86-93
1998
2000
Trend '93-00
15
Tanker Demand By
Importing Region
Other
9%
Japan
15%
Developing Asia
27%
North America
30%
OECD Europe
19%
16
Rates and Orderbook
27,000
21%
24,000
18%
15%
18,000
15,000
12%
12,000
9%
9,000
Ratios
USD/Day
21,000
6%
6,000
3%
3,000
0
1980
0%
1982
1984
1986
Aframax TC Rate
1988
1990
1992
1994
1996
1998
2000
Orderbook / Fleet Ratio (right axis)
17
Scrapping Adjusts To Rates
27,000
21%
24,000
18%
15%
18,000
15,000
12%
12,000
9%
9,000
Scrapping
USD/Day
21,000
6%
6,000
3%
3,000
0
0%
1980
1982
1984
1986
Aframax TC Rate
1988
1990
1992
1994
1996
1998
2000
Scrapping, as a % of Fleet (right axis)
18
Summary: Tanker Cycles
• Structural Changes Instrumental in Shaping
the Cycles:
– Single Commodity Increases Potential For Volatility
– OPEC/non-OPEC Split An Important Factor
• Orderbook Provides Early Warning Signals
• Scrapping as an Adjustment Mechanism
– Regulatory Changes Also Affect Scrapping
19
Tanker Market Outlook
• Orderbook Currently at 24% of the Fleet
– Deliveries Likely to Be Very High Thru 2006
• Europe Accelerates Ban On Single-Hulls
– IMO Likely To Follow Suit
– High Scrapping As A Result
• Fleet Likely to Grow by 2.5%/Year thru ‘05
• Can Demand Match this Pace?
– Not Likely, Due To Rising Short-Haul Supplies
– But China Is A Wild Card
20
Agenda
• Historical Overview
• Analysis by Market
– Tanker
– Bulker
– Containership
• Summary
21
Dry Bulk Market Cycles
18,000
1995: Dry Bulk
Orderbook at 13%
of Fleet Capacity
1983-1984
Surge in Ordering
USD/Day
15,000
12,000
9,000
6,000
1998:
Asian Crisis
1986-1989
Strong Economic Growth/
Limited Ordering
3,000
0
80.1
82.1
84.1
86.1
88.1
90.1
92.1
94.1
96.1
98.1
00.1
Panamax TC Rate
22
Dry Bulk Trade
10,000
Tonne-Miles (billion)
9,000
Strong Asian
Imports
1980-1998
2% average annual growth
8,000
Asian Crisis
7,000
6,000
5,000
OECD Recession,
Collapse of Russian
Grain Imports
Low Soviet
Grain Imports
OECD Recession
4,000
1980
1982
1984
1986
1988
1990
Dry Bulk Tonne-Miles
1992
1994
1996
1998
2000
Trend 1980-1999
23
Dry Bulk Demand By
Importing Region
Other
17%
Developing Asia
30%
North America
5%
OECD Europe
26%
Japan
22%
24
Dry Bulk Demand By
Commodity
Other
20%
Steel-Related
39%
Grain
15%
Steam Coal
18%
Steel Products
8%
25
16,000
24%
14,000
21%
12,000
18%
10,000
15%
8,000
12%
6,000
9%
4,000
6%
2,000
3%
0
0%
1980
1982
1984
1986
Panamax TC Rate
1988
1990
1992
1994
1996
1998
Ordering
USD/Day
Ordering Behavior
2000
Orderbook / Fleet Ratio (right axis)
26
16,000
16%
14,000
14%
12,000
12%
10,000
10%
8,000
8%
6,000
6%
4,000
4%
2,000
2%
0
0%
1980
1982
1984
1986
Panamax TC Rate
1988
1990
1992
1994
1996
1998
Scrapping
USD/Day
Scrapping Adjustments
2000
Scrapping, as a % of Fleet (right axis)
27
Summary: Dry Bulk Cycles
• Demand Forecasts Challenging Despite Steady
Long-Term Trend:
– Industrial Commodities (Steel Generates ~50% Of
Demand)
– Energy Related Commodities (Steam Coal)
– Grains and Foods
• Ordering Instrumental in Shaping the Cycles:
– Ordering Anticipates Demand Growth
28
Dry Bulk Market Outlook
• Orderbook Currently At 14% Of Fleet Size
• Fleet Growth Projected to Average 3%/Year
thru 2005
• Trade Demand Projected To Grow More
Slowly
• China Is The Key
– Slower Growth In Steel Production Expected
– But Lots Of Upside Potential
29
Agenda
• Historical Overview
• Analysis by Market
– Tanker
– Bulker
– Containership
• Summary
30
Containership Market
Cycles
1990-1995:
Decline in Trade Barriers /
Orderly Fleet Expansion
15,000
1999-2000:
Limited Fleet
Expansion
USD/Day
12,000
9,000
6,000
3,000
1986-1990:
Limited Fleet Growth
1995-1998:
Surge of Fleet Capacity
1980-1986:
Fleet Growth Outpaces
Demand by 2:1 Ratio
0
80.1
82.1
84.1
86.1
88.1
90.1
92.1
94.1
96.1
98.1
00.1
TC Rate, Geared 1000 TEU Containership
31
Containership Trade (TEUs)
TEUs (million)
70
1980-2000
7.2 % average annual growth
16%
14%
60
12%
50
10%
40
8%
30
6%
20
4%
10
2%
0
0%
1980
1982
1984
1986
1988
1990
Total Trade (left axis, TEUs)
1992
1994
1996
1998
Annual Growth
80
2000
1980-2000 Trend
Annual Volatility (right axis)
32
Container Demand By
Region
Other
21%
Developing Asia
25%
Japan
8%
North America
23%
Europe
23%
33
USD/Day
Ordering Behavior
16,000
40%
14,000
35%
12,000
30%
10,000
25%
8,000
20%
6,000
15%
4,000
10%
2,000
5%
0
0%
1980
1982
1984
1986
1988
1990
TC Rate, Geared 1000 TEU Feeder
1992
1994
1996
1998
2000
Orderbook / Fleet Ratio (right axis)
34
Scrapping remains
Insignificant
600
Thousand TEUs
500
400
300
200
100
0
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Total Deliveries, Cellular Fleet
Total Scrapping, Cellular Fleet
35
Containership Cycles:
Summary
• Structural Changes Play Key Role:
– Trade Deregulation and Globalization
– Technology (Information Systems, Large Ships,
Terminals, Infrastructure)
– Reshaping of Liner Industry (Deregulation/OSRA)
• Ordering Instrumental in Shaping the Cycles
• Scrapping Has Had Very Limited Impact
36
Containership Charter
Market Outlook
• Orderbook Has Risen To 30% Of Fleet Size
• Fleet Growth Projected to Average 9%/Year
during next 2 Years
• Demand Projected To Grow By Only
7.5%/Year
37
Agenda
• Historical Overview
• Analysis by Market
• Summary
38
Summary: Key Factors To
Watch
• Global Economic Growth
– Is Chinese Economy Overheating?
• Structural Changes
– Will Protectionism Reverse Trade Gains?
– OPEC vs. Russian Oil
• Always Pay Attention To Orderbook
– Quite High Right Now
– Scrapping Will Respond To Rates/Regulations
39
Looking Ahead:
Marsoft Outlook As Of
03Q4
30,000
25,000
$/day
20,000
15,000
10,000
5,000
0
80.1
82.1
84.1
86.1
88.1
P anam ax B ulker
90.1
92.1
94.1
Afram ax Tanker
96.1
98.1
00.1
02.1
04.1
1500 TE U C ontainership
40