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Overview in Shipping Markets
Teddy H Tsai – Head of Research, Pacific Transportation Asia Pte Ltd.
August 20, 2008
General Overview
2
Current Environment
Rising commodity prices will be one of the long-term major issues. Rising prices for grains, oil, building materials are affecting all parts of the global economy, from fixed investments to consumer consumption. China and India continue to be the leading drivers of demand for commodities.
Commodity producers continues to promote a bullish view. Marius Kloppers, CEO of BHP Billiton, highlighted that strong demand from China will remain intact for the longer-term. Moreover, supply-side constraints will continue to favor commodity prices.
Vessel orderbook continues to grow for the larger, standard sizes. We need to remain alert of the orderbook, and avoid areas where the supply-side is being overbuilt. We continue to believe that niche markets have a more limited orderbook, where opportunities are present.
Areas to focus on are sectors with 1) old fleet, 2) limited orderbook, 3) fragmented market, 4) low rates with cyclical recovery outlook, and 5) organic growth.
Economic Overview
4
GDP Growth
Slower growth regionally and higher inflation.
Food price inflation raises policy and political risk. Export restrictions increasingly pervasive.
Asia trade is still driven by external trade
Euro currency weakness will threaten Asian exports.
Slower Asian growth in 2H08. Cycle trough as late as 2H09.
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
(%YoY)
TotalExcluding food
Weighted using 2007 GDP
Source: CEIC, CLSA Asia-Pacific Markets
2005 2006 2007 2008clsa 2009clsaChina 10.4 11.6 11.9 10 8Hong Kong 7 6.9 6.4 4.9 2.6India 9.4 9.6 9 7.5 7.1Indonesia 5.7 5.5 6.3 4.9 2.9Korea 4.2 5.1 5 3.9 2.8Malaysia 5.3 5.8 6.3 5.3 3.3Philippines 5 5.4 7.2 3.9 3.4Singapore 7.3 8.2 7.7 3.6 2.7Taiwan 4.2 4.9 5.7 3.6 1.5Thailand 4.5 5.1 4.8 4.4 1.9Vietnam 8.4 8.2 8.5 5 4
5
Inflationary impact – rising energy & commodity prices
We are now in an inflationary world. Commodity prices coming off their highs, as the global economic condition deteriorates,
but expectations are that long-term prices will stabilize at a higher level.
Transport costs will also stabilize at a higher level, due to the shortage of assets in “hot” markets, such as dry bulk, offshore rigs, etc.
683
0100200300400500600700800900
Aug-02
May-03
Feb-04
Nov-04
Aug-05
May-06
Feb-07
Nov-07
Aug-08
180cst bunker prices, Singapore
US$/tonne
337
222
0
100
200
300
400
500
600
Aug-01
May-02
Feb-03
Nov-03
Aug-04
May-05
Feb-06
Nov-06
Aug-07
May-08
US Gulf Wheat Price US Gulf Corn Price
US$/tonne
6
Spot Prices on Coal and Iron OreChina Iron Ore Import Price (Beilun)
Yuan/mt
1,360
-200400600800
1,0001,2001,4001,6001,800
Jun-06 Dec-06 Jun-07 Dec-07 Jun-080
20
40
60
80
100
120
140
160
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
020406080100120140160180200
North West Europe Coal Prices - CIF basis (EUR/ton)Richards Bay Coal Prices - FOB basis (USD/ton)
EUR/ metric ton
USD/ metric ton
Iron ore and coal prices are off from their highs, but long-term outlook remains strong, as highlighted by commodity producers.
7
Credit Conditions – Current StatusUSD 5-Year Interest Rate Swap (%) - Quarterly
0%1%2%3%4%5%6%7%8%
Mar-97
Jun-98
Sep-99
Dec-00
Mar-02
Jun-03
Sep-04
Dec-05
Mar-07
Jun-08
Funding costs has sky rocketed.. From <50 bps to over 200 bps above LIBOR, even for quality borrowers. Interest rate swaps are 4.2% for 5 year, US dollar terms, and 5.1% for Euro dollar terms, up from our last update.
We estimate that funding costs should be 4~5% and gearing levels have dropped to 50-60%. The tenor of loans are being offered around 5 to 8 years, but with front loaded payments.
Timecharter contracts required for new startups range from 1-3 years, depending on the bank.
8
Demand for Shipping Assets
Tankers – World oil consumption and oil products trade Imports and exports of refined products Imports and exports of crude oil Oil & Gas E&P – demand for offshore supply vessels and services
Dry Bulk – China demand for raw materials Iron Ore, Coking Coal for Steel Production Thermal coal for Power Production Grains, Soybean, and the Agricultural-bulk trade
Containerships – Final Good Demand from Asia to Europe and US Liner market – weak US and European growth High oil prices impacting the market
Specialized Trades Auto market – car carriers Dredgers and Tugs – local port demand Project cargoes – Heavy Lift, manufacturing location of large equipment shifting to Asia.
9
Valuations by SectorP/E P/BV
Current YR1 YR2 Current YR1 YR2 T12MO YR1 YR2Yield-Based Com panies 17.5 15.8 18.3 2.3 2.2 2.2 14.4 11.0 9.4Tanker Com panies 13.6 12.4 10.8 1.7 1.3 1.3 14.1 9.8 9.5Gas & Chem ical 21.9 26.8 13.9 1.3 4.9 4.6 10.2 8.5 7.7Dry Bulk Shipping 7.9 5.6 5.5 2.8 6.5 6.7 17.3 5.7 6.5Container Shipping Operators 6.5 9.5 8.4 1.0 1.4 1.3 11.0 5.7 5.4Diversified Com panies 11.3 10.1 8.4 1.7 16.6 12.6 12.4 7.2 7.5Shipbuilding 20.3 8.8 6.4 2.5 1.6 1.2 30.0 12.1 8.5Ports 10.4 15.4 12.0 1.3 1.3 1.2 31.8 19.6 17.8Ship Repair / Building 15.3 12.8 11.1 3.4 2.9 2.6 17.4 9.9 8.5Others 11.7 14.7 11.1 1.6 9.9 2.7 8.2 7.1 6.5
EV/EBITDA
ROE2007 2008 Current YR1 YR2 2007 2008
Yield-Based Companies 7.8 9.8 18.6 19.3 20.1 17.0 21.9 5.9 46.9Tanker Companies 5.5 8.1 19.2 30.3 19.7 14.7 10.8 5.8 22.5Gas & Chemical 13.8 4.9 14.2 11.5 10.7 50.3 40.3 6.1 17.2Dry Bulk Shipping 7.0 10.7 48.8 51.1 38.1 152.3 79.0 3.2 34.6Container Shipping Operators 4.5 3.9 24.5 10.3 11.5 92.1 -38.6 2.8 8.3Diversified Companies 2.7 3.9 16.9 21.2 19.2 26.2 29.7 3.2 18.4Shipbuilding 1.0 3.2 21.9 26.8 35.1 149.2 111.2 0.9 7.6Ports 1.7 3.6 14.8 9.3 10.3 41.1 -20.1 4.0 23.9Ship Repair / Building N/A 5.7 23.2 24.8 25.6 5.8 36.1 1.2 6.2Others 10.0 1.5 10.0 15.0 19.7 -17.3 -7.6 3.4 14.0
Div Yield EPS Growth Debt / EBITDA
EBIT Margin
Asset prices
11
Cash Flow Multiples
Ship Type Sub-TypeCharterfree
Value (US$ m n) Spot1-Year
T/C3-Year
T/C2003-07
Average SpotTankerVLCC Modern 300,000 dw t 165.0 5.3 5.4 7.1 7.6
Vintage 250-285,000 dw t 45.0 1.5 2.2 - 2.4Suezmax Modern 150,000 dw t 105.0 2.8 7.2 7.2 5.9Aframax Modern 95-105,000 dw t 79.0 4.1 7.3 7.3 6.1
Mid-aged 95-105,000 dw t 64.0 3.4 10.8 6.2 5.4Clean Product Modern 70-75,000 dw t 60.0 3.0 6.0 7.0 5.6
Mid-aged 30-35,000 dw t 37.0 8.0 - - 4.6Dirty Product Modern 45-47,000 dw t 54.0 3.8 7.3 7.7 5.2Dry BulkCapesize Modern 170,000 dw t 156.0 3.1 2.8 3.8 7.2
Mid-aged 150,000 dw t 116.0 2.7 2.1 2.8 6.7Vintage 150,000 dw t 92.5 2.2 4.7 - 5.4
Panamax Modern 73,000 dw t 89.0 5.2 3.5 4.2 9.7Mid-aged 72,000 dw t 77.5 4.6 3.1 3.7 8.6Vintage 60,000 dw t 48.0 3.2 2.5 3.5 6.1
Handymax Modern 45,000 dw t 73.5 4.4 4.3 5.0 9.2Mid-aged 42-45,000 62.0 4.2 3.7 4.2 7.9
Handysize Modern 25-30,000 dw t 54.0 - 4.3 4.3 -Mid-aged 25-30,000 dw t 46.5 - 3.7 3.7 -
Container**Container Mid-aged 3,500 teu 48.3 6.0 - - 5.9
** Updated Aug 14, 2008 (MMA)
EBITDA Multiple
12
Dry Bulk Asset Prices
SSY Prices - Handysize Vessel
0
10
20
30
40
50
60
Jul-9
9
Jan-
00
Jul-0
0
Jan-0
1
Jul-0
1
Jan-0
2
Jul-0
2
Jan-0
3
Jul-0
3
Jan-0
4
Jul-0
4
Jan-0
5
Jul-0
5
Jan-0
6
Jul-0
6
Jan-0
7
Jul-0
7
Jan-0
8
US$ M
illion
s
Simpson Spence Young SSY New Build Price Japan Handysize VesselSimpson Spence Young SSY New Build Price South Korea Handysize VesselSimpson Spence Young SSY New Build Price China Handysize VesselSimpson Spence Young SSY 5 Year Old Handysize Vessel PriceSimpson Spence Young SSY 10 Year Old Handysize Vessel PriceSimpson Spence Young SSY 15 Year Old Handysize Vessel Price
SSY Prices - Capesize Vessel
0
40
80
120
160
Jan-9
4
Jan-9
5
Jan-9
6
Jan-9
7
Jan-9
8
Jan-9
9
Jan-0
0
Jan-0
1
Jan-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
US$ M
illion
sSimpson Spence Young SSY New Build Price Japan Capesize VesselSimpson Spence Young SSY New Build Price South Korea Capesize VesselSimpson Spence Young SSY New Build Price China Capesize VesselSimpson Spence Young SSY 5 Year Old Capesize Vessel PriceSimpson Spence Young SSY 10 Year Old Capesize Vessel PriceSimpson Spence Young SSY 15 Year Old Capesize Vessel Price
13
Tanker Asset Prices – Clean Product Tankers
SSY Prices - 37K Ton Clean Vessel
0
10
20
30
40
50
Jan-
02
Jul-0
2
Jan-
03
Jul-0
3
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
US$
Mill
ions
Simpson Spence Young SSY New Build Price Japan 37000-Ton Clean VesselSimpson Spence Young SSY New Build Price South Korea 37000-Ton Clean VesselSimpson Spence Young SSY 5 Year Old 37000-Ton Vessel Clean PriceSimpson Spence Young SSY 10 Year Old 37000-Ton Vessel Clean PriceSimpson Spence Young SSY 15 Year Old 37000-Ton Vessel Clean Price Single HullSimpson Spence Young SSY 15 Year Old 37000-Ton Vessel Clean Price
14
Tanker Asset Prices – VLCC Tanker
SSY Prices - VLCC Vessel
0
40
80
120
160
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
US$
Mill
ions
Simpson Spence Young SSY New Build Price Japan VLCC VesselSimpson Spence Young SSY New Build Price South Korea VLCC VesselSimpson Spence Young SSY 5 Year Old VLCC Vessel PriceSimpson Spence Young SSY 10 Year Old VLCC Vessel PriceSimpson Spence Young SSY 15 Year Old VLCC Vessel PriceSimpson Spence Young SSY 15 Year Old VLCC Vessel Price Single Hull
Freight rate conditions
16
Baltic Dirty Tanker Index, Clean Tanker Index
The Baltic Dirty Tanker measures freight rates for dirty oil products such as fuel oil, crude oil, residual fuels.
The Baltic Clean Tanker measures freight rates for clean petroleum products, such as jet fuel, gasoline, diesel, etc.
1,965
1,305
500
1,000
1,500
2,000
2,500
3,000
3,500
Dec 01
Jun 02
Dec 02
Jun 03
Dec 03
Jun 04
Dec 04
Jun 05
Dec 05
Jun 06
Dec 06
Jun 07
Dec 07
Jun 08
Baltic Dirty Tanker Baltic Clean Tanker
17
Baltic Dry Index & Sub-Indices
The Baltic Dry Index is a freight rate index of dry bulk routes, carrying products such as iron ore, coal, grains, minor bulk, etc.
The BDI is composed of four sub-indices – Capesize, Panamax, Supramax, Handysize Capesize and Panamax are the largest dry bulk, carries iron ore and coal mainly.
8,341
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08
Baltic Dry Index Baltic Supramax Baltic Handysize
7,5436,465
12,337
5,0007,0009,000
11,00013,00015,00017,00019,00021,000
8/30
/07
9/26
/07
10/2
3/07
11/1
9/07
12/1
6/07
1/12
/08
2/8/
08
3/6/
08
4/2/
08
4/29
/08
5/26
/08
6/22
/08
7/19
/08
8/15
/08
Baltic Dry Index Baltic Panamax Baltic Capesize
18
Freight Forward AgreementsProduct MR - Singapore to Japan Clean
5000
7000
9000
11000
13000
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
US$
/day
Crude VLCC - Arabian Gulf to Japan
400005000060000700008000090000
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
US$
/day
Bulk - Capesize
110000
120000
130000
140000
150000
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
US$
/day
Bulk - Handysize
300003200034000360003800040000
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
US$
/day
19
Offshore Supply Vessel Charter Rates
26,37533,557
0
20,000
40,000
60,000
80,000
100,000
120,000
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07
AHTS Rates (7-10,000 BHP) £/DayAHTS Rates (10,000+ BHP) £/Day
£/Day
18,832
12,450
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07
PSV Rates (>2,000 DWT) £/DayPSV Rates ( Less Than 2,000 DWT) £/Day
£/Day
Supply outlook
21
Age of Fleet
Clarkson DataAverage
Age% over 20
Years15-19 Years
10-14 Years 5-9 Years 0-4 Years
Handysize Bulkers (10-40,000 dwt tonnes) 17 63% 4% 11% 11% 11%Feeder Containerships 100-500 TEU 17 51.5% 9.3% 28.0% 9.1% 2.1%Combined Carriers 18 46% 33% 13% 5% 3%Other Specialised Tankers < 10K DWT 14 37% 14% 13% 14% 22%Multi-Purpose < 5,000 dwt 14 35.4% 10.6% 13.0% 22.1% 18.9%Handy Products Tankers (10 - 60,000 dwt tonnes) 10 23% 8% 11% 17% 41%Handymax Bulkers (40-60,000 dwt tonnes) 11 23% 6% 19% 21% 30%Panamax Bulkers (60-100,000 dwt tonnes) 11 22% 7% 19% 24% 29%Capesize Bulkers (100,000 + dwt tonnes) 11 19% 12% 21% 15% 32%Sub-Panamax Containerships 2-3,000 TEU 10 18.7% 7.9% 15.4% 24.6% 33.4%Feedermax Containerships 500-1,000 TEU 10 18.5% 6.8% 22.7% 19.2% 32.8%Multi-Purpose > 5,000 dwt 10 18.5% 8.2% 10.5% 39.9% 23.0%Panamax Tankers (60-80,000 dwt tonnes) 8 18% 8% 6% 12% 57%Handy Containerships 1-2,000 TEU 11 17.8% 9.1% 26.5% 21.8% 24.8%Handy Chemical Tankers (10 - 60,000 dwt tonnes) 9 16% 4% 12% 25% 43%Aframax Tankers (80-120,000 dwt tonnes) 9 9% 15% 12% 22% 42%Panamax Containerships >3,000 TEU 8 7.5% 10.4% 20.0% 18.0% 44.0%Suezmax Tankers (120-200,000 dwt tonnes) 9 5% 18% 14% 28% 36%VLCC Tankers (200,000 + dwt tonnes) 9 3% 14% 21% 31% 30%Post Panamax Containerships >4,000 TEU 5 0.0% 1.3% 8.9% 27.2% 62.6%
22
% of Orderbook by Vessel TypeType Clarkson Data
OB as % of Fleet (#)
OB as % of Fleet (dwt)
Ranking (dwt)
24 Feeder Containerships 100-500 TEU 0.5% 0.6% 130 Reefers 1.3% 2.6% 328 Ro-Ro < 5,000 dwt 2.7% 3.2% 431 Other Dry Cargo > 5,000 dwt 12.7% 10.1% 527 Ro-Ro > 5,000 dwt 11.9% 13.5% 626 Multi-Purpose < 5,000 dwt 13.1% 13.7% 713 Small LPG Carrier (< 8,000 cu. m.) 10.7% 15.8% 823 Feedermax Containerships 500-1,000 TEU 18.3% 21.1% 921 Sub-Panamax Containerships 2-3,000 TEU 23.0% 23.3% 1022 Handy Containerships 1-2,000 TEU 25.1% 25.8% 1117 Handysize Bulkers (10-40,000 dwt tonnes) 22.9% 26.8% 128 Other Specialised Tankers < 10K DWT 22.3% 28.4% 13
12 Mid Size 2 LPG Carrier (8-20,000 cu. m.) 29.9% 28.6% 1425 Multi-Purpose > 5,000 dwt 24.5% 31.0% 1533 Offshore 16.9% 31.3% 1611 Mid Size 1 LPG Carrier (20-60,000 cu. m.) 35.0% 31.4% 1718 Combined Carriers 10.6% 34.9% 184 Panamax Tankers (60-80,000 dwt tonnes) 36.9% 38.6% 191 VLCC Tankers (200,000 + dwt tonnes) 37.8% 39.4% 20
29 Pure Car Carrier > 5,000 dwt 36.1% 40.2% 212 Suezmax Tankers (120-200,000 dwt tonnes) 38.7% 40.3% 223 Aframax Tankers (80-120,000 dwt tonnes) 38.7% 41.4% 235 Handy Products Tankers (10 - 60,000 dwt tonnes) 35.8% 43.6% 24
20 Panamax Containerships >3,000 TEU 41.7% 43.7% 2515 Panamax Bulkers (60-100,000 dwt tonnes) 40.5% 45.2% 2610 Very Large LPG Carrier (60,000 + cu. m.) 44.2% 45.6% 2716 Handymax Bulkers (40-60,000 dwt tonnes) 48.7% 56.5% 286 Handy Chemical Tankers (10 - 60,000 dwt tonnes) 64.8% 59.7% 299 Liquid Natural Gas Carriers 51.2% 65.9% 30
14 Capesize Bulkers (100,000 + dwt tonnes) 83.5% 89.6% 3119 Post Panamax Containerships >4,000 TEU 84.0% 111.0% 32
23
Fragmentation of OwnersVessel Types with Less than 50 Owners
# of Ships Total DWT Avg DWTCombined Carrier 85 8,156,617 95,960
Shuttle Tanker 62 7,294,976 117,661Lakes Only Bulker 97 3,177,265 32,755
Cement Carriers (10K + dw t) 81 1,454,844 17,961IMO I Chemical 102 2,575,405 25,249Poly Chemical 9 184,303 20,478
LNG Gas Carrier 263 18,462,444 70,199Ethylene Gas Carrier 119 984,588 8,274
LPG 60K + Cu. M. 115 6,036,449 52,491LPG 40K-60K Cu. M. 23 1,023,100 44,483LPG 20K-40K Cu. M. 77 1,974,332 25,641
Diving Support Offshore 67 78,967 1,179Gravel / Stone Discharge Offshore 10 23,057 2,306
Heavy Deck Cargo Offshore 48 1,204,733 25,099Heavy Lift / Crane Offshore 27 156,235 5,786
Maintenance Offshore 47 36,105 768Mooring Offshore 13 1,266 97
Oil Well Service Offshore 16 31,607 1,975Pipe Layer Offshore 14 309,248 22,089
Pollution Control Offshore 6 7,942 1,324ROV / Sub Support Offshore 9 11,057 1,229
Misc Offshore 40 25,630 641Cable, Umbilicals & FP/Flow line Lay 40 235,746 5,894
Post-Panamax Container 586 48,918,550 83,479
37.0%
37.5%
40.9%
45.2%
45.6%
48.7%
52.7%
66.5%
68.5%
76.7%
86.3%
30.0% 50.0% 70.0% 90.0%
Bulker
General Cargo
Offshore
Products Tanker
Chemical
Tanker
Ro-Ro & Passenger
Reefer
Gas Carrier
Container
FPSO/FSU
Top 50 Owners as a % of Total Fleet
24
Conclusion To summarize -
Keeping an eye out on rising commodity prices and supply outlook is critical
Funding and operating costs (such as crewing and fuel) are rising
Near-term difficulty would result in opportunities for cash rich players (such as ourselves)
The key factors to watch for includes – Areas where supply growth is restricted (limited orderbook)
Areas where the fleet is old and likely to be retired
Areas where we can achieve dominant market share quickly
Areas where rates are depressed (but likely to recovery)
Areas where we see strong organic growth or shifts in trade patterns.
