Freight market: development

forecasts, influence factors & Butterfly

effectNikos

Marmatsouris. FICS Maritime Days

Odessa, May 2013

2

Cyprus Czech Republic Denmark France Greece Italy Kazakhstan Lebanon The Netherlands Argentina

Brazil Chile Colombia Ecuador Mexico Panama Peru Trinidad & Tobago USA Uruguay Venezuela

Bangladesh India Pakistan Sri Lanka

Australia Cambodia China Hong Kong Indonesia Japan Korea Malaysia Philippines Singapore Taiwan Thailand

Bahrain Iraq Jordan Kuwait

Europe, Med & Black Sea

Asia PacificMiddle

East

Americas

Africa

Indian Subcontinent

Norway Poland Russia Spain Sweden Turkey Turkmenistan UK Ukraine

Oman Qatar Saudi Arabia United Arab Emirates Yemen

GAC Global Network

Algeria Angola Benin Cameroon Congo Democratic Rep. of Congo Egypt Gabon Guinea Ivory Coast Kenya Mauritania Mozambique Nigeria Senegal South Africa Tanzania Togo

Who can tell us - what’s next?

A brief market summary

• Deepening financial market problems cause an exaggerated effect on shipping.

• Dry cargo shipping sector – quite severely hit due to excess over supply.

• China business downturn playes a major role on world shipping as China accounts for almost 45% of total world trade. •Commodity prices severe fluctuation not a factor for freight stability.

•BDI is way ahead from recovering it’s May 2008 peak of 11700 points, which now seems like ..science fiction!

•The “Butterfly Effect”

Grains business – a stress story?

Source: AGResource Company

World Major Crop Production

North America South America European Union

Former Soviet Union Africa

Asia Australia

165,891

53,095

29,113

39,650

32,235

2012: 1,475,719 MMTs

2002: 1,150,320 MMTs

2002-2012 Change in Primary Grain Production - Up 325.4 MMTs

Source: AGResource Company

= Central US drought has been the worse since 1956. An approx. 100 MMTs of corn have been been lost.

2012 World Droughts & Floods

= Russian crop losses amount to 27-29 MMTs with wheat production to be below the 2010 export ban level, at 38 MMTs.

= N.America seems to be the leading supplier of world grain importers during ’13.

= It is feared that extreme world weather conditions will persist during 2013 thus adding to lack of world crop cushions!

The Dire ‘12 Russian Drought

50

45

40

35

30

25

20

15

10 5 0

Grains OilseedMMTs

FSU 12 Grain and OilseedStocks; Lowest since 2007

Source: AGResource Company

Wheat Corn Barley 70

MMTs

60

50

40

30

20

10

0

FSU-12 Corn/Wheat/Barley Export; Down 23 MMTs!

Source: AGResource Company

Russia is an Less reliable Grain Exporter Because of Weather (Although Area Fluctuates, Changes in Russian Grain Production

Largely A Function of Yield)MT/HA

2.452.30

2.15 2.00 1.85

1.55

1.25

0.95

1.70

1.40

1.10

0.80

Mil MT & HA 120 112 104 96 88 80 72 64 56 48 40 32 24 16 8 0

Yield (MT/HA)Grains Production (Mil MT)

Harvested Area (Mil Ha)

Source: AGResource Company

FSU a Reliable Grain Supplier? Weather twice as variable comparing to US!

Source: AGResource Company

2012/13 World Grain Stocks Drop a Record 41 MMTs

100

80

60

40

20

-20

-40

-60

MMT

Source: AGResource Company

World Corn/Wheat Trade; Down a Record 45 MMTs!

Corn Wheat Soybeans 180,000

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

1,000 MT

2013 Wheat forecasts

= Ukraine and Russian Wheat exports exhausted based on diminished crop yield (drought). EU wheat export sales are on the rise. = The US/Canada will be the benefactors and are setting world price direction in 2013.

= The world wheat stocks are in decline and market prices should naturally be on the rise. Adverse new crop weather in the US and Europe adds to upside potential = The Black Sea exported 14 MMTs in the Nov-May period of 11/12, while S. Hemisphere wheat exports down 17 MMTs. There is a 31 MMTs of import potential that has to be filled by US/Canada/Australia and India.

= Can expect very unstable & rising prices if US/EU/Russian crops are affected by any reason within 2013, as there are very little other supply alternatives.

2013 Wheat forecasts

Argentina Australia Canada EU-27 FSU-12

World Wheat Trade by Origin

MMTs 45

40

35

25

20

15

10

5 0

30

Source: AGResource Company

Shipping to the future

Dry Bulk Deliveries + Orderbook by Size (only units over 20,000 dwt, in mln dwt)

Source: Banchero Costa

- A significant number of new buildings has been delivered over the last five years. - Actual deliveries in 2013 expected to be less than the total for 2012.

Total Dry Bulk Fleet Growth only units over 20,000 dwt, in mln dwt)

The excessive number of new building deliveries resulted in strong growth in shipping cargo capacity over the last few years. However, a combination of fewer deliveries over the next few years and strong demolition activity is expected to reduce overcapacity and help rebalance the supply - demand environment.

Source: Banchero Costa

Freight: Paranagua to Qingdao Bunkers as percentage of freight

1501401301201101009080706050403020100

Typical Panamax bunker cost on the grain route from Paranagua to Qingdao

Bunker costs constitute a large % of the freight cost

75%70%65%60%55%50%45%40%35%30%25%20%15%10%5%0%

Source: Clarksons

Source: Clarksons

Capesize Panamax Handymax Handysize

Ratio of gross annual earnings to scrap value 7

6

5

4

3

2

1

Drybulk demolition activity

2009 2010 2011 2012e

550

500

450

400

350

300

250 520

200 392

150 2 78

100

50

0

141

Scrapping set new records due to weak freight market

The older ships which are smaller get scrapped

Handymax average scrapping size

50,500 50,000 49,500 49,000 48,500 48,000 47,500 47,000 46,500 46,000 45,500 45,000

1991- 1996- 2001- 2006- 2011-1995 2000 2005 2010 2012

No of ships scrappedAverage scrapping size

140 72,500 49,812 130

120 110 100 90 80

47,336 70 47,274 60

50 40

45,939 30 20 10 0

49,935 72,000 71,500 71,000 70,792

70,500 70,000 69,500 69,000 68,500 68,000 67,500

71,948

68,796

67,776 67,473

1991- 1996- 2001- 2006- 2011-1995 2000 2005 2010 2012

No of ships scrappedAverage scrapping size

160

140

120

100

80 60

40 20

0

180

Panamax average scrapping size

Source: Clarksons

Conclusions

• World economic activity and therefore demand for shipping has slowed down last year, but things are improving for 2013 and outlook is not necessarily as bad as it seems, especially for the smaller size vessel operators. • Freight to remain volatile and on the low side due to excessive world fleet growth, with dry cargo fleet still expanding significantly in 2013.

• This is rather good news for grain traders however not so good for ship operators who will have to sustain another year of consolidation.

• Smaller vessel operators may get luckier in relative future freight terms due to minimal renewal of this type of tonnage.

Positive for better days ahead…