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Confessions of a Shipping Cyclist
Martin Stopford, President Clarkson Research Marine Money, 26th February 2015
Wheeee… Wrong again-
suckers!
Surviving the Shipping Cycle
1. Secrets of our rich cycle forecasting heritage
2. Why shipping cycles are sexy
3. Predicting the shipbuilding super-cycle
4. How to predict the oil price 5. Predicting the shipping
super-cycle
OK, I confess. Everything I told you last year was completely wrong
Forecasting Expert
1. Secrets of our Ancient Cycle Forecasting Methods The old
ways are still the
best
1
2
3
4
5
Antonius Van dale 1700
Honey cakes
Lights Mirror
Smoke
6
Should I buy a Panamax?
Absolutely & we have some very nice ones
for sale
No, Useless
Was it good?
It was fantastic!!
Was it good?
Method 2: Aristotle – The Rational Approach
• Aristotle's logic revolves around deduction (sullogismos).
• A deduction leads to our notion of logical consequence: If X and Y are true, then Z must be true
• For example “If you buy our shares AND you’re a sucker, we’ll buy them back for 30% at the bottom of the cycle”
Aristotle Onassis – Early Greek Shipowner
Method 2: The Computer Model • The computer model is the
direct descendent of the Aristotelian approach of deduction
• It uses data to summarise the relationships in the world economy
• We type things into a plastic box and it tells us the market’s about to recover
All I did was scrap 3 more ships and now
we have a boom
DATA
Method 4: Blame the Banks….
"The rates today are lower than ever before. This was brought about by the over-production of ships fostered by reckless credit given by banks and builders, and over-speculation by irresponsible and inexperienced owners. J.C.Gould, Angier & Co, 31 December 1894
Wales to Singapore 1871 $11.4/ton (coal) Tubarao to Japan 2002 $8.70/ton (ore)
Shipping’s success over a century
2. Why Shipping Cycles are Sexy
Three types of shipping market cycles
60 Years 60 Years 60 Years
1. Seasonal cycle (12 months)
Figure 3.1 Compiled by Martin Stopford from various sources
2.Short Cycle (5-10 years)
3. Long cycle 50 years?
1. Shipping cycles fall into three categories 1. Seasonal Cycles 2. Short Cycles 3. Long Cycles
Seasonal shipping cycles
-1%
-23%
-38%
-25% -16%
37% 37%
17% 8%
13%
-16% -8%
-50%-40%-30%-20%-10%
0%10%20%30%40%50%
JuneJulyAugSeptO
ctN
ovDecJanFebM
archAprilM
ayDeviation of VLCC monthly earnings from trend
23 Dry Cargo Cycles 1741-2014
0
100
200
300
400
500
600
70017
41
1761
1781
1803
1821
1841
1861
1881
1901
1921
1941
1961
1981
2001
Index 1741=100
Sailing Ship Era Steam Ship Era Bulk Era
Stopford Era
Source: Maritime Economics 3rd Edition 2009
The length of 24 “short” shipping cycles
10
20
16
11
15 15
17
7 7
11 13
6
11
5 4
14
3
6 7
11 10
4 4
13
0
5
10
15
20
25
1700 1750 1800 1850 1900 1950 2000 2050
For example this cycle lasted 14 years peak to
peak
Cycl
e le
ngth
in y
ears
3. Predicting the Shipbuilding Super-Cycle
One free with every ship
The shipbuilding super-cycle 19
63
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
2011
0
50
100
150
200
250
300
Orders Placed Deliveries
Million Dwt Shipyards expand in the 1970s boom & again in the 2000s
Step i: take orders for a lot of ships
Step 2: predict the market will get
worse next year, then recover
Fig 17.1 Comparison of forecasts of world shipbuilding completions
1975 1980 1985 1990 1995
Million CGT
0
3
6
9
12
15
18
21
24
Actual world shipbuilding completions
Note: This graph tracks how between 1978 and 1984 a group of international shipbuilding experts revised their forecast of future shipbuilding completions as the 1980s recession developed
How will output
develop?
June 1978 forecast 1
1
June 1980 forecast
2
2
April 1982 forecast 3
3
June 1984 forecast
4
4
Figure 22
How Shipbuilders Saw the Market 1978-1984
4. How to predict oil prices If he’d paid
more attention to the IEA he’d
be up here with me
The Oil Price – Hard to Predict
0102030405060708090
100110120130
1861
1867
1873
1879
1885
1891
1897
1903
1909
1915
1921
1927
1933
1939
1945
1951
1957
1963
1969
1975
1981
1987
1993
1999
2005
2011
$ per
bar
rel a
t mar
ket p
rices
$ money of the day
Winner of the Shipping cycle yellow jersey
Marttin Stopford 7 Junel 2011
0
2040
60
80
100120
140
16019
60
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
Oil
Pric
e $/
barr
el
Source: BP energy review
When it comes to forecasting oil prices the IEA has all the information – just follow them
IEA’s Price Forecast Leads the Way
In 1993 the oil price was $17 a barrel. What was the forecast for 2010?
Marttin Stopford 7 Junel 2011
0102030405060708090
100110120130140150160
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
Oil
Pric
e $/
barr
el
Oil Price 1993 forecast
Source: BP energy review
World Oil Price - The 1993 Forecast
Marttin Stopford 7 Junel 2011
020406080
100120140160
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
Ene
rgy
Use
Mill
Ton
nes
Oil
Equ
iv Oil Price 1993 forecast 1994 forecast
Source: BP energy review
World Oil Price & 1994 Forecast
Marttin Stopford 7 Junel 2011
020406080
100120140160
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
Ene
rgy
Use
Mill
Ton
nes
Oil
Equ
iv Oil Price 1993 forecast 1994 forecast 1995 forecast
Source: BP energy review
World Oil Price & 1995 Forecast
Marttin Stopford 7 Junel 2011
020406080
100120140160
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
Oil
pric
e $/
barr
el
Future price 1994 forecast 1995 forecast1996 forecast 1998 forecast
Source: BP energy review
World Oil Price & 1996 Forecast
Marttin Stopford 7 Junel 2011
0
2040
60
80
100120
140
16019
60
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
Ener
gy U
se M
ill T
onne
s O
il Eq
uiv Oil Price 1993 1994 1995 1998 2000
Source: BP energy review
World Oil Price & 2000 Forecast
Marttin Stopford 7 Junel 2011
020406080
100120140160
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
Oil
pric
e $/
barr
el
Oil Price 1993 forecast 1994 forecast 1995 forecast 1998 forecast 2000 forecast 2004 forecast
Source: BP energy review
World Oil Price & 2004 Forecast
Marttin Stopford 7 Junel 2011
020406080
100120140160
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
Oil
pric
e $/
barr
el
Oil Price 1993 forecast 1994 forecast 1995 forecast
1998 forecast 2000 forecast 2004 forecast 2006 forecast
Source: BP energy review
World Oil Price & 2006 Forecast
Marttin Stopford 7 Junel 2011
020406080
100120140160
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
Oil
Pri
ce $
/bar
rel
Oil Price 1993 forecast 1994 forecast1995 forecast 1998 forecast 2000 forecast2004 forecast 2006 forecast 2007 forecast
Source: BP energy review
World Oil Price & 2007 Forecast
Marttin Stopford 7 Junel 2011
020406080
100120140160
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
Oil
Pri
ce/b
arre
lOil Price 1993 forecast
1994 forecast 1995 forecast
1998 forecast 2000 forecast
2004 forecast 2006 forecast
2007 forecast 2008 forecast
Source: BP energy review
World Oil Price & 2008 Forecast
2008
2007
2006
Marttin Stopford 7 Junel 2011
020406080
100120140160
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
Oil
Pri
ce/b
arre
lOil Price Future actual1993 forecast 1994 forecast1995 forecast 1998 forecast2000 forecast 2004 forecast2006 forecast 2007 forecast2008 forecast 2010 "Current Policies"2010 Carbon 450
Source: BP energy review
2008
2007
2006
World Oil Price & 2010 Scenarios Scenarios
5. Predicting Today’s Cycles
Seems like we’re still under water, folks
-10
10
30
50
70
90
110
130
150
19
47
19
50
19
53
19
56
19
59
19
62
19
65
19
68
19
71
19
74
19
77
19
80
19
83
19
86
19
89
19
92
19
95
19
98
20
01
20
04
20
07
20
10
20
13
W/S
Gu
lf E
uro
pe
1. Tight
Supply shortage of ship yards
2. Shipper driven market Run by
oil majors
13% trade growth pa with 2% standard deviation
4. Distressed
market & no demand growth
0% trade growth pa with 7% standard deviation
3. Investment
bubble
11% trade growth pa with 1.5% standard deviation
3.5% trade growth pa with 3.4 % standard deviation
5. Long trough
working surplus out of system
6. Super- boom 3.5% pa growth
with 2% st. dev.
Oil tanker market 1947-2015 – each decade different
7. Kicking
can down road
0.7% pa trade
growth with 2.4%
st. dev.
-10
-5
0
5
10
15
2019
7019
7219
7419
7619
7819
8019
8219
8419
8619
8819
9019
9219
9419
9619
9820
0020
0220
0420
0620
0820
1020
1220
14Net e
arni
ngs a
fter O
PEX
inte
rest
& d
epre
ciatio
n
Free cash $ m VLCC
VLCC Net Earnings 1970-2013 VLCCS made good money in 16 out of 44 years (36%)
Free cash flow in $ million The average ship value
was $75 m and the average return was $.6m ,
a 1% return
05
10152025303540455055606570758019
70
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Peak 19 1973-4
"An exciting market"
Peak 20 1979-81 "Rates
boomed" Peak 21
1995 "Firm"
2000 “Stronger"
1999 “Sentiment
rock bottom"
Peak 22 2004
“fortunes made”
Source: compiled by Martin Stopford from various sources
1982-6 "Worst ever"
1971-2 “Very poor"
1975-7 “Un-
profitable"
$000
1 y
ear T
C
Note: based on the US Gulf-Japan grain freight 1964-2015.
Peak 23 2008
Dry bulk market cycles 1947-2015
Peak 24 2010
2014 “recovery next year”
Amarillo Slim’s Advice (and mine too!)
1. “Play the players, not the cards.
2. Watch them from the minute you sit down.
3. Play fast in a slow game , slow in a fast game.
4. Never get out when you are winning.
5. Look for the sucker and, if you don’t see one , get up and leave because the sucker is you”