Martin Stopford Marine Money 24 Feb 2011

Tanker & Bulk Overview
Marine Money Hamburg
Tanker & Bulker Markets

Martin Stopford
30th September 2010 24th Feb 2011
CRSL
CLARKSON RESEARCH SERVICES LTD
The Agenda For Today

1. 2. 3. 4. 5. 6. Fundamentals Economic Outlook Shipbuilding Outlook Tanker Outlook Bulker Outlook Conclusions
190
165
After two years the pressures are building
140
115
90
30th September 2010

Martin Stopford, Marine Money Hamburg 24 Feb 2011
What shall I buy now?
We want to make loads of money building ships
3. Shipbuilders 1. Shipping investors

We only need $800MM Sir Why not build our own fleet?
2. Shipping Bankers
30th September 2010
4. Charterers
Shipping In The 2010s

Shall we say $5 a We entered the 2000s tonne? decade with excellent fundamentals -China taking off, not much shipbuilding capacity, and an old fleet The result was the strongest boom for years. In 2010 we started a new decade with the Credit Crisis problems, China steel slowing; record Cargo owner Ship owner shipbuilding capacity
30th September 2010
B**tard!
Fundamentals 2000 and 2010

World Economy & Sea Trade Sea trade Trade Growth (last 10 years) World Fleet Fleet Fleet Growth previous decade Tons/dwt Shipbuilding Shipbuilding Deliveries Deliveries % Fleet Orderbook % Fleet M tonnes % pa 2000 5,911 4.30% 2010 8,154 3.80%
Increase
38%
M Dwt % p.a.
800 3.60% 7.4
1,292 6.1% 6.3
62%
M dwt % fleet M Dwt

30th September 2010
45.8 6% 93.2 12%
152 12% 471.2 36%
232%
406%
Earnings Trend 1980-2011

60
SERIOUS SURPLUS Bulk Shipping Fundamentals balance SMALL SURPLUS SMALL SHORTAGE SMALL
50 Clarksea Index $000/day

(ClarkseaIndexisaweighted averageofearningsbytankers, bulkers,containerships&gas.)
40
30
$22,800/day
20
$12,000/day Here Dress rehearsal
10 0
$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
30th September 2010
Source:ClarksonResearchServicesLtd CLARKSON RESEARCH SERVICES LTD
Ship Type League Table 2010

Rank 1 2 3 4 5 5 6 7 10 11 Earnings League Table 2010 Size TEU Earnings OPEX Ratio * Capesize 29,601 7,512 3.94 VLCC 37,970 10,812 3.51 Suezmax 31,328 9,309 3.37 Handymax 19,465 5,991 3.25 Panamax 18,472 6,321 2.92 Aframax 18,823 8,374 2.25 3300 TEU 12,313 8,000 1.54 2500 TEU 9,171 6,500 1.41 1700 TEU 6,471 5,500 1.18 Clean Prod 9,048 7,908 1.14
Capes won, products lost
*Ratio Key Ratio 1 = deep recession or depression 2 = recession 3 = mild recession 30th September 2010 4-6 = Strong Market etc
Market Prices 1980-2011

100 90 80 70 60 50 40 30 20 10 0
Aframax Tanker 5 Year Old Panamax bulk carrier 5 year old
Panamax peak $90MM June 2008
price $ million
$42MM
$29Mm
Prices heading back to 1990s levels
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
Source CRSL
Millionaire for a day
Look, this one offers a $50,000 mortgage, $100,000 cash back & free coffee
Where shall I put the credit default swaps, pal?
30th September 2010

Six Crises & Six Rebounds

% growth
12 7 2 -3 -8 -13
THIS CHART SHOWS WORLD INDUSTRIAL PRODUCTION Bounce back as in previous crises
1. 1957 Suez Crisis
2. 1973 1st Oil Crisis
3. 1979 2nd Oil Crisis
4. US Financial Criisi
5. 2001 Dot.com 6.Credit crisis crisis
1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
30th September 2010
Industrial Production
Index 1992=100 Index 1992=100
140 130 120 110 100 90 Feb-93 Feb-94 Feb-95 Feb-96 Feb-97 Feb-98 Feb '99 Feb'00 Feb'01 Feb'02 Feb '03 Feb '04 Feb-05 Feb '06 Feb '07 Feb '08 Feb '09 Feb '10
30th September 2010
450
Atlantic economies (left axis) did well in the 1990s
400 350 300 250 200 150

Pacific Economies (right Axis)
100 50 0
The Oil Price Trending Up

120 110 100 90 80 70 60 50 40 30 20 10 0
1960 1965
Oil Price Expon. (Oil Price)
After 20 years of cheap oil the crude price is heading up
$ p er b arrel
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
30th September 2010
Source: BP energy review
2030
China Trade Surge & Stagnation

After a big jump Chinas imports look as though they have got stuck in a rut at 120 Mt/month Exports are very sluggish
Mt trade per month
China's Trade Growth

Imports
2. Investment overheats 2005
140 130 120 110 100 90 80 70 60 50 40 30 20 10 0
1. Trade takes off in 2000
30th September 2010

Oil, Dry Bulk Trade Growth

% growth
15%
Major Bulks Crude Oil Imports Linear (Crude Oil Imports) Log. (Major Bulks)
10%
Trend 5-6%pa
5%
Trend 2-3 p% a
0%
-5% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
30th September 2010
Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
Forecast 2011
Sea Trade Scenarios 1950-2020

17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0
7% scenario
Growth of sea trade
s e a b o rn e im p o rts b illio n to n n e s
Period 1950-60 1961-70 1971-80 1981-90 1991-00 2001-09
%pa 7.5% 9.1% 4.8% 0.9% 4.1% 2.9%
4% scenario 3% scenario 1% scenario
C hina Impo rts W o rld le s s C hina 7% i 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
30th September 2010 Figure 8 World & Chinas seaborne imports with scenarios China
30th September 2010

World Shipbuilding: Past The Peak!

100 Million GT Deliveries 80 60 40 20
Restructuring of capacity 1976-86
Looks like 2010 was the peak of the shipbuilding boom with 97 m GT deliveries
The last shipbuilding peak was in 1975 when output reached 36 million GT
0 1902 1912 1922 1932 1942 1952 1962 1972 1982 1992 2002 2012
Source Maritime Economics 3rd Ed Martin Stopford (2009)
3/1/2011
17
Investment In New Ships

Bill $ Orders
1. Between 2003 and 2008 the industry ordered $857 billion of new ships 2. 50% of the orders were placed in 2007/8 when prices were at a peak 3. The pace of investment slumped to $28 Million in 2009 4. $72bn investment in 2010
240 220 200 180 160 140 120 100 80 60 40 20 0
Others Container LPG LNG Bulk Tankers New Cape $MM

40
New Cape $MM
120
61
100
47 5
80
42 17 1
Price of new Cape (right axis)

33 21 13 16 12 9 1 5 8 14 3 2 6 13 17 5 0 3 7 14 6 1 7 5 11 3 5 13 7 7 4 3 11 9 4 3 7 10 22 2 11 21 21 12 13 21 28 9 14 23
60 40
28 9 25 105
68 7 8 1
20 0
55 39 35
7 1 0 13 7
32 13
Investment in new ships & newbuilding prices
Source: Clarkson Research 30th September 2010 Services Ltd

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Deliveries The Downturn Scenario

200 180 160 Million Deadweight 140 120 100 80 60 40 20 0
29 33 38 37 24 41 46 46 50 55 62 70 75 80 89 59
Original scheduled orderbook Deliveries Demolition
Current Scenario (based on orderbook)

39
Stage 2 Stage 1
192 157 117
Shipyard Output: Downturn Starts

The graph shows deliveries per quarter in million CGT
14 Million CGT Deliveries 12 10 8 6 4 2 0 2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
30th September 2010

2010
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
30th September 2010
Other Others Taiwan Europe Japan S Korea China
downswing starts (but still preliminary data)
10
Quarterly Shipbuilding Output: By Country

The graph shows deliveries per quarter in million CGT
Million CGT Deliveries
5 5 4 4 3 3 2 2 1 1 0 2000 2001
China S Korea Japan Europe Taiwan Other Others
2002
2003
2004
2005
2006
2007
2008
2009
30th September 2010
Newbuilding Prices 1990-2010

New Price Index 1988=100
30th September 2010
Jan '90 Jan '92 Jan '94 Jan '96 Jan '98 Jan '00 Jan '02 Jan '04 Jan '06 Jan '08 Jan '10
Aframax tanker price peaked at $75 million in 2008 Today a new Aframax costs about $58 million Orders firm over summer but Autumn quieter
190 165 140 115 90
Index peaks at 190
2010
25% fall
New prices fell 28% in 2009
11
World Merchant Fleet

1400 1300 1200 1100 1000 900 800 700 600 500 400 300 200 100 0
Tankers Other Combos % pa
12% 10%
Fleet growth % pa
world fleet m dwt
Latest figures show fleet now growing at 7% pa

1980s recession fleet falls
8% 6% 4% 2% 0% -2% -4%
Figure 8 World fleet by ship type September 2010 30th

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
30th September 2010
12
Tanker Earnings 1990-2008

$ /d a y e a rn in g s o v e r la s t 1 2 m o n th s $80 $70 $60 $50 $40 $30 $20 $10 $0 J a n -9 0 J a n -9 1 J a n -9 2 J a n -9 3 J a n -9 4 J a n -9 5 J a n -9 6 J a n -9 7 J a n -9 8 J a n -9 9 J a n -0 0 J a n -0 1 J a n -0 2 J a n -0 3 J a n '0 4 J a n '0 5 J a n '0 6 J a n '0 7 J a n '0 8 J a n '0 9 J a n '1 0 J a n '1 1
30th September 2010
Crude Tankers 12 Month Average Products Tankers 12 Month Average

1
Chart shows 12 month moving average of tanker earnings (i.e. $71,000/day is average for September 2007 to August 2008))
Asia Crisis
VLCC Cost & Revenue 1990-2011

Operating cost, plus interest at LIBOR on new cost, plus depreciation
120 $000/day 100 80 60 40 20 0

Depreciation over 20 yrs
Interest Depreciation OPEX Cost with commercial spread VLCC Earnings (12 month average)
12 month earnings way above cost
INTEREST based on Newbuilding value at LIBOR
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
30th September 2010
13
Aframax Earnings 2009-11

Shows the earnings profile of Aframax tanker on the specified dates
32 Number of months 28 24 20 16 12 8 4 0
2000-09 1990-99 2009-11
Tight supply makes this possible
World Oil Demand Recovering

IEA Forecast Feb 2011
Oil demand jumped 2.8 m bpd in 2010 and 1.4 m bpd increase predicted for 2011 That would push up oil trade by about 4%
2,000 6,000 10,000 14,000 18,000 22,000 26,000 30,000 34,000 38,000 42,000 46,000 50,000 54,000 58,000 62,000 66,000 70,000 74,000 78,000 82,000 86,000 90,000 94,000 98,000
Source CRSL
91 86 81 76 71 66
Million barrels per day
9.5 m bpd growth 2000-2007
82.5 76.3 76.8 77.2 79.0
83.7
85.1
86.5 86.3
87.8 85.0
89.2
30thFigure 6: World oil demand 2000-2011 & IEA projection September 2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
14
Tanker Orders, Deliveries & Demolition

Million dwt
90 80 70 60 50 40 30 20 10 0 -10
VLOC Conv FPSO Conversion Orderbook Deliveries Deliveries Forecast Demolition forecast 2007 Orders Orders Demolition
2011 orderbook of 43.8 m dwt
30th September 2010 Tanker orders, deliveries, scrapping and future deliveries
Tanker Supply/Demand Balance 1963-2013

600 500 400
Available tanker fleet
300 200 100 0 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
30th September 2010
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 2014 2015
M. Dwt
Surplus tanker capacity (right axis) Fleet growing faster than demand due to high investment
% Surplus
60% 50% 40% 30% 20% 10% 0% -10%
Tanker demand growing less than fleet
15
1. Massive collapse 2. China Steel declining 3. Rates own to $20,000/day for Capesize 4. Huge orderbook
Bulker Forecast
30th September 2010
Capesize heads for its terminal CLARKSON RESEARCH SERVICES LTD
Dry Bulk Carrier Earnings Trend

130 120 110 100 90 80 70 60 50 40 30 20 10 0
1991 1992
$ 000 Per day average 12 month earnings
Panamax
Capesize
Shows 12 month average earnings
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
30th September 2010
2011
16
Capesize Cost & Revenue 1990-2011

Operating cost, plus interest at LIBOR on new cost, plus depreciation
120 $000/day 100 80 60 40 20

INTEREST based on Newbuilding value at LIBOR
Depreciation Interest OPEX Cost + spread
12 month earnings way above cost
Capesize Earnings (12 month average)

12 month earnings Depreciation not covering over 20 yrs depreciation
0 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
30th September 2010
Steel output sluggish in 2010

60
China Japan S.Korea EC-12
Mar '04
Mar '06
Mar '07
Mar '09
Figure 5: World steel production showing Chinas recovery 30th September 2010
Mar '10
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar'08
The recovery started in March and has been strong in China but muted elsewhere China now 50 Mt down from 55Mt last year Some analysts think the infrastructure programme is now at a mature level
Million tons per month
50 40 30 20 10 0
Chinas output slowing and OECD countries back to pre crash levels
17
China Ore Imports Sluggish

M tonnes
65 60 55 50 45 40 35 30 25 20 15 10 5 0
collapse in September 2008
Iron ore imports steady
Coal imports
J u l-0 7 J u l-0 8 J u l-0 9 J u l-1 0 O c t-0 9 J a n -1 0 J a n -0 8 J a n -0 7 J a n -0 9 A p r-0 7 A p r-0 8 A p r-0 9 A p r-1 0 O c t-0 7 O c t-0 8 O c t-1 0
30th September 2010

Panamax Earnings 1990s

Shows the earnings profile of Aframax tanker on the specified dates
32 Number of months 28 24 20 16 12 8 4 0
2000-09 1990-99 2009-10
2,000 6,000 10,000 14,000 18,000 22,000 26,000 30,000 34,000 38,000 42,000 46,000 50,000 54,000 58,000 62,000 66,000 70,000 74,000 78,000 82,000 86,000 90,000 94,000 98,000
Source CRSL
18
Dry Bulk Deliveries & Demolition

160 Million dwt deliveries / demolition 140 120 100 80 60 40 20 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
30th September 2010
Orderbook (with slippage) Deliveries Demolition Scenario Orders Demolition

Bulk carrier orderbook 277 m dwt, 50% fleet
2010 orderbook of 105 m dwt but 78 m dwt delivered
2011 orderbook of 80 m dwt cut back to 77 m dwt
Bulker Supply/Demand Balance 1963-13

700 600 500 400 300 200 100 0 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
30th September 2010
M. Dwt
Fleet growing faster than demand due to high investment Surplus bulker capacity (right axis)
% Surplus
Available Bulker fleet
50% 46% 42% 38% 34% 30% 26% 22% 18% 14% 10% 6% 2% -2% -6% -10%
19
The four most expensive words in the English language are This time its different
The fundamentals are less favourable than they were at the start of the last decade Trade could be ok but the economic outlook is still worrying Shipyard output has peaked. The big orderbook is rolling out and its now hard to stop so the fleet will grow fast Tankers have sluggish demand but a smaller orderbook Bulkers have stronger demand but big orderbook So it looks like a classic shipping recession
30th September 2010
Sir John Templeton, one of Wall Streets greatest investors, warned against investing in the belief that the world has changed
Disclaimer
The information supplied herewith is believed to be correct but the accuracy thereof is not guaranteed and the Company and its employees cannot accept liability for loss suffered in consequence of reliance on the information provided. Provision of this data does not obviate the need to make further appropriate enquiries and inspections. Forecasts are frequently wrong and the information on which they are based is not always accurate, so they are not a reliable basis for business decisions. Always consult as many sources as possible and check the validity of each to the extent the decision justifies. The information is for the use of the recipient only and is not to be used in any document for the purposes of raising finance without the written permission of Clarkson Research Services Limited, England, No 1944749. Registered Office at St. Magnus House, 3 Lower Thames Street, London, EC3R 6HE.
30th September 2010

20

Martin Stopford Marine Money 24 Feb 2011

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Tanker & Bulk Overview

Marine Money Hamburg

Tanker & Bulker Markets

The Agenda For Today

After two years the pressures are building

30th September 2010

Martin Stopford, Marine Money Hamburg 24 Feb 2011

Tanker & Bulk Overview

What shall I buy now?

We want to make loads of money building ships

3. Shipbuilders 1. Shipping investors

30th September 2010

Shipping In The 2010s

Martin Stopford, Marine Money Hamburg 24 Feb 2011

Tanker & Bulk Overview

Fundamentals 2000 and 2010

800 3.60% 7.4

1,292 6.1% 6.3

M dwt % fleet M Dwt

45.8 6% 93.2 12%

152 12% 471.2 36%

CLARKSON RESEARCH SERVICES LTD

Earnings Trend 1980-2011

50 Clarksea Index $000/day

$8,500/day 1980s Recession

The Great Shipping Boom

Martin Stopford, Marine Money Hamburg 24 Feb 2011

Source:ClarksonResearchServicesLtd CLARKSON RESEARCH SERVICES LTD

Tanker & Bulk Overview

Ship Type League Table 2010

Capes won, products lost

Market Prices 1980-2011

Panamax peak $90MM June 2008

Prices heading back to 1990s levels

Martin Stopford, Marine Money Hamburg 24 Feb 2011

Tanker & Bulk Overview

Millionaire for a day

Where shall I put the credit default swaps, pal?

30th September 2010

Six Crises & Six Rebounds

1. 1957 Suez Crisis

2. 1973 1st Oil Crisis

3. 1979 2nd Oil Crisis

5. 2001 Dot.com 6.Credit crisis crisis

Martin Stopford, Marine Money Hamburg 24 Feb 2011

Tanker & Bulk Overview

400 350 300 250 200 150

CLARKSON RESEARCH SERVICES LTD

The Oil Price Trending Up

30th September 2010

Source: BP energy review

CLARKSON RESEARCH SERVICES LTD

Martin Stopford, Marine Money Hamburg 24 Feb 2011

Tanker & Bulk Overview

China Trade Surge & Stagnation

China's Trade Growth

140 130 120 110 100 90 80 70 60 50 40 30 20 10 0

1. Trade takes off in 2000

30th September 2010

Oil, Dry Bulk Trade Growth

Martin Stopford, Marine Money Hamburg 24 Feb 2011

Tanker & Bulk Overview