SHIPPING MARKET REVIEW OCTOBER 2010 DISCLAIMER The persons named as the authors of this report hereby certify that: (i) all of the views expressed in the research report accurately reflect the personal views of the authors about the subjects; and (ii) no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the research report. This report has been prepared by Danish Ship Finance A/S (Danmarks Skibskredit A/S). This report is provided for you for information purposes only. Whilst every effort has been taken to represent as reliable information as possible, DSF does not represent the information as accurate or complete, and it should not be relied upon as such. Any opinions expressed reflect DSF’s judgment at the time this report was prepared and are subject to change without notice. DSF will not be responsible for the consequences of reliance upon any opinion or statement contained in this report. This report is based on information obtained from sources which DSF believes to be reliable, but DSF does not represent or warrant its accuracy. The information in this report is not intended to predict actual results, which may differ substantially from those reflected. This report may not be reproduced, in whole or in part, without prior written permission of DSF. To non-Danish residents: The contents hereof are intended for the use of non-private customers and may not be issued or passed on to any person and/or institution without the prior written consent of DSF. Additional information regarding this publication will be furnished upon request.
Christopher Rex, Chief Analyst [email protected]
Brian Thorsen, Analyst [email protected]
Stinus Nielsen, Analyst [email protected]
For further information please visit www.shipfinance.dk TABLE OF CONTENTS
EXECUTIVE SUMMARY, 4
WORLD DEMAND INDICATORS, 11
SHIPBUILDING, 14
CRUDE TANKERS, 21
PRODUCT TANKERS, 32
CONTAINER, 44
DRY BULK, 56
GLOSSARY, 67 EXECUTIVE SUMMARY EXECUTIVE SUMMARY - WORLD DEMAND INDICATORS
World trade volumes up 13.5% in 2010 • Strong global economic recovery By increasing 13.5% in 2010, 2010 volumes are back at 2008 levels
The global economic recovery has proven 170 170 stronger than previously anticipated. Global GDP
158 158 is expected to grow 4.6% in 2010. World trade volumes
• Global trade volumes at 2008 levels 145 145 Global trade volumes increased 19% during Index (2000 = 100) (2000 Index Index (2000 = 100) (2000 Index 133 133 first-half 2010. Global trade volumes are Annual average trade volumes approximately back at pre-crisis levels. 120 120 2005 2006 2007 2008 2009 2010 2011 • Supply up 17% from 2008-2010 Sources: Reuters EcoWin, Danish Ship Finance WTO forecast
The combined capacity of the Container, Tanker The global orderbook declines as more tonnage is being delivered than contracted and Dry Bulk fleets has increased approximately 120 58% 70% 17% since 2008. With demand volumes back at 80 47% 39% 2008 levels, many segments are struggling to World Contracting utilize the full potential of the fleet. 40 23%
- 0% • Risk of further oversupply Million cgt -40 -23% Orderbook / Fleet ratio
Nonetheless, more tonnage is yet to come. The World Deliveries Orderbook / Fleet ratio* >> current orderbook/fleet ratio stands at 39%, -80 -47% 2 98 99 08 007 indicating that the threat of an escalating supply 1996 1997 19 19 2000 2001 200 2003 2004 2005 2006 2 20 2009 2010 * Container, Tankers, Dry Bulk surplus is still present. Sources: Clarksons, Danish Ship Finance World Contracting World Deliveries
5 EXECUTIVE SUMMARY -SHIP BUILDING
• Newbuilding prices decline 7% The newbuilding price drops 7% from 2009 to 2010 The average delivery time shortens by approximately a quarter in 2010 The global orderbook peaked in 2008, and has 1,600 3.0 since declined 25% because more tonnage is Average delivery time >> being delivered than contracted. The 1,200 2.3 1,080 1,100 newbuilding price dropped 7% from 2009 to 2010 (25% from 2008 to 2010). 800 1.5 USD perUSD unit • Yard capacity at 51m cgt in 2010 400 0.8 707 689 554 Global yard capacity is projected to run an (years) time delivery Average - - almost 100% utilization from 2010 to 2012. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Japan Steel Price (USD per tonne) Newbuilding Price (USD per dwt) Global yard capacity is expected to increase to Sources: Clarksons, Danish Ship Finance 51m cgt in 2010 (+6m cgt or 14%). Scheduled deliveries after postponements Risk of 42m cgt idle yard capacity in 2013 • Yard capacity at 55m cgt in 2011 80 80 Global yard capacity is expected to increase to 55m cgt in 2011 (+4m cgt or 8%). So far, 60 60 yard capacity is expected to be stable beyond 10 8 14
9 y 40 8 40 2011. 14
15 acit p Million cgt Million Million cgt Million 11 12 ca 13 24 27 11 • Yard overcapacity in 2013 20 9 20 17 idle cgt yard42m 6 6 10 The equivalent of 950 VLCCs (i.e. 42m cgt) is 3 13 12 9 10 7 7 6 required in new contracts in order to utilize - - global yard capacity in 2013. The current 2007 2008 2009 2010 2011 2012 2013 Sources: Clarksons, Danish Ship Finance Container Dry Bulk Tanker Other VLCC fleet contains 547 vessels.
6 EXECUTIVE SUMMARY - CRUDE TANKERS
43.8m dwt scheduled to enter the fleet in 2011 • Spot rates are low 7.3m dwt qualifies for scrapping in 2011 60 Current rates are low and are approaching 12% 7% 45 5% operating costs. The 2010 average is 27% 3% 4% 30
below the 10-year average from 1999 to 2008, Delivery 15 29 21 and 37% below the 2008 average. 12 17 16 - Million dwt Million
• 5% fleet growth during 2010 -15
The Crude Tanker fleet is expected to grow 5% -30 Scrapping Net fleet growth, year-on-year in 2010 (13% before 17m dwt scrapped) and -45 12% in 2011 (16% before 7m dwt scrapped). 2008 2009 2010 2011 2012 Sources: Clarksons, Danish Ship Finance VLCC Suezmax Aframax • Ton-miles demand up 11% in 2010 Distance-adjusted Crude Tanker demand is expected to Despite the expectation of a modest increase in benefit from longer travel distances
global oil consumption, longer travel distances 50% 50% are expected to lift distance-adjusted Crude 38% 38% Tanker demand by 11% in 2010 and 9% in Distance-adjusted crude tanker exports 25% 25% 2011. 13% 13% • Worsening 2011 outlook 0% 0% Year-on-year growth The combination of a large inflow of new Year-on-year growth -13% -13%
tonnage and a demand outlook inadequate to Africa Latin America and Caribbeans Middle East -25% -25% absorb the entering capacity creates a bleak 2008 2009 2010 2011 2012 outlook for Crude Tanker rates and values in Sources: Global Insight, Danish Ship Finance 2011.
7 EXECUTIVE SUMMARY - PRODUCT TANKERS
10.8m dwt scheduled to enter the fleet in 2011 • Current rates are low 4.4m dwt qualifies for scrapping in 2011 15 12% 10% Current rates are low and are approaching 9% 6% 10 operating costs. The 2010 average is 30% 1% 2%
below the 10-year average from 1999 to 2008, 5 Delivery 6.2 6.5 5.8 4.4 4.8 2.5 and 44% below the peak of 2005. 0 Million dwt Million • 6% fleet growth in 2011 -5 -10 The Product Tanker fleet is expected to grow Scrapping Net fleet growth, year-on-year 1% in 2010 (9% before 9m dwt scrapped) and -15 2007 2008 2009 2010 2011 2012
6% in 2011 (10% before 4m dwt scrapped). Sources: Clarksons, Danish Ship Finance MR LR1 LR2
• Ton-miles demand up 8% in 2010 Distance-adjusted Product Tanker demand projected to Despite the expectation of a modest increase in increase 8% in 2010 and 7% in 2011 global oil consumption, longer travel distances 15% 15%
10% 8% 10% are expected to lift distance-adjusted demand 7% 6% 5% by 8% in 2010 and 7% in 2011. 5% 5% -3% • Gloomy 2011 outlook 0% 0% The combination of a large inflow of new -5% -5% Year-on-year growth Year-on-year Year-on-year growth Year-on-year tonnage and a demand outlook inadequate to -10% -10% Distance-adjusted Product Tanker demand absorb the entering capacity creates a bleak -15% -15% 2009 2010 2011 2012 2013
outlook for Product Tanker rates and values in Sources: Global Insight, Danish Ship Finance Asia Europe North America 2011.
8 EXECUTIVE SUMMARY -CONTAINER
1.8 million teu scheduled for delivery in 2011 • Record-high box rates 250,000 teu qualify for scrapping in 2011 2,100 The average box rate index out of China has 13% 11% 8% surpassed index 1200, recovered more than 400 1,400 6% 7% index points in 14 months and is now above 700 1,541 Deliveries pre-crisis levels. 844 926 687 558 - (,000) teu g
• 8% fleet growth in 2010 in The Container fleet is expected to grow 8% in -700 pp Scra 2010 and 11% in 2011. -1,400 2008 2009 2010 2011 2012 Post-Panamax Panamax Sub-Panamax Handy Feeders • Ton-miles demand up 9% in 2010 Sources: Clarksons, Danish Ship Finance
Distance-adjusted head-haul demand is Accumulated capacity absorbed by slow steaming approaches 4.6 million teu by 2011 expected to increase 9% in 2010 and 7% in 1.8 million teu scheduled to enter service in 2010 4,500 2011. Scheduled annual deliveries 3,000
• Spare capacity escalates in 2011 Delivery 1,500 1,780 Head-haul demand volumes are expected to 1,475 1,130 1,462 - -487.35 -1,179 surpass 2008 levels during the last part of 2011. -1,500 (,000) teu -1,986 Nominal spare capacity of the container fleet is, -3,000
-982
nonetheless, expected to escalate to 4.6m teu -4,500 by slow steaming
Average PP'-max speed reduced from 24.7 knots to: Capacity absorbed 23.2 knots 20.2 knots 17.2 knots 17.2 knots by 2011. Extensive use of slow steaming may, -6,000 however, continue to absorb the overcapacity in 2008 2009 2010 2011 Sources: Global Insight, Danish Ship Finance 2011.
9 EXECUTIVE SUMMARY -DRY BULK
119 million dwt scheduled to enter the fleet in 2011 • BDI down 32% in eight months 18 million dwt qualifies for scrapping in 2011
The Baltic Dry Index has declined 32% during 150 19% the first eight months of 2010. However, the 100 16%
10% 11% annual average for 2010 is 12% above the 2009 50 7% Delivery 46 57 average. 28 40 - 14 • 16% fleet growth in 2010 Million dwt (50) (100) Potential Potential The Dry Bulk fleet is scheduled to grow 16% in Net fleet growth, year-on-year >> Scrapping (150) 2010 and 19% in 2011. 2008 2009 2010 2011 2012
Sources: Clarkson, Danish Ship Finance Capesize Panamax Handymax Handysize
• Ton-miles demand up 12% in 2010 Capesize demand projected to increase 12% in 2010 Distance-adjusted front-haul demand is and 10% in 2011. expected to increase 12% in 2010 and 10% in 40% 40% 2011. 12% 10% 20% 20%
• Overcapacity in 2011 1% 0% 0% The cargo-carrying capacity of the entering fleet
-20% -20% Year-on-year growth in 2011 is expected to outpace the growth in Year-on-year growth
key Dry Bulk commodity demand. We risk a << Distance-adjusted front-haul capesize demand growth -40% -40% Capesize supply surplus of 12% (29m dwt) in 2009 2010 2011
2011. Sources: Global Insight, Danish Ship Finance China Japan Europe
10 WORLD DEMAND INDICATORS WORLD DEMAND INDICATORS
World trade volumes up 13.5% in 2010 • Strong global economic recovery By increasing 13.5% in 2010, 2010 volumes are back at 2008 levels
The global economic recovery has proven 170 170 stronger than previously anticipated. By July 2010, the IMF revised their 2010 expectations 158 158 World trade volumes for the global economy upwards. Global GDP is expected to grow 4.6% in 2010 (+0.4% points 145 145 compared to the IMF April forecast). 13.50% Index (2000 = 100) (2000 Index Index (2000 = 100) (2000 Index 133 133
• Strong Asian growth Annual average trade volumes 120 120 The recovery is largely driven by Asia. Increased 2005 2006 2007 2008 2009 2010 2011 exports and private consumption have been the Sources: Reuters EcoWin, Danish Ship Finance WTO forecast
main driving forces behind the strong Asian Cargo handling at major Chinese seaports increased growth. 20% during the first half of 2010
1,600 1600 • Global trade increases 19% in 1H10 Cargo handling at major Chinese seaports 1,400 1400 The strong global economic growth had great +20% impact on global trade volumes: Global trade 1,200 1200 volumes increased 19% during first-half 2010. 1,000 1000 Million tonnes Million Million tonnes Million
Global trade volumes are approximately back at 800 800 pre-crisis levels. For 2010, the WTO forecasts Annual average 600 600 that global trade volumes will increase 13.5%, 2005 2006 2007 2008 2009 2010 2011 2012
indicating a potentially weaker growth in trade Sources: Reuters EcoWin, Danish Ship Finance volumes during second-half 2010.
12 WORLD DEMAND INDICATORS
The global orderbook declines as more tonnage is being • Supply up 17% from 2008-2010 delivered than contracted The combined capacity of the Container, Tanker 120 58% 70% 80 47% and Dry Bulk fleets has increased approximately 39% World Contracting 17% since 2008. With demand volumes only 40 23%
back at 2008 levels, many segments are - 0% struggling to utilize the full potential of the fleet. Million cgt -40 -23% Orderbook / Fleet ratio
World Deliveries Orderbook / Fleet ratio* >> • Risk of further oversupply -80 -47%
2 98 99 08 Nonetheless, more tonnage is yet to come. The 007 1996 1997 19 19 2000 2001 200 2003 2004 2005 2006 2 20 2009 2010
current orderbook/fleet ratio stands at 39%, * Container, Tankers, Dry Bulk indicating that the threat of an escalating supply Sources: Clarksons, Danish Ship Finance World Contracting World Deliveries surplus is still present. • Inadequate demand outlook • Demand unlikely to absorb supply The global economy remains fragile. The outlook Asia has been the hot topic for the last few for 2010 and beyond is shrouded in uncertainty. years, and for good reason. Asian economic Although global GDP is expected to grow 4.6% growth has been the tide that lifted all in 2010 and 4.3% in 2011, the benefits of the boats. Asian growth could, once again, take fiscal stimuli packages are soon coming to an us all by surprise. To us, though, a demand end. Whether the stimuli packages will have scenario where the global orderbook is lasting effects beyond 2010 remains to be seen. absorbed by pure demand in 2011 seems unlikely, as too much tonnage is expected to be delivered.
13 SHIP BUILDING NEWBUILDING PRICES
• Newbuilding prices decline 7% In 2010, the global orderbook is 25% lower than in 2008 The average newbuilding price dropped 25% from 2008 to 2010 The global orderbook peaked in 2008, and has 1,600 250 since declined 25% because more tonnage is << Average newbuilding price, USD per dwt 207 200 being delivered than contracted. The 1,400 newbuilding price dropped 7% from 2009 to 152150 2010 (25% from 2008 to 2010). 1,200 100 (million cgt) (million USD per dwt
1,000 Global Orderbook • Declining delivery times 50
The global orderbook is now back at the same Global Orderbook >> 800 - size as in 2006. Global yard capacity has, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
however, increased 53% between 2006 and Sources: Clarksons, Danish Ship Finance 2010. Consequently, the average delivery time is shortening and the risk of a considerable The newbuilding price drops 7% from 2009 to 2010 future yard overcapacity is increasing. The average delivery time shortens by approximately a quarter in 2010 1,600 3.0 Average delivery time >>
• Newbuilding prices at 2004 levels 1,200 2.3 Compared to historical levels, the current 1,080 1,100
newbuilding price is 10% below the average 800 1.5
price in 2004. The steel price, however, has perUSD unit 400 0.8
increased 25% from 2004 to 2010. If the steel 707 689 554 price can be used as a proxy for component (years) time delivery Average - - costs, this may indicate that yard profitability is 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Japan Steel Price (USD per tonne) Newbuilding Price (USD per dwt) lower in 2010 than it was in 2004. Sources: Clarksons, Danish Ship Finance
15 CONTRACTING ACTIVITY AND DELIVERY TIME
Global contracting activity increases during 2010 • Contracting activity resumes Primarily due to a surprisingly strong appetite for Dry Bulk tonnage 19m cgt was contracted during the first eight 100 3.5 Delivery time >> 21 months of 2010. Although still very low 80 2.8 compared to historical averages, this is an 16 increase of 55% compared to 2009. 60 19 2.1 11 40 1.4
Million cgt 8 • Dry Bulk drives contracting 15 17 23 39 12 13 11 10 20 0.7 (years) Time Delivery The increased contracting activity during the 7 9 13 23 7 7 4 6 18 13 12 11 first eight months of 2010 is largely driven by 5 11 11 6 6 - 3 - new Dry Bulk orders. So far, 11m cgt has been 2002 2003 2004 2005 2006 2007 2008 2009 2010 contracted (6m cgt in 2009). Sources: Clarksons, Danish Ship Finance Container Dry Bulk Tanker Other
• Few new Japanese orders disclosed Most orders placed at Chinese and South Korean yards Contracting activity has mainly been reported at Japanese yards seem to continue to underreport contracting activity 100 3.5 Chinese and South Korean yards. Japanese Delivery time >> 14 yards, on the other hand, continue to 80 2.8
underreport their new orders. 33 60 12 2.1
6 21 40 10 12 14 1.4 • Delivery times decline cgt Million 7 19
16 16 13 15
More tonnage is being delivered than 10 (years) Delivery Time 20 4 0.7 33 7 13 12 11 8 19 18 4 contracted, and the average delivery time has 8 6 7 9 6 9 - 2 - fallen accordingly - from 2.4 years in 2009 to 2002 2003 2004 2005 2006 2007 2008 2009 2010 approximately 2 years in 2010. Sources: Clarksons, Danish Ship Finance China P.R. Japan South Korea Rest of the World
16 DELIVERY PERFORMANCE
63m cgt scheduled for delivery in 2010 33m cgt delivered during the first eight months of 2010 • 63m cgt scheduled for 2010 10 10 A total of 63m cgt was scheduled for delivery in Scheduled deliveries >> 8 8 2010. 33m cgt has been delivered during the first eight months of 2010. 6 6
4 4 Million cgt Million Million cgt Million • Global yard output up 14% 2 2 Global yard output was 14% higher during the - - 0 0 10 10 10 010 01 0 010 0 010 010 01 010 010 0 010 first six months of 2010, compared to the same 2 -2 2 2 2 -2 2 2 2 5-2 1-2 01- 02 03-2 04- 0 06- 07- 08 09- 10- 1 12- period in 2009. Sources: Clarksons, Danish Ship Finance Total deliveries Non-materialised deliveries
• South Korean output down 6% 26m cgt delivered during the first half of 2010 Chinese yards deliver 38% more than in the second half of 2009 Measured in cgt, South Korean yard output was 30 30 6% lower in the first half of 2010, compared to 25 4 25
first-half 2009. Simultaneously, Japanese yard 4 20 4 4 20 output increased 9%. 4 8 4 15 4 9 15 8 7 7 Million cgt Million Million cgt Million 5 6 • Chinese yard output up 59% 10 6 10 5 5 5 Chinese yard output soared 59% during first- 4 5 5 5 9 5 7 half 2010, compared to the same period in 5 6 3 4 4 - - 2009. In particular, Chinese Dry Bulk deliveries 06-2007 12-2007 06-2008 12-2008 06-2009 12-2009 06-2010
surged during first-half 2010. Sources: Clarksons, Danish Ship Finance China P.R. Japan South Korea Rest of the World
17 DELIVERY PERFORMANCE
On average 18% of the orderbooks was postponed or • 18% postponed in 2010 cancelled during the first 8 months of 2010 20 40% 7m cgt (18%) of the orders scheduled for Non-materialised / Orderbook >> delivery in the first eight months of 2010 was 15 34% 30% postponed. Consequently, we see an increase in 2 the delivery performance compared to 2009. 10 16% 20% 16% 4 Million cgt Million 1 • Tanker deliveries perform the worst 11 5 10% 7 4m cgt (34%) of scheduled Crude and Product 6 Non-materialised / Orderbook Non-materialised
Tanker deliveries was postponed during the first - 0% eight months of 2010. Container Dry Bulk Tanker Sources: Clarksons, Danish Ship Finance Actual Deliveries Non-materialised Deliveries
63m cgt scheduled for delivery in 2010 • Yard capacity at 51m cgt in 2010 Global yard capacity is projected at 51m cgt in 2010 Global yard capacity is projected to increase to 80 80 51m cgt in 2010. The majority of the new yard 60 60 11 capacity is located in China. 17 15 40 40 14 15 15 5 Million cgt Million • 12m cgt postponed into 2011 cgt Million 11 7 13 11 27 20 9 22 20 To sum up: 63m cgt is scheduled for delivery in 19 6 6 10 3 2010. With global yard capacity forecasted to 9 10 7 9 9 6 5 - - 2007 2008 2009 2010 2011 2012 2013 51m cgt, as much as 12m cgt (19%) could be Actual deliveries Scheduled deliveries
postponed into 2011. Sources: Clarksons, Danish Ship Finance Container Dry Bulk Tanker Other
18 OUTLOOK
In 2011, global yard capacity is expected to be 55m cgt • Yard capacity at 55m cgt in 2011 19m cgt is expected to be postponed from 2011 into 2012
For 2011, we expect a modest increase in global 80 80 yard capacity of 8% (+4m cgt). Global yard 19 60 60 capacity is therefore expected to be 12 2 approximately 55m cgt. 40 40
• 63m cgt scheduled for delivery Million cgt 55 55 Million cgt 51 45 For 2011, as much as 63m cgt is scheduled for 20 20 delivery. When adding the 12m cgt postponed - - from 2010 to 2011, as much as 74m cgt would be 2009 2010 2011 2012 scheduled for delivery in 2011. Sources: Clarksons, Danish Ship Finance Expected deliveries Expected postponement
• 55m cgt delivered in 2011 In 2011, global yard capacity is expected at 55m cgt 19m cgt is expected to be postponed from 2011 into 2012 For 2011, we expect an almost 100% utilization 80 80 of global yards. Consequently, we expect that From 2010 to 2011 74% of the 74m cgt (i.e. 55m cgt) will be 60 60 10 8 delivered during 2011. 14 9 40 8 40 Million cgt • 19m cgt postponed into 2012 Million cgt 12 24 27 20 20 Postponements are expected to escalate during 17
13 12 2011 as the global orderbook is expected to be 7 - - rescheduled. 26% or 19m cgt is expected to be 2009 2010 2011 2012
postponed from 2011 to 2012. Sources: Clarksons, Danish Ship Finance Container Dry Bulk Tanker Other
19 OUTLOOK
Scheduled deliveries after postponements • Risk of overcapacity from 2013 Risk of 42m cgt idle yard capacity in 2013 Based on the current orderbook and the 80 80 postponement scenario previously described, 60 60 the first signs of a potential overcapacity will 10 8 14
9 y show in 2013. 40 8 40 14
15 acit p Million cgt Million 11 12 cgt Million ca • 13m cgt scheduled for delivery 13 24 27 11 20 9 20 Without any additional contracting activity 17 idle cgt yard42m 6 6 10 3 13 12 from 2010 to 2013, annual deliveries in 2013 9 10 7 7 6 - - are expected to reach 13m cgt. This equates 2007 2008 2009 2010 2011 2012 2013 to a yard utilization of 24%. Sources: Clarksons, Danish Ship Finance Container Dry Bulk Tanker Other
• 42m cgt required for 2013 • Newbuilding prices under pressure Additional capacity corresponding to a total of Newbuilding prices may continue to decline if 42m cgt has to be contracted for delivery in contracting activity fails to fill the vacant yard 2013 in order to fully utilize global yard capacity in 2013 and beyond. However, capacity in 2013. Translated into VLCCs, 42m increasing component costs (steel prices, etc.) cgt equals approximately 950 vessels, while might potentially support newbuilding prices the current fleet contains 547 vessels. beyond yard utilization.
20 CRUDE TANKERS FREIGHT AND TIMECHARTER RATES
BDTI on average 62% above the 2009 average The 10-year average from 1999-2008 equals index 1,300 • Baltic Dirty Tanker Index down 31% 2,500 2,500 BDTI has, on average, declined 31% during the first eight months of 2010. Nonetheless, the 2,000 2,000 2010 average is 62% above the 2009 average. 1,500 01-2010 1,500 1,126
Index 1,000 1,000 Index • 27% below the 10-year average 08-2010 773 Current rates are low and approaches operating 500 500 costs. The 2010 average is 27% below the 10- Annual average - - year average from 1999 to 2008, and 37% 2006 2007 2008 2009 2010 2011
below the 2008 average. Sources: Reuters EcoWin, Danish Ship Finance • 3-year timecharter rate up 30% Timecharter rates are approaching 2004 levels The 3-year VLCC timecharter rate has, on The 3-year VLCC timecharter rate has increased 30% YTD average, risen 30% in the first eight months of 100,000 100,000 08-2008 2010. The current timecharter rate is now back 70,000 75,000 75,000 at USD 41,500 per day. Annual average, VLCC 08-2010 50,000 41,500 50,000 USD perUSD day • Back at 2004 levels perUSD day Improved oil demand has, so far, bolstered 25,000 25,000
timecharter rates during 2010. The average - - annual VLCC timecharter rate is now back to the 2002 2004 2006 2008 2010
levels of 2004. Sources: Clarksons, Danish Ship Finance VLCC Suezmax Aframax
22 MAJOR FRONT-HAUL CRUDE TANKER ROUTES (MEASURED IN BILLION TON-NAUTICAL MILES, 2010)
Africa -> North America Middle East - 8% >Europe Africa->Europe Africa ->Asia 5% 4% 10% Europe ->Asia Middle East -> 4% North America Latin America and 12% Caribbeans->North America 3% Latin America and Caribbeans ->Asia 3%
Other routes 16% Middle East ->Asia 35%
Sources: Global Insight, Danish Ship Finance
23 SUPPLY AND DEMAND
19.8m dwt enters the fleet during the first eight months • 4% fleet growth in 1H10 of 2010 28.2m dwt was scheduled for delivery during
12 12% the first eight months of 2010. 19.8m dwt was 8% 6% 6% 6% 5% 4% actually delivered. The Crude Tanker fleet grew 6 4% 6%
4% year-on-year. 6 5 6 4 3 4 3 - -1 0% -2 -3 -2 -3 -2 -3 Million dwt Million
• 30% of deliveries postponed growth Annual 8.4m dwt (30%) of scheduled deliveries was -6 -6% Annual fleet growth >> postponed during the first seven months of -12 -12% 2010. 03-2009 06-2009 09-2009 12-2009 03-2010 06-2010 09-2010 • VLCC deliveries perform the best Sources: Clarksons, Danish Ship Finance VLCC Suezmax Aframax 70% of scheduled deliveries is delivered during the first Of the 16.9m dwt VLCC capacity expansion eight months of 2010 scheduled for delivery between January and 25 100% Deliveries / scheduled deliveries >>
August 2010, 73% (12.3m dwt) was delivered. 20 73% 80% 68% The performance of the smaller segments was 65% at a slightly lower level. 15 4.6 60%
10 40% • 11.7m dwt leaves the fleet dwt Million 12.3 5 2.1 20% 11.7m dwt (4%) (mostly single-hull tankers) 1.7 4.4
3.1 deliveries / scheduled Deliveries left the fleet during the first eight months of - 0% 2010. 4.4m dwt was scrapped, while the VLCC Suezmax Aframax remaining 7.3m dwt was converted into other Sources: Clarksons, Danish Ship Finance Actual deliveries Non-materialised deliveries ship types.
24 SUPPLY AND DEMAND
Global oil production increased 3% (2.4m barrels per • Global oil production up 3% day) during first-half 2010 4 6% On average, global oil production increased 3%
(2.4m barrels per day) during first-half 2010. 2 3% 3% 2% OPEC sustains its 40% share of the global oil 1% 1% 1% - 0% production. 0% 0%
-3% growth Annual • Global oil consumption up 2% -2 -3% Million barrelsMillion per day Global oil consumption improved approximately Year-on-year growth >> -4 -6% 2% (1.8m barrels per day) during first-half 06-2008 12-2008 06-2009 12-2009 06-2010 12-2010 06-2011 12-2011 06-2012 2010. Sources: Reuters EcoWin, Danish Ship Finance OPEC Non-OPEC
• Non-OECD leads global oil demand Non-OECD oil consumption is driving the recovery in Non-OECD oil consumption lead the recovery in global oil consumption global oil consumption. Non-OECD oil 4 6%
consumption expanded, on average, 5% (2m 2 3% 2% 2% 2% 1% barrels per day) during first-half 2010, 1% - compared to the same period last year. 0% 0%
-2% growth Annual -2 -3% -3% • Asian demand contributes the most Million barrels per day Year-on-year growth >> Asian oil consumption constitutes 46% of the -4 -6% non-OECD oil demand and grew 6% (1.1m 06-2008 12-2008 06-2009 12-2009 06-2010 12-2010 06-2011 12-2011 06-2012 OECD Oil Consumption Non-OECD Oil Consumption barrels per day) during first-half 2010. Sources: Reuters EcoWin, Danish Ship Finance
25 SUPPLY AND DEMAND
• China drives global oil consumption Chinese oil consumption continues to grow albeit at a Contributing with half of the increase in global lower rate oil consumption (+0.9m barrels per day), China 2 2
is the single-largest contributor to the growth in 1 1 global oil consumption during first-half 2010. - - • Restocking of OECD oil inventories (year-on-year) (year-on-year) -1 -1
OECD crude oil inventories have been restocked Million barrels per day Million barrels per day
during the first two quarters of 2010. In total, -2 -2 93m barrels have been added from March to 12-2008 03-2009 06-2009 09-2009 12-2009 03-2010 06-2010 09-2010 12-2010
July 2010. Sources: EIA, Danish Ship Finance China Other Asia
• Ton-miles demand up 11% in 2010 Distance-adjusted global seaborne crude oil demand The combination of the recovered global oil sparks up in 2010
10,000 15% consumption and longer travel distances has Year-on-year growth >>
11% effectively lifted 2010 distance-adjusted demand 8,000 10% above the levels of 2008. Distance-adjusted 8% 6,000 2,543 2,435 5% demand is expected to increase 11% in 2010. 2,439 2,202 • Strong 1H10 demand growth 4,000 0% 4,834
-4% 4,589 Year-on-year growth 2,000 4,165 4,276 -5% Distance-adjusted demand growth most likely demand ton-miles Billion -9% outpaced supply growth during first-half 2010. - -10% 2007 2008 2009 2010 Nevertheless, the balance between supply and Asia North America demand tipped in third-quarter 2010. Sources: Global Insight, Danish Ship finance Europe Other regions
26 SUPPLY AND DEMAND
• Rising fleet availability in 1H10 The reduction of crude oil in floating storage increases supply The number of vessels deployed in floating 160 160
storage fell significantly in the second and third 119 quarters of 2010, hence rising fleet availability. 120 120 81 Approximately 20 VLCCs (40m barrels) resumed 80 80
trading during the period. << Crude oil in floating storage Million Barrels Million Barrels • VLCC availability increased in July 40 40 Overall, the start of the low season reduced - 0 0 0 0 0 0 0 0 1 monthly crude oil imports. Chinese crude oil -201 -201 -20 -201 -201 -201 -201 02 03 04 05 06 07 08
imports fell in particular (-17% or 1m barrels Sources: Bloomberg, Danish Ship Finance per day) from June to July. The combined The number of VLCCs competing for business in the MEG impact on third-quarter VLCC availability was reached an all-time high
great: By the end of August 2010, as many as 200 40
100 VLCCs were due in the Arabian Gulf in four VLCC due in the gulf in 4 weeks >> weeks. 150 60
• Exacerbating supply woes 100 80 The large inflow of new capacity, fewer vessels USD/DAY (,000) USD/DAY 50 100 Number of VLCCs deployed in floating storage and the start of the << VLCC spot earnings low season increased fleet availability - 120 0 08 008 009 considerably, and sent spot rates tumbling down 2 20 2 -201 6- 09-2007 12-2007 03- 0 09-2008 12-2008 03-2009 06-2009 09- 12-2009 03-2010 06 09-2010 during the third quarter of 2010. Sources: Clarksons, Danish Ship Finance
27 CONTRACTING AND SHIP VALUES
• Contracting activity swells up Contracting activity increases during the first eight Newbuilding activity surged in August 2010. In months of 2010 60 3.6 all, 3.9m dwt was ordered during the month – Average delivery time >> the highest since 2008. A better long-term 50 3.0 outlook has apparently inspired confidence in 40 2.4 owners. 30 1.8 • Delivery times decrease dwt Million 20 1.2 The average delivery time decrease despite new 10 0.6 (years) Delivery time - - orders are being placed. The latest VLCC orders 2005 2006 2007 2008 2009 2010 are expected to be delivered within 2.7 years. Sources: Clarksons, Danish Ship Finance VLCC Suezmax Aframax
• Newbuilding prices up 9% in 2010 Asset prices recover throughout 2010 The average newbuilding price rose 9% during 200 200 the first eight months of 2010. However, steel Newbuilding price, VLCC prices grew almost doubled that figure in the 150 150
same period. 100 100 Million USD Million • Secondhand prices up 13% in 2010 USD Million Secondhand prices for 5-year-old vessels 50 50 Secondhand price, 5yr old, VLCC increased 13% during the first eight months of - - 2010. Still, depressed earnings forced 09-2007 03-2008 09-2008 03-2009 09-2009 03-2010 09-2010 secondhand prices slightly down in third quarter. Sources: Clarksons, Danish Ship Finance
28 OUTLOOK
• Ton-miles demand up 9% in 2011 Crude Tanker demand expected up by 11% in 2010 compared to 2009, primarily driven by Asian and North Distance-adjusted demand is expected to American oil imports 15% 15% 11% increase by 11% in 2010 and 9% in 2011. 9% 8% Especially longer travel distances for Asian crude 10% 10% oil imports are expected to support distance- 5% 5% adjusted demand. 0% 0% Annual growth Annual Annual growth Annual -5% -5% • Fleet growth at 12% in 2011 -9% -10% -10% The Crude Tanker fleet is expected to grow by Distance-adjusted annual crude tanker demand -15% -15% 6% (yoy) during the last quarter of 2010. In 2009 2010 2011 2012
2011, the fleet is expected to grow 12%. Sources: Global Insight, Danish Ship Finance North America Europe Asia
• 43.8m dwt scheduled for 2011 43.8m dwt scheduled to enter the fleet in 2011 7.3m dwt qualifies for scrapping in 2011 60 14.4m dwt is scheduled to enter the fleet during 12% 7% 45 5% the last four months of 2010 (i.e. 34m dwt in 3% 4%
2010). In 2011, a capacity expansion of 43.8m 30 Delivery dwt (12%) is scheduled. 15 29 21 12 17 16 - Million dwt Million
• VLCC accounts for 65% of deliveries -15
VLCC deliveries account for approximately 65% -30 Scrapping Net fleet growth, year-on-year of all capacity delivered in 2010 and 2011. In -45 2011, the annual VLCC fleet growth will turn 2008 2009 2010 2011 2012 double-digit, from 6% in 2010 to 14% in 2011. Sources: Clarksons, Danish Ship Finance VLCC Suezmax Aframax
29 OUTLOOK
Global oil consumption expected to increase 1.4m • Huge phase-out potential barrels per day in 2011, surpassing 2007 volumes 22.9m dwt (7%) of the Crude Tanker fleet is 88 3 single-hull tankers. These vessels are to be 87 2
86 1 1.7 phased out before 2015 or before the age of 25. 1.2 1.4 0.7 85 0 -0.05 -0.02
84 -1.76 -1 • 10.2m dwt phased out by 2011 -2.14 change Annual Million barrelsMillion per day 10.2m dwt is expected to leave the fleet by 83 -2 barrels per(million day) << Global Oil consumption Regional oil consumption, annual change >> year-end 2011, assuming that all single-hull 82 -3 tankers are phased out at the age of 25. 2008 2009 2010 2011
Sources: Reuters EcoWin, Danish Ship Finance OECD Non-OECD
Distance-adjusted Crude Tanker demand is expected to • Global oil consumption up 2% benefit from longer travel distances
By 2011, global oil consumption is expected to 50% 50%
surpass the former record levels of 2007. On 38% 38% average, global oil consumption is expected to Distance-adjusted crude tanker exports 25% 25% increase 1.4m barrels per day (2%) in 2011. 13% 13%
• Longer travel distances 0% 0% Year-on-year growth Year-on-year growth Crude Tanker demand is expected to increase -13% -13%
Africa Latin America and Caribbeans Middle East beyond the growth in global oil consumption, -25% -25% since the oil is expected to travel longer 2008 2009 2010 2011 2012 distances. Sources: Global Insight, Danish Ship Finance
30 OUTLOOK
SUMMARY • Gloomy 4Q10 outlook • Import patterns set to change The outlook for fourth-quarter rates and Distance-adjusted demand might increase values is gloomy: Global oil consumption is beyond expectations if China or the US have expected to grow a modest 0.3m barrels per to import crude oil from longer travel day (0.4%) during fourth-quarter 2010, distances in 2011. whereas quarterly fleet growth is expected to surpass 3% (+8.2m dwt). • Inventories threaten demand • Inventories - another dark horse OECD crude oil inventories are large and could A reduction of commercial inventories will potentially limit the effect of seasonal demand most likely reduce demand for Crude Tankers in the OECD. China may, however, surprise and hence put further pressure on rates and once again. values. • Bleak 2011 outlook for Tankers • 2011 freight rates to decline The combination of a rapidly growing fleet and For 2011, we expect freight rates and asset a demand outlook inadequate to absorb the values to trend downwards from their 2010 entering capacity creates a bleak outlook for average as demand fails to absorb the Crude Tanker rates and values in 2011. entering tonnage.
31 PRODUCT TANKERS FREIGHT AND TIMECHARTER RATES
The Baltic Clean Tanker Index loses 26% during the • BCTI down 26% in nine months first nine months of 2010
The Baltic Clean Tanker Index has declined 26% 2,500 2,500 during the first nine months of 2010. Baltic Clean Tanker Index 2,000 2,000 Nonetheless, the 2010 average is 51% above the 2009 average. 1,500 1,500 01-2010 Index Index 885 • 30% below the 10-year average 1,000 1,000 09-2010 656 Current rates are low and are approaching 500 500
operating costs. The 2010 average is 30% Baltic Clean Tanker Index, Annual average - - below the 10-year average from 1999 to 2008, 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 and 44% below the peak in 2005. Sources: Clarksons, Danish Ship Finance
• 3-year timecharter rate up 9% Timecharter rates increase 9% during the first eight The three-year timecharter rate has gained 9% months of 2010 but remain subdued 30,000 30,000 during the first eight months of 2010, albeit still 08-2008 being 12% below the 2009 average. In a 23,500 22,500 22,500
historical context, current rates are back at the 08-10 14,750 2003 average. 15,000 15,000 USD/day USD/day 05-2004 14,900 01-2010 • Improved market sentiments 13,500 Timecharter rates Timecharter rates 7,500 7,500 Activity on the period market increased in July. Three-year timecharter rate, MR Improved market sentiments seem to push - - 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 charter rates up across the board - although it might be short-lived. Sources: Clarksons, Danish Ship Finance
33 MAJOR PRODUCT TANKER TRADES IN 2010 (MEASURED IN BILLION TON-NAUTICAL MILES)
Europe > Africa, 4% Asia > Latin Asia > Europe, 4% North America > America and Europe, 4% Caribbeans, 4% North America > Asia > North Asia, 6% America, 3%
Latin America and Caribbeans > Asia, Middle East > Asia, 3% 9% North America > Latin America and Europe > Asia, 9% Caribbeans, 3%
Intra-Asia, 11% Other routes, 27%
Europe > North America, 14%
Sources: Global Insight, Danish Ship Finance
34 SUPPLY AND DEMAND
5.9m dwt delivered in the first eigth months of 2010 • Product Tanker fleet up 6% 2.9m dwt was scrapped during the period 5.0
8.9m dwt was scheduled for delivery during the 16% 15% 14% first eight months of 2010. 5.9m dwt (+6% fleet 2.5 11% 8%
6% Delivery growth) was actually delivered. MR tankers 1% accounted for 55% (3.2m dwt) of deliveries. - Million dwt Million • 3m dwt postponed -2.5 Scrapping From January to August 2010, 33% (3m dwt) of Net fleet growth >> -5.0 all scheduled deliveries was postponed. 03/2009 06/2009 09/2009 12/2009 03/2010 06/2010 09/2010
Sources: Clarksons, Danish Ship Finance MR LR1 LR2 • LR1 tankers perform the worst 33% of scheduled deliveries was postponed or The delivery performance was lowest within the cancelled during the first eight months of 2010
LR1 segment: 60% of scheduled deliveries was 5 100% postponed. LR2 tankers performed the best with 87% 4 1.7 80% 13% postponed. 66%
3 60%
• 2.9m dwt scrapped 40% 0.3 2 40%
Scrapping activity in 2010 has already dwt Million 3
1.0 surpassed the levels of 2009 (2.9m dwt). In the 1 2 20%
MR tanker segment alone, 2.2m dwt (4% of the 1 orderbook scheduled Deliveries/ - 0% MR tanker fleet) has left the fleet during the first LR2 LR1 MR eight months of 2010. Sources: Clarksons, Danish Ship Finance Actual deliveries Non-materialised deliveries
35 SUPPLY AND DEMAND
Distance-adjusted Product Tanker demand up 8% in • Ton-miles demand up 8% in 2010 2010
Distance-adjusted Product Tanker demand is up 30% 30%
8% in 2010. Ton-miles demand is largely driven 23% 23% by Asia (+12%), while Europe and North 15% 15% America are seeing low demand. 8% 8%
4% 7% 8% • Oversupply dominates the picture 0% 0% -3% Annual demand growth demand Annual Even with improving ton-miles demand across growth demand Annual -8% -8% the board, demand fails to absorb the -15% -15% oversupply of 2009 and the capacity entering in 2007 2008 2009 2010 2010. Sources: Global Insight, Danish Ship Finance Asia Europe North America
US supply of refined oil products fairly stable • US petroleum consumption up 1% Products suplied in the US is up 1% YTD
By using US supply of refined oil products as a 20,000 20,000
proxy for US petroleum consumption, it appears 19,000 19,000 US supply of refined that US petroleum consumption has improved oil products 18,000 18,000 during 2010. US petroleum supply is up 1%. 17,000 17,000 • Higher US petroleum consumption 16,000 16,000 Million Barrels perMillion day Million Barrels perMillion day
Even as US consumption appears to be US supply of refined oil products, annual average 15,000 15,000
improving, it is still below pre-crisis levels. 8 07 09 20 -200 20 1- 1- Currently, US consumption is 4% below 2008 01-2006 07-2006 0 07-2007 01-2008 07 0 07-2009 01-2010 levels. Sources: EIA, Danish Ship Finance
36 SUPPLY AND DEMAND
EU-16 and US petroleum stocks decrease 2% in 2010 • Petroleum stocks still at high levels Stock levels are still far above historical averages 800 12% Petroleum stock levels have declined 2% in Annual growth in EU-16 and US stocks 750 9% 2010, although the petroleum stock levels in the 7% US and Europe are still at historical highs. 700 5% 6%
2% 650 2% 3%
-1% 600 -2% 0% • US petroleum stock levels down 3% Million Barrels -3% Year-on-Year growth US petroleum stock levels have declined 3% 550 -4% -3%
(26m barrels) in 2010, while EU petroleum stock 500 -6% levels increased 1% (4.6m barrels). 2003 2004 2005 2006 2007 2008 2009 2010
Sources: EIA, Reuters Ecowin, Danish Ship US stocks EU 16 stocks
US import of refined products down 13% YTD • US product imports down 13% US export of refined products up 18% YTD
US imports of refined products continue to drop. 5 5 US import of petroleum products US product imports are currently 5% below 4 4 2009 volumes. However, imports travel longer 3 3 distances than previously. 2 2
• US product exports up 18% 1 1 Million barrels per day Million barrels per day US export of petroleum products Exports of refined products out of the US are - - rising for the seventh year in a row. US product 5 6 6 7 8 9 9 0 -200 -200 -200 -200 -200 -200 -200 -201 exports are up 18% (yoy) - primarily driven by 06-2004 12-2004 06 12-2005 06 12 06-2007 12 06 12-2008 06 12 06 Sources: EIA, Danish Ship Finance larger export volumes to South America.
37 SUPPLY AND DEMAND
Far East imports of petroleum products add significant • Japanese product imports up 23% ton-miles to Product Tanker demand Product imports into Japan were up 23% during 3,000 15% first-half 2010, compared to the same period 2,500 10% last year. Import volumes are now back at 2007 2,000 5% levels. 1,500 0%
• Chinese imports keep momentum (,000) ton 1,000 -5% Chinese imports of products are currently 5% 500 -10% growth Year-on-year Aggregated annual growth >> down YTD. However, on average, 2010 volumes - -15% 2005 2006 2007 2008 2009 2010
are still 4% higher than 2009 volumes. Japanese imports of petroleum products Chinese imports of petroleum products Sources: Bloomberg, Danish Ship Finance
• Oil contango narrows Floating storage diminishes throughout first-half 2010 However, floating storage resurfaced throughout third quarter Oil contango narrowed during the first half of 50 48.3 48.8 50 2010, thereby increasing fleet availability and 45 45 further worsening market conditions in the 44.5 Product Tanker market. 40 40 • Floating storage resurfaces Million barrelsMillion Million barrelsMillion While first-half 2010 saw a reduction in vessels 35 35 34.5
used as floating storage (-13m barrels), floating Petroleum products in floating storage 30 30 storage gained popularity during third quarter 01/2010 02/2010 03/2010 04/2010 05/2010 06/2010 07/2010 08/2010 09/2010
(+10m barrels). Sources: Bloomberg, Danish Ship Finance
38 CONTRACTING AND SHIP VALUES
Surprisingly strong appetite for MR tankers • Contracting activity picks up The average delivery time approached 1.8 years 12 3.6 1.8m dwt has been contracted so far this year. Delivery time >> 2010 contracting activity is 16% higher than 10 3.0 that of 2009. However, 2010 still has a long way 8 4 2.4
to go before reaching the levels of 2008. 6 1.8 Million dwt Million • MR tankers still the darling 4 4 1.2 2 0.6
MR tankers remain the favourite when it comes 1 1 (years) time delivery Average to contracting. In 2010, 0.9m dwt has, so far, - 0.0 2007 2008 2009 2010 been contracted, already surpassing the levels of 2009. Sources: Clarksons, Danish Ship Finance LR2 LR1 MR
Asset values slightly up in 2010 • Newbuilding prices up 5% Current values approach 2004 levels but we are still above the lows of 2002 70 70 On average, the newbuilding price has increased 5% during the first nine months of 2010. MR 53 53 tankers have increased the most (7%), from 35 35 34m to 36.5m USD. Million USD Million USD Million • Secondhand prices up 12% in 2010 18 18 Secondhand prices have, on average, increased - - 9 03 06 0 0 0 0 -2007 -2010 6 6-2 6 12% during the first eight months of 2010, as 06-2001 06-2002 06-2 06-2004 06-2005 06-2 0 06-2008 0 0 market sentiments have improved over the MR newbuilding MR secondhand Sources: Clarksons, Danish Ship Finance LR1 newbuilding LR1 secondhand summer.
39 OUTLOOK
Distance-adjusted Product Tanker demand projected to • Seaborne demand up 7% in 2011 increase 8% in 2010 and 7% in 2011
In 2011, distance-adjusted Product Tanker 15% 15% demand is expected to increase 7%. Asian 10% 8% 10% 7% 6% demand for refined products is estimated to 5% 5% 5% increase by 10% in 2011 (12% in 2010). -3% 0% 0% • Fleet growth at 6% in 2011 -5% -5%
The Product Tanker fleet is expected to expand growth Year-on-year growth Year-on-year -10% -10%
by 6% (10.3m dwt) in 2011. A capacity Distance-adjusted Product Tanker demand -15% -15% expansion of that proportion has before only 2009 2010 2011 2012 2013 been seen in 2008-2009. Sources: Global Insight, Danish Ship Finance Asia Europe North America
10.8m dwt scheduled to enter the fleet in 2011 • 10.3m dwt scheduled for 2011 4.4m dwt qualifies for scrapping in 2011 15 12% 10% 3.7m dwt is scheduled for delivery during the 9% 6% 10 last four months of 2010 (i.e. 9.6m dwt in 1% 2%
2010). In 2011, 10.3m dwt is scheduled for 5 Delivery 6.2 6.5 5.8 4.4 4.8 delivery. 2.5 0 Million dwt Million • MR tankers account for 50% -5
The MR tanker segment accounts for 50% (4.8m -10 Scrapping dwt) of the scheduled capacity entry in 2011. Net fleet growth, year-on-year -15 Before adjusting for phase-out and scrapping, 2007 2008 2009 2010 2011 2012 the MR fleet is expected to grow 8% in 2011. Sources: Clarksons, Danish Ship Finance MR LR1 LR2
40 OUTLOOK
Large phase-out potential in the MR segment • Large phase-out potential from 2010 However, some will gain exemptions and continue to trade 10 20% 10% (10.2m dwt) of the fleet is single-hull Percentage of total product fleet >>
tankers. According to the IMO regulation, these 8 16% 14% vessels are expected to exit the market before 2015 or at the age of 25 years. 6 12%
4 8% • Largest potential among MR tankers dwt Million 5% 4% Percentage of fleet Percentage 14% (8.2m dwt) of the MR tankers is single- 2 4%
hull, and 4.2m dwt of these vessels are older - 0% LR2 LR1 MR than 25 years in 2010. These vessels may, Single-hull > 25 years old Single-hull < 25 years old therefore, potentially leave the market in 2010. Sources: Clarksons, Danish Ship Finance
Global oil consumption expected to increase 1.4m • Non-OECD leads global oil recovery barrels per day in 2011, surpassing 2007 volumes Increased global oil consumption (+2% in 2011) 88 3 is lead by non-OECD countries which increase oil 87 2
86 1 consumption by 1.4m barrels per day (4%) in 1.7 1.2 1.4 0.7 2011, while the OECD countries are seeing 85 0 -0.05 -0.02
sluggish oil consumption. 84 -1.76 -1
-2.14 change Annual Million barrelsMillion per day • Asia drives demand 83 -2 barrels per(million day) << Global Oil consumption Regional oil consumption, annual change >> In 2010, large Asian exports contributed with 82 -3 30% of the growth in distance-adjusted 2008 2009 2010 2011 demand. This trend might expand further as Sources: Reuters EcoWin, Danish Ship Finance OECD Non-OECD new Asian refinery capacity is being launched.
41 OUTLOOK
In 2010, Asian exports of refined oil products contribute • Declining western capacity 30% of the growth in distance-adjusted Product Tanker So far, North America and Europe have demand 60,000 36% permanently shut down 5% (2.7m barrels per 30%
day) of their older and less efficient refineries. 24% 40,000 20% 24% In Asia and the Middle East, new refinery 17% capacity is being built. 20,000 12% Million ton-NM Million Share of annual growth annual of Share
• Refinery capacity up 10% - 0% Europe Asia North America Middle East Between 2011 and 2016, global refinery Annual increase in export volumes Share of global exports capacity is expected to increase by 10% (9.8m Sources: Global Insight, Danish Ship Finance barrels per day). The Middle East and India Asia and the Middle East dominate refinery growth contribute with 67% of the capacity expansion. 40 40%
29% • New trading patterns 30 30% 22% In the years to come, the new refinery 17% 20 15% 20% capacity coming on stream is expected to 10 10% change the trading patterns of the Product 2% 2%
Tanker fleet, and thereby to increase the - 0% 2011-2016 period grwoth 2011-2016
aggregated ton-miles demand. barrelsCapacity (million per day) Current Capacity 2011-2016 expansion Shutdown -10 -10% North Asia and Europe Middle East S.America Africa America Australia and Caribs Sources: EIA, IEA, Bloomberg, Danish Ship Finance
42 OUTLOOK
SUMMARY • Risk of weaker demand It is possible that the longer travel distances may not rescue Product Tanker demand. Inventories are record-high and oil consumption may disappoint in the fourth quarter of 2010 and in 2011. • Rates and values The Product Tanker market may remain oversupplied well into 2011. Obviously, longer travel distances and extensive phase-out could absorb more tonnage than we currently expect. However, the current overhang of tonnage and the large orderbook (20% of the current fleet) pose in itself a significant risk for future rates and values.
43 CONTAINER FREIGHT AND TIMECHARTER RATES
Record-high box rates • Record-high box rates Box rate index out of China now above pre-crisis level The average box rate index out of China has 1,400 1,400
surpassed index 1200, recovering more than 1,200 1,200 400 index points in 14 months and is now above 1,000 1,000
pre-crisis levels. Index Index • Low equipment availability 800 800 Box rates have been supported by temporary 600 600
05 06 08 09 004 0 005 006 0 007 007 0 008 009 0 010 010 factors such as extensive inventory build-up and 2 2 2 2 2 2 2 2 2 12- 06-2 12- 06- 12-2 06- 12- 06-2 12- 06- 12-2 06- 12- inadequate re-positioning of empty containers. Sources: China's Ministry of Commerce, Danish Ship Finance Composite Index
Container Profitability Index • Recovering timecharter rates (Timecharter rate per teu minus OPEX per teu) The Container Profitability Index increased 400 2,000 2,000
index points in 8 months and is now back at 1,500 1,500 October 2008 levels. 1,000 1,000
08-2010; Index Index 373 • Reactivation of loops 500 500 The reactivation of loops and introduction of Container Profitability Container Container Profitability Container - 266 -
new services have given the depressed charter 12-2009 (34) market a boost. (500) (500) 1998 2000 2002 2004 2006 2008 2010
Sources: Clarksons, Danish Ship Finance
45 TOP 10 HEAD-HAUL CONTAINER ROUTES 2010 (MEASURED IN TEU-NAUTICAL MILES)
Asia -> Asia Asia -> Latin Asia -> Asia ShortSea America and the DeepSea 6% Caribbean Asia -> Africa 7% 6% 5% Europe -> North America Asia -> 3% North America Latin America and 20% the Caribbean -> Other Europe 32% 3% Other DeepSea 18%
Other ShortSea 3% Asia -> Europe 28% Sources: Global Insight, Danish Ship Finance
46 SUPPLY AND DEMAND
750,000 teu enters service during first-half 2010 • 1m teu enters service 100,000 teu is scrapped during the period Almost 1.2m teu was scheduled to be delivered 525 11% 10% 7% 8% 8% during the first eight months of 2010. 1m teu 350 6% 6% actually commenced trading. Of the 1m teu, 175 Post-Panamax accounted for 557,000 teu. Deliveries
- (,000) teu g in
• 160,000 teu postponed -175 pp
14% (160,000 teu) of the orderbook scheduled Year-on-year growth Scra -350 for delivery during the first eight months of 03-2009 06-2009 09-2009 12-2009 03-2010 06-2010 09-2010 Post-Panamax Panamax Sub-Panamax Handy Feeders 2010 was postponed to later delivery dates. Sources: Clarksons, Danish Ship Finance
• Post-Panamax postponed 14% (161,000 teu) of scheduled deliveries postponed Despite the risk of overcapacity, Post-Panamax or cancelled during the first eight months of 2010 1,000 80% deliveries were not postponed above average. Non-materialised / Orderbook 57% In total, 110,000 teu (16%) of the scheduled 750 60% deliveries was postponed during the first eight 110 500 40% 13 months of 2010. 23%
(,000) teu (,000) 22% 557 250 20% • 100,000 teu scrapped 349 11 16% 4% 39 16 12
54 9 / OrderbookNon-materialised Scrapping activity almost halved as box and - 0% Post- Panamax Sub-Panamax Handy Feeder & timecharter rates improved. Panamax and Sub- Panamax Feedermax
Panamax are still the favourite applicants for Sources: Clarksons, Danish Ship Finance Actual deliveries Non-materialised deliveries scrapping.
47 SUPPLY AND DEMAND
Container port handling above trend during first-half 2010 • Container demand up 12% Global distance-adjusted head-haul demand is expected to grow 9% in 2010
The global stimuli programs showed to be more 30% 30% effective than previously anticipated. Demand 20% 20% increased 12% during first-half 2010. 10% 10%
0% 0% Quarterly growth • Strong inventory build-up Quarterly growth -10% -10% Restocking in Europe and North America has -20% -20% especially supported head-haul import volumes. 09-2009 12-2009 03-2010 06-2010 09-2010 12-2010
• Lower Intra-Asian trade volumes Sources: Drewry, Danish Ship Finance Global North America and Europe Asia Global interdependence: Intra-Asian trade European and North American import volumes have been revised upwards 4% and 2% respectively. volumes have been revised 8% downwards (distance-adjusted head-haul demand, first-half 2010) since Global Insight’s January 2010 forecast. 5,000 10% 4% Restocking is clearly unable to drive Asian 2,500 5% growth. 2% - 0% Million teu-NM
• A continuing rolling backlog revision Volume -2,500 -5% -8% The continued space shortage has created a Demand revision, from forecast) of January (% January 2010 to August 2010 continuing rolling backlog of old demand waiting -5,000 -10% Asia -> Europe Asia -> North America Intra-Asia to be shipped. The rolling backlog conceals the underlying weakness of peak-season demand. Sources: Global Insight, Danish Ship Finance
48 SUPPLY AND DEMAND
3.6 million teu in nominal spare capacity by 2010 • Demand volume below 2008 levels 90% of capacity delivered between 2008-2010 is currently in excess Annual demand growth outpaced nominal 5,000 35% 4,000 28% supply growth by +4% points. Nevertheless, it 26% 26% is essential to bear in mind that demand 3,000 21%
volumes are still below 2008 levels. 2,000 14% 11% % of fleet % of (,000) teu 1,000 7%
• 3.6m teu in spare capacity 2% 3% - 0% 0% By 2010, supply outpaces demand by as much -2% -1,000 -7% as 3.6m teu (26% of the current fleet), before 2004 2005 2006 2007 2008 2009 2010 adjusting for slow steaming. Sources: Global Insight, Danish Ship Finance << Spare capacity % of fleet >>
• The illusion of demand Accumulated capacity absorbed by slow steaming approaches 3.6 million teu in September 2010 The extensive use of slow steaming strengthens 3.6 million teu entered the fleet from 2008 to 2010 (September 2010) 4,500 the illusion that demand is effectively absorbing Scheduled annual deliveries 3,000 supply. In truth, it is supply that is adjusting to 1,500 Delivery
lower demand volumes. 1,475 1,130 1,462 - -487 (1,179) • 1.9m teu absorbed in 2010 -1,500 (,000) teu (1,986) By reducing the average Post-Panamax speed -3,000 Average Post-Panamax speed
-4,500 by slow steaming from 20.2 knots to 17.2 knots, effective supply reduced from 24.7 knots to: Capacity absorbed 23.2 knots 20.2 knots 17.2 knots -6,000 could potentially be reduced by further 1.9m teu 2008 2009 2010
(14% of the current fleet) in 2010. Sources: Global Insight, Danish Ship Finance
49 SUPPLY AND DEMAND
In 2010 head-haul fleet utilization is above 100% as • Artificial high-fleet utilization slow steaming is absorbing the overcapacity The extensive use of slow steaming has lowered 5,000 110%
the cargo-carrying capacity of the fleet by as 4,000 105%
much as 28%, enabling an artificial fleet 3,000 100% utilization of around 100%. 2,000 95% (,000) teu • Slow steaming here to stay 1,000 90% slow steaming Slow steaming has enabled considerable cost - 85% Head-haul fleet utilization afterHead-haul fleet utilization savings and has so far allowed considerable box -1,000 80% rate increases. The question is whether slow 2004 2005 2006 2007 2008 2009 2010 Sources: Global Insight, Danish Ship Finance steaming is here to stay. We expect so. << Spare capacity Fleet Utilization >>
50 CONTRACTING AND SHIP VALUES
• Few new contracts placed in 2010 Contracting increases slightly in 2010 3,200 4 Despite the massive spare capacity, a few Asian
Average delivery time >> Liner companies contracted 20 new Post- 2,400 3 Panamax vessels at South Korean yards during the first 8 months of 2010. 1,600 2 (,000) teu
• Delivery time about 2.5 years 800 1
Great uncertainty is attached to the orderbook. delivery to Years contracting from - - However, the latest-placed contracts are 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 expected to be delivered within 2.5 years. Post-Panamax Panamax Sub-Panamax Handy Feeder & Feedermax Sources: Clarksons, Danish Ship Finance
Container asset prices recover lost territory • Newbuilding prices up 15% Asset prices are now back at 2004 level The average newbuilding price has increased 30,000 200 15% during the first 8 months of 2010. Steel 25,000 167 prices increased 17% in the same period. 20,000 133
15,000 100
• Secondhand price up 57% teu per USD 10,000 67 The average secondhand price for a 10-year-old 5,000 33 Timecharter rate per teu container vessel has increased 57% during the - - 08-1998 08-2000 08-2002 08-2004 08-2006 08-2008 08-2010
first 8 months of 2010. Newbuilding Price 10-year old Timecharter Index per teu >> Sources: Clarksons, Danish Ship Finance
51 OUTLOOK
670,000 teu scheduled for second-half 2010 delivery • 670,000 teu scheduled for delivery 300,000 teu qualifies for scrapping during the period Capacity scheduled to enter the fleet during 525
7% 8% 8% 8% second-half 2010 is expected 11% below first- 350 6% 6% half 2010. In total, 670,000 teu is scheduled for 175
246 266 Deliveries delivery during second-half 2010. 154 177 118 90 - (,000) teu
• Post-Panamax accounts for 66% g -175 in Post-Panamax tonnage is expected to account pp Scra for 66% (440,000 teu) of the capacity scheduled -350 09-2009 12-2009 03-2010 06-2010 09-2010 12-2010 for delivery during second-half 2010. Post-Panamax Panamax Sub-Panamax Handy Feeders Sources: Clarksons, Danish Ship Finance
1.8 million teu scheduled for delivery in 2011 • 1.8m teu scheduled for 2011 250,000 teu qualifies for scrapping in 2011 2,100 13% Entry of Post-Panamax is scheduled to explode 11% 8% in 2011. 1.5m teu of the 1.8m teu is capacity 1,400 6% 7% additions to the Post-Panamax fleet. 700 1,541 Deliveries 844 926 687 558 - • Scrapping is expected to be modest (,000) teu g in
By 2011, 250,000 teu qualifies for scrapping, -700 pp
assuming that all vessels older than 24 years Scra -1,400 will be scrapped. 2008 2009 2010 2011 2012 Post-Panamax Panamax Sub-Panamax Handy Feeders Sources: Clarksons, Danish Ship Finance
52 OUTLOOK
Container port handling is expected to level off during • Annual demand up 9% in 2010 second-half 2010 Global distance-adjusted head-haul demand is expected to grow 9% in 2010 Distance-adjusted head-haul container demand 30% 30%
is expected to grow 9% in 2010. Demand grew 20% 20% 12% during first-half 2010. 10% 10% • Second-half demand up 5% 0% 0% Quarterly growth Quarterly growth Container demand is expected to level off during -10% -10%
second-half 2010. Global port handling is -20% -20% expected to grow 5% during the period. 09-2009 12-2009 03-2010 06-2010 09-2010 12-2010
Sources: Drewry, Danish Ship Finance Global North America and Europe Asia
Container demand is expected to grow by 9% in 2010 • Annual demand up 7% in 2011 (distance-adjusted head-haul container demand) 30% 30% Disregarding the risk of a double dip, Global Insight expects global demand to grow 7% in 20% 20% 2011. This might show to be on the high side. 10% 10% 2% 9% 7% 0% 0%
-11% • 1H11 demand below trend -10% -10% Year-on-year growth Year-on-year Year-on-year growth Year-on-year In the aftermath of the low demand growth -20% -20% Aggregate head-haul growth Asia -> Europe Asia -> North America Asia -> Asia from second-half 2010, first-half 2011 demand -30% -30% is expected to grow a modest 5%. 2008 2009 2010 2011 Sources: Global Insight, Danish Ship Finance
53 OUTLOOK
4.6 million teu in nominal spare capacity by 2011 • Spare capacity escalates in 2011 It is primarily the Post-Panamax segment that is subject to overcapacity Head-haul demand volumes are expected to 5,000 35% 30% 4,000 28% surpass 2008 levels during the last part of 2011. 26% 26%
Nominal spare capacity of the container fleet is, 3,000 21%
nonetheless, expected to escalate to 4.6m teu 2,000 14% 11% % of fleet % of (,000) teu by 2011. 1,000 7%
2% 3% - 0% 0% • Slow steaming to absorb 1m teu -2%
Assuming that the average Post-Panamax speed -1,000 -7% remains as low as 17.2 knots in 2011, slow 2004 2005 2006 2007 2008 2009 2010 2011 steaming is expected to absorb an additional 1m Sources: Global Insight, Danish Ship Finance << Spare capacity % of fleet >>
teu in 2011. Accumulated capacity absorbed by slow steaming approaches 4.6 million teu by 2011 • High-fleet utilization in 2011 1.8 million teu scheduled to enter service in 2010 4,500 Slow steaming may potentially sustain an Scheduled annual deliveries 3,000
effective head-haul fleet utilization of around 1,500 Delivery 1,780 100% in 2011. 1,475 1,130 1,462 - -487.35 -1,179 -1,500
• Risk of low box and timecharter rates (,000) teu -1,986 Despite the expected high-fleet utilization, the -3,000 -982
-4,500 by slow steaming
Average PP'-max speed reduced from 24.7 knots to: Capacity absorbed mismatch between tonnage delivery and 23.2 knots 20.2 knots 17.2 knots 17.2 knots -6,000 tonnage demand might challenge the rate 2008 2009 2010 2011 development. Sources: Global Insight, Danish Ship Finance
54 OUTLOOK
In 2011, head-haul fleet utilization is near 100% as • Balancing supply and demand slow steaming is absorbing the overcapacity We see a potential, but highly fragile, balance 5,000 110%
between supply and demand in 2010 and 2011. 4,000 105%
3,000 100%
2,000 95% (,000) teu
• Expectation for 2H10 1,000 90% slow steaming
We expect the positive box and timecharter - 85% rate development from first-half 2010 to level after Head-haul fleet utilization -1,000 80% off during second-half 2010. 2004 2005 2006 2007 2008 2009 2010 2011
Sources: Global Insight, Danish Ship Finance << Spare capacity Fleet Utilization >> • Modest 3Q and 4Q demand growth • Expectations for 2011 Demand growth is expected to almost halve Four quarters (3Q2010 - 2Q2011) of below- from second to third quarter in 2010. trend demand growth combined with a large Especially North American and European inflow of new tonnage may test the demand are expected to weaken. sustainability of current box rates, even with an extensive use of slow steaming. • 3Q10 deliveries boom Third-quarter deliveries are expected to boom • 2011 timecharter rates with more than 500,000 teu scheduled to Timecharter rates are expected to decline enter service. when quarterly fleet utilization suffers, because demand fails to absorb the entering capacity.
55 DRY BULK FREIGHT AND TIMECHARTER RATES
The Baltic Dry Index loses 32% during the first eight • BDI down 32% in 8 months months of 2010
Baltic Dry Index has declined 32% during the 12,000 12,000 first eight months of 2010. However, the annual Baltic Dry Index
average for 2010 is 12% above the 2009 8,000 8,000
average. Baltic Dry Index, Annual Index Index Index • Back at 2000-2006 average 4,000 4,000 At the end of August 2010, the BDI closed at 2,432 index 2,400. This is approximately the same - - 08/2004 08/2005 08/2006 08/2007 08/2008 08/2009 08/2010 level as the average index from 2000 to 2006. Sources: Reuters EcoWin, Danish Ship Finance
Market sentiments continue to worsen • 3-year timecharter rate down 6% The average fixture period is now shorter than 6 months 120,000 24 A stable 3-year timecharter rate (down 6% YDT) 114,569
19.8 might convince some that the Dry Bulk market 90,000 18 is in some sort of balance. To us, though, this appears to be an illusion. 60,000 12 USD/day (months)
• Market sentiments worsen 30,000 6 Average Fixture Period Fixture Average 5.6 As illustrated by the average fixture period, the << Average charter rate Average period fixture >> market sentiments are evidently continuously - - 4 6 03 001 011 2 20 -200 -200 2 worsening. Fixture periods are shortened in 06- 06-2002 06- 06 06-2005 06 06-2007 06-2008 06-2009 06-2010 06- tandem with lower average charter rates. Sources: Clarksons, Danish Ship Finance
57 CAPESIZE DEMAND IS DICTATED BY ASIAN DEMAND TOP 10 FRONT-HAUL CAPESIZE ROUTES
Africa -> Asia North America -> Asian 6% Asia Africa -> Europe imports Asia -> Asia 5% 5% ShortSea 7% Asia -> Europe Asia -> Asia 3% DeepSea 8% Australia and Oceania -> Europe 4%
Latin America and Latin America and the Caribbean -> the Caribbean -> Europe Asia 7% 31% European imports Australia and Oceania -> Asia 24% Sources: Global Insight, Danish Ship Finance
58 SUPPLY AND DEMAND
51 million dwt delivered during first 8 months of 2010 • 51m dwt enters service in 1H10 3.6 million dwt scrapped during the period 21 15% 64m dwt was scheduled for delivery during the 14% 14% 10% first three quarters of 2010. 51m dwt (80%) 14 8% 6% was actually delivered in the first eight months
7 Delivery 9 9 10 10 of 2010. The annualised fleet growth reached 5 7 -
14% by 3Q10. Million dwt • 13m dwt postponed during 1H10 (7) Net fleet growth, year-on-year Scrapping 13m dwt (20%) of all scheduled deliveries was (14) 06/2009 09/2009 12/2009 03/2010 06/2010 09/2010 postponed during the first eight months of 2010. Sources: Clarksons, Danish Ship Finance Capesize Panamax Handymax Handysize • Capesize performs the best 20% of scheduled deliveries was postponed during the The delivery performance was highest within the first eight months of 2010 Capesize segment: Here 84% of scheduled 50 100% 84% 40 80% deliveries was delivered during the first eight 78% 76% months of 2010. 66% 30 5 60%
20 40% • A modest 3.6m dwt scrapped dwt Million 26 3 Scrapping activity was reduced to 3.6m dwt 10 3 20% 3 9 11 during the first eight months of 2010 (10.6m 5 orderbook / scheduled Deliveries - 0% dwt in 2009). Handysize scrapping, in particular, Capesize Panamax Handymax Handysize
dwindled away. Sources: Clarksons, Danish Ship Finance Delivered Non-materialised deliveries
59 SUPPLY AND DEMAND
Dry Bulk demand growth struggles to absorb the • Dry Bulk demand up 20% entering capacity Aggregated seaborne-import volumes surprised 500 40% 26% 20% positively during first-half 2010. Seaborne 450 15% 20% 6% volumes increased 20% (i.e. 154m tonnes), 4% 4% 5% 5% 400 0% compared to same period last year. -4% -3% -7% Million tonnes 350 -20% • Chinese imports drive demand growth Year-on-year Year-on-year growth >> Chinese import volumes increased 15% (54.3m 300 -40% 08 09 10 0 009 009 009 0 010 010 010 0 011 011 2 2 2 2 2 2 2 2 tonnes) during first-half 2010. Consequently, 2-2 2-2 2-2 1 03- 06- 09- 1 03- 06- 09- 1 03- 06- Chinese demand generated 35% of the overall increase in demand volumes. Japanese and Sources: SSY, Danish Ship Finance << Seaborne trade: Coal, Iron Ore and Grain
European imports of iron ore and coal increased Dry bulk demand increases 20% during fist half 2010 19% (35.3m tonnes), hence generating 23% of Transported volumes increased 154 million ton during first half 2010. the increase in demand volumes during first-half 80 60% 51% 58.6 2010. 60 56.1 45% 40.1 40 30% 25% 17% • Chinese coal demand up 65% 20 13% 15% 5.8 - 0% While Chinese iron ore demand grew a modest Million tonnes -6.9 -12% growth Year-on-year 4% (12m tonnes), Chinese steam-coal demand -20 -15%
increased 68% (32.8m tonnes), and coking-coal -40 -30% demand increased 73% (9.5m tonnes) during Coal - Coking Coal - Steam Iron Ore Grain - Wheat Grain - Coarse first-half 2010. Sources: SSY, Danish Ship Finance
60 SUPPLY AND DEMAND
• Japanese iron ore imports up 53% Japanese and European import volumes return to pre-crisis levels. Japanese and European imports of iron ore and coal increased 19% (35.3m tonnes) during first-half 2010.
• Loading port congestion declines The average number of vessels waiting to be loaded at Brazilian or Australian ports declined
during first-half 2010. Sources: SSY
• Discharging port congestion wanes The average number of vessels waiting to discharge in China has decreased - not least because of expanding port facilities.
Sources: SSY
61 CONTRACTING AND SHIP VALUES
48m dwt contracted in the first eight months of 2010 • 48m dwt contracted in 2010 Delivery time approaches 2 years
During the first eight months of 2010, 48m dwt 180 4
Delivery time >>
was contracted. A growing soybean trade has generated an extraordinary appetite of 18.4m 135 3 dwt (cf. 226 vessels) for new Panamax tonnage. 90 2 (years)
• Risk of overcapacity dwt Million 45 1 The cargo-carrying capacity of the current 18 Average delivery time
orderbook may potentially overshoot future - - 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 demand, and we are therefore concerned about
the continuing appetite for new tonnage. Sources: Clarksons, Danish Ship Finance Capesize Panamax Handymax Handysize
Secondhand prices recover 14% during 2010 • Newbuilding prices up 5% Newbuilding prices increase 5% during 2010 The average newbuilding price has increased 1,800 1,800 5% during the first 9 months of 2010. Steel 1,500 1,500 prices increased 17% in the same period. 1,200 1,200
900 900 USD perUSD dwt • Secondhand prices up 14% perUSD dwt 600 600 The average secondhand price for a 5-year-old 300 300
Dry Bulk vessel has increased 14% during the Average Newbuilding Prices 5 Year Old Secondhand Prices Index - - first 9 months of 2010. 09-2002 09-2004 09-2006 09-2008 09-2010
Sources: Clarksons, Danish Ship Finance
62 OUTLOOK
• 45m dwt scheduled for delivery 56 million dwt scheduled for second-half 2010 40 million dwt delivered during first-half 2010 45m dwt is scheduled to be delivered in the last 40
18% 19% 19% 19% 15% 18% four months of 2010. Assuming that 80% will be 30 14% 14% delivered, 36m dwt is expected to commence 20 10% 8% trading (i.e. 87m dwt delivered full-year 2010). Delivery 10 15 14 15 13 16 9 9 10 10 12 • Capesize accounts for 45% dwt Million - g in Capesize tonnage accounts for 45% (20.5m (10) pp
Net fleet growth, year-on-year >> dwt) of the orderbook scheduled to be delivered Potential (20) Scra in the last four months of 2010. 28m dwt 09/2009 03/2010 09/2010 03/2011 09/2011
entered the Capesize fleet in 2009. Sources: Clarksons, Danish Ship Finance Capesize Panamax Handymax Handysize
119 million dwt scheduled to enter the fleet in 2011 • 119m dwt scheduled for 2011 18 million dwt qualifies for scrapping in 2011
A considerable capacity expansion of 119m dwt 150 (+19%) is scheduled for 2011. Such a capacity 19% 100 16% has formerly been delivered over a time period 10% 11% 50 7% Delivery 46 57 of 10 years (for instance from 1990 to 1999). 28 40 - 14
• Additional 57m dwt Capesize tonnage Million dwt (50) (100) Potential Potential The Capesize fleet alone is scheduled to expand Net fleet growth, year-on-year >> Scrapping (150) by 57m dwt. This is a capacity expansion equal 2008 2009 2010 2011 2012 to the aggregated entry from 1990 to 2001. Sources: Clarkson, Danish Ship Finance Capesize Panamax Handymax Handysize
63 OUTLOOK
Dry Bulk demand growth struggles to absorb the • 2010 trade volumes up 194m tonnes entering capacity Seaborne demand for iron ore, coal and grain is 500 40% 26% 20% expected to increase by 194m tonnes (+12%) in 450 15% 20%
6% 2010. Volumes expanded 154m tonnes during 4% 4% 5% 5% the first two quarters. 400 0% -4% -3% -7% Million tonnes 350 -20% • Second-half demand up 4% growth Year-on-year Year-on-year growth >> Dry Bulk demand volumes are expected to grow 300 -40% 08 09 10 0 009 009 009 0 010 010 010 0 011 011 2 2 2 2 2 2 2 2 2-2 2-2 2-2 4% (a modest 40m tonnes) during second-half 1 03- 06- 09- 1 03- 06- 09- 1 03- 06- 2010. Sources: SSY, Danish Ship Finance << Seaborne trade: Coal, Iron Ore and Grain
Capesize demand projected to increase 12% in 2010 • Seaborne demand up 10% in 2011 and 10% in 2011
Distance-adjusted demand is expected to grow 40% 40% 10%. Chinese Dry Bulk demand is expected to 12% 10% increase 13% in 2011 (16% in 2010). 20% 20%
1% • Asia behind 71% of global demand 0% 0% Asian demand for key Dry Bulk commodities -20% -20% Year-on-year growth creates 71% of the aggregated distance- Year-on-year growth << Distance-adjusted front-haul capesize demand growth adjusted Dry Bulk demand, while Europe -40% -40% contributes with 18% of the total demand in 2009 2010 2011 2011. Sources: Global Insight, Danish Ship Finance China Japan Europe
64 OUTLOOK
The cargo-carrying capacity of the 46.5m dwt scheduled • Risk of overcapacity in 2H10 to enter the Capesize fleet by 2010 is estimated to The cargo-carrying capacity of the entering 302m tonnes 800 800 Capesize capacity scheduled for delivery in the 76
last four months of 2010 (20.5m dwt) is 600 36 153 600 163 estimated to be 130m tonnes annually. 155 400 400 Capesize demand is forecasted to increase 40m 127 76 Million tonnes Million tonnes 200 48 373 200 tonnes during second-half 2010. For the last 302 four months of 2010, we therefore expect a 185 - - demand deficit of 90m tonnes, the equivalent of 2009 2010 2011
a Capesize capacity surplus of 14m dwt (7%). Sources: Clarksons, Danish Ship Finance Capesize Panamax Handymax Handysize
• Overcapacity in 2011 Seaborne trade volumes is expected to advance by 194m tonnes in 2010 12% The cargo-carrying capacity of the 57.5m dwt 250 13% scheduled to enter the Capesize fleet in 2011 is 10% 10% 200 9% 10% 8% estimated to be 373m tonnes. Capesize demand 7% 150 8% volumes are expected to expand by 185m 5% 100 5% tonnes (+10%) in 2011. Consequently, if this 3% 185
turns out to be fairly accurate, we risk a Million tonnes 50 3% demand deficit of an additional 188m tonnes – - 0% growth volume Annual the equivalent of an expanding Capesize -50 -3% 2004 2005 2006 2007 2008 2009 2010 2011 capacity surplus of 29m dwt (i.e. 12% of the Iron Ore Coal - Steam Coal - Coking expected year-end 2011 Capesize fleet). Sources: SSY, Danish Ship Finance Grain - Wheat Grain - Coarse
65 OUTLOOK
The orderbook has decreased since December 2008 • Port congestion less influential because annual deliveries outpace annual contracting activity Severe congestion problems at the world’s 400 100% 12-2008 09-2010 biggest coal and iron ore loading ports may 327m dwt 294m dwt reduce the cargo-carrying capacity of the fleet 300 75% 59% and increase distance-adjusted demand if 200 50%
commodities are shipped from longer Million dwt
distances. For 2010 and beyond, we expect 100 25% Orderbook / Fleet port congestion to play a significant role, - 0% however, less influential than previously. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Increased port congestion will most likely not Sources: Clarksons, Danish Ship Finance Bulkcarrier Orderbook Orderbook / Fleet absorb the massive scheduled inflow of tonnage in 2011. • Risk of weaker Chinese imports • Rates and values For the last few years, we have been In the short term, the combination of a pessimistic with regard to the sustainability of massive inflow of new tonnage during 4Q Chinese Dry Bulk demand. We maintain our 2010 and in 2011, a lower growth in fundamental view that Chinese iron ore Chinese imports of iron ore and limited port demand growth is about to level off; congestion may represent the greatest preliminary import data from August 2010 threat to current rates and values. In the suggests that Chinese iron ore imports are longer run, the large orderbook, in itself, losing momentum. represents a threat for future rates and values.
66 GLOSSARY GLOSSARY
Aframax: Crude oil tanker or product tanker too large to Cgt: Compensated Gross Tonnage. International pass through the Panama Canal and below unit of measure that facilitates a comparison 120,000 dwt. of different shipyards’ production regardless AHTS: Anchor Handling Tug Supply. Offshore vessel of the types of vessel produced. used for jobs such as the relocation of oil rigs Clarksons: British ship brokering and research and anchors of the oil rigs. company. www.clarksons.net ARM: Adjustable Rate Mortgage. Mortgage loan with Clean products: Refers to light, refined oil products such as a variable interest rate that is being adjusted jet fuel, gasoline and naphtha. on a regular basis. CoA: Contract of Affreightment. Contract between Back-haul: The leg of the trade route that has the lowest shipping company and shipper concerning container volumes is often called ’back-haul, the freight of a predetermined volume of whereas the return leg is often referred to as goods within a given period of time and/or ‘head-haul’. at given intervals. Barrel: A volumetric unit measure for crude oil and CSR: Common Structural Rules. A common set of petroleum products equivalent to 42 U.S. construction rules agreed by the leading gallons, or approximately 159 litres. international classification societies to be BHP: Break Horse Power. The amount of engine applied to all new construction contracts horsepower. from April 1, 2006 between shipyards and Brent: Term used for crude oil from the North Sea. shipowners for tankers of 150 m or more in Brent oil is traded at the International length and bulk carriers of 90 m or more in Petroleum Exchange in London, and the price length. The CSR require the ships to be built of Brent is used as a benchmark for several at a higher set of standards thus enabling other types of European oil. the ships to trade for longer. Bulk vessel: Description of vessels transporting large cargo Dirty products: Refers to heavy oils such as crude oil or quantities, including coal, iron ore, steel, corn, refined oil products such as fuel oil, diesel gravel, oil, gas, etc. oil or bunker oil. Bunker: Fuel for vessels. Drewry: Drewry Shipping Consultants Ltd. British Call on OPEC: Defined as total global petroleum demand shipping and transport research company. minus non-OPEC supply minus OPEC natural www.drewry.co.uk gas liquid supply. Dwt: Dead Weight Tons. Indication of a vessel’s Capesize: Dry bulk carrier of more than approximately cargo carrying capacity (including bunkers, 80,000 dwt; too large to pass through the ballast, water and food supplies, crew and Panama Canal. passengers). Cbm: Cubic Meter. Dynamic Positioning: Special instruments on board that in Ceu: Car equivalent unit. Unit of measure indicating conjunction with bow thrusters and main the car carrying capacity of a vessel. propellers enable the ship to position itself in a fixed position in relation to the seabed. 68 GLOSSARY
EIA: Energy Information Administration. A IMO: International Maritime Organization. An subsidiary of the US Department of Energy. organisation under the UN. www.eia.doe.gov IMO I-III: Quality grades for tankers for the E&P: Exploration and Production. permission to transport different chemical Fearnleys: Norwegian ship brokering and research and oil products. IMO I are the most company. www.fearnleys.no hazardous products, IMO III the least Feeder: Small container carrier. hazardous. FPSO: Floating Production Storage Offloading unit. Chemical tanker: Tanker with coated or stainless steel tanks Vessel used in the offshore industry to process (IMO I-III). and store oil from an underwater (sub-sea) LOOP: Louisiana Offshore Oil Port. A deepwater installation. port in the Gulf of Mexico off the coast of Geared: Indicates that a vessel is equipped with a Louisiana. LOOP provides tanker offloading crane or other lifting device. and temporary storage services for crude oil Gearless: Indicates that a vessel is not equipped with a transported on some of the largest tankers crane or other lifting device. in the world of which some are too large for Global Insight: American economic consulting company. U.S. inland ports. www.globalinsight.com LPG vessels: Liquefied Petroleum Gas. Vessels used to Gt: Gross Tons. Unit of 100 cubic feet or 2.831 transport ammonia and liquid gases cubic meters, used in arriving at the (ethane, ethylene, propane, propylene, calculation of gross tonnage. butane, butylenes, isobutene and Handy, tank: Crude oil tanker, product tanker or chemical isobutylene). The gases are transported tanker of between 10,000 and 25,000 dwt. under pressure and/or refrigerated. Handymax, dry cargo: Dry bulk carrier of between approximately LR1, product tanker: Long Range 1. Product tanker with the 40,000 and 60,000 dwt. maximum dimensions for passing through Handysize, dry cargo: Dry bulk carrier of between approximately the Panama Canal (width of 32.21 metres 10,000 and 40,000 dwt. and length of 289.5 metres) of Head-haul: The leg of the trade route that has the highest approximately 50,000—80,000 dwt. container volumes is often called ’head-haul, LR2, product tanker: Long Range 2. Product tanker too large to whereas the return leg is often referred to as pass through the Panama Canal and larger ‘back-haul’. On routes where there is a great than approximately 80,000 dwt. trading volume mismatch between head-haul Medium, tanker (MR): Medium Range. Product tanker of between and back-haul, the head-haul demand will 25,000 and 50,000 dwt. most often determine the freight rate level. MEW: Mortgage Equity Withdraw. Defined as IEA: International Energy Agency. A subsidiary of equity extracted from existing homes via the OECD. www.iea.org cash-out refinancing, home equity Imarex: International Maritime Exchange. borrowing, and/or housing turnover. www.imarex.com 69 GLOSSARY
Multi-Purpose: Dry bulk carrier with multiple applications, TCE: Time Charter Equivalent. mainly as a feeder vessel or for special cargo. Teu: Twenty Feet Equivalent Unit. Container with Nautical Mile: Distance unit measure of 1,582 meters, or a length of 20 feet (about 6 metres) which 6,076.12 ft. forms the basis of describing the capacity of Offshore vessel: Vessel serving the offshore oil industry. a container vessel. OPEC: Organisation of Petroleum Exporting Countries. Teu-knots: Unit of measure that takes account of the Panamax, container: Container carrier with the maximum speed of the ships when estimating the dimensions for passing through the Panama actual supply of ships within a segment. Canal (width of 32.21 metres, length of 291 Teu-nautical mile: Unit of measure indicating the volume of metres) of approximately 3,000—5,000 teu. cargo, measured in teu, and how far it has Panamax, tanker: Crude oil tanker or product tanker with the been transported, measured in nautical maximum dimensions for passing through the miles. Panama Canal (width of 32.21 metres and Ton-nautical mile: Unit of measure indicating the volume of length of 289.5 metres) of approximately cargo, measured in ton, and how far it has 50,000—80,000 dwt. been transported, measured in nautical Panamax, dry cargo: Dry bulk vessel with the maximum dimensions miles. for passing through the Panama Canal (width Tonnage: Synonymous with “vessel”. of 32.21 metres and length of 289.5 metres) ULCC: Ultra Large Crude Carrier. Crude oil tanker of approximately 60,000—80,000 dwt. above 320,000 dwt. PCC: Pure Car Carrier. Car carrier built exclusively to VLCC: Very Large Crude Carrier. Crude oil tanker transport passenger cars. of between approximately 200,000 and Post-Panamax: Container vessel of approximately 4,000+ teu 320,000 dwt. that is too large to pass through the Panama VLGC: Very Large Gas Carrier. LPG ship with Canal. capacity above 60,000 cbm. Product tanker: Tanker vessel with coated tanks used to transport refined oil products. PSV: Platform Supply Vessel. Offshore vessel serving the offshore oil installations. Ro-Ro: Roll On – Roll Off. Common description of vessels on which the cargo is rolled on board and ashore. SSY: Simpson Spence & Young, British ship brokering and research company. www.ssy.co.uk Suezmax: Crude oil tanker with the maximum dimensions for passing through the Suez Canal (approximately 120,000—200,000 dwt.). 70
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