SHIPPING and SHIPBUILDING MARKETS Contents

2016 ANNUAL REVIEW

SHIPPING AND SHIPBUILDING MARKETS Contents

Shipbuilding p.05 Cruise p.81

Dry Bulk p.31 Yachting p.87

Tanker p.43 Containerships p.93

Chemical & Ro-Ro p.105 Small Tankers p.55

LPG p.63 Car carrier p.111

Marine LNG p.69 insurance p.117

Offshore p.75

An online version of this Annual Review is available in English, Chinese and French. www.brsbrokers.com Profi le

The BRS Group is a diversiﬁ ed global shipping services group offering a Employees range of maritime activities which worldwide complement its core shipbroking business. In addition to Shipbroking and Yacht Brokerage, the Group’s activities include Marine Insurance, Shipbrokers Freight Futures (FFA’s), Software Technology and Market Intelligence.

Assets transactions per year

Chartering transactions per year

BRS - 2016 ANNUAL REVIEW 1 2 BRS - 2016 ANNUAL REVIEW The year 2015 has been as bad as expected. Each actor made its decisions as if it was the only Shipping in all its forms has lost its lustre. We one in its market. But the markets do not expand estimate some $65bn in underlying market value indeﬁ nitely. We are waking up to a maritime sector has been lost in shipping assets over 2015. that was being dimensioned to meet the demand This year saw historic (adjusted) lows or near lows, of an adolescent China with mature Western in almost all market sectors except tankers. Only economies weaned off energy consumption, and the tanker markets deﬁ ed predictions: despite an the expected globalisation of trade. Today there oversupply of new tonnage, they remained strong, is a realisation that it is not only the cost of energy but fragile on the back of an unforeseen and that will drive world trade, but the consequences of unprecedented fall in oil prices... global warming. With COP 21 closing a year of turmoil on the energy Although pollution from transportation is lower than markets, there is a global realisation that our energy from heat production or industrial processes it is appetite has to be restrained. Whether it be coal, oil evident nevertheless that shipping will be required or gas, some 40% of world transportation concerns to find new ways to meet aggressive targets. The raw materials that have fuelled the industrial Sulphur Emission Control Area (SECA) zones are just revolution and our globalisation. This is not good for the beginning. The International Maritime Organisation shipping! There are already major consequences and International Chamber of Commerce are actively taking place, and we expect them to accelerate working to participate, and now with the Tier 3 emission over the year to come… Coal and oil companies limit, the Energy Efficiency Design Index (EEDI) are switching their emphasis to renewables. and Oil Discharge Monitoring Equipment (ODME) Energy conservation is no longer just a slogan, have tangible results to show. But there will surely there are now tangible targets. And despite a fall be more: speed limits, or high tech development by in energy costs to post-China expansion lows, this the yards and designers, new fuel types with less potential economic stimulus has done nothing to pollutants, port or State control measurements, and

restore world trade. The mining industry has seen CO2 limits per ton/teu transported. its product’s prices collapse. Demand has been Our industry, which represents about 2.5% of cut more than expected by the double effect of global greenhouse gas emissions, is way behind sluggish economies and China’s refocus away from the car and airline industries in seeking cleaner heavy industry. transportation solutions. Will shipping contracts be Consolidation is no longer good enough. awarded to companies that pollute less, will there Elimination has already started with coal and iron be tangible premiums for industrial users of freight ore mines closing, steel mills shutting and power to choose low pollutant carriers? The carbon credit plants being mothballed. Shipping companies system in its infancy might just allow the start of a have gone under, leaving their assets in the hands redistribution but it will be the companies themselves, of new owners with cheaper capital costs. Yards pushed by their investors and consumers seeking have closed and others have been rationalised. a commercial advantage from lowering global The irony of our situation is that the industry emissions, that will allow our world to change. thought that by building bigger, less energy would Our industry needs to put in place objective and be consumed per ton or per teu transported, measurable standards on a worldwide scale. We and thus we would be more efﬁ cient. The mining need to work with international organisations to industry players thought that by producing more, ensure there is a premium for polluting less. Our they could bring down their breakeven point and industry needs to get its act together and thus grow their market shares. Shipping companies ﬁ nd a medium term solution to our current crisis. ordered new ships also to average down their Putting a premium on lowering pollution will have breakeven, while yards built more, faster. several effects. It will strengthen the emphasis on research and development, it will incite owners to scrap outdated vessels, it will encourage financiers to calculate with shorter life cycles, it will incentivise end users to choose the least damaging mode of transportation for their goods, and thus it will enable charterers to seek out and Energy conservation pay extra for less polluting carriers. The world, our is no longer just a slogan, maritime world, really needs this change. Tim JONES there are now tangible targets. President

BRS - 2016 ANNUAL REVIEW 3 Erradale, 39,800 dwt B.Delta Box Logger Grabber Bulkcarrier. Second unit delivered in 2014 out of a large series ordered by CNCo at Chengxi Shipyard and operated by Swire Bulk. Here pictured sailing through Shanghai in 2015.

04 BRS - 2016 ANNUAL REVIEW Shipbuilding

A tempestuous year

2015 felt as if a cyclone had ﬁ nally caught up the whole shipbuilding industry. It slashed down dry bulker newbuilding orders to lows not seen since 2001 amidst a landscape of gloomy bulk freight rates and endlessly freefalling second hand values. Surprisingly, as if these two ship types were safe in the eye of the storm, newbuilding orders for containerships and tankers reached new highs. This made 2015 the second best year for containerships and the fourth best year for tankers over the last 15 years, just behind the most dynamic boom years (2007-2008).

BRS - 2016 ANNUAL REVIEW 05 SHIPBUIILLDING

Marlin Azurite One of the eight 50,000 dwt MR Tankers under construction at GSI Global Trade and World GDP and Active Fleet Growth (Guangzhou Shipyard International) in China for Oil and Commodity Trader TRAFIGURA BV %

12%

9.6% 10% 8.6%

8% 6.7% 9.6% 6.2% 6% 4.5% 4.2% 3.9% 5.4% 3.2% 3.5% 4% 4.2% 3.4% 3.4% 3.2% 2% 2.6% 3.3% 3.4% 0.0% 3.1% 0%

-2%

-4% -4.0%

-6% 2009 2010 2011 2012 2013 2014 2015

World GDP Seaborne Trade World Active Fleet Growth (Excl Offshore)

Source: BRS, IMF & Clarksons

•l % Key points of 2015 the size, thanks to a strong demand for these -20 types of vessels. Newbuilding orders continued to fall (about 20% Drop in number of y-o-y) while remaining solid at levels above the 2014 2015 Ships 1,691 1,359 orders between post-boom years of 2009-2012 (yearly average of Orders 70m dwt), and slightly exceeded (by about 10%) m dwt 131.1 104.7 2014 and 2015 Ships 1,338 1,402 the deliveries of the year. Delivery m dwt 88 94.2 After three years of continuous decrease, shipyard Ships 4,178 3,823 % deliveries increased by about 7%, due to the high Orderbook 7 m dwt 305.1 286 peak of contracting in 2013 (149m dwt). The world Increase in Ships 36,179 36,650 orderbook decreased by about 6% while the active Active Fleet m dwt 1,644 1,706.1 number of ﬂ eet grew albeit moderately (about 3.5%). Ships 12% 10% Orderbook/Active Fleet deliveries At the start of 2016, the percentage of newbuilding m dwt 19% 17% between 2014 orders versus the active fleet declined further compared with the previous two years, reaching a The orderbook ranking in deadweight tons of the and 2015 low of 17% compared to a 53% peak in 2008. five major shipbuilding areas did not change in 2015: China was still in the lead (43%), followed by Orders decreased for the second consecutive Korea (29%), Japan (22%), Rest of the Word (RoW) % year. Bulker orders, which remain the largest (5%) and Europe (2%). However China, whose 43 single segment of the shipbuilding industry, main ship production consists of bulkers, saw its China market well ahead of tankers and containerships, market share decline to the beneﬁ t of Japan which experienced a collapse. Added to this, the fall in share for orders was able to offer highly competitive pricing due second hand prices exacerbated the competition to the depreciation of the yen. This was the first placed in 2015 between shipbuilding nations and shipyards. time China’s market share had declined since it in dwt terms Some shipyards were unable to take any orders became the largest shipbuilding nation in 2010. during the year and that increased the pressure on newbuilding prices. As from the beginning Meanwhile, several Korean shipyards, already of 2015, bulker prices plummeted continuously, weakened by the prevailing low newbuilding losing on average 10%, and thus returning to the prices, ran into financial troubles because of historically low levels recorded at the end of 2012. difficulties in executing technically complex Prices for tankers and containerships conceded offshore related newbuilding projects with large smaller reductions of around 5% depending on overruns.

06 BRS - 2016 ANNUAL REVIEW SHIPBUIILLDING

Artistic impression of the world’s ﬁ rst large LNG-fueled bulk carrier. 25,600 dwt ice class 1A B.Delta26LNG designed by Deltamarin (Finland), ordered by ESL Shipping (Finland) at Qingshan Shipyard (China) - Credit: Deltamarin/ESL.

l • The oversupply of ships, the collapse in commodity World economy, maritime trade prices (iron ore and crude oil in particular), plus the 3.1% slowdown in China’s economy, destabilized the and freight rates industry and upset many balances. Ship fi nancing World global became all the more diffi cult to obtain: traditional ship WORLD ECONOMY economic growth fi nance banks have accumulated huge losses and World global economic growth decreased in 2015 in 2015, down by are more reluctant to continue trading in shipping to 3.1% from 3.4% in 2014 while world seaborne 0.3 points compared and shipbuilding. Financial investors who invested trade growth continued to decelerate (2.6% in massively in shipping in 2012-2013-and fi rst half 2014 2015 versus 9.6% in 2010). The market struggled to 2014 on the promise of quick money now wish to to absorb new deliveries, with a world fl eet which exit. Shipowners have few choices: negotiate contined to grow at a faster pace of about 3.5%. % postponement of contractual deliveries, convert The Chinese economy, one of the main engines bulkers into tankers or other more promising 2.6 of world growth, reported 6.9% growth in 2015, its World seaborne tonnage, renegotiate prices or simply cancel their lowest in 25 years. Markets fear that the negative newbuilding orders. impact of falling oil prices will now prevail over its trade growth Orderbook 2014 2015 positive impact. in 2015 Market Share 47% 43% MARITIME TRADE China Ships 1,914 1,651 % m dwt 144.9 121.6 Dry bulk trade growth continued to slow, reaching 9.6 Market Share 28% 29% 2.0% in 2015, the lowest fi gure since 2010. Coal, a World seaborne Korea Ships 871 759 major bulk commodity but also a heavy pollutant, trade growth back m dwt 85.0 82.1 fell out of favour, coinciding with the year of COP 21. Market Share 17% 22% After two years of decline, seaborne oil trades in 2010 ! Japan Ships 880 910 made a significant rebound growing almost 4% m dwt 53.3 62.2 in 2015. This reflects the impact of the oil price Market Share 2% 2% drop, the strategy to increase oil reserves and the Europe Ships 198 229 switch away from coal. m dwt 5.0 5.6 After a rebound in 2013 and 2014, container Market Share 6% 5% throughput growth fell to 2.7% in 2015. This is a ROW Ships 308 274 depressing outcome for the container business as m dwt 16.9 14.5 growth of 3-4% was predicted at the start of 2015.

BRS - 2016 ANNUAL REVIEW 07 SHIPBUIILLDING

Maritime Trades 2010-2015 Alphaliner Charter Index since 2002

300 16% 14.3% 14% 250

12% 12.6%

10% 200 8.3%

8% 6.7% 150 5.7% 5.4% 6% 6.5% 3.9% 100 4% 2.8% 4.3% 4.2% 3.5% 2.7% 2% 2.1% 2.0% 50 0% 0.4% -1.1% -0.3% -2% 0 2010 2011 2012 2013 2014 2015 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Dry Bulk Trade Growth (tons) Oil Trade Growth (tons) Container Throughput Growth (teu)

Source: BRS, Alphaliner & Clarksons

FREIGHT RATES expenses. The supply-demand equation remains heavily imbalanced due to the excess of surplus Dry bulk ships carried over from 2015 and the sluggish 2015 was the worst year since 2008. The BDI growth in cargos. The idle ﬂ eet of bulkers has yet established a new historical low below 500 to increase signiﬁ cantly. (starting at 1,000 in 1985): a 39% drop during the year. It was still falling in the early part of 2016. Tanker Bulkers are now trading well below operating The year was marked by the tanker market’s exceptional performance. VLCCs recorded the largest gains, followed by Suezmax and Aframax in this order, while product tankers recorded a solid improvement across all segments, with higher expectations as 2016 begins. No tankers were reported idle.

Container 2015 spot market freight rates fell to record lows. The positive operating margins that carriers enjoyed in the fi rst half of the year evaporated in the second half, as rapidly decreasing freight rates erased the initial benefi ts of lower fuel prices. The China Containerized Freight Index (CCFI) slumped to a new record low of 713 points in December 2015, falling below its previous trough of 763 points registered in June 2009. Time-charter rates for containerships followed, with rates ranging from $6,000-7,000 for almost all Artist impression of a 9,400 dwt ship sizes by the end of 2015. The number of idle high Heat (250°C) Bitumen/Pitch Carriers containerships by year end increased sharply to 2 units were ordered by THEODORA HOLDING BV, the Netherlands at RMK SHIPYARD in Turkey 1.36mteu or 6.8% of the total fl eet. for delivery in 2017

08 BRS - 2016 ANNUAL REVIEW SHIPBUIILLDING

Baltic Exchange Clean Tanker and Dirty Tanker Indices Baltic Exchange Dry Index (BDI) since 2002

3,500 12,000

3,000 10,000

2,500 8,000

2,000

6,000

1,500

4,000 1,000

2,000 500

0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

BCTI BDTI

Stocklisted shipowning companies As testimony to the current economic hardship, the net incomes On the other hand, the net incomes of the seven largest publicly- of the seven largest publicly-listed dry bulk shipowning listed tanker shipowning companies dazzled commentators. companies took another big lurch down in 2015. An ocean of Total gains for these seven companies reached $1,047m in 2015. red ink! Total losses for these seven companies reached $760m Great variations in performances were observed for containership in 2015. At the same time, their stock values fell considerably. owners / operators.

Bulk Stock Listed Shipowning Companies - Market Value in $ millions Precious Diana Shipping Eagle Bulk Golden Ocean Navios Maritime Shipping Public Safe Scorpio Inc. Shipping Inc Group Ltd Holdings Inc. Co., Ltd. Bulkers, Inc. Bulkers, Inc. 31 March 2015 182 278 778 448 457 300 428 31 December 2015 59 132 167 189 240 68 283 Net Income 2015 -9 -69 -221 -134 -70 -48 -209

Tanker Stock Listed Shipowning Companies - Market Value in $ millions Tsakos Energy Navios Maritime DHT Holdings, Nordic American Teekay Navigation Acquisition Scorpio Euronav NV Inc. Tankers Limited Corporation Limited Corporation Tankers Inc. 31 March 2015 1,860 648 1,062 3,364 693 537 1,541 31 December 2015 2,193 751 1,386 718 692 454 1,428 Net Income 2015 350 105 117 82 119 90 184

Container Stock Listed Shipowning Companies - Market Value in $ millions A.P. Moller - Evergreen Marine China Shipping Maersk A/S Corp. (Taiwan) COSCO Paciﬁ c Container Lines Hanjin Shipping Neptune Orient Class B Ltd. Hapag-Lloyd AG Limited Co. Ltd. Class H Co., Ltd Lines Limited 31 March 2015 44,854 2,584 - 5,376 3,707 1,403 1,903 31 December 2015 27,584 1,417 2,583 4,640 3,256 686 2,255 Net Income 2015 791 -32 178 36 -164 -192 -220

BRS - 2016 ANNUAL REVIEW 09 SHIPBUIILLDING

New Orders for Standard Vessels per Year

dwt

45,000,000

40,000,000 208

35,000,000 160 567

30,000,000 256

434 25,000,000 256

20,000,000 60

15,000,000 44 170 40 172 144 96 62 203 180 10,000,000 54 76

46 61 88 24 5,000,000 98 36 32 50 47 64 22 5 5 27 6 0 VLCC Suezmax Aframax / LR2 Panamax / LR1 MR Handy Capesize Panamax Supramax Handysize Containership

2013 2014 2015

•l Orders and orderbooks 2015 also saw a fair number of newbuilding 105m tons contracts driven by important rule changes: the for standard vessels change from Common Structural Rules (CSR) to Cumulated dwt of Orders for bulkers fell to a low not seen since Harmonised Common Structural Rules (H-CSR) vessels ordered 2001. The rebound in tanker orders continued its as of 1 July 2015, and the adoption of new IMO in 2015 momentum; this started in 2013 when the ratio of Tier III requirements relating to NOx emissions fleet under construction versus the active fleet as of 1 Jan 2016. These requirements prompted was at 12.1%, the lowest ﬁ gure since 2000. More some shipowners to bring forward planned orders surprising was the rush for containerships in 2015 in order to reduce building costs and beneﬁ t from 311m tons in a barely sustainable freight market. This was better performance (deadweight, consumption). Cumulated dwt probably prompted by the race for economies of of vessels scale made possible by very large ships (more than 66 VLCS above 18,000 teu were ordered ordered in 2007 ! in 2015) and increased competition between shipowners / operators for market share.

New Orders per Year (m dwt)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

TANKER 34.9 22.9 19.7 50.4 40.6 31.0 82.0 59.8 58.3 11.5 34.3 12.0 15.8 35.8 31.9 49.3

BULK 15.1 9.5 19.6 34.7 33.3 25.9 51.0 191.2 104.6 26.4 100.4 52.5 27.4 81.7 74.3 19.3

CONTAINER 10.8 6.4 5.4 27.0 20.4 18.9 20.9 42.7 14.1 0.3 7.9 22.1 4.7 23.0 12.4 28.2

OTHER SHIPS 4.3 3.7 3.5 5.3 10.8 10.8 11.1 17.1 8.9 1.4 4.7 7.0 6.6 9.1 12.6 7.9 (excl.Offshore) TOTAL 64.9 42.6 48.1 117.4 105.1 86.6 165.0 310.9 185.9 39.6 147.4 93.6 54.5 149.6 131.1 104.7

10 BRS - 2016 ANNUAL REVIEW SHIPBUIILLDING

Dry bulk orders in 2015 crashed to 19.3m dwt, down from 74.3m dwt in 2014. Most of these orders were taken by Japanese builders (70%) which offered very competitive prices, surprisingly on par with Chinese newbuilding prices, whereas in previous years Japan had maintained a premium of 10 to 20% above their main competitor. Japanese shipyards tried also to ﬁ ll up their berths to avoid extra costs resulting from the above mentioned new regulations. They contracted about 13.4m dwt bulkers against 5.5m dwt for China whereas Korea seemingly took no bulker orders. Reports of a single order of 10, 20 or 30 VLOCs (of 400,000 dwt each) relating to Vale for Chinese accounts, which would represent some 4m or 8m or 12m dwt alone, have not been accounted for because they are not yet conﬁ rmed.

BULK 2014 2015 Artist impression of High Speed (28.5 kn) large RoPax (1,600 Pax). 2 units have been ordered by REDERI AB GOTLAND Orders m dwt 74.3 19.3 at GUANGZOU SHIPYARD INTERNATIONAL (GSI) for delivery in 2017 and 2018. They will be the fi rst ever high speed RoPax with LNG (Dual Fuel) Propulsion. Delivery m dwt 48.0 48.4 Credits: Lars Maltha / LM-Illustration Orderbook m dwt 165.9 110.7 Active Fleet m dwt 756.0 776.7 Orderbook/Active Fleet 21.9% 14.2% Market Share 63% 59% l • China orderbook Containerships: the weak market conditions m dwt 103.8 64.9 failed to deter shipowners from ordering more. Market Share 9% 7% Korea orderbook A total of 255 vessels was ordered in 2015 255 m dwt 15.1 7.5 with a total capacity of 2.34mteu. The cellular Containerships Market Share 25% 31% Japan orderbook containership fl eet reached a total slot capacity ordered in 2015 m dwt 41.3 34.2 of 19.94mteu at the end of 2015, growing by 8.5% over a period of 12 months. A record level Tanker orders rose significantly in 2015 from of vessel deliveries saw 212 new containerships % 31.9m dwt to 49.3m dwt. Japan and China in enter the market in 2015. These new ships 70 particular saw their market shares grow. Korean added 1.72mteu to the global fleet, while only Of orders for shipyards are still leading this segment but they 0.20mteu were deleted as a result of scrapping, bulkers were lost some ground under the pressure of their two vessel conversions or casualties. The year’s high placed at Japanese main competitors. fl eet growth proved to be unsustainable, as idle shipyards in 2015 LR2s represent the largest orderbook relative to containership capacity soared to 1.36mteu at the the existing fl eet at 43% of the fl eet on the water, end of 2015, compared to only 0.23mteu at the followed by Suezmaxes at 25%, LR1s and VLCCs beginning of the year. at 20% each, MR2s at 17%, Aframaxes at 11%, Panamaxes at 8% and MR1s at just 6%.

TANKER 2014 2015 CONTAINER 2014 2015 Orders m dwt 31.9 49.3 Orders m dwt 12.4 28.2 Delivery m dwt 16.8 19.4 Delivery m dwt 17.6 19.0 Orderbook m dwt 74.1 103.3 Orderbook m dwt 38.1 44.4 Active Fleet m dwt 525.5 545.3 Active Fleet m dwt 229.2 245 Orderbook/Active Fleet 14.1% 18.9% Orderbook/Active Fleet 16.6% 18.1% Market Share 29% 30% Market Share 35% 42% China orderbook China m dwt 21.4 30.8 m dwt 13.4 18.8 Market Share 52% 47% Market Share 41% 27% Korea orderbook Korea m dwt 38.4 48.6 m dwt 15.7 12 Market Share 7% 15% Market Share 9% 19% Japan orderbook Japan m dwt 5.3 15.1 m dwt 3.6 8.5

BRS - 2016 ANNUAL REVIEW 11 SHIPBUIILLDING

New Orders for Specialised Vessels per Year

No ships

140

124 120 115 110

100

78 80 75 74

63 60 50 41 40 36 31 29 22 19 20 17 18 17 8 10 6 6

0 Chemical carriers LPG carriers LNG carriers Ferries & Ro-ro Car carriers Cruise vessels stainless steel Ro-pax

2013 2014 2015

•l Orders and orderbooks for Specialised vessels 9.5m Almost all categories in this highly diverse sector received numerous orders but at a reduced pace dwt cumulated compared to 2014. The one notable exception was car carriers which attracted many orders, in line with for orders the growth of the car industry. cancelled in 2015. 2009 2010 2011 2012 2013 2014 2015

The lowest fi gure Chemical carriers 149,365 98,687 204,190 341,800 1,198,778 2,641,119 1,782,400 stainless steel (dwt) since 2008 ! LPG carriers (cbm) 72,933 946,603 768,665 1,955,379 5,101,406 5,362,246 4,104,187 LNG carriers (cbm) 142,741 1,947,000 7,563,344 5,598,822 5,513,042 11,858,200 4,526,800 % 75 Ferries & Ro-pax (gt) 64,603 370,664 13,660 93,636 185,941 247,739 212,375 More dwt of Ro-ro (dwt) 197,641 41,400 64,966 303,560 106,123 46,101 71,440 bulkers were Car carriers (cars) 1,500 123,683 44,700 557,832 286,579 157,515 340,000 scrapped in Cruise vessels (gt) - 1,057,400 1,052,044 739,712 870,579 2,239,828 1,998,060 2015 vs 2014

Order cancellations in 2015 Nonetheless, this low level of cancellation also hides some price renegotiations, postponements In 2015, the lowest ﬁ gure of cancellations since and conversion from one type to another. 2008 was recorded with only about 9.5m dwt Some cancellations could not be avoided as a cancelled, in contradiction to the general feeling consequence of very low freight rates in the bulk conveyed by the media. The total amount market and financially weakened shipowners. suggests that shipyards performed reasonably Most cancellations concerned bulkers, accounting well and better than during the post boom years. for 82% of total cancellations.

m dwt 2008 2009 2010 2011 2012 2013 2014 2015 Cancellations 18.4 36.3 38.7 23.2 16.9 31.2 12.7 9.5 Orders 185.9 39.6 147.4 93.6 54.5 149.6 131.1 104.7

12 BRS - 2016 ANNUAL REVIEW SHIPBUIILLDING

Cancellations in 2015 Demolitions in 2015

82% 79% BULK BULK 82 Ships 418 Ships

10% 7% TANKER TANKER 33 Ships 75 Ships

4% 9% CONTAINER CONTAINER 10 Ships 93 Ships

4% 5% OTHERS OTHERS 17 Ships 173 Ships

Demolitions in 2015 costs, could have triggered an increased scrapping activity but it seems that containership’ owners Against all expectations, tonnage sent to scrap gave preference to lay-up. The drop in prices for in 2015 (37.3m dwt) progressed only moderately demolition from about $410-500 in 2014 to about compared to 2014 (32.9m dwt) and lags well $270-445 per ton might have been a reason to behind 2011-2012-2013 (average 48.5m dwt). postpone scrapping. The average age of tonnage Bulker demolition, however, increased logically demolished, although on the way down, remains from 16m dwt to 28m dwt. Very logically too, fewer high at about 26, 26 and 23 years respectively for tankers were sent to demolition in 2015 (2.2m dwt bulkers, tankers and containerships, well beyond versus 8.3m dwt). Low freight rates in bulk and the 4th special survey. container segments, well below ships’ operating

BULK (> 15,000 dwt) TANKER (>25,000 dwt) CONTAINER (> 300 teu) dwt Ave Age Scrap price dwt Ave Age Scrap price dwt Ave Age Scrap price scrapped of scrap range scrapped of scrap range scrapped of scrap range 2008 4,754,605 31 [205 -700] 3,734,628 27 [205 -750] 1,447,376 29 [220-660]

2009 13,364,637 31 [240-330] 7,920,378 26 [280-390] 6,012,064 27 [240-330]

2010 7,335,966 32 [350-450] 12,914,945 26 [400-500] 2,177,604 27 [350-450]

2011 24,780,010 31 [450-535] 8,477,832 26 [480-545] 1,257,529 29 [460-535]

2012 35,089,531 28 [375-485] 13,426,126 24 [400-510] 4,753,288 24 [395-510]

2013 22,744,185 28 [360-425] 11,444,045 24 [390-445] 6,270,187 23 [390-445]

2014 16,610,628 28 [410-455] 8,273,730 24 [435-485] 5,658,657 23 [450-500]

2015 28,829,032 26 [270-390] 2,198,006 26 [300-415] 2,796,196 23 [310-445]

m dwt 2008 2009 2010 2011 2012 2013 2014 2015 Demolitions 13 35.8 29.5 41.4 59.4 44.9 32.9 37.3 Deliveries 91.6 114.6 149.9 161.8 152.3 106.8 88.0 94.2

BRS - 2016 ANNUAL REVIEW 13 SHIPBUIILLDING

Tonnage delivered 2005 - 2015 Tonnage to be delivered 2016 - 2018

Million dwt Tonnage to be delivered between 2016 and 2018 180 excluding cancellations, delays and new orders

160

140

120

100

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Bulk Tanker Container Others

Delivery and worldwide shipbuilding capacity in 2015 Deliveries increased steadily from 2003 to 2011. In China, annual production increased sevenfold An increase of 30% y-o-y was recorded between between 2006 and 2011, rising from 10m dwt to 2009 and 2010, and a peak of 161m dwt was 69m dwt, falling again to 43m dwt in 2013, and recorded in 2011. The figures subsequently to 36m dwt in 2014. 2015 saw a small rebound declined, from 152m dwt in 2012 to 107m dwt to 38.1m dwt. In South Korea, annual production in 2013 (-29%) and 88m dwt in 2014 (-18%), but doubled between 2006 and 2011, rising from rose in 2015 to 94m dwt as a consequence of the 25m dwt to 53m dwt, but declined again to upsurge of orders placed in 2013. These deliveries around 33m dwt in 2013, to 24m dwt in 2014 are split into 48.4m dwt of bulk carriers, 19.4m dwt before rebounding to 29m dwt in 2015. In Japan, of tankers and 19m dwt of containerships. In production increased between 2006 and 2010 principle, deliveries should further increase in from 29m dwt to 33m dwt; it returned to around 2016, notwithstanding slippage, postponement or 25m dwt in 2013, 22m dwt in 2014 and 21m dwt increased cancellations. in 2015.

Ship deliveries in China, Korea & Japan (m dwt)

2008 2009 2010 2011 2012 2013 2014 2015 CHINA 22 36 63 69 65 43 36 38 SOUTH KOREA 34 43 46 53 49 33 24 29 JAPAN 28 29 33 32 29 25 22 21

Newbuilding prices in 2015 gap between newbuilding and second hand prices for modern bulkers and re-sales in While newbuilding prices barely increased in 2014 particular. The values of re-sales at the end of compared to 2013, they were on a downward 2015 reached about $37m for Capesizes, $20m trend in 2015. for Kamsarmaxes and $19m for Ultramaxes, Bulker prices were the most affected because all significantly below newbuilding alternatives. of the lack of demand and we saw a widening As from the beginning of 2015, bulker prices

14 BRS - 2016 ANNUAL REVIEW SHIPBUIILLDING

Average exchange rates against the US Dollar

1.35

Rates end 2015 1.25 120.94 Yen 1,182 Won 1.15 plummeted continuously to lose on average 10%, returning to the historically low levels recorded at 1.05 the end of 2012. The downward trend was less noticeable for 0.95 tankers; indeed unlike all other segments, buyers 0.91 Euro had to pay a premium for re-sales tankers 0.85 compared to tanker newbuildings. The value of re-sales at the end of 2015 reached for instance 0.75 about $100 million for VLCCs, $71million for 0.65 6.45 Yuan Suezmaxes, $56 million for Aframaxes and 2014 2015 $37.5 million for MRs. Prices for tankers and 0.55 containership newbuildings conceded some JFMAMJJASOND JFMAMJJASOND reductions because of the global lack of demand, however they were in the region of 5% only 100 Yen 1,000 Won 1 Euro 10 Yuan depending on size, thanks to a strong demand for these types of vessels.

Newbuilding prices (million $) End 2014 End 2015 Low 4Q Peak 2Q End 2014 South End 2015 South Korea/ 1993 2002 2008 China Korea China Japan

TANKERS VLCC 100 64 140/155 90/95 95/100 85/88 90 Suezmax 63 44 90/100 58/63 65/70 53/57 64

Aframax (A) / LR2 45 (A) 34 (A) 70/75 (A) 50/52 55/58 45(A) / 48 (LR2) 51 (A) / 55 (LR2) MR Product 32.5 27 48/51 34/36 36/37 34 36

BULKERS Capesize (205k dwt) N/A N/A N/A 55/60 62/65 50/55 58/60* Capesize (180k dwt) 48 36 90/101 50/55 55/58 47/50 55/57*

Panamax (P) / Kansarmax (K) 29 (P) 21.5 (P) 53/60 (K) 28/30 (K) 33/34 (K) 25/26 (K) 26 (K)*

Handymax (H) / Supramax (S) / Ultramax (U) 25 (H) 20 (S) 47/50 (S) 26.5/27.5 (U) 31/32 (U) 23/24(U) 24(U)*

* Japan only

Second hand price evolution in 2015 (million $) for 5 year old vessels

1 Jan 2015 High Low 31 Dec 2015 Variation high/low Variation Jan-Dec

VLCC 74.00 79.5 27/07/2015 74 12/01/2015 79.50 -6.9% +7.1%

AFRAMAX 42.00 45.2 19/10/2015 42 12/01/2015 45.00 -7.1% +7.1%

MR TANKER 25.75 27.7 30/11/2015 25.7 12/01/2015 27.75 -7.2% +7.8%

CAPESIZE 38.50 38.5 05/01/2015 27 14/12/2015 27.00 -29.9% -29.9%

PANAMAX 20.00 20 05/01/2015 14.7 21/12/2015 14.50 -26.5% -27.5%

SUPRAMAX 20.00 20 05/01/2015 12.5 21/12/2015 12.50 -37.5% -37.5%

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Shipbuilding in China

2014 2015 m dwt N° of ships m dwt N° of ships Market share 47% 1,914 43% 1,651 Bulk 103.8 1,174 64.9 764 Orderbook Tanker 21.4 276 30.8 346 Container 13.4 221 18.8 289 All ships 144.9 1,914 121.6 1,651 Bulk 47.7 477 5.5 96 Tanker 6.3 103 15.5 155 Orders Container 5.1 97 11.3 154 All ships 61.5 783 34.1 485 Bulk 23.4 303 23.8 329 Tanker 5.6 75 6.8 64 Delivery Container 6.0 92 5.8 83 All ships 35.9 525 38.2 537

If China remains the world shipbuilding leader, are expected to benefit from the process and Chinese shipyards lost their competitive edge in grow stronger. 2015. They relatively underperformed compared to their main competitors in Japan and Korea. SOME NEWSWORTHY EVENTS Newbuilding orders in China reduced by 45% in OF THE YEAR 2015, from 61.5m dwt to 34.1m dwt, while they increased by 18% in Japan from 26.8m dwt White List to 31.6m dwt and declined only by 14% from If the so-called “White List of Shipbuilders” 36.4m dwt to 31.3m dwt in Korea. published in September 2014 by Beijing’s Bulker orders, the backbone of Chinese Ministry of Industry and Information Technology production, plunged dramatically from 47.7m dwt and amended in December 2014, had been an to 5.5m dwt (a 90% drop!). Many major shipyards important subject of conversations back in 2014, did not sign a single bulker order during the whole it was almost a non-event in 2015 and its further year. Throughout 2015, Japanese shipyards amendment, with the addition of a new batch managed to offer prices for all sizes of bulkers on of shipyards in December 2015, went out almost a par with their Chinese competitors whereas in un-noticed. previous years there had usually been a 10 to 20% Second addition to White list dated 15 December gap in favor of the Chinese shipyards. Naturally, 2015 many buyers went to Japan. 1. Jiangsu Yangzijiang Xinfu For Chinese shipyards, the solace came from Shipyard (Jiangsu Province) their relatively better performance in tanker 2. Jiangsu New Hantong newbuilding, with orders going from 6.3m dwt to Shipyard (Jiangsu Province) 15.5m dwt. Orders for containerships also rose 3. Nantong Rainbow Offshore & Engineering from 5.1m dwt to 11.3m dwt. Equipments Co. Ltd. (Jiangsu Province) 4. Jiangsu Haitong offshore Engineering Co., Delays, deferrals, renegotiations and cancellations Ltd (Jiangsu Province) became a daily concern. Chinese shipyards felt 5. Wuhu Xinlian Shipyard (Anhui Province) the pain from the weak dry bulk, container and 6. Fujian Baima Shipyard (Fujian Province) offshore markets. The Chinese shipbuilding 7. Fujian Southeast Shipyard (Fujian Province) industry went through one of the most challenging 8. Fujian Huadong Shipyard (Fujian Province) years in its recent history. The oversupply situation 9. Guangda Shipyard (Hubei Province) for containerships and dry bulkers is expected 10. Jiangmen Nanyang Shipping Equipment Co., to continue and the intense competition on the Ltd (Guangdong Province) market will likely accelerate consolidation in the 11. Chongqin Donggang Shipyard (CSIC) industry. Shipyards with strong R&D capabilities, an established client network, a consistent delivery record and a sound financial position

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The “White List” was intended to give some guidance to outsiders (shipowners, banks) on the capacity of Chinese shipyards to take on and perform shipbuilding contracts, and thus to get support from the authorities and banks. Unfortunately, this failed: several of the white-listed shipyards experienced setbacks and financial difﬁ culties almost concomitantly with the publication of the White List. Some of these shipyards even ﬁ led for protection from creditors or bankruptcy or the like (for example Rongsheng, Sainty Marine, Mingde, Jiangsu Eastern and Zhenghe).

Restructuring, Consolidation, Bankruptcies

Pressure on newbuilding prices, a lack of •l newbuilding orders, losses at shipyards and Hafnia Lene, ready for • CSSC and CSIC: in 1999, China State launching at GSI. Hafnia banks, shipyard closures, all suggest that further Lene is the fi rst of eight consolidation of the industry is needed: Shipbuilding Corp (CSSC), the government 49,999 dwt Eco MR Tankers entity responsible for managing state-owned (IMO 3) ordered by HAFNIA • CMG and Sinotrans: in December 2015, China shipyards, established China Shipbuilding TANKERS in 2013 at GSI for delivery 2015-2016. Merchants Group (CMG) acquired Sinotrans & Industry Co (CSIC). CSSC kept 10 shipyards CSC Holdings. This re-organization aims to achieve in southern China and CSIC took control of economies of scale and synergies across logistics, 7 state-owned shipyards in the north. In 2015, energy and bulk shipping, property development, a persistent rumour indicated that the two state- ports and marine but also offshore engineering owned conglomerates could re-merge. The services. The impact on the shipbuilding activity chairmen (CSSC and CSIC) exchanged of the new group remains to be demonstrated. positions, a signal seen as a preparation for On CMG’s side, there are 4 shipyards: Yiu Lian merger. In 2014, certain shipyards within each Dockyards Ltd (Hong-Kong), Yiu Lian Dockyards group had already started to regroup, for (Shekou) Ltd, China Merchants Heavy Industry example GSI, GWS, Huangpu and GLS under Co., Ltd, Yiu Lian Dockyards (Zhangzhou) Ltd in the banner of COMEC (CSSC Offshore and Mainland China. For Sinotrans & CSC, 3 shipyards Marine Engineering Company). are involved: Jinling, Jiang Dong (which is controlled by Jinling) and Qingshan and also a • If some shipyards changed hands, like SOE as participation in Damen Yichang. mentioned above, ex-giant shipyard STX Dalian failed to be sold at a third auction and will be • COSCO and China Shipping: likewise, in most likely sold piecemeal. In spite of many December 2015, the Chinese authorities gave rumors, it looks like that Rongsheng might their greenlight to a tie-up between Cosco and experience a similar fate. China Shipping Group (CSG). The new company will be based in Shanghai and be called China Currency Cosco Shipping Group. The merger will create Thanks to a flourishing Chinese economy, the the world’s fourth largest containerships Yuan went through 10 years of continuous operator. The venture will most likely have appreciation against the dollar. The Yuan consequences on the shipbuilding activities of appreciated from a fi xed rate of 8.28 in July 2005 the new group. to about 6.08 in July 2015, when the Chinese • CIMC and SOE: in August 2015, Sinopacific authorities decided to reverse the trend and the Shipbuilding Group (SSG) got a major boost Yuan fi nished the year at about 6.45. That trend with the takeover of sister company Sinopacifi c continued throughout January 2016 when the Offshore & Engineering (SOE) by Chinese state- Yuan came back to levels recorded 5 years owned manufacturer CIMC Enric. CIMC Enric is earlier. A weaker Yuan will certainly be welcome controlled by diversified manufacturing group by Chinese shipyards in an environment where China International Marine Containers Hong all major shipbuilding places benefitted from a Kong Ltd (CIMC HK Ltd), which is in turn majority stronger dollar (Japan, Korea, Europe), the main controlled by two other state-owned giants, example being the near-resurrection of shipyards Cosco and China Merchants Group. in Japan thanks to the so-called Abenomics. It is

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too early to measure the impact of this decision (CWEC), a joint venture between Finland-based on the Chinese shipbuilding industry but it should power supplier Wärtsilä and China’s giant CSSC improve Chinese shipyards’ earnings in local Group, held a ground-breaking ceremony on currency and allow them to offer much-wanted 28 October 2015 to celebrate the commencement competitiveness in 2016. of construction of its new factory in Shanghai which will manufacture dual fuel main engines. Chinese banks and leasing companies • Cruise Ships are set to come in the near future: In the present market, potential buyers are not CSSC Shanghai Waigaoqiao Shipbuilding (SWS) only looking for post-delivery fi nancing but also for has been pre-selected as the future builder of equity. Chinese banks and their Chinese leasing the fi rst Chinese cruise ship of about 140,000 gt branches but also bank-independent Chinese for the domestic market. Construction of the leasing companies such as CSSC Leasing and vessel for Carnival will begin in 2017 and will take CIMC Enric gained even more importance in three years. A cooperation agreement between 2015. They were behind a number of transactions CSSC and Fincantieri was signed for this project. at a time when many Western banks and Western equity investors were trying to pull out. Some signifi cant orders of 2015 For instance, Seatrade bought a series of up to twelve 2,200teu containerships from Yangfan Despite a reduction of orders, there were some shipyard, all fi nanced by ICBC Leasing. remarkable examples in terms of numbers or size of ships: Diversifi cation of products • 10 VLCCs: China Merchants Energy Shipping Although bulkers were their backbone, Chinese (CMES) ordered 10 eco-fuel VLCCs (6 at DSIC, shipyards are building all types of ships. They are 2 at NACKS and 2 at DACKS). at the forefront of innovations thanks to a cluster • 14 Chemical Tankers: Jiangsu Hantong Ship Heavy of foreign and domestic independent ship design Industry Co sealed a deal for 14 x 24,000 dwt companies. Therefore China cannot be construed stainless-steel chemical tankers from Celsius. at all as a shipbuilding nation limited to the construction of simple ships. • 13 ULCS: COSCO ordered 13 units of 20,000 teu to be split between three of China’s large For instance, Chinese shipyards are building: shipyards (4+2 units for SWS, 3+2 for NACKS • LNG carriers both of a membrane type at HZ or and 2 for DSIC). with independent tanks at SOE, CSSC Jiangnan, Cosco Dalian and Xinle. In 2015, Dalian shipyard • 12 VLCS: 12 units of 12,800 teu at Yangzijiang for (DSIC) won a tender to build two 174,000 cbm Pacifi c International Lines (PIL). liquefi ed natural gas carriers for Sinopec’s LNG • 5 VLEC: China’s Dalian Shipbuilding Offshore project in Australia, although that project was shipyard secured a newbuilding contract for finally cancelled in October 2015. Dalian has the construction of five Very Large Ethane been working for about 15 years on LNG carriers Carriers (VLECs) for Jaccar Holdings-Hartmann and it is almost certain that they will succeed in subsidiary JHW Engineering & Contracting. the near future. The 85,000 cbm vessels are equipped with • LEG and LPG carriers at SOE, Jiangnan, New IMO type C type 3 ear-shaped tanks and MAN- Yangzijiang and Dalian Offshore, stainless steel designed dual fuel propulsion (ethane/diesel). chemical tankers at HZ, Hantong, and New Up to 30 VLOCs (but we will know more in 2016) Times, ferries at GSI and Huanghai, PCTC at could be contracted and chartered by Vale. The deal Xiamen, Xingang, Jinling and Cosco, a hospital allegedly concerns an initial order by CMES (China ship at Xingang, livestock carriers at Cosco Merchant Energy Shipping), subject to Vale BOD Guangdong, bitumen tankers at Qingshan approval on 10 VLOCs. The government will then and GWS. distribute execution of the deal over several state • Dual fuel propulsion vessels: the world’s fi rst bulk owned shipyards such as Shanghai Waigaoqiao carriers (25,000 dwt) with LNG propulsion will be Shipbuilding (SWS), Qingdao Beihai Shipbuilding built at Qingshan for Finnish ESL Shipping and Heavy Industry, Bohai Shipbuilding Heavy Industry several series of small Handysize product chemical and China Merchants Heavy Industries (CMHI). tankers of about 17,000 dwt will be built for various Besides these 10 VLOCs at CMES, 10 more could Scandinavian accounts in other shipyards. It is be ordered by COS (China Ore Shipping) and a interesting to note that CSSC Wärtsilä Engine Co further 10 could be ordered by ICBC Leasing.

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Gisela Oldendorff 80,840 dwt Kamsarmax Bulk Carrier delivered in 2015 by Jinling shipyard to Oldendorff Carriers Here pictured in transshipment operations at Raahe, Finland

l •

Shipbuilding in South Korea Zero 2014 2015 No single bulker m dwt N° of ships m dwt N° of ships Market share 28% 871 29% 759 order was placed Bulk 15.1 93 7.5 46 in South Korea Orderbook Tanker 38.4 395 48.6 377 in 2015 ! Container 15.7 123 12.0 90 All ships 85.0 871 82.1 759 Bulk 6.2 36 0.0 0 Tanker 18.1 144 21.4 148 Container 4.6 38 6.3 43 Orders Gas 7.3 114 2.6 53 RoRo 0.2 6 0.7 32 All ships 36.4 338 31.3 278 Bulk 2.9 24 4.6 26 Tanker 8.3 117 9.9 144 Delivery Container 9.4 72 9.9 73 All ships 24.2 278 28.7 328

If China did not succeed in maintaining its and 18% respectively thanks to the historically market share in 2015 (down from 47% to 43%), dominant positions of Korea in the construction of South Korea’s progressed slightly, up from 28% to these two types of ships, especially in the segment 29% y-o-y. of mega containerships, VLCCs and Suezmax tankers. Faced with the competition from Chinese Orders declined by 14% from 36.4m dwt to and Japanese shipyards, Korean shipyards ﬁ nally 31.3m dwt although the proportion of containership stopped trying to contract bulkers. No bulker order and tanker orders progressed signiﬁ cantly by 37% was recorded in 2015.

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MOST NEWSWORTHY EVENTS Amongst other measures, shipyards decided OF THE YEAR to mothball some facilities. For instance, as the drought in orders for drilling ships and Heavy losses, Massive cost-cutting, offshore plants continued, Hyundai Heavy Restructuring, Consolidation, Closures Industries decided to suspend operations at its The Korean shipbuilding industry is probably going No 2 Offshore Shipyard, which opened in 2012. through one of its most challenging times. The Other companies decided to sell some of their shipping community is starting to wonder if this is activities. For instance, DSME are looking to the beginning of something already seen in the past sell subsidiaries such as DSME Mangalia and elsewhere. Will the Korean shipbuilding industry Doosan. It was even rumored that DSME itself follow a similar pattern to the one that developed in could be for sale. DSME called off a plan for the 1980s and 1990s which eventually carried away a shipyard in Dandong, China. In 2012, DSME the European shipbuilding industry? signed a memorandum of agreement to cooperate South Korean’s Big Three shipbuilders: Hyundai HI, with Rilin, a port development company based in Samsung HI and Daewoo Shipbuilding & Marine Shenyang province, China. Engineering (DSME) appeared to the outside South Korean shipbuilder Samsung Heavy world as almost immune to crisis, but they Industries (SHI) dropped plans to build a shipyard experienced heavy losses amounting all together in Southeast Asia. Shareholders and creditors of to several billion US dollars. They are not likely to the builders provided support through various return easily to the black in the near future, given bailout schemes on condition that shipbuilders market prospects. would undergo intensive restructuring. In the wake of the September 2008 financial The South Korean government launched crisis, these 3 shipbuilders focused on demand a $1.2 billion fund to assist the country’s for expensive, complex and risky offshore plants struggling shipping and shipbuilding companies. fueled by the increase in oil and gas prices But immediately after the fund’s launch on between 2010 and 2013. The abrupt decline in 30 December, controversy erupted over its energy prices, combined with the abandonment effectiveness, given that only companies with debt of many offshore projects by Oil and Gas Majors, ratios below 400% can access it. impacted the outlook for these offshore plants affected by many speculative orders. Shipowners Hyundai Mipo are expected to return to profi tability tried to postpone, renegotiate or cancel these in 2015 after a 2014 loss. HMD’s specialization units when they could, often successfully in product tankers, car carriers and mid-sized helped in that respect by unusual delays at the LPG carriers kept it in good shape thanks to shipyards. Deficits were caused by unfavorable sustained demand for these ships. Hyundai contract terms, excessive competition, lack of Mipo Dockshipyard dominated the mid-size LPG understanding, and insufficient preparation in carriers segment; they virtually became the market design and building engineering, leading to leader, capturing a market share of almost 80% underestimates, rising labor costs and loss of with 23 mid-size LPG carriers ordered in 2015. production control. STX O&S, which at one point was the country’s Pushed by heavy losses, the Korean banks asked fourth biggest shipbuilder, began voluntary all the shipyards to carry out massive cost-cuttings debt restructuring in May 2013 after incurring and reorganize drastically. a debt in excess of $1 billion. A series of debt- to-equity swaps saw the shipbuilder’s creditor The shipyards embarked on a huge number of banks, led by Korea Development Bank (KDB), lay-offs. For instance, HHI cut about 1,300 staff, taking control. In addition, the creditors want mostly in office jobs, in early 2015. There were STX O&S to make drastic reductions to its similar moves at DSME and SHI. The shipyards manpower and shipbuilding capacity. Under the also froze and reduced salaries; some executives banks’ instructions, STX O&S is to specialize in and workers were even invited to return part of their 50,000–70,000 dwt tankers, meaning it can no salaries, creating social unrest and strikes. Some longer compete for vessels such as very large companies such as DSME issued new shares containerships, offshore drilling vessels, and large and invited their employees to buy some. Korean LNG carriers. The shipbuilder already closed its shipbuilders could slash more jobs in 2016 if these shipyards in Busan and Dalian, China. measures prove insuffi cient to restore profi tability. Hanjin Heavy Industries & Construction (HHIC) faced heavy losses amounting altogether to

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Venture Luck and Venture Goal 43,500 dwt B.Delta 43 bulkcarriers Delivered by Qingshan shipyard (CSC group) to HBC (Hamburg Bulk Carriers) in February 2015

l • several hundred million US dollars. In early 2016, Daehan Shipbuilding came out of corporate it announced it had received agreement from its rehabilitation in 2015. Daehan, a subsidiary of the Hyundai Mipo main creditor (KDB) to begin joint management now-defunct Daeju Group’s shipping arm, had and autonomous debt restructuring. They will also been struggling with major losses. Consequently, is expected to try to sell their stakes in affi liated power generation Daehan applied for a debt management plan in return to profi t companies to boost liquidity. 2009 as its liabilities spiralled to almost $1 billion. in 2015 SPP came under the management of their However, the shipbuilder continued to make losses creditors in 2010, after incurring losses of several and sought corporate rehabilitation in mid 2014. Having secured many bulker orders from Korea hundred million US dollars and since then, they ShinaSB headed have been supported by Woori Bank. Shipyards Line Corporation and KRW400bn in fi nancing from in Tongyeong and Goseong were shut and the Korea Development Bank, Daehan convinced for liquidation many layoffs took place; construction is now the court that it would also be able to settle debts concentrated at Sacheon shipyard. SPP could in 2016. achieve an operating profi t in 2015 and the creditor Debt-laden mid-tier shipbuilder ShinaSB headed banks decided to look for a new shipowner for liquidation after 3 attempts to fi nd a buyer failed to manage this financially and operationally (the most recent was in July 2015 when potential healthy company. Samla Midas (SM Group), buyers and ShinaSB’s creditor banks could not which is affiliated with various industries, such agree on the price). The shipbuilder submitted as construction, chemistry, and shipping, was a winding-up application, having been under announced as a preferred bidder. It is expected receivership since April 2014. This shipbuilder to conclude the acquisition of SPP in early 2016. was specialized in product and chemical tankers Despite criticisms, the Export-Import Bank of ranging from 40,000 to 51,000 dwt. Korea pledged to provide Sungdong Shipbuilding ShinaSB’s Tongyeong neighbors have also several hundred million US dollars in funding until encountered hard times. For example, in 2012, 2019. In August 2015, KEXIM and Samsung Heavy 21st Century shipbuilding was liquidated. Samho Industries jointly agreed to help manage Sungdong Shipbuilding, which was declared bankrupt to get it back on track. From the start of 2016, in 2011, was given a new lease of life when Samsung will deploy its veteran staff at Sungdong. Korea Yanase bought it at an auction in 2013 Sungdong shipyard specialises in building and rebranded its acquisition Korea Yanase MR tankers and bulk carriers, while SHI focuses on Tongyeong Shipbuilding. LNG carriers, large containerships and drill-ships.

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Shipbuilding in Japan

2014 2015 dwt N° of ships dwt N° of ships Market share 17% 880 22% 910 Bulk 41.3 586 34.2 487 Orderbook Tanker 5.3 139 15.1 224 Container 3.6 30 8.5 59 All ships 53.4 880 62.2 910 Bulk 19.0 265 13.4 189 Tanker 4.1 92 10.2 134 Orders Container 2.0 17 5.7 39 All ships 26.8 434 31.6 436 Bulk 19.6 264 18.4 270 Tanker 2.0 44 1.1 48 Delivery Container 0.2 5 0.8 10 All ships 22.5 365 21.0 383

The Japanese shipbuilding industry is going SOME NEWSWORTHY EVENTS through a resurrection. Back in 2012, the shipping OF THE YEAR community was not upbeat about its future. • MHI was reportedly considering a plan to spin Japanese shipyards were losing their competitive off its shipbuilding business to focus the new edge to the benefit of their Chinese neighbors company on building LNG carriers and other mainly because of an over-strong Yen. high-value, technically advanced shipbuilding All indicators turned green. Japan is the third projects. MHI already has a close business largest global shipbuilder. Its market share relationship with Shikoku-based Imabari increased substantially in 2015 from 17% to 22% Shipbuilding, with the pair working closely on y-o-y with an orderbook rising from 53.4m dwt projects to build LNG carriers and ULCS. In to 62.2m dwt while all the competitors saw theirs terms of production volume, the two entities shrink. By the end of 2015, most Japanese are ranked among the top-three Japanese shipyards were fully booked until 2019. shipbuilders and they could potentially create Newbuilding orders rose sharply from 26.8m dwt a giant able to compete with the Korean mega to 31.6m dwt. Japan managed to capture most shipyards of HHI, Samsung and DSME. of the bulker orders worldwide (70%). They also • MHI struggled with the construction and doubled their tanker orders and tripled their completion of AIDA Prima cruise ship which containership orders thanks to some significant should have been delivered in March 2015 but single orders such as Evergreen’s for 11 x ULCS is now expected in 2016. In addition to delays, of 18,000 teu at Imabari, keeping Japan in the large overruns have been recorded. It shows international race for the construction of ultra-large that valuable but complex and risky projects can containerships (ULCS). eventually hurt shipyards badly. The Yen’s depreciation against the US dollar • Imabari signed contracts with Evergreen for the to an average level of 120 was the key to construction of 10 x 2,800 teu plus 11 x 18,000 teu the renewed competitiveness of Japanese containerships, to be delivered in 2018 and 2019. shipbuilders in 2015. For reference, the average These are the second and third projects between Yen/$ rates were approximately 106 in 2014, Evergreen and Imabari. Evergreen signed 97 in 2013 and 79 in 2012. Japanese shipyards previously agreements to charter ﬁ ve 14,000 teu started a very aggressive price policy in 2015; containerships from Shoei Kisen Kaisha (Imabari they offered further incentives to their clients to Shipbuilding Group’s shipowning arm); deliveries contract additional tonnage, thereby avoiding the are due in 2017. signiﬁ cant additional building costs resulting from new HSCR and Tier III rules.

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Bird’s eye view of STX France shipyard, Saint Nazaire. Credit: Photo Fly HD. Second Regard

While almost all shipyards in the world are reducing their building capacity, Imabari Shipbuilding is to launch a new drydock at its Marugame facility to target the market for Ultra Large Containerships (ULCS). 13 units of 18,000 teu are already on order (11 for Evergreen and 2 for MOL). • Japanese bulk shipper Daiichi Chuo Kisen Kaisha sought bankruptcy protection, both in Tokyo and New York, with plans to restructure $1.5bn in debt. Incorporated in 1960, Daiichi operated a fleet of 185 vessels, a mix of chartered units and units owned through subsidiaries.

Shipbuilding in Europe

2014 2015 dwtN° of shipsdwtN° of ships Market share 2% 198 2% 229 Bulk 0.4 6 0.9 14 Orderbook Tanker 3.2 67 3.4 66 Container 0.6 11 0.2 4 All ships 5.0 198 5.6 229 Bulk 0.1 4 0.2 6 Tanker 1.7 25 1.0 16 Orders Container 0.1 1 0.0 0 Cruise 0.2 18 0.2 17 All ships 2.3 88 1.5 74 Bulk 0.0 0 0.0 0 Tanker 0.1 15 0.5 19 Delivery Container 0.1 3 0.3 4 Cruise 0.1 6 0.1 6 All ships 0.7 65 1.0 55

The global orderbook of European shipbuilders price gaps with Asian shipyards, though Asian has regularly increased over the last three years prices probably still remained cheaper. However, from 2.7m dwt in 2013 to 5.0m dwt in 2014 and when the gap is smaller, a combination of quality, 5.6m dwt in 2015. proximity, better understanding of more complex The depreciation of the euro versus the dollar designs, added to the confi dence in execution of started in summer 2014 and continued throughout the contracts become determining factors for the 2015. The euro/dollar rate of exchange was fi nal award. It is diffi cult to pinpoint which orders slightly above 1.35 during the first half of 2014, were captured back by European shipyards as a then dropped to 1.20 by 1 Jan 2015 to end at 1.10 consequence of euro/dollar favorable depreciation twelve months later. This proved helpful in reducing but worth noting that Meyer Werft (Germany) won

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Orderbook of European shipyards end 2015

PORTUGAL

UNITED KINGDOM

UKRAINE

POLAND

NORWAY

FINLAND

FRANCE

RUSSIA

GERMANY

ITALY

TURKEY

NETHERLANDS

SPAIN

CROATIA

ROMANIA

dwt 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000

•l 3 an order for an ice class 18,000 m LNG carrier about 90% of orders in Romania and about 50% Turkish and Dutch whereas Besiktas (Turkey) secured an order for an of the total European orders in deadweight. ice class 15,000 dwt bitumen tanker with dual fuel shipyards are • Croatia which relies now on 3 shipyards, Uljanik / propulsion. Uljanik / 3 Maj booked a series of self- 3 Maj, Trogir and Brodosplit, managed well in almost on a par unloader lakers which would have probably been 2015 thanks to a renewed competitive edge. awarded otherwise in Korea or in China. The country now ranks number 2 in Europe. Euro depreciation against the US dollar is certainly • The Spanish shipbuilding industry closely follows Croatia relies now one of the incentives that led cruise operators Croatia. The single order of 4 Suezmax tankers on 3 shipyards to invest in a number of large cruiseships. The under the new tax-leasing scheme contributed a competition on this market is mainly amongst lot to this success. These ships will be chartered European shipyards offering building costs in Euro out on a long-term basis to Oil Majors. to the US-based main cruise companies. Cruise companies contracted a total of 17 vessels in 2015, • Turkish and Dutch shipyards are almost on a against 18 units in 2014, 10 in 2013 and 6 in 2012. par in fourth and fifth positions. Shipyards in these two countries are focused on small and Although Europe contributes only 2% in deadweight sophisticated tonnage. For instance, Besiktas to the global shipbuilding orderbook, there remain succeeded in getting the world’s ﬁ rst order for strong and successful shipbuilders such as bitumen tankers with LNG Dual Fuel propulsion. Meyer Werft, Fincantieri or STX France which are The Dutch shipyard Ferus Smit put down a new now all fully booked until 2020/2021 with cruiseships. marker for the industry: JT Cement (the joint venture of Swedish shipowner Erik Thun and MOST NEWSWORTHY EVENTS the Norwegian company KG Jebsen Cement) OF THE YEAR took delivery of a dedicated cement carrier • In deadweight terms, Romania stands as number powered by dual-fuel machinery. The 7,300 dwt one in Europe thanks to several shipyards Greenland is the world’s first-ever dry bulk including Daewoo Mangalia Heavy Industries cargo vessel endowed with a LNG-fueled (DMHI), Constanta, Vard Tulcea, Vard Braila, propulsion system with a pressurized LNG tank Damen Galatz and Sevmash. DMHI is now for incorporated inside the hull rather than installed sale following the decision of mother company on the vessel’s deck. DSME to ofﬂ oad all its companies outside Korea to assist a prompt recovery of its heavy losses. This is a worrying situation as DMHI represents

24 BRS - 2016 ANNUAL REVIEW SHIPBUIILLDING

3D impression of Stolt Pride Stainless steel parcel chemical tanker, 38,000 dwt Delivery scheduled in 2016 to Stolt Tankers by Hudong-Zhonghua shipyard Credits: Lars Maltha / LM-Illustration

l • • The 6 largest shipbuilders in Europe (ranking it has outside Korea. At the beginning of 2015, in gt) DSME was lined up to buy KDB’s shares in STX Noryards Fosen It would be unfair to rank European shipyards France but its interest vanished by year end only on the basis of deadweight as most of due to its difﬁ cult ﬁ nancial situation and strong in Bergen fi led them are building high value vessels with small opposition from trade unions. for bankruptcy deadweight but large gross tonnage. • Noryards Fosen, part of the Noryards group Shipyards gt N° Ships in Bergen, Norway, filed for bankruptcy. The Noryards group belongs to the Luxembourg- Meyer Werft is MEYER WERFT 2,583,885 18 domiciled but Ukrainian-owned Calexo group. by far the leader DMHI 1,558,148 21 The development comes after the cancellation of an offshore service vessel order from Boa IMR. of European FINCANTIERI 1,279,800 15 Calexo took full control of Noshipyards Fosen in shipyards in STX France 774,236 5 2014 after previous shipowner Bergen Group GT terms ULJANIK 685,764 22 decided to exit shipbuilding. Calexo also owns the Zaliv shipyard in Ukraine. Bergen Group’s NAVANTIA 328,000 4 decision to exit shipbuilding was prompted by Total 7,209,833 85 severe losses Fosen suffered from late delivery of two 31,000 gt LNG-driven ro-pax vessels to • Meyer Werft and Fincantieri entered into Fjord Line in 2013. 16 cruiseships contracts in 2015. • Anthony Veder and Meyer Werft signed a contract for a state-of-the-art 18,000 cbm LNG carrier. The vessel will have the highest ice class notation (1A super) and COLD notation, allowing the vessel to trade safely in extreme winter conditions. The vessel will also use LNG boil-off gas as a fuel for its main and auxiliary engines, which makes the vessel fully compliant with the most stringent emission regulations. • STX Korea has been trying for 2 years to get rid of its shares in STX France, the last company

BRS - 2016 ANNUAL REVIEW 25 SHIPBUIILLDING

Stena Image, one of thirteen fully IMO2 Chemical Tankers ordered in 2012 by Stena and Concordia Maritime at Guangzhou Shipyard International, China. Delivered to Concordia Maritime in April 2015

Shipbuilding in the rest of the world (ROW) Contrary to the general trend, newbuilding orders in other shipbuilding areas increased from 4.1m dwt to 6.3m dwt. The main driver was a boom in containerships, for example 10 units of 2,800 teu at CSBC for Evergreen and 10 neo-Panamax containerships of 11,000 teu at Hanjin Subic for various accounts.

2014 2015 dwt N° of ships dwt N° of ships Market share 6% 308 5% 274 Bulk 5.3 75 3.2 51 Orderbook Tanker 5.7 83 5.4 89 Container 4.8 69 4.9 61 All ships 16.9 308 14.5 274 Bulk 1.5 20 0.3 5 Tanker 1.8 18 0.9 21 Orders Container 0.5 6 4.9 47 All ships 4.1 48 6.3 86 Bulk 2.0 32 1.7 24 Tanker 0.8 23 1.1 25 Delivery Container 1.8 27 2.2 34 All ships 4.8 105 5.2 98

MOST NEWSWORTHY EVENTS • Brazil follows Taiwan closely but most of OF THE YEAR the shipyards are experiencing difﬁ culties due to • The Philippines are still the leader of the “Rest of the beleaguered Petrobras. the World” shipbuilding scene with about 50% of • Vietnam remains in fourth position thanks to the the total orderbook shared between Hanjin Subic strong orderbook secured by Hyundai Vinashin (two thirds) and Tsuneishi Cebu (one third). (HVS). However, Samsung cancelled its plan to • Taiwan stands in second position thanks to open a new shipyard in Vietnam to build bulkers the large order of containerships placed by and tankers. Evergreen at CSBC.

26 BRS - 2016 ANNUAL REVIEW SHIPBUIILLDING

Orderbook rest of the world end 2015

CANADA

AUSTRALIA

EGYPT

INDIA

INDONESIA

ARGENTINA

BANGLADESH

IRAN

UNITED STATES

VIETNAM

BRAZIL

TAIWAN

PHILIPPINES

dwt 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000

l • • Crowley Maritime commissioned the first two the back of historically low asset prices and a vessels of its new generation 50,000 dwt product recent memory of strong markets. Asset prices The fall in energy carriers in a move marking the re-invigoration and were indeed low and the investors’ move was expansion of the US-built, US-flag ‘Jones Act’ understandable. The problem is just a question prices now tanker fl eet. The ships are built by Philly Shipyard, of proportion and clearly the industry failed to be threatens many the former Aker Philadelphia Shipyard, based reasonable in that respect. To save their stake, the economies on an optimized South Korean design. These same shipowners did not hesitate to sell assets at 54,000 cbm tankers distinguish themselves discounted prices, fearing that they would have environmentally with their pre-fi tting for a future to accept larger losses later on, and this fueled switch to LNG-fueled propulsion. Running on LNG the fall. The Philippines is one option to comply with the max 0.1% sulphur The BDI already fell to record lows by end 2015 still lead the limit in the North American Emission Control (around 500) and in early 2016, it continued to fall “Rest of the World” Area (ECA). Crowley Maritime also implemented even further. Rates hit record lows for almost all shipbuilding scene a project for 2 x LNG-fueled 26,500 dwt con-ro containership sizes. The tankers’ relatively good vessels to serve the Puerto Rico/US mainland performance might be short lived. trade. The ships were contracted from VT Halter Marine of Pascagoula, for completion in 2017 The fall in energy prices which seemed to be and they will be equipped with MAN two-stroke, a good thing now threatens many economies. dual-fuel propulsion engines. IMF forecasts for 2016 are bleak. Banks’ confi dence in shipping is in the balance. Massive scrapping in almost all segments would Perspectives for 2016 be needed to re-balance the markets. With the exception of tankers and a few niche markets, 2015 ended morosely. The shipping and shipbuilding industries struggled with overcapacity at a time when worldwide growth is under pressure and sea-going cargoes are diminishing, and this brought participants in all sectors into trouble. This fragmented industry was not able to regulate itself. 2012- 2013-2014 saw the arrival of fi nancial shipowners prepared to invest massively on

BRS - 2016 ANNUAL REVIEW 27 SHIPBUIILLDING

New orders Deliveries

Million dwt Million dwt

200 180 185.9 161.8 180 160 149.9 152.3

160 149.6 147.4 140 140 131.1 120 114.6 106.8 120 100 104.7 100 94.2 91.6 88 100 93.6 80 80 60 60 54.5

39.6 40 40 40 20 20 30

0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016

New orders Prediction min Prediction max Deliveries Prediction min

NEW ORDERS reckon that actual deliveries in 2016 could reach less than about 100m dwt. New orders in 2016 are likely to be minimal, given the distressed dry bulk, containership, general cargo and offshore freight markets and adding CANCELLATIONS in the major difﬁ culties to ﬁ nance new shipping In view of the disastrous dry bulk freight market, investments. Considering the widening price we expect that many shipowners will not be able gap between newbuilding and second hand to take delivery of their bulkers in 2016. Many tonnage, we do not expect many orders in the orders will be cancelled by mutual agreement dry bulk segment, except the few that will be or as a consequence of shipyards being late. pushed by Vale and the Chinese authorities to There will also be some cascade effects on state-owned Chinese shipyards (see above). On the shipyards themselves, unable to face that the container market, after an exceptional 2015 accumulation of cancellations which could on the ordering front, the race to order very large hurt them badly and lead them to closure. By containerships (VLCS) is unlikely to continue. taking 2013 as a benchmark, we expect that The sole segment that might still trigger interest cancellations could amount to anything between is tankers but the market is already well covered 30m and 40m dwt in 2016. after the 2014-2015 mini-boom. There should be also some interest for special and complex ships DEMOLITIONS which are generally otherwise too expensive to The demolition market has been sustained by be purchased. We expect new orders to drop the remarkable and unusually high scrap prices substantially compared to the previous 3 years which reached a substantial fraction of new steel (2013/2014/2015). By taking 2009 and 2012 as prices. With the sharp reduction in new steel benchmarks, we estimate that not more than prices, demolition prices (by lightweight ton) about 30m to 40m dwt only could be ordered fell by about 30% throughout 2015 to around in 2016. $270-320 per ldt for bulkers, $310-350 per ldt for tankers and $300-330 per ldt for containerships. DELIVERIES In spite of the low dry bulk freights, all told, the Theoretically, deliveries should reach about level of demolition remained surprisingly low in 160m dwt in 2016 given the active level of 2015. In fact, average demolition ages remained contracting in 2013 and 2014. However, high and very close to the 5th special survey cancellations and slippage will dominate and we when the ships are about 25 years. Demolition

28 BRS - 2016 ANNUAL REVIEW SHIPBUIILLDING

Cancellations Demolitions

Million dwt Million dwt

45 70

40 38.7 59.4 60 36.3 60 40 35 31.2 50 30 44.9 30 41.4 40 25 23.2 35.8 37.3 32.9 20 18.4 29.5 16.9 30

15 12.7 20 9.5 10 13

10 5

0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cancellations Prediction min Prediction max Demolitions Prediction min

prices should continue to fall in 2016 given the decline in steel prices. Decreasing demolition prices could tempt shipowners not to scrap but the prevailing low freight rates (especially in dry bulk) and the high cost of a lay-up alternative are likely to favour massive demolition. We estimate that levels beyond 60m dwt of demolition could take place in 2016.

NEWBUILDING PRICES As a consequence of less demand, increased competition between builders and larger price gaps with second hand opportunities, newbuilding prices in 2016 will be under extreme pressure. The situation will vary according to the shipbuilding area (Japan versus China and Korea) and shipyards (the Big 3 Cruise builders in Europe). But the shipyards which absolutely need to take minimum orders to run their production and want to build dry bulkers, containerships or enter into the tanker markets will have to accept further price reductions compared to 2015 levels which could reach about 10% in China and Korea. Shipbuilders will have also to improve their payment terms and help shipowners in arranging equity and post-delivery ﬁ nance. While they will face some increased building costs due to new rules (HSCR and Tier III), shipyards will to offer better terms to shipbuilders for their be helped by large reductions in steel prices supplies. Depreciation of local currencies, such (in 2015, steel prices went down from about $658 as the Chinese Yuan and the Korean Won which to about $425 per ton) and increased competition has already lost 10-15% since 1 July 2014, will between equipment makers able and willing certainly beneﬁ t shipyards too.

BRS - 2016 ANNUAL REVIEW 29 Abigail N, 297,430 dwt Ore Carrier (VLOC), delivered in 2009 by Japanese shipyard Universal Tsu, operated by NEU Seeschiffahrt

30 BRS - 2016 ANNUAL REVIEW Dry bulk

Survival of the Fittest

Rates approached record lows as weakening demand and resilient supply created a perfect storm in dry bulk markets.

BRS - 2016 ANNUAL REVIEW 31 DRY BBUULK CHARTERING

Mehmed Faith, 180,025 dwt Bulk Carrier, delivered in 2015 by Hanjin Busan shipyard, operated by Ciner Shipping Shipping stock performance Index 100 on 1 Jan 2015

160

140

120

100

0 J F M A M J J A S O N D

Safe Bulkers Golden Ocean Scorpio Diana Star Bulk Navios Maritime Holdings

•l CHARTERING sentiment-driven and likely related to big players’ Spot rates for paper strategies as we saw some speculative fixtures and many conflicting rumours flying Capes fl uctuated Capesize around. At that time there was more excitement around vessel for Q4 and FFA values soared to nearly $18,000. Bearish forecasts from the end of last year Meanwhile, fortunate owners were able to lock in operating costs materialised fully as 2015 proved to be a very short period rates in excess of $15,000. in 2015 challenging year in most commodity-related markets. The structural change in the Chinese Market fundamentals came back into effect later on economy continued and this was characterised and the year ended in the exact same way it started: Iron ore by slower growth and oversupply in most heavy with bleak sentiment and levels below operating industries. Shipping companies operated in expenses. The fall in rates was exacerbated by accounted for a tough environment and confidence in the the stoppage of Samarco due to dam failure which 66% of demand sector evaporated steadily, as illustrated by the removed 3m tons of Brazilian iron ore exports for for Capes performance of shipping stocks (see graph above). December. Contrary to previous years, there was The Capesize spot market was no exception and no Q4 spike and overall, the C5TC averaged a mere rates fluctuated around vessel operating costs $8,127 in 2015. The Atlantic basin outperformed the most of the time. A distinct lack of volatility was Paciﬁ c (C8 average $8,282 vs C10 average $7,549) observed in the first part of the year, which is despite increasing amounts of iron ore cargoes characteristic of a depressed market. Fixing levels from Australia. were very static and at times it felt like the only thing owners and charterers had to agree on was the laycan, e.g. between February and April the Steel and Iron Ore C5 route was within 15 cents of $4.40 for 89% of The steel industry remained pivotal for the the time. Capesize market as iron ore alone accounted for Counter-intuitively, the market revived in the 66% of demand through the year. As such, 2015 summer as an increased flow of iron ore from marked a turning point as we saw global crude Brazil caused a squeeze and pushed rates steel production record an annual decline for sharply higher. The Capesize 5TC recorded a the ﬁ rst time since 2009, albeit marginal at -2.8% high for the year of $20,601 in early August, led (World Steel Production graph). China played a by improvements in C3, which reached levels in big role in these developments as the oversupply the $16’s. Arguably these gains were also largely in its steel industry became apparent and major

32 BRS - 2016 ANNUAL REVIEW DRY BBUULK

CHARTERING

l • World Steel Production 2015 saw global

Million tons steel production

1,800 20% decline for the fi rst time 1,600 15% since 2009 1,400

1,200 10%

1,000 5% 800

600 0%

400 -5% 200

0 -10% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

World Steel Production Growth

mills were faced with quickly shrinking demand, Simon LD, 179,816 dwt Bulk Carrier, collapsing product prices and consequently heavy delivered in 2014 by Tianjin Xingang shipyard, losses ($4.42bn for the ﬁ rst 3 quarters). A number operated by Louis Dreyfus Armateurs of furnaces were shut and the central government signalled that more closures are likely in the near future. On the bright side, seaborne iron ore prices continued to drop and this helped imported material gain further market share from domestic production, which in many cases was being subsidised in order to boost employment. All in all, Chinese iron ore imports increased by 2.2% to 953m tons. Meanwhile, the exporters’ market continued to consolidate as iron ore majors ramped up production, seeking economies of scale and bigger market shares. While Brazil’s export volumes increased moderately to 366m tons (from 344m tons), Australia posted another record year at 772m tons (from 728m tons) – an alarming development for ton-mile demand bearing in mind Australia’s geographic proximity to its main markets. Shipowners’ hopes were linked with the launch or ramp-up of fresh projects such as Roy Hill, Anglo American’s Minas Rio and Vale’s Serra Sul in the near future. Nevertheless, it remains questionable how sustainable global production is as oversupply pushed prices dangerously close to marginal production costs (TSI 62% reached as low as $37 per ton in December). In this context, it came as no surprise that Anglo American decreased its South African production guidance by 10m tons while cutting two-thirds of its global workforce.

BRS - 2016 ANNUAL REVIEW 33 DRY BBUULK CHARTERING

Capesize Fleet Growth 2015 Optimal Capesize Speeds and Rates

Million dwt $/day Knots

4 1.50% 40,000 14.5

3 35,000 14.0 1.00% 2 30,000 13.5

1 0.50% 25,000 13.0

0 0.00% 20,000 12.5 -1

15,000 12.0 -2 0.50%

10,000 11.5 -3 -1.00% -4 5,000 11.0 2011 2012 2013 2014 2015 -5 -1.50% - 10.5 J F M A M J J A S O N D J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N

Additions Deletions Net Growth C4TC Optimal Speed

•l Fleet Developments Vale’s strategy to control its exports on designated % 48 2015 defied expectations in terms of Capesize ships, especially since Valemaxes were offi cially allowed to call at several Chinese ports earlier Of ships that were supply as the shipping industry started to adjust to the looming oversupply in the sector. Demolition in 2015. due for delivery levels picked up considerably despite collapsing Furthermore, low bunker prices continued to give in 2015 did not scrap prices. A total of 87 ships (14.3m dwt) were owners an incentive to keep vessel speeds high hit the water torched and the fleet above 120,000 dwt stood and this naturally increased supply. This effect at 1,516 vessels (296.8m dwt), fl at from last year was more pronounced in higher markets (Optimal (Capesize Fleet Growth 2015 graph). There remain Capesize Speeds and Rates graph). 233 vessels (45.7m dwt) over 15 years old and In conclusion, the Capesize market had a diffi cult considering the depressed state of the market, year in 2015 as rates approached historical lows. these now constitute prime scrapping candidates. The general consensus for 2016 is that the market Furthermore, the slippage effect observed in the is going to be even worse, meaning that many last few years continued in full force as 48% of the owners and operators will be put to the test. Some ships scheduled for delivery in 2015 did not hit hope can be found in slower fl eet growth although the water due to various delays. As such, “only” fundamentals remain weak and it appears that the 16.5m dwt were added to the fleet, the lowest bear market will stay for a long time. amount since 2008. In contrast to last year, ordering levels plummeted as cash-rich investors preferred to play the second Babycapes hand market. As a result the orderbook shrunk to Last year we said Babycape design (95,000- 45.3m dwt or 15.3% of the active fl eet. This being 120,000 dwt) was an optional size that charterers said, expectations are for slippage to continue and would consider as long as they got a better return it is likely that many future deliveries will be spread using such design. In 2015 due to a narrower further through time or get cancelled. spread between the Capesize and Panamax Major news came towards the end of the year with TC levels, Babycapes were the last option for 30 Valemaxes being ordered by Chinese investors/ charterers in a low market environment, except owners. It is uncertain when these ships will be for the identifi ed dedicated trades from Australia delivered but they will undoubtedly claim a large where these ships were still a must. proportion of Brazil’s iron ore exports and have The fleet size did not change over the course an adverse effect on the market. This fi ts well with of the year and this hybrid niche is still made

34 BRS - 2016 ANNUAL REVIEW DRY BBUULK

CHARTERING

Global Coal Imports

Million tons

1,400

1,200

1,000

800

600 of 150/160 units. Out of the 11 newbuildings 400 delivered last year, only 2 ships “joined” the spot fleet, which shows that this design is very often built for specific trades instead. The orderbook 200 for 2016 - 2018 is almost empty with only 14 ships on order. The fleet remains in the hands of few - operators only, with 6 big names predominantly 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 controlling more than 50% of the units. While 2014 saw a rush for this size of ship, in 2015 operators became pickier about which ships they wished to fix as well as the cargo and trading allowed by head owners. One reason was that this hybrid size was seen to be more attractive in a volatile environment that slowly disappeared at the l • end of the year. Panamaxes The famous Imabari 95 or Tess 98 designs which Lower coal volumes There was very little change in Panamax sentiment had been traded at a signifi cant premium in 2013 in 2015 as fundamentals remained weak and rates were blamed for and 2014 struggled to justify their value in the remained around vessel operating costs most of the weak market second half of 2015 and the race for the 100,000 - the time. In a market affected by oversupply, it 120,000 dwt slowed down. was no surprise that Q1 saw a very low market, On the demand side, we saw more cargoes quoted although owners had high hopes for the South basis a wider size range in order for charterers to American grain season in Q2. Unfortunately, these give themselves the option to go for the cheapest failed to materialise as there were just too many freight available among the various sizes. It was ships around and charterers were able to easily not uncommon to see stems of 70,000 tons up to pick off ballasters at levels around $12,000 + 100,000 tons. $200,000 Ballast Bonus. Although rates increased Mineral cargoes remained the two most common marginally in June, the Panamax 4TC averaged commodities shipped on Babycapes. In the only $5,184 in Q2 and this, together with free- Pacific, the major exporting ports were Port falling bunker prices, meant that operators who Hedland and Newcastle with 14m tons (flat to had booked forward cargoes realised healthy 2014) and 7.5m tons (flat to 2014) exported. In profits in this period. Right when everybody the Atlantic, about 14.5 cargoes were moved expected the market to crash again, we saw out of Brazil and Argentina (minerals + grains) or an unlikely turnaround fuelled primarily by the about 14m tons (down 2m compared to 2014). prolonged grain season. Record harvests and 12.5m tons were moved from the US Gulf and US depreciating local currency stimulated sales East Coast compared to around 7m in 2014. Worth and ECSA Fronthaul cargoes remained plentiful mentioning are the largest ever grain shipment through the summer. With an insuffi cient number from Western Australia, which was performed on of ballasters, charterers were forced to take ships a 115,000 dwt in November 2015 and the new from the Atlantic and as a result transatlantic volumes out of Cape Preston that rose from 0 to rates pushed signifi cantly above the Pacifi c with 3.3m tons. the differential reaching $5,221 at its maximum In 2016 we expect Post-Panamax and Babycape ($11,495 vs $6,274). Supported by a bullish owners will face similarly gloomy markets as Capesize market, the P4TC soared to a peak of Capesize and Panamax, will be after arbitrage $9,403 in July. This did not last long, however, possibilities. and the year ended on a negative note as grain

BRS - 2016 ANNUAL REVIEW 35 DRY BBUULK CHARTERING

Panamax Deliveries 68,000-84,999 dwt

Million dwt

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 2012 2013 2014 2015 2016 2017 2018 Pre 1985

Delivered On Order

•l volumes ex US proved insuffi cient to lift the market. struggles to catch up with increasing supply. It -29% Spot tonnage outnumbered available cargoes and remains uncertain how the new Panama Canal several ships were idling unemployed in November will affect trade but it is likely going to increase the Decline and December. competition between Babycapes and Panamaxes. in Chinese Many blamed this weak market on declining On the bright side, recent changes in Argentinian coal imports global coal trade volumes (Global Coal Imports policy and the removal of tax on grain exports could spark more activity in the area. in 2015 graph). China, which was once regarded as a huge potential importer of coal, reported a 29% drop in imports for January-November 2015, Handysizes and Supramaxes 11 at 186m tons. Meanwhile, India declared its willingness to develop domestic production and The year 2014 ended on a very uncertain note. Number of cut all imports by 2017, except for those power It was certainly not bright but few were able to Babycape plants located near the coastal area. foresee the endless downward spiral. deliveries Undoubtedly another reason for low rates is vessel We were forecasting then challenging times ahead, in 2015 oversupply, which seemed to worsen in 2015. The mainly due to the large infl ux of new tonnage. fleet grew by 4.6% and comprised 2,083 ships Regretfully we were not wrong. The fi rst quarter of (160.3m dwt) with an average age of 9 years. With 2015 offered no respite. an orderbook of 23.5m dwt this trend is likely to Zero continue in the next couple of years (Panamax Over the fi rst 2 months, time charter rates declined India’s desired Deliveries graph). This could explain why period from $9,200 for Supramaxes and $7,200 for coal imports rates collapsed towards the end of the year with Handysizes to $5,500 and $5,000 respectively, modern Kamsarmax tonnage achieving around then rebounded after Chinese New Year to $6,000 $6,000 for one year. Many owners were becoming and $5,500 and maintained roughly those levels desperate to find employment and conceded throughout the fi rst part of the year. This more or wider optional periods or considered alternative less refl ected the slow coal exports from Indonesia strategies such as pools, which gained popularity (about 35 ships per week in January to about 50 despite not giving any earnings guarantees. in April) and nickel ore exports from the Philippines The index averaged $5,561 throughout the year, (about 20 ships per week in January/February to sharply lower than what the FFA curve predicted at 30 in April). the end of 2014: $7,500. Looking forward, this low Most people were ready to give up and were market is likely to stay in the near future as demand watching the market as a daily routine when a

36 BRS - 2016 ANNUAL REVIEW DRY BBUULK CHARTERING

Tenro Maru, 58,000 dwt Supramax bulk carrier, Tess-58 Aero Line design, built 2016 at Tsuneishi Heavy Industries (Cebu) Inc. Ordered by Kambara Kisen Co Ltd

l • sudden hike in Brazilian iron exports from June may be up for some owners. Bankruptcies have swallowed the Capesize and Panamax capacity. been limited so far and, apart from Daiichi, largely The year for FFA Consequently, the hunt for Panamaxes and restricted to smaller shipowners. But this raises the Supramaxes to cover the grain shipments pushed critical question of counterparty risks, which will no has been one of the rates up from $4,000 for fronthauls to $5,900. This doubt be the main feature of 2016. most depressed bullish context coupled with cheap bunker prices in recent memory attracted ballasters from Asia. Alas, from September the market went from bad to The FFA market in 2015 worse. Despite stronger Indonesian coal exports (about 50 ships per week in November and The Rise of the Bears December), and a revival of Chinese steel exports 2015 produced a more challenging year for the in November and December (after a very slow FFA market, illustrated by y-o-y volumes (for Cape, October), the infl ux of new tonnage put massive Panamax and Supramax) cumulatively decreasing pressure on the market. Grain shipments were by 24,566 lots (1 lot = 1 day or 1,000 tons). With insuffi cient to maintain the rates in positive territory. the indices averaging at such low levels, the profi t to be made in going short initially seemed This, coupled with the slow Chinese economy much reduced and thus less appealing. Yet it did and fading coal imports, meant the year closed not take long for the concept of ‘cheap’ across at $4,700 for Supramaxes and $3,950 for the curve to become worthless, with no bottom Handysizes. These rates had not been seen in to the market in sight. Whilst volumes overall still 30 years. In our 2015 review we said that the key remained healthy (1,127,244 lots in total across the would be ship scrapping and lay-up. three sizes), and high volatility drew in many active Scrapping will be difficult to achieve, as the paper players, the year can only be summed up average age of the Supramax fleet is 7 years. as one of the most depressed in recent memory. For Handysize, with the average age at 11 years, On the Capesize FFA curve, the disappointing trend prospects are a little more encouraging. of Q4-14 continued into Q1-15. During this period, we Lay-up looks more within reach. Early 2016, saw a low peak of $7,712 on the index. The theme rumours were plentiful about ships being laid up of the year quickly became apparent, as market (or enquiring on the conditions) in Greece or off participants were reluctant to buy into any optimism, some Indonesian islands. This will be the only and a contango scenario struggled to gain any solution in the light of the 87.6 million dwt of new traction even as we approached March. Q2 saw little supply expected to hit the tides in 2016. But time change in terms of rates, but volumes did pick up,

BRS - 2016 ANNUAL REVIEW 37 DRY BBUULK

SECOND HAND MARKET

•l and we saw a 25% y-o-y increase for the quarter, SECOND HAND MARKET Capesizes saw as players fi nally began to build their positions for the year. The physical market saw a strong push in a substantial Q3: oil prices were down on Q2, aiding time-charter Capesize reduction of their rates, scrapping of Capesize vessels was signifi cant, At the end of 2014, we anticipated that the second hand and there was a notable physical tightness in the Atlantic. These factors and the resulting rates prospects for 2015 would remain dark for this values in 2015 provided the necessary fuel to maintain healthy segment given the anticipated slowdown in trading volumes, and numbers on the derivative demand, combined with an increase in tonnage and this will supply. Our forecast was that we were unlikely to likely accelerate increased (Q3 settled at $11,578, although this was an 8.5% decrease y-o-y). The C4TC ended see perceptible improvement in freight rates or in 2016 up peaking at $19,498 in early August, although second hand prices. these levels were swiftly eroded back down to the This indeed materialized and values of second hand similar lows of Q1 for most of Q4 (reaching an index Capesizes went down substantially throughout trough of $3,815). Throughout this decline, trading 2015. Record scrapping levels in this segment was nonetheless continued to progress (November not enough to maintain supply at reasonable levels generated 60,179 lots), and this was probably against a weaker demand. due to the volatility witnessed during the period. If we use as our yardstick the value of a fi ve year Short, sharp spikes were ever present as bursts of old 172,000 dwt vessel, built in Japan, assessed positive sentiment contrasted heavily against the each week by the Baltic Exchange Sale & Purchase unshakeable surplus of tonnage to cargoes. Assessments (BSPA) we note that values went The Panamax index opened the year in a down by about 34% over the year. From early downward spiral as it fell from $6,591 to $3,418 by January to early June, prices lost about 25% with a February opening. During Q1, volumes reduced by slight uptick of about 12.5% until end August when 29,095 lots y-o-y (-24%), highlighting the waning values plateaued until early October, before going interest on the curve. Thankfully Q2 and Q3 saw down about 21% until year end. a rise in levels on the physical market (largely due We note the following market movements for this to a continuous fl ow of cargoes ex ECSA). As for type of vessel, built in 2010 (in $m): the Capesizes, we saw a peak at the beginning of August: $9,368. This optimism brought increased 05/01/2015 39 24/08/2015 32.9 trading and Q2+Q3 volumes were up by 9.5% y-o-y 02/03/2015 34.4 01/09/2015 32.7 (a total for the combined period of 220,815 lots). In 01/06/2015 29.2 02/11/2015 31.1 contrast, Q4 then saw these gains stripped away 13/07/2015 28.9 21/12/2015 25.8 as the index slipped back to a year low of $3,257, 20/07/2015 29.1 pulling levels on the derivative down with it. For older vessels, at the beginning of 2015 a ten year Activity on Supramax FFAs was down y-o-y by old Capesize built in Japan was worth region $25-26m 9%, as players understandably chose to trade falling to about $12-13m by the end of the year. on the more volatile Capesizes and Panamax curves. Despite this, the S6TC still ranged 72 sales were reported on the second hand market between $9,751 and $4,698 throughout the year, for ships over 100,000 dwt. Among these, we noted and this generated enough interest for a total of four VLOCs and one Newcastlemax. 104,205 lots to be traded. About 96 Capesize were sold for demolition when As we enter 2016, the inescapably low levels on only about 24 were scrapped in 2014. It is a record the forward curves point strongly to a bearish year for demolition, but many more units need to be sentiment for 2016. This aside, one prominent demolished to restore some sort of balance between change that will probably become significant is supply and demand. the much-debated transition to trading C5TC FFA In 2015, Capesizes saw a substantial reduction contracts. At present, this movement has still failed of their second hand values and it seems that this to really take off but with much of the underlying movement will further accelerate in 2016. A general physical market now largely operating from it, slowdown and transformation of the Chinese many will be expecting 2016 to begin to see the economy being the main factors. necessary jump to the new, index-linked FFAs. Ever weaker prices will likely prompt opportunistic cash rich buyers to purchase cheap modern tonnage.

38 BRS - 2016 ANNUAL REVIEW DRY BBUULK

SECOND HAND MARKET

Kypros Sky, 77,100 dwt, bulk carrier, built 2015 by Imabari Shipyard, during her sea trials, operated by Safe Bulkers

l • (and long feared/expected) bankruptcy in the Panamax to Handysize guise of Daiichi Chuo Kisen Kaisha. The result % was devastating for dozens of owners, both -32 The second hand dry bulk market experienced an Japanese and foreign. They had their modern ships Drop in Capesize “Annus horribilis” which unfortunately looks set to redelivered with immediate effect or had to accept continue. values in 2015 drastically renegotiated / lower “index linked” TC The poor-to-dismal freight levels which prevailed rates. The immediate effect was that a large number during 2015 are considered to be the worst for of fresh sale candidates, most of which were very 30 years. On December 16th, the BDI recorded its modern, ﬂ ooded the second hand market, putting $13.5m lowest ever value of 471 points, mainly due to: additional pressure on vessel values. The year-end value • Tonnage oversupply building up over the past By the end of the year, asset values had dropped of a 5 year old years, so dramatically, in all size and age segments, Supramax • The Chinese economic slowdown and that most players in the dry bulk market switched environmental considerations affecting the coal from being prospective investors and bargain trades, hunters into survival mode, hoping to live to fight another day. 96 • Excessive shipbuilding capacity. Number of Asset values as at the end of 2015 compared to These factors created the conditions for the those observed at the end of 2014: Capesizes perfect storm which dragged both asset values and sentiment to all-time lows throughout the year. (Estimated Values for Japanese, Korean and top scrapped in 2015 tier Chinese yards; for units built at lower-quality In addition to the above, the steady ﬂ ow of second Chinese yards, a discount of at least 10-15% hand tonnage placed for sale, during the first should be expected.) 9 months of the year turned into an “avalanche” during the last quarter of 2015. With their capital reserves depleted, many owners turned to asset sales in order to raise much-needed cash for servicing debt and future commitments. This compounded the negative effect on an already depressed second hand market. In late September the Japanese shipping community experienced yet another high profile

BRS - 2016 ANNUAL REVIEW 39 DRY BBUULK

SECOND HAND MARKET

Dry bulk carrier S&P prices - 5 year old ships

million $

2011 2012 2013 2014 2015 0 JMMJSNJMMJSNJMMJSNJMMJSNJMMJSN

Capesize Panamax Supramax

•l Panamax-Kamsarmax Values end 2015 worth close to $15m for Chinese-built vessels, $8.5-9m (74,000-82,000 dwt) whereas Japanese- and Korean-built tonnage At the end of 2015, a 10-year-old Panamax bulk commanded a price of about $18m, correcting by The value of carrier was worth approximately $8.5-9m, a about 22% over the year. a 10 year old huge drop of about 40% in value over 12 months. The market will only improve if a number of factors Panamax by end Similarly a 5-year-old was worth almost $14.5m, come together: approximately 27.5% less than at the end of 2014. of 2015, a drop of • Owners should continue to refrain from placing For prompt delivery (3-6 months), the Koreans and new orders. Japanese built Kamsarmax re-sales, based on 40% y-o-y • Existing newbuilding programs should be re- NSF contract and 20/80% payment terms. Prices structured through cancellations and delayed corrected by about 18% to reach $24.5-25m. deliveries. H/max-Supra-Ultramax Values end 2015 • Shipyard capacity needs to be further (43/50,000-52/55- 58,500/60-64,000 dwt) reduced, permanently (yards should not just be mothballed but totally dismantled). At the end of the year, the price of a 10-year-old H/ max bulk carrier (50,000 dwt) stood at $8-8.5m, • Increased scrapping will weigh positively but shedding about 40% of its value over 12 months. this needs to accelerate. Existing tonnage of Slightly less dramatically, the value of a 5-year-old a “certain age” should be removed from the Supramax (58,000 dwt) plunged by about 34% market. The jury is still out as to the defi nition of over the year to reach about $13.5m. At the same “certain age”. One of the big names, controlling time “resale” prices for an Ultramax (63,000 dwt) a modern fl eet, suggests as young as 15 years dropped to about $20-20.5m, losing about 33% of old while others simply agree to the general idea their value over the period. but do not wish to commit further by scrapping tonnage built 1996-2001. Handy (28,000-43,000 dwt) - Values end 2015 Demolition / Recycling market A 10-year-old Handysize (28,500 dwt) bulk carrier was worth about $6.5-7m at the end of 2015, The recycling market of dry bulk carriers during a major correction in value of about 36% over 2015 was marked by: 12 months. During the same period, the value of a • an oversupply of tonnage offered/sold for 5-year-old ship of the same size (28,500 dwt) took recycling, a serious hit of about 44% to reach $9m. At the • imports of cheap Chinese steel billets and same time, “resale” contracts (37,000 dwt) were fi nished products,

40 BRS - 2016 ANNUAL REVIEW DRY BBUULK

SECOND HAND MARKET

Bulk carrier demolition prices

$/ldt

600

550

500

450

400

350

300

250

200

150 2011 2012 2013 2014 2015 100

JMMJSNJMMJSNJMMJSNJMMJSNJMMJSN

Indian subcontinent China

• currency issues (Indian Rupee vs $) • a reduced number of demolition yards in India (it seems that by the end of the year the number of yards operating in Alang/India was greatly reduced when compared to those active over the whole of 2015) This led to a signiﬁ cant weakening of demolition prices across all markets. Despite the above negative factors, the total dwt “removed” was about 29m tons (about 379 units of all sizes from handy to cape inclusive), representing an increase in demolition activity of about 81% in terms of dwt and about 31% in terms of number of vessels. The breakdown of the above figures reads as follows: • Totals for Handy to Kamsarmax (25-85k dwt): Lavinia Oldendorff, 207,562 dwt Bulk Carrier, 283 vessels / 13.5m tons dwt delivered in 2014 by Hyundai Gunsan shipyard, • Totals for Capesize (85-250k dwt): operated by Oldendorff Carriers 96 vessels / 15.5m tons dwt Demolition Prices end 2015: India, Bangladesh & Pakistan stood at $290-280/LT (-28% to -31% from $400-405/LT end 2014) whereas China dropped to $130/LT (-41% from $200/LT at end 2014). So, is now the right time to invest in second hand Having said that, there is a saying: “now is the tonnage or should one wait? The expected dwt to time when opportunity knocks…” After all, “cash is be delivered over the next 18-24 months does not king” and, as the old Greek shipping motto goes allow for much optimism. We would recommend a “Cash & Ships” will eventually offer huge rewards policy of restraint, and patience, preserving cash to those who are brave, willing and capable of reserves for the next 12 to 18 months. investing in dry bulk tonnage over the next months.

BRS - 2016 ANNUAL REVIEW 41 Kokkari, VLCC, built 2008, 297,538 dwt (Samos Steamship Co.)

42 BRS - 2016 ANNUAL REVIEW Tanker

A hat-trick?

2015 has been the best year since 2008 for Crude and Oil products transportation. Most of the Trading houses had a record year and owners’ returns reached a 7-year peak.

On a year-on-year basis, the progression of the Tanker Baltic Index was relatively moderate (+6% for the ‘Dirty’ Index and +5% for the ‘Clean’ Index), but thanks to a decrease in bunker costs of about 50%, owners’ Daily Net Returns (DNR) rose dramatically for all routes.

BRS - 2016 ANNUAL REVIEW 43 TANKKER CHARTERING

Houston, VLCC, built 2012, 299,999 dwt (Dynacom Tankers Management Ltd.)

•l CHARTERING VLCC China continued Happy days in 2015 for the VLCC market: after to build strategic The healthy spot market logically supported several years of struggling, owners managed to petroleum time chartering and projects: +20% for Crude Oil achieve close to their 2008 earnings. Tankers and + 4% for Product Tankers. Charterers On the MEG/Far East benchmark, DNRs reached reserves had to cope with rising hire rates and longer periods an average of $67,765 this year versus $89,992 in but battled to limit their exposure to 24 months. 2008, and more than doubled compared to 2014 The prospects for 2016 look rather bright: when VLCCs yielded an average of $25,000/day. • IMF analysts forecast that World GDP will China continued to build strategic petroleum progress by 3.6% (3.1% growth in 2015). reserves and the Chinese government allowed • According to the IEA, crude oil prices should more local refi neries to import crude oil and export remain low, as supply should still exceed product oil (China oil imports rose 8.8% whilst the demand until the end of the year. amount of crude oil imported for local refining • The Chinese refi ning capacity will increase by reached about 73m tons out of the 335m imported 3.6% (e.g. +500,000 bbls/day), increasing the by China in 2015). At the same time relatively need for foreign crude oil and the capability to strong refi ning margins encouraged Asian refi ners export middle distillates to Asia and Europe. to boost their output as much as possible. The • The US has finally lifted its 40-year ban on crude oil Atlantic surplus therefore continued to domestic crude oil exports. move East, increasing activity on the Caribbean- • Iranian sanctions have recently been lifted. Asia route, all of which led to increased ton-miles Although ship deliveries will increase the fl eet size and consequently tighter workable tonnage by more than 8% in 2016, the market could absorb availability. relatively easily this surplus if activity remains at UNIPEC remained the most active Charterer of present levels. crude oil and fi xed more than 800 VLCCs this year. On the other hand, newbuilding deliveries remained below average for the second consecutive year. The fleet expanded by only +2.7% with 20 newbuildings and 3 deletions compared to +4.4% between 2010 and 2014.

44 BRS - 2016 ANNUAL REVIEW TANKKER CHARTERING

Nissos Therassia, Aframax, 2015 built, 114,332 dwt (Kyklader Maritime Corp.)

l • Moreover, the formation of VLCC chartering The MEG market was helped by the requirement of entities controlling 1/10th of the global ﬂ eet, as a 20-ton crane for vessels loading Basrah Heavy VLCC owners well as approximately 13 ships employed for Crude Oil (1 Suezmax out of 3 is equipped with storage, led to fewer ships being controlled this crane: Basrah Heavy cargoes were paid an achieved close by fewer players. Owners were often able to average WS10 points more than other Middle East to their 2008 strategically plan the employment of their ships Gulf cargoes). earnings in 2015 and limit the competition (there were very few Overall, the Suezmax market remains healthy and occasions where more than a handful of ships owner sentiment is that the 2015 momentum will were competing for the same cargo). be carried forward. Unfortunately the prospects for 2016 are not as bright: the VLCC ﬂ eet is expected to expand by 6.6% to 694 ships, as, net of deletions, 41 new VLCCs will Aframax hit the market. In addition, the end of sanctions on Iran should bring another 37 average-aged units Owners continued to see healthy returns in the back into play. This will probably prevent VLCC North and Baltic areas. Rates slightly moved up: freight rates from performing as well as in 2015. TD17 (100kt Primorsk/Rotterdam) averaged at WS92.5 in 2015, 3.5 points more than in 2014. Owners’ average earnings reached $28,500 per Suezmax day, a 40% increase compared to 2014. 2015 was a very pleasant surprise for Suezmax The Mediterranean was firm as well, with the owners. DNR average at low-mid $30,000’s even though Libyan exports have been minimal for the whole Baltic index TD20 (WAF/UKC) rates averaged year. Steady demand from the Black Sea, mixed Worldscale (WS) 84 with a standard deviation of with the usual delays in Trieste and the Turkish only 13 (min value WS51, max value WS128) for an Straits also contributed to these improved results. average DNR of $43,330/day. The East of Suez market trends were driven by TD6 (Cross Med) was equally firm: the yearly local demand but also extra volumes from storage average was WS91 (DNR $46,397), compared to (taking ships out of the supply) and arbitrage last year’s WS82. opportunities coming from the West on big ships East of Suez, the MEG/SPORE yearly average (needing transshipments on Aframax). The usual reached WS83 and MEG/UKCM stood at WS48. summer spike was higher than expected, pushing

BRS - 2016 ANNUAL REVIEW 45 TANKKER CHARTERING

•l DNRs over $40,000 in the MEG and close to MR1 $70,000 in the Far East. $70,000 Once again the MR1 (35-41,000 dwt) faced The Far East market remained more attractive Average DNR strong competition from the larger MR2 (45,000- for owners than the MEG but both markets’ 56,000 dwt) tonnage and also LR1/2 as cargo stems for Aframaxes performance was 50% higher than in 2014. in the Far East are getting increasingly bigger and often going long haul (MED/EAST or CONT/WAF). Yet, altogether, the ‘Handies’ enjoyed a very positive year on LR1 the typical western domestic trades Inter-MED, 110 2015 was a good year for this segment. TC5 (MED/ Black Sea/MED and Inter-UK/CONT) and, Number of MR2 WEST) averaged a DNR of $23,600 while these sporadically, on long hauls mainly heading to delivered in 2015 owners, whose fl eet was well spread worldwide, West Africa. The number of MR1 employed on the were able to obtain $25,000 yearly DNR. dirty trades decreased, but the demand for their particular trades remains strong and limited by port Larger cargo volumes ex Red Sea contributed to restrictions, which allows MR1 owners to keep a the mid-year rate increase whilst the main event $260 decent control of their market. happened in the West where Cont/WAF runs Average price brutally decreased as from July. This availability The yearly average DNR for the MR1 increased by per ton of of more LR1 units in the West helped traders to around $5,000 to $20,000. IFO380 bunkers develop arbitrage gasoline cargoes from West to The MR1 fl eet remains stable at around 500 units MEG or Singapore and increased ton/miles. in 2015 (31 deliveries this year) with an orderbook of only The main challenge for 2016 is that about 30 ships 37 vessels. (50% of the orderbook) will be delivered in 2016 at a time when, unlike the LR2 segment, demand for dirty LR1 (ex Panamax trade) tends to decrease. MR2 Despite the size of the fleet, and the number of deliveries (110) MR2 obtained excellent results in LR2 2015. Extremely fl exible, with better intakes than The LR2 market fulfi lled the promises it had been the MR1 and sometimes used for shorter hauls, making at the end of 2014. Two new refineries they remain traders’ workhorse in all trades and (Paradip: 300,000 bbl/day and Ruwais 2: zones. In the Atlantic area, MR2 are gradually 417,000 bbl/day) came onstream in the Middle gaining some ground against the smaller Handies. East area and part of their middle distillate Besides historical trade routes (UK/CONT/MED/ production was exported to Europe, creating high WAFR/CARIBS/USG/TA), new routes have opened demand for large tonnage ex Red Sea and MEG. up more, with an increased volume of cargoes heading to Brazil and to the MEG on a very regular In the West, the overflow of product created basis. Compared to previous years, the number severe ullage issues in the Mediterranean and of MR2 fixtures in the Mediterranean attracted UK/CONT discharge areas. Some ships were many more units, creating space for development used as fl oating storage and therefore removed and new trades. The low-priced bunkers with an (temporarily) from position lists. average yearly price for IFO 380 of $262 per ton From Q1 to Q3, owners’ DNR reached more than in 2015 vs $531 in 2014 and LSGO at $477 per $50,000 whilst refinery maintenance during Q4 ton vs $812 in 2014, boosted owners DNR results. reduced output, which hampered earnings. Yet the Altogether DNR averaged about $22,000 (roughly yearly average was close to $30,000/day. $7,000 higher than in 2014). Although prospects for 2016 look good, 2015 The MR2 fleet is imposing: 1,386 ships, and the figures may be difficult to repeat given the orderbook is massive with 227 units until 2018. expected 39 to 40 newbuilding deliveries (14% of the existing fl eet). Although the market will have to absorb about 100 new units next year, fundamentals are good enough to expect 2016 to be another excellent and fl ourishing year.

46 BRS - 2016 ANNUAL REVIEW TANKKER CHARTERING

Almi Horizon, Suezmax, 157,787 dwt, built 2011 (Almi Tankers S.A.)

Vegetable oils the palm oil route (Asia to Europe). This was the opposite in previous years. Soya & Sunfl ower oils + Biodiesel Argentina/ Sunflower oil exports from the Black Sea Brazil/Black Sea to China/India/Europe/ unexpectedly slowed down in 2015 after 3 years of Caribbean continual growth on MR ships. The volume of veg oils exported from South Only 28 MRs were chartered to Asia in 2015 America in 2015 increased 25% year-on-year (compared to 35 in 2014), of which 12 were fi xed to reach about 7m tons of Soya Bean oil. This to China and 16 to India. Sunflower oil suffered increase was mainly driven by an attractive price mainly from the competition of Soybean oil which differential compared to sunfl ower oils. was massively imported by India. On the other hand, the exports of Biodiesel (SME) Nonetheless volumes exported out of the Black from Argentina decreased by about 800,000 tons Sea have reached their maximum level thanks (-50% y-o-y). The US was the leader with a 75% to smaller shipments to other destinations market share. (Mediterranean Sea, Northwest Europe, Red Sea Asia remained the main importer of veg oils, and Persian Gulf). especially India with more than 3m tons. Among Rates from the Black Sea to India varied from low the 158 MR1s and MR2s fi xed to Asia, 122 went to mid-$50’s per ton, giving average daily returns to India. China and Iran were the other two main between $15,000 and $20,000 per day while rates destinations. to China slipped from low-$60’s to mid- $50’s per Rates-wise, the market moved up from mid-$40’s ton over the year. Time Charter Equivalent varied per ton during the fi rst half-year to mid-$50’s per between $20,000 and $25,000 per day. The ton for the last half-year, pushed by a strong oil premium paid on cargoes to China was mainly product market in the Atlantic during the summer. due to the China Inspection and Quarantine These, added to a higher demand from India are (CIQ) last cargo restriction, limiting the number of the main reasons for the increase. workable units. Daily returns for ships open in Argentina varied from $15,000 per day up to $25,000 per day. Earnings on this route (South America to Asia) became a front haul for owners compared to

BRS - 2016 ANNUAL REVIEW 47 TANKKER CHARTERING

Stena Imperial, one of thirteen fully IMO2 Chemical Tankers ordered in 2012 by Stena and Concordia Maritime at Guangzhou Shipyard International, China. Delivered to Stena Weco in October 2015

•l Palm Oils - (Indonesia and Malaysia to Europe, Period 250 US and West Africa) Ship 2015 TC Rate 2015 vs. 2014 Number of The number of MR1s and MR2s utilized on this trade was similar to 2014, with close to 250 fi xtures Category Period (Average) (%) Palm Oil spot concluded on the spot market. VLCC 12 months 48,458 75% fi xtures in 2015 More newbuildings than in 2014 were used on 36 months 43,458 37% this trade: 67 MR2s and 21 MR1s were fi xed with SUEZMAX 12 months 35,958 63% palm oils for their maiden voyage, as opposed to % 36 months 33,000 32% 22 48 MR2s and 18 MR1s in 2014 (+30%). The Asian AFRAMAX 12 months 26,583 57% Increase in crude yards delivered “only” 106 units instead of the 134 expected, due to delivery slippage and some 36 months 24,396 26% time charter cancellations. LR2 12 months 24,641 42% activity between The DNR for MR2 tankers carrying palm oils 36 months 24,254 27% averaged about $20,250/day, up from about 2014 and 2015 LR1 12 months 23,625 45% $18,800/day in 2014. Stena Weco was again the most active operator with more than 60 MR2s on 36 months 20,354 19% % 75 the water with palm oil in 2015 (in and/or out), up MR2 12 months 17,688 22% about 10% from the previous year. Rise in VLCC rates 36 months 16,354 5% About 102 IMO 2/3 MR2s should be delivered MR1 12 months 15,979 19% for one-year from Asian yards in 2016. However, contrary 36 months 15,333 3% period in 2015 to 2015, around 12 units will enter a dedicated trade, leaving “only” 90 ships available and, with a potential 15% slippage, only 75 units could be potential candidates for the palm oil trade. As always the fl eet is quite fragmented, except for Shell which will take delivery of the last 18 units of its 50-ship Project Silver. MR1 deliveries will be very slim with only 13 units, including the last 5 of the 22-ship series ordered by Navig8.

48 BRS - 2016 ANNUAL REVIEW TANKKER CHARTERING

•l Great Lady, VLCC, 308,930 dwt, delivered 2015 to owner Eastern Mediterranean

l • In contrast to 2014 overall time charter activity Conclusion: increased by 22% on Crude tonnage and by 4% 2016 should be on Clean tonnage. Owners, encouraged by an good things come in threes ! the third “good improved spot market, seized the opportunity to It is often a good sign for the year to come when, obtain higher time charter rates and conclude during Christmas parties, large smiles are on all year” in a row for longer term period structures. faces. This was the case at the end of 2015 and, Product Tankers The renewed confidence in tanker markets led for a change, it seems that it is likely to be the charterers to revise their commitment horizon same in 2016. from shorter periods to longer periods, although Crude Tanker owners should enjoy another not exceeding 24 months. They increasingly used profitable year although the market could get FFA’s to hedge their time charter positions and tougher given the number of deliveries expected often showed willingness to pay higher rates for for the second part of the year: 2015 DNR levels vessels delivering prompt in loading areas. could be diffi cult to repeat. Falling oil prices reached a “sweet spot” in For the Product Tankers market, 2016 should be January when the contango widened signifi cantly. the third ‘good year’ in a row. The larger sizes As a result Oil Traders were encouraged to take will benefit from larger volumes and longer VLCCs on fl oating storage, with at least 10 VLCCs voyages but the MR2 market will have to absorb, and 1 ULCC fixed on periods ranging from 6 to for the second consecutive year, more than 24 months. 100 newbuildings. Lower bunker costs arguably depreciated the We all know that Oil and the Oil transportation “eco” tanker rate premium. markets may be subject to unpredictable The 2016 scenario for Crude is unlikely to change geopolitical tensions, but let’s be positive and bet in the short term, but uncertainty will probably on a ‘hat-trick’! grow, with approximately 410 vessels expected to be delivered by 2019. On Product, the outlook is more favorable, with the bulk of the orderbook behind us and continued growth in Middle Eastern, Indian and Chinese refi ning potential.

BRS - 2016 ANNUAL REVIEW 49 TANKKER

SECOND HAND MARKET

Crude Tankers Past and Expected Deliveries

N° of Ships

80 Forecast

0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2010 2011 2012 2013 2014 2015 2016 2017

VLCC Suezmax Aframax (including LR2) Panamax (including LR1)

SECOND HAND MARKET impact the market sooner rather than later: the end result of a recipe of too many newbuilding orders combined with insufficient demolition is “There is no place where we can breath more freely well known. “Insuffi cient demolition” may in fact be than on a ship’s deck.” Elsa Triolet (1896-1970) a slight euphemism. The second table shows that The author of this quote was a Russian-French only 13 large tankers were sold for demolition in writer who was a resistance fi ghter during WWII, 2015. This is the lowest number for decades. married Louis Aragon and was the fi rst woman to obtain the Prix Goncourt (French Literature Prize) New orders 2012 to 2015 in 1945. N° of ships 2012 2013 2014 2015 During 2015, thanks to very healthy earnings, Aframax & LR2 22 68 28 99 Tanker owners were able to take a deep breath Suezmax 9 5 48 62 of fresh air. In the best case, they cashed in Panamax & LR1 3 2 33 32 for the years to come or, in the worst case at least compensated for the miserable earnings VLCC 20 41 40 60 perceived for other types of vessels amongst their diversifi ed fl eet. Regretfully, history repeats Units scrapped per year itself and extremely healthy spot and charter rates VLCC Suezmax Aframax Panamax Total incentivized a new fl ow of newbuilding orders. As a consequence and contrary to what we witnessed 2011 12 10 26 12 60 in 2014, we saw many (maybe too many) orders 2012 18 21 21 17 77 placed for large tankers in 2015. 2013 24 8 25 9 66 A quick glance at the graph above will enable 2014 11 10 27 14 62 the reader to visualize why the last two years 2015113813 were fantastic for tanker owners and why it is not unreasonable to question how long this period of During the course of 2015, the very low price of joy will last over the next few years. crude oil benefited tanker owners. Four main As can be seen in the table of new orders, all types consequences enabled them to make 2015 one except the Panamax and LR1 saw substantial of the best in recent history. These were: (1) more increases in the number of tankers contracted Oil trading activities, (2) more stock building, compared to the previous years. This will certainly (3) more Ton/Miles and (4) more storage on shore

50 BRS - 2016 ANNUAL REVIEW TANKKER

SECOND HAND MARKET

Turmoil, 49,997 dwt, built 2011 by Onomichi Dockyard Co. Ltd, operated by Transpetrol 5-Year Old Crude Tanker Prices Maritime Services Ltd, on Time Charter to BP Shipping Ltd

Million

$150

$160

$140

$120

$100

$80

$60

$40

$20

Jan-06 Jul-06Jan-07 Jul-07Jan-08 Jul-08Jan-09 Jul-09Jan-10 Jul-10Jan-11 Jul-11Jan-12 Jul-12Jan-13 Jul-13Jan-14 Jul-14Jan-15 Jul-15

VLCC Suezmax Aframax Panamax

l • and on board vessels, reducing capacity on the Value changes in 2015 vs 2014 water. The result was that both spot rates and time 5 years 10 years 15 years 2015 saw limited charter rates increased as they had done the two Resale old old old scrapping previous years. Once again, second hand tanker VLCC (-) 2% (+) 5% (+) 5% (+) 20% prices infl ated in 2015 but to a much lesser extent compared to 2014 than in 2014. Suezmax no change (+) 5% (+) 13% (+) 26% Aframax no change (+) 7% (+) 17% (+) 11% In 2015, the price evolution of second hand tankers could be summarized as “Age before Panamax no change (+) 3% (+) 9% (+) 15% Beauty”. This means that values for the more modern ships did not increase as much as for the In contrast to the previous three years, the 2015 older vintages. Tanker owners can certainly be S&P activity for tankers in transaction numbers praised for their wisdom, as they were cautious was very slim. Only 175 units changed hands not to repeat the mistakes made in 2007 and 2008 in 2015 versus 236 deals in 2014. This figure when short term views were prevailing and when includes tankers from VLCC to Panamax (LR2 modern ships’ prices increased to unviable levels. and LR1 included) but excludes OBOs. Among They were certainly helped by the disappearance those 175 units, and as seen above, only 13 ships of public money and by the psychological were sold for scrap. The decrease in the number ceiling that newbuilding quotes represented as of transactions can therefore be explained by the possible alternatives to very modern second hand very limited scrapping in 2015 while in comparison acquisitions. In contrast, ten- and fi fteen-year-old 62 tankers were sold for scrap in 2014. vessels saw their values increasing. Buyers felt the exposure was still acceptable, given the immediate returns they could benefi t from on the spot market and the shorter time needed to amortize their VLCC second hand market assets with the scrap value as a buffer. As may be This segment was the most active as no less than seen in the fi rst table below, Re-sales prices were 55 VLCCs changed hands in 2015 (51 in 2014). stagnant from 1st January until 31st December 2015 This amount can be explained by the occurrence while price increases incremented over this period of several large en-bloc deals and by the strength for older units. The Crude Tanker Prices graph of the earnings this category benefited from all demonstrates that values remained reasonable year long. Particularly noteworthy is the fact that compared to the excess seen a decade ago. 22 of these 55 sales were re-sales, demonstrating that Buyers were keen to get prompt deliveries

BRS - 2016 ANNUAL REVIEW 51 TANKKER

SECOND HAND MARKET

Tempera, sold by Neste Shipping Oy to Dixtone Holdings Limited

•l and cautious not to enlarge the orderbook. Aframax and Panamax second 175 A good example is the sale of four units from Metrostar to clients of Euronav for a reported hand market Number of S&P price of $392 million. Only 7 units out of these 55 A lesser amount of Aframax were sold in 2015: deals in 2015 were built in the 1990s, such as the 305,000 dwt only 52 changed hands against 67 in 2014. GC Guangzhou built in 1999 and sold by Navig8 was the most active player in this segment, Mitsubishi for $29 million. selling or reﬁ nancing through sale and lease back $662m Of the 24 units we were expecting at the end some 15 resale units. Several units were also Price paid by of 2014 to be delivered in 2015, we saw 20 of sold for conversion for offshore projects such as them actually hit the water. In 2016, we should the Coral Sea of 105,566 dwt built 2003 HHI for Teekay for see another 64 vessels delivered while the total a reported price of $31 million. The activity was Princimar’s fl eet orderbook stood at no less than 130 units as of the particularly focused on modern units: 24 of these end of 2015. sales were vessels not older than 5 years of age. The Aframax fleet (LR2 included) saw an extra 13 30 units delivered in 2015 against a forecast of Suezmax second hand market Number of 49 at the end of 2014. As of December 2015, the orderbook included 192 units and 81 of them tankers Panamax Once more S&P activity for Suezmax was rich this year with 38 units changing hands against 34 last should start trading in 2016. size and above year. The deal of the year was the 12-ship en-bloc The same pattern applied for Panamax with just scrapped in 2015 sale of the Princimar Maritime ﬂ eet to Teekay for a 18 units sold in 2015 as opposed to 22 in 2014. reported price of $662 million. Eight nineties-built Prime Marine was again the most active player, units were sold but the majority of the deals was buying and selling several units throughout the done for ships built between 2000 and 2010 such year. Only one unit built in the nineties was sold, as the 166,000 dwt Hyundai-built Adriani Samho, namely the Sporades of 66,895 dwt built 1993 HHI sold for a reported price of $55 million. for a reported price of $8.4 million. Three re-sales We saw 11 Suezmax entering the fleet this changed hands and the balance was spread year (compared to our expectation of 16). The across all vintages such as the Kaspar Schulte of orderbook included as many as 123 units by the 72,718 dwt built 2004 Samsung sold for a reported end of 2015 and no less than 43 ships should hit $21 million. the water in 2016. As for the Panamax (LR1 included), we only saw 3 vessels entering the fleet in 2015 against an

52 BRS - 2016 ANNUAL REVIEW TANKKER

SECOND HAND MARKET

Agios Gerasimos, 109,999 dwt, built in 2015 by Daewoo Mangalia Heavy Industries, operated by Eastern Mediterranean

anticipated number of 13 units at 31st December Russia and, last but not least, Iran. This will be 2014. The total orderbook by end 2015 consisted good for tanker owners for the same reasons seen of 80 units among which 41 are due in 2016. in 2015. The decision from the US Congress to allow crude export from the US will increment oil traders’ possibilities and arbitrage and provide OBO second hand market new routes for tanker owners. Simultaneously, 2016 sees the end of the embargo for Iran cargoes 2015 saw the sale of 4 VLOO built between 2010 and this, too, will create new opportunities and and 2011 to Olympic Shipping for conversion to facilitate building stock reserves all over the globe straight VLCCs. Another 4 OBOs built between at low prices. 1982 and 1994 were sold for scrap. Otherwise, this was an eventless year. On another hand, it can be expected that stock building capacities for both clean and crude will get closer to limits. This will create at some stage Tomorrow’s market a ceiling to trading. We will see moderate growth in oil demand as emerging countries’ consumption st The 21 “Conference des Parties”, better known weakens, a direct consequence of the serious as “COP21”, held in November 2015 in Paris did weakening in their respective economies. Last but not specifi cally mention “shipping” in its fi nal text. not least, the magnitude of newbuilding deliveries Nevertheless, the IMO offi cially announced that expected as from the second quarter of 2016 will their goal is for all new ships (delivered as from impact the earning capacities of tanker owners. 2025) to be 30% more energy-effi cient than those Thus tankers’ second hand values are likely to built in 2015. Whether this will enable our industry be exposed to a decrease in the short to medium to avoid further regional or national constraints term. Very hungry Asian yards will certainly offer remains to be seen but owners will certainly need shipowners very low prices for newbuildings; this to continue to focus on de-carbonizing their ships will also have a negative impact on values for the as much as they can. To start with, new vessels most modern vessels. built as from January 2016 will need to comply with Tier III NOX requirements. The outlook for 2016 inspires mixed feelings. On the one side we can be pretty sure that a low oil price will prevail as Saudi Arabia clearly intends to keep its market share, to the detriment of the US,

BRS - 2016 ANNUAL REVIEW 53 Excello, Tanker, 20,000 dwt/22,000 cbm, built 2008 at Edward Shipyard, China. Owned by Rederi AB Donsötank. Commercial operator Navix Maritime Chartering AB

54 BRS - 2016 ANNUAL REVIEW Chemical & Small Tankers

Cheap fuel takes owners back to black

At the beginning of 2015, we were wondering if we were seeing the end of the tunnel or if the light was yet another illusion. Hopes of the trend continuing in 2015 were overshadowed by uncertainties on how the market would develop in terms of volumes and what impact the new SECA regulations would have. The overall market situation was busy and dynamic and, for the majority of chemical shipowners, it was a proﬁ table 2015. Many owners are back in the black after reporting red ﬁ gures for the last few years.

BRS - 2016 ANNUAL REVIEW 55 CCHEMICAL & SMMAALL TANKERS CHARTERING

Bunker Price Evolution

$/ton delivered

1,200

1,000

800

600

400

200

2011 20132013 2014 2015 0 JMMJSN JMMJSNJMMJSNJMMJSN JMMJSN

Rotterdam - Diesel oil until Sep. 2013 MGO from Oct. 2013 Singapore - IFO 380 CST Rotterdam - IFO 380 CST

•l CHARTERING 59 vessels to be delivered in 2016 and at 142 ships Time-charter until the end of 2020. This represents 36% of the fleet in deadweight. In terms of scrapping, the levels followed Impact of low bunker prices trend is expected to continue to be slow due to the an upward trend average age of the existing fl eet (9.5 years old). At the end of 2014, there were questions about gaining 10% on how bunkers would trend during 2015. As from Deliveries in the smaller fl eet of chemical tankers 2014 average 1st January 2015, as a consequence of the Marpol (3,000-13,000 dwt IMO2 coated) are less convention, owners had to use bunkers with a numerous. Newbuildings expected over 2016-19 levels maximum sulphur content of 0.1% (instead of amount to about 512,000 dwt, which represents 1%) when trading within the Sulphur Emission 4.1% of the current fl eet. Control Areas (SECAs). Many owners decided Whether owners can continue the profitability that their vessels would burn Marine Gas Oil, but of 2015 into 2016 remains uncertain. This will they were afraid that bunker costs would increase very much depend on the bunker prices and the significantly. In the end, bunker levels actually impact of the CPP market. It is not clear if the rise decreased and despite this, freight rates remained of the CPP market in 2015, which resulted from globally steady. The question for 2016 is if these high demand for CPP followed by an immediate low bunker levels will continue. shortage of tonnage, will continue, thereby Time charter levels followed an upward trend. The supporting the chemical market in 2016. average time charter assessment in 2015 for a As also seen in 2014, the chemical tanker market 13,000 dwt IMO2 coated was around $10,000/day saw companies consolidating or restructuring to versus $9,000/day in 2014. streamline and reduce costs. Eitzen Chemical became Team Tankers International, BLT is in rehabilitation and Chembulk exited the BLT group. Oversupply Warning Odfjell left the European regional trade and the Chemical owners fi nished the year on an optimistic Milestone pool ended. Nordic Tankers and the note but some clouds are looming for the larger former Crystal Pool, now owned by Borealis segment, where oversupply is at the door. Maritime joined forces (50/50) at the end of 2015 to launch a new company, Crystal Nordic, Currently the stainless steel fleet (19,000- operating a fleet of 15 Ice Class Stainless Steel 45,000 dwt) counts 406 vessels, representing vessels (between 4,000-11,400 dwt). 10.4m dwt. The orderbook for this size stands at

56 BRS - 2016 ANNUAL REVIEW CCHEMICAL & SMMAALL TANKERS CHARTERING

Time Charter Rates - basis 1 year

$/day 19,000 dwt Ssteel 16,500 dwt IMO 2 coated 13,000 dwt IMO 2 coated 6,000 dwt IMO 2 coated

21,000 20,000 19,000 18,000 17,000 16,000 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000

01-08 04-08 07-08 10-08 01-09 04-09 07-09 10-09 01-10 04-10 07-10 10-10 01-11 04-11 07-11 10-11 01-12 04-12 07-12 10-12 01-13 04-13 07-13 10-13 01-14 04-14 07-14 10-14 01-15 04-15 07-15 10-15

3,000 - 13,000 dwt IMO 2 Coated Tanker Deliveries and Scrapping per Year dwt (mln.) dwt Delivered dwt Scrapped No On order

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

-0.5

-1.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2018 2020 Pre 1996 19,000 - 45,000 dwt Stainless Steel Tanker Deliveries and Scrapping per Year dwt (mln.) dwt Delivered dwt Scrapped No On order 2.0

1.5

1.0

0.5

-0.5

-1.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2018 2020 Pre 1996

BRS - 2016 ANNUAL REVIEW 57 CCHEMICAL & SMMAALL TANKERS CHARTERING

Adour, re-named the Wimpole, 15,000 dwt/15,700 cbm, built 2003 at Royal Niestern Sander, Netherlands. Owned and operated by Union Maritime Ltd. Credit: Hervé Mahé

•l C hemical Demand and Prospects The NW Europe market for Small The market in Chemical cargo volumes were steady in 2015 and, Tankers (CPP and Chemicals) Asia was fl at according to forecasts, there will be moderate 2015 was one of the best years for small tanker with low rates growth in demand in 2016. This will depend partially owners in North West Europe for a long time. throughout 2015 on the global economy, i.e. if Europe continues to recover progressively, and if there is no dramatic The main reason behind the strong CPP market slowdown of growth and chemical demand in Asia was the healthy margins for refi neries in Europe, and the emerging countries. US chemical exports which increased the demand for Intermediate Healthy margins are again expected to be boosted by the shale gas vessels. Owners of 18-19,000 cbm CPP carriers of European revolution. Celanese and Mitsui started production at were claiming average time charter equivalents of $15-16,000/day in 2015. Q4 2015 saw a sharp refi neries was their Methanol plant in Clear Lake, Texas (October). Methanex relocated their two methanol production increase in charterers looking to hedge for 2016 the main driver plants from Chile to Lousiana, the first (Geismar and secure time charter tonnage, with rates for a strong 1) coming online in January 2015 and the second spiking fast. (Geismar 2) in December. Chinese company CPP market Chemical volumes remained stable throughout Yuhuang Chemical is following, currently investing 2015 due to the “knock-on effect” of an $1.85 billion in a new plant in Louisiana. At the end of unexpectedly strong CPP market. The usual Easter 2015, Houston fi rms such as G2X Energy and Syngas and summer slumps were eliminated, keeping the Energy also announced projects to build new plants. smaller chemical and CPP fl eet busy throughout These new plants are likely to change some the year. fl ows for certain products which would contribute The strong North West Europe CPP and chemical signifi cantly to increasing the volume in the market. market strengthened owners and investors’ Even with lower crude oil prices, the question was confidence. As refinery margins in Europe are raised whether naphta, as feedstock, was going to expected to remain at high levels, there is little be as competitive as shale gas. doubt that the strong intermediate market will In recent years in the Middle East, Iranian continue well into 2016. petrochemical plants have been running at low capacity due to the nuclear-related sanctions. However with the lifting of the sanctions, Iranian petrochemical production and exports will increase signifi cantly in the next years.

58 BRS - 2016 ANNUAL REVIEW CCHEMICAL & SMMAALL TANKERS CHARTERING

Chemical Hunter, Chemical Tanker, 16,081 dwt, IMO II & III, STST. Delivered in 2015 by Asakawa Shipbuilding Co Ltd. Owned by Chemship BV

The Transatlantic market The Transatlantic eastbound trade saw a very active 2015. Demand was such that owners did not have much trouble keeping vessels busy with strong spot requirements on top of COA volumes. This sustained activity, with Styrene as the leading product, and the absence of the usual summer slump, induced a peak in freight rates as Q2 moved into Q3, but this peak was quickly absorbed, and the market exited 2015 on a fi rm note. On the contrary, the westbound trade saw rates softening through the year. While COA cargoes kept the market afloat, there were too few spot requirements to put wind in the sails. Owners struggled to fi ll up their space, and quite This has driven some Chinese and Korean often sailed with empty space, in order to cover owners/operators to increase their fleets with the increasing eastbound demand. newbuilding or second hand units, but also by adding chartered ships. Focus on China The chemical shipping market in Asia was flat Conclusion with low freight rates seen throughout the year. Q1 Chemical tanker owners concluded the year on was the best period of the whole year, followed an optimistic note after so many years of sluggish by a soft market in Q2 and Q3 characterized by markets. However, it is not sure that this optimism a shortage of spot cargoes. Q4’s usual rise in will continue. If bunker prices remain low, this activity never happened. The NE Asia trade was will help owners to maintain profi ts but if bunker remarkably slow due to weak demand. prices increase, owners’ margins will drop and Vessels of 8-9,000 dwt or 11-15,000 dwt stainless the market’s ability to absorb all newbuildings will steel are currently favorable for the trades. become a key question.

BRS - 2016 ANNUAL REVIEW 59 CCHEMICAL & SMMAALL TANKERS

SECOND HAND MARKET

Nordic Sund, Chemical/Oil Products Tanker, 4,054 dwt, IMO II, STST. Delivered in 2008 by Volharding Shipyards Frisian BV. Operated by Crystal Nordic A/S

SECOND HAND MARKET IMO 2 vessels fetched far more buying interest. As for tankers with low specifications: no buyers for them, unless their price was low. The second hand market for A total of 134 sales were reported (including 44 for Small Tankers and Chemical stainless steel vessels). In global terms, this is 15% Carriers (3,000-25,000 dwt) less than in 2014 and 20% less for the stainless steel segment. In an apparent paradox, auction After 7 years of bad luck, the market segment was sales and disinvestment prompted by fi nanciers finally back on the right track. The recovery was at any achievable price were quite significant mainly due to a higher ton-mile demand and higher and concerned 25 units. For the vast majority, earnings on the spot market, both driven by lower the vessels involved in these fire sales were bunker prices. This has been the deus ex-machina actually purchased at the height of the market that the industry was badly needing. (2005-2008): their unsustainable book values Although plummeting oil prices gave only a timid and high capex made these ships loss-making on push to the global economy (representing 0.5% of operations and triggered their forced sales. The global GDP growth) they did allow large product average age of vessel sold in 2015 was 11 years. tanker owners to shine since October 2014. This This sharp increase of three years compared represented a prolonged boom that fi nally trickled to 2014 can be explained by an ageing fleet in down to the smaller product tankers with average general and an owners’ preference to keep their rates nearly back to their historical rate of $1 per younger vessels in particular. cbm/day. And when low bunker prices were added An interesting sign of recovery was seen in the in, it became possible to make money again in the number of Asian buyers competing with western small coated tanker segment. On the S&P market owners for vessels traditionally devoted to West of too, owners recovered sizeable pricing power, but Suez buyers. Korean buyers were quite active with again for the bigger sizes and tonnage below ten 16 purchases, mostly in the 11-13,000 dwt range years of age. So the tale of 2015 was of increased with IMO 2 features, and gave welcome support to profitability across the board, which allowed prices for many Western owners. owners to better resist ground-fi shing buyers. One trend that is here to stay, though, is the move away Running ships below 10,000 dwt remains from smaller units below 7,500 dwt, as a long-term economically challenging due to longer routes consequence of the geographical redistribution of and demand for bigger parcels. Vessels with oil refi neries. Not all kinds of unit are equal, though: deadweight over 15,000 dwt enjoyed little

60 BRS - 2016 ANNUAL REVIEW CCHEMICAL & SMMAALL TANKERS

SECOND HAND MARKET

Trans Exeter, Tanker, 8,550 dwt/8,900 cbm, built 2004 at Sasaki Shipyard, Japan. Owned and operated by Seatrans As

Prospects for 2016 The supply side is not a mystery. One critical fi gure is the average age of scrapping: 31 years. This means that the high proportion of ships older than 20 years (about 25% of the fl eet) will not translate into a substantial fl eet reduction. The same thing can be observed when looking at the orderbook: no major change in the fleet supply is expected. Besides specialized vessels, only three significant orders have been recorded. The number of vessels to be delivered in 2016 represents not more than 4% of the existing fleet. On further examination, it seems that the market situation represents the polar opposite of the speculative orders that hit this segment so hard. We are back to a scenario of owners who remember who they are Nordic Theresa, Chemical/Oil Products Tanker, and contract tailor-made ships for well-defi ned 7,842 dwt, IMO II, Marineline. contracts and clearly identifi ed customers. Delivered in 2008 by CHT-Pendik Shipyard, Istanbul, Turkey. Owned by Nordic Tankers A/S The main driver for demand will be oil prices: the lower the better for owners but nobody knows the direction energy prices will follow. Geopolitical factors, particularly in Saudi competition from MR1s which were quite busy on Arabia, can suddenly affect the barrel price. their own market. A reverse trend leading to high bunker prices would have many ominous consequences, less The fleet age profile remains heterogeneous. arbitrage, lower ton-mile demand: back on track Although a steadier demand made overcapacity again… but in the wrong direction. much less significant, scrapping was again low (32 ships for 316,000 dwt as registered by year end).

BRS - 2016 ANNUAL REVIEW 61 B Gas Supreme - 3,500 cbm pressurized. Built 2014 at Kitanihon Shipbuilding On Bareboat charter to B GAS. Operated by UGI France

62 BRS - 2016 ANNUAL REVIEW LPG

What a year we had!

2015 was undoubtedly the most signiﬁ cant year in recent memory that the LPG industry has witnessed. This was not only a result of a stellar freight performance, but also for the exposure, recognition, and investment received from new players. The perfect storm of low oil prices and the shale gas boom gave shipowners no shortage of cargoes and very cheap bunkers, and with other segments suffering, all eyes moved to the LPG industry for growth. The growth in the production of lighter hydrocarbons ﬂ ooded the market with cheap gas and provided competitive and clean alternatives to oil products.

BRS - 2016 ANNUAL REVIEW 63 LPGG CHARTERING

Baltic Exchange Index vs 12 Month Time Charter Equivalent for VLGC - 2015

$ / ton $ / month

160 2,500,000

140

2,000,000 120

100 1,500,000

1,000,000 60

40 500,000

- -

JFMAMJJSND

Epic St Croix BLPG 12 months TC 5,000 cbm pressurized vessel built 2014 at Sasaki shipyard

CHARTERING over the past two years, though shipowners are aware that the honeymoon period will not last indefinitely. The Baltic Exchange Index ended Over the coming years the LPG markets at large the year below the 60,000 dollar per day time- will face some adjustments in order to cope with charter equivalent level and, with the daunting the additional cargoes and tonnage that will be 2016 orderbook, it will probably not be able to arriving. Many expect this will result in additional match the record highs of 2015. volatility and liquidity in the market in the short The VLGC segment is going through a period of term. It will also give opportunities to new players adolescence. It is still not yet a mature market, and new trade routes to thrive and compete for and over the coming years will have to find this new business. a balance between the increase in cargoes The emergence of Ethane as a viable commodity and vessels, and rock-bottom cargo prices. did not materialize as had been predicted a Newbuilding deliveries are not matching up year or two ago. The fall in oil and gas prices cleanly with the new US terminal constructions had dissolved the incentive for petchem players and Chinese PDH plants, which could make for to adopt Ethane as an alternative feedstock. a bumpy year ahead. In addition, demand is not With that being said, things could still change matching the increase in supply, meaning that and there remain a number of ships committed either new outlets or markets need to be found for to the Ethane trade, and new projects in the the excess cargoes, or product prices will remain pipeline. The strength in the LPG sector was not under pressure for the coming years. ubiquitous and this review will shed some light on The US moved into the number 1 spot for LPG the stronger and weaker segments, and provide exporting countries in 2015 and is on pace to some predictions for the upcoming year(s). continue to gain market share over the course of the next few years. In a struggle that mimics the ongoing oil battle, the US and the Middle East VLGC – 75,000 cbm + are competing for dominance in an increasingly With the arguable exception of VLCCs, the competitive market. This struggle has ﬂ ooded the VLGC segment was the star of the shipping market with excess cargo and consequently, an world for 2015. Spot rates averaged just over increase in demand for VLGCs. 83,000 dollars per day. Compared with $33,500 The market experienced substantial investment for 2013, it is clear how far the market has come and a number of interesting moves from big

64 BRS - 2016 ANNUAL REVIEW LPGG CHARTERING

l • players. Among these were the formation of the The LGC segment is not expected to make many Helios Pool between Dorian and Phoenix, and headlines in the upcoming years and hire rates $83,000 takeover attempts of Aurora by Avance. are expected to see a steady slide back to pre- Average daily spot Out of the flurry of newbuilding and time charter 2014 levels. activity throughout the course of the year, there rate for a VLGC were some substantial moves from new or smaller in 2015 ! players entering the market with a splash. P66, MGC – 30,000 to 50,000 cbm Gyxis, Clearlake, Oriental Energy and JX Ocean, The midsize market managed to make its way plus VLGC veterans like Astomos and Shell all into a few headlines this year. A number of new The LGC segment signed time charters against newbuildings in 2015. players, many of which were new faces in the LPG The majority of these newbuildings against longer segment, ordered speculatively. Thenamaris, remains the most period fi xtures were concluded between $850,000 Evalend, KSS, Eletson, Kumiai, and Navigator stable in terms of and $1 million per month level (between 3-10 years). all ordered in 2015, with both Thenamaris and fl eet evolution By comparison, the time charter equivalent of a spot Evalend entering the LPG segment for the vessel in 2015 averaged around $2.5m per month. first time. This adds to the 4 Byzantine vessels These time charters can be used as a barometer for arriving end 2015 and throughout 2016, showing bearish forward market sentiment. that the Greeks have a strong appetite for the Among the new players to enter the VLGC midsize segment. segment was Cardiff who ordered 4 VLGCs on Only the KSS and Navigator orders are said to the back of long term employment, two each to be against fi rm business and the majority of the P66 and Clearlake. midsize orderbook remains uncommitted. This The elephant in the room remains the lengthening led many to look at forward time charters and orderbook in the face of the inevitable decline longer term charters at signifi cant discounts to in freight rates. A number of charterers ended shorter/prompt requirements. the year waiting for the market to cool off a little The number of spot trading vessels remained and for owners’ expectations to begin to decline. very limited throughout 2015, and this kept We foresee a volatile 24 months ahead. earnings high for owners. One-year time charter levels remained above $1 million per month throughout the year. By the end of the year, it was LGC – 50,000 to 75,000 cbm evident that 2016 would see a number of vessels being redelivered and newbuildings entering the The Large Gas Carrier segment remains the most market, putting downward pressure on rates. This stable as far as fleet evolution is concerned. trend is expected to continue until 2018. Despite the substantial interest in their larger counterparts, the LGC segment has only seen 2 orders in 2015. Latsco ordered a pair of Handysize 60,000 cbm ships against long term time charter for ammonia business. Otherwise the segment 12,000 to 30,000 cbm rarely has more than one or two vessels trading The Handysize segment experienced a boom on the spot market, and there were not more than just before the VLGCs – around the 2013-2014 a handful of fi xtures throughout 2015. period – and owners are still benefitting from Despite the minimal activity, the contracts that stronger earnings, particularly on the back of US were concluded were substantial. A number of LPG exports to Europe and petchem exports to 6-12 month time charters were fixed above the Europe and Asia. $2 million per month level this year and time Throughout 2015 earnings remained quite steady, charter equivalents mimicked the VLGC boom. and while the orderbook remains quite large, there Large Gas Carriers benefi tted from being able to was a relatively small number of newbuildings transit the Panama Canal prior to the completion added to the list over the course of the year. of the extension works, meaning in certain Eletson, Global United, and Petredec all ordered circumstances they could be very competitive for Handysize vessels in 2015, bringing the total cargoes heading to the Far East. This advantage orderbook to 38. will be short-lived however, as the extended Downward pressure on freight rates in the West Panama Canal is expected to divert VLGCs as was largely due to the Dragon-type ethane carriers from the second half of 2016 onwards. arriving in the second half of the year. Ineos had been aggressively sub-letting the vessels on the spot

BRS - 2016 ANNUAL REVIEW 65 LPGG CHARTERING

Existing Fleet vs. Newbuilding

No of vessels

800

700

600

500

400

300

200

100

SMALL HANDYSIZE MIDSIZE LGC VLGC VLEC

Existing Fleet Newbuilding

market prior to their contract for Ethane business seemed to be quite balanced overall throughout from the US to Europe. Ineos frequently undercut the the year. In the East, rates were under a little more market to win cargoes, providing some additional pressure, especially on the 3,500 cbm. competition for existing players. Owners are still having rather a tough time, but Forward sentiment also has some downward as long as oil prices are low they are able to pressure due to the orders, but there is guarded continue without too much suffering. optimism that long-haul petchem business can provide some buoyancy in this segment. Conclusion It was a remarkable 2015 and, overall, the LPG Small up to 12,000 cbm industry is expanding at an impressive rate. The Earnings for small vessels were rather varied over market remains cautiously optimistic in general the course of 2015. It was clear that the earnings for the upcoming year. The main focus in the boom did not materialize for the small ships in coming years will be developing downstream the same way it had with the larger ones. Time consumption in Africa, India and South America. charter rates for small pressurized vessels have The market is likely to see much less external been under pressure over the last 2 years and investment over the next few years. There is bound realistically the only redeeming factor for owners to be some fleet replacement newbuilds and are the low bunker prices. limited ﬂ eet expansion, but owners and charterers Strong petchem business kept the semi-ref and alike are hoping for LPG and Petchem markets in ethylene hire rates quite stable over 2015 but general to stabilize in the coming years. overall the fleet is ageing and could use some Oil prices will be the other significant driver of scrapping. Fortunately the newbuilding activity in change and will impact product prices, possibly the small segment essentially stopped, with the encouraging or discouraging players from major Western owners ordering virtually nothing investing in downstream LPG infrastructure. over the last year. If or when oil prices rebound, we could see a Sentiment for the upcoming year is relatively resurgence in interest for petchem crackers muted. The Mediterranean and Black Sea market switching to Ethane. is quite weak still, and it is not expected to return in We expect 2016 to be an interesting year for a signiﬁ cant way in the upcoming year. Northwest the LPG industry and we remain optimistic for Europe suffered a little in the summer months but the future.

66 BRS - 2016 ANNUAL REVIEW LPGG

SECOND HAND MARKET

LPG and Ethane Product Prices 2013 to 2015

$/ton

1,400

1,200

1,000

800

600

400

200

2013 2014 2015 0 JFMAMJJASOND JFMAMJJASONDJFMAMJJASON

AG PRO SPOT FOB AG BUT SPOT FOB MB NON-LST PRO MB NON-LST BUT SAUDI PRO SAUDI BUT ALGERIA PRO ALGERIA BUT WEST MED PRO FOB WEST MED BUT FOB ETHANE

SECOND HAND MARKET

Sale and purchase activity in the LPG segment has been a mixed bag over the course of 2015 across all sizes. Owners in the VLGC segment valued even their older tonnage at a very high level, and prompt younger eco specification vessels remained clearly above newbuilding prices. Some analysts and owners valued prompt VLGC tonnage close to $90m early in 2015, but as downward pressure on freight mounted towards the end of the year, expectations will begin to deﬂ ate slightly. There have been a flurry of reported Chinese

VLGC sales of older tonnage with roughly half Ship to ship operation between falling apart for one reason or another. In reality LPG Carrier Jenny N, a 60,000 cbm LGC, there have been relatively few VLGC second and Karoline N, a 75,000 cbm Panamax, both built 2009 and owned by Neu Gas Shipping hand deals conﬁ rmed, despite a lot of noise. In the Midsize and Handy segments, owners looked to offload older tonnage in favor of fleet replacement. There were no shortage of older Handysizes pushed around the market with Benelux and some Indonesians able to conclude some deals. Ultragas reportedly sold built but even some modern tonnage has been the Baltic Gas (20,700 cbm S/R built 1994) to pushed around. PT Putuk for $20m. There has been virtually no scrapping activity In the smaller segments, both Pressurized and across the whole LPG market in 2015 but the Semi-Ref, there are sellers everywhere, but market could use some older tonnage to be taken buyers few and far between. Most vessels that out of circulation. Hopefully 2016 will see some have been marketed for sale are older than 2000 ships head to the breakers.

BRS - 2016 ANNUAL REVIEW 67 Gaslog Santiago, 154,948 cbm, built at Samsung Heavy Industries, delivered to Gaslog in 2013

68 BRS - 2016 ANNUAL REVIEW LNG

A year of adjustment

Last year will be remembered as a lackluster period for the transport of methane gas. After an exceptional year in 2014, driven by the launch of new LNG projects requiring both new ships and new technologies (ice-breaking vessels for the Yamal project, for example), 2015 will go down as a year of transition and consolidation for the market. The spectacular fall in oil prices has had a direct, and negative, impact on LNG demand. It has also created imbalances on many routes previously considered promising. For example, LNG exports from the US to Asia no longer have the same commercial interest in the current price environment. Shipyards have also suffered the consequences, with very few newbuilding orders placed during the year.

BRS - 2016 ANNUAL REVIEW 69 LNGG

LNG Fleet (>15,000 cbm) evolution* (fi gures as of start of each year)

TOTAL CAPACITY Avg. Size (mil. cbm) (cbm)

90 160,000

80 150,000 421 vessels 70 140,000 394 vessels 60 130,000

331 vessels 50 120,000

40 110,000 173 vessels

30 100,000

20 113 vessels 90,000 68 vessels 85 vessels 10 80,000

- 70,000

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 2016 2017 2018 2019 2020

* 2017-2020 : simple projection of current orderbook

The fl eet The retreat by South Korean shipyards in the face of Japanese competition is arguably the Only 23 LNG carriers, all with a capacity over most striking event of 2015. South Korea has 160,000 m3, were ordered in 2015. By contrast, continually outperformed Japan in the LNG 65 vessels were ordered in 2014, and 35 in 2013. newbuilding market since 2002. The three Ordering activity during the year fell to its lowest major South Korean shipbuilding groups, the since 2010. The year also brought a reversal undisputed leaders of this market for many years, in the shipyard rankings. Japan reclaimed its logged only 8 orders in 2015: 2 for Hyundai position as the leading builder of LNG carriers, Heavy Industries and 6 for Daewoo. Note, these receiving a total of 15 orders at Imabari (4), three shipyards registered a total of 54 orders Kawasaki (4) and Mitsubishi (7). in 2014 (5 for Hyundai Heavy Industries, 7 for This is a significant development for LNG Samsung Heavy Industries and 42 for Daewoo). shipbuilding: in a context of declining global Thus, the 2015 result represents a decline of 85% orders, Japanese yards more than doubled their in just one year. Indeed, a number of tenders order intake compared to 2014 (7 orders placed). scheduled for 2015 were delayed, while others This trend, already perceptible in 2014, was were proposed but not realized, in what proved to accentuated in 2015 by a combination of factors: be a bearish year. a weaker Yen rendered the Japanese yards 28 LNG carriers were delivered in 2015, including more competitive than their Chinese or South 8 ships with a capacity of more than 170,000 m3. Korean counterparts; meanwhile the Japanese More than 80% of these ships were built by South domestic market required new tonnage to cover Korean yards, with just 3 units delivered by the future needs linked to import projects from the US Chinese shipyard Hudong-Zonghua, and two by (namely, Cameron LNG and Freeport LNG). Japan’s Mitsubishi. Thus in 2015 Japan’s LNG orders reached The LNG carrier ﬂ eet numbered 421 ships at the their highest level since the peak year of 2005, end of the year, while there were 143 vessels when 16 orders were placed. The big losers in on order, with deliveries stretching until 2020. this reorganization were principally the South The orderbook represented 34% of the existing Korean shipyards, but also the Chinese shipyards fleet by number of vessels, and 39% in terms which received just one order, from Sinopec for of capacity. two ships of 174,000 m3 at Dalian.

70 BRS - 2016 ANNUAL REVIEW LNGG

LNG carrier deliveries above 147,000 cbm LNG fl eet deliveries (>15,000 cbm) by size range

No of vessels No of vessels

50 55 73% of 45 deliveries 50 80% of 90% of 49 deliveries deliveries 45 40 46

21% of 40 42 35 deliveries 39 29% of 35 30 36 36 7 deliveries 33 32 30 25 8 29 32 25 27 35 25 20 13 100% of deliveries 20 15 11 15 16 16 10 5 10 11 13 3 16 5 5 9 7 5 3 3 0 1 0 2014 2015 2016 2017 2018 2019+ 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019+

147-160k cbm 160-170k cbm 170-182k cbm Delivered To be delivered

l • The ordering activity in 2015 was mainly system consumption is therefore taking place. As centered on vessels with a capacity of more a result, there is an imperative need to improve Only 23 than 170,000 m3. Only two ships with MOSS type natural boil-of rates (below 0.09%), with the aim containment systems and a capacity of more of diminishing the transportation cost per unit of LNG carriers larger than 165,000 m3 were ordered, at the Mitsubishi energy delivered (cost per unit in $/MBTU). than 160,000 cbm shipyard for the Cameron LNG project. We Regarding small LNG carrier construction, 2015 were ordered note the average size of vessel ordered in 2015 did not meet market expectations and only 3 increased to 176,000 m . This size appears two ships were ordered: one at Meyer Werft with in 2015 versus optimal for shipowners who are contemplating a capacity of 18,000 m3 for Anthony Veder, the 65 units ordered long transits (principally US/Asia), but want to 3 other a 5,800 m vessel at Bodewes which will in 2014 retain the ability to use the Panama Canal. This operate as a LNG bunkering ship. confi rms the trend of the previous two years. At 31 December 2015, the orderbook comprised 115 vessels over 170,000 m3, of which 77 had a Charter rates Majority of capacity exceeding 174,000 m3. and the market orders placed in Already observed in 2013 and 2014, the 2015 elected for At the end of 2015, around 10% of the LNG fl eet preference for propulsion with slow injection gas new propulsion engines (type ME-Gi for Man engines, and XDF remained unemployed. It was a very difficult for Wartsila) has intensifi ed. Indeed, the majority year for shipowners, with charter rates falling technologies of the 23 orders made in 2015 were associated to levels not seen since 2009. With spot rates with new propulsion technologies (slow injection around $25,000/day, this left shipowners with few opportunities to fi nd long term employment, gas engines or steam turbines linked with gas- while this niche market was considered promising injection engines – StaGE). This new situation is only a few years ago. to be analyzed in regard with the LNG carriers delivered in 2015, among which 78% were The variety and age of the vessels without equipped with “Dual Fuel Dual Diesel” propulsion employment must be taken into account when system (DFDE). The fi rst LNG carrier in a series looking at the oversupply situation: 50% of the of six ordered by Teekay at Daewoo with ME-Gi unemployed fl eet is below 15 years of age. The type propulsion will enter service in early 2016, economic profitability of each vessel is a key some ten years after the first-ever vessel with criteria and governs many choices. DFDE was delivered for ENGIE. A technological revolution implying the decrease of propulsion

BRS - 2016 ANNUAL REVIEW 71 LNGG

Short-term LNG Charter rates

$/day

120,000

110,000

100,000

90,000

80,000

70,000

60,000

50,000

40,000

30,000

2013 20142015 20,000 J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

Mid-ship part assembling block for a 160,000 cbm LNG Carrier under construction at Geoje Shipyard

•l The decline in the spot market can be explained currently comprises 14 ships (3 from Dynagas, LNG re-exports by several factors: fewer LNG spot purchases by 8 from Golar and 3 from Gaslog). Its objective the Asian market (principally Japan/South Korea/ is to diversify the service to shippers by offering from Europe to Taiwan), and thus less demand for longhaul LNG Contracts of Affreightment, a fi rst in the fi eld of Asia declined transport. Meanwhile the arrival of new tonnage LNG transport. Cost sharing should also bring a lot in 2015 in 2014 and 2015 (more than 50 ships) was not economies of scale to the shipowners in the pool. matched by a genuine increase in the demand for LNG transportation, which also impacted charter rates. Start-up delays for several Australian LNG projects projects also pushed many new ships to seek At the end of 2015, global liquefaction capacity refuge in the spot market. The fi rst to suffer from stood at 290 tons/year. this pressure on rates were the steam-engine During the year, three projects in Australia vessels as the daily rate for these ships by the (AP LNG, QCLNG and GLNG) and one project end of 2015 was around $20,000/day. in Indonesia (Donggi-Senoro LNG) entered This overcapacity was also the consequence into production. Over time, these projects of a substantial decline in LNG re-exports from are expected to add about 20 tons/year with Europe to Asia. The price differentials in the the commissioning of all new associated three purchasing basins (Asia, America, Europe) liquefaction trains. have shrunk, making arbitrage less attractive to In the same twelve-month period, only three operators. To demonstrate, the price differential projects to invest in liquefaction projects were between the US and Asia stood at $10-12/MBTU approved, also representing a total capacity of 18 months earlier. Today, this differential stands 20tons/year. The three confi rmed projects were at around $6/MBTU. With liquefaction costs all US-based (Sabine Pass Train 5 at 4.5tons/ estimated at $3/MBTU, transport costs need to year, Corpus Christi at 9tons/year, FreePort Train be less than $3/MBTU to reach an economic 3 at 5tons/year). balance. In Japan, for example, the forecasts for The Final Investment Decisions (FID) of many 2016 put the average price below $7/MBTU. projects remain conditional on the authorization Faced with this situation, several shipowners got of the head offi ce of the companies concerned. together in May 2015 to create a pool of LNG Eventually, about 90 tons/year of LNG could carriers designed to meet market demands be added to the overall liquefaction capacity; for charters of less than 12 months. This pool these projects are located mainly in the US and

72 BRS - 2016 ANNUAL REVIEW LNGG

Yari LNG, 159,800 cbm, built at Daewoo SME, delivered to Cardiff in 2014

Australia, although Mozambique is also host to two major projects (Anadarko and ENI, each at 10tons/year). These projects may be launched in 2016 if economic conditions permit. However, low oil prices (around $30/bbl) directly impact earnings for the oil companies, in turn limiting their ability to invest the large amounts of capital needed for these projects. 2016 could be a year of wait-and-see when it comes to investment decisions for new liquefaction projects. Markets risk suffering the effect of a traditional Asian demand at half-mast, while the outlook (already revised down) for LNG imports by India and China is also not favorable. Shipowners, shipyards, oil and gas companies involved in liquefaction projects risk getting hurt by this combination of negative factors. Despite this, some elements could still contribute to making 2016 a year of recovery. The LNG landscape is set to be remodeled with the •l announced merger of BG and Shell, and also with A GTT Cargo Containment System the creation of the Cool Pool providing short-term for a 174,000 LNG Carrier charters. Moreover very few ships scheduled with advanced MK-III Flex technology under construction for delivery in 2016 were ordered speculatively. look at itself. Many ideas in gestation could at Samsung Heavy Industries In addition, Jordan and Egypt became new lead to innovative concepts, supporting a importers. Finally, regasification ships have breakthrough for LNG in the transportation of begun to play an important role in projects. energy. This likely mutation will undoubtedly lead Difficult periods are also often the trigger for to the development of ships more in line with the new ideas and a redistribution of the cards. market’s needs, and a further optimization in The LNG industry is currently taking a thorough transport costs.

BRS - 2016 ANNUAL REVIEW 73 Deep Energy is the fastest and one of the largest and most capable pipelay vessels ever built

74 BRS - 2016 ANNUAL REVIEW Off shore

A Deep Dive

The down-cycle is such that there is no visibility in the offshore market. In 2015 the entire industry turned either into defensive mode (for the strongest), or survival mode (for the others). Owners, contractors and suppliers will endure the dive as long as their resources allow. Displaying conﬁ dent forecasts is not likely to be risked. Liquidity in these times is a crucial commodity.

BRS - 2016 ANNUAL REVIEW 75 OFFSHORE

•l Ice breaking polar logistic vessel, ordered by the French Austral Territories and the French Polar Institute to be delivered by Piriou shipyards in 2017

•l Drilling Rigs There are still 69 semi submersibles and drillships 120 on order. The floater owners were better at The storm picked up momentum in the drilling disposing of units. The stacking trend was of Number of market in 2015. We saw very few transactions in great interest to drillers and the industry. New jackups reported the second hand arena apart from retirements. economics of cold stacking and preservation are on order There are no real benchmarks for asset prices but being established as owners are obliged to set their current values are signiﬁ cantly depreciated. modern assets aside in a market with little work. The oversupply in the market was exacerbated Recycling and retirement were in the spotlight by the lackluster tendering activity. IOCs delayed in 2015. Over 35 units were sent to scrapyards, or cancelled most of the major exploration and reducing the number of active units in the market. development drilling projects that became Although this is a very important step in the right uneconomical at current oil prices. In 2015 only direction, many argue much more is needed one deep water drilling contract was awarded by to complete the fleet renewal process started Exxon Ghana to Stena Drilling at a reported rate by the newbuilding wave. Turkey, India, and below $250k a day, compared with early 2014 China are at the center of the recycling industry, average fixing at $500-600k per day. In Brazil with determination from the drillers to conduct the Petrobras ﬂ eet of chartered rigs reduced from the retirement of their assets in a sound and 72 drilling rigs in 2014 to 55 in 2015, with numbers environmentally safe fashion. declining. The storm has already claimed casualties and Oil majors were keen to enter contract forced restructuring of drilling contractors such renegotiations. Heavily discounted prices were as Hercules. Others continue to take preemptive required in order to keep already-awarded actions in order to survive a multi-year down cycle. contracts, changing what used to be assumptions We foresee further consolidation in the market as on existing employments. well as the disappearance of more companies that are not suited to the next cycle. There was no work available for supply that was entering the market. Owners managed to terminate some of their rig building contracts, and delay some deliveries until 2018/2019. Off shore Support Vessels We believe that not all of the speculative 2015 was a depressing year for OSV all over orders that are on the books, but not yet under the globe. construction, will be delivered. The North Sea area encountered severe and fast There are 120 reported jackups on order, which corrections in rates throughout 2015, on all fronts. would put the total number of units over 600 Owners’ logical response to this situation was to worldwide. While very few were scrapped, many trim the sails by laying up vessels, including brand were cold stacked, and of these, we do anticipate new units, and to delay deliveries. older tonnage to remain in retirement in any future By the end of the year more than one hundred upcycle. vessels were laid up in the North Sea (70 PSV

76 BRS - 2016 ANNUAL REVIEW OFFSHORE

Accommodation/Work Vessel (238 pax) delivered in 2015 to Eastern Navigation (Singapore)

and 35 AHTS) while rates stabilized at their lowest non-Mexican, players. In 2015, most of the tenders level, for example £5-7,000/day for a 3,000t dwt issued by Pemex for PSV and FSIV were cancelled DP2 PSV. or subject to re-tendering in 2016. The West African fleet was not spared by this From mid-2015 onwards, there were a few turmoil. Charterers started by cancelling or opportunities from main contractors such as postponing projects, then either asked owners for Saipem, Sapura Kencana, Diavaz and Demar massive rate reductions on the term contracted for short term fixtures of offshore construction tonnage, (close to 35%), or enforced early vessels with significant lifting capacity and termination clauses in contracts. At the end of accommodation (with the exception of the long 2014, a DP2 3,000 dwt on medium term contract term contract awarded to Far Sentinel). was earning under 20k $/day; towards the end The Brazilian economy struggled severely in of 2015, 13-15k $/day. One consequence of this 2015. The effect of the “Car Wash investigations” situation was massive cold stacking of vessels and political instability, worsened by the global in all African hubs or ports, for example Abidjan, decrease in commodity prices, triggered a Pointe Noire or Walvis Bay. Still, when tenders sense of paralysis and gloom that gripped were coming out towards the end of the year for the country. Petrobras were forced to scale medium/long term assignments, it was not rare down their investment plans by more than 25% to see about 40 different offers. The West African and subsequently shrink their chartered fleet, market will still provide employments opportunities, renegotiating and early terminating existing even if discounted. contracts. The US market is less transparent than the other Brazilian flagged vessels benefited from having arenas. However, we do know that US owners also priority in contracting (circularization process). laid up a large number of vessels whilst day rates This process, based on the Brazilian cabotage were dropping. They also took vessels back to the law, requires that when chartering in non-Brazilian Gulf of Mexico following the end of their charter flagged vessels, charter requests must first be contracts overseas. Similarly, orders placed in circulated to local owners. If they have a vessel the US under the provision of the Jones Act were that could ﬁ t the purpose, this vessel has priority. cancelled or delayed whenever possible. In 2015, only 17 long-term contracts were Despite the losses of Pemex, Mexico remains the awarded, compared to 61 in 2014, and 114 in most active region, mainly due to the on-going 2013. Petrobras’ ﬂ eet of chartered support vessels opening of its oil and gas industry to international, has already been reduced by about 15%.

BRS - 2016 ANNUAL REVIEW 77 OFFSHORE

Deepfreezer longliner delivered by Piriou to Cap Bourbon in December 2015

In the Asia Pacific region, the charter activity Installation and subsea also drastically declined, with oil majors asking for reductions in rates as well as cutting short construction vessels existing contracts. Overall, 2015 was a slow year At the end of 2015, there were no significant new in the region. On the positive side, Singapore- deep water offshore installation projects in sight; based EPIC contractors awarded a few long-term even Shell Nigeria’s Bonga South West development contracts. Average rates were more than 50% has been delayed. In every region, numerous lower than in 2014. subsea maintenance contracts were suspended, Speculative owners of OSVs remained stuck terminated, or put up for renegotiation. During the with their new units, most of them having been year, both utilization and rates dropped considerably. placed in Chinese yards, especially in the PSV Subsea-based projects represent about one third category. The yards faced many cases of order of the installation market, the rest being primarily cancellations, but they might complete some shallow water surface completed ones. Overall, the orders using their own fi nancial resources. contractors did not replace more than one fi fth of their In Malaysia the preference for national flag was backlog. Phasing out a few older units impacted the significantly reinforced. To get jobs there, many contractors’ operations, but it did not – and neither foreign owners set up entities and subsidiaries in will it – compensate for a historically weak demand. Labuan, enabling their vessels to fl y the Malaysian In an attempt to mitigate the situation, leading flag. This process is now strongly contested by EPC contractors laid up or terminated as many indigenous owners. as possible of their sub-contracted vessels On the drilling side, numerous shallow water and services, which further depressed the light acreages remain economically viable in Myanmar, construction and IRM markets. Vietnam and Thailand, even at current oil prices. Decommissioning is still a much-awaited market, all The on-going crisis forced Chinese owners and the more so as it is a cost element for the companies. contractors to step outside their traditional Asian In late 2015, Ceona, which was launched less than comfort zone to look for opportunities overseas. four years ago, filed for bankruptcy before their newbuilding flagship Ceona Amazon had any opportunity to lay pipe, thus the last arrived could be the first out. As we write in early 2016, pure OCV owners are fi nancially and commercially more exposed than ever.

78 BRS - 2016 ANNUAL REVIEW OFFSHORE

RK Offshore, 64T BP AHTS

l • Windfarms By end 2015, During the first half of 2015, about 580 turbines In 2016 the number of new wind turbines were connected to the grid, compared to 400 connected will unfortunately fall owing to projects’ there were and 410 for 2014 and 2013 respectively. The UK current schedule. no signifi cant is still leading in the segment with almost half of This medium-term slowdown, combined with new deep the offshore producing capacity, but Germany the steep decline in the oil and gas markets, will water off shore is growing fast, having connected more than probably lead to some major installation vessel 400 turbines during the first semester and with owners disinvesting. installation more than 2,100 MW under construction. China is in third place with more than 900 MW under The offshore wind construction market continued projects in sight construction in 2015. This relatively positive to steadily mature all over the world. China and the balance in the offshore wind industry has US are bound to become major markets. increased the appeal to owners that are still greatly IOCs have frozen their exploration drilling exposed to oil and gas. programs but with an average yearly depletion As the size of turbines is growing from an average rate of 2%, how long can that last? Oil prices 3.5 MW to an expected 5 to 6 MW and as farms are now below the $30 mark for Brent and the to be installed are further offshore, tonnage on-going changes and tensions in the Middle East has to be adapted and operations have to be are adding further pressure. 2016 will be even streamlined over several years. Ostenjo (Norway) tougher for the industry than 2015 was. ordered a dedicated UT540WP design support As offshore ﬁ elds have a decades-long lifespan, vessel at Gondan (Spain) to support a long term demand related to maintenance activities is commitment with Dong Energy. set to resume, presumably when costs come In order to reduce risks and their related costs, back to about one third of what they were in field developers are more and more inclined to 2012, assuming the supply chain survives. New contract on an EPCI basis. The four worldwide employment opportunities will also come from leading dredging and civil engineering companies some region-speciﬁ c dynamics. (Jan de Nul, Van Oord, Boskalis and Deme) are in the forefront of prime contracting and are investing in adapted tonnage (cable layers, fall pipe vessels, wind turbine installation vessels) for this market.

BRS - 2016 ANNUAL REVIEW 79 Lyrial, 10,992 gt, 132 cabins, delivered by Italian shipyard Fincantieri to Ponant in 2015

80 BRS - 2016 ANNUAL REVIEW Cruise

Heading east!

China remained the focus of cruiseship operators in 2015. This market continues to grow rapidly along with the rest of Asia and Australasia, and could in a few years’ time equal the number of American cruise passengers.

The year was also marked by a sustained pace of ordering (17 ships), accompanying the strong growth in the Chinese market.

BRS - 2016 ANNUAL REVIEW 81 CRUIISSE

Britannia, 143,700 gt, 1,837 cabins, delivered by Italy’s Fincantieri to P&O in 2015

•l In 2015, six ships were delivered with a total of with delivery from 2019 onwards. A total of eight 8,200 8,200 cabins. In 2016, that fi gure should rise to contracts placed in 2015 were linked to these eleven ships of nearly 15,400 cabins. agreements. Capacity in No fewer than 50 ships (excluding newbuilding In fact, all 17 orders recorded in 2015 were cabins for the options) are scheduled for delivery between now shared between these two shipbuilding groups: 6 ships delivered and 2022, equivalent to a capacity of around At Meyer Werft (8 vessels): in 2015 150,000 lower berths. • The Carnival Group’s Costa Cruises ordered two ships of 5,000 lower berths at Meyer Turku. • Meanwhile the Group’s Aida Cruises also 15,400 Deliveries ordered two ships at Meyer Werft in Papenburg, Capacity in Ponant took delivery of the Lyrial (11,000 GT / with delivery scheduled in 2019 and 2020. 132 cabins), the fourth and fi nal ship in the series These four vessels, of more than 180,000 gt cabins for built by Fincantieri. each, will become the fi rst ever LNG-powered the 11 ships cruiseships. Viking Ocean received the Viking Star (47,000 gt / expected to • Meyer Werft also won an order for two 168,800 gt 473 cabins), also from Fincantieri. ‘Quantum Class’ ships of 2,090 cabins for Royal be delivered Shipyard Meyer Turku (ex STX Turku) handed Caribbean Cruises. Deliveries are scheduled for in 2016 over the Mein Schiff 4 (97,000 gt /1,250 cabins). the spring of 2019 and autumn 2020. P&O Cruises took delivery of the Britannia • Meanwhile Saga ordered a 55,900 gt vessel with (141,000 gt/1,800 cabins) from Fincantieri. 540 cabins from Meyer Werft which will cater for almost 1,000 passengers. Delivery is scheduled Finally, Meyer Werft also delivered the Anthem for the spring of 2019. The order includes an of the Seas (167,000 gt/2,000 cabins) to Royal option - which will very likely be declared - for a Caribbean and the Norwegian Escape (164,600 gt / second ship for delivery in 2020. 2,100 cabins) to Norwegian Cruise Lines. At Fincantieri (9 vessels): • Costa Asia placed contracts for two 135,500 gt ships with capacity for 4,200 passengers. New orders • P&O Cruises Australia ordered a vessel with the In March, the Carnival group signed two strategic same specifi cations. partnerships with Fincantieri and Meyer Werft for • Princess Cruises ordered a unit of 143,700 gt and the construction of nine new-generation ships 3,560 passengers, the fourth ship in a series.

82 BRS - 2016 ANNUAL REVIEW CRUIISSE

Soleal, 10,992 gt, 132 cabins, delivered by Italy’s Fincantieri to Ponant in 2013

l • • Viking Ocean Cruises ordered two additional Finally, it should also be mentioned that the ships of 47,800 gt and 465 cabins each, with Splendor of the Seas (904 cabins, built in France 17 delivery scheduled for mid-2018 and end 2020. in 1996) was sold to Tui Cruises. • Finally, Virgin Cruises, a newcomer to the cruise Cruise ships were market, confi rmed three orders of 110,000 GRT ordered in 2015 ! and 1,430 cabins at Fincantieri for delivery in Market developments 2020, 2021 and 2022. China is still at the heart of growth... 8 With more and more customers emerging in Second hand sales China, and still relatively little competition in Ships ordered The Tere Moana (45 cabins, built in France terms of capacity deployed, the major cruise at Meyer Werft in 1998) was purchased by Grand Circle US. operators are making their move. After several Lindblad Expeditions became the owners of the years of testing, they are positioning a growing Via Australis (built in Chile in 2005, 64 cabins). number of ships in China. Yields there are far 9 better than in the US market’s traditional cruise Ships ordered The Deutschland (302 cabins, Howaldtswerke destination, the Caribbean. In this latter market, 1998) was sold to a Texan fi nancial group which demand remained stable in 2015 while capacity at Fincantieri chartered the ship to German operator Phoenix grew nearly 13%, putting signifi cant pressure on Reisen for fi ve summer seasons, while Semester margins. at Sea will employ the vessel in the winter. The European market continues to grow modestly New Chinese operator Diamond Cruise bought with a moderate market penetration rate. the Aegean Paradise (325 cabins, built in Japan in 1990 – ex Orient Venus), and is expected to To accompany their Asian development, the operate the vessel out of Shanghai. Diamond major shipowners have ordered large numbers Cruise was also tipped as a possible buyer of the of new ships. In the process they have fi lled the Celestyal Odyssey (418 cabins, ex Explorer, built orderbooks for many years for the handful of in 2001 at Blohm & Voss). European shipyards still delivering tonnage on budget and on time. US monetary policy, and the We note the sale of the Island Escape near parity between the Euro and the US Dollar, (757 cabins, built in France in 1982) to Cruise Holdings. has fueled this trend. These orders should enable these owners to continue to enjoy a competitive advantage,

BRS - 2016 ANNUAL REVIEW 83 CRUIISSE

•l particularly in China where they have been the Expansion by the major cruise companies into 2015 saw fi rst to position themselves. the Chinese market, which represents perhaps a Some companies have also wisely developed, less demanding customer base than in the west, the creation of could perhaps offer these companies a chance or strengthened, partnerships with Chinese to deploy some of their older ships. companies purely companies in order to better understand the dedicated to the market and approach it in the best manner. However, RCCL set the bar very high during the year by deploying one of its fl agship vessels, the Chinese market Royal Caribbean paved the way with C-Trip, Quantum of the Seas. Costa has also introduced which controls around 10% of the travel agents’ one of its newest ships. This relocation of vessels market. In 2014, they created a joint venture to the Chinese market enables the companies which bought the Celebrity Century, which has 50 at the same time to reduce capacity in the now been renamed SkySea Golden Era. RCCL Number of less profitable Caribbean, which has become is managing and operating the vessel under the oversaturated. These trade-offs are carried out ships expected brand name SkySea Cruises. This venture seems much faster than in the past. for delivery certain to expand with further acquisitions. At the start of 2016, the following ships were Meanwhile Carnival and China Merchants will until 2022 confi rmed for, or already present, in China: explore ways to accelerate the development of • In the Carnival Group, the Costa Serena cruise in China using two joint ventures. One joined in the Spring the Costa Atlantica, Costa will seek to acquire and domestically operate Victoria and Sapphire Princess, based year- 150,000 existing vessels or Chinese newbuilds. The other round in China. They will be followed by the Lower berths will focus on developing new destinations and Golden Princess in 2016, and another ship of terminals. Its fi rst project is Prince Bay in Shekou capacity the same brand is currently under construction. in Guangdong Province. scheduled The Aidabella will join the market in 2017 when for delivery Carnival has also signed a MoU with CSSC (China Shanghai will become its home port. State Shipbuilding Corporation) with a view to until 2022 • In addition to the Quantum of the Seas, Royal constructing cruiseships in China in collaboration Caribbean has now positioned year-round in with Italy’s Fincantieri. It will be interesting to China the Voyager of the Seas, the Mariner follow this cooperation, which constitutes a real of the Seas and the Legend of the Seas. strategic challenge for all concerned. Chinese The Ovation of the Seas is also expected to customers will certainly be receptive to ships built join them. in China and fl ying the national fl ag. • Norwegian Cruise Lines confi rmed the arrival of MSC, meanwhile, has signed a partnership the Norwegian Bliss in Shanghai in 2017. agreement with the Chinese group Caissa • MSC meanwhile announced the arrival of Touristic. the MSC Lirica in Shanghai from May 2016. These various agreements with prominent local It will be operated jointly with the Chinese partners enable Western shipowners to better company Caissa Touristic as part of a strategic understand the Chinese domestic market, which partnership agreement. represents a huge potential reservoir of new Other notable events passengers. Another notable event is the gradual opening of 2015 also saw the creation of companies purely the Cuban market to US operators. dedicated to the Chinese domestic market such For now, only Carnival has got the green light as Dream Cruises, part of the Genting Group from US authorities to proceed, in what remains (also owners of Star Cruises), and the start-up a highly controlled relaxation of the rules. Using Diamond Cruise International. the brand Fathom Cruises and the Adonia (355 cabins), the group launched its service to Vessels positioned in China the island offering cross-cultural humanitarian Competition is tough for those independent cruises committed to fair trade. local operators that launched with little prior Cuba will likely open up more in the months and experience of the cruise industry. HNA Cruises years ahead to other American cruise lines and announced at the end of 2015 that it would close this new destination in the Caribbean should its doors after three years of operating losses for certainly attract new customers. its Henna (ex Pacifi c Sun). Bohai Ferry continued its operations with the Zhong Hua Tai Shan (ex Costa Voyager)

84 BRS - 2016 ANNUAL REVIEW CRUIISSE

Major infrastructural work will also be needed to allow the arrival of larger ships, and in greater numbers. Note that MSC has positioned its MSC Opera out of Cuba for the winter season. Other European lines have followed suit, for example Star Clipper with the Star Flyer, and Celestyal Cruises with the Crystal Celestyal. 2015 also saw a significant increase in the number of passengers travelling to Alaska. Mexico also grew in popularity as a destination, since security appeared to be improving. On a less positive note however, Portuguese operator Portuscale, which operated a fleet of older ships, permanently ceased operations in 2015. Among the shipowners, we note the purchase of Anthem of the Seas, 168,666 gt, 2,090 cabins, delivered by the German shipyard Meyer Werft Crystal Cruises by Genting (the parent company to RCCL in 2015 of Star Cruises), while Ponant saw a change in shareholder, finding with Artemis (part of the Pinault Group) the support needed for its further development. Lindblad merged with Capital Acquisition Corp. to form Lindblad Expedition Holdings Inc., which is now listed on the Nasdaq. Outlook The latter announced a new order of two ships The economic slowdown in China could restrain some development with capacity of around 100 passengers. Indeed, projects, but the market’s potential is so signifi cant, and the penetration the fleet of expedition cruise vessels is aging, rate so low, that we anticipate exponential growth in the coming years. and will need a serious rejuvenation to meet The highly populated major coastal cities have seen signifi cant growth the growing interest of wealthy clients for polar in their middle and upper classes. This huge population, estimated at destinations. This explains the large number over 300m people, is likely to be receptive to family cruises offering an of construction projects under consideration in unbeatable combination of quality and price. Port infrastructure is also this segment. developing at high speed. Since March 2015, Chinese cruise passengers can also visit Japan Genting and Apollo continue their gradual without a visa. It is likely that this relaxing of the rules will lead to a withdrawal of investment in NCL, and today signifi cant increase in the number of tourists. possess no more than around 11.1% and 15.8% respectively. Shipowners, however, will have to deal with the high seasonality of this market and the tendency of customers to book last minute, fuelled by the In the shipbuilding market, Genting also took popularity of online purchasing. full control of the Lloyd Werft shipyard, where it is expected to build three ice-class expedition They will also have to develop products specifically for the Chinese ships for Crystal Cruises. The fi rst vessel should market, where vacation time is shorter than in the west, and train travel leave the shipyard at the end of 2018. agents still largely unfamiliar with selling cruises. Meanwhile we fear that the international political situation in various parts We also highlight the purchase by Meyer Werft of of the globe, and the terrorist attacks that occurred in 2015, will continue the Finnish government’s remaining 30% stake in to present challenges to other cruise destinations such North Africa, the Meyer Turku, which is now 100% owned by the Eastern Mediterranean and the Red Sea. The Ebola virus could also be a German group. cause for concern for cruise passengers. The fall in bunker prices, which seems likely to last, will however allow shipowners to improve their margins. Despite this, concerns are now emerging over the stability of the Chinese economy, and it should be kept in mind shocks here could quickly affect the rest of the world and limit growth forecasts across all markets.

BRS - 2016 ANNUAL REVIEW 85 Already fully booked for charter in 2016, this Award-winning 72 metre is now also for sale exclusively with YPI

86 BRS - 2016 ANNUAL REVIEW Yachting

Growth attracts increased outside interest

2015 was the year many people forecast the ‘bubble’ of yachting would burst. A 6-year trend of unabated growth couldn’t continue, they argued: increased geopolitical uncertainty and the rising costs of owning and chartering a yacht had to impact the market. But whilst yacht sales did dip, 2015 saw Asking Prices, newbuild orders and charter demand increase beyond all expectation.

BRS - 2016 ANNUAL REVIEW 87 YACHTTING

Worldwide superyacht sales by quarter

150

120

0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 2015

•l Overview – the yachting average yacht sold for € 8.88m in 2015, up 32% 2,100 on last year (€6.71m), well over the average for business in 2015 the last 4 years. This was without any signifi cant number of Since the fi nancial crisis, sales of superyachts* increase in 70 metre+ sales to artifi cially distort superyachts across the world have increased by a stunning the numbers. 2015, against many expectations, estimated annual average of 17% - a growth rate which not only saw increased turnover, but as first many people in the industry speculated had to seen in 2014, continued to clear the market of to be for sale end soon. And while the first quarter of 2015 the surplus stock that continues to force down seemed to confi rm the market’s buoyancy, with prices. This was despite the 2.9% increase in the % no less than 87 sales (four times the number number of yachts under construction compared 96 in 2009) breaking all previous Q1 records, Q2 to last year and the fact that for the second year of UHNWI who sent the market into shock as sales dropped in a row, more yachts left the market than entered suddenly on 2014 by a massive 30%. For many, it (323 new entries compared to 388 sales). presently neither this was fi nal proof of an inevitable slowdown. It 2015 will also be remembered for another own nor charter is true that 2015 was the fi rst time in 7 years that important indicator of industry growth. Despite a luxury yacht yacht sales ceased to improve on the previous a wave of newly-introduced VAT charges across year. With a total of 388 sales, 2015 dropped Europe, growing geopolitical instability in Greece on the record-breaking 2014 by 6%. However, and Turkey, and continued restraints on Russian 388 looking at the overall 7-year trend of what is a and former Eastern Block business, the charter very cyclical business, 2015 outperformed even industry generated more revenue and with more number of the best of all other years by at least 9%. Even new clients than any time since the financial superyachts sold more significantly, the total value of units sold, crisis. YPI Charter, like most leading brokers, as measured by the last known Asking Price**, recorded an increase on its charter business increased to a record €3.4bn, 6% over the from an already strong 2014 (up 52%) and over 323 already record-breaking total of 2014. In fact, the 30% of that business was generated from clients new to YPI or to chartering. Even the 72-metre number of Axioma chartering exclusively with YPI for over superyachts €550,000 per week, is already fully booked for summer 2016. Only time will tell whether this is coming to the * Yachts over 24 metres (79 feet) in length the beginning of a return on the investment in sales market ** Asking Prices are those prices the yacht was last advertised money, focus and time by YPI and other leading at before she sold. Asking Prices can vary from the fi nal charter brokers in reaching out to the 96% of undisclosed sale price by between 15-50%.

88 BRS - 2016 ANNUAL REVIEW YACHTTING

New to the market: 47 m (153 ft) Cantieri di Pisa now for sale exclusively Superyacht sales by length (metres) with YPI at €19,000,000.

Number

150 149

120 125

60 59

26 16 0 24-30m 30-40m 40-50m 50-60m 60m+

l • Ultra High Net Worth Individuals (UHNWI) who 17 yachts above 60 metres sold in 2015, average do not already charter or own yachts. But given for the last three or four years, including the €3.44bn chartering is, for many, the fi rst step to owning, stunning 72 metre Stella Maris, the 70-metre it is an area we will be watching intently over the Amadeus and the sublime 60-metre Arkley total Asking Price next year. from Lürssen who also made the largest sale of of superyachts the year, the very secretive 139-metre Project sold Redwood set for delivery in 2019. 2015 Highlights: In line with the last 7 years, over 55% of all yachts what sold best in 2015 sold were aged between 4 and 13 years while 139 METRT ES an impressive 17% were between 14-25 years, Overall, 2015 revealed no dramatic changes to underlining once again the fact that age is not a size of the largest the make-up of the sales market. All size ranges barrier in itself to selling a yacht. 2015 also saw dipped as a result of the decrease in global superyacht slight increases at opposing ends of the spectrum sales. Those most hit were the mid-range sizes of sold: PROJECT with more yachts 3 years old or younger (70 units) 30-40 metres and 40–50 metres, dropping by 12% or over 50 years old (8 units) being sold than REDWOOD and 18% respectively. The 50-60 metre range, normal. The older units benefitted in particular however, a sector attracting increasing interest from increased and very competitive refi t services from buyers wishing to upgrade to their second % now being offered by almost all yards, including yacht, experienced the biggest volume of yachts 17 the likes of Feadship who, with their recent sold in any one year, a total of 28 units compared average annual contract for the Lürssen-built Podium, now offer to the yearly average of 19. Importantly, more than refits on yacht brands other than their own. UK growth in sales half the yachts sold in this sector were 3 years old yard Pendennis has completely revitalised its or less, and over half of those are presently under over last 7 years business thanks to refits and restorations, this construction either as semi-custom or newbuild year launching their ground-breaking restoration models. It seems the appetite is for new product of the 50-metre, 1937 built, Malahne as well as rather than purchasing to refi t. €8.88m announcing their refit contract for the 86-metre The entry level sizes 24-30 metres and 30- Aquila, the former Cakewalk. Former World War II average Asking 40 metres still account for a massive 73% of all US Navy ship, the 48-metre RS Eden, once owned Price of yachts units sold with Sunseeker, Westport, Ferretti, by WH Bauer, and the 73-metre former ocean sold in 2015 Azimut and Lazzara leading the field in brand weather ship conversion, Salem, were two of this popularity. Meanwhile, in a 60-metre+ sector year’s more notable classic yacht sales that went dominated by Lürssen and Amels, there were straight into refi t.

BRS - 2016 ANNUAL REVIEW 89 YACHTTING

At 40 metres (131ft), the most technically advanced J-Class in the world, and sold by YPI in 2015.

•l The sailing yacht market the 40-metre Mirabella. The magniﬁ cent 52-metre 8% Alloy Yachts-built Red Dragon was the year’s In both the pre-owned and newbuild markets, largest sailing yacht to be sold, closely followed market share sales of sailing yachts remain stable with 84 yachts by a yacht YPI helped sell and charter over of sales held by currently under construction and 32 pre-owned many years, the much-loved 48-metre Windrose sailing yachts yachts selling this year (8% of all market sales). of Amsterdam. Two YPI sales, the 32-metre Of these, 84% were sized between 24–40 metres Seawave and the 40-metre Rainbow, were the and the majority were between 8 and 13 years old. newest yachts to be sold whilst the 33-metre, A number of quality sailing yachts changed hands 99-year old Silver Spray and the 36-metre, in the year, including the 39-metre Ganesha 1 and 84-year old Puritan took honours as the oldest sailing yachts to change hands.

New orders and projects Top 10 builders by length Yacht projects in build worldwide by length Rank country Over 1,000 yards built the estimated fleet of (total (mtr) / newbuild projects) 5,132 superyachts currently afloat. Today, Length (mtr) N° of 122 yards around the world are working on at least 1 Italy (10,907 / 286 yachts) projects 24 – 27 168 one of the 755 superyachts presently in build. 2 Netherlands (3,858 / 68 yachts) 27 – 30 94 Last year saw a number of important supersized 3 Turkey (3,325 / 71 yachts) launches such as the much-hyped 143-metre 30 – 36 163 4 Taiwan (2,248 / 74 yachts) Sailing Yacht A by Nobiskrug with its 100-metre 36 – 45 141 5 US (2,039 / 57 yachts) high main mast, and the 107-metre expedition 45 – 60 106 yacht Ulysses built by Norway’s merchant 6 UK (1,955 / 64 yachts) shipyard, Kleven, for New Zealand billionaire, 60 – 75 34 7 Germany (1,378 / 14 yachts) Graeme Hart, which offers accommodation for up 75+ 49 8 China (876 / 23 yachts) to 60 guests and its own heli-garage. 9 UAE (676 / 15 yachts) Newbuild orders grew by almost 3% on last 10 Norway (442 / 6 yachts) year, and importantly, this includes a number of revitalised projects which until now had been ‘on- hold’ – projects such as the Mondomarine M54

90 BRS - 2016 ANNUAL REVIEW YACHTTING

•l 100 metre newbuild project for YPI Yachts ordered or under construction by type client showcasing the latest advances in glass and structural engineering

SPORTISH OPEN EXPEDITION SAILING MOTOR

TOTAL

l • and Metalship’s 59 metre, a project that originally The year ahead started life in FNM Spain. YEARS One factor has been particularly noticeable in 2015: 99 No less than 21 yachts over 100 metres are in the level of new investment being attracted to the age of oldest build, at least two of which will see the light of day industry as a whole. Back in 2007, BRS may have this year: the highly secretive 150-metre project yacht sold: been ahead of the game when it invested in YPI, from Mariotti and the 156-metre Project OMAR, SILVER SPRAY but this year witnessed an increase in shipyards (supposedly the largest superyacht ever in gross being acquired, including Turkey’s Sunrise Yachts tonnage) from Lürssen, a yard with no less than by Hong Kong-based Diamond Living Private 5 projects over 100 metres. Investment Fund, Marina Barcelona ’92, now fi rmly 755 The top three producing countries remain owned by D-Marin Investments Holdings, and number of Italy, with over 4 times more projects than their Gavio Group’s purchase of Baglietto, Cerri and superyachts under nearest rival Holland, followed by Turkey. The UK Bertram. Leading shipyard Fincantieri secured a dropped from 4th position to 6th this year and place in yachting by investing in one brokerage construction Greece was pushed out of the Top 10 by Norway, house, and even the leading yacht publication, primarily thanks to two major projects en route Boat International, is now in the hands of a private at Kleven. investment group. Post-fi nancial crisis, and despite 122 The interest in expedition vessels also continues geopolitical situations around the world, the number of yards as technology and design catch up with owners’ business of yachting has held firm. It continues demands to use their yachts further afield and to move ever closer to the business of shipping building at least carry more guests with maximum comfort. in its regulations, discipline, procedures, contract one superyacht 55 expedition yachts are now in build, with processes and transaction sizes. Having fun is YERSIN by French yard Piriou heralded as the an important business and the ultimate pleasure ‘ultimate explorer’, feeding owners’ appetites still business of yachting is attracting a new type of 21 further with her impressive layout and ability to clientele and investment. This new blood and its function in temperatures of minus 20°C whilst links with new networks can only be good for the number of projects operating for 50 days without re-supply. ‘cottage industry’ that has defi nitively grown up. over 100 metres Report & analysis prepared by YPI, a wholly-owned under construction subsidiary of BRS, with thanks to Boat International Media and The SuperYacht Report Group for their help with added worldwide data.

BRS - 2016 ANNUAL REVIEW 91 Valor, 8,827 teu Neo-Panamax handy size, 300m LOA, 48.20m beam. Delivered in 2013 by Sundong Shipbuilding to Costamare. Operated by Evergreen Line

92 BRS - 2016 ANNUAL REVIEW Containerships

Dark days

The year 2015 was a challenging one. It tested the nerves of carriers, owners and investors alike, and is reminiscent of the dark days of 2009. The mood for 2016 appears as gloomy, with the two main symptoms that affected last year’s market, chronic overcapacity and trade stagnation, still there.

BRS - 2016 ANNUAL REVIEW 93 CONTAINEERSHIPS

GLOBAL CONTEXT

Containerships: time-charter rates evolution 2000-2015

$ / day

50,000

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

Jan-00 Jul-00Jan-01 Jul-01Jan-02 Jul-02Jan-03 Jul-03Jan-04 Jul-04Jan-05 Jul-05Jan-06 Jul-06Jan-07 Jul-07Jan-08 Jul-08Jan-09 Jul-09Jan-10 Jul-10Jan-11 Jul-11Jan-12 Jul-12Jan-13 Jul-13Jan-14 Jul-14Jan-15 Jul-15

5,600 teu 4,000 teu 2,500 teu 1,700 teu 1,000 teu 500 teu

GLOBAL CONTEXT The positive operating margins that carriers had enjoyed in the fi rst half of the year, due mainly to lower bunker costs, evaporated in the second half, The near-term outlook remains bleak, with as rapidly decreasing freight rates erased all initial negative signals on all fronts: weak demand, benefi ts of the lower fuel prices. historically low cargo freight rates, some of the Charter rates for containerships followed the worst ever charter rates, a continuously high same pattern, with daily charter hires falling below orderbook, especially for very large vessels, and $6,000-7,000 for almost all ship sizes by the end comparatively low scrapping levels. of 2015. The rates dwindled when carriers hurried The world economy is also showing mixed signals. to remove surplus capacity, redelivering chartered A slowing China, a disappointing South America, ships in large quantities and prompting a sharp battered oil-dependent African countries and a increase of the idle containership pool. lethargic Europe are all contributing to damage Non-operating owners, who derive their income from the fragile confi dence of the liner shipping industry. hiring out to carriers the ships they invest in, were severely affected. As the year advanced, hopefulness turned into gloom. Progressively increasing charter Rates take a hit rates in the spring were followed by a slump in the Eroded by the severe oversupply in the liner summer. The wind of optimism that had prevailed shipping sector, 2015 spot market freight rates among owners, in May and June, when charter rates fell to the lowest-ever levels on record. The China peaked, gave way to doubt and disappointment, Containerised Freight Index (CCFI) slumped to a which eventually led to a rate collapse. record low of 713 points in December 2015. Carriers attempted to impose an unprecedented Bunker lows: number of General Rate Increases (GRI) in 2015, all of which ended in failure. The quantum of the a benefi t and a curse GRI amounts also reached new record highs Bunker prices fell to $140 per ton in December as carriers unsuccessfully tried to recover lost 2015, as oil prices slumped to a 10-year low. revenue by imposing ever-higher rate increases, Average bunker prices in 2015 reached $278 per although none of their attempts lasted for longer ton, and were 49% lower compared to the 2014 than a couple of weeks. average of $547 per ton.

94 BRS - 2016 ANNUAL REVIEW CONTAINEERSHIPS

CHARTER MARKET

Shanghai Trader, 5,042 teu Panamax, 294m LOA, 32.20m beam. Owned by Lomar Shipping Ltd. Operated by NYK Line

l • The lower bunker prices proved to be both a beneﬁ t The 2015 market collapse reminded us of the and a curse for carriers. Although shipping lines’ 2009 meltdown, although the context was rather Despite the operating margins improved in the ﬁ rst half of 2015, different. This time, the carrier’s reckless order mainly due to lower fuel prices, most of these gains wave of the past few years was largely to blame for weak market were wasted in the second half of the year. the overcapacity that created chaos in the market, while the poor health of the world economy only 255 made things worse. vessels were CHARTER MARKET The various size segments were also not affected in ordered in 2015 the same way as in 2009. While the 4,000-9,000 teu In the doldrums segment suffered severely from cascading effects, triggered by the constant stream of ULCS and 60 The chronic overcapacity that has been affecting VLCS newbuildings, the ships of 1,000-3,000 teu The number the market since 2008 remains and will continue to were relatively immune to this ripple effect. of ULCS (18,000- affect severely the non-operating owners (NOOs) The 1,000-3,000 teu segment actually enjoyed a in the foreseeable future. The carriers continued healthier supply-demand balance than the larger 22,000 teu) to receive ULCS of 14,000-20,000 teu at an sizes, leading to a singular situation in which ordered in 2015 unprecedented rate. 1,100 teu ships obtained similar rates to 6,000 teu These giants displaced chartered ships of 4,000- units. Both vessel sizes earned $6,500 per day for 8,000 teu that are the bread and butter of many the last two months of 2015. Although reaching a The top 5 carriers yearly low in December, the rates for the 1,000- NOOs. Carriers offload such ships as soon as could control charters expire, so the burden of idling them 3,000 teu ships were still 50% higher than at their falls mainly on the NOOs. The 4,000-8,000 teu lowest point in 2009. more than 50% segment was under more pressure than ever The relatively higher rates recorded for the small of the market before, with the Panamax 4,000-5,100 teu units ships prevented the Alphaliner charter index from by end 2016 facing even worse days with the opening in 2016 falling to its all-time low of 39 points, recorded in of the new Panama locks. 2009. In December 2015, the index still stood at There are, however, grounds for hope at the smaller 45 points. While rates fell to $4,000 per day for end of the size spectrum, with the supply-demand 1,000-2,000 teu ships in 2009, they remained balance improving in the 1,000-3,000 teu range. mostly over $6,000 during 2015. But these ships remain sensitive to intra-Asia This contrast is expected to continue in 2016. trades, by far the main employer of such ships. Based on Alphaliner records in January 2016, the

BRS - 2016 ANNUAL REVIEW 95 CONTAINEERSHIPS

CHARTER MARKET

CCNI Andes, 9,030 teu Neo-Panamax handy size, 300m LOA, 48.20m beam. Delivered in September 2015 by Hanjin- Philippines Shipyard. Owned/managed by Compañía Maritima Chilena/NSC Schiffahrt. Operated by CCNI (Hamburg Süd)

•l orderbook to existing ﬂ eet ratio currently stands at units will be affected in 2016 by the redundancies Prospects for 12.5% for 1,000-3,000 teu vessels while it reaches of Panamaxes created by the new locks opening. 40% for the ships over 8,000 teu. 7,500-9,000 teu Panamax 4,000-5,100 teu outlook VLCS look positive The situation can only get worse in 2016 for for 2016 with 2016 outlook conventional Panamaxes, already vastly affected for charter market ships by chronic oversupply. The new Panama locks are the opening expected to open at the start of the peak season, of the new The container charter market outlook remains just when Panamax chartering activity picks Panama locks bleak. On the supply side, the overhang of up as seasonal FE-USEC loops are launched. tonnage continues to grow for vessels over This time, it will be much larger ships that stand 3,000 teu, while it is barely stabilizing for smaller to benefit from the peak season surge, leaving units. The market appears upside down, with ships The situation many traditional Panamaxes stranded with few of 1,000-2,000 teu now commanding higher rates alternative deployment prospects. can only get than tonnage in the 4,000-7,000 teu size class. worse in 2016 3,000-3,600 teu outlook 7,500-9,000 teu outlook for conventional The outlook for 2016 is mixed for the 3,000- Prospects for 7,500-9,000 teu VLCS look positive 3,600 teu size. This category of ship tends to be Panamaxes for 2016 as the opening of the new Panama locks increasingly used on South-South trades and on will shake up service patterns, to the benefit of large-scale relay services. Prospects thus rely such ships, whether they are neo-Panamax beam on how the southern economies, in particular (19 rows) or narrower (17-18 rows). Africa, will perform this year. West Africa and East Africa medium-range services (Med-WAF relay Overpanamax 4,000-7,500 teu outlook services and ME/ISC-EAF services) will probably The outlook for the 5,300-7,500 teu segment tip the balance, although cheap 4,000-5,000 teu is unclear. On the one hand, the sector should Panamaxes will be serious challengers. benefit from the Panama locks opening but on the other hand, the extra demand may not 2,000-2,900 teu outlook be sufficient to counter the effects of vessel The outlook is mixed for the 2,000-2,900 teu cascading from other sectors. Despite obvious segments. Despite a stable supply, owing to the advantages compared to Panamax vessels of low number of ship deliveries and the potential similar intake, the 4,000-5,000 teu overpanamax to scrap ageing units, demand could be affected

96 BRS - 2016 ANNUAL REVIEW CONTAINEERSHIPS

THE FLEET

RHL Calliditas, 4,620 teu Overpanamax (15 rows) built 2013. Owned by Reederei Hamburger Lloyd. Operated by NYK Line Shanghai Containerised Freight Index (SCFI)

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0 OCT-2009 OCT-2010 OCT-2011 OCT-2012 OCT-2013 OCT-2014 OCT-2015

negatively by service consolidations on certain THE FLEET sectors, linked to the competition created by an excess of 3,000-5,000 teu Panamaxes. Deluge of large vessels 1,000-2,000 teu outlook The world cellular containership fl eet grew by 8.5% The outlook for 2016 is positive for vessels ranging during 2015 to reach 19.94 mteu as of 1 January from 1,000 to 2,000 teu, with a relatively low 2016, according to Alphaliner figures. The number of newbuildings coming on stream while 1.10 mteu growth in capacity was driven by the demand should remain sustained. Ships of this delivery of 212 newbuildings totalling 1.72 mteu, size cover several ports with substantial traffic up from the previous year’s 1.47 mteu of vessel volumes and physical restrictions, either in draft or deliveries. The newbuilding infl ux therefore clearly in length. The 1,000-2,000 teu ships are, however, exceeded the previous records of 1,527,800 teu, much exposed to intra-FE trades, with almost half (2008), and 1,466,870 teu (2014). of them employed there, and any recession in Asian trade will adversely affect them. The weak market conditions did not deter carriers and owners from ordering more containerships. 500-1,000 teu outlook A total of 255 vessels was ordered last year, The outlook for 2016 is negative for vessels of 500- including 60 ULCS of 18,000-22,000 teu. Together, 1,000 teu. Ships of 500-700 teu have already been these 255 orders make up a capacity of 2.34 meu. pushed out of the general charter market and those The value of all containerships contracted over the remaining are mostly employed on specifi c regional course of 2015 reached an estimated $20.2 Bn. trades and on a few low-volume feeder loops. The large number of ULCS orders will fuel the Vessels of 700-900 teu are also being gradually overcapacity that affects the market. replaced by 1,000-1,500 teu units on several sectors. A fair number of these newbuilding contracts were Small ships can actually be of interest for regional driven by the new IMO Tier III requirements. Some players who need such tonnage to serve a large owners were prompted to bring forward planned range of small ports, in particular in countries orders in order to avoid expensive solutions with numerous islands such as the Philippines required to meet the stricter emission standards or Indonesia. Indeed, domestic carriers in these for ships with keels laid after 1 January 2016. This two countries have purchased numerous small applies especially to the smaller ships intended for containerships over the past few years, for local ECA deployments, for which the impact of Tier III services requiring the national fl ag. rules on price is twice as great as for large vessels.

BRS - 2016 ANNUAL REVIEW 97 CONTAINEERSHIPS

THE FLEET

2015 DEMAND GROWTH AT LOWEST LEVEL SINCE 2009

Container throughput at the world’s top 30 ports shrank by 0.9% in the third quarter of 2015, the fi rst quarterly reduction in container volumes recorded since 2009. Full-year growth is expected to reach only 0.8% at these main ports, as container volumes weakened in the second half of the year. While initial estimates forecast a 3% to 4% year-on-year growth, the recent developments have forced a downward revision of global container volume estimates. The absence of any peak-season demand The fl eet is expected to grow by 5.2% in 2016, a rate that is expected to continue to outpace global surge in 2015 had significant repercussions in the market, as carriers transportation demand. The global container ship struggled to fi ll ships amidst a record number of vessel deliveries. orderbook stood at 4.04 mteu on 1st January 2016, As a result of the severe over-capacity, the idle containership fleet representing 20.1% of the current fl eet. surged in the second half of 2015. At the end of 2015, it stood at In 2015, the influx of new tonnage was partly 1.36 mteu, i.e. 6.8% of the existing fl eet, thus approaching levels not offset by the removal of 201,000 teu of older ships seen since 2009 (when the idle fl eet peaked at 1.5 mteu, i.e. 11.6% of from the global fl eet through scrapping and other deletions (such as losses and conversions to non- the fl eet). container use). This figure represented only a The average level of idling was also significantly higher in 2015 small fraction (11.7%) of the newbuilding deliveries. (552,000 teu) than in 2014 (381,000 teu). However, the 2014 level However, last year’s deletion rate was notably was kept artificially low because many ships were kept busy by the below the 2013 and 2014 figures of 463,000 teu congestion in USWC ports and ports such as Manila. and 394,000 teu respectively. The scrapping rate is expected to accelerate again substantially in 2016.

Alphaliner - 2015-16 - Cellular ships - Essential fi gures

Ships teu % Change YoY Ships teu Fleet as at 1 Jan 2016 5,153 19,936,672 8,5% Fleet as at 1 Jan 2015 5,035 18,374,572 Orderbook as at 1 Jan 2016 499 4,042,122 19,3% Orderbook as at 1 Jan 2015 454 3,388,087

2015 - Activity 2013 - Activity Ordered 2015 256 2,342,058 113,1% Ordered 2014 151 1,099,213 Value of new orders $20.2 bn 97,0% Value of new orders $10.2 bn Delivered 2015 214 1,724,621 17,6% Delivered 2014 203 1,466,874 Deleted 2015 106 201,306 -48,9% Deleted 2014 180 394,077 Breakdown Breakdown Scrapped 89 192,428 -50,5% Scrapped 170 388,419 De-celled 15 7,627 132,0% De-celled 6 3,288 Lost 2 1,251 -47,2% Lost 4 2,370

Average idle fl eet 2015 552,043 45,0% Average idle fl eet 2014 380,595 Idle fl eet at end Dec 1,359,400 496,6% Idle fl eet at end Dec 227,862

Average CCFI 2015 875 -19,4% Average CCFI 2014 1,086 CCFI end Dec 723 -32,1% CCFI end Dec 1,064

Av. Alphaliner charter index 2015 65 14,3% Av. Alphaliner charter index 2014 57 Index at end Dec 45 -22,9% Index at end Dec 58

Average FO $/ton 2015 (Rtm/Sin) 277 -49,4% Average FO $/ton 2014 (Rtm/Sin) 547 FO $/ton end Dec 158 -49,2% FO $/ton end Dec 311

98 BRS - 2016 ANNUAL REVIEW CONTAINEERSHIPS

THE FLEET

Top 20 Carriers in January 2016 and projected consolidation

Capacity in teu millions

4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50

MOL APL Zim CSCL OOCL UASC c Int. APL CSCL Line COSCO K Line Line) Shg Co Group COSCO + Group CMA CGM Evergreen NYK Line CMA CGM + APM-Maersk Hapag-Lloyd Hamburg Süd Mediterranean Container L. Hyundai M.M. Wan Hai Lines Hanjin Shipping PIL (Paciﬁ Yang TransportMing Marine Corp. Orderbook Operated ﬂ eet as at november 2015

Alphaliner - Cellular fl eet as at 1st January 2016

• The cellular fl eet counts 5,156 ships for 19.9mteu - of which 50.8% are chartered from non-operating owners • The cellular fl eet aggregates 97.8% of the total capacity deployed on liner trades in teu terms >> Out of a total of 6,089 ships active on liner trades for 20.38 mteu and 254.3m dwt • The orderbook counts 504 ships for 4.07mteu representing 20.1% of the existing fl eet) (fi rm orders only) • The orderbook includes 276 ships for 2.16mteu with charter status representing 53.1% of the total orderbook

01 JANUARY 2016 - EXISTING 01 JANUARY 2016 - ORDERBOOK

Size ranges All Of which chartered fm NOO All Of which chartered fm NOO teu ships teu ships teu % Cht ships teu ships teu % Cht O / E 18,000-20,000 35 656,524 6 115,344 17.6% 74 1,441,226 31 587,568 40.8% 219.5% 13,300-17,999 109 1,572,072 40 579,347 36.9% 56 795,886 36 507,428 63.8% 50.6% 10,000-13,300 193 2,278,542 83 985,824 43.3% 75 859,630 38 407,530 47.4% 37.7% 7,500-9,999 454 3,985,032 218 1,910,205 47.9% 35 325,205 30 278,205 85.5% 8.2% 5,100-7,499 510 3,148,660 262 1,614,985 51.3% 15 84,452 15 84,452 100.0% 2.7% 4,000-5,099 735 3,335,118 405 1,838,308 55.1% 6 24,000 2 8,000 33.3% 0.7% 3,000-3,999 261 904,919 151 527,372 58.3% 24 87,978 6 22,042 25.1% 9.7% 2,000-2,999 648 1,639,599 476 1,205,262 73.5% 96 243,710 38 94,014 38.6% 14.9% 1,500-1,999 582 994,457 304 521,711 52.5% 70 124,325 49 87,450 70.3% 12.5% 1,000-1,499 696 807,604 412 482,817 59.8% 46 54,567 23 30,911 56.6% 6.8% 500-999 748 556,171 429 326,681 58.7% 2 1,143 0 0 0.0% 0.2% 100-499 182 57,978 38 12,69021.9% 0 0 0 0 TOTAL 5,153 19,936,676 2,824 10,120,546 50.8% 499 4,042,122 268 2,107,600 52.1% 20.3%

* Note: the existing chartered ﬂ eet takes into account ships chartered out by non-operating owners to operators, thus it does not take into account 119 ships for 461,695 teu which are normally owned by an owner-operator but are chartered out to another operator, either for operational reasons (operational exchanges within alliances or partnerships) or because they are surplus to their owners requirements.

BRS - 2016 ANNUAL REVIEW 99 CONTAINEERSHIPS

THE FLEET

INCREASED INDUSTRY CONCENTRATION FAILS TO LIMIT MARKET TURMOIL The beginning of 2015 was marked by the integration of CSAV by Hapag-Lloyd in December 2014 and of CCNI by Hamburg Süd in March 2015. The year ended with further news of impending industry consolidation, following the announcement in December of CMA CGM’s planned acquisition of APL and the planned merger of COSCO and CSCL’s container shipping operations. Even as the larger carriers become bigger, with the top 5 carriers expected to control more than 50% of the market by the end of 2016 compared to only 23% in 1996, the alliance arrangements also evolved. In this respect, the beginning of 2015 saw the smooth transition of fi ve carriers into two new East-West alliances: the ‘2M’ (Maersk and MSC) and ‘Ocean 3’ (CMA CGM, CSCL and UASC). The rising level of industry concentration has failed to limit the severe market turmoil witnessed in 2015 and the near-term outlook does not look any diff erent. In 2016, a new round of alliance restructurings is expected, which will bring turbulence to an uninviting landscape. With an aggregated fl eet of 17.1 mteu at 1st January 2016, the Top 20 carriers control 83.8% of the liner shipping fl eet, based on Alphaliner’s Carriers League. Maersk retained its top spot in the carrier rankings with an existing fl eet of 3.00 mteu, closely followed by MSC (2.68 mteu), CMA CGM (1.82 mteu), Evergreen (0.93 mteu) and Hapag-Lloyd (0.93 mteu).

•l Alphaliner Top 25 as at 01 January 2016 With an aggregated fl eet Total existing Orderbook of 17.1 mteu OPERATOR teu Ships teu Ships in January 1 APM-Maersk 2,995,836 585 405,910 31 2016, the Top 2 Mediterranean Shg Co 2,678,779 487 572,720 43 3 CMA CGM Group 1,820,821 462 261,370 25 20 carriers 4 Evergreen Line 931,849 192 395,770 41 control 83.8% 5 Hapag-Lloyd 930,398 172 52,500 5 of the liner 6 COSCO Container L. 861,692 168 332,003 22 shipping fl eet 7 CSCL 694,322 126 233,928 14 8 Hamburg Süd Group 645,889 134 39,430 9 9 Hanjin Shipping 626,217 102 18,060 2 Maersk still 10 OOCL 561,522 104 126,600 6 11 MOL 554,425 95 140,920 8 leads the carriers 12 Yang Ming Marine Transport Corp. 537,712 100 140,400 10 league with an 13 APL 535,007 85 existing fl eet of 14 UASC 512,785 57 129,698 8 3 mteu 15 NYK Line 495,723 97 140,000 10 16 K Line 386,265 67 69,350 5 17 Hyundai M.M. 379,392 55 60,330 6 18 PIL (Paciﬁ c Int. Line) 360,401 146 141,600 12 19 Zim 358,264 81 20 Wan Hai Lines 213,394 87 21 X-Press Feeders Group 123,954 82 22 KMTC 107,161 56 7,200 4 23 HDS Lines 88,608 22 24 SITC 88,267 71 3,610 2 25 TS Lines 68,395 36 3,600 2

100 BRS - 2016 ANNUAL REVIEW CONTAINEERSHIPS

SECOND HAND MARKET

Cap San Artemissio, 9,800 teu Delivered in 2014 by Hyundai Heavy Industries (HHI) to Enesel (NS Lemos) Chartered & operated by Hamburg Süd

l • SECOND HAND MARKET backed by US private equity group KKR). The acquisition by Borealis was done in New investment partnership with the German owners O&S A Year of Contrasts Partners (outside of the KG system). funds, notably in Seven vessels (between 1,732 and 3,380 teu) of China and the US With 305 sales recorded in 2015, this constitutes the fourteen held and marked insolvent by HSH a record for the containership market! The fi gure have emerged Nordbank were sold to Greek shipowner Navios. compares to 248 transactions in 2014, and as few as 85 in 2011. 2015 was also marked by contrasting price levels during the year, with the market on the Thus if 2015 was notable for its significant rise up until July, after which prices showed a number of newbuilding orders, it will also be signifi cant decline of around 30% on average in remembered for its second hand activity. In the remainder of the year. Indeed, some 70% of contrast to the newbuilding orders, which were sales were realised in the fi rst half of the year. mainly concentrated on ships over 10,000 teu, the second hand market was driven by sales in After 25 years of existence, we are now the smaller size segments. witnessing the disappearance of the KG fi nancing system that allowed Germany to build the world’s Meanwhile, the surge in “distressed assets” sales largest fl eet of containerships between 1,000 and which began in 2014 accelerated rapidly in 2015; 5,000 teu. At the height of its powers, some 40% this type of transaction represented some 20% of the vessels in this segment on period charter of total sales during the year. The figure would were fi nanced by the KG system. The collapse is have been even higher if one included sales on a large-scale, with more than 500 of the KG imposed (or strongly urged) by creditors on their fi nancing structures now in fi nancial liquidation. shipowner clients, although this gray area is often diffi cult to identify... New investment funds, notably in China and the US have since emerged. Their acquisitions There were several notable ‘en bloc’ transactions have centred mainly on over-Panamax vessels. taking place during the year: Moreover, the near-absence of KG funding for Twenty containerships (from 990 teu up to the orderbook is quite remarkable. Instead, 5,294 teu) were sold by shipowner Herman Buss other names such as Seaspan, CIMC, Quantum, to Peter Doehle and Ahrenkiel. Zodiac, Bocom and SFI have contributed Thirteen vessels (between 2,400 and 4,255 teu) signifi cantly to the over-Panamax orderbook. were sold by Commerzbank to Borealis (fi nancially

BRS - 2016 ANNUAL REVIEW 101 CONTAINEERSHIPS

SECOND HAND MARKET

Chiquita Express One of 2 high reefer containerships purchased and upgraded by Atlanship S.A. for account of Chiquita Banana, Great White Fleet.

Number of second hand transactions since 2007

2007 2008 2009 2010 2011 2012 2013 2014 2015 58 <900 teu 44 incl (18mpp) 43 33 33 55 40 39 52 900 – 2,000 teu 85 54 64 92 33 76 84 84 92

2,001 - 3,000 teu 51 22 19 25 9 15 41 39 72

>3,000 teu 45 20 6 54 29 13 44 86 89

Total 225 154 132 204 104 159 209 248 305

Analysis of 2015 transactions Over Panamax: 32 sales by size segment With 32 sales during the year, activity grew by more than 50% compared to the previous year (20 sales in 2014, and just 6 in 2013). Ships over 10,000 teu: 2 sales There were only 2 sales reported in this segment. Six vessels belonging to OOCL (8,063 teu, built At the start of the year, Navios Maritime Partners 2004-2006) were sold at a price of approximately (Angeliki Frangou) acquired two 13,100 teu units $53m each: four to the Greek shipowner from E.R. Schiffahrts: the E.R. Renée (built 2012) Technomar, and two to Global Ship Lease which and the E.R. Cristina (built 2011) for a price of is partly controlled by CMA-CGM. These sales $147.8m. The transaction included 12-year came with a 36-month charters back to OOCL at charters to MSC at a rate of $60,275 per day. $34,500 per day. Second hand transactions are relatively rare in At the very end of the year, French shipowner this segment, which is still largely dominated by CMA-CGM sold two similar ships to the Chinese newbuilding activity. At the end of 2015, ships fund CIMC for approximately $51m each against over 10,000 teu represented an impressive 76% a 48-month bareboat charter back at a rate of of the orderbook by deadweight. $30,000 per day.

102 BRS - 2016 ANNUAL REVIEW CONTAINEERSHIPS

SECOND HAND MARKET

Containership Second Hand Prices

million $

2012 2013 2014 2015 0 J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

4,500 teu 5 years 2,750 teu 5 years 1,700 teu 10 years

l • Panamax: 44 sales The main drivers of this activity were a rebound A near-record was almost achieved in sales in in charter rates at the start of the year, and an 6 vessels average price of just $15m for a 10-year-old August 2015. The bankruptcy of several German from OOCL KGs resulted in the sale of 20 vessels, the ship. Between September and December, we majority of which were held by their respective observed a decline of approximately 30% in the (8,063 teu, built mortgage lenders. asking price of these vessels, but also a gradual 2004-2006) step-back from sellers to dispose of ships at Other major sellers in 2015 were Seacastle this level. were sold for (Singapore) with 6 ships, and Japan’s MOL. In approximately terms of buyers, we can highlight the acquisition 1,000-2,000 teu: 77 sales by Belgian shipowner CMB (in partnership with $53 million each Despite a slightly larger orderbook in 2015 Centerbridge) of 11 vessels from Commerzbank. compared to the previous year (114 ships at the If we exclude the sale of 6 vessels by Hapag- end of 2015 versus 105 at the end of 2014), we Lloyd built in 1991-1992, the average age of are still far from a normal rate of renewal. For this Low prices of Panamax sold in 2015 was 8 years old, and reason, we saw an aging fleet and price levels second hand the average sale price $18m! These low prices on average similar to those in 2014. This segment Panamax tonnage largely explain the enthusiasm of buyers. also observed the general trend of rising prices created enthusiasm At year end, charter rates were no longer before the summer, and falling prices afterwards. suffi cient to cover operating costs, and no vessel amongst buyers in this segment could fi nd a buyer despite a fall in 1,000 teu and under: 67 sales asking prices once again. Shipowner BalticMax shipping (a joint venture between Vroon and OSM) was given the 2,000-3,800 teu: 83 sales management contract for 24 feederships, Similarly in this segment, only 7 vessels out of a of which 10 were sized under 10,000 teu, total of 83 found buyers after the summer. Earlier by BremerLandesbank. The details of this in the year, the main movers were Germany’s arrangement remain confi dential. Borealis (which bought 11 ships ‘en bloc’ from German shipowners alone sold 53 ships in this Commerzbank), Turkey’s Arkas (which purchased segment, mainly to buyers in the Far East and 6 ships), Greek shipowner Lomar (5 vessels) and Middle East. Denmark’s AP Moller (6 ships purchased from the Schulte group).

BRS - 2016 ANNUAL REVIEW 103 Atlantic Star, ConRo, 28,900 sqm ro-ro space plus 3,800 teu, 18 knots. Delivered by Hudong-Zhonghua Shipbuilding Co. in October 2015 to Atlantic Container Line (ACL).

104 BRS - 2016 ANNUAL REVIEW Ro-Ro

Good times ahead?

2015 was a year that everyone involved in the ro-ro industry was expecting with great anxiety. The big game-changer, the implementation of emission control legislation that started 1st January 2015, was expected to shake the sector in its foundations. Overall, the industry showed good resilience and adapted well to the new market conditions riding on the wave of solid cargo ﬂ ows in North Europe, West Mediterranean and Turkey. Luckily, operators also had a powerful ally in the low bunker prices, which allowed them to keep their operating costs at bay while managing to avoid substantial freight increases, ultimately minimising the risks of eventual loss of cargo volumes to other modes of transport.

BRS - 2016 ANNUAL REVIEW 105 RO-RRO

Grande Cotonou, ConRo, 5,250 lm or 1,780 teu on 5 decks , 20 knots. Delivered by Hyundai Mipo in January 2015 to the Grimaldi Group.

•l Economic environment and continuous fragmentation of the country; the Most services to full-blown confl ict in Syria has even taken a turn The general economic environment in the principle for the worse with the rise of the Islamic State Libya came to a ro-ro market of Europe provided reasons for only while the status quo on the Crimean peninsula has halt at one point very moderate optimism. Overall, European effectively neutralized a large portion of the ro-ro in the year due to economies posted a growth rate of about activity in the Black Sea. Worse was yet to come 0.8% in 2015 as opposed to 1.2% in 2014. This – the ‘fi ghter plane’ incident between Turkey and security reasons confirms the earlier predictions that Europe is Russia at the end of November resulted in Russian facing a prolonged period of minimal growth. import restrictions on Turkish products which The monetary injection by the European Central dealt a strong blow to the established fruit and Economic Bank in early 2015 spurred economic activity while vegetable trade between the two countries, one of environment in the decline in oil prices had negative implications the backbones of the Black Sea ro-ro market. on the emerging markets on Europe’s periphery, Most services to Libya came to a halt at one point in Europe generated favouring oil-importing economies and hurting oil a very moderate exporters such as Russia and West African and the year due to security reasons although operators like Grimaldi, Messina and Evge Lines still operate optimism North African countries. Geopolitical instability in the Near East, Libya, Russia and Ukraine also tonnage to the country on a regular basis. adversely impacted activity on Europe’s periphery. Due to government imposed restrictions on vehicle All regions considered, economic growth looked imports coupled with decreased cargo volumes stronger in advanced economies, but weaker in related to the oil and gas industry, overall cargo the emerging markets and developing economies, fl ows on routes to Algeria shrank. As a result, in mostly due to the decline in commodity prices and the second part of the year, Nolis winded down political turmoil. their established service from Italy and France to Algeria while CNAN Med downsized capacity. Nevertheless, this did not stop NISA from reviving Regional markets their ‘old’ service to Algeria from Marseilles. The Mediterranean market, traditionally more Volumes out of Turkey have been consistently volatile than the North European one, was a victim strong with further upside in store. The maritime of strong geopolitical turmoil. 2015 has certainly corridor between Turkey and Italy/France been a year with no shortage of confl icts – we have has gained further importance as a result of witnessed the otherwise vivacious Libyan ro-ro the difficulties that truckers are facing on the market crumble due to the increased insecurity transit route through the Balkans due to the

106 BRS - 2016 ANNUAL REVIEW RO-RRO

Average time charter rates for 6-12 month charters

1 000 € / day unprecedented migration wave entering the EU 18 through Greece from Turkey. 16 We have, however, witnessed healthy activity 14 in Spain, Italy and France, particularly during the summer season, with a special mention to 12 Corsica and Sardinia where a number of operators strengthened their positions. Both Moby Lines and 10

Grimaldi added freight capacity on services to 8 Sardinia while we expect an increase in activity on the Marseilles-Corsica corridor as a result of the 6 privatisation of SNCM and the imminent arrival of a new operator focused on unaccompanied freight, 4

Corsica Linea. Towards the end of the year, the 2 Italian anti-trust authorities gave their ﬁ nal green 2010 2011 2012 2013 2014 2015 light thus completing the last phase of Moby’s 0 takeover of 100% of the shares of CIN/Tirrenia. 1,000-1,500 Lm 1,501-2,000 lm 2,001-2,500 lm Cargo volumes have continued dropping on routes 2,501-3,500 lm 3,500+ lm to West Africa, mainly as a result of diminishing demand from oil-producing nations as well as import restrictions in certain countries. There are effectively only 3 operators currently running ro-ro or con-ro services to West Africa – Grimaldi with the lion’s share of the market, Spanish operator

l • Marguisa and newcomer MNM Shipping. Chartering activity The Caribbean showed some signs of recovery. Southbound Considering the size of the ro-ro fleet and the SC Line was operating tonnage throughout the ever-declining number of operators remaining migration of year and even added regular calls to Cuba while in activity, it is not surprising that the number of Marinex Line added a small vessel to its Puerto tonnage stopped chartering transactions in 2015 remained relatively Rico-Dominican Republic service. If the US lifts in 2015. low. Overall, charter rates increased by up to 40% its sanctions on Cuba, we expect further trading It even reversed licences to be awarded which should result in year on year for larger vessels whereas for smaller increased activity. tonnage under 2,000 lanemeters (lm) capacity, thanks to charter rates increased by roughly 20% y-o-y. consistent demand Strong cargo flows on the United Kingdom- A slowdown was registered between September Continent corridor, Irish Sea, North Sea and and November when a slight oversupply of in North Europe Baltic coupled with reduced operating costs have tonnage occurred in the Mediterranean and allowed most North European operators to post the Black Sea, affecting mostly tonnage below healthy profits in 2015. Trade between the UK 1,500 lm capacity. % and the Continent generally grew consistently 40 throughout the year while the growth was slower The southbound migration of tonnage stopped Increase of for trades between UK-Cont and Scandinavia. in 2015 and was even reversed on the back of consistent demand from North European markets. charter rates CLdN/Cobelfret added additional tonnage on Some operators were able to adapt to emission from 2014 to 2015 their service to Portugal; SOL Continent Line has control regulations by burning MDO and other continued to expand its activities throughout 2015 for large vessels ECA compliant distillates while the majority – the company is now present on five different – Transfennica, DFDS, Finnlines, P&O etc. – lines and has cooperation agreements with Stora continued installing scrubbers on most of their Enso, P&O, UPM and TT Lines; in the Irish Sea, modern units. Seatruck Ferries added an additional vessel on their Liverpool-Dublin route. When it comes to larger sizes and particularly ice- classed tonnage, demand has been consistently European sanctions on Russia (and vice-versa) strong throughout the year and we expect the trend are still disrupting cargo flows to the Baltic to continue in 2016, particularly in North Europe. countries and Russia. As a consequence, DFDS withdrew their own vessel and entered into a slot The traditional tramp market has continued charter agreement with Finnlines on the route shrinking even further, with a large portion of it between Russia and Germany. linked to military deployments. Most of the spot

BRS - 2016 ANNUAL REVIEW 107 RO-RRO

CLdN Zeebruegge Brittania Dok terminal, due to be upgraded to accomodate the companies’ newbuildings ordered in 2015

chartering activity has been linked to drydock Sale and purchase activity replacements and it is becoming increasingly diffi cult for operators to fi nd replacement capacity Sale and purchase activity was strong in 2015 with on short notice. Due to the general scarcity a total of 24 transactions registered against last of ships and the fact that modern tonnage is year’s 11, a 118% increase y-o-y. This amounted concentrated in the hands of existing operators, it to a total of approximately 51,336 lm with an remains extremely challenging for any newcomer average age of approximately 20.16 years and to enter the sector. average lm capacity of approximately 2,139 lm per vessel. 7 vessels were younger than 15 years, 17 out of 24 vessels were purchased by European Demolition activity buyers, 1 by Lebanese buyers, 3 were sold to Demolition activity contracted sharply in 2015. Asian buyers while Chilean and Mexican buyers Over the last 5 years, on average almost purchased 2 and 1 units respectively. 40 vessels were recycled every year. Thanks to a more rewarding charter market and due to the fact that most obsolete units have already left the world New deliveries in 2015 fl eet, only 10 vessels have been recycled in 2015. 13 new units were delivered during the course of This is a clear symptom of the improving health the year for a total of approximately 54,500 lm. In of the sector. The average age was 30.8 years, comparison, 10 units with about 40,700 lm were the average size about 1,115 lm, compared to delivered in 2014. Once again, the majority of the 1,560 lm last year. The primary victims were vessels delivered were large deep sea con-ro vessels smaller units with 6 vessels of under 1,000 lm – 4 units for Grimaldi, 3 units for Messina, one for and only one vessel of more than 3,000 lm. The Atlantic Container Line (ACL) and one for Pasha. This total lane meter capacity scrapped accounted for explains why the average size of delivered vessels approximately 11,150 lm, a 79% decline y-o-y. We is as high as 4,190 lm per unit. In October, ACL took expect demolition activity to remain subdued in delivery of the Atlantic Star fi rst of 5 new G4 con-ro 2016 also because of low demolition prices due to vessels, the largest con-ros ever built. increased supply of demolition candidates coming from other sectors (bulk). Three ro-ro vessels sunk All of the ships delivered in 2015 were ordered for in 2015, amongst them the El Faro in October specifi c trades and none of them are destined for causing the loss of life of 33 crew members. the tramp market.

108 BRS - 2016 ANNUAL REVIEW RO-RRO

As it stands now, 11 vessels are expected to be the whole industry. The company’s port division delivered in 2016 and only one of them might end is also expected to simultaneously invest about up on the tramp market, if it is actually ever delivered €100m in expanding its terminals in order to adapt (the long-delayed Al Hurreya 3). Four of these for the arrival of these behemoths. vessels will have more than 5,000 lm capacity and Dutch Concordia Group reported that they are destined for deep-sea con-ro services - these will build two ro-ro vessels tailor-made for the are the four remaining vessels on order by Grimaldi’s transport of nacelles and rotor blades between affi liate ACL. The remaining units are earmarked to their production facilities in Denmark, Germany join the services of Nordana, Searoad, K-Line and and the UK. According to their partners Siemens A-Line in Japan plus 2 units for Seaspan Canada. and Deugro, by using the ro-ro concept instead of traditional crane manipulation, they estimate to New orders in 2015 achieve 15-20% cost savings. The Visentini shipyard is due to deliver a 2,800 lm Despite competitive newbuilding prices and unit which was built on speculation but has already hungry shipyards worldwide, only 8 ro-ro vessels found its end user. have been ordered in 2015. Just like in 2014, speculative investors and pure tonnage providers Newbuilding prices are expected to stay low in have still not decided to order tonnage. Cobelfret 2016. Market fundamentals have already improved (CLdN RoRo) have placed an order for 2 x ‘LNG and owners are seeing signifi cantly better returns ready’ ro-ro vessels at Hyundai Mipo. Each one from the charter market. The need for sophisticated, of these gigantic vessels with about 7,700 lm large tonnage is evident, so we expect to see an capacity is almost double the size of the largest increased number of newbuilding orders in 2016, vessels currently operated in Cobelfret’s fl eet so this time even from pure tonnage providers. they are expected to be a real game changer for

Predictions for 2016 Growth in Europe is projected to increase by merely 1.5% ro-ro sector is increasingly becoming a two tier market. A in 2016 and 1.8% in 2017. The recovery in advanced select number of owners/operators with strong balance economies is expected to pick up slightly, while activity in sheets and financial power to invest in new tonnage will emerging market and developing economies is forecast to continue to dominate leading to further consolidation. CLdN/ slow for the fi fth year in a row, primarily refl ecting weaker Cobelfret has already announced that their fl eet expansion prospects for some large emerging market economies program will continue and we expect other North European and oil-exporting countries. Other risks abide — renewed heavyweights to follow their path with a focus on large sizes concerns about China’s growth potential being the most over 4.000 lm. On the other hand, we still do not expect important driver of shipping demand, Greece’s long term many pure tonnage providers to take the leap and order future in the Euro area, the gloomy outlook on most fi nancial tonnage on speculation. It will probably take at least one markets, the impact of sharply lower oil prices as well as more year of good returns from the charter market before contagion effects that could be sparks for further market we see a signifi cant amount of new orders and in particular volatility. Although the ro-ro industry will remain highly new orders on speculative basis. Thanks to the very low Euro-centric and therefore somewhat sheltered from major bunker prices, for the time being the question of alternative shocks, we expect eventual spill-over effects to be felt propulsion methods and emission abatement technology across the board. We also remain extremely concerned is no longer in the spotlight as it was over the last couple about the detrimental effects of geopolitical instability in the of years. From this perspective, it is clear that scrubbers Near East and North Africa on the demand side. are the technology of choice for most existing vessels and As far as the supply side is concerned, the world ro-ro fl eet newbuilding orders. LNG still remains a luxury solution for will continue to decline in numbers. After more than half a specifi c trade regions, so is not yet the primary propulsion decade of low charter rates and intensive demolition activity choice for newly built vessels. which has allowed the survival of the strongest only, the

BRS - 2016 ANNUAL REVIEW 109 Hawaiian Highway, car carrier with 38 meters beam. 7,500 CEU, 64,472 sqm on 12 decks including 3 hoistable. Delivered in July 2015 by Shin Kurushima Dockyard. Owned and operated by K-Line.

110 BRS - 2016 ANNUAL REVIEW Car carrier

The beginning of a new downcycle?

If 2014 disappointed, 2015 will go down in history as the year in which the sector took two steps back, eroding most of the progress that had been achieved since the Lehman Brothers-induced global fi nancial crisis. This was best refl ected in the approximately 20 ships that at the end of the year lay idle or unemployed worldwide, particularly in Asia-Pacifi c. Weakness in demand for tonnage was such that by the turn of the year charter rate levels for the small and medium sizes had fallen on average by 30% y-o-y and this downward pressure was for the fi rst time spreading also to the large sizes, albeit to a lesser extent.

BRS - 2016 ANNUAL REVIEW 111 CAR CARRRRIER

Höegh Target, Post-Panamax car carrier 8,500 CEU, 71,400 sqm on 14 decks including 5 hoistable. Delivered in July 2015 by Xiamen Shipbuilding Industry (XSI) to Höegh Autoliners. The vessel is the largest car carrier ever delivered.

•l Prospects for light vehicle sales for 2016 remain anti-corruption campaign of the newly elected 40% overall subdued, with improving sales in the Nigerian government, which blocked unofficial advanced economies being counter balanced currency exchange circuits. In Asia-Pacifi c, most The portion of by stalling sales in the emerging market and of the chartering activity came to a standstill in the post-Panamax developing economies, where achieving months preceding the award of Hyundai Motor ships on order economic growth will be challenging. As a result, Group’s contract of carriage for Hyundai and Kia we do not expect that demand for tonnage will vehicle exports, but interestingly did not pick up with no charter rebound, and even less that it will be able to do even after the award, as both EUKOR and Glovis secured so to the extent of employing all the idle capacity. had to make adjustments to their respective fl eets We therefore fear that the sector’s regression will in accordance with their – lower – portion of continue in 2016. volumes. Whereas EUKOR’s decrease from 60% Chartering to 50% was less than expected, Glovis ended up with 50% when they were anticipating 70%. activity Chartering Activity evaporated Chartering activity steadily evaporated as throughout the the year progressed, leading to a peak in the The Ongoing Anti-Trust year leading idle fleet unseen since 2009. As the tonnage Investigation overhang grew, so did its downward pressure to an idle fl eet on charter rates. Ironically, very few operators As we suspected, the sweeping investigation peak unseen were able or even willing to exploit this situation, into the global car carrier price fixing scandal produced further results throughout the year. since 2009 evidencing that the root of the problem lay with demand, or lack thereof. Key export destinations At the end of January, the Chilean National for car shipments – in particular Russia, Algeria, Economic Prosecutor (FNE) fi led a suit against Nigeria and Brazil – drastically reduced imports six operators – K Line, NYK, MOSK, EUKOR, due to a mix of geopolitical, political and CCNI and CSAV – on charges of collusion to economic developments. Most of the chartering fix prices and allocate customers, for which it activity was carried by regional operators, whose requested a total fi ne of approximately $75.0m. only avenue for capacity expansion was adding The FNE’s investigation began after CSAV and tonnage in the absence of a newbuilding plan. NYK voluntarily provided information on their In Europe-Atlantic, demand was affected mainly price-rigging processes. In February, at the by two developments: the imposition of import United States (US) federal court in Baltimore, restrictions for new vehicles in Algeria and the two K Line executives pleaded guilty to price

112 BRS - 2016 ANNUAL REVIEW CAR CARRRRIER

l • fixing and were sentenced to jail terms and Vehicle Manufacturing criminal fines. One month later, in the same Output & sales in court, it was the turn of an NYK executive to and Exports China registered plead guilty on the same charges followed by a As usual, year-end statistics shed some third K Line executive, both of whom received light on the evolution of the charter market another similar sentences to the fi rst two. In June, South throughout 2015. record year ! Africa’s Competition Commission’s probe into the In the US, light vehicle sales for the year operations of NYK, MOSK, K Line, CSAV, Hoegh outperformed expectations and reached almost Autoliners, Wallenius Wilhelmsen Logistics 17.5 million units, an expansion of 5.7% y-o-y, (WWL) and EUKOR produced its fi rst casualty, 24.5m of which imports from Japan accounted for with the admission by NYK of contravening the China Automotive 1.76 million units, up 6.0% y-o-y, and imports Competition Act and colluding on the assignment from Korea accounted for some 639,000 units, production of cargo tenders. Events heated up in July, when up 9.1% y-o-y. It marked the fourth consecutive K Line became the fi rst company to settle claims in 2015 year that the US market was the key contributor to in a class-action lawsuit by American consumers; overseas shipments and the star performer. WWL reached a settlement agreement with South Africa’s Competition Commission Calendar year automobile production in Japan 24.6m in which it admitted to contravening South stood at almost 9.3 million units, down 5.1% China Automotive Africa’s Competition Act; and China’s National y-o-y, of which passenger cars accounted for Development and Reform Commission (CNDR) 7.8 million units, down 5.4% y-o-y; domestic sales in 2015 joined the fray by commencing investigations automobile sales declined 9.3% y-o-y with into alleged monopolistic practices by NYK, 5 million units, of which passenger cars MOSK and K Line. In an interesting twist, despite accounted for 4.2 million units, down 10.3% y-o-y; the findings and recommendations of Japan’s automobile exports reached 4.58 million units, Fair Trade Commission, the compatriot Ministry an increase of 2.5% y-o-y after two years of of Land, Infrastructure, Transport and Tourism decline, of which passenger cars accounted decided in August to maintain the exemption for close to 4 million units, up 3.5% y-o-y, with of car carriers from anti-trust regulations, even 735,518 units exported to Europe, down 0.9% though it vowed to enforce relevant rules more y-o-y, 1.6 million units exported to the US, up rigorously. Separately that same month, MOSK 4.3% y-o-y, and 685,000 units exported to the became the second company to settle claims Near East, up 9.5% y-o-y. in another major class-action anti-trust lawsuit Annual vehicle production in South Korea filed by American consumers. In October, one edged up 0.7% y-o-y to excess 4.5 million units, former executive from K Line and two former domestic sales jumped 8.6% y-o-y with 1.6 million executives from NYK were indicted for fixing units, and exports shed 2.8% y-o-y just under prices and rigging bids by a grand jury in the 3 million units. Annual results for both output and District of Maryland in the US. In December, sales benefi ted from the individual consumption China’s CNDR fined eight operators – NYK, tax reduction which came into force at the end MOSK, EUKOR, WWL, CSAV, ECL and CCNI – a of August and expired on 31st December. Exports total of RMB 407m for price collusion on freight were dragged down mainly by the effects of an rates in violation of the country’s anti-trust laws. unfavourable foreign currency exchange rate and The penalties were handed out in accordance falling sales in emerging market and developing with each operator’s revenue in the Chinese economies. market, with EUKOR and WWL receiving the heftiest ones. Chinese automotive output and sales registered another record year with a total of 24.5 million units Given the proportions that the scandal has produced and 24.6 million units sold. However, reached, with some probes by governmental for the second consecutive year, the y-o-y growth authorities still underway, we anticipate that in rates were halved, rising 3.3% for output (vs. 7.3% 2016 more convictions and penalties will follow in 2014) and 4.7% for sales (vs. 6.9% in 2014). and that new investigations are likely to emerge. Annual production of passenger cars followed suit, expanding 5.8% y-o-y (vs. 10.2% in 2014) with 21 million units. Annual sales of passenger cars, which stood at 21.15 million units, beat expectations and grew by 7.3% y-o-y (vs. 9.9% in 2014), benefiting from the temporary cut of the purchase tax on vehicles with engine size

BRS - 2016 ANNUAL REVIEW 113 CAR CARRRRIER

•l 1.6 liters or below, which came into force on in 2016 and a continued weak currency, Japanese 50 October 1st. Indeed, annual sales of passenger automotive output and exports are expected to cars with engine capacity of 1.6 liters or below rise. South Korean exports are set to gain 1.0% new orders stood at 14.5 million units, representing 68.6% of y-o-y and reach 3 million units, but production is were placed overall annual passenger car sales. In terms of forecast to shrink 0.9% y-o-y to 4.5 million units during 2015 commercial vehicles, annual production and sales dragged down by lower domestic sales, which reached 3.42 million units and 3.45 million units are due to fall 2.8% y-o-y to 1.75 million units. respectively, a contraction of 10% y-o-y and 9% Thanks to the beneficial effects on sales from y-o-y respectively. For the third consecutive year, the vehicle purchase tax cut, which runs until 20 automotive exports decreased, with 728,000 units, the end of 2016, Chinese car manufacturers new ships were down 20% y-o-y, of which passenger cars were expect a 6% expansion of car sales during 2016, delivered in 2015 428,000 units, down 19.8% y-o-y, and commercial which, however, would mean a third consecutive vehicles were 300,500 units, down 20.4% y-o-y. year of deceleration. The Algerian government Annual new passenger car registrations in the is poised to introduce import quotas for new European Union (EU) totalled 13.7 million units, vehicles and it appears that the ceiling might be climbing 9.3% y-o-y, marking the second set at 152,000 units, or approximately 60% of the consecutive year of expansion. Although the country’s total annual sales in 2015! Russian car trend is positive, in absolute terms, volumes and light vehicle sales are expected to fall another remain low when compared to the approximately 5.0% y-o-y and land at approximately 1.53m units. 16.0m units registered for 2007. On the fl ip side Automotive sales in Brazil are expected to contract of the coin, annual sales of new cars and light 7.5% y-o-y, whereas exports should grow by 8.1% commercial vehicles in Russia lost 35.7% y-o-y to y-o-y on the back of continued benefi cial terms of reach 1.6 million units, the third consecutive year trade, which, however, are expected to negatively of contraction from a height of 2.93 million units impact automotive imports. in 2012, when it was on the verge of surpassing Germany as the largest market in Europe. In Brazil, annual sales of light vehicles The Fleet reached 2.5 million units, a y-o-y drop of After years of organic growth and a low rate of 25.5%, but exports posted a 25.5% gain y-o-y renewal, dark clouds loom on the horizon of the with 389,000 units, driven by a favourable sector’s supply side. Based on a capacity of dollar exchange rate and trade agreements 1,000 CEU and above, at the turn of the year, the with regional neighbours. Imports of light fl eet counted 766 vessels equal to approximately vehicles, however, contracted 32.8% y-o-y with 3,98m CEU, with an average age of 10.8 years. 413,000 units, of which passenger cars were Compared to 2014, the fl eet expanded by 1.8%, 336,000 units, also down 33.5% y-o-y. capacity by 3.1% and the average age increased Annual new passenger car sales in Algeria by 4.8%. Between 2012 and 2015, this expansion lost 25.7% y-o-y with 254,000 units, ironically was 3.7%, 7.5% and 13.6% respectively. During not because of lack of demand, but due to the this period, the orderbook in relation to the fl eet administrative and regulatory hurdles imposed by hovered between 6% and 9%. However, the the government in an effort to curb imports and overall orderbook in 2015 stood at 85 units, spur indigenous automotive production. representing 11% of the current fl eet, stretching out into 2019, and accounting for a total of World economic output is projected to rise by 3.4% approximately 578,000 CEU. 55 units or 64% of y-o-y in 2016 with world trade volume increasing this orderbook is composed of post-Panamax 3.4% y-o-y. Against this backdrop, global light beam vessels, accounting for approximately vehicles sales are forecast to rise between 2% 422,000 CEU, equivalent to 73% of the CEU and 3% in 2016 and to reach 90 million units, capacity on order. Most importantly, 22 of these compared to a 2% rise in 2015 with a total of 55 ships belong to tonnage providers, which 89.1 million sales. Global light vehicle production means that 40% of the post-Panamax beam is expected to expand by 3% and to fi nally breach orderbook will need to secure employment. the 90.0 million ceiling compared to an increase of 1.65% in 2015 with a total of 88.5 million units The orderbook expanded by approximately produced. Both the US and the EU are forecast 44% y-o-y with 50 new orders placed during to maintain their drive in terms of car sales, albeit 2015, representing a whopping 92% increase at a slower pace, each with a 2 to 3% rise y-o-y. y-o-y, equivalent to approximately 340,000 CEU On the back of an economy set to expand by 1.0% with an average intake of 6,800 CEU. Ray Car

114 BRS - 2016 ANNUAL REVIEW CAR CARRRRIER

Carriers, Zodiac, EUKOR and Glovis all ordered post-Panamax beam vessels with respectively four, four, two and four units. NOCC, Siem Car Carriers, and K Line ordered Panamax beams vessels with respectively two, three, and two units. After an absence of five years, MOSK returned to the shipyards and chose Panamax beams for its order of four ships with a capacity of 6,800 CEU. CIDO instead went for post-Panamax beams with its order for six ships of 7,500 CEU. Curiously, CIDO’s order has been quietly taken over by the yet unknown Time Shipping, which has added a further six units to the tally for a total of 12 firm vessels due for deliveries between 2018 and 2019. The Grimaldi Group made the headlines by ordering seven post-Panamax units of 7,500 CEU plus another three Panamax beam Viking Adventure, car carrier with Panamax beam units of 6,700 CEU, all for deliveries between 6700 cars, 56,794 sqm on 12 decks including 4 hoistable. Delivered in January 2015 by Jiangsu Jinling Ships Co. Ltd. 2017 and 2018. Chinese companies continued to for Gram Car Carriers and operated by Siem Car Carriers/Hoegh Autoliners. be the ones ordering smaller sizes, with Zhongfu Shipping and Shanghai Ansheng Automotive placing orders for two units of 2,100 CEU and two units of 3,800 CEU respectively. They were joined this year by Japan’s Toyofuji, which ordered two l • 3,000 CEU vessels. Despite last year’s order by ahead, 58 units, or approximately 253,000 CEU, UECC for the fi rst ever car carriers endowed with representing 7.5% of the current fleet, will be 26 28 years and above in 2016. In 2017, 61 units, or dual fuel propulsion system, none of the above newbuildings orders followed in their footsteps. approximately 263,000 CEU, representing 7.9% of the current fl eet will be 28 years and above. Due to (30% of the Of the 50 orders placed, 22, or 44%, are without the prevailing weak charter market conditions and orderbook) are employment. When added to the already existing the overall scarcity of demand for ships, we expect units speculatively on order, this accounts scrapping activity to pick up considerably over the dedicated to the for 26 ships, or 30.5% of the total orderbook, next 12-24 months, regardless of the weakness charter market available for the charter market, equivalent to a of scrap prices. Only four units, or 6.5%, of the capacity of 191,800 CEU. It is here that the clouds 61 vessels to be aged 28 years and above in 2017 are forming because it is no longer clear whether have charter commitments until 2017 or beyond, Asset prices are demand will be able to sustain this supply. so we sincerely hope that operators and tonnage 20 units were delivered during the course of the providers alike will appreciate the urgency to on a downward year, accounting for approximately 143,000 CEU, recycle vintage ships in order to offset the infl ux trajectory versus last year’s 22. This 9% contraction will of newbuildings and keep the fleet’s expansion be quickly offset by the 30 and 32 units due for in check. delivery in 2016 and 2017 respectively. In line Sale and purchase activity halved, falling from with our forecasts, average size was 7,169 CEU, last year’s 20 units to 10. The average age was representing a 14.5% expansion y-o-y and 16.5 years and the average size was 3,400 CEU, marking the first time ever that the 7,000 CEU for a total of approximately 34,300 CEU. 60% of ceiling has been breached. The average size the buyers are based in Asia-Pacifi c. We do not is due to slip back under the 7,000 CEU ceiling expect the level of sales transactions to improve over the next three years and then return above dramatically in 2016, because of the poor state it in 2019. of the charter market, which will significantly Contrary to our expectations, demolition activity dampen investment. However, for some, there are witnessed a 50% decline y-o-y with only 7 units likely to be opportunistic deals to grab, as asset being beached, accounting for approximately prices are on a downward trajectory. The key, as 31,000 CEU. Average age was 29.2 years, 5% always, will be employment… higher than in 2014, evidence that owners were reluctant to scrap their vintage ships despite a weakening charter environment. Looking

BRS - 2016 ANNUAL REVIEW 115 116 BRS - 2016 ANNUAL REVIEW Marine insurance

Overcapacity the “new standard” for marine insurance

For several years, the underwriting capacity for marine risk (hull, cargo, offshore and P&I) has expanded with the arrival of new insurers or insurance facilities. The concept of the insurance “cycle” seems to have disappeared. Faced with an erosion in premiums across all segments of the market, the ﬁ nancial results of the insurance companies now seem to depend on one sole criteria: luck!

BRS - 2016 ANNUAL REVIEW 117 MARINE INSSSURANCE

Marine Premium 2014 – by line of business

18.2% 23.2%

Offshore / Energy Global Hull

6.6% 51.9%

Marine Liability Transport / Cargo

Total: $32.6bn Change 2013 to 2014: -3.2% Reduction due to strong $! In most local currencies, income stable or increased. Source: IUMI

•l 2015 was marked by a series of explosions at In September 2015, Sumitomo Mitsui took control In 2014, total the port of Tianjin’s container storage station in of the AMLIN group. August. The cost to the marine insurance industry Faced with a decline in premiums and the need global marine (principally cargo insurance) will exceed $2bn; for critical mass to meet stringent financial insurance some have estimated that the fi nal bill could even regulations, several major players such as RSA reach $5-6bn, nearly four times the cost of the premiums appear as potential takeover candidates. Mergers Costa Concordia. reached $32.6bn, between P&I clubs are also very likely in the future. Excluding the Tianjin disaster, which was not a Generalist insurance brokers such as Gras Savoye a decline of 3.2% ‘typical’ marine accident, 2015 remained relatively compared to 2013 calm with, nonetheless, a slight increase in major in France and specialised brokers such as PL claims and total losses during the first half of Ferrari in Italy and LCH in Singapore were acquired the year. The total losses of the Hoegh Osaka, by global brokerage groups, whose development Cemfjord, Norman Atlantic, Bulk Jupiter and strategies are based on external growth. El Faro were a reminder that the usual concerns over security remain valid. The Hull insurance market Insurance buyers (shipowners, managers, offshore operators, traders etc.) were once again able IUMI’s figures from September 2015 show a to enjoy lower premiums in 2015, in what was a clear decrease in premium volumes for the Hull particularly diffi cult economic climate for the vast insurance market, which was down 5.8% at majority of them. $7.6bn, despite a continual increase in the size The new insurance capacity in the market was of the world fleet (both in numbers of ships and mainly centered on the Lloyd’s market. We can deadweight tonnage). This premium decline highlight two signifi cant trends: the establishment affected all the major markets except China, of new Lloyd’s syndicates and a probable new whose market share rose from 9.3% in 2013 to wave of consolidation among insurers and brokers. 11.9% in 2014, due to its extremely competitive bidding. The leading Japanese insurance companies are diversifying with significant investments Steadily increasing insurance capacity in the Asian in the Lloyd’s market. This trend started in market has strongly contributed to the erosion December 2013 with the acquisition of Canopius in premiums. For example, Singaporean marine by Sompo Japan Nippon Koa. In January insurance capacity in 2015 reached $743m, 2014, Tokyo Marine moved to take over KILN. versus a capacity of just $407m in 2011.

118 BRS - 2016 ANNUAL REVIEW MARINE INSSSURANCE

Hull–Gross* Ultimate Loss Ratio - Europe/US**, Underwriting years 1996 to 2014

Since 2009: Repair cost relatively stable. Volatility by major loss impact (strong until 2011). 140% 2014: Record-low major loss impact. Technical profit for ﬁ rst time in years? 120% 2013: also improved

100% Costa Concordia peak

80%

60%

40%

20%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

* Technical break even: gross loss ratio does not exceed 100% minus the expense ratio (acquisition cost, capital cost, management expenses) ** Data: Belgium, France, Germany, Netherlands, Italy, Spain (until 2007), UK, US Source: IUMI

The technical results of the 2014 underwriting The P&I market year appear positive for the first time in many years. That said, several accidents occurring in For decades, the 13 club members of the 2015 but attached to the 2014 underwriting year International Group (IG) have insured some 90% will impair the results, which will not be known of the world fl eet. This fi gure has remained stable defi nitively until 2016. over the years, despite the success of various recently established fi xed facilities. The 2016 underwriting results will, in all likelihood, show an increase in the number of total losses, a The Protection and Indemnity (P&I) insurance lower claims frequency, but a strong increase in market is commonly seen as an “immutable major claims. market” applying historical and well preserved traditions: “general increases”, “release calls”, The decrease in premium volume in 2014 and “20th February renewal”, etc. 2015 is mainly due to the emergence of new insurance capacity. Better technical results in Shipowners rarely change Club for 3 main reasons: 2013 and 2014 contributed to this phenomenon, as • P&I Clubs operate as true mutuals, whereby did the signifi cant drop in insured values which is each shipowner is a member of the club and estimated at -6.0% in 2014 and -8.4% in 2015. The receives fi rst class service. impact on the premiums of this decline in values • Leaving a club leads to payment of “release has not been offset by the newbuilding deliveries, calls”. which were somewhat higher in 2015 than 2014. • Premium for the fi rst year with the new club is set The total volume of hull insurance premiums by the previous club. has thus declined steadily since 2012. There is However the P&I market is in motion. no evidence that this trend will change in 2016. Market players (insurers and brokers) must adapt to this new economic environment. Evolution within the IG Keep calm and be lucky! The philosophy of the P&I Clubs has changed drastically over the past 15 years. In the 90’s, club underwriters had no specific targets and were even sometimes suspicious when a new account approached them. Such behaviour has gone, and P&I club underwriters travel more than ever to attract new clients.

BRS - 2016 ANNUAL REVIEW 119 MARINE INSSSURANCE

•l Another trend is that the proportion of mutual Some examples of diversification in the last IG clubs are in income is decreasing among most IG clubs. More quarter of 2015: and more units are attaching to non-poolable • American Club teamed up with the former motion in reaction insurance mostly because of their smaller size Hellenic Hull Mutual Association to sell H&M to competition and to the purchase of non P&I insurances. The insurance products. from fi xed numerous non-poolable insurance products • London P&I club established their own fixed offered explain this: Charterers Liabilities, War facility for owners’ P&I cover. facilities Risk, Yacht insurance, Offshore, Port & Terminals, Hull & Machinery, Piracy, Cargo etc. We foresee that more products will be offered Fixed Facilities by the clubs in the short term. The target of such diversification is to create new income for the The IG clubs are in motion. One of the reasons clubs and strengthen reserves to the benefi t of the is the rise of fierce competition from the fixed shipowner members. facilities over the past years. There are two ways to develop new products: Small and medium size shipowners are tempted • Clubs create their own products from their by the fi xed market as there are many alternatives reserves (establishment of Syndicates by Skuld available (British Marine / Raets Marine / Osprey / or Standard in recent years) or, Lodestar / Hanseatic etc.). • They team up with first class third parties (for example clubs when they offer Kidnap & Most of the IG Clubs now have their own fixed Ransom insurance). facilities to retain small and medium size owners tempted to exit the poolable market. Until recently, it was difficult to assess whether such diversifi cation generated any benefi t to the Some fixed facilities from IG Clubs are issued clubs members, however the recent examples of on « club paper basis » (Shipowners Club / Gard or Skuld able to redistribute some of their Skuld / London Club). Others establish a specifi c reserves give credit to such strategy. branding (Carina P&I for Britannia or Eagle Ocean Marine for the American Club). Owners who are thinking about fi xed facilities will certainly be tempted by « club-like » services without the burden of general increases and/or release calls.

120 BRS - 2016 ANNUAL REVIEW MARINE INSSSURANCE

It may prove challenging for shipowners to make ever in the industry and probably the largest the right decision between: ever single cargo loss event. Though its impact • Remaining within the IG or switching to fixed may affect differently the respective insurers and premium. reinsurers, this huge loss will deteriorate both the • Using the existing club for kidnap insurance / 2014 and 2015 loss records. Tianjin illustrates the hull insurance / war insurance etc., or leaving the challenges that both insurers and their clients face commercial insurers despite years of support. in managing risks in an era of rapid globalization. The clubs’ diversiﬁ cation objective is to generate Despite Tianjin and other losses, insurance new income for the association and retain clients companies are under pressure to reduce the rating who otherwise would be tempted to leave for other of their policies based on falling cargo values. The “facilities”. There is however a question mark trend is expected to continue due to new market over clubs who recently invested in Syndicates, capacity, which is also influenced by mergers as Hull, Cargo and Energy markets are extremely and acquisitions. This environment impacts the vulnerable and building up margins will be worldwide cargo premiums which decreased from extremely challenging for all. $17.7bn in 2012 to $16.95 in 2014. A strong dollar Shipowners will most likely benefit from such added to this decrease. diversification. First class insurers, and high In 2014, the European market underwrote 43% quality services provided by the clubs, will offer of the cargo premiums. For the dry bulk trade, an owners more alternatives which will eventually important concern for the cargo insurers resulted push premiums further down. from losses related to insolvencies and ﬁ nancial defaults by shipowners, charterers or managers. In 2016 both cargo and commodity clients Cargo will continue to enjoy the benefits of a soft The global economy continues to grow, as well market, with reductions in both premiums and as exports of world merchandise exports, even deductibles, and increases in limits at little or if the growth is much slower than during the pre- even no additional cost. crisis periods. In 2015, the fallout for commodity This review has been prepared by Cap-Marine prices has intensified, in particular for crude oil Assurance & Reassurance, an affiliate of the and products. BRS Group. The devastating blast at Tianjin port is expected to become the fourth most costly man-made disaster

BRS - 2016 ANNUAL REVIEW 121 GLOBAL SHIPBROKING SERVICES & MARKET INTELLIGENCE

Oslo

Hamburg London Luxembourg Paris Stamford Geneva

Antibes Monaco

Madrid Athens Houston

Rio de Janeiro

122 BRS - 2016 ANNUAL REVIEW Beijing

Shanghai

Hong Kong Dubai Mumbai

Singapore

Jakarta

BRS - 2016 ANNUAL REVIEW 123 Departments & Activities

NEWBUILDING SALE & PURCHASE DRY BULK [email protected] [email protected] [email protected]

TANKER LINER CHEMICAL [email protected] [email protected] [email protected]

GAS OFFSHORE RESEARCH [email protected] [email protected] [email protected]

Shipbroking & Rep. Offi ces

ATHENS HONG KONG OSLO +30 211 1037 300 [email protected] +47 22 87 87 44 [email protected] [email protected] BEIJING HOUSTON RIO DE JANEIRO +86 10 8221 1718 [email protected] [email protected] [email protected] JAKARTA LONDON SHANGHAI +62 812 8772 9396 +44 207 374 65 83 +86 21 6321 5666 [email protected] [email protected] [email protected] DUBAI MADRID SINGAPORE +971 4 440 8400 +34 91 564 63 35 +65 6603 3230 [email protected] [email protected] [email protected] GENEVA MUMBAI STAMFORD (Connecticut) +41 22 591 2828 +91 22 6650 4242 + 1 203 487 7014 [email protected] [email protected] [email protected] HAMBURG PARIS +49 40 333 966 999 +33 1 41 92 12 34 [email protected] [email protected]

Affi liates

www.axsmarine.com www.alphaliner.com www.ypigroup.com www.cap-marine.com

124 BRS - 2016 ANNUAL REVIEW 11, boulevard Jean-Mermoz - 92200 Neuilly-sur-Seine - FRANCE

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2016 ANNUAL REVIEW