1.SHIPPING MARKET OUTLOOK EXECUTIVE SUMMARY September is a pivotal month as shipping the eight months to 1st September the tanker investors return from holiday and take a new fleet has increased 2.7%;the bulk carrier fleet look at what lies ahead.Before the holidays this 8.5%;and the containership fleet 5.2%.This is icensed to The year many hoped that the autumn would see the more tonnage than is required to meet demand, bottom of the cycle,and markets would start to and has pushed the surplus capacity up to recover in 2013.But over the summer that around 10-12%of the fleet.So far,little of this positive vision has given way to a more realistic surplus has found its way into layup,and most is view that it will be a year or two before things being soaked up by slow steaming and waiting. start to get better,though the precise timescale remains vague. Shipbuilding prices are down 9%this year, though $95m for a VLCC,or $26.3m for a Kong Polytechnic University. Many factors have contributed to this change Panamax bulk carrier are still not in the "bargain of sentiment.The most pressing is lower basement"category.Although the world earnings.The Clarksea Index,which covers shipbuilding orderbook has fallen below 20%of tankers,bulkers,containerships and gas carriers the fleet,down from 50%at the peak,many Distribution has been bumping along below $10,000/day for yards have won orders in the more specialized most of the year,and over the last month has segments of the market and in the first eight been under $9,000/day.Allowing for waiting months of 2012,the offshore sector accounted is restricted: time,which is not included in this index,these for 59%of the value of orders placed. earnings levels are uncomfortably close to The bulk carrier market continues to be the please operating expenses and cash pressures are building up. most vulnerable,with a rapidly growing surplus 雪 and 154m dwt of ships still to deliver.The The shaky state of the world economy has tanker market has a more manageable supply also undermined confidence.Six months ago we side,but demand remains uncomfortably weak, described the outlook for 2012 as "uninspiring", thanks in particular to declining US imports, but today sentiment is more negative.The high oil prices and new fuel efficient technology acknowledge problems in the Eurozone show little sign of which are undermining the growth of oil having an early solution;the US recovery looks demand.Meanwhile the container market fragile;the Chinese economy is slowing and so continues to suffer from the classic combination the source are many of the Asian economies. of weakening demand and continued rapid growth of supply. Despite this negative sentiment,we still expect sea trade to grow by about 4.3%in 2012, Pulling all this together,the markets may well though the prospects for 2013 remain murky. be approaching the bottom of the cycle,but a Although not as fast as in the last decade, spell in the trough is likely before the gap current growth is in line with long-term trends, between supply and demand,which has taken but the possibility of further slowdown next year four years to develop,shrinks enough to let the is a worry for investors. market move up convincingly.Meanwhile,the shipbuilders,who cannot reasonably expect to Against that background,the main problem fill their vast capacity with specialised orders, remains the fast growth of the merchant fleet.It must look elsewhere.This may lead to http://www.clarksons.nel 01/11/2012 06:20:04 15304 is on track to grow 7%in 2012,faster than trade. downward pressure on prices and speculative Much of this growth has already happened-in ordering.Not an easy time to be a shipowner. Clarkson Research Services Autumn 2012Clarkson Research Services Autumn 2012 7 1. SHIPPING MARKET OUTLOOK SHIPPING MARKET OUTLOOK EXECUTIVE SUMMARY ! September is a pivotal month as shipping investors return from holiday and take a new look at what lies ahead. Before the holidays this year many hoped that the autumn would see the bottom of the cycle, and markets would start to recover in 2013. But over the summer that positive vision has given way to a more realistic view that it will be a year or two before things start to get better, though the precise timescale remains vague. ! Many factors have contributed to this change of sentiment. The most pressing is lower earnings. The Clarksea Index, which covers tankers, bulkers, containerships and gas carriers has been bumping along below $10,000/day for most of the year, and over the last month has been under $9,000/day. Allowing for waiting time, which is not included in this index, these earnings levels are uncomfortably close to operating expenses and cash pressures are building up. ! The shaky state of the world economy has also undermined confidence. Six months ago we described the outlook for 2012 as "uninspiring", but today sentiment is more negative. The problems in the Eurozone show little sign of having an early solution; the US recovery looks fragile; the Chinese economy is slowing and so are many of the Asian economies. ! Despite this negative sentiment, we still expect sea trade to grow by about 4.3% in 2012, though the prospects for 2013 remain murky. Although not as fast as in the last decade, current growth is in line with long-term trends, but the possibility of further slowdown next year is a worry for investors. ! Against that background, the main problem remains the fast growth of the merchant fleet. It is on track to grow 7% in 2012, faster than trade. Much of this growth has already happened - in the eight months to 1st September the tanker fleet has increased 2.7%; the bulk carrier fleet 8.5%; and the containership fleet 5.2%. This is more tonnage than is required to meet demand, and has pushed the surplus capacity up to around 10-12% of the fleet. So far, little of this surplus has found its way into layup, and most is being soaked up by slow steaming and waiting. ! Shipbuilding prices are down 9% this year, though $95m for a VLCC, or $26.3m for a Panamax bulk carrier are still not in the "bargain basement" category. Although the world shipbuilding orderbook has fallen below 20% of the fleet, down from 50% at the peak, many yards have won orders in the more specialized segments of the market and in the first eight months of 2012, the offshore sector accounted for 59% of the value of orders placed. ! The bulk carrier market continues to be the most vulnerable, with a rapidly growing surplus and 154m dwt of ships still to deliver. The tanker market has a more manageable supply side, but demand remains uncomfortably weak, thanks in particular to declining US imports, high oil prices and new fuel efficient technology which are undermining the growth of oil demand. Meanwhile the container market continues to suffer from the classic combination of weakening demand and continued rapid growth of supply. ! Pulling all this together, the markets may well be approaching the bottom of the cycle, but a spell in the trough is likely before the gap between supply and demand, which has taken four years to develop, shrinks enough to let the market move up convincingly. Meanwhile, the shipbuilders, who cannot reasonably expect to fill their vast capacity with specialised orders, must look elsewhere. This may lead to downward pressure on prices and speculative ordering. Not an easy time to be a shipowner. Licensed to The Hong Kong Polytechnic University. Distribution is restricted; please remember to acknowledge the source. http://www.clarksons.net 01/11/2012 06:20:04 15304 Licensed to The Hong Kong Polytechnic University. Distribution is restricted; please remember to acknowledge the source. http://www.clarksons.net 01/11/2012 06:20:04 15304