1.SHIPPING MARKET OUTLOOK EXECUTIVE SUMMARY It has been a better half-year for most parts On the supply side,deliveries fell from a of the shipping industry,as the world economy total of 165m dwt in 2011 to 108m dwt in 2013. has started to recover from the trough and We currently expect a further decline to 96m shipyard deliveries have edged back.The scale dwt in full year 2014,and 88m dwt in 2015, of this recovery is demonstrated by the Clarksea including about 50m dwt/year of bulkers;18m Index,which improved from $9,300/day during dwt/year of tankers;and 14m dwt/year of icensed to Shanghai L12603 the previous half-year(March to August 2013) containerships. to $12,800/day over the last six months,a helpful 38%increase in "take-home"cash. Meanwhile demolition,which had peaked at 58.4m dwt in 2012,fell to 46.1m dwt in 2013. The significance of this improvement is The bulker sector accounted for the most massive.The Clarksea Index is a "best scrapping last year (22.2m dwt),with fewer M南M possible"rate and in a recession few ships tankers sent to the beaches (11.1m dwt in 2013) achieve the full rate,owing to waiting time and but more demolition of containerships (8.9m other factors.So the previous half-year average dwt in 2013),led by increased scrapping of of $9,300/day put a real cash squeeze on the Panamax boxships. businesses,with little margin over OPEX for Dis tribution is contingencies. ▣ Lower deliveries and higher demolition had the result of reducing overall cargo fleet growth This 38%earnings increase has taken many from an unsustainable 9.0%in 2011 to a more vessel types out of dangerous territory,and manageable 3.8%in 2013.As a result,for the produced a positive cash flow,although of first time since 2010,fleet growth matched trade course some shiptypes fared better than others. growth,although in general structural This has contributed to the more positive oversupply remains across the major sectors sentiment in 2014,and a sense that the market is Contacting picked up markedly last year,with at last through the downturn and is now maybe 151.9m dwt ordered in full year 2013,compared 度e on the upswing. to 54.6m dwt in 2012.In the opening two months of 2014,a further 22.8m dwt was Over the last six months the world ordered. economy has taken a turn for the better,though it remains a mixed picture.OECD GDP growth 回 The tanker and bulk carrier markets both edge declined in 2012 and remained very weak in the enjoyed a spike in freight rates in the final first half of 2013,but now looks set to recover quarter of 2013,owing mainly to a seasonal as industrial production of 0.4%in 2013 is surge in cargo volumes,briefly taking earnings the sourde. expected to increase to about 4%in 2014.In the to very healthy levels,but both markets are now non-OECD countries,the story is less positive. back around where they started last year. China's industrial production growth fell to Meanwhile,although the containership charter http://www 9.7%in 2013,and was down to 8.6%in the market continued in the doldrums,the downturn opening two months of 2014.In addition, in contracting during 2012 gave way to a bout of growth in several other Asian countries have heavy ordering in 2013,particularly in the larger slowed,particularly India.Hopefully this will be size sectors. clarksons.net reversed during the year. In summary,shipping markets appear to Despite these mixed trends in the world have edged past the trough of the long recession economy,seaborne trade has continued to grow, and are finally on the upswing.However it is by 4.2%in 2012 and 3.6%in 2013.The current still a long way from a home run.If overall fleet forecast is 4.2%growth in 2014,with dry bulk growth stays close to trade growth,as current up 4.3%;containers up 6.0%;and combined oil trends suggest it will for the next couple of years and products up 2.1%.Provided there are no at least,the significant backlog of surplus 150920140845.3836122 unexpected disruptions,this solid performance tonnage could continue to make its presence felt, should provide a firm foundation as the market leaving the market vulnerable to any future moves past the trough. economic downturn Clarkson Research Services Spring 2014Clarkson Research Services Spring 2014 7 1. SHIPPING MARKET OUTLOOK SHIPPING MARKET OUTLOOK EXECUTIVE SUMMARY ! It has been a better half-year for most parts of the shipping industry, as the world economy has started to recover from the trough and shipyard deliveries have edged back. The scale of this recovery is demonstrated by the Clarksea Index, which improved from $9,300/day during the previous half-year (March to August 2013) to $12,800/day over the last six months, a helpful 38% increase in “take-home” cash. ! The significance of this improvement is massive. The Clarksea Index is a “best possible” rate and in a recession few ships achieve the full rate, owing to waiting time and other factors. So the previous half-year average of $9,300/day put a real cash squeeze on the businesses, with little margin over OPEX for contingencies. ! This 38% earnings increase has taken many vessel types out of dangerous territory, and produced a positive cash flow, although of course some shiptypes fared better than others. This has contributed to the more positive sentiment in 2014, and a sense that the market is at last through the downturn and is now maybe on the upswing. ! Over the last six months the world economy has taken a turn for the better, though it remains a mixed picture. OECD GDP growth declined in 2012 and remained very weak in the first half of 2013, but now looks set to recover as industrial production of 0.4% in 2013 is expected to increase to about 4% in 2014. In the non-OECD countries, the story is less positive. China's industrial production growth fell to 9.7% in 2013, and was down to 8.6% in the opening two months of 2014. In addition, growth in several other Asian countries have slowed, particularly India. Hopefully this will be reversed during the year. ! Despite these mixed trends in the world economy, seaborne trade has continued to grow, by 4.2% in 2012 and 3.6% in 2013. The current forecast is 4.2% growth in 2014, with dry bulk up 4.3%; containers up 6.0%; and combined oil and products up 2.1%. Provided there are no unexpected disruptions, this solid performance should provide a firm foundation as the market moves past the trough. ! On the supply side, deliveries fell from a total of 165m dwt in 2011 to 108m dwt in 2013. We currently expect a further decline to 96m dwt in full year 2014, and 88m dwt in 2015, including about 50m dwt/year of bulkers; 18m dwt/year of tankers; and 14m dwt/year of containerships. ! Meanwhile demolition, which had peaked at 58.4m dwt in 2012, fell to 46.1m dwt in 2013. The bulker sector accounted for the most scrapping last year (22.2m dwt), with fewer tankers sent to the beaches (11.1m dwt in 2013) but more demolition of containerships (8.9m dwt in 2013), led by increased scrapping of Panamax boxships. ! Lower deliveries and higher demolition had the result of reducing overall cargo fleet growth from an unsustainable 9.0% in 2011 to a more manageable 3.8% in 2013. As a result, for the first time since 2010, fleet growth matched trade growth, although in general structural oversupply remains across the major sectors. Contacting picked up markedly last year, with 151.9m dwt ordered in full year 2013, compared to 54.6m dwt in 2012. In the opening two months of 2014, a further 22.8m dwt was ordered. ! The tanker and bulk carrier markets both enjoyed a spike in freight rates in the final quarter of 2013, owing mainly to a seasonal surge in cargo volumes, briefly taking earnings to very healthy levels, but both markets are now back around where they started last year. Meanwhile, although the containership charter market continued in the doldrums, the downturn in contracting during 2012 gave way to a bout of heavy ordering in 2013, particularly in the larger size sectors. ! In summary, shipping markets appear to have edged past the trough of the long recession and are finally on the upswing. However it is still a long way from a home run. If overall fleet growth stays close to trade growth, as current trends suggest it will for the next couple of years at least, the significant backlog of surplus tonnage could continue to make its presence felt, leaving the market vulnerable to any future economic downturn. Licensed to Shanghai Maritime University. Distribution is restricted; please remember to acknowledge the source. http://www.clarksons.net 15/09/2014 08:45:39 36122 Licensed to Shanghai Maritime University. Distribution is restricted; please remember to acknowledge the source. http://www.clarksons.net 15/09/2014 08:45:39 36122