managing financial risks – threats and challenges
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Managing Financial Risks – Threats and Challenges
by Michael Parker
Monday 19th September 2005
Threats and Challenges(SLEEPLESS NIGHTS FOR SHIPPING BANKERS)
• Political Events• War• Trade War
• Financial Crisis• Loss of Confidence• Economic Impact
• Global Economic Situation• Threat of Inflation• Risk of Recession
• Excess Supply of Credit• Sources of Finance• Cheap Money
• Excess Supply of Ships• Orderbook• New Shipyard Capacity
GDP Growth %: US, Europe, Japan
Source: Citigroup, Smith Barney
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Jan-
04Feb M
arApr
May
June Ju
lAug Sep O
ctNov Dec
Jan-
05Feb M
arApr
May
June Ju
lAug
2005
For
ecas
t
2006
For
ecas
t0.5
1
1.5
2
2.5
3
3.5
4
4.5
Euro Japan U.K. U.S.
Inflation: US, Europe, Japan
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Jan-04
Mar May Jul Sep Nov Jan-05
Mar May Jul
4.0%
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.04.0%
U.S. Euro U.K. Japan
Source: Citigroup, Smith Barney
Have US Commodity Prices Reached Multi-century Lows?
Source: BHP Billiton
Commodity Prices, 1987- 1Q05
80
90
100
110
120
130
140
150
160
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
0
10
20
30
40
50
60
70$ per Barrel
Economist Index (Left) Oil Prices (Right)
Source: Citigroup, Smith Barney
China’s export growth rates are not new: Japan and Korea, 1957-1980
Source: Citigroup, Smith Barney
Asia- North American Routes: Rates and Supply/Demand Balance Index ($/TEU)
Source: Containerisation International
Transpacific Volumes in Perspective in ‘000 TEU, 1997-2006E
Average Container Rates, 1994-2006E (US$/TEU)
Container Vessel Average Newbuild Prices US$/TEU 1996-2005
Container Vessels Orderbook vs. Fleet Size Evolution, 1995-1Q05
0%
10%
20%
30%
40%
50%
60%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1Q05
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Fleet '000 TEU % on Order
Source: Clarksons
Container vessels by Number, and Average TEU per vessel
Source: Clarksons
17611867
1964 2039 2122 22032337
2443
3785
4238
5096
3141
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2001 2002 2003 2004 2005 2006 2007 2008
No
. Of
Ve
ss
els
1500
2000
2500
3000
3500
4000
4500
5000
5500
Av
era
ge
Ve
ss
el S
ize
TE
U
Existing Deliveries Average size TEU Size New TEU
Tramp Ship Spot Rates ($/Day)
Dry Bulk Orderbook vs. Fleet Size Evolution, 1975-2006(F)
0%
5%
10%
15%
20%
25%
30%
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005(F)
0
50
100
150
200
250
300
350
400
Total Fleet MM DWT Annual % on order
Source: Clarksons
Tankers Orderbook vs. Fleet Size Evolution, 1996-2005
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
200
220
240
260
280
300
320
340
Fleet MM DWT % on order
Source: Clarksons
Average Annual Tanker Freight Rates: US$ per day
Source: Clarksons
-
10,000
20,000
30,000
40,000
50,000
60,000
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
140K DWT 280K DWT
Global Syndicated Shipping Loans, High Yield and Public Equity
0
5
10
15
20
2002 2003 2004
Debt Equity High Yield
59
$11.3
$6.4
$16.0
$7.1
$18.5
$11.6
$0.4$1.7 $1.3
9,560
5,886 5,8004,360
11,931
15,745
5,388
7,542
3,182
10,261
11,873
8,768
0
5,000
10,000
15,000
20,000
25,000
30,000
2000 2001 2002 2003 2004 2005YTD
US$
(mm
)
EMEA
Other
14,948 13,428
8,981
23,804 24,513
14,62114,621
Global Shipping Syndicated Loans
Threats and Challenges(SLEEPLESS NIGHTS FOR SHIPPING BANKERS)
• Political Events• War• Trade War
• Financial Crisis• Loss of Confidence• Economic Impact
• Global Economic Situation• Threat of Inflation• Risk of Recession
• Excess Supply of Credit• Sources of Finance• Cheap Money
• Excess Supply of Ships• Orderbook• New Shipyard Capacity
Threats and Challenges
• Political Events• War• Trade War
• Financial Crisis• Loss of Confidence• Economic Impact
• Global Economic Situation• Threat of Inflation• Risk of Recession
• Excess Supply of Credit• Sources of Finance• Cheap Money
• Excess Supply of Ships• Orderbook• New Shipyard Capacity
(A BETTER NIGHT’S SLEEP)
Threats and Challenges
• Financial Crisis• Loss of Confidence• Economic Impact
• Global Economic Situation• Threat of Inflation• Risk of Recession
• Excess Supply of Credit• Sources of Finance• Cheap Money
• Excess Supply of Ships• Orderbook• New Shipyard Capacity
(A BETTER NIGHT’S SLEEP)
• Regulation• Better but not perfect• Will increase
Threats and Challenges
• Global Economic Situation• Threat of Inflation• Risk of Recession
• Excess Supply of Credit• Sources of Finance• Cheap Money
• Excess Supply of Ships• Orderbook• New Shipyard Capacity
(A BETTER NIGHT’S SLEEP)
• Regulation• Better but not perfect• Will increase
• Transparency• Physical• Financial
Threats and Challenges
• Excess Supply of Credit• Sources of Finance• Cheap Money
• Excess Supply of Ships• Orderbook• New Shipyard Capacity
(A BETTER NIGHT’S SLEEP)
• Regulation• Better but not perfect• Will increase
• Transparency• Physical• Financial
• Consolidation• Physical• Financial
Threats and Challenges
• Excess Supply of Credit• Sources of Finance• Cheap Money
(A BETTER NIGHT’S SLEEP)
• Regulation• Better but not perfect• Will increase
• Transparency• Physical• Financial
• Consolidation• Physical• Financial
• Congestion• Physical Barriers• Self-Control
Threats and Challenges(A BETTER NIGHT’S SLEEP)
• Regulation• Better but not perfect• Will increase
• Transparency• Physical• Financial
• Consolidation• Physical• Financial
• Congestion• Physical Barriers• Self-Control
• Globalisation• A different World• A different Industry