the platou report 2014

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THE PLATOU REPORT

2014


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CONTENTS

SHIPPING

Te reports of my death have been greatly exaggerated Mark wain

Tere has always been a srong correlaion beween charer raesand ordering aciviy. Based on an hisorical R squared o close o75 percen, shipping day raes in 2013 would sugges a new order

volume o around 26 mill cg placed a yards over he course ohe year. However, a he end o 2013, in excess o 40 mill cg onew ships had been ordered - a 60 percen higher ordering vol-ume han relaive hisoric averages.

So, why did we ge more newbuild orders han expeced? Webelieve several elemens were a work here; Te combinaion olow newbuilding prices and new Eco designs on he hand andnegaive cash reurns on secondhand vessels on he oher hand

worked in avor o he ormer. In addiion, he financing win-

dow was a leas parially open or public and privae equiy wihhe righ ideas.

However, while hese acors are imporan, we believe he mainreason or increased ordering was a renewed confidence in heoulook or he world economy and more sable financial markes.

Some analyss have saed ha he shipping markes were sruc-urally damaged and comparable o he siuaion in 70s and 80s.

Ye according o RS Plaou esimaes, he dry and we markes didno have capaciy uilizaion below 80-85 percen during he lasew years, implying his was jus a srong cyclical correcion.

Tere are risks ha are no resolved, like Chinas local govern-men deb o around 3 ri llion USD, bu, wih he excepion ohe conainer liner marke, he oulook or our indusry appears

brigher.

OFFSHORE

Keep on trucking Anonymous

Wih escalaing coss and fla oil prices, public oil companies acehe challenge o mainaining dividend paymens o heir share-

SHIPPING & OFFSHORE:

BACK TO THE FUTURE

PETER M. ANKER, MANAGING PARTNER & CEO

holders, while coninuing o increase heir E& P budges. Global E & P is sill expeced ogrow by approximaely 6 percen o 700 750

bill USD, bu growh in real oil service purchas-ing power will be relaively modes.

Neverheless, here are poenially prolific areaswhere we will see increased offshore drillingaciviy during he nex ew years:

Mexico is no a new area or he offshoreindusry, bu he PEMEX monopoly on oiland gas will be liberalized, opening up hismarke or inernaional oil companies.

Te Arcic roniers are seeing more aciv-iy. Te Barens and Kara seas, Canada andGreenland should all creae demand or rigs

and large supply vessels wih capabiliies ohandle icy condiions in he coming years.

Drilling in Arcic areas, wih ough weaher condiions, largedisances and poor inrasrucure does creae a much higher rela-ive demand or larger and more sophisicaed Offshore Suppor

Vessels (OSV).

During 2014 here will be an increase o abou 250 percen in de-liveries o deepwaer rigs (34 in 2014 versus 13 in 2013), and hisshould drive demand or high-end OSVs. Over he nex 12-24monhs we could see a somewha challenging marke or offshoredrilling rigs, bu longer-erm his segmen sill looks firm.

We expec he oil price will coninue o perorm beter han cur-ren analys consensus expecs. Geopoliical risks are likely oconinue o affec he supply side, and we expec o see oil de-mand surprise on he upside as he global economy, hopeully,gahers long-sough afer momenum.

Yours Sincerely,Peter M. Anker,

Managing Parner & CEO, RS Plaou ASA

INTRODUCTION ..................................................................................................................3

THE SHIPPING MARKET ENVIRONMENT ..........................................................................7

THE SHIPBUILDING MARKET ..........................................................................................12

THE TANKER MARKET .....................................................................................................16

THE DRY BULK MARKET .................................................................................................21

THE CONTAINER SHIP MARKET ......................................................................................26

THE CAR CARRIER MARKET ............................................................................................28

THE L NG SHIPPING MARKET ...........................................................................................29

SMALL-SCALE LNG ..........................................................................................................30

THE L PG SHIPPING MARKET ...........................................................................................31

THE DEMOLITION MARKET ..............................................................................................32

MOBILE OFFSHORE DRILLING UNITS .............................................................................33

THE OFFSHORE SUPPORT VESSEL (OSV) MARKET ........................................................36

THE OFFSHORE CONSTRUCTION VESSEL MARKET .......................................................39

OFFSHORE WIND .............................................................................................................41

RS PLATOU MARKETS ......................................................................................................43

RS PLATOU FINANS SHIPPING ........................................................................................45

RS PLATOU REAL ESTATE ................................................................................................48

STATISTICS ........................................................................................................................50

CONTACTS.........................................................................................................................56

Cover photo: STR/EPA/NTB scanpix3INTRODUCTION


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PROJECT FINANCEINVESTMENT BANKINGSHIPBROKING OFFSHORE

OSLO

LONDON

ABERDEEN

HOUSTON

RIO DE JANEIROPERTH

NEW YORK

ACCRA

AVENEG

CAPE TOWNMELBOURNE

MOSCOW

DUBAI

PIRAEUS

SINGAPORE

SYDNEY

SHANGHAI

SEOUL

THE WORLD ACCORDING TO RS PLATOU

54


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A TURNING POINT FOR FUNDAMENTALS

2013 was very much a year o wo halves, or he world economyas well as or he shipping markes. Economic aciviy slowed ur-her, rom a none-oo-impressive, level in he firs hal o he year,

while susained robus flee expansion coninued. Te resul waspredicably negaive or all major shipping segmens and led oumbling reigh raes (o weny-year lows or some).

In rerospec, a urning poin ook place midway hrough heyear. Te world economy began o move orward, causing onn-age demand o improve. Te US led he economic improve-men, while sronger Chinese impor growh was he mainacor behind improving onnage demand. A he same ime,gradually ewer newbuilding deliveries, indeed ewer han ex-peced, caused flee growh o slow noably and capaciy uiliza-ion o improve.... FROM A STARTING POINT THAT WAS BETTER THAN

MANY FEARED

We argued las year ha cyclicaliy is no dead, assering haeven he volailiy seen in 2012 argued agains he noion osrucural overcapaciy. In our view, onnage demand has beengrowing above rend in recen years, as more and more devel-oping counries have become imporan conribuors. Tishas caused more complex rading paterns and, in many cases,longer por imes, reducing flee produciviy. In paricular, we

believe ha he increase in bunker prices in recen years musbe seen as a srucural change, as his has effecively inroducedsome very real speed limis, hereby adding o he effecive

demand. Te poin is ha real onnage demand has increasedsignificanly more han one would expec i only looking a purerade volume numbers. Consequenly, only conainer ship-ping has developed a level o overcapaciy ha could be calledsrucural. For dry bulk, ankers and mos indusrial shippingsegmens we esimae ha overcapaciy is beween 5 and 10percen. Te excepions are LNG and LPG, which have no over-capaciy o speak o. Se agains ha background, a recoveryha resores profiable condiions should be achievable overhe nex couple o years.

TONNAGE DEMAND GROWTH AGAIN RELATIVELY

STRONG CONSIDERING WEAK WORLD ECONOMY

oal onnage demand grew by an esimaed 6 percen in 2013bu i is hard o pu his perormance ino perspecive. On heone hand i was a relaively weak year as his was only he sec-ond ime in a decade ha growh was his low. On he oherhand i could also be seen as a relaively srong year, as he previ-ous ime world GDP growh dipped below 3 percen, in 2001-2002, onnage demand growh was only around 2 percen. Tisdemonsraes how he shipping inensiy o he world econo-my has increased over he pas decade.

All main segmens conribued wih dry bulk and LPG leadinghe way, each wih an impressive increase o 9 percen. LNG

was he only excepion, showing no growh in onnage demand.Keep in mind, however, ha his figure came on he heels oexcepional demand growh in recen years in he wake o heFukushima disaser.

Although 2013 was yet another weak year for the world economy and global shipping markets, the year will, in hindsight, be seen in apositive light. There are two principal reasons for this. First of all it ended on a significantly better note than it began, as fundamentalsvisibly improved. Secondly, surprisingly dynamic freight market trends for both dry bulk and tankers strongly suggested that industryovercapacity was moderate and not structural, as it was in the 1970s and 1980s. We estimate that world fleet capacity utilizationimproved by about 1 percentage point during 2013 to 85 percent overall.

THE SHIPPING MARKET ENVIRONMENT

WORLD SHIPPING 2013:ON THE PATH TO RECOVERY

76 THE SHIPPING MARKET ENVIRONMENT THE SHIPPING MARKET ENVIRONMENT


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FLEET GROWTH SLOWING, AT LAST

Very high flee growh, which has been a major depressan onreigh markes during he pas five years, began o slow downin 2013. Newbuilding deliveries are now on a rend o markeddecline and were abou one hird lower han in 2012. oaldemoliion figures were somewha lower han in 2012, busill remained relaively elevaed compared o previous years.oal flee growh reached 5 percen agains 2012, he lowesfigure since 2004. Growh slowed in all major segmens, excepor conainers. Te dry bulk flee coninues o have he asesgrowh a 8 percen, bu i also regisered he bigges slowdownrom las year when he increase was 12 percen.

SLIGHT INCREASE IN CAPACITY UTILIZATION TO

85 PERCENT, AFTER STRONG FINISH

Average flee uilizaion inched up by less han 1 percenagepoin o 85 percen. Alhough his is sill a low number com-pared o he average o 90 percen beween 2003 and 2008,

veeran marke observers will appreciae ha i is a very ar cryrom he 70 percen, or even lower level, which exised in he1970s and 1980s. Uilizaion rose or all main segmens, excepor LNG, bu ha segmen had he highes uilizaion rae byar o begin wih. Te larges increase was seen or he LPG seg-men, which improved by 3 percenage poins o 87 percen.

ASSET VALUES ON THE REBOUND

I was a very acive year or asse ransacions. Newbuildingsled he way as relaively low prices, new eco-design vessels andincreased privae equiy capial availabiliy caused he orderinake o ripple rom 2012, alhough i remained well belowha o he heydays o 2007. Newbuilding prices increased,gradually a firs bu wih a more pronounced rend in hesecond hal. Dry bulk and conainer vessels led he way, buanker prices were also on he rise in he second hal o he

year.

Te secondhand marke was relaively quie during he firs sixmonhs o 2013, bu picked up significanly in he second hal asreigh rae recoveries in various secors illusraed ha he gaprelaive o newbuilding prices had become oo large. Te ankersegmen was he mos acive, by ar, wih he number o ransac-ions increasing by nearly 30 percen rom 2012. Overall, he o-al volume o S&P ransacions increased by abou 10 percen.

TANKERS IN 2013: TERRIBLE START, STRONG FINISH

O any shipping segmen, he crude anker marke mos clearlyshowed how he shipping indusry urned he corner in 2013.Te firs hal o he year was marked by a decline in he globaloil rade o more han 3 percen, as all main imporing counriesreduced impors due o weak demand and/or oo-high inven-ories. Flee capaciy, meanwhile, expanded by 5 percen. Teresul was a predicable marke collapse, wih flee uilizaionalling o an esimaed 80 percen, he lowes level in 15 years.

However, undamenals began o slowly improve during hesummer, as rising oil demand spurred seaborne rade while fleecapaciy flatened ou. When sronger seasonal demand kickedin during he ourh quarer, VLCC raes rose o nearly $40,000per day on average, up rom $13,000 in Q3.

For he ull year we esimae ha onnage demand increased bymore han 3 percen - all o he increase coming in he secondhal o he year - while flee capaciy rose by 4 percen. Overallflee uilizaion ell by less han 1 percenage poin o 83 percen.

DRY BULK IN 2013: STRONG CHINESE IMPORT GROWTH

LIFTS RATES

Dry bulk reigh raes improved in 2013 rom he miserablelevels o 2012. We esimae onnage demand o have increasedabou 9 percen, driven by a new record in Chinese dry bulkimpors and a subsanial recovery in global grain rade in he

later par o he year. Te flee increased slighly less han 8percen. Flee uilizaion hereby rose by around 1 percenagepoin calculaed on a yearly average basis.Te dry bulk marke ollowed a similar patern as he ankermarke, wih a weak firs hal o he year and a rebound in hesecond hal. China reduced iron ore invenories in he firs haland hus needed o impor more in he second hal. On op ohis, a remarkable recovery in grain shipmens rom he US andBlack Sea creaed a significan conribuion o onnage demandor medium size onnage.

For he ull year, our weighed dry bulk index rose rom $9,400per day in 2012 o $12,800 per day or 2013, a rise o 34 per-cen. Te larges increase came in he Capesize secor, whereaverage earnings rose rom $9,800 per day in 2012 o $16,600in 2013, a rise o 69 percen. Panamaxes obained $9,500 perday agains a meager $8,100 he year beore, sill a 17 percenrise. For Supramax onnage, average earnings increased lesshan 10 percen or, more precisely, rom $9,400 o $10,300per day. Te improvemen in he Handy secor was even moremoderae, wih a daily rae rise o $8,200 or 2013 se agains$7,600 in 2012.

CONTAINERS IN 2013: DOWNWARD PRESSURE PERSISTS

Te conainer ship marke was characerized by coninueddownward pressure on box raes or mos o he year. Carriersailed in heir muliple atemps o raise reigh raes. Te uplif

WORLD MERCHANT FLEET 20042013ANNUAL CHANGES

TONNAGE DEMAND GROWTHVS WORLD ECONOMIC GROWTH 19922013

0

1

2

3

4

5

6

7

8

9

13121110090807060504

Percent

-4

-2

0

2

4

6

8

10

12

14

-1 0 1 2 3 4 5 6

Tonnage demandgrowth worldmerchantfleet, annual changes in percent

Worldoutputgrowth

02

05

94

07

08

9893

99

1213

01

04

97

07

'0011

09

10

06

03

96

in box raes in he las wo monhs o he year was driven bysronger year-end demand and capaciy wihdrawals in majorservices. Charer raes were also under consan downwardpressure apar rom smaller geared onnage, which experiencedhealhy demand and alling flee grow h over he year. Prelimi-nary daa suggess a sligh drop in flee uilizaion resuling romhigher flee growh relaive o onnage demand increase.

LNG IN 2013: CONTINUING TO OUTPERFORM

Te LNG shipping marke remained one o he very ew seg-mens in he shipping indusry where owners made moneyhroughou he whole year in 2013. A combinaion o very litlenew liqueacion capaciy coming on sream, coninued lowproducion a some liqueacion aciliies and reduced ranspordisance resuled in a saus quo or shipping demand growh.Te high ordering aciviy in he previous wo years sared oimpac upon flee growh owards he end o 2013, causing amodes increase in average flee capaciy, hereby conribu-ing o a decline in he ui lizaion rae. Shor-erm raes hus ellrom $125,000 in 2012 o $98,000 per day in 2013.

LPG IN 2013: OWNERS WINNING STREAK CONTINUING

AND PICKING UP STEAM

Te LPG shipping marke regisered is hird consecuive yearwhere spo raes or he larges shi ps, VLGCs, gave he own-ers a healhy reurn on invesed capial. Preliminary daa sug-gess ha seaborne rade or LPG increased by 6 percen, driven

by a surge in US expors, while ammonia rade ell by almos

9THE SHIPPING MARKET ENVIRONMENT8 THE SHIPPING MARKET ENVIRONMENT


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SUPPLY, DEMAND AND UTILIZATION RATE 1990-2013WORLD MERCHANT FLEET

Mill cgtSupply

Demand

Utilization rate

Utilization rate

0

100

200

300

400

500

13121110090807060504030201009998979695949392919070

8090

100

110

120

130

140

150

160

170

GLOBAL ECONOMIC GROWTH 2004-2014FORECASTS AND ACTUAL GROWTH RATES

Percentchange

-1

0

1

2

3

4

5

6

20142013201220112010200920082007200620052004

Forecast

Actual

Source:IMF(ForecastperOct.the yearbefore)

Te srenghening in he US, and he sabilizaion o China,prevened a poenially acceleraing slowdown in emergingmarkes rom aking place. For he firs ime since 2010, lead-ing economic indicaors were uniormly in expansion mode andheading higher a he end o he year.

2014: THE END OF THE DAWNS OF FALSE RECOVERY?

Like he preceding hree years here was a sense o opimism ashe New Year go underway. Tis ime around, however, hereis more convincing daa o suppor ha somehing posiive isgoing on. 2013 was a year devoid o any kind o crisis and heuniorm srengh seen in financial markes during he secondhal o las year indicae a greaer degree o convicion.

Neverheless, here are sill pleny o reasons or cauion as 2014begins. Equiy markes have begun he year on a wobbly noe,earing ha a new financial crisis could be brewing in emergingmarkes as he prospecs or moneary ighening draw nearer.Maure economies coninue o have heir own challenges. Tepresen macro-economic siuaion is very differen rom nor-mal due o he challenging mix o high deb levels, ragile bank-ing sysems and volaile capial flows amid coninuing very highunemploymen. Tese are all sill poen riggers or coninuedmacroeconomic volailiy, which, inadverenly, will be negaiveor onnage demand.

We look or he world economy o overcome hese challenges.Te fiscal drag in he US and Europe should be smaller and we

believe Chinese auhoriies have he wi ll and abiliy o handledomesic challenges. Wih auhoriies in all regions seemingly

willing o err on he side o oo much simulus in he shor-erm, his should help emerging markes overcome heir chal-lenges and in sum we expec ha 2014 will be he firs year since2010 in which global growh orecass will have o be upgraded,and ha should be good news or all o shipping.

SHIPPING MARKET PROSPECTS: CRISIS, WHAT CRISIS?

Wih he world economy on an upswing and a significanlylower orderbook, shipping should be able o begin saying good-

bye o he Financial Crisis and is afershocks. We expec anupswing in capaciy uilizaion and moderaely higher raes inmos segmens.

Te single bigges risk acor hanging over he shipping indu-sry is China. Te Middle Kingdom was imporan beore heFinancial Crisis, bu has become even more imporan since heCrisis, generaing more han hal o oal seaborne rade growhsince 2009. Speculaions abound ha he counry could be ac-ing is own financial crisis as a resul o imbalances ollowinghe inrasrucure boom. Te shipping indusry mus be aleri a slowdown begins o gaher momenum in 2014. While heless-dynamic, maure economies helped aver a deeper slumpin 2013, onnage demand growh would likely suffer i heemerging economies are replaced as growh leaders. Ta inurn would delay he shippings reurn o profiabili y.

Tere are also challenges wihin he indusry i sel. Te biggesone being how o manage he combinaion o underuilizedshipyards and he seemingly abundan availabiliy o privae eq-uiy capial searching or atracive yield.

For he new marke up-cycle o broaden and blossom, he in-dusry mus coninue o pursue a pah o pruden capaciy ex-pansion. Te nex wo years should give us precisely ha, whichmeans ha shipping is poised o regain some o is losses in2014 and 2015. Te duraion o he new up-cycle is o courseunknown, bu, o a grea exen he ae o he indusry lies inis own hands.

Ole-Rikard Hammer

Head o Research, RS Plaou Economic Research

WORLD SEABORNE TRADE AND ECONOMIC GROWTH 1970-2013

50

100

150

200

250

300

350

400

450

500

13110907050301999795939189878583817977757371

Index1970=100

Worldoutput

Seaborne drytrade

Seaborne oil trade

ANNUAL GROWTH IN REAL GDPPERCENTAGE CHANGE FROM PREVIOUS YEAR

Jan 2013 Jan 2014 Jan 2014Forecast Actual Forecast

2013 2013 2014USA 2.0 1.9 2.8Japan 1.2 1.7 1.7Euro area -0.2 -0.4 1.0C. and E. Europe 2.4 2.5 2.8Russia 3.7 1.5 2.0China 8.2 7.7 7.5India 5.9 4.4 5.4ASEAN-5 5.5 5.0 5.1M. East and N. Africa 3.4 2.4 3.3

Sub-Saharan Africa 5.8 5.1 6.1L. America 3.6 2.6 3.0World 3.5 3.0 3.7

Source:IMF

3 percen. Delivery o new onnage picked up significanly in2013 wih 1.3 cbm o new carrying capaciy causing he flee oexpand by 4 percen his year, leading o a 5 percen hike in heuilizaion rae. Tis lifed spo raes or VLGCs by $6,000 rom2012 o $36,000 per day.

CAR CARRIERS IN 2013: STATUS QUO

2013 was a raher unevenul year in he car carrier marke.Demand growh was suppored by srong US car sales andhealhy expor volumes ou o India, Tailand and Europe.However, main exporers Japan and Korea repored a 3 per-cen reducion in volumes, mainly caused by weaker demand inEurope. Global demand growh is esimaed o have been below3 percen in 2013. Combined wih flee growh o slighly above3 percen, his caused a marginal reducion in flee capaciy ui-lizaion o around 86 percen.

WORLD ECONOMY AND WORLD SHIPPING

Trough he firs hal o 2013, he developmen o he worldeconomy mirrored he disappoining perormance o recen

years wih a resuling weak developmen o onnage demand.In conras wih previous years, however, he economy wasable o pick up speed on is own during he second hal, wih-ou a financial crisis riggering exra simulus rom CenralBanks. Te resul was an upurn in rade growh and he maincommodiy shipping segmens all responded wih a reboundin reigh raes.

MATURE ECONOMIES SURPRISING ON THE UPSIDE.

However, he key change aking place in 2013 was ha hemaure economies urned ou o be capable o rising rom heashes and resuming a leadership role, which in urn helped o

break he downward momenum o he emerging economies.Te US economy, buoyed by is comparaive advanage o low-er energy coss and o coninued heavy moneary simulaion,

began o pick up speed as he negaive effecs o auomaed axhikes and spending cus a he sar o he year gradually woreoff. Te Eurozone economy ended wo years o conracion inhe spring, helped by he combinaion o increased compeiive-ness hrough lower wage growh and more sable financial condi-ions, which ogeher conribued o simulaing overall aciviy.Te resul was an upswing in aciviy, coupled wih he need orebuild depleed invenories, causing producion and impors osrenghen. Te improvemen mus be kep in perspecive, how-ever, as GDP growh only improved on a quarer-o-quarer ba-sis. Measured on a year-on-year basis, he economy coninued oconrac hrough he year. Te Japanese economy also improved,as new Prime Miniser Shinzo Abe inroduced fiscal simulus, as

well as a more aggressive moneary policy in order o weaken heYen and increase he economys compeiiveness.

WHICH HELPED AVOID A DEEPER SLUMP IN THE

EMERGING ECONOMIES

Tis was a much-needed developmen, as he pace o growhin emerging economies slowed precipiously in 2013, includ-ing ha o China. Alhough Chinese growh figures remainhe envy o virually all oher counries, he pace o growh has

been slowing consisenly since 2010. Te slowdown deepenedin he firs hal o 2013, wih virually all secors o domesicaciviy deceleraing in response o igher credi condiionsand weaker expors. As a resul he economy slowed o an esi-maed 7.5 percen growh rae, he lowes figure or more hana decade. Te economy appeared o sabilize during he secondhal o he year, however, as expors rebounded and here was amoderae upick in privae secor spending.

Oher emerging markes, rom India o Indonesia and urkey oBrazil, also experienced slowdowns, as auhoriies were orcedo figh off he inflaionary pressure ha had buil up afer heFinancial Crisis.

11THE SHIPPING MARKET ENVIRONMENT10 THE SHIPPING MARKET ENVIRONMENT


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vessels were also conraced. Te revival o he crude carr iermarke owards he end o he year resuled in a relaively largenumber o VLCC conracs in he ourh quarer.

BULK CARRIERS

Ordering aciviy wihin dry bulk was airly consan during hefirs hree quarers, and peaked in he las quarer. I was char-acerized by a large number o Capesize orders in March/April,and again owards he end o he year when Capesize reigh raespeaked. Ulramax and Kamsarmax vessels gained populariyhrough he enire second hal on he back o improved earnings.

In oal, new orders represened 73 mill dw and almos quadru-pled rom 2012. 59 mill dw o new ships enered ino operaion,leaving he orderbook a 118 mill dw a he end o h e year. Tiscorresponds o 17 percen o he exising flee. Chinese yardsclaimed 66 percen o he dry bulk orders, whereas 20 percenand 10 percen wen o Japan and Korea, respecively.

CONTAINER SHIPS

Despie a coninuously weak reigh marke or conainer ships,ordering also quadrupled rom 2012, o 2 mill EU. Almos 90percen o his volume came wihin he large vessel segmens,above 8,000 EU. Korea secured hal o he volumes, recap-uring he posiion as he dominan builder o conainer ships,

while 28 percen wen o Chinese yards.

During 2013 some 1.4 mill EU o capaci y was delivered romyards. A he end o he year he orderbook sood a 3.8 millEU, or 22 percen o he exising flee.

BUILDING CAPACITY AND SLIPPAGE

Quarerly deliveries have gradually declined since hiting apeak in mid-2012, and are now approximaely 50 percen downon ha record high. Monhly deliveries averaged 2.6 mill cgin 2013 and oal deliveries were repored a 31 mill cg. As a

delivery ime have made shipping an ineresing playground.Furhermore, he so-called eco designs promoed by yards have

been well received, wih expecaions o improved compeiive-ness due o coninuing high uel prices and compliance wihuure indusry environmenal regulaions.

In absolue erms, new orders reached he same levels as in2006 and 2008, only oupaced by he 78 mill cg conraced in2007. However, measured agains he exising flee i is no ex-cepional in hisorical erms. 2013 orders represened 8 perceno he exising flee, which is higher han in he wo previous

years, bu well below he aciviy seen in 2003-2007. In hoseyears new orders averaged 15 percen o he flee and peaked a24 percen in 2007.

Rough esimaes indicae ha around 65 bill USD was invesedin new, convenional ships during 2013, compared o 30 billUSD in 2012.

42 percen o all orders in 2013, measured in cg, were signed aChinese yards, wih 21 percen o hese on domesic accoun.Korean yards secured 35 percen o he conracs, bu only 10percen o hese were backed by Korean owners. 14 percenended up a Japanese yards, wih one hird regisered as domes-ic orders.

TANKERS

New orders o ankers reached 32 mill dw, o which 59 percenwen o Korean yards and 30 percen o China. Tis volume isdouble o wha was repored in 2012. 21 mill dw o onnage

was delivered, w ih he orderbook a year-end sanding a 54mill dw, corresponding o 11 percen o he exising flee.

Ordering aciviy wihin he various segmens varied during heyear, in andem wih he flucuaions in reigh raes. Clean car-riers perormed well in he firs hal, a a ime when many such

BUILDING PRICES FOR CONTAINER SHIPS 20042013

Mill $

1,700 teu

3,000 teu

4,500 teu

6,000 teu

9,000 teu

10

20

3040

50

60

70

80

90

100

110

120

03 04 05 06 07 08 09 10 11 12

New orders came in a almos 42 mill compensaed gross ons(cg), which is an increase o more han 150 percen rom 2012.

Yards in Japan, Korea and China all claimed heir share o heconracs, and op-ier yards have now filled heir orderbookso a comorable level, enabling hem o raise prices. Our new-

building price index increased by 12 percen during he year,wih prices in some segmens climbing by up o 20 percen.However, in a hisorical perspecive prices are sill low and

below he average in 2011.

DEMAND FOR NEW TONNAGE

Demand or newbuildings increased in 2013, wih 8 mill cgregisered per quarer in he firs hal, and close o 13 mill cgper quarer in he second hal o he year. Compared o an esi-maed building capaciy a he ime o delivery o around 9 millcg, oal orders came in higher, meaning ha average delivery

ime has been prolonged. Consequenly, yards achieved higherprices or urher orders hroughou he year.

Influxes o new orders have hisorically been linked o ourreigh rae index, which is based on earnings or ankers, bulkcarriers and conainer ships. Te index ended a $13,800 perday in 2013, and based on his we would have expeced neworders o come in a abou 26 mill cg. However, repored newconracs amouned o 42 mill cg , around 60 percen higher.

Many radiional shipowners are acing financial consrainsollowing weak reigh markes in recen years, while he banksare sill resricive wi h regards o financing. Oher, new playershave hereore seen opporuniies emerging, wih insiuionalinvesors becoming insrumenal in many o 2013s deals. Pricesa hisorically low levels, atracive paymen erms and shor

THE SHIPBUILDING MARKET

ORDERING ACTIVITY HIGHERTHAN EXPECTED

Shipyard activity in 2013 was characterized by a large volume of new orders compared to the previous years. Privateequity supported demand for new vessels, which shifted across segments in conjunction with variations in freight marketsthroughout the year.

BUILDING PRICES FOR BULK CARRIERS 20042013

Mill $

10

20

30

40

50

60

70

80

90

100

04 05 06 07 08 09 10 11 12 13

Handymax/Supramax

Panamax/Kamsarmax

Capesize

BUILDING PRICES FOR TANKERS 20042013

Mill $

MR Clean

Aframax

Suezmax

VLCC

10

30

50

70

90

110

130

150

170

04 05 06 07 08 09 10 11 12 13

NEW ORDERS IN MILL CGT 20042013

0

10

20

30

40

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60

70

80

13121110090807060504

Mill cgt

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Containerships

Bulkcarriers

Tankers

13THE SHIPBUILDING MARKET12 THE SHIPBUILDING MARKET


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DELIVERIES, NEW ORDERS AND ORDERBOOKS BY VESSEL TYPE

New Order Percent Deliveries orders book of fleetType Capacity 2013 2013 end 2013 end 2013

Tankers Mill dwt 21.3 33.2 51.4 10.9Bulk carriers Mill dwt 58.9 73.0 117.8 16.5Container ships Mill TEU 1.37 1.97 3.779 21.9LNG Mill cbm 2.55 6.18 17.274 30.3LPG Mill cbm 1.33 4.42 5.45 30.4Car carriers 1,000 CEU 111 285 434 11.5Chemical carriers Mill dwt 0.2 0.631 2.12 5.8Cruise 1,000 berths 13.5 6.7 63.3 12.4

we expec global onnage demand growh o remain in he 5-6percen range, based on our segmen analyses.

Te global merchan flee is expeced o grow by 4 percen in2014, down rom 5 percen in 2013. Consequenly, averageflee capaciy uilizaion is likely o improve rom 85 percen in2013 o 86 percen in 2014. Flee growh in 2015 is expecedo remain moderae, and below onnage demand growh, wihimproved reigh markes as a likely resul.

Capaciy uilizaion a such a level indicaes reigh raes belowbreak-even wihin he major shipping segmens, and will likelypreven radiional ship owners rom ordering large volumeso newbuildings. By using he hisorical correlaion beweenreigh raes and new orders, and seen agains our orecass orhe major shipping markes, our esimaes or new orders in

2014 is around 30 mill cg, whi ch is 25 percen below repored2013 volumes. Tis orecas indicaes volumes o new orderscoming in below our esimaes or yard capaciy a he ime

when he ships will be delivered.

consequence o he reducion in orderbook volumes and new-building prices since 2008, yard margins have decreased andhe yards have hereore cu building capaciy. Faciliies have

been closed and produciviy has been reduced hrough smallerworkorces, primarily by less use o subconracors, and shorerworking hours.

In 2015-16, when he orders aken in 2013 will be delivered, weesimae he global shipbuilding capaciy o be around 37 millcg annually, which will be he lowes level since 2008. As neworders amouned o 42 mill cg, i.e. above esimaed capaciya ime o delivery, average delivery ime is prolonged and yardsupply is igher. As a consequence, yards may firs claim higherprices and, secondly, some will likely seek o expand capaciy ashigher prices normally rigger yards o reacivae idle buildingcapaciy. However, prices are sill relaively low, so we would noexpec any dramaic changes in building capaciy.

Japanese yards are also benefiing rom he weaker Yen, whichmeans ha expor conracs are expeced o conribue subsan-ially o profis. However, Japanese yards are already a he high-end o he produciviy scale, which does no leave he same roomor capaciy gains as or Korean and, in paricular, Chinese yards.

Te anker orderbook a he beginning o 2013 indicaed deli-very o 33.1 mill dw during he year. Repored deliveries endedup a only 21.5 mill dw, which means ha 35 percen o he ves-sels scheduled or delivery never lef he yards. Curren recordsindicae ha 20 percen o 2013 deliveries were posponed,

while 15 percen were mos likely cancelled.

Dry bulk deliveries were scheduled a 81.4 mill dw in 2013.58.9 mill dw, or 72 percen, were acually delivered, and haincludes 6.6 mill dw o vessels ha were no in he orderbookand are hereore regisered as new conracs. 21.5 mill dw o

he original conracs were posponed o 2014 or laer, whereas7.8 mill dw, or close o 10 percen, were cancelled or removed.

Te rend was quie similar or conainer ships, where 73 per-cen o he 1.88 mill EU scheduled or delivery was acuallydelivered. Tis includes 3 percenage poins o new orders. 25percen o he original orders have been delayed, while 5 percen

were cancelled or removed rom he orderbook.

BUILDING COST

Currency flucuaions have a major impac on shipbuilderscoss. While Japanese yards have benefited rom a 20 percen

weakening o he JPY agains he USD rom 2012 o 2013,Korean and Chinese yards have seen loca l currencies appreciae.Te share o hull componens and equipmen sourced locallyis being gradually increased, paricularly in China, so exposureo currency flucuaions is becoming an increasingly imporanacor in shipbuilding cos.

Our seel plae price index ell by 8 percen during 2013. In con-ras o currency flucuaions, Chinese and Korean yards profirom lower seel cos, while he Japanese are orced o sourceseel domesically and are hereore no exposed o, his imelower, world marke prices.

Generally, we esimae shipbuilding cos o have been reducedby 5-10 percen in Japan during he las year, while he cos inKorea and China has been cu by up o 5 percen, wih variaionsamong segmens.

OUTLOOKDemand growh or he global merchan flee is esimaed a 6percen in 2013, which is in line wih our expecaions one yearago. World GDP growh is esimaed o be 3 percen in he sameperiod. GDP growh is orecased o be higher in 2014, while

WORLD MARKET PRICE FOR HEAVY STEEL PLATES 2004201310 MM+

$/ton

0

200

400

600

800

1,000

1,200

1,400

1,600

04 05 06 07 08 09 10 11 12 13

Te quesion is wheher unconvenional ship owners, i.e. in-siuional invesors, will remain acive in he conracing arenaalso in 2014. Te combinaion o low prices and shor deliver-ies is no as obvious anymore, a leas no a he yards ulfillingsuch players requiremens o counerpary risk. However, inearly 2014 we experience coninued ineres in shipping romprivae equiy, indicaing ha our orecas may be conservaive.

While our base case orecas indicaes orders below esimaedcapaciy in 2014, volumes could end closer o, or even above,

building capaciy i privae capial coninues o find is way inoshipping. Should his become he case prices should remaina he level seen a he end o 2013, or even increase urher,paricularly as yards have now filled heir order books well ino2016 and heir appeie or new orders a lower prices would belimied.

Ole Gustav Eriksen

RS Plaou Economic Research

15THE SHIPBUILDING MARKET14 THE SHIPBUILDING MARKET


9/30

THE TANKER MARKET

BACK FROM THE DEAD

Going ino 2013, only he conainer marke could mach hecrude anker marke in erms o negaive senimen. CollapsingUS oil impors and high flee growh were seen as insur-moun-able hurdles or a marke recovery.

Cerainly, he firs hal o he year perormed in line wih hosedownbea expecaions, wih average reigh raes hrough hefirs nine monhs o 2013 being he lowes in more han 20 years.In a classic shipping marke surprise, however, he marke madea sunning urnaround and raes soared in he ourh quarer olevels no seen since he floaing sorage boom in 2010. Alhoughsome soring ou o he deails o wha caused he year-end boomremains, we esimae ha i kep he ull year decline in flee uili-zaion o less han 1 percenage poin a, 83 percen.

While flee capaciy growh exceeded onnage demand growhon an annual average basis, here were imporan inra-year

urning poins or boh. onnage demand picked up markedlyduring he secondhal o 2013 in line wih a sronger worldeconomy and he end o Chinese de-socking. Flee capaciy,meanwhile, peaked a mid-year and slowed sharply during hesecond hal, principally due o much ewer newbuilding deli-

veries.

THE CLEAN MARKET: SOLID, BUT NOT CLEANING UP

Te clean marke had a solid, i unspecacular, year and con-inued he ouperormance o he crude marke ha began in2012. For he firs hal o he year, clean ankers ouperormedcrude ankers on an absolue basis, no jus on a relaive one,

which was highly unusual. An expanding clean rade hough heyear made his possible. Growh moderaed during he secondhal, however, reflecing he slowdown in global cr ude produc-ion in he firs hal, and here was no year-end demand boomlike here was on he crude anker side. Flee capaciy coninuedo expand a a seady rae o 6 percen hrough he year, absorb-ing mos o he increase in demand growh.

FREIGHT RATES: STRONG FINISH WIPED OUT MOST OF

THE DROP FROM 2012

For he firs 10 monhs o 2013 he crude anker marke wason course or is weakes perormance in 20 years, wih raes

rouinely dipping below he levels o operaing coss.

I all changed rom November onwards as increased spo mar-ke aciviy reduced onnage availabiliy. Tis resuled in ew-er available vessels and a spike in VLCC raes, which opped$50,000 per day, averaging nearly $40,000 per day or he quar-er, compared o a hird quarer average o $13,000 per day.Suez- and Aramax raes ollowed sui in December

Fundamenally, i is diffi cul o explain such a sharp improve-men in so litle ime. While all he daa is no in ye, i is clearha onnage demand increased due o higher Asian imporsand flee capaciy was essenially fla. Sill, his is no suffi cien

The tanker market began the year with f alling freight rates and very weak sentiment. It finished it on an upbeat note, as rates respondedsharply to a moderate improvement in fundamentals, laying to rest the fear that the market was mired i n structural overcapacity.

AVERAGE FREIGHT RATES $1,000 PER DAYSINGLE VOYAGE 2011 2012 2013

VLCC 14.9 20.9 17.6Suezmax 16.7 14.7 14.1Aframax 12.9 15.4 16.3LR2 product 12.5 14.3 13.5MR product 11.3 13 16.3

FREIGHT RATES SINGLE VOYAGE 20042013CRUDE CARRIERS1,000 $/day

VLCC

Suezmax

Aframax

0

50

100

150

200

04 05 06 07 08 09 10 11 12 13

FREIGHT RATES SINGLE VOYAGE 20042013CLEAN CARRIERS

0

10

20

30

40

50

60

70

80

901,000 $/day

85/110,000 dwt

70/85,000 dwt

45,000 dwt

04 05 06 07 08 09 10 11 12 13

TANKER FLEET 20042013AVERAGE ANNUAL CHANGESPercent

0

1

2

3

4

5

6

7

8

13121110090807060504

TANKER MARKET INDEX 20042013ANNUAL AVERAGES (WEIGHTED BY DWT)

1,000 $/day

0

10

20

30

40

50

60

70

13121110090807060504

o explain such a drasic improvemen in raes on undamenalgrounds alone. Charerers, as well as owners, appear likely ohave been caugh off guard and ha may in isel have conrib-ued o a igher marke i, or insance, flee speed, was slow orespond o he improvemen in marke condiions.

Tanks o he excepional finish o he year, our onnageweighed anker Index barely budged in 2013, sl ipping byan almos negligible 4 percen rom 2012 o $16,500 per day.However, or a long ime, i looked like i would be much

worse, wih he index down nearl y 40 percen a he hal-waypoin. Te marke surge during he ourh quarer repairedmuch o he damage hough. VLCCs, which had consisenlyraded below $10,000 per day during he firs hal o he year

wound up a $18,000 per day or he year, virually in line wihour predicion a he sar o 2013, bu some 15 percen belowhe 2012 average. Suezmaxes weakened slighly o $14,000per day, while Aramaxes improved rom $15,000 per day o$16,000 per day. On he clean side, MRs averaged $16,000per day, in line wih our expecaions and a solid improvemenrom $12,000 per day in 2012.

ASSET VALUES: FIRMER NEWBUILDINGS. U-TURN ON

SECONDHAND.

I was a mixed year or asse values. Newbuilding prices fla-ened ou during he firs hal and firmed during he secondhal, as high aciviy in all oher secors bu crude ankerscleared ou available yard capaciy well ino 2016. Shipowners

wih he financial capaciy o order new vessels soon sough oake advanage o wha was seen as he botom par o he price

cycle, and a very dynamic privae equiy capial marke addedpush o he owners shove. Newbuilding prices hus bouncedoff he lows during he firs hal o h e year and by year-end wererecorded a 6 o 13 percen higher.

Second hand prices experienced a much more dramaic shif.Having raded a increasing discouns o newbuilding pariyhrough he las couple o years, due o an expeced poor earn-ings siuaion, a sharp re-pricing began o ake place as soon as i

became clear ha reigh raes were gaining racion. Values orfive-year old vessels rose by around 5 percen during he ourhquarer, while older vessels rose by 10 o 30 percen, (alhoughhere were relaively ew benchmark ransacions).

A CHALLENGING OIL MARKET

Following 2012s global surge in oil producion, las year repre-sened a clear ledown. World oil producion increased by 0.5mbd, or below 1 percen, less han hal he rae o he previous

year. In addiion, he changes ha did ake place were mosly

in he wrong areas or onnage demand growh. Te mos ob-vious problem was he 1 mbd reducion in OPEC producionha ook place. Having peaked a a 30-year high in 2012, wecorrecly warned o lower oupu growh in 2013, as oil demandlooked insuffi cien o suppor such a volume.

On op o his, US ligh, igh oil producers had anoher banneryear and oal oupu grew by 1 mbd o 7.5 mbd. However, litleo his benefied he seaborne crude oil rade.Oil demand growh remained relaively saic a around 1 per-cen or he hird consecuive year, alhough here were signs

17THE TANKER MARKET16 THE TANKER MARKET


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WORLD OIL PRODUCTION AND TRADE 20042013

15

24

33

42

51

60

MBD

Worldoil

trade

Non-OPEC

production

OPEC

production

04 05 06 07 08 09 10 11 12 13

o improvemen in he second hal. Effecively, he relaivelysagnan oil marke mean ha displaced US impors were no

being recycled ino he global marke and in realiy remainedin he ground in he Middle Eas. Tis caused seaborne cruderade o conrac or he year.

TONNAGE DEMAND GROWTH: THAT SINKING FEELING

THROUGH MOST OF THE YEAR

While i was indeed a weak year or on-mile demand growh, iwas no ha bad or onnage demand, a meric which also akesflee produciviy ino accoun. Indeed, 2013 will sand ou as

anoher example o how easy i is o underesimae his increas-ingly complex eniy.

Te crude oil rade, which is he mos ransparen par o heglobal oil rade, was on a declining rend hrough he firs hal ohe year, or several reasons. Te mos obvious being he on-go-ing reducion in seaborne impors o he US, which declined bymore han 15 percen o 5.2 mbd, or reasons explained above.Te pressure was mos acue early in he year wih seaborneimpors hiting a rough in February beore saging a modescomeback. Predicably, European impors also shrank as a ur-her decline in Norh Sea producion ailed o make up or all-ing refinery demand in response o weaker local consumpionand loss o marke share o Indian and US refiners.Te problem or he anker marke was ha oher large impor-ers were cuting back a he same ime. Tis was paricularlyapparen in Asia. Chinese impor demand slowed sharply, as asofer economy made desocking necessary afer he 7 percen

impor jump o 2012. Japanese and Korean impors were downbecause o weaker domesic demand and lower refinery mar-gins. While India increased impors in response o is growingrefinery capaciy, his was no enough o offse he decreasein oher counries and crude impors o he region suffered ahighly unusual decline in he firs hal o he year, albei by onlya modes 1 percen.

DELIVERIES AND REMOVALS OF TANKERS 20042013EXCLUDING CHEMICAL CARRIERS

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30

35

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13121110090807060504

Deliveries

Removals

Preliminary esimaes show he crude rade declining by 2 per-cen or he year, ollowing a rebound during he second hal.

Te clean rades ared beter, expanding by an esimaed 2 per-cen. Asian oil demand coninued o expand, drawing in moreimpors, while he problems or European refiners describedabove resuled in a surge in clean impors. European refiningcapaciy is shrinking aser han end-user demand. Te later isheavily skewed owards one produc, diesel, making he refin-ers ask even more diffi cul and leaving higher impors as he

balancing iem.

LONGER DISTANCES AND LOWER PRODUCTIVITY OFFER

SOME REPRIEVE

Average rading disances have been seadily increasing and harend coninued in 2013. We esimae ha average disance in-creased by abou 1percen. On he crude side, he main drivero his rend is China. I has an excepionally diversified impor

base resuling in he counry having he longes average rad-ing disances, by ar. Tey exended urher las year as imporsrom Wes Arica, Norh Arica and Lain America all increased.

I may come as a surprise o some, perhaps, bu he US is alsoexperiencing longer average disances. Te heavy sour crudesrom he Middle Eas remain an imporan eedsock or sophis-icaed US refiners. Te ligh, swee crudes rom Alanic Basinproducers are, ye again in 2013, aking he bigges hi, bu shorhaul producers Venezuela and Mexico boh saw expors alling.Te Middle Eas exporers hus increased heir share o he USmarke ye again and average rading disances increased by an

esimaed 1 percen. Overall, we esimae ha he increase inaverage rading disances offse he decrease in seaborne rade,keeping on-mile demand fla vs. 2012.

Average rading disances are esimaed o have increasedsomewha or he clean marke as well, as US, Indian andMiddle Eas refineries coninue o ake marke share a he ex-

WORLD OIL CONSUMPTION GROWTH 2004-2013

Percent

-2

-1

0

1

2

3

4

5

13121110090807060504

pense o European refiners, which in general have been shorhaul suppliers.

Flee produciviy coninued o decrease during 2013, effec-ively adding o onnage demand. Measuring and inerpreingchanges in flee produciviy is a complex ask, as discussed inprevious repors. We esimae ha flee produciviy declined

by nearly 4 percen in 2013. Te decline is mainly atribuedlower flee speed, mainly in response o higher bunker prices,and more ime in por.

FLEET TRENDS: A TURNING POINT AFTER YEARS OFEXCESSIVE GROWTH

2013 was supposed o be a year o noiceably lower flee growhollowing he hefy expansion during he previous hree years,

when growh averaged 6 percen. A slowdown did ake place,bu or differen reasons han expeced. Deliveries o crudeanker newbuildings, which were expeced o moderae, ell byone hird rom 2012. Tis was paricularly eviden during hesecond hal o he year, when he decrease was enough o acu-ally lower flee capaciy slighly rom is June peak. While i ishard o single ou paricular reasons wih any grea confidence,i seems clear ha deepening financial problems a several Chi-nese yards became increasingly imporan hrough he year,causing deliveries o all well behind schedule.

Demoliion, which was supposed o pick up, acually did verylitle or mos o he year. By mid-year, recycling figures wererailing 2012s modes oal by a wide margin. A rend shif ookplace during he second hal o he year on he back o some

sales rom benchmark owners. By year-end oal demoliionhad caugh up wih 2012s oal o 11 mdw, he vas majori y o

which was crude ankers.

For he year, he average crude anker flee expanded by 4 per-cen, well below he 7 percen growh rae in 2012. Even moreelling, by he end o he year he year-on-year growh rae had

come down o 2 percen, less han one hird o where i hadsared he year.

Te clean anker flee experienced ew o hese problems. Nomajor yards were in rouble and acual deliveries came in pretyclose o schedule. Demoliion was modes, as expeced, givenhe healhy level o earnings and young flee. In oal, he cleananker flee increased by 6 percen or he year.

MARKET OUTLOOK: ON THE RISE, BUT DONT EXPECT

2014 TO BE EASY

2013 urned ou o be jus as ough as expeced, and neededhe year-end spike o mee even hose low expecaions. On heoher hand, ha very spike makes us more confiden o sand

by our orecas or an improving marke in 2014. In our view,i confirms ha overcapaciy is moderae raher han massive,

which means sronger undamenals should impac raes.

We expec ha 2014 will mark he end o a series o alse dawnsor he world economy. I ha proves o be correc, we expecha oil demand will surprise on he upside. Curren orecassassume ha demand growh, while no dead, has los all ele-mens o cyclicaliy. We expec ha he gradually sronger de-mand numbers buil up during 2013 will coninue in 2014, andha i should be he bes year or oil demand since he FinancialCrisis recovery year in 2010. I would no be he firs ime hamainsream orecasers ge caugh ou a marke urning poins.

We are hereore looking or a recovery in volume growh anda urher lenghening o average disances. A sronger economy

will creae room or displaced US oil impors, in conras o re-

cen years, and boh volume and average disances are expecedo increase in 2014.

Wha is airly clear abou 2014 is ha flee growh will coninueo moderae. Te delivery schedule is in line wih he 2013 ac-ual level, bu we expec some delays and possible cancellaionsdue o well-publicized problems a cerain yards. Demoliion is

SUPPLY, DEMAND AND UTILIZATION RATE 20042013TANKER FLEET

100

150

200

250

300

350

400

450

500

Mill dwt

70

80

90

100

110

120

130

140

150

Utilization rate

Demand

Supply

Utilization

rate

04 05 06 07 08 09 10 11 12 13

Source:IEA

19THE TANKER MARKET18 THE TANKER MARKET


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MARKET VALUES OF TANKERS 200420135 YEARS OLD

0

20

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140

160

180 VLCC

Suezmax

Aframax

MR Product

Mill $

04 05 06 07 08 09 10 11 12 13

expeced o ease back, in line wih firmer raes, bu he increas-ing number o vessels having o pass hird or ourh special sur-

vey will find he economics challenging and may decide o call iquis. We oresee average flee growh o 2 percen in 2014, helowes level in more han a decade.

Combined wih a firmer demand oulook his should yield anincrease in flee uilizaion. Freigh raes are hus expeced o behigher, on average, han in 2013, bu i is sill unlikely o be a

very saisacory year rom a profiabiliy sandpoin.

THE CLEAN MARKET; STEADY AS SHE GOES

A firmer world economy w ill benefi clean anker demand as

well, and longer haul impors rom he Middle Eas, India andhe US should coninue o displace European expors. On heoher hand, newbuilding deliveries will be around 7 percen ohe flee and scrapping is likely o remain modes. Mos o hedemand increase is hus likely o be absorbed by higher fleecapaciy, however, and we expec a relaively modes improve-men in raes. Ta said, curren levels are relaively healhy.

WHERE WILL SURPRISES STRIKE IN 2014?

We will repea wha we said a year ago, ha China and Iran arehe counries mos capable o surprises. China can go eiher

way; a slower economy could ge derailed by an unexpeced fi-nancial even and hus urn ino a slump. On he oher hand,i may also surprise on he upside i indeed he world economy

visibly improves and he planned increases in Chinese refiningcapaciy and sraegic invenories are able o move orward.

Iran ook seps in 2013 o reurn o he oil marke. So ar i hasreceived an apprehensive welcome, bu ha may change in2014. Te counry appears very inen on aking back is mar-ke share in OPEC and a reurn o Iranian expors is no longer

unrealisic. I mus be added, hough, ha any reurn o Iranianflows would represen somewha o a double-edged sword orhe anker marke: More ransporaion volume, bu also more

vessels available, due o reduced floaing sorage. In addiion,a likely drop in oil prices could filer hrough o lower bunkerprices, poenially unlocking some reserve capaciy in fleespeed. Say uned.

Te botom-line rom our perspecive is ha he saring poinor a recovery is beter han eared as overcapaciy is moder-ae raher han srucural. Slowing flee growh is essenially agiven over he nex wo years. Ta leaves he onus on he worldeconomy o perorm, which we believe i finally will, and 2015should offer more o he same. Te marke should hus havea wo-year window o opporuniy o claw back some o helosses rom previous years., Beyond 2015, we oresee he ankerindusry embarking on a period o more normal demand andsupply rends han we have seen in recen years, which should

be good news rom he sandpoin o resoring profiabiliy.

Ole-Rikard Hammer

Head o ResearchRS Plaou Economic Research

Te year was spli in wo regarding earnings. Freigh raes werevery weak over he fir s seven monhs, especially or Capesiz-es. China uilized is invenories o iron ore considerably inhis period and, combined wih sagnaing Brazilian exporso Asia, on-mile growh was very weak or he larges size.Oher segmens were negaively affeced by alling grain radeand slack aciviy in minor bulk commodiies. In he secondhal o he year, an upswing in Chinese economic aciviy,combined wih a srong surge in global grain shipmens, cre-

aed a very srong recovery in onnage demand and increasedreigh raes.

For he ull year, our weighed dry bulk index rose rom $9,400per day in 2012 o $12,800 per day, a rise o 34 percen. Telarges increase came in he Capesize secor, where average

earnings increased rom $9,800 per day in 2012 o $16,600 in2013, a rise o 69 percen. Panamaxes obained $9,500 per dayagains a meagre $8,100 he year beore. For Supramax onn-age, reigh raes rose rom $9,400 per day o $10,300, whilehe Handy secor daily rae improved rom $7,600 o $8,200.

THE DRY BULK MARKET

SPIKE IN TONNAGE DEMAND OFFERSRECOVERY IN FREIGHT RATES

AVERAGE FREIGHT RATES $ 1,000/DAYTRIP CHARTER 2011 2012 2013

Capesize 16.2 9.8 16.6

Panamax 14.6 8.1 9.5

Supramax 14.4 9.4 10.3

Handysize 10.5 7.6 8.2

DRY BULK IMPORTS BY COUNTRY/REGION20042013

Dry bulk freight rates improved in 2013 from the miserable levels of 2012. We estimate tonnage demand to have increasedabout 9 percent, driven by a new record in Chinese dry bulk imports and a substantial recovery in global grain trade in thelatter part of the year. The size of the fleet increased by slightly less than 8 percent. Fleet utilization thereby rose about1 percentage point calculated on a yearly average basis.

0

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400

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800

1,000

1,200

1,400

1,600Mill tons/year

China

Japan

OtherAsia

W.Europe

India

04 05 06 07 08 09 10 11 12 13

T/C RATES BULK CARRIERS 2004201312 MONTHS

0

20

4060

80

100

120

140

160

180

Handysize

Supramax

Panamax

CapesizeMill $

04 05 06 07 08 09 10 11 12 13

21THE DRY BULK MARKET20 THE TANKER MARKET


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22 THE DRY BULK MARKET

STRONG INCREASE IN ASSET VALUES

Ship values increased seadily hroughou he year in re-sponse o he improving earnings. Te number o ransacions

jumped around 10 percen compared o 2012. W hile new-building prices rose be ween 15 and 20 percen across- he-board, secondha nd values climbed a a higher rae and weremore diversified depending on size and age.

Te sronges upurn was regisered or 10-year old Pana-maxes, wih a 44 percen jump rom year-end o year-end.Prices in oher size caegories jumped beween 25 and 30 per-

cen, apar rom modern handysizes, which gained around 20percen.

STRONG GROWTH IN TONNAGE DEMAND

Preliminary daa suggess ha he seaborne ransporaion odry bulk commodiies measured in on-miles rose abou 7percen agains he previous year. Flee producivi y appearso have dropped around 2 percen and real onnage hereoreclimbed abou 9 percen.

China increased is dry bulk impors by an impressive 12 per-cen. Iron ore impors escalaed by more han 10 percen andcoal by 17 percen. Among oher commodiies, we noiced anexraordinarily srong jump in bauxie impors, wih 60 per-cen higher volumes han las year. Impors o nickel ore andmanganese ore jumped 10 and 35 percen, respecively. Tismus be seen in ligh o he ban on Indonesian mineral oresrom January 12 his year, which orced Chinese indusrieso fill up invenories beore he ban was implemened. rans-

poraion o logs and woodchip o China rose srongly, whileseel producs, errous scrap and erilizers all noiced lowerimpors due o higher domesic supply.

In he res o he world, dry bulk impor rose by around 3 per-cen rom he year beore. India raised is impors by 7 per-cen, while Middle Eas counries impored 10 percen higher

volumes in oal. Japans impors were up 1 percen, while FarEas Asian counries, excluding China and Japan, recorded3 percen higher oal impors. Te US dry bulk impors re-covered by abou 8 percen, mainly driven by higher amounso seel producs and erilizers. European dry bulk impors

were, as a whole, basicall y unchanged rom he year beore.

Among key exporers, Ausralia raised is marke share in

minerals expor. Iron ore shipmens rose by 8 percen, whilecoal consignmens escalaed 15 percen rom he previous

year. Brazilian iron ore expor was basically unchanged, whileSouh Arica, he Middle Eas, Peru and Chile all raised over-seas shipmens. Indonesia again achieved impressive growhraes in mineral expors, wih 16 percen higher coal ship-mens, a 50 percen escalaion in bauxie expor and a 15percen jump in nickel ore shipmens. In he grain secor, USand Black Sea exporers raised heir expors subsanially as aresul o bumper crops and low invenories in major impor-ing counries.

SAILING DISTANCES

rading paterns in iron ore and coal showed a srongerincrease in inra-Pacific loads han in cross rade beweenhe Alanic and Pacific Basins, hereby causing a moderaereducion in sailing disances. In grain, soybean, oresry andsugar, disances grew due o a more rapid increase in Souh

American expors o long-haul desinaions in relaion o

oher exporers.

SUPPLY, DEMAND AND UTILIZATION RATE 20042013DRY BULK FLEET

MARKET VALUES OF BULK CARRIERS 200420135 YEARS OLD

Mill dwt Utilization rate

Demand

Supply

Utilization

rate

150

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300

350

400

450

500

550

600

650

700

750

80

90

100

110

120

130

140

04 05 06 07 08 09 10 11 12 130

20

40

60

80

100

120

140

160

180

Mill $

04 05 06 07 08 09 10 11 12 13

Handysize

Supramax

Panamax

Capesize

23THE DRY BULK MARKET22 THE DRY BULK MARKET


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REDUCED FLEET PRODUCTIVITY CONTRIBUTED TO

DEMAND GROWTH

Te worsening imbalance in cross rade beween he Alan-ic and he Pacific Basins resuled in higher ballasing. Aver-age speed is esimaed o have allen by less han one kno.Por congesion increased moderaely, measured on a globalaverage basis, bu wih some divergences on a regional basis.

Ausralia and China remai ned congesed or mos o he year,while Brazils iron ore pors reduced waiing ime significan-ly. Tis was a resul o sagnaing shipmens combined wih

expanding por capaciy. However, Brazilian pors handlinggrain and soybean expor and inbound erilizer became sig-nificanly more congesed over 2013.

FLEET GROWTH

Deliveries o new ships amouned o 59 mill dw, while re-movals oaled 23 mill dw. Sofer scrap prices combined wihhigher reigh raes gave less o an incenive or ship ownerso send ships o he beaches. Calculaed as an average or he

year, he dry bulk flee increased in size by slig hly less han 8percen rom 2012 o 2013.

By segmen, he Panamax/pos Panamax flee was enlarged by11 percen, while he Supramax flee size expanded 7 percen.Te Capesize and Handysize flees increased by 5 percen and0.5 percen, respecively.

Ship owners were acive in ordering new ships, wih 73 milldw o new orders placed. Te orderbook hereby increased

in size rom year-end o year-end, growing rom 14.8 o 16.5percen o he exising flee.

BULK CARRIER FLEET 20042013AVERAGE ANNUAL CHANGES

NEW ORDERS OF BULK CARRIERS 20042013

0

2

4

6

8

10

12

14

16

13121110090807060504

Percent Mill dwt

0

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13121110090807060504

MARKET PROSPECTS

Las year urned ou beter han expeced hanks o a srongerhan anicipaed increase in Chinese dry bulk demand. Tespike in reigh raes in he later par o he year also clearly in-dicae ha he surplus o capaciy is less dramaic han eared.

Te prevailing predicions or he world economy going or-ward sug ges hig her grow h h an in 2013. For dry bulk d e-mand, Chinas economic growh rae will be o vial impor-ance as i accouns or more han 40 percen o he world

deep-sea rade in dry bulk commodiies. Forecass or Chi-nese economic growh going orward sugges slighly lowergrowh han in previous years, bu sill in he 7 percen p.a.range. A crucial developmen would be he adven o arbiragein iron ore and coal prices, as will he exen o which Chineseauhoriies atemp o reduce local polluion. Sricer regula-ions in domesic mining could be a sronger driver in Chineseiron ore and coal impors, as increasing overseas mining ca-paciies will ake prioriy over domesic low qualiy and highpolluion capaciies.

Te ransporaion o bulk commodiies, especially i n he mine-rals secor, should, in general, expand in andem wih economicgrowh. However, he subsanial build-up o Chinese inveno-ries in bauxie and oher high qualiy mineral ores in he finalpar o 2013 will mos likely reduce he rade growh poenialover he firs par o 2014. I i s premaure o say anyhing cerainabou he grain and soybean rade; neverheless, he bumpercrop in 2013 has conribued o a srong revival o rade since

las all, and his is expeced o las unil spring his year. Grainrade in he second hal o he year will largely be dependen ongrain producion and rends in grain prices.

A coninued expansion o arable land in Souh America isexpeced o raise demand or erilizers quicker han localproducion will expand. Ferilizer impors are hereore hemos likely segmen idenified or urher growh in he com-ing years.

In ores producs, wood pelle ransporaion is anicipaedo escalae urher, especially rom Norh America o Europe.

We also predic a urh er increase i n wood ransporaion oChina, boh in woodchips and logs. Enlarged paper produc-ion capaciy and higher consrucion aciviy will mos likely

require higher impors o hese producs. A subsanial par ohe expeced expansion o wood pulp expor capaciy in Souh

America should be aken by Asian impo rers, wih longer sail -ing disances as a resul.

In oal, we predic seaborne dry bulk rade o increase inhe region o 5 - 6 percen rom over he nex coming years.Sailing disances in grain, soybeans and oresry producs areexpeced o rise urher due o a sronger relaive increase inSouh American expors o Asia, compared o oher exporingcounries. In iron ore and coal, we assume small changes inhe sailing disances. World logisica l capaciy is projeced oexpand by around 5 o 6 percen and por congesion is here-ore expeced o remain more or less unchanged. A coninuedincrease in he ballasing acor seems also plausible. In oal,

we oresee an increase in real onnage demand o some 7 - 8percen.

FLEET TREND

Te delivery schedule in 2014 and 2015 is lower han he 2013acual level. We should, however, expec some delays and pos-sible cancellaions due o well-publicized problems a cerain

yards. We should also a ke ino accoun h ere migh sill beorders and opions placed in he final quarer las year whichno ye are repored, and migh influence he 2015 deliveryprogram. We esimae deliveries boh his year and nex oreach abou 50 mill dw. Adjused or some 13/14 mill dwo esimaed scrapping each year, a ne flee growh rae oaround 5 percen can be expeced in his period o ime.

CONCLUSION

Wih a flee growh o around 5 percen p.a. combined w ih7 8 percen increase p.a. in onnage demand he marke un-

damenals poin o a urher srenghening in he nex com-ing years. We expec however, a slow sar o his year, bu weanicipae a recovery in reigh raes during he course o he

year w hen China has depleed huge invenories in iron ore,bauxie and nickel ore. A poenial up side woul d be sricerregulaions on Chinese domesic mining, which will supporsronger growh in raw maerial impors han anicipaed inour base case scenario. On he supply side, limied spare ca-paciy a yards will preven he likelihood o much higher hanalready anicipaed deliveries up o end o 2015.

Te main downside risk o he above scenario will be a muchweaker han anicipaed economic growh in China wih slow-er increase in commodiy impors as a resul.

Bjrn BoddingRS Plaou Economic Research

D ELIVER IES AND REMOVALS OF B ULK C AR RIER S* 20042013 WOR LD ST EEL OUT PU T 2004-2013

Mill dwt

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13121110090807060504

Deliveries

Removals

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160

Mill tons

04 05 06 07 08 09 10 11 12 13

Total world

Rest of the world

China

*Incl.conversions

25THE DRY BULK MARKET24 THE DRY BULK MARKET


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THE CONTAINER SHIP MARKET

HITTING THE BOTTOM

FREIGHT RATES AND CHARTER RATES

Freigh raes per EU decreased abou 5 percen rom he pre-vious year, calculaed on a yearly average basis. However, srongvolailiy was regisered, especially on he Asia o Europe sring,wih a firm sar o 2013 ollowed by a significan drop in hemiddle o he year. In he final monhs, box raes rose signifi-canly driven by somewha sronger demand, wihdrawals osailings and increasing lay-up.

Charer raes were on average around 10 percen lower han heyear beore or gearless onnage, while geared onnage beween1500 and 2500 EU obained around 10 percen higher raes.

Te seady inflow o newbuildings reduced demand or gear-less charer onnage, while increased demand or eedering inemerging markes gave a posiive boos o geared ships.

CONTAINER MOVEMENTS AND TONNAGE DEMAND

Preliminary saisics sugges global conainer ship demand in-creased by slighly less han 6 percen rom 2012 o 2013. Glob-

CONTAINER IMPORTS - SELECTED REGIONS 20042013

0

10

20

30

40

50

60

70

13121110090807060504

ill T

Asia

EU

USA

DELIVERIES OF CELLULAR CONTAINER SHIPS 20042013

1,000 TEU

0

250

500

750

1,000

1,250

1,500

13121110090807060504

The container ship market in 2013 was characterized by continued downward pressure on box rates throughout most of the year.

Carriers failed in their multiple attempts to raise freight rates. The uplift in box rates in the l ast two months of the year w as driven bystronger year-end demand and capacity withdrawals in major services. Charter rates were also under constant downward pressure, apartfrom smaller geared tonnage, which experienced healthy demand and falling fleet growth across the year. Preliminar y data suggests aslight drop in fleet utilization, resulting from fleet growth that was higher than the corresponding increase in tonnage demand.

al conainer movemens increased by some 5 percen. Assessingrends by region, in he US conainerized impors were uparound percen 3 compared wih he previous year. Te volumeo laden boxes rom Asia was up 2 percen, while conainer ra-fic rom Souh America rose only1 percen. On he Europe-USroue, an increase o 2 percen was recorded.

Conainer raffi c ino Europe climbed 2 percen rom he previ-ous year. raffi c was sagnan in h e firs hal o he year, bu asignifican rise was noiced in he later par o he year, as heeconomic siuaion sabilized. Far Eas Asian volume o Europe

was up 3 percen year-on-year, while raffi c rom he USA and

Souh America increased only marginally. Te sronges rise inEuropean impors came rom India, wih an 8 percen escala-ion.

Wihin Asia, conainer shipmens jumped 8 percen, while FarEas Asia raised conainerized expors o he Middle Eas by 7percen. In oher emerging marke rades, we regisered an 11

percen escalaion in box movemens rom he Far Eas o EasCoas Souh America and a 17 percen jump o Wes Arica.

FLEET PRODUCTIVITY

Flee produciviy decreased urher in 2013, bu a a slowerpace han in recen years. A couple o services ha had noinroduced slow seaming in previous years inroduced his in2013.

FLEET EXPANSION

Some 1.4 mill EU o new conainer ship capaciy enered

operaion in 2013. Tis was nearly 500,000 EU less han an-icipaed. Removals oaled 435,000 EU o capaciy, a newrecord. However, he ne flee expansion was sill 6.6 percenacross he year.

Te idle flee increased a he end o 2013 due o wihdrawals ocapaciy and adjusmens ahead o he winer season. Te num-

ber o larger ships no operaing increased wih 13 vessels above7500 EU and 27 ships rom 5000 o 7500 EU repored asidled. A year-end, he oal idle flee sood a 780,000 EU,equivalen o 4.5 percen o he oal cellular flee.

MARKET PROSPECTS

Hisorically, conainer raffi c has increased a a rae ha isaround double he world GDP growh. In 2013, he raio wasonly 1.7. Tis is probably relaed o coninued low economic ac-iviy in he Euro area and slower economic g rowh wihin someemerging Asian economies. Despie an improved US economy,conainer impor growh was lower han his economic indi-

caor would normally sugges. One explanaion could be haalling energy prices have improved he compeiveness o USdomesic indusries, hereby reducing impor growh in ceraincommodiies.

Te prevailing orecass or world GDP in 2014 sugges an in-crease in world conainer raffi c o some 6 - 7 percen. Tis is

based on a acor o GDP o 1.8, assuming here is a relaivelylimied need o replenish global invenories in he shor-erm.

On a regional basis, he mos imporan rade lane in he con-ainer marke, measured in EU-miles, is Asia o Europe. GDPgrowh in Europe is orecas o increase moderaely, which sug-gess an associaed increase in conainer impors. US conainerimpors seem likely o increase due o expeced sronger eco-nomic aciviy, bu he growh rae migh be more moderaerelaive o GDP han earlier, due o higher domesic supplieso cerain commodiies. Te bigges gains in world conainer

raffi c are expeced in Inra-Asian rades and on he roues romAsia o he Middle Eas, Wes Arica and Souh A merica. Wealso expec o see a urher srong expor and impor growh

beween India and Far Eas Asia as well as India and Europe.No dramaic changes in flee produciviy are expeced becausemajor services have already implemened slow seaming.

New ships wih a capaciy o around 1.8 mill EU are scheduledor operaion in 2014. Coninued weak marke condiions couldcause some slippage. Proporionally speaking, a very large paro he new ships enering service his year are wihin he larg-es size caegories. Tese ships are desined o operae on he

Asia o Europe service, which will generae a cascading effec onoher rades. Ships currenly operaing on his rade will be re-placed wih even bigger ships, causing he or iginal vessels o beranserred o oher rades. Tis patern will impac negaivelyon medium size onnage, especially gearless vessels.

Scrapping is expeced o increase urher, and he size o ships

being removed is also expeced o increase. We also anicipaea urher decrease in he age o ships sold or breaking. We ex-pec he flee will see a year-on-year enlargemen o 5 - 6 percenrom 2013 o 2014.

In conclusion, he anicipaed onnage demand growh in 2014could exceed he increase in flee capaciy and resul in a mod-erae increase in he oal flee uilizaion rae. However, wiha significan capaciy in idle and less poenial or urher re-ducions in flee produciviy, we do no expec o see a veryquick recovery in he yearly average box and charer raes. Oneopion or conainer carriers o resore profiabiliy is o ad-

jus he operaing flee size. Tis will require a urher i dling orwihdrawals o capaciy in low volume seasons. Te build-upo alliances will also lead o sronger compeiion or increasedmarke shares and his could delay he recovery process. Temain upside poenial in his secor is a quicker han expecedeconomic recovery, especially in he Euro area, which will boosonnage demand significanly, especially in he large sizes.

Bjrn Bodding


T/C RATES CONTAINER SHIPS 2004201312 MONTHS

0

10

20

30

40

50

601,000 $/day

4,500 TEU

3,000 TEU

1,700 TEU

1,000 TEU

04 05 06 07 08 09 10 11 12 13

27THE CONTAINER SHIP MARKET26 THE CONTAINER SHIP MARKET


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THE CAR CARRIER MARKET

STATUS QUOAs a consequence o growing demand, Norh American carproducion is expanding, paricularly in Mexico. Japanese andEuropean auomakers are esablishing or expanding Mexican

assembly, benefiting rom low labor cos, a reliable supply cluserand he proximiy o US and Canadian markes. European pro-ducion is a differen sory; Souhern European plans run a verylow capaciy uilizaion and urher closures are being negoiaed

wih labor unions.

Te siuaion in Europe is refleced in Japanese and Korean exporvolumes, which are down 3 percen rom 2012. Korean produc-ion and expors were also consrained by labor conflics in 2013,along wih sharply reduced demand or impors o Russia andLain America. Tose los seaborne volumes were compensaedor by increased volumes ou o India, Tailand, EU and NAFA.

Demand growh in 2013 is esimaed a a modes 2.5 percen,limied primarily by reduced Japanese and Korean volumes. Ourexpecaions or 2014 are a slighly higher annualized demandgrowh o around 3.5 percen, based on seady volumes rom

Japan, a sligh increase rom Korea and he coninuaion o rendsin oher expor markes.

Te car carrier flee couned 717 vessels a year-end. 18 vesselsenered ino operaion and 13 were removed hroughou he

year, resuling in a flee growh o 3.4 percen. Te order booksood a 62 vessels, or 11 percen o he flee, o which 37 are Pos-Panamaxes. 40 newbuildings were added o he lis in 2013. Fleegrowh is esimaed a a modes 2.2 percen in 2014.

Flee capaciy uilizaion has been esimaed a around 86 per-cen in 2013, on an annualized average basis. Ta is slighlyless han in 2012, and in line wih our expecaions one yearago. Our orecas or 2014 indicaes a marginal improvemenin capaciy uilizaion o around 87 percen, mainly due o hesmall flee growh. In his shor-erm perspecive we sill ex-pec a growh in US car sales, as well as a small improvemenin European sales. Longer-erm, however, demand growh islikely o originae rom emerging markes, as growh poenialin maure markes is limied. An improvemen in marke condi-ions relies on a coninued modes flee growh, as key drivers

or demand remain ragile..Ole Gustav EriksenRS Plaou Economic Research

Te car carrier marke was a raher unevenul one las year.rends rom lae 2012 coninued ino he firs hal o 2013, wihUS auo sales on he rise and European sales sliding. Tose who

had hoped o see Japanese expors booming as a resul o heweak Yen were disappoined and Korean expors also suffered.Te ime charer marke weakened hroughou he summer wih12-monh /C raes or 6,500 cap. carriers as low as $23,000 perday. However, higher volumes in he ourh quarer resrained

vessel availabiliy and raes climbed owards $25,000 per day. Teoperaors appeies or medium-sized onnage remained limi-ed, prevening raes rom reaching $17,000 per day or a mod-ern 5,000 cap. vessel. Such a large gap in raes beween large andmedium ships does no reflec he difference in invesmen, and2013 was hereore challenging or owners exposed o he mid-size segmen.

US auo sales surpassed expecaions and ended a 15.6 millligh vehicles, up 8 percen rom 2012. Sales o impored carsincreased by 7 percen, providing welcome suppor o seaborne

volumes ino Norh America. Europe provided a conrasing pic-ure; Wesern European sales were down 2 percen and EasernEuropean sales, including Russia, declined by 4 percen. Tere

are, however, expecaions o a minor growh in Wesern Euro-pean sales in 2014, and Russia is expeced o reurn o growh as

well. Growing sales in China and Souh-Eas Asia suppors inra-Asian rade.

JAPANESE AND KOREAN AUTOMOBILE EXPORT 20042013

Mill vehicles

0

1

2

3

4

5

6

7

13121110090807060504

Korea

Japan

SHORT TERM RATE FOR LNG CARRIERS 2005 - 2013

THE LNG SHIPPING MARKET

CONTINUING TO OUTPERFORMTe LNG shipping marke remained one o he very ew segmensin he shipping indusry where owners made money hroughouhe whole year in 2013. Wih a saus quo or shipping demand

growh and a 2 percen flee growh his year, he uilizaion raeell o 91.5 percen. Shor-erm raes hus ell rom $125,000 in2012 o $98,000 per day.

Preliminary esimaes show ha he LNG rade grew by 1 per-cen in 2013. Only wo liqueacion rains were inauguraed,

bu added very litle o rading volumes his year. We also esi-mae below capaciy LNG producion a several expor aciliieshis year. echnical issues and eedgas problems resuled in anesimaed 86 percen uilizaion o he oal liqueacion capac-iy in 2013. ranspor disance has been a major conribuor odemand growh in LNG shipping since 2010, bu in 2013 hisrend urned. Increased Middle Eas producion conribued oa reducion in he number o cargoes shipped rom he Alanic

basin o Asia. We esimae his rade o be 17 mill m in 2013, a 20percen reducion rom peak volumes he previous year. Conse-quenly, ranspor disance is esimaed o have allen by 2 percenin 2013. Adjused or flee produciviy and he ac ha some ohese vessels are used or sorage, i.e. regas erminals, we have esi-

maed ha LNG shipping demand experienced only a negligiblegrowh in 2013.

During 2013 we regisered 18 LNG carriers delivered rom heshipyards. Tis added 2.5 mill cbm o carrying capaciy, whileour vessels were removed rom he flee. However, as mos o henew ships were delivered in he second hal o he year, he aver-age flee growh or 2013 only amouned o 2 percen. Te order-

book or LNG carriers coninued o grow in 2013, wih 42 newvessels added. Tis lef he oal number o orders a 106 vessels,or 31 percen o he exising flee, by he end o he year.

Wih a flee growh o 2 percen seen agains an only marginalgrowh in demand or LNG shipping, he uilizaion rae ell by2 percen o an esimaed 91.5 percen during 2013. Tis resuledin a all in he shor-erm day rae level rom $100,000 a he be-ginning o he year o $90,000 a is end. We regisered a seasonalupward shif in he raes rom he summer, wih he average orhe year ending up a $98,000 per day.

In 2014, we expec seaborne rade o grow by 2 percen andreach 244 mill m. Tree new LNG projecs are scheduled osar producion his year. However, hey are no expeced o

add a lo o new producion in 2014, as hey sar owards heend o he year.

Similar o las year, we believe ranspor disance o be he w ildcard in he coming years onnage demand growh or LNG ship-ping. One o he mos imporan acors behind increases in re-cen years has been he shudown o Japanese nuclear powerplans and he subsequen hike in iner-basin rade beween he

Alanic and he Pacific basins. I seems o be aking longer hanexpeced o resar he Japanese nuclear power plans and he firsreacors are likely replace oil-burning generaing capaciy which ismore expensive han gas-fired power plans. Combined wih hesar-up o a number o new gas burning power plans in Japan,

which should urher increase demand or naural gas, we believehe iner-basin rade should remain a he curren high level andhus increase ranspor disance slighl y in he coming year. Wehereore anicipae LNG shipping demand o grow by 4 percenin 2014. We expec 34 new LNG carriers o be delivered and, cou-pled wih an assumed increase in removals, flee growh shouldreach 7 percen in 2014.

In conclusion, we oresee a 3 percenage poin drop in he uiliza-

ion rae or he LNG carriers o 89 percen in 2014. Tis shouldresul in an average shor-erm reigh level o $75,000 per day ora modern seamship in 2014. Compared wih he curren level oa one-year /C rae o close o $80,000 per day, his seems o bequie in line wih wha he marke expecs.

Jrn Bakkelund


$1,000 perday

05 06 07 08 09 10 11 12 130

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29THE LNG SHIPPING MARKET28 THE CAR CARRIER MARKET


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SMALL-SCALE LNG

CONTINUED STRONG GROWTHTe LPG shipping marke regisered is hird consecuive year

where spo raes or he larges ships, VLGCs, gave he owners ahealhy reurn on invesed capial. Preliminary daa suggess ha

LPG shipping demand increased by 9 percen. Delivery o newonnage picked up significanly in 2013, wih 1.3 cbm o new car-rying capaciy causing he flee o expand by 4 percen. In urn,his led o a 5 percen hike in he uilizaion rae, which reached87 percen. Tis lifed spo raes or VLGCs by $6,000 over 2012prices o $36,000 per day.

Preliminary figures or seaborne LPG rade in 2013 sugges a 6percen increase in volumes o 63 mill m. Te US shale oil andgas revoluion coninued o influence he LPG marke; expors

were up almos 60 percen rom 2012 o a oal o 10 mill m in2013. Mos o his expor volume remained in he Americas, buan increasing share was shipped o oher markes. Asia accounedor 11 percen o he 2013 expor, up rom 6 percen in 2012,

while Europe increased is share rom 11 o 15 percen. LPG ex-por rom he Middle Eas slumped by an esimaed 8 percen in2013, as Iranian expors almos ceased due o he embargo. Com-

bined wih a growh o 1 percen in ranspor disance, we have es-imaed he on-miles demand o have grown by 7 percen in 2013.

Seaborne Ammonia rade is esimaed o have allen by 3 percenin 2013, mainly driven by lower Indian, American and Moroccanimpors. Tese figures reflec he decline in expor rom rinidad& obago and Saudi Arabia. We esimae an increase o jus over3 percen in he ranspor disance, resuling in only a sligh in-crease in on-mile demand or he Ammonia rade.

By adding ogeher demand or LPG and Ammonia shipping,and adjusing or reduced flee produciviy, we have esimaeddemand growh a 9 percen in 2013.

Te LPG flee o semi- and ully rerigeraed onnage over 10,000cbm increased by 4 percen in 2013. 26 vessels wih a capaciy o1.33 mill cbm were delivered and only wo midsize ships wererepored sold or scrap. During he year a new record o 83 or-ders or new ships was recorded, o which 40 were VLGCs above70,000 cbm. A he end o he year he orderbook amouned o5.45 mill cbm, represening 30 percen o he exising flee.

Te balance in LPG shipping hereore ighened even urher in2013. A 9 percen growh in shipping demand seen agains a 4percen increase is supply, resuled in he 5 percen higher uiliza-ion rae o 87 percen his year.

THE LPG SHIPPING MARKET

SHALE-PLAY REVOLUTION

In 2013, we have experienced he ollowing noable evens:

Te worlds firs LNG bunkering vessel Seagas enered inoservice in he Por o Sockholm. Las year his vessel, whichis owned by AGA, saely compleed more han 230 ship-o-ship LNG ransers, delivering LNG uel o he Ro-Ro pas-senger erry Viking Grace.

Tree small LNG carriers were delivered, increasing heworld flee by 15 percen o a oal o 19 vessels wih cargocapaciy less han 30,000 cbm.

A significan number o large ships capable o running onLNG were ordered. Norh American projecs ordered helarges vessels.

In 2014 he new Skangass erminal in Lysekil, Sweden will en-

er ino operaion. Tis erminals hroughpus o more han200,000 ons o LNG per annum will more han double heamoun o small-scale LNG shipped in Norhern Europe.

From 1 January 2015 he new regulaions or sulur conen inuel in he SECA area will ener ino orce. From his dae, char-erers and shipowners will experience an overnigh hike in heiruel-bills as hey change o he more expensive low-sulur uel.I is possible ha his will increase ineres in obaining moreuel-effi cien vessels, capable o burning naural gas raher hanmarine diesel oil.

We also expec several small-scale LNG companies o announcenew marine LNG bunkering capaciy ha wil l become availableon-keel in boh Europe and Norh America.

I is our undersanding ha players in he indusry are welcom-ing he LNG marine uel revoluion. However, here are alsosome challenges; a chie one being he lack o ransparency in

he pricing o LNG, which is no as ransparen as ship ownersare used o rom he liquid uel markes. Tis is one o he chal-lenges we hope he LNG indusry will ry o ackle in 2014.

Egil Rokstad

RS Plaou Shipbrokers

In 2014, we expec seaborne LPG rade o increase by 8 percen,driven by a coninued surge in US expors. In he las couple o

years he US expor volume has been resriced by expor capac-

iy, which we believe will sill be he case in 2014, given he hugeprice difference o LPG beween he USA and oher markes. As-suming a high uilizaion rae o he US expor plans, we believehe expor could reach 13 mill m in 2014. We have also acoredin a rebound o expor aciviy rom he Middle Eas rom heprevious years lower han expeced level. More exporing romhe USA o Asia and Europe is expeced o resul in an increase inranspor disance.

Ammonia rade is expeced o grow by 4 percen on he backo higher Arican and Asian impors. Te negaive rend in USimpors is likely o coninue, bu he anicipaed large drop in

Ammonia impor due o increased domesic gas producion isexpeced o ake place beyond 2014. We do no oresee any sig-nifican changes in ranspor disance

the platou report 2014

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