IMP Market Outlook SRO

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SECTION 1
SHIPPING MARKET OUTLOOK
Licensed to Mr amir alizadeh of city university business school. Distribution is restricted; please remember to acknowledge the source. http://www.clarksons.net 05/01/2010 15:02:26 13921
CONTENTS
EXECUTIVE SUMMARY 1.1 1.2 1.3 1.4 1.5 1.6 1.7 FREIGHT MARKET OVERVIEW WORLD ECONOMY & SEA TRADE THE SHIPBUILDING MARKET THE DEMOLITION MARKET DRY BULK MARKET OUTLOOK TANKER MARKET OUTLOOK CONTAINERSHIP MARKET OUTLOOK
7 8 10 12 14 16 20 24
SHIPPING MARKET 1. SHIPPING MARKET OUTLOOK OUTLOOK EXECUTIVE SUMMARY

! Our last half-yearly report written in March concluded that declining demand, combined with a record order book certainly suggests that difficult years lie ahead. As it turned out, the container and tanker markets had a very difficult six months, but against all expectations bulk carriers did better. Looking back, it seems that the downward spiral in the world economy, and various crucial primary industries, started to bottom out around the time of the spring report, and since then there have been signs of a bounce-back. ! World industrial production bottomed out in April and has edged upwards since then, particularly in Asia. Steel production was down at 84mt a month in February, but by August was back up to 106mt a month. The all-important Chinese trade saw total monthly imports fall to 71mt in January, but reach 132mt in July. So things are improving on the economic front. But the increase is from a very low base, and output levels in many industries are still well below the levels achieved during the previous boom. ! In the tanker market, the unexpectedly firm first quarter gave way to a summer of indifferent rates which, in most cases, were well below capital costs and in some cases not far above operating expenses. Oil demand is forecast by the IEA to fall by around 2m bpd this year, although in recent months the forecast has been progressively revised upwards. On the supply-side, tanker deliveries are running at around 5m dwt a month, but the 2010 phase-out for the single hull tanker fleet is creeping up. The combination of weak freight rates and the cost of maintaining elderly tankers with no real future could well prove terminal. It would quite transform the tanker market outlook if all these vessels were removed from the market, but we must and wait and see how the industry chooses to play this. ! The bulk carrier market had an unexpectedly strong summer, thanks principally to Chinas infrastructure programme which has, once again, confounded sceptics. Iron-ore imports bottomed out in the spring and have since doubled. Coal imports have also increased sizeably. But steel demand and production in other areas remain weak, and the bulker business is uncomfortably dependent on a single market. We expect dry bulk trade to decline by about 2.7% this year and with deliveries of bulk carriers running at 50m dwt in 2009 and 80m dwt in 2010, the pressure will be on. ! The container ship market, which has now been in recession for the better part of two years, has continued to dominate the headlines. This segment is getting little help from China, whose exports continue to run 30% below last years level. The relentless flow of deliveries continues to expand the fleet at around 11% a year. ! However, the talking point of the last six months has been the shipyards. Their order book has edged down from 570m dwt in the spring to 524m dwt in the autumn, though this remains a formidable volume of tonnage. Shipyards and their customers face the seemingly unsolvable problem that the order book was contracted at prices above those which can realistically be financed in todays market. With low earnings and much of the collateral value swept away, all parties have been struggling to find a way forward. The crucial issue for the shipping market is whether it proves possible to finance the greater part of the order book, allowing it to be built, or whether the outcome is wholesale bankruptcies and cancellations. ! In conclusion, the recession is grinding jerkily along its path. Our feeling is that for shipping the twelve months since the financial crisis has been a transitional phase. Surplus capacity has slowly started to accumulate, and market players have tested the water to see how to deal with the problems which they know lie ahead. Although scrapping and the world economy will help, the seemingly unstoppable surge of new tonnage will carry the industry forward into a very difficult year in 2010.
Clarkson Research Services Autumn 2009
SHIPPING MARKET OUTLOOK 1.1 Freight Market Overview

The six month period since we wrote our last report has had a slightly unreal feeling about it. The Clarksea Index, which reports the average earnings of tankers, bulk carriers, containerships and gas carriers, is at $10,000/ day but at one stage in September was as low as $8,000/day. Such low earnings take us back to the recessions of the 1990s, although earnings remain above operating expenses for some ships and there is still cash in the bank. Over the summer the markets were generally making the best of the gloomy outlook and there were few signs of real hardship, except maybe in the containership business.
Tanker Earnings Avg. $/day VLCC (Modern) VLCC (Early '90s) Suezmax (Modern) Aframax (Modern) Products (Dirty) Products (Clean) Weighted Avg. Oct '08Mar '09 62,473 58,287 51,347 37,125 29,877 22,339 32,803 Apr '09Sep '09 26,494 24,059 19,312 11,147 10,183 6,483 10,793 % Change -57.6% -58.7% -62.4% -70.0% -65.9% -71.0% -67.1%
Avg. $/day Capesize Panamax (Spot) Panamax (trip) Handymax Handysize (t/c) Weighted Avg. Bulkcarrier Earnings Oct '08Mar '09 15,779 7,772 8,546 9,488 7,175 8,911 Apr '09Sep '09 43,751 15,502 20,082 17,145 11,614 15,993 % Change 177.3% 99.5% 135.0% 80.7% 61.9% 79.5%
fundamentals had reasserted themselves and the market was back to more realistic levels, with Capesizes earning around $20,000/day and Panamaxes and Handymaxes both earning around $13,000/day. Low by recent standards, but once upon a time these were boom rates. Once again, however, the real pain was felt by the containership market, which had entered the recession earlier than bulk shipping. In this case there was no miraculous recovery in rates and Chinas exports continued to slide, as did the volumes of cargo on the major containerised routes. With deliveries pushing up the fleet at around 8% a year, and demand declining, charter rates slumped to operating costs in the spring and stayed there. Reportedly about 15% of the fleet was laid up.
Containership Earnings Avg. $/day 3,500 teu gls 2,500 teu gls 2,000 teu gls 1,700 teu grd 1,000 teu grd 725 teu grd 350 teu grd Weighted Avg. Oct '08Mar '09 14,833 11,167 8,742 7,450 6,200 5,317 4,425 7,395 Apr '09Sep '09 6,167 5,475 5,058 4,792 4,033 3,533 3,342 3,486 % Change -58.4% -51.0% -42.1% -35.7% -35.0% -33.6% -24.5% -52.9%
Tankers defied gravity and had an exceptionally good first quarter, with VLCCs earning around $50,000/day and products tankers earning $1015,000/day. But by April the cracks were beginning to show and rates came tumbling down. At one stage in August VLCCs were reporting negative rates and products tankers were earning less than $5,000/day. Even the Aframaxes, which have led a charmed life for most of the last decade, saw their earnings slump well below $10,000/day. All these rates would have seemed inconceivable a year ago. In contrast, the bulk carrier market, which started the quarter on its knees and with no expectations whatsoever, saw rates pick up gradually in spring and surge to a peak in June, when Capesize bulk carriers were once again earning $80,000/day. Analysts savoured the paradox of world steel production being 30% down and Capesizes earnings up 70%, but the explanation was China (see section 1.5). However, by the end of the summer
In conclusion, the last six months have seen tanker earnings down by 67%, bulk carrier earnings up by 79% and containership earnings down by 52%. With the world economy still struggling, despite a few signs that some crucial sectors have bottomed out, and an order book which now looks stunningly inappropriate and massively overpriced, most market watchers agree that the outlook is grim.
56,000 52,000 48,000 44,000 40,000 36,000 32,000 28,000 24,000 20,000 16,000 12,000 8,000 4,000
Index
ClarkSea Index
Tanker Average Spot Earnings

110 $ ,000/d Aframax Crude Tankers 100 Clean Product Tankers 90 80 70 60 50 40 30
ClarkSea Index
20 10
Jul-05
Jul-06
Jul-07
Jul-08
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jul-09
Jul-05
Jul-06
Jul-07
Jul-08
Jan-05
Jan-06
Jan-07
Jan-08
Source: Clarkson Research Services
Figure 1.1.1
Figure 1.1.2
Bulker Average Spot Earnings

70 65 60 55 50 45 40 35 30 25 20 15 10 5 0
Jul-05 Jul-06 Jul-07 Jul-08 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jul-09
Containership Earnings Index

180 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
$ ,000/d
'93 = 100
Figure 1.1.3
Figure 1.1.4
Jan-09
Jul-09
SHIPPING MARKET OUTLOOK 1.2 World Economy & Sea Trade

The last six months started with the world economy heading into new and largely unknown territory. Industrial production had just recorded its biggest fall in 50 years, slumping to minus 18% in the Atlantic and minus 23% in the Pacific. But sentiment mellowed over the summer and September brought various indications that the worst of the catastrophic slide was over. Industrial production turned up in both the Atlantic and the Pacific (see Figure 1.2.1), and the forecast from the IMF emerged that the fall in gross domestic product for the year would be 1.1%, followed by an increase of 3.1% in 2010. This improvement is supported by signs that the United States housing market, the fall of which had originally triggered all these problems, has stopped declining and has now shown a small increase over the last four months. In addition, the extent of the inventory cut back during the first half of the year suggests that some bounce-back is almost inevitable, if only to build stock levels now that the initial panic is over. So the shipping industry returned from its holidays to the prospect that the economic performance in the second half of 2009 would see some improvement. Although this is positive news, the concern shared by many market watchers is that this recovery, which most seemed to agree would happen, is the result of temporary factors and the pace of recovery may not be sustained into 2010. At a fundamental level, the degree of damage done to consumer confidence, manufacturing budgets and government tax make it unlikely that consumers will revert to their Happy Go Lucky spending habits which carried the world economy through the amazing years of 2003 to 2007. Interestingly, the forecast of minus 1.1% growth of GDP shown in Table 1.1 is well below the forecast in our previous report of a fall of 0.5% in 2009. So, despite the renewed optimism, the outlook remains worse than it was six months ago. The OECD countries are experiencing a sharp slide in output, with USAs GDP down by 2.7% in 2009; the European Union down by 4.2%; and Japan down by 5.4%. Japan in particular has been having a very difficult recession. However, with the notable exception of China, most other countries are facing the same sort of problem. Russian GDP is expected to be down 7.5% this year, South Korea down 1.0%, Taiwan down 4.1% and Malaysia down 3.6%. South and Central America are somewhat less affected, with a fall of 2.5% in GDP predicted, leaving only Africa where GDP is expected to increase in 2009. Turning to seaborne trade, our expectation is that dry cargo trade, which grew by 5.6% in 2007 and 3.4% in 2008, will decline by 2.7% in 2009. This reflects a substantial decline in coking coal and many other bulk cargo trades. Iron ore trade, the stellar performer of the last five years, is expected to be static this year, reflecting a sizable fall in the imports of Europe and Japan, but an equally sizable increase in the imports of China which seem to have surged ahead, undaunted by the global recession. Oil trade is expected to follow much the same pattern, with crude oil shipments falling by 2.6% in 2009 and products by 3.2%. The decline in trade is primarily associated with declining world oil demand. Finally, the segment which has been the hardest hit by the recession is the container business. The statistics in Table 1.2 suggest that container trade will fall by 8.5% in 2009, after growing by 4.7% in 2008 and over 10% in the preceding three years. This turnaround means that container lifts will not be much higher in 2009 than they were in 2006. But during that time fleet has been growing very rapidly. In conclusion, things are looking better but it is hard to avoid the conclusion that the market is currently in a transitional period and, for the shipping industry at least, the demand prospects are gloomy enough to offer little protection against the surging growth of supply which is discussed in the next section.
10
% p.a.
Industrial Production
3.5 3.0 2.5
Seaborne Trades 1988-2010

bn tonnes
Iro n Ore Grain Crude Oil Co al M ino r B ulks Oil P ro ducts
12 8 4 0 -4 -8 -12 -16 Atlantic - US & Europe
2.0 1.5 1.0 0.5
-20 -24
Pacific - S/SE Asia & India

0.0 2010(f) 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Figure 1.2.1
Figure 1.2.2
GDP (% yoy) 2006 2007 2008 2009 2010 OECD 3.0 2.7 0.6 -3.4 1.3 2.8 2.1 0.4 -2.7 1.5 USA 2.4 2.3 -0.7 -5.4 1.7 Japan 2.8 2.7 0.7 -4.2 0.3 European Union Germany 2.9 2.5 1.2 -5.3 0.3 France 2.2 2.3 0.3 -2.4 0.9 UK 2.8 2.6 0.7 -4.4 0.9 Italy 1.8 1.6 -1.0 -5.1 0.2 7.4 8.1 5.6 -7.5 1.5 Russia 11.6 13.0 9.0 8.5 9.0 China 5.6 5.7 1.5 -2.4 3.6 Asian NIEs South Korea 5.1 5.1 2.2 -1.0 3.6 Taiwan 4.9 5.7 0.1 -4.1 3.7 Hong Kong SAR 7.0 6.4 2.4 -3.6 3.5 Singapore 8.2 7.8 1.1 -3.3 4.1 Thailand 5.1 4.9 2.6 -3.5 3.7 Malaysia 5.8 6.2 4.6 -3.6 2.5 India 9.8 9.4 7.3 5.4 6.4 6.1 6.3 5.2 1.7 4.0 Africa 5.5 5.7 4.2 -2.5 2.9 S & C America WORLD 5.1 5.2 3.0 -1.1 3.1 * Forecast, Source: IMF
Seaborne Trades (mt / mTEU) Iron Ore Coking Coal Steam Coal Grains inc. s'beans Other Bulks Total Dry Bulk Trades (mt) Crude Products Total Oil Trades (mt) Container Trade Europe Asia N.America Others Total (mTEU lifts) Total Container Trade (mTEU)
2006 723 9.9% 190 3% 539 7% 292 7.2% 1,062 5.3% 2,805 6.8% 1,933 2.5% 736 6.5% 2,668 3.6%
2007 783 8.3% 207 8.9% 565 4.9% 305 4.4% 1,104 4.0% 2,963 5.6% 1,984 2.6% 763 3.6% 2,746 2.9%
2008 843 7.7% 219 6.0% 576 2% 322 5.5% 1,105 0.1% 3,064 3.4% 1,964 -1.0% 771 1.1% 2,735 -0.4%
Forecast 2009 2010 849 981 0.7% 16% 205 214 -6.7% 4.4% 572 588 -0.6% 2.7% 320 303 -0.5% -5.4% 1,043 1,081 -5.6% 3.6% 2,989 3,166 -2.4% 5.9% 1,920 1,923 -2.3% 0.1% 746 761 -3% 2.0% 2,666 2,684 -2.5% 0.7%
82 92 92 78 78 222 252 270 243 257 45 46 45 38 40 76 83 91 88 92 426 473 498 447 466 118 130 136 123 128 11.2% 10.9% 4.3% -9.3% 3.5%
Table 1.1 Economic Growth
Table 1.2 Seaborne Trade
11
SHIPPING MARKET OUTLOOK 1.3 The Shipbuilding Market

Over the last six months the shipbuilding order book has been an outstanding conversation piece. In commercial terms the orderbook has contracted since February to stand at 8,948 ships of 529m dwt in August. During that time about 58m dwt of ships were delivered but less than 10m dwt were ordered. But, as the half year progressed, anecdotal evidence of difficult conversations taking place increased. Shipbuilding Deliveries and Capacity Evolution of the Shipyard Order Book The upward trend in deliveries saw 73.7m dwt delivered in the eight months to August. On an annualised basis that works out at 110m dwt, 20% up on 2008. However, the distribution of the order book suggests that deliveries in H2 will be higher than in H1, and we are currently predicting deliveries for the full year will reach over 140m dwt. It is worth noting that this is considerably lower than our full-year estimate in the spring of 154m dwt. The downward adjustment was greatest for the dry bulk sector. We are currently projecting total deliveries of 164m dwt in 2010. However developments in the shipbuilding market suggest that such predictions are even more precarious than usual. Our current projection is that tanker deliveries will reach 57m dwt in 2009, 59% up on 2008 and that bulk carrier deliveries will more than double in 2009. Shipyard Contract Issues One striking feature of the shipbuilding market in 2009 is the massively lower level of new orders placed. In H1 orders reached 10m dwt, 74% of which were for bulkers and most of the balance for tankers. Although most shipyards have far too much work in hand for the low level of ordering to be an immediate issue, one direct consequence is that the steady cashflow from down payments has, for the time being, dried up. To put this in context, $145bn worth of new ships were ordered in 2008. If the average down-payment was 20%, that means the shipyards received $29bn just for signing the contract. In contrast, during H1 09 they would have received only $2bn, a massive swing in cash flow. The general feeling in the market at present is that the shipyards, already feeling financial pressure, need desperately to keep production schedules going in order to receive stage payments. In some cases their owners are struggling to meet the payments. If the yards took guarantees from banks or other first class entities, then this is not be a problem. But in many cases the large deposits received and high contract prices made additional guarantees on stage payments seem unnecessary, and it appears that many yards did not in fact insist on such guarantees being given. In these cases the cash flow depends entirely on the ability of its customers to meet their obligations. We are still at an early stage in the recession and financial resources are unevenly distributed between shipping companies, but we expect the negotiations surrounding the payment for ships under construction to intensify, and become extremely difficult in some cases, over the next six months. Looking Ahead The outlook for the shipbuilding segments can best be described as very difficult. The shipyards have a record order-book and, in theory, should be enjoying the opportunity to build on this solid foundation. In practice, the commercial foundation of the order book is looking much less substantial than it did some months ago, leaving the shipyards with the unenviable task of having to navigate a way between owners, banks and the usual demanding problems of building merchant ships. Against this background the basic problem is that the enormous order book of 525m dwt was contracted at very high prices. According to figures in the World Shipyard Monitor (page 16) the order book currently has a contract value of $477bn. However, since the vessels were ordered, newbuilding prices have fallen by around 30% and second-hand prices of some ship types are now half what they were at their peak. On these figures the market value of the vessels on the order book is today probably closer to $300 billion than the original $477bn.
12
Bulk Contracting & Orderbook

520 480 440 400 360 320 280 240 200 160 120 80 40 0 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 25 0 75 50 year to date 125 100 175 Bulkers Combos Tankers Orderbook 150 m dwt 200
Shipbuilding Deliveries
m dwt
Bulkers Combos
Tankers Others
Figure 1.3.1
Figure 1.3.2
Orderbook as % of Fleet
80% 70% 60% 50% 40% 30%
120
% of fleet
240
Containers Bulkers Tankers
210
180
150
20% 10% 0% Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
90
60
Jan-83
Jan-85
Jan-87
Jan-89
Jan-91
Jan-93
Jan-95
Jan-97
Jan-99
Jan-01
Jan-03
Jan-05
Jan-07
Figure 1.3.3
Figure 1.3.4
Jan-09
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010(f)
Newbuilding Price Index

Index
Bulkers Tankers
13
SHIPPING MARKET OUTLOOK 1.4 The Demolition Market

For the last five years the demolition market has been quiet, and ships have been trading to their maximum life. For example in 2008 the average merchant ship demolished was 30.5 years old; for tankers it was 27.6 years and for bulk carriers 29.8 years. The four LNG carriers scrapped had an average age of 37.9 years and the two cruise ships scrapped an impressive 50.3 years. So, everybody was enjoying the boom and squeezing as much life as possible out of their floating gold mines. Since merchant ships last on average about 25 years, over time demolition should average out at 4% of the fleet. The market was clearly well below trend (but note from the graph below that the age profile for the major vessel types is skewed). Demolition Trends in 2009 The demolition market picked up significantly during 2009. In the year-to-August, 20.3m dwt of ships were scrapped, equivalent to 30m dwt a year. The dry bulk market led the way, with 7.1m dwt. More than half of this - 143 vessels of 4.3m dwt - was in the Handy segments, but there were also seven Capesize bulk carriers and 24 Panamaxes sold for scrap. Although this represents a significant increase, the number of ships scrapped is still relatively low. The market is still weighing up what is likely to come next, and is generally reluctant to take the terminal step of sending ships for demolition. The good sense of this strategy is more than justified by the wild swings which the market has experienced over last nine months. For example, the dry bulk market appeared to be dead before Christmas. But rates came back and any owner who had sold his ship for demolition missed out on a pretty good summer for the market. The bottom line is that it is still early days as far as the demolition market goes. Demolition Prices The price of scrap remains low, though there was a moderate increase during the half-year. In the spring, tankers were selling for low $200s/ ldt, but this edged up slightly, reaching $350/ldt in September. This probably reflects the strength of the Chinese steel market and the short term phenomenon of some VLCCs being marketed for demolition. It is certainly not a sign of any shortage of vessels for scrap. Bangladesh continued as the biggest purchaser of vessels for demolition, taking 7.2m dwt in the first three quarters. India was not far behind with 6.9m dwt, followed by Pakistan (2.4m dwt) and China (2.1m dwt). This represents a much more diverse pattern of buyer activity than in the preceding three years when Bangladesh was the dominant player, followed by India, in a thin market. Single Hull Phase-Out We reported in the spring that the tanker fleet is now on the last lap of its phase-out marathon. It may well be the last lap, but not much is happening. The single hull tanker fleet has declined during the year by around 9%, and is currently 61.3m dwt. Some vessels have been sold for conversion, but only around 4.8m dwt for demolition. To some extent this reflects the fact that spot earnings have been above operating expenses and owners have preferred to wait in the hope that there might be one last spike left in market.
100 m. dwt 90 80 70 60 50 40 30 20 10 0 <1980 1983
World Fleet Age Profile

year to date Others (incl. small and non-cargo) Gas Carriers Cellular Containerships Bulkcarriers Tankers
Based on total world fleet of 76,620 vessels.
1987
1991
1995
1999
2003
14
2007
Demolition by Country
35 m dwt
3.5
year to date
m dwt
Demolition Trends
30 25
Others Pakistan India China B'desh
3.0 2.5 2.0 1.5 1.0 0.5 0.0 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
Tankers Bulkers
20 15
3-month moving average
10 5
Jan-07
2003
Jan-08
2005
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Figure 1.4.1
Figure 1.4.2
Tanker Fleet Age Profile

40 35 30 25 20 15 10 5 0
<= 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
m dwt
28 26 24 22 20 18 16 14 12 10 8 6 4 2 0
m dwt
Bulkcarrier Age Profile
<= 1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2007
Jan-09
Figure 1.4.3
Figure 1.4.4
15
2009
SHIPPING MARKET OUTLOOK 1.5 Dry Bulk Market Outlook

Fortunately, the dry bulk market turned out a lot better than when we wrote our last half-yearly report. At that time Capesize bulk carriers were earning $16,000/day and Panamaxes $7,000/ day. Our forecasts suggested that bulk trade would fall by about 5% during the year and with dry bulk deliveries increasing, it really looked as though this was the best that the market could hope for. However, by June, Capesize bulk carrier earnings were up to $80,000/day and Panamaxes were earning over $20,000/day. Although the decline set in almost immediately thereafter, dry bulk earnings are now still better than they were in the spring, and the market has had a summer which, until the recent boom, would have regarded as a pretty good market. Bulk Carrier Demand The strength of the bulk carrier market was a particular surprise, because it seemed completely at odds with the devastating decline in world industrial production. With world industrial output down 16% and steel production down by over 30%, it seemed inconceivable that there could be any strength in the market. But things did not turn out that way. In the spring the Chinese steel industry recovered sharply and over the next six months its iron ore imports doubled as steel makers got over the shock collapse of last autumn, after which low steel prices resulted in low-grade domestic iron-ore mines being closed in favour of high quality imported ore. Lower freight rates may also have been an incentive. The result for the all-important 845mt iron ore trade is patchy. Europes imports are still expected to be 40% down this year and other Asian imports (to Japan, Korea, Taiwan etc) are likely to be down by 28%. But it looks as though Chinas imports will be up by 29% and such is its dominance that we are predicting no change in the overall volumes shipped this year, compared to 2008. That, reinforced by congestion and the effect of tonne-miles, was enough to kick-start the market. Coal trade generally fared better than expected. Coking coal shipments are projected to fall by
Dry Bulk Fleet (m.dwt) 2005 Capesize inc. combos Panamax inc. combos Handymax Handysize Total Fleet Year End 2006 2007 2008 Forecast 2009 2010
111.0 121.1 131.5 143.6 173.0 210.1 114.4 124.3 135.5 146.9 176.3 213.4 7.2% 8.7% 9.0% 8.4% 20% 21% 93.6 101.6 108.1 114.5 121.2 135.6 94.1 103.3 109.9 116.4 122.5 136.9 8.6% 9.7% 6.4% 6.0% 5.2% 12% 66.9 71.8 77.1 83.2 9.0% 7.3% 7.4% 7.9% 93.7 106.0 13% 13%
73.6 73.9 75.9 77.2 75.3 73.7 1.5% 0.4% 3.1% 4.4% -2.5% -2.1% 349.1 373.3 398.4 423.8 467.8 530.0 6.6% 6.9% 6.7% 6.4% 10% 13%
Table 1.3 Bulkcarrier Fleet 8% from 219mt last year to 202mt in 2009. The three big coking coal importers, Europe, Japan and South Korea have all seen their imports slump - Europe by 23%; Japan by 14%; and Korea by 28%. But the substantial 28mt Indian import trade seems to be holding steady and other Asian importers were pretty active. In contrast the thermal coal trade was less adversely affected and, like iron ore, is likely to remain static in 2009 compared with 2008. Europes imports fell by 5% in 2008 and another fall of 3% is expected in 2009. However, Asian imports of steam coal continue to grow and this year China has really moved into the steam coal market. We expect Chinas imports to treble in 2009 to 39mt. The grain trade had a very good year in 2007, growing by 8%, and it grew by a further 2% in 2008. However, our projection for 2009 is less positive, with demand for imports falling in several important areas. Asian demand has been badly hit by the recession, and we expect imports by Japan, China, Philippines, Bangladesh, Pakistan and Thailand all to fall in 2009. The same pattern is occurring in the Middle East where Iran, which had particularly big imports in 2008, has seen them sharply curtailed in 2009. Imports into South and Central America fell slightly and Africas imports are likely to be down by 13%. Finally, on the demand side, this has been a difficult year for the minor bulks, especially those associated with the construction industry. The trades in cement, steel products, pig iron
16

Average Values, 1999-2008 Firm Boom
Soft Recession
Our swing-o-meter has defied the expectations and rallied to 25% below from 52% below trend, and the market had been even better in the summer. Chinese iron ore imports were mainly responsible and not surprisingly Capesizes were the biggest beneficiaries with a 34 point improvement. Panamaxes were close behind with a 32 point i m p r o v e m e n t ; Handymaxes lagged with just a 14 point improvement. Possibly reflecting a more optimistic outlook, period rates gained more than spot earnings over the last six months, especially for the bigger sizes.
Depression -60% -90% -120%
-30%
+30% +60% +90% +120%
Bonanza
Zap!!
-25%
Where are we in the Dry Cargo Cycle?

Ship by Type Market Rate Indicator Spot ($/day) 1 year t/c ($/day) 5 year old ($m.) Spot ($/day) 1 year t/c ($/day) 5 year old ($m.)
Capesize Capesize Average Panamax Panamax Average
Trip ($/day) Handymax 1 year t/c ($/day) 5 year old ($m.) Handymax Average Dry Cargo Average
Mar'09 1999-08 Average Market % diff. from Value Rate Average 52,213 19,593 -62% 41,422 20,000 -52% 61.4 -57% 24,260 11,293 -53% 19,952 7,000 -65% 35.8 -59% 20,958 13,563 -35% 19,968 11,000 -45% 30.0 -40% -52%
Sept' 09
Market % diff. from Rate Average 34,145 -35% 36,500 -12% -23% -42% -11% -27% -23% -30% -26% -25%
Last Six Months 28% 40% 0% 34% 11% 54% 0% 32% 13% 15% 0% 14% 27% Better! Better!! Same Better!! Better Better!! Same Better!! Better Better Same Better Better!
13,965 17,750
16,188 14,000
Figure 1.5.1 The Dry Cargo Market
Dry Cargo Market Cycles

140 120 100 80 60 40 20 0 $,000/d
m dwt
28 24 20 16 12 8 4 0
Bulk Lay-Up Panamax 1 Year t/c Capesize 1 Year t/c
Capesize Bulker 120K 150K
Figure 1.5.2
Jan-71 Jan-72 Jan-73 Jan-74 Jan-75 Jan-76 Jan-77 Jan-78 Jan-79 Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Source: Clarkson Research Services
17

and forest products are all projected to fall in 2009. Agribulks, however, are holding up pretty well. Pulling this together, our projection shows the dry bulk trade declining by around 3% in 2009. This remains the sharpest decline since the 1980s, but is slightly better than our prediction six months ago of a 5% fall in 2009 - at the time we thought that was possibly over-optimistic. Bulk Carrier Supply The Handymax Market Since 2005, the bulker fleet has grown at around 7% a year (see Table 1.3), increasing from 349m dwt at end-2005 to 423m dwt at end-2008. In our spring report we were very concerned about the size of the order book. Not only was it very large; deliveries were about to increase sharply. But things have developed better than expected. Up to end-August, the fleet grew by 4.7%, and for the full year is expected to grow by 8% to 456m dwt. Supply is following precisely the same path as in the previous four years; growth at least is not accelerating. The order book for 2010, however, takes a substantial step up and, if delivered, the fleet will grow by 14%. Whether or not this growth takes place is a key issue confronting decision makers in the industry. The Capesize Market On 1st September 2009 the Capesize fleet was 896 vessels of 158.2m dwt. Thats an 8% increase over the last six months, so supply growth has really speeded up. Although the order book has edged down to 799 vessels of 149.7 m dwt, this still represents 94.6% of the fleet. Deliveries in 2009 are projected to reach 25.3m dwt, 12% lower than the tonnage we were expecting in the spring. So far this year seven Capesizes had been scrapped. Assuming the trend continues, we are projecting that the fleet will grow by 20% in 2009, reaching 173m dwt. The Panamax Market The Panamax fleet consisted of 1,601 vessels of 118.6 m dwt on 1st September 2009, a 3.4% increase over six months. The order book consisted 733 vessels of 59.7m dwt, around The Handymax sector has been one of the high growth areas of the fleet in recent years. On 1st September it amounted to 1,801 vessels of 88.2m dwt and the orderbook to 896 vessels of 50.4m dwt, 57% of the fleet in dwt terms. We expect the fleet to increase by 12.5% in 2009, to 93.7m dwt and by 13% in 2010. That is well above the growth rate of previous years (see Table 1.3), but will depend on developments in the shipyards and the volume deliveries actually to materialise. The Handy Market On 1st September 2009 the Handysize fleet consisted of 2,833 ships of 75.7m dwt. The order book of 860 vessels of 27.4m dwt accounted for 36.3% of the fleet. We expect this segment to face the heaviest demolition, since it includes so many old ships likely to be scrapping candidates. In the circumstances the fleet is expected to decline by 2%+ in 2009 and 2010. However, scrapping was slow up to endAugust and the fleet declined by only 1.7%. The Bulk Carrier Market Outlook In March 2009 we expected dry bulk trade to decline by about 5% and the fleet to grow by around 9%. Six months later we expect dry bulk trade to fall 3% and the supply to grow by 8%. Although this is an improvement in the fundamentals, the gap remains large. With further substantial fleet growth to be expected in 2010, despite problems in shipyards, the bulk carrier market depends crucially on how the demand scenario develops. We doubt if the recovery will be strong enough to prevent 2010 being a very difficult year. 50% of the existing fleet. Although this is more manageable than the Capesize orderbook, it remains a sizable investment and will require substantial demand growth to absorb it. We expect 8.5m dwt of Panamax bulk carriers to be delivered during 2009, followed by 17.7m dwt in 2010. On that basis the Panamax bulk carrier fleet will increase by over 5% in 2009 and nearly 12% in 2010. Such growth is probably excessive during a period when demand is declining.
18
Bulkcarrier Fleet by Type

550 500 450 400 350 300 250 200 150 100 50 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Handymax, 40-60K dwt Handysize, <40K dwt 0 40 20 Capesize, 100K+ dwt Panamax, 60-100K dwt 120 100 Fleet figures are for end-year m dwt 180 160 140
Bulkcarrier Fleet Development

m dwt
Contracting
Scrapping 80 Deliveries 60 Losses
Figure 1.5.3
Figure 1.5.4
Bulk Orderbook as % of Fleet

120% 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Panamax Capesize % of fleet
100 90 80
70 60 50
40 30 20 10
Handys
0 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08
Figure 1.5.5
Figure 1.5.6
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Panamax Prices & T/C Rates

$ million $ ,000/d 80 72 64
5 Year Old
56 48 40
early-80's built, 20 yr old

32 24 16 8
1 Year t/c
0
19
SHIPPING MARKET OUTLOOK 1.6 Tanker Market Outlook

Over the last six months the tanker market has inhabited market territory not visited for a good many years. In our spring report we noted that, after an exceptional run, rates were beginning to slip back, in some cases to recessionary levels. We concluded that after a short reprieve the tanker market was facing mounting supply demand pressures, and so it proved to be. Over last six months VLCCs and Suezmaxes earned around $20,000/day; Aframaxes around $11,000/day and products tankers a miserable $6,000/day. Tanker Demand Outlook The tanker demand outlook has generally deteriorated over the six months. In the spring the IEA was predicting that world oil demand would fall by 1.2m b/d in the full year 2009, but latest forecasts available in the autumn have doubled the decline to around 2.4m b/d. To put that in context, during the preceding six years demand had grown by over 1m b/d each year. The volume of cargo movements in 2009 is likely to be well down. Our current expectation is that crude oil imports, which had already fallen by 1% in 2008, will decline by an additional 3% in 2009. The biggest reduction will be in the United States where the recession has hit very hard, with imports down by 14%. Not far behind, also very hard hit by recession, is Japan whose imports are expected to be 10% down in 2009. There are few growth prospects in Asia outside of China and India, where on a positive note imports are expected to grow by 12%. The prospects for products imports are similar to those for crude oil. Imports by the United States and Canada are likely to fall by about 10% in 2009 and in Asia, declining imports by Japan (down 10%) will be largely offset by growth elsewhere in Asia. The EU, with its deep recession, it expected to import 4% less and imports into South America will also be down. Overall, oil products imports will be around 3% down in 2009. Tanker supply is once again complicated by the imminent phase-out of the single hull fleet. At
Summary of the Oil Trade
Oil Demand (IEA)* (MBpd) OECD Europe North America OECD Pacific Non-OECD Asia Others TOTAL Crude Oil Supply * (MBpd) Long Haul Gulf OPEC* Non-OPEC M. East Total Long Haul Short Haul Non-Gulf OPEC Dortyol Exports Europe Other S-H Total Short Haul 2005 15.6 0.9% 25.5 0.4% 8.6 0.9% 15.5 3.1% 18.7 4.2% 83.8 1.9% 2005 22.3 1.6% 0.4 7.3% 22.7 2.2% 2006 15.7 0.4% 25.4 -0.3% 8.5 -1.1% 16.3 5.4% 19.3 3.3% 85.2 1.6% 2006 22.5 0.8% 0.5 2.3% 22.9 0.8% 2007 15.3 -2.2% 25.5 0.4% 8.4 -1.3% 17.1 5.0% 20.2 4.5% 86.5 1.6% 2007 22.1 -2.1% 0.4 -4.4% 22.4 -2.4% 2008 15.3 0.0% 24.2 -5.3% 8.1 -3.6% 17.6 2.7% 21.2 4.9% 86.3 -0.2% 2008 22.9 4.1% 0.4 0.0% 23.0 2.8% 2009 14.7 -4.4% 22.8 -5.6% 7.3 -9.0% 18.0 2.3% 21.8 3.1% 84.6 -1.9% 2009 21.7 -5.3% 0.5 7.0% 21.8 -5.2% 2010 14.7 0.1% 23.3 2.2% 7.4 0.7% 18.6 3.4% 22.0 1.1% 86.1 1.7% 2010 22.1 1.9% 0.5 0.0% 22.2 1.9% 9.5 0.4 4.1 40.3 53.9 2% 25.9 1% 82.8 -1.8%
9.9 9.8 9.8 9.7 9.1 0.0 0.1 0.1 0.4 0.4 5.6 5.2 5.0 4.8 4.4 37.0 37.9 39.1 39.3 39.6 52.4 52.8 53.9 53.8 53.1 0.9% 0.8% 2.0% 0% -1% 26.6 26.3 26.7 26.2 25.8 By Net Importers -3% -1% 1% -2% -1% TOTAL 84.5 85.4 85.7 86.5 84.3 1.5% 1.1% 0.3% 1.0% -2.6% * Note : Long Haul Gulf OPEC excludes short haul Iraqi exports. Source: IEA Stats. Total includes NGLs and processing gains Crude Exports (MBpd) 2005 2006 2007 2008 2009 Middle East 14.8 15.2 14.6 15.0 14.3 2.4% (Long Haul) 2.9% -3.7% 2.7% -4.7% North Sea 3.5 3.3 3.1 2.7 2.3 -14% -6.6% -5.8% -12.7% -13% Africa 6.9 7.3 7.8 7.4 6.9 6.4% 6.4% 6.3% -5.0% -7.4% Caribs & L .Am 4.2 4.3 4.1 3.9 3.9 0.5% 3.6% -3.8% -4.9% -0.9% FSU 4.1 4.1 4.6 4.5 4.6 2.3% 0.5% 13.8% -3.2% 3.3% Short & Medium 24.2 24.7 25.8 24.8 24.1 Haul -0.1% 2.1% 4.4% -4.1% -2.5% TOTAL 39.0 40.0 40.5 39.8 38.5 0.8% 2.4% 1.3% -1.7% -3.3% Long Haul = exports over 5,000 miles from their main markets. Crude Imports (MBpd) 2005 2006 2007 2008 2009 United States 6.9 6.7 6.7 6.5 5.7 1.0% -2.9% -0.2% -2.6% -12.8% EU Europe 10.4 10.7 10.9 10.9 10.4 1.8% 3.5% 1.6% -0.3% -4.4% Japan 4.3 4.2 4.0 4.1 3.7 0.9% -0.4% -5.4% 1.7% -9.6% Other Asia 9.9 10.8 11.2 11.8 12.4 3.2% 8.4% 3.9% 5.9% 4.3% Others 6.4 6.3 7.0 6.1 6.3 1 .8% -0.3% 10.7% -12.9% 3.1% WORLD TOTAL 37.9 38.8 39.8 39.5 38.4 1.9% 2.5% 2.6% -1.0% -2.6% Dwt Demand 244.2 250.3 257.6 260.4 255.6 Products Imports (MBpd) 2005 2005 2007 2008 2009 United States 2.9 2.9 2.7 2.5 2.3 18.8% -0.9% -5.7% -9.8% -8.3% EU Europe 5.6 6.1 6.0 6.0 5.7 11.2% 8.7% -1.4% 0.0% -4.4% Japan 1.1 1.0 0.9 0.9 0.8 4.7% -2.6% -9.7% -2.5% -11.4% Other Asia 3.1 3.3 3.7 4.0 4.1 -5.4% 8.4% 10.0% 8.0% 2.6% Others 1.7 1.9 2.5 2.7 2.7 16.9% 14.0% 29.7% 6.7% -1.2% WORLD TOTAL 14.4 15.3 15.9 16.0 15.5 8.7% 6.5% 3.6% 1.1% -3.1% Dwt Demand 81.0 85.7 87.8 89.5 87.0 Source: Oil and Tanker Trades Outlook: Clarkson Research Studies. Statistics derived from IEA data. f=forecasts.
2010 15.1 5.2% 2.0 -11.6% 7.2 4.1% 4.4 11.9% 4.6 0.0% 24.6 2.0% 39.7 3.2% 2010 5.9 2.5% 10.5 1.3% 3.6 -2.7% 12.7 3.1% 5.9 -6.2% 38.6 0.4% 2010 2.3 0.9% 5.7 0.1% 0.8 -3.3% 4.2 4.3% 2.8 4.9% 15.8 2.0%
Table 1.4 Summary of the Oil Trade
20

Average Values, 1999-2008 Firm Boom
Soft Recession
The tanker market is moving into the recession zone of our swing-o-meter slipping 35 points from 17% to 52% below trend. There have been particularly large declines in spot earnings this last six months, averaging around 60%, compared to a 29% fall for period rates. Aframaxes took the biggest hit in market terms overall, with spot earnings down 78%, a 50 point deterioration against trend. Overall Suezmaxes performed worse slipping 40 points against trend to minus 44%. Clean tankers already at minus 28% slipped another 27 points against trend to minus 55%.
Depression -60% -90% -120%
-30%
+30% +60% +90% +120%
Bonanza
Zap!!
-52%
Where we are in the Tanker Cycle ?

Ship by Type Market Rate Indicator Spot ($/day) 1 year t/c ($/day) 5 year old ($m) Spot ($/day) 1 year t/c ($/day) 5 year old ($m) Spot ($/day) 1 year t/c ($/day) 5 year old ($m) Mar '09 1999-08 Average Market % diff. from Value Rate Average 60,901 44,366 -27% 49,676 52,500 6% 93.3 -11% 48,644 43,963 -10% 36,941 37,500 2% 63.2 -4% 37,169 24,043 -35% 28,388 24,000 -15% 49.6 -25% 24,787 14,084 -43% 19,677 17,000 -14% 29.6 -28% -17% Sept '09 Market % diff. from Rate Average 18,876 -69% 36,000 -28% -48% -53% -35% -44% -85% -37% -61% -76% -34% -55% -52% Last Six Months -42% -33% 0% -38% -44% -37% 0% -40% -50% -21% 0% -36% -33% -20% 0% -27% -35% Worse!! Worse!! Same Worse!! Worse!! Worse!! Same Worse!! Worse!! Worse! Same Worse!! Worse!! Worse! Same Worse! Worse!!
VLCC VLCC Average Suezmax Suezmax Average Aframax Aframax Average
22,666 24,000
5,406 18,000
Spot ($/day) 1 year t/c ($/day) 5 year old ($m) Clean Products Average Tanker Average Clean Products (30k dwt)
5,904 13,000
Figure 1.6.1 The Tanker Market
240 220 200 180 160 140 120 100 80 60 40 20 0
WS
Crude Tanker Market Cycles

Tanker Lay-Up Freight Rates
m dwt
80 70 60 50 40 30 20 10 0
Figure 1.6.2
Jan-71 Jan-72 Jan-73 Jan-74 Jan-75 Jan-76 Jan-77 Jan-78 Jan-79 Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
21

the beginning of September this was about 566 tankers of 58m dwt. Most of these vessels are considerably younger than the usual scrapping age: 44% are 15-19 years old and 9% 10-14 years old. There remains some economic incentive to trade on. However, the future of vessels beyond their anniversary date in 2010 is so uncertain that the commercial case remains highly speculative, especially as the bills for routine maintenance increase. So the market approaches 2010 with around 58m dwt of single hull tankers facing a very dubious future and scheduled deliveries of 52m dwt of modern double-hulled tankers. The VLCC Market On 1st September 2009, the VLCC fleet consisted of 542 vessels of 162m dwt. The fleet has grown by 5.6% so far this year, suggesting that full-year growth will be 8-9%. So there seems to have been some slippage from our forecast in the spring, which anticipated 10% growth. In 2010, 21m dwt of deliveries are scheduled, but 30m dwt of single hull VLCCs could be phased out. The Suezmax Market The Suezmax fleet was 380 ships of 58m dwt on 1st September and had increased by 4.5% the year to end-August. The single hull Suezmax fleet is 37 vessels of 5.4m dwt, which compares with scheduled deliveries of Suezmax tankers in 2010 of 7.6m dwt. So a complete phase-out would substantially cut back growth in 2010, but not totally remove it. The Aframax Fleet The Aframax fleet was 836 ships of 87.4m dwt on 1st September. It has increased by 8% so far this year and we anticipate full year growth of 12%. In 2010 we expect 9.6m dwt of Aframax tankers to be delivered, whilst the single hull fleet is 7.4m dwt. So, again, if all vessels are phased out, growth would be relatively low. The Panamax Fleet On 1st September there were 393 Panamax tankers of 27.9m dwt and the fleet had grown by 6.5% in the first eight months of the year.
Tanker Fleet VLCC Year End 2006 2007 142.4 148.1 3.4% 4.0% 52.5 54.9 7.4% 4.6% 71.4 76.6 5.5% 7.3% 21.3 24.0 14% 12% 75.7 82.0 8% 8% 363.3 385.6 5.8% 6.1% Forecast 2009 2010 167.3 163.7 8.8% -2.2% 62.6 67.0 13% 7.0% 91.1 96.7 12% 6.1% 28.9 29.5 10% 1.8% 100.4 106.1 10.7% 5.7% 450.3 462.9 11% 2.8% 2.6 3.0 35% 34% 453.0 465.9 11% 2.9%
2005 137.7 5.5% Suezmax 48.9 7.9% Aframax 67.7 8.5% Panamax 18.7 15% Handy 70.2 6.9% Total 343.3 % Change 7.2% Combos 5.5 % Fleet 59% Total 348.8 7.1% Fleet
4.0
45% 367.4 5.3%
2.4
29% 388.0 5.6%
2008 153.8 3.9% 55.4 0.9% 81.1 5.9% 26.2 9% 90.7 11% 407.2 5.6% 2.6 33% 409.9 5.6%
Table 1.5 Tanker Fleet However, the deliveries of Panamax tankers will fall sharply to 1.9m dwt in 2010, and that is considerably less than the single hull Panamax fleets of 3.2m dwt. So, in this sector, a complete phase-out would reduce the fleet. The Handy Tanker Fleet This is the biggest fleet segment, with 3,087 ships of 96.6m dwt. The Handy fleet has grown by 6.6% in the first eight months of the year and could reach over 9% by year end. However, this segment includes many old ships, including 11m dwt of single hull vessels, which compares with 5.7m dwt of scheduled deliveries in 2010. So the opportunity is there to correct any imbalance that develops. The Outlook for the Tanker Market Weighing up the future of the tanker market, especially over the next 12 months, presents novel difficulties. Deliveries are running at around 50m dwt a year, about 70% higher than in recent years and demand is under considerable pressure and declining. So the basic fundamentals are discouraging. However, the imminent phase-out of the 60m dwt single hull fleet could easily neutralise deliveries, leaving the tanker market with a much more manageable supply situation. It is quite possible that the combination of a depressed market and the cost of maintaining these vessels with no future may hasten their departure.
22
Tanker Fleet by Type

500 450 400 70 350 Handysize 300 250 200 150 100 50 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010(f) UL/VLCC 50 Panamax Aframax Suezmax 40 30 20 10 0 1980 1982 60 m dwt 90 80
Tanker Fleet Development

m dwt
Contracting
Scrapping Losses
Deliveries
1984 1986
1988
1990
1992 1994
1996
1998
2000 2002
2004
Figure 1.6.3
Figure 1.6.4
Tanker Orderbook, % of Fleet

60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 0 Jan-86 30 20 50 40 VLCC Suezmax Aframax Handy's 70 60 % of fleet 80
Aframax Prices & T/C Rates

$ million $ ,000/d 50 45 40
5 yr old Afra
1980/20 yr old Afra
10
1 year t/c
Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08
Figure 1.6.5
Figure 1.6.6
2006 2008
35 30 25 20 15 10 5 0
23
SHIPPING MARKET OUTLOOK 1.7 Containership Market Outlook

Six months ago we reported that the containership market had experienced a severe downturn. Over the last six months, if anything, the situation has become even more acute. Container trade growth is now actually contracting on the back of global economic conditions, and the supply side build up is still huge. Although the containership orderbook has diminished due to substantial deliveries, a complete lack of contracting and some cancellations, it is still equal to more than 40% all fleet capacity and, until demand conditions improve, the box shipping markets will remain subject to extreme pressure. Our swingometer index (Figure 1.7.1) remains in the doldrums moving to -69%, from -63% in March, indicating the depression in the sector. Containership Demand Consumer activity in the main box importing regions has continued to experience a severe decline. With volumes on key box trades contracting, global container trade is currently estimated to contract (for the first time on record) by 9.1% for 2009. This compares to average annual growth of 10.4% in the period 2002-08. In the first half of 2009, peak leg Transpacific box volumes decreased by 21% year-on-year, whilst peak leg westbound Far East-Europe volumes declined by 22% year-on-year. It is now clear also that the economic downturn is severely impacting box trade volumes on most trade lanes, with north-south trade projected to contract by 5% and intra-regional trade by 9% in full year 2009 . The boxship timecharter market has continued to bear the full impact of the change in demand conditions, with liner companies now bereft of demand for additional tonnage from charter owners. The rate for a 1,700 TEU geared vessel has edged downwards even further from $5,500/day at the start of March 2009 to just $4,400/day at the start of September 2009. The timecharter rate for a 2,750 TEU gearless vessel meanwhile trended from $7,000/day to $5,150/ day over the same period. These market levels have established new historical lows.
Container Fleet ('000 TEU) Feeder (<1,000 TEU) Intermediate (1-3,000 TEU) Deep Sea (3,000 TEU +) Other Container Capable vessels Total Container Fleet ('000 TEU) Forecast Year End 2006 2007 2008 2009 2010 666 715 752 759 758 7.5% 7.5% 3,070 3,338 9.0% 8.7% 5,728 6,709 22.3% 17.1% 2,149 2,194 1.5% 2.1% 11,613 12,957 13.4% 11.6% 5.2% 0.9% -0.1% 3,593 3,635 3,657 7.6% 1.2% 0.6% 7,799 9,088 10,607 16.2% 16.5% 16.7% 2,224 2,259 2,374 1.3% 1.6% 5.1% 14,368 15,740 17,396 10.9% 9.6% 10.5%
Table 1.6 Containership Fleet Containership Supply As of 1st September 2009, the containership fleet stood at 4,801 vessels of 12.7m TEU. The orderbook of 962 vessels and 5.2m TEU represented 41% of fleet capacity. It remains dominated by ships in the 8,000+ TEU sector, which accounted for 56% of the capacity on order. New contracting, however, has come to a virtual standstill. Delivery levels remain around historically high levels and capacity delivered is expected to hit 1.6m TEU in 2009 and 1.7m in 2010, even accounting for continued delivery slippage which was running at about 12% in the first eight months of the year. Overall, container capable capacity is set to expand by 9.6% in 2009 and 10.5% next year. In the operational arena, boxship operators are doing all they can to limit active supply. Over 500 containerships were reported as idle in September, accounting for 10% of all capacity. Containership Outlook The containership market clearly remains under the most severe pressure and vessel charter rates are still at extremely low levels, even if peak season volumes have helped lift box freight rates to a limited extent at the time of writing. Despite the fact that increased demolition, further slippage and cancellation of orders might rein back some of the scheduled capacity expansion, the imbalance between expected supply side growth and likely demand side growth remains impossibly large. Only a sustained improvement in box shipping volumes will bring about anything like a return to health in containership earnings.
24

Average Values, 1999-2008
Soft Recession
Firm Boom
Our cyclical indicator for the containership market has further declined, albeit by just 6 points from 63% to 69% below trend over the last six months. Charter rates have slipped further downwards across all size ranges, registering falls of 7% to 26%. In historical terms, containership earnings at the start of September 2009 have reached new lows in terms of previous market downturns. The huge downturn in demand coinciding with deliveries from a massive orderbook is keeping the sector under severe pressure both in terms of vessel earnings and asset values.
Depression -40% -60% -80%
-20%
0 +20% +40%
Bonanza
Zap!!
-69%
+60% +80%
Where we are in the Container Cycle ?

Mar '09 Sept '09 1999-2008 Average Market % diff. from Market % diff. from Rate Average Value Rate Average 8,236 3,750 -54% 3,500 -58% 725 teu geared 10.2 -54% -58% 1 year t/c ($/day) 10,898 4,300 -61% 4,000 -63% 1,000 teu geared 10 year old ($m.) 13.8 -61% -63% 1 year t/c ($/day) 15,906 5,500 -65% 4,500 -72% 1,700 teu geared 10 year old ($m.) 19.9 -65% -72% 1 year t/c ($/day) 17,821 6,200 -65% 4,700 -74% 2,000 teu gearless 10 year old ($m.) 23.3 -65% -74% 1 year t/c ($/day) 23,482 7,000 -70% 5,150 -78% 2,750 teu gearless 10 year old ($m.) 29.4 -70% -78% -63% -69% Container Charter Market Average
Ship by Type Market Rate Indicator 1 year t/c ($/day) 10 year old ($m.) Last Six Months -3% 0% -3% -3% 0% -3% -6% 0% -6% -8% 0% -8% -8% 0% -8% -6% Bit Worse Same Bit Worse Bit Worse Same Bit Worse Bit Worse Same Bit Worse Bit Worse Same Bit Worse Bit Worse Same Bit Worse Bit Worse
Figure 1.7.1 The Container Market
Container Charter Rates

35 $ ,000/d
Container Deliveries
1.6 1.4 1.2
m teu
% of fleet
18%
30
1650-1750 TEU
% of the fleet 16%
25
14%
1000-1100 TEU
20
1.0 12% 0.8
15
10% 0.6
10
0.4
5
8%
700-750 TEU
0 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
0.2 0.0 1984 1986 1988 1990 1992 1994 1996 1998
6% Deliveries 4% 2000 2002 2004 2006 2008
Figure 1.7.2
Figure 1.7.3
25

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SHIPPING MARKET 1. SHIPPING MARKET OUTLOOK OUTLOOK EXECUTIVE SUMMARY

Clarkson Research Services Autumn 2009

SHIPPING MARKET OUTLOOK 1.1 Freight Market Overview

Clarkson Research Services Autumn 2009

SHIPPING MARKET OUTLOOK

Tanker Average Spot Earnings

Source: Clarkson Research Services

Source: Clarkson Research Services

Bulker Average Spot Earnings

Containership Earnings Index

Source: Clarkson Research Services

Source: Clarkson Research Services

Clarkson Research Services Autumn 2009

SHIPPING MARKET OUTLOOK 1.2 World Economy & Sea Trade

Clarkson Research Services Autumn 2009

SHIPPING MARKET OUTLOOK

Seaborne Trades 1988-2010

12 8 4 0 -4 -8 -12 -16 Atlantic - US & Europe

2.0 1.5 1.0 0.5

Pacific - S/SE Asia & India

Source: Clarkson Research Services

Source: Clarkson Research Services

Table 1.1 Economic Growth

Table 1.2 Seaborne Trade

Clarkson Research Services Autumn 2009

SHIPPING MARKET OUTLOOK 1.3 The Shipbuilding Market

Clarkson Research Services Autumn 2009

SHIPPING MARKET OUTLOOK

Bulk Contracting & Orderbook

Source: Clarkson Research Services

Containers Bulkers Tankers

Source: Clarkson Research Services

Source: Clarkson Research Services

Clarkson Research Services Autumn 2009

Source: Clarkson Research Services

Newbuilding Price Index

SHIPPING MARKET OUTLOOK 1.4 The Demolition Market

100 m. dwt 90 80 70 60 50 40 30 20 10 0 <1980 1983

World Fleet Age Profile

Based on total world fleet of 76,620 vessels.

Source: Clarkson Research Services

Clarkson Research Services Autumn 2009

SHIPPING MARKET OUTLOOK

Others Pakistan India China B'desh

3-month moving average

Source: Clarkson Research Services

Source: Clarkson Research Services

Tanker Fleet Age Profile

Bulkcarrier Age Profile

Source: Clarkson Research Services

Source: Clarkson Research Services

Clarkson Research Services Autumn 2009

SHIPPING MARKET OUTLOOK 1.5 Dry Bulk Market Outlook

Clarkson Research Services Autumn 2009

SHIPPING MARKET OUTLOOK

Depression -60% -90% -120%

+30% +60% +90% +120%

Where are we in the Dry Cargo Cycle?

Capesize Capesize Average Panamax Panamax Average

Figure 1.5.1 The Dry Cargo Market

Dry Cargo Market Cycles