Shipping Economist

EDITION:
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1, January,
2009 PAGE:
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EDITION: LSE DATE: 1, January, 2009 PAGE: 0 VERSION: 1
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CONTENTS
LLOYDS
www.shipecon.com
Volume 31
January 2009
A PERFECT STORM
Investment banks re-group
FEELING THE HEAT
10
Shipping shares tumble
RAISING THE BAR
14
Chinese shipping companies invest

for the future
New Year blues
DOWN TO EARTH
he prognosis for shipping markets at the beginning of 2009 could hardly

be more different to a year earlier. Tumbling earnings and the global
economic and financial crises have caused turmoil as owners struggle to
finance investments and the value of shipping companies decline. In this
first issue of 2009 LSE examines how listed shipping stocks have fared
during this period of turbulence compared with overall stock market indices. We also
look at how investment banks, which played such an important role in promoting
public investment in shipping, are having to adjust to the changed world in banking.
Chinese shipowners are investing heavily in new tonnage to boost their share of
Chinas booming maritime trade. This month LSE reviews their strategies and the
changes they need to make as they expand into global organisations and face the same
financial pressures as other shipowners.
In this issue LSE focuses specifically on the Suezmax segment of the tanker market as
it tries to take in the implications of major cuts in output by Opec producers. In addition
we examine trends the niche dry bulk trade of sugar. In the liner market as operators
endeavour to restore market balance as demand dives, LSE reviews one of the major
global players, Singapore-based NOL.
Ship operators have gained some relief from one major cost as oil prices and in turn
bunker fuel prices have dropped from their frightening peaks earlier in 2008. This month,
LSE reviews how trends in the marine fuel market are affecting shipowners strategies.
With funds for investment in short supply, LSE reviews one ship investment fund that
claims to offer a unique model for potential investors. Also in this issue we highlight
some of the offerings at LSEs recent Turkish Shipping and Ship Finance conference in
Istanbul. A special report on nationally owned fleets highlights some of the factors that
affect the attractiveness of countries as a shipowning base. The latest analysis of new
orders for the third quarter of 2008 highlights the final surge of new orders before the
economic crisis caused owners to halt new investments and re-examine some existing
commitments.
Upcoming LSE Conferences:
LSE Greek Ship Finance Conference, May 2008, Athens
For further information, please contact: + 44 (0) 20 7017 4319
Publisher: Nicola Whyke
Editor: Steve Matthews
Deputy Editor: Julian Macqueen
Liner trades correspondent: Paul Gardiner
US correspondent: Ranjeeta McGroarty
LSE website: www.shipecon.com
Editorial:
Tel: +44 (0)20 7017 4709
Fax: +44 (0)20 7017 4976
Email: steve.matthews@informa.com
Advertising:
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Tel: +44 (0)20 7017 5976
Email: dimitra.papachristou@informa.com
Annual Subscription: UK 865, Europe 1,450 and
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postage.
JANUARY 2009
Subscriptions: Chris Rowe

London
Tel: +44 (0)20 7017 4187
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Email: enquiries@lloydsmiu.com
New York
420 Lexington Avenue, Suite 615
New York, NY 10170, USA
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Fax: +44 (0)20 7017 5007
17
Suezmax tankers prepare to compete
GOOD FOR YOU
20
Sugar trades
FUEL FOR THOUGHT
24
Cost challenge
MEASURING
PERFORMANCE
26
Competition among shipowning countries
INVESTING SAFELY
29
Safe Ship offers flexibility for investors
STILL OPTIMISTIC
31
LSEs Turkey conference assesses

the market
FACING THE FUTURE
33
NOL adjusts to the new market reality
THE FINAL FLOURISH
36
Orderbook analysis
REGULAR SECTIONS
Executive summary
Market commentary
News update
Loans and equities news
Company news
Data
39
Published by Informa
An Informa Business
69-77 Paul Street, London EC2A 4LQ, UK
Lloyds MIU website: www.informa.com
Printed in Great Britain by Latimer Trend
ISSN 0144-6673
Informa UK Limited 2009
Informa UK Limited does not guarantee the accuracy of the information contained in
Lloyds Shipping Economist nor does it accept responsibility for erros or omissions or
their consequences. Opinions expressed herein are not necessarily those of Informa UK
Limited. This publication is copyright and may not be reproduced in whole or in part
without the express permission of the publisher.
Lloyds is the registered trademark of the society incorporated

by the Lloyds Act 1871 by the name Lloyds
LLOYDS SHIPPING ECONOMIST
EXECUTIVE
SUMMARY
KEY ECONOMIC INDICATORS
KEY SHIPPING INDICATORS
EXCHANGE RATES: US$ EXCHANGE RATE (at mid-Dec)
LSE TRAMP TRIP CHARTER INDEX
Currency
US
Sterling
Euro
US$
100 Yen
100 Won
0.67
0.75
1
0.9
13.7
Prev % change Euro

0.66
0.79
1
0.9
15
1.5
-5.1
0.0
0.0
-8.7
0.9
1
1.33
1.2
18
Prev % change
Index
0.83
8.4
1
0.0
1.26
5.6
1.2
0.0
19
-5.3
Source: Lloyds List
Nov 08
Nov 07
100
129
127
159
78
117
n/a
1134
1134
16.9
1640
1280
12,000-19,999 dwt20,000-34,999 dwt35,000-49,999 dwt 50-000-84,999 dwt85,000 plus dwtCombined
% Change
n/a
-89
-89
-90
-96
-91
Source: LSE
LSE TANKER INDICES

INTEREST RATES: RATES (at mid-Dec)
Index (Nov)
Country
Prime
Govt long-tem Bond
UK
US
Euro
Japan
6mth Libor ($)
2.00%
1.00%
2.50%
0.30%
2.22%
3.65%
2.67%
3.00%
1.37%
VLCC (>200,000 dwt)

Suezmax (120-200,000 dwt)
Aframax (70-120,000 dwt)
Handy (25-70,000 dwt)
Clean
67
121
124
175
198
Change (last month)
-32
-28
-41
-88
-41
Source: LSE/LMIU ship fixtures
Source: FT
LSE FLEET DATA (at Dec 1)

Tankers
Dry bulk*
INFLATION: CONSUMER PRICES, ANN. RATE (at mid-Dec)

County
Current month
Prev
Prev -1
UK
US
Euro
Norway
Japan
4.50%
4.40%
5.40%
3.20%
5.50%
5.20%
3.70%
5.60%
3.60%
5.50%
4.70%
4.90%
2.10%
4.00%
4.50%
Source: Economist
OIL PRICE ($/BBL)
Prev
Change
Orderbook (%)
399.52
412.66
397.79
411.21
+1.73
+1.45
44.4
60.2
Teu (,000)
Prev
14,145
14,070
Container
Prev
% Change
42.4
44.4
41.32
49.4
53.62
45.89
-14.2
-17.2
-10.0
Source: LL / OPEC
Change Orderbook (%teu)

+75
45.1
Source: LMIU/CI
* includes combi vessels

See p39 for detailed fleet data
VESSELS LAID UP (Nov 08)

No. of Ships
Tankers
Dry cargo
Capacity
39
226
2.00%
Current month
UK Brent
West Texas
Opec Basket
m dwt
0.33m dwt
1.48m dwt
Source: Lloyds MIU
BALTIC DRY INDEX

BDI (mid-Dec)
Prev month
% change
868
-7.5
803
Source: LL
HRCI MAIN INDEX

Mid-Dec
Prev month
501.7
% change
589.2
-14.9
Source: HR
BUNKER PRICE ($/tonne)

LL/BLOOMBERG SHIPPING SHARE INDEX
HFO
IFO
Current Prev Current Prev
Singapore
Rotterdam
Fujairah
Houston
257
459
252
222
220
497
251
205
16.8
-7.6
0.4
8.3
274
231
512
254
MDO
Current Prev
Index (mid-Dec)
Prev month
% change
1232.4
4.1
1283.5
238
15.1
223
3.6
599
-14.5
240
5.8
Source: Bunkerworld
Source: LL
TTCI 85,000 dwt +

2002
Index
2000
2003
1500
ECONOMIC GROWTH
1000
Country
GDP
Industrial production
Argentina
Brazil
GChile
gdp
7.8Q2
6.1Q2
ind prod
(1.5)Oct
0.8Oct
Source: Economist
2004
2005
500
0
2006
Jan
Feb
Mar
Apr May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2007
2008
Source: LSE
JANUARY 2009
MARKET COMMENTARY
Opec tanker
blow
arge tanker operators were

dealt a potentially serious blow
b y O p e c s d e c i s i o n i n
December to slash output
quotas by a further
unprecedented 2.2m bpd from the beginning
of 2009 in an effort to support crude oil
prices. This brings the total cut in
production targets from the 11 countries to
which they apply to some 4.2m bpd. This
would mean a reduction averaging about
one VLCC cargo a day from Opec
exporters. Other crude tanker sectors will
also be affected (see page 17).
The tanker sector had thought it might be
relatively immune from the pressures
affecting the dry bulk and container
markets, but this latest move could, if it is
sustained through most of 2009, have a big
impact on earnings.
MSI forecasts that 18.2m dwt, about 60
vessels, will hit the water in 2009. The
following year will see similar levels. The
VLCC ordering boom of 2008 means that a
whopping 26.7m dwt, around 90 vessels,
are expected to arrive in 2011. Even with the
high levels of scrapping incorporated within
MSIs Tanker Shipping Planning Service
(TSPS) models base case, whereby around
40-50 VLCCs are removed in 2009 and
2010, MSI expects the VLCC timecharter
market to see a continued deterioration in
annual average rates, falling below the
$30,000/day mark over the next four years.
In mid-December the FFA market was
trading the benchmark TD3 Middle East to
Far East VLCC route down at W52 for the
first quarter of 2009 and below 50 for the
second quarter. This is equivalent to about
$30-35,000/day.
One possible saving grace for large
tankers is that the low oil price is prompting
some buyers to use VLCCs to store crude in
anticipation of being able to sell it on at a
higher price when the market recovers. This
could take some VLCC capacity out of the
market, easing downward pressure on spot
rates.
Some muted optimism began to emerge
during December that the dry bulk market
had hit bottom and would see some degree
of recovery in the New Year. The fact is it
JANUARY 2009
could hardly have gone any lower, but the

capesize market did see some upward
movement. But the panamax and supramax
markets remained becalmed and there were
doubts whether a capesize recovery could be
sustained.
The BDI hit a low of 663 on December 5
before moving back above 800 by the
middle of the month. But spot earnings for
all main dry bulk segments were close to or
below $10,000/day.
Hopes of any longer term upswing were
countered by mounting stockpiles of iron
ore in China as steel production flatlined.
Further gloom came from an OECD report
in mid-December suggesting that the
outlook for steel demand in 2009 remains
weak. Chairman of the OECD steel
committee Risaburo Nezu of Japan said:
Growth in demand for steel began to
weaken appreciably in August 2008, in
response to slowdowns in construction
activity in developed economies and Chinas
moderating economic expansion. Since
then, the sharp deterioration in business
prospects for steel-consuming industries
have led to depressed steel demand
conditions in all major markets. Chinas
steel demand, which accounts for 35% of
the world total, is showing signs of
weakening, with steel traders halting
purchases in order to reduce inventories.
In China seasonally adjusted steel
production fell by a cumulative 25% in the
third quarter. The drop in worldwide steel
demand coupled with increased capacity
will likely lead to price weakness and/or idle
capacity worldwide. This could also alter
trade flows significantly, the OECD said.
With steel production such a significant
indicator for dry bulk trade in iron ore and
coal, this scenario does not bode well for dry
bulk shipping markets for the first half of
2009 at least.
ORDERS HIT
Crashing shipping markets and lack of
finance have virtually stopped newbuild
orders in their tracks. Shipbuilding orders
will fall by 60% next year and newbuild
prices will drop by 30% from their peak by
2010, according to Bao Zhangjing, chief
researcher at China Shipbuilding Economy
Research Center (CSRC) in Beijing.
Speaking at the Asia Ship Finance and
Leasing Forum in Shanghai, Bao said that
owners will not order as long as they
believe prices will fall further, though yards

have no immediate need to cut prices,
having a two to three year orderbook and
are adopting a wait and see approach.
He predicted that newbuilding orders,
which have already fallen sharply, from 14m
dwt in August to less than 1m dwt in
November, will drop by 60% in 2009 from
the 2008 total of about 150m dwt. There
will be a further fall in 2010 to less than
50m dwt. A modest recovery will appear in
2011 as yards start to seek to fill spare
capacity from 2012, but it will be 2012
before new orders return to 100m dwt, Bao
suggested.
These forecasts are derived from CSRCs
own economic model. They are based on an
estimated cancellation rate for current
orders of 20-30%. But Bao admitted that
estimating actual cancellations is a matter
of judgment because shipyards will not
say the correct numbers.
LINER CUTS
Container operators continue to struggle
with excess capacity as demand slumps.
Most major operators and alliances have
now slashed capacity on the main east-west
trades by a combination of suspending and
adjusting service strings to try and restore
market equilibrium. They hope to see some
signs of recovery in demand by the middle of
2009, though significant new capacity will
be delivered in the meantime.
This is resulting in surplus tonnage with
some ships idling and others going into lay
up, with Singapore in particular proving a
popular resting point as the anchorage fills
up with idle ships of all types. Chartered
vessels are being re-delivered to owners or
made available for sub-lets. This, in turn,
has sent charter rates tumbling. The Howe
Robinson Containership Charter Index had
fallen to just 501.7 by mid-December. This
represented a 62.5% fall since the beginning
of 2008 and a 50% drop in just three
months since mid-September. This means
for example that standard 2,700teu vessel is
unlikely to achieve more than $10,000/day,
if it could find a charterer. These levels are
testing owners decision-making as to
whether to continue to trade vessels or to
idle or put them into lay-up for a period.
German owners are moving to implement a
mutual compensation programme to
support owners with partial cover for loss of
hire when ships are kept idle.
NEWS FOCUS
Confidence still
shaky, survey
finds
While many in the shipping industry expect
the cost of finance to rise, a degree of optimism seems to be returning to the industry,
if the latest shipping confidence survey from
accountant Moore Stephens is anything to
go by. Although the survey says that 60% of
those contacted expect the cost of finance to
rise, this is 6% lower than the previous survey in June. The net fall in the number of
respondents who expected finance costs to
rise over the next 12 months represented a
change in sentiment of 16%, it says. The
net figure (those expecting higher costs
minus those expecting lower costs) for June
was 57 whereas in November, it was 41.
One respondent commented on the likely
effect of persistent higher finance costs on
the market. The optimism surrounding
weaker asset values and the opportunities
they might throw up was tempered by the
fact that higher finance costs will eventually slow this process, according to the
respondent. As well as concerns over the
cost of finance, the likelihood of investment
decisions going ahead has worsened slightly.
The average score from respondents was
5.2 on a scale where one equals low and 10
equals high. This represented a drop of 0.7
against the accountants June and March
surveys. Ship managers emerged as the category most likely to make a major investment or significant development during the
coming 12 months.
TRANSPACIFIC CHOOSING PANAMA

Container shipping heading to the US west
coast is being tempted to turn towards the
east coast via the Panama Canal, according
to DVB shipping research. The German
transport bank says against a background
of overall falling volume of the eastbound
transpacific route, there is noticeable shift
from the west to the east coast. US west
coast traffic dropped by 10% between 2000
and 2008 while US east coast/Panama traffic grew by more or less the same amount
over the period. This is due to a number of
factors, including rapidly increasing intermodal costs, infrastructure limitation and
looming worker strikes at USWC ports,
says the research. Looking ahead on current

trends, the bank expects the Asia-USEC via
Panama route to take 24% of transpacific
eastbound volume in 2009. The research
goes on to say that overall eastbound transpacific volume would need to decline by 8%
before the Panama Canal route was
affected.
CREDIT COAL AND GRAIN

The cavalry, in the shape of coal and grain,
could save the day in dry bulk. Forecaster
Maritime Strategies International expects
support from this quarter as long as trade
credit can be loosened in the New Year.
Capesize spot rates in January? $9,700 a day
A BIT OF SCRAP
rising to $29,000 a day in April, according

to the forecaster.
Pre-crunch and many a conference speaker

would highlight scrapping as a safety valve
for freight rates in the dry bulk sector. At
boom prices, owners found it profitable to
keep the oldest bulker in play which meant
scrapping was little in evidence. Maritime
Strategies International reports that scrapping has indeed returned as a maritime phenomenon. A sea change was witnessed in
dry bulk scrapping in October, with not
only the first capesize vessels going to the
breakers since April 2007 but also the most
tonnage since February 2002, writes the
forecaster in its November report. However,
it is unlikely to have much impact in the
market. Even with aggressive scrapping
forecast, near term fleet growth in the larger
sectors will be robust, it says.
CAMMELL LAIRD REVIVAL
SOUND ADVICE
Checking how safe a companys data is can
be a relatively, straightforward process,
according to accountant Moore Stephens.
The accountant suggests that answering
some basic questions based on the published
good practice can quickly indicate to senior
management that there may be a problem
with information security.
IRISH/BALTIC TRADE
Top exports by value from Ireland to the
Baltic States (Latvia, Lithuania and Estonia)
in 2007 were power-generating machinery
A famous name in British shipbuilding has

been brought back to life at Birkenhead,
Liverpool. The Cammell Laird shipyard
closed in 2001. However, a number of its
former managers rebuilt a firm at the yard
called Northwestern Ship-repairers and
Shipbuilders (NSL). Following the signing
of substantial contract with the UKs
defence ministry for the maintenance of
Royal Fleet Auxiliary ships, NSL judged it
right to relaunch the Cammell Laird name.
Work at the yard will be split, 50/50,
between military and commercial contracts.
Forecast annual turnover for the new company is in the region of 90m.
and equipment and medical and

pharmaceutical products, according to the
Irish Maritime Development Organisation.
Going in the other direction were cork and
wood, and iron and steel. The IMDO notes
that in the absence of a direct short-sea link
between the two markets, Rotterdam acts as
a feeder hub for the Irish/Baltic trade.
CHINESE TRADE SLOWS

Chinas international trade has slowed with
November figures recording a bigger decline
in imports over exports. Quoted in the
Baltics
rather dry...
Financial Times, data from Chinese customs

show a 2.2% fall in exports and a 17.9%
decline in imports compared with the same
month a year ago. The fall in exports is the
first in almost seven years while the drop in
exports is the biggest, monthly drop since
the early 1990s.
JANUARY 2009
EQUITIES AND LOANS NEWS
Bankers Bleak
I am very very pessimistic about shipping
finance in 2009! Most of the banks will
have no room for additional shipping exposure and will even try hard to decrease their
portfolios, said Michel Degermann, head
of shipping at Natexis Banques Populaires.
Degermann cited global balance sheet constraints following the heavy losses suffered
in capital markets, many banks not meeting
the Basle II prudential ratios at the end of
2008 and will have to deleverage their balance sheet. The ones having been recapitalised by governments have been or will be
instructed to focus on their domestic markets to support the local economy and to
forget about overseas clients, pointed out
Degermann.
Weve had ministers on television
explaining that taxpayers money will be
used for housing and small business loans
and not for international lending, which
leaves shipping in a bit of a spot, as outside
Greece and Norway it is really a supranational activity, Peter Illingworth from
DVB told LSE. Theres going to be a
reduction of players in shipping, but we
dont really know which of the big boys
will go yet. DVB will stay in - were still
open for business and as a pure transport
bank, its all we do, emphasized Illingworth.
Bankers believe shipping finance
requires more equity allocation than initially planned in 2008 budgets, which may
not good for the business in todays banking climate. Degemann said, The main
game will be to try to walk away from
existing undrawn commitments for any
good or bad reason and to avoid funding
future loss-making assets.
DISTRESS FUNDS
Dramatic falls in ship values and vessel
earnings, combined with acute finance
problems faced by some shipowners and
shipbuilders, are prompting private shipping fund managers to set up new funds
specifically to take advantage of an
expected increase in distress sales of ships.
Leo Polemis, chief executive of Luxembourg-based Safe Ship Investment Fund
and Jonathan Hill, managing director, shipping funds, at Tufton Oceanic (Middle
East) in Dubai, both told the Asia Ship
JANUARY 2009
Finance and Leasing Conference in Shanghai that their respective organizations plan
to set up new Distressed Funds.
Hill said that Tufton Oceanic plans to
launch the Oceanic Distressed Fund in the
first quarter of 2009, hoping to raise about
$200m from private investors to purchase
distressed vessel sales. Tufton Oceanic is
best known for its Islamic ship investment
funds, but the Distressed Fund would be a
simply structured funding vehicle, Hill
explained.
Polemis said that Safe Ship also aims to
raise about $200m in early 2009 for its new
Distress Fund. Low ship values means distress sales offer the prospect of better
returns and so should be attractive for
investors, even though it is harder to raise
the debt portion, he said.
COSCO CREDIT LINE

Chinese banks appear to be still able to
shell out credit. One benefactor is China
Ocean Shipping Group (Cosco), which
recently signed a benchmarking strategic
agreement with Bank of China (BOC) for a
credit line of up to about Yuan74.5bn
($10.84bn). The agreement was signed by
Capt. Wei Jiafu, president and CEO of
COSCO and BOC President, Mr. Li Li-Hui.
Hong Kong-listed Cosco said that in order
to further enhance the co-operation, the
newly signed agreement covers broader
areas including corporate banking, investment banking and insurance businesses.
BOC has been an long-term supporter of
Cosco, supplying loans for the company for
fleet expansion since the 1960s.
BRAZILIAN BOOST
Another BRIC (Brazil Russia India China)
country, Brazil is planning to inject
$4.33bn to finance newbuildings to support its shipbuilding industry. Brazilian
Merchant Marine Fund (FMM), which is
run by its national bank, BNDES, will provide part of the funds mainly for constructing offshore platforms and for cabotage
and offshore supply vessels (OSVs).
Separately, FMM will provide a $122m
loan for four MPSV-3,000 multipurpose
platform supply vessels to be built at
Alianca Shipyard in Niteroi. The loan to
Rio de Janeiro based offshore vessel operator, Companhia Brasileira de Offshore
(CBO) has been approved by BNDES.
SHIPOWNERS SELL
Shipowners are trying to offload stock to
create a cash cushion should the going get
rougher. Dryships and Ship Finance
International have filed with the SEC
(Securities and Exchange Commission) in
order to sell stock if needed. Stealth Gas
CEO Harry Vafias told LSE that the group
has sold its remaining shareholding in Brave
Bulk Transport (BBT), a Melbourne-based
operating outfit it set up in 2003 in a joint
venture with Indias Kumar Group. We are
happy to say we got a good deal given the
current markets, Vafias told LSE. He said
the company wanted to reduce exposure to
chartered in tonnage and Forward Freight
Agreements (FFAs).
Nasdaq-listed Euroseas, sold 480
calendar days next year worth $11,300 per
day in FFA contracts. Although the
company has seen strong revenues, it has
exposure to both dry bulk and containers.
For 2010, Euroseas has also got rid of FFAs
for 120 days on the panamax index worth
$13,900 per day. The company has total
charter coverage of about 43% in 2009 and
about 21% for 2010.
Earlier Dryships filed to sell up to 25m of
the companys shares and John Fredriksens
Ship Finance International (SFI) has filed
for an offering, which could net almost
$75m. According to New York-listed SFI,
the filing will permit it to sell about 7m
shares as and when required. SFI enlisted
Mer r ill Lyn ch to se ll the stoc k at a
maximum price of $10.67 per share.
HSH RE-ALIGNMENT
As part of its response to the global banking
crisis, HSH Nordbank plans a major
restructuring. It said this will include
spinning off non-strategic activities and
greater focus on regional core activities.
Our aim is to ensure that the bank once
again has the sufficient flexibility needed in
its regionally anchored core fields, said
HSH Nordbank CEO Dirk Jens
Nonnenmacher. Final decisions will be
made in February.
It stressed that its Shipping and
Transportation units will continue as part
of the banks core business and retain a
global focus. The business units Shipping
and Transportation have their roots in our
North German Corporate Clients business.
COMPANY REPORTS
High P&I renewal

rates expected
No club can afford to be complacent, and
the 2009 renewal is going to be even more
confrontational than 2008. This assessment of the likely cost of P&I insurance
to shipowners at next months annual
round premium renewals belongs to broker Tysers. In its 2008-09 report on the sector, the broker says that the major issue
will be investment returns. How big will
the losses be? And will any club have been
able to achieve breakeven or better on their
investments? it asks.
The broker goes on to suggest that the
average rate increase in February could be
similar to last years average of 16%.
However, lower freight rates and high fuel
costs will mean that shipowners will be
looking for budget savings against a recessional background.
Tysers offers shipowners its own league
tables, given the financial crisis and questionable value of an A rating from S&P.
Adopting UK football terminology, among
those allocated a division by the broker are
Gard, Skuld and Britannia in the premier
division, UK P&I Club and West of England in the second division while, languishing in the third, are the American Club and
the Japan Club. The annual renewal date
for the P&I clubs is 20 February.
RECORD
EARNINGS
Australian commodity earnings jumped by

20% in the third quarter compared with
the previous three-month period.
According to the forecaster Abare, export
earnings from energy and mineral
resources increased by 22% to a record
$42.6bn. However, these impressive
numbers do not reflect the subsequent fall
off in commodity prices which began in the
middle of September.
Looking ahead to the full year

(2008-09), mineral and energy exports are
expected to come in at around $159bn
which is a less than a previous estimate in
September of $180bn. According to
Abares chief executive Philip Glyde, there
have been reports of contract defaults,
some mine closures, production cutbacks
and requests from some overseas buyers to
delay shipments for some commodities
because of significant changes to the global
economic outlook.
GRIMALDI
IN CONTROL
Italian ferry operator Grimaldi has taken

control of the Crete-based ferry company,
Minoan Lines, with an 85% stake. The
result follows the end of a mandatory
acceptance period where Minoan Lines
shareholders could consider the Grimaldi
o f f e r. T h e h o l d e r s o f 3 3 . 9 m s h a r e s
accepted Grimaldis offer giving the company control of 60m shares or 84.7% of
the total.
DAHLMAN
AND
PLATOU
LINK UP
US investment bank Dahlman Rose and R

S Platou Markets have entered a strategic
alliance which the companies say is
designed to strengthen each partys presence in the others local markets. Dahlman Rose is based in New York while R S
Platou is located in Oslo. In addition, move
will allow the companies to leverage each
others relationships with institutional
investors and corporate clients.
SHIPBUILDER
BANKRUPTCY
Tsuji Heavy industries, the deck equipment

manufacturer and shipbuilder, has filed for
bankruptcy protection. The company and
four of its subsidiaries approached the
Tokyo District Court on December 12,
with declared debts of Y75.8bn ($834m),
according to press reports.
Company results
Company
Period
Net profit
% change
Turnover
% change
Vopak
Q308
81.8m
11
n/a
n/a
Hamworthy
1H08
$10.1m
115
$112.7m
6.1
Chemoil
Q308
$10.4m
n/a
$2.72bn
70
VOPAK
Group operating profit for the Dutch storage
operator rose by 11% in the third quarter
compared with the same quarter in 2007.
Taking out exceptional items, the increase
came in higher at 18%. Exceptional items
incurred during the quarter were losses on
currency moves. Looking ahead results
across the whole year, the company expects
group profit excluding exceptional items to
be at least 310m which is up on the previous
years result of 272.9m. Storage capacity
aims to be 29.2m cubic metres by 2011,
which is up from its position in the third
quarter of 26.6m cbm.
HAMWORTHY
Interim results for Hamworthy, the UK-listed
offshore fluid handling systems manufacturer, show a strong performance in turnover
and profits for the first half of its financial
year which runs from April to March. The
company, which is listed in London on AIM,
notes that while its sector is unlikely to be
immune for the global financial crisis, an
increased product range and strong order
book puts it in a good position to address
any adverse impact and exploit future opportunities. Hamworthys biggest market geographically is the Far East followed by
Europe (excluding the UK) and the Middle
East. The third and fourth market areas by
value are the UK and then the rest of the
world. It is active in gas transportation and
production, oil transportation and production, cruise ships and merchant shipping. The
company notes the worsening economic outlook for merchant shipping but adds that its
exposure in this market segment is relatively
low, at less than 10% of its overall activities.
CHEMOIL
The climb in turnover in the third quarter of
last year compared to the same period in
2007 was largely driven by the higher average sales value of marine fuel, reported the
bunker company. In addition, Chemoil,
which is listed on the Singaporean stock
exchange, says that its hedging strategy protected the companys underlying physical
inventory despite intense price volatility.
Gross contribution per metric tonne stood at
$11.1 for the Q308 compared with $3.1 for
Q307.
JANUARY 2009
FINANCE
A perfect storm
The liquidity crisis has
spilled all over the globe
affecting markets across
the board. Ranjeeta D
McGroarty delves into
the impact of the crisis on
investment banks and
funds serving the
shipping industry
nvestment banks are laying off

people, lenders have more or less
stopped lending, hedge funds are
hurting and private equity funds are
taking a wait and see approach.
The dry bulk markets have seen a 70%
collapse with the container markets seeing
a 60% drop. Banks are unable to lend,
charterers are backing away and the FFA
market is crumbling, Harry Vafias CEO
of Stealth Gas told LSE. Indeed, the
shipping highs of the past few years with
investors getting drunk on dry bulk seem a
distant memory. Major US container ports
volume fell for a 16th consecutive month
with volumes being the lowest since 2004,
projected at 15.3m teu for the year, a 7.1%
drop from 2007, boding gloom for the
sector. The stock markets recent tears have
wiped away the gains made from 2003 to
2007, falling by almost half to around
$30trn below its peak.
CAPITAL MARKETS
Scepticism has led the way to fear with
shipowners and bankers dreading the
worst. Capital markets are dead right now
and clearly debt is at a premium and is
available on a limited and very selective
basis, Peter Shaerf, Nymar chairman and
managing director at New York-based
dedicated shipping merchant bank, AMA
Capital Partners told LSE. Clearly,
investment banks have been hammered by

the current global financial crisis. Whole
product lines, such as mortgage back
securitizations, have come under intense
fire. Lay-offs in these areas and those for
other structured products have numbered in
the thousands, Larry Rutkowski, partner
at law firm Seward & Kissel told LSE.
The investment banking model is
reverting to what it was historically. The
Bear Stearns and Goldman Sachs model is
gone, Paul Leand CEO AMA Capital
Partners told LSE. Leand said that AMA
has reinvented its business every two to
three years, and advisory work has picked
up following its ability to be nimble in
these times. Big fees for debt and equity
issuances for investment banks will be
severely diminished in the next year. Banks
will try to do strategic advisory and some
with trading activity will see income from
those activities, Leand added.
Although the US market is a lot more
liquid and has an established investor base,
as well as a large peer group of listed
shipping companies, capital raising in the
form of equities is not expected to be
attractive in 2009 given the current market
environment and valuation levels
according to Globus Maritime CEO,
George Karageorgiou.
Rutkowski emphasised that, Certainly,
the stock market needs to stabilize before
anyone can even think IPO. We will likely
see a few at the market controlled equity
offerings though. The only area that banks
may see any activity are restructurings,
M&A (mergers and acquisitions), and to a
limited extent bond offerings and
convertibles. We may see other forms of
capital raising such as bond offerings or
convertibles. Also, we may experience a
growing number of M&A transactions,
done mostly with stock, as the industry
needs more consolidation and larger
players, Karageorgiou told LSE. The latest
potential merger is that of Arlington
Tankers with General Maritime (Genmar),
Capital markets are dead right now and clearly debt is at a

premium and is available on a limited and very selective basis
JANUARY 2009
which will hold 73% of the combined

company. However, Shaerf observed, My
guess is we are likely to see less M&A and
more restructuring work.
Nonetheless, during the past year there
has been an increase in the number of
alternative investment funds being formed
by hedge fund and private equity fund
managers focused on distressed and special
situation opportunities in troubled asset
classes. And some of those funds may
perhaps look to pick up some distressed
shipping assets. Dedicated shipping hedge
funds perhaps facing more challenging
times include the Tufton Oceanic fund,
Clarksons Shipping Hedge Fund, and the
Okeanos Shipping Fund. Other diversified
investment firms involved in shipping
include Millennium Partners, Black Rock,
Neuberger Berman, Fidelity Investments,
DE Shaw, UBS, Apollo Management,
Oppenheimer, Acquila, QVT Financial
among others. New York-listed NYMagic,
an insurer with a significant marine
portfolio saw a $6.1m hedge fund loss in
just the month of October 2008.
Nevertheless, these difficult times have
paved the way for enhanced scrutiny, as
investment firms now will now have to
bow to new regulations.
REGULATORY IMPACT
In order to combat market volatility,
increase financial transparency, and restore
confidence affecting global capital
markets, measures like the Emergency
Economic Stabilization Act of 2008 (EESA)
were put in place by domestic and foreign
regulatory authorities, including the US
Securities and Exchange Commission
(SEC) and the UK Financial Services
Authority (FSA). The new regulations will
impact investment managers and hedge
funds and private equity funds they
manage, as well as direct effects on their
trading strategies, compensation
arrangements, disclosure requirements,
and compliance obligations.
The SEC has recently adopted a number
of new regulations applicable to the hedge
fund industry, including antifraud rules
FINANCE
designed to limit naked short selling and
prevent deceptive actions, prohibitions
against short selling of publicly traded
common equity securities of an expansive
list of financial services institutions, and
requirements to disclose applicable short
positions on certain securities.
New regulations also indicate that
hedge fund managers may not be allowed
to defer fee income from offshore funds
attributable to services performed after
January 1, 2009. Managers will now have
to consider replacing the incentive fees paid
by their offshore funds with incentive
allocations, which under current law are
not subject to NYC unincorporated
business tax (currently 4%) or Federal
self-employment tax (about 2.9%). The
offshore incentive allocation structure
needs to be implemented in a master
fund (usually offshore) entity taxed as a
partnership. Transferring assets, if needed,
to a master fund may result in
administrative, tax and counterparty
issues, stated law firm Seward & Kissel.
Since managers can no longer defer
compensation from offshore funds, they
may need to restructure their existing
employee deferred compensation plans to
avoid the negative tax result on their own
income without any current deduction for
deferred compensation owed to employees,
and secondly address their inability to
hedge the employee owned investment
returns for deferred compensation.
The FSA recently implemented new
provisions to its Code of Market Conduct,
including prohibiting new short positions
or additions to existing short positions for
securities of certain UK financial sector
companies as well as daily disclosure
requirements for investors with short
positions in excess of 0.25% of the
outstanding share capital of a UK financial
sector company.
Steven Nesmith, Partner, at law firm,
Holland & Knight told LSE, The general
belief is after eight years of deregulation
and the expansion of market freedoms,
democrats and republican in the US
Congress have agreed that there is a need
for reforms and greater cooperation among
the financial regulators of investment
banks, hedge funds, private equity funds,

credit rating agencies and the credit default
swap market etc. This re-regulation will
impact US and global financial markets,
which are totally integrated markets.
Among the most notable measures the
world leaders discussed during the recent
G-20 summit was the possible creation of a
new body called the college of
supervisors, which would bring together
international regulators to coordinate
oversight of the worlds 30 largest financial
institutions, Nesmith informed LSE. Also,
the US, European countries, Japan and
major developing nations are discussing
creation of an early warning system to
detect weaknesses in the global financial
system before they reach epic proportions
but plans were still being worked out. In
the recent summit, World leaders focused
on increased transparency in global
finance, expansion of the role of the
International Monetary Fund and creating
international standards for accounting and
bank liquidity.
Greater regulation could direct
companies focus back to fundamentals
and less on exotica. Most of the derivative
products that found favor in the
investment banking community and found
their way into the mainstream have
arguably done more harm than good,
Rutkowski pointed out. The liquidity and
risk management they appeared to provide
had a domino effect once they collapsed.
FUND MANAGERS
These regulations have altered the
reporting requirements of hedge fund
managers and certain private equity fund
managers, and may have direct effects on
their investment strategies. Additionally,
private investment funds with restricted
access to available credit will need to seek
alternative sources of leverage or
re-evaluate their future credit demands,
and will continue to adapt their investment
strategies to substantially reduce their
demand for credit. With respect to idle
funds private equity fund managers may be
required to return uninvested capital
contributions to limited partners if not
Times like this also provide private equity players perfect

deals but fund managers believe the next six to eight
months may be even riper for suitable investments
invested within a specified period of time.

Investment managers will now have to
thoroughly understand the
creditworthiness and counterparty risk of
the investment banking and brokerage
institutions with which such managers
transact business, Sean Durkin, President
of Northern Shipping Fund told LSE. With
falling asset prices and average year-to-date
hedge fund returns below par, many hedge
funds have experienced, and may continue
to experience, an increase in investor
redemption requests. Even those who
have beat the market and had positive
returns are faced with redemption calls,
some of which have been crippling. The
lack of available credit has a significant
negative impact on the yields these funds
can obtain, Rutkowski said.
Where a funds redemptions have been
suspended or otherwise restricted, some
investors may consider alternative means
of exiting existing hedge fund or private
equity fund investments or meeting urgent
liquidity needs. Investors with urgent
liquidity needs who are unable to promptly
redeem part or all of their fund interests
due to lock-ups, suspended redemptions,
r e d e m p t i o n g a t e s , o r s i g n i f i c a n t
side-pocket allocations may seek
alternative means of disposing of their
respective equity interests, either by a sale
or assignment to secondary funds or other
buyers of interests, a pledge through a
swap arrangement, or otherwise, a fund
manager told LSE. Besides, some hedge
funds are being forced to sell assets to
return money to clients.
PRIVATE EQUITY FUNDS

Sources told LSE that funds are actively
looking at shipping and offshore deals, but
making sure that companies have locked-in
future revenues and the ability to refinance
especially for those that need refinancing in
2009. Besides, times like this also provide
private equity players perfect deals but
fund managers believe the next six to eight
months may be even riper for suitable
investments. There have been talks of
investing in the offshore sector by quite a
few players including Northern Shipping
Fund (NSF I). Funded by main sponsors
MTMM Group and Northern Navigation
controlled by Oivind Lorentzen III with
four other investors, NSF I just closed a
$112m fund. Both parties were formerly
involved in NFC Shipping Funds, a joint
JANUARY 2009
FINANCE
venture between DVB and Northern
Navigation.
We are looking to invest in shipping
and offshore asset based projects. We are
going to be patient in terms of finding the
right deal, although we have one
commitment in place, Durkin told LSE.
We have a second closing of NSF I in the
first quarter of 2009, which will increase
the fund to about $200m, Durkin added.
The fund is looking at a minimum of 15%
in annualized returns in investment
projects ranging between three and 10
years.
In terms of regulatory impact, I dont
believe we will be directly affected by the
new regulations, but we are more likely to
be affected by prolong periods without
banks, Durkin told LSE.
Similar to NSF I, AMA Capital Partners
fund ACP Fund III is also sitting on cash
ready to be invested. AMA is well poised,
our ACP Fund III is a $100m fund and we
are looking for opportunities. Our earlier
funds ACP Fund I and ACP fund II have
liquidated all their holdings, said Shaerf.
With the financial markets currently being
the way they are, the need for alternative
capital appears to have grown
significantly.
BANKING WOES
Banks are currently in a difficult situation,
facing the potential of additional write-offs
and the need to replenish their capital base.
In addition, they will be subject to
increased regulatory oversight as well to
stricter internal controls. Also, those
banks that got government support of one
kind or another will be expected to focus
more on domestic lending, possibly
making less capital available to
international activities, shipping
included, Karageorgoiu said.
He believes that in shipping, at least five
traditional lenders are now in trouble and
may cease or curtail new financing.
Overall, we believe that bank financing of
shipping assets will be less readily available
and it is expected to be a lot more selective
and with more stringent terms, as banks
will require increased equity or collateral
from the borrowers, Karageorgiou added.
Also, margins will go up, even though this
increase may be partially offset from the
current lower interest rate environment.
Part of the activity in 2009 may also
relate to loan restructurings to
JANUARY 2009
accommodate the declining asset values

and the strain on cash flows from the lower
freight rates. But, banks have a vested
interest to work with their clients to
weather the current market turmoil and
c o m e o u t o f t h e s t o r m u n s c a t h e d ,
Karageorgiou emphasised.
Peter Illingworth senior banker at DVB
Bank in London told LSE that, there are
banks who will use any opportunity to get
out, and believes that expiry of a credit
facility is the most legitimate. A
consideration will be whether there is an
available take out. Those who stay in will
certainly want re-pricing - up to an
additional 150bps - on margin,
deleveraging and the full list of Value
Maintenance Covenants (VMC) and
f i n a n c i a l c o v e n a n t s . T h e r e s a l s o a
tendency to shorten terms. We wont do
any new deals without our cost of funds
(COF) wording, which passes our COF
directly to the customer, Illingworth
explained. Cost of funds is the actual cost
of banks funding themselves, which today
is between 50 and 150bps over LIBOR.
Some international lenders that will
continue to stay in shipping are DVB, DnB,
RBS, HSH Nordbank, DSF, Citigroup.
Listed companies account for less than
10% of the global fleet, so they represent a
smaller lending universe for banks. Listed
companies appear to be in relative
disadvantage compared to private owners
who can provide personal guarantees to
the banks, but on the other hand listed
companies provide banks with more
transparency and better corporate
governance.
SHIPPING MARKETS
World shipping markets are facing the
perfect storm of a world financial crisis at
the same time as a collapse of historic highs
of rates in many sectors, as well as vessel
values, and a huge newbuilding orderbook.
The storm threatens shipping, as shipping
companies see their equity and cash flows
evaporating, while many financial
institutions feel constrained by their own
financial straits to inject new capital for
new ventures although they may do so for
existing customers or stronger companies,
Jovi Tenev partner at Holland & Knight
told LSE.
Shipowners told LSE that this is perhaps
the first time owners have been impacted
on both the demand side for transportation
and on the supply of vessels in the market.

Vafias told LSE, We have seen shipping
companies that have gone bankrupt, and I
will not be surprised to see more
companies crashing.
Who will buy distressed shipping debt
or equity, or the assets of distressed
shipping companies? One wild card, here,
are the role that FFAs may play for those
companies who took overlarge positions,
said Tenev. In the current market, lenders
will perhaps seek to work out problems
with their borrowers, rather than moving
quickly to declare default and exercise
remedies in an environment that points to
no clear exit or resolution.
Vafias added that for companies that are
not able to secure bank financing or raise
cash in the public markets, the main
shareholder may inject equity or sell assets
to reduce debt. There will be opportunities
to acquire newer vessels, fleets or
companies at favorable prices, and this
means, too, a quicker trip to the breakers
for those older vessels or poorly positioned
companies. Certainly, there will be
consolidation in shipping. No doubt, some
financial institutions may exit, or try to
exit shipping, but again, the key question
will be pricing. As we have seen from past
bankruptcies and workouts, in shipping
there sometimes certainly are second, and
even third, acts, Tenev pointed out.
OUTLOOK
The investment banks are going to
struggle for some time. These bankers,
though, are creative and I would not count
them out. Once the industry gets past its
current restructuring phase, I am sure
something will come along to keep the
bankers busy, Rutkowski told LSE. Thus,
there clearly are and will be many
opportunities for those with the capacity
and knowledge to act, shipping companies,
hedge funds, and financial institutions.
Overall, we expect 2009 to be a year of
opportunity and challenge both for banks
and shipping companies. Strong companies
can take advantage of weaker markets to
grow and even if credit may be less readily
available, we expect that banks will
continue to finance the right borrowers for
the right opportunities, Karageorgiou
said. There is no doubt there will likely be
a number of bankruptcies in the industry
and it remains to be seen how companies
and banks weather another bad year.
SHARE PRICE TRENDS
Feeling the heat

Shipping stocks have
proved to be one of most
volatile sectors in a year
when the overall equity
markets experienced a
wild ride. Barry Parker
analyses how they have
fared so far
Dow Jones v BDI Jan 07-Dec 08

Index
16000
14000
12000
10000
8000
6000
4000
DJIA
2000
hipping veterans have been

stunned by the quickness of the
markets turnaround and the
extent of its fall. As the crisis
unfolds, investors are worried
about ship values, performance of
charterers, ability to pay dividends, and a
host of other issues.
To some extent, the sectors dismal
performance reflects the meteoric rise it had
undergone prior to June 2008, when the
Baltic Dry Index (BDI) peaked at 11,689
points. By December, after a 94% decline to
below 700 things were dramatically
different. On an earnings conference call,
Ion Varouxakis, the President and CEO of
Nasdaq listed Freeseas, with nine drybulk
carriers, set the stage for the environment
facing listed companies, telling investors
and analysts: We expect to take advantage
of attractive acquisition opportunities
which may arise only once in a generation.
By most measures, the BDI and shipping
shares have fallen harder than the overall
market, which crumbled by 40%50%
between late May to late November 2008.
Viewed on a one year basis, the Marine
Transportation Index (composed of 42
listed shipping equities) tracked by Dow
Jones plunged 61.7% in the one year period
prior to early December versus a 43.8%
slippage for a broader group of industrial
stocks in the same timeframe. Compared
with other transportation modes, shippings
fall is dramatic. Trucking stocks were down
15% and railroads down 19%. But the
unprecedented collapse of the shipping
stocks must be put in the context of the
shipping sectors performance in 2007,
0
7 15 20 25 2 7 12 17 21 28 5 12 17 22 27 4 9 14 18
2 3 4 5 7 8 9 10 11 12 2 3 4 5 6 8 9 10 11
07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08
BDI
Source: NYSE/Baltic Exchange
when it was one of the top performing

industry groups, alongside energy raw
materials and commodity related issues
generally.
CHEAP SHARES
By other measures, shipping shares have
become cheap, as they were prior to the big
run-up in 2007. Two ratios widely used to
gauge a shares attractiveness are price to
earnings (P/E) and price to cash flow
(P/CF). For capital intensive companies CF,
which does not include depreciation (which
lowers earnings), is a better measure of
company results. For the broader
marketplace, Barrons calculated the P/E of
the Standard & Poors 500 index to be 19x.
A Jefferies research report in early
December put the average P/E ratio for a
composite of dry bulk stocks at 1.3x, down
from 8x as recently as July, and put the
P/CF ratio at a meager 1x, down from 6.2x
in July, based on likely earnings for 2008.
Tankers were faring slightly better, with a
group of tankers followed by Jefferies
analysts providing a P/E ratio of 3.3x and
P/CF at 2.1x (5x and 3.1x respectively for
full dividend payers. These numbers were
down dramatically from mid-July 2008,
when tanker P/Es were 13.3x and 15.0x
(high yield) and tanker P/CF stood at 6.6 x
and 7.3x (high yield).
In the minds of many investors, shipping
10
is synonymous with the BDI. The BDIs

reach has extended beyond shipping.
Among equity and commodity market
investors, the BDI has become imbued with
a near-iconic status as a barometer of the
international industrial economies. The
BDIs fall from a precipice presaged and
then mirrored declines in prices for oil,
coal, iron ore and other industrial
commodities.
In retrospect, equity markets peaked in
October, 2007, a time coincident with the
first of two tops for the BDI, and several
months after the first inkling of looming
troubles stemming from the US property
markets. Equities continued downward as
concerns about a pending recession began
to take hold, but shipping (proxied by the
BDI), traditionally a lagging indicator,
made a last gasp in Spring 2008, fuelled by
Chinese ore stockpiling and a speculative
fervor in the dry bulk markets. In
September 2008, the mood quickly shifted.
Not only did the hoped for post-Olympic
bounce fail to appear, but recession fears
spread rapidly across the very raw material
markets that had fuelled shipping markets.
SHIPPING SECTORS
When the credit market turbulence of
September 2008 came to the fore and
spread to equities, the ebbing share price
tide did not always distinguish between
JANUARY 2009
SHARE PRICE TRENDS

shipping sectors, nor did it spare those
listed dry bulk or container shares with
charter books extending well into the
future. Dry bulk shares were hurt the most.
Dryships, once a darling for momentum
investors, fell 95.5% in the year to late
November 2008. A number of its peers also
posted declines of 90% or more. Over the
same 12 month timeframe, Nordic
American Tankships (NAT), a dividend
payer with low financial leverage was down
a mere 14% Where dry bulk owners had
substantial revenue visibility through
long-term charters, investor concerns
shifted to re-chartering risk, and, more
ominously, the risk of defaults on the
current charters. The fear in the minds of
analysts and investors was that charterers
who signed two, three and even longer
deals could re-negotiate. Either way, the
result would be vessels re-chartered at a
fraction of their healthy hires under
charters inked before the plunge.
The BDI accelerated downwards as
bigger picture credit concerns seeped into
the demand side of the shipping markets.
Concerns emerged about the ability or
willingness of funds-strapped financial
institutions to honour letters of credit on
shipments of commodities with drastically
reduced values, leading to the potential of
reduced demand as shipments could be
cancelled.
IPO CONTRASTS
The second dry bulk peak in May saw two
IPOs as optimism about the sector
brightened. Britannia Bulk raised $125m in
mid June, following Safe Bulkers successful
$190m IPO in late May. The two IPOs
subsequent performances provide a study in
contrasts. Safe Bulkers remained out of the
news, its vessels continuing to earn healthy
charter hire with solid names such as Bunge
Corporation and Daiichi and the
shareholders receiving a targeted quarterly
dividend of $0.475/share for 3Q 2008.
At Britannia Bulk matters quickly moved
out of hand as it filed for receivership a
scant five months after its IPO, at which
time the company was valued at more than
$400m. The catalyst was a crunch in its
time charter business, with vessels exposed
to spot rates in free fall. At mid-year,
Britannia Bulk had 53 vessels on charter,
contrasted with an owned fleet of 22 vessels
(13 of which were bulk carriers). The
crunch was complicated by inopportune
JANUARY 2009
Shipping Stocks Jan 07 - Dec 08

$
140
120
100
80
60
Dry
S
40
20
GMR
0
31 2
1 3
07 07
3
5
07
3
7
07
4
9
07
2
11
07
3
1
08
3
3
08
2
5
08
3
7
08
3
9
08
3
11
08
SSW
Source: Author
fuel hedging, where Britannia Bulk locked

in through buying fuel hedges to cover fuel
exposure under contracts of affreightment
(COAs). As fuel prices dropped the net
impact was an uncompetitive fuel cost.
Speculative purchase of FFAs, which
subsequently fell in value, also contributed
to losses in 3Q 2008.
At the time of its IPO, Britannia entered
into a five year credit facility for up to
$170m, at Libor plus 175bps, with Lloyds
TSB and Nordeas Danish office, and had
drawn down approximately $158m by late
October. The banks, asserting a claim that
the borrower had undergone a material
adverse change, demanded an acceleration
of repayment. Use of IPO proceeds included
the repayment to bond investors who had
purchased $185m of 11% senior secured
debt in November, 2006. It is unlikely that
Britannia equity holders will see their
investment returned.
CHARTER DEFAULT FEARS

In late October and early November
conference calls discussing results for 3Q
2008, a number of listed entities expressed
general concerns about potential charterer
defaults. One listed company directly
impacted was Star Bulk Carriers, which had
launched its IPO in late 2007, after coming
to life through a Special Purpose
Acquisition Corporation (SPAC). In
October, time charter operator Industrial
Carriers Inc (ICI), which had filed in Greece
for insolvency, gave back the 1993-built
175,000dwt Star Beta, which had been
fixed by Star to ICI for $106,500/day
through 1Q 2010. Subsequently, Star
re-fixed it on a short-term charter with iron
11
ore behemoth Vale at rates of $15,000/day

(first 50 days) rising to $25,000/day
(balance of 2 4 month period) plus a
ballast bonus.
Discussions about potential charterer
defaults have continued to permeate the
markets. Analysts assessing default risk
have distinguished between freight
merchants such as ICI, with no raw
materials business to buttress the shipping
activities, with end users that have cargoes
to move. The CEO of Diana Shipping a
stock now viewed favorably due to low
leverage and substantial charter cover, told
analysts: Its important to charter ships to
end users because they have the urgency to
move their own cargoes. We believe by
sticking with them we have a better
chartering position. Diana recently placed
its 2004-built Panamax Errato on a
one-year time charter to Cargill at
$15,000/day.
The volatility in equity markets added to
the challenges for Stars Greek sponsors.
Taiwanese owner Nobu Su resigned from
the companys board in October 2008, after
months of legal battling over the value of
shares assigned to him at the time of Stars
emergence as a listed company. Su, whose
sale of eight vessels from Taiwan Maritime
Transport to Star, had soured on dry bulk
and turned his attention to the tanker
markets. During the year Sus investment in
Star reduced from an initial level at 30% in
late 2007 to closer to 5%, after private sales
to Greek company directors.
In early November, Star filed regulatory
documents presaging the possible sale of
4.6m shares, either through a secondary
offering or a private placement. These
shares consist of 3.8m still held by a
SHARE PRICE TRENDS

company nominated by Su, and another
0.8m due to be issued to Sus nominee in
2009. While Su had argued Star should buy
the shares back at a prices then north of
$14/share, the market price for Star shares
in November had dipped to $3/share.
SHIP
VALUES
Another issue, resulting from dramatic

declines in ship values, concerns a breach of
loan covenants on bank debt. In rising
markets, and even steady markets, loans
outstanding could comfortably remain in a
permissible range; typically banks require a
loan/value ratio of 50% to 65%. In the
short-term companies that have used bank
debt to finance fleet expansions are at risk
of falling foul of the loan/value ratio
covenant as fleet values plummet in relation
to loans. One way for borrowers to cure
breaches is top repay debt. Offering of
shares, albeit at dramatic discounts, is one
channel of raising such cash.
Another secondary offering, for the
benefit the company, albeit with a severe
dilutive effect, has been announced by
DryShips. It included requisite cautionary
language about possible covenant breaches
in its prospectus issued in connection with
the fresh equity raise for up to 25m shares.
Analysts subsequently highlighted the
potential for a loan/value breach. Peers
Eagle Bulk, Genco Shipping & Trading and
Excel Maritime were tarred by the same
brush, with equity analysts questioning
compliance with the loan/value strictures in
credit agreements. However, a technical
breach is unlikely to lead to a foreclosure by
lenders unless they identify more
fundamental underlying problems. At a
time of falling freight markets in early 2006
DryShips speedily renegotiated a credit
package with HSH Nordbank when faced
with the potential for violating a ratio then
in effect.
DIVIDENDS
Dividends have grown in importance over
the past few years. Many listed shipping
companies, especially those coming on the
scene during 20052006 used high
dividend payouts and distributions to
attract investors. Shipping companies, in a
highly capital intensive business, have
always had an uneasy relationship with
payouts to investors. Cash conservation is
suddenly a priority throughout the
marketplace, emphasising tight cash flows

and the need to hoard cash for a coming
climate of consolidation. As a consequence,
dividend policy is now undergoing scrutiny
across the spectrum of listed maritime
companies.
Perhaps the credit crisis provides a
blessing in disguise for dry bulk owners
whose capital structure could benefit by
their retaining cash in the business. At one
extreme, Diana Shipping has chosen to
forego the dividend following 3Q 2008,
citing the need to build up its warchest. Star
has split its dividend into cash and share
components. Freeseas has cut its dividend,
also citing the need to keep its powder dry
for possible acquisitions.
Dianas CEO, Simeon Pallios, told
investors: By suspending our dividend we
free up cash to make investments such as
vessel acquisitions, which would deliver
significant returns over the next several
years. Shipping loans often prohibit
dividend payments without lender consent
where a borrower has breached loan
covenants. This is not the case at Diana,
with debt at approximately 17% of its
$1bn balance sheet.
Paragon Shipping, a steady dividend
payer with a fleet of 12 Handymaxes,
Supramaxes and Panamaxes all on period
charters, continued to pay its $0.50/share
quarterly share, but cautioned that it could
reduce its dividend going forward. It too
noted that acquisitions may be available in
a market expected to stay weak. Genco
continued paying its $1/share quarterly
target dividend, but explicitly mentioned
that its board would look closely at
dividends going forward. In reporting its
3Q 2008 results, it said: In making future
dividend decisions, the Board will review
such factors as market conditions, Gencos
upcoming cash needs and potential
opportunities which may arise given the
current market.
Freeseas Varouxakis spelled out the new
attitude: Our Board has determined that
the companys strategy must adapt to the
new reality. Retaining cash will add to our
financial flexibility in order to aggressively
take advantage of the opportunities as they
are presented. Therefore, our Board has
decided to revise our dividend policy. The
dividend shall now represent 50% of
distributable cash flow, after taking into
consideration the companys expenses, debt
service, and reserves including reserves for
further capital investments into the
12
shipping sector. The company announced

a dividend of $.075/share for 3Q 2008,
down from $0.175/share paid in previous
quarters. Stars 3Q 2008 $0.36/share
dividend is being divided into an
$0.18/share cash component, and the
balance in newly issues shares.
At the other extreme NAT, one of the
original full payout entities, actually raised
its 3Q 2008 dividend to reflect the strong
tanker markets. Double Hull Tankers, also
benefiting from the strong tanker markets
i n 3 Q, a l s o i n c r e a s e d i t s o u t l a y t o
shareholders, to $0.30/share (up from
$0.25/share).
DIVIDEND YIELDS
Dividends metrics are now indicative of
their state of flux. The P/E data
demonstrate that full payout companies
achieve higher valuations from investors.
As the market has changed, one feature of
the dramatic decline in the stock price is the
outsized dividend yields on shipping stocks.
In the broader equity market, as proxied by
Standard & Poors 500 index, the dividend
yield for 2008 was expected to be close to
3.4%.
A recent research report by Morgan
Stanley revealed that a composite of nine
New York listed tanker stocks was yielding
18/4% based on likely 2008 dividends. A
similar sampling of dry bulk issues was
yielding 33.5%. At end March, 2008, the
comparable yields were 6.7% and 8.7%
respectively.
These high yields (annualized dividend
divided by the recent share price) can be
interpreted in multiple ways. Where the
dividend is viewed as sustainable, the high
yield could suggest a potential rise in the
stock price. Given the changed conditions
in shipping markets, a more likely
interpretation is that periodic dividend
payments will not be sustainable.
Genco and Navios Maritime (NM),
illustrating another trend, have both
cancelled unchartered vessels slated for
future deliveries. Genco, stressing potential
opportunities to acquire vessels from
distressed sellers, forfeited a $53m deposit
paid to Turkish sellers on six resales, valued
at $530m. The loss of the deposit makes
good business sense. An initial calculation
by analysts at New York-based Dahlman
Rose put a current value of some $300m on
the three Capesize and three Handysize
ships.
JANUARY 2009
SHARE PRICE TRENDS

Analysts at Jefferies noted the salutary
impact on Gencos projected debt to
capitalisation ratio, set to decline from a
pro-forma 61% for 2009, down to 54%.
Jefferies analysts had estimated that $
477m. Genco subsequently cancelled a
$320m five year credit facility that had
been executed several months earlier to
partially fund the six ship purchase.
Navios, which adjusted its quarterly
dividend downwards, effective in 4Q
2008, cancelled 12 unfixed newbuild
vessels. These include three Capesize
bulkers, ordered for about $110m each,
and nine other vessels that were to have
been chartered in. With large unpaid
balances still due on the three Capesizes,
Navios estimated savings on capital
expenditures of $265m. The cancellation
fee was a minimal $1.5m.
The containership owner sector, where
the business model revolves around
lengthy timecharters and bareboat leases,
is also set to experience turmoil. Seaspan
with 34 ships on the water and an equal
n u m b e r o n o r d e r, p l a c e d i t s n e w l y
delivered 2,500teu CSCL Santiago on a
12-year timecharter to China Shipping
Container Lines. Seaspans chairman noted
that its charters are solid, but talked about
the likelihood of newbuild cancellations
throughout the liner sector, suddenly
plagued by overcapacity in the face of a
recession.
SHARE
BUYBACKS
Share buybacks are another feature of the

equity markets. They typically emerge
when equity markets are valuing shares at
prices that are below Net Asset Value
(NAV). When companies see their shares
priced well below what they perceive as
their true value, based on metal less debt,
they will sometimes purchase their shares
back.
Buybacks have the short-term effect of
bolstering the stock price with fewer shares
outstanding in the open market, leading to
a potentially higher EPS, with earnings
unaffected by the buyback. The board of
DSX approved a plan to purchase up to
$100m of shares through the end of 2009.
More recently it authorised an additional
$25m buyback programme. Analysts at
Dahlman Rose calculated Navioss NAV at
just under $5/share after considering the
cancellations, more than double its recent
stock price.
JANUARY 2009
Yield Comparisons
Stock
Symbol
Dividend* Annual
Price (08-Dec-2008)
Yield
TBS Bulk Shipping
TBSI
6.13
0.0%
Dryships
DRYS
$0.80
7.17
11.2%
Navios Maritime Holdings
NM
$0.27
2.30
11.7%
Safe Bulk
SB
$0.62
4.09
15.2%
Euroseas
ESEA
$0.93
4.52
20.6%
Excel
EXM
$1.20
5.01
24.0%
Navios Maritime Partners LP
NMM
$1.26
4.88
25.8%
Star Bulk
SBLK
$0.72
2.12
34.0%
Diana
DSX
$3.31
9.62
34.4%
Genco
GNK
$3.85
9.06
42.5%
Paragon
PRGN
$1.88
4.1099
45.6%
Eagle Bulk
EGLE
$2.00
4.36
45.9%
Seaspan
SSW
$1.90
7.94
23.9%
Danaos
DAC
$1.86
5.20
35.8%
Global Ship Lease
GSL
$1.46
2.50
58.4%
Overseas Shipholding Group
OSG
$1.50
38.43
3.9%
TK
$1.14
15.71
7.3%
Tsakos Energy Navigation
TNP
$1.80
19.29
9.3%
General Maritime Corp
GMR
$2.00
13.25
15.1%
Nordic American
NAT
$4.89
32.19
15.2%
Teekay Offshore Partner LP
TOO
$1.65
9.51
17.4%
Teekay LNG Partners LP
TGP
$2.18
9.98
21.8%
Double Hull Tankers
DHT
$1.15
5.03
22.9%
Frontline
FRO
$8.25
30.98
26.6%
Teekay Tankers
TNK
$ 2.79
9.12
30.5%
ONAV
$2.00
6.39
31.3%
OSP
$1.31
4.15
31.6%
TK
Omega Navigation
OSG America LP
Dividend source = Morningstar* in Yahoo! Finance
Trailing Annual Dividend
As dividends receive less emphasis, at

least in the dry bulk sphere, stock value
assumes a greater importance. In the
c o n t e x t o f N AV c o m p u t a t i o n s , t h e
cancellation of newbuilding orders at
Genco and Navios will raise the NAV in
cases where the value has dropped
dramatically. In the case of Navioss
Capesizes Dahlman Rose analysts
attributed an NAV pickup of $2/share to
the cancellations.
The NAV measure, dependent on a
correct estimate of ship values, will
increasingly play a role in
recommendations of Wall Street firms.
Jefferies, with a specialist focus on the
maritime sector, recently put a Buy
recommendation on Aries Maritime, a
company that has seen difficulties across
its tanker and container fleets. A Jefferies
report stated: We continue to believe that
there is significant underlying value in
Aries Maritime despite the less than robust
operational and financial performance of
late as the company trades at a 90%
discount to our NAV estimate based on last
published asset values.
Conversely, Morgan Stanleys caution
13
on the dry bulk sector referred to potential

negative NAVs on many of the leading
players: With no NAV or dividend
support for most dry bulk names any more
and the expectation that rates will linger
around cash operating costs at least
through 1Q09, even the most optimistic of
dry bulk investors are likely getting jittery,
in our view.
THE
FUTURE
Famed business writer Michael Lewis, best

known for his Liars Poker, describing his
experiences at Salomon Brothers prior to
the Crash of 1987, in a late November
2008 interview in the Wall Street Journal,
said: We have entered a period of risk
aversion unlike anything weve seen in our
lifetime. Investors will be too wary for a
while. He added: The next rich wave will
be those who figure out where the value is.
Value in the maritime context will
depend on ship prices in synch with the
real market prospects, hardly the case at
present. The maritime sector may once
again prove attractive to investors, but
only after value can be accurately assessed.
CHINA SHIPPING
Raising the bar

Chinas shipowners are
investing heavily in
new tonnage. Stephen
Matthews looks at how
their organisations
are managing this huge
expansion
hinas booming economy

has generated big increases
in trade volumes, both
imports of dry and liquid
raw materials and
semi-finished products and exports of
finished goods. This has prompted
government policy for Chinese shipowners
to carry a much bigger proportion of its
trade in Chinese owned, if not flagged
ships.
In response Chinese owners have
invested heavily in building new ships of all
main types to meet this rising demand for
capacity. The rapid growth in its fleet and
enormous orderbook has meant that
leading Chinese owners have expanded
massively already and are set for further
growth. In doing so Chinese owners, both
public and private have had to raise
finance on a big scale and develop the
management of their organisations from
largely domestically focused companies to
international facing and trading
corporations. This article looks at the
progress that has been made and what still
needs to be done as Chinese fleets continue
to grow as they seek to exploit the
substantial potential of Chinas long-term
economic growth.
At present there are concerns that
Chinas economy is set for a period of
slower growth as it feels the effects of the
global financial crisis and a period of
recession in many of its leading western
trading partners. After several years of
double digit growth the World Bank has
forecast Chinas growth will fall to 7.5%
next year, although the government has
injected $586bn into the economy to meet
its stated aim of maintaining growth of at
least 8%. The stimulus is designed to

stimulate domestic investment and demand
to reduce dependence on exports. Slowing
global growth has led to a marked fall in
the phenomenal rise of Chinas maritime
trade, but long-term growth is expected to
resume once underlying economic
conditions return to normal.
The economic slowdown is also
affecting Chinas substantial coastal
shipping trades. Yao Weifu, general
manager, Shanghai Shipping Exchange said
that Chinas coastal dry bulk rates have
more than halved since summer with the
biggest fall for coal where north to south
rates have fallen by about 70%. This is
partly due to electricity generation falling
by about 4%.
SUBSTANTIAL
FLEETS
Chinese owners have already amassed

large owned fleets with substantial tonnage
on order. Chinas total seagoing fleet in
2007 numbered some 1,900 ships of 85m
dwt, ranking it fourth among global
countries of ownership behind only
Greece, Japan and Germany.
According to LR Fairplay figures at the
beginning of December Chinese owners
had some 676 vessels on order with an
aggregate capacity of 53m dwt, second
only to Greek owners. Over half these
orders, some 350 ships, were bulk carriers.
Most of this tonnage is expected to be
registered in China but about 25% will be
flagged in foreign registers. Total value of
the ships on order by Chinese owners is
about $50bn. Most of this is being
financed from equity and Chinese banks
Leading Chinese owners maintain that
they have no intention to cancel orders,
although some smaller owners with ships
being built at the more vulnerable Chinese
yards are likely to suffer from delays and
some cancellations.
EVOLUTION
Chinas leading shipowners have evolved
from domestically focused state owned
shipping companies into international
14
maritime investment groups with an

increasingly diversified range of interests
and operations.
China Shipping Group (CSG) has
several subsidiary shipping operations,
including the public listed China Shipping
Development (CSD), which operates some
56 tankers and 116 bulk carriers, with
investment of some Yuan26.5bn ($3.8bn)
in orders for a further 66 ships due for
delivery by 2012, which would bring its
aggregate capacity to about 17m dwt.
In the first three quarters of 2008 CSD
saw revenue increasing to Yuan 14.3bn, up
by just under 60% from a year earlier, but
higher costs meant profit did not increase
by the same proportion.
CSD forged a joint-venture with steel
producer Baosteel to form a new
Hong-Kong based company owning a fleet
of newbuild VLOCs to carry iron ore
imports for Baosteel plants. An investment
of about $700m will be financed by a
combination of equity from the two
partners and bank loans.
CSGs container subsidiary China
Shipping Container Lines (CSCL) is facing
the same problems as other global
container operators with rising costs and
falling demand pushing its finances into
deficit as 2008 progressed.
CSCL has diversified into container
terminal operations, integrating CSGs
international terminal business, China
Shipping Terminal Development into the
organisation. This operation includes
container terminals in the US, Egypt and a
significant number of facilities in leading
Chinese ports. The move is aimed at
providing a steady source of revenue to
balance the more volatile shipping
activities. This move is an example of the
way in which leading Chinese owners are
seeking to diversify their maritime
businesses and spread risk, meeting some
criticism that they are too narrowly
focused (see p16).
China Cosco Holdings, which is
dual-listed in Hong Kong and Shanghai
has emerged from its state-owned roots to
become one of the leading shipowning
groups in the world, as well as Chinas
JANUARY 2009
CHINA SHIPPING
leading shipping group, with substantial
dry bulk and container fleets, operated
under various subsidiaries such as Cosco
Container Lines (Coscon). In the first three
quarters of 2008 the group reported
revenue of some Yuan95.4bn ($13.7bn), a
rise of 40% compared with the same
period in 2007. However, the global
economic slowdown is expected to affect
its revenue growth from container trades in
particular, although most of its dry bulk
cargoes are carried under contracts of
affreightment with Chinese importers. Its
massive controlled dry bulk fleet comprises
some 460 vessels, of which about one-third
are directly owned, with a further 60 on
order, mostly larger post-panamax and
capesize ships. Its proportion of owned
ship is set to rise.
Coscon has a fleet of 150 containerships
and participates in all the major global
liner trades. Another subsidiary Dalian
Ocean Shipping Co operates the groups
tanker fleet building up an operation
including VLCCs with more on order. The
Group also has a Hong Kong-listed
terminal company Cosco Pacific and
shipbuilding and repair interests in China.
Another major bulk shipping group
China Merchants Energy Shipping, part of
the giant China Merchants Group, also
reported a healthy first nine months of
2008, but it too expected to feel the effects
of the global and shipping market
slowdown during the fourth quarter,
especially in the dry bulk market, although
its tanker operations remained in a
healthier environment. Its fleet comprises
21 bulk carriers, with a further seven on
order and 15 tankers with another 12 on
order. It has also ventured into the LNG
market, with China expected to step up
LNG imports in future years, with three
ships in service and another two on order.
State owned Nanjing Tanker Corp is
investing in VLCCs with 16 vessels
contracted at Chinese builders, as part of
the government supported policy for
Chinese owners to take a larger share of its
crude oil imports.
Despite the current setbacks in the dry
bulk and container markets, each of these
leading groups remain fully committed to

their current orderbooks and continuing to
build up their fleets, both to serve Chinas
own maritime trade and increasingly as
international players in all the major
markets.
DOMESTIC
POTENTIAL
China has always had a big coastal

shipping fleet, but with strict cabotage
regulation still in place it is generally
regarded as inefficient and dominated by a
large number of small companies and
relatively old and inefficient vessels. As its
international and domestic trade grow
there is major potential for developing
coastal trades for a variety of cargoes, such
as moving coal from north to south and for
transhipping containerised cargo from the
major international container hub ports in
China to the many smaller and inland river
destinations.
This potential has prompted some calls
for Chinas cabotage regulations to be
abolished or relaxed to allow foreign
owners to participate in some form.
Chinese ports are believed to favour such
as changes as it would boost their traffic
and would also provide incentives for
leading Chinese owners to invest more
substantially in coastal shipping,
modernising fleets, deploying larger vessels
and reducing costs. However, owners
dedicated to the coastal trades are opposed
to any moves that would threaten their
monopolies.
CSG has invested significantly in
domestic container services, with cargo
carryings growing rapidly as Chinas
container throughput has multiplied and is
market leader in the cabotage container
trades in China. Domestic container traffic
is believed to exceed 10m teu, including
coastal and transhipment cargoes.
One domestic trade that has major
development potential is the upriver trade
on the Yangtze from Shanghai to a number
of major inland port cities located along
the river, such as Nanjing. A recent study
of this river traffic found that less than
10% of Shanghais container throughput is
The rapid growth in its fleet and enormous orderbook has

meant that leading Chinese owners have expanded
massively already and are set for further growth
JANUARY 2009
15
moved inland by the river and there is

substantial potential to increase volumes.
Yangtze river traffic is carried in literally
thousand of small vessels, of which up to
about 400 are believed able to carry
containers. Several leading Chinese ocean
carriers operate their own inland fleets
including Cosco, Sinotrans and China
Shipping. There are also a large number of
small private operators whose vessels are
employed on charter to the major carriers
or to ports. In particular there is
considerable potential for investment in
larger and more efficient sea-river vessels
able to carry containers inland from the
new offshore Yangshan container facility.
A sign of the increased attention being
paid to this sector is a recent plan for two of
the largest inland river operators to merge
their operations. Under the plan, yet to be
agreed and approved by Chinese regulatory
authorities, Chinas leading freight
forwarder and logistics firm, Sinotrans
Group would merge with China Changjiang
National Shipping Corp, to create a huge
transport and logistics group including dry
bulk and container shipping as well as other
related interests including shipbuilding and
ship agency. Both groups own substantial
and diversified shipping fleets aggregating
about 20m dwt. If the merger plan reaches a
conclusion this would mark a major
milestone in the corporate development of
Chinas maritime and transport sector and a
sign that the sector is maturing in
organisational and management terms,
adopting many of the business strategies
already common elsewhere.
Regional growth has also generated
other opportunities for investment in new
services. CSG has invested about $5mto
take a 75% stake in ferry operator
Shanghai Incheon International Ferry,
together with two South Korean investors.
It plans to expand the companys regional
ferry network beyond its present link
between China and South Korea into the
wider Asian regional market.
DEVELOPMENT
Research into Chinas shipping industry by
Wei Wei, Associate Professor, School of
Economic and Management, and Dongqin
Lu, at Dalian Maritime University
identified some weaknesses in Chinese
shipping companies in an international
context and attempted to offer some
remedies to make Chinese shipping more
CHINA SHIPPING
efficient and competitive, despite recent
rapid growth, commercialisation and
internationalisation. They pinpointed some
specific structural and organisational
weaknesses compared with international
competitors, including the sources of funds
Chinese shipping companies use to finance
their investments, although this was before
the financial crisis took hold.
Their suggested remedies include some
of the approaches already starting to be
adopted by the larger Chinese shipowning
groups (see right). These solutions include
developing integrated logistic services and
investing in ports and terminals.
They pointed out that although Chinas
fleet is large, its structure is still heavily
focused on small older vessels, with
investment in new tonnage only emerging
recently and these are mainly being flagged
in international registers rather than in
China. That Chinese ships massively shift
to overseas countries not only causes bad
influence on national macro-control and
national taxation, but also greatly weakens
the strength of our international transport
fleets.
China offers owners no operating
subsidy or shipbuilding subsidy, nor
favourable shipbuilding loan rates, taxes,
depreciation and other preferential policies.
This increases domestic shipping
enterprises costs significantly, and weakens
their competitiveness. The majority of
Chinese shipping companies are not used to
the challenges of a market economy, and
suffer weak operational management and
lack of awareness of service. Chinese
shipping enterprises, both in financial
strength, market awareness and in
management level, service quality are
always in a disadvantageous position.
However, they acknowledge that as
Chinas international trade has increased
Chinese shipping companies have made
considerable progress and accumulated
experience and advantages by participating
in international competition, but there
remains a considerable gap compared with
the international shipping industry in terms
of being attractive to investors and
responsiveness to market changes. Despite
developing into internationally operating
shipping groups Chinese companies still
lack a clear global strategy with clear
objectives, creating a competitive edge in
the global market.
They propose that current restrictions
on foreign capital should be relaxed to give
Chinese shipping companies greater access

to international sources of finance for
investment. Chinese shipping companies
need to diversify their sources of finance
and structures used for financing shipping
investments to spread the risk. These

should include attracting foreign
investment, application of profits, public
share offerings, finance leases and
traditional bank lending.
Financing Chinese shipping

The huge investments by Chinese owners in new tonnage, with the current orderbook
for Chinese owners estimated to value some $50bn, is generating a search for more
diversified sources of funding in addition to equity raised from public listings and bank
loans.
One recent development has been an attempt to create a KG-style fund for shipping
investments. The city of Tianjin is establishing a shipping fund to raise some Yuan20bn
($2.9bn) from Chinese investors. The funds will be used to invest in Chinese shipping
companies and individual vessels through special purpose companies.
In Shanghai the listed Anxin Trust & Investment launched the Yuan Cheng 1
investment trust fund to raise up to Yuan 170m from Chinese private investors to be
used to finance ship investments for Chinese private shipping companies building
handysize bulk carriers to operate on domestic routes carrying coal. Returns to
investors are up to 9.5% depending on the size of the investment.
If these schemes are successful other similar funds are likely to emerge, especially to
support local shipbuilding and shipping industries, as bank lending becomes more
difficult.
Speaking at the Asia Ship Finance & Leasing Forum in Shanghai in early December
Xu Fuxing, deputy manager at state-owned China Export & Credit Insurance Corp said
that shipowners are struggling to raise finance his creates a problem for shipyards who
often have cash problems and face risks of default on contracts by shipowners.
Currently this mainly affects smaller yards, with a current default rate of about 10% but
it is starting to spread to larger yards, while banks are more reluctant to take risks. His
organisation is a tool to implement Chinas policy to support high value exports, which
includes ships. As well as providing finance insurance for orders it can also allow yards
to obtain credit to finance the construction process and help companies improve cash
flow and competitiveness, especially at this time of financial crisis.
Li Xiaonian, director maritime law research centre, Shanghai Academy of Social
Sciences Law Institute referring the financial leasing said: There are still
opportunities for financing new vessels despite the slowdown. However, there remain
some significant legal issues for ship finance in China. A draft finance and leasing law
is not yet in effect and there are no specific laws on finance leasing for ships, but there
are regulations covering bareboat leasing. For foreign investors in China there are
regulations regarding management. In April 2008 a notice from the Ministry of
Transportation requires lessors and lessees to gain official approval. The proportion of
foreign investment must be less than 50% in a joint venture. But there are some
conflicts within the regulations and among regulations of different ministries.
According to Chinas ship registration regulations if Chinese capital is less than 50%
the company cannot register the ship in China, but there is some flexibility. Approval is
needed from the ministries of transportation and commerce. Lessors and lessees have
specific rights and liabilities under the regulations. For bareboat contracts there are
special provisions that differ from standard projects. There is a need to distinguish
whether a contract is a finance lease or a loan contract. Any change of ownership
needs to be registered.
There will be further legislative changes so players need to check on the latest
position, especially foreign investors. It is still not a mature market so the law is still
evolving and there will be new laws.
Stephen Peeples from law firm DLA Piper suggested that there are likely to be public
listing opportunities in Asia before the US or Europe as the economic and market
situation is not so bad and likely to recover sooner. Even now there are some
opportunities for maritime companies.
16
JANUARY 2009
SUEZMAX TANKERS
Down to earth
As Opec announces
another output cut,
Stephen Matthews
examines how this might
affect prospects for
suezmax tankers in 2009
Suezmax cargoes Jan-Dec 08 (m tonnes)
uezmax tanker operators

benefited from the unusually
strong market during the
summer, with rates and earnings
hitting elevated peaks. However,
as the global economic downturn started to
take its toll and oil demand and prices fell
with Opec seeking to support prices by
cutting output liftings eased and rates
followed downwards. But the limited
capacity growth during 2008 meant that
earnings remained relatively healthy, even
though the prospect of a regular end of year
seasonal spike receded.
As the global economy continued to
suffer and Opec talked of further cuts in
output quotas, 2009 seems set to be far
more challenging for suezmax and other
large crude tanker owners. New deliveries
due this year will provide a significant boost
to capacity and this year there is little
prospect of ships going out of the market
for conversion while the number of
scrapping candidates is also limited.
DEMAND THREAT
As demand continued to falter and the
crude oil price struggled below $50/barrel,
Opec decided in mid-December that it
would implement a further major cut in
output quotas to take effect from the
beginning of 2009. The producers cartel
announced that it would set a new target of
24.845m bpd for its 11 members that are
subject to output quotas with the aim of
bringing supply more closely in line with
reduced demand in order to support the oil
price to a declared target range of
$70-80/barrel. This represented a further
2.2m bpd cut on the existing aggregate
quotas and amounted to a cut of 4.2m bpd
JANUARY 2009
West Africa
111.25
Carib/S.Am
98.67
Mid-east
94.15
Black Sea/Med 80.58

North Sea
Others
65.63
52
Source: Lloyd's MIU/APEX
on what was their actual output in

September of about 29m bpd. A 1.5m bpd
cut was implemented at the beginning of
November with a further 0.5m bpd
reduction in excess output to come into line
with the previous quotas. However, the
latest agreement was not a straightforward
cut across the board and the impact on
exports from individual producers was not
clear. Reduced demand has also resulted in
crude oil inventories rising with oil being
purchased at low prices and stored in
expectation of prices rising again in future.
As usual its impact on exports and
tanker demand will depend on the extent to
which the reduction is implemented and
h o w q u i c k l y. B u t i t i s p o t e n t i a l l y
devastating, with a cut of 3m bpd from
Novembers actual output of 27.9m bpd,
equivalent to three suezmax cargoes a day.
According to Opec Member countries
strongly emphasize their firm commitment
to ensuring that their production is reduced
by the individually agreed amounts.
CARGO FLOWS
The Opec production cutbacks in late 2008
and into 2009 came too late to have a major
impact before the end of the year, hence
cargo volumes and earnings remained
relatively firm through much of the year.
S tatis tics fr om Llo yd s Mar itime
Intelligence Unit (LMIUs) APEX (Analysis
17
of Petroleum Exports) for the period from

the beginning of 2008 through to early
December show the patterns of demand for
suezmax tankers. The two graphs show the
breakdown of loading areas for suezmaxes
both in terms of cargo tonnes and
tonne-miles, while the tables identify the
leading suezmax routes on the same bases.
In terms of cargo tonnage loaded in
suezmaxes five loading areas are
responsible for 90% of stems, led by West
Africa with 22% of total suezmax cargoes
and followed by the Caribbean/S America
Atlantic, Middle East, Black Sea and
Mediterranean, and finally the North Sea
whose importance is declining as output
falls and where most suezmax category
loadings are accounted for by shuttle
tankers. For this reason the North Sea to
North Europe trade is the single biggest in
terms of suezmax cargoes with about 10%
of the total, just ahead of the much longer
distance West Africa to US trade, which
remains the leading suezmax staple. Other
relatively short distance routes also account
for substantial cargo tonnages including
Caribbean to US, cross-Mediterranean and
Middle East to India.
The varying mix of shorter and longer
routes mostly operated by suezmaxes means
that the pattern of demand in tonne-mile
terms is still rather different. Here the
importance of West Africa to the suezmax
market becomes more apparent, with
SUEZMAX TANKERS
cargoes loaded there accounting for some
37% of total suezmax tonne-miles. Indeed,
the leading route from West Africa to the US
alone is responsible for 17% of aggregate
tonne-mile demand in this market segment.
US demand and the interaction with the
VLCC market is therefore crucial for
suezmax earnings. This route takes almost
double the tonne-mile demand of each of
the three next highest trades, those from
West Africa to North Europe, Black Sea and
Mediterranean to the US and Middle East
to Far East. High cargo volume but much
shorter routes including intra North Sea,
cross-Mediterranean, Middle East to India
and Caribbean to US generate much lower
shares of tonne-mile demand. On these
routes suezmaxes tend to compete with
smaller aframax vessels.
Suezmax age graph

Ships
120
100
80
60
40
20
0
0 to 4
5 to 9
10 to 14
15 to 19
20 to 24
25+
Source: Lloyd's MIU
LSE Suezmax index Jan 04-Nov 08
FLEET DEVELOPMENT
400
Through 2008 the suezmax fleet remained

relatively static overall as deliveries were
subdued and older and single hull vessels
were removed for conversion. According to
LloydsMIU statistics, at the beginning of
December there were some 377 suezmax
tankers in service, with a total capacity of
57.2m dwt. This is barely changed from 12
months earlier and contributed to a
stronger market and earnings until output
cuts started to take effect towards the end of
the year.
However, prospects for 2009 look rather
more daunting in terms of fleet capacity,
even before any reduction in demand is
considered. Some 58% of the fleet is under
10 years old, with less than 8% of the
capacity more than 20 years old.
The orderbook was inflated by a rush of
orders earlier in 2008 when the market was
strong and prospects remained bullish,
older ships were being withdrawn for
conversion and there was a perceived
demand for more capacity going forward.
This means that suezmax capacity on order
is some 46% of what is currently in service.
In 2009 there are 58 suezmaxes scheduled
for delivery, amounting to about 9.3m dwt,
equivalent to 16% of capacity currently in
service. Even allowing for further
withdrawals and scrapping of older vessels
this means the fleet is set to grow by some
12-14% during 2009. At present, unless
there is a dramatic turnaround in crude oil
demand trends, that growth looks to
present a significant challenge to the
balance of the suezmax market, while both
350
300
250
200
150
100
50
0
Jan April Jul Oct Jan Apr Jul Oct Jan Apr July Oct Jan Apr Jul Oct Jan Apr Jul Oct
04
05
06
07
08
Source: Lloyd's MIU fixtures/LSE
Suezmax tonne miles Jan-Dec 08 (bn)
West Africa
505.29
Carib/S Am
127.63
Mid-east
300.9
Black Sea/Med 277.05

N Sea
54.6
Others
94.5
Source: Lloyd's MIU/APEX
VLCC and aframax fleets are also slated to

grow by double-digit percentages this year.
This suggests that there will be considerable
competition for available cargoes, with
charterers likely to be the beneficiaries.
Those owners that have secured
18
employment on long-term time charters

with oil majors and other leading traders
will be more content with their prospects
compared with those relying on the spot
market.
Most of the leading owners have a
JANUARY 2009
SUEZMAX TANKERS
Leading suezmax routes
by cargo tonnes Jan to
Mid-Dec 2008
Route
m. tonnes
North Sea North Europe
52.3
West Africa US
44.2
West Africa North Europe
29.2
Middle East Indian sub continent
27.9
Black Sea/Med Med
23.9
Caribbean/S. America US
24.3
Source: LloydsMIU APEX
Leading suezmax routes

by tonne-miles Jan to
mid-Dec 2008
Route
bn tonne-miles
West Africa US
229.1
West Africa North Europe
120.8
Black Sea/Med US
119.8
Middle East Far East
113.4
West Africa Med
48.8
Caribbean US
44.2
Black Sea/Med Med
42.1
Middle East North Europe
40.1
Source: LloydsMIU APEX
judicious balance between period and spot

employment, but have been looking to firm
as much forward commitment as possible
through what could be a difficult year.
Two leading suezmax owners, Frontline
recently agreed to place its spot trading
suezmax ships in the Gemini suezmax pool,
which is expanding its chartering presence
from the US to a new office in Oslo, with
effect from the beginning of 2009. This will
bring the size of the pool to some 36 ships,
equivalent to almost 10% of the total
suezmax fleet. Frontline joins Teekay,
Hyundai Merchant Marine and German
KG owner Konig & Cie as Gemini
members.
Frontline Management acting CEO Jens
Martin Jensen, announcing its move
commented: Frontline has always been a
frontrunner in consolidating the tanker
industry and entering the Gemini Pool is an
important element in such. For Frontline,
we expect to improve the utilization on our
fleet and to reduce the cost basis by entering
a large pool.
In its third quarter 2008 results, when
rates were firm, Frontline reported average
time charter equivalent earnings for its
suezmax tankers of $62,700/day, down
from the $72,000/day achieved in the
JANUARY 2009
second quarter. For the first three quarters

of 2008 overall its suezmaxes earned an
average $61,800/day. It stated that the
breakeven rate for its suezmaxes as of
November 2008 was some $24,800/day.
Frontline supplemented its suezmax fleet
with the acquisition of five vessels from Top
Ships mid-year, costing a total of some
$240m. Three of them had existing time
charters attached. In addition it time
chartered in a further five suezmaxes from
Eiger Shipping for varying periods through
2010. It has eight suezmaxes on order at
Rongsheng shipyard in China, but said that
these are likely to be delayed. Delayed
deliveries could prove a blessing for tanker
owners while demand remains quiet.
Rival leading suezmax owner and now
fellow member of the Gemini pool, Teekay
Corp achieved average earnings for its
suezmaxes in the third quarter of some
$67,000/day. However, it expects fourth
quarter earnings to be lower, at around
$46,000/day though this is still well above
breakeven levels.
Strong counter-cyclical rates in the
middle two quarters of 2008 were generally
attributed to strong demand, evidenced by
the oil price spike through July, particularly
in the US as it replenished stocks in
expectation of prices remaining high and
possible rising even further, with its crude
cargoes tending to be sourced from distant
export countries, boosting tonne-mile
demand. Similarly, Chinas oil demand also
rose and it also increasingly generated
long-distance suezmax voyages. In this
context suezmaxes were particular
beneficiaries of these trends, compared with
other crude tanker segments.
Average spot earnings for suezmaxes
thus soared to peak at about $120,000/day
in July before halving by the beginning of
the fourth quarter to about $60,000/day.
The effect of the sharp reduction in oil
demand in the fourth quarter may have
been partially masked by the usual seasonal
demand for oil for heating and electricity
generation, which often in the past has
generated a sharp spike. This year its impact
has been partially to cushion rates falling
from their earlier peaks.
This did result in rates rising somewhat
in December as charterers sought to secure
cargoes before the holiday. As a result rates
on the benchmark West Africa to US trade
increased to over W180 in early December,
equivalent to about $72,000/day. But this
was expected to be a temporary reprieve
19
with rates subsequently falling back and the

New Year likely to see limited cargoes and
rising tonnage availability. By the middle of
December spot rates had already started to
subside down to about W130 or
$50,000/day.
Even with the decline in the final quarter,
2008 was still set to be a remarkably good
year for suezmaxes, with spot earnings for
the year overall likely to average at least
$75,000/day, similar to the record year in
2004.
According to Maritime Strategies
International (MSI) in early December,
suezmax earnings were forecast easing to
about $34,600/day by April. But that was
before Opec announced its latest
production cut which will take significant
demand out of the market while new
deliveries will be accelerating, leading to a
further diminution in rates, at the beginning
of a quarter when rates are usually at their
most subdued.
Recent time charter fixtures for modern
suezmax tonnage in early December put
12-month rates at about $45,000/day with
three-year fixtures earning about $40,000.
This looks like reasonable business for
owners in the light of currently forecast spot
market trends for 2009.
VALUES
While tankers have not been affected so far
by anything like the collapse in rates and
values in the dry bulk market, ship values
for large tankers have started to ease and
newbuilding prices are also adjusting to the
new trading climate. However, with a
substantial orderbook running through to
2011, there is not expected to be a rush of
suezmax orders in 2009, but some owners
might seek opportunities to buy up
secondhand tonnage at reduced prices.
With the s&p market subdued there
were few reported deals to assess prices.
OUTLOOK
After what turned out to be an
unexpectedly good year for suezmaxes in
terms of average earnings, 2009 seems set to
be more sobering as market fundamentals
appear more challenging. The best hope is
that global economic recovery starts to kick
in the crude oil market is often one of the
first indicators - and demand for tanker
capacity is boosted sufficiently to meet the
scheduled significant increase in capacity.
SUGAR TRADES
Sugars good for you

Activity in the sugar trades
should increase as the
demand for ethanol
increases. At the same
time, the oil-substitute is
supporting the price
mechanism in sugars
leaner times. Julian
Macqueen reports
Brazil: estimates for sugar output

Million tonnes
35
30
25
20
15
10
Domestic
demand
5
0
hile a call for a sugar

producers cartel,
al on g t h e l i ne s o f
Opec, might be
overstating the case,
the comment, made by a Thai sugar official
at a London conference, underlines the
commoditys growing importance. Dr
Prasert Tapaneeyangkul, sec-gen of
Thailands sugar board suggested that
sugar could takeover from oil as an energy
resource. As the primary source of
oil-substitute ethanol, he told the
International Sugar Organisations annual
event that the commodity is, in comparison
to oil, sustainable. But while ethanol
certainly has a presence, the global market
supporting the trade is fragmented. The
task of elaborating on the connections
between sugar, ethanol and the demand for
energy was left to the Brazilian analyst, Dr
Plinio Nastari.
Demand for ethanol is increasing, said
Nastari, pointing to a 13.25% increase
annually. In contrast, growth in sugar
production is running at around 2.7%. If
more ethanol is produced than sugar, the
price of the latter and the other
commodities used to produce ethanol will
rise, surely? Nastari was not so sure.
In the US, ethanol is derived from corn
yet the doctor thought it debateable that
the bubble in the price of corn could be laid
at the door of ethanol demand as,
subsequently, prices fell. He also found it
hard to see the link between the rise of
ethanol and sugar beet production.
Instead, Nastari pointed to the positive
2015/16
2020/21
Exports
Source: Unica
role played by ethanol. This was true of the

European Union, where, if excess
production occurs, this will be siphoned off
by demand from the ethanol sector leading,
in turn, to price stabilisation in the wider
sugar market. According to Nastari, this
was evidence for deciding on the key factor
in the formation of the global sugar price:
the marginal price of the global supplier to
the global market.
It is the marginal supplier who
decides, he said. When the price of ethanol
is higher than sugar, more sucrose converts
to ethanol. And he illustrated his argument
by referring to the biggest ethanol supplier,
Brazil.
Higher ethanol prices in Brazil towards
the end of 2007 saw sugar diverted to the
domestic market. The higher prices
encourage sugar producers to switch to
ethanol production, while the reverse is
true in a falling market. In this way, ethanol
demand can serve as a sugar sink
funnelling cargoes away from global
market, argued Nastari.
While price is the determinant of
switching, there is a third element in the
equation. When crude is above $50 a
barrel, ethanol production makes economic
sense. Below that, and its problematic. The
long term view of the oil price puts prices in
a range of $70 to $90 a barrel, which is
good for ethanol. And while the price will
ultimately determine the volume of ethanol
20
flowing into the world market, the

behaviour of the big players is equally
important.
Brazil is the biggest player both for sugar
and ethanol. As well as being the worlds
biggest exporter, it has a big internal
market for the ethanol it produces. The
country has a fleet of 6m flex cars able to
run on a mixture of petrol and ethanol
which represent about a third of the total
car fleet in the country.
Brazil exports about 25% of its cane
crop and 10.5% of its ethanol. This means
that approximately one third of the
countrys sugar production goes for export
while the rest is detailed for domestic
consumption. In terms of the world market,
Brazilian exports represent 40% of the
global sugar trade and 45% of the trade in
ethanol giving the BRIC economy pole
position. In terms of market dynamics,
Brazil domestic market underlines its
position at the ethanol front runner.
Whatever the vagaries of international
energy prices, growth in Brazils internal
market is set on an upward path. Nastari
told the conference that around 88% of
new cars in the country are flex vehicles
while engines belonging to a new
generation light vehicle can run on
anything from 0-100% ethanol/petrol mix.
In older vehicles, ethanol consumption was
limited with engines able to use between
20-25% in ethanol. Of course, Brazilian
JANUARY 2009
SUGAR TRADES
producers will make decisions based on the
product which gives the best return, be it
sugar or ethanol. However, even when the
global oil price makes ethanol less
attractive, the domestic market acts as a
solid foundation for demand. It is this fact
the ability for players to move between the
domestic and international markets that
gives the world market its fragmented
nature. If conditions are adverse, producers
can rely on domestic consumption; if
returns from trade are attractive, they can
make the most of the opportunity. The
conference heard that Brazils sugar
industry has a 5% swing factor on the
domestic/international axis.
The government of Thailand, which says
that the countrys market share of the
ethanol trade is around 10%, wants to
boost sugar production and, in particular,
the petrol substitute, ethanol. To that end,
it aims to boost the efficiency of its own
farmers, focusing on small-scale
agricultural units. Interestingly, a question
from the conference floor prompted the
secretary-generaal to say that the level of
education among this segment of the
agricultural industry was low in
comparison to the countrys bigger farms.
In the US, for example, farmers are
generally educated to degree level.
Having enjoyed a bull run, commodities
are now in bear mode following the onset
of the credit crunch and this change in
market direction is evident for sugar.
Whereas some 35 plants were expected to
come into production during the year in
Brazil, the commoditys main producer, the
actual figure for last year was 23. Similarly,
a prediction (of 43 new plants) for this year
has been scaled down to around the same
number as 2008.
Although the credit crunch is affecting
production, the global industry has itself
been in transition for some time. Part of
that change is to do with the emergence of
ethanol as a globally tradable commodity
which has brought with it an increased
focus on sugar. According to the US-based
Inter-Continental Exchange (ICE), talks are
under way to get sugar trades cleared. ICEs
chairman, Jeffrey Sprecher, said that they
were 14 months into the negotiations.
Cleared trades, which provide transparency
and better security on a reduced credit risk,
are sign of trade maturity would and their
emergence would be synonymous with
increased activity in the sugar trades.
Sprecher acknowledged that while sugar
JANUARY 2009
Global/Brazilian ethanol production

Billion Litres
90
80
70
60
50
40
30
Global
20
10
0
2000
Brazilian
2008
Source: Datagro,RRA, FO Licht
Thailand: destination of sugar cane crop (projections)

Million tonnes
100
90
80
70
60
50
2008/09
40
30
20
2009/10
10
0
total production
domestic demand
exports
ethanol
2010/11
Source: Thai Government
trading is volatile, it was always but has

been masked. He pointed to the impact of
news channels like CNN, where events are
globalised within seconds, so volatility is
to be expected.
Europe, like Brazil, is a major sugar
producer, although from beet rather than
cane. Until recent reforms were put in
place, sugar production within the
European Union was heavily subsidised.
This was reflected in sugars reference price
within the European market which was
usually above the global price for sugar. A
well-supported farming sector would
deliver surplus production which, when
dumped on the world market, led to a price
collapse and cries of unfair competition.
This, in brief, was the criticism of EU sugar
policy. Some countries outside the EU,
typically countries with a strong historical
connection with an EU member state,
exported into this market thereby
benefitting from the higher prices.
21
Under reform that has been in train for

three years, two things have happened.
Prices are lower and quotas for exports into
the EU have been curtailed. The EUs set
price, its reference price, has fallen by 36%
while the sugar beet price has fallen by
45%. The changes have lead to
restructuring for the farms and factories
producing the sugar beet. Some areas are
no longer farming, while others produce
less. Ireland, Portugal and Latvia, for
example, have all ceased sugar beet
production. The number of factories
refining sugar in the EU has fallen from 169
to 106 over the three years of adjustment.
Production is concentrated in the EUs
biggest producers which are France with 23
factories, followed by Germany with 20,
and then Poland with 19 units of sugar
refining plant. These changes have
implications for trade. With European
farms producing less, 6m tonnes have been
taken out of production. At the same time,
SUGAR TRADES
sugar imports into the EU will double from
2m to 4m tonnes. Imports of ethanol are
also increasing with much of that increase
57% coming from Brazil.
The conference heard that in 2008/09,
around 10% of agricultural land given
over to farming sugar beet will be
dedicated to producing ethanol. This
amounts to 140,000 hectares, a figure
which could rise to 260,000 hectares by
2015. Certainly, like Brazil and Thailand,
the EU aims to produce more ethanol going
forward.
Chairman of the Dutch company Royal
Cosun, Jos van Campen, said that if oil
remains at $50 a barrel, it will be difficult
to develop our ethanol market from where
we are now. However, he noted that as
technology improves, production costs
should fall. And he added that, in his view,
the connection between crude values and
bio-ethanol prices was overdone because
there are three, national markets [US,
Brazil and EU]. When a global market for
bio-ethanol is established, the connection
between crude, ethanol and sugar should
become stronger.
It is not happening now. It might
happen in the future, but, at the moment, it
is too far away. Maybe in five years time,
its possible, van Campen told the
conference. A further sign of the
under-developed nature of the ethanol
trade is the lack of a common trading
contract.
As the EU is now producing fewer
tonnes, filling the gap should be open to
other players was the view of
Karl-Friedrich Falkenberg, deputy director
g e n e r a l o f t h e c o m m i s s i o n s t r a d e
directorate. Currently, exporting into the
EU presents a complex picture. Potential
sugar exporters to the EU comprise three
groups: EPA, EBA and ACP countries.
These acronyms stand for Economic
Partnership Agreements, Everything But
Arms, and the group of African, Caribbean
and Pacific countries.
Under the sugar protocol, which has
now been superceded, ACP countries had
the most access. That access will be made
available to a wider group of countries.
In a good, sugar protocol year, 1.6m
tonnes of cane sugar was imported, said
the deputy DG. Between 2009 to 2015, this
could double or go even higher. Sugar
prices are no longer guaranteed, he said,
adding that until 2012, a floor price will be
maintained at 90% of the reference price.
World ethanol production (2008)
%
US
45
Brazil
34
China
India
France
Canada
Germany
ROW
10
Source: Datagro, RRA, FO Licht
EU: beet production and reform

Million tonnes
25
20
15
10
Pre-reform
5
0
production
imports
Post-reform
exports
Source: EU
Brazil: estimates for sugar cane production

Bn tonnes
1.2
1.0
0.8
0.6
0.4
0.2
0
2015/16
2020/21
Source: Unisa
After that, the market will decide.

Falkenberg added that he was optimistic
for progress on the Doha trade round.
Spurred on by the financial crisis and in the
context of the G20 meetings, there is
22
renewed interest in the Doha round.

We might see the implementation of the
Doha round sooner than we thought, he
said
Under EPAs, ethanol will be liberalised
JANUARY 2009
SUGAR TRADES
which means that any ACP country that
can will be able to export ethanol into the
EU market.
Looking ahead, Europe will have to be
green, said Falkenberg, which means a
bigger role for ethanol, and is good news
for sugar and the sugar-producing, ACP
countries. Inevitably, the changes have
increased tension between the EU and
those trading partners which have lost out.
An ACP working group has been
formed which will push hard for the
interests of countries such as Guyana,
where sugar accounts for 10% of gdp, and
Mauritius, where its 6%.
While reform has pushed the sugar trade
into a state of flux, the fundamentals
governing the market are little changed.
One hundred and sixty million tonnes of
sugar are produced annually; of that
number, around 40m tonnes are traded.
The two big players shaping the sugar
trade are Brazil and India. Crucial for
Brazils sugar sector is the real/dollar
exchange rate. Production costs in Brazil
have doubled in recent years, from 6 cents
a lb to around 12c/lb. This makes the
exchange rate that much more important
as the cost of production in Brazil has
moved closer to that of other, global, sugar
producers.
India has a domestic demand of around
22m tonnes a year. Sometimes, India will
produce more than this, say, up to 28m
tonnes, while at other times, fewer tonnes
come out of its farms. The principle reason
for this is to do with price. The global price
of sugar is determined by market forces; in
India, the price of sugar cane is set at the
level of regional government.
If the relationship between these two
prices is uneconomic, that is the global
price falls below the set price, farmers
understandably plant less cane. In times of
surplus, Indian exports can have a major
impact on the global market. Excess Indian
sugar when exported will depress prices.
The situation in the EU is interesting,
f r o m a t r a d i n g p o i n t - o f - v i e w. T h e
community has reformed its sugar
agreements. Before the reform, the EU used
to export 6m tonnes and import about 2
million tonnes. Post-reform, this picture
will be reversed with 4m tonnes imported,
and 2m tonnes of exports. This is quite a
change. Exporting to the EU are a number
of southern African countries, including
Mozambique, Tanzania, Malawi. This
trade would be primarily in raw sugar
JANUARY 2009
Sugar: global energy role ahead
which is easier to transport, since as cargo,

it can go straight into the hold of a bulker.
Refined sugar, however, is a higher value
product and classed as food, the transport
of which is governed by a stricter set of
regulations.
The optimum mode of transport for
refined sugar is by container. It can be
transported in bulk but requires specialised
tonnage.
The trading house ED&F Man, for
example, has a dedicated sugar ship. Of
course, while that is an advantage for the
company, on the backhaul the ship is often
empty. Refined sugar imports into the EU
are in the range of 1m tonnes. And since
many refineries are situated in the Middle
East, the cost of transporting this cargo
(from refinery to port) is not without its
problems.
In the last 12 months, there has been a
lot of hedge fund interest in the sugar
market, although this is now on the wane,
according to one market observer. Hedge
funds are synonymous with increased
volatility and even though funds have
exited the market, the volatility remains.
And with volatility comes hesitancy in
second guessing where the market will
lead. The same observer said that the sugar
price going forward could be anything
between 10c and 15c/lb, leaving a
significant margin for change.
C e r t a i n l y, t h e U S s u g a r s e c t o r i s
unhappy with sugars lacklustre price. Jack
Roney, of the US-based American Sugar
Alliance, said it pointed to the mismatch
between domestic and international sugar
prices.
Twenty-five per cent of sugar is traded at
23
10c a lb, while the other 75% is consumed

domestically at a much higher price. This
being so, it is easy to see how the role
allocated to ethanol by the conference
(assuming oil is above the bench mark $50
a barrel figure) is to be welcomed, at least
from a trading point-of-view. Pushing
against sugars bottom line are input costs.
The price of fertilisers, for example, is
rising even though the sugar price has been
weak historically, in comparison to other
agricultural commodities. If it wasnt for
our co-operative structure, we would have
had no beet planted last year, claimed
Roney.
As with the EU, the US sugar industry
has had to cope with changes brought in
under the North American Free Trade
Agreement (Nafta, 1994). A 15-year
transition period has ended allowing
Mexico unlimited access to the US market;
0.5m tonnes a year goes from Mexico to
US, he said.
Under the US 2008 Farm Bill, the
government has said it will purchase
ethanol surpluses. And as it does
elsewhere, ethanol acts as a safety valve for
excess sugar production in both the US and
Mexico. If theres too much Mexico sugar
going to the US, it can be sent back where it
would be turned into ethanol, explained
Roney.
The US sugar industry produces around
10m tonnes a year. If that figure falls below
8.5m tonnes, imports would fill the gap
with Mexico having first preference on the
US market.
From a shipping standpoint, sugar is
known as one of the minor bulks as it
represents about 2% of the overall trade in
dry bulk commodities. Typically, the
commodity is transported in handysize
vessels. There is, increasingly, a move for
cargoes to go in containers. Weak freight
rates have accelerated this trend as
containers offered an arbitrage
opportunity but with rates falling across
the dry bulk fleet, this has evaporated.
While they were in place, the high freight
rates gave an advantage to countries, such
as India, Australia and Thailand, exporting
to closer markets. For example, 96% of
Thailands sugar exports go to Asian
destinations. However, according to
shipping analyst Toby Cohen, or the
London-based trading house Czarnikow,
the new market reality favours sugars
biggest player, Brazil which is likely to
come back aggressively in those markets.
FUEL COSTS
Fuel for thought

Tough environmental
regulation and volatile
prices are causing the
bunker industry to
reassess the way it goes
about its business. Julian
Macqueen reports
he spike in crude values

early last year and
consequent big increase in
the cost of bunkers caused
consternation in the board
rooms of most shipping companies. Over a
six-month period, the price of industry
standard heavy fuel oil increased by 53%,
reaching $751 a tonne at Singapore in
August. The hike might have drawn howls
of protest but there was little they could do.
Whereas fuelling their ships usually
accounts for around a fifth of the budget
for a ships overall operating costs, the rise
meant that that proportion increased
dramatically to around 50%. But
shipping companies are not totally at the
mercy of market forces. They can mitigate
the impact of unexpected rises in bunker
prices through the bunker-adjustment
factor, where the extra cost is passed on, or
through hedging against price volatility.
Cruise operator Royal Caribbean, for
example, hedges about half of its fuel
burden while cruise giant Carnival does
not. In the latters case, rocketing bunker
prices saw the company cutting corners in
other ways; it delayed cruise newbuilding
projects in the US and instigated a major
restructuring of its luxury cruise brand,
Silversea.
In the ferry sector, Brittany Ferries lets
freight take some of the burden for higher
fuel costs by adding a surcharge per
shipment on different routes. Passenger
traffic is not surcharged.
Other strategies employed by ferry
companies include slow steaming and
axing unprofitable routes. But, while
shipping companies expect a degree of
volatility in bunker prices, last years climb
International bunker industry faces new challenges
was not of the usual order. So, why the

rise?
This is, in many ways, the easiest part of
the story to explain. Heavy fuel oil is a
crude-oil derivative and in that, the prices
of the two products are closely related.
This is illustrated in the stacked graphic on
the next page.
Reasons offered for the rising price of
crude last year were many, although
underpinning them were the fundamentals
of demand outstripping supply. But
whatever oil does, bunker fuel must follow.
There are, of course, other factors
affecting the heavy fuel oil price local
shortages, refinery shutdowns, material
diverted to road building but all roads
eventually lead back to crude.
The impact of the rises on company
operations has been significant as shipping
companies fingered increased fuel costs for
shaving millions of dollars of their bottom
lines.
Parcel tanker Stolt Nielsen, for example,
pointed to higher bunker costs for its
tanker fleet as eating into profits.
Although bunkers were not the sole culprit,
cost pressure pushed down gross margins
by 3.4% in the first half of last year,
according to the company.
24
Carnival said in its third quarter results,

the cost of fuel had risen by 84% compared
with the same period in 2007. Other
operational costs had also risen, the
company reported, but by a much smaller
margin.
If the shipping companies have had a
nasty, fiscal shock, the reverse has been
true for the bunker companies. Some of the
big players in the industry, the major
independents, did very well from the boom
in prices.
US-based World Fuel Services reported
$63.2m in profits for Q308, an increase of
42% compared with the same quarter in
the previous year. Likewise, earnings per
share increased from 53 cents to $1.38
over the period. The quarterly results also
s h o w h o w t h e c o m p a n y s b u n k e r
operations have performed. Turnover from
World Fuels marine activities grew by
50% while gross profit jumped by 133%.
It was a similar story for another big
bunker player, Chemoil. Third quarter
results from the company saw turnover
climb by 90% compared with Q307, while
profits managed a 118% rise over the
period. The company pointed to the
higher, average, sales value of marine fuel
compared with Q307. It is unlikely that
JANUARY 2009
FUEL COSTS
such strong results will run through to the
fourth quarter. However, the long term
view of the market seems to lean towards
seeing falling prices as an aberration rather
than the dominant trend.
Ceo of World Fuels Services Paul
Stebbins expressed as much at the bunker
industrys annual get together, Sibcon, held
in Singapore in October.
In a panel discussion, he told delegates
that in his view, fuel oil would remain a
scarce commodity. Demand is not going to
go away, he said, pointing to the rise of
Chinese urbanisation and the fact that new
sources of supply, such as oil from
Canadian tar sands will not happen
overnight; The supply/demand balance is
very tight, said Stebbins.
The softening of the market is
essentially a short-term thing. Speaking
before the financial crisis had really taken
hold, Stebbins said that it revealed the
vulnerability of the modern, integrated
economy prescient words, indeed.
Another effect of the high summer
prices was to concentrate bunker minds on
the issue of credit. It is common in the
industry for suppliers to grant a 30-day
credit line to pay a bunker stem. And since
bunkers had become, albeit temporarily, so
valuable, the risks around non-payment
had also grown. The concern didnt recede
as prices fell. Suppliers nervously scanned
the market for signs of companies buckling
under tight credit conditions. Of course,
price is a major concern both to buyers and
suppliers in the bunker industry but it
would be wrong to say it is the only big
theme.
Clyde Michael Bandy, Chemoils ceo
and chairman, shared the same Sibcon
panel as Stebbins, and offered similar
views. The cost of fuel will go up, Bandy
told the conference, adding that
de-sulphurisation the great bunker issue
going forward was also part of the rising
price picture.
Bandy argued that the nature of the
industry had changed. Shipping had been
the beneficiary of a disposable product that
has been one of the cheapest on the
planet, he said. But, with the advent of
cleaner fuel, all that would change.
From now on, dealing with distillates
and low sulphur fuel oil (lsfo) should bring
forward a new deal on storage, delivery
and infrastructure as the industry would be
moving a lot more material around the
world to meet demand in different
JANUARY 2009
Close correlation between fuel oil and crude oil prices

$/Tonne
$/Barrel
800
140
130
700
120
600
110
500
100
400
90
300
80
70
200
60
100
0
50
Mar
08
Apr
08
May
08
Jun
08
Jul
08
Aug
08
Sep
08
Oct
08
Nov
08
Dec
08
40
Singapore
HFO
UK Brent
Source: LSE/Market Reports
locations. Bandy called for shipping and

bunker companies to partner up on
these issues. Whether his call is heeded
remains to be seen.
Marpol Annex VI is the vehicle framing
future regulation. At its October meeting,
t h e I M O s M a r i n e E n v i r o n m e n t a l
Protection Committee agreed to the
annexs proposed revisions and to the NOx
Technical Code, thereby clearing the way
for tough new rules to limit the sulphur
content of bunker fuel and reduce NOx
emissions.
By 2020, a tariff of 0.5% sulphur for all
bunker fuel will be in place. Having been
passed by the committee, the revised annex
will need the support of the requisite
number of International Maritime
Organisation (IMO) member states for it
to come into force.
Controlling sulphur and NOx emissions
from ships is likely to be achieved through
a variety of means including regulation,
market mechanisms and by the application
of technology. While a regulatory system
might be agreed upon, it was just as
important that it carried a parallel scheme
of effective enforcement which was raised
as an issue by Bandy. As far reducing the
content of sulphur in fuel oil is concerned,
there are two solutions on offer.
Scrubbing is a method of removing
sulphur before it is released into the
atmosphere as exhaust.
This system carries the advantage of
allowing the ship to continue to burn
regular bunker fuel. On the downside,
theres the cost of equipment to be installed
on the ship. The alternative is to burn low
sulphur fuel oil. However, the concern here
is over supply.
25
Does the oil industry have the means to

supply the product in terms of volume and
geographical distribution? Some shipping
companies, namely Wilh Wilhelmsen,
adopted a low sulphur fuel oil policy in
advance of the change of regulations
proving to the industry it can be done. If
supply does become an issue, some
commentators have also rung alarm bells
on quality.
Given increasing demand and a
possible supply shortage, other products
and by-products may start finding their
way into marine fuels, writes Wanda
Fabriek in the magazine World Bunkering.
Fabriek, who is a consultant on fuel quality
and convenor for the bunker fuel quality
standard ISO 8217, can see that the
incentive to make a quick dollar will be
high. Add some spurious, waste material
to bunkers and its easy money. Indeed, the
last time Fabriek worked on producing the
standards third edition it was to stamp out
the practice of adding used lube oil to
bunkers. Fabriek has already noted
slipping standards. Lsfo is already
showing signs of deteriorating in quality in
some geographical areas, she writes.
Currently, she is working towards a fourth
edition of the standard which will address
environmental issues.
In one sense, the outlook for bunkers is
uncertain. Higher prices will combine with
environmental rules to force through new
practices. While the swirl of words around
g l o b a l w a r m i n g w i l l e b b a n d f l o w,
shippings fundamental role in world trade
remains unchanged. And it might well be
that, faced with such challenges, a new era
of partnership between shipping and
bunker companies will emerge.
NATIONAL SHIPPING COMPETITIVENESS
Measuring shipping
performance
Comparing the competitive
performance of different
national fleets is often a
subjective exercise
depending on who is doing
the assessing and for what
purpose. Here Owen
Nguyen* suggests a more
objective approach
urrent evaluations of the

performance of national
shipping are often
conducted on an ad hoc
basis focusing on individual
countries. They often link declines in
national fleets, especially in developed
economies, to lack of comparative
advantage, but there is no systematic
approach to evaluate the comparative
advantage of national shipping. This article
identifies country-specific factors that are
influential to variations in national fleet
across shipping nations and proposes the
use of a shipping competitiveness index in
monitoring and evaluating the performance
of national shipping fleets.
COUNTRY-SPECIFIC FACTORS
To date, globalisation, commitment to
bilateral trade agreements among countries
and intense competition have led to the
extensive deregulation and restructuring of
national shipping across countries in the
world. In parallel to this process there has
been a shift in national shipping policies
from protectionism towards promoting
international competition in the shipping
market. Despite this, shipping remains
important to national economies due to its
contributions to national output, export
revenue, employment, national security and
support in cases of emergency and disasters.
These suggest that a maritime policy is still
imperative if shipping is to play a more
significant role in the national transport

system and trade.
From the perspective of national
shipping, while shipping nations have
virtually full access to sea freight and input
markets, their shares of world tonnage
differ by great amounts but also vary over
time. The five largest owned fleets of
Greece, Japan, Germany, China and the US
account for more than 50% of the total and
continue to dominate the worlds shipping
in terms of tonnage they truly own. In
addition, the top 20 largest shipowning
nations account for about 80% of the
worlds total fleet.
On the other hand, between 1980 and
2006, the percentage share of world
tonnage registered by developed countries
declined from 50% to 26%. It has been
widely argued that the decline in national
shipping of many developed countries was
attributable to their loss of comparative
advantage, and intense competition has
forced many shipping nations, such as
Australia, UK and Norway, to review their
shipping policies and to innovate in order to
survive and grow in the global markets.
While shipping markets are highly
international and competitive, this does not
necessarily mean the development of
national fleets is completely independent of
country specific factors. A more systematic
approach to the evaluation of the
comparative advantage of national shipping
could be based on the analysis of the impact
of country specific factors on national
shipping.
SHIP FINANCING
The first factor concerns the relationship
between shipping and ship financing. The
capital-intensive nature of shipping business
necessarily requires a close relationship
between shipping service supply and ship
financing. Shipping has until recently relied
almost exclusively on commercial bank
financing for its external capital needs.
However, regardless of the financing
26
method used, bank loans, new shares

issuing or leasing, the development of the
financial system plays a critical role in
supplying financial resources to the
shipping industry. It has been shown that
the development of the financial system is
correlated with investment, efficiency of
physical capital exploitation and economic
development. Development of the financial
system is conducive to investment because it
allows investors to manage risks more
effectively by trading in derivatives markets,
improving transparency and monitoring
co mp an ies a ctiv itie s and fi nanci al
transactions. Development of the financial
system also influences the liquidity of
financial assets of shipping companies.
Investors would not want to invest their
money in shipping unless its financial assets
are easy to trade or convert into cash when
needed. Furthermore, specialisation and the
use of information management
technologies lower the costs of financial
transactions, and the development of the
banking sector encourages public savings
thereby increasing the supply of funds. This
allows shipowners to adjust more quickly to
changes in the shipping market.
Figure 1 shows a correlation between
national tonnage in natural logarithm and
financial development. Despite
heterogeneity of national fleets among
countries in the early stages of financial
development, the figure shows a positive
relationship between national fleet capacity
and financial development. Note that this
shows only a partial relationship and does
not take into account the effect of other
variables on national shipping. At best, the
actual relationship between the variables
should be evaluated through estimation of
multiple-variable equations.
The second factor is external trade.
There are many reasons why growth of a
countrys external trade could be conducive
to national shipping. First, exporters and
importers may want to invest in their own
ships so as to be independent of market
fluctuations when trade intensifies. Second,
JANUARY 2009
regular exporters and importers often want

to establish close relationships and have
direct contracts with local shipowners, who
not only share the same culture but also
have better knowledge about the types of
cargo coming in and out of the country as
well as cargo operations and practices at
local ports. These enable them to lower the
freight rates and hence become more
competitive.
Third, many local shipowners may also
gain competitiveness over foreign
shipowners (in the local market) because it
is easier for them to run and manage their
own ship agency services at local ports. In
addition, shipowners tend to look at the
local economy for business opportunities
first before looking elsewhere in the world
market; they respond better to fluctuations
in the local economy, about which they have
the best knowledge. From a policy
perspective, the above mentioned effects
could be even stronger under the 40:40:20
rule of the Unctad Code of Conduct for
Liner Shipping or if the government
enforces policies to protect the national
fleet. The development of the worlds
leading maritime nations such as Greece,
UK and Japan, at different points in history,
was mainly supported by active
participation in international trade. It is
irrefutable that Chinas strong growth in
exports is the driving force behind the
development of its shipping industry. It is
evident that there is a strong, positive
relationship between national fleet capacity
and external trade.
Many country-specific factors such as
taxes, registration fees, regulations on the
nationality of crew, the minimum-wage
JANUARY 2009
law and safety standards have direct

impacts on the costs of shipping operations
and hence shipowners decisions regarding
the vessel flag.
Research published by Hoffmann,
Sanchez and Talley in 2005 found evidence
that higher wages and safety and labour
standards may scare ship operators away
from national registries. Further, operators
from developed countries are most likely to
choose a foreign flag because this allows
them to remain competitive in a business
environment where developing countries
might otherwise have a competitive
advantage due to lower wages and, perhaps,
less stringent safety and environmental
standards.
In 1990 Verbeke and Winkelmans noted
that countries with weak comparative
advantage, such as European traditional
maritime countries, often see high rates of
shipowners flagging out in order to remain
competitive in the world market. Flagging
out continues to provide a strong
commercial attraction to shipowners in
high-cost traditional shipping nations.
Given this, shipowners decisions to flag out
should reflect, relative to the world market,
the cost advantage of their countries of
domicile. There is a strong, positive
correlation between national tonnage and
registered tonnage. There is an exception of
open registry countries such as Panama and
Malta that attract a substantial amount of
registration so that the worlds total
tonnage by country of domicile is equal to
its total tonnage by registration.
The fourth factor that can affect national
shipping is shipping policy. Theoretically,
policies on issues such as safety standards,
27
ship design, environmental protection,

subsidies, allowances, competition, and
crew employment and management could
have mixed effects. Shipping policies and
regulations often aim at a higher safety
standards and better shipping service
quality, which are expected to improve the
com p ara tive ad vantage of national
shipping. However, strict safety regulations
and standards often require higher costs due
to equipment, maintenance and crew
training and qualifications that tend to
make national shipping less competitive.
Despite heterogeneity, there is a positive
relationship between national shipping
capacity and shipping policy.
The fifth factor, the development of the
shipbuilding industry is also expected to
have a positive effect on national shipping.
The group of 41 shipbuilding nations
currently dominates the world shipping
industry with its share of the worlds total
tonnage. There is a positive relationship
between fleet size and the output of the
shipbuilding industry of the 41 shipbuilding
nations in the world. One notable exception
is at the top of the list. The Greek fleet,
apparently, is less affected by the presence
or otherwise of Greek shipbuilding.
The next variable, shipping history or the
development of the shipping industry in the
past, reflects the pool of seafarers, skills and
experience in navigation, management,
regulation and shipbuilding technology that
often could not be obtained in a short
period of time.
Countries with a long shipping history
such as Greece, Japan, UK and US
continue to play a significant role in world
shipping, although the influence of their
historical development may have
diminished under fierce competition from
emerging shipping nations, such as China
and South Korea. Shipping history may also
reflect factors peculiar to the country itself,
such as its strategic geographical location
and the vital role of shipping to trade and
production, as in the case of the UK,
Portugal and Spain, which relied on their
own fleets to serve production and trade
with their colonies.
Due to the limited availability of
cross-country information on the history of
national shipping, data for national fleets
for the year 1977 were used as a proxy for
the shipping history variable. There is a
strong positive relationship between current
national shipping capacity and its value in
the past.

The other two country-specific factors
that may affect national shipping are a
countrys access to the sea and the overall
level of technological advancement.
Measuring if a countrys access to sea, based
on its coastline length and technological
advancement, measured by GDP per capita,
are in fact influential to its shipping
industry. This research shows that both
figures exhibit positive relationships
between variables as expected.
SHIPPING COMPETITIVENESS INDEX

The comparisons in the table are useful for
the purpose of observing partial
relationships between national shipping and
country-specific factors, including external
trade, cost advantage, shipping policy,
shipping history, shipbuilding, access to sea,
the overall level of technological
advancement, and the development of the
financial system.
Based on the information on these
variables, we can compute a Shipping
Competitiveness Index (SCI), a composite
index showing the comparative advantage
level of a countrys shipping environment
can be computed using regression analysis.
Data for 84 countries were used in the
study. The national fleet is the deadweight
tonnage of its truly owned merchant fleet.
This includes ships of 1,000 grt and above,
collected from Lloyds Register Fairplay
(2005).
The total values of stocks traded as a
percentage of gdprepresenting for the
development level of the financial system
were collected from World Bank (2007).
Shipbuilding capacity is the orderbook by
nationality of owner from Lloyds Register
Fairplay (2005). Data for registered tonnage
for 1977 published by UNCTAD (1977)
were used to represent the shipping history
variable. Data for the shipping policy
variable were adapted from the
International Maritime Organisation (IMO)
(2007). Cost advantage is represented by
registered tonnage of merchant fleets, whose
data were collected from Lloyds Register
Fairplay (2005).
External trade is the value of country
merchandise trade including exports and
imports. Since the external trade varies from
year to year, average merchandise trade over
the three years 2000, 2001 and 2002 was
used with the data collated from the
database of the World Trade Organisation
(WTO) (2006).
Shipping Competitiveness Index of 84 Shipping Nations

Country
Fleet Size
Ranking
Competitiveness
Index
Albania
Algeria
Angola
Argentina
Australia
Azerbaijan
Bahamas
Bahrain
Bangladesh
Belgium
Brazil
Bulgaria
Canada
Chile
China
Colombia
Croatia
Cyprus
Denmark
Ecuador
Egypt
Eritrea
Estonia
Finland
France
Germany
Greece
Guyana
Iceland
India
Indonesia
Iran
Italy
Japan
Jordan
Kazakhstan
Kenya
Korea
Kuwait
Latvia
Lebanon
Lithuania
78
48
52
45
33
54
49
71
53
16
29
37
23
38
4
69
31
34
11
60
43
79
59
39
27
3
1
82
58
14
22
18
13
2
51
73
80
8
25
40
55
57
71
33
66
35
30
51
61
68
56
23
24
36
20
42
6
59
37
49
39
55
43
84
62
29
16
4
10
80
78
14
31
11
8
1
69
74
81
9
21
48
60
47
Country
Madagascar
Malaysia
Malta
Mexico
Morocco
Myanmar
Netherlands
New Zealand
Nigeria
Norway
Oman
Pakistan
Panama
P.N.G
Peru
Philippines
Poland
Portugal
Qatar
Romania
Russia
Saudi Arabia
Seychelles
Singapore
South Africa
Spain
Sri Lanka
Sudan
Sweden
Syria
Taiwan (China)
Thailand
Trinidad & Tobago
Tunisia
Turkey
Turkmenistan
Ukraine
UAE
UK
US
Uruguay
Viet Nam
Fleet Size
Ranking
Competitiveness
Index
81
19
75
44
63
62
20
66
41
6
83
46
72
74
61
26
36
47
56
50
12
15
70
10
65
28
64
76
21
42
9
30
84
67
17
77
32
24
7
5
68
35
82
27
57
25
52
64
13
54
41
5
72
50
73
77
65
26
38
44
46
45
3
17
76
7
58
18
63
79
28
53
15
32
75
67
19
83
34
22
12
2
70
40
Source: Author
GDP per capita from the International

Monetary Fund (IMF) (2006) was used as a
proxy for the overall level of technological
advancement. Data for countries coastline
length were adapted from Pruett and
Cimino (2000). Data for oil export and
import values were collected from EIA
(2007). Since there were complete data for
84 shipping countries, the competitiveness
index was computed for only these
countries. The table shows SCI for 2005 for
these 84 countries.
EVALUATING PERFORMANCE
The shipping competitiveness index could
be used to assess the comparative
advantage of national shipping, and the
comparison of the actual ranking of
28
national shipping (in the first column) and

competitiveness index (in the second
column) reveals the performance of the
national fleet. For example, Australia seems
to have been somewhat underperforming as
indicated by the gap between its actual
ranking and the index of 33 and 30 respectively. The result reported indicates that
countries, such as Japan (2; 1) and the US
(5; 2) were performing as expected, given
their competitiveness, while Greece (1; 12)
and the UK (7; 12) seem to have been outperforming themselves. The large gap
between the actual and competitiveness
index may indicate a downsizing
adjustment fo the fleet in the future given its
competitiveness.
*Hong-Oanh (Owen) Nguyen, Australian
Maritime College, Australia
JANUARY 2009
SHIPPING INVESTMENT
Investing safely
As sources of funds for
shipping investments
become harder to find and
investors are looking for
security, Stephen
Matthews outlines one
shipping fund that is
adopting a different
approach to meeting
investors preferences
hipping banks are keeping their

funds under lock and key with
little sign that 2009 will see
those shackles loosened to any
significant degree. Private funds
are one possible alternative option for
finance, although the volumes of funds are
relatively limited. On the other side of the
equation investors are looking for secure
opportunities in the face of low interest
rates and more risky investment profiles in
general but including in shipping where
vessel earnings have dropped sharply in dry
bulk and containership sectors in
particular.
Investors considering putting their
money into funds dedicated to shipping are
therefore understandably cautious and
fund managers need to persuade them that
their particular fund can meet their
requirements. One fund has adopted a
flexible approach towards investors and
where their money is applied. LSE spoke
with Safe Ship Investment Funds chief
executive officer Leo Polemis about its
strategy.
INVESTMENT FUND
Safe Ship Investment Fund was first
established in April 2007 and is part of Safe
Ship Capital Partners, which acts as fund
manager. It is registered in Luxembourg as
a SICAR tax efficient structure. This
means that capital gains on asset sales are
exempt from tax in Luxembourg. It is
JANUARY 2009
Leo Polemis, CEO Safe Ship Investment Fund
designated as a pre-listed fund and has the

option of publicly listing in Luxembourg.
Safe Ship is an open -ended fund with
variable capital inputs.
It has an overall duration of up to nine
years, comprising a primary seven-year
investment term, plus a further two year
grace period where liquidation can be
timed to maximum benefit of investors. A
NAV calculation is published for investors
twice a year (see table). Dividencs are
payable semi-annually after the fund has
been in operation for 18 months.
Its overall investment strategy is to
develop a diverse portfolio across a number
of shipping sectors to avoid as far as
possible correlation between market cycles
and trends and therefore spread risk. It is
also looking to take advantage of good
deals that might become available as ship
values have fallen.
On recent and upcoming shipping
market prospects, Polemis said: In the
short-term the recent performance of
shipping looks grim, but shipping is a
long-term business and it will pick up, but
at present no one knows when. But the
current environment also creates
opportunities.
We are looking to create a balanced
portfolio between volatile and less volatile
sectors. There has been a big correction in
ship values so there are good opportunities
to buy and it is safer than a few months ago
29
when values were at their peak, the ceo

observed.
The Safe Ships fund is administered by
Societe Generale in Luxembourg. The fund
has two anchor partners. Its owned ships
are managed by ship management
company Remi Maritime Corp, where
Polemis is also a senior executive. Its
banking partner is Fortis in the
Netherlands, a bank that recently became
owned by the Dutch government as part of
wider banking rescue deals.
Polemis said that the investment strategy
is to acquire modern vessels and employ
them on long-term time charters.
Investments are based on detailed macro
and market sector economic analysis and
individual vessel characteristics to get a
portfolio spread among sectors with
limited correlations.
This involves a disciplined approach
for finding investments that have
quantitative and qualitative advantages
over other investments using a thorough
analysis of long-term fundamental trends
and economic indicators affecting global
seaborne trade. Rigorous asset selection is
based on quantitative models, vessels
commercial and technical characteristics.
Safe Ships business model is based on
the premise that scheduled newbuilding
deliveries will generated increasing NAV,
with investment units trading at NAV. It
will create a diversified fleet with fixed
employment using a straightforward
operating and chartering strategy.
INVESTMENT
In 2007 the fund bought two capesize bulk
carrier newbuilds for $80m each. Later that
year they were sold for close to $100m
each. That represented a significant return.
Arguably, holding on to them a bit longer
could have yielded even bigger returns, but
the risks of values crashing increased, as
eventually happened in late 2008, and
Polemis expressed satisfaction at the profit
made on those vessels as providing an early
boost to a new ship investment fund.
Current investments include two
supramax bulk carriers, two chemical
SHIPPING INVESTMENT
tankers, a small bunkering tanker, a car
carrier and an offshore support vessel,
demonstrating the diversity of its
investments. For the two chemical tankers
the fund has the option to convert its
participation in the Special Purpose
Company into shares in Empire Chemical
Tanker Holdings, another Polemis Group
company with a current fleet of 19 vessels,
where Polemis is CEO. This company is
looking at a possible Nasdaq listing in the
future.
This current fleet of seven ships is set to
expand gradually during the next two to
three years. Polemis indicated that it would
reach 11 ships by 2011 taking a
conservative view. The funds first
offering was in April 2008 and raised some
$40m.
The second offering is intended to raise
a further $50m, which it says will be used
for cash reserves, debt repayment and
equity financing. The minimum
subscription price for investors is
$250,000.
According to the funds prospectus the
size of the leveraged fund is between $120
and $400m. Expected annual dividend
return is 7% on paid-in equity with an
expected overall annual return of 15%
after allowing for residual value when
assets are liquidated. A fund management
fee is set at 2% of fund NAV, to be paid
semi-annually and a Success fee is 20%
of profit above the yearly compound rate
of return of capital invested of 12%.
OPPORTUNITIES
Polemis said the fund is actively looking at
opportunities for new investments in 2009
including distressed sales. Indeed, he
confirmed to LSE that Safe Ship plans to
create a new Distressed Fund to raise about
$200m.
Safe Ship has identified opportunities
for distress sales, especially in dry bulk and
chemical tankers, with an estimated return
of 35% based on purchase at devalued
prices and sustainable employment
opportunities. For investments niche
sectors, such as offshore support services,
with credible counterparties returns are
estimated at 15%.
Its declared investment objective is the
provision of capital growth and regular
dividend payout over the long-term
through selective shipping investments.
Focus is on developing a modern high
Safe Ship Investment Fund current fleet

Vessel
Type
Capacity (dwt)
Delivery
Employment
Blue Marlin
Blue Cat
Picacho
Malmo
Madeira
Hulls 713-6
ST 254L
Hull 1145
Hull 1146
Supramax
Supramax
Bunker tanker
Chem tanker
Chem tanker
PCTC
CSV
Capesize bulk
Capesize bulk
57,000
57,000
4,500
20,000
20,000
4,900
5,700
177,000
177,000
Nov-08
Mar-09
Jul-08
Aug-08
Nov-08
2009-10
2009-10
Aug-10
Nov-10
3 yr t/c
3 yr t/c
2 yr t/c
7yr t/c
7yr t/c
15yr t/c
Open
Sold
Sold
Ownership Estimated Return (%)

100%
100%
100%
49%
49%
50%
49%
100%
100%
25%
25%
30%
20%
20%
15%
35%
55%
50%
Source: Safe Ship
quality fleet with commercial specifications

that will enhance the funds performance. It
aims to achieve best capital budgeting and
cash flow stability through high levels of
fleet employment secured through period
cover and build a diverse portfolio of ships
with preference to niche sectors in order to
protect investor value from market
fluctuation.
Raising finance at present is
challenging, but there are good long-term
opportunities, he said to LSE.
Safe Ship Investment Fund

NAV Calculation end 2008
Existing vessels
122.5
Construction in progress
Contract value
Charter adjustment
Total asset value
Cash
Debt
Net debt
NAV
79.8
12.9
34.5
249.7
15.4
212.5
197.1
52.6
Note: market values are charter free
UNIQUE
ASPECT
What Polemis claimed is a unique aspect of

Safe Ship from an investors point of view is
the profile of its shares. It offers different
classes of shares, depending on the
preference of investors. They can invest in
the main Fund Blue Sea Ship Capital,
which in turn invests in ships in various
sectors. Or, they can choose to invest in one
particular sector through segregated ship
holding companies such as bulk carriers,
chemical tankers etc. The ceo said that the
business model enables investors to
construct their own shipping portfolio,
with different classes of units, offering
greater potential for value creations and
spin offs.
Blue Sea invests in all shipping markets
where it has a presence. PCTC Invest offers
low volatility and asset appreciation.
Bunker Invest is a niche sector not directly
affected by freight market volatility.
Offshore Invest is correlated to oil prices
and production. Although the immediate
market outlook is challenging in many
shipping sectors for 2009 in the long-term
it offers a balanced picture.
This approach gives opportunities for
paper trading and arbitrage without stock
market volatility of investing directly in
listed shipping companies. Polemis said to
LSE.
30
Source: Safe Ship
Safe Ship Investment Fund

Estimated Financials
2008
2009 2010
2011
Fleet (ships)
7
10
11
Revenue ($m)
5.1 35.9 48.9
Opex ($m)
1.09 6.4 9.05
Ebitda
4.05 29.4 39.9
Net income
2.02 18.9 23.4
Net profit margin (%)
39
52
48
11
58.1
10.9
47.2
26.1
45
Source: Safe Ship
Factfile: Safe Ship

Capital Partners
Address
8-10 Paul Street, London EC2A 8JH
Tel: + 44 20 7426 1155
Fax: +44 20 7426 1156
Email: info@safeshipfund.com
Website: www.safeshipfund.com
Management
Chairman Panagiotis Gennimatas
CEO Leo Polemis
CFO Themis Kalapotharakos
Fund Custodian Societe Generale Bank &
Trust, Luxembourg
Banking partner Fortis Netherlands
Auditor Price Waterhouse Coopers
Regulator Commission de Surveillance du
Secleur Financier. Luxembourg
JANUARY 2009
TURKEY CONFERENCE REPORT
Riding the storm

At the Turkish Shipping
and Ship Finance
conference held in
Istanbul, delegates noted
that financial crises are
nothing new in Turkey.
Stephen Matthews reports
on how Turkish owners
are responding to the
current downturn
oving on from the

decidedly downbeat
sentiment evident at
the LSE London
conference earlier in
t h e m o n t h , t h e Tu r k i s h m a r i t i m e
community appeared relatively less gloomy
about how the economic and shipping
downturn would affect them. Whether that
positive take was down to genuine
optimism that they are in a good position
or if it simply represented a degree of denial
and distance was a matter of some debate
among delegates outside the main
conference proceedings.
A common view was that as most of the
problems were caused by developments
outside shipping there was not much they
could do but sit tight, control costs and
wait for things to improve. Not everyone,
however, was so sanguine.
Conference chairman Lucien Arkas,
president Arkas Holdings, in his
introduction said: Shipping is suffering the
consequences of problems in other markets,
such as finance, but there are also some
shipping industry problems, such as crewing
and shipbuilding capacity.Commenting on
the prevailing uncertainty as to where
shipping markets might settle he quipped:
There are a number of religious holidays
approaching such as Christmas and the
Chinese New Year, so everyone should go to
the beach and see where we are after that.
Sarahan Ozel, and economist at Turkish
bank Denizbank warned that As an
economist there is a danger of talking the
JANUARY 2009
market down by presenting a gloomy

picture. Interestingly, he likened what is
happening globally to what happened in
Turkey in the past: It has resulted in the
distortion of banks balance sheets and has
similarities with the financial crisis that
took place in Turkey in 2001, which had
the same effect on finance spreads and
lending. Developed countries dont often
see such a scenario but when it happens so
widely it is very destructive.
Recep Bastug, head of ship finance at
Garanti Bank, which has a 55% share in
Turkish ship construction finance and
exposure of about $120m of post-delivery
finance involving 10 vessels, said that
Turkish banks have limited ability to lend
and compete for post-delivery finance.
Most activity is for pre-delivery finance for
ships built in Turkish yards.
Financing will become more limited to
projects backed by contracts with higher
equity ratios and higher finance costs. We
will continue to support existing and
appropriate projects but we will be more
cautious.
Ozel related that the final phase of
restoring the financial situation is
deleveraging, which creates problems for
retail and commercial sectors as banks
reduce lending to restore their
capitalisation. Having lived through the
Turkish economic crisis I know that there
will be new engines of growth and recovery,
but it may take some time. The economic
recession could last through 2010 until
confidence starts to return.
Oral Erdogan, Professor of Finance and
an economic advisor to Turkish Chamber
of Shipping, said that after two to three
years there will be a new boom, starting
with smaller sized vessels, as they are less
imbalanced. A new boom will generate new
opportunities for Turkish maritime
industries, which will be in a strong
position to take advantage.
World trade will slow down and even
shrink in 2009 with an impact on port
traffic and there will be shipping company
casualties with bankruptcies and
consolidation. But after 2009 the recovery
should benefit surviving healthy shipping
31
companies and ports that have invested

appropriately.
Responding to a question on how the
Turkish banking system is faring amid the
global financial crisis, Ozel commented:
So far, so good. The Turkish economy
does not have excessive leverage as there
was never the same trust in the domestic
financial system as in many developed
countries, so it was much more risk averse.
Turkish banks leverage is much less than
many western banks, but there will still be
some de-leveraging in Turkish banks and
they will try to reduce dependence on
foreign savings as they have less ability to
borrow from overseas. Foreign banks
activity in Turkey has increased, so their
position will be important and will have an
effect in Turkey. Turkish public sector
banks are the least leveraged of all.
Following the Turkish banking crisis in
2001, the Turkish banking system is now
more secure due to measures imposed at
that time to avoid a repeat, such as creation
of an insurance fund. Turkish banks are not
exposed to toxic assets as are foreign
banks.
Sualp Urkmez, managing director of
Furtrans, said that while Turkish banks are
continuing to fund ships building in Turkey,
there is an issue regarding foreign banks
funding of post-delivery finance.
Rory Hussey, head of syndicated lending
at ING Bank, told delegates: It is difficult
for banks to assess what their true cost of
funds is, which causes problems in pricing
loans to owners and other borrowers. The
question is what happens in 2009. There is
most likely only going to be a gradual
reopening and wider economic impacts are
still to hit, such as corporate losses and
failures.
Banks are looking at their shipping
portfolios and stress testing, with the
emphasis on avoiding bad loans. Some
banks will exit shipping. The offshore
status of shipping is now a downside from a
financing point of view. There are big
questions over financing the orderbook and
there is likely to be a big shortfall for the
banks ability to fund the requirements.
There are likely to be cancelled orders due
TURKEY CONFERENCE REPORT

to finance problems. Some owners will
increase their cash equity contribution. He
suggested that in 2009 pricing of loans will
continue to rise and is likely to be 200-300
bps. There will be shorter tenors, typically
five years post-delivery.
I do not see any improvement in the
availability of finance for shipping through
2009. Shipping finance is well down the
priority list for banks when funds do
become available. For banks with
government stakes, non-domestic shipping
finance is a low priority. There is little
prospect for new financing for un-funded
orders, but banks will stand by existing
commitments for newbuild financing.
DONT PANIC
Sadan Kaptanoglu, managing director of
Kaptanoglu group, addressed how Turkish
owners can best weather the economic
storm. Turkish owners face the same
challenges as other owners worldwide. The
financial crisis has affected the backbone of
everything we do. I would describe it as an
earthquake and the ground is still shaking.
But it is important that we do not panic or
else a tsunami may follow.
There are a number of basic things we
as owners can do. Financing will return to
basics with traditional tools and risk
management. Control costs, talk to your
banks, review newbuild orders. The real
problem is how long it will take to recover
and how many owners can hold on until
then, she said.
This is different from previous shipping
crises as the causes are from outside
shipping. We need to look at options but we
must consider carefully with our partners
banks, shipbuilders, charterers etc before
making decisions. Decisions made quickly
in panic are often wrong decisions.
C h a r l i e Ve n n e f r o m s h i p b r o k e r
Galbraiths told the conference that
owners should keep an open dialogue
with banks. Banks future lending will be
affected by how you performed in a poor
market. Owners should avoid over age
tonnage, even at bargain prices, and
diversify their fleet profile.
Jeremy Penn managing director of the
Baltic Exchange outlined the impact of the
dry bulk market collapse on freight
derivatives and the findings of a special
meeting held at the Baltic the day before.
He said that the main message for both
paper and physical trades is that not much
can be done about market movements but

players must meet their obligations and not
seek to re-negotiate due to market changes
and accept that there will be winners and
losers. He said that most major charterers
are adamant they will stand by their charter
obligations.
Lawyer Seyma Inal said that she has seen
a big increase in mediation work for
contracts between banks and owners and
shipbuilders regarding re-negotiation and
cancellations, rather than for negotiating
new contracts.
Janos Koenig, managing director of
finance consultant Eurofin warned that
Owners cash position is variable but
unknown. Banks could end up being larger
equity owners of shipping, whether
willingly or not.
Conference chairman Arkas reminded
delegates that banks priority must be to
finance industry and trade, as this is
essential to provide cargoes for shipping.
Otherwise the shipowner has no business.
Arkas speaking about his sector of
interest, the container market, observed
that regional trades such as intra-Asia and
Med-Black Sea tend to be overlooked but

are growing in importance.
The volume of Black Sea container
trades will be about 1.2m teu this year,
compared with about 400,000teu just two
years ago. This growth has been generated
by big investments in port facilities and
terminals with many ports having further
plans for expansion, so the potential
capacity will increase to several million teu.
When the recovery starts we need to be
prepared and ready to develop projects,
although financing is difficult at present. I
expect to see some sign of recovery during
the first half of 2009.
While market conditions remain
difficult slowing trade to the Black Sea and
reduction in volumes will lead to
consolidation of services and lower
frequency. There will be further shrinking
of services and downsizing of ship sizes,
reversing the previous trend.
In some ways expansion was too quick
and the economic pause will give time for
Black Sea ports to build up their
infrastructure for larger ships. The current
problem is lack of cargo.
Delegates opinion
The results of the poll of delegates opinion conducted during the LSE Ship Finance and
Investment conference in Istanbul confirmed the generally negative sentiment that is
prevailing widely. However, the findings were slightly different from those in London a
couple of weeks earlier in that the degree of pessimism was less marked.
How do you see the prospects for financial performance of Turkish shipping for the next 12
months compared with the past 12 months?
London 2008
Turkey 2008
Much Better
0%
0%
Better
8%
0%
Same
8%
5%
Worse
64%
50%
Much Worse
20%
45%
Will the availability of funds for shipping investment in the next 12 months be?
London 2008
Turkey 2008
Much Easier
0%
0%
Easier
5%
4%
Same
8%
6%
Tighter
41%
30%
Much Tighter
46%
60%
What are the main constraints on the growth of Turkish shipping?
Lack of Finance 60% Lack of Government Support 22% Shortage of Seafarers 10%
Lack of Competitiveness 4% Regulatory Restrictions 4%
Where will most finance for Turkish owners investing in shipping come from?
Turkish Banks 33% Foreign Banks 41% Private Equity 8%
Public Equity 0% Owners Cash 18%
32
JANUARY 2009
COMPANY ANALYSIS
Facing the future

Singapore-based Neptune
Orient Line and its
container line brand APL
is introducing measures to
address the rapidly
deteriorating market
conditions. Stephen
Matthews outlines their
strategy
NOL finance
$m
300
250
200
150
100
3Q08
50
0
ontainer lines are facing an

extremely challenging time
ahead with demand growth
slowing much faster and
further than was forecast
and on some major trades exhibiting
outright contraction. At the same time they
face a looming influx of new capacity, most
of it comprising large post-panamax vessels
with limited deployment options. Leading
operators are employing all their
management skills to optimise their
financial performance in such
circumstances without damaging their
ability to be in a position to benefit when
recovery comes.
This article looks at how one major
containership company, Neptune Orient
Line (NOL) and its container line brand
APL, is dealing with these multiple
challenges. In some ways its task was made
slightly easier by the failure of its bid earlier
this year to acquire German container line
Hapag-Lloyd. NOL finally withdrew its bid
in the face of a rival German bid which
gained domestic support. This saved NOL
some approximately $5bn, which it would
have had to finance at a time of increasingly
tight funding availability and at a time
when the whole industry is facing such a
difficult time. It might conclude that at the
present time making such a huge
commitment with the enormous costs and
problems of integrating two such major
organisations was a step too far and have
some relief that it did not go through.
Nonetheless, there is a widespread view that
further consolidation in the liner sector is
JANUARY 2009
Net profit
Ebitda
Ebit
3Q07
Source: NOL
inevitable, especially as some lines may

struggle to deal with the financial pressures,
and NOL remains a prime candidate to
expand through m&a if the right
o p p o r t u n i t y c o m e s a l o n g . N O Ls
controlling ownership through Singapore
government-owned holding company
Temasek, gives it a powerful platform on
which to grow. It has been publicly listed in
Singapore since an IPO in 1981and
therefore has to satisfy a diverse range of
shareholders. Its next major milestone was
the 1997 acquisition of APL, which then
became NOLs global container service
brand and elevated its status in the global
container industry hierarchy. APL Logistics
is another brand that is part of the group.
While APL is the market facing brand, NOL
remains as the investor facing listed holding
company.
According to Containerisation
International statistics NOL/APL ranks
seventh among global container carriers in
terms of shipboard capacity with a fleet of
some 128 ships aggregating 473,157teu. Of
these 34 ships are wholly owned, with the
rest on various forms of charter. Its largest
vessels are a series of 8,100teu capacity
ships in the process of being delivered. It has
some 27 ships due for delivery in the three
years from 2009 through 2011, a mixture
of owned and long-term chartered in ships.
These include eight large boxships of
10,000teu on order for delivery from 2011
33
for deployment in the Asia-Europe trade, so

it has no immediate problem of finding
deployment for a significant number of new
ships, as is faced by some of its competitors.
Other ships due for delivery include five
ships of 7,000teu and a quartet of 4,308
ships all due for delivery in 2009. This year
it has completed delivery of a series of
6,350teu ships.
In 2003 the group became a wholly
dedicated container and logistics company
with the sale of its tanker owning interests
in American Eagle Tankers to MISC.
REORGANISATION
NOL president and CEO Ron Widdows
only took over the mantle as NOL CEO in
July 2008 when he replaced Thomas Held
who resigned suddenly. In August the new
CEO was joined by another new senior
appointment Eng Aik Meng as president of
its container operation APL, coming from
another Singapore shipping group IMC
Corp. The new senior executive team,
together with cfo Cedric Foo faced
immediate challenges and tough decisions
as the recession took hold.
As part of its cost cutting strategy in the
face of adverse global economic and trade
conditions NOL decided to cut some 1,000
jobs from its global organisation, which
hitherto employed about 11,000 staff. The
majority of these losses will be felt in the US
COMPANY ANALYSIS
where the company is to close its
longstanding headquarters in Oakland,
California and relocate it in a more cost
effective location in the US. Some 340 staff
are employed at its Oakland office, though
some are expected to be re-located to the
new regional headquarters some time in
2009. The companys container terminal in
the port of Oakland is not affected. About
50 jobs will be lost at its Singapore head
office with Europe and other Asian offices
also affected. The company said most of the
job cuts would be in back office functions.
In a statement Widdows said: The negative
conditions we are seeing in the market place
are unprecedented in our industrys history.
This necessitates these difficult decisions.
In December NOL announced that from
January 2009 its Asian operations are being
reorganised to reduce the number of
management regions co-ordinating its
operations from three to two. A new North
Asia region will be created by combining
the previous Greater China with its Japan
and Korea operations, which are currently
part of its Asia-Middle East region.
Widdows said: Despite the current
depressed market environment, Asia will
continue to be a cornerstone of world trade.
The structuring of our Asian operations
around two key regions will support efforts
to place NOLs cost base on a more
sustainable footing, while enabling closer
coordination of activities in adjacent
countries. This will ensure we continue to
provide the highest standards of service to
our many customers whose supply chains
touch Asia.
CAPACITY CUTS
Another part of its strategy is cutting
capacity to match falling demand to
maintain vessel utilisation levels, which is
vital to controlling costs. The scale of
downturn and impact on market
fundamentals with freight rates plunging on
major trades meant that radical measures
were needed. This involves trimming some
services and vessel deployments. Measures
included cutting capacity by 25% in the
Asia-Europe trade and by 20% in the
transpacific as part of a general service
adjustment in the New World Alliance, in
which NOL is a member.
Effective from the beginning of
November APLs CEX (China Europe
Express) service was suspended until
further notice, with a revised schedule for
NOL Group business sectors by revenue ($m)
Container shipping
5891
Logistics
996
Terminals
429
Source: NOL
its CSX (South China Express) service.

When reporting its third quarter results
Widdows said: Asia-Europe experienced a
premature collapse, triggered by a sizeable
drop in demand and reduced core rate levels
as the market factored in a future vessel
capacity overhang due to the number of
very large container ships scheduled to enter
the trade.
In the transpacific sector its PS3 (Pacific
South Express 3) service has been
suspended and the PCX (Pacific China
Service) upgraded with revised port calls.
The PSW (Pacific South West) service has
also been suspended, with additional calls
instead on the SAX (South Asia Express)
string. On the PCE (Pacific Coast Express)
service direct calls at Xingang in China have
been replaced by a feeder link.
Its intra-Asia SSX (Singapore
Subcontinent Express) service has been
suspended with calls substituted by other
services, with the CMX (China Middle East
Express) link upgraded.
NOL stated that it wanted to save
$200m in operating costs through 2009 and
to achieve this would cut operating capacity
by as much as 25%. This would be done
through re-delivering chartered ships to
owners at the end of charters, re-letting
chartered tonnage, keeping ships
temporarily idle and in some cases laying
ships up in Singapore for longer periods. It
is likely that any ships laid up will be older

owned vessels that are more costly to
operate rather than more modern long-term
chartered in vessels for which it has to pay
out charter hire.
We are acting quickly and decisively to
trim capacity and reconfigure our service
networks, adjusting port calls and service
loops and withdrawing a number of vessels
from service. These actions will reduce our
costs and better align APLs service
networks to the lower demand levels
currently being experienced, Widdows
said.
FINANCES
The company said this would mean NOLs
fourth quarter result would be hit with a
$33m restructuring charge with further
charges likely in subsequent quarters. This
is expected to contribute towards NOL
moving into an operating loss in the fourth
quarter. Even if the cost cutting measures
generate the anticipated savings, it is likely
to be in the red in 2009 unless there is an
unexpected pick up in demand.
The Group reported that in the month to
mid-November APL carried 12% fewer
containers than it did in the same period of
2007. It said the biggest impact was in the
Asia-Europe trade and eastbound
transpacific route. It said that with
NOL financial results 3Q and 1H 2008 ($m)

Revenue (US$m)
EBIT (US$m)
Net profit (US$m)
YTD08
YTD07
Change %
3Q08
3Q07
6,996
281
232
5,736
385
327
22
-27
-29
2,353
52
35
2,029
209
191
Change % 1H08
16
-75
-82
1H07
4,643 3,707
229
176
196
136
Change %
25
30
45
Source: NOL
34
JANUARY 2009
COMPANY ANALYSIS
The 5,108 teu APL Korea, operating on the transpacific trade
consumer demand struggling in North

America and Europe there was little sign of
any short-term recovery. Although the
slowdown appeared to be accelerating
growth earlier in the year meant that the
total container volumes lifted in the period
from the beginning of 2008 was still about
9% higher than in 2007 at 2.25m teu, with
average unit revenue up by 12% to
$3,044/feu. However, as the year wore on
volumes were increasingly being
maintained by growth in intra-Asia trades
and backhaul cargoes on the main
east-west routes, especially on the
transpacific sector rather than any growth
in the dominant headhaul legs. Headhaul
capacity utilisation declined to 90% in the
third quarter of 2008 compared with a
healthy 99% in 2007.
Despite falling volumes average revenues
in the same period increased by 9%, partly
attributed to its success in securing higher
bunker adjustment payments.
In the third quarter of 2008 NOL
reported a net profit of $35m, a substantial
82% down on the same period a year
earlier (see table), reflecting the
deteriorating conditions in the major
container markets. Even though revenue
increased by 16% to $2.4bn Ebit (Earnings
before interest payments) fell by 75% from
a year earlier to $52m. However for
container operations Ebit declined to just
$9m on revenue of $2.04bn, a margin of
just 0.4%, illustrating how challenging
conditions have become. The decline in
Ebit was attributed to lower freight rates on
core routes. In addition, despite the
JANUARY 2009
excellent progress made on fuel recovery,

APLs bottom line performance was
affected by a materially different cost
environment particularly for fuel, which
rose by 76% in 3Q08 over the prior year,
the ceo said.
For the first three quarters of 2008
revenue increased by 22% to just under
$7bn, but net profit dropped by 29% to
$232m a margin of just 3.3%, compared
with 5.7% a year earlier. Widdows
commented: Reduced demand in key
trade lanes, combined with cost increases
and worsening global economic conditions
have adversely impacted our profit
performance in the third quarter.
The table shows the speed of the fall in
results since the first half of the year, with
Ebit up by 30% on the year before to
$229m, although the impact of slowing
demand was already starting to be felt in
Factfile:
Neptune Orient Lines
Address
456 Alexandra Road
NOL Building
Singapore 11962
Tel: +65 6278 9000
Fax: +65 6278 4900
Website: www.nol.com.sg
Executive management
Group president and CEO Ron Widdows
Deputy president and CFO Cedric Foo
President APL Eng Aik Meng
35
the second quarter, compared with the

previous year.
Despite the declining current financial
results, the company says that it has a
strong balance sheet with a gross gearing of
just 0.38 at the end of the third quarter
2008.
One relatively bright spot was that its
APL Logistics operation achieved a 42%
increase in Ebit in the third quarter to
$17m, despite a marginal drop in revenue
to $315m. Its terminal operations recorded
Ebit of $23m on revenue of $146m, a
margin of 15.8%, slightly up on the
previous year. However, these good
performances pale beside the scale of the
deterioration in the groups core container
services.
NOL confirmed that it is expected to
report an operating loss in the fourth
quarter of 2008 and that it expects a more
pronounced and prolonged downturn in
the container market than was previously
forecast. This means it will continue to
focus on controlling costs and optimising
yields, reducing capacity and adjusting its
service network as necessary.
NOL is not alone in coming under
pressure from the unprecedented downturn
in container capacity demand, which is
likely to extend well into 2009. It is in a
stronger position than many and has taken
swift action in an effort to mitigate the
impact, but streamlining services and
cutting costs where possible. But it may
have to accept losses for a period to
maintain a coherent service network in
readiness for the awaited upturn.
ORDERBOOK
The final flourish

Statistics for new orders
recorded in the third
quarter still showed strong
volumes. But these are
likely to represent the final
flourish of orders agreed
before the downturn.
Stephen Matthews
analyses the figures
World orderbook by country of build (grt)
South Korea
China
130.4
Japan
s the global financial crisis

accelerated and unfolded
into the wider economy
during the third and fourth
quarters of 2008, it had a
devastating effect on trade and in turn the
dry bulk and container shipping markets in
particular.
As demand for shipping capacity
rapidly plummeted taking earnings and
ship v a lue s a lo ng wi t h i t , t h e hu ge
orderbook backlog began to look even
more ominous that it did already. It is
hardly surprising then that, when
combined with a lack of debt finance,
owners abruptly halted any plans to order
more ships and instead turned their minds
to whether they should cancel some of the
contracts they had signed earlier. As a
result the volume of new orders rapidly
shuddered to a virtual halt in the final
months of 2008.
However, the final flourish of orders
placed in the summer, when sentiment was
still bullish, continued to flow through into
the statistics for newbuild contracts
recorded in the third quarter. This caused
the figure for new orders in the three
months to the end of September to remain
high and boost the aggregate orderbook up
to almost touching 600m dwt.
That huge figure almost certainly
represents an exaggeration of what is
actually on order and likely to be delivered.
As orders dried up there will be a net loss
of tonnage on order as deliveries accelerate
in 2009. And, that is before the true scale
of cancellations begins to be reflected as
148
72.4
Europe
14.34
Others
24.72
Source: LR Fairplay/LSE
World orderbook by country

m.dwt
250
200
150
100
Tanker
50
Bulk
0
South Korea
China
Japan
Europe
Others
Container
Source: LR Fairplay/LSE
owners cancel contracts of their own

volition or their hand is forced by the
inability or unwillingness of banks to
provide finance for orders where they have
not already made commitments.
By their nature cancellations are much
harder to quantify as many owners and
most yards will not publicise them to the
same degree as new orders, although
public shipping companies must come
clean. Even if owners cancel, yards may
seek to re-sell the ships or the building slots
to others at discounted prices, possibly
involving different ship types and sizes.
In addition, it is widely believed that
many orders that are announced and
36
included in published statistics are not all

firm orders subject to binding contracts
between owners and yards, but could
include options and others based on
Letters of Intent. The high prices paid for
the most recent orders could also make
owners and finance providers think again
in view of the recent massive fall in prices
of modern secondhand tonnage, with
newbuild prices likely to adjust
accordingly to some extent.
All this means that the actual size and
profile of the orderbook and likely
deliveries beyond 2009 are going to be in
uncertain territory for some time to come
and the officially recorded orderbook may
JANUARY 2009
ORDERBOOK
be higher than the reality by a significant
but difficult to quantify proportion. The
scale of cancellations that subsequently
emerges may therefore also be higher than
the reality as many of them will be orders
that were never firm contracts to begin
with. So, until some stability and recovery
is restored, these and other orderbook
statistics need to be treated with even more
caution than normal.
With that health warning the LR
Fairplay new orders statistics for the third
quarter show an apparently strong flow of
orders at some 51m dwt further boosting
the aggregate on order. This appears to
represent a slowing of the reduction in
ordering evident in previous quarters. But,
as mentioned earlier, most of these latest
orders will have been placed earlier in the
year and only officially confirmed in the
third quarter due to the time lag in
reporting. In reality there is little doubt
that the slowdown in ordering continued
as the year has progressed. Nonetheless,
these orders do add to the overall
orderbook before cancellations and the
high volume of deliveries in 2009 take
effect.
The new order statistics show what is
probably the final increase in dry bulk
orders with some 27.8m dwt recorded as
being added to the backlog. A large
proportion of this total is accounted for by
48 Capesize and VLOCs adding 11.8m
dwt to the orderbook. But there were also
substantial additions from smaller sizes,
with almost 7m dwt of other
post-panamax vessels and over 6m dwt of
handysize and supramax capacity. This
brings the recorded orderbook for dry bulk
tonnage to 296m dwt, which is more than
70% of the capacity currently in service.
Even with strong demand growth this
figure looked excessive. Now it looks even
more alarming for dry bulk owners and
will result in many orders not already
under construction being re-assessed even
if they can be financed.
The tanker sector is somewhat different,
even though the orderbook is still
historically large at some 186m dwt, about
45% of the fleet in service. A significant
proportion of the current fleet still has to
be phased out due to single hull regulations
by 2010 or soon after, which will take out
some capacity. While oil demand has been
affected by the economic slowdown, it is
expected to recover quickly once economic
growth resumes and existing trends
JANUARY 2009
New orders by ship type

50
40
30
Tankers
20
10
Container
0
3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08
Bulk
Source: LR Fairplay
New orders by quarter

80
70
60
50
40
30
20
10
0
3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08
Source: LR Fairplay
towards longer voyages and more clean

product traffic are likely to continue, so
medium-term prospects remain relatively
sound, even though there may be short
periods of excess capacity and market
volatility. Most of the new capacity
recorded in the third quarter was
accounted for by VLCCs where there was
perceived to be an emerging potential
shortfall, with some 39 ships of 12.25m
dwt contracted, although again the high
prices likely to have been involved, could
lead to some reconsiderations.
Ordering of containerships has slowed
down sharply virtually to a halt since the
summer as significant overcapacity on all
major trades has emerged as consumer and
industrial demand has dropped. The
orderbook for cellular capacity is over
50% with most of it comprising the largest
super post-panamax ships that are limited
in where they can trade. Orders for these
have stopped completely. The third quarter
37
statistics show some 52 boxships of 3.47m

dwt having been contracted, but none of
more than 120,000dwt. Apart from a
small number of smaller vessels, where the
market is better balanced, further orders
appear unlikely in the short-term.
Recent orders in terms of shipbuilding
countries continue recent trends with
China gaining ground, South Korea
maintaining its position, but Japan
apparently struggling to hold on to its
market share. Of the capacity ordered in
the third quarter China came out on top
with 42.7%, just ahead of South Korea on
40%, but with Japan falling into a single
figure percentage share at 8.9%, although
Japans well known later reporting of
orders is likely to mean some
understatement. European yards share fell
to only just over 1%, with other emerging
shipbuilding countries in Asia taking a
larger share of the balance beyond the big
three.
ORDERBOOK
Table 1: World orders by dwt
Type/dwt
5-9,999
10-14,999
15-49,999
50-59,999
Tanker no.
m.dwt
Dry bulk
m. dwt
Container
m. dwt
Combi
m. dwt
Gas
m. dwt
Ro-ro/ferry/pass
m. dwt
Gen cargo
m. dwt
Special gen cargo
m. dwt
Reefer
m. dwt
Total
m. dwt
469
3.28
41
0.31
59
0.48
0
0
45
0.34
89
0.63
447
3.1
36
0.27
0
0
1,186
8.41
211
2.62
19
0.22
143
1.76
0
0
19
0.21
158
1.94
217
2.63
125
1.57
9
0.11
901
11.05
731
24.3
840
27.22
434
12.99
0
0
50
1.28
137
2.91
317
8.34
130
2.62
8
0.12
2,647
79.78
230
11.78
943
53.32
233
12.12
0
0
25
1.31
0
0
30
1.55
2
0.1
0
0
1,463
80.17
60-79,999
80-119,999
120-199,999
200,000+
127
9.32
231
16.46
95
6.58
0
0
38
2.8
0
0
9
0.59
0
0
0
0
500
35.74
283
31.08
629
56.72
234
19.95
0
0
47
4.18
0
0
0
0
0
0
0
0
1,165
111.92
168
26.26
576
101.98
121
21.19
0
0
14
1.79
0
0
0
0
0
0
0
0
907
151.22
251
77.15
146
39.8
0
0
13
4.14
0
0
0
0
0
0
0
0
0
0
410
121.1
Total
2470
185.79
3425
296.02
1319
75.07
13
4.14
238
11.91
384
5.48
1020
16.21
293
4.56
17
0.23
9,179
599.4
Source: LR Fairplay
Breaking the orders down into ship types

shows that China took over half 56% - of
dry bulk capacity ordered, while South
Korean yards accounted for 63% of tanker
capacity ordered and an even higher share
75% - of the declining containership orders.
In terms of the overall orderbook,
China has almost caught up with market
leader South Korea, with 36.2% and
36.4% respectively of deadweight capacity
on order. Japans share has fallen to 18.4%
and recent statistics from Japanese
shipbuilders show orders continuing to
fall.
In terms of gross tonnage South Korea
maintains a slightly bigger lead, as it builds
more high value vessels. Similarly in
Europe, while its share of deadweight
capacity has fallen to under 3%, its high
value business means that it still has 3.7%
of gross tonnage on order.
South Korean yards have some 58% of
container capacity on order, 75% of gas
carrier capacity and 50% of tanker
capacity. China has some 47% of dry bulk
capacity contracted, more than double the
share of either South Korea and Japan. It
also has over 52% of general cargo
capacity on order.
It is widely anticipated that China will
suffer more cancellations of orders as a
proportion of its backlog than either South
Korea or Japan. Therefore, with orders
likely to almost dry up for a period until
market stability is restored, changes in
relative market shares in 2009 could
depend more on cancellations than new
orders being placed.
Table 2: World orders by country

Type/country
Tanker no.
m.dwt
Dry bulk
m. dwt
Container
m. dwt
Combi
m. dwt
Gas
m. dwt
Ro-ro/ferry/pass
m. dwt
Gen cargo
m. dwt
Special gen cargo
m. dwt
Reefer
m. dwt
Total
m. dwt
Europe
China
Japan
Others
Total
126
3.88
46
5.65
147
5.15
0
0
14
0.25
709
51.17
1658
138.42
454
16
0
0
22
0.54
343
28.7
764
67.83
62
3.45
0
0
45
2.15
South Korea
1,012
92.48
662
65.58
508
43.65
13
4.14
149
8.92
280
9.56
295
18.54
148
6.82
0
0
8
0.04
2470
185.79
3425
296.02
1319
75.07
13
4.14
238
11.91
91
1.05
162
1.29
20
0.28
1
0.01
607
17.55
82
1.02
563
8.58
71
1.06
0
0
3,559
216.79
117
1.71
137
4.36
119
1.76
16
0.22
1,603
110.19
73
1.46
44
0.71
53
1.1
0
0
2,514
218.04
21
0.23
114
1.28
30
0.36
0
0
896
36.83
384
5.48
1020
16.21
293
4.56
17
0.23
9,179
599.4
Source: LR Fairplay
Table 4: New orders

placed during 3rd
Quarter 2008 by
country of build
Table 3: New Orders

placed during 3rd
Quarter 2008 by ship type
Ship type
m. dwt
m.gt
no. of ships
Dry bulk
Tankers
Container
Gen cargo
Ro-ro/ferry
Gas carrier
Specialised
Reefer
Total
27.77
17.8
3.47
1.21
0.17
0.5
0.08
0.03
50.99
14.87
9.29
2.86
0.88
0.38
0.46
0.16
0.02
28.97
315
112
52
75
20
18
6
2
600
Source: LR Fairplay
Country
m.dwt
m.gt
no. of ships
China
21.77
12.2
229
South Korea
20.39
11.31
187
Japan
4.56
2.9
99
Europe
0.58
0.6
46
Others
3.71
1.96
39
50.99
28.97
600
Total
Source: LR Fairplay
38
JANUARY 2009
DRY BULK
DRY BULK SUPPLY: CURRENT FLEET BY SIZE & AGE (as at 1 DECEMBER 2008)
10-39,999 dwt
(Handysize)
No.
m dwt
12
0.35
320
8.94
256
6.99
337
8.66
129
3.43
505
15.05
1124
29.16
2683
72.59
6
0.13
2689
72.72
31
0.78
2658
71.94
For delivery
Unclassified
0-4
5-9
10-14
15-19
20-24
25+
Total
Combis
Total
Idle
Active total
40-59,999 dwt
(Handymax)
No.
m dwt
21
1.14
451
24.35
320
16.05
336
15.33
100
4.51
208
9.20
132
6.16
1568
76.74
18
0.88
1586
77.62
24
1.26
1562
76.36
60-79,999 dwt
(Panamax)
No.
m dwt
6
0.41
297
22.45
301
22.37
292
20.98
115
7.98
137
9.21
240
15.94
1388
99.34
11
0.81
1399
100.15
6
0.42
1393
99.73
80-120,000 dwt
(Mini Capes)
No.
m dwt
4
0.36
141
12.11
26
2.33
11
0.98
7
0.67
7
0.64
20
1.85
216
18.96
31
3.60
247
22.56
7
0.61
240
21.95
>120,000 dwt
Total
(Capesize)
No.
m dwt
No.
m dwt
5
1.03
48
3.29
235
43.79
1444
111.65
134
23.27
1037
71.01
164
26.99
1140
72.94
137
23.96
488
40.56
89
16.37
946
50.48
60
9.16
1576
62.27
824
144.57
6679
412.20
0
0.00
66
5.42
824
142.68
6475
417.62
7
0.61
75
3.68
815
142.68
6668
412.66
Source: Lloyds MIU and Lloyds Register/Fairplay
DRY BULK SUPPLY: ON ORDER

10-39,999 dwt
(Handysize)
No.
m dwt
54
1.65
192
5.88
194
6.42
160
5.33
61
2.13
661
21.41
29.70
For delivery
2008
2009
2010
2011
2012/13
Total
% of fleet
40-59,999 dwt
(Handymax)
No.
m dwt
63
3.48
219
12.14
294
16.43
198
11.14
39
2.22
813
45.41
60.40
60-79,999 dwt
(Panamax)
No.
m dwt
15
1.17
59
4.42
56
4.28
56
4.14
16
1.03
202
15.04
15.20
80-120,000 dwt
(Mini Capes)
No.
m dwt
12
1.14
75
6.69
172
14.43
133
13.65
56
5.56
448
41.47
192.00
PRICES ($M)
NEWBUILDING
Dec
Handysize - 45,000
Handymax - 51,000
Panamax - 72,000
Capesize - 170,000
36
42
47
89
RATES ($/tonne)
Nov
VOYAGE ($/T)
36
45
49
90
Source: Market Reports
55,000
150,000
70,000
160,000
160,000
160,000
SECONDHAND
Handysize - 45,000
Handymax - 51,000
Panamax - 72,000
Capesize - 170,000
>120,000 dwt
Total
(Capesize)
No.
m dwt
No.
m dwt
17
3.37
161
10.81
132
24.95
677
54.08
284
51.80
1000
93.36
146
29.93
693
64.19
62
15.02
234
25.96
641
125.07
2765
248.40
88.40
60.20
5 yr
Dec
10 yr
Dec
58
25
27
46
16
22
n/a
n/a
Nov
USG-Japan (grain)
S.Af-NWE (coal)
HR-NWE (coal)
Brazil-NWE (iron ore)
Brazil-Far East (iron ore)
Aus-Japan (coal)
15 yr
Dec
n/a
n/a
12
n/a
Source: BRL Consultant
27.6
7.5
8.0
5.0
8.0
4.3
Source: Lloyds MIU Ship Fixtures
TIME CHARTER ($/DAY) MODERN TONNAGE

12 month
36 month
Mid-Dec
Mid-Dec
Handysize
Handymax
Panamax
Capesize
BDI 2 Sept - 17 Dec
5,000
5,500
7,500
17,500
9,000
12,000
12,000
20,000
7000
LSE TRAMP CHARTER INDICES

Latest Previous
%
Last Year
%
Nov
Oct
change
Nov
change
6000
5000
4000
12-19,999 dwt
20-34,999 dwt
35-49,999 dwt
50-84,999 dwt
85,000+ dwt
Combined
3000
2000
1000
0
2/9/08
2/10/08
3/11/08
2/12/08
Source: Baltic Exchange
JANUARY 2009
39
100
129
127
159
78
117
n/a
292
220
281
280
267
n/a
-56
-43
-43
-72
-56
n/a
1134
1134
1609
1640
1280
-89
-89
-90
-95
-91
Source: LSE
DRY
BULK
SHIP SAILINGS
Coal exports
Australia coal sailings Jan 05 - Sept 08

Sept 08
From
Aug 08
No of
sailings
Total
mdwt
No of
sailings
390
89
68
12
81
40
8
99
52
11
34.59
6.33
6.86
0.95
2.87
3.24
0.38
7.75
3.54
0.62
440
102
104
40
69
17
8
96
41
11
Australia
Canada
China
Colombia
FSU/Baltics
Indonesia
Poland
South Africa
USA
Venezuala
Total
mdwt
No of sailings
500
450
400
350
300
250
200
150
100
50
0
Jan Apr Jul
05
38.64
6.88
9.67
3.03
2.34
1.26
0.26
7.65
2.85
0.50
Source: Lloyds MIU
No of
sailings
Total
mdwt
No of
sailings
210
417
13
232
6
17
1
27
12
34.71
49.93
0.75
11.27
0.45
1.34
0.15
3.54
0.59
178
428
13
300
0
13
2
21
5
Sept 08
No of
Total
sailings
mdwt
Argentina
Australia
Canada
USA
Jul
Oct Jan Apr

08
Jul
Aug 08
Total
mdwt
No of ships
400
29.67
51.84
0.78
14.64
0
1.01
0.33
2.62
0.32
Source: Lloyds MIU
350
300
250
200
150
100
50
0
189
70
42
38
8.89
2.47
1.32
2.23
268
77
50
37
Mar
May
Jul
Sept
Nov
Jan-08
Mar
May
Jul
Sept
Argentina Grain Sailings Jan 07 - Sept 08
Aug 08
No of
sailings
Jan-07
Source: Lloyd's MIU/LSE
Grain exports
From
Oct Jan Apr

07
India iron ore sailings Jan 07 - Sept 08

Sept 08
Australia
Brazil
Chile
India
Mauritania
Norway
Peru
South Africa
Venezuela
Jul
Source: Lloyds MIU
Iron ore exports

From
Oct Jan Apr

06
Total
mdwt
No of sailings
350
13.42
2.88
1.64
2.22
Source: Lloyds MIU
300
250
200
150
100
50
0
Jan-07
Mar
May
Jul
Sept
Nov
Jan-08
Mar
15 Dec
Index
Change
Capesize
Panamax
Supramax
1454
450
486
+438
-403
-70
Sept
Dry Bulk FFA curve

14000
FFA prices - 4T/C panamax

As at 15 Dec
$/day
Q1/09
Q2/09
10000
13000
2009
$/day
12000
13000
10000
8000
- 6T/C supramax
9000
10000
6000
2009
11000
4000
16500
20000
2009
22000
Source: FIS
Panamax
4TC
2000
- 4T/C capesize
Q1/09
Q2/09
Jul
Source:Lloyd's MIU/LSE
Baltic Indices
Q1/09
Q2/09
May
Q109 15 Dec
Q209 15 Dec
2009 15 Dec
Suparamax
Source: SSY/FIS/LSE
40
JANUARY 2009
TANKERS
TANKER SUPPLY: CURRENT FLEET (as at December 1 2008)
Crude tankers
Age
Unclassified
0-4
5-9
10-14
15-19
20-24
25+
Total
Idle
Active total
10-49,999 dwt (Handy)

No.
m dwt
1
0.00
13
0.39
14
0.27
13
0.21
14
0.21
25
0.43
35
0.50
115
2.03
10
0.05
105
1.97
On order
2008
2009
2010/11/12
Total
% of fleet
0
4.72
37.65
79.45
121.82
0.00
2
4
6
Product tankers
Age
Unclassified
0-4
5-9
10-14
15-19
20-24
25+
Total
Idle
Active fleet
10-24,999 dwt (Sub-handy)

No.
m dwt
9
0.12
47
0.65
18
0.30
24
0.34
11
0.16
28
0.52
107
1.69
244
3.78
20
0.30
224
3.49
On order
2008
2009
2010/11/12
Total
% of fleet
18
18
15
51
0.11
0.25
0.26
0.62
18.00
Chemical/oil tankers
Age
Unclassified
0-4
5-9
10-14
15-19
20-24
25+
Total
Idle
Active total
10-24,999 dwt (Sub-handy)

No.
m dwt
19
0.27
289
4.36
86
1.38
68
0.95
35
0.54
39
0.63
44
0.71
580
8.84
22
0.32
558
8.52
On order
2008
2009
2010/11/12
Total
% of fleet
44
64
45
153
0.77
0.76
0.73
2.26
29.80
50-74,999 dwt (Panamax)

No.
m dwt
3
0.22
58
4.08
24
1.66
4
0.26
17
1.14
18
1.17
16
0.97
140
9.50
9
0.61
131
8.89
6
0.10
0.15
0.25
12.20
1
2
19
27
25-39,999 dwt (MR1)

No.
m dwt
0
0.00
52
1.83
36
1.26
26
0.89
43
1.41
58
1.90
71
2.32
286
9.61
3
0.09
283
9.52
12
4
28
44
0.48
0.16
1.21
1.85
19.70
25-39,999
No.
7
134
78
43
10
24
32
328
6
322
2
19
51
72
dwt (MR1)
m dwt
0.23
4.80
2.74
1.47
0.33
0.79
1.13
11.48
0.20
11.28
0.06
0.72
1.63
2.41
23.30
Pure chemical tankers

Age
Unclassified
0-4
5-9
10-14
15-19
20-24
25+
Total
Idle
Active total
10-24,999 dwt (Sub-Handysize)

No.
m dwt
13
0.21
118
1.87
54
0.95
25
0.38
15
0.23
21
0.34
23
0.41
269
4.39
14
0.23
255
4.16
On order
2008
2009
2010/11/12
Total
% of fleet
34
80
43
157
JANUARY 2009
0.59
1.27
0.70
2.56
63.00
75-119,999
No.
14
262
170
86
107
53
11
703
25
678
0.29
0.15
1.24
1.68
19.60
40-59,999
No.
11
190
66
44
55
35
31
432
14
418
57
85
81
223
40-59,999
No.
9
251
64
56
12
35
9
436
10
426
10
86
137
233
dwt (Aframax)
m dwt
1.51
28.25
17.87
8.61
10.40
4.98
0.98
72.60
2.55
70.05
8
72
85
165
dwt (MR2)
m dwt
0.52
9.04
3.00
2.02
2.45
1.58
1.51
20.13
0.67
19.47
2.67
4.12
3.86
10.65
56.30
dwt (MR2)
m dwt
0.44
11.75
2.89
2.49
0.50
1.58
0.41
20.05
0.48
19.57
0.59
4.12
6.44
11.15
60.50
25-39,999 dwt (Handysize)

No.
m dwt
1
0.04
43
1.41
42
1.43
10
0.34
11
0.34
5
0.17
19
0.65
131
4.38
2
0.06
129
4.32
11
24
31
66
0.33
0.76
0.89
1.98
44.40
41
120,199,999
No.
1
116
104
57
67
11
21
377
10
367
0.88
7.80
9.37
18.05
26.60
dwt (Suezmax)
m dwt
0.16
18.37
15.97
8.34
9.87
1.52
3.07
57.29
1.52
55.78
200,000 dwt+ (VLCC)

Total
No.
m dwt
No. m dwt
7
2.17
26
4.04
144
44.27
593 95.36
172
52.26
484 88.03
83
24.23
243 41.65
92
25.56
297 47.19
22
5.58
129 13.69
12
3.55
95
9.08
532
157.62
1867 299.04
25
7.29
79
10.79
512
150.33
1788 288.25
Source: Lloyds MIU
12
58
94
164
1.84
6
1.71
32
9.23
66
20.37 200
15.44
169
50.25 371
26.51
241
72.33 603
46.80
48.40
42.30
60-79,999
No.
7
139
32
6
12
26
7
229
10
219
23
72
55
150
dwt (LR1)
m dwt
0.51
9.99
2.24
0.42
0.82
1.74
0.45
16.16
0.69
15.47
80,000 dwt+ (LR2)

Total
No.
dwt
No. m dwt
5
0.55
32
1.70
22
2.42
450 23.93
29
2.95
181
9.75
16
1.59
116
5.26
10
1.04
131
5.89
11
1.06
158
6.79
0
0.00
216
5.97
93
9.61
1284 59.29
5
0.52
52
2.27
88
9.09
1232 57.03
Source: Lloyds MIU
1.40
1
0.11
111
4.77
5.06
28
3.15
207 12.74
3.75
53
5.96
232 15.04
10.21
82
9.22
550 32.55
67.80
108.00
57.10
60-79,999
No.
0
0
2
0
1
1
0
4
0
4
0
0
2
2
dwt (LR1
m dwt
0.00
0.00
0.13
0.00
0.07
0.07
0.00
0.28
0.00
0.28
80,000 dwt+ (LR2

Total
No.
m dwt
No. m dwt
0
0.00
35
0.94
5
0.52
679 21.42
1
0.10
231 7.25
0
0.00
167 4.91
5
0.42
63
1.86
12
1.00
111 4.07
0
0.00
85
2.25
23
2.04
1371 42.70
0
0.00
38
1.00
23
2.04
1333 41.70
Source: Lloyds MIU
0.00
0
0.00
56
1.42
0.00
4
0.42
173
6.02
0.16
1
0.11
236
9.07
0.16
5
0.53
465 16.51
57.10
27.30
39.60
No.
0
38
35
3
3
3
7
89
0
89
4
10
33
47
>40,000 dwt (Handymax))

m dwt
0.00
1.81
1.56
0.13
0.14
0.14
0.31
4.06
0.00
4.06
Total
No.
m dwt
14
0.25
199
5.09
131
3.94
38
0.84
29
0.70
29
0.64
49
1.37
494
13.01
16
0.29
473
12.54
Source: Lloyds MIU
0.18
49
1.12
0.43
114
2.46
1.44
107
3.03
2.05
270
6.61
50.50
52.70
TANKERS
RATES ($m)
PRICES ($m)
Newbuilding prices ($m)
Key rate indicators (WS) (average rate for month)
Dec
Handymax (clean)
Panamax
Aframax
Suezmax
VLCC
45,000 dwt
72,000 dwt
110,000 dwt
160,000 dwt
3000,000 dwt
Dirty
48
60
76
92
151
dwt
Gulf-Far East
Gulf-NWE
Gulf-US
W. Af-US
W. Af-US
N Sea-US
Med-UK/cont
Baltic-UK/cont
N Sea-UK/cont
Black Sea-Med
Cross Med
Carribean-US Gulf
Source: LSE
Secondhand prices ($m)
mid-Dec
5 years
Handysize (clean)
Handymax
Panamax
Aframax
Suezmax
VLCC
10 years
43
47
57
77
83
140
15 yrs
22
20
41
25
41
33
55
34
70
40
100
47
Source: BRL Consultants
Nov
260
260
260
260
130
130
130
100
80
80
80
70
Carribean-USEC
Gulf-Far East
UK/cont-USEC
mid-Dec
Average Price ($/ldt)

India
Bangladesh
Pakistan
China
No. of ships-all types

27
26
2
6
253
267
255
232
90
85
85
105
145
120
180
150
150
170
150
180
MIU Fixtures
Clean
dwt
Demolition prices
Oct
68
65
50
80
125
120
90
115
130
125
115
135
Source: Lloyds
Nov
38
55
37
Chemicals - Easy ($/tonne)

dwt
USEC-Rotterdam
UK/cont-USEC
Gulf-Far East
Oct
165
240
185
Source: Lloyds
Nov
5
10
15
180
330
220
MIU Fixtures
Oct
46
56
47
57
54
65
Source: Lloyds MIU Fixtures
Time charter rates ($/day) Modern tonnage

Mid-Dec
12
months
Handysize (clean) (37,000 dwt)
Handymax (clean) (47,000 dwt)
Panamax (70,000 dwt)
Aframax (105,000 dwt)
Suezmax (150,000 dwt)
VLCC (300,000 dwt)
Baltic Tanker Indices

As at 15 Dec
20000
21000
29000
29000
42000
55000
Combis.deployment - Nov
No. of Ships
20000
21000
26000
27000
39000
47000
Index
Baltic Dirty Index

Baltic Clean Index
36
months
Dry
Oil
Idle / Unknown
FFA prices
As at 15 Dec
Change
1312
842
TD3 (VLCC)
TD5 (Suezmax)
TD7 (Aframax
-292
-109
Source: Baltic Exchange
Tanker FFA curves
Q1/09
Q2/09
52
81
108
42
71
99
2009
46
73
103
Source: Imarex
Clean Rates Graph

WS
WS
500
450
400
350
300
250
200
150
100
50
0
120
100
80
60
TD7
40
20
0
dwt
52
4.31
11
1.04
1
0.05
Source: Lloyds MIU Ship Movements
TD5
Q109 15 Dec
Q209 15 Dec
2009 15 Dec
TD3
Carib-US 38k
Jan May- Sep
05 05 05
Jan May Sep

06 06 06
Jan May Sep

07 07 07
Jan May Sep

08 08 08
Gulf FE 55k
Source: Lloyds MIU/LSE
Source: Imarex/LSE
Eur-US 37k
42
JANUARY 2009
TANKER CARGOES
TANKER CARGO MOVEMENTS BY SHIP TYPE SEPTEMBER 2008
Panamax
Total exports - Last 13 months (tonnes)
Regional exports - % change latest month
Regional exports - latest month
14000000
10
13000000
0
-10
12000000
-20
11000000
-30
-40
10000000
-50
9000000
-60
-70
OTH
NSE
CAR
BAL
NAF
WAF
ME
SEA
-80
Total
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
8000000
ME 4%
NAF 9%
BAL 2%
CAR 45%
SEA 16%
WAF 1%
NSE 4%
OTH 19%
Aframax
80000000
60
50
40
30
70000000
20
10
0
-10
OTH
NSE
CAR
BAL
WAF
NAF
ME
SEA
-20
Total
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
60000000
ME 15%
NAF 20%
BAL 11%
CAR 18%
SEA 15%
WAF 2%
NSE 12%
OTH 7%
Suezmax
55000000
20
10
50000000
0
-10
-20
45000000
-30
-40
40000000
-50
-60
-70
OTH
NSE
CAR
BAL
WAF
NAF
ME
SEA
-80
Total
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
35000000
ME 18%
NAF 16%
BAL 1%
CAR 22%
SEA 0%
WAF 24%
NSE 11%
OTH 8%
VLCC
%
90000000
0
-10
85000000
-20
-30
80000000
-40
-50
75000000
-60
-70
70000000
JANUARY 2009
43
OTH
NSE
CAR
BAL
WAF
NAF
ME
SEA
Total
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
-80
ME 83%
NAF 1%
BAL 1%
CAR 3%
SEA 0%
WAF 12%
NSE 0%
OTH 0%
GAS
CARRIERS
LPG CARRIER SUPPLY - CURRENT FLEET
(December 2008)
LNG CARRIER SUPPLY - CURRENT FLEET

(December 2008)
Capacity (m cu m)
Age
Unclassified
0-4
5-9
10-14
15-19
20-24
25+
Total
Idle
Active fleet
Capacity (m cu m)
>100,000 cu m
No. Capacity
<100,000 cu m
No. Capacity
1
7
2
5
3
0
16
34
2
32
0.00
0.25
0.03
0.18
0.20
0.00
0.98
1.64
0.00
1.63
29
136
46
26
10
4
33
284
30
254
5.71
21.27
6.33
3.48
1.27
0.51
4.21
42.79
5.87
36.93
Total
No. Capacity
<20,000
30
5.72
143
21.52
48
6.35
31
3.66
13
1.47
4
0.51
49
5.20
318
44.43
32
5.87
286
38.56
Source: Lloyds MIU
40-60,000
<100,000 cu m >100,000 cu m
No. Capacity
No. Capacity
Unclassified
0-4
5-9
10-14
15-19
20-24
25+
Total
Idle
Active fleet
5
101
104
141
148
81
290
870
71
799
0.02
0.56
0.55
0.61
0.61
0.30
0.83
3.48
0.11
3.38
6
27
14
14
14
4
10
89
7
82
0
1
0
2
3
<20,000
Total
No. Capacity
0.17
0.87
0.38
0.42
0.40
0.12
0.26
2.62
0.20
2.41
0
4
4
0
4
0
10
22
0
22
2008
2009
2010
2011/12
Total
% of fleet
0.00
8
1.13
8
1.13
0.09
50
8.44
51
8.53
0.00
22
3.67
22
3.67
0.18
20
3.05
22
3.23
0.27
100
16.29
103
16.56
20-40,000
40-60,000
245
8
23
18
12
61
0.23
0.28
0.18
0.19
0.88
25.4
7
23
21
3
54
0.23
0
0
8
0.88
0.82
0
0
26
1.94
0.7
0
0
7
0.58
0.06
0
0
8
0.69
1.81
0
0
49
4.09
72.9
0
35.4
8,000 cu m
24,000 cu m
52,000 cu m
78,000 cu m
LNG sailings
41
52
77
90
Main export areas

Sept 08
No. cu m (million)
51
12
27
33
62
22
>60,000
Newbuild prices ($m)

Latest month (Dec)
Dec
150,000 cu m
Persian Gulf
Australia
Carribean
North Africa
SE Asia
West Africa
0.00
12 0.94
0.24
51 4.08
0.24
26 2.09
0.00
8 0.63
0.23
27 2.10
0.00
7 0.56
0.54
15 1.16
1.25
146 11.56
0.00
12 0.94
1.25
134 10.62
Source: Lloyds MIU
No.Capacity No. Capacity No.Capacity No. Capacity
From
>60,000
No. Capacity No. Capacity No. Capacity No.Capacity
Orderbook
Orderbook
2008
2009
2010
Total
% of fleet
20-40,000
Age
7.34
1.60
3.65
2.90
7.03
3.07
Aug 08
No. cu m (million)
54
15
20
28
50
22
7.65
1.99
2.83
2.42
5.32
3.07
Source: Lloyds MIU
5yrs
8,000 cu m
24,000 cu m
52,000 cu m
78,000 cu m
Time charter rates (12 months - modern tonnaged $/day)

Dec
Nov
Main import areas

To
Sept 08
No. cu m (million)
Aug 08
No. cu m (million)
India
Japan
China
S Korea
Taiwan
Asia
10
103
4
24
12
153
1.44
12.29
0.59
3.45
1366
19.42
11
114
2
24
14
165
1.55
13.66
0.29
3.65
1.93
21.07
Belguim
France
Italy
Spain
Turkey
UK
Europe
4
13
4
24
2
0
47
0.66
1.12
0.24
2.57
0.26
0
5.16
7
15
2
15
4
1
44
0.86
1.31
0.13
1.92
0.53
0.14
4.89
40
52
70
80
8,000 cu m
24,000 cu m
52,000 cu m
78,000 cu m
20000
23000
16000
21000
21000
24000
17000
23000
LNG imports by region (m cu. m.)

m cu. m
30
25
20
15
10
Asia
Puerto Rico
US
N America
0
7
7
0
0.05
2
0.28
7
0.97
9
1.24
0.05Source: Lloyds MIU
0
Jan-07 Mar
May
Jul
Sept
Nov Jan-08 Mar
May
JUl
Sept
Europe
Source: Lloyds MIU/LSE
44
JANUARY 2009
LINER TRADES
CONTAINERSHIP SUPPLY (as at 1 December 2008)
Current fleet (teu)
Age
0-4
5-9
10-14
15-19
20-24
25+
Total
<1,000
1-1,999
2-2,999
3-3,999
4-4,999
5-5,999
6-7,999
8,000+
390,628
295,067
386,594
225,233
270,993
584,357
2,152,872
562,773
408,301
550,635
246,916
231,366
329,889
2,329,880
646,448
450,281
345,123
164,906
180,889
167,686
1,955,333
266,575
130,478
304,661
177,877
240,805
24,603
1,144,999
934,018
433,648
392,168
172,155
37,956
737,943
571,483
253,624
5,980
659,952
558,884
112,949
1,674,772
16,126
1,969,945
1,569,030
1,331,785
Total
5,873,109
2,864,268
2,345,754
993,067
962,009
1,106,535
1,690,898 14,144,742
Source: CI
Orderbook
2008
2009
2010
2011/12
Total
% of fleet
<1,000
1-1,999
2-2,999
3-3,999
4-4,999
5-5,999
6-7,999
8,000+
47,568
71,152
33,970
225,233
3,859
166,159
46,721
172,641
120,580
246,916
12,346
392,994
28,784
118,910
131,108
164,906
29,006
352,183
12,824
85,332
122,827
177,877
260,897
30,503
422,853
267,102
172,155
117,750
1,076,126
22,913
88,735
40,824
5,980
16,650
212,622
25,800
243,327
247,968
49,142
568,671
1,142,506
50,450
672,933
374,320
3,250,413
Total
264,255
1,771,621
2,106,885
993,067
604,381
6,384,327
Source: CI
CHARTER RATES
RATES & PRICES

Howe Robinson Container Index

Dec
1,000 teu
4,000 teu
8,000 teu
12,500 teu
28
70
130
165
26-Nov 08
3 Dec 08
10 Dec 08
17 Dec 08
S1
510 teu
S2
520 teu
S3
650 teu
S4
1000 teu
15.6
15.6
15.6
14.7
18.3
17.6
16.3
15.6
39.5
36.1
36.1
34.4
14.2
12.9
12.9
12.5
S5
1100 teu
S6
1100 teu
S7
1200 teu
S8
1600 teu
S9
1700 teu
S10
2080 teu
S11
2500 teu
S12
2800 teu
S13
3500 teu
S14
4300 teu
1,000
2,500
4,000
5,500
teu
teu
teu
teu
5yr
10yr
33
58
65
85
20
32
39
n/a
28 Nov 08
3 Dec 08
10 Dec 08
17 Dec 08
15yr
15
28
43
n/a
28 Nov 08
3 Dec 08
10 Dec 08
17 Dec 08
39.7
38.6
35.3
35.3
68.0
68.0
65.9
60.1
41.1
40.4
38.6
36.7
44.1
41.5
38.9
36.3
53.5
53.5
51.7
49.1
54.6
51.7
54.6
42.8
66.9
66.9
64.7
61.3
55.9
53.1
57.4
53.1
Freight rate indicator ($/teu)
Route
US-Asia
Asia-US
3Q08
2Q08
3Q07
1170
1934
987
1844
780
1707
% change
12 month
28 Nov 08
3 Dec 08
10 Dec 08
17 Dec 08
+50
+13
Source: CI
22.1
21.1
21.1
21.1
30.7
28.8
28.8
28.8
Index
564.2
545.7
537.7
501.7
Source: Howe Robinson Shipbrokers
Container freight rates
HRCI Index
2500
$/teu
2500
2000
2000
1500
1500
500
0
1000
Asia-US
1000
500
Asia-Eur
1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08
0
7 Jul 97
Eur-US
Source: CI
JANUARY 2009
17 Dec 08
Source: Howe Robinson
45
UNITISED
RO RO: SUPPLY (as at December 1, 2008)
Current fleet
Age
No. <5,000 dwt
No.
5-9,999 dwt
No.
10-14,999 dwt
Unclassified
0-4
5-9
10-14
15-19
20-25
25+
Total
Idle
Active fleet
8
24
79
91
145
146
732
1225
151
1074
8
29
63
55
36
54
99
344
31
313
0.05
0.21
0.46
0.40
0.25
0.39
0.73
2.50
0.20
2.30
0
24
31
18
10
16
65
164
2
162
0.00
0.30
0.37
0.22
0.12
0.19
0.81
2.00
0.03
1.97
No.
5-9,999 dwt
No.
10-14,999 dwt
0.02
0.02
0.09
0.13
0.21
0.25
1.10
1.81
0.13
1.68
No. >15,000+ dwt
No.
Total m.dwt
0
26
19
4
20
41
105
215
23
192
16
103
192
168
211
257
1001
1948
207
1741
0.07
1.01
1.41
0.85
0.99
1.83
5.21
11.37
0.89
10.48
Source: Lloyds MIU
0.00
0.48
0.49
0.10
0.41
1.01
2.57
5.06
0.53
4.53
Orderbook
No. <5,000 dwt
2008
2009
2010
2011/12
Total
% of fleet
5
4
2
0
11
0.02
0.05
0.02
0
0.09
5.3
2
4
2
4
12
0.01
0.03
0.02
0.03
0.09
3.9
4
9
4
8
25
0.04
0.11
0.05
0.1
0.3
15.2
No. >15,000+ dwt
No.
Total
1
5
9
8
23
0.02
12
0.09
0.1
22
0.29
0.18
17
0.27
0.19
20
0.32
0.49
71
0.97
9.9
9.3
VEHICLE CARRIERS: SUPPLY (as at December 1, 2008)

Current fleet
Age
No. <5,000 dwt
Unclassified
0-4
5-9
10-14
15-19
20-25
25+
Total
Idle
Active fleet
1
2
16
16
26
24
37
122
8
114
0.00
0.01
0.05
0.04
0.08
0.06
0.09
0.33
0.02
0.31
No.
5-9,999 dwt
No.
10-14,999 dwt
2
14
14
10
6
12
19
77
4
73
0.01
0.10
0.09
0.07
0.05
0.10
0.16
0.58
0.02
0.55
3
37
12
20
9
50
64
195
2
193
0.04
0.48
0.15
0.27
0.12
0.66
0.78
2.49
0.03
2.46
No.
5-9,999 dwt
No.
10-14,999 dwt
No. >15,000+ dwt
No.
Total m.dwt
6
139
74
38
10
59
56
382
7
375
12
192
116
84
51
145
176
776
21
755
0.19
3.29
1.89
1.20
0.43
2.03
2.23
11.27
0.24
11.03
Source: Lloyds MIU
0.14
2.71
1.59
0.82
0.19
1.21
1.21
7.88
0.17
7.71
Orderbook
No. <5,000 dwt
2008
2009
2010
2011/12
Total
% of fleet
0
1
0
0
1
0
0
0
0
0
0
1
5
8
10
24
0.01
0.04
0.06
0.07
0.18
32.7
7
34
28
10
79
0.08
0.43
0.35
0.12
0.98
40
No. >15,000+ dwt
No.
Total
14
46
54
30
144
0.23
22
0.32
0.98
86
1.45
1.25
90
1.66
0.75
50
0.94
3.21
248
4.37
41.6
39.6
Source: Lloyds MIU and Lloyds Register Fairplay
China Container exports in ships of 3,000teu+ Jan 05-Sept 08
Vehicle carrier graph
No of sailings
No of ships
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
250
200
150
100
50
0
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul
05
06
07
08
Source: Lloyds MIU
0 to 4
5 to 9
10 to14
15 to 19
20 to 24
25+
Source: Lloyds MIU
46
JANUARY 2009
UNITISED
SHIP SAILINGS
Containerships - Sept 08
Area
Ro-Ro - Sept 08
1-2,999 teu
No.
000 teu
3,000 teu +
No.
000 teu
East Coast N.Am

West Coast N.Am
Gulf Coast N.Am
Total N.Am
122
52
24
189
247.2
106.5
50.9
384.9
186
218
31
402
799
1186.5
129.4
1977.8
North Europe
Baltic
South Europe
Black Sea
Total Europe
250
91
388
72
359
479.6
133.5
685.8
113.9
687.1
263
5
255
37
408
1567.8
33.9
1422.5
171.5
2303.1
Japan
South Korea
China
Hong Kong
Taiwan
Singapore
Other SE Asia
Indian Subcontinent
Total Asia
292
298
576
622
334
763
753
269
710
449.4
516.1
1052.5
1126.6
547
1313.4
1237.1
491.5
1239.9
212
300
779
578
230
475
302
151
732
1050.8
1547.3
4372.7
3171.1
1279.9
2525.7
1698.1
726.6
3933.8
Arabian Gulf
176
333.9
119
615
South America Atlantic

South America Pacific
Total South America
221
100
290
418.5
197.5
556.9
84
16
98
343.6
53.2
390.3
North Africa
East Africa
West Africa
South Africa
Total Africa
156
77
107
101
339
252
131
198.3
193.9
606.4
117
19
6
41
163
611
76.3
20.9
170.5
797.1
86
50
79
182.6
102.9
167.3
Australia
New Zealand
Total Australasia
Area
No.
m dwt
US Atlantic
US Gulf
US Pacific
Great Lakes
N Cont Europe
Scandanavia/Baltic
UK/Eire
E Mediteranean
Iberian Atlantic
S Europe (W.Med)
Black Sea
China
Japan
SE Asia (Asean)
Indian Sub Continent
Arabian Gulf
Red Sea
S & E Africa
N Africa
W Africa
Central America
Caribbean
S America - Atlantic
S America - Pacific
Australasia
126
13
37
30
924
1471
946
185
158
893
113
293
239
218
20
175
48
39
139
46
184
178
139
41
156
1.14
0.24
0.74
0.35
7.79
11.55
7.39
1.17
1.28
6.93
0.9
2.64
2.05
1.25
0.17
1.33
0.49
0.23
0.78
0.9
1.44
0.84
1.83
0.23
1.18
Source: Lloyds MIU
General cargo ships age profile

No of ships
2000
1500
46
177.9
8
29.6
46
178.9
Source: Lloyds MIU
1000
500
0
0 to 4
5 to 9
10 to 14
15 to 19
20 to 24
25+
Source: Lloyd's MIU
Vehicle carriers sailings - Sept 08
Area
East Coast US
West Coast US
Gulf Coast US
Total North America
0-9,999 dwt
No.
m dwt
10-14,999 dwt
No.
m dwt
15,000 dwt+
No.
m dwt
Total
No
m dwt
0
0
0
0
0
0
0
0
4
1
0
5
0.04
0.01
0
0.05
24
22
7
50
0.32
0.29
0.10
0.67
47
34
7
79
0.98
0.69
0.14
1.63
North Europe
South Europe
Black Sea
Total Europe
23
37
8
10
0.08
0.12
0.02
0.03
28
55
14
15
0.20
0.37
0.09
0.09
34
36
13
34
0.44
0.45
0.16
0.44
64
64
4
75
1.35
1.27
0.09
1.55
Japan
South Korea
Malaysia
China
Total Asia
25
2
2
12
19
0.09
0.01
0.01
0.05
0.07
28
8
5
12
31
0.21
0.06
0.04
0.09
0.23
64
21
6
20
81
0.82
0.26
0.07
0.24
1.02
126
48
3
26
127
2.48
1.03
0.05
0.53
2.45
Source: Lloyds MIU
JANUARY 2009
47
GENERAL
CARGO & REEFER
GENERAL CARGO SHIPS (over 5,000 dwt)
REEFER SHIPS (over 5,000dwt)
Current fleet (m dwt) (Dec 12008)
Age
Unclass
0-4
5-9
10-14
15-19
20-24
25+
Total
Idle
Active fleet
5-10,000 dwt
No. m dwt
31
412
227
324
226
296
1067
2583
53
2530
0.22
2.82
1.68
2.33
1.56
2.04
7.25
17.91
0.38
17.53
Current fleet (m dwt) (Dec 1 2008)
10-14,999
No. dwt
>15,000
No. dwt
9
185
52
37
23
41
308
655
24
631
4
0.08
44
0.41
51
1.54
648
6.60
73
1.77
352
4.06
74
2.22
435
4.98
45
1.11
294
2.96
129
3.07
466
5.66
441
8.73 1816 19.88
817 18.53 4055 44.54
16
0.30
93
0.97
801 18.23 3962 43.57
Source: Lloyds MIU
0.11
2.23
0.61
0.43
0.28
0.55
3.91
8.11
0.30
7.81
Total
No. m dwt
5-10,000 dwt
No. m dwt
Age
Unclass
0-4
5-9
10-14
15-19
20-24
25+
Total
Idle
Active fleet
0
1
17
39
132
100
97
386
4
382
0.00
0.01
0.13
0.28
0.92
0.72
0.71
2.76
0.03
2.73
10-14,999
No. dwt
0
8
19
35
69
49
43
223
2
221
>15,000
No. dwt
0.00
0.10
0.23
0.37
0.81
0.57
0.51
2.60
0.02
2.58
0
0
1
0
4
1
11
17
0
17
Total
No. m dwt
0.00
0
0.00
0.00
9
0.11
0.02
37
0.38
0.00
74
0.65
0.07
205
1.80
0.02
150
1.31
0.17
151
1.38
0.27
626
5.63
0.00
6
0.05
0.27
620
5.58
Source: Lloyds MIU
Orderbook
5-10,000 dwt
No. m dwt
2008
2009
2010
2011/12
Total
% of fleet
41
69
52
37
199
10-14,999
>15,000
No. dwt No. dwt
Total
No.m dwt
Orderbook
5-10,000 dwt
No. m dwt
0.31
0.48
0.37
0.25
1.41
9
0.1
24
0.69
74
1.1
50
0.61
66
2
185
3.09
51
0.6
61
1.98
164
2.95
24
0.28
54
1.63
115
2.16
134
1.59 205
6.3
538
9.3
8.5
20.6
35.1
21.3
2008
2009
2010
2011/12
Total
% of fleet
0
0
0
0
0
0
0
0
0
0
0
10-14,999
>15,000
No. dwt No. dwt
1
4
4
0
9
0.02
0.05
0.05
0
0.12
4.5
1
0
1
6
8
Total
No.m dwt
0.02
2
0.04
0
4
0.05
0.02
5
0.07
0.11
6
0.11
0.15
17
0.27
55.5
4.8
Source: Lloyds MIU
Dec
10,000 dwt
20,000 dwt
22
40

Latest
Secondhand prices ($m) - Dec

5yr old
10,000 dwt
20,000 dwt
23
38
General cargo sailings - Sept 2008

Area
No.
US - Atlantic
US Gulf
US - Pacific
Great Lakes
Nth Cont Europe
Scandanavia/Baltic
UK/Eire
Mediterranean
Iberian Atlantic
Southern Europe (W.Med)
Black Sea
China
Japan
South-East Asia (Asean)
Indian Sub-continent
Arabian Gulf
Red Sea
Sth & East Africa
NorthAfrica
West Africa
Central America
Caribbean
South America - Atlantic
South America - Pacific
Australasia
118
111
56
54
594
599
238
260
309
660
725
2157
945
1206
307
243
69
123
411
97
84
139
397
84
193
10yr old
10,000 dwt
15yr old
n/a
Secondhand prices ($m) - Dec

5yr old
21
11
25
15
200,000
450,000
600,000
750,000
cu
cu
cu
cu
ft
ft
ft
ft
m dwt
1.56
1.86
1.39
0.67
5.67
4.53
2.06
2.11
2.97
6.21
5.88
21.88
10.13
11.94
4.08
3.45
1.08
1.91
3.41
1.32
0.93
1.41
7.15
1.50
3.75
Source: Lloyds MIU
Reefer sailings - Sept 2008

From
Carribean
Central America
South America
Australia
New Zealand
South Africa
7.5
32
26
17
10yr old
15yr old
9.5
7.5
15
9.1
28
25
12.5
10
No. of departures
16
72
130
0
7
23
Source: Lloyds MIU
Reefership sailings from Caribbean Jan 05-Sept 08

No of sailings
80
70
60
50
40
30
20
10
0
Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July
05
06
07
08
Source: Lloyds MIU
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EDITION:

EDITION: LSE DATE: 1, January, 2009 PAGE: 0 VERSION: 1

Green Shipping Ad(LSE).indd 1

EDITION: LSE DATE: 1, January, 2009 PAGE: 1 VERSION: 2

Investment banks re-group

FEELING THE HEAT

Shipping shares tumble

RAISING THE BAR

Chinese shipping companies invest

New Year blues

he prognosis for shipping markets at the beginning of 2009 could hardly

Subscriptions: Chris Rowe

Suezmax tankers prepare to compete

GOOD FOR YOU

FUEL FOR THOUGHT

Competition among shipowning countries

Safe Ship offers flexibility for investors

LSEs Turkey conference assesses

FACING THE FUTURE

NOL adjusts to the new market reality

THE FINAL FLOURISH

Loans and equities news

Lloyds is the registered trademark of the society incorporated

LLOYDS SHIPPING ECONOMIST

EDITION: LSE DATE: 1, January, 2009 PAGE: 2 VERSION: 2

KEY ECONOMIC INDICATORS

KEY SHIPPING INDICATORS

EXCHANGE RATES: US$ EXCHANGE RATE (at mid-Dec)

LSE TRAMP TRIP CHARTER INDEX

Prev % change Euro

12,000-19,999 dwt20,000-34,999 dwt35,000-49,999 dwt 50-000-84,999 dwt85,000 plus dwtCombined

LSE TANKER INDICES

Govt long-tem Bond

VLCC (>200,000 dwt)

Change (last month)

LSE FLEET DATA (at Dec 1)

INFLATION: CONSUMER PRICES, ANN. RATE (at mid-Dec)

OIL PRICE ($/BBL)

Change Orderbook (%teu)

* includes combi vessels

VESSELS LAID UP (Nov 08)

BALTIC DRY INDEX

HRCI MAIN INDEX

BUNKER PRICE ($/tonne)

TTCI 85,000 dwt +

LLOYDS SHIPPING ECONOMIST

EDITION: LSE DATE: 1, January, 2009 PAGE: 3 VERSION: 2

arge tanker operators were

could hardly have gone any lower, but the

believe prices will fall further, though yards

LLOYDS SHIPPING ECONOMIST

EDITION: LSE DATE: 1, January, 2009 PAGE: 4 VERSION: 3

TRANSPACIFIC CHOOSING PANAMA

LLOYDS SHIPPING ECONOMIST

says the research. Looking ahead on current

CREDIT COAL AND GRAIN

rising to $29,000 a day in April, according

Pre-crunch and many a conference speaker

CAMMELL LAIRD REVIVAL

A famous name in British shipbuilding has

and equipment and medical and

CHINESE TRADE SLOWS

Financial Times, data from Chinese customs

EDITION: LSE DATE: 1, January, 2009 PAGE: 5 VERSION: 3