Prof Martin Stopford President, Clarkson Research The Tanker Sustainability Scenarios Future view of tanker Industry Intertanko Sustainability Day Grand Hotel, Oslo, 30 th May 2013
1. A word about scenarios 2. What do they look like? 3. Tomorrow s scenarios:- 1.The Shipping System 2.Geopolitical change 3.Commercial model 4.Transport performance Survival means finishing the race
A view of the future presented as a range of alternative stories. Developed by Herman Kahn in the 1950s who borrowed the term from the film industry (a scenario outlines the film). The Base Case is "surprise free. Alternative scenarios encounter unexpected developments. The benefit of scenario analysis is that it can deal with variables which are not quantified. Herman Kahn (February 15, 1922 July 7, 1983) was a military strategist and systems theorist employed at RAND Corporation, USA.
The shipping industry has been carrying oil for 152 years We can see how tanker scenarios behave if we look at where we came from It helps in thinking about what might drive future scenarios The further backward you look, the further forward you see
250 200 1. Tight Supply There was a shortage Of shipbuilding capacity 2. Shipper driven market Tight logistics driven by Oil majors 3. Tanker Investment Bubble 4. Distressed Market Driven by structural overcapacity 5. Convalescent Market Working hidden surplus out of system 6. Boom Market 3.5% trade growth pa with 2% st. dev 150 100 50 0 1947 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 W/S Gulf Europe 1 2 3 13% trade growth pa with 2% standard deviation 4 11% trade growth pa with 1.5% standard deviation 5 6 0% trade growth pa with 7% standard deviation 7 3.5% trade growth pa with 3.4 % standard deviation 8 9 10
Oil price World Economy Energy Demand 224 m bpd Oil Demand 87 m bpd Local Oil Production 47.1 m bpd 2009 Trade CRUDE IMPORTS 39.3 m bpd W. Europe 10.2 m bpd N. America 6.7 m bpd Japan 3.6 m bpd S. Korea 2.4 m bpd India 2.8 m bpd China 4.5 m bpd Singapore 1.0 m bpd Other Asia 2.8 m bpd Others 2.9 m bpd PRODUCTS 16.0 m bpd Asia 5. m bpd CRUDE EXPORTS 37.9 m bpd Long Haul Middle East 14.5 m bpd 6-12,000 m Short Haul N. Sea 2.5 m bpd L. America 3.9 m bpd Africa 6.7 m bpd Indonesia.4 m bpd FSU 5.2 m bpd Others 3.6 m bpd Oil Traders Demand 160 W/S VLCC 3 Month Av. Layup 140 120 100 80 60 40 20 0 Pools Flag of Registration Jan '73 Jan '75 Jan '77 Jan '79 Time charter Own Trade Cargo Owners Freight market Supply Jan '81 Jan '83 Jan '85 Jan '87 Jan '89 Jan '91 Jan '93 Jan '95 Jan '97 Jan '99 Jan '01 Owners FLEET 1 Oct 2010 449.3 m dwt Orderbook 127.3 m dwt VLCCs 166 m dwt Suezmax 62.5 m dwt Aframax 92.1 m dwt Panamax 28 m dwt Products 100.7 m dwt Scrapping 1 Oct 2010 10.3 m dwt Cash freight -costs Shipyards Bank Credit Policy Deliveries 2010 45 m dwt Refinery Consumer
Economy, prices, Oil Trade Shipyard & equipment capacity The changing geopolitical scene Flag & Port State developments Piracy, prevention and protection Fuel cost, crew, charterers policy Sustainable carbon & emissions Ship finance structures Information technology & efficiency Operational performance 1. The Shipping System 2. Geopolitics & regulatory systems 3. The commercial model 4. Transport performance
Today most independent tankers work on the spot market The main alternative is industrial shipping How could the balance develop in future? It was a wonderful dream, but it s over
The Spot Market For Oil Transport Showing dwt of independent tankers on time-charter and spot 220 Million dwt 200 180 160 140 120 100 80 Tankers Trading Spot 60 40 20 Tankers On Timecharter 0 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Oil Trade Lagging Dry 4000 3500 3000 2500 2000 1500 1000 500 Oil Trade Dry Trade 0 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
60 55 50 45 40 35 30 25 20 15 10 5 0 Million Dwt Deliveries 46 m dwt in 1976 Deliveries The Tanker Building Cycle Shipyards expand to replace the ships built in the 1970s boom Scrapping Deliveries 48 m dwt in 2009 Last phase of 1970s scrapping! FORECAST 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2016 2018
Tanker Size Analysis 350.0 300.0 250.0 200.0 150.0 VLCC Suezmax Aframax Panamax 100.0 50.0-1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Japan Europe 6.30 7.50 1950-2000 OECD s 1.3 billion population N. America 3.80 China S America Africa 0.8 0.20 0.6 2000-2050 6 billion Non-OECD population want to consume at OECD levels 0 1 2 3 4 5 6 7 8 9 10 11 12 Tonnes of sea imports per person a year 31/05/2013 Martin Stopford 13
The Changing World of Trade W Europe N America Japan SE Asia OECD 42% Sea Trade in 2011 M. East Africa 3% 5% S America 5% Oceania 1% W Europe 21% China S America Africa M. East Oceania Non OECD 58% China 22% Japan 9% N America 11% 0 500 1,000 1,500 2,000 2,500 SE Asia 23% Million tons imports
OECD & Non OECD Share of Sea Trade 90% OECD % Trade Non OECD % Trade % World Sea Trade 80% 70% 60% 50% 40% 30%. Non OECD reaches 77% in 2025 20% 10% 0% 1950 1955 Forecast made with polynomial trend forecasting equation 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 OECD decline to 20% in 2025 2015 2020 2025
Merchant Shipping Offshore Trend Continues Offshore Flag Tonnage Nudges 1 Billion GT 72% of the merchant fleet is now registered offshore Up from 42% 23 years ago We are evolving into a truly stateless industry 1,000.0 900.0 800.0 700.0 600.0 500.0 400.0 300.0 200.0 100.0 - National & Foreign Flag Fleets M GT 1989 1990 1991 1992 1993 1994 Foreign Flag National Flag 1995 1996 1997 1998 W orld fle e t M dwt Owne rship 1989 1997 2009 2012 N a tiona l 334.3 295.0 347.0 396.5 Fore ign 237.2 407.3 748.0 995.3 T ota l 571.5 702.4 1,105.0 1,391.8 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 N a tiona l 58% 42% 31% 28% Fore ign 42% 58% 68% 72% T ota l 100% 100% 100% 100%
Top Shipowning Nations 2012 M GT Flag of Registration National Foreign Total Foreign % Japan 20.5 197.2 217.7 91% Greece 64.9 159.1 224.1 71% Germany 17.3 108.3 125.6 86% China 51.7 72.3 124.0 58% USA 7.2 47.5 54.6 87% S Korea 17.1 39.1 56.2 70% Chinese 4.1 35.0 39.0 90% Bermuda 2.3 27.7 30.0 92% Norway 15.8 27.3 43.1 63% Denmark 13.5 26.5 40.0 66% Canada 2.5 19.4 21.8 89% Taiwan 28.9 16.6 45.5 36% Singapore 22.1 16.5 38.6 43% UK 2.0 16.4 18.4 89% Russia 5.4 15.0 20.4 73%
Top FLAG STATES IN 2012 Top 10 Flag States Status 2008 2012 % Increase Panama Open 182.9 227.5 24% Liberia Open 81 128.5 59% Marshall Is Open 44.1 84.6 92% Hong Kong Open 39.3 77.2 96% Singapore Open 40.3 58.2 44% Bahamas Open 47.5 54.7 15% Malta Open 29.2 44.1 51% China National 27.2 43.6 60% Greece National 36.7 43.1 17% Cyprus Open 20.4 20.5 0% 548.6 782.0 43%
Piracy Activity 2008-2013 Number of vessels in month 35 30 25 20 15 10 5 0 Jan-08 Escaped Vessels captured Vessels held (end month) The 3 ships currently held are worth US $53 million Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 22unsuccess ful attempts In Oct 2012 3 ships held at start Nov 2012 No ship captured by pirates in Nov 2012
IMO moving into areas involving technical design and operation of the ship The industry lacks a coherent technical base to resolve these issues The Regulatory Focus
The Future of Regulation The UN based system is fragile and struggling with complex technical challenges The Port state regime is impulsive, proactive and politically motivated Surge of piracy raises many issues about global maritime regulation
$ per day 40,000 35,000 30,000 SHIP FUEL 2005 Ship costs 3x fuel 25,000 20,000 2012 Ship costs half fuel 15,000 10,000 5,000 Bunker cost 1 Year TC Rate 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Based on Aframax tanker, 1 year TC rate and Rotterdam bunker price
Fuel Consumption Ships Fuel consumption of ships has not improved much in the last 13 years The containership consumption was about 140 tpd at 24.5 knots (latest 136 tpd) The bulker was about 35 tpd at 14.5 knots (latest 33 tpd) Index of fuel consumption in MPG (higher is better) 150 140 130 120 110 100 90 80 Panamax bulker Panamax containership 1999 2001 2003 2005 2007 2009 2011
Fuel Consumption Cars Fuel consumption of cars did not improve much until last year The Ford Focus 1.6 Zedtec averaged about 39 mpg. The 2011 models pushed that up to 47 mpg and the 2012 model to 56 mpg Index of Miles Per Gallon 150 140 130 120 110 100 90 80 Ford Focus Panamax bulker Panamax containership 1999 2001 2003 2005 2007 2009 2011
slower 50 45 40 35 30 25 20 15 10 5 0 SLUMP today we are here, the lowest since 1990 23 24 20 2 4 under 8.5 Less Horsepower, Less Losses Index covers tankers, bulkers, LPG and containers Number of months 8.5-9 slower 10 9-9.5 9.5-10 10 10 10-10.5 10.5-11 need flexi-speed? 11-11.5 11.5-12 NORMAL 12 14 11 12-12.5 12.5-13 13-13.5 19 Months since 1990 that Clarksea Index fell in each earnings band shown below 13.5-14 13 14.14.5 8 14.5-15 33 15-20 18 20 13 20-25 BOOM 25-30 Clarksea Index earnings band $000/day faster More Horsepower, More Profits 30-35 7 35-40 3 3 40-45 45-50 faster
The Future is Flexibility Build ships like rubber bands that adjust to the market 1. De-rate engine for improved grams/kwh 3. Cut out one turbo charger & slide injectors 5. Tune Engine with electronic control system 7. Improved trim management Crane Steering gear room Side rolling hydraulic hatch covers Hatch coaming No 4 hold floodable for extra water ballast in heavy weather 7 cargo holds, each with capacity for 12-13,000 m3 or 10 11,000 - tons depending on density of cargo being carried Anchor No 7 hold 12,200 m3 No 6 hold 13,000 m3 No 5 hold 13,000 m3 No 4 hold 12,300 m3 floodable No 3 hold 13,000 m3 No 2 hold 13,300m3 No 1 hold 12,600m3 Water line Prop shaft Main engine 12,670 HP at 89rpm Double bottom used for water ballast Corrugated bulkhead 14.2 metres draft 2. New propeller tuned to revised engine spec 4. Waste heat recovery system 6. Improved low load cylinder lubrication 8. Hull coatings, less ballast, air resistance etc. 225 m LOA, 77,000 dwt
Future Commercial Scenarios Higher cost is changing the economic balance and behaviour will change Things that did not work will now work, but it will take time and committment Charterers will become more fuel conscious. Look for the pressure points:- Direct consumption v indirect consumption Measurement of efficiency Marketing and public image
Gordon Moore Invented Moore s Law Fibre optic cable network
Future Tanker Sustainability 1. The last 50 years was hard and the next 20 years will be harder 2. Today s commercial system is ok but undisciplined 3. Geopolitical scenario means new competitors and new trades, but that s no big deal. Independent Shipowners take risks nobody else 4. The commercial model scenario wants to take and do a pretty good job needs work shipping lacks technical application 5. Transport performance & logistics must improve