The Tanker & Dry Cargo Outlook

Prof President, Clarkson Research The Tanker & Dry Cargo Outlook Mareforum, Rome Grand Hotel Parco dei Principi, Rome 8 th May 213 Quo Vadis? 1. Where are we now? 2. How do markets behave? 3. Where are we going? 4. Other key issues 5. How to win? "Quo vadis? "Romam vado iterum crucifigi.", President, Clarkson Research 1

AND LOSERS WINNERS.. Average earnings 1st half 21,, 212, 213 $/day 21 212 213 OPEX Ratio VLCC (1 years) 37,929 16,856 7,171 6,388 1,812.7 Suezmax 31,259 19,217 4,497 15,266 9,39.5 Aframax 19,792 13,528 12,852 14,415 8,374 1.5 Products Clean 13,148 12,644 8,54 15,544 7,98 1.1 Products dirty 14,956 1,535 1,41 11,439 7,98 1.3 Capesize 3,587 14,433 3,12 5,591 7,512.4 Panamax 2,221 11,34 2,667 5,139 6,312.4 Panamax (Trip) 24,955 13,895 3,75 7,552 6,312.6 Handymax (Trip) 12,798 1,884 9,657 7,4 5,991 1.6 Container 17 TEU 6,8 1,142 6,2 6,292 5, 1.2 Container 35 TEU 13,25 14,871 7,5 6,6 7, 1.1 Total 22,849 13,74 6,963 9,859 7,826.9 All tankers 23,417 14,556 8,694 12,61 8,862 1. All bulkers 22,14 12,638 4,799 6,421 6,532.7, President, Clarkson Research 2

M dwt 1. 9. 8. 7. 6. 5. 4. 3. 2. 1.. Laid Up Tonnage Shows tonnage of ships laid up on a monthly basis Bulkers Tankers % on T/C Laid up tonnage (not really tracked) is still low. Surplus absorbed by slow steaming, waiting etc. 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 212 Atlantic Negative, Pacific Slipping Industrial Production % growth World Pacific 17 12 7 2-3 -8-13 -18 Dot.com crisis Atlantic Aug 1 th Credit Crisis starts Asia below trend And slipping down 2 22 24 26 28 21 212 213, President, Clarkson Research 3

World Shipbuilding Cycle Just Past Peak Period 1 1886-1919 Period 2 192-194 Period 3 1945-1973 Period 4 1973-1987 Period 5 1988-21 1 Rapid growth of Over capacity & sea trade driven trade slump triggered forward by a by 193s depression series of cycles Shortages of yard capacity at start & post war trade boom Yard overcapacity and trade slump Trade growth & yard expansion Peak 12 13.2 M Gt Million GT Deliveries 8 6 4 2 15/5/213 7 Peak 1 Peak 2 The last shipbuilding peak was in 1975 when output reached 36 million GT Peak 4 7 m GRT Peak Peak 3 5 Peak 6 Peak 8 2 m GRT Peak 7 Source Maritime Economics 3 rd Ed () Peak 1 36 m GT 192 1912 1922 1932 1942 1952 1962 1972 1982 1992 22 212 Peak 9 Peak 11 3 Minicycles Our runners. Aframax Panamax, President, Clarkson Research 4

1 Year Timecharter $/day 9 8 7 6 5 4 3 2 1 1 Jan-76 Jan-77 Jan-78 Tanker & Bulk Carrier Cycle 1976-213 ( 1 year TC Rate for Aframax Tanker & Panamax bulker.) 198 Panamax beats Aframax 2 Jan-79 Jan-8 Jan-81 Jan-82 Aframax Tanker 3 4 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 199 Aframax beats Panamax 5 6 Jan-88 Jan-89 Jan-9 Jan-91 Jan-92 7 Panamax Bulk Jan-93 Jan-94 Jan-95 Jan-96 8 9 Jan-97 Jan-98 Jan-99 Jan- Jan-1 24 Panamax beats Aframax 2 Aframax Beats Panamax 1 11 12 13 Jan-2 Jan-3 Jan '4 Jan '5 Jan '6 28 Panamax beats Aframax 14 15 Jan '7 Jan '8 Jan '9 Jan '1 21 Panamax beats Aframax 16 17 18 Jan '11 Jan '12 Jan '13? price $ million 1 9 8 7 6 5 4 3 2 1 1 2 Jan-76 Jan-78 Jan-8 Jan-82 Jan-84 Jan-86 Aframax Tanker 5 Year Old Panamax bulk carrier 5 year old 3 4 2 nd hand prices 5 6 7 8 9 Jan-88 Jan-9 Jan-92 Jan-94 Jan-96 Jan-98 Jan- Jan-2 Jan '4 Jan '6 1 11 12 13 14 15 16 17 Panamax $18.5 MM Jan '8 Jan '1 Jan '12 Aframax $27.5M 18 Source CRSL, President, Clarkson Research 5

price $ million 1 9 8 7 6 5 4 3 2 1 Aframax New Prices Panamax Bulker Jan-76 Jan-78 Jan-8 Jan-82 Jan-84 Jan-86 Jan-88 Jan-9 Jan-92 Jan-94 Jan '96 Jan-98 Jan- Jan '2 Jan '4 Jan '6 Jan '8 Jan '1 Jan '12 Aframax $27.5M Panamax $18.5 MM Source CRSL Price of 5 year old ship as % newbuilding 175% 165% 155% 145% 135% 125% 115% 15% 95% 85% 75% 65% 55% 45% 35% 25% Ratio of New & 5 Year old Prices 1976-213 (Price of 5 year old ship as a % of a newbuilding) Aframax 5 yr old %new Ratio based on 25 year life of ship Much lower ratio in 198s Panamax 5 Year Old %New Jan-76 Jan-77 Jan-78 Jan-79 Jan-8 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-9 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan- Jan-1 Jan-2 Jan-3 Jan '4 Jan '5 Jan '6 Jan '7 Jan '8 Jan '9 Jan '1 Jan '11 Jan '12 Jan '13, President, Clarkson Research 6

Who Won the Last Race? Aframax V Panamax (Bulk) 1976-213 BOTH EARNED THE SAME: The Panamax earned $14,727/day and the Aframax $15,11/day. PANAMAX COST LESS: Panamax COST $26, 35% LESS THAN THE Aframax WHICH COST $4.1mm (average price over 37 years) PANAMAX LESS DEPRECIATION: In the first 5 years the Aframax lost 25% and the Panamax 17%, so the Panamax was a better investment. PANAMAX WON DUE TO THE DRY CARGO BOOM IN THE 2s WHICH SHIP DID THE BEST? Dustin Hoffman star of the film Marathon Man has his teeth checked by exiled Nazi torture dentist, Laurance Olivier, President, Clarkson Research 7

The Tanker Market Sluggish demand driven by recession, high oil price and new production technology, especially in the OECD countries, combined with sluggish fleet growth are not making inroads into the surplus Oil Trade Slowing % growth In the 2s th crude oil trade slowed from 4% pa to 2% pa 13% 12% 11% 1% 9% 8% 7% 6% 5% 4% 3% 2% -1% % 1% -2% -3% -4% -5% -6% -7% -1% -9% -8% Crude Oil Imports 199 1991 1992 1993 1994 1995 1996 1997 1998 2 22 24 26 28 21 212 213, President, Clarkson Research 8

Oil Trade Slowing % growth In the 2s th crude oil trade slowed from 4% pa to 2% pa 13% 12% 11% 1% 9% 8% 7% 6% 5% 4% 3% 2% -1% % 1% -2% -3% -4% -5% -6% -7% -8% -9% -1% Oil Products imports 199 1991 1992 1993 1994 1995 1996 1997 1998 2 22 24 26 28 21 212 213 Crude Oil Imports W. Europe Oil Demand Quarterly W. Europe Oil Demand Quarterly M illio n b a rre ls p e r d a y 16.5 16. 15.5 15. 14.5 14. 13.5 13. ROW 78% Europe 22% 2 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 2 1 2 1 1 2 1 2 2 1 3 Million barrels per day 26. 25.5 25. 24.5 24. 23.5 23. 22.5 22. 21.5 2 2 2 3 ROW 78% 2 4 2 5 2 6 N America 22% 2 7 2 8 2 9 2 1 2 1 1 2 1 2 2 1 3 IEA Forecast March 213, President, Clarkson Research 9

M illio n b a r r e ls p e r d a y 12. 11.5 11. 1.5 1. 9.5 9. 8.5 8. 7.5 7. 6.5 6. 5.5 5. 4.5 4. China Oil Demand Quarterly ROW 89% China 11% M illio n b a r r e ls p e r d a y Other Asia Oil Demand Quarterly 12. 11.5 11. 1.5 1. 9.5 9. 8.5 8. 7.5 7. 2 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 2 1 2 1 1 2 1 2 2 1 3 2 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 2 1 2 1 1 2 1 2 2 1 3 IEA Forecast March 213 Million tonnes/month China s Oil Imports (Jan 213) 36 32 28 24 2 16 12 8 4 Oil imports increasing at a linear rate Oil Products Jan-99 Jul-99 Jan- Jul- Jan-1 Jul-1 Jan-2 Jul-2 Jan-3 Jul-3 Jan-4 Jul-4 Jan '5 Jul '5 Jan '6 Jul '6 Jan '7 Jul '7 Jan '8 July '8 Jan '9 July '9 Jan '1 July '1 Jan '11 Aug '11 Feb '12 Aug '12, President, Clarkson Research 1

China s Energy Imports (Jan 213) Million tonnes/month 36 32 28 24 2 16 12 8 4 Oil imports increasing at a linear rate Coal Oil Products Jan-99 Jul-99 Jan- Jul- Jan-1 Jul-1 Jan-2 Jul-2 Jan-3 Jul-3 Jan-4 Jul-4 Jan '5 Jul '5 Jan '6 Jul '6 Jan '7 Jul '7 Jan '8 July '8 Jan '9 July '9 Jan '1 July '1 Jan '11 Aug '11 Feb '12 Aug '12 Tanker Deliveries 212 & Orderbook 18 16 14 12 1 8 6 4 2 Deliveries Forecast Deliveries (Firm) Deliveries (actual) Orders Demolition Tanker Fleet Growth 28 5.4% 7.% 21 3.9% 5.8% 212 3.7% 213 3.% 214 2.6% 57 m dwt to deliver 1988 1989 199 1991 1992 1993 1994 1995 1996 1997 1998 2 22 24 26 28 21 212 213 214 215, President, Clarkson Research 11

Tanker Supply/Demand Balance 1963-215 6 5 4 3 M. Dwt Available tanker fleet in million dwt Demand has grown by 23 m dwt since, but supply has grown 111 m dwt % Surplus 6% 5% 4% 3% 2 1-1 1963 1965 1967 1969 1971 1973 1975 Surplus tanker capacity (right axis) This is the198s Recession 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 Tanker Demand M dwt 213 215 2% 1% % -1% The Bulk Carrier Market Brisk demand growth, despite the recession in the OECD and slowing Asia, provides a good base for market recovery. But the fleet is still growing fast and there is a surplus to absorb. So an early recovery is unlikely., President, Clarkson Research 12

% growth Dry Bulk Trade Growth Trend 12% 1% 8% 6% Trend 5.7% 4% 2% % -2% -4% -6% -8% -1% Major Bulk Minor Bulk 1995 1996 1997 1998 2 22 24 26 28 21 212 213 In the 2s dry trade growing faster and oil trade slower Dry Bulk Deliveries & Forecast Million dwt deliveries / demolition 18 16 14 12 1 8 6 4 Deliveries Orders Orderbook Demolition Dlliveries 98.6 m dwt delivered in 212 Orders Bulker Fleet Growth 28 6.5% 9.8% 21 17.% 14.7% 212 1.3% 213 7.3% 214 3.8% 75 2 1979 198 1981 1982 1983 1984 1985 1986 1987 1988 1989 199 1991 1992 1993 1994 1995 1996 1997 1998 2 22 24 26 28 21 212 213 214 215 44, President, Clarkson Research 13

Bulker Supply/Demand Balance 1963-15 9 8 7 6 5 4 3 2 M. Dwt Available Bulker demand M dwt (blue line) Available Bulker fleet M dwt (red line) Since the trade has increased 24% but the fleet has increased 7% % Surplus 37% 33% 29% 25% 21% 17% 13% 9% 5% 1% -3% 1 Surplus bulker capacity (bars, right axis %) -7% -11% -15% 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 213 215 What exactly is an ecoship? How much capacity can we maintain?! 1. Ship owners 2. Shipbuilders 3. New regulatory era? 4. Moving offshore, President, Clarkson Research 14

1. The Eco-ship Issue: TODAY BUNKERS COST MORE THAN THE SHIP 4, 35, 3, 25, 2, 15, 1, 5, $/day cost Bunker cost Ship costs 3x fuel 1 Year TC Rate 212 Fuel costs 2x ship 199 1991 1992 1993 1994 1995 1996 1997 1998 2 22 24 26 28 21 212 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 14 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) 15 14 13 12 11 1 9 8 Panamax bulker Panamax containership, President, Clarkson Research 15

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 models pushed that up to 47 mpg and the 212 model to 56 mpg Index of Miles Per Gallon 15 14 13 12 11 1 9 8 Ford Focus Panamax bulker Panamax containership 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 models pushed that up to 47 mpg and the 212 model to 56 mpg Index of Miles Per Gallon 15 14 13 12 11 1 9 8 Ford Focus Panamax bulker Panamax containership, President, Clarkson Research 16

slower 5 45 4 35 3 25 2 15 1 5 Less Horsepower, Less Losses Index covers tankers, bulkers, LPG and containers Number of months slower faster 2 4 under 8.5 8.5-9 1 9-9.5 9.5-1 1 1 1-1.5 1.5-11 need flexi-speed? SLUMP NORMAL today we are here, the lowest since 199 23 24 2 19 11-11.5 11.5-12 12 14 11 Months since 199 that Clarksea Index fell in each earnings band shown below 12-12.5 12.5-13 13-13.5 13.5-14 13 14.14.5 8 14.5-15 33 15-2 18 2 13 2-25 Clarksea Index earnings band $/day BOOM More Horsepower, More Profits 25-3 3-35 7 35-4 3 3 4-45 45-5 faster The Ship Speed & Consumption Matrix Shows effect on fuel cost (green lines) & the cost of shipping capacity (brown line) of changing ship operating speed in 1 knot increments on a 5 mile voyage) 12 S h ip c o s t c h a n g e $ a s s h ip s lo w s 1 8 6 4 2 4 3 1 2 15 14 13 12 11 1 9 8 7 Speed of ship (knots), President, Clarkson Research 17

1. De-rate engine for improved grams/kwh The Future is Flexible 77, Dwt Panamax Bulk Carrier 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, m3 or 1 11, - tons depending on density of cargo being carried Anchor No 7 hold 12,2 m3 No 6 hold 13, m3 No 5 hold 13, m3 No 4 hold 12,3 m3 floodable No 3 hold 13, m3 No 2 hold 13,3m3 No 1 hold 12,6m3 Water line Prop shaft Main engine 12,67 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, dwt 2. The Changing World of Trade W Europe N America Japan SE Asia China S America Africa M. East Oceania 5 1, 1,5 2, 2,5 Million tons imports OECD 42% Non OECD 58% M. East Africa 3% 5% S America 5% China 22% Sea Trade in SE Asia 23% Oceania 1% W Europe 21% Japan 9% N America 11%, President, Clarkson Research 18

3. Regulatory Intervention Requirement that new ships must comply with the EEDI, a clear attempt to drive efficiency improvements The focus on air emissions; ballast water; recycling; energy efficiency and the carbon footprint. The dilemma of gas oil versus scrubbers and the uncertainty over of which ballast water system technology do not help Many shipyards, after a decade when they were able to sell standard ships, are struggling to respond. 4. Merchant Fleet Moving Offshore 72% OF THE WORLD FLEET FLAGGED ABROAD & GROWING 1,. 9. 8. 7. 6. 5. 4. 3. 2. National & Foreign Flag Fleets M GT,, % National flag 396 m dwt, 28% Foreign Flag 995m dwt, 72% 441 451 383 47 47 359 311 323 335 294 237 255 468 48 486 51 National flag fleet 552 63 649 699 748 8 852 995 1. - 1989 199 1991 1992 1993 1994 1995 1996 1997 1998 2 22 24 Foreign flag fleet 26 28 21 212, President, Clarkson Research 19

5. The Top Shipowning Nations Rank Nation National Foreign Total 1 Japan 2 197 218 2 Greece 65 159 224 3 Germany 17 18 126 4 China 52 72 124 5 USA 7 47 55 6 S Korea 17 39 56 7 Taiwan 4 35 39 8 Bermuda 2 28 3 9 Norway 16 27 43 1 Denmark 13 27 4 11 Other 373 12 World 374 953 1,327 World Fleet Ownership 213 China 1% Asia 31% Other 8% N America 6% W Europe 45% Europe s position as the biggest shipowner is being challenged 6. IT & Comms Issues Gordon Moore Invented Moore s Law Fibre optic cable network, President, Clarkson Research 2

5. Summary 1. This is a long cycle (half way) so focus on finishing. 2. Shipping s struggling to find a strategy for recession, fuel price revolution, carbon footprint & regulatory framework. 3. Need holistic approach to tanker & bulker design for technical and regulatory issues. 4. Trading world changing the move to foreign flag continues at a rate of 1% a year. 5. Information technology the next revolution Recessions are about winners and losers How to Win the Shipping Marathon 1. Focus on the good work you ve done and let the training take its course - Patrick Makau 2. 2 miles is halfway! It is just a 2 mile warm up with a 1K at the end, so undercook the first half of the race. Paul Evans 3. Don t let the crowd influence your pace. Dave Sutherland. 4. Being organised will help you to feel as calm as possible. Make sure you have some mile splits prepared. 5. Stress the positive from the word go. Take each mile in its own right and just focus on that mile. Don t be dragged into too fast a pace and don t panic if the early miles are behind schedule. A winner, President, Clarkson Research 21

Disclaimer The statistical, graphical information contained in this paper are drawn from the Clarkson Research Services Limited ("CRSL") database and other sources. CRSL advises that: (i) some information in CRSL's database is derived from estimates or subjective judgments; and (ii) the information in the databases of other maritime data collection agencies may differ from the information in CRSL's database; and (iii) whilst CRSL has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures and may accordingly contain errors; and (iv) CRSL, its agents, officers and employees do not accept liability for any loss suffered in consequence of reliance on such information or in any other manner; and (v) the provision of such information does not obviate any need to make appropriate further enquiries; (vi) the provision of such information is not an endorsement of any commercial policies and/or any conclusions by CRSL; and (vii) shipping is a variable and cyclical business and anyone who thinks they can forecast it needs their head examining. Where views are expressed they are in the context of this general presentation and should not be used or relied on in any other context without appropriate investigation, validation and the written permission of the author, President, Clarkson Research 22