Presentation Mr. Stopford

SMM Press Conference 8th Sept 2014

World Shipbuilding Dr Professor Martin Stopford Managing Director, Clarkson Research

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Shipyards surviving better than expected

1. 2. 3. 4. 5. 6.

Shipping Market Trends World Economy & Ship Demand Newbuilding Contracts & Future Supply Shipyard Capacity & Orderbook Regional Shipbuilding Trends Energy, Environment & Innovation

“This is turning into a long shipping recession. Meanwhile the increase in fuel costs and regulatory standards presents the biggest technical challenge for fifty years”

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Recession now in year 6 and still searching for light at the end of the tunnel

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Chart 1: Shipping Market Earnings 1993-2014 50

2008 $50,000/day

Earnings are NOT adjusted for inflation 2004 $39,000/day

45

35 2000 $24,000/ day

30 25

$27,178/day

20 15

$12,145/day $12,000/day

10

$8,500/day

5 2013

2011

2009

2007

2005

2003

2001

1999

1997

1995

0 1993

Clarksea Index $000/day

40

(Clarksea Index shows weighted average earnings of tankers, bulkers, containerships & gas.) CLARKSON RESEARCH SERVICES LTD

Chart 2: Growth of Trade & Cargo Fleet Shows the “rolling” 7 Year Increase in trade & fleet

60%

% Growth sea trade over 7 years % growth of cargo fleet over last 7 years

50%

World Fleet grows faster than trade

40% 30% 20% 10% Fleet grows slower than trade

Sea trade steady at 4% growth

0% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% increase over last 7 years

70%

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Chart 3: “Shadow” Surplus & Laid Up Tonnage Shadow surplus

Tankers laid up

Bulkers laid up

2011

2006

2001

1996

1991

1986

1981

1976

“Shadow” surplus is soaked up by slow steaming today

1971

1966

“Shadow” Surplus – tonnage in excess of the dwt of ships needed to carry trade at full speed

1961

7a

250 240 230 220 210 200 190 180 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 1956

M dwt

Shows “Shadow” surplus tonnage and the proportion laid up

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Collapse of Thai baht sparked Asia Crisis

Dot.com crisis - millionaire for a day

Are these sovereign bonds for the bin, pal?

Middle East crisis, Lehman Mark 2, China problems???

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Chart 4: World GDP & Sea Trade Growth % change

Credit Crisis

Oil Crisis

1991 Financial Crisis

1997 Asia Crisis

The sea trade growth trend is 3.8% pa

2001 Dot.com crisis

1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10%

World GDP (red line) and sea trade (blue line)

Crisis 1 Crisis 2 1973 1979 1st Oil 2nd Oil Crisis Crisis

Crisis 6 2007 Credit Crisis CLARKSON RESEARCH SERVICES LTD

I made millions ordering against timecharters

2

I should never have ordered those bulkers

I ‘ve really gone off ordering ships

I LOVE ordering new ships

One of those nice shipyards arranged some credit, sir

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Orders Orders in 2013 for 169.7m dwt was the 3rd highest ever!

240 220 200 180 160 140 120 100 80 60 40 20 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 2013

MillionDWT Deliveries

Chart 5: Shipbuilding Orders 1963-2014

15 Source Maritime Economics 3rd Ed Martin Stopford (Updated August 2012)

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Chart 6: Top Ten Shipping Investors First half 2014 by Investor Country of Domicile $ billion orders 1st half 2014 5 10

0 Greece China Japan Germany Singapore USA Italy Norway UK S Korea

15

7.3 6.0 2.9 2.9 2.8 2.3 2.3 2.2 1.1 1.1

N America 8%

Other 4%

Europe 48%

Asia 40%

Contracts $39.9 bn 1st half 2014 CLARKSON RESEARCH SERVICES LTD

The shipyards are winding down from the biggest boom ever, but sales still active and volatile . Marine equipment sales about $70 bn in 2013, up 30% from $53 bn in 2012 Marine equipment market busy with eco-ships CLARKSON RESEARCH SERVICES LTD

Chart 7: The Shipbuilding Cycle Shipyards adjust capacity downwards after 2000s boom

Million Dwt

In 2010 deliveries peaked at 169m dwt

2013 Deliveries m dwt

180 160 140 120 100 80 60 40 20 0

Other, 5.6, 5%

Offshore, 2.2, 2%

Tankers, 21.4, 20%

Forecast 106 m dwt in 2015

Containers, 15.9, 15%

Bulkers, 62.8, 58%

2015

2011

2007

2003

1999

1995

1991

1987

1983

1979

Demolition

1975

1971

1967

1963

Deliveries

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1200 1100 1000 900 800 700 600 500 400 300 200 100 0

1123 983 907 677

637 618 625

664

696

759

1168

1098

1020 918

808 696

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Number of Yards

Chart 8: Number of Active Shipyards

Source: Clarkson Research CLARKSON RESEARCH SERVICES LTD

240 220 200 180 160 140 120 100 80 60 40 20 0

Average yard produces 50% more than in 2009

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Yard Output Index

Chart 9: Average Yard Output 1998-2013

Source: Clarkson Research CLARKSON RESEARCH SERVICES LTD

Chart 10: World Cargo Ship Demolition Shows the demolition (bars) on left axis & % fleet demolished on right Million Dwt

70

% fleet % cargo fleet scrapped (right axis)

60

8%

M Dwt demolished in year (left axis)

50

7% 6% 5%

40

4%

30

3%

2012

2009

2006

2003

2000

1997

1994

1991

1988

0% 1985

0 1982

1% 1979

10 1976

2%

1973

20

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China and S Korea “neck & neck” for top position

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Chart 11: Regional Shipbuilding Shares 1903-2013 See: page 616

100

other countries

% total ships launched

90

USA

China

80 70

Korea

60 50 40

Scandinavia

30 20 10

Europe

Source; Lloyds Register of Shipping, Clarkson Research

1903 1908 1913 1918 1923 1928 1933 1938 1943 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013

0

Britain

Japan

FIGURE 15.1 Shipbuilding market shares 1902-2013

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CGT 35.9% GT 35.4% CGT 33.8% GT 35% CGT 18.4% GT 20.4% GT 1.7%

Chart 12: 2013 Shipyard Output by Country 2013 Output by Country and Ship Type Bulker Tanker Builder

China P.R. S. Korea Japan Philippines Norway Vietnam Germany Taiwan USA France Other Total August 2014

M.CGT M.CGT

7.8 1.4 5.1 0.4

1.4 3.5 0.6 0.0

0.2

Container ship M.CGT

1.8 4.8 0.3 0.1

Gas

Offshore

Other

Total

M.CGT

M.CGT

M.CGT

M.CGT

0.2 1.6 0.3

0.9 0.7 0.1

1.1 0.5 0.6 0.0 0.0 0.0 0.3 0.0

13.3 12.5 6.8 0.6 0.4 0.3 0.3 0.3 0.2 0.2 2.2 37.0

0.3 0.1 0.0

0.0

0.3 0.0 0.1 15.1

0.3 5.8

0.2 0.1 7.3

0.0 2.1

1.0 3.2

0.2 0.6 3.5

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19

• After 30 years of technical stability shipping faces technical challenge • The key issues are:_ – Bunker price escalation – Regulations & carbon footprint

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Chart 13: Fuel Cost Versus Ship Cost Ship cost: based on cost of new Aframax tanker, including interest, depreciation and OPEX, Fuel cost: based of 49 tpd for 70,000 tonne cargo at 16 knots

12

Fuel cost exceeds ship cost

8 6 Fuel Cost Ship Cost

4

Ship cost exceeds fuel cost

2

2013

2007

2001

1995

1989

1983

1977

1971

1965

1959

0 1953

cost $m per annum

10

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Chart 14: Fuel Consumption 60,000 dwt Bulkers Fuel consumption TPD at 14.5 knots

Oil price in 2013 $s 140

60

Bulkers 120 delivered in 2013 no 100 more fuel efficient than 80 in 1986

Oil Priceat $2013 prices Pre 2014 vessel service speed Orderbook vessel's service speed

55

50 45 40

60

35

40

30

2016

2014

2012

2010

2008

2006

2004

1997

1994

1991

1988

1986

1984

1982

1980

1978

1976

1974

1972

0 1970

20 1968

20 1965

25

New generation ecoships on way

Year of Build CLARKSON RESEARCH SERVICES LTD

Chart 17: Conclusions 1. It's been a long recession, more like the 1990s in the 1980s. The fleet is still growing too fast to allow trade to soak the surplus, so there is still a way to go. 2. The shipbuilding market is very active, and orders in 2013 were the 2nd highest ever. Europe is still the biggest shipping investor, with a 44% market share. 3. The shipyards have cut output by about a third, but deliveries will creep up again over the next 2 years. 4. China and Korea are vying for the top position and were "neck and neck" in 2013, with 33-35% market shares. 5. Energy costs are a game changer, but shipping is a conservative industry. The challenge is to embrace 21st-century technology. A little progress has been made but there’s still along way to go. 6. •Change is vital and the new technology is on show at SMM. So enjoy the exhibition and see how shipping is facing up to the challenge CLARKSON RESEARCH SERVICES LTD