From the Weeds to the Trees – Where
to Look for Opportunities
Dr Adam Kent - Maritime Strategies International (MSI)
29th Annual Marine Money Money Week – New York City June 21st to 23rd 2016
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1. Demand
2. Supply
3. Earnings
4. Newbuilding Prices
5. Secondhand Prices
6. Where to Plant your Cash?
From the Weeds to the Trees – where to look for opportunities?
Demand
From the Weeds to the Trees
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CAGR Trade
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-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%C
rud
e T
an
k
Pro
d T
an
k
Bu
lke
r
FC
C
Ch
em
Ta
nk
LP
G
LN
G
PC
C
Cru
ise
AH
TS
PS
V
CAGR History (2011-15) Forecast CAGR (2015-19)
Trade versus Ship Demand (2015-2019)
© Maritime Strategies International www.msiltd.com5
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%C
rud
e T
an
k
Pro
d T
an
k
Bu
lke
r
FC
C
Ch
em
Ta
nk
LP
G
LN
G
PC
C
Cru
ise
AH
TS
PS
V
CAGR Cargo Shipping Requirement
Middle East Products Exports
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0
10
20
30
40
50
60
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
MnTpa
Americas Europe Africa OECD Asia* Non-OECD Asia
Long haul product tanker story still exists supported by refining capacity additions in the Middle East and
reductions in planned capacity (Latin America), low levels of construction (Africa) and consolidation (Europe)
Deployment patterns redrawn – 8 k TEU
© Maritime Strategies International www.msiltd.com7
0.0
0.2
0.4
0.6
0.8
1.0
1.2E
ur-
Afr
ica
Eu
r-L
AM
Eu
r-M
E/IS
C
FE
-Afr
ica
FE
-Eu
r
FE
-LA
M
FE
-ME
/IS
C
So
uth
-So
uth
NA
M-M
E/IS
C
Tra
ns
atl
an
tic
Tra
ns
pa
cif
ic
Mn TEU
End-2011
End-2015Deployment of 8k TEU vessels
more widespread - North-South
trades are increasingly the
home for these assets
Why the Cascade Will Ultimately be Efficient
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There are very few real limits to cascading, and where there are (Onne, Iquique) these ports will be bypassed. Service consolidation will lead to upsizing and 8 k + TEU vessels will replace smaller ships, with
Panamaxes then dominating long-haul intra-regional routes
600 metre quay with 4xRTGs + 4 more on order
Pointe Noire only used to be able to handle geared ships. Now,
theoretically the only restrictions are port efficiency/container yard.
NE Asia Chemical Imports – Ship Demand
9© Maritime Strategies International Ltd.
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80%
90%
100%
110%
120%
130%
140%
150%2015
2016
2017
2018
2019
Index (100=2015) Organics Inorganics Vegoil
Includes explicit bilateral trade forecasts for: Methanol, Ethanol, Mono Ethylene Glycol, Para-xylene, Styrene, MTBE, Benzene, EDC, Acetic acid, Mixed xylenes, Phenol,
Acrylonitrile, VAM, Alkylbenzene, Propylene Oxide, Toluene, Phosphoric Acid, Sulphuric Acid, Caustic soda, Palm Oil, Molasses, Canola Oil, Soyabean oil, Sunflower oil
Significant ship demand growth
is out there - it’s a question of
identifying the cargo and route
Supply
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From the Weeds to the Trees
Replacement Tonnage Requirements
11© Maritime Strategies International Ltd.
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-200%
-100%
0%
100%
200%
300%
400%
500%
0
10
20
30
40
50
60
70
Oil T
an
ke
r
Bu
lke
r
Ch
em
ica
l
LP
G
LN
G
Co
nta
ine
r
MP
P
Ro
Ro
Cru
ise
PC
TC
Off
sh
ore
Mn GT Old (20Yr +) Orderbook % 'Over Ordered' (RH Axis)
Orderbook by Yard Tier
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2016
2017
2018
2019
Tier 3 Tier 2 Tier 1
Cancellation prospects high
especially with a number of large
yards now in financial difficulty and
owners looking to walk away from
contracts
Contracting Comparison – By Vessel Type
13© Maritime Strategies International Ltd.
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0
2
4
6
8
10
12O
il T
an
ke
r
Bu
lke
r
Ch
em
ica
l
LP
G
LN
G
Co
nta
ine
r
MP
P
Ro
Ro
Cru
ise
PC
TC
Off
sh
ore
Mn GT 2015 (Jan to May) 2016 (Jan to May)
30 x VLOC orders
= 5.8 Mn GT
2016 Age at Scrap versus Historical*
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*Annual averages 1990 to 2015
Regulatory requirements (e.g. BWT
and an increase in scrap price will
help with demolition volumes
Kamsarmax / Post-PanamaxOpportunity
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Fleet growth outlook favourable in
the 65-120 k Dwt segment when
compared with others
Upsizing opportunities to larger stems and positioned well in long term growth markets – grains (e.g. South America to Asia) and key minor bulks (eg Bauxite from Guinea). Also new trades through new Panama Canal (e.g.
US grains and Colombian coal to Far East).
Earnings
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From the Weeds to the Trees
Where on the Earnings Cycle Are We?
© Maritime Strategies International www.msiltd.com17
Cru
de a
nd P
roduct T
anker
LP
G C
arr
ier
OS
Vs
PC
TC
Bulk
er
LN
G
MP
P
Conta
iner
Chem
ical T
anker
RoR
o
Rig
s
… and where are we heading?
© Maritime Strategies International www.msiltd.com18
Cru
de a
nd P
roduct T
anker
LP
G C
arr
ier
OS
Vs
PC
TC
Bulk
er
LN
G
MP
PC
onta
iner
Chem
ical T
anker
RoR
o
Rig
s
Newbuilding Prices
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From the Weeds to the Trees
Are the Yards Panicking Yet?
© Maritime Strategies International www.msiltd.com20
0%
20%
40%
60%
80%
100%
120%
0
5
10
15
20
25
30
2016
2017
2018
2019
2016
2017
2018
2019
2016
2017
2018
2019
% CapacityMn CGT Mn CGT Historical Max % of Max Historical Output (RH Axis)
South Korea Japan China
Beyond 2016 yards are significantly
underemployed
EmptyCapacity
EmptyCapacity
EmptyCapacity
Big 3 Korean Shipyards Forward Cover
© Maritime Strategies International www.msiltd.com21
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,0002015
2016
2017
2018
2019
2020
CGTDaewoo Hyundai HI Samsung
DSME’s forward cover
significantly better than
HHI and Samsung post
2017 – LNG driven
Contracting Volumes
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No immediate salvation via
new contracts
Forward Cover & Newbuilding Price
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201620172018
2019
Forward Cover = Global Shipyard Orderbook/Global Shipyard Capacity
NB Prices to Slide – Cost Floor Met
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Commodity = oil tanker, bulker and container, Specialised = all other merchant shipping sectors
Newbuilding prices for commodity vessels
will bottom out before specialised vessels –
shipyard costs will dictate how low they go
© Maritime Strategies International www.msiltd.com
SHIPS
Day of the Triffids?
Shipyard Capacity Is a Worry
© Maritime Strategies International www.msiltd.com26
0
10
20
30
40
50
60
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Mn CGT Other Europe China Korea Japan
Secondhand Prices
© Maritime Strategies International www.msiltd.com
From the Weeds to the Trees
Price and Rate Relationship
28
Suezmax Tanker
0
5
10
15
20
25
30
35
40
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
‘000 $/dayNRV10 year NRV Net Earnings (RH Axis)
Correlation = 0.92
© Maritime Strategies International Ltd.
Current NRV Depreciations Compared
© Maritime Strategies International www.msiltd.com29
Bulkers
Containers
Oil Tankers
Specialised Sectors
2018 5 Year Old NRV Depreciation - Net Position versus Today
30© Maritime Strategies International Ltd.
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-10%
-5%
0%
5%
10%
15%
20%
25%
30%H
an
dy
siz
e
Su
pra
ma
x
P.P
an
am
ax
Ca
pe
siz
e
Ha
nd
y
MR
LR
1
Afr
am
ax
Su
ezm
ax
VL
CC
1.1
kT
EU
2.1
kT
EU
3.4
kT
EU
4.4
kT
EU
6k
TE
U
8k
TE
U
9k
SS
Ch
em
ica
l T
an
ke
r
20
k S
S C
he
mic
al T
an
ker
20
k S
R L
PG
VL
GC
6.5
k C
EU
PC
TC
20
k D
wt
MP
P
In NRV depreciation terms there will be
improvements in secondhand values over the
course of the next two years
© Maritime Strategies International www.msiltd.com
From the Weeds to the Trees
Where to Plant Your Cash
MSI – FMV
© Maritime Strategies International www.msiltd.com32
• MSI Forecast Marine eValuator (FMV) is the first web-based tool to provide forecast and
historical price data covering virtually all of the deepsea shipping fleet.
• Data includes forecasts of newbuilding, second-hand prices, 1 year timecharter rates and
operating costs for specific vessels.
• MSI FMV draws on MSI’s proven, proprietary models and a consistent cross-sectional view
across all principal shipping sectors. It puts asset values in the context of the near term
market to enable reliable benchmarking with outputs based on annual averages.
• Coverage:
Crude Oil Tanker
Product Oil Tanker
Dry Bulk Carrier
Chemical Tanker
LPG Carrier
LNG Carrier
Multi Purpose
Containership
PCC/PCTC
www.msiltd.com/fmv
FMV Output
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Quarterly Fair Market Value &1 Year Time Charter Rate (1Qhistory, current Q, 2Q forecast
Annual average:• Newbuilding contract price• Fair Market Value• 1 Year Time Charter Rate• Operating Cost5 years history and 15 yearsforecast
Price Development Chartdetailing forecast pricedevelopment in relation tohistorical metrics
www.msiltd.com/fmv
$25 Mn to invest in shipping... which vessel should I buy?
© Maritime Strategies International www.msiltd.com34
MSI Rating Methodology
35© Maritime Strategies International Ltd.
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Descriptive Statistics MSI ApproachTraditional
Shipping
Earnings forecasts (Cycles accommodated)
Yes No
Conditional (time varying) volatility Yes No
Opex and scrap value forecasts (model derived)
Yes Yes
Ability to stress the forecasts with endogenous and exogenous scenarios
Yes Only Proxy Based
Stable calibration procedures Yes No
Copula based dependency Yes No
Model based Enforcement delays Yes No
Costs estimates for enforcements YesOnly anecdotal
experience
Model based (time varying) recoveryestimates
Yes No
Risk based pricing tool for asset values Yes No
Accommodate credit enhancements (cash cushions, dividend playouts etc.)
YesSubjective or
experience based
Sensitivity to input parameters Yes No
The model is similar to those applied by rating agencies, but with
enhanced data, econometrics and inputs. The model incorporates
volatility wrapped around cyclical trends, enforcement and recovery
scenarios and targeted optimisation of loan structure
Increased likelihood of
default
Expected “softening” of the
markets increases likelihood of
default
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“Keep an eye out for crosswinds,
when the weeds meet the trees”
Thank You
Kent, MM NYC 2016
For over 30 years, MSI has developed integrated relationships with a diverse clientbase of financial institutions, ship owners, shipyards, brokers, investors, insurersand equipment and service providers.
MSI’s expertise covers a broad range of shipping sectors, providing clients with acombination of sector reports, forecasting models, vessel valuations and bespokeconsultancy services.
MSI is staffed by economists and scientists offering a structured quantitativeperspective to shipping analysis combined with a wide range of industryexperience.
MSI balances analytical power with service flexibility, offering a comprehensivesupport structure and a sound foundation on which to build investment strategiesand monitor/assess exposure to market risks.
MSI Background
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While this document has been prepared, and is presented, in good faith, MaritimeStrategies International assumes no responsibility for errors of fact, opinion ormarket changes, and cannot be held responsible for any losses incurred or actionarising as a result of information contained in this document.
The copyright and other intellectual property rights in data, information or advicecontained in this document are and will at all times remain the property ofMaritime Strategies International.
Disclaimer
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