Managing Financial Risks – Threats and Challenges

by Michael Parker

Monday 19th September 2005

Threats and Challenges(SLEEPLESS NIGHTS FOR SHIPPING BANKERS)

• Political Events• War• Trade War

• Financial Crisis• Loss of Confidence• Economic Impact

• Global Economic Situation• Threat of Inflation• Risk of Recession

• Excess Supply of Credit• Sources of Finance• Cheap Money

• Excess Supply of Ships• Orderbook• New Shipyard Capacity

GDP Growth %: US, Europe, Japan

Source: Citigroup, Smith Barney

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Jan-

04Feb M

arApr

May

June Ju

lAug Sep O

ctNov Dec

Jan-

05Feb M

arApr

May

June Ju

lAug

2005

For

ecas

t

2006

For

ecas

t0.5

1

1.5

2

2.5

3

3.5

4

4.5

Euro Japan U.K. U.S.

Inflation: US, Europe, Japan

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jan-04

Mar May Jul Sep Nov Jan-05

Mar May Jul

4.0%

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.04.0%

U.S. Euro U.K. Japan

Source: Citigroup, Smith Barney

Have US Commodity Prices Reached Multi-century Lows?

Source: BHP Billiton

Commodity Prices, 1987- 1Q05

80

90

100

110

120

130

140

150

160

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

0

10

20

30

40

50

60

70$ per Barrel

Economist Index (Left) Oil Prices (Right)

Source: Citigroup, Smith Barney

China’s export growth rates are not new: Japan and Korea, 1957-1980

Source: Citigroup, Smith Barney

Asia- North American Routes: Rates and Supply/Demand Balance Index ($/TEU)

Source: Containerisation International

Transpacific Volumes in Perspective in ‘000 TEU, 1997-2006E

Average Container Rates, 1994-2006E (US$/TEU)

Container Vessel Average Newbuild Prices US$/TEU 1996-2005

Container Vessels Orderbook vs. Fleet Size Evolution, 1995-1Q05

0%

10%

20%

30%

40%

50%

60%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1Q05

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Fleet '000 TEU % on Order

Source: Clarksons

Container vessels by Number, and Average TEU per vessel

Source: Clarksons

17611867

1964 2039 2122 22032337

2443

3785

4238

5096

3141

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2001 2002 2003 2004 2005 2006 2007 2008

No

. Of

Ve

ss

els

1500

2000

2500

3000

3500

4000

4500

5000

5500

Av

era

ge

Ve

ss

el S

ize

TE

U

Existing Deliveries Average size TEU Size New TEU

Tramp Ship Spot Rates ($/Day)

Dry Bulk Orderbook vs. Fleet Size Evolution, 1975-2006(F)

0%

5%

10%

15%

20%

25%

30%

1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005(F)

0

50

100

150

200

250

300

350

400

Total Fleet MM DWT Annual % on order

Source: Clarksons

Tankers Orderbook vs. Fleet Size Evolution, 1996-2005

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

200

220

240

260

280

300

320

340

Fleet MM DWT % on order

Source: Clarksons

Average Annual Tanker Freight Rates: US$ per day

Source: Clarksons

-

10,000

20,000

30,000

40,000

50,000

60,000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

140K DWT 280K DWT

Global Syndicated Shipping Loans, High Yield and Public Equity

0

5

10

15

20

2002 2003 2004

Debt Equity High Yield

59

$11.3

$6.4

$16.0

$7.1

$18.5

$11.6

$0.4$1.7 $1.3

9,560

5,886 5,8004,360

11,931

15,745

5,388

7,542

3,182

10,261

11,873

8,768

0

5,000

10,000

15,000

20,000

25,000

30,000

2000 2001 2002 2003 2004 2005YTD

US$

(mm

)

EMEA

Other

14,948 13,428

8,981

23,804 24,513

14,62114,621

Global Shipping Syndicated Loans

Threats and Challenges(SLEEPLESS NIGHTS FOR SHIPPING BANKERS)

• Political Events• War• Trade War

• Financial Crisis• Loss of Confidence• Economic Impact

• Global Economic Situation• Threat of Inflation• Risk of Recession

• Excess Supply of Credit• Sources of Finance• Cheap Money

• Excess Supply of Ships• Orderbook• New Shipyard Capacity

Threats and Challenges

• Political Events• War• Trade War

• Financial Crisis• Loss of Confidence• Economic Impact

• Global Economic Situation• Threat of Inflation• Risk of Recession

• Excess Supply of Credit• Sources of Finance• Cheap Money

• Excess Supply of Ships• Orderbook• New Shipyard Capacity

(A BETTER NIGHT’S SLEEP)

Threats and Challenges

• Financial Crisis• Loss of Confidence• Economic Impact

• Global Economic Situation• Threat of Inflation• Risk of Recession

• Excess Supply of Credit• Sources of Finance• Cheap Money

• Excess Supply of Ships• Orderbook• New Shipyard Capacity

(A BETTER NIGHT’S SLEEP)

• Regulation• Better but not perfect• Will increase

Threats and Challenges

• Global Economic Situation• Threat of Inflation• Risk of Recession

• Excess Supply of Credit• Sources of Finance• Cheap Money

• Excess Supply of Ships• Orderbook• New Shipyard Capacity

(A BETTER NIGHT’S SLEEP)

• Regulation• Better but not perfect• Will increase

• Transparency• Physical• Financial

Threats and Challenges

• Excess Supply of Credit• Sources of Finance• Cheap Money

• Excess Supply of Ships• Orderbook• New Shipyard Capacity

(A BETTER NIGHT’S SLEEP)

• Regulation• Better but not perfect• Will increase

• Transparency• Physical• Financial

• Consolidation• Physical• Financial

Threats and Challenges

• Excess Supply of Credit• Sources of Finance• Cheap Money

(A BETTER NIGHT’S SLEEP)

• Regulation• Better but not perfect• Will increase

• Transparency• Physical• Financial

• Consolidation• Physical• Financial

• Congestion• Physical Barriers• Self-Control

Threats and Challenges(A BETTER NIGHT’S SLEEP)

• Regulation• Better but not perfect• Will increase

• Transparency• Physical• Financial

• Consolidation• Physical• Financial

• Congestion• Physical Barriers• Self-Control

• Globalisation• A different World• A different Industry