The Export Task Shipping Considerations for Global Markets

Transcription

1 The Export Task Shipping Considerations for Global Markets Braemar ACM James a Beckett 28 July 2014

2 Disclaimer The information contained within this report is given in good faith based on the current market situation at the time of preparing this report and as such is specific to that point only. While all reasonable care has been taken in the preparation and collation of information in this report Braemar Shipping Services Plc (and all associated and affiliated companies) does not accept any liability whatsoever for any errors of fact or opinion based on such facts. Some industry information relating to the shipping industry can be difficult to find or establish. Some data may not be available and may need to be estimated or assessed and where such data may be limited or unavailable subjective assessment may have to be used. No market analysis can guarantee accuracy. The usual fundamentals may not always govern the markets, for example psychology, market cycles and external events (such as acts of god or developments in future technologies) could cause markets to depart from their natural/usual course. Such external events have not been considered as part of this analysis. Historical market behaviour does not predict future market behaviour and shipping is an inherently high risk business. You should therefore consider a variety of information and potential outcomes when making decisions based on the information contained in this report. All information provided by Braemar Shipping Services Plc is without any guarantee whatsoever. Braemar Shipping Services Plc or any of its subsidiaries or affiliates will not be liable for any consequences thereof. This report is intended solely for the information of the recipient account and must not be passed or divulged to any third parties whatsoever without the written permission of Braemar Shipping Services Plc. Braemar Shipping Services Plc accepts no liability to any third parties whatsoever. If permission is granted, you must disclose the full report including all disclaimers, and not selected excerpts which may be taken out of context. For more information, please contact Research at research@braemar.com

3 Introduction

4 London Listed Parent Company Braemar Shipping Services Plc Shipbroking Dry Cargo Tankers / LNG / FSPO Sale and Purchase New Building Demolition Offshore Technical Port construction Naval Architecture Vessel & condition surveys Ship construction supervision Environmental Pollution control Incident response Logistics Port Agency Customs clearance Containers

5 What a Broker Does... Finding ships for cargoes and cargo for ships Source of information of market trends and an adviser to owners and charterers A dispute resolver

6 Finding Ships for Cargoes and Cargo for Ships The primary function of a shipbroker is to find cargo for a shipowner and to find ships for a charterer This function requires an in depth knowledge of vessels and cargoes, information about ports, methods of loading and discharging of various cargoes, weather patterns, demand and supply of ships and so forth. &

7 Types of Charter Charters Time Charter Hire car Voyage Charter Courier Spot T/C Period T/C Bareboat T/C Spot V/C COA

8 CFR & FOB FOB (Free on Board) Sale Free on Board means the Seller delivers when the goods pass the ship s rail at the named port of shipment. This means the Buyer has to bear all costs and risks of loss of or damage to the goods from that point. CFR (Cost and Freight) Sale All as per the FOB definition above EXCEPT that the Seller arranges the freight necessary to bring the goods to the named port of destination.

9 Why do customers want to buy FOB? Exercise control Keep their commercial options open Take advantage of freight variations Maintain flexibility Access freight opportunities Historical Reasons (Japan, Korea) Which is exactly why sellers choose CFR!

10 But don t just believe us. "When all of the sales to China were FOB, one day there would be nothing to load, the next day a veritable armada," he said. "If we're waiting for customers to send ships, we're not in control. Rio Tinto Marine COO, Michael Harvey (AFR 9 June, 2011)

11 Freight is a manageable risk Freight is a hedging tool akin to currency and commodity pricing Freight forms a significant portion of the delivered price for many of Australia s exports A lack of control and influence in freight management leaves sellers at the mercy of the buyer It leaves the Buyers controlling our ports FOB sales add no value to our export earning capacity Freight can maximise profitability for any business with a defined freight strategy

12 The Baltic Exchange

13 The History of the Baltic Exchange 1744 Founded in the Virginia and Baltick Coffee House, Threadneedle Street, London 1903 Moved to purpose built exchange at 30 St. Mary Axe, London 1992 Terrorist bomb destroys the Baltic Exchange. The IRA mistook the Baltic Exchange for the Stock Exchange by accident 1995 Re-established at 38 St. Mary s Axe, where they are today Original site is now occupied by the London landmark known as the Gherkin

14 Freight Rate Review

15 Factors Determining Freight Rates The freight market is subject to a wide range of external variables, but it is fundamentally driven by the following factors: Fleet supply Commodity demand Seasonal pressures Bunker prices Choke points including the straits of Hormuz and Malacca, the Suez and Panama canals etc. Market sentiment

16 Record Spot Rates An historical perspective 250, ,000 Record Chinese Iron Ore imports 23/07/2014 US $/ Day 150, ,000 Commencement of Chinese Rapid Development Chinese Credit Crunch Cooling Chinese Steel Demand & Reducing Congestion Global Financial Crisis 50,000 0 Capesize Panamax Supramax Handysize Handymax Source: The Baltic Exchange

17 Spot Rates (1 July 2011 Present) 45,000 23/07/ ,000 35,000 30,000 US $/ Day 25,000 20,000 15,000 10,000 5,000 0 Cape Panamax Supramax Handysize Capesize 2014 Source: The Baltic Exchange

18 Demand Outlook

19 Dry Bulk Trade Growth 7 17/06/ Billion Tonnes Iron Ore Coal Agribulk Bauxite/ Alumina Minor Ores Steel Industry Minor Bulks Phosrock/ Fertilizers Forest Products Other Minor Bulks Source: Research

20 Dry Bulk Trade Growth Excluding Iron Ore or Coal /06/ Billion Tonnes Agribulk Bauxite/ Alumina Minor Ores Steel Industry Minor Bulks Phosrock/ Fertilizers Forest Products Other Minor Bulks Source: Research

21 Agribulks

22 Handysize/Supramax Cargo Breakdown Other Dry Trades 5% Iron Ore 10% Coal 17% Grain 18% Forest Products 5% Steel 12% Scrap 4% Bauxite /Alum 21% Salt 1% Cement/Clinker 2% Coke 1% Phos Rock /Fert 4% Source: Research

23 Trade Regions: Grain ( Key Ports) Cont/BSea Saudi Yuzhnyy, Novo. WCNA China Vancouver, Prince Rupert USG Cont/Med/China New Orleans ECSA Cont/Med Rosario, PdM, River Plate Australia China Brisbane, Gladstone ECSA China Rosario, PdM, River Plate

24 Global Grain Exports 40 18/07/ Million Tonnes Wheat Maize Soyabean Soyameal Barley Sorghum Oats Rye

25 Global Grain Exports.Supporting volatility 40 18/07/ Million Tonnes Argentina Brazil Australia USA Canada EU Russia Ukraine Kazakhstan

26 2012/2013 Australian Containerized Grain Exports Wheat 2,100,000 tonnes 64% Maize 50,000 tonnes 1% Pulses 250,000 tonnes 8% Cottonseed 400,000 tonnes 12% Sorghum 400,000 tonnes 12% Barley 100,000 tonnes 3% Source: Research

27 2012/2013 Australian Containerized Wheat Exports by Destination Korea 16,000 tonnes 1% New Caledonia 33,000 tonnes 2% Singapore 46,000 tonnes 2% Philippines 47,000 tonnes 2% Fiji 47,000 tonnes 2% Vietnam 391,000 tonnes 21% New Zealand 61,000 tonnes 3% Indonesia 308,000 tonnes 16% PNG 85,000 tonnes 5% Thailand 118,000 tonnes 6% Taiwan 220,000 tonnes 12% Myanmar 200,000 tonnes 11% Malayasia 195,000 tonnes 10% China 125,000 tonnes 7% Source: Research

28 Increasing Containerised Grain Shipments Source: Research

29 US Containerized Grain by Destination Source: Research

30 Spot Rates Supramax vs Handysize (Seasonality evident due to grain trades) 18,000 23/07/ ,000 14,000 12,000 US $/ Day 10,000 8,000 6,000 4,000 2,000 0 Source: The Baltic Exchange Supramax Handysize

31 Vessel Supply Grain Trade Emphasis

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33 2014 Bulk removals vs. last year VLOC Capesize Mini Capesize Post- Panamax Panamax Ultramax Supramax Handymax Large Handysize Small Handysize Vessels YTD = 7.9m DWT 2013 Total = 21.6m DWT 2012 Total = 36.5m DWT 01/07/ vs To Date, DWT Scrapped (m tonnes) 2013 (Same period) 2014

34 Panamax (58-84,999 DWT) /07/ Panamax sector includes old, geared Panamaxes and excludes post-1998 (geared) Supramaxes Number of Vessels Fleet Orderbook

35 Ultramax (60-69,999 DWT) /07/ Ultramax (modern Supramax) sector includes k dwt geared vessels built after 2009 Number of Vessels Fleet Orderbook

36 Supramax (50-59,999 DWT) /07/2014 Number of Vessels Supramax includes k Dwt sector including old vessels of 50-58k Dwt, and all post-1998 geared Supramaxes Fleet Orderbook

37 Handymax (40-49,999 DWT) /07/ Number of Vessels Fleet Orderbook

38 Large Handysize (25-39,999 DWT) /07/ Number of Vessels Fleet Orderbook

39 Small Handysize (10-24,999 DWT) /07/ Number of Vessels Fleet Orderbook

40 Conclusion

41 Bulk Freight Rates In isolation, the handy sector is the most robust of all dry bulk sectors. However significant over supply in the supramax/handymax sector will inevitably push down handy rates. The average size of Handysize and Supramax vessels being ordered has been steadily increasing over the past few years moving away from the smaller size vessels. Larger, newer and higher numbers of Handysize and Supramax vessels may require producers to consider the impact of this transition and to review the standard stem size shipped, more so to suit the vessels available. The large orderbook will ensure a mostly weak freight market out to 2014, even with record scrapping levels in the past. The market is due to begin a recovery, albeit modest, in late 2014/early A stronger recovery with firming rates in 2015 & 2016 is increasingly uncertain due to recent newbuild ordering.

42 Differences Between Shipping in Bulk vs. Containers On face value you would think bulk is by far the better option but there are many other factors to consider. 1) Financing In order to sell a bulk cargo of you would usually set up a letter of credit between the sellers bank and the buyers bank. This takes a large amount of funds to arrange from the buyers end. By using containers buyers can buy smaller amounts with cash making it easier to manage cash flow. 2) Storage/Logistics By using containers buyers can drip feed grain into their sheds/mills as needed saving money on buying in bulk and having higher inventory costs. A big benefit for smaller buyers who can therefore buy direct from the source rather than be forced to buy through local traders or largely buyers who have access to or control of the bulk handling facilities in that area. 3) Sourcing/accumulation Exporters have many challenges in grain accumulation some of which can lessened by using containers. Many smaller traders in Australia look at the grain export business purely through containers and leave bulk to the bigger players. 4) Grain in container provides volume for the container shipping lines so discounts can be sought on that basis which means exporters can get some benefit on economies of scale whereas on bulk grain exporters are competing with all other bulk commodities for vessels. For these reasons the movement of grain in containers has increased considerably over the last years and have become a critical part of the worldwide grain trade. Source: Research

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