Brief perspectives on the changing landscape of Middle East shipping: Re-emergence of Iran and Suez Canal expansion. 8 th December 2015, Dubai - UAE

Transcription

1 Brief perspectives on the changing landscape of Middle East shipping: Re-emergence of Iran and Suez Canal expansion 8 th December 2015, Dubai - UAE

2 Milaha (Qatar Navigation Q.S.C) Milaha Holding Company Maritime & Logistics Offshore Gas & Petrochem Capital Trading Port services Warehousing & Logistics Container feeder Shipping agency Shipyard and steel fabrication Maintenance, diving and subsea construction services LNG transport LPG transport Product and chemical tanker shipping Real estate properties Shareholdings and other nonmaritime investments Trading agencies in trucks and heavy equipment Travel and tourism agency Bulk shipping Established in 1957, Milaha is Qatar s first commercial license holder and Qatar s oldest national shareholding company Formed from the merger of Qatar Navigation, Qatar Shipping and Halul Offshore Strong financial performance with Net Profit of QAR 959 million over Operating Revenue of QAR billion (figures reported till Q3 2015) Milaha_TOC_December

3 Presentation Structure A critical question oil price forecast and its impact on regional economy A shipper s perspective on Iran what do the fundamental indicators mean How the various logistical elements for Iran stack up What the Suez Canal story means over a shorter term and the competitive landscape In a nutshell Milaha_TOC_December

4 November January March May July September November January March May July September November Oil price levels forecasted to trend below economic break even price levels for most ME economies Middle Eastern economies continue to be largely hydrocarbon dependent There is an observed rush for invoking further financial discipline Efforts underway to make systemic changes for economic diversification with an assumption that the oil prices will trend along a New Normal Crude price forecast ($/bl) The most-probable case Addition of Iranian stock piles to market with OPEC production un-cut the pessimistic case Most ME economies to register budget deficit for 2016, and additional energy shifts and volumes from sources outside OPEC may enhance further pressure Source: Bloomberg Oil Buyer s Guide, IEA- Oct & Nov 2015, Milaha_TOC_December

5 Macro-economic fundamentals will continue to support larger trade volumes for the GCC Infrastructure Projects & Urban development Investments are driven by mega-projects and executed as a part of economic diversification strategy Some delays may be expected basis criticality ranking etc. Petrochemical projects development Increasing costs are forcing OECD countries refineries shutdowns and refinery capacities moving closer to the sources The shift may support increase in ton-mile demand for certain tanker market segments Population growth and consumption Requirement of larger labour pool to support infrastructure project and to maintain them expected to sustain Milaha_TOC_December

6 Saudi Arabia Iran UAE Egypt Israel Qatar Iraq Algeria Kuwait Morocco Oman Lebanon Libya Tunisia Jordan Bahrain Syria Yemen WBG GDP (billion $) For Iran, basic indicators promise a high-growth consumption story, supporting trade & shipping GDP size vs. Population Population (million) GNI Per Capital - US $ Islamic Republic of Iran OECD KSA Kuwait GDP size (USD bn) - Net migration rate of per 1000 Source: Business Monitor International, CIA World fact book, World Bank Milaha_TOC_December

7 But it is early days to make a definite prediction Container throughput at Iran s ports should grow by up to 25 percent annually over the next half but whatever the competitive environment post-sanctions, more investment on infrastructure and capacity after years of underutilisation will be required to achieve its full container potential. Political Condition Human Capital Business Environment Infrastructure May become a significant player in the regional politics While working on internal growth, how much it looks at inclusiveness will be an important factor While human capital index is low, existence of a robust education system may ensure a leap in growth with more knowledge exchange possibilities Policies to support growth of private sector and make foreign direct investment environment inviting Access to large hinterlands shows promise of emergence of Asian logistics hub, but will need strategic planning Milaha_TOC_December

8 While supply-chain activities may initially spike, sustenance of high growth levels will be challenging Ports Strategic investments will drive port equipment modernization and capacity expansion Possible development of Economic Zones in the hinterland to be a defining point With almost all ports on the opposite side of Iran investing heavily on expansion, we may see clear winners and losers over longer term Liner Shipping Already ports can handle large ships, with maximum alongside berth at 12.5m, but will there be a need for larger container ships to call Iran Arabian Gulf feeder networks will be re-designed to cater to major and minor ports with existing transshipment hubs investing further on competitive levers Logistics Business environment will dictate participation by private and foreign players to invest in multi-modal logistical capabilities to penetrate hinterlands Structured approach needed to develop access to central Asian trade routes may have synergetic relationship with UAE s logistics hubs Emergence as a manufacturing base possibly one of the most competitive levers to ensure asset utilization on both head haul and back haul Milaha_TOC_December

9 Timing of entry by major industry players will play a crucial role for Iran s shipping sector development Factors hindering entry decision by private sector participants International Law firms still abstaining from giving blanket clearance to both regional and global companies in engaging directly with Iran Multiple check points, KYC s and hold up of international fund transfers increases costs of transactions and trades Almost all major international banks continue to have pre-conditions such as declaration of non-engagement in trade activities with Iran etc. Selective lifting of sanctions for specific sectors and entities in a staged manner may continue to create confusion among banks and possible trade partners and may restrict growth of trade and shipping activities Source: Crazyhyenas Milaha_TOC_December

10 An example of Iranian impact on shipping routes: Methanol trade route development Methanol is one of the top 5 seaborne chemical commodities In the Middle East, Iran is the only country to have new projects in the pipeline. If sanctions are lifted in 2016, Iran may increase its methanol production by 20 million tons by 2025 Average size of a methanol ship is expected to increase, considering the long-haul distance between the major sources of supply and demand Source: Drewry Research, Milaha estimates Milaha_TOC_December

11 $8bn investments to reduce 7 hours* of idling time is a promising feat but do shippers care (enough)? Projections were made for number of ships transiting per day from 47 to 97 by 2023 With the current depressed liner shipping and over capacity issues, mega ships are being used for further cargo consolidation Preference of asset utilization over frequency of calls may put significant pressure on these projections Tonnage restrictions continue VLCC s (without lightering), Q-Max and Q-Flex LNG carriers and mega container ships will have to continue to sail past Cape Competitive canal transit fees and emergence of proposed logistics hub targeting North Africa will possibly be the key competitive levers for Suez Canal * Milaha_TOC_December

12 Competition for Suez Canal is strong and more networks may switch to Transpacific routes Suez Canal will compete with Panama for Far East US East Coast trade lanes, and shippers will focus on efficiency rather than responsiveness to design networks over medium term Development of canal across Nicaragua, developed by a Chinese consortium will affect the Panama canal, and with the available ships for Suez transit, how will the project economics work out? Milaha_TOC_December

13 Regional opportunities in shipping will continue to be strong, but success will depend on inclusivity LNG bunker hub development on Suez route Even with the drop in oil prices, economics of LNG as a more efficient fuel holds true Selected zones along the route may provide both environmental feasibility and ship access Emergence of pendulum services from new emerging hubs This will enable absorption of excess tonnage due to a higher ton mile demand; larger vessels will try to include Iranian ports in their loops Recovery from a slowdown in China and EU may boot intra-regional and Asia- EU trade again, and with responsiveness gaining precedence we may see traffic transiting the canal Logistics hubs providing linkages to Central Asia and North Africa respectively Both Iran and Egypt s Suez hinterland has potential It will significantly depend on policy frameworks and regional stability Investments in cross border logistics linkages has a high payback period and decision have to be taken in a well-concerted manner among participating economies Milaha_TOC_December

14 In a nutshell Iran s post- sanction era should add substantial trade activities, but sustainable growth of private sector require more structural reforms and long term government investments Increased activity forecasted in intra-arabian Gulf feeder network linking transshipment hubs to Iran and other upper Gulf ports Middle Eastern Tanker players may try to ramp up regional COA s charter backed asset acquisition foreseen, which may enable emergence of market leaders from the region Suez Canal will continue to see organic growth in traffic short and medium term horizon, with canal tolls and regional stability (guiding factor for insurance premiums) being major factors for route choice Possible emergence of logistics hubs also near the Suez Canal with extensive hinterland connectivity may give it competitive advantage over Panama Canal, but many variables make firm forecasting difficult Milaha_TOC_December

15 Thank You