Shipping Markets: In the Middle of a Revolution?

Transcription

1 Martin Stopford President, Clarkson Research Shipping Markets: In the Middle of a Revolution? Hamburg Schifffahrts-Dialog 17 th April 2014 Macr-managements meets micro-management

2 1. Market Overview 2. The Case for Change 3. Four Questions for the Future:- 4.1 What will the trade scenario be like? 4.2 Fossil Fuels impact of high prices? 4.3 Diminishing marginal returns? 4.4 Micromanagement -key to the future? The challenge is to change The big picture trends in the shipping industry today & tomorrow

3 I made millions on timecharters Bankers arrested my ships I still don t seem to be making any money I LOVE SHIPPING A charming young man at an equity fund offered me $1 billion, sir

4 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan '04 Jan '05 Jan '06 Jan '07 Jan '08 Jan '09 Jan '10 Jan '11 Jan '12 Jan '13 Jan '14 Updated March 2014 Crude Tanker, Bulk Carrier & Container Earnings Compares average earnings over the last 12 months for crude tankers, Bulkers & containerships under 3500 TEU $000/day Containership Bulk Carrier $000/day Crude Tanker $000/day Depreciation over 20 yrs Container12 month earnings trend 0 12 month earnings smooths the bumps, showing what owners are banking OPEX

5 World Economy Edging Up % growth 17 Dot.com Crisis Credit Crisis Updated Mar 2014 China slowing OECD Asia less China & Japan China OECD recovering

6 Crude Oil Imports Trend Still Disappointing % growth 15% 10% Crude Oil Imports Trade into the Atlantic has stalled and the only growth is from Asia 5% Trend 2-3% pa 0% -5%

7 Dry Bulk Growth Trend Positive % growth 15% Major Bulks Crude Oil Imports 10% 5% 0% -5%

8 Container Trend Positive But Slower % growth 15% Major Bulks Crude Oil Imports Container 10% 5% 0% -5%

9 ,600 1,400 1,200 1, World Merchant Fleet Growth Million dwt (year end) 0 Growth rate of the fleet (right axis) Has dropped below 4%pa but still above 1990s rate % fleet growth 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6%

10 CGT Throughput Shipyard Output Compensated Gross Tonnes (Million CGT) 31% Down

11 M dwt Laid Up Tonnage Shows tonnage of ships laid up on a monthly basis Bulkers Tankers % on T/C Laid up tonnage (not really tracked) is still low. Surplus absorbed by slow steaming, waiting etc

12 World Fleet This chart shows the fleet by year of build. Today there is little tonnage over 20 years old to support demolition Other Bulk Carriers Tankers Not much scope for demolition Age profile of the world fleet

13 Jan-90 Jan-92 Jan-94 Jan '96 Jan-98 Jan-00 Jan-02 Jan-04 Jan '06 Jan '08 Jan '10 Jan '12 June '13 price $ million Second Hand Prices Back to 1990s Levels Aframax Tanker 5 Year Old Panamax bulk carrier 5 year old 4500 TEU 5 year old Panamax peak $90MM June 2008 Aframax $38M Panamax $27 MM 2700 teu Source CRSL

14 Shipbuilding Prices Edging Up $ million VLCC Suezmax Aframax Tanker Products Capesize Panamax Bulk 30,000 dwt bulker 1600 TEU 6700 TEU Aframax $54.5 MM Panamax $29.5 MM Source: Compiled from several sources including Fearnleys, CRSL

15 Merchant Fleet by cargo type, 1 st March 2014 Greece Japan China Germany S Korea USA Norway Singapore Italy Denmark Taiwan Top 10 69% Hong Kong UK Million Gross Tons

16 Shipping Many Small Companies World fleet by company size vessels >2,000 GT Company Size** Number of Companies Number of vessels m.gt % of fleet (no. of vessels) % of fleet (GT) Ships per Company Small (1-5) 5,577 9, % 15% 1.8 Small (6-10) 999 5, % 11% 6.0 Medium (11-20) 657 7, % 17% 11.3 Large (21-50) 373 8, % 27% 22.3 Very Large (51-100) 101 5, % 17% 51.4 XXL (100+) 22 2, % 13% Total 7,729 39, *Based on Beneficial Owner, excludes unknown owners **Company size based on full fleet >100 GT

17 In 1790 shipping had not changed for centuries Small wooden ships were built of expensive imported timber (see right) masts, timber spars and hessian ropes restricted size to 300 tonnes. Today we have MOVED ON Even with a crane Source: Biblioteque Nationale, Paris, Photo M. Cabaud it took four men to handle this bundle So where do we go next?

18 For 150 Years The Cost of Freight Fell 600 MEFI Index 1741=100 Sailing ship era Tramp era Bulk era Phase 1 Phase 2 War of Austrian Succession American War of Independence Napoleonic Wars American Civil War Phase 3 1 st World War The index went up to 751 in 1918 due to heavy ship losses Phase This dotted line shows the freight rate deflated using a composite price index. It indicates a steady fall in the real cost of sea freight from the beginning of the 19 th century Sailing ships reach technical peak in 1840s Paddle steamers Last few sailing ships Screw, triple expansion engines Diesel takes over except very big ships Figure 3.5 Dry cargo shipping cycles (mainly coal and grain) Source: Martin Stopford (2009) Maritime Economics, Routledge Figure 3.5

19 Cheaper Freight is the Goal, But There Are Problems MEFI Freight Index adjusted for inflation to 1814 Freights rise as sailing ships face increasing costs and size constraints to 1914 Freight falls as steam powered liners & tramps use cheap coal, & bigger ships to reduce unit costs ?? Freight costs rise as energy costs rise & bigger ships face diminishing returns Freight cost falls as big specialised ships replace liners & tramps 0 Source: Maritime Economics 3 rd Edition Martin Stopford Figure 2: The Trend in Real Freight Rates

20 Trends in Real Freight Rates MEFI Freight Index deflated by price index Mechanization of cargo handling & bigger ships reduce unit freight costs by 75% between 1947 and Rising oil fuel prices; & diminishing returns from bigger ships increase freight costs by 66% 0 Source: Maritime Economics 3 rd Edition Martin Stopford

21 THE MESSAGE What can be done Fifty years ago the next today phase to reverse was big today s ships, big rising hubs unit and East-West Trade. cost trend?

22 Shipping Drivers MEGA TREND Tomorrow s Trade Fossil Fuels ignore Mechanization Information Sometimes CHANGE is the only option 24/04/2014 Martin Stopford 22

23 Question 1: Tomorrow s Trade Scenario? Globalization keeps moving on Big CHANGE started in 1944 at Bretton Woods US outlined the objective of creating "a dynamic world economy ". The method was a new, free trade regime The European empires were disbanded The World Bank, the IMF and GATT were founded. The objective, gentlemen, is to create a dynamic world economy Delegates at the Bretton Woods Conference in /24/

24 Billion tons of cargo Volume of Trade is Growing Sea trade increased 9 from 500 Mt in to 7 Bt in 2005 (Figure 1.11). 7 Growth led by 6 Europe and Japan. 5 Multinationals 4 expanded steel, 3 aluminum, oil using imported materials. 2 Big ships reduced 1 sea transport costs 0 In 55 years after the 2 nd world war seaborne imports grew at 4.7% per annum, except for a major recession when trade did not increase Russia Oceania M. East Asia Africa N.America S.America Europe Source: United Nations Statistical Yearbooks Figure 3 Seaborne imports by region

25 Balance of Global Trade is Changing 100% 90% 80% 70% 60% 50% 40% Shows the of Atlantic and Pacific Trade volume as a % of world trade Atlantic Pacific cargo has increased from 18% to 53% in % 20% Atlantic Cargo has fallen from 80% of world 10% trade to 46% in %

26 Billion tons trade Future Trade Scenario Problematic? It s the Field of Dreams Scenario Total Trade Sea Trade Scenario 26 billion tons of trade in 2055 may be too extreme. How can the 50% cut in carbon footprint be achieved? How long to double again? This shows 30 years, averaging 2.25% pa 10 5 Cargo doubled from 5 bn to 10bn tonnes in 18 years 4.4%pa 0

27 Balance of Ship Registration is Changing National & Foreign Flag Fleets M GT Offshore Flag Tonnage Nudges 1 Billion GT 72% of the merchant fleet is now registered offshore Up from 42% 23 years ago 1, Shipping now a global business industry - Foreign Flag National Flag

28 Question 2: Fossil Fuel Impact of High Prices? Cheap and plentiful oil made sea transport cheap. But in the last decade the situation has changed:- 1. Bunker oil prices have trebled 2. Emission and carbon footprint problems are escalating Both raise technical challenges The industry is not well equipped to meet them Source: Rollo Thompkins

29 $ per barrel Today s Oil Prices are Problematic $ money of the day Cheap oil encouraged bigger, faster ships Bigger ships can t deal with this cost increase

30 Improving Transport Fuel Efficiency Fiddly Possible Actions to Improve Eco-performance of new & modern ships Fine tune existing designs to state-of-the-art technology, and meet environmental requirements. Improve on-board technical skills and procedures to allow the various modern technologies to be employed effectively Adopt alternative "clean" fuels such as LNG Review logistics and benchmark delivered cost, in terms of efficiency and environmental footprint. Establish speed optimisation strategies to vary speed in response to criteria, notably market, environmental requirements et cetera. Adopt advanced fuel saving technology (sail, nuclear et cetera.).

31 Question 3: Diminishing Marginal Returns? In 1950 mechanization of cargo handling was urgently needed to carry rapidly growing trade Ships were spending half their time handling cargo Multinational cargo companies drove the process. Bigger, faster ships; integrated cargo handling; coastal processing plants produced major cost savings Complex cargo handling on Norwegian liner 1954 Ports were congested & ships unproductive 4/24/

32 Diminishing Returns From Size Increase BLUE BARS SHOW COST SAVINGS DIMINISH AS SHIPS GETS BIGGER Mechanization technology is mature. Economies of scale face diminishing returns. Cost saving of 5,000 dwt size increase falls from 12% to 1.4% (blue bars) Saving % (right axis) Unit Cost/$/dwt (left axis) -14% -12% -10% -8% -6% -4% New ways to cut transport costs are needed Micro management is the best possibility Bulk carrier size 000 Dwt % 0% Figure 6: Bulk Carrier Economies of Scale

33 Question 4: Micro-Management Key to the Future? Information management has been at the heart of shipping since the 1860s when the first cable was laid across the Atlantic. Web-based systems and the ability to manage information creates opportunities But it needs a management orientated culture to succeed

34 Information Technology & Micro-Management Gordon Moore Invented Moore s Law Fibre optic cable network

35 The sea transport business is at the end of a major phase dominated by mechanization of cargo transport Today s market based system focusses too much on capital and not enough on the management of transport After a century of freight cost reduction, freight costs increasing due to the diminishing marginal return on investment in ever-bigger ships and rising fuel cost If cargo volume doubles in 30 years we need more efficient transport; cheaper freight; smaller carbon footprint; zero pollution, Shipping needs a vision: micro management of freight transport, building on the information revolution--- and more engineers! But to do this the shipping industry needs a management REVOLUTION Shipping cycles manage investment, but investors MANAGE strategy

36 Seven Pressures for Change 1. Ship Technology Mature 2. Low returns 3. Energy costs high & rising 4. Climate Change 5. Geopolitics 6. Market driven business 7. China maturing When Alexander saw the breadth of his domain he wept, for there were no more worlds to conquer

37 Years of Global Information. Number messages (millions) In 1855 the first cable was laid across the Atlantic, but after 40 days it stopped working. In 1866 another successful trans-atlantic cable was laid. In 1871 a cable was laid to India and Hong Kong By ,000 nautical miles of cable had been laid The impact on shipping logistics was profound Source: Encyclopaedia Britannica 1910

38 Oil Price/barrel Oil Price Estimates Unreliable Oil Price Future actual 1993 forecast 1994 forecast 1995 forecast 1998 forecast 2000 forecast 2004 forecast 2006 forecast 2007 forecast 2008 forecast 2010 "Current Policies" & earlier Source: BP energy review