Eco-Ship Feasibility. Hae Joon RHEE Previous Hanjin Shipping S&P Manager and Researcher

Eco-Ship Feasibility Hae Joon RHEE Previous Hanjin Shipping S&P Manager and Researcher

Eco-Ship Feasibility Fuel efficiency of container fleet over time and vessel size (previous- Hanjin Shipping S&P manager and Researcher) 1

Contents What is Eco-ship Where We Are Feasibility (previous- Hanjin Shipping S&P manager and Researcher) 2

Assumptions Technology Development Out-Pacing Vessel Operators Fleet Management Skills What is Eco-ship Operator-Owners Economies of Size than Eco-ship Conventional Owners and Financiers Are Charterers Willing to Fix Eco-ship Yards Design Pressure versus Market Sustainability How much eco should future eco-ships be for market feasibility? SOURCE: ex-hanjin, inner research (previous- Hanjin Shipping S&P manager and Researcher) 3

Assumptions Technology Development Out-Pacing Vessel Operators Fleet Management Skills What is Eco-ship MARPOL ANNEX IMO-SEEMP ECA Bow, Solar, Wind-Panels (* NYK 2030, carrier) LNG-cells(*BYD Car: Lithium, part-maker) Wind -resistant M&H, Bubble -coatings Turbo -Charger, Heat -Recovery 180 160 140 120 100 80 60 40 20 < Volume Growth for Last Two Decades > Trade Million TEU (Container, only) 20% 15% 10% 5% 0% -5% -10% Propeller(*from yard s R&D, maker) 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013-15% SOURCE: Clarksons, Clarksons Research Container Department(Dr. Stopford) Cash-tight operators not really ready to take new technology for premium SOURCE: ex-hanjin, inner research (previous- Hanjin Shipping S&P manager and Researcher) 4

Assumptions Technology Development Out-Pacing Vessel Operators Fleet Management Skills What is Eco-ship Previous Fleet Operation Operation with Second-hand Vessel Slot-sharing between local partners Upon maturity of vessel charter-tenure, enter into new building contracts Speculative new building when vessel prices rise, more ships per loop Slow steaming Scope-Incremental Consumption ULCS(ULCV) in Supply-Demand Squeeze (against EEE -sized scales cost benefits) Operators now just too cash-stricken to swallow-in eco-ship premiums Future Fleet Operation Sector Shift, Supply-Demand Squeeze Slot, Terminal-Inland Operation, EQ: Expertise and skill-sharing scheme Eco-ships, but only selected trades, more cascading(s) Most charter-owners already possess ample eco-ships More slow steaming ( Extra -slow steaming, Super -slow steaming) Vessel Age Incremental Consumption Yards design under pressure as room for more eco-ships are not big enough SOURCE: ex-hanjin, inner research (previous- Hanjin Shipping S&P manager and Researcher) 5

Contents What is Eco-ship Where We Are Feasibility (previous- Hanjin Shipping S&P manager and Researcher) 6

Assumptions Technology Development Out-Pacing Vessel Operators Fleet Management Skills Where We Are Volume growth always super-ceded economic growth frictions: High or Low Demands Recovery from Europe and also at US, recently (Annual percent change) Supply Additional 20,000TEU under discussion with yards Yards Source: Global Insight Global Macro and World Trade Services Product Portfolio Being Tested to other sectors, e.g. Power Industry, FPSO, etc. SOURCE: HIS Global Insight(ex-DRI WEFA), Analyst & JOC Columnist Professor Ben Hackett, CEO of Hackett Industry: http://www.thehackettgroup.com (previous- Hanjin Shipping S&P manager and Researcher) 7

Assumptions Technology Development Out-Pacing Vessel Operators Fleet Management Skills Where We Are 9 6 3 0-3 -6-9 (Annual percent change) Source: Global Insight Global Macro and World Trade Services NAFTA < Not Much Scrap Candidates > Class age Built 1000 Average 17.685 2000 Average 10.63545151 3000 Average 12.03041825 4000 Average 7.479638009 5000 Average 8.158536585 6000 Average 5.645348837 7000 Average 5.888888889 8000 Average 4.18125 9000 Average 4.044117647 10000 Average 2.428571429 11000 Average 1.1875 12000 Average 0.333333333 Other Americas Western Europe Emerging Europe Mideast- N. Africa Sub- Saharan Africa Japan 2009 2010 2011 2012 2013-20 Other Asia- Pacific SOURCE: HIS Global Insight(ex-DRI WEFA), Analyst & JOC Columnist Professor Ben Hackett, CEO of Hackett Industry: http://www.thehackettgroup.com, with private source and experience < Consumption Dynamics > Fleet Optimization, Economies of Size Vessel Age (New-Building Needs) (NM Efficiency) (previous- Hanjin Shipping S&P manager and Researcher) 8

Assumptions Technology Development Out-Pacing Vessel Operators Fleet Management Skills Where We Are < Tanker Market World Scale > Super-Cycle was Triggered by China WTO, aftermaths of New Building Surge For Eco-Ship Boom, May Need Another China Current Premium of Eco-Ships are Not Reflecting Future Risks 250 200 150 100 50 Source: SSE China, UNCTAD 2010 2011 2012 Jan-13 Feb-13 Mar-13 Apr-13 May-13 < Container Market Shanghai Container Freight Index > 0 VLCC 200k+ Persian Panamax 40k-70k Gulf Republic of Korea Caribbean East Coast of North America/Gulf of Mexico CPP 70k 80k Persian Gulf Japan BDI BCI 2008 Super-Cycle: BDI was at 11,793 ~!!! 14 Feb 1,140 14 Mar 1,484 14 Feb 1,674 14 Mar 2,766 Source: SSE China, UNCTAD SOURCE: HIS Global Insight(ex-DRI WEFA), Analyst & JOC Columnist Professor Ben Hackett, CEO of Hackett Industry: http://www.thehackettgroup.com, methodology with private experience Source: Clarksons (previous- Hanjin Shipping S&P manager and Researcher) 9

Contents What is Eco-ship Where We Are Feasibility (previous- Hanjin Shipping S&P manager and Researcher) 10

Assumptions Technology Development Out-Pacing Vessel Operators Fleet Management Skills Feasibility <Alphaliner 2009 Loop-Cost Study on HAM-SHA > <Alphaliner 2009 Speed-Consumption Study > Source: Alphaliner, Singapore Source: Alphaliner, Singapore SOURCE: Alphaliner, 2009 Slow Steaming Studies, Captain YAN (previous- Hanjin Shipping S&P manager and Researcher) 11

Assumptions Technology Development Out-Pacing Vessel Operators Fleet Management Skills Feasibility 600 500 400 300 200 100 0 Most Recent PEF investment into Shipping Sector Value($mil) Source: Private, ex-hanjin inner research Baltic Exchange Index 1600 1400 1200 1000 800 600 400 200 0 2008 2009 2010 2011 2012 Source: Baltic Exchange, UNCTAD Dirty Tanker Index Clean Tanker Index Post sub-prime PEF Investment into Shipping Sector Riverstone Holdings LLC Zhejiang Marine Leasing Co. Oaktree Capital Oaktree & Goldman Sachs Kelso & Company LP Ontario Teachers Pension Plan Seaborne Intermodal (Lindsay Goldberg LLC) Roullier, Group BPCE Perella Weinberg Southern Cross Latin America Private Equity Funds Leasing company formed by Regions Bank and the Royal Bank of Scotland Global Hunter Securities Trailer Bridge JP Morgan Consortium led by WL Ross & Co. (First Reserve Corporation, China Investment Corporation) Alterna Capital Partners Apollo Management Kelso & Company Littlejohn/Northern Kelso & Company Carlyle Eton Park/ Rhone Capital Greenbriar Equity Group Sterling Partners Fortress Investments Blackstone/Cerberus New Mountain Capital SOURCE: Marine Money, Ship Finance Forum (Singapore), Baltic Exchange (previous- Hanjin Shipping S&P manager and Researcher) 12

Assumptions Technology Development Out-Pacing Vessel Operators Fleet Management Skills Feasibility Handymax and Below(*) Annual $600,000~$700,000 Cost Favor in Addition to Minor Frictions to Supply-Demand Post-Panamax and Above Handymax Annual $250,000~$300,000 Cost Favor in Addition to Less Supply-Demand Frictions New Post-Panamax to ULCS, ULCV (and above) (*) Annual $550,000~$700,000 Cost Favor in Addition, Creation of Additional Volume to Load Full till BEP Level(s) * Handymax and below class container ships are relatively old, but operating at slower speed than main East-West, thus eco-friendly must have additional merits than just fuel-savings ** New Post-Panamax to ULCS, ULCV class are pretty eco-type, and newly designed vessels must be far more competive than their latest design. (i-phone s Cannivalization in Shipping) SOURCE: Private, ex-hanjin inner research (previous- Hanjin Shipping S&P manager and Researcher) 13

Contents Q&A (previous- Hanjin Shipping S&P manager and Researcher) 14

Q & A Hae Joon RHEE Previous Hanjin Shipping S&P Manager and Researcher

MARITIME ECO Ships Chances and Challenges Discussion with Rick RHEE, former Hanjin Researcher Shipping Advisory Hamburg May 21 st, 2014 ECO Ships - Chances and Challenges DNV GL 2014 02.06.2014 SAFER, SMARTER, GREENER (previous- Hanjin Shipping S&P manager and Researcher)

Today s vessels will have to compete against vessels that are 30% more fuel efficient in the future Transportation costs, USD/TEU/1000 NM 2012 2025 CONCEPTUAL Demand Demand Vessel A Market price Vessel A Efficiency increase of new vessels ca. 2,7% p.a. ( = 30% in 13 years) 1 Market price Profitable vessels Unemployed vessels Profitable vessels Unemployed vessels Transport capacity (TEU) ECO Ships - Chances and Challenges 02.06.2014 SOURCE: DNV ㆍ GL inhouse research 1. IMO with respect to required EEDI improvement (MEPC 60/4/14) Transport capacity (TEU) (previous- Hanjin Shipping S&P manager and Researcher) 17

The favourability of new optimized vessels vs. average existing vessels is significant at today s operating conditions Cost composition 1, USD/TEU/1000 NM SPEED: 19 KNOTS 4,500 TEU Reasons for better cost position of new optimized vessels 75-47% Bunker 45 40 Improved propulsion efficiency due to lower rpm Higher efficiency of engines Reduced hull resistance due to optimization for lower target speeds Better specific costs due to higher TEU intake (at 14t) due to less ballast CAPEX OPEX 18 12 25 7 8 Less steel work due to shorter vessels at same capacity Better specific costs due to higher TEU intake (at 14t) due to less ballast Stronger competition of yards for newbuilding contracts Less lubrication oil consumption of smaller engines Better supporting systems of modern engines Less maintenance effort of shorter vessels Better specific costs due to higher TEU intake (at 14t) due to less ballast Average existing vessel Optimized new vessel ECO Ships - Chances and Challenges 02.06.2014 SOURCE: DNV ㆍ GL inhouse research 1. 750 USD/t HFO, operating speed 19 knots, excl. port and canal costs (previous- Hanjin Shipping S&P manager and Researcher) 18

Panamax vessels show the most significant difference between average existing vessels and new optimized vessels Cost composition 1, USD/TEU/1000 NM 2,500 TEU 4,500 TEU 9,500 TEU SPEED: 19 KNOTS 13,1/14,000 TEU 77 75-27% Bunker 50 56 34 45-47% 40 55-35% 33 36 42-31% CAPEX OPEX 13 10 14 12 Average existing vessel Optimized new vessel 18 12 Average existing vessel ECO Ships - Chances and Challenges 02.06.2014 SOURCE: DNV ㆍ GL inhouse research 25 1. 750 USD/t HFO, operating speed 19 knots, excl. port and canal costs 7 8 Optimized new vessel 13 9 Average existing vessel 23 6 7 Optimized new vessel 24 11 (previous- Hanjin Shipping S&P manager and Researcher) 7 Average existing vessel 29 17 6 6 Optimized new vessel 19

Case study Panamax container vessel (1/3) with slow steaming the operating pattern changed strongly compared to initial design Initial vessel design Current operations Saving from slow steaming Main dimensions LPP B D Speed Container (nominal) Container (@14t) Power Fuel oil consumption Actual operations 24.5 kn 22.0 kn 20.0 kn 17.0 kn 14.0 kn Port Speed/draught matrix EXAMPLE Bunker costs, USD/TEU/1000 NM 1 75 37-49% 38 Optimization Meet design speed at design draft at sea trial (full load, one point) Minimize newbuild costs (engineering, building equipment installed) 1. 750 USD/t HFO ECO Ships - Chances and Challenges 02.06.2014 SOURCE: DNV ㆍ GL inhouse research Initial consumption Slow steaming saving Slow steaming (previous- Hanjin Shipping S&P manager and Researcher) 20

Case study Panamax container vessel (2/3) various measures help optimizing the vessel for today s operating pattern Cost composition 1, USD/TEU/1000 NM Item Saving Invest. Payback 1 Saving from retrofitting Bow ~ 6% ~ 600 k USD ~ 9 months Bunker costs, USD/TEU/1000 NM 1 75 Propeller 37-49% Turbo-charger ~ 3% ~ 250 k USD ~ 6 months 38 5 33-13% ~ 3% ~ 250 k USD ~ 6 months Systems ~ 1% ECO Ships - Chances and Challenges 02.06.2014 SOURCE: DNV ㆍ GL inhouse research ~ 80 k USD ~ 8 months Initial cons. Slow steamin g saving 1. 750 USD/t HFO, if measures are implemented during dry docking planned anyway Slow steamin g cons. Retrofitting saving Today s cons. (previous- Hanjin Shipping S&P manager and Researcher) 21

Case study Panamax container vessel (3/3) retrofitting provides advantage vs. market average, but new vessels are out of reach Cost composition 1, USD/TEU/1000 NM SPEED: OPERAT. PROFILE 68-9% -41% 62 Bunker 38 33 40 CAPEX OPEX 16 17 14 12 25 7 8 Whom do you need to beat? The few optimized new vessels currently entering the market? The majority of the 600+ Panamax vessels sailing today? Averag e existing vessel Retrofitte d existing vessel ECO Ships - Chances and Challenges 02.06.2014 SOURCE: DNV ㆍ GL inhouse research Optimize d new vessel 1. 750 USD/t HFO, operating speed according to speed profile, excl. port and canal costs (previous- Hanjin Shipping S&P manager and Researcher) 22

2a A market average of bunker cost in USD per 1,000 TEU nautical miles is calculated based on the operating profiles Each square represent a ship in the current world container fleet (except vessels with missing data) Economies of scale for larger vessels are clearly shown by sinking trend of the USD per 1,000 TEU NM cost curve A large spread in bunker cost per 1,000 TEU nautical miles can be seen for all vessel size groups Source: IHS Fairplay, DNV GL ECO Ships - Chances and Challenges 02.06.2014 SOURCE: DNV ㆍ GL inhouse research (previous- Hanjin Shipping S&P manager and Researcher) 23

ECO Ships Chances and Challenges Dr. Jan-Henrik Hübner Global Head of Shipping Advisory Practice Jan-henrik.huebner@dnvgl.com +49 (0) 40-36149 - 8770 www.dnvgl.com SAFER, SMARTER, GREENER ECO Ships - Chances and Challenges (previous- SOURCE: Hanjin DNV Shipping ㆍGL inhouse S&P manager research and Researcher) 02.06.2014 24

Q & A Hae Joon RHEE Previous Hanjin Shipping S&P Manager and Researcher