HANDYSIZE & HANDYMAX MARKETS 2008 CONFERENCE Key Strengths and - - PowerPoint PPT Presentation

May 2008

HANDYSIZE & HANDYMAX MARKETS 2008 CONFERENCE

Key Strengths and Concerns of the Handyclass

Slide 2 Source: Baltic Exchange Limited

Note: To be updated from 2005-present

Strong freight rates should continue in 2008, but a multi-year downturn is expected to begin in 2009

$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 $200,000

Jan- 04 M ar- 04 M ay- 04 Jul- 04 Sep- 04 Nov- 04 Jan- 05 M ar- 05 M ay- 05 Jul- 05 Sep- 05 Nov- 05 Jan- 06 M ar- 06 M ay- 06 Jul- 06 Sep- 06 Nov- 06 Jan- 07 M ar- 07 M ay- 07 Jul- 07 Sep- 07 Nov- 07 Jan- 08 M ar- 08 M ay- 08

TC Rate

Handymax - Japan-SK / Nopac rv Panamax - Japan-SK / Nopac rv Capesize - Nopac round v Supramax - Japan-SK / Nopac rv Handysize - SE Asia & S Korea - Japan 30,424 45,159 55,658 112,387 2007 43,684 23,834 18,639 25,473 Handymax/Supramax 32,814 19,634 Handysize 54,448 25,064 21,744 32,451 Panamax 126,723 44,314 46,694 65,308 Capesize 2008 2006 2005 2004 Average TC Rate

Slide 3

• Freight rates will face pressure from significant supply growth in 2009 - 2012, with the total
• rder book at 59% of the current fleet
• The Handymax fleet is estimated to grow 46% from 2008 to 2011, while demand for cargoes

is expected to grow only 10%

• Handymax/Handysize vessels can compete with Panamaxes to transport coal and iron ore
• Handysize vessels are most attractive in terms of supply growth, because they have the

lowest order book

2,584 587 80 545 796 576 No. Total Order Book (2008-2014) 235.114 117.892 9.318 44.928 44.511 18.465 DWT (MM) 59.17% 105.11% 43.62% 40.70% 57.29% 24.38% % of Current Fleet 100.00% 397.330 6,747 Total 28.23% 112.157 626 150+ 5.38% 21.362 153 100-150 27.78% 110.377 1,511 60-100 19.55% 77.696 1,613 40-60 19.06% 75.738 2,844 10-40 % of Fleet DWT (MM) No. Size (DWT 000’s) Total Order Book (incl. Delivery in April 2008)

Source : Fearnleys – Bulk Fleet Update (Apr - 2008)

Strong freight rates should continue in 2008, but a multi-year downturn is expected to begin in 2009 (cont.)

Slide 4

Forward Freight Agreement Rates (Handysize/Supramax)

Source : Clarkson Securities Ltd. dated 15 May 08

Strong freight rates should continue in 2008, but a multi-year downturn is expected to begin in 2009 (cont.)

• Dry bulk shipping demand growth is

expected to be solid over the next few years

• Global steel demand is expected to

increase 5% - 6% in 2008

• China will become more dependent on
• verseas iron ore imports, as older steel

mills are phased out, thereby increasing tonne-miles

• Coal shipments will increase as China

and other Asian countries are expanding their use of imported coal in energy and steel production

52,500 46,750 22,000 31,250 31,250 36,000 41,000 41,500 45,000 33,750 46,750 62,500 60,750 59,500 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 $55,000 $60,000 $65,000 Q1/08 Q2/08 Q3/08 Q4/08 Q1/09 Q2/09 Q3/09 Y2010 Handysize FFA Supramax FFA

Slide 5

• Shallow draft, box-hold vessels are perfect for unitized, high value

commodities, like copper concentrate and aluminum, which are not typically shipped in large quantities

• Market downturn should remove a large number of vessels and pave the way

for more balanced fleet development and earnings over the next 3-5 years

• Flexibility in multi-port parcelling operations, as they can carry most

commodities and can operate in smaller ports with limited loading/unloading equipment

• Storage and production infrastructure and value favor smaller vessels for

smaller stem sizes

• Future greenhouses gas emission trading schemes may be positive for

modern, economical Handyclass vessels

Handysize vessels have a number of unique strengths

Slide 6

• Shipyards have experienced a strong increase in their input factors, such as labor, steel (in

2007, prices rose almost US$ 200 per ton to US$ 900 per ton), and main equipment (prices rose between 10% - 15% in 2007)

• In 2002, 21 yards in China and 9 yards in Korea could build vessels larger than 30,000

DWT; by 2007, the number increased to 82 in China and 22 in Korea

• Yards in China and Korea took three-quarters of all new orders in 2007; on average, 7% of

Korea contracts and 30% of China contacts were delayed for more than 1 month between 2000 – 2007

Source: Baltic Exchange Limited

Comparision of BDI and 5 Years Old Handymax Prices

$1,000 $3,000 $5,000 $7,000 $9,000 $11,000 $13,000 01-Feb-05 01-Mar-05 30-Mar-05 26-Apr-05 24-May-05 20-Jun-05 19-Jul-05 15-Aug-05 12-Sep-05 10-Oct-05 07-Nov-05 05-Dec-05 09-Jan-06 06-Feb-06 06-Mar-06 03-Apr-06 02-May-06 30-May-06 26-Jun-06 23-Jul-06 21-Aug-06 18-Sep-06 16-Oct-06 13-Nov-06 11-Dec-06 15-Jan-07 12-Feb-07 12-Mar-07 09-Apr-07 07-May-07 01-Jun-07 29-Jun-07 27-Jul-07 24-Aug-07 21-Sep-07 19-Oct-07 16-Nov-07 14-Dec-07 18-Jan-08 15-Feb-08 14-Mar-08 18-Apr-08

BDI

$9 $19 $29 $39 $49 $59 $69 $79

US$ million

Baltic Exchange Dry Index Handymax Prices

Even though freight rates are expected to decrease, vessel prices might not significantly move down

Slide 7

World Fleet Distribution - Vessel Owners 15 - 50,000 DWT 11.4% 19.8% 3.3% 8.3% 30.4% 26.8% > 20 Vessels 15 - 19 Vessels 10-14 Vessels 5 - 9 Vessels 1 - 4 Vessels Undisclosed

Source: Fairplay World Shipping Encyclopedia (April 2008)

Even though freight rates are expected to decrease, vessel prices might not significantly move down (cont.)

• The Handysize fleet is rapidly ageing,

and a newbuild program has been limited, so one can expect a shortage of tonnage

• The Handysize/Handymax fleet has a

wide ownership structure, and we believe that there are many capital-constrained players

• Only a few established yards are willing

to build Handysize vessels, so owners must negotiate with relatively new yards in China, Vietnam, India, etc.

• As ports in Asia are steadily expanded

and Handymax vessels are accepted, this could create more difficult environment for Handysize vessels

Slide 8 Source: BIMCO / ISF

Officer Shortages (World Scale)

• 10,000
• 27,000
• 30,000
• 25,000
• 20,000
• 15,000
• 10,000
• 5,000

5,000 10,000 2005 2015 Number of Crews

Effective human resources management is becoming even more critical

• The 2005 BIMCO/International Shipping

Federation survey estimates worldwide crew of 466,000 officers and 721,000 ratings

• It is estimated that there will be a shortfall
• f 27,000 qualified officers by 2015,

which equals 3,000 vessels

• Economies of scale might not favor

Handysize vessels; when qualified

• fficers are in high demand and the same

crew amount is used for a smaller or larger vessel, it makes more sense to

• perate the large vessel
• Smaller vessels with quicker voyages and

more complicated cargoes require more shore staff to operate the vessels and control quality

Slide 9

• The estimated orderbook for bulk carrier, container vessels, tankers, and
• ffshore units is US$ 500 billion through 2012
• If we assume 65% debt financing, it means that debt of US$ 325 billion, or

US$ 81 billion per year, must be secured

• High yield bond markets are not readily available to finance construction risk

at the moment

• Credit will not be sufficient from the commercial bank market to support this

loan growth

• Evidence of owners renegotiating or canceling contracts
• Problems with greenfield yards in China and Korea

It is estimated that more than 30% of all newbuild vessels have not secured debt finance

Slide 10

US$ 650 Songa Offshore ASA US$ 589 Royal Caribbean Cruises Ltd. US$ 900 General Maritime Corporation US$ 845 Teekay Corp. / Teekay Tankers Ltd. US$ 777 Victoria Marine Inc. US$ 1,085 Awilco Offshore ASA US$ 1,300 Prosafe SE US$ 1,500 Seadrill Rig AS Total Size (Millions) Company

Source: Nordea Bank

Large Loan Transactions in 2007

It is estimated that more than 30% of all newbuild vessels have not secured debt finance (cont.)

• Credit markets deteriorated significantly

towards the end of 2007 due to the sub- prime crisis

• Sub-prime writedowns threaten capital

adequacy, cutting lending amounts

• As

loan demand remains strong, amortization has increased with lower advance rate, tighter covenants, and wider credit spreads

• Credit spreads have increased by 50% -

60% in today’s market

Slide 11

• There appears to be some size adaptation to larger parcels to reduce freight

costs per unit

• Migration of demand from Handysize to Handymax vessels could steal market

share away for the smaller vessels

• Container vessels are competing with dry bulk vessels for a number of

reasons: ⇒ Increasing size and quantity of container vessels ⇒ Imbalance in container trade, so low rates are able for repositioning voyages ⇒ More ports of call in the networks of container shipping lines

Container vessels are competing directly for some dry bulk commodities