Cycle Drivers In The Shipping Markets

Autumn 2003

2

Agenda

• Historical Overview• Analysis by Market• Summary

3

Cycles Across Market Sectors (1 Year TC Rates)

0

5,000

10,000

15,000

20,000

25,000

30,000

80.1 82.1 84.1 86.1 88.1 90.1 92.1 94.1 96.1 98.1 00.1 02.1

$/da

y

Panam ax Bulker (69,000 dw t) Afram ax Tanker (98,000 dw t)Geared Containership (1500 TEU)

4

Performance Over Cycles

-20%

-10%

0%

10%

20%

30%

40%

50%

% p

.a.

BulkerTankerFeeder

RoI by Market Cycle, 1980-2000

Strong Markets Weak Markets

5

What Drives The Cycle?

• Fleet Utilization Rate Is Key

• Fleet Utilization Rate = Dwt Demand/Fleet Size

• Fleet Size Easy To Measure

• Dwt Demand More Difficult– Closely Related To Tonne-Mile Demand– Fleet Productivity Also Plays A Role

6

Tanker Rates vs. Fleet Utilization

4,000

8,000

12,000

16,000

20,000

24,000

28,000

80.1 82.1 84.1 86.1 88.1 90.1 92.1 94.1 96.1 98.1 00.1 02.1

TC R

ates

, $/d

ay

70

75

80

85

90

95

100

Util

izat

ion

Rat

e, %

Aframax TC Rate Tanker Fleet Utilization Rate

7

Key Cycle Drivers, Part 1

• Trade Demand– Linked To Economic Activity

• Booms Often Followed By Busts– Other Exogenous Factors

• OPEC Policies In The Early 1980s

• Japanese Nuclear Power Problems In 2002

• Emergence Of China As Manufacturing Hub In 2003

• Shift From Long-Haul Middle East Oil To Short-Haul

Russian Supplies Likely In 2004

8

Key Cycle Drivers, Part 2

• Fleet Developments– Over-Ordering A Perpetual Problem

• Delivery Lag Of 2-3 Years Results In Delayed Feedback

– Scrapping Helps Balance Market• Low Freight Rates Lead To Increased Activity• Regulations Also Have Impact

9

World Economic Growth

0

1

2

3

4

5

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03

Ann

ual G

DP

Gro

wth

, %

Early 80s: G lobal

Recession

1991-92: O ECD

Recession1997-98:

Asian Crisis

2003: Chinese

Boom

10

Global GDP/Trade Link

Annual 1990-2002

Growth 2003 (Thru Sept)

Economic Growth 3.1% 3.1%

Oil Trade 2.8% 4.1%

Dry Bulk Trade 2.7% 5.1%

Container Trade 6.5% 10.5%

11

China Becomes Global Manufacturing Hub

• Takes In Large Amounts Of Raw Materials– Oil, Iron Ore, Steel Imports Soar

• Adds Cheap Labor

• Churns Out Huge Volume Of Finished Goods– Exports Up 34% In First Half Of 2003 (In $)

• Shipping Demand Skyrockets– Bulkers & Tankers Boosted By Import Activity– Containership Market Driven By Exports

12

China Spurs Shipping Boom: Growth From 02Q1-03Q1

50%

40%

2% 3%

9%

38%

0%

10%

20%

30%

40%

50%

60%

Dry Bulk Import Grow th Oil Import Grow th Container Export Grow th

China Rest of W orld

13

Agenda

• Historical Overview• Analysis by Market

– Tanker– Bulker– Containership

• Summary

14

Tanker Market Cycles

0

3,000

6,000

9,000

12,000

15,000

18,000

21,000

24,000

27,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

USD

/Day

Aframax TC Rate

Post Iranian Revolution Era:High Oil Prices

End 1985:OPEC Expands Output

Oil Prices Tumble

1991-1992: OECDRecession

1990: Tanker OrderbookExceeds 15% of Fleet

End 1997: OrderbookExceeds 15% of Fleet

1999: OPEC cutbacks

15

Tanker Demand

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Tonn

e-M

iles

(bill

ion)

Tanker Tonne-Miles Trend '80-86 Trend '86-93 Trend '93-00

1980-1986(8%) annual decline

1993-20002% annual growth

1986-19937% annual growth

16

Tanker Demand By Importing Region

North America30%

OECD Europe19%

Developing Asia27%

Japan15%

Other9%

17

Rates and Orderbook

0

3,000

6,000

9,000

12,000

15,000

18,000

21,000

24,000

27,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

USD

/Day

0%

3%

6%

9%

12%

15%

18%

21%

Rat

ios

Aframax TC Rate Orderbook / Fleet Ratio (right axis)

18

Scrapping Adjusts To Rates

0

3,000

6,000

9,000

12,000

15,000

18,000

21,000

24,000

27,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

USD

/Day

0%

3%

6%

9%

12%

15%

18%

21%

Scra

ppin

g

Aframax TC Rate Scrapping, as a % of Fleet (right axis)

19

Summary: Tanker Cycles

• Structural Changes Instrumental in Shaping the Cycles: – Single Commodity Increases Potential For Volatility– OPEC/non-OPEC Split An Important Factor

• Orderbook Provides Early Warning Signals• Scrapping as an Adjustment Mechanism

– Regulatory Changes Also Affect Scrapping

20

Tanker Market Outlook

• Orderbook Currently at 24% of the Fleet– Deliveries Likely to Be Very High Thru 2006

• Europe Accelerates Ban On Single-Hulls– IMO Likely To Follow Suit– High Scrapping As A Result

• Fleet Likely to Grow by 2.5%/Year thru ‘05• Can Demand Match this Pace?

– Not Likely, Due To Rising Short-Haul Supplies– But China Is A Wild Card

21

Agenda

• Historical Overview• Analysis by Market

– Tanker– Bulker– Containership

• Summary

22

Dry Bulk Market Cycles

0

3,000

6,000

9,000

12,000

15,000

18,000

80.1 82.1 84.1 86.1 88.1 90.1 92.1 94.1 96.1 98.1 00.1

USD

/Day

Panamax TC Rate

1995: Dry BulkOrderbook at 13%of Fleet Capacity

1983-1984Surge in Ordering

1986-1989Strong Economic Growth/

Limited Ordering

1998:Asian Crisis

23

Dry Bulk Trade

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Tonn

e-M

iles

(bill

ion)

Dry Bulk Tonne-Miles Trend 1980-1999

1980-19982% average annual growth

OECD Recession,Collapse of Russian

Grain Imports

Strong AsianImports

Low SovietGrain Imports

OECD Recession

Asian Crisis

24

Dry Bulk Demand By Importing Region

Developing Asia30%

Japan22%

OECD Europe26%

North America5%

Other17%

25

Dry Bulk Demand By Commodity

Steel-Related39%

Steel Products8%

Steam Coal18%

Grain15%

Other20%

26

Ordering Behavior

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

USD

/Day

0%

3%

6%

9%

12%

15%

18%

21%

24%

Ord

erin

g

Panamax TC Rate Orderbook / Fleet Ratio (right axis)

27

Scrapping Adjustments

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

USD

/Day

0%

2%

4%

6%

8%

10%

12%

14%

16%

Scra

ppin

g

Panamax TC Rate Scrapping, as a % of Fleet (right axis)

28

Summary: Dry Bulk Cycles

• Demand Forecasts Challenging Despite Steady Long-Term Trend: – Industrial Commodities (Steel Generates ~50% Of

Demand)– Energy Related Commodities (Steam Coal)– Grains and Foods

• Ordering Instrumental in Shaping the Cycles: – Ordering Anticipates Demand Growth

29

Dry Bulk Market Outlook

• Orderbook Currently At 14% Of Fleet Size• Fleet Growth Projected to Average 3%/Year

thru 2005• Trade Demand Projected To Grow More

Slowly• China Is The Key

– Slower Growth In Steel Production Expected– But Lots Of Upside Potential

30

Agenda

• Historical Overview• Analysis by Market

– Tanker– Bulker– Containership

• Summary

31

Containership Market Cycles

0

3,000

6,000

9,000

12,000

15,000

80.1 82.1 84.1 86.1 88.1 90.1 92.1 94.1 96.1 98.1 00.1

USD

/Day

TC Rate, Geared 1000 TEU Containership

1990-1995:Decline in Trade Barriers /Orderly Fleet Expansion

1980-1986:Fleet Growth OutpacesDemand by 2:1 Ratio

1986-1990:Limited Fleet Growth 1995-1998:

Surge of Fleet Capacity

1999-2000:Limited FleetExpansion

32

Containership Trade (TEUs)

0

10

20

30

40

50

60

70

80

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

TEU

s (m

illio

n)

0%

2%

4%

6%

8%

10%

12%

14%

16%

Ann

ual G

row

th

Total Trade (left axis, TEUs) 1980-2000 TrendAnnual Volatility (right axis)

1980-20007.2 % average annual growth

33

Container Demand By Region

Developing Asia25%

Japan 8%

Europe23%

North America23%

Other21%

34

Ordering Behavior

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

USD

/Day

0%

5%

10%

15%

20%

25%

30%

35%

40%

TC Rate, Geared 1000 TEU Feeder Orderbook / Fleet Ratio (right axis)

35

Scrapping remains Insignificant

0

100

200

300

400

500

600

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Thou

sand

TEU

s

Total Deliveries, Cellular Fleet Total Scrapping, Cellular Fleet

36

Containership Cycles: Summary

• Structural Changes Play Key Role: – Trade Deregulation and Globalization– Technology (Information Systems, Large Ships,

Terminals, Infrastructure)– Reshaping of Liner Industry (Deregulation/OSRA)

• Ordering Instrumental in Shaping the Cycles• Scrapping Has Had Very Limited Impact

37

Containership Charter Market Outlook

• Orderbook Has Risen To 30% Of Fleet Size• Fleet Growth Projected to Average 9%/Year

during next 2 Years • Demand Projected To Grow By Only

7.5%/Year

38

Agenda

• Historical Overview• Analysis by Market• Summary

39

Summary: Key Factors To Watch

• Global Economic Growth– Is Chinese Economy Overheating?

• Structural Changes– Will Protectionism Reverse Trade Gains?– OPEC vs. Russian Oil

• Always Pay Attention To Orderbook– Quite High Right Now– Scrapping Will Respond To Rates/Regulations

40

Looking Ahead: Marsoft Outlook As Of 03Q4

0

5,000

10,000

15,000

20,000

25,000

30,000

80.1 82.1 84.1 86.1 88.1 90.1 92.1 94.1 96.1 98.1 00.1 02.1 04.1

$/da

y

Panam ax Bulker Afram ax Tanker 1500 TEU Containership