DNV GL Trend Report Feb 2015

DNV GL © 2013 SAFER, SMARTER, GREENERDNV GL © 2013

BUSINESS AREA MARITIME – BUSINESS DEVELOPMENT

2015 FEBRUARY

DNV GL © 2013

MARKET SUMMARY ………………………..……………………………………

BUSINESS ENVIRONMENT ………………..……………………………..

CONTAINERSHIPS ……………..…………………………………………………

OIL & PRODUCT TANKERS ………………………………………………

BULK CARRIERS .…………..……………………………………………………….

OFFSHORE ….................…….…………………………………………………

FOCUS ON:

CRUISE VESSELS …….……………….…………………………………………..

MULTI PURPOSE VESSELS ……………………………………...............

GAS CARRIERS ………………………………………………………………………..

3

4

5

11

17

23

30

32

34

DNV GL © 2013

Market Summary

At the same time, liner operators welcome cheap bunkers with

no less enthusiasm. On the negative side, cheap oil may put an

end to many offshore projects, leaving a lot of ships and units

unemployed or even obsolete.

In addition, cheap bunkers tend to favour older ships! New “eco

designs” offer considerable savings, providing that bunkers are

expensive. In the current scenario, an 5-10 year old ship, with

considerably lower capital expenses, will require lower break-

even rates, thus in the overall picture may be cheaper to run

compared to a modern, brand new vessel.

In terms of new contracts, preliminary year-end numbers fully

match our earlier forecast. With 2,755 ships (82,6 mGT) the

newbuilding activity fell by 33% and 23% respectively. It gives

an average monthly contracting of 230 vessels, compared to

over 340 in 2013. The last quarter added 384 new contracts

corresponding to 11,8 mGT.

It was an active quarter for crude oil tankers (33) mainly within

Suezmax and VLCC range. Strong activity within LNG tankers

resulted in 25 more contracts. A contrary development was

observed in the LPG sector where contracting slowed down

noticeably. Twelve more container ships were signed, bringing

the total annual number to 152. Lower activity in the bulk carrier

sector, with 81 new contracts. Low activity levels in the offshore

support sector, with 20 AHTS and 16 PSVs only. For offshore

units, 10 drilling Jack-ups and 2 FPSOs deserve attention.

Falling oil prices have certainly dominated the news recently.

Although the dive started already in July 2014, very few

anticipated that prices would plummet as low as 50$/bbl or even

below! Record high oil production is blamed, however we believe

that perhaps the underperforming economy should be blamed

too. Most of other commodity prices are tumbling down as well,

clearly indicating a lack of demand thus lower industrial activity.

Low oil prices are in general great news for shipping as current

bunker prices hoover around $275/t only. The benefits however

are not so great, as freight rates are falling as well, wiping out

potential savings on the fuel bill. Undisputed short-term winners

are crude oil tankers, which thank to Asian countries stock-piling

process, harvest rates close to $80 000/day.

Cheap oil, good news or bad news?

GLOBAL SHIPPING MARKETSGLOBAL SHIPPING MARKETSGLOBAL SHIPPING MARKETSGLOBAL SHIPPING MARKETS

��

MONTHLY NEWBUILDING CONTRACTSMONTHLY NEWBUILDING CONTRACTSMONTHLY NEWBUILDING CONTRACTSMONTHLY NEWBUILDING CONTRACTS

0

100

200

300

400

500

FebJan Mar DecNovSep OctAugJulJunMayApr

20142013

3

DNV GL © 2013

PURCHASING MANAGERS INDEX

120

80

40

750

500

250

2014201320122011201020092008

500

1.000

1.500

2014201320122011201020092008

-20

40

20

-40

60

2014201320122008 2009 2010 2011

40

45

50

55

60

2012 20132010 20142011

Business Environment

Oil prices tumble to fresh lows

During the second half of 2014, the US dollar made significant

gains against all major currencies. The US economy grew by

almost 5% in the 3rd quarter which allowed the federal reserve

to end its emergency stimulus. In the Eurozone, unemployment

is near to a record high, the economy is still stagnating and the

risk of deflation is growing. In Japan, officials are going all in

with stimulus and during the 3Q2014, China has experienced its

slowest GDP growth rate in five years at 7,3%.

A surplus of global supplies and flat demand continue to pull the

oil market down. Bunker prices and crude oil prices are now

reaching a five-and-half year low. Brent crude has lost more

than half of its value since mid-2014 and now stands at 53 USD

per barrel. The 380 cst Rotterdam ended the year at 278

USD/Tonne, down by 323 USD, or 53% compared to the high of

601 USD reached on the 20th of June 2014.

OIL / BUNKER STEEL / SCRAP

��

Bunker$/tonne

Crude$/bbl

USD

EXCHANGE RATES

Crude (Brent)380cst R’dam

Index

Avg. Demolition Price VLCC (USD/ldt)

Global Steel Price (USD/t)

USD/KRW USD/JPN

USD/CNYUSD/EUR%

China Manufacturing Purchasing Managers Index

4

DNV GL © 2013

Executive Summary| Containerships

So last year, there were lots of examples of liner companies

finding new ways of cooperating, pooling resources, in order to

offer a worldwide network of routes and save costs. For the liner

industry in total, 2014 is expected to turn into a profitable year.

This will probably mainly be achieved by the rather large

contributions of a few strong companies such as Maersk and CMA

CGM. At the same time, there are bound to be some liner

companies that had to cope with a loss in 2014.

For 2015, one of the hopes is that bunker costs will remain low.

The 50% drop in bunker fuel prices year-on-year will benefit

container liners this year as well, even if increased cost for SECA

areas are incorporated. But the question is how long oil prices –

and therefore bunker fuel prices - will remain at these levels.

One possible fear is that liners will increase vessel speed again,

thereby increasing the fleet capacity and adding to oversupply.

For this year, a 7.0%-7.5% global fleet growth is expected,

opposed to a cargo volume growth of 6.5%-7.0%, so this could

put pressure on rates. But if it all works out positively, unit cost

could decrease more than freight rates, leading to a rise in

profitability for liner companies. Furthermore, the introduction of

the mega-alliances in the industry could help improve liners

operational performance (commercial result and reliability).

A new trend seems to have been set with the ordering of ultra

large containerships around 19,000 - 20,500 TEU. Currently,

experts see the size limit in the short term at 22,500 TEU.

The container liner industry is known for its very volatile track

record when it comes to profitability. Looking at the top liner

companies reveals that only half of them were able to turn out a

profit for the 2009-2013 period. However, last year should have

been much better, helped by a strong 6.5% increase in cargo

volume and significant lower fuel cost.

Containership industry regulators played an important role in

2014 as companies reshaped their alliances. We have witnessed

the failure of P3, and the creating of both the 2M and the Ocean

Three alliances. The two other big alliances for the main East-

West routes tightened their cooperation and took on new

members to increase their market power. UASC and Hamburg

Sud announced a global agreement to access each other’s

trades. And when Hapag-Lloyd and CSAV have completed their

merger, they will be the fourth largest liner in the world.

CONTAINERSHIPSCONTAINERSHIPSCONTAINERSHIPSCONTAINERSHIPS

�� Liners increase competitiveness by operating even larger vessels and building stronger alliances

6

DNV GL © 2013

-8

-4

0

4

8

12

16

201620142012201020082006200420022000

Just recently, both the World Bank and International Monetary

Fund have cut their expectations for worldwide economic growth,

despite lower oil prices.

The IMF revised its global GDP growth forecast to 3.5% in 2015

and 3.7% in 2016, compared with previous forecasts of 3.8%

and 4% respectively. The World Bank expects growth of 3% this

year and 3.3% in 2016, compared with previous forecasts of

3.4% for 2015 and 3.5% next year.

For the USA, GDP levels are expected to increase at a higher rate

than previously. For the Euro area, China and Russia, GDP

growth levels were all revised downwards.

Global containerized trade is forecast to grow by 6.5%-7.0% in

2015, after global growth rates of 6% in 2014 and 5% in 2013.

In 2015, for two main tradelanes (Far East-Europe and Far East-

USA), an average growth of 6.0% is expected. For the third

mainlane trade, the transatlantic Europe-USA trade, a 2015

growth of 3.0% is predicted. Non-mainlane East-West trades and

the North-South trades are expected to increase by 6.2% and

7.7% respectively in 2015.

According to the demand forecast, high hopes are set on the Far

East-USA trade, which is forecast to increase by 1.3 mTEU in

2015 (after an 2014 increase of 0.7 mTEU).

% p.a.

200

50

0

100

150

250+7%

+5% +6%

201620152014201320122011201020092008

+7%Other

Transpacific (FE-US) North-South

Transatlantic (EU-US)

Non-Mainlane East-West

Far East-Europe

mTEU

��

Containerships | Demand

USA

EUGlobal

China

GDP EXPECTATIONS

GLOBAL CONTAINERISED TRADE

Global containerized trade is forecast to grow by 6.5%-7.0% in 2015

7

DNV GL © 2013

Newbuilding contracting in 2014 amounted to 152 vessels with

1.1 mTEU, a decline of more than 40% compared to 2013 (both

in capacity and number of vessels). The estimated investment in

2014 sums up to $10.6 billion.

For 2015, a newbuilding volume around 1.5 mTEU is expected.

Newbuilding activity was very high in the first half of 2014, with

a strong focus on ultra large containerships, but then tapered off

for the rest of the year. At the end of 2014, and at the start of

2015, ordering for vessels of 19,000-20,500 TEU began.

The main reason for these ultra large containerships comes from

the ambitions of the four largest containership alliances. In order

to stay competitive, they all want to have lower slot cost due to

economies of scale. And that means sailing with larger vessels.

The group of owners with +18,000 TEU vessels now consist of

Maersk, MSC, CMA CGM, CSCL, UASC and lately Evergreen.

Companies MOL and OOCL are expected to follow soon in 2015.

New financing systems, like the one occurring in Japan with

shipyard Imabari and subsidiary Shoei Kisen, are being seen

more nowadays. In this structure, after collecting capital from

investors, the subsidiary company of the shipyard orders vessels.

The vessels are then fixed on long term bareboat charters to

liner companies.

For the yard, the advantage is to be in complete control

regarding the choice of and cooperation with suppliers.

mTEU

��

Containerships | Supply

(EXPECTED) CONTRACTING

EAST-WEST ALLIANCES NEED +18,000 TEU

VESSELS TO STAY COMPETITIVE

2,0

1,5

1,0

0,5

201620152014201320122011201020092008

<3k TEU8-12k TEU 3-8k TEU>12k TEU

Newbuilding activity tapered off in the second half of 2014. Strong focus on ultra large vessels.

Maersk Line

MSC

China Shipping

CMA CGM

UASC

APL

Hapag-Lloyd

Hyundai

MOL

NYK

OOCL

Coscon

Evergreen

Hanjin

K-Line

Yang Ming

2M Ocean Three G6 CHKYE

+18,000 TEU vessels available or ordered

Without +18,000 TEU vessels, but probably ordering soon

8

DNV GL © 2013

2014 newbuilding contracting for ships above 12,000 TEU

remained on previous year’s level (47 units), as well as the

smaller sized vessels below 3,000 TEU (82 units). Newbuilding

activity in the size cluster of 8,000-12,000 TEU plummeted to

only 23 ships last year (2013: 100). No orders were placed for

3,000-8,000 TEU sized containerships.

Containership deliveries are expected to reach around 1,75

mTEU in 2015, a strong increase compared to a year ago. Vessel

deliveries will be heavily based toward the ultra large vessel

sizes, with more than 40 vessels of +12,000 TEU planned for

delivery.

Scrapping of containerships has helped to some extent in

reducing global fleet growth. In the 2012-2014 period, a total of

1,15 mTEU of containership capacity was scrapped, adding up to

7,5% of the fleet capacity at the start of 2012. In 2014,

containership scrapping amounted to 400,000 TEU, almost 10%

less than in 2013. For 2015, an equal scrapping volume of

around 400,000 TEU is expected.

Containership fleet growth is forecast to reach 7.0%-7.5% at the

end of 2015. In the past two years, the fleet growth was +6.5%

and +5.5% respectively. This means the liner industry will have

to put even more effort in balancing supply with slow steaming,

network optimizations and the scrapping of vessels.

mTEU

mTEU

��

Containerships | Supply

EXPECTED DELIVERIES & REMOVALS

FLEET DEVELOPMENT

0,0

-0,5

2,0

1,5

1,0

0,5

201620152014201320122011201020092008

<3k TEU

3-8k TEU

8-12k TEU

>12k TEU

2015 will see a strong fleet expansion due to deliveries but at the same time lower bunker cost

10

5

20

15

201620152014201320122011201020092008

8-12k TEU>12k TEU <3k TEU3-8k TEU

9

DNV GL © 2013

Containerships | Prices & Chartering

200

150

100

50

0

20142013201220092008 2010 2011

Secondhand prices remained relatively stable in the first months

of 2014, but then started to drop. The average y-o-y price

decrease was 10%. For instance, the price of a 8,500 TEU 5-

years old vessel dropped from $67 million to $60 million in 2014.

Freight rates remained volatile as market fundamentals have not

changed significantly. Freight rates for the Asia-Europe route are

down 27% and the Asia-Med route noted -13% year-on-year.

Asia-US West coast is down 7%, but Asia-US East coast was up

due to port congestion on the other side. The early 2015 General

Rate Increases and the peak season surcharge did not work

fully, which is not a good sign for the rest of the year. The next

possibility for a rate increase will be in February 2015.

mUSD .000 USDper day

Newbuilding prices for large container ships increased only

slightly in 2014. At the end of the year, the average newbuilding

price for the largest containerships was around 3% higher than

12 months before. Price increases have not been that strong as

seen in 2013 (+8,9%), and the current price level is still low in a

historical context.

On the secondhand market, almost 200 container vessels

changed ownership in 2014, an increase of 27% compared to the

previous year. Most notable, the amount of Panamax vessels has

more than doubled (40 ships), and for the first time ever, a

significant number of vessels (12) between 8-12k TEU were sold.

15

5

25

30

20

0

10

2010 2011 20142012 20132008 2009

1,700 TEU

2,750 TEU

3,500 TEU

4,400 TEU

13K TEU new

8.5K TEU 5yrs

8.5K TEU new

6.6K TEU 5yrs

6.6K TEU new

2K TEU 5yrs

2K TEU new

NEWBUILDING & SECONDHAND PRICES TIME CHARTER RATES

�� Prices remain stable, rates still on a low level

10

DNV GL © 2013

Executive Summary| Oil & Products Tankers

92 million bbl/d, it sounds insignificant, but apparently it is

enough to demolish prices by as much as 60%!

OPEC’s so called “open market” game seems to work pretty well

for the time being. Cost of the marginal barrel in the Middle East

remains the lowest, so the region can easily cope with lower oil

prices, at least in the short to medium term. In the US however,

it may prove to be difficult to maintain the output from new

sources. It is believed that 25% of all unconventional wells in the

US have stopped their operations already, as the banks stopped

their credit lines due to low oil prices.

On the other side of the world, Russia which is heavily

dependent on oil exports, suffers tremendously. Russia’s

involvement in the Ukraine’s conflict has been condemned by

the international community and resulted in many economic

sanctions. If you add low oil prices to the equation, the result for

the country is nothing but dramatic.

On the flip side, cheap oil means heaven for the net importers.

In theory yes, however the potential beneficiaries such as

Europe or Asia demonstrate rather moderate economic results

(particularly Europe). One undisputed effect is oil stock-pilling,

especially by Asian countries. It has dramatically increased the

demand for crude oil tankers, lifting their earnings three-fold. In

addition there is a growing floating storage as contango develops

rapidly. There are 21 VLCCs and 12 Suezmaxes currently storing

oil and this number is likely to increase in the next months.

Our previous tanker report was dominated by oil prices, which by

then had plummeted by some 25%. Little did we know that the

final quarter of the year would bring the prices as low as

45$/bbl! But how come?

One of the reasons is that we got used to OPEC taking

appropriate measures every time the oil prices would divert from

the “desired” trend. This time around, OPEC decided to do

nothing! The oil producing countries with Saudi Arabia in

particular decided no to intervene and announced that “they are

prepared to compete in an open market”. As a consequence oil

prices continued to decline.

High OPEC production, combined with increasing volumes of oil

in the US, created an estimated oversupply of some 2 million

bbl/d. Compared to the worlds daily consumption of some

Too much oil will kill you…

OIL & PRODUCTS TANKERSOIL & PRODUCTS TANKERSOIL & PRODUCTS TANKERSOIL & PRODUCTS TANKERS

DNV GL “ORTHIS”delivered 2011, 320 105 DWT, 333.05m Loa

��

12

DNV GL © 2013

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

400

300

200

100

0

-100

-200

20162014201220102008

Preliminary figures suggest that in 2014 the world oil demand

grew by 0.8% to 91,8 mbpd. Not surprisingly, the demand was

driven by non-OECD countries, particularly gaining momentum in

the last quarter due to stock-piling. Looking ahead we expect 1%

growth in consumption in 2015, reaching some 92,8 mbpd.

The decline in oil prices is likely to increase the demand across

many importing nations. In China and India, a 4% growth is

expected. This is due to opening new refinery capacity. It is

expected to add 0,3 mbpd to the existing trade. On the other

hand, Europe is forecast to have a 1% decline in imports due to

weak economic conditions. In the US we expect 1% growth of

demand, due to increased vehicle usage.

The crude tanker demand increased substantially in the last

quarter with rates surging over 80,000$/day in the spot market.

The overall DWT demand is estimated to have risen by 2.7%

driven mainly by the growth in AG-Japan, Korea and China,

where the trade has grown by 10% y-o-y. In 2015, a further

growth is expected on the WAF-FE and India (8% and 7%

respectively).

Although the product tanker earnings improved in the last

quarter, the market was generally weaker than expected. The

DWT demand was around 3.5% but it is expected to grow to

3.8% in 2015, mainly in the long-haul trades.

Millionbpd

mDWT

Great “home run” in the 4th quarter��

Oil & Products Tankers | Demand

GLOBAL OIL DEMAND

TANKER DEMAND DEVELOPMENT

80

60

0.0

100

40

20

0

-20

-40

3.0

2.0

4.0

-2.0

-1.0

1.0

2010 20122008 2014 2016

mio bpd

y-o-y change in %

Product tanker demandCrude tanker demand

y-o-y change product in %y-o-y change crude in %

13

DNV GL © 2013

It seems like it only takes a couple of months of good earnings in

order to entirely change the sentiment. As many as 39 contracts

have been signed in the last 3 months (5 VLCC, 20 Suez, 4 Afra

and 4 Panamaxes). It represents 32% of the annual contracting

in the shortest (due to Christmas) quarter.

Contrary on the products side, where the market has not been

that strong, contracting was very low, with only 11 contracts

placed in the yards (2 LR1 and 9 small Chem/oil tankers). It

represents only 7% of the total 162 product tankers contracted

in 2014.

In the last year there were 50 crude oil tankers corresponding to

10.7 mDWT delivered. It represents a decline of 20% and 25%

respectively when compared to the 2013 result.

On the product side, 265 ships corresponding to 6.1 mDWT hit

the water. Although it represents a 15% decline in number of

ships, in terms of DWT, due to higher average size of newly

delivered tonnage, the output was on the same level as in 2013.

There were 115 crude and products tankers sold for scrapping

last year. It is worth mentioning that 50% of them were single

hull tankers, as from 2015 they are no longer allowed to operate

even within bilateral trades. Total DWT capacity removed was

7.3 mDWT which represents 44% of newly delivered tonnage.

mDWT

mDWT

Newbuilding contracting – change of hearts?��

Oil & Products Tankers | Supply



40

30

20

10

0

50

20092008 2016201520142013201220112010

VLCC

PanamaxSuezmax

HandyAframax

10

30

0

20

-20

40

50

60

-10

2013 201420122010 2011 201620152008 2009

Suezmax

Handy

Panamax

AframaxVLCC

14

DNV GL © 2013

11,410,4

0

5

10

15

20

LR1 Panamax

Grand Total

14,0

VLCC

13,6

Suezmax

13,6

LR2 Aframax

300

400

100

700

0

500

200

600

2009

+3%+2%

20162010 2012 2013 20142008

+3%

20152011

It is nice when things just click. Crude oil tankers owners could

not wish for a better finish of the year. High earnings were

triggered by at least three different factors kicking in at the

same time. First of all the seasonal peak in rates which always

come around November. The effect of that was magnified by

extremely low oil prices which triggered off much higher demand

as many countries (particularly Asia) started stock piling oil. The

third factor that also played significant role in earnings was

tonnage availability. The increased demand for tonnage came in

the time of limited fleet growth, which was caused by low

contracting in 2011 and 2012. As a result it created a shortage

of available tankers on the market sending spot rates in to high

80,000 $/day.

The oil tanker orderbook consists of 820 ships corresponding to

66.9 mDWT. It currently represents 8% and 12% of the existing

fleet respectively. There are 262 Crude oil tankers (48.2 mDWT)

and 558 products tankers (18.6 mDWT).

In 2014 the crude oil tanker demand has grown by 0.7%

compared to the fleet growth of 1.4%. On the product side the

demand for tonnage was weaker than expected at around 3%. At

the same time, the fleet has grown by 4%.

In 2015 the demand for tonnage is estimated at 2.2% on the

crude side and 3.8% within for the product tankers. Expected

fleet growth will be 1.1% and 5.7% respectively.

mDWT

��

Oil & Products Tankers | Supply

FLEET DEVELOPMENT

Order book versus fleet [in %]

Suezmax

Handy

Panamax

AframaxVLCC

%

It is all about crude oil tankers nowadays

15

DNV GL © 2013

Oil & Products Tankers | Prices & Chartering

Average earnings in the crude sector improved substantially with

VLCC spot rates growing from 14,974 $/day in September to a

whooping 60,821 $/day in December!

On the product side there was a two tier development. Clean MR

grew strongly with average spot earnings reaching 25,117$/day

in December (from 11,759 $/day in September). In the LR1 and

MR range the increase of earnings was marginal, up by 5%.

The newbuilding market has not reacted much and the prices

remained unchanged. We did however observe an upswing of the

second hand market where the prices have gone up by some

15%. An average 5 year old tanker cost 89% of the newbuilding

one in December, but in January this ratio grew to 98%.

000.USDPer day

MillionUSD

TIME CHARTER RATES NEWBUILDING & SECOND HAND PRICES

��

000.USDper day

CRUDE OIL TANKER EARNINGS

Rates are up, lifting the S/H prices

70

60

50

40

30

20

10

201020092008 2014201320122011

Handy

Panamax

Afra

Suez

VLCC

140

120

100

80

60

40

20

2014201320122011201020092008

5yrs

Handy

5yrs

Aframax

5yrs

VLCC

120

60

100

80

20

40

2014201320122011201020092008

VLCC AfraSuez

16

DNV GL © 2013

Executive Summary| Bulk Carriers

Iron ore imports to China have been projected to reach more

than 1Bn tonnes in 2016, but the slow-down in steel production

in 2014 now indicates a much more modest growth. Still, iron

ore mining companies are on a heavy expansion scheme which is

expected to increase global iron ore supply heavily for the years

to come, putting further pressure on prices.

Coal imports requirement will depend on the growth in electricity

demand, growth in hydro-power capacity and Chinese politics to

combat their environmental challenges, such as the ban on

import of coal with high ash or sulfur content. This may typically

affect lower import of low-heating value coal from Indonesia and

coal with arsenic content from Australia. It is assumed that coal

prices will continue to remain under pressure as international

supplies are in abundance and demand remains relatively low.

The closure of high-cost mines will continue and total seaborne

coal demand is forecast to grow by only 2%.

Dry bulk fleet growth measured in DWT has reduced from 14,4%

in 2011 and 10,3% in 2012 to 5,7% in 2013 and 4,9% in 2014.

The number of deliveries in 2014 has slowed for the second

consecutive year and scrapping is down 30% in DWT terms

compared to 2013. It is expected that fleet growth will reduce

further to 3,5% in 2015. Total dry bulk trade growth

expectations remain positive with an average growth of around

4% p.a. for the 2015-2016 period, which balances expected fleet

growth, but this in itself will most likely not be sufficient to

initiate a major dry bulk recovery.

The optimism in the dry bulk market was high going into 2014

due to the upbeat ending in 2013 which provided high earnings

in a strong market. The year started on a high note but the

reduced demand for coal imports to China, the Indonesian ban

on exports of unprocessed minerals, the reduced Chinese GDP

growth and the continued fleet expansion managed to derail

freight rates.

Earnings for panamaxes were pushed down to just above 3,000

USD/day in June 2014, well below operating costs. Compared to

2013, the average panamax and capesize spot market rates are

down 5% and 15% respectively. Newbuilding and secondhand

prices continued climbing during the first half of the year but

started to lose ground afterwards. Critical factors for tonnage

demand in 2015 will be Chinese import requirements of iron ore

and coal, which are both quite uncertain.

BULK CARRIERSBULK CARRIERSBULK CARRIERSBULK CARRIERS

��

DNV GL bulk carrier “Aeolian Heritage”delivered 2011. 80,650 DWT. 229m loa

Dry bulk market facing bleak prospects

18

DNV GL © 2013

The Indonesian ban on exports of unprocessed bauxite and

nickel ore resulted in a weak handy/supramax market in the Far

East. Towards the end of the year, the late arrival of strong

exports of iron ore out of Brazil helped the market but proved to

be insufficient to deliver on the promise of 2013, when rates

went up in all segments.

For 2014, Chinese seaborne iron ore imports grew by 15% year-

on-year to total 912.9M tonnes accounting for 69% of global

seaborne iron ore trade. The growth has been driven by a surge

in supply out of Australia which contributed to a near 50% fall in

iron ore spot prices. This in turn has led to the displacement of

some of China’s domestic iron ore which is generally of lower

quality than Australian ore and lies at the top end of the cost

curve. Despite an 15% increase of iron ore import, China’s pig

iron production remained the same as in 2013!

Coal seaborne trade was one of the worst-performing sectors of

the dry bulk industry with Chinese imports being the most

disappointing, resulting in a year-on-year decline of about 26M

tonnes, i.e. around 10%. On the other hand, India increased

their import by around 30M tonnes in 2014.

The 2014 year-end total dry bulk seaborne trade reached 4.5Bn

tonnes, which is a 4% growth year-on-year (+172M Tonnes).

Dry bulk seaborne trade in 2015 is forecasted to grow by 165M

tonnes (4%) to reach 4.7Bn tonnes.

Milliontonnes

Milliontonnes

Weak coal imports from China and Indonesian ban neutralized the strong iron ore demand

��

Bulk Carriers | Demand

CHINESE SEABORNE COAL IMPORTS

CHINESE SEABORNE IRON ORE IMPORTS

0

10

20

30

40

50

60

70

400

600

200

800

0

1.000

% sh

are

s

20142013201220112010

% Others (RHS)

% Brazil (RHS)

% Australia (RHS)

Others

Brazil

Australia

0

10

20

30

40

50

60

70

80

100

0

400

200

300

% sh

are

s

20142013201220112010

% Others

% Indonesia (RHS)

% Australia (RHS)

Others

Australia

Indonesia

19

DNV GL © 2013

The number of deliveries in 2014 slowed to 47.7M DWT (618

ships), down from 61M DWT (786 ships) in 2013 and around

100M DWT in the previous two years. A total of 294 bulk carriers

(15.9M DWT) were scrapped compared to 434 ships (22.7M

DWT) in 2013 and a record volume in 2012 of 571 ships (34.1M

DWT).

In the handymax sector, most of the deliveries were ultramax

bulkers between 60K to 65K DWT with 91 ships delivered. 166

panamaxes, 146 handysize bulkers as well as 54 capesizes and

40 VLBC also entered the fleet in 2014. Most of the vessels

scrapped were handysize bulkers (120 ships) and handymaxes

(80 ships). The average scrapping age in 2014 was 28 years old

which is similar to the previous year.

The weak freight market and firm newbuilding prices led to a

deceleration in the number of newbuilding contracts during Q3

and Q4 2014. Total contracts in 2014 amounts to 765 ships

(65.9M DWT). Within the handymax sector, almost 80% of

contracts (224 orders) have been accounted for by vessels in the

ultramax segment. 161 handysizes (5.9M DWT), 137

kamsarmaxes between 80K to 90K DWT (11.3M DWT) and 72

capesizes (13M DWT) were also ordered. VLBC contracting has

been most prevalent in the newcastlemax sector (200K to 210K

DWT) with orders for vessels in this segment accounting for 60%

of all VLBC ordering in terms of DWT.

mDWT

mDWT

Deliveries slowing down and deceleration in the number of new orders

��

Bulk Carriers | Supply

(EXPECTED) DELIVERIES & REMOVALS


120

80

40

0

-40

201320122011201020092008 201620152014

100

0

120

20

40

60

80

2008 2009 2010 2011 2012 2013 2014 2015 2016

Capesize

VLBC Handysize

Handymax

Panamax

VLBC* > 200.000 dwt Capsize 100-200.000 dwt Panamax 65-100.000 dwt Handymax 40-65.000 dwt Handysize 10-40.000 dwt

*contains Ore Carriers (avg 250.000 dwt) and „Newcastlemax“ bulk carriers (avg 208.000 dwt)

HandysizePanamax

HandymaxCapesize

VLBC

20

DNV GL © 2013

The dry bulk fleet of 11,121 ships (748M DWT) grew

approximately by 4.9% in 2014 which is lower than the 5.7%

growth in 2013. The highest fleet growth rate in DWT terms was

reached by the VLBC sector (+8%) while Capesizes experienced

the lowest growth rate (+2.9%). The panamax fleet growth

slowed to 5.3% in 2014 down from a 10.5% growth in 2013. The

kamsarmax fleet growth had the fastest expansion out of all

bulker sectors with 14.5%.

The current orderbook for bulk carriers stands at 1,848 ships

(155.2M DWT). In DWT terms the orderbook had a net growth

by 5% in 2014. 552 ultramaxes are currently on order which

represent the biggest sector in numerical terms and similar in

tonnage to the VLBC on order. 398 handysize bulk carriers and

389 panamaxes are under construction. 306 kamasarmax

bulkers are on order which represent a stunning 79% of the

panamax orderbook.

At the end of 2014, the bulk carrier orderbook represented 20.7

% of the existing fleet in DWT terms compared to 16.8% at the

end of 2013. The high ordering of Capesize/Newcastlemax in

2013 and up to mid 2014 has cooled off considerably. Instead,

there is increased interest for Ore carriers and Kamsarmaxes,

benefitting from scale of economy and more flexibility with

respect to ports and trading respectively.

mDWT

% basedon DWT

Lower fleet growth still higher than trade growth��

Bulk Carriers | Supply

FLEET DEVELOPMENT

YEAR-ON-YEAR FLEET CHANGES IN %

600

400

200

800

201620152014201320122011201020092008

Handysize

Handymax

Panamax

Capesize

VLBC

25%

20%

15%

10%

5%

0%

-5%

2015 2016201320122011201020092008 2014

Handysize Panamax

Handymax Capesize

VLBC

VLBC* > 200.000 dwt Capsize 100-200.000 dwt Panamax 65-100.000 dwt Handymax 40-65.000 dwt Handysize 10-40.000 dwt

*contains Ore Carriers (avg 250.000 dwt) and „Newcastlemax“ bulk carriers (avg 208.000 dwt)

21

DNV GL © 2013

120

140

100

80

60

40

20

0

2012 2013 20142011201020092008

Bulk Carriers | Prices & Chartering

Capesize newbuilding price peaked in May at 58M USD before

gradually declining by 7% to end the year around 54M USD.

Resale value and 5 year-old prices surged to 65M USD and 53M

USD respectively in April before sliding down, in correlation with

the market conditions. Average newbuilding prices for

panamaxes increased by 4.5% in 2014 but started to be under

pressure during the second half of the year. 5 year-old second

hand prices declined steeply by 21%. Second-hand prices are

likely to face some continued downward pressure for most sizes.

In general, there appear to be few opportunities for shipyards to

increase the relatively low price levels for bulk carriers. Bunker

price cut of 50% since mid-year 2014 may dampen Eco-ship

orders, and rather favor second-hand tonnage.

.000 USDper day

MillionUSD

The reduced coal demand from China, the Indonesian ban on

raw ore exports and continued robust fleet expansion were

responsible for the supply/demand imbalance that drove the

freight rates down in 2014. The decline in oil prices may put

further fuel to the fire, potentially freeing up a substantial fleet

reserve capacity caused by slow steaming.

Spot capesize rates started the year with a quarterly high of

16,298 USD/day but the early gain was eroded and the lowest

point was reach on December 19th at 3,735 USD/day. Average

earnings are down 5% compared to 2013. The Panamax spot

rate started the year at a peak of 14,188 USD/day but continued

to lose value, reaching an annual low of 3,397 USD/day by the

end of June. The annual average earnings are down by 15%

year-on-year.

ONE YEAR TIME CHARTER RATES NEWBUILDING & SECOND HAND PRICES

�� Freight rates and asset prices on a downward spiral

22

80

60

120

0

20

100

140

40

20132012 201420112008 20102009

Capesize

Handysize

Handymax

Panamax

61K Resale Prices

5 yrs P’max

Handymax (61K)

Panamax

5 yrs Cape

Capesize

DNV GL © 2013

Executive Summary | Offshore

Due to the current situation, the ordering volumes for offshore

units were reduced substantially in 2014, and the outlook for

2015 does not look any better. Recently, Clarksons Research has

reduced their contracting forecasts by 30-40% for the major

segments mainly because of the falling oil prices.

The offshore industry is now preparing for tougher times. Last

year proved to be very difficult, but 2015 and 2016 are expected

to be even worse! In the light of diminishing profits the rig

owners are desperately trying to cut their costs. Increased

scrapping of old rigs, suspended dividends, delays and/or

cancellations of contracts as well as deferring costly maintenance

are to be expected.

We have already started to observe increased scrapping activity.

As many as 20 units have already been announced to be

removed from the market and we expect this number to

continue to grow. In addition, cold-stacking of old units has

increased in order to remove the excess capacity.

The rig utilisation rate will continue to go down as the gap

between supply and demand widens. Too many units have to

compete for the same projects, which leads to falling day rates.

As the day rates are moving towards break even levels, fixing

activity is also low.

The offshore market has been under pressure and is expected to

remain oversupplied for at least the next 2 years. The current

overproduction of oil (around 2 mbpd) has its impact on the oil

price and hence the whole offshore industry. In addition more

drilling vessels will enter this falling market in 2015 and 2016.

The drilling contractors have taken the worst hit. Three of the

five worst performers in the Standard and Poor’s 500 index in

2014 were in fact drilling contractors. For example Seadrill has

lost 70% of its stock value, (NOK 85 billion).

As oil companies keep reducing their spendings, more field

developments are being postponed or cancelled.

Challenging times ��

COSL Prospector was built at Yantai CIMC Raffles in China and delivered at the end of 2014. Classed by DNV GL

OFFSHOREOFFSHOREOFFSHOREOFFSHORE

24

DNV GL © 2013

Crude oil prices have been on a steady decline for the second

half of 2014. During the 4th quarter, prices reached the lowest

level since May 2009. To much oil in the market and a lack of

OPEC-intervention are the main reasons for the falling crude oil

prices.

In 2014 there has been a strong growth in oil production, adding

1.98 mbpd, mainly driven by the US shale oil production.

Preliminary OPEC output indicates a fairly stable production. By

the end of 2014, the global production was around at 93.16

mbpd. This is well ahead of the world oil consumption, which

stood at around 91.2 mb/d.

According to Rystad Energy, offshore CAPEX for 2014 have

grown by only 4.9%. This year forecast shows a negative

development of 3.5%. Several oil companies have announced

significant cuts in their E&P spending (20-30%). Nevertheless,

Rystad expects that the prolonged level of low upstream

spending will eventually lead to a lower oil-supply and hence

higher oil prices and also increased investments from 2017-

2018.

Utilisation rates have been steadily falling for the past year, with

jack-up units being less affected compared to the floaters. The

current utilisation rate hoovers around 90%, which is regarded

as low.

X1.000USD

In %, change month on-month

Offshore E&P CAPEX decline��

Offshore | Demand

Offshore E&P CAPEX growth

GLOBAL RIG DEMAND DEVELOPMENT

-20

-15

-10

-5

0

5

10

15

20

25

2014201320122011201020092008200720062005

Floaters

Jack-up

1990 1995 2000 2005 2010 2015 2020 2025 20300

100

200

500

400

300

Forecast

25

DNV GL © 2013

With 550 vessels entering the market in 2014, newbuilding

deliveries have been high. Another 480 vessels are expected to

be delivered in 2015. There will be fewer OSVs, but still a

considerable amount of MOUs. As many as 200 drilling units are

scheduled for delivery in the coming years. But several drilling

units are built on speculation and are likely not to be delivered

on time or even cancelled.

Stacking and scrapping continues, as owners have to reduce

their cost base. A total of 20 old, uncompetitive and capital

intensive floaters have been retired recently. Most of them were

semi-sub drilling units, built in the 70-ties (mainly owned by

Transocean and Diamond). More removals are expected to be

announced.

In 2014 there were only 370 vessels contracted, which is far

behind the number registered in the recent years. In fact it

represents only 40% of the volume contracted in 2007, which

was the record year in terms of ordering.

The MOU contracting will probably also be lower in the next year

(especially drilling units). The uncertainty in the market has held

back OSV owners from contracting new vessels. They seem to

have taken a “wait and see” approach. We expect limited

ordering particularly in the PSV sector as the oversupply

increases.

No. ofvessels

No. ofvessels

Scrap, scrap and then scrap ��

Offshore | Supply



700

600

500

400

300

200

100

201720162015201420132012201120102009

OSVMOU

700

600

500

400

300

200

100

0

-100

-200

201720162015201420132012201120102009

MOU OSV

26

DNV GL © 2013

In 2014 the total offshore fleet has increased by 4.2%. The fleet

growth was highest for the PSVs, where the fleet has increased

by nearly 8%. However, the overall offshore fleet growth is

expected to slow down in the coming years.

The MOU fleet is forecast to grow by 3.5%. Within the drilling

segment we will see the biggest changes. The drillship fleet is

projected to increase by a whooping 15%. In the jack-up fleet,

the growth is estimated to be 5% only, but it is worth

mentioning that it represents as many as 70 units (mostly within

the largest size). Contracting of production units will probably

continue to be low, hence the fleet growth will be limited.

The OSV fleet is expected to grow by 3.3%. The challenges

influencing the drilling industry have started to affect also this

sector. When looking at the support fleet one must not forget

the regional differences. In the last quarter we have observed a

typical slowdown in the North Sea region due to winter season.

In December the first vessels were laid up. Elsewhere we also

observe a slowdown, but it is triggered by different factors. In

the Middle East, as well as in shallow waters GoM, the activity

fell mainly because of low oil prices. Surprisingly, the deep sea

GoM experienced a record high activity in 2014 that still drives

the offshore support fleet.

No. ofvessels

X 1.000vessels

Fleet development slowdown��

Offshore | Supply

MOU - FLEET DEVELOPMENT

OFFSHORE SUPPORT VESSELS – FLEET DEVELOPMENT

1.800

1.500

1.200

900

600

300

0

201720162015201420132012201120102009

6

8

10

12

4

2

0

201720162015201420132012201120102009

Construction vessels

Platform Supply vessels

OSV - Other

AHTS

Semi-Sub

MOU - Other

Jackup

FPSO

Drill ship

27

DNV GL © 2013

Offshore | Prices & Chartering

Last quarter there were no major changes in the newbuilding

prices. The most substantial trend was seen for the large PSVs.

The newbuilding prices have been falling steadily since 2012,

mainly due to the growing market share of Asian yards.

Traditionally large PSVs were built in Europe. Lately more

contracts have been awarded to the Asian yards, however they

are still built to European designs (Ulstein, Rolls Royce and

MMC).

Since the newbuilding prices for floaters have never recovered

after 2008-2009, further development is expected to continue

mostly unchanged. Unfavourable market conditions are certainly

not going to change that.

.000USDPer day

MillionUSD

Charter rates for floaters have been on a sharp decline

throughout 2014. Despite high rig availability, fixing activity has

remained low.

Oil companies have also started to renegotiate existing

contracts. For example Ocean Rig Poseidon, which has

renegotiated the charter with ENI from 600,000 USD/day down

to 450,000 USD/day. In order to compensate for the loss on the

day rate, the contract has been extended by another 12 months.

Other examples are PEMEX renegotiating their jack-up contracts

or Petronas and Saudi Aramco targeting up to 20-30% reduction

on their charters.

TIME CHARTER RATES NEWBUILDING PRICES

�� Renegotiations of charters

0

200

400

600

800

1.000

140

120

100

80

60

40

20

0

2015201420132012201120102009

900

800

700

600

200

100

0

20152014201320122011201020092008

PSV

AHTS

Drillship

Semi-sub

Jack-Up

PSV 4,000 dwt

Floater West Africa- Med/ UDW

AHTS 240t BP

Floater Sth America UDW

Floater GoM UDW

28

DNV GL © 2013

Focus on | Cruise vessels

In Europe, there is the trend of cruise vessel shipbuilding

consolidation. On the other side of the world, the question is

when China will start to build their first cruise vessel? Last but

not least, a ‘new kid on the block’ could show up in the cruise

sector.

Worldwide cruise vessels accommodated approximately 21.7

million passengers in 2014. More than half of them came from

North America (55%), followed by Europe with 30%. UK/Ireland

and Germany each contributed around 1.7 million passengers.

Around 700,000 passengers from China booked a cruise last

year, a figure that is forecast to increase to 1.0 million in 2015.

The story of China and the cruise sector is twofold. First of all,

China intends to build up a strong national cruise industry. The

Chinese government itself is targeting 4.5 million in Chinese

cruise traffic by 2020. For this target, a lot depends on what the

government will do to enable it. Recently, the Chinese

government stated that it want to develop the Beibuwan Bay

towards “one of the world’s top tourist destinations by 2020” and

that it wants to operate three cruise homeports by that time.

Secondly, an increasing number of Chinese tourists is expected

to book a international cruise trip, outside China, to see the

world. Both developments promise a growing number of

passengers on cruise vessels.

The cruise industry is looking into 2015 with optimism, for

several good reasons. This year’s passenger growth is expected

to be around 2.0%, after a similar growth last year. The current

price level of crude oil promises a lower fuel bill for cruise vessel

operators. Furthermore, the overcapacity that was present in the

Caribbean was reduced by redeploying vessels into other

regions. The only possible downside is formed by the increasing

value of the US dollar. For Europeans going on a cruise in the

Americas, this has made it 15% more expensive.

Right now, China is one of the key focus areas in the cruise

world, due to the enormous growth potential. Further focus is on

attracting the younger travelers to cruise trips. Since the

average age of cruise travelers is 46 years, there is a great

number of potential younger passengers not yet reached.

CRUISE VESSELSCRUISE VESSELSCRUISE VESSELSCRUISE VESSELS

��

DNV GL “Norwegian Epic”delivered 2010, 19 decks, 329 m loa1,700 crew / 4,100 passengers

The cruise industry expanding in Asia and looking to attract younger customers

30

DNV GL © 2013

Focus on | Cruise vessels

Virgin will probably not go for second hand, but order two large

cruise vessels for 4,000-5,000 passengers. If they order this

year, they could be operational in 2018/2019. Considering

Virgin, they are in a good position to attract younger cruise

travelers, looking for service & entertainment.

Worldwide, there are around 350 cruise vessels in operation and

40 ships on order. The 2014 increase in capacity was around

3%, or 25,000 passengers. The planned 2015 deliveries will add

another 20,000 passenger capacity on top.

Newbuilding orders for cruise vessels amounted to 14 vessels

with 1.8 mGT in 2014. Although in numbers this is comparable to

2013, the average size of vessels doubled in 2014. In the short

term, around 10-12 cruise vessel orders p.a. are expected for

the period 2015-2017.

The current orderbook of the largest cruise vessels represents a

passenger capacity of 110,000 (20% of the existing capacity).

The delivery of these vessels will add additional capacity

equivalent to the current number two player in the cruise

industry.

Since vessel earnings are driven by revenue generating

passenger capacity, it will be interesting to see how this future

increase will affect cruise holiday pricing and in the end, cruise

operator revenues.

The number one player in the cruise vessel sector, Carnival Corp,

is one of the companies with a strong focus on China. Last year,

Carnival signed an MOU with China State Shipbuilding

Corporation (CSSC) and Italian builder Fincantieri. Recently,

Carnival Corp said it is in talks with state-owned China

Merchants Group Ltd (CMG) to develop a new cruise line for the

fast-growing Chinese market. Furthermore, Carnival has initiated

a first major repair job for a one of its cruise vessel in China,

done by Huaran Dong shipyard (Shanghai).

The number two in the cruise vessel sector, Royal Caribbean

International, has been building up capacity in China over

several years and will send its newest ship, Quantum of the

Seas, to year-round operations in Shanghai starting in summer

2015. Parent company Royal Caribbean Cruises Ltd., through a

venture with Ctrip.com, plans to launch SkySea Cruises in China

with the vessel Celebrity Century.

In Europe, a consolidation of cruise vessel shipbuilding expertise

is taking place. After Meyer Werft took over STX Finland in 2014,

there were rumors about Italian yard Fincantieri looking to take

over STX France. This could open up opportunities for others to

enter the shipbuilding market for smaller cruise vessels.

A possible new entrant to the cruise market is Virgin Cruises,

which has been planning an entry for a couple of years already.

�� Will the planned capacity expansion put pressure on cruise vessel revenues?

31

DNV GL © 2013

Focus on | Gas Carriers

For US ethane and propane production a similar story applies.

Production of these products has increased strongly on the back

of the boom in US tight oil- and shale gas production.

In recent years, a lot of LNG and LPG carriers were ordered

based on these high US export expectations. LPG carriers

newbuilding orders increased strongly in 2013 and in 2014. LNG

carrier ordering peaked in 2014, with newly ordered tonnage

increasing by 65% compared to the year before.

But then, in the midst of the last year, crude oil price started to

drop, altering at least one factor that influences the prospects of

US LNG exports. The outcome will depend on how long the oil

price will stay low, and on the future level of the crude oil price,

all of it very hard to predict.

LPG

Regarding the LPG sector, spot rates for VLGCs reached their

heighest ever peak mid-2014, with $130,000/day for a 82,000

cbm vessel. Towards the end of last year, however, rates had

returned to a level around $60,000/day. In the case of the USA,

last year’s LPG export amounted to 11.5 million tonnes, which is

further expected to increase to 20m tonnes in 2015 and to 30m

tonnes in 2016. The other main exporting region in the world,

the Middle East, has a relatively stable LPG export of 32-33m

tonnes per year (although with prospects to increase it).

In the past couple of years, no other country has caused such

major change in the natural gas market as the USA. Their shale

gas production, which accelerated already in 2006, is expected

to increase by 55% between 2012-2040.

The demand growth for US natural gas comes from the power

generation sector (to replace coal fired electricity plants) and

industrial sectors (fuel for trucks and trains). Further growth is

expected to come from LNG exports, which could start this year.

Future US LNG exports depend on a number of factors, which are

difficult to foresee. It includes the speed and extent of gas prices

moving closer together in global gas markets, as well as the

competitiveness of gas compared to crude oil. Furthermore, the

gas supply growth outside the US plays an important role too.

U.S. U.S. U.S. U.S. NATURAL GAS PRODUCTION FORECASTNATURAL GAS PRODUCTION FORECASTNATURAL GAS PRODUCTION FORECASTNATURAL GAS PRODUCTION FORECAST

�� US shale gas production stimulating vessel orderstr

illio

n c

ubic

feet

Shale gas30

20

60

0

50

40

10

2025 2030 2035 20401990 20102000 20051995 2015 2020

Tight gas Other sourcesShale Gas

Source: EIA, 2014

ForecastHistory

32

DNV GL © 2013

Focus on | Gas Carriers

Ethylene carriers

Thanks to the shale gas revolution, ethane is now available

abundantly in the U.S. and the export market for ethane is

growing. In 2013, the domestic demand for ethane in the U.S.

was 960,000 barrel per day (bpd), while its supply was 1.155

million bpd. This situation of oversupply led to a sharp decline in

the price of ethane, making it more attractive for the chemical

industry. This has led to the a birth of a new class of vessels for

transporting liquefied ethane, having significantly higher carrying

capacities, over longer sea routes such as from the East coast of

the U.S. to Europe and to Asian countries (for instance India).

Beyond that, there are the shale gas and oil developments in

many other parts of the world that could provide additional

Ethane.

Ethane is the base chemical used for making plastic and other

synthetic material. The primary use of Ethane is in the

petrochemical sector, where it is broken down in large

processing systems called “crackers” (by steam cracking) in the

production of Ethylene (which is an alternative to naphtha).

2014 saw a total of 26 newbuilding orders for Ethylene/Ethane

carriers, summing up to 1,0 million cbm (2013: 21 vessels with

0,4 million cbm capacity).

The LPG orderbook has increased strongly, especially for VLGCs.

During the last two years, the capacity of ships on order reached

a level of 46% of the fleet capacity. When delivered, the capacity

increase in the 2015-2019 period would be twice the capacity

that entered the fleet in the 2010-2014 period. For 2015, LPG

fleet capacity expansion is expected to be 15%-17%.

LNG

Last year, total LNG trade reached 243.6 million tonnes, up 2%

compared to 2013. Amongst other factors, the demand for LNG

is pushed by the need to reduce pollution caused by using coal,

but also by the lower price of LNG due to abundant volumes

available in North America.

The LNG orderbook has increased to the current level of 40% of

the fleet, mainly on the back of 2014 strong contracting levels of

almost 10 million cbm capacity (2013: 6 million cbm). The high

number of orders in 2014 for LNG carriers developed as LNG

export projects progressed worldwide (but foremost in the USA

and in Australia).

After this year, the LNG fleet will have expanded by 10%, as was

the case in 2014. This is the reason for a lot of market players to

start worrying about the future earnings outlook for LNG

carriers.

�� Worldwide gas carrier orderbook increased strongly

33

DNV GL © 2013

Focus on | Multi Purpose Vessels

Further threats consist of the growing number of previously

under-developed ports that are now installing box-handling

infrastructure as well as the still continuing containerization

process.

But lets have a look at the cargoes where MPVs can play out

their strongest hand, (heavy lift) cargoes related to engineering,

project and construction business. Here, the story for this year

may be different. These cargoes are, for example, strongly

supported by construction projects in the US related to the

growing volumes of oil and natural gas. Many of the components

for the new construction projects have to be imported, meaning

trading opportunities for heavy lift vessels.

Also the import of tubular steel for oil and gas pipelines is

expected to benefit the MPV sector in 2015.

Furthermore, investments by foreign steelmakers in the US,

which are building new plants to take advantage of cheap natural

gas, could mean additional cargoes for heavy lift carriers.

Demand from the wind power industry for projects in the US is

strong as well and also expected to remain a driving factor as

long as current tax incentives stay in place.

In addition, construction projects in the Middle East and Asia are

likely to create additional demand for heavy lift cargoes, which

could improve the sector in the coming years.

Last year turned out to be a difficult one for MPVs, with rates

generally too low to secure a sustainable business.

MPVs of 12,000 dwt with heavy-lift cranes were getting fixed for

short periods at around $7,000-$9,000/day in 2014, far below

what is needed. With so many owners losing money, further cost

reduction will have to take place if the market situation does not

change in 2015. The question is how?

There is a certain irony in the story of the MPV sector, where the

main problem is not a lack of cargoes, but strong competition

from other vessel types. Ever since the containership and bulk

carriers sectors have been suffering from oversupply, they try to

fill the ship’s holds with typical MPV cargo, subsequently cutting

rates, and in this way taking away MPV cargoes.

MULTI PURPOSE VESSELSMULTI PURPOSE VESSELSMULTI PURPOSE VESSELSMULTI PURPOSE VESSELS

��

MPV “Clipper Helvetia”, delivered in 2013, 17.500 DWT, LOA 161m, 3x 80t SWL cranes, DNV GL class

MPVs stuck between a rock and a hard place

34

DNV GL © 2013

2

10

4

6

8

0

5,0

7,8

2006

5,7

3,8

2004

3,5

1,9

2002

1,1

2001

1,5

2000

1,9

2007

2005

2003

2009

2011

1,51,7

2010

4,5

1,22,0

2013

2014

2008

2,7

2012

Focus on | Multi Purpose Vessels

In the future, we expect to see more orders for vessel which are

designed for special purposes, for instance vessels sized and

designed to transport wind turbine blades or for vessels having

DP2 capabilities for offshore installations. Vessels often operating

in ECA zones are likely to opt for LNG as fuel.

The worldwide MPV delivery volume dropped from 3.8mDWT in

2013 to 2.1mDWT in 2014. Basically all of the deliveries from the

contracting boom years 2006-2008 are now on water. Since the

past years were modest in ordering volume, the MPV sector

could now start to benefit from lower deliveries volumes.

Scrapping activity increased in the post-crisis years 2009-2012

to around 5,0mDWT per year. In 2013, MPV demolition fell to

3.5mDWT. Last year only 2.7mDWT was demolished (327

vessels, with an average age of 33 years).

With relatively few deliveries and a healthy orderbook (6% of the

fleet), the fleet is hardly growing. The supply side of the MPV

sector is therefore in a good shape. MPV earnings in 2015 will be

highly dependant on the rate development in the containership

and bulk carrier sector and on the state of the project market.

An imminent threat for the MPV sector comes from the crisis in

Russia, reducing the potential number of project cargoes.

Furthermore, the low oil price could reduce offshore investment,

reducing the need for seaborne transport of project cargo.

Using a broad definition of multi-purpose vessels, ranging from

small short-sea MPVs to traditional MPVs as well as the semi-

submersibles and the heavy-lifters, total 2014 newbuilding

orders accumulated to 2.0mdwt with 155 vessels (24% below

the volume that was ordered in 2013).

A total of 11 semi-submersibles were ordered last year, ranging

from 17,000–90,000 DWT. The largest semi-sub was ordered by

COSCO Ltd, China and will provide transport for the very largest

offshore structures.

Of the 2014 MPV orders, the larger ones (MPVs above 20,000

dwt were mostly ordered by Chinese, Dutch and German owners,

whereas the orders for small MPVs (below 10,000 DWT) are

mostly connected to Japanese interests.

MPV WORLDWIDE CONTRACTING (MPV WORLDWIDE CONTRACTING (MPV WORLDWIDE CONTRACTING (MPV WORLDWIDE CONTRACTING (mDWTmDWTmDWTmDWT))))

�� MPV sector could start to benefit from the drop in contracting volumes after the 2006-2008 boom

mDWT

35

DNV GL © 2013

SAFER, SMARTER, GREENER

www.dnvgl.com

The Trend Report is published by the Sales & Market Intelligence department.

Contact persons for the respective chapters are:

Market summary, Oil & Product Tankers Jakub Walenkiewicz

Containerships, Gas carriers, MPVs Jeffrey van der Gugten

Bulk Carriers Pierre Pochard

Offshore (Oil & Gas) Viktor Sinding-Larsen

Cruise vessels Helge Hermundsgård, Jeffrey van der Gugten

Philipp WestphalHead of Sales & Market IntelligenceBusiness Development / Business SupportEmail: [email protected]: +49 40 36149 6197

DNV GL Trend Report Feb 2015

Engineering

Transcript of DNV GL Trend Report Feb 2015