Freight market
description
Transcript of Freight market
© Drewry 2012
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Freight market
3rd Annual ConferenceCoal market in India 2013
Rahul | Lead research analystDrewry Maritime Services 27-28 August 2013, New Delhi
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Drewry
Drewry helps client organisations turn uncertainty into opportunity. To chart the ecology of risk and reward so the right decisions can be made. And, whatever the economic climate, enable clients to emerge stronger than before
We achieve this through: Our consultancy team - people with senior management
experience in strategic, financial and operational aspects of shipping related activities. Who can apply a multidisciplinary and tailored approach to solutions provision.
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Drewry
We have unique and exclusive access to a powerful, independent research capability that underscores our consultancy and publishing activities.
From our bases in London, Singapore, India and China, supported by associates across the world, Drewry can deliver world class advice anywhere and anytime. That is why the leading shipping companies, port authorities, government departments and financial institutions choose Drewry.
So the way Drewry sees it is: upturns, downturns, when business leaders need intelligence, they turn to Drewry. For more than four decades, our knowledge of shipping and logistics has helped to transform uncertainty into opportunity, strategy into revenue streams, vision into better business performance.
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Dry Bulk Shipping Market
Source : Baltic Exchange, Bloomberg
Baltic Dry IndexEquity prices of dry bulk vessel
operators
22-M
ay-0
022
-Dec
-00
22-J
ul-0
122
-Feb
-02
22-S
ep-0
222
-Apr
-03
22-N
ov-0
322
-Jun
-04
22-J
an-0
522
-Aug
-05
22-M
ar-0
622
-Oct
-06
22-M
ay-0
722
-Dec
-07
22-J
ul-0
822
-Feb
-09
22-S
ep-0
922
-Apr
-10
22-N
ov-1
022
-Jun
-11
22-J
an-1
2
02,0004,0006,0008,000
10,00012,00014,000
Baltic Dry Index
22-J
un-0
5
22-D
ec-0
5
22-J
un-0
6
22-D
ec-0
6
22-J
un-0
7
22-D
ec-0
7
22-J
un-0
8
22-D
ec-0
8
22-J
un-0
9
22-D
ec-0
9
22-J
un-1
0
22-D
ec-1
0
22-J
un-1
1
22-D
ec-1
1
020406080
100120140160
Excel Maritime Eagle bulk Diana Shipping
o Baltic Dry Index on Feb 3, 2012 at a 25 year low.
o Market corrected sharply after Lehman crisis and have since been low but volatile, mainly due to influx of new building vessels ordered during the boom times.
o Equity prices of listed dry bulk companies have followed generally the same pattern.
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DEMAND SIDE DYNAMICS
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Demand Outlook: Iron Ore will continue to drive the dry bulk market
World steel outlook World iron ore importsChina import: CAGR (2006-12): 14.7% CAGR (2012-18): 8.2%
Steel consumption: CAGR (2006-2012): 3.6% CAGR (2012-2018): 6.0%
Trade 2005:717 mtTrade 2012:1,180 mtTrade 2018: 1,749 mt
On demand side – China is expected to continue to dominate. Iron ore imports are expected to grow at a CAGR of 8.2% during 2012-18.
On supply side, Australia and Brazil would continue to dominate. Whilst some Iron ore expansion plans are being reviewed in the current demand downturn, many of the major miners continue with their expansion plans.
India, a major iron ore exporter, is expected to decrease its exports and increase steel production.
South Africa is likely to become the third largest exporter, replacing India. Longer distances will increase the tonne-miles.
2010 2011 2012 2013 2014 2015 2016 2017 20180
500
1,000
1,500
2,000
2,500
Global steel consumption
Mill
ion
tonn
es
2010 2011 2012 2013 2014 2015 2016 2017 20180
400
800
1200
1600
2000
Iron ore imports
Mill
ion
tonn
es
2010 2011 2012 2013 2014 2015 2016 2017 20180.00
200.00
400.00
600.00
800.00
1,000.00
1,200.00
1,400.00
Iron ore - major importers
EU-15 Japan South KoreaChina Taiwan
Mill
ion
tonn
es
Source: Drewry Maritime Research
Source: Drewry Maritime Research
Source: Drewry Maritime Research
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Demand Outlook: Thermal Coal driven by electricity demand
Rising electricity demand in developing Asia is expected to be the main driver of growth in thermal coal imports. Import demand is projected to be relatively weak in developed economies, as a result of comparatively weaker
economic growth and greater access to natural gas. Thermal coal exports : Indonesia and Australia continue to dominate.
• Colombian exports are expected to increase, which reflects the relatively low cost of production, high energy and low sulphur content of Colombian coal.
• South African exports are forecast to increase as the expansion of rail infrastructure supports increased capacity at the Richards Bay Coal Terminal.
• Mozambique has slowly started exporting coal and will become a significant coal exporter in the long term.. Botswana a long way to go before becomes a significant coal exporter but very likely to become one.
Chinese exports CAGR (2006-12) :-33.6%US exports CAGR (2006-12) :41.6%
2005 trade 468 mt 2012 trade 784 mt 2018 trade 1204 mt
2010 2011 2012 2013 2014 2015 2016 2017 20180
50
100
150
200
250
Thermal coal - major importers
EU-15 Japan S.KoreaTaiwan China India
Mill
ion
tonn
es
2006 2007 2008 2009 2010 2011 20120
20406080
100120140160180200
Thermal coal – major exporters
Australia China Indonesia S. AfricaColombia Venezuela USA
Mill
ion
tonn
es
Source: Drewry Maritime Research
Source: Drewry Maritime Research
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Demand Outlook: Coking Coal driven by steel production
Global coking coal trade expected to grow at a CAGR of 3% The primary driver will be an increase in steel production in China, Coking coal import of China is expected to
witness a CAGR of 16.1% between 2012-2018. EU-27 and Japan to grow at a moderate rate of 3.3% and 1.8% in the next five years. With the investment of Vale, Rio Tinto and many other producers, Mozambique is anticipated to play an
important role in Coking coal export. As Shale gas becomes an influential factor in the US energy mix, the US will become an important coal exporter.
2010 2011 2012 2013 2014 2015 2016 2017 20180
20
40
60
80
100
120
140
Coking coal -mjor importers
China EU-15 Japan S.Korea India
Mill
ion
tonn
es
Source: Drewry Maritime Research
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SUPPLY SIDE DYNAMICS
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Supply Outlook: Dry bulk fleet age profile
At the bginning of this year the average age of overall dry bulk fleet is 11.1 years The Post-Panamax vessel segment is the youngest with just 3.8 years of average age Handysize is the oldest in dry bulk fleet with 15.1 years of average age, which is expected to decline with
increased numbers of demolitions in 2012 Despite lower average age, demolitions in Capesize and VLOC segment is expected to be high in the coming
couple of years in view of low freight market
Source: Drewry Maritime Research
<=80
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15+
020406080
100120140160
02004006008001,0001,2001,4001,600
Fleet: m dwt (left) Orderbook: m dwt (left) Current Fleet - year delivered: number of vessels (right) Orderbook - scheduled delivery: number of vessels (right)
HandysizeHandymax
PanamaxPost-PanaCapesize
VLOCDry bulk
15.19.2
12.43.8
7.610.1
11.1Average age (years)
Mill
ion
dwt N
o. of vessels
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Supply Outlook: Fleet growth continues unabated
Source: Drewry Maritime Research
VLOC Capesize
Post Panamax Panamax
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
(f)
2014
(f)
2015
(f)
2016
(f)
2017
(f)
2018
(f)
(10.0)
(5.0)
-
5.0
10.0
15.0
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
Demolitions Deliveries Fleet
mill
ion
dwt
mill
ion
dwt
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
(f)
2014
(f)
2015
(f)
2016
(f)
2017
(f)
2018
(f)
(20.0)
(10.0)
-
10.0
20.0
30.0
40.0
-
50.0
100.0
150.0
200.0
250.0
300.0
Demolitions Deliveries Fleet
mill
ion
dwt
mill
ion
dwt
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
(f)
2014
(f)
2015
(f)
2016
(f)
2017
(f)
2018
(f)
(2.0)
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
- 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0
Demolitions Deliveries Fleet
mill
ion
dwt
mill
ion
dwt
2003
2005
2007
2009
2011
2013
(f)
2015
(f)
2017
(f)
(10.0)
(5.0)
-
5.0
10.0
15.0
20.0
25.0
- 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.0
Demolitions Deliveries Fleetm
illio
n dw
t
mill
ion
dwt
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Supply Outlook: Fleet growth continues unabated …
Source: Drewry Maritime Research
Handymax Handysize
Total Fleet
2003
2005
2007
2009
2011
2013
(f)
2015
(f)
2017
(f)
(15.0)
(10.0)
(5.0)
-
5.0
10.0
15.0
20.0
25.0
- 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.0 200.0
Demolitions Deliveries Fleet
mill
ion
dwt
mill
ion
dwt
2003
2005
2007
2009
2011
2013
(f)
2015
(f)
2017
(f)
(10.0)
(5.0)
-
5.0
10.0
15.0
- 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0
Demolitions Deliveries Fleet
mill
ion
dwt
mill
ion
dwt
2003
2005
2007
2009
2011
2013
(f)
2015
(f)
2017
(f)
(60.0) (40.0) (20.0)
- 20.0 40.0 60.0 80.0
100.0 120.0
- 100.0 200.0 300.0 400.0 500.0 600.0 700.0 800.0 900.0
Demolitions Deliveries Fleet
mill
ion
dwt
mill
ion
dwt
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Overview of Indian coal sector
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15Drewry | Coal Market in India 20133rd Annual ConferenceLocation of some of the upcoming power projects
Most of the imported coal based power projects are located in coastal states.
Source: Power Producer’s website, Drewry Maritime Advisors
OPG Power P lant (300 MW )
PipavavDahej
New Mangalore Udupi Power Plant II (600 MW )
ThaneReliance Power Plant (1,200 MW )Tata Power Plant (1,600 MW )
Adani Power P lant (640 M W )Visa Power P lant (1,320 MW )
Adani Power Plant (4,620 MW )Tata Power Plant (4,000 MW )
RatnagiriJSW Energy TPP (3,200 MW )Raigarh
Pipavav Energy Power Plant (1,200 MW )Essar Power Plant (2,520 MW )
AmreliJam nagarMundra
Tam ilnadu UM PP (4,000 MW )
Tuticorin TPP (800 M W )
Sim hapuri Energy Private Ltd. (540 MW )
Therm al Powertech TPP (2,640 MW )Krishnapatnam TPP (1,600 M W )Reliance Power UMPP (4,000 MW )
Madhucon and M alaxm i (540 MW )
Krishnapatnam
SRM Energy TPP (1,980 M W )Cuddalore
TuticorinNagapattinam Gemac Energy TPP (1,320 MW )
Visakhapatnam
NTPC Pow er P lant (4,000 M W )Hinduja National TPP (1,200 MW )
Nayachara IslandUniversal Success TPP (1,980 M W )
© Drewry 2012
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Source: Cement Manufacturer Association of India
Most of the cement plants located in Gujarat, Gulbarga, Nalgonda, Chandrapur and Yeraguntla cluster rely on imported coal due to receding coal linkage. As the coal requirement is relatively small they tend to rely on coal traders.
© Drewry 2012
17Drewry | Coal Market in India 20133rd Annual ConferenceSectoral coal demand
Source: Ministry of Coal, Annual Report
Sector-wise coal demand: India (in million tonnes)
Non-coking coal demand grew at a CAGR of 9% in the past six years compared to coking coal demand CAGR of 6.7%.
S. No. Sector 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Estimated2012-13
( I ) Coking Coal
1 Steel/Coke oven & Cokeris 17.3 17.0 16.6 15.9 16.8 17.2 22
2 Steel (Import) 17.9 22.0 21.1 23.5 23.2 29.4 30
Sub-total Coking 35.17 39.02 37.7 39.4 40 46.6 52( II ) Non-Coking Coal
1 Power (Utilities) 307.9 332.4 362.1 380.1 405 460 512
2 Captive Power 28.1 29.3 32.9 38.5 40 40 43
3 Cement 19.7 21.3 20.1 20.8 26 28.9 30.2
4 Steel 17.5 21.0 19.8 22.9 28.8 30.5 35.3
5 Others 54.5 60.4 75.6 79.8 85 90 100
6 Consumption 0.9 0.9 0.9 0.8
Sub-total Non-Coking 428.7 465.3 511.4 542.9 584.8 649.4 720.5Grand total 463.9 504.3 549.0 582.3 624.8 696.0 772.8
India’s power sector drives the coal demand in India. In 2011-12, Indian power utilities generated non-coking coal demand of 460 million tonnes, 14% more than that in 2010-11. In the year 2011-12, demand for total raw coal in India was close to 696.0 million tonnes. On the contrary, total coal production reported 532.8 million tonnes with a gap of about 163.2 million tonnes.
Overall, non-coking coal demand has been growing at a CAGR of 9% since 2006-07 compared to 6.7% CAGR of coking coal. It is reflective of the fact that thermal power generation has grown at a much faster rate compared to steel production capacity growth in India.
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Note: Others include other PSU, TISCO, and Captive Mining & MeghalayaSource: Ministry of Coal, Annual Report 2012-13
Production of coal: India (in million tonnes)
Coal production has not grown since 2009-2010. Production is targeted to increase by 8% in 2012-13.
Company Target 2012-13
Actual Productionupto Dec 12
2011-12Actual upto Dec 11
CIL 464 308.89 291.24
SCCL 54 37.18 35.26
Others 57.2 38.12 37.62
Total 575.3 384.19 364.12
The Coal production all over India during the period 2011-12 was 532.8 million tonnes as compared to the production of 532.7 million tonnes the year before. In 2012-13, however, production of 574.4 million tonnes of coal is targeted. Since 2005-06, production has grown at a CAGR of 4.6% compared to 7.6% growth in demand. Consequently, the demand and supply gap in India has been continuously widening. In 2012-13, as per Government of India estimates, the demand and supply gap is estimated to be very close to 200 million tonnes.
With marginal growth in 2012-13, coal import is expected to increase in coming years.
Production and demand of coal: India (in million tonnes)
-
100
200
300
400
500
600
700
800
900
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13Co
al P
rodu
ction
(Mill
ion
Tonn
e)
Total coal production Total coal demand
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FREIGHT RATE IMPACTING INDIA’S IMPORT
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Coal price and freight rate had a nose dive in 2009
Source: Drewry Maritime Research
We would argue that the co-relationship that existed between thermal coal price and freight rates and coal impots became more prominent as newly designed Eco- Vessels with fuel efficient engines are introduced , which give significantly better voyage economics.
Next slide shows a sound relationship between price/rates and coal imports to India
2002 2004 2006 2008 2010 20120
20
40
60
80
100
120
140
160
180
200
Price - thermal coal (fob)
Richards Bay Indonesia
$/to
nne
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201210,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
Capesize Vessels – 1-year TC rate
$/da
y
Source: Drewry Maritime Research
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High co-relationship between cost of imports and import volume
Source: Drewry Maritime Research
In terms of pure distance, when coal is imported at the west coast of India, there is hardly any difference between importing from Indonesia or South Africa
When coal is imported at the East coast of India, there is signifcant difference in distance between South African cargo and Indonesian cargo
RB-Mundra
Samari
nda-Mundra
RB-Gangav
aram
Samari
nda-Gan
gavar
am2,500
3,000
3,500
4,000
4,500
Distance comparison
Nau
tical
mile
s
Imports to West coast Imports to East coast
20002001
20022003
20042005
20062007
20082009
20102011
20120
20
40
60
80
100
120
140
0
20
40
60
80
100
120
140
8.1 8.4 8.3 12.6 15.624.4 29.0
35.3 36.2
60.175.7
93.7
123.1
Thermal coal imports - India
Indonesia South Africa Others Total
mill
ion
tonn
es
Source: Drewry Maritime Research
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Bigger vessels have started coming to India recently
2007 2008 2009 2010 2011 20120%
10%
20%
30%
40%
50%
60%
70%
80%
Share of coal in various sizes of vessels
Handysize Handymax Panamax Capesize
Sha
re in
tota
l coa
l tra
de
2009 2010 2011 2012 2013 2014 2015 2016 2017 20185,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
1-year time charter rate
Handysize Supramax Panamax Capesize
$/da
y
Freight rates plunged in 2009 giving rise to a sharp decline in cost involved in shipping coal to India
Though rates are expected to improve from next year, they might remain low for next few years making imports a good alternative to domestically sourced coal
Source: Drewry Maritime ResearchSource: Drewry Maritime Research
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HOW TO COPE UP WITH VOLATILE FREIGHT MARKET
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Assessment of shipping options
Time CharterSingle Trip CharterPeriod Charter
Chartering ships on period time charter basis allows the ship owner to calculate the forward cash flow situation more accurately than with the majority of other chartering options. Variable on port and fuel costs
Bareboat Charter
Bareboat charter is similar to period time charter with the added cost of providing for vessel’s operating expenses.
Vessel OwnershipNewbuildingSecondhand
Vessel ownership would provide a hedge against freight volatility, but it requires a considerable capital outlay as well as ship management capabilities. Vessel ownership for longer-haul voyages would require extensive commercial operations to maximise utilisation of the vessel by securing backhauls and potential triangulation voyages. Vessels can be bought and given to vessel management companies to operate it.
There are a number of shipping options which can be chosen for securing freight. The options can vary from spot charter to time charter or vessel ownership depending on the scope of requirements, financial capacity, market conditions etc.
Essentially, charterers can secure freight services on one of two bases. They can either fix vessels to carry a specified cargo (or cargoes) between one or more loading port and one or more discharge port, or they can hire ships for a specified period of time. This choice of charter type influences the division of legal and operational responsibilities and, consequently, financial liabilities between the owner and the charterer. In this context, the term “owner” also includes a disponent owner (i.e., a person or company which has commercial control over a vessel's operation without owning the ship as in a bareboat charter). There are effectively four shipping options:
Voyage CharterSingle (or Spot) CharterMultiple (or COA) Charter
Both offer good scheduling flexibility to the charterer, but spot charter rates are dependent on spot markets and therefore can be very volatile. COA on the other hand, would ensure stable costs through length of COA, but could be variable over duration of project.
Charterers can secure freight services on two bases – for a specified cargo between ports, or for a specified period
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Vessel chartering options
Summary of various charter types
Source: Drewry Maritime Advisors
Fixtures can be primarily be done on two basis: CFR basis (cost and freight) , that is method of selling cargo where seller pays for loading costs and ocean freight. FOB basis (free on board) method of selling cargo excluding ocean freight and insurance, but including loading costs.
There are mainly two bases of fixtures – CFR and FOB basis
Charter types Single Voyage Charter COAs Time Charter Vessel Ownership
Scheduling Great Flexibility High Flexibility Low to medium flexibility Low flexibility
Quantity One voyageCan be any quantity, but for risk management, size should be split up
Limited by vessels’ operational constraints
Limited by vessels’ operational constraints
Time One voyage at a time
Any duration (normally 12 months),but for risk management, length should be limited or linked to port/fuel Costs
Can be any duration (from trip time for a round voyage to7 years)
Life of the vessel
Cost Variable and Volatile – dependent on spot rates
Stable over length of COA, but variable over the length of the project. Faces risk of under or over-performing the market
Stable for length of time charter,but variable over length of project. Variable on port and fuel costs. Faces risk of under or over-performing the market
Stable. Dependent upon when purchased, but typically stable cost over the long term. Variable on port and fuel costs.
Management Highly operational intensive Medium operational intensity Medium operational intensityHigh operational intensity, although some functions can be outsourced
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Strengths Weakness Opportunity Threat Operational Requirement
Short Term Commitmen
t
Spot (or voyage) Charter
(1) Offers great flexibility while scheduling
(1) Freight Cost is highly variable and volatile, dependant on spot rates.
(1) Freight markets expected to remain low over the next 2-3 years.
(1) Port congestion or natural disaster could affect availability of ships, and/or push up freight rates.
Small Team of 3-5 required to look at ship chartering and handle operations including coordinating with port agents and liaise with port authorities and facilitate the associated paper work
COA (any duration, but usually fixed for 12 months)
(1) Offers great flexibility while scheduling
(1) Is prone to fuel and port costs volatility. The charter party would tend to have a Bunker adjustment clause.
(1) Can fix vessel to transport cargo from designated loading port to various destinations and allow to sell CFR
(1) Port congestion or natural disaster could affect availability of ships, and/or push up freight rates.
Small Team of 3-5 required to look at ship chartering and handle operations including coordinating with port agents and liaise with port authorities and facilitate the associated paper work
Long Term Commitmen
t
Long Term Time Charter
(1) Freight Rates are stable over the length of the charter
(1) Is prone to fuel and port costs volatility
(1) Book vessel at the lower end of the shipping cycle and use to sell CFR cargoes
(1) Current oil prices are very volatile, and could push bunker prices quite high in the next few years.
(1) Requires medium to high operational capabilities.
Consecutive Voyage Charter (CVC)
(1) Freight Rates are stable over the length of the charter, but can vary over the project duration
(1) Is prone to fuel and port costs volatility
(1) Book vessel at the lower end of the shipping cycle and use to sell CFR cargoes
(1) Current oil prices are very volatile, and could push bunker prices quite high in the next few years.
(1) Requires medium to high operational capabilities.
Bareboat Charter
(1) Advantages of vessel ownership, but without capital repayment
(1) A bareboat charterer has to meet stringent operational requirements. (2) Is prone to fuel and port costs volatility
(1) Book vessel at the lower end of the shipping cycle and use to sell CFR cargoes
(1) Current oil prices are very volatile, and could push bunker prices quite high in the next few years.
(1) Requires high operational capabilities. (2) Depending on number of vessel acquisitions, a big team would be required to fix loading and discharge programs, vessel maintenance etc
Vessel Ownership
(1) Own vessel can give lowest freight economy
Requires huge capital outlay
(1) Current asset markets are near the bottom of the historical cycle, and therefore a good time for cash rich investors to enter the market
(1) Scheduling flexibility is low, i.e., the charterer might only want fob sales
(1) Requires high operational capabilities. (2) Depending on number of vessel acquisitions, a big team would be required to fix loading and discharge programs, vessel maintenance etc
Summary of chartering options, risk management and operational requirements
Following table shows SWOT analysis
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27Drewry | Coal Market in India 20133rd Annual Conference
Thank you.
We have offices inLondon, Delhi, Singapore and [email protected]
market reports and forecasts consultancy services on the shipping and ports industries
freight procurement benchmarking and advice to importers and exporters
specialist research service and forecast for maritime investors
Rahul – Lead Research [email protected]+91-9868461589
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Contact
UK OfficeDrewry Shipping Consultants Ltd15-17 Christopher Street, London EC2A 2BS, United Kingdomt: +44 (0)20 7538 0191e: [email protected]
India OfficeDrewry Maritime Services Private Limited209 Vipul Square, Sushant Lok-1Gurgaon, Haryana-122002, Indiat: +91 124 497 4979e: [email protected]
Singapore OfficeDrewry Maritime Services (Asia) Pte, Ltd.15 Hoe Chiang Road, #13-02 Tower fifteenSingapore 089316t: +65 6220 9890e: [email protected]
China OfficeRep office of Drewry Maritime Services (Asia) Office 555, 5th floor Standard Chartered Tower, No. 201 Shi Ji Avenue, Pudong District: Shanghai, Chinat: +86-2161826759e: [email protected]
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