HSBC Global Shipping Markets Review 2008

Global Shipping Markets Review 2008HSBC Shipping Services

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Global Shipping M

arkets Review

2008

Global Shipping MarketsReview 2008

HSBC Shipping Services Limited

Copyright © HSBC Shipping Services Limited 2008.

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HSBC Shipping Services Limited.

Produced by Aura Design Limited, London 03/08 AD1015

Contents

2 HSBC Shipping Services Limited

Introduction

Issues

Bulk Carriers

Tankers

Containerships

Shipbuilding

Conclusion

Appendix 1: Bulk Carrier Fixtures

Appendix 2: Bulk Carrier Sales

Appendix 3: Tanker Fixtures

Appendix 4: Tanker Sales

Appendix 5: Containerships Fixtures

Appendix 6: Containerships Sales

3Global Shipping Markets Review 2008

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4

Introduction


How the markets can change. This time last year, when

we were writing GSMR 2007, the financial markets of the

previous twelve months were characterised by excessive

liquidity and increasingly large leveraged buy-outs and share

buy-backs fuelling equity market gains in the transatlantic

economies. Now we are faced with the evaporation of

that liquidity, triggered by the unquantifiable scale of the

subprime losses of many global lenders, and paralysis in

the inter-bank loans market. Big corporate takeovers may

no longer be financed and the premier league of investment

banks are recapitalising by issuing equity and selling

convertible bonds to sovereign wealth funds from China,

Asia and the Middle East. The flood of billions of trade and

petro dollars from east to west dwarfs the amount of aid

that has been distributed to the world’s poorer nations over

a much longer period as the roles are being reversed.

Last year we wrote of “strong corporate profits, high oil and

commodity prices, robust equity and housing market gains

and the still low cost of borrowing.” These conditions were

generally beneficial to the whole supply chain from the raw

material supplier at one end, the processing companies

in the middle and the consumer at the other end. Now

most of that has changed. Future corporate profits will be

harder to come by, equity and housing markets are weaker

and consumers and corporates alike are being squeezed

by persistently high energy, food and commodity prices.

Borrowing has become more difficult as credit conditions

have tightened, thus depriving parts of the global economy

the wherewithal to support continued growth. Global

inflation is a real and evident threat although fighting it has

been suspended in the US in favour of monetary and fiscal

stimulus packages aimed at revitalising the economy.

Since August 2007, the Federal Reserve has cut the

overnight federal funds rate by 225bps to 3% and the

futures market is already pricing in a further 75bp cut to

2.25% at its March 18 meeting. This move is primarily

aimed at steepening the forward yield curve to help banks

make money from loans and resurrect the credit markets.

It does nothing to help homeowners, many of whose

mortgage repayments are based around long-dated bonds,

as home loan rates have now returned to September 2007

levels. Their relief comes in the form of the inauguration of

the $168bn stimulus package that returns cash to taxpayers

in the summer. The priority is the banking system first, the

household second. So, consumers are left to suffer higher

gasoline and food prices and lower house and share values.

They will be forced to save even as inflation will erode the

value of their savings.

The pain being inflicted on US homeowners will not

subside quickly as further house price falls are expected.

Neither will the crimp on spending ease anytime soon as

voracious emerging market consumption of energy and hard

and soft commodities will keep gasoline, heating oil, grains

and meat at persistently high and less affordable prices.

Therein lies the big debate for 2008, the extent to which our

increasingly interlinked world is also causing a polarisation

between developed and developing economies. The IMF

rates US economic activity at 21% of the global economy

and, out of that, more than 70% is attributable to the now

struggling consumer. We will examine some of the issues

that affect global demand, which is critical to seaborne

trade, in an effort to gauge whether rising investment and

spending in the emerging world can combine with bank

and home bail out packages in the US to rescue the global

economy, and with it global shipping demand, from

a severe downturn.

The cover design of GSMR 2008 is abstract, as usual, and

this year contains the elements of coal and gold which are

likely to continue featuring prominently in both shipping and

investments in 2008.


By mid March, estimated writedowns have risen to around $150bn.

Financial Markets – All Change Please

2008 started with a heavy sell-off in the world’s equity

markets as fears of a deepening US recession gained

traction. The decoupling theory, espoused by many

economists in 2007, has been unceremoniously jettisoned

by many of its former proponents. The weakening US

housing market is seen as spreading beyond subprime into

prime and exporting itself to similarly inflated markets in

Europe such as the UK, Ireland and Spain. The expectation

of rising job losses in housing-related, retail and financial

services, combined with falling home equity, is set to

reduce consumer spending which accounts for over 70% of

US and two-thirds of UK economic activity. This traditionally

has a knock-on effect on investment at the corporate level

and shrinking profitability, a reversal of the process that led

to soaring profits in 2006 after five years of balance sheet

rehabilitation from the bursting of the dotcom bubble

in the year of 2000.

The problems in financial markets are far from over,

having come to attention as the US subprime mortgage

crisis in August 2007. Now the problems are spreading

throughout the global financial system. A method of

financial engineeering known as securitisation saw

bundles of mortgages being parcelled together and sold

on in tranches with varying coupon rates according to

the perceived level of underlying risk. The triple-A rated

bonds were supposed to be insulated from any fallout

from the lower-lying credits, but it turned out otherwise.

A collateralised debt obligation (CDOs) is the generic

name for a bond issued by securitising assets such as

mortagages (CMOs), loans (CLOs) and bonds (CBOs).

These instruments gained in popularity with banks as a

means of, theoretically, transferring credit risk and freeing

up balance sheet capacity, thus meeting regulatory capital

management demands. But, in their insuring and reinsuring

a circular risk pattern was created and the returning

boomerang is unreognisable, and much larger, than

the one that was despatched.

Widespread mortgage defaults in the US housing market

have caused these securities to be unwound. There has

been contamination from the lowest to the highest credit

tranches and as investors have rushed to exit their positions

the absence of buyers has made it impossible to value

these instruments. Banks have been forced to take massive

writedowns. After the February G7 meeting in Tokyo, the

German finance minister suggested that the losses on

securities linked to US subprime mortagages could reach

$400bn, much higher than the $120bn that global financial

institutions have written off so far and well above the

Federal Reserve’s estimate of losses of $100-150bn1.

There are two more torpedoes in the water in the form

of credit default swaps (CDSs) and the threat that rating

agencies will downgrade the monoline insurers. These

provide a risk transmission mechanism to the broader

financial and insurance markets spilling problems well

beyond the residential houses where it all started.

Shipping Markets – Fundamentals have not Changed

Shipping has been dragged from the shadows in recent

years, following four years of above trend growth since

2003. During that time, the universe of stock market listed

shipping companies has grown considerably, as has the

number of equity analysts that follow them. The freight

futures market has also blossomed with the traded volumes

rising exponentially in recent years. The three main sectors

of dry bulk, tankers and containers enjoyed a synchronised

boom in 2004 but have since gone their own ways as

their own macro supply and demand forces have asserted

themselves. But, overall, they are all in comparitively good

shape. The trends of globalisation, industrialisation and

outsourcing have inspired a boom in commodity demand

that has quite understandably been matched by increasing

demand for ships to move this diverse range of goods to

end-users.

We may be at the early stage of a super-cycle in

commodities but the extractors and sellers of raw materials,

metals, energy, goods and services, wary of earlier false

starts, have been slow to respond to what has become a

sustained increase in demand. They have been reluctant

to invest adequately in new production for fear that the

necessarily time-lagged response would only introduce

new capacity to coincide with the next cyclical downturn.

This happened to OPEC in 1997 which responded to calls

to increase production only to see prices fall to below

$10 per barrel at the end of 1998 after the Asian financial

crisis, the Russian sovereign debt default and the collapse

of LTCM. New investment in mines, railways and ports

has so far failed to meet accelerating demand for raw

materials and steel. In the energy sector, the same can

be said of investment in upstream oil and gas production

and downstream refining. Similar issues affect container

terminals and landside intermodal infrastructure.


2The Fed cut rates from 5.25% in Aug07 to 3% in Jan08. 0.5% in Sep07, 0.25% in both Oct07 and Dec07 and then 0.75% on Jan22 and 0.5% on Jan30, 2008.

In contrast, one area that has seen plenty of investment

is the midstream sector: shipping. Bulging orderbooks for

bulk carriers, tankers and containerships stretch all the

way out to 2012 and include new and larger sizes than

anything seen before. Shipbuilders responded to demand by

increasing existing capacity as well as building new facilities

and the fleet is quickly modernising as a result. While rapid

growth in the merchant fleet creates its own pressures (on,

for example, steel and engine supply, skills and manpower)

it also asks important questions of miners and oil producers.

In 2007 and early 2008, shipowners have suffered from

the inability of exporters to supply sufficient cargo for their

ships to meet consumer demand, whether it be crude oil or

products or iron ore or coal. Much of the blame was put on

weather-related and other reasons beyond human control

but, regardless of the reasons, it was sufficient to seriously

undermine sentiment and negatively impact earnings.

Many financial markets commentators interpreted the sharp

fall in the Baltic Dry Index from mid November as a forward

indicator of slowing demand in the world economy. The

drop in the BDI was largely caused by its Baltic Capesize

Index constituent which fell after installation damage at

Itaguai/Sepetiba in Brazil led its operator, Vale, to declare

force majeure and cancel shipments. This injected capesize

vessels onto the spot market and precipitated a scramble

for cargo ahead of the end-year holidays, thus undermining

rates. As Itaguai is the smallest of four export outlets

controlled by Vale, the reaction seemed overdone although

it may have suited Vale’s agenda in bringing freight rates

down. However, in early January, Rio Tinto also declared

force majeure after a cyclone in the Pilbara region of

Western Australia interrupted rail shipments of iron ore to

port. This amplified the problem as the world’s two largest

iron ore exporters suffered simultaneous delivery outages.

These supply interruptions coincided with ongoing price

negotiations between the shippers and China’s leading

steelmakers with the iron ore sellers rumoured to be

wanting a 70% increase on 2007/8 FOB contract prices.

The new price would commence 1st April 2008 and would

still be cheaper than inflated spot market prices which were

double or more the old contract price. With the tolerance

on current contract quantities in sellers’ option, and with

Chinese stocks being drawn down, this certainly applied

pressure on the steelmakers to fix a deal. Meanwhile

capesize freight was being hammered as some big players

in the futures market were believed to be exploiting this

situation by aggressively selling futures, backed by less

than last done fixtures in the physical market, in order to

bring the indices down. The combination of all these factors

succeeded in driving both sentiment and rates down and

weakness in the large ship segment was quickly replicated

in the smaller sizes.

All of this was unfolding against a backdrop of negative

feedback from financial markets as the bad news that was

being transmitted by the shipping indices was regarded

as further proof of impending global economic weakness.

Precipitous falls in the world’s equity markets and, more

importantly, concerns over the viability of the monoline

insurers and the $2.4 trillion of bonds that they guarantee,

led the Federal Reserve to cut rates on 22 January by an

alarming 75 basis points2 , ultimately causing further fear

in the markets. Congress voted to pair monetary easing

with a fiscal stimulus package worth over $150 billion in

2008 alone in an attempt to re-ignite consumer spending.

This series of events, whether actually related or not,

demonstrates the power of sentiment to reinforce negative

impulses and turn them into self-fulfilling prophecies.

The underlying fundamentals in shipping demand had not

changed and, after damaged infrastructure was repaired,

iron ore shippers have been playing catch-up.

Spenders and Savers Change Places

The dynamics of global demand are now in transition

as spenders (for example, in the US, UK and eurozone)

become savers while savers (for example, in China, India

and the Middle East) become spenders. This rebalancing

process has only just started. US households that mobilised

both secured and unsecured credit to binge on goods from

export-driven overseas economies are now having to cut

back spending in order to pay the bills. The subprime crisis

and falling housing equity has brought to an end the use

of houses as secondary ATMs, and unsecured credit in the

form of credit cards and loans is now less widely available

and is also more expensive. In the meantime, the export

economies of Asia that have accumulated huge dollar

trade surpluses are now faced with the task of generating

increased domestic demand (consumer spending and

investment) in order to compensate for this altered state.

Given the severity of recent falls in equity markets, and

the problems that the subprime crisis has caused so

many leading banks, the Federal Reserve has moved to


slash interest rates and Congress has elected to provide a

massive fiscal stimulus package. It is unclear of the extent

to which the ECB and BoE will also move to ease monetary

policy and whether European governments can temporarily

abandon budget rules in order to head off the ill winds that

are surging across the Atlantic. Their collective propensity to

act is lower than that in the US, in part because of a single

mandate to maintain price stability (with no Fed equivalent

of macro economic oversight) and in part because they are

constrained by EU budget deficit caps and the UK’s ‘golden

rule’ of only borrowing to invest through the cycle. There

is no corresponding mandate in Europe for central banks

and governments to throw lifelines to their economies in

troubled times.

The extraordinary measures being taken in the US to

prevent its economy from stalling invite the question of

what measures are being taken at the other end of the

supply chain. The answer appears to be, not much. Large

export-driven economies, such as China and Germany,

stand to suffer fallout from weakening demand in the

transatlantic economies but both have the capability to

mount a damage limitation exercise by stimulating domestic

demand and increasing investment through a combination

of fiscal and monetary policy measures. During 2007,

China took a sledgehammer to the head of its economy

by restricting money supply growth, raising borrowing

rates and reserve requirements, removing VAT rebates

and imposing export tariffs and closing down small and

inefficient businesses. Given changing circumstances

overseas, now might be a good time to progressively

reverse these strictures.

If part of the accumulated savings in countries such as

Germany, China and the Middle East could be teased out

into the economy then there would be less chance that the

current reflationary actions in the US will simply be delaying

the final point of reckoning. A retooling of global demand

and spending has the potential to iron out the severe trade

imbalances that have built up in recent years. China will

have a forecast current account surplus of about $380

billion in 2007, and foreign exchange reserves of more than

$1.5 trillion, and can thus increase social security payments,

accelerate investment in the rural interior and cajole

corporates into paying higher dividends. Such a sample

of measures would free up money for broader spending.

Equally, Germany’s large trade surplus could allow it to

remove recent tax increases in order to stimulate stagnant

consumption while the Middle Eastern oil economies look

set to continue opportunistic investments in weakened

western financial institutions which serves an important

role in shoring up confidence in an ailing market.

The power of the American consumer is undeniable.

A US investment bank has pointed out that US consumption

reached 72% as a proportion of GDP in 2007, not far short

of $10trn. This compares with about $1trn of consumption

in China and $650bn in India. In 2007, consumer spending

in China rose 17% and is making an increasingly important

contribution to overall growth but compensating for, say,

a 5% (or $500bn) decline in US spending would require a

team damage limitation effort from the wider emerging

markets. Still, in absolute macro terms, an 11.4% rise in

China’s GDP to $3.4trn made a greater contribution to

global growth than did a 2.2% rise in US GDP to $13.8trn in

2007. If adjustments are made for relative prices, in order

to compare relative spending power or purchasing power

parity, then China’s adjusted GDP of $6.2trn is almost half

that of the US and 10% of global output.

Inflation, Exchange Rates and Trade

Inflation is now recognised as a global problem. It puts its

own constraints upon the conduct of monetary policy as a

means of reflating demand as western consumers wake

up to the need to save rather than spend. On 20 February,

WTI crude again hit $100 per barrel on fears that OPEC will

not raise output in the face of persistent high prices, and

rather that it might cut output in order to head off seasonal

demand weakness in the second quarter. Food prices

everywhere are soaring as adverse weather conditions in

major growing areas reduce production, as grain crops are

diverted to ethanol for transportation and as Asian diets

become more grain and meat intensive. The coals and

iron ore raw materials that are needed for steelmaking and

power generation are rising sharply, with iron ore contract

prices up 65% year-on-year in 2008/9 and thermal and

coking coal spot prices at double last year’s contract prices.

Steel prices and base and precious metals are all rising,

nothing is left untouched.

It is countries such as China, India, Russia and the UAE

that are fuelling an emerging markets commodities boom,

forcing up prices in a supply-contrained world. This drives

up prices for everyone. The transatlantic economies, having

outsourced the manufacturing of everything from toys and

shoes to computers and furniture, can no longer exercise

any control over prices. As China raises its factory gate

prices to reflect higher input costs, and as western retailers


3This rose to 8.7% year-on-year in February, the highest since May 1996, maybe influenced by CNY and the inflationary effects of the winter strorms.

eventually have to pass these on to struggling consumers,

symptons of stagflation are evident: higher prices coinciding

with weakening demand, rising inflation coinciding with

weaker economic growth. The US Federal Reserve has

thrown caution to the wind in cutting interest rates by

225bps since August 2007 to 3% today. Other central banks

are being more cautious, concentrating more on containing

inflation. But lower US rates reverberate around the globe,

not least in China where renminbi rates are moving in the

opposite direction, thus putting pressure on the ‘peg’ and

increasing the costs of currency sterilisation.

Lower US rates are ramping up inflationary pulses in China

where headline inflation crept up to 7.1% annualised in

January3. Its $1.5 trillion of foreign exchange reserves are

earning less even as the total grows in line with the rising

trade surplus. The renminbi has been allowed to rise against

the dollar by about 13% since mid-2005 but this accelerated

to an annualised 19% in January. This has helped to

rebalance trade flows, increasing China’s imports while

reducing China’s exports. The weaker dollar has achieved

the converse for America by increasing its exports at the

expense of its imports. Both developments are welcome

from economic, trade and shipping perspectives. But, a

problem for the People’s Bank of China, the central bank,

is that the stronger RmB/dollar exchange rate is causing

it huge losses. As its exporters accrue trade dollars the

PBoC exchanges these for local currency then, in order

to reduce money supply and contain credit risks, it mops

up this excess liquidity by issuing renminbi-denominated

bonds. The coupon rate of these is rising in line with the

strengthening renminbi just as its earnings on its growing

dollar holdings are falling in line with US rates.

The PBoC is making billions of dollars of losses out of this

sterilisation program but needs to remove excess currency

from the domestic banking system. Failure to do so will

only increase inflationary pressure as well as allowing

local officials to continue funding pet projects that tend to

contribute to fresh non-performing loans. Provincial cadres

are judged on local economic growth which mandates

investment in more factories and business parks and

the creation of more houses, roads and jobs. Some local

banks are said to be inclined to fund these projects almost

regardless of the ability of the projects to repay principal,

or even interest. The system can and does lead to land

seizure for development, thus alienating land occupiers,

while encouraging risky property speculation by the urban

classes in an already hot market. This is seen as a recipe

for alienating both the rural and urban populaces, hence the

need to remove liquidity from provincial lenders before it

has the chance to sow the seeds of social unrest. This is

the greatest fear of the central government.

Curbing the rise of social discontent involves various

measures such as increasing wages and improving welfare

for rural workers, providing jobs and housing for migrants

from the countryside and capping food and energy prices.

For several years now the costs of fuel oil, diesel and

gasoline have been allowed to rise from earlier fixed

levels. This has reduced the losses of state refiners which

have had to buy crude oil at rising market prices only to

sell products domestically at losses, only to be partly

recompensed by government at a later date. If the spread

becomes too wide, then the refiners export products

within the region at market prices causing shortages in the

domestic market, inviting state intervention as lengthening

gas station queues and freezing homes breed discontent.

The early 2008 chill was partly caused by the collision of

free-floating coal prices with state-set electricity prices. As

the miners raised coal prices so the power stations shut

down capacity rather than suffer losses.

Now, in the interests of social harmony, the government

is stepping in to cap food prices as the costs of staple

grains and pork soar on the back of shortages and hoarding

by merchant interlopers. The imposition of price controls

on food and the reimposition of price controls on energy

products are backward steps in China’s economic reform

program. Economic reform will happen but at a pace to

be determined by the government as central planning and

social and political stability must always take precedence

over market economics. Trade issues are closely linked to

the RmB/dollar exchange rate, interest rates and inflation

and the former are collectively central to the shaping of

macro government policy in Beijing. Such linkage seems

lost on several outspoken US senators who have long

been calling for a drastic and immediate rise in the

renminbi at the threat of a US backlash in the form of

punitive trade tariffs.

China has always maintained that its currency will

appreciate at a controlled pace that would avoid any

economic disruption. The appreciation is indeed underway

but some of the adverse ramifications are already plainly

visible, thus supporting the Chinese case for gradual


over sudden change. A stronger renminbi is needed both

to reduce the trade surplus, by making exports more

expensive, and to reduce the soaring import costs of oil,

coal, iron ore, base metals, timber, grains, foodstuffs and so

on. Reducing these import costs is probably more important

to social stability than maintaining such a high level of

export growth. Without adequate food and housing many

workers would not be fit to toil in the factories that support

China’s exports. Thus, the strengthening renminbi is a

useful but imperfect anti-inflationary device. The renminbi

should continue to strengthen against the dollar and

China’s imports look set to maintain the current four-

month trend and continue to rise faster than its exports.

The Paradox of Decoupling and Globalisation

Last year’s theory that the emerging markets could

decouple from developed markets has lost some of its

credibility in the eyes of many of its former proponents.

Some of these are stock market analysts who interpreted

in recent falls in all the world’s major stock market indices

either a recoupling process or evidence that emerging

markets are now unable to insulate themselves from fallout

in the much larger transatlantic economies. However, stock

market indices, along with the recently adopted freight

market indices, are only an indication of value sentiment

rather than a true reflection of underlying economic

and trade fundamentals. Decoupling is a misnomer as

at its extreme it implies total separation, but the notion

of severance in economic ties between emerging and

developed economies is at odds with the reality of a

globalising world. A powerful block of emerging economies

is increasing its internal trade, generating stronger domestic

demand and growing at a faster rate than the transatlantic

economies and Japan. They are assertive and they are

closing the gap.

Now it is the emerging economies running surpluses and

the developed economies running deficits and it is the

wealth of the former that is recapitalising the financial

institutions of the latter. Leveraged buy-outs may have

come to a standstill but sovereign wealth funds could,

if permitted, selectively step in to fill the void left by the

leveraged finance arms of banks. Global M&A transactions

are not paused just because bulge bracket banks are

bruised. Rather they are making room for much larger

national funds that have far greater firepower and much

longer investment horizons. Their main challenge is to

appear benign, passive and non-strategic and to this end

they may increasingly link up with local buy-in partners

or support private equity firms that have lost their access

to leveraged loans on cov-lite terms. These emerging

economies can mobilise their trade dollars and unlocked

savings in a sensitive, non-threatening way to compensate

for trade deficits and absent savings in the developed world.

They should be allowed to do so; role reversal and dented

pride should not derail the process.

The two-speed development that we see unfolding is more

appropriately one of increasing interlinkage through freer

trade, the freer movement of capital and labour across

borders and increased political and social engagement

between the two in the interests of fighting poverty,

climate change and social injustice. Globalisation is also

a process rather than an achievable objective, as increased

interaction between the developing and developed

world creates frictions that undermine the process itself.

Current account imbalances and accruing trade and

petrodollar surpluses in Asia and the Middle East have

stirred protectionist impulses in the West that could block

freer trade. But, while the accrual of large surpluses can

antagonise debtor nations, it is difficult to see how the

latter can object to those surpluses being used to overcome

recent liquidity problems amongst a handful of American

and European banks. Beggars cannot be choosers, and

not all sovereign investors have ultimate strategic aims.

One could argue that in bailing out the world’s largest

investment banks from their subprime woes, the sovereign

wealth funds have now completed the circle. It started

with the post dotcom recession of 2001, a year in which

the Fed cut interest rates from 6.5% to 1.75% with rates

bottoming out at 1% between mid-2003 and mid-2004.

This pulled the country out of recession but also created

asset bubbles in property and equities fuelled by the

availability of cheap credit. Excessive US consumer

spending helped the export-orientated Asian economies

build ever-larger dollar surpluses which were then recycled

into US treasuries and other dollar assets in attempts to

keep US interest rates down, the current account deficit

well-funded and the consumer in the shopping malls.

The subsequent sequence of seventeen 25bps rises in

rates in the two years between mid-2004 and mid-2006,

needed to sustain adequate capital inflows to finance

the widening deficit, caused inevitable distress to

many homeowners on floating rate mortgages.

The ensuing defaults in the subprime sector soon spread

into the prime sector and the crisis that was expected to

hit borrowers mutated into a problem for lenders as both


4Based upon Revised Purchasing Power Parity

their forecasting and securitisation models broke down.

The acronyms of CDO, SIV and CDS leaked into the

vernacular as banks began to realise that even the highest

rated tranches in their sliced and diced securities were

being contaminated by the worst. Analysing the extent

of losses and liabilities became difficult as the paper

trails were so complex and intertwined with little clarity

as to who ultimately held the underlying default risk.

Instruments that were designed to limit and isolate risks

actually transmitted and propagated them into the global

financial system. The interbank market broke down and the

credit markets seized up, prompting Fed and ECB liquidity

injections totalling $660 billion. That bought time for the

banks to start identifying their losses and to seek external

funds to recapitalise their battered balance sheets.

The sovereign wealth funds of China, Singapore, other Asia

and the Middle East stepped in to prevent a financial crisis

that began in the US from becoming a global economic

meltdown. They have used dollar gains that have been

accumulated from selling manufactures, services, oil and

gas to the transatlantic economies, to shore up their own

interests as stakeholders in the global trading system in

which each needs the other in an increasingly connected

world. Meanwhile, the paradoxical decoupling process

has really proven to be a link-chain of opposites: saver

and spender, seller and buyer, surplus and deficit, lender

and borrower, rescuer and rescued. They have become

positioned at opposite poles of what appears to be a zero

sum trading game. In order for the game to continue, an

orderly reversal of roles is required to create better balance

and in a more stable and sustainable trading environment.

Decoupling and globalisation are but opposite sides of the

same coin.

How Reliant is China on Exports?

China is credited with having generated as much as

80% of the growth in dry bulk demand over the past five

years. Thus, if China were to be severely impacted by a

US recession then we could expect the dry bulk trades

to suffer in tandem. In attempting to assess the risks to

Chinese growth it is worth remembering that GDP has

expanded at a trend rate of 8% over the last thirty years

since Deng Xiao Peng opened the country up to foreign

trade in 1978. In recent years China has enjoyed accelerated

double-digit growth with an estimated 11.4% in 2007.

Most forecasters do not expect a fall below 10% in 2008 as

the central government is committed to creating jobs and

increasing prosperity or risk serious social unrest. China’s

resilience to external shocks depends upon the extent of

its reliance upon exports and its ability to increase domestic

consumption and spending to compensate for slowing

overseas demand.

On 30 January 2008, US GDP figures were released by

the commerce department showing that the economy

grew by only an annualised 0.6% in the last quarter of

2007 after 4.9% in the third quarter. This suggests that the

$13.8 trillion US economy may already be in the process of

sketching out a recession. Only the day before, the IMF4

forecast that US growth would slow to 1.5% in 2008 from

2.2% in 2007 and that world output would fall from 4.9%

last year to 4.1% this year. It sees the Euro-15 sliding from

2.6% to 1.6% and Japan from 1.9% to 1.5%. Emerging

markets and developing economies are expected to expand

by 6.9% in 2008 after 7.8% in 2007. Developing Asia is

forecast to fall from 9.6% to 8.6% while China will slip from

11.4% to just 10.0%. Africa is predicted to grow from 6.0%

to 7.0% and the Middle East to maintain momentum by

posting 5.9% in 2008 after 6.0% last year.

With slower growth in the developed world economies

the degree of China’s dependence on exports becomes a

relevant debate, although there is no consensus as to its

true extent. In 2007, total exports were about 1.3 times

total imports but in the last quarter imports exceeded

exports by value in each of those three months. It is also

worth bearing in mind that China is a large processing

centre at the heart of an Asian swap-shop that imports,

exports and re-exports raw materials, semi-finished and

finished products. The earliest manifestation of this was

in the 1980s when traders would fund the purchasing of

iron ore for cash-strapped Chinese steel mills and only

get payment, plus margin, some months later when the

exported pigiron or finished steel was paid for by, for

example, the Japanese purchaser. The system is now

much more complicated and the traded goods range

from low-value to high-tech.

Headline figures suggest that China’s exports surged

from 20% of GDP in 2001 to almost 40% in 2007, making

exports a key driver of growth and implying that the country

is vulnerable to a consumer slowdown in the US and

Europe, the main recipients of the finished goods. However,

a recent study by The Economist concluded that the 40%

figure is misleading as it does not compare like with like,

exports being measured as gross revenue while GDP is

measured in value-added terms. If exports are measured in


purely value-added terms, then the true export share is just

under 10% of GDP making China slightly more exposed to

exports than Japan, but less export-dependent than either

Taiwan or Singapore. In early January, Singapore reported

a contraction in its GDP in the fourth quarter of 2007 which

was partly attributed to weaker exports. Finally, only

6% of China’s total workforce is engaged in export-

orientated manufacturing.

This would indicate that China is far less vulnerable to a US

slowdown or recession than the headline export figures

suggest. This notion is supported by anecdotal evidence

from the 2001 IT market collapse when the annual rate of

growth in China’s exports fell by 35% from peak to trough

in the 2000-2001 period, yet overall GDP growth contracted

by less than 1%. Furthermore, even though the headline

exports-to-GDP ratio has nearly doubled since 2000, the

value-added share of exports in GDP has been quite stable

rising from about 7% to just under 10%. The Economist

explains this by China’s gradual shift in focus from exports

with a high domestic content to new export sectors that

use more imported components. Thus, value-added exports

have risen by far less than gross export revenues meaning

that China is not as exposed as is commonly assumed to

weaker exports to the US.

The Economist tells us that developing countries have seen

their exports as a percentage of GDP rise from just over

25% in 1990 to just under 50% today. Exports to America

have already crumbled. In 2007, growth in China’s exports

to the US slowed to 5% in dollar terms compared to a 60%

rise in its exports to fellow BRIC members (Brazil, Russia

and India) and a 45% rise in its exports to oil producing

nations. Half of China’s exports now go to emerging

economies. South Korea’s exports to the US fell 20% in the

year to February 2008, but total exports rose 20% thanks to

developing country demand. In 2007, emerging economy

exports to the US have now fallen to 13% of the total while

their exports to China have risen to 16% of the whole.

The BRICs, which are the four largest emerging economies,

accounted for 40% of global GDP growth in 2007 and are

the least dependent on the US. Exports to the US account

for just 8% of Chinese GDP, 4% of Indian, 3% of Brazilian

and 1% of Russian.

The aforegoing figures would seem to present a compelling

argument in favour of decoupling, in the sense that the

emerging economies are replacing falling US demand by

trading amongst themselves. This is a tough reality for

America to accept, but it is music to the ears of anyone

involved in shipping and trade. Moving away from exports,

the other plank in global demand is domestic consumption

and investment. Consumer spending rose three times

faster in developing countries in 2007 than it did in the

developed world with HSBC economists observing a 17%

rise in real capital spending in emerging economies in 2007

compared with just 1.2% amongst developed nations.

Furthermore, just 15% of investment in China is linked to

exports whereas over half is pumped into infrastructure and

property. Lastly, over 95% of China’s growth in the year to

Q4 2007 came from domestic demand.

In conclusion, China is a lot less reliant upon exports in

general, and exports to the US in particular, than is often

perceived. Only 7% of total investment is directly linked

to export production, rising to 14% if adding in indirect

domestic inputs. Much further investment is still needed in

residential housing and infrastructure to support 15 million

people a year moving into cities. Central government can

be expected to fast-track such spending if there is any need

to compensate for a slowing export contribution to growth,

as it has both budgetary and monetary tools at its disposal.

Given Beijing’s limited success in slowing the economy via

higher borrowing rates and bank reserve requirements and

tighter money supply, a natural slide from 11.4% to say

around 10.0% GDP growth in 2008 may be just the ticket in

helping to relieve inflationary pressures at home.

An American Obsession with Energy Security

Even if one does not believe in the ‘peak oil’ theory, then

one should at least ackowledge that most of the easily

extractable oil has already been found. The biggest oil fields

in the world such as Saudi’s Ghawar, Kuwait’s Burghan and

Mexico’s Cantarell are all recognised as being in decline.

The biggest find of 2007 was offshore Brazil in the Tupi

field where initial estimates by Petrobras put recoverable

reserves at 5-8 billion barrels, that is between 36% and

58% of Brazil’s proven existing reserves of 13.9bn barrels

at end 2007. 25% minority partner BG puts the figure at 9bn

(about the size of Norway’s reserve base) with the potential

for up to 18bn barrels of oil equivalent. This will eventually

help Brazil to become a major net exporter of crude oil

and products to overseas markets. The trouble is that the

deposit lies beneath 2,000m of water and a further 4,000m

of salt and rock. Total development costs are estimated at

$70-120bn and production start-up would not be

before 2012-2013.


Tupi is the world’s largest oil find since a 12bn barrel

discovery in Kazakhstan in 2000. Oil production is in decline

in Indonesia, Mexico, Iran and the North Sea with output

from Venezuela and Nigeria well below earlier levels.

Persistently high oil prices and America’s stated ambition

to reduce dependence on overseas energy suppliers are

playing in favour of ethanol in fuel and the exploitation of

Canada’s tar sands. These alternative supplies, native to

North America, respectively rely upon massive subsidies

and high oil prices for their raison d’etre. The destruction of

330 square kilometers of forest around Fort McMurray in

Alberta, the heart of the oil sand operations, is testimony to

the end of the era of easy oil. Daily output is now 1.2m-bpd

which is expected to reach 6m-bpd by 2050 as an area the

size of Florida is laid waste in pursuit of 175bn barrels of

recoverable oil. To put this in context, the world’s largest

producer, Saudi Arabia, is credited with 259bn barrels of

recoverable reserves.

Oil sands are now making up an increasing portion of

Canada’s 3.2m-bpd crude oil output, although at some

cost to the nation’s green credentials having ratified the

Kyoto Protocol in December 2002. A recent Bloomberg

environmental impact study analysed the energy intensive

process of separating bitumen from sand and converting it

into usable oil. Each barrel of crude from oil sands requires

the processing of two tonnes of sand (the weight of a

Toyota Highlander SUV); needs 250 gallons of water (the

daily consumption of a US family of four); consumes 1,400

cubic metres of natural gas (enough to heat an average US

home for 5.6 days) and produces 110 kilograms of carbon

dioxide equivalent (the same as producing three barrels

of light crude). A barrel of this synthetic crude costs $50,

including mining and refining, whereas existing oil fields in

the Middle East have an average cost of $10 per barrel.

The United States is responsible for almost 6 billion tonnes

of carbon dioxide emissions annually, 25% of the world’s

total. However, US emissions rose only 2.3% between

2000 and 2005 compared to Canada’s 13% to over 631

million tonnes, according to the US Department of Energy.

The oil sands industry must be a significant contributor

to this rise as, on a per capita basis, Canada only just lags

behind the US at 19.2 versus 20.1 tonnes. By way of

comparison, Germany is half of the US figure, France one-

third and Brazil is less than one tenth. This illustrates how

desperate the search for new and unconventional sources

of oil has become. The emphasis is now on new finds

regardless of environmental risk or technological challenge

rather than upon conservation and restraint. Maybe North

America is resigned to the IEA forecast of a doubling of

vehicles on roads by 2030 as China and India weigh in.

Food on the Table or Fuel in the Tank?

Everyone, everywhere is aware that food prices are rising

just as they are conscious of high gasoline and heating oil

prices. These volatile food and energy components are

included in headline inflation figures but excluded from

the core inflation figures that most western governments

use to assess price stability. Upward pressure on both raw

material input prices and factory gate output prices are now

commonplace from China and India to the US and UK.

The monetary policy reaction in the US has been to slash

interest rates in order to assist the banking system. This

is being done regardless of the devastating effect this

is having upon the value of the dollar and the collateral

damage that is being inflicted upon consumers and

spenders worldwide as prices inflate. In contrast, the ECB

and BoE are being much more cautious as they focus on

price stability and inflation control while the BoJ has no

monetary weapon with rates already effectively at zero,

a fast rising yen and no room for manoeuvre.

The exploitation of oil sands for fuel is based upon fear

of being cut off by occasionally hostile overseas energy

suppliers. The adoption of corn for ethanol production for

use as a gasoline additive is an extension of the same fear.

If the two together enable people to keep driving their

cars at the same time as providing some sense of energy

security then half the game is won. The fact that these

processes are variously inefficient, pollutive, subsidised

and overpriced is of little consequence if the positives play

well politically to the voting public. One consequence of

increased ethanol and biofuel production is a 24% jump in

UN’s Food and Agricultural Organisation’s food price index.

In 2007, food oils rose 66%, grains 45% and meats 16%.

Last year we wrote about tortilla riots in Mexico City.

This year it could be much worse if governments are

blamed for their inability to feed their own people.

The statistics are quite illuminating. Grain stockpiles are

at thirty year lows and yet drought conditions in Australia

and Brazil are hampering the ability of the biggest global

producers to increase export supplies. Shortages in Russia

and China have led their governments to curtail grain

exports. 2.4 billion people in China and India are seeing food


prices rise as more agricultural land falls to development

and what is left is so intensively farmed that it is failing to

respond to yet more fertiliser. This coincides with a switch

to more protein-rich diets and increased meat consumption.

Asian countries whose currencies are still pegged in some

way to the dollar are finding that a weak dollar and looser

monetary policy are stoking inflation that was already

being ratcheted up by high energy and food prices.

Tentative moves by governments to remove domestic

price caps on these staples are now being unwound with

negative implications for much-needed reform and a shift

to market-based economics.

In 2007, US ethanol production accounted for about 60%

of the global increase in corn consumption, according to

the IMF. Corn-based ethanol production has been rising

at 20% per annum since 2002 and is pushing up cereals

prices globally. As farmers switch to planting more corn,

at the expense of wheat and soyabeans, so does the price

of the replaced grains and oilseeds rise as shortages are

created. The Energy Independence Act of December 2007

mandated that current corn-based ethanol production of

27bn litres should rise to 136bn litres by 2022, with half of it

made from cellulose, despite the fact that this is years away

from economic production. This still requires a 2.5x increase

in corn use as a fuel additive over the next 15 years so that,

by 2022, ethanol can make up 22% of the US vehicle fuel

mix. One full vehicle tank of 95 litres of ethanol would use

about 254kg of grain, enough to feed an average person for

one year. A tank of fuel does not get you far in America, but

a year of food does.

The ‘Chindia’ effect pits man against machine. Increased

demand for corn and soya-fed livestock and poultry

competes with increased demand for biofuels that already

consumes 20% of the US corn crop for ethanol production.

This in turn puts pressure on land and water resources as

both farming and ethanol production are independently

massive consumers of water. Without the help of vast

subsidies, and punitive tariffs on inbound Brazilian sugar-

based ethanol, the numbers simply do not add up for

ethanol. The pollutive production process, low power

efficiency relative to gasoline, and its impact on water

supplies make ethanol a disastrous and misguided policy.

The intensity of water use in the ethanol, oil and tar sands

extraction processes is increasing demand for water.

One day, seaborne oil tankers will make a living out of

transporting fresh water as the latter becomes increasingly

scarce and as its value rises above oil. We can do without

oil, but we cannot do without water.

Mine Games

In early 2008, the mining world was bracing itself for the

prospect of consolidation between some of its largest

operators. BHP Billiton had tabled a 3-for-1 share offer

for rival Rio Tinto, valuing its target at almost $120 billion,

while Vale was preparing a bid for Xstrata that is estimated

to require in the region of $90-100 billion. Each bid has

complications. On Friday, 1st February, Shining Path (a

combination of China’s Chinalco and America’s Alcoa)

swooped on 12% of Rio’s London-listed shares, acquiring

9% of the whole in the process, at £60 per share in a

total outlay of £7.18 billion ($14.1bn). The dawn raid was

performed only days before expiry of the deadline for

BHP to launch an official bid for Rio. Vale’s complication is

that it has to meet the value expectations of Swiss-based

Glencore, which has a 35% stake in Xstrata. The China

Development Bank, which bankrolled Chinalco’s raid on

Rio, is known to have approached Glencore with a view to

buying its £14bn stake in Xstrata.

At the heart of these prospective takeovers are the

steelmakers in China who eclipsed Japan as the leading

importers of iron ore as recently as 2003. In the 5-year

period between 2002 and 2007, China’s imports grew by

244% to 383mt while Japan’s rose only 9% to 141mt.

The annual FOB contract price of iron ore has been rising

in leaps and bounds over the past ten years as production

has failed to keep pace with demand. For the 2008/9

contract year it is up another 65-71% leaving China’s steel

industry, and the country’s entire modernisation program,

exposed to sharply rising and inflationary cost pressures.

Under such circumstances, China is rightly alarmed at the

prospect of consolidation of the world’s largest suppliers of

iron ore, coal and base metals such as copper, aluminium

and zinc all of which are required inputs for China’s rapid

infrastructure expansion. The stake in Rio and discussions

with Glencore can be interpreted as moves by China Inc,

the ultimate funder, to prevent a reduction in the number of,

and competition between, iron ore suppliers.

A union of BHP and Rio would concentrate in single hands

the lion’s share of iron ore reserves in Western Australia’s

Pilbara region, home to the world’s largest-known iron ore

deposits. This is relevant to Chinese steel mills as Australian


iron ore, subject to availability in sufficient quantities, is

always the first choice being the most proximate source

of supply. In nineteen weeks during 2007, the freight

differential between Australian and Brazilian iron ore of

equivalent quality exceeded $40 pmt and in six of those

weeks the differential was over $50 pmt. Beyond iron ore

and coal, BHP and Rio have very large mining operations

in alumina and bauxite (the raw materials for making

aluminium), copper, lead, zinc, manganese, nickel and

uranium. Iron ore tends to be the focal point but all the base

metals count as well, added to which is coal as China is fast

becoming a net importer.

A combination of Vale, the global leader in iron ore

production, and Xstrata would also be intimidating to

Chinese importers. Vale has coal, aluminium, copper,

manganese, ferroalloys and nickel assets that complement

those of Xstrata and Glencore which also bring zinc,

vanadium and lead to the table. China needs all these

commodities to support both its domestic and export

growth and can be forgiven for any sense of anxiety. As

China Inc has in excess of $1.5 trillion in foreign exchange

reserves one can expect this firepower to be used in 2008

and beyond to protect its best interests. The move on

Rio’s London share base in conjunction with Alcoa was

designed to head off Australian and American suspicions

as to Chinalco’s final intentions. It represents a more

sophisticated approach than CNOOC’s failed attempt to buy

Unocal in 2005 when protectionism triumphed and Chevron

won the prize.

Further twists in this saga lie ahead. On 5 February, we

heard that Chinalco’s purchase of 9% of Rio may become

the subject of an investigation by Australia’s Foreign

Investment Review Board in case it is deemed to be

counter to Australian national interest. Recent precedent for

government intervention on national interest grounds was

set in the US in the above-mentioned CNOOC/Unocal case.

This was followed by the UAE-controlled DPW being forced

to divest the US-based port content (it went to AIG) after its

purchase of the global ports portfolio of P&O Ports.

An Australian precedent was to block Royal Dutch Shell

from its planned A$10 billion takeover of Woodside

Petroleum, the Australian oil and gas group, in 2001.

Then, in February, Cfius blocked the joint Huawei/Bain bid

for US computer company 3Com. The question remains as

to whether these transactions were really blocked by issues

of national interest or whether they were thwarted by anti-

commercial and protectionist practice.

From an objective point of view, China would seem to

be the aggrieved party. The Australian FIRB is under no

obligation to approve foreign stakes in Australia-listed

companies unless they reach or surpass 15% of market

value. Chinese state-backed value investors have recently

provided important cash liquidity to US and European

investment banks, being minority stakes on arms’ length

terms, and yet this has attracted national scrutiny. Where

else the funds might have come from is not clear, but

maybe not from their own governments as in the case of

the UK’s nationalisation of troubled Northern Rock. It is

forgotten that China has played a pivotal role in increasing

global prosperity in recent years, and yet it is often painted

as the villain in the US imbalance of trade. The real culprit

is the Federal Reserve for keeping interest rates too low

for too long, and the US consumer for spending beyond

its means. It is disingenuous for the latter to now blame

China’s savers for its own state of indebtedness.

Cash is King

Since August 2007, credit has been more difficult to access

in the wake of US subprime mortgage problems and the

ensuing liquidity crunch. Banks became reluctant to lend

to each other and to their retail and corporate customers.

Many companies have built up cash reserves in recent

years in contrast to a swathe of consumers that have

taken advantage of rising house prices to cash in equity.

They have also built up unsecured debt through personal

loans and credit cards and this tendency in the transatlantic

economies to spend at the expense of saving has fuelled an

asset bubble in property and shares. Now that asset prices

are being undermined, the old adage that cash is king is

reasserting itself. This manifests itself via increased savings

and or heavier weightings in investment portfolios towards

cash and bonds and away from equities. Equity markets are

no longer getting the same level of support that they did

previously from M&A activity and share buybacks.

In the absence of the availability of large leveraged loans,

mergers and acquisitions need to be paid for in cash, or

shares, or cash and shares. Big deals are still in prospect

with BHP looking at Rio, Vale at Xstrata and Microsoft at

Yahoo. But, one large US investment bank had to withdraw

from leading a syndicate in one of these potential takeovers

because it could no longer justify lending in the context of

its own weakened balance sheet and forecast returns. The

shortage of cash on the balance sheets of some banks is

contrasted by the availability of cash in the sovereign wealth

funds of Asian, Middle Eastern and other emerging market


nations. Funds in China, Singapore and the Middle East

have already taken stakes in banks such as UBS, Citigroup,

Standard Bank, Morgan Stanley and Barclays. Money that

in former years flowed from west to east is now flowing in

reverse, a product of trade and oil surpluses.

The exposure of banks to subprime losses may not have

ended but now attention has turned to two troubled

monoline insurers: Ambac and MBIA. Traditionally they

insured portfolios of municipal bonds and took a fee for

conferring their AAA ratings on the underlying securities.

Having been seduced into the higher-paying subprime

market, the rising level of mortgage defaults led Fitch to

downgrade Ambac to AA. If S&P and Moodys were to

follow then this would automatically reduce the credit rating

of all its underlying bonds triggering those investors that are

only allowed to hold triple-A rated paper to sell, thus further

undermining the value of the securities. As the monolines

have collectively guaranteed about $2.4 trillion of debt, their

problem could easily become another problem for the banks

that originated those securities as the monolines carry only

thin capital cushions more suited to guaranteeing much

safer municipal bonds.

The situation is made worse by the fact that many of the

banks that used monolines to wrap their bonds also bought

protection from them in the form of credit-default swaps

(CDSs). As default ratios in the underlying mortages rose,

so the pressure ratcheted up on the relatively capital-

light monolines. Without bank recapitalisation of these

monolines there follows the risk that the ratings agencies

will selectively issue downgrades on other large AAA-

rated monolines that have indirect exposure to subprime

mortgages and cause a collapse in bond values. As there

is a lot of circularity and overlapping of risk, it is not clear

which banks have the greatest exposure and therefore

which ones might be expected to step up to the plate.

The Bank for International Settlements estimates that $95

billion of CDSs were sold to banks as protection and some

proportion of this is at risk of being written down.

The lack of consensus over the quantum of possible future

losses and writedowns creates uncertainty for some banks

and monolines and opportunities for others. The amount

at risk from CDSs varies from as little as $15bn according

to the International Swaps and Derivatives Association

to $250bn according to a large US fixed-income money

manager. Vulture and value-driven investors such as

Wilbur Ross and Warren Buffet are looking closely at the

monolines. The former, together with Bill Gross of Pimco,

have been ploughing funds into municipal bonds that are

being sold off cheaply. The latter had an offer rejected to

reinsure three struggling bond insurers because he tried

to separate the safer municipal bonds from the more

toxic subprime mortgage-backed securities. Clearly, they

collectively expect a recovery in the municipal bond market

that has been unfairly tainted by subprime problems.

Their advantage is that they have many billions of dollars of

cash in need of the right home. They can inject liquidity into

the stalled municipal and auction rate bond markets and put

a floor under price falls. The subprime mortgage problems

will be left to the banks to sort out but already we see the

Fed helping them by cutting overnight rates to help the yield

curve. Furthermore, on 11 March 2008, the Fed led a group

of the world’s largest central banks in providing $200 billion

of additional liquidity to the banking system. Share prices

responded positively in the hope that the credit markets

will be unglued and banks resume lending again. Taking the

joint efforts of central banks, value investors and sovereign

wealth funds, they have the cash that can rescue the parts

of the global economy that have suffered unfair contagion.

That puts all the onus on those responsible to clear up the

subprime mess.

In shipping, many private and corporate shipowners are

awash with cash from strong operating earnings and capital

gains from asset disposals. They are in position to take

advantage of others that have over-extended themselves,

particularly those that have ordered ships which they can no

longer finance. But, like the the Buffets of this world, they

need to perceive value. The latest March IEA oil demand

forecast is surprisingly bullish, even as crude nudges $110,

based upon resilient emerging market demand. The BDI

continues to recover as spot market rates rise, and tramp

owners in the box markets are benefiting from firmer

charter rates. There is no indication of an imminent decline

in asset values but there are eagle-eyed value investors

out there who are ready to exploit weakness when it has

become opportunity. This suggests that the next market

fall will, at some point, be rescued by cash.



Bulk Carriers

Introduction

2007 was the best ever year for the dry bulk market,

although at the beginning of the year few shipowners

would have expected it to surpass 2004. In fact, the last

five years have been the best on record when looking at the

weighted average spot market earnings of all bulk carriers.

In descending order of merit: first was 2007 at $42,307

per day; a long way back in second was 2004 at $27,502:

third 2005 at $22,310; fourth 2006 at 19,152 and fifth 2003

at $13,948 daily. This bull run has been remarkable and

unprecedented in terms of both longevity and profitability.

The fact that 2007 earnings came in 54% ahead of

second-placed 2004 may be warning us that these

conditions are unlikely to last forever as there has been

a massive supply-side response in terms of the size and

depth of the orderbook of newbuildings. However, just

how much of this orderbook makes it to delivery is the

subject of keen debate.

At the end of 2007 and in early 2008, back-to-back force

majeure declarations by Australian and Brazilian iron ore

shippers unexpectedly returned many large bulk carriers

back onto the spot market, pushing down rates as they

competed for replacement cargoes. In January, power

shortages in both South Africa and China led to further force

majeure calls and halted mining activity and mineral exports

across large areas of each country. This was an unusual

confluence of events that removed significant volumes of

cargo from the market, causing a temporary oversupply

of tonnage. The last week in January saw some return to

normality with the Baltic Capesize Index recovering 25%

in the week, confounding many financial market observers

who had interpreted the 40% fall in the BDI since mid

November as a turning point in the commodity demand

cycle and a lead indicator of slower global economic growth.

As we moved into February, Chinese New Year celebrations

dampened activity but there was no let-up in structural

problems in the mining industry. In the middle of the month

BHP Billiton, Rio Tinto, Xstrata and two smaller miners

all declared force majeure on coal exports from flooded

swathes of northern Queensland, interrupting exports

from Haypoint, Dalrymple Bay, Abbot Point and Gladstone.

This put further pressure on other suppliers just as South

Africa found itself short of coal for electricity generation,

insufficient even to keep its own mines operational, and

just as China invoked a coal export ban that promises to

last well into the springtime. In the oil industry, rising

prices were initially the product of demand-side factors

in contrast to the twin supply-side oil crises of the 1970s.

More recently, supply-side constraints on global oil

production have served to underpin prices. This process

is now being replicated in the dry bulk markets where

we have strong demand but problematic supply.

Now into March, we can see that our faith in the

fundamentals of the dry bulk markets are being rewarded

by steady improvements in spot and period rates and a

recovery in secondhand values as buyers regain confidence.

But, we should put this in perspective. The BDI topped

out at 11,039 points on 13 November 2007 and then lost

49% of its value before bottoming out at 5,615 on 29

January 2008 – a big drop in just 6.5 weeks. By the end of

the February, the BDI was at 7,613 – up 36% from its end

January trough but still 31% down on the mid November

peak. The rollercoaster fourth quarter started at around

9,500 points and finished at around 9,150 points and we are

now faced with the question of whether we should regard

the mid Q4 spike as random noise and not expect to regain

it. The market is still trying to find its appropriate level and it

probably does lie in the middle of the range between recent

peak and trough, in the low to mid 8,000s. Many owners

would settle for that.

20

Figure 1. Average bulker earnings

Shiptype Dwt / year built 2006 $

2007 $

change %

Capesize 170,000-dwt / 2000 43,178 111,827 159%

Panamax 70,000-dwt / 1998 21,427 49,349 130%

Handymax 52,000 dwt / 2000 22,679 47,582 110%

Handysize 30,000-dwt / 1998 15,720 31,346 99%

Average 25,751 60,026 133%

BDI End-year figure 3,180 9,237 191%


Our assessment of the dry bulk fleet and orderbook splits

the segments into sizes that reflect changes in design and

a creeping tendency to upsize. The fleet of very large bulk

carriers over 200,000-dwt grew by 26%, in deadweight

terms, during 2007 while the orderbook stands at 131%

of the end-2007 fleet. The delivery schedule is stretched

out over five years and its size reflects the rising

importance of longhaul iron ore trades and the pursuit of

economies of scale. The largest ships on order are four

388,000-dwt vessels at Bohai for BW Ltd for delivery in

2011. They are under contract to Vale for a long-term

Brazil/China iron ore COA.

The conventional capesize segment, falling in the 100-

200,000-dwt range is most heavily populated by ships in the

170-180,000-dwt size range which still offer the greatest

flexibility to both shippers and receivers. The fleet grew by

6% in 2007 while the forward orderbook sits at 79%.

The newest and most popular segment is the post-panamax

80-100,000-dwt size range where orders account for 235%

of the end-2007 fleet, massive future expansion from a low

base. The kamsarmaxes within this segment are still within

current Panama beam.

The conventional panamax segment of 60-80,000-dwt

expanded by almost 7% in 2007 but the orderbook stands

at only 15% making it look relatively neglected. In reality,

many owners now prefer ships larger than 80,000-dwt

when imagining what will be the most flexible ship of the

future as, after 2014, this segment will no longer be able

to call itself panamax. The handysize segment is still the

quickest to age and the slowest to grow with the orderbook

at only 26% of the fleet and an age profile that offers

abundant scrapping potential.


Turning to the performance of the various bulk carrier

segments in calendar 2007. Spot capesize earnings were

159% up on 2006 and 59% up on 2004 at just under

$112,000 daily. The equivalent figures for panamax were

up 130% on 2006 and 44% on 2004 at nearly $49,500 per

day and handymax came in 110% up on 2006 and 49% up

on 2004 at just over $47,500 daily. Finally, the handysize

segment registered a 99% gain on 2006 with average

earnings coming in at a little under $31,500 daily.

This was 62% up on the previous cyclical peak in 2004

of just over $19,300 daily. The BDI ended 2007 190%

up on 12 months earlier.

The main market driver continued to be China whose

economy grew by 11.4% in 2007 following on from 11.1%

in 2006. The strength of Chinese demand growth for raw

materials for use in steelmaking and power generation

is occasionally outstripping the market’s ability to supply

these goods. Infrastructure capacity constraints from mine

to railway to port are causing commodity supply to lag

demand. When this leads to port delays, reducing effective

tonnage supply, shipping rates benefit, but when this leads

to shipment cancellation, shipping rates suffer – as became

all too obvious in January 2008.

Supply

Figure 2. Dry bulk carrier supply

Shiptype 31-Dec-06 31-Dec-07 Orderbook in m-dwt at 31-Dec-07

m-dwt # ships m-dwt # ships as % fleet

Delivery 2008

Delivery 2009

Delivery 2010

Delivery 2011 +

VLBC 200,000+ 17.3 77 21.8 98 131% 4.1 5.0 6.6 12.8

Capesize 100-200,000 102.9 631 109.1 667 79% 5.0 20.4 42.2 18.8

Post-panamax 80-100,000 13.3 158 13.8 159 235% 3.3 6.7 12.1 10.3

Panamax 60-80,000 88.4 1,240 94.5 1,320 15% 4.6 3.5 4.3 2.1

Handymax 40-60,000 71.2 1,492 76.6 1,592 55% 7.8 13.5 13.1 7.4

Handysize 10-40,000 73.3 2,734 75.6 2,833 26% 3.4 6.3 5.9 3.8

Total 366.5 6,255 391.4 6,669 57% 28.2 55.3 84.3 55.3

Bulk Carriers

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

m-dwt

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Panamax

Capesize

Figure 3. Dry bulk fleet profile

22

The very large bulk carrier deliveries of recent years are

sufficient in capacity to replace all the extant ships that

delivered in the 1980s and 1990s, although their owners

probably have no plans to scrap them any time soon. The

phased arrival of the orderbook will certainly put the older

ships under pressure. The conventional capesize fleet has

enjoyed a fairly linear rate of deliveries since the mid-1990s

and the 1980s models will soon become marginalised,

especially the less fuel-efficient ones. The handysize fleet

stands out as having delivered insufficient ships in recent

years to renew the fleet going forward. The relatively light

orderbook suggests that some ships will continue to be

employed well into their 30s.

Figure 4. Dry bulk capacity scrapped, lost or otherwise removed from the fleet

Strong markets since 2003 have reduced scrapping to a

bare minimum with 2007 being noteworthy for the high

proportion of superannuated panamaxes that left the active

fleet. The positive message to be taken from low recent

levels of scrapping is that it provides the safety valve of

increased scrapping in future, and this may be needed

judging by the weight of the orderbook. If the bulk carrier

sector were to suffer the equivalent of an Erika, Prestige

or Hebei Spirit moment then we could expect a swift

tightening of qualifying employment parameters and a

return to the former classification of modern (maximum

15 years), a definition that has become overlooked in the

handysize segment.


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number of contracts placed per quarter

0

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Figure 5. Dry bulk carrier contracting

The surprising strength of earnings and values in 2007

encouraged an avalanche of orders that reached its peak

in the second quarter. Such a development could not have

happened without the acquiescence of the shipyards

which finally achieved pricing levels that permitted them

to dovetail rising bulk carrier demand with easing tanker

and box ship demand. The paucity of contracting prior to

end 2006 is testament both to shipyards’ unwillingness

to build bulk carriers and their obsession with the other

aforementioned sectors. A lot of the most recent bulk

carrier orders have been placed in China. Not all will deliver

on time, or indeed, at all.

Figures for the first quarter of 2008 show a distinct

slowdown on a quarter-on-quarter basis with the number

of orders placed at a little over one hundred compared

with about 260 in Q1 2007. It could be that owners,

following recent corrections in spot market earnings and

the indices, have finally decided that enough is enough.

Other considerations could be that financing is no longer

as available on acceptable terms, that deliveries are too

far out, that yards are reluctant to quote as their input costs

keep rising and that there are fears about the deliverability

of ships from some of those yards that are still willing

to quote.

Figure 6. VLBC more popular than standard capesizes

Recent VLBC fleet development

31-Dec-06 31-Dec-07 2008 deliveries

Scrapping estimate

Fleet End 2008

VLBC fleet, m-dwt 17.3 21.8 4.1 0.2 25.8

% change 25.9% 18.0%

Recent Capesize fleet development


Scrapping estimate

Fleet End 2008

Capesize fleet, m-dwt 102.9 109.1 5.0 0.3 113.8

% change 6.0% 4.3%

Bulk Carriers

24

A year ago, we forecast VLBC fleet growth of 25.8% and

this proved to be correct as ships delivered on time and

there was no scrapping. In this segment in 2008 we once

again have modest expectations of scrapping, as the fleet

is modern, and we forecast net growth of 18% from a low

base to 25.8m-dwt. Of the 17 ships above 200,000-dwt

that are scheduled to deliver in 2008, 14 are Japanese, 2

Chinese and one Turkish. It is likely that all but the Turkish

ship have long-term contract cover. The conventional

capesize fleet expanded by 6% in 2007, higher than our

forecast of 4.8%. We anticipate net growth of just over

4% in 2008.

Figure 7. Rise of the post-panamax

Recent Post-Panamax fleet development


Scrapping estimate

Fleet End 2008

Post-Panamax fleet, m-dwt 13.3 13.8 3.3 – 17.1

% change 3.4% 23.9%

Recent Panamax fleet development


Scrapping estimate

Fleet End 2008

Panamax fleet, m-dwt 88.4 94.5 4.6 0.2 98.9

% change 6.9% 4.7%

The post-panamax fleet grew only marginally in 2007 but

the order pipeline begins to deliver in 2008 and net fleet

expansion of 24% is anticipated in what is still a small fleet.

The new deliveries are dominated by Japanese owners but

overall ownership is quite diverse with it spanning Greek,

Korean, Chinese, Taiwanese, Italian, UK, Croatian and Arab

interests. In the conventional panamax sizes we forecast

minimal scrapping and net fleet growth of under 5% in 2008

after almost 7% in 2007, leaving us with quite a benign

supply-side outlook for the year ahead.

Figure 8. Handymax fleet now larger than handysize

Recent Handymax fleet development


Scrapping estimate

Fleet End 2008

Handymax fleet, m-dwt 71.2 76.6 7.8 0.1 84.2

% change 7.5% 10.0%

Recent Handysize fleet development


Scrapping estimate

Fleet End 2008

Handysize fleet, m-dwt 73.3 75.6 3.4 0.1 79.0

% change 3.2% 4.4%

The handymax fleet grew by 7.5% in 2007 which had

no adverse impact on either earnings or values. With our

expectations of resilient earnings in 2008 we see little

scrapping potential and this will give rise to an even larger

net fleet expansion of 10% this year. Anyway, this pales

into insignificance when compared with the 13.4-dwt of

scheduled deliveries in 2009 and a further 13m-dwt in

2010. Handysize fleet growth remained slow at just over

3% in 2007 and is forecast to pick up slightly to nearly

4.5% in 2008.


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Capesize

VLBC

Estimate of Dry Cargo Demand Growth

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008f

change over previous year

700

900

1,100

1,300

1,500

1,700

1,900

2,100

2,300

2002 2003 2004 2005 2006 2007 2008f

m-t

Major bulks

Minor bulks


Figure 9. Total fleet growth slightly up on 2006

Recent total dry bulk fleet development


Scrapping estimate

Fleet End 2008

Total dry bulk fleet, m-dwt 366.5 391.4 28.2 0.8 418.8

% change 6.8% 7.0%

The total dry bulk fleet expanded by less than 7% in 2007

and is expected to increase by about 7% in 2008. Dry bulk

shipping demand growth is likely to be slower this year

as the global economy faces a slowdown. However, the

sector coped admirably with 7% supply growth in 2007

by returning all-time record earnings and values. We still

expect a good performance this year despite the uncertain

outlook in the developed world economies and financial

markets which, in any case, often dance to a different

tune to shipping.

Demand

In 2008, we expect to see continued growth in both major

and minor bulk demand, although at a slower pace than

in recent years. The previous cyclical peak in dry cargo

demand growth was in 2004 when it rose 8% year-on-year.

However, 2007 set records in both earnings and values

despite a lower rate of estimated demand growth of just

over 5%. This figure does not tell the whole story as tonne-

mile demand growth and real tonnage supply, stripping

out the limiting factors of port congestion, bad weather

and canal transit bottlenecks, all influence the end result.

Given our 2008 forecast of cargo demand growth falling to

just under 5%, and net tonnage supply expansion staying

constant at about 7%, those supply-limiting factors will

once again play an important role in closing the gap.

Figure 10. Dry bulk demand growth forecasts for 2008

Major bulks 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008f

Iron Ore 403 449 451 481 516 588 661 721 787 840

Steaming Coal 300 346 383 406 448 483 507 544 563 587

Coking Coal 162 174 169 171 178 179 184 190 202 211

Wheat/ Coarse Grains 205 214 207 214 206 215 208 225 222 222

Soya Beans 42 50 54 57 59 60 64 67 73 77

Bauxite/ Alumina 54 54 52 55 60 68 78 79 84 89

Phospate Rock 33 30 31 30 29 31 31 30 32 33

Total 1199 1317 1347 1414 1496 1624 1733 1856 1963 2059

% change 9.8% 2.3% 5.0% 5.8% 8.6% 6.7% 7.1% 5.8% 4.9%

Bulk Carriers

26

Minor Bulks 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008f

Sugar 40 37 41 44 45 46 48 48 48 50

Agribulks 95 87 87 89 90 97 99 106 109 114

Fertiliser 66 67 64 69 75 81 81 80 91 95

Scrap 55 64 70 72 87 98 95 98 105 110

Cement 113 116 118 112 117 125 137 140 142 148

Coke 18 24 23 23 24 24 20 22 25 28

Pig Iron 13 15 12 13 13 18 18 18 19 20

Forest Products 158 161 164 160 163 166 170 174 175 178

Steel Products 174 184 193 198 205 225 226 255 270 283

Others 34 37 37 37 44 48 51 50 50 52

Total 766 792 809 817 863 928 945 991 1034 1077

% change 3.4% 2.1% 1.0% 5.6% 7.5% 1.8% 4.9% 4.3% 4.2%

Grand Total 1,965 2,109 2,156 2,231 2,359 2,552 2,678 2,847 2,997 3,137

% change 7.3% 2.2% 3.5% 5.7% 8.2% 4.9% 6.3% 5.3% 4.7%

We estimate the highest rate of growth will be in the raw

materials cargoes of iron ore and coals at 5.5% year-on-

year. Iron ore trade growth should increase by another 50mt

in 2008 after 65mt in 2007. China’s steel industry is still

expanding but exports may be hampered by rising export

tariffs, domestic supply could be reined in by the closure of

smaller mills and domestic demand is expected to roll back

a bit after the Olympic Games. In spite of this, China should

still account for over 90% of the growth in 2008 iron ore

trades. Overall 5.5% growth in the major trades would still

be more than one percentage point lower than 2007 and

2.5% below the average 8% rate of growth of the past five

years from 2003 to 2007. This weaker rate of annual growth

factors in an economic slowdown in the US and Chinese

government efforts to restrain steel exports for fear of

provoking a trade backlash.

The above forecasts underplay the potential for significantly

larger exports of US coking and thermal coals in 2008.

Present figures of an aggregate 40mt could end up as

high as 80mt according to estimates of the world’s largest

private coal producer, Peabody Energy. The USA may

have to ramp up its exports, which will test its recently

under-utilised coal export infrastructure, to compensate

for increased demand elsewhere amidst falling supplies.

Peabody forecasts US exports to rise from 49mt in 2006 to

78mt in 2008 and imports to fall from 36mt to 31mt over

the same period. Net exports are set to increase from 13mt

in 2006 and 20mt in 2007 to 47mt in 2008. The producer

estimates that seaborne coal demand will rise by 7% per

annum as the world’s fastest growing fuel. Meanwhile,

the Energy Information Administration (EIA, part of the

US Department of Energy) puts global coal consumption

growth at 48% in the 1980-2004 period rising to 72%

between 2005 and 2030.

South Africa suffered power cuts in early 2008 and power

rationing as electricity demand now exceeds generating

capacity following inadequate past investment. Power

supplies to industry, including to its many base minerals and

precious metals mines, were cut leading to temporary mine

closures. Eskom, South Africa’s state utility company, needs

to find an extra 45mt of thermal coal over the next two

years in order to carry adequate stocks to cope with rising

domestic power demand. On the face of it, this should

restrict South African coal exports unless existing collieries

can respond with enhanced production. In 2007, South

Africa exported nearly 68mt of thermal coal but annualised

figures for coal throughput at Richards Bay in January

2008 ran at under 43mt, the lowest since 1999. European

buyers may have to look towards the US and Colombia for

replacement supplies in 2008 and beyond.

China, like South Africa, also suffered from brownouts

in early 2008 after freezing weather shut down mines

and reduced power generation capacity. Scores of bulk

carriers from Cosco and China Shipping were diverted

from deepsea trades to shuttle coal along the coast and

a moratorium was imposed on coal exports until the end

of the first quarter. Flooding in Queensland in January


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0%

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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008f


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2004 2005 2006 2007 2008f

bn-tonnesproduction

RoW

China


interrupted Australian coal exports at a time of already

tight supply. Vietnam, a traditional coal exporter, will cut

one-third, or about 10mt, of its exports to Japan and Korea

this year in order to satisfy rising power demand at home.

Russia and Venezuela are also reducing coal exports. All this

is happening at a time of elevated import demand from coal

producers in China, India and Europe. Global coal markets

are in a state of flux at present and it is difficult to see how

the import and export changes will eventually net out.

We expect India to increase tonne-mile demand as it

continues to impose export taxes on iron ore in order to

support its domestic steel-making industry. The largest

share of replacement volumes for Far Eastern importers

would most likely come from far-away Brazil as both

Australia and South Africa have short-term infrastructure

problems that appear even greater than those of Brazil.

China’s early 2008 thermal coal export ban did not stop it

from looking to import extra supplies. Export problems in

Australia, Vietnam and South Africa were added to by floods

at Indonesian mines reducing choices to various more

distant Atlantic-based sources. That put China’s buyers into

competition with Japan, South Korea and Taiwan

which sought replacement supplies for their customary

Chinese imports. These will probably need to come from

Colombia, the USA and Canada. The raw material supply

chain is in turmoil.

In terms of ship sizes, the panamaxes look well set to

benefit from expected strong growth in steaming coal

trades that find power utility companies often requiring

smaller ships than can be handled by the steel mills in the

coking coal trades. The soya bean, bauxite and alumina

trades also offer the prospect of continued meaningful

growth despite gyrating soya bean and aluminium

production in Brazil and South Africa because of drought

and other weather related issues. In the handymax and

handysize segments steels, cement, agribulks, scrap,

fertilisers and forestry products are all expected to chip in

with steady year-on-year growth. Overall, the cargoes most

typical to the handysize segments are forecast to grow by

4.2%, about 0.6% less than the average of the past five

years from 2003 to 2007.

Global steel output is set to continue rising led, as ever, by

China. In 2008, Chinese production is forecast to increase

by 11% year-on-year. This impressive gain risks disguising

the fact that the annual rate of increase has been declining

each year in recent years, albeit from an ever-larger base.

After 3% growth in the rest of the world in 2007, this is

expected to drop to just 2% in 2008 – still better than the

mildly negative growth of 2005. Much of the 2008 reversal

can be laid at the door of weakened house-building in North

America and Europe and slower economic growth in the

transatlantic economies.

Figure 11. Steel production

bn-tonnes 2004 2005 2006 2007 2008f

China 0.27 0.35 0.42 0.48 0.53

RoW 0.76 0.76 0.80 0.82 0.84

% change 2004 2005 2006 2007 2008f

China 29% 20% 13% 11%

RoW -1% 5% 3% 2%

Bulk Carriers

Global Seaborne Iron Ore Sources

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

m-tonnes Other

Venezuela

Canada

Mauritania

Russia

Chile

Peru

Sweden

India

S Africa

Brazil

Australia0

200

400

600

800

1000

1200

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m-tonnestraded

Non Wheat and MaizeMaizeWheat

28

HSBC’s Metals and Mining team forecast seaborne iron ore

trade developing as per the above graph based upon source

of production. Australia and Brazil will continue to carve out

the largest share as huge investment in new and expanded

operations gradually bears fruit. South Africa is expected to

overcome its own mining and rail issues in order to

increase exports over the coming years while India

may struggle to maintain its export volumes should the

government succeed in its stated determination to curb

exports via export taxes.

Figure 12. HSBC Metal and Mining Team’s iron ore trade forecast

changing diet of a wealthier consumer class demands more

feed grains for livestock and poultry.

Both China and Russia are now imposing price controls

on grains while Argentina, Kazakhstan and Vietnam are

introducing foreign sales taxes or export bans. Egypt has

returned to food rationing and Pakistan has reintroduced

a ration card system, both for the first time in 20 years or

more. Iraq, Turkey and maybe even China are expected to

enter the market for large-scale wheat imports. Global food

prices are under sharp upward pressure from population

growth in developing countries, climate change leading to a

higher incidence of droughts and floods, and the voracious

demands of the biofuel industry.

Extreme weather conditions have damaged wheat crops

in Australia, Canada and the European Union putting

great strains upon US grains supplies where inventories

are forecast to drop to their lowest levels in 60 years.

A doubling in rice and wheat prices in 2007 was

compounded by a doubling in freight costs in 2007.

In the first two months of 2008, the price of US spring

wheat, used for baking bread, doubled again to around $24

per bushel by end February. The rising costs of grains and

foodstuffs, taken together with high energy prices, are

feeding global inflation and hurting poor and even middle

class families world-wide.

Figure 13. IGC grain trade analysis

Late January 2008 figures from the International Grains

Council illustrate total past and forecast international trade,

not just seaborne trade, in grains to end June 2008. Much

is made of the depleted nature of China’s grain stocks at

a time when domestic production is under pressure from

structural issues such as urbanisation and desertification

and topical issues such as drought. This shrinkage in stocks,

to what are thought to be record lows, and reduction in

arable land coincides with increasing consumption as the


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Post-Panamax

Capesize

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25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000

2002

-01

2002

-04

2002

-07

2002

-10

2003

-01

2003

-04

2003

-07

2003

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$ pd

170k-dwt 1yr TC

70k-dwt 1yr TC

52k-dwt 1yr TC

30k-dwt 1yr TC


The UN’s World Food Program is talking about a “new

area of hunger” in which the high price of agricultural

commodities, rather than just shortages, is affecting even

the urban middle classes.

The reality of increasing demand from upwards of 2.4

million people in China and India alone exposes the illogical

promotion of ethanol before food and cars before people.

The days when shipping markets were moved by the entry

of the Russians or the Chinese to cover wholesale grain

purchases are a distant memory. Plentiful stocks have

been used to smoothen demand and leave the grain

futures markets largely unruffled. With global stocks now

at dangerously low levels, we suspect that large-scale

grains movements will materialise, just as soon as export

product is available, in order to replenish depleted stocks

to safe levels.

Figure 14. HSBC Equity Research tonne-mile analysis

bn-tonne-miles 2002 2003 2004 2005 2006 2007 2008 2009CAGR 2004-2009

Absolute growth

2004-2009

Iron ore 2,694 2,993 3,440 3,867 4,326 4,680 5,155 5,521 10% 61%

Coal 2,568 2,880 3,442 3,662 3,743 3,856 3,988 4,254 4% 24%

Grain 1,287 1,370 1,396 1,395 1,489 1,524 1,571 1,617 3% 16%

Minor Bulks 4,104 4,489 4,736 4,862 5,046 5,377 5,541 5,780 4% 22%

Total 10,653 11,731 13,013 13,786 14,605 15,436 16,255 17,171 6% 32%

Y/y growth 10.1% 10.9% 5.9% 5.9% 5.7% 5.3% 5.6%

Our colleagues in Equity Research have taken a composite

view of demand from various sources and have used it to

create this forecast of tonne-mile demand growth for the

main categories of dry bulk cargo. It shows the greatest

growth in iron ore cargoes over the five years to 2009

but steady growth in the other cargo categories. Year-on-

year growth is forecast to dip in 2008 due to the global

slowdown, but to remain above 5%, with a recovery to

nearer the medium-term trend in 2009. Although we

experienced double-digit tonne-mile demand growth in

2003 and 2004 it has been in the following years of annual

5-6% increases that have seen the greatest response in

earnings and values.

Earnings

Time Charter

Figure 15. One year time charter earnings for standard-type bulkers

Bulk Carriers

One-year time charter rates quite easily exceeded the levels

that were achieved in the last cyclical peak in 2004. By the

time of the most recent market peak in mid November 2007

a modern capesize was able to achieve over $160,000 per

day for one year and a modern panamax about $80,000 daily

for the same period. That equated to about $55 million in

income after operating costs for a capesize over the course

of the year. In the soft market of 2002 it was possible to

order a new 175,000-dwt capesize for under $35m, so

net earnings of $55m in just one year had a immediate

hardening effect on values with a 5-year old vessel being

worth over $150m in early November, 85% up on the start

of the year.

The sharp rise in spot market earnings in 2007

supported a regular stream of period chartering interest.

During the course of the year charterers were regularly

finding themselves short on availability, especially in the

Pacific. Long delays at Australia’s premier coal loading port

of Newcastle, and delays at other loading and discharging

ports in Australia, Brazil, South Africa and China, only

exacerbated tight supply. This boosted the term charter

market as controlling ships in-house was often a better way

to service contractual commitments than total reliance upon

the vagaries of the spot market. One spin-off of an active

period charter market was the frequency of relets when

ships were out of position for own cargoes.

Capesize

The year began with one, two and three year benchmarks

set quite closely together. In January, Aquabeauty (171,009-

dwt 2003) set the tone for 12 month rates when it was

fixed for a year to Korea Line with delivery within the

month at $66,000. For two year period, both Mineral Libin

(175,000-dwt 2006) and Alpha Century (170,415-dwt 2000)

achieved $57,000 while for three years, the bar was set at

$50,000 by Lowlands Beilun (170,162-dwt 1999). This last

ship was reported in October to have been fixed for a year

at $146,000 to Oldendorff.

Anyone lucky enough to commit tonnage for medium to

long period in the first half of 2007 could later relet for

shorter periods at a tidy profit. Anangel Explorer (171,600-

dwt 2007) was reportedly fixed for $58,000 in May by

Cosco for five years with delivery ex-yard in July. In August

the ship was reported relet to North China Shipping for two

years at $97,500. This deal may have failed as the ship was

reportedly fixed again shortly afterwards to Crownland for

two years at $115,000.

Meanwhile, certain charterers were notably active on

the period front during the year. Cosco Hong Kong was

frequently in the market for longer period. It took Cape

Kennedy (170,726-dwt 2001) in March for three years at

$53,500 and Thalassini Niki (174,566-dwt 2005) in April for

five years at $56,000. Cosco Qingdao also went for longer

period deals as the year went on, committing China

Peace (175,000-dwt 2005) for five years at $55,000 in July.

Morgan Stanley concentrated on shorter periods, paying

$91,000 in July to fix Bulk Australia (169,770-dwt 2003)

for a year and as much as $125,000 for Xin Fa Hai

(174,766-dwt 2004) for a year from the end of September.

Just how fast the market moved in the final quarter is well

illustrated by the activity of STX PanOcean. It paid $118,000

in August to fix the larger format Cape Albatross (202,000-

dwt 2007) for a year. Four months later, in December, the

company had to stump up $170,000 to secure the standard

capesize Mineral Noble (170,649-dwt 2004) for one year.

In the process it recorded the high-water mark in period

time charter rates in what was a remarkable year.

The Belgian owner-operator Kleimar took the stablemate

Mineral Hong Kong (175,000-dwt 2006) for the same rate

just a few days beforehand.

Panamax

As with the capes, Pacific charterers were very much to

the fore in the panamax segment in 2007. Cosco Qingdao

probably got the bargain of the year right at the start when

it took the IVS Pinotage (76,596-dwt 2005) for five years

at $21,750 a day – a good rate at the time but it was to

look cheap as the year went on. A short while after taking

the ship in Cosco relet it to d’Amato for 12-14 months at

$31,000 netting Cosco over $3 million for not much effort.

At the start of the year, a one-year fixture was concluding in

the low $30,000 range, as Happy Clipper (73,414-dwt 2001)

demonstrated when also taken by Cosco Qingdao for 11

to 13 months at $32,500. Two year rates started 2007 not

far behind: Tai Plenty (73,679-dwt, 2000) achieved $28,300

from Parkroad in January. Three year rates were at a further

narrow discount with Audax (75,220-dwt, 2001) fixing for

three years time charter at $25,500 to STX PanOcean.

The upswing in rates was rapid during March and April.

Consecutive one-year fixtures each established a new

benchmark: Cinzia d’Amato (74,716-dwt 2000) went for a

year to Glory Wealth at $33,500, but the same charterers

had to pay $34,750 for the larger Te Ho (77,834-dwt 2004)


just a day later. One week later, Daiichi was reported to

have paid $36,000 for Pasha Bulker for a year (before it

grounded off Newcastle in July).

By the end of April, Dreyfus was paying $42,500 to take

Ruby Indah (77,755-dwt 1998) for a year. Come the middle

of July, the one year rate was up to the high forties:

Transfield paid $49,750 to take Oceanis (75,550-dwt 2001)

for a year with September laycan. By the time Transfield

took delivery, it had to pay $66,000 for Yong Huan for a year,

also with September laycan.

The peak was reached in October when Sinochart fixed

Yasa Fortune (82,800-dwt 2006) for a year with delivery

in early December for $87,000 daily. By January 2008,

prevailing rates had eroded significantly as Sealink paid only

$49,000 for the 1995-built Dong Bang (71,747-dwt) for a

year. Charterers remained relatively quiet until just before

Chinese New Year when rumours of imminent increases in

the new contract prices of iron ore and coal moved them

to take period cover again. Rates duly began to recover lost

ground after a three-month slide.

Two year time charter rates also peaked in October when

Crownland paid $73,500 to take Four Coal (74,020-dwt

1999) with late November delivery. This was a far cry from

February when BHP Billiton had paid only $27,500 for

Spartia (75,115-dwt 2000) for two years. The fall from the

peak was less severe for the longer fixture as the panamax

beam Bulk Japan (82,800-dwt 2006) fixed to Glory Wealth

for two years in January 2008 at $62,000 daily.

Handymax

On a number of occasions in the last few years, modern

supramaxes have out-earned panamaxes and, from time

to time in 2007, they managed to achieve very similar time

charter rates. Our list includes mostly modern ships of

over 50,000-dwt but the strength of the market in the final

quarter of 2007 is demonstrated by the fact that the biggest

rate reported ($60,000 per day for 11 to 13 months) was

for the 43,246-dwt, 1994-built Gulf Globe which Korea

Line chartered in the last days of October.

Rates had come a long way since early 2007. Pacific Basin

was reported to have fixed Genco Prosperity (47,180-dwt

1997) for only $26,000 in February 2007 while par for the

year on average was something close to the $37,000 that

Cargill paid for Azzura (52,050-dwt 2004) in April. For longer

period, there was less rate volatility during the year.

Cosbulk paid $25,000 per day for Equinox Voyager (50,832-

dwt 2002) for two years in January while Sinotrans paid

$42,500 in August for Ocean Prefect (52,500-dwt, 2003)

also for two years.

Meanwhile, three year rates were flatter still. The peak

was HMM’s fixture of Innovator (55,435-dwt 2005) in

September for $39,000 which was 62.5% higher than the

$24,000 that Korea Line paid for Bianco Dan (55,625-dwt

2004) in January. The 3-year market suffered a correction

in 2008 along with spot rates and shorter period rates. In

late January, Sanko got away with paying a slightly lower

$35,350 per day to take Navios Kypros (55,180-dwt 2003).

Handysize

The handysize period market remains largely opaque with

few reported deals and even fewer confirmed fixtures.

However, we have enough fixtures to trace out an outline

of the market in 2007. One-year rates began the year in

the low $20,000s. Pontoklydon (28,450-dwt 1992) was fixed

in February for one year at $22,000. By August, Odin

Pacific (28,381-dwt 1995) achieved $32,000 with Korean

charterers and, at the autumn peak of the market, Korea

Line took Eastern Star (28,431-dwt 1997) for one year at

$42,000 daily.

Also of note were Genco’s twin forays to fix out its

handysize bulk carriers for period. The company took

advantage of firm market conditions to lock in earnings in

March when it fixed five vessels to Lauritzen for two years

at a reported $19,500 per day. Then in August, Genco fixed

three standard 28,000-dwt units (Genco Charger, Genco

Challenger and Genco Champion) to Pacific Basin for three

years at $24,000 a day.

Spot Market

Average weekly earnings are our proxy for spot market

performance. Capesize earnings rose steadily throughout

the year, apart from a soft patch in the spring and early

summer period, before peaking in mid November.

The correction was triggered by a force majeure

declaration in Brazil after collision damage to a loading

pier at Itaguai/Sepetiba on 12 December that led to

the staggered cancellation of as many as fifty iron ore

shipments totalling 8.5 million tonnes. The extent of

cancellations and slow timetable for repairs suggests that

there may have been some tactical linkage to the 2008/9

iron ore contract price negotiations.


Bulk Carriers

25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000

2002

-01

2002

-04

2002

-07

2002

-10

2003

-01

2003

-04

2003

-07

2003

-10

2004

-01

2004

-04

2004

-07

2004

-10

2005

-01

2005

-04

2005

-07

2005

-10

2006

-01

2006

-04

2006

-07

2006

-10

2007

-01

2007

-04

2007

-07

2007

-10

2008

-01

$ pd

170k-dwt 1yr TC

70k-dwt 1yr TC

52k-dwt 1yr TC

30k-dwt 1yr TC

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Jan-

05

Mar

-05

May

-05

Jul-0

5

Sep

-05

Nov

-05

Jan-

06

Mar

-06

May

-06

Jul-0

6

Sep

-06

Nov

-06

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep

-07

Nov

-07

Jan-

08

$ per day

Capesize

Panamax

Handymax

Handysize

Handysize

Handymax

Panamax

Post-Panamax

Capesize

VLBC

5

10

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20

25

30

Pre

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2

1973

1975

1977

1979

1981

1983

1985

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1995

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2001

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2007

m-dwt

Handysize

Handymax

Panamax

Post-Panamax

Capesize

VLBC


0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008f


R2 = 0.64

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

- 10 20 30 40

Chinese iron ore imports, m-tonnes

BalticCapesizeIndex

This situation was made worse in early 2008 when

Australian iron ore shippers declared force majeure after

Cyclone Melanie interrupted Rio Tinto’s mine and rail

operations in the Pilbara. This caused rates to fall off the

proverbial cliff with spot earnings dropping $100,000

per day from a $180,000 daily peak in mid November to

an $80,000 daily trough in late January. Rates bounced

back strongly in the last week in January when Chinese

operators entered the market for period alerting owners to

the possibility that the correction had been overdone and

that iron ore shipments were about to pick up again.

Meanwhile, the influence of the capesize segment on

the earnings of the smaller ships is evident in the above

chart. The shape of the curve representing spot panamax

earnings in 2007 not surprisingly bears a close resemblance

to capesize, although with much lower volatility. At various

times during the year when capesize rates rose too far

above panamax rates then shippers would split stems in

two and use panamaxes to leverage down capesize rates.

Once the rate differential narrows, shippers tend to be

quick to switch back to the larger sizes in the interests of

operational simplicity and economies of scale. Handymax

earnings broadly followed the same path as the larger

panamax, as we have noted above.

Short period (6-month) rates for a 30,000-dwt handysize

improved in a linear trend throughout the year but suffered

some contamination from the woes of the larger ships

in the spot market at the end of the year. Rates almost

managed to stay ahead of the best that 2004, 2005 and

2006 could manage but for a brief period at the beginning

of the year. In contrast to the six-month time charter rates,

spot rates fell sharply towards the end of 2007 as bearish

sentiment in the larger sizes combined with bad news in

global financial markets and falling share prices. Longer-

term period rates were hardly affected as the market still

believed the adverse conditions to be of a temporary nature.

Figure 17. Biggest influence on capesize earnings remains

Chinese steel industry

There is still a close correlation between the volume of

monthly iron ore imports and average capesize bulk carrier

earnings since inception of the Baltic Capesize Index (BCI)

in March 1999. However the correlation was much stronger

in the period up to the previous market peak in 2004. It is

not because Chinese iron ore imports are less vital to dry

bulk demand now than they were then, but rather that

the shortage of vessels was more acute in 2007, so rates

were driven much higher than they had been three years

previously. As a result, variance around the earnings curve is

much greater as Chinese iron ore imports grow in volume.

32

Figure 16. Average earnings for standard-type bulk carriers


5

10

15

20

25

30

Pre

-197

2

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

m-dwt

Handysize

Handymax

Panamax

Post-Panamax

Capesize

VLBC

R2 =

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

- 10 20 30 40

Chinese iron ore imports, m-tonnes

BalticCapesizeIndex

-

5

10

15

20

25

30

35

40

45

50

Mar

-99

Mar

-00

Mar

-01

Mar

-02

Mar

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Mar

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Mar

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Mar

-06

Mar

-07

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

China Iron Ore Imports, m-t (LHS)

Baltic Capesize Index (RHS)

5

10

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20

25

30

Pre

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2

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1975

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m-dwt

Handysize

Handymax

Panamax

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Capesize

VLBC

-

2,000

4,000

6,000

8,000

10,000

12,00020082007200620052004

Figure 18. Chinese iron ore imports and capesize earnings Another way to show this relationship is to plot the growth

of Chinese iron ore imports over time against the Baltic

Capesize Index. This time series shows a very strong

relationship between 1999 and 2004 but thereafter there is

increasing volatility in capesize earnings. The coincidence

of force majeure events in the world’s two largest iron ore

export regions in Brazil and Australia, in the November 2007

to January 2008 period, was enough to collapse sentiment

supporting the old adage that freight rates have the

tendency to go up on escalators and down in elevators.

Figure 19. Baltic Dry Index, daily ticks. The Baltic Dry Index pools together all the component ship

size indices except for the handysizes. The BDI lost close

to 20% in value between mid November and the end of

2007 but then further bad shipping and financial news in the

new year sent the BDI sharply down in January. The index

lost almost 50% of its value from its late 2007 peak before

staging a recovery. By early March 2008, the 8,000 level

was breached again – it was at this level in 2007 that the

index went vertical.


Values

Figure 20. Relative values and earnings

Date Period – Rate Cape 170K Pmax 73K Hmax 52K Handy 30K

1st Jan 2007 3 years – $/day 47,500 25,000 23,000 16,750

31St Dec 2007 3 years – $/day 105,000 48,000 43,000 26,500

2007 change 110% 92% 87% 58%

31st Jan 2008 3 years – $/day 100,000 45,000 35,500 23,000

2008 to date -5% -6% -17% -13%

Date Age – Value Cape 170K Pmax 73K Hmax 52K (3yo) Handy 30K

1st Jan 2007 5 yr old – $m 81 45.5 42.5 28.5

31St Dec 2007 5 yr old – $m 150 88.5 75 44

2007 change 85% 95% 76% 54%

31st Jan 2008 5 yr old – $m 143.5 83 70 43

2008 to date -4% -6% -7% -2%

Bulk Carriers

5

10

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25

30

Pre

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1973

1975

1977

1979

1981

1983

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1987

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1991

1993

1995

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2007

m-dwt

Handysize

Handymax

Panamax

Post-Panamax

Capesize

VLBC

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Capesize (170k-dwt)

Panamax (75k-dwt)

Handymax (51k-dwt)

Handysize (23-30k-dwt)

10

20

30

40

50

60

70

80

90

100

$m

5

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Pre

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1983

1985

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1989

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2001

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2005

2007

m-dwt

Handysize

Handymax

Panamax

Post-Panamax

Capesize

VLBC

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$m

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The above table gives some idea of how investors might

look at the relationship between modern secondhand values

(5-year old) and medium-term (3-year term) time charter

rates. During 2007, capesize 3-year time charter rates rose

110% while 5-year old values rose only 85%. The increase

in panamax values and earnings were more in line with one

another with a 92% increase in 3-year rates against a 95%

increase in values.

In the handymax segment, rates were up 87% in the

year against a less pronounced 76% increase in modern

secondhand (in this case 3-year old) prices. And in the

handysize segment earnings rose 58% just ahead of

values at 54%. By the end of January, handymax had seen

the biggest correction in period rates at 17% down with

handysize in second place at 13% down. Despite this,

handysize values only dropped a nominal 2%.

There was plenty of activity in the secondhand market in

2007, ranging across all sizes and vintages. It was actually

the older ships that enjoyed the greatest percentage

rises, but also the steepest falls at the turn of the year.

The prices of modern ships were often set by pre-IPO

buyers and listed companies ahead of secondary offerings.

The KG houses continued to attract fresh equity although

investment targets became more elusive. From August,

many buyers began to feel the impact of tighter credit

conditions and activity slowed. Finally, modern secondhand

values eased towards the end of the year, and into 2008,

as they were negatively influenced by the severity of

the falls in spot market earnings. For a few owners this

engendered a sense of panic, leading them to discount their

pricing in order to conclude deals that still guaranteed them

substantial capital gains.

Figure 21. Newbuilding prices for dry bulk carriers


Newbuilding prices rose steadily during 2007 as they

were fundamentally supported by strong demand, rising

input costs, increased foreign exchange risks and the

scarcity of machinery and equipment. The unprecedented

level of interest in new bulk carriers in 2007 should ease

during 2008 as what is on order is sufficient to cover both

fleet replacement and near-term future demand growth.

Uncertain prospects from 2009 and beyond have not yet

impacted on forward prices and will continue to be propped

up by strengthening commodity and labour costs. New ship

prices are unlikely to decrease until the huge premium for

modern secondhand vessels and resales has been eroded.

When premia fall back towards the cost of contracting it

will be an indication of weaker spot and period earnings.

At such point, owners will ask themselves whether actual

and prospective cashflows justify the high prices on offer.

Capesize market in 2007

Figure 22. Benchmark prices for capesize bulkers.

Secondhand capesize bulk carriers enjoyed considerable

gains in value during the course of 2007. In January,

Spring Brave (151,066-dwt NKK 1995) was reported sold

to DryShips for $60m. In March, the slightly larger but

same vintage Martha Verity (157,991-dwt Sasebo 1995)

was said to have fetched $63m to Swiss Marine. In April,

Formosabulk Allstar (150,393-dwt KHI 1995) was paid in the

range of $65-67m and chartered back by Formosa Plastics

for ten years on undisclosed terms. By October, DryShips

was once again linked with a 12-year old vessel Tiger Lily

(149,190-dwt CSBC 1995) at $90m, 50% up on what it

had paid for a similar-size ship ten months earlier.

In terms of the more modern ships. In March, Cape Pelican

(180,235-dwt Imabari 2005) was reported sold to Diana for

$107m and Cape Kassos (170,012-dwt Hyundai Samho

2004) was linked with Alcyon for a comparable $100m.

Prices had moved up several gears by September when

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the en bloc sale of Thalassini Niki (170,800-dwt Daewoo

2005) and Thalassini Kyra (164,218-dwt CSBC 2002) was

reported to Diana at $275m. The former was said to have

a 5-year charter attached at $56,000 daily while the latter

was charter-free and was in some reports apportioned

$133m of the total proceeds. In November, DryShips was

stated as the buyer of Gran Trader (172,529-dwt NKK 2001)

at $153m, the highest price of the year, and of that freight

and price cycle.

The deal of the year was Genco’s nine-cape purchase

from Metrostar in July. This involved capesizes ranging

from 170,000-dwt to 180,000-dwt, built or delivering from

the Japanese, Chinese and Korean shipyards of Imabari,

Universal, SWS and Sungdong between 2007 and 2009, at

an en bloc price of about $1.1 billion, an average of about

$122m each. The four 2007-built vessels had attached

charters of varying periods and rates. The four 170,000-dwt

Sungdongs, delivering October 2008 to September 2009,

were purchased by Metrostar from Blystad two months

earlier for $100m each, allegedly giving Blystad a profit of

$110m. Clearly Metrostar made an even better annualised

return. To put this in perspective, at the end of February

2008, a 2010-delivery 170,000-dwt Sungdong resale was

reported sold for $99m.

We can draw attention to two capesize purchases by keen

buyers Rizhou Steel. On 30 October 2007, with the BCI at

14,625 points and a few weeks ahead of its correction, the

steel mill was reported as the buyer of Sumihou (171,071-

dwt IHI 1996) for $106m. More recently, on 6 March

2008, with the BCI at 12,285 points, Rizhao was linked

with the purchase of the three years younger Arethousa

(171,779-dwt HHI 1999) for $133m. On a BCI-adjusted

basis, Sumihou would be worth $89m today to match the

16% fall in the BCI between the two purchase dates. On an

age-adjusted basis, the ship would be worth about $100m

today if matching the younger age of Arethousa. This would

imply that Rizhao Steel has overpaid by $33m or 33% in

its eagerness to secure Arethousa, following its failure of

two other purchases on subs in the interim period. We can

only assume that there are charters involved that adjust the

values and explain the valuation gap.

Panamax market in 2007

Figure 23. Benchmark prices for panamax bulkers

The market for what were 5-year old ships in 2007

developed nicely during the year. In January, Aeolion Spirit

(76,015-dwt Tsuneishi 2002) was reported sold to Tolani for

$49.25m. In May, Anangel Galini (74,362-dwt Daewoo 2002)

was said to have gone to Ocean Freighters for an improved

$56.5m. Within a few months, in the first half of July, Athina

Zafirakis (74,204-dwt Oshima 2002) sold at tender

for a reported $65.0m to DryShips. Later in the month of

July, Theodoros P (73,870-dwt Namura 2002) was first said

to have gone to Tolani for $70.5m and then later corrected

to Daebo at $71.2m. In the space of just seven months,

5-year old panamax values had gone up about 47%.

Around the middle of November, Lietta (76,015-dwt

Tsuneishi 2002) was rumoured sold for a relatively low

price of $62.25m when the charter-free value should have

around $90.0m. The big discount could be explained by an

attached charter for some 12-24 months at the low rate of

about $25,000 per day.

After the Lietta sale, modern sales virtually dried up but

owners of older ships became more eager to sell in order to

capture the increased value of their ships. The Vietnamese

seemed happy to oblige as they finally had a choice of

candidates in the vicinity of their budget levels. Back in

February, Peter S (66,764-dwt Sumitomo 1984) sold to

Korean buyers for $16.0m followed in April by Liberty

Wave (63,330-dwt HHI 1984) at $19.5m to Vietnamese.

By August, Amadeus (66,916-dwt MHI 1984) was able to

command $25.0m and in October Trust Jakarta (64,873-

dwt Hitachi 1984) went for $28.5m before Mastrogiorgis

(69,461-dwt Gdynia 1984) fetched $35.0m. Prices of this

vintage edged higher in November before the market

correction stalled activity. In late January 2008, Astron

Spirit (65,767-dwt Sasebo 1984) finally sold for $25.0m to

Vietnamese having failed at various levels up to $35.0m.


Bulk Carriers

Resale5yr-old10yr-old15yr-old20yr-old25yr-old

0102030405060708090

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05

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6

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-06

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-06

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6

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06

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-07

Jul-0

7

Sep-0

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$m

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70

$m

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Mar

-06

May

-06

Jul-0

6

Sep-0

6

Nov-

06

Jan-0

7

Mar

-07

May

-07

Jul-0

7

Sep-0

7

Nov-

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Jan-0

8

A number of resales were concluded during 2007. In May,

Kambara sold a 2008-delivery 82,800-dwt Tsuneishi for a

reported $55.8m to Thenamaris in what was later to look

like an astute purchase. In June, Order Shipping was linked

with the purchase of CMB Fabienne (76,000-dwt Jiangnan

2008) for $65.0m. In July, DryShips was associated with

the purchase of two Kambara 2010-delivery 82,800-dwt

Tsuneishi types at $54.25m each. And, in October, Kambara

was reported to have offloaded another pair of 2010-

delivery 82,800-dwt Tsuneishi types to Neda Maritime for

$58-59m each. In November, Golden Ocean reportedly

sold six 75,000-dwt vessels under construction at Pipavav

in India, and scheduled for delivery in 2009 and 2010, to

Britannia Bulk for an average price of just under $59.0m

each. Also in November, Torm picked up two 2010/11-

delivery 82,800-dwt Tsuneishis for $52.5m each.

Handymax market in 2007

Figure 24. Benchmark prices for handymax bulkers

As is evident from the chart, 2007 was characterised by

steadily increasing values such that, as the year progressed,

buyers became fewer and fewer. At each stage, prices

were set by aggressive IPO buyers who tended to bring

other buyers in their wake. Liquidity was quite thin with

few available sales candidates and relatively few buyers but

over the course of the year medium-term period rates rose

faster than modern secondhand prices. The price of

a 5-year old 52,000-dwt handymax peaked at about $75m

in mid November.

Demand, especially for more modern vessels, was driven

by keen period interest and on occasions it was hard to

tell whether the tail was wagging the dog or vice-versa.

The final big push really began in August when charter

rates climbed dramatically, taking values with them. In the

last quarter more older ships came into the market for sale

as owners looked to cash in on values that were returning

100% or more of their purchase price in some cases.

In 2007, a 20-year old handymax could be sold for

double what it cost to build back in the 1980s.

The orderbook for newbuildings, particularly in the second

half of the year, grew exponentially. Very little ordering was

backed by long-term period cover as charterers generally

found the delivery dates too far forward. The ordering

frenzy had more of a herd mentality about it, based upon

the hope of perpetual rising values and profitable resale

opportunities. The turn of the year correction in the

charter market was overdone but it was probably enough

to cause some owners to curb their speculative instincts.

Handysize market in 2007

Figure 25. Benchmark prices for handysize bulkers

The 2007 market started where 2006 left off and was

characterised by an extreme lack of very modern tonnage

(post-2000) coming for sale; no more than a dozen

charterfree ships changed hands during the year.

Pacific Basin, Clipper and Evalend – amongst the big guns

in the handysize segment – sold systematically during he

course of the year. Pacific Basin was eager to charter its

ships back in order to preserve its fleet size and no doubt

protect its dividend payments to shareholders. The other

two, as private companies, were probably more keen

simply to cash out at historically high values. The abundant

availability of period charters, at levels corresponding to

prices paid, certainly generated considerable momentum

from the end of the first quarter.


The entry of active and aggressive Vietnamese and South

Korean buyers helped propel the secondhand market

in both modern and older ships respectively. By May,

strong demand had stripped the market of available sales

candidates and values began to accelerate with buyers

being forced to look at vessels encumbered with charters.

The easy availability of period for older units drove prices up

prices in that segment. By mid May, the price of a 10-year

old handysize exceeded the newbuilding contract price.

Frustrated buyers began to spend more time examining the

shipyards and soon started bidding up prices to levels that

finally made sense to the builders to provide forward berths.

En bloc deals came into vogue – the Sunwise fleet in June

and the Evalend fleet in August – attracting big numbers

from investors. By August, the BDI shot through the 6,000

barrier and the handysize market moved up another gear.

Evalend recorded the first handysize sales at above $40

million per unit and, in the 2006-built Stentor, recorded the

highest price ever paid. While supramaxes reached the $80

million mark, no handysize has yet breached $50 million.

This was symptomatic of either a very firm psychological

resistance level or simply of a lack of available very modern

candidates for sale.

By the third and fourth quarters a rising number of

newbuilding contracts were being signed, many at yards

with weak financial credentials and poor technical and

commercial prospects. Newbuilding contract prices were

bid up beyond $35-37m with deteriorating payment terms

and deliveries stretching into 2012 or even 2013 in Japan.

A sudden jump in values for the fourth quarter – Hanjin

Houston and sister Hanjin Tampa, both 27,209-dwt built

1995 – were sold for $40 million. This was a remarkable

development to see 12-year old handysize leap-frogging

forward delivery newbuilding contract prices.

At the older end of the scale, the 23-year old Ypermachos

and Diasozousa, both 28,000-dwt built 1984, were sold

for $26 million each in the fourth quarter. This was twice

what they might have achieved at the start of 2007 and

50% ahead of what they would have got in only the

previous quarter. December was a quiet finish to the year

as the freight market adjusted downwards in the middle

of November. This caused s lull in trading activity while the

extent of the correction was evaluated. The last concluded

handysize in 2007 was Seaglass (28,427-dwt built 1992)

$38 million; a 15-year old vessel achieving the same level

as a newbuilding order. This illustrated the strength of

demand for prompt delivery.

Outlook

The outlook for 2008 remains positive but cargo demand

growth across all segments is forecast to be just under 5%

while average tonnage supply growth across all segments is

expected to come in at about 7% on the basis of anticipated

minimal scrapping. However, the gap between supply and

demand will be narrowed, or even eliminated, by continuing

congestion at major loading and discharging ports and

by increasing tonne-mile growth as trade characteristics

change. The dry bulk market underwent a correction in

November that became even more severe in January, but

this correction was based upon cargo supply problems

in the larger sizes and adverse sentiment feeding in from

unstable financial markets. At the time, we expected the

dry bulk fundamentals to re-assert themselves and for the

market to recover and this is indeed what it has been doing

during February and into early March.

Closer analysis of the tonnage supply side shows the VLBC

segment growing by 18% from a relatively low base of

just under 22m-dwt and the conventional cape segment

expanding at a more subdued net rate of 4.3%, after 5m-

dwt of new deliveries, from a larger 109m-dwt base. We

expect the VLBCs to be generally covered under long-term

COAs but this still removes existing raw material cargoes

and incremental demand growth from the spot market.

Nonetheless, the conventional sizes still look to be set fair

for 2008 ahead of a much heavier delivery schedule in 2009

at over 20m-dwt followed by more than 42m-dwt in 2010.

Given the sheer weight of future deliveries, 2008 may be

a good time for owners with ships on the water to lock in

3-5 years time charter to a top-rated charterer and sit the

market out.

There is a parallel development in the expanding post-

panamax segment, which is expected to rise almost

24% from a low base of under 14m-dwt at the end of

2007, whereas the conventional panamax sizes will see

net growth of less than 5% from a higher base of almost

95m-dwt at the end of 2007. The outlook in this segment

is positive for 2008 with both 2009 and 2010 set to post

an even slower rate of deliveries as the focus moves up

to the post-panamax sizes. Handymaxes are forecast to

expand by a net 10% in 2008 while the handysize segment

gains less than 4.5% and remains favoured for its flexibility.

The handysize orderbook stands at 26% today compared

with 8% at the start of 2007. New yards in China feature


Bulk Carriers

38

prominently, using handysize as entry-level ships with

which to gain experience. Some degree of delay, even

non-performance, is expected to retard the delivery

pace in future.

Robust iron ore demand growth in China will support both

the VLBCs and capes on the long-haul routes from Brazil

where available and incremental supply is expected to

continue growing at a faster pace than Australia. India’s

exports are expected to decline by over 2%, or 2-3mt, in

2008 with this shortfall being made up by South Africa. To

put this in context, South Africa’s 2008 exports by weight

are forecast to be 11% of Australia’s and 10.5% of Brazil’s.

India is trying to limit iron ore exports in support of its

domestic steel industry while South Africa’s infrastructure

constraints constantly threaten the prospects for expanding

its iron ore export trade. However, it achieved almost 15%

export growth in 2007 and is forecast to increase a further

9% in 2008 to almost 33mt. At the margin Chile, Canada,

Sweden and Peru will all lift their exports volumes in 2008,

providing ultra long-haul supply to Asia.

Panamax and handymax sizes stand to gain from the

current Chinese thermal coal export ban that is forcing

Japan, Korea and Taiwan to seek long-haul replacement

supplies. Nearby sources include Indonesia and Australia,

although the latter failed to keep up with Chinese

demand in 2007 because of problems associated with

landside mines, rail and ports. Mines in both Indonesia

and Queensland are currently victims of flooding with

consequently reduced output. A more distant source is

Colombia which is increasing its production and may be able

to respond to rising Asian demand at some benefit to tonne-

miles. Meanwhile, the thermal coal imports of India, China

and South Korea are all expected to continue their upward

trajectory in 2008 increasing by about 5mt each. This would

represent year-on-year growth of 17% for India, over 30%

for China and nearly 8% for South Korea.



Bulk Carriers


Tankers

Introduction

A year ago, we drew attention to the fact that many market

observers, including some of the world’s largest tanker

owners, were bearish for 2007 prospects. However, we

wrote that “we are prepared to venture that crude tanker

earnings could outperform 2006 while product rates will

disappoint.” We were right not to be as pessimistic as

the big tanker operators, but they were correct for the

first three quarters of the year during which tanker rates

flatlined. Our redemption came in the fourth quarter when

large crude tanker spot rates went through the roof and

revisited the highs of November 2004, something that

no-one expected. This had the effect of raising annual

average spot earnings so that, year-on-year, VLCC and

aframax rates were down only 9%, suezmax 16% and

panamax just 1%. On the other hand, clean and dirty

products did better than we had forecast, falling only

marginally. (See Figure 26. below).

Many of the themes we were writing about twelve months

ago are still relevant today. The US economy had already

started grinding down with a slowdown looking more likely

than a recession at that time. After a year of withering

growth, a Wall Street Journal poll of economists put

recession risk at 50-50 in January 2008 but, by early

March, various investment banks and sages such as

Warren Buffet are claiming that the US is already in

recession. This time last year, we suggested that other

economies would be unlikely to secure immunity from a US

slowdown. Our current position is largely unchanged as we

never bought into the decoupling theory as enthusiastically

as did our own house economists. Hank Paulson, the US

Treasury Secretary, is now referring to decoupling as a

myth, almost as if he would actually wish the rest of the

world to catch a cold if the US must endure the flu.

A year ago, we were already taking note of country-by-

country forecasts that predicted much slower economic

growth and pondered that such adjustments should

logically lead to slower energy demand. And yet the latest

IEA forecasts for oil demand growth at that time were for

a 1.55m-bpd year-on-year increase in 2007, implying only

marginal weakness in the global economy last year.

The IEA duly revised its forecasts downwards over the

ensuing months and the final outcome for 2007 was

one-third lower at 1.04m-bpd. Last year we drew attention

to the delinkage between earnings and values as they

started off 2007 heading in opposite directions: values up,

earnings down. This seemed to us either to represent a

longer term belief in future earnings, thus supporting

higher valuations, or to indicate that too much money

was chasing too few opportunities.

Now, one year on, not much has changed. Tanker

newbuilding prices have never been higher and delivery

leadtimes have never been longer. Secondhand values

continued to rise during 2007 even as spot earnings have

slipped; thus the disparity between values and earnings

has widened. The premises are still valid: there is a belief

that future earnings can support high valuations and there

is still ample liquidity chasing relatively few opportunities.

The liquidity crunch in financial markets was acknowledged

in August and, at that time, affected mostly American and

European banks but has since permeated into the broader

economy. Some big ticket shipping deals got pulled in

the fourth quarter due to inability to source debt finance

at the right price but, by and large, shipowners are on the

side of the sovereign wealth funds and emerging market

governments: they have cash to spend.

The KG funds can still tap into new equity but sourcing debt

for a series of new super post-panamax containerships

or a fleet of large tankers is no longer a given. With

private and institutional investors able to access plentiful

funding we foresaw that any 10-30% correction in asset

values in 2007 would motivate value investors to step in,

effectively putting a floor under price falls. We never saw

the correction in tanker values, just continued investment at

firming market prices supported more by robust medium-

term period rates1 than by the lacklustre spot market. 2007

was the year of dry bulk, leaving tankers in the shadows.

The frothiness of the bulk carrier market provided a useful

outlet for single-hull tankers with many being lined up for

conversion into large bulk carriers, FPSOs, FSOs and even

heavy lift. This transfer of assets between shipping sectors

has made fleet analysis more challenging but, without

doubt, it has reduced future tanker supply to the benefit

of the sector.


1Avg. 3-year rates. VLCC up $1,000 daily; suezmax up $500; aframax up $1,000; panamax flat; MR up $1,000.

Figure 26. Average tanker earnings

Ship Type Dwt/ Year of Build 2006 $

2007 $

% Change

VLCC 300,000-dwt / 2000 63,092 57,147 -9%

Suezmax 150,000-dwt / 1999 53,136 44,825 -16%

Aframax 106,000-dwt / 2000 39,369 35,810 -9%

Panamax 73,000-dwt / 2000 30,882 30,565 -1%

Products 30,000-dwt / 1988 27,187 26,016 -4%

Average 42,733 38,873 -9%

Baltic Dirty Tanker Index 1,287 1,124 -13%

Baltic Clean Tanker Index 1,112 974 -12%

The decline in spot market earnings in 2007 was less

marked than many had expected, helped by a belated and

exceptionally strong rally in the fourth quarter. Average spot

earnings for all tankers slipped 9% compared with 2006 and

the Baltic Dirty Tanker Index was down 13% and the Baltic

Clean Tanker Index down 12%. Taking the panamax size as

a proxy for dirty products, although this size will increasingly

move over to clean trading as new LR1 deliveries escalate,

it was down only 1%. The small handysize, a proxy for

clean traders, was down 4% year-on-year. The late 2007

rally in crude rates would have been missed by all but a few

lucky owners but at least it served as a reminder of what is

possible, and of how well balanced is supply and demand.

The supply side in 2008 has moderated, given conversions

and regulatory tightening post Hebei Spirit, and emerging

market demand remains robust.


Fleet supply

Figure 27. Tanker fleet supply

Year-end 2006 Year-end 2007 Orderbook in m-dwt at 31-Dec-07

M dwt # ships M dwt # ships as % fleet

Delivery 2008

Delivery 2009

Delivery 2010

Delivery 2011+

VLCC 200,000+ 142.1 485 148.3 504 38% 11.3 20.4 15.0 7.0

Suezmax 120-200,000 52.4 348 54.7 361 42% 3.1 9.3 7.4 2.2

Aframax 80-120,000 71.1 699 75.8 738 44% 7.7 11.5 9.1 3.0

Panamax 60-80,000 21.4 308 23.7 338 44% 2.8 3.6 1.5 1.6

Handy 10-60,0000 32.9 941 34.7 974 42% 4.1 4.7 4.0 1.0

Total Fleet >10,000 320.0 2,781 337.2 2,915 41% 28.9 49.5 37.0 14.8

In GSMR 2007 we separated out the crude oil tankers

from the product tankers. The overlap is most common in

the panamax LR1 and handymax MR sizes but also occurs

to a lesser extent in the aframax LR2 segment. In recent

years a higher proportion of tankers in these sizes have

been coated as a doubling in newbuilding prices has made

the coating option a relatively cheap additional cost for the

extra flexibility that it conveys. Furthermore, modern tank

cleaning methods now make it much easier for coated

ships to trade dirty products and crude oil cargoes and then

return to clean products without much ado. We have thus

recombined the two categories.

In 2007, bulk carriers finally took over the limelight at the

shipyards allowing tankers and containerships to pause for

breath after an earlier period of heavy investment. In the

process, the bulk carrier orderbook quickly became inflated,

although it cut some welcome slack for tankers. At the

close of 2007, the total orderbook of all tankers stood at

41% of the end-2007 fleet with scheduled deliveries spread

out over four years or more. The workhouse aframax sits

at only 19% of the current fleet by capacity, whereas the

larger VLCC and suezmax segments stand at 38% and

42% respectively. Of the 129 panamax tankers of almost

9.5m-dwt on order at the beginning of 2008, 104 or 80%

Tankers

1979

1981

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m-dwtProducts

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are coated. These tankers are being built as the optimal size

to move refined products from new refineries in the Middle

East and Asia into the refining-constrained markets of the

US and Europe.

Figure 28. Tanker fleet profile at end 2007

The tanker fleet profile shows a modernising fleet

with quite rapid expansion in size after new deliveries

accelerated in the period following the 2001 economic

recession. The tankers that were the product of the

1970s building boom have now all but gone and the pool

of tankers that delivered in the 1980s is fast becoming

depleted. This will be the primary source of demolition

candidates over the coming years. The overall proportion of

crude tankers to product tankers in the fleet remains near

the historic ratio of an 80:20 split. But, in terms of recent

and future deliveries, product tankers are increasing their

relative share on the back of perceived tonne-mile demand

growth in the global product trades in the years ahead. At

the end of 2007, the crude oil tanker fleet by our calculation

was 275.7m-dwt, compared to the product tanker fleet fleet

of 61.5m-dwt, the split now being 77:23 in favour of crude

tankers.

Figure 29. Tanker deletions have been almost suspended

despite phase out requirements

Deletions include demolition, losses and removals with the

latter category covering conversions to FPSO, FSO, heavy

lift, bulk carrier or other usage. 2007 was the year in which

tanker owners spotted an opportunity to convert single-hull

tankers of all sizes to bulk carriers in order to capture the

enhanced earnings ahead of bespoke newbuilding deliveries

from the shipyards. Single-hull VLCCs were the main

targets for conversion into very large ore carriers (VLOC)

deemed suitable for long-haul iron ore imports from Brazil

to China. A VLCC conversion might typically cost about

$25m (plus loss of hire) and take six months to complete.

The quantum and timing of available capacity at conversion

yards is unclear but any project looking at completion

in 2010 would coincide with newbuild VLOC deliveries,

begging the question of why any steel mill would provide

employment for a convert. The suitability of converted

single-hull tankers for the structurally punishing iron ore

trades is both debatable and untested.

In 2007, there were no losses and there was no scrapping

in the VLCC segment. The last loss was in 2001 and the last

VLCC to be scrapped was the 262,166-dwt Thai Resource

which was sold for demolition in June 2005. This is a

remarkable statistic in itself after a 5-year period between

1999 and 2003 that witnessed an average of 10m-dwt per

annum of VLCCs exit the trading market. This paved the

way for the exceptional market of 2004 that saw a depleted

VLCC fleet coincide with a year of hyperactive global oil

demand growth of 3m-bpd or 3.8% year-on-year (compared

with just 1m-bpd in 2007). In 2007, VLCC ‘removals’

amounted to 11 units of just under 3m-dwt and there will

be much more to come in 2008 which is helping rebalance

supply and demand in favour of the tanker owner. In

January 2008 alone, 8 units totalling nearly 2.2m-dwt have

been removed from the active VLCC fleet.

Conversion statistics vary, the above figures being courtesy

of Clarkson’s Shipping Intelligence Network, a key source

of our supply-side data. The most recent authoritative

study of VLCC conversions was published by tanker

broker E.A.Gibson on 18 January. For 2007, it put VLCC

conversions at 15 units, ten into VLOC and five into FPSO,

four units more than SIN. For 2008, it forecasts 26 units

being converted to VLOC and three units into FPSO.

Assuming that these do go ahead then this will have a

more positive impact on VLCC supply in 2008, by reducing

it, than we have factored into our estimates that follow. As

these tankers are slated for removal from the VLCC fleet

in 2008 then we can safely assume that the owners have


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Capesize

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$pd

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Cape

2/11

/07

9/11

/07

16/1

1/07

23/1

1/07

30/1

1/07

7/12

/07

14/1

2/07

21/1

2/07

28/1

2/07

4/1/

08

11/1

/08

18/1

/08

25/1

/08

1/2/

08

8/2/

08

15/2

/08

22/2

/08

29/2

/08

7/3/

082SIN in mid-Feb 2008 puts the VLCC fleet at 498 units: 358 DH, 134 SH, 5 DS, 1 DB i.e. 140 non double-hull.

booked the conversion yard, probably fixed subsequent

employment and are beyond the point of no return when it

comes to possible second thoughts.

Conversions beyond 2008, which Gibson’s projects as 19

in 2009 (14 to VLOC and 5 to FPSO) and 10 in 2010 (5 each

to VLOC and FPSO), may be more vulnerable to change

if conversion yard space and or future employment are

not yet booked. Then there is the wobble factor. In the

three month period between November 2007 and January

2008 the spot capesize market collapsed while the VLCC

spot market soared, a dramatic enough seesaw motion

to make conversion owners seriously think twice. The

fact remains that the weight of conversions from single-

hull VLCCs, together conversions from tankers in all the

other size segments, is dramatically improving the tanker

market outlook over the next five years. Conversely, it is

deteriorating the dry bulk outlook over the same period for

large bulk carriers, especially in the context of new bespoke

VLOC and cape deliveries beyond 2009.

To summarise, this report envisages 55 out of the fleet

of 1502 single-hull VLCCs to be removed from oil tanker

service and converted into bulk carriers in the 2007-2010

period while a further 18 will make it into FPSOs during the

same period. That leaves 77 for further conversion work or

demolition between now and the end of 2015 (if they elect

for the Condition Assessment Scheme from 2010) or their

25th anniversary, whichever comes first. The most modern

extant single-hull VLCCs are two that delivered in 1996 and

they will hit the beaches by the end of 2015, at the latest,

at the relatively young age of 19 should another purpose

not be found for them. The trend of converting is set to

continue, further depriving the scrap dealers of Bangladesh,

Pakistan and India of their natural feedstock despite

Bangladesh bidding in excess of $600 per lightweight ton

for tanker demolition candidates.

There is now the prospect of a VLCC being sold for scrap

within Q1 2008. The single-hull B Elephant (239,351-dwt

Sasebo 1986) is said to have received bids of $630 per ldt

against its owner holding out for a record $700 per ldt. In

February 2008, five double-sided aframaxes were reported

sold to Chinese conversion buyers. Frontline sold Sea

Leopard (94,993-dwt Koyo 1990) and Sea Panther (97,112-

dwt Imabari 1990) for $40m en bloc while Phoenix sold

Seletar Spirit (98,288-dwt Koyo 1988) for $17.5m, Sentosa

Spirit (97,161-dwt Imabari 1989) for $19.5m and Seraya

Spirit (97,019-dwt Imabari 1992) for $23.5m. At the big

end of the business, OSG and Euronav are converting their

Daewoo 2002-built 442,500-dwt TI Africa and TI Asia to

FSOs under an 8-year storage contract to Maersk Oil Qatar

running from Q3 2009. That takes two of four of the largest

tankers in the world out of active service.

Figure 30. Conversions – any second thoughts?


Tankers

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Handy COT

Panamax

Aframax

Suezmax

VLCC

The process of converting away from single-hull VLCCs

into very large ore carriers gained in popularity as 2007

progressed. Two issues would have made conversion

owners pause for thought: the Hebei Spirit oil spill off

South Korea on 7 December and the inverted performance

of large tankers and bulkers towards the end of the year.

The oil spill from the single-hull VLCC was one-third the size

of the Exxon Valdez in 1989 but more than enough for the

Korean authorities to bring forward the guillotine date for

single hulls trading in their waters from 2015 to 2010.

Korea is the largest user of single-hull VLCCs and this

accident is another nail in the coffin of these tankers as

inspection regimes worldwide will become even more

intensive. The rate premium for doubles over singles has

widened materially and all of a sudden future supply-side

factors are arguably favouring big tankers over big bulkers.

Vessel contracting is a dynamic exercise. Over the past

five years of generally strong, but always volatile, shipping

markets we have seen any under-ordered segment gain

contracting attention until appetite is more than satiated. A

period of relative famine ensues, allowing other sizes and

types to feed at the trough, before they get pushed aside as

the hunger of the former supplicant returns. As an example

of this feast and famine tendency, VLCC contracting in Q1

2006 was extremely vigorous following many consecutive

quarters of abstinence. The feasting binge endured all

of 2006, albeit at a slower rate of consumption. The

subsequent slimming program in 2007 was assisted by the

exercise of shedding pounds to the large bulk carrier and

FPSO segments. But, as we all know, these things never

last and Q4 2007 marked the return of VLCC appetite.

In looking at fleet developments in each segment in

the following tables we have, as in the past, taken the

five-year average of deletions to come up with our

deletions estimate.

46

Figure 32. Recent VLCC fleet development

End 2006 End 2007 2008 deliveries

Deletions estimate

Fleet End 2008

VLCC fleet, m-dwt 142.1 148.3 11.3 4.2 155.5

% change 4.3% 4.4% -- -- 4.8%

In last year’s GSMR we had forecast net VLCC fleet growth

of 3.7%; it turned out at 4.4% because our deletions

estimate of 4.4m-dwt was marginally on the high side. For

2008, we are conservatively expecting a 4.8% capacity gain

in the segment to 155.5m-dwt in total. This is not far out of

line with previous years of 4.3% growth in 2006 and 4.4%

in 2007. However, if 26 single-hull VLCCs do indeed get

converted in 2008, as per earlier estimates, then at 270,000-

dwt average unit size over 7m-dwt will exit the sector

during a year in which 2.2m-dwt already left in January.

That would reduce net VLCC fleet growth to just 2.9% in

2008 and this figure gives us confidence that the big ships

will continue to prosper this year on the back of resilient oil

demand in emerging markets, led by China and India.

Figure 31. Recent oil tanker contracting



Figure 33. Recent suezmax fleet development


Deletions estimate

Fleet End 2008

Suezmax fleet m-dwt 52.4 54.7 3.1 1.5 56.3

% change 8.0% 4.3% -- -- 3.0%

We had predicted 5.7% net growth in the suezmax fleet

for 2007 but it came in quite a lot lower at only 4.3%.

This is because removals almost tripled over the previous

year to eleven units of nearly 1.6m-dwt. Even with what

seems to be a low exit forecast for 2008, we still expect the

suezmax segment to expand by only 3% this year to 56.3m-

dwt. This will be more than 3% lower than the average

of the previous three years. Annual deliveries have been

running at just over 4m-dwt per year for the last four years

prior to which deliveries averaged 3.3m-dwt per year during

the previous four year period since the end of 1999.

Thus 2008 represents an historically low delivery year and

this should provide some cushion against any possible

demand weakness. But beware, as in 2009 deliveries

are scheduled to triple to over 9m-dwt which will prove

testing without a very upbeat demand-side response.

Figure 34. Recent aframax fleet development


Deletions estimate

Fleet End 2008

Aframax fleet, m-dwt 71.1 75.8 7.7 2.4 81.1

% change 6.8% 6.6% -- -- 6.9%

Our prediction of aframax fleet growth for 2007 was

4.8% but it came in much higher at 6.6% after a pace of

demolition and conversions that was broadly in line with

2006 and 2005 (in the range of 1.8 to 1.9m-dwt per year).

But these figures were well behind the previous cyclical

peak demolition years of 2004 (2.7m-dwt) and 2003 (4.0m-

dwt). This skewed our demolition forecasts for 2007 higher,

being the average of the preceding five years. In the five

years between 2003 and 2007, there were 38.5m-dwt of

aframax deliveries and 26.2m-dwt of removals, making this

a dynamic and modernising segment. Scheduled deliveries

of 7.7m-dwt in 2008 are coincidentally the same as the

7.7m-dwt annual average deliveries of the last five years.

Our removal estimate of 2.4m-dwt lends itself to 6.9% net

fleet growth in this segment this year, slightly above 2007.

Figure 35. Recent panamax fleet development


Deletions estimate

Fleet End 2008

Panamax fleet m-dwt 21.4 23.7 2.8 1.0 25.5

% change 15.1% 10.7% -- -- 7.5%

A year ago we predicted net fleet growth in the panamax

tanker segment of 1.6% but it came in much higher at

7.5%. In 2007 we had allowed for 1.0m-dwt of removals,

being the average removal rate of the previous 5 years,

and it turned out at about half that at a bit over 0.5m-dwt.

Last year, four units were scrapped and four removed,

which usually means converted to other use. The crude oil

and dirty products fleet in this segment is in sharp decline

whereas the orderbook is 80% inclined towards LR1 clean

product tankers. In 2008, only 2.8m-dwt of deliveries are

scheduled in this size of tanker and, after adjustments for

forecast removals, we expect net fleet growth of 1.8m-dwt

or 7.5% year-on-year. This will be well below the double-

digit annual expansion of recent years.

Tankers

Figure 36. Recent handysize tanker fleet development


Deletions estimate

Fleet End 2008

Handysize fleet, m-dwt 32.9 34.7 4.1 2.1 36.6

% change 5.8% 5.4% -- -- 5.6%

Figure 37. Recent tanker fleet development


Deletions estimate

Fleet End 2008

Tanker fleet, m-dwt 319.9 337.2 28.9 11.2 354.9

% change 6.2% 5.4% -- -- 5.3%

48

Our handysize tanker fleet excludes more specialist types

such as the IMO I/II chemical/oil carriers, bunkering ships,

edible oil carriers and combination carriers. This would

add at least a nominal 50m-dwt to the fleet although not

all of that would be regularly (if at all) available for crude

oil or oil products trading. Within our narrower definition,

our forecast for 2007 net fleet growth had been a 2.4%

rise to 33.7m-dwt based upon anticipated heavy scrapping

of 3.8m-dwt in the small products segment, fairly evenly

spread between clean and dirty. In the end, scrapping was

less pronounced. For 2008, deliveries should be about

double scrapping levels, so net fleet growth of about 5.6%

will be in the range of the last two years.

In summary, the total tanker fleet grew by a net 17.3m-dwt,

or 5.4% year-on-year, in 2007. Based upon 28.9m-dwt of

deliveries and 11.2m-dwt of removals in 2008, we forecast

net fleet growth of 17.8m-dwt to 354.9m-dwt. At 5.3%,

tanker fleet growth this year will be broadly in line with the

last three years.

Figure 38. Hull configuration of the tanker fleet at 31-Dec-07

Hull VLCC Suezmax Aframax Panamax Handy

DH 72.4% 84.2% 84.5% 81.4% 61.2%

DB 0.2% 1.9% 1.1% 1.1% 6.3%

DS 1.0% 3.3% 6.4% 5.1% 4.3%

SH 26.5% 10.6% 8.0% 12.3% 28.2%

Grand Total 100.0% 100.0% 100.0% 100.0% 100.0%

The VLCC fleet was 72% double hull at the end of 2007

compared with 69% at the end of 2006 and the single

hull fleet has reduced to 26% from 30% a year ago.

The single hull fleet will continue to shrink as VLCCs are

withdrawn from service and converted to other use and

as charterers increasingly shun them. The Hebei Spirit oil

spill in December 2007 has the potential to cause a domino

effect in Asia that leads other crude importers to tighten

their rules. The widening rate discount and increased

waiting time for single hulls are exerting downward

pressure on returns. These factors are accelerating the rate

at which these tankers are being lined up for conversion

to bulk carriers, FPSOs and heavy lifters. We are already

seeing that the rationale for conversion to VLOC is being

undermined, first, by lack of both conversion yard space and

bank finance and, second, from the threat of over-tonnaging

as bespoke newbuilding deliveries ramp up in 2009 and

peak in 2010.

It surprises us that some steel mills are willing to commit

long-term Brazil/China COAs to these untested conversions

when questions are being asked about their structural

suitability for the iron ore trade. It might be better to wait

a while and exploit a looming excess of built-for-purpose

newbuildings delivering in 2010 to nail down long-term

contracts at potentially lower rates on ships that are


designed for the trade. Taking newbuilds of 300,000-dwt

or above alone, there are 8 scheduled to deliver in 2009,

13 in 2010, 16 in 2011 and 6 in 2012. These deliver in the

midst of a sea of conventional capes and other vessels

between 170,000-dwt and 300,000-dwt. Out of these, two

Jin Hui 300,000-dwt orders at Dalian have recently been

cancelled as the company was unable to get debt finance

on attractive terms despite having 15-year employment

for each from a first-class Chinese steel mill. A sign of

the times.

Oil Demand

Figure 39. Different views of oil demand (all in m-bpd)

Total Demand 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

IEA 77.30 77.67 79.20 82.27 83.90 84.80 85.95 87.62 90.00 91.90

OPEC 75.86 76.55 79.49 81.99 83.30 84.58 85.76 86.97

EIA 77.41 78.04 79.62 82.33 83.66 84.77 85.72 87.04 88.30 90.70

HSBC 82.33 83.68 84.78 85.78 87.68 89.16

Demand Growth

IEA-OMR 0.37 1.53 3.07 1.63 0.90 1.15 1.67 2.38 1.90

OPEC 0.69 2.94 2.50 1.31 1.28 1.18 1.21

EIA 0.64 1.57 2.71 1.33 1.11 0.95 1.32 1.26 2.40

HSBC 82.33 1.35 1.10 1.00 1.90 1.48


We continue to struggle with our three main sources of oil

demand forecasts: the International Energy Agency (IEA)

representing the OECD nations; the Energy Information

Administration (EIA) of the US Department of Energy; and

OPEC (the Organisation of Petroleum Exporting Countries).

They never agree with one another and possibly their

forecasts are more in tune with their own agendas as either

producer or consumer. The IEA and EIA tend to talk up

demand in order to encourage OPEC to increase supply

and thus bring prices down, while OPEC tends to talk down

demand in order to justify restricting supply and thus keep

prices high. The IEA predicted 1.80m-bpd demand growth

in 2006, it turned out at 0.90m-bpd or 1.1% year-on-year

growth. In 2007, the IEA forecast 1.55m-bpd growth but

it turned out at 1.15m-bpd or about 1.4%. These are large

margins of error.

On 16 January, the IEA had forecast 2008 global oil demand

growth of 1.98m-bpd or 2.3% year-on-year, almost double

its pre-revision growth forecast of 1.05m-bpd for 2007.

Naturally this raises our expectations of a meaningful

increase in seaborne oil trade. But, come 13 February, the

IEA reduced its forecast by 200,000-bpd to 1.67m-bpd

bringing total estimated global consumption in 2008 down

from 87.8m-bpd to 87.6m-bpd. The reasons lie in global

economic weakness, led by the US, time-lagged demand

destruction caused by high oil prices and lower spending

as a result of falling house prices within the transatlantic

economies. The revision might have been more severe

but for the fact that 45% of projected oil demand growth

in 2008 is forecast by the IEA to come from oil-importing

Asia, and a further 12.5% from Europe. This demand is

not considered to be at risk of derailment from a decline in

performance from America.

In its 13 February Oil Market Report, the IEA highlights

various topical features of today’s energy markets, all of

them being familiar themes. Prices are volatile and still

trading above $90 per barrel for WTI. Weaker projections

for global economic growth are offset by low stocks (lower

than the average of the last five years), forecast cold

weather in the US North East and parts of Asia and supply

disruptions in Nigeria, Venezuela and the North Sea. January

world oil supply rose by nearly 750,000-bpd to 87.2m-bpd

thanks to increased output from Brazil and other non-OPEC

sources. Non-OPEC producers are expected to increase

output by almost 1.0m-bpd in 2008 on rising supply from

the FSU, Asia-Pacific and Brazil (part of which is made up

of increased biofuels production). The EIA has lowered its

forecast of 2008 demand growth 0.2m to 1.4m-bpd with

OPEC predicting a 1.2m-bpd, or 1.4%, rise. The top to

bottom range of our forecasters is 1.7 to 1.2, very much a

case of take your pick.

Tankers

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VLCC Spot

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VLCC Spot Earnings v. WTI 3M Futures Spread

OPEC crude supply in January remained steady at 32m-bpd

on higher output from Angola, the UAE, Saudi Arabia and

Kuwait offset by lower output from Iraq, Nigeria and Qatar.

Spare capacity is estimated to have risen to 2.4m-bpd, still

a very thin cushion. On current IEA projections, OPEC will

be called upon to increase supply by about 700,000-bpd

to 31.9m-bpd in 2008. OECD industry stocks fell by 39.5m

barrels in December due to constrained crude supplies and

peak seasonal refinery runs. The IEA put the 4Q07 stock

draw at 1.15m-bpd, well above the 0.75m-bpd average of

the past ten years, reducing forward cover to 50.7 days,

its lowest since December 2004. This large draw can be

attributed to backwardated oil futures and high spot prices

that combined to discourage imports for anything other

than immediate consumption in the absence of a

premium for storage.

Early data from the US, Japan, EU-15 and Norway suggests

a stock build in January of just over 22m barrels illustrating

the effect of increased seaborne oil imports in response

to stock drawdowns and a narrowing in the backwardated

futures spreads that finally prompted buying activity.

The upward leg in the spike in VLCC rates in December

may be put down to the delayed impact of the 0.5m-bpd

plus OPEC output increase from 1st November.

The downward leg can be attributed to constrained

supplies, negative sentiment and positional factors.

On the more macro front, oil shipping demand in 2007

was significantly influenced by the term structure of

WTI futures, and continues to be so in 2008, as this has

assumed even greater relevance in the context of a high oil

price environment. By early March, WTI had risen to nearly

$105 per barrel, crude stocks were rising, the Strategic

Petroleum Reserve is being filled despite high prices (an

indication of anxiety in the White House) and OPEC is

refusing to raise output quotas. What exactly one can

learn from all that is anyone’s guess.

As we can see in Figure 39 above, the average of the

IEA, EIA, OPEC and HSBC’s 2008 oil demand growth

forecasts is for a rise of about 1.5m-bpd or 1.8% year-

on-year. Over the last five years, total seaborne oil trade

has been rising at just over 2.5-times the rate of global oil

demand growth. The current average oil demand growth

forecast for 2008 of 1.8% should translate into just under

5% total seaborne oil demand growth. That is close to

matching our forecast of 5.3% net tanker fleet expansion in

2008. Systemic inefficiencies should further narrow the gap.

Oil demand figures are at risk of being revised downwards

should the US economy sink into recession but, today, the

consensus is that oil demand will grow by 1.5m-bpd in 2008

after only 1.0m-bpd in 2007, while the total tanker fleet is

forecast to expand by 5.3% in 2008 after 5.4% in 2007.

Based on those statistics, 2008 should trump 2007.

Figure 40. Oil prices and tanker demand


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Red Sea Exports

Refined Product Exports

AG Crude Exports

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m-bpd

Figure 40 plots VLCC earnings against the 3-month spread

in WTI futures prices. The price spreads were quite a lot

wider based upon the broader 6-month term structure

but the above still illustrates a point. WTI futures were in

contango up until the end of July meaning that forward

prices were higher than spot prices. This encourages oil

imports as higher future prices pay the cost of storage

and provide a positive ‘carry’ and was supportive of VLCC

earnings in the first six months of 2007. The narrowing of

the spread, and its final move into backwardation in late

July, was disastrous for VLCC rates pushing average weekly

earnings down below $20,000 daily in mid September,

incurring steep losses to a few unlucky owners.

As the spot price of WTI became more expensive than

future prices, all incentive to import crude evaporated,

as there was no payment for storage and it became a

loss-making trade. Also, high imported crude prices were

damaging refining margins. Backwardated prices saw

refiners draw down their stocks which, between August

and November, dipped well below the 5-year average.

As OPEC raised official production quotas by 0.5m-bpd

from November 1st, the WTI spread began moving back

towards par. This was the trigger for US refiners to seize

the opportunity to replenish depleted stocks and it was

done with sufficient gusto to boost VLCC spot rates up to

$240,000 time charter equivalent on AG/far East, bringing

back memories of November 2004 .

Figure 41. MEG crude exports – still behind the September 2005 peak of 23.63m-bpd


The Middle East remains the export market that exercises

the most influence over the fortunes of the VLCCs. At the

end of 2006 OPEC officially cut 1.2m-bpd of production,

followed by a further 0.5m-bpd in early 2007, in anticipation

of slowing demand from the US that threatened to

destabilise oil prices. OPEC considered that the market

was well supplied, OECD stocks had been rebuilt, long

futures positions were artificially supporting prices and

geopolitical risks were beyond the organisation’s control.

On average, non-compliance reduced actual production

cuts to only about 1.1m-bpd but almost all of this was from

the AG. These production cuts kept a lid on VLCC rates in

the first half, although they remained respectable in the

light of what was to come in the third quarter when the

WTI futures moved from contango to backwardation. The

decision to increase supplies by an official 0.5m-bpd from

1st November had positive repercussions on AG supply,

sentiment and VLCC rates.

Tankers

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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

North America L America Europe & Eurasia ME Africa China India Other Asia Pacific

Figure 42. Global Refining Capacity (k-bpd)

(Source is a composite of IEA, BP and HSBC Oil and Gas Division Estimates.)

There is good news for Asian oil products throughput this

year. A Reuters survey suggests that Asia-Pacific oil

refiners will shut only 2.7% of refining capacity in the

second quarter for maintenance, roughly half the

capacity shutdowns of a year earlier. An average of about

680,000-bpd of throughput will be shut for maintenance

during the period. This is 470,000-bpd less than in

Q2 2006 when refiners shut down 4.7% of their total

capacity to upgrade for tighter environmental regulations.

The lighter maintenance season coincides with modest

shutdowns in Europe and the US, meaning that there will

be extra seaborne crude movements in Q1 and higher

fuel availability during the second quarter when demand

traditionally slackens. At this time, heating oil requirements

in the northern hemisphere reduce as spring arrives and

gasoline demand remains subdued ahead of the summer

driving season. OPEC is nervous that slower demand may

lead to lower prices and that is why it held quotas steady

at its March 5th meeting in Vienna. The US had argued for

an increase in supply to bring prices back to well below

$100 to a point where they may help rekindle flagging

global demand.

Middle East Refinery Expansion – new product required

in home markets?

Saudi Aramco’s new 400,000-bpd $8bn Ras Tanura refinery

is scheduled for completion in December 2012, some nine

months later than original schedule. Saudi Arabia plans to

raise its domestic crude refining capacity by up to 1.6m-bpd,

or 76%, from the current 2.1m-bpd maximum output with

four new refineries. However, the fast pace of domestic

demand growth may keep all or most of the added output

within the Kingdom rather than available to export markets.

Abu Dhabi National Oil Corporation (ADNOC) plans to more

than double the current 400,000-bpd capacity of its largest

crude refinery at Ruwais. The engineering and design study

for the plan is expected to be completed by the end of 2008

or in early 2009. Kuwait plans to boost the crude processing

capacity of its Mina Abdullah refinery by 104,000-bpd by

June 2012. IEA forecasts of oil demand growth in 2008

put the Middle East second only to Asia at 393,000-bpd

compared with 748,000-bpd respectively. Therefore, at

this stage, it is hard to assess how much product will

become available for seaborne export.

Indian Refinery Expansion – the Holy Grail for

product tankers?

India’s refineries have an estimated current throughput

capacity of 2.98m-bpd, or about 155.4m-tpa, according

to latest figures from Reuters and ONGC. Once existing

refineries are expanded and new planned ones built, this

should increase by 2.14m-bpd or 72% to 5.12m-bpd or

270m-tpa by 2012 (using an average conversion factor

of 7 barrels to every tonne). India has the advantage of

being close to crude oil supply in the Arabian Gulf, is Asia’s

third largest oil consumer and has ambitions to become a

regional refining centre. Central to these plans are meeting

Euro and US fuel standards in order to export the requisite


gasoline grades direct to distributors in developed markets

in Europe, the US and South East Asia. As a rule of thumb,

state-owned refiners are bound to service domestic before

export demand, thus selling products into the Indian market

at capped prices and receiving partial compensation from

the central government via oil bonds. Privately-owned

refiners, such as Reliance and Essar, are almost entirely

export-focused so as to maximise returns.

Indian Oil Corporation’s ten refineries have a combined

processing capability of 1.2m-bpd, or over 60m-tpa,

according to IOC’s own figures, and have about 40% of the

total Indian market. Its $11.2bn expansion plans are well

underway and it expects to add a new 15m-tpa refinery at

Paradip by end 2011. Another state-owned refiner, Bharat

Petroleum, has three refineries at Mumbai (12m-tpa),

Kochi (7.5m-tpa) and Numaligarh (3m-tpa). Current

throughput is about 480,000-bpd expected to rise by

40,000-bpd as Kochi’s capacity is stretched. Some

$4.2bn is earmarked for two new refineries at Bina

(6m-tpa) and Allahabad (7m-tpa) with the former scheduled

for completion by December 2009 and the latter on hold

until Bina is completed. Hindustan Petroleum, also state-

owned, owns two refineries in Mumbai (7.4m-tpa) and

Visakh (9.2m-tpa) plus a joint venture at Mangalore. It has

allocated the equivalent of $1.15bn for upgrading plans

and is proposing a new 9m-tpa refinery at Bhatinda in joint

venture with LN Mittal for completion within 2010.

The Oil and Natural Gas Corporation (ONGC) has a

9.7m-tpa refinery at Mangalore which is running at 129%

of nameplate capacity with a 2007 throughput of 12.5mt.

This will be expanded to 15m-tpa by 2010 with about $2bn

in funds allegedly allocated for the purpose. On the to do

list is a planned 15m-tpa new refinery at Kakinada. On the

private side, Reliance commissioned a 660,000-bpd facility

at Jamnagar in 1999 which is running at above nameplate

capacity at about 34m-tpa annual throughput. It will be

joined by an adjacent facility by the end of this year with

a targeted capacity of 580,000-bpd. The total cost of both

facilities is estimated to be $12bn, the 1.25m-bpd combined

throughput (at the upper end of a 60m-tpa to 65m-tpa

range) will catapult Reliance to the top of the national

leaderboard. Furthermore, the site, which occupies an

area the size of London, will be the largest single-site

refinery in the world. The government has designated

100% of output as export-orientated and it is this point

that should tickle shipowners.

The other private operator is Essar. It has a single refining

complex at Vadinar, which opened in November 2006,

that has a 10.5m-tpa throughput capacity which is being

expanded to 34m-tpa within 2010. It currently produces

Euro II and III products but specifications will be raised up

to Euro V and US standards within the $6bn expansion

program to meet the requirements of customers in Europe,

the US and Asia, as well as domestic consumers. The

focus is clearly on exports as economics dictate that if

you buy and import crude at market prices then you must

also sell refined products at market prices, not at domestic

capped prices. India is not alone in capping energy prices.

The policy, in some shape or form, is rife throughout the

Middle East, China, other Asia and the Americas. Europe

seems to be virtually alone in setting market prices and

taxes represent about 70% of a gallon of petrol in the

UK. America effectively subsidises motorists by failing to

raise taxes from low levels, as a way of promoting fuel

conservation, and by subsidising the production of ethanol

as a fuel additive.

In early March 2008, Indian refiners are re-assessing their

new projects in the light of the Union Budget. Currently,

new refineries are eligle for 100% income tax exemption

for the first seven years of operation. Under the new

budget, tax holidays for the refining of ‘mineral oil’ are

revoked for new and expanded projects commissioned

after April 2009. This will affect the economic viability of

any facility being built outside a special economic zone.

The future of these massive new refinery projects

now comes down to a matter of definition. In Monty

Pythonesque style, the report seeks to clarify that “for

the purposes of this section, the term ‘mineral oil’ does not

include petroleum and natural gas, unlike in other sections

of the Act.” Shipowners who have contributed to the

build-up of the huge product tanker orderbook will no doubt

await with interest any further linguistic developments that

may influence the future availability of long-haul cargoes

between India and Atlantic-based consumers.

Historic and Projected Seaborne Oil Trade

We have taken some figures courtesy of Clarksons.

Seaborne crude trade grew by 3.6% on a compound

annual growth basis (CAGR) between 1990 and 1999 and

then from 2000 to 2006 it slowed to 2.6%. Meanwhile,

seaborne products trade rose at a CAGR of 1.5% from

1990 to 1999 compared with a faster rate of 5.5% in the

period from 2000 to 2006. There may be a certain logic

in the juxtaposition of seaborne crude trade falling just as


Tankers

5

10

15

20

25

30

Pre

-197

2

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

m-dwt

Handysize

Handymax

Panamax

Post-Panamax

Capesize

VLBC

20,000

30,000

40,000

50,000

60,000

70,000

80,000

$pd

VLCCSuezmaxAframax

Panamax

Handysize

2008

- 06

2005

- 08

2005

- 10

2005

- 12

2006

- 02

2006

- 04

2006

- 06

2006

- 08

2006

- 08

2006

- 10

2006

- 12

2007

- 02

2007

- 04

2007

- 06

2007

- 08

2007

- 10

2007

- 12

2008

- 02

seaborne product trade rises. Some crude oil exporters

want the opportunity to catch some of the (occasional)

added value of selling finished products rather than just

selling the crude oil feedstock to refiners. This is certainly

the case in the Middle East amongst the largest producers

such as Saudi Arabia, Kuwait and the UAE where there is

the intention to export. It is most notably not the case in

Iran and Iraq whose refining infrastructure is inadequate to

the point that Iran has to import refined products despite

having amongst the largest crude oil reserves in the world.

Neither is it the case in Nigeria where not only is a large

proportion of its crude oil production shut in because of

violence in the Niger Delta, but also its refineries are so

dilapidated as to require the import of products. These

systemic inefficiencies are supportive of product trades

in the sense of creating trades where none should really

exist. In the case of India, it is becoming a processing hub,

importing crude oil for processing into products for both

the domestic and the export markets. China is the same

and will undoubtedly build refining capacity beyond rising

domestic requirements and become a swing exporter of

products. This suits the developed Atlantic economies

which have little appetite for anything other than refinery

creep, eeking out extra production rather than building new

and switching a dependence on crude imports to one of

dependence on crude and product imports.

Slower seaborne crude oil trade growth can be attributed

to new oil and gas pipelines that connect the FSU with

western Europe and China, and that connect the Middle

Eastern producers with consumers to their north, east and

west. Furthermore, regional trades have mushroomed

within the Americas, the Baltic Sea, the Black Sea, the

AG-Red Sea, the Indian Ocean and within the Asia-Pacific.

Counterbalancing these are new long-haul trades from the

Russian Atlantic, Latin America and north, west and east

Africa to Asia and the Far East. When it is all netted out, the

new long-haul trades are beginning to add more tonne-miles

than the short and regional trades are taking away. We thus

expect the weaker phase of annual crude oil trade growth

between 2000 and 2006 to give way to a stronger growth

phase from 2007 to 2012 as trading patterns evolve to the

benefit of large tanker owners.

Earnings

Time charter

Figure 43. One-year time charter earnings for nominal standard tankers


5

10

15

20

25

30

Pre

-197

2

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

m-dwt

Handysize

Handymax

Panamax

Post-Panamax

Capesize

VLBC

750

1,000

1,250

1,500

1,750

2,000

2,250

1 31 61 91 121 151 181 211 241 day

index

BDTIBCTI

One-year rates have remained reasonably stable in the

aframax and smaller sizes over the past few years.

Greater volatility exists in the larger VLCC and suezmax

segments as they are influenced by sharper movements

in the spot market.

For VLCCs, the one-year time charter benchmark was

established at the start of the year by Koch taking Desh

Vaibhav (316,000-dwt 2005) for $50,000 per day. By June,

Koch was still only paying $49,500 per day for one year’s

charter of a VLCC, but this time it was the rather older

Shinyo Navigator (300,509-dwt 1996). Koch had an option

to take the ship for a further year at $51,000. At year’s

end, BP paid $52,500 for a 12 to 15 month charter of Smiti

(281,000-dwt 2005) but the upward pressure on time

charter rates from the spot market surge of 4Q07 finally

came to light in some fixtures reported in January and

February. First the 299,700-dwt, 1995-built La Paz was fixed

for a year by TMT for $65,000 per day from SK Shipping,

who had themselves taken the ship for three years in

May 2007 for $45,000 daily. Finally, in February 2008, two

modern VLCC’s, Crude Progress (300,000-dwt 2002) and

Spyros (319,000-dwt 2007), were reported fixed for one

year each at $70,000 daily.

Longer period fixture rates for VLCCs fizzed along the

same long-burning fuse before exploding in the final

quarter. In January 2007, STX PanOcean took Eagle

Vermont (306,400-dwt 2002) for three years at $45,000

daily, the same rate paid for La Paz by SK Shipping four

months later. In November, CSSSA sneaked ahead of the

market rise and paid only $45,000 for three years for the

2001-vintage Utah (299,498-dwt). But the next month,

TMT had to pay a much higher $52,500 for three years

on Neptune (319,360-dwt 2002) and in January 2008

Wah Kwong paid $47,500 for four years on Venture

Spirit (298,287-dwt 2003).

Suezmax one-year time charter rates were stuck in the

range of $40,000 to $50,000 per day for modern 150,000-

dwt double-hull units. In early 2007, Teekay was reported

to have paid $42,500 for Hellespont Trooper (147,916-dwt

1996) and Mercuria paid a significantly lower $36,000 daily

for the older Tromso Trust (154,970-dwt 1991). One-year

rates stabilised in the low to mid $40,000s by the middle

of the year, as per Repsol’s fixture of SKS Saluda (159,000-

dwt 2003) for $42,000 per day. However, by early 2008,

TNK was reported to have paid only $31,000 to take

Ocean Emerald (152,680-dwt 1991) for a year.

Aframax one-year rates were also range-bound, with

modern vessels fixing between $30,000 and $35,000

per day throughout 2007. Phoenix set the tone for

modern tonnage in February with the fixture of Arafura

Sea (105,856-dwt 2000) for $33,000 daily. In May, Stena

Bulk took the ice-class 1B Nevskiy Prospect (114,597-dwt

2003) for a year at $35,000 daily and the conventional Rich

Queen (105,200-dwt 2007) at the lower rate of $31,750

per day. By the year’s end Shell was fixing Mare Adriacum

(110,500-dwt 2004) at only $31,000 daily. A few three-year

deals as typified by AET’s January fixture of Glenross

(90,679-dwt 1993) and Loch Ness (90,607-dwt 1994) at

$26,000 daily. By the end of the year ExxonMobil was able

to take Pink Sands (98,891-dwt 1993) for three years at the

lower rate of $27,450. Par for the year for more modern

units was probably near to the $27,900 that Chevron

Texaco paid in June for a 3-year commitment on

Ambelos (105,400-dwt 2006).

Further down the size scale the one-year rate band

narrowed even further. The average one-year rate paid

for a panamax tanker in 2007 was around $29,000 per

day. In May, PDVSA paid $30,500 to take Omega Queen

(74,999-dwt 2004) while in October Teekay paid $27,500

to take the smaller deadweight Fedor (70,000-dwt, 2003).

Modern MR tankers were not too far behind in what were

more frequently reported fixtures. In February, Cargill was

reported to have fixed the newbuilding FR8 Spirit (51,000-

dwt 2007) at $25,000 daily and, in March, Mercuria paid the

same rate for Targale (51,800-dwt, 2007). In June, Navig8

succumbed to a firmer $26,000 for Ugale (51,800-dwt,

2007) and, in December, Vitol negotiated a softer $24,500

daily for a third Latvian Shipping sistership Piltene

(51,800-dwt 2007).

Voyage Charter

Figure 44. Average Baltic tanker indices 2002-2008


Tankers

5

10

15

20

25

30

Pre

-197

2

1973

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1987

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2007

m-dwt

Handysize

Handymax

Panamax

Post-Panamax

Capesize

VLBC

50,000

100,000

150,000

200,000

250,000

$pd

VLCCSuezmaxAframaxPanamaxProducts

Jan

- 05

Feb

- 05

Mar

- 05

Apr

- 05

May

- 05

Jun

- 05

Jul -

05

Aug

- 05

Sep

- 05

Oct

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Nov

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Dec

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Jan

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Feb

- 06

Mar

- 06

Apr

- 06

May

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Jun

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Jul -

06

Aug

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Sep

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Oct

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Nov

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Dec

- 06

Jan

- 07

Feb

- 07

Mar

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Apr

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May

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Jun

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Jul -

07

Aug

- 07

Sep

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Oct

- 07

Nov

- 07

Dec

- 07

Jan

- 08

Feb

- 08

Seasonality still holds sway in the spot market. The

universe of both crude and product tankers still peak at

the end of the calendar year before entering a long slow

decline to, on average, about week 32 before picking up

again towards the next peak. This is clearly demonstrated

in a chart of the all-values average of BDTI and BCTI. It is

much more pronounced in the dirty tanker index. Each point

in the time series is not the value for a particular year but

the average for that day in each year from 2002 onwards.

Note that the Baltic Exchange reports on UK working days

only, not calendar days, so in figure 44 there are never 365

observations per year, but around 250 depending on public

holidays in the UK.

But for the spike in VLCC spot market earnings in the fourth

quarter, 2007 would have been a poor year and very much

worse than 2006. Average spot earnings for the whole year

ended up only 9% down on 2006 although very few owners

would actually have benefited from this brief but sharp

uptick which would have required fortuitous timing and

positioning. Even though oil demand forecasts may decline

as the year progresses, positive supply-side factors suggest

that 2008 should be better than 2007.

Suezmax spot rates largely tracked the larger VLCC

segment but for a dramatic spike in earnings at the end

of March caused by a strike at the French Mediterranean

oil port of Lavera which delayed ships from discharging.

Suezmax spot earnings were down 16% year-on-year. We

forecast net fleet growth of 3.0% in 2008 after 4.3% in

2007 which gives some scope for optimism.

Aframax rates followed a similar pattern in 2007 and spot

earnings ended the year some 9% down on 2006. We

forecast net fleet growth of only 2.2% in 2008 after 6.6%

in 2007. On the basis of such restrained supply growth, and

robust demand, we anticipate that earnings will improve for

the aframax segment this year.

Panamax spot rates in 2007 were only 1% down on the

previous year. Net fleet expansion should come in at

about 7.5% in 2008 after 10.7% in 2007. This segment

is positioning itself to capture rising volumes in the clean

product trades from the Middle East and Asia to the US and

Europe.

Small clean products tankers were insulated from earnings

weakness in 2007 with average rates declining by only 4%

compared with 2006. In the broader 10,000 to 60,000-dwt

product carrier segment we expect net fleet growth of only

1.8% in 2008 after 5.4% in 2007. Rising inter- and intra-

regional trades in 2008 should underpin earnings this year.

56

Figure 45. Average earnings for nominal tanker types


5

10

15

20

25

30

Pre

-197

2

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

m-dwt

Handysize

Handymax

Panamax

Post-Panamax

Capesize

VLBC

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

0

25

50

75

100

125

150

$m

VLCCSuezmaxAframaxPanamaxProducts40k-dwt


0

25

50

75

100

125

150

$m

VLCC

Suezmax

Aframax

Panamax

Products

VLCC

Suezmax

Aframax

Panamax

Products40k-dwt

5

10

15

20

25

30

Pre

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1989

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1993

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2001

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2005

2007

m-dwt

Handysize

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Panamax

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Capesize

VLBC

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1999

2000

2001

2002

2003

2004

2005

2006

2007

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

0

25

50

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$m



0

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$m

VLCC

Suezmax

Aframax

Panamax

Products

VLCC

Suezmax

Aframax

Panamax

Products40k-dwt

Values

Figure 46. Newbuilding prices have never been higher

US$m 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

VLCC 72.5 69.0 76.5 70.0 63.5 77.0 110.0 120.0 129.0 146.0

Suezmax 44.0 42.5 52.5 46.5 43.8 51.5 71.0 71.0 80.5 91.0

Aframax 34.5 33.0 41.5 36.0 34.8 41.5 59.0 58.5 65.5 72.5

Panamax 31.0 31.0 36.0 32.0 31.2 37.5 48.0 50.0 58.5 63.5

Products 26.0 26.0 29.5 26.3 27.0 31.5 40.0 43.0 47.0 52.5

Newbuilding prices for all tankers rose during 2007 with

the largest gains at the top end. VLCC prices were up

13.2% year-on-year, suezmax up 13.0%, aframax up

10.7%, panamax up 8.6% and products up 11.7%.

This development was partly a function of strong demand

for bulk carriers, ultra-large boxships and specialised ships

that reduced future berth availability for tankers. It was

also in some part attributable to the fact that owners have

strong balance sheets and have been happy to continue

reinvesting surplus cash in shipping which has provided

stellar returns. There is something distinctly comforting in

investing in a real asset with a 25-year useful economic

live when exotic paper investments are blowing up all

around. Investment in ships, as with commodities, reflects

an interest in a class of asset that is in great demand and

has a utility value. Should it turn out that ordering has been

overdone, causing earnings and values to decline, then

patience becomes a virtue as one is forced to wait for the

next up-cycle in the life of the asset. Shipowners are used

to doing this, but financial investors may find it challenging.

By March 2008, the nominal price of a VLCC newbuilding

has risen further to close to $150m.


Figure 47. Secondhand prices are peaky too (annual average 5-year old prices)

US$m 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

VLCC 50.0 53.0 71.0 58.0 54.0 70.0 108.0 117.0 118.0 138.0

Suezmax 36.5 35.0 49.0 39.0 38.0 47.0 75.0 75.0 82.0 96.0

Aframax 23.5 26.0 40.0 30.0 29.0 36.0 57.5 63.0 66.5 73.0

Panamax 25.2 24.5 30.6 23.5 20.0 28.0 42.0 48.0 56.0 60.5

Products 40k-dwt 21.0 20.0 24.5 20.5 19.5 25.4 38.1 45.9 46.4 50.8

The strong rise in modern secondhand (5-year old) values in

2007 was surprising in the context of weaker spot market

earnings. This continued the disconnect that we had noticed

in 2006 when values were strengthening even as earnings

were weakening. Both VLCC and suezmax were up an

astonishing 17% year-on-year, aframax up almost 10%,

panamax up 8% and a 40,000-dwt product tanker almost

10%. Tanker S&P activity was weaker as a result. However,

average annual 3-year period rates (generally the minimum

lock-in requirement for investors) were slightly stronger

Tankers

5

10

15

20

25

30P

re-1

972

1973

1975

1977

1979

1981

1983

1985

1987

1989

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1999

2001

2003

2005

2007

m-dwt

Handysize

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Capesize

VLBC

050

100150200250300350400450500

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

10-60,000

60-120,000

120-160,000

200,000 dwt+

in 2007 compared year-on-year with 2006, but at marginal

levels that do not appear to justify the sharp rise in values.

VLCC 3-year rates were up 2.2% to $48,400; suezmax up

1.2% to $38,600; aframax up 3.5% to $29,600; panamax

flat at $26,900 and MR up 4.4% to 23,300 daily. We can

only explain this development as a combination of plentiful

money chasing investments and a firm belief in the future.

In early March 2008, we can report that values have

continued to rise. SK Shipping is rumoured to have

committed its C Prosperity (318,000-dwt HHI March 2009)

for $163.5m to Minerva. If this sale is factual then it makes

one wonder what a 2008-delivery resale should fetch.

Some indication of the possibilities may be gleaned from

TMT’s marketing of its G Elephant (298,500-dwt Nantong

2006) with an asking price exceeding $180m and with a bid

at $170m allegedly already declined. The prevailing 3-year

time charter rate for a modern VLCC has at least improved

to $55,000 per day, a $2,500 or nearly 5% improvement on

the last week in December 2007. These latest high values

are evidently a response to an improved supply-side outlook

in 2008 and improved medium-term period earnings.

The plunging value of the dollar and the surging price

of crude oil, pushing $105 per barrel and threatening to

destroy marginal demand, have clearly been brushed to

one side.

When all the deals are finally counted, 2007 could have

been a bigger year than the record year of 2004 for

secondhand sale and purchase. Over 40% of the activity

was in the smaller handysizes and over 30% in the

combined panamax and aframax segments. To some

extent, this is reflected by our lists of representative sales

for 2007-2008. Where possible we have concentrated on

sales of modern, standard specification tonnage and on

sales where the price is not distorted by attached charters.

Tanker sales have however frequently been encumbered

with charter options, purchase options, profit sharing and

so on, so where we are confident in the detail, we have

included these as well. Duing 2007, as noted above, a

number of tankers were sold for conversion to bulk carriers,

as well as others which were sold for conversion to

storage units or FPSOs. We have included some of

these sales in our lists, although drawing comparisons

between these older units of variable specification is

not always appropriate.

Throughout 2007, the VLCC secondhand market was

characterised by deals with all manner of riders, such as

drydocking due or long period charters attached. A few

‘clean’ sales did provide occasional signposts through the

haze. In July, Samho bought the VLCC Neptune (319,360-

dwt Hyundai Samho 2002) for $136.5m, a strong price

even in the light of Blystad’s June en bloc purchase of

Venus Glory and Mars Glory (both 299,089-dwt Daewoo

2000) for $237m. When Eastern Mediterranean bought

the Hyundai-built Else Maersk (308,491-dwt HHI 2000)

for $122m in December, it seemed that the secondhand

market would not keep up with the spike in earnings.

Buyers had become used to having to pay up to acquire

modern, double-hulled tonnage but interest would generally

wane as prices rose to new record levels.

Meanwhile, the biggest tanker deal of 2007 was Energy

Infrastructure Acquisition Corporations’s purchase, including

a variety of attached time charters, of nine VLCCs built

between 1988 and 2001 from Vanship Holdings for $778m.

58

Figure 48. INTERTANKO count of tanker sales per year


Vanship, a joint venture between Univan and Fred Cheng’s

Shinyo International, sold the ships to the New York listed

EIAC for $643m in cash and $135m of shares in Energy

Infrastructure Merger Corp. This is a new company with

Charles Vanderperre of Univan, Fred Cheng of Shinyo and

George Sagredos of EIAC on its board. The plan is for EIMC

to change its name to Van Asia Tankers Limited, at which

point Mr Sagredos will step down. The deal has in effect

given Cheng and Vanderperre access to the US equity

markets without having to IPO their business.

For suezmaxes, 2007 was punctuated by a few stand-out

modern deals. In January, Knutsen was reported to have

paid $95.5m for the 162,000-dwt, ice-class 1A Windsor, a

newbuilding delivering ex-DSME in May. In June, Palmali

acquired Discovery (164,533-dwt HHI 2003) for $96m and

Unicorn (152,250-dwt HHI 2002) for $94m. In July, the

slightly older Stemnitsa (147,093-dwt SHI 2000) cost Great

Eastern $88.5m, illustrating how firm prices for modern

tonnage had remained despite moribund earnings. Finally,

in November, Nordic American Tankers paid $180m for two

159,000-dwt newbuildings contracted originally by First

Olsen from Bohai shipyard in China with delivery scheduled

for December 2009 and April 2010.

Aframax tonnage appeared to be in demand in 2007

as newbuilding prices rose almost 11%, and 5-year

old secondhand values rose by almost 10%, between

the beginning and end of 2007. These increases were

achieved despite a 9% year-on-year fall in average spot

earnings and a 3.5% year-on-year drop in 3-year time

charter rates. In February, the German KG company Liwa

Mobiliengesellschaft acquired Nordatlantic (105,344-dwt

2001) for $59.5m with an attached 5-year time charter at

$23,500 per day. In April, GNMT of Libya acquired two

modern sisters Celebrity and Serenity (both 105,200-dwt

Sumitomo 2004) for $73m each, a notch higher than Cardiff

Marine reportedly paid for Maersk Pristine (110,000-dwt

Dalian 2004) in June. In December, the spot market rally

caused Minerva to pay $81.5m for Amalthea (107,116-

dwt DSME 2006). In February 2008, Stealth Maritime was

reported to have paid $152m for two New Times 2009

resales, setting the bar for the coming year.

In the panamax and MR segments, multi-ship deals

were common in 2007. Early in 2007, Omega Navigation

purchased two prompt delivery resale 73,673-dwt STX

ice-class 1A panamax tankers, Omega Emmanuel and

Omega Theodore, for $64.5m each. The ships were

placed on a 2-year time charter to ST Shipping with 50/50

profit share above the base charter hire rate of $25,500

daily, with Omega getting 65% of the excess when the

ships trade in ice conditions. At the end of September,

OSG bought the 73,400-dwt newbuildings Cape Taft and

Cape Talara (delivering from New Century in 2008 and

2009 respectively) for $125m on an en bloc charter-free

basis. The biggest deal in this segment in 2007 was BW

Shipping’s purchase of eight 76,565-dwt resales from IMC

for $450m en bloc. The builders are New Century with one

built in 2006, five in 2007 and two to deliver in 2008. In

September, Ocean Tankers purchased five resale 73,400-

dwt New Century resales from Ahrenkiel for $67.5m each

with four built in 2007 and one in 2008.

Picking out comparables from the varied handysize tanker

fleet is not so easy. On a year-on-year average comparison

basis, a 5-year old 40,000-dwt product tanker gained 9.5%

in value in 2007 compared with 2006, rising from $46.4m

to $50.8m. Meanwhile, 3-year time charter rates rose only

4.5% on a year-on-year average basis from about $22,300

to about $23,300 daily. In January, Gonen (47,102-dwt

Onomichi 2000) was sold to Vosco for $47.5m. In May,

Juniper (47,465-dwt Uljanik 2002) and Jasmine (both

47,355-dwt Uljanik 2002) were sold to Stealth for $100m en

bloc, reported with a bareboat charter attached at $13,650

daily of undefined duration. In October, Vinashin was

reported to have paid $60.5m for Lidong (50,530-dwt SPP

2007) and then, in February 2008, a new benchmark was

set for the smaller types when the ice class 1A Jag Payal

and Jag Panna (both 37,400-dwt HMD 2007) were acquired

by Motia for $102m en bloc.

Outlook

At the time of writing the conclusion to this chapter in

early March, spot WTI crude oil is trading at above $105

per barrel, driven up by speculative long positions, static

OPEC quotas and geopolitical tensions. The armed forces

of two OPEC members, Venezuela and Ecuador, have

only just stopped squaring off against the much larger

military forces of neighbouring Colombia, narrowly averting

hostilities. February US non-farm payrolls fell 63,000 in the

largest monthly drop in five years, and January figures were

revised up from 17,000 to 22,000 losses. Jobs are being

lost in manufacturing, construction and retailing bringing

the overall US unemployment rate to 4.8%. The dollar has

fallen to 1.55 to the euro, a record low, and the chorus of

economists now calling the US in recession has got louder.

The economic vibes from America are not at all encouraging

and are, for the time-being at least, quite the reverse of


Tankers

the bullish atmosphere that is permeating Hong Kong and

China. While slow or declining growth in the US contrasts

sharply with strong growth in Hong Kong and China, both

east and west share the common curse of inflation, which

is rising on the strength of those non-core elements of food

and energy. Until recently Asia was promoting disinflation,

now its dollar pegs and commodity demand are causing it

to export inflation alongside its manufactured goods.

We are left to ponder what impact high oil prices and food

price inflation will have on household budgets and whether

oil consumption and seaborne oil demand may suffer as

a result. We realise that the decoupling theory is now in

the process of being tested and we will soon see which

camp is right. In terms of macro oil demand growth, the

latest projections from the IEA, EIA and OPEC currently

foresee stronger growth in 2008 than in 2007 by quite a

wide margin. However, we expect these forecasts to be

scaled back over the coming months to the point that we

will probably be back to 2007 numbers. Oil consumption is

still rising in China, India, the Middle East and Russia but

only the former two will generate seaborne oil trade. In

terms of micro tanker supply, we predict that year-on-year

net supply growth in 2008 will be similar to 2007. So, if we

do get the higher rate of oil demand growth that is currently

predicted then we should enjoy better average earnings

this year than last. Secondhand values are harder to call as

they have delinked from earnings and are already trading

at a premium. Newbuilding prices are supported by higher

input costs and the decision by some major yards to refrain

from offering forward berths until they have a better idea of

future costs.

The best hopes for the tanker markets in 2008 lie in a

number of areas. One is that the present US slowdown or

recession is both mild and brief; and that the twin monetary

and fiscal packages that are being rolled out are successful

in achieving this outcome. Such a result should resurrect

flagging oil demand in North America and indirectly enhance

energy demand growth in China and India. Domestic price

controls in emerging economies, high taxation rates on

energy in Europe and the strong euro all serve to cushion

the impact of rising dollar prices in many big energy

consumer nations. It must also be hoped that OPEC and

other oil producers are both willing and able to manage

supply so as to foster consumption. In 2007, upstream

production in many parts of the world was constrained by a

variety of issues ranging from declining oil field yields and

shut-in production to weather factors and pipeline politics.

Downstream oil product output was inhibited by creaking

refinery infrastructure and prolonged periods of downtime

for maintenance and repairs. A return to contango in the

term price structure of WTI and Brent futures, and better

and less volatile refining margins, would encourage greater

seaborne crude shipments for both storage and processing.

All told, we need to see a better alignment of these

factors in 2008 than we did in 2007 in order to improve the

prospects for the midstream shipping part of the global oil

supply chain.



Tankers


Containerships

1 Maersk Broker historical and forecast numbers.

Introduction

2007 was a better year for many of the big liner shipping

companies despite significant increases in operating costs,

principally in the form of a near-doubling in bunker prices

during the course of the year. It was also a better year for

the tramp owners who saw steady improvements in term

rates and, as time charter operators, they were passing

fuel price risks onto the end-users. In terms of trade lanes,

Asia-Europe witnessed strong growth as volumes rose

close to 20% year-on-year. Intra-Asia volumes continued

to outperform as these trades link the powerhouse

manufacturing economies of the Far East with vibrant

demand growth in the sub-continent and the construction

and consumption boom that is taking place in the

Middle East. The US-centric transpacific and transatlantic

trades were subject to slower growth with the weaker

dollar creating better balance as US exports rose faster

than imports.

The key themes of 2007 were generally a product of

rising costs, not least bunker prices. The lines have yet to

design bunker adjustment factors that claw back all the

costs of higher fuel as they tend to be reactive rather

than proactive. Higher freight rates, especially on

Asia-Europe, were effectively wiped out by the negative

impact of rising bunker costs. In 2007, Maersk Line

completed its integration of P&ON and Hapag Lloyd

finalised its integration of CP Ships, both mergers having

proved more complicated than expected. The rationale for

consolidation remains, and is only elevated by sharply rising

costs. High oil prices saw some Asia-Europe carriers add a

ninth ship into service loops. Reduced speeds saved on fuel

at no loss of service frequency. In early 2008, PIL and Wan

Hai entered a strategic alliance to achieve synergies across

the board and to better manage entry into the longhaul

trade lanes.

On the tonnage supply side, fully cellular net fleet growth

in the 5-year period between 2005 and 2009 is currently

forecast to average 14.7%1 . This is a high figure but the

largest year-on-year growth in this period has already

happened. In rounded numbers: 2005 13.5%; 2006 17.0%;

2007 15.0%; 2008 14.5% and 2009 13.5%. We are seeing a

declining rate, albeit on a higher base, of net supply growth

in the cellular fleet. As demand growth has averaged 10.2%

per annum over the same period it is surprising how well

the ships have done given the 4.5% supply-demand gap.

Clearly there is something wrong with the way in which

supply is commonly analysed as it overstated for a number

of reasons. We touch upon this subject later in this chapter.

But, it is not just technical ship-side reasons that tend to

overstate supply, there are also the knock-on effects of

inadequate land-side infrastructure to consider.

Onshore, mismatched investment and productivity ratios

between east and west affect the efficiency of ships

and the velocity at which containers move through ports.

According to the Transpacific Stabilization Agreement,

it will be another three years before US terminals raise

their productivity from the current 5,000-teu per acre to

the 10,000-teu plus needed to match current productivity

at Asian ports. In the meantime, US ports are struggling

to cope with current and future anticipated import cargo

growth. This has a genuine arresting effect on effective

vessel supply as ships are left swinging around at

anchorages when they should be working. This deficiency

is amplified by the fact that the Panama Canal is already

operating at or close to full capacity and that privately

owned US railroads will not fund new investments in track,

locomotives and yards without heavy public sector support.

Figure 49. At a glance – 6 to 12 month time charter

rates in 2007

US$ per day 2006 2007 Change

4,400-teu gearless 32,417 34,375 6%

3,500-teu gearless 26,583 29,958 13%

2,750-teu gearless 22,646 26,292 16%

2,000-teu gearless 18,392 19,696 7%

1,700-teu geared 17,079 16,613 -3%

1,000-teu geared 12,350 12,500 1%

725-teu geared 9,817 9,054 -8%

Average 19,898 21,213 7%

Average short-term time charter earnings for all classes of

cellular containerships rose a respectable 7% in 2007 with

most of the positive influence coming from the flexible

mid-size vessels in the 2,500-teu to 3,500-teu range.

This represents a considerable turnaround from 2006

in which the sector suffered a 31% loss in equivalent

average earnings.


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Figure 50. Containership fleet and orderbook

31-Dec-06 31-Dec-07 Orderbook in teu at 31-Dec-07

Vessel Size, Teu

Teu # ships

Teu # ships

as % fleet

Delivery 2008

Delivery 2009

Delivery 2010

Delivery 2011+

<1000 662,304 1,156 717,928 1,231 17% 91,445 18,970 9,864 1,900

1000-1999 1,472,100 1,044 1,637,603 1,160 26% 182,767 163,102 52,506 29,080

2000-2999 1,582,158 629 1,695,602 672 24% 190,749 104,436 82,540 26,800

3000-3999 1,046,509 307 1,139,074 333 23% 73,757 92,210 90,091 7,200

4000-4999 1,486,819 339 1,682,437 383 58% 272,573 389,576 196,294 120,830

5000-5999 1,230,677 226 1,361,466 251 22% 129,222 68,060 51,600 54,172

6000-6999 674,122 104 796,800 123 94% 208,544 307,168 187,288 46,100

7000+ 1,274,919 154 1,719,542 204 185% 436,582 596,502 1,021,854 1,124,268

Total 9,429,608 3,959 10,750,452 4,357 60% 1,585,639 1,740,024 1,692,037 1,410,350

When we were writing last year’s report a year ago, the

delivery schedule for both 2007 and 2008 was estimated

in rounded numbers at 1.4m-teu, with 2009 at 1.1m-teu.

These figures were large, as never before had 1.4m-teu

delivered within a single year. In the end, the figure for 2007

turned out to be slightly lower at 1.32m-teu. However, the

delivery schedule for 2008 has risen to 1.59m-teu and for

2009 to 1.74m-teu and for 2010 it is currently 1.69m-teu.

The 2007 deliveries appear to have been absorbed with

relative ease and this encourages the industry to keep

raising the bar as it continues its search for that elusive

saturation point.

The swelling of the orderbook has been achieved mainly

by the ordering of very large and ultra large vessels well

above panamax size. 94% of the end 2007 fleet of ships

(by capacity) in the 6,000 to 6,999-teu segment, and 185%

of the end 2007 fleet of ships above 7,000-teu, are now

on order. Bear in mind that none of this ordering is for

replacement purposes as these sizes scarcely existed as

recently as ten years ago, so the fleet of very larger vessels

is very modern and set to expand rapidly. Scheduled

deliveries of boxships of 6,000-teu or more is currently at

645,126-teu in 2008 – 903,670-teu in 2009 – 1,209,142-teu

in 2010 and 1,170,368-teu in 2011 and beyond.

The only other segment that looks to have gained more

than its fair share of attention is the panamax size between

4,000-teu and 4,999-teu. The third set of locks in the

Panama Canal is scheduled to come into service in 2014.

In the meantime, this size is still optimal for all-water

transpacific services linking with the Gulf of Mexico and


the Atlantic coast. Rising intermodal rail costs, a shortage

of locomotives and truck drivers, congestion at the Los

Angeles and Long Beach gateway and rising environmental

concerns in California make the canal a safer bet than the

land bridge. Competition will come from larger ships leaving

Asia westbound via Suez and terminating in the US on a

draft shallow enough to permit port entry.

Figure 51. Containership fleet profile at end-07

Container fleet growth is unlikely to be moderated by

scrapping. In 2007, well over 1.3m-teu delivered while

only 23,790-teu was removed from the fleet! The tailback

of older ships that delivered in the 1980s or earlier is thin,

meaning a relatively small pool of potential demolition

candidates should the market become obviously over-

supplied. However, as bunker prices are expected to remain

at high levels, the older and less fuel-efficient ships will

become a lot less popular with the lines.

Containerships

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Figure 51 illustrates the size of the newbuilding delivery

pipeline over the coming years. As with the other sectors,

notably bulk carriers, we are not convinced that all these

contracts will become effective. Given the forward nature

of many deliveries, some contracts may not yet have been

financed and could struggle to secure debt funding on

terms and at pricing levels that will make sense to investors

based upon secured employment. Quite how such deals

might unravel remains to be seen, but lawyers will no doubt

be sharpening their pencils.

Some deals, especially forward deliveries that have not yet

secured employment, will simply not achieve financing at

all given how credit markets have become progressively

tighter since August 2007. US rates have fallen by 225bps

since then, and appear to have further to fall, so they are

actually falling faster than banks are raising lending rates.

However, loan-to-value ratios, security covenants and other

features are markedly less attractive than before. The

shipyards may be left with slots that they had assumed to

be filled and some initial down-payments may be put at risk

of being forfeited to builders. Even before 2007 had run its

course, a total of 13 super post-panamaxes of over 13,000-

teu were either cancelled or the options left to expire

as charters, and presumably finance, were allegedly not

available.

Figure 52. Containership deletions

Even going back ten years ago to 1998, the level of

scrapping at under 90,000-teu is unremarkable in terms

of volume. This is less than the 91,445-teu that is

scheduled for delivery in 2008 in the smallest sub 1,000-

teu segment alone.

Figure 53. Growth in average containership size

Average TEU per ship

Size band 2006 2007 % change

<1000 573 583 1.8%

1000-1999 1,410 1,412 0.1%

2000-2999 2,515 2,523 0.3%

3000-3999 3,409 3,421 0.3%

4000-4999 4,386 4,393 0.2%

5000-5999 5,446 5,424 -0.4%

6000-6999 6,482 6,478 -0.1%

7000+ 8,279 8,429 1.8%

Total 2,382 2,467 3.6%

The orderbook is staggeringly large. But, as we have said

countless times in the past, once a number of lines take

the lead in ordering larger ships (and Maersk is invariably

the leader, most recently with its huge E-class series)

then it becomes nothing short of imperative for others to

follow suit. Once one carrier has achieved a cost advantage

through economies of scale, a lower per slot cost, then

others will follow. There are two key motivators. The first

is demand growth which needs to be satisfied via the

principle of short-term pain, long-term gain. A boxship

should last 25 years so it needs to be big enough to satisfy

future, not just present, demand. In the early years, there

is the risk that copycat ordering will cause over-supply and

under-utilisation. The second is preparation for a market

downturn, at which time lower per slot costs are a bonus.

This defensive mentality is the product of many years of

poor trading and overlooks the fact that chasing lower

costs, while creating desired efficiencies, also intensifies

the competition that ultimately leads to lower rates.

The trailblazers of scale have been Maersk, CMA CGM

and MSC while the traditional objectors have included

APL, Evergreen and K-Line. Early in the decade, Evergreen

pushed up beyond its preferred 5,500-teu size cap for the

first time in taking delivery of a series of five 6,000-teu

followed by ten 7,000-teu units that are delivering between

2005 and 2008. K-Line, another line traditionally more

comfortable with sub 6,000-teu vessels is taking delivery of

a series of eight 8,000-teu ships between 2006 and 2009.

But, it is APL that stands out for apparently breaking its

former vows regarding optimal size by venturing beyond its

5,500-teu maximum comfort zone to order eight 10,000-

teu units for delivery in 2011. Of course, these ventures

into larger sizes now seem less bold as even a 10,000-teu

vessel is a relative minnow when compared to the armada

of ships on order of over 12,000-teu, 114 at our last count.


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Ships on order of 10,000-teu and more number 175 units

of which only four have been contracted outside South

Korea, these being a series of 10,000-teu vessels being

built by Nacks for Cosco. The balance are being built at

Hyundai Heavy, Hyundai Samho, Samsung, Daewoo,

Hanjin and STX. We are confident that these mature yards

will deliver on these contracts. This contrasts with our

lack of confidence in the ability of many new and less

mature yards in wider Asia being able to honour bulk carrier

contracts that they have entered into. But, even if those

Korean yards are ready and able to fulfil their obligations,

we suspect that some of these big series orders will not

get financing either for lack of fixed employment or for

lack of available credit. Ironically, the credit crunch coincides

with the biggest shipping orderbook ever and never before

has there been such an enormous call upon the banks to

provide debt finance.

One estimate is that about one-third of the total container

orderbook is not yet financed and that some portion of this

will not complete, the most vulnerable being those ships

scheduled to deliver in 2010 and beyond. About half of all

boxships on order are for independent owners, most of

them based in Germany. The equity funding is still available

through the KG market but the debt funding component

may be more difficult to access as German banks are forced

to restrict new credit. The total orderbook was about 60%

of the fleet by capacity at March 1st 2008, with deliveries

spread out over five years to 2012. In the worst case of

all the estimated unfinanced ships failing to deliver the

orderbook could fall to 50% of the current fleet. But, it is

unlikely to be that severe as in many cases cash resources

will be used to pay for installments and equity ratios could

be increased in order to attract debt finance for the balance.

Figure 54. Containership contracting trends


In Q3 2007 we witnessed the contracting of 1.24m-teu of

new containerships, an all-time record. Until 2003, this was

a higher volume than had ever been contracted in a single

year, let alone a single quarter. The next record quarter

was the previous one, Q2 2007, in which 0.99m-teu was

ordered. In the light of such exuberance, we may not see

such a record beaten in quite a while.

Containerships

Figure 55. Top 20 container lines by capacity (current and on order)

Company Ranking Fleet, TEU Fleet, # OB,TEU OB, # Total TEU % share Cum.

Share

Maersk Line 1 1,676,955 448 341,149 70 2,018,104 13% 13%

MSC 2 1,232,335 369 404,110 48 1,636,445 10% 23%

CMA CGM 3 715,801 242 491,796 61 1,207,597 8% 31%

Coscon 4 443,979 148 401,574 59 845,553 5% 36%

Evergreen 5 628,898 180 8,668 2 637,566 4% 40%

Hanjin 6 336,717 77 255,270 31 591,987 4% 44%

CSCL 7 413,886 120 169,022 23 582,908 4% 47%

Hapag-Lloyd 8 490,275 141 87,500 10 577,775 4% 51%

APL 9 400,609 119 172,692 27 573,301 4% 55%

Yang Ming 10 271,888 82 261,412 41 533,300 3% 58%

NYK Line 11 343,670 89 179,000 37 522,670 3% 61%

Zim 12 238,567 82 279,518 37 518,085 3% 65%

MOL 13 323,729 103 181,410 30 505,139 3% 68%

OOCL 14 355,673 87 137,924 22 493,597 3% 71%

K-Line 15 296,420 92 157,618 32 454,038 3% 74%

Hamburg Sud 16 207,359 79 111,240 21 318,599 2% 76%

CSAV / CSAV Norasia 17 230,018 76 78,811 11 308,829 2% 78%

HMM 18 198,299 45 83,700 12 281,999 2% 79%

PIL 19 141,822 75 94,633 31 236,455 2% 81%

Wan Hai 20 133,105 76 51,324 18 184,429 1% 82%

The top 20 owners now control 82% of the global fleet

and orderbook. Consolidation is set to resume after the

tortuous link-ups between Maersk and P&O Nedlloyd and

between TUI (the owner of Hapag Lloyd) and CP Ships.

In 2008, NOL (the owner of APL) and Hapag Lloyd continue

to be strongly touted as merger candidates as there is a

natural fit between the two. The strengths of one appear

to counteract any weaknesses of the other on the main

shipping lanes of the transpacific, transatlantic and Asia-

Europe. A matching of two leading carriers from the

mercantile powerhouses of Singapore and Hamburg

offers considerable appeal.

Mergers and takeovers between others might need to see

a weaker market in order to convince controlling parties of

the benefits of consolidation and assist in smoothing over

any cultural and philosophical differences. Otherwise, we do

not envisage the top 20 ranking changing very much – it is

68

unchanged from last year. Of note are the huge orderbooks

of MSC, CMA CGM and Cosco which now even exceed

that of market leader Maersk Line. MSC and Cosco have

achieved their rapid expansion through organic growth while

CMA CGM and Maersk have used a combination of organic

growth and acquisition.

The bottom two in the list, PIL and Wan Hai, having

embarked upon a 10-year strategic alliance in January

2008, announced on 20 February that the agreement will

be extended into cooperation on terminal operations and

ship repair business and joint coordination of shipbuilding

plans. They already operate joint services in the Asia-Europe

trades since 2004 and in the transpacific and Black Sea

services since last year. Singapore-based PIL and Taipei-

based Wan Hai have been long-time intra-Asian rivals but

saw the benefit of teamwork when it came to entering the

highly competitive longhaul routes.


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For many years now container trade has been growing at

an average annual rate of around 10%. The rate of growth

is now slowing but the underlying base is that much larger.

Demand is forecast to continue rising at an annual rate

of a bit below 10% in both 2008 and 2009. The world is

bracing itself for a slowdown given the weakening US

housing market and deteriorating credit markets. As loans

are cut off to both households and businesses, spending

and investment will obviously suffer as these are the

twin engines of economic growth and employment. The

notoriously unreliable US non-farm payroll reports for

January and February show that employment fell by 22,000

and 63,000 respectively, the latter being the largest month-

on-month fall in five years.

The futures market is now pricing in a further 75bps

interest rate cut to 2.25% at the Federal Reserve’s next

meeting on 18 March. The weakening dollar is helping the

US-outbound export trades but insufficiently to counteract

declining imports. The latest Port Tracker report, compiled

by the National Retail Federation and Global Insight,

observes that container traffic at North American ports fell

4.3% in January 2008, compared with January 2007, and

predicts a 9.6% decline in February 2008. These monthly

year-on-year US traffic declines started in August 2007 and

represent the most protracted period of decline since 1995.


Demand

Figure 56. Global container trade trends

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2003 62 152 36 53 303

2004 70 175 40 59 344

2005 77 194 43 67 381

2006 83 220 45 73 420

2007 90 250 46 78 465

2008 96 281 49 84 509

2009 101 314 51 91 557

Ports surveyed are LA/LB, Oakland, Tacoma, Seattle and

Vancouver on the west coast; Houston on the Gulf coast;

and NY/NJ, Hampton Roads, Charleston and Savannah on

the east coast.

Weakening traffic growth on the transpacific,compounded

by rising costs, is causing the lines to withdraw or

reposition capacity and enter new alliances. Stagnant trade

growth on eastbound transpacific contrasts starkly with

20% growth on westbound Asia-Europe. The former route

generally chooses to keep maximum ship capacity below

7,000-teu, given poor productivity at west coast North

American ports, whereas most ships above 7,000-teu end

up on Asia-Europe. The withdrawal of capacity from the

transpacific for prolonged maintenance or semi-layup is

one way of keeping utilisation rates high. It also maintains

pressure on shippers to increase freight rates and agree

floating monthly bunker adjustment factors if the ships are

to return and service levels be preserved. If excess capacity

is merely redeployed to Asia-Europe, beyond increasing

loops from eight to nine ships to save on fuel, then at some

point it will have a negative impact on utilisation and rate

prospects on that route.

Containerships

Annual contract negotiations between shippers and carriers

see both sides now digging their trenches ahead of tough

negotiations, despite the fact that the TSA has gone out

of its way to explain its position in a more conciliatory and

informative manner in the recent past. The TSA is looking

at managing minimal or even negative capacity growth on

the Pacific in 2008 in support of its policy of only running

profitable services as costs everywhere spiral out of

control. Independent Maersk Line has withdrawn about

30% capacity in the past twelve months and entered into a

vessel-sharing joint venture with TSA members CMA CGM

and MSC in which they will operate larger 8,000-teu ships

without increasing their overall capacity contribution. The

rationale is that the operational savings of using bigger ships

are estimated to outweigh the added costs of low port

productivity levels on the west coast.

Figure 57. Leading global container ports in 2007

Rank 2007 Rank 2006 Port 2007 traffic, m-teu

2006 traffic, m-teu Growth in 2007

1 1 Singapore 27.93 24.79 13%

2 3 Shanghai 26.15 21.71 21%

3 2 Hong Kong 23.88 23.23 3%

4 4 Shenzhen 21.01 18.47 14%

5 5 Busan 12.14 12.03 1%

6 7 Rotterdam 10.79 9.69 11%

7 8 Dubai 10.65 8.92 19%

8 6 Kaohsiung 10.26 9.77 5%

9 9 Hamburg 9.90 8.86 12%

10 11 Qingdao 9.46 7.70 23%

11 13 Ningbo 9.36 7.07 32%

12 15 Guangzhou 9.20 6.60 39%

13 10 Los Angeles 8.36 8.47 -1%

14 14 Antwerp 8.18 7.02 17%

15 12 Long Beach 7.31 7.29 0%

16 17 Tianjin 7.10 5.90 20%

17 16 Port Klang 6.85 6.32 8%

18 19 Tanjung Pelepas 5.50 4.77 15%

19 20 Bremen/ Bremerhaven 4.89 4.45 10%

20 21 Laem Chabang 4.64 4.43 5%

70

Singapore has retained its 2006 crown but last year’s

second-placed Hong Kong has been relegated to the

number three slot by Shanghai. Rotterdam and Dubai have

each gained a place while Kaohsiung has dropped two

places. The rapidly expanding Chinese ports of Qingdao,

Ningbo and Guangzhou have gained one, two and three

places respectively, underlining the importance of China

as the world’s factory floor. Los Angeles slipped three

places while its Long Beach neighbour gained three places,

demonstrating the relative strengths of their environmental

lobbies. Far Eastern ports occupy seven of the top ten

league places illustrating the imbalance in infrastructure

spending between east and west. Of the other three

places, two are in Europe and one in the Middle East.

The port of New York and New Jersey has slipped

from the table.


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Global Insight forecast

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Total N America to NE Asia and SE Asia

Trade Routes

The latest Global Insight data we have dates back to

October 2007. We may review our data source in future

GSMRs as this data is altered significantly from time to

time. For this year we present if for consistency’s sake.

The broad trends are about right even if we may choose to

quibble over the actual numbers.

The overall supply-demand balance is apparently

deteriorating as the spread widens with the steady stream

of new ships rolling out of the shipyards. We base our

numbers on nominal capacity in the wider container capable

fleet rather than in the narrower fully cellular fleet. It is

relevant to mention that at the beginning of 2006 some

80% of the container capable fleet was fully cellular but

by the beginning of 2009, in just three years, this ratio is

forecast to rise to 88%. In 2007 the supply-demand gap

was narrow at about 1.5% after nearly 3% in 2006. But, in

2008 it is expected to go out to the just below 4% before

retracing to around 3% in 2009. As already mentioned,

other factors will help to bridge this gap by reducing

effective tonnage supply gains such as port congestion,

disparities in port throughput capabilities at opposite ends

of the supply chain, land-side rail and road issues, slow

steaming, capacity management, re-positioning for new

services and the cancellation of some old services.

But, the most important single factor in the reduction or

elimination of the gap is the use of nominal capacity as

opposed to laden capacity. No ship ever loads up to its

nominal capacity given operational constraints such as

the mix of box sizes, weight limits and stability, visibility

from the bridge, load and discharge sequences, berth and

channel draft limitations, and so on. Neither would it be

appropriate to use the laden figure, conventionally taken

as an average 14-tonne homogenous load, as weight

loads vary and the vessel’s deadweight capacity would

almost always permit a certain number of empties to

be repositioned. Other factors influencing real container

capacity supply include the declining ratio of part-time

container capable ships in container trades and the fact

that conbulkers and multipurpose types may now be

concentrating their efforts on the better paying dry

bulk trades.

In the fully cellular fleet, the appropriate representation

of a containership’s box capacity might be somewhere in

between the nominal and the laden figures. Re-crunching

all the capacity numbers based upon this adjustment would

certainly alter (i.e. reduce) our impression of available space

and explain how easily so many new ships have been

absorbed by the market in recent years without collapsing

rates. The factors that constrain tonnage supply differ

according to trade lane as there is no hard and fast rule.

All told, we have a modernising fleet, changing trade

dynamics and a string of years of well above trend

demand growth.


Figure 58. Trans-Pacific container trade volumes

Global Insight’s figures for the transpacific trades in 2007

(based on the first three quarters) estimated 5.9% growth

in total eastbound traffic and a higher 6.8% growth in

westbound trades, no doubt helped a little by the weaker

dollar despite the prevalence of various forms of dollar

currency pegs within Asia. The ratio of all eastbound

headhaul to all westbound backhaul volumes remained in

the region of 3:1. In October 2007, GI forecast over 8%

year-on-year growth in eastbound transpacific volumes in

both 2008 and 2009, but this now appears optimistic.

Containerships

TSA statistics

Membership of the Transpacific Stabilization Agreement

(TSA) expanded to 15 members, effective January 2008,

on the joining of China Shipping. The list of TSA members

is as follows and involves the majority of the world’s

largest container shipping lines.

APL Co Pte Ltd

China Shipping Container Lines Co Ltd

CMA CGM SA

COSCO Container Lines Ltd

Evergreen Line

Hanjin Shipping Co Ltd

Hapag-Lloyd AG

Hyundai Merchant Marine Co Ltd

Kawasaki Kisen Kaisha Ltd

Mitsui OSK Lines Ltd

MSC – Mediterranean Shipping Co SA

Nippon Yusen Kaisha

Orient Overseas Container line

Yangming Marine Transport Corporation

Zim Integrated Shipping Services Ltd

Transpacific trade growth in 2007, now slowing in 2008

According to the TSA’s own figures, Asia-US container

traffic grew 6.9% year-on-year in the first half of 2007

rising to 8% for the first nine months compared to the

same period in 2006. That represents a decline on full

year 2006 which saw eastbound growth of 9.6% to

13-teu equivalents. No figures are yet available from the

TSA for the fourth quarter but we would expect to see a

deterioration in the numbers which will pull down the full

year 2007 performance to less than the 8% growth figure

of the first three quarters.

Anecdotal evidence from the USWC intermodal hub ports

of Los Angeles and Long Beach puts their aggregate loaded

inbound containers declining every month since August

2007, coincidentally the month in which the subprime crisis

blew up. In calendar year 2007, total container throughput

at Los Angeles fell marginally to 8.4m-teu equivalents from

8.5m in 2006 while total container throughput at Long

Beach in 2007 was steady at 7.3m-teu equivalents, only

fractionally up on 2006.

More importantly, Q4 2007 loaded in-bound container

volumes declined 4.6% at Los Angeles and 4.0% at Long

Beach on a year-on-year basis. In January 2008, loaded

in-bound volumes fell 4.6% year-on-year at Los Angeles to

343,529-teu and by a much larger 13.8% at Long Beach

to 261,543-teu. These figures have been warning us since

August 2007 of slowing US consumption and the latest

2008 figures tell us that household and business

consumers are accelerating the rate at which they cut

back on spending.

We know precisely why they are cutting back: falling home

values, declining employment, tighter credit, high gasoline

and heating oil prices, rising food prices and a weaker dollar.

In Q4, the weakening housing market lowered imports of

home furnishings and construction materials. Shipments

of toys were hit by safety concerns (but compensated for

by a switch over to electronic games) while shipments

of apparel, home electronics, computers and health care

products remained robust in the second half of 2007.

Rising costs

TSA members expect to record a 7% increase in

basic operating costs in 2007 on top of a substantially

unrecovered 8% increase in 2006. This excludes a near

doubling in fuel costs during the year with fuel now

accounting for 50-60% of total transpacific sailing costs.

Most long-term 15-25 year intermodal rail contracts have

been coming up for renewal in the 2005-2008 period with

new rail contracts being signed at anything from 25%

to 40% above previous levels. The TSA points out that

intermodal has become the largest and fastest-growing

segment of the rail business, surpassing even coal.

The trucking sector is suffering from driver shortages

and many small owner-operators being squeezed from

the market by rising costs, longer hours and onerous

environmental regulations. As they get to be consolidated

by larger unionised operators, trucking charges have

inflated by 25% or more since 2005. Higher intermodal

freight and trucking charges have raised the cost of

repositioning empties from the American interior back to

Asia. This situation has been compounded by a reduction

in free dwell-time for boxes at terminals and the

additional burden of extra security, cargo scanning

and environmental directives.


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Total Europe to Asia

Total Asia to Europe

Freight developments

According to Containerisation International’s “Freight

Facts”, the average ‘all-in’ freight rate between Asia and

the West Coast of North America in Q4 2007 remained

unchanged on the previous quarter, at $1,701/teu, but was

2% higher than in Q4 2006. On a weighted basis, the latter

was 1% down and would have disappointed carriers after all

the talk of higher fuel surcharges and capacity withdrawals

in order to recover rising costs and keep vessel utilisation

above 90%. Under the circumstances of flat year-on-year

cargo growth on this trade lane in the second half, it is not

surprising to see freight rates under downward pressure.

TSA members hope to achieve a $200/teu rate increase

from May 1, 2008 plus a lot more via fuel charges, thus

departing from the previous formula of ‘all-in’ rates. On the

westbound leg, the average ‘all-in’ freight rate of $795/teu

in Q4 2007 was 2% up on the previous quarter and 1% up

year-on-year. On a weighted basis, the changes remained

the same. These quoted all-in freight rates in each direction

would have left the carriers exposed as bunker fuel was up

over 20% quarter-on-quarter and over 70% year-on-year.

Westbound trade grew 10% on 2006 but ships remained

half full. Fuel rebates may be easier to achieve than freight

increases in 2008.

Figure 59. Asia-Europe container trade volumes

Global Insight’s figures for the Asia-Europe trades in 2007

(based on the first three quarters) estimated 15.6% year-on-

year growth in the headhaul westbound direction from Asia

to Europe to 14.4m-teu and just over 5% growth on the

weaker eastbound leg to 6.1m-teu. For 2008, GI forecasts

a slower 12.6% expansion to 16.2m-teu and, in 2009, 8.9%

growth to 17.7m-teu. 2008 eastbound growth is put at

5.4% to 6.4m-teu and, in 2009, 7.4% to 6.9m-teu.

These figures fail to capture Q4 2007 movements

which may have altered GI’s full year forecasts.


FEFC numbers

Membership of the Far East Freight Conference (FEFC)

stands at 17 members. The list of FEFC members

is as follows and includes the world’s largest container

shipping lines.

ANL Container Lines Pty Ltd

APL Co Pte Ltd

CMA CGM SA

CSAV Norasia Liner Services

Egyptian International Shipping Co

Hapag-Lloyd AG

Hyundai Merchant Marine Ltd

Kawasaki Kisen Kaisha Ltd

Maersk Line

MISC Berhad

Mitsui OSK Lines Ltd


Nippon Yusen Kaisha


Safmarine

Yangming Marine Transport Corporation

Zim Integrated Shipping Services Ltd

Booming growth in 2007 – more of the same

expected in 2008

The Far East Freight Conference announced full year 2007

trade growth figures on Asia-Europe of 19% in 2007. Far

East/Med was up 21.8% year-on-year to 3,323,933-teu

while Far East/North Europe was up 17.6% to 6,190,655-

teu. Consolidated Q4 2007 growth came in at 15.9% when

compared with Q4 2006, taking the total westbound annual

Containerships

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0.00.51.01.52.02.53.03.54.04.5

2005 2006 2007 2008 2009

m-teu

Europe to N. America

N. America to Europe

2FEFC lines recently managed to separate the bunker surcharge from general rate rises ending ‘all in’ prices and paving the way to link fuel surcharges and rebates to market movements in fuel oil prices.

increase to 19%. The FEFC expects to replicate this rate of

growth on Asia-Europe westbound in 2008. However, as

with the TSA, cost concerns were flagged up.

Issues that were raised included the rising costs of

insurance, crewing and above all bunkers plus the frequency

of congestion. An almost doubling of bunkers since January

2007 to $480/tonne was challenging the industry’s ability

to recover accrued losses and one response was to slow

down ships in the interests of fuel economy. Hapag-Lloyd

was looking to reduce speeds by 10% to 20.5 knots on the

basis that a 4-5 knot speed reduction could cut consumption

by 30-40% and given that fuel now accounts for around

60% of voyage costs.

Slow steaming

The operational savings on fuel justify the injection of a

ninth ship in an Asia-Europe loop without increasing capital

costs or reducing service levels. CMA CGM, Maersk Line

and the Grand Alliance have already taken action to slow

steam using extra ships with the emphasis on maintaining

schedule reliability in order not to upset their customers’

landside logistics. Germanischer Lloyd sees this as sensible

response to the reality that an 8,000-teu vessel with a

60,000-kW main engine consumes $121,000 in daily

bunkers at around $490/tonne.

GL has calculated that fuel now accounts for 63% of

all vessels’ operating costs compared to about 33% as

recently as 2004. 8,000-teu vessels that were built to do

25 knots or more are now best operated at 20 knots which

would extend the transit time between Hong Kong and

Hamburg by four days but at some benefit to both the

wallet and the environment. CMA CGM added a ninth ship

to its FAL1 service early in 2007 and is now repeating the

exercise on its FAL3 service which extends transit times in

each direction from 28 to 31.5 days.


According to CI’s “Freight Facts”, the average all-in freight

rate on the Asia-Europe westbound leg rose by 5% in Q4

2007 compared with the previous quarter, to $2,054/teu,

and by 33% on a year-on-year basis. On a weighted basis,

the increases were 3% and 28% respectively. Despite

the generous increase in freight on an annual basis, it is

reckoned that this uplift did little more than cover the rise

in uncovered fuel costs. The FEFC will clearly need to

implement more effective measures to protect itself

from high prices2 .

A major achievement was scored by FEFC members in

increasing the average all-in freight on the backhaul leg from

Europe by 16% in Q4, compared to Q3, despite sub-50%

utilisation. The Q4 rate of $904/teu was 14% above Q4

2006 and on a weighted basis the provisional gains came in

at 20% and 17% respectively. This was a product of FEFC

determination to raise rates even at the expense of losing

cargo. It was a Pyrrhic victory as eastbound traffic declined

by about 5% in Q4 compared with growth of 10% in Q1,

8.5% in Q2 and 6% in Q3.

The prospects for 2008 would appear to be good if the

FEFC enjoys similar levels of cargo growth as it did in 2007

and if it succeeds in better managing to pass through rising

fuel costs to shippers. One potential thorn in the side is

the introduction of new services using ships that have

been transferred from the weakening transpacific routes.

However, even after factoring in vessel transfers from the

transpacific and scheduled new deliveries, the FEFC is

confident that it can average vessel utilisation at well over

90%, thus retaining some bargaining power.

Despite high utilisation rates in January 2008, the rush

before Chinese New Year shuts down factories for several

weeks, some lines active on Asia-Europe saw rates come

under pressure. A $200/teu rise had been sought from

January 1st for cargo starting in the Far East but it seems

that successful implementation was patchy with some

lines even agreeing as much as $100 discount with some

shippers. This may have been a product of general turmoil

in shipping and financial markets around this time and thus

prove to be a temporary blip.

Figure 60. Trans-Atlantic container trade volumes


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NE Asia (China, HK, Japan, S. Korea, Taiwan) to SE Asia

SE Asia (S'pore, Malay., Philip., Indon., Thai., Viet.) to NE Asia

Global Insight’s figures for the transatlantic trades in 2007

(based on the first three quarters) put year-on-year growth

in the headhaul westbound direction from Europe to North

America at just 1.5% to 3.9m-teu. Trade growth was much

stronger in the eastbound direction from North America

to Europe at 8.2%, to 2.4m-teu, as the weak dollar/euro

exchange rate boosted exports from the US and Canada.

Growth in the westbound trades is expected to rebound to

2.8% in 2008 and 2.9% in 2009 while the equivalent figures

for eastbound trades are 6.6% in 2008 and 4.6% in 2009.

TACA numbers

Membership of the Transatlantic Conference Agreement

has dwindled to just five carriers. TACA does not publish

any trade data on its website so we have no figures

against which to benchmark GI’s numbers. The members

of TACA are:

Atlantic Container Line AB

Maersk Line


Nippon Yusen Kaisha


Evidence of US consumer weakness

In the absence of any trade data from TACA we have

some figures from PIERS Maritime Research suggesting

that transatlantic westbound cargo flows actually declined

by 6.5% in the first nine months of 2007, bringing vessel

utilisation down to just over 90%. For full year 2007,

westbound trade fell 5.7%, thus improving upon the

performance of the first three quarters. On the traditionally

weaker eastbound leg to Europe, PIERS registered a

17.1% gain in cargo movements which is helping to iron

out imbalances on the Atlantic despite the challenge of

reconciling the fact that 40’ boxes are preferred westbound

against 20’ eastbound. Total US-inbound box flows from all

directions declined 1.1% in 2007.


According to CI’s “Freight Facts”, the average all-in freight

rate in Q4 2007 on the dominant westbound tradelane,

from northern Europe to the East Coast of North America,

rose by 2% compared to the previous quarter to $1,766/teu,

and almost the same rate as a year earlier in Q4 2006. On

a weighted basis, these figures come out provisionally at

up 3% quarter-on-quarter and down 2% year-on-year. On

the eastbound leg, TACA’s average rate in Q4 rose by 3%

quarter-on-quarter to $1,147/teu which was 8% up on a

year earlier in Q4 2006.

On a weighted basis the eastbound changes were 10%

and 18% respectively as one carrier enjoyed a particularly

large gain in volumes. Unfortunately, uncovered fuel costs

would have worsened the net end result for carriers on the

Atlantic in 2007. TACA has made strenuous efforts to make

shippers aware of the difficulties with which it is faced by

rising fuel costs. However, in spite of this, its members

decided to postpone until further notice the fuel surcharge

of $147/teu that was announced in mid December 2007.

Figure 61. Intra-Asia container trade volumes

Global Insight’s figures for the S.E.Asia to N.E.Asia trades

in 2007 (based on the first three quarters) put year-on-

year growth at a robust 8.3% to 5.07m-teu. In the other

direction, trade between N.E.Asia and S.E.Asia rose by

10.1% to 4.25m-teu. Forecast growth in the dominant

eastbound trades stands at 7.7% for 2008 and 6.6% for

2009 when volumes should reach 5.82m-teu. Westbound

forecasts are for 8.7% growth in 2008 and 7.6% in 2009 to

reach a shade under 5m-teu.

These estimates thus foresee an average of 1% reduction

in the rate of growth in both 2008 and 2009 as slower

economic activity in the US has a knock-on effect in Asia

as many goods are swapped, processed and assembled in

Asia for final export to the US market. In spite of this, cargo

volumes are still expected to rise at respectable absolute

levels. Trade between the Far East and the Middle East is

rising fast with most of these volumes being captured in the

Asia-Europe trade figures.


Containerships

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Growth E-W

Total N-S trades, m-teu

Total E-W trades, m-teu

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Figure 62. Total container trade volumes

Total North-South trades rose 7.1% in 2007 to 21.93m-

teu. In 2008, growth is forecast to slow to 5.2% to reach

23.07m-teu and, in 2009, accelerate to 7.2% and 24.73m-

teu. Provisional 2007 figures for the Far East to Oceania

trade show a 13% year-on-year increase dominated by

fish, plastics, chemicals and paper. Far East to Africa trade

grew by 24% year-on-year and was dominated by metal

manufactures, plastics, specialised machinery, paper and

textile fibres with small declines in textiles and electrical

machinery. Far East inbound trade from Africa remained low

with declines in oilseeds, nuts and textile fibres balanced to

some extent by growth in chemical manufactures imports

from southern Africa.

Far East exports to Latin America rose 12% in 2007 and

featured increased movements of chemicals, road vehicle

parts and textile fibres which more than compensated for

falls in textiles, plastics and electrical machinery. GI’s macro

forecasts of Far East export trade is for growth to fall to

7% in 2008 after 11% in 2007 and 10% in 2006, reflecting

continued strong growth to Europe, the Middle East and

southern hemisphere but weaker trade expansion into

North America. Far East inbound will rise by 6.4% in 2008

compared with 10% in 2007 and 5.7% in 2006. Much of the

anecdotal evidence is that Asia’s rising export trade to the

southern hemisphere commodity-rich nations and to other

emerging markets will compensate for any weakness in the

US-inbound trades over the next few years.

Total East-West trades rose 8.4% in 2007 to hit 52.42m-

teu and are forecast to rise by 8.3% in 2008 to 56.79m-teu

and 7.2% in 2009 to 60.89m-teu in 2009. We have dealt

with the Asia-Europe, transpacific and transatlantic trades

elsewhere. Within the Asia-Europe segment, trade between

the Far East and the Indian subcontinent and Middle East

Gulf rose 18% in 2007. This growth was led by tobacco,

machinery of most types, rubber, furniture, plastics and

chemicals with some declines in textiles, fibres, telecoms

equipment and specialised machinery. Far East inbound

trade from the Gulf and subcontinent grew 12% dominated

by chemicals, plastics and paper with some small decline in

textiles and non-ferrous metals.

Earnings

Freight Rates

Figure 63. Trends in containership freight rates


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US$ pd

3,500-teu gearless

2,750-teu gearless

2,000-teu gearless

1999 2001 2003 2005 2007

5,000

10,000

15,000

20,000

25,000

30,000

US$ pd

1,700-teu geared

1,000-teu geared

725-teu geared

y-o-ychange

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

1999 2001 2003 2005 2007

3,500-teu gearless

2,750-teu gearless

2,000-teu gearless

y-o-ychange

-60%

-40%

-20%

0%

20%

40%

60%

80%

1999 2001 2003 2005 2007

1,700-teu geared

1,000-teu geared

725-teu geared

The earnings cycle is apparent in our chart (based on data

from Containerisation International) of freight rate trends

since the beginning of 1994 on the world’s major container

trade lanes. Asia-Europe westbound stands out as having

been most successful at raising rates in 2007, not least as

it captures cargo movements from the Far East into the

thriving subcontinent, Middle East and Black Sea regions.

Sustained strong growth in the Asia-Europe trades managed

to soak up new capacity, and this challenge will persist

in 2008 as more ships are transferred from the weaker

transpacific routes.

This was in contrast to US-inbound routes which came

under pressure in the second half, even becoming

uneconomic as unrecoverable fuel rises hit the bottom

lines of carriers. However, rates on the US trades are

expected to improve to cover for bunker-related losses in

2007 which may otherwise continue in 2008 as oil prices

are forecast to remain high. Indeed, in Q1 2008, crude oil

is rising as the dollar weakens. The lines are threatening

capacity withdrawals should such conditions persist without

adequate recompense from shippers.

Time Charter

Figure 64. Average earnings change over time – the 2007 recovery


Containerships

Despite the logistical and fuel-related problems endured by

the lines in 2007, the tramp owners that provide ships on a

charter basis to the carriers enjoyed a recovery in earnings

in 2007– a quite remarkable feat given the shipyards were

turning out nearly 30,000-teu of new capacity every week.

Whether bareboating or time chartering ships into the lines,

these owners are insulated from changes in fuel costs

as these are picked up by the charterers. Brisk demand,

and quite limited available supply, permitted a recovery in

charter rates after they over-corrected to the downside

in 2006, having fallen by as much as 40% year-on-year

compared with 2005.

The Howe Robinson Container Index (HRCI) started 2007 at

1,011 and ended the year up 32% at 1,335 having peaked

at the end of September at 1,406 points. Short-term charter

rates were up a little over 10% for the smallest feeders but

gains exceeded 40% for the popular mid-sizes that were

in short supply. The cellular market for the 1,000 to 2,000-

teu sizes was helped by the booming dry bulk market that

removed the conbulkers and larger multipurpose types from

dedicated box trades as they could command higher charter

rates in the dry bulk trades than in moving containers.

Working up the scale from the handysize ships, we can

trace the development of period rates during the year

from reported fixtures. Wan Hai Lines paid $14,500 for

12 months on the Kyoto Tower (gearless 1,798-teu 2007)

in January to set the tone for the first quarter. The older

but geared Viking Eagle (2x20c 1,740-teu 2005) achieved

$15,500 when it fixed to Wan Hai in February and the

newbuilding GE Lessing (2x40c 1,740-teu 2007) fixed at

$16,150 to CSAV in April. Two year rates at this time were

around the $15,250 mark as per the Hansa Papenberg

(2x40c 1,740-teu 2007) fixture to CLAN. By June, rates had

increased further as NYK took Hansa Augustenburg (2x40c

1,740-teu, 2003) for 12 months at $16,000 per day.

The second half saw confirmation of the firming trend. In

July, Hansa Brandenburg (2x40c 1,740-teu 2003) went to

BTL for two years at $17,250 per day. CMA-CGM fixed

Helene Rickmers (3x40c 1,728-teu, 1998) for two years at

$17,850 in August but managed to secure the sistership

Dorothea Rickmers for a slightly cheaper $17,600 in

October. Period rates did not cool with the autumn weather

in the North however, as NDAL took Hansa Coburg (2x40c

1,740-teu 2007) for a year at $18,000 daily, which proved

to be the high water mark for this type of ship for the year.

As Viking Eagle came up for hire again, it was taken in

January 2008 by K-Line for 12 months at $17,850 per day,

neatly demonstrating that one year rates for handysize

containerships had increased by about 15% in a year.

On to the mid-sizes. In January, CMA-CGM took Pona

(gearless 2,741-teu 2007) for 12 months at $18,750.

Evidence of advancing rates was offered by Cape Mondego

(gearless 2,742-teu 2006) which was fixed for a year to

DAL for $20,750 a day in February. Days later, CMA-CGM

fixed HS Scott (gearless 2,778-teu 2007) for one year at

the same rate. In March, CSAV fixed King Andrew and King

Aaron (both gearless 2,741-teu 2007) for two years each at

$21,700 daily and, by April, IRISL fixed Westermoor (3x45c

2,730-teu 2001) for two years at $23,500 per day. At the

end of a quiet third quarter, CMA CGM fixed Euro Max

(gearless 2,732-teu 2004) for four years at $27,900 daily in

September. In January 2008, a little of the shine came off

when K-Line took Helene C (3x40c 2,450-teu 2006) for two

years at $27,100.

Rates for larger gearless ships also improved during

2007. In January, MSC chartered the 11-year old 4,159-

teu Germany for two years at $24,000 daily. In February,

HLL Pacific (4,701-teu 2002) went for five years to APL at

$27,500. CSAV paid a slightly higher $28,950 per day for

the forward delivery of the newbuildings Rio Cadiz and Rio

Charleston (4,300-teu 2008). In June, four 4,253-teu Schulte

newbuildings delivering in 2009 were fixed for five years

each at $27,000 while, in July, CSAV paid $34,700 for the

larger and prompter delivery Northern Grandeur (4,787-teu

1998), also for five years. Finally, in October, UASC paid a

comparable $30,125 per day for four gearless 4,253-teu CP

Offen newbuildings scheduled for delivery in 2009.


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Post-Panamax

Capesize

VLBC

500750

1,0001,2501,5001,7502,0002,2502,500

Maersk Broker Container TC Index

Howe Robinson Container Index

5,000

10,000

15,000

20,000

$pd $pd

$pd$pd

400 grd

650 grd

1000 grd

10,000

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1700 grd

2200 grd

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May

Sep

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Jan

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May

Sep

Jan

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May

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May

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Figure 65. Recent change in TC rates and indices

Figure 66. Maersk Broker assessment of TC rates, $pd.

$pd 400 grd

650 grd

1000 grd

1700 grd

2200 grd

2500 grd

2700 gls

3500 gls

4000 gls

TC index

Jan-07 6,000 8,100 9,500 13,800 19,250 21,250 20,000 24,500 26,500 850

Feb 6,250 8,250 10,250 14,200 19,500 21,250 20,000 24,500 28,500 913

Mar 6,250 8,250 10,500 14,500 20,500 22,250 21,000 25,000 29,000 967

Apr 6,500 7,750 10,750 14,800 21,500 23,000 22,000 29,000 31,000 938

May 6,300 8,500 11,000 15,250 22,250 24,000 24,000 30,000 32,000 980

Jun 6,300 8,500 11,000 15,750 23,000 25,000 27,500 31,000 33,000 980

Jul 6,300 8,700 10,950 16,900 23,250 25,500 27,700 31,500 33,500 975

Aug 6,800 8,900 10,950 18,000 24,500 26,500 28,000 32,000 34,000 1,083

Sep 6,800 9,500 11,000 18,500 24,500 28,000 30,000 33,000 34,500 966

Oct 6,700 9,400 11,000 18,000 24,000 28,000 30,000 33,000 35,000 1,189

Nov 6,700 9,400 11,250 17,000 22,500 28,400 29,000 31,000 33,000 1,044

Dec 9,400 11,000 16,300 22,500 28,200 28,500 31,000 33,000 1,050 1,050

Jan-08 9,800 11,000 17,500 23,000 28,200 28,500 31,000 33,000 1,113 1,113


Containerships

According to this data from Maersk Broker, short-term 6-12

month time charter rates rose across the board in 2007.

The biggest rises are visible in the mid-sizes with the 2,700-

teu up 42.5% year-on-year and 2,500-teu up 32.7%. This

was followed by the panamax sizes with the 4,000-teu up

24.5% and the 3,500-teu up 26.5%. The best of the rest

was the flexible 1,700-teu geared size which was up 18.1%

and the worst performer was the smallest 400-teu feeder

at only 11.7%. The larger ships of post-panamax and above

are not included in this study as they tend to be chartered

longer term, often at levels linked to newbuilding prices.

In the larger sizes the lines prefer to either own tonnage

directly or engage them on long-term time or bareboat

charter from investor owners. German KG providers within

the tonnage tax regime would have to retain management,

and thus time charter, whereas a Singapore Business Trust

structure may favour finance leases, and therefore bareboat

charter. About 51% of all cellular capacity in service, and

53% of ships on order, is controlled by non-liner owners,

according to statistics compiled by AXS-Alphaliner.

Of ships in service of 7,500-teu capacity or more, only 37%

are owned by non-liner operators although this rises to 47%

when considering ships on order of this size. Evidently,

the lines would rather keep these increasingly large capital

costs off their balance sheets as newbuilding prices

continue to rise. For example, a 12,500-teu vessel now

costs around $170 million. Containerisation International

statistics confirm these numbers with 38% of ships in

service over 5,000-teu, rising to 51% of ships on order,

being controlled by non-liner operators. German owners

account for 3.4m-teu, or 63%, of total containership

capacity under charter with Greek owners in a distant

second place with 0.62m-teu, or 11.5%, of the

5.4m-teu total.

Recent examples of long-term charter deals on the big

ships include talk of MPC taking over eight to ten slots at

HHI, vacated last November by CP Offen, for 12,500-teu

vessels costing a reported $167m each and delivering

in 2010 and 2011. Some reports put the size as 13,100-

teu and it is suggested that these will be time chartered

to Hanjin for 12 years at $59,950 daily. Hanjin is also

taking three 10,000-teu HHI units from Danaos delivering

mid-2011 for 12 years at $54,000 daily. Meanwhile, Niki

Shipping of Greece is reported to have bareboated nine

13,000-teu STX units delivering in 2011 to Evergreen for

10 years at $51,000 daily.

Values

Figure 67. Clarkson nominal newbuilding and 10 year old prices prices

US$m 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

750-teu newbuild 18.0 17.0 13.5 14.0 14.0 13.0 13.0 17.5 19.5 20.5 20.5 21.0

750-teu 10-yr old 11.0 9.5 8.8 6.5 8.5 5.8 6.0 7.3 11.5 12.5 13.0 13.8

1,600-teu newbuild 27.2 27.2 22.2 23.7 26.9 22.2 21.1 26.5 33.4 34.8 36.6 36.9

1,600-teu 10-yr old 20.0 17.5 11.0 12.0 15.5 10.5 11.0 15.5 28.0 24.5 24.5 26.0

2,750-teu newbuild 38.0 38.0 33.0 37.5 31.0 31.0 29.5 37.0 46.5 48.5 51.0 52.5

2,750-teu 10-yr old 26.5 21.0 15.0 17.5 22.0 17.5 17.0 22.5 37.5 32.5 36.0 41.5

3,500-teu newbuild 52.0 50.0 42.0 38.0 41.5 36.0 33.0 42.5 53.0 52.5 57.0 59.0

3,500-teu 10-yr old 30.0 26.5 23.5 20.0 26.0 20.8 22.5 26.5 41.5 37.0 41.0 48.0

4,600-teu newbuild 52.0 50.0 42.0 38.0 41.5 52.0 45.0 56.5 71.0 67.5 71.0 78.0

6,500-teu newbuild 73.0 72.0 60.0 71.0 91.0 89.0 101.0 106.5

8,200-teu newbuild 125.0 134.0

Average newbuild 37.5 36.5 30.5 30.2 38.0 37.7 33.6 41.8 52.4 52.1 56.2 59.0

Aveerage 10-yr old 21.9 18.6 14.6 14.0 18.0 13.7 14.1 17.9 29.6 26.6 28.6 32.3


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1,600-teu newbuild

1,600-teu 10-yr old

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1998 2000 2002 2004 2006

4,600-teu newbuild

6,500-teu newbuild

Figure 68. Ten-year trends in newbuilding and second-hand prices

The above graphs are self-explanatory. The prices of

newbuilding containerships continued to rise in 2007,

particularly in the larger sizes, as they competed with large

bulk carriers for available shipyard space. The greatest

interest was for super post-panamaxes for which there is

no historical data. There was also upward movement in

10-year old secondhand values in the mid-size to panamax

segments as time charter earnings recovered during the

course of the year.

The spike in average newbuilding prices was at its highest

in November 2007 which coincided with the peak of

the capesize-led dry bulk market. Sharp rises in dry bulk

earnings in the fourth quarter inspired more large bulk

carrier orders at the risk of shutting out new containerships.

The response was to agree more inflated prices of up

to $170m for a 13,000-teu vessel. While some owners

withdrew from this game, either cancelling orders or

vacating options, others seemed willing to step in. The

availability of charters, which generally equated to the

accessibility of finance, played its part. We have no doubt

that some orders will be lost to tighter credit conditions and

resistance from the lines to paying over $60,000 daily.


Representative Sales

As consolidation continues in the industry, we continue to

see a number of en bloc secondhand sales. They cannot

really be described as representative as they encompass

ships of different ages and sizes and were often

executed for varying reasons including internal corporate

purposes. For instance, in January 2007, OOCL sold eight

containerships averaging about 5,000-teu for $480m in

a sale and leaseback deal. The buyer was reported as

a Luxembourg interest with HSH Nordbank, ING and a

subsidiary of OOCL all providing capital into the lessor.

The ships were bareboat chartered back to OOCL for eight

years with purchase options exercisable yearly from January

2010. The money raised was partly used to finance four

8,063-teu newbuildings that OOCL had ordered in October

2006 from Samsung for $477m. While we have included

this in our list of containership transactions, we have tried

to concentrate on trade sales, but refinancing remains a

characteristic of the industry.

Containerships

In May, CMA-CGM paid $93m each for Cosco Charleston

and Cosco Norfolk (both 5,100-teu Hanjin 2007). A few

months later, in August, the US fund Fortress used its

Singapore affiliate Seacastle to acquire four 5,050-teu

vessels, all built at Hanjin Pusan in 2006, MSC Mara, MSC

Benedetta, MSC Debra and MSC Olga, for $90m each. The

sale came with a 4-year time charter back to MSC at a rate

believed to be in the mid to high $30,000s daily. Market

guidance can be taken from the 5-year charter in August

of Northern Grandeur (4,787-teu 1998) to CSAV at $34,700

per day. Press reports at the time suggested that Seacastle

had already spent $640m on ships during 2007, but this

was their largest secondhand acquisition to date. Seacastle

was also reported to have signed contracts for four 4,000-

teu containerships at DSME with four other secondhand

purchases beefing up its boxship fleet during the year.

The Seacastle purchases illustrate the rising attraction of

shipping to investment funds as it chimes well with the

commodity price boom and the focus on emerging markets

and globalisation. Containerships lend themselves well to

investors as they are more visible, easier to understand,

get less knocked around than bulk carriers and carry less

obvious risks than tankers. It is also possible to lock into

period rates with recognisable names whose tenor can

be struck so as to maximise the twin objectives of, one,

earning sufficient free cash to pay dividends to investors

and, two, reducing the residual value upon charter expiry

to acceptable levels. The German KG system started in the

container sector and has since diversified into tankers and

bulk carriers in search of higher returns, taking on in the

process an even more complex range of variable ownership

costs and exposures.

Outlook

Past scepticism of the durability of earnings in the light of

increasing capacity has been confounded in recent years by

the market’s enduring ability to absorb fresh deliveries. This

has been greatly assisted by several years of 20% demand

growth on the deepwater Asia-Europe trades which link

the world’s factories in the Far East with the globe’s new

consumers in the subcontinent, Middle East, Russia, the

Republics and enlarged Europe. The strength of demand

has been assisted by the braking effects on supply of

congestion in European ports, the Suez and Panama canals

operating at maximum capacity and extra ships being put

onto service loops in order to reduce speeds and conserve

fuel. Environmental and security imperatives, together with

rail and road bottlenecks in North America and Europe, will

continue to slow down the process of moving containers

through ports and onto end-users, and thus constrain

effective shipping supply.

However, since August 2007, we are becoming more

aware of the broader implications of what started as a

US subprime housing crisis but which is now infecting

global financial markets and restricting access to credit.

As households spend less, and businesses defer capital

spending and new hiring, consumption will weaken in the

transatlantic economies. Hoping that rising consumerism

in emerging markets can compensate for spending

cutbacks in the US, after years of excess, is bordering

on wishful thinking given the sheer scale of US retail and

capital spending power, but it should at least provide some

damage limitation. A recession in the US would be harmful

to shipping as declining imports will continue to shift

surplus tonnage capacity onto healthy routes, such as Asia-

Europe, and combine together with new deliveries to cause

oversupply that will be sufficient to undermine freight rates.

The lines are challenged as to how to persuade shippers

that there is a price to be paid to guarantee regular sailings

and timely deliveries, and that shipping is vulnerable to

sharply rising costs.

But, that is very much the conventional view. On the supply

side, we can take positives from the fact that capacity

analysis uses nominal figures that do not represent actual

available space. Also that real tonnage supply is being

constrained by infrastructure limitations and capacity

management as the lines idle ships in order to keep

utilisation ratios up. Further, that some 10-20% of the fully

cellular containership orderbook may be overstated as it is

beyond financing. A more realistic assessment of supply

growth would bring it much more into line with forecast

demand growth, even as the demand structure is changing

with another turn of the kaleidoscope. Trade into America

might be flat or falling, even as its exports are rising, but

the lost exports to the US are being replaced by rising

exports between emerging economies that are riding on

the crest of a wave created by higher commodity prices.

Shuffling strings of ships between routes to best match

them to changing patterns of demand is another arresting

mechanism on real tonnage supply, and a contributor to

better balance.



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Shipbuilding

Overview

2007 was a record year for vessel contracting in the three

main sectors. Demand was led by dry bulk where very

high spot earnings were pushing up demand for all sizes

in the secondhand market. Strong medium to long-term

period rates, and the availability of such employment on

a forward delivery basis for larger ships, were pushing up

newbuilding and resale demand. This had a positive impact

on bulk carrier prices that finally rose to levels that appealed

to builders. The switch in focus allowed tankers some

breathing space although the containership sector refused

to stand down and instead stepped up with block orders

for super post-panamax sizes. These giant containerships

are very much the preserve of the world’s biggest yards in

South Korea, which tend to favour large series-built vessels,

and this gave China some elbow-room in which to secure a

large proportion of the bulk carrier orders.

Much has been made of the explosive growth in Chinese

shipyards, some of which are taking orders before the

intended greenfield sites have even been developed. Hefty

down-payments have been used to finance the yards’ real

estate, building and equipment procurement costs. Other

yards that are at more mature stages of development still

need large up-front payments from contracting owners

in order to pay for equipment, labour, steel and general

construction costs. Clearly, this is a risky business model

and it represents a potential minefield for those owners

unfamiliar with business practices in China. There is

no doubt that some shipyards will be unable to secure

refund guarantees from reputable banks while others

are suspected of intentionally not having secured these

guarantees as a device for voiding low-priced contracts.

Most of the new yards are small entry-level businesses,

often with sound provincial government or private

enterprise backing, that aim to cut their teeth on less

complex small bulk carriers as a stepping stone to, well,

LNG carriers and semi-submersibles eventually. Rising cost

pressures impact most heavily upon the lowly capitalised

ventures. They are faced with shortages and increased

costs of skilled labour, main engines, steel, equipment and

insurance and currency risk. Some yards are factoring in a

10% appreciation of the renminbi against the dollar in 2008

on top of the usual hikes in manpower, insurance and steel.

Inadequate provision was made for these factors in the

planning stages and now they are hitting home. Chinese

yards are not alone, as smaller yards across Asia face

similar problems.

Problems related to rising costs, inexperienced labour and

technical difficulties are being felt across Asia and are the

product of a headlong rush into shipbuilding in order to

exploit record high prices and generous up-front payments

– call it opportunism if you will. In the cool light of day, many

of these yards are incapable of delivering the products they

have sold and lack the financial strength to stand the test of

time. This even applies to yards in South Korea, the beating

heart of world shipbuilding, and to builders in Indonesia,

Vietnam and India. Today, the dry bulk and tanker fleets

have become hard to quantify, because of the large number

of big tankers that are slated for conversion. The orderbook,

which is a compilation of guesswork at the best of times,

has now assumed new levels of unreliability.

Highly generalised estimates suggest that anywhere

between 25% and 50% of the entire Chinese dry bulk

orderbook may either never deliver or be seriously

delayed, possibly involving cash calls on owners to secure

completion. It would be prudent to build in a failure rate at

the lower end of that range for other over-stretched Asian

yards. Given that orders are already spread out over the

next five years, delays and non-completions will radically

alter the appearance of the orderbook and its impact on

forward markets. The real orderbook may be watered down

to the extent that it no longer threatens to swamp future

demand. The 1% of GDP US stimulus package and the

Fed’s move towards negative real interest rates may pull

the US out of its current problems in 2009, coinciding with a

reconfigured supply scenario.


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140Tankers (m-dwt)

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Containerships (000-teu, RHS)

Delivery Volumes

Figure 69. Three-month moving average of capacity delivered by main shipytypes

In analysing delivery trends, we have taken the three-

month moving average in deliveries in order to eliminate

random spikes and better illustrate the trend. The rising

delivery trend in tankers from mid-2002 was in part related

to the spate of product tanker orders that followed the

Erika sinking in December 1999. Containership deliveries

tailed off in the second half of 2007 reflecting a pause

in ordering some years earlier and, conversely, this gave

way to a higher rate of ordering in this period as if by way

of compensation. After a period of rising delivery growth

between end-2003 and end-2005, there was a cyclical

levelling off in bulk carrier deliveries. The 2007 dip in

deliveries coincided with record earnings and values in the

dry bulk sector. This triggered a wave of ordering that will

reach a delivery crescendo in 2010, according to the current

flawed interpretation of the orderbook.


Shipbuilding

Prices

Figure 70. Newbuilding prices continue up, up and away

Year-end prices 2003 2004 2005 2006 2007

Ship Type Size $m $m $m $m $m

VLCC 300,000-dwt 77.0 110.0 120.0 129.0 146.0

Suezmax 150,000-dwt 51.5 71.0 71.0 80.5 91.0

Aframax 110,000-dwt 41.5 59.0 58.5 68.5 72.5

Panamax 70,000-dwt 37.5 48.0 50.0 58.5 63.5

MR Products 47,000-dwt 31.5 40.0 43.0 47.0 52.5

Capesize 170,000-dwt 48.0 64.0 59.0 68.0 97.0

Panamax 75,000-dwt 27.0 36.0 36.0 40.0 55.0

Handymax 51,000-dwt 24.0 30.0 30.5 38.5 48.0

Handysize 30,000-dwt 18.0 23.5 25.5 28.0 34.5

Post-Panamax 8,200-teu - - - 125.0 134.0

Post-Panamax 6,500-teu - - - 101.0 106.5

Panamax 3,500-teu 42.5 53.0 52.5 57.0 59.0

Handysize 1,600-teu 26.5 33.4 34.8 36.6 36.9

Healthy price rises across all disciplines were registered

in 2007 as robust demand combined with rising costs and

a weaker dollar. Not surprisingly, the highest gains were

made in the capesize bulk carrier segment where average

prices rose 42.5% during the year from $68.0m to $97.0m.

Next was the panamax bulk carrier, up 37.5% from $40.0m

to $55.0m, and the handymax, up almost 25% from $38.5m

to $48.0m. The price of a newbuilding VLCC rose over 13%

in 2007 from $129.0m to $146.0m despite a 9% fall in

average spot earnings with the only glimmer of excitement

all year being the belated Q4 rate spike. Surprisingly, the

price of a suezmax gained almost 12% despite the fact that

average spot earnings fell 16% during 2007. Containers

enjoyed only minor rises of maximum 7% even though

demand for super post-panamaxes was brisk. Demand

was only a partial factor in price changes in 2007.

Shipyards will claim that they have done their best to keep

newbuilding prices down despite big increases in their own

costs. The correlation between steel plate prices and ship

prices is long-established. In Figure 71 we have compared

the CRU Asian steel price index and the Clarkson’s all-ships

newbuilding price index, both rebased to January 1998 to

give us a ten-year time series. On this evidence, shipyards

would be justified in saying that they have kept their ship

price rises below their steel cost increases. As there is still

no forward market for steel, shipyards have to take a view

on future prices, thus assuming major risks.

In a bull steel market, such as we have witnessed in the

current decade, shipyards can only behave reactively to

changes in steel prices, so the newbuilding price index

would be expected to slightly lag the steel price index.

In the context of recent and anticipated future steel price

increases in 2008, shipbuilders will be subject to a margin

squeeze on the majority of their current backlog of projects

for which steel supply is not yet contracted. This will

encourage them either to lift newbuilding prices for new

orders even further or to hold back from marketing far-

forward berths until their input costs and future demand

are more clear.


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CRU Asian steel price Index

CRS Newbuilding price indexR2 = 0.7511

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Asian steel price index

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All data re-based to 01-Jan-07

The recent agreement between the world’s leading iron ore

suppliers and major steel mills sees FOB iron ore prices

raised a further 65-71% per tonne, the price differential

based upon quality, for the new contract year commencing

April 1st 2008. This is slightly higher than was expected

and was agreed by Japanese and South Korean steel mills

that may have tired of waiting for Chinese steel mills that

originally had the lead in negotiations. One large Korean

shipbuilder estimated that this large increase in raw

material cost will translate into a 10% increase in the cost

of shipbuilding steel plate, and it plans to pass this on to

customers in prices. This could result in a typical 3% price

increase. Japanese builders are known to be pressuring

their steel suppliers to hold prices as it is now becoming

difficult to price forward contracts and we may move

towards a model of variable pricing linked to input costs.

Another problem for Asian shipyards is that they pay

for their steel supplies in the currency of the supplier:

usually the won, yen and renminbi all of which have been

appreciating against the US dollar, the currency in which

they invariably price ship sales. The currency exposure can

be exacerbated by the sourcing of, for example, main and

auxiliary engines and equipment from other Asian countries

and paints and cargo pumps from European suppliers,

introducing euro exchange rate risk. In the last couple of

years, the renminbi and yen have risen steadily relative to

the won. This has conferred an advantage upon Korean

builders who earn relatively more local currency, upon

conversion back from US dollars, than their Chinese and

Japanese competitors. However, some of this advantage

is lost when they import steel plate and machinery from

suppliers in these very same neighbouring countries.

Figure 72. Korean exporters have a FX advantage

The renminbi and the yen appreciated by 10% and 16%

respectively against the dollar between the start of January

2007 and 10 March 2008. In that time the South Korean

won has weakened by about 4% having traded in a

narrower range. In reality, the Japanese builders are largely

insulated from this development by having a huge domestic

customer base and a small overseas clientele that generally

pays in yen. China has an expanding domestic customer

base which may be increasingly willing to make partial

or total payments in renminbi, but the large overseas

customer base has preferred to stick to dollar contracts.


Figure 71. Steel prices and newbuilding prices (indices rebased to Jan-1998)

Shipbuilding

Taking the list from the top down. It is no surprise to see

a slowdown in orders for gas carriers as LNG liquefaction

plants and petrochemical plants have been faced with

lengthy commissioning delays flowing from manpower

and equipment shortages, technical challenges and

environmental and regulatory obstacles. Simply put, the

market is oversupplied until beyond 2010, so a contracting

sabbatical is in order. Car carriers had no such problems in

2007 as demand for cars amongst the emerging consumer

classes is driving import growth in places such as China and

India. Ironically, those countries will increase their exports

of fuel-efficient compacts and hybrids to European and US

markets as consumers there feel the full impact of high

and unregulated gasoline prices, rising fuel taxes and

‘green’ pressure.

General cargo ships, which includes multi-purpose types,

experienced a slower pace of ordering in 2007 after

heavy contracting in both 2005 and 2006. Amongst other

uses, these types are popular in the project cargo trades

and these are rising around the globe as infrastructure

spending and investment increases in the emerging market

economies. After a very strong year in 2006, tanker ordering

fell 21% in 2007 but was still well ahead of the previous

four years in numerical terms. Containerships remained

broadly in line with the average of the previous four years,

but the deadweight and capacity of individual orders

was definitely much increased. Reefers remained lightly

ordered as the sector attempts to convince its customers of

superior customer handling relative to containers, while the

lines consistently contest such allegations and undercut on

freight in order to increase their cold market share.

The sector that won the Oscar was dry bulk which

registered a numerical year-on-year increase of 162% to

1,630 ships ordered. This was 222 ships more than was

ordered in the previous three years combined. Astonishing

earnings and rising secondhand values have encouraged

the large-scale reinvestment of profits back into the dry bulk

sector. You can cut this in a number of ways. Reinvesting

in shipping probably looks to be a better bet than investing

in equities, government bonds, residential or commercial

real estate and is a proxy for investing in emerging market

growth and hard and soft commodity demand. You get to

cover it all. Also, a ship lasts at least 25 years and, in 2007,

bulkers of that vintage were changing hands for as much as

double what they were originally contracted for, making an

unrivalled return over the life of the asset for that now rare

breed of cradle-to-grave owner.

90

Contracting

Figure 73. Total annual # contracts placed by ship type

# contracts signed 2002 2003 2004 2005 2006 2007

LNG / LPG 33 41 124 151 114 86

Ro-Ro 37 72 111 94 73 120

General Cargo 85 137 185 345 363 290

Tankers 356 661 666 597 1,122 882

Box Ships incl. Reefers 124 488 453 579 492 506

Bulk Carriers 306 467 399 388 621 1,630

Other 102 122 330 605 725 655

Total 941 1,988 2,268 2,759 3,510 4,169


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2007Ro-Ro3%

GeneralCargo7%

Tankers21%

Box Ships incl. Reefers12%

BulkCarriers

39%

Other16%

LNG / LPG2%

2006Ro-Ro2% General

Cargo10%

Tankers32%

Box Ships incl. Reefers14%

BulkCarriers18%

Other21%

LNG / LPG3%

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DWT Europe /

CIS 3% ROW

5%Japan

21%

Korea

35%

China /

Taiwan /

HK

36%

CGTEurope /

CIS 9%

ROW

8%

Japan

17%

Korea

35%

China /

Taiwan /

HK

31%

Figure 74. Contracts placed in 2006 and in 2007

The year-on-year numerical increase in bulk carrier orders

is plain to see as it rose to 39% of total orders in 2007

compared with 18% in 2006. The share of tankers fell

to 21% from 32% while boxships and reefers slipped

to 12% from 14%. Amongst the bulk carriers ordered

were many capesize and very large ore and bulk carriers

that will swell the fleet in capacity terms as this decade

draws to a close. Many of these ships have been ordered

against lifetime contracts or cargo guarantees, an evolution

of the shikumisen deals of old, and will remove a lot of

existing and incremental growth cargo from the spot

market. Investment in these ships is a bet on constant and

elevated steel demand growth as emerging markets, chief

amongst them China, India and the Middle Eastern nations,

industrialise and urbanise. This and the knowledge that,

for the patient owner willing to play the long game, even

ill-timed investments are usually and eventually rescued by

future market cycles.


Shipyards’ Market Share

Figure 75. Shipbuilding nation market share in CWT and DGT

Shipbuilding

35%

41%

20%

3%1%

China / Taiwan / HK

Korea

Japan

SE Asia / Oceania

Subcontinent

CGT

CGT 21%

16%

13%9%

7%

7%

5%

5%

4%

8%

Germany

Italy

Norway

Romania

Netherlands

Poland

Russia

Croatia

Spain

Finland

Other

5%

In deadweight terms, the collective Chinese and Taiwanese

orderbooks comprise 36% of all ship orders, just ahead

of South Korea with 35%. By this measure, Japan finds

itself in third place with a 21% share. In Compensated

Gross Tonne terms, a uniform measure of man-hours and

value-added, South Korea retains its crown with 35%

of orders, followed by the Chinese builders in second

place with 31% and Japan in third place with 17%. South

Korea’s unchanged percentage of orders is a reflection of

the larger number of more sophisticated ships that it has

captured, such as gas carriers, drillships, FPSOs and semi-

submersible rigs. It is conscious of the need to stay ahead

of China on the technology curve in defence of its title.

China’s apparently large increase in market share in 2007

is a tribute to undimmed ambition and to its ability to

attract inward investment and technology transfer in

pursuit of its goal.

Figure 76. Distribution of Asian orderbook in CGT

Drilling down into the purely Asian shipbuilding market,

South Korea leads with a 41% share, followed by China

with 35% and Japan lagging behind with 20%. Vietnam,

India, Indonesia and others will no doubt increase their

market share in future but their hunger for new orders may

be beyond their ability to digest them in the near term. As

we have already mentioned, the same observation can be

applied to a yet-to-be-quantified number of new Chinese

shipyards. Shipyard delays, non-performance, bankruptcies

and failed renegotiations will serve to reduce the size of the

forward orderbook, particularly in the bulk carrier sector.

Figure 77. Distribution of European orderbook in CGT

The European orderbook is dominated by Germany

and Italy. Germany has a larger number of shipyards

building diversified products ranging from cruiseships

and containerships to bulk carriers and chemical product

tankers. In CGT terms, the labour and value-added content

of cruiseships on order at Meyer Werft would make a

significant contribution to Germany’s leading position. It

has a total of ten cruiseships of over 1m gross tonnes

on order for Carnival’s Aida, Royal Caribbean’s Celebrity

and the Disney brands. Italy is even more beholden to

cruiseships, with Fincantieri being Carnival Corporation’s

favoured shipyard. The group has twelve cruise ships on

order totalling almost 1.3m-gt for its P&O, Princess, Holland

America, Costa, Carnival and Cunard brands. Carnival

has a further five vessels of about 325,000-gt on order at

the other Italian yards of T Mariotti and Sestri-Cantieri for

Carnival, Costa and Seabourn.

Cruise orders are largely responsible for Germany and

Italy’s place at the top of the league table and, along with

other passenger ships such as ferries, are vital to Europe’s

continued presence in shipbuilding. So far, the ambitions

of shipbuilders in Asia to enter the cruise market have

been kept at bay. Only about 10% of the building work

is in the hull form, with the vast majority of the work

being in outfitting. This employs a vast array of specialist

subcontractors that Asian yards lack, thus frustrating

their efforts. Mitsubishi did deliver two ships in 2004 for

Princess, the Sapphire Princess and Diamond Princess,

otherwise Asian builders have been absent. Samsung is

known to be keen to enter the sector while STX has stolen


a lead in buying 39.3% of Aker Yards via STX Norway. This

could be the vehicle through which the Asian yards will

finally penetrate the cruise market.

Europe is far from ceding its dominant position in passenger

ships and will jealously guard its primacy having lost most

conventional commercial ship types to shipbuilders in

Japan, South Korea and China. Technology, labour and

productivity advantages, anchored to large homegrown

customer bases, have given the Asian shipyards the edge

on most cargo ships although Europe still holds sway in

certain niche sectors, usually for European customers.

These include providing a range of products for the UK and

Norwegian offshore markets, although large rigs, semi-

submersibles, FPSOs and many PSV and AHTS orders have

gone the same way as the cargo ships, to Asia. Smaller

containerships in Germany, product tankers in Croatia and

car carriers in Poland are illustrations of a continuing, albeit

weakening, presence in the commercial ships market.

Figure 78. Global orderbook in dwt by yard nation

Yard nation Delivery in 2008

Delivery in 2009

Delivery in 2010

Delivery in 2011

Delivery in 2012

Delivery in 2013

Grand Total Market Share

China 26,073,913 49,876,882 65,233,054 31,649,424 3,909,764 176,743,037 35.69%

Korea 32,770,877 56,102,671 55,232,770 26,810,300 1,782,700 172,699,318 34.88%

Japan 28,997,055 28,321,592 23,842,168 15,040,690 6,015,900 532,800 102,750,205 20.75%

Vietnam 1,689,855 1,541,020 1,248,820 497,450 6,550 4,983,695 1.01%

Philippines 429,477 411,200 2,392,000 1,372,000 290,000 4,894,677 0.99%

Turkey 1,396,495 848,496 869,978 751,000 211,000 359,000 4,435,969 0.90%

India 467,362 1,027,612 1,489,414 895,000 398,000 96,000 4,373,388 0.88%

Romania 880,644 866,402 936,407 325,000 195,000 3,203,453 0.65%

Germany 1,439,332 1,033,561 452,303 43,702 2,968,898 0.60%

Brazil 92,387 979,600 1,085,000 418,000 2,574,987 0.52%

Denmark 757,000 766,000 383,000 1,906,000 0.38%

Croatia 681,529 787,020 203,851 103,600 1,776,000 0.36%

Poland 1,144,118 207,783 147,101 8,001 1,507,003 0.30%

Iran 792,600 654,000 53,000 1,499,600 0.30%

USA 398,661 351,082 373,900 143,000 1,266,643 0.26%

Russia 646,985 284,370 118,640 71,000 13,000 1,133,995 0.23%

Netherlands 677,759 219,605 41,502 18,600 5,800 963,266 0.19%

Norway 392,740 310,651 124,007 54,100 881,498 0.18%

Unkown 324,968 330,453 86,303 741,724 0.15%

Bulgaria 127,780 161,280 83,970 223,200 55,800 652,030 0.13%

Singapore 235,510 244,982 76,901 7,000 564,393 0.11%

Spain 360,467 100,071 58,323 15,420 534,281 0.11%

Indonesia 337,953 141,300 9,003 4,500 492,756 0.10%

Italy 149,137 111,502 44,546 25,551 10,000 340,736 0.07%

Portugal 170,504 132,453 302,957 0.06%

Argentina 27,001 4,500 141,000 47,000 219,501 0.04%

Dubai 107,402 100,000 207,402 0.04%

India 79,750 25,150 16,200 121,100 0.02%

Hong Kong 17,400 47,800 30,400 95,600 0.02%

Slovenia 55,590 19,500 75,090 0.02%


Shipbuilding

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Hot Rolled Plate$ per tonneHot Rolled Coil

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l

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- 05

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Jul

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Asia Index

Flats Index

Jan

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May

Sep

Jan

- 05

May Sep

Jan

- 06

May

Sep

Jan

– 07

May

Sep

Jan

- 08

Malaysia 20,046 23,900 43,946 0.01%

Ukraine 18,601 19,065 37,666 0.01%

Bangladesh 11,000 20,500 31,500 0.01%

Chile 13,500 4,400 4,400 22,300 0.00%

Sri Lanka 6,350 2,700 9,000 18,050 0.00%

Israel 4,500 13,500 18,000 0.00%

Finland 17,704 17,704 0.00%

Tunisia 10,400 5,200 15,600 0.00%

Canada 571 13,002 13,573 0.00%

Mexico 13,200 13,200 0.00%

France 10,800 10,800 0.00%

Saudi Arabia 4,800 4,800 9,600 0.00%

Thailand 7,000 1,000 8,000 0.00%

Australia 2,232 2,682 4,914 0.00%

Nigeria 2,900 2,900 0.00%

Greece 1,960 1,960 0.00%

Thailand 1,700 1,700 0.00%

Abu Dhabi 157 157 0.00%

Grand Total 101,748,413 146,119,889 154,907,461 78,523,538 12,893,514 987,800 495,180,615 100.00%

Rising Input Costs

Figure 79. Steel prices heading for records

Steel prices are set to rise further now that the world’s

largest steel mills have agreed to higher 2008/9 FOB

contract prices for iron ore fines commencing 1st April

2008. Nippon Steel, JFE Holdings and POSCO were the

first to strike a deal with Brazil’s Vale with contracted

prices rising 65% above the levels prevailing for the 2007/8

financial year. These higher prices should be viewed in the

context of spot prices that had easily exceeded double

the current year’s contract prices as supply constraints

in Australia, India, South Africa and Brazil have limited

availability of product. German steelmaker ThyssenKrupp

and Italy’s Ilva agreed similar levels and Baosteel finally

struck its own deal with Vale towards the end of February

which will see fines rise 65% to $118.98 per tonne FOB

and higher quality Carajas ore rise 71% to $125.17 from

$72.20 per tonne FOB. Baosteel is expected to raise Q2

prices of its main products, including hot rolled plate, by

about 10% in response to rising input costs.

Figure 80. Asian steel index now running higher

than global index


1 To qualify, since August 2007 Fed rates have decreased by 225bps, faster than bank loan rates might typically have risen, but reduced tenors and more restrictive loan covenants have generally made borrowing less attractive.

Asian steel prices are now higher than global prices as

demand is focused upon Asian buyers. Shipbuilders in

Japan and Korea are lobbying steelmakers not to raise steel

plate prices but this is likely to be to no avail as the steel

industry is facing minimum 65% increases in contracted

iron ore prices and possibly a doubling of hard coking coal

contract prices. Samsung Heavy Industries has already

made clear that it will pass on the full impact of increased

steel to shipowners suggesting that newbuilding prices

will continue to be well supported in 2008. Only should

shipbuilding capacity get well ahead of newbuilding demand

in coming years will prices come under pressure. Future

shipbuilding capacity has become as murky as forward

demand given the huge size of the orderbook, but average

year-on-year dry bulk rates look certain to fall by latest 2010

and this will impact on demand.

Figure 81. Leading customers of global shipyards by CGT

Owner Dwt # ships CGT

MOL 12,057,240 125 3,834,969

NYK 11,853,400 122 3,544,800

COSCO 12,599,800 141 3,441,345

C P Offen 6,711,000 77 2,986,704

A P Moller 6,173,398 118 2,824,248

Qatar Gas 3,340,000 25 2,651,844

China Shipping 10,708,700 80 2,401,078

K-Line 7,791,243 73 2,349,546

Cido Shipping 6,688,484 108 2,288,387

Carnival 121,912 21 2,108,497

CMA-CGM 4,519,180 46 2,023,436

Peter Dohle 4,404,720 71 2,012,811

MSC 2,614,002 33 1,699,007

John Fredriksen 7,184,802 62 1,548,736

Zodiac 3,039,110 45 1,459,021

Rickmers Reederei 2,760,310 56 1,426,654

Seaspan 3,036,200 39 1,418,186

Danaos 2,894,500 34 1,343,383

Geden Line 5,203,900 53 1,239,077

NSC Schiffahrt 2,529,100 40 1,230,510

It is interesting to see the Japanese powerhouses of MOL

and NYK leading the customer chart as they embark on

a massive fleet renewal program. In third place is Cosco

as it attempts to capture a larger share of China’s import

and export trade, as directed by the central government,

supported by China Shipping in seventh place. Other

owners in the list with multi-discipline orders include K-Line,


Cido, AP Moller and Geden. Container-orientated owners

include CP Offen, CMA-CGM, Peter Dohle, MSC, Rickmers,

Seaspan, Danaos and NSC and therein lies the roots of the

massive pipeline of large containerships. Specialist owners

include Qatar Gas with its large block of huge LNG carriers

and Carnival with its panoply of cruise ship orders.

Long-term Over-Capacity Looms

It is difficult not to believe that we are faced with the

prospect of significant over-capacity once we enter the new

decade. At the end of 2007, there was minimal available

capacity in 2010, something in the order of only 10m-dwt.

An estimated half of 2011 is still available and the vast

majority of 2012 and 2013 capacity is unspoken for. Unless

demand continues at the supercharged levels of the past

four years, as well it might, then there should be a cyclical

slowdown in fresh ordering as owners absorb and take

stock of their existing commitments. Prices are now at

record highs and, as they are now driven as much by cost

factors as demand, are becoming divorced from earnings.

A capesize ordered today needs to earn more than 40%

greater net profit today in order to break even than it did

one year ago and, by implication, this will be achieved over

a longer period and maybe several or multiple cycles.

We have already drawn attention to widespread suspicions

that many ships, especially bulk carriers, that have been

ordered will never be delivered. This will result from

new shipyards not getting built and others struggling

to secure mandatory refund guarantees and adequate

financing to meet the challenge of rising costs and greater

environmental and regulatory scrutiny. Ships now have

to be built to more exacting rules and some new yards,

particularly in broader Asia, will not be able to cope. Steel

cost pressures have already caused one Korean yard to

switch to building single-hull bulk carriers having agreed

to build double-hulls. Other yards are finding that they

cannot compete with the established majors when it comes

to procuring scarce supplies of engines and equipment

and they will either delay or default. These failures will

considerably ease actual supply to more comfortable levels.

On the buyer’s side, finance is now an issue as we have

gone in one short year from a market awash with bank loan

liquidity to a market starved of debt finance opportunities1.

Shipbuilding

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5

10

15

20

25

30

Pre

-197

2

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

m-dwt

Handysize

Handymax

Panamax

Post-Panamax

Capesize

VLBC

3 4 10

79

16216

5

165

150

105

165 16

1

152

0

20

40

60

80

100

120

140

160

180

2008 2009 2010 2011 2012 2013

m-dwt Capacity Forecast Available Capacity at end-07

Many owners have accrued huge cash piles in recent years

so they have the means to increase the equity portion

to 100% if necessary. But, this will pay for fewer ships

and most owners, especially the newer breed of investor

owners, need the debt leverage in order to maximise

returns to levels either promised or expected. We know of

blocks of capesize bulk carriers and large boxships that have

no debt finance in place. Failure to secure bank finance may

lead to forced resales and even default. Banks are now very

choosy to whom they lend and it is on the basis of much

higher spreads and must more restrictive covenants. A pair

of VLOCs were recently cancelled on the basis of adverse

banking terms despite having 15-year employment.

Figure 82. Capacity forecast significantly upgraded

We have had to increase our capacity forecast to take

account of the amount of ships on order. However, it seems

likely to us that nominal capacity will be a very poor guide to

shipyard performance in the coming years.

Shipbuilding Outlook

We have a record orderbook which spans all three main

sectors and makes the armada of tanker deliveries of the

1970s look more like a flotilla today. That over-indulgence

gave way to a 15-year bear market for tankers. Today we

are assuring ourselves that this time it is different because

we have a get-out-of-jail-free card in the form of a second

industrial revolution as emerging markets urbanise at an

astonishing pace. There is little doubt as to the validity of

this observation but the process is unlikely to be without

some bumps along the road, and those may prove painful

should the full orderbook deliver and should owners fail to

curb their enthusiasm for new ships. However, there are

real restraints upon the nominal orderbook as shipyards

have promised more than they can actually deliver and

owners have committed to more than they can actually

pay for.

The shipyards that may face difficulties in fulfilling

contracts are not all located in China as has been

commonly assumed, but range from South Korea to

Indonesia and Vietnam to India. The challenges faced

by all shipbuilders are immense given labour, machinery,

steel and equipment shortages, rising input costs,

technical challenges, foreign exchange risks, higher

insurance charges and limited availability of finance. These

are discomforting to the world’s largest shipbuilders but

are greatly amplified when applied to start-ups and smaller

businesses. On the buy side, the risk of fire sales of ships

that can no longer be financed could destabilise the resale

and secondhand markets. Looking beyond 2008, the risks

of a market correction are made all the greater by the sheer

number of ships of all types that are scheduled for delivery.

Weaker earnings would undermine prices until they match

income opportunities.

We take comfort from the fact that the orderbook is

stretched out over an unprecedented five year period,

which reduces the capacity impact as new deliveries are

drip-fed into the market. By the time non-performance and

cancellations are factored in, on top of what are likely to be

more frequent and elongated delays from less experienced

builders, the orderbook is not so much tamed as becoming

less threatening in appearance. The legacy of the Hebei

Spirit will probably be that it has shortened the life of most

single-hull VLCCs, and maybe tankers in general, by up to

five years and it has increased the single-hull discount. 2010

looks to be the peak of the VLOC deliveries and, should

they all deliver on time, then they will likely exert downward

pressure on dry bulk rates from the top end. The wave of

super post-panamax boxships that will deliver over the next

five years will need a good demand-side and infrastructure

response, but should precipitate the long-awaited scrapping

of older ships.


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Shipbuilding

98

Conclusion


As we arrive at our concluding comments the economic

information emanating from the US gets worse with each

passing day. Oil has passed $110 per barrel and gold broke

through $1,000 per troy ounce. The dollar is sliding against

the world’s major currencies, stock markets are tumbling

and risk aversion is back in fashion. A prominent hedge fund

has gone bankrupt having failed to meet margin calls on

heavily leveraged bets gone wrong. The consensus is that

America is now in recession. We are left to guess how long

and deep it will be and to what extent monetary and fiscal

stimulus packages will be effective. The main concern from

those working in the shipping markets is what contagion

effect this negativity might have upon the emerging

markets that have been driving global growth for five years

now. Estimates of up to a 2% fall in Chinese GDP growth,

into the high single digits percent, will inevitably make their

mark on shipping later on this year if proven correct.

The gloomy mood traces it origins to last August when

problems in the US subprime mortgage market came to

the fore. Since then, the problems have worsened and

filtered through into the prime market and the broader real

economy. What started as a household issue has quickly

become a challenge to global financial institutions that

originate and trade in asset-backed securities. The central

banks have twice intervened to provide extra liquidity to

the banking system in order to revive interbank lending

and resuscitate the credit markets. In the space of twelve

months we have moved from an excess of bank liquidity

to a deficit and it has had an unsettling effect. Elsewhere,

there are still huge reserves of cash that are being

selectively mobilised to invest in opportunities. China has

over $1.5 trillion in foreign exchange reserves and Japan

over $1trn while the oil and commodity exporting countries

have built up huge trading reserves. This suggests that the

economy will not come to a grinding halt.

The chief concern is what impact slowing US household

spending and business capital spending will have on

global demand. The might of the US consumer is hard to

replicate and rising consumption in China, India, the Middle

East and in the commodity exporting nations is unlikely

to compensate for US weakness. But, when combined

with investment and infrastructure spending in emerging

markets, there are grounds for expecting that growth in

the developing world will limit the fallout from stagnant

economic performance in the US, Japan and Germany

during 2008. Governments in all the emergent economies

are pledged to the creation of jobs and this will require

spending accumulated foreign exchange reserves should

external demand fall. Their situation is quite different

from past economic cycles as this time it is the US that is

using debt to reflate its weakening economy and it is the

sovereign wealth funds rather than the World Bank and the

IMF that are stepping in to provide support.

Turning to shipping specifics. US-inbound container trades

are already suffering and will continue to do so. The lines

will adjust capacity accordingly and engage with shippers

to discuss adequate recompense for rising fuel and other

costs. Asia-Europe, intra-Asia and north-south routes will

continue to prosper as emerging economies step up trade

with each other. The dry bulk market looks to do well this

year based upon resilient demand from China but supply-

side issues move to the fore from 2009. Tankers will

benefit from conversions, single-hull phase-out, limited

supply pressures in 2008 and stronger global oil demand

growth compared with 2007. Shipping demand generally

will be driven by the fast-growth new economies which

are showing all the signs of filling the vacuum that the

G7 countries have created. Tonnage supply is generally

constrained in 2008 and confusion reigns as ships are

converted between disciplines and orders for new ships

switched. The orderbook is long and dispersed but needs

to be discounted for future delays and non-performance. In

2008, emerging markets will provide vital support to both

the global trading system and the wider economy.


100

Appendix 1:Representative Bulk Carrier Fixtures

Reported Vessel Built Dwt Period Rate $ Charterer Delivery Laycan

Jan-07 China Progress 2006 175,000 35-37 50,000 Cosco Hong Kong World-wide Jul-Aug

Jan-07 Mineral Libin 2006 175,000 22-24 57,000 Transfield Beilun 25/30 Jan

Jan-07 Aquabeauty 2003 171,009 11-13 66,000 Korea Line Flushing 25/26 Jan

Jan-07 Alpha Century 2000 170,415 23-25 57,000 Cosco Bulk Caofeidian 10/12 Feb

Jan-07 Lowlands Beilun 1999 170,162 35-37 50,000 Sinochart World-wide Apr

Jan-07 Maribella 2004 76,629 35-37 25,000 Cargill Amsterdam 05/10 Feb

Jan-07 IVS Pinotage 2005 76,596 59-61 21,750 Cosco Qingdao World-wide Jan-Feb

Jan-07 Bergen Trader 2000 75,933 11-13 31,000 Goldbeam Taiwan 19/22 Jan

Jan-07 Peppino D’Amato 2005 75,698 11-13 32,000 PCL Indonesia 15/30 Jan

Jan-07 Audax 2001 75,220 35-37 25,500 STX PanOcean Shanghai 14/16 Jan

Jan-07 Coronis 2006 74,381 23-25 27,500 Bottiglieri di Navi. World-wide 15/28 Feb

Jan-07 Tai Plenty 2000 73,679 23-25 28,300 Parkroad Piombino 02/05 Feb

Jan-07 Happy Clipper 2001 73,414 11-13 32,500 Cosco Qingdao Rotterdam 20/22 Jan

Jan-07 Bianco Dan 2004 55,628 35-37 24,000 Korea Line Far East Feb

Jan-07 Lissa Topic 2003 52,038 11-13 27,750 Cargill World-wide Prompt

Jan-07 Equinox Voyager 2002 50,832 23-25 25,000 Cosbulk Chittagong 05/07 Jan

Jan-07 Jin Li 2001 50,777 23-25 25,500 N. China Shipping Kandla 26/29 Jan

Jan-07 Krikelo 1985 39,670 16-18 19,500 SK Shipping Rotterdam 13 Jan

Feb-07 Mineral Beijing 2004 176,000 23-25 55,500 STX PanOcean World-wide 01/30 Mar

Feb-07 KWK Providence 2004 175,531 11-13 63,750 Transfield Shanghai 15/30 Apr

Feb-07 Pantelis SP 1999 169,883 47-49 50,000 Glory Wealth Far East 01/28 Feb

Feb-07 Oceanic Breeze 2005 77,075 11-13 34,250 Deiulemar N China 10/20 Mar

Feb-07 Maritime Suzana 2005 76,619 11-13 31,200 Klaveness China 20/22 Feb

Feb-07 IVS Pinotage 2005 76,596 12-14 31,000 d’Amato Skaw 20 Feb / 10Mar

Feb-07 Spartia 2000 75,115 23-25 27,500 BHP Billiton Zhangjiagang 23/28 Feb

Feb-07 Nord Luna 2000 73,288 11-13 31,500 Glory Wealth Bremen 15/17 Feb

Feb-07 Fassa 2006 55,447 11-13 31,000 Western Bulk Kohsichang 14/18 Mar

Feb-07 Ken Sirius 2003 50,337 11-13 27,350 Daeyang Haldia 20/25 Feb

Feb-07 Pilion 1994 48,218 11-13 27,000 Korea Line Kandla 05/15 Mar

Feb-07 Genco Prosperity 1997 47,180 11-13 26,000 Pacific Basin World-wide Mar-Apr

Feb-07 Aquadance 1984 37,705 15-17 20,000 Daeyang Shanghai 05/10 Mar

Feb-07 Silverstar 1999 31,762 11-13 20,450 Cargill Fujairah 01/02 Mar

Feb-07 Pontoklydon 1992 28,450 11-13 22,000 CNR Niihama 02/08 Mar

Feb-07 Anax 1981 22,560 11-13 12,500 Korean Algeria 01/10 Mar

Mar-07 Sideris G.S. 2006 174,186 11-13 65,000 Transfield China 15/30 Mar

Mar-07 Cape Kennedy 2001 170,726 35-37 53,500 Cosco Hong Kong China 11Apr / 11May

Mar-07 Alameda 2001 170,662 10-12 73,000 Morgan Stanley China 15/30 Apr

Mar-07 Tai Shan 1999 169,159 23-25 60,000 Glory Wealth Carboneras 11/13 Mar



101 101Global Shipping Markets Review 2008

Mar-07 Aquahope 1997 167,102 11-13 64,000 Transfield China 20/31 Mar

Mar-07 Te Ho 2004 77,834 11-13 34,750 Glory Wealth Taiwan 15/30 Apr

Mar-07 Pasha Bulker 2006 76,600 11-13 35,660 Daiichi Kawasaki 08/10 Apr

Mar-07 Kalliopi L 2001 76,529 59-61 25,250 Deiulemar Far East 25May / 15Jul

Mar-07 Amalia 2000 75,100 35-37 27,500 Cosco Europe Piombino 20/30 Mar

Mar-07 Cinzia D’Amato 2000 74,716 11-13 33,500 Glory Wealth Hong Kong 27/30 Mar

Mar-07 Amira 2001 74,400 23-25 30,000 Golden Ocean Far East 01/30 May

Mar-07 Atlantic Eagle 2001 74,085 11-13 36,000 STX PanOcean WC India 06/07 Apr

Mar-07 Genco Vigour 1999 73,941 23-25 29,000 STX PanOcean Atlantic 20/30 Apr

Mar-07 Oinoussian Lion 1996 71,685 23-25 28,000 Transfield Inchon 18/28 Mar

Mar-07 Pos Harmony 2005 55,695 11-13 31,000 Transfield Inchon 15/25 Mar

Mar-07 Ocean Prince 2002 52,475 12-14 30,000 SK Shipping Thailand 05/12 Apr

Mar-07 Tai Chung 1982 37,611 11-13 17,000 CNR EC India Prompt

Mar-07 Kee Lung 1985 37,389 23-25 16,500 Korean Continent 10/12 Apr

Mar-07 Addu Comet 1999 35,362 36-39 20,500 Korea Line China 05/10 Apr

Mar-07 Genco Reliance +4 1999 29,952 23-25 19,500 Lauritzen World-wide Sep

Mar-07 Opal Naree 1982 28,780 11-13 18,000 CNR Zhoushan 20/23 Mar

Apr-07 Chou Shan 2005 175,882 11-13 80,000 Shagang Japan 01May-05May

Apr-07 Diana newbuild 2007 175,000 47-49 52,500 BHP Billiton Ex-yard SWS 01 Nov

Apr-07 Thalassini Niki 2005 174,566 59-61 56,000 Cosco Hong Kong World-wide 01 Sep

Apr-07 Cyclades 2004 171,480 11-13 92,500 STX PanOcean Continent 01 May

Apr-07 Glorius 2004 171,314 11-13 75,000 BHP Billiton China 20/30 Apr

Apr-07 Iron Kalypso 2006 82,224 11-13 41,500 Cosco Bulk Cape Passero 11/13 Apr

Apr-07 Ruby Indah 1998 77,755 11-13 42,500 Louis Dreyfus Taiwan 01/10 May

Apr-07 Pantazis L. 2003 76,629 11-13 41,000 Shagang Cape Passero 20/22 Apr

Apr-07 Orsolina Bottiglieri 2001 75,410 11-13 39,500 Daiichi Hibikinada 21/22 Apr

Apr-07 Samjohn Amity 1998 74,761 11-13 36,500 STX PanOcean Taiwan 25/30 Apr

Apr-07 Amira 2001 74,400 11-13 34,250 Glory Wealth Far East Prompt

Apr-07 Anangel Galini 2002 74,362 23-25 37,500 Bunge Zhoushan 05/07 May

Apr-07 Genco Beauty 1999 73,941 23-25 31,500 Cargill Dammam 10/20 Jun

Apr-07 Global Harmony 1997 73,763 11-13 37,000 CTP S’pore-Japan 1-May

Apr-07 Dimitris L 2001 73,193 11-13 42,000 STX PanOcean PMO 22/24 May]

Apr-07 Aquitania 2006 55,932 11-13 39,000 Sinochart Aden 15/25 May

Apr-07 Jin Yi 2007 55,300 23-25 32,000 Korea Line Oshima July

Apr-07 Filia Gem 2005 53,702 35-37 26,850 Korea Line Far East 10/30 May

Apr-07 Spar Canis 2006 53,565 11-13 32,000 Farenco Fangcheng 15/25 Apr

Apr-07 J Duckling 2003 52,425 23-25 32,500 HMM China May

Apr-07 Azzura 2004 52,050 11-13 37,000 Cargill WC India 08/10 May

Apr-07 Pratchara Naree 1984 25,000 11-13 20,000 Joen Ship India 03/15 May

May-07 Mineral Shikoku 2006 206,312 11-13 101,500 SK Shipping Qingdao 01/31 May

May-07 Chandris NB 2009 180,000 59-61 43,000 K-Line Ex-yard DSME 01/31 Jul

May-07 Gran Trader 2001 172,530 11-13 100,000 N. China Shipping Xingang 26/30 May

May-07 Anangel Explorer 2007 171,600 59-61 58,000 Cosco Hong Kong Okpo 01 Jul

May-07 Iron Brooke 2007 82,800 35-37 37,000 Augustea Brazil 25/30 May

May-07 Rule 1999 73,744 11-13 44,250 R Bottiglieri San Nicolas 01 Jul

May-07 Endless 1999 73,427 23-25 38,000 Transfield World-wide 01/30 Nov


May-07 Vogevoyager 1996 72,171 23-25 35,000 Daeyang World-wide Oct/Nov

May-07 JOSCO Taizhou 2005 55,561 11-13 43,000 Transfield Ravenna 25/31 May

May-07 Shamrock 2006 52,385 11-13 39,000 Transfield China 20/30 May

May-07 Nicolaos A. 2003 52,110 12-14 44,000 SK Shipping N China 22 May/ 02 Jun

May-07 Great Dream 2004 33,745 23-25 25,500 IHC Far East Jul

Jun-07 Samjohn Liberty 1998 74,761 11-13 44,000 Cargill Far East 20Jul / 05Aug

Jun-07 Evanthia 2001 74,350 11-13 45,000 Cargill Far East 25 Jul

Jun-07 Tai Profit 2001 73,679 11-13 43,500 HMM Hong Kong 03/07 Jul

Jun-07 Volme 2004 52,949 11-13 33,000 Navios World-wide Jan/Mar-08

Jun-07 Jaeger 2004 52,483 11-13 39,500 HMM S’pore-Japan 10/30 Jul

Jun-07 BMS Tourloti 1984 37,662 10-12 34,000 Probulk Florida 01/10 Jul

Jul-07 Cape Condor 2004 180,181 11-13 95,000 Cosco Qingdao China 25 Jul

Jul-07 Shining Star 2004 177,662 10-12 92,000 Cargill Far East 25 Jul

Jul-07 Anangel Sailor 2006 172,000 11-13 90,000 Oldendorff Dunkirk 15/20 Jul

Jul-07 Obeliks 2000 170,454 10-12 92,800 Cosco Bulk Japan 25Jul / 05Aug

Jul-07 Anangel Vision 2007 170,000 23-25 80,000 Transfield World-wide 01 Feb

Jul-07 Bulk Australia 2003 169,770 11-13 91,000 Morgan Stanley Xingang 25 Jul

Jul-07 Orange Truth 2006 82,800 23-25 44,000 NCS World-wide 01/30 Dec

Jul-07 Tai Prosperity 2006 77,747 23-25 51,000 Cosco Bulk World-wide 25 Jul

Jul-07 Centurion 2005 76,838 11-13 54,500 Cosco Europe Cape Passero 20/22 Aug

Jul-07 Panstar 2005 76,629 23-25 39,500 Glory Wealth World-wide 01/31 Mar

Jul-07 Double Happiness 2005 76,602 23-25 43,000 Cosco Qingdao Imabari 01 Oct

Jul-07 Oceanis 2001 75,220 23-25 40,000 Hanjin Far East 01 Sep

Jul-07 Oceanis 2001 75,220 11-13 49,750 Transfield Far East 01 Seop

Jul-07 Gianfranca D’Amato 2000 74,716 23-25 43,000 STX PanOcean World-wide 01/31 Aug

Jul-07 Marigo P 2002 73,810 11-13 48,500 NYK Kagoshima 12/14 Jul

Jul-07 Ever Blossom 1997 72,517 23-25 38,000 Pioneer Navi. World-wide 01/30 Sep

Jul-07 Navios Astra 2006 53,350 23-25 36,000 Dreyfus China 01/10 Aug

Jul-07 Athos 2004 52,248 11-13 45,000 Ocean Glory N China 20/25 Jul

Jul-07 Rubin Stellar 1995 28,379 35-37 21,000 Europeans Far East Aug/Sep

Aug-07 Cape Albatross 2007 202,000 11-13 118,000 STX PanOcean Kwangyang 17 Aug

Aug-07 Jean LD 2005 171,908 11-13 101,000 Morgan Stanley Far East 01 Oct

Aug-07 Anangel Explorer 2007 171,600 23-25 97,500 N. China Shipping Far East 01 Oct

Aug-07 Ocean Queen 2004 171,015 11-13 110,000 Morgan Stanley Far East 01 Sep

Aug-07 Red Jasmine 2006 76,596 11-13 60,800 Michele d’Amato World-wide Jan-08

Aug-07 Osmarine 2006 76,596 11-13 55,000 Transfield Kobe 14/16 Aug

Aug-07 Red Seto 2002 75,957 23-25 45,000 Perseveranza World-wide 01 Aug

Aug-07 Star of Nippon 2004 75,845 23-25 47,500 Sunwoo World-wide 01/31 Dec

Aug-07 Ever Mighty 1996 75,265 23-25 47,250 Cosco Americas World-wide 01/30 Nov

Aug-07 Topeka 2000 74,716 11-13 60,000 Atlas Bulk S. Korea 16/30 Sep

Aug-07 Primrose 2001 74,716 23-25 48,500 Daebo World-wide 01 Feb

Aug-07 Yong Jia 2001 74,500 11-13 61,500 Navios Cape Passero 05/10 Sep

Aug-07 Yuan Zhi Hai 2005 74,272 11-13 62,750 Mittal Bilbao 14/20 Sep

Aug-07 Ming May 1997 74,005 11-13 58,000 BHP Billiton Shanghai 30/31 Aug

Aug-07 Marietta 2004 73,880 23-25 50,000 Cargill Syria 25 Sep



Aug-07 Daebo Trader 2002 73,810 23-25 49,000 Sunwoo World-wide 15Nov / 15Jan

Aug-07 Anangel Omonia 1996 73,519 35-37 44,500 Atlas Bulk Japan 10/15 Sep

Aug-07 Island Globe 1995 73,119 11-13 60,000 GMI Jorf Lasfar 25 Aug

Aug-07 Fu Man 1997 70,850 11-13 59,000 Skaarup Zhoushan 06/09 Sep

Aug-07 Skua 2003 53,350 11-13 50,000 Cosbulk N China 28Aug / 06Sep

Aug-07 Ocean Prefect 2003 52,500 23-25 42,500 Sinotrans Chennai 07/12 Aug

Aug-07 Odin Pacific 1995 28,381 11-13 32,000 Korean Indonesia 04-06 Sep

Aug-07 Genco Charger 2005 28,000 35-37 24,000 Pacific Basin World-wide Q407

Aug-07 Genco Challenger 2003 28,000 35-37 24,000 Pacific Basin World-wide Q407

Aug-07 Genco Champion 2006 28,000 35-37 24,000 Pacific Basin World-wide Q407

Sep-07 Cape Saturn 2003 175,773 12-14 130,000 Armada China 25Sep / 05Oct

Sep-07 Xin Fa Hai 2004 174,766 11-13 125,500 Morgan Stanley Qingdao 30Sep / 05Oct

Sep-07 Zorbas 1996 174,690 35-37 75,000 STX PanOcean Qingdao 01/15 Oct

Sep-07 Tian Lu Hai 2005 174,398 11-13 125,000 Crownland World-wide Jan/Feb-08

Sep-07 Mineral London 2006 173,949 11-13 115,000 Morgan Stanley Qingdao 05/12 Oct

Sep-07 CSK Beilun 1999 172,561 11-13 110,000 Norden World-wide Jan/Feb-08

Sep-07 Channel Alliance 1996 171,978 11-13 130,000 Shagang Far East 01 Oct

Sep-07 Anangel Explorer 2007 171,600 23-25 115,000 Crownland China Jan/Feb-08

Sep-07 Cape Pioneer 2005 170,012 11-13 135,000 Cosco Qingdao Japan 15/31 Oct

Sep-07 Apollo 2006 77,326 11-13 69,000 Kleimar Skaw-Passero 20/30 Sep

Sep-07 Oinoussian Lady 2004 76,704 11-13 68,000 Navios Japan 15 Sep

Sep-07 Maritime Bagui 2006 76,453 23-25 55,000 Transfield World-wide 01 Oct

Sep-07 Angelic Glory 2002 75,007 23-25 55,000 Glory Wealth World-wide 01/31 Dec

Sep-07 Yong Huan 2000 74,500 11-13 66,000 Transfield Hong Kong 15 Sep

Sep-07 Lilian Z 1999 74,461 11-13 65,000 Norden World-wide 01 Dec

Sep-07 Aspendos 2003 74,380 23-25 53,000 Bunge World-wide Nov/Dec

Sep-07 Elinakos 1997 73,751 23-25 58,000 MBC Shipping Huangpu 16Sep-18Sep

Sep-07 Thetis 2004 73,583 11-13 60,250 Sinochart Far East 01 Oct

Sep-07 Great Glory 1997 73,000 11-13 68,000 OBS China 26Sep / 16Oct

Sep-07 Innovator 2005 55,435 35-37 39,000 HMM Far East Oct

Sep-07 Jin Ying 2007 53,000 11-13 55,000 Transfield Japan Nov

Sep-07 C Duckling 2002 52,500 11-13 51,000 Wylex Far East Oct

Sep-07 Medi Cebu 2002 52,464 12-14 55,500 Oldendorff Singapore 28Sep / 07Oct

Sep-07 Captain George II 1994 52,370 23-25 40,000 Dooyang Qingdao 18/22 Sep

Sep-07 Manora M 1984 29,159 11-14 32,500 Toepfer Santa Marta 22/26 Sep

Sep-07 Gourniati 1996 28,387 35-37 26,000 Global Logistics World-wide Jan/Feb 08

Oct-07 Great Navigator 2006 176,279 23-25 150,000 Daebo Mizushima 15/16 Nov

Oct-07 Anangel Fortune 2005 175,500 22-24 140,000 Samsun Japan 25/30 Oct

Oct-07 Heng Shan 2006 175,000 23-25 140,000 Hanjin Pohang 15 Oct

Oct-07 Jin Tai 2004 173,880 11-13 155,000 Cosco Qingdao Far East 15/20 Nov

Oct-07 Lowlands Beilun 1999 170,162 11-13 146,000 Oldendorff China 25 Nov

Oct-07 Yasa Fortune 2006 82,800 11-13 87,000 Sinochart Far East 01 Dec



Oct-07 Tai Promotion 2004 77,834 23-25 65,000 STX PanOcean World-wide 01/30 Nov

Oct-07 Anthemis 2004 76,200 11-13 80,000 Pioneer Nav. Hong Kong 01/05 Nov

Oct-07 Coronado 2000 75,706 11-13 82,750 Cargill Liverpool 01/02 Nov

Oct-07 Nordems 2001 75,253 11-13 78,500 Cosco Qingdao World-wide 01 Feb

Oct-07 Medi Tokyo 1999 74,356 11-13 81,000 SK Shipping World-wide 15Nov / 15Dec

Oct-07 Four Coal 1999 74,020 23-25 73,500 Crownland China 25/30 Nov

Oct-07 Carl Mesem 1999 73,965 12-13 78,000 Safe Fixing Corp. Far East 01 Nov

Oct-07 Hai Huang Xing 2005 73,581 11-13 81,000 Parkroad World-wide 25Dec / 10Feb

Oct-07 Waimea 1997 73,048 11-13 80,000 Seallink World-wide 01/31 Jan

Oct-07 Alpha Glory 1999 72,270 11-13 82,000 Atlas Bulk Setubal 15 Oct

Oct-07 Great Luck 1998 71,339 11-13 72,000 Armada World-wide 01/30 Apr

Oct-07 Maratha Messenger 1995 71,252 11-13 70,500 STX PanOcean China 15Nov / 31Dec

Oct-07 Iguana 1996 70,349 11-13 78,750 Sinochart Taiwan 11/13 Nov

Oct-07 Nord Brave 2007 53,500 11-13 59,000 PCL Aden 01/15 Dec

Oct-07 Merlin 2001 50,296 24-26 53,000 Wylex World-wide Nov 07/ Jan08

Oct-07 Gulf Globe 1994 43,246 11-13 60,000 Korea Line South China 08/15 Nov

Oct-07 Eastern Star 1997 28,437 11-13 42,000 Korea Line World-wide Nov 07/ Jan 08

Oct-07 African Grace 1995 24,306 23-25 25,000 MUR World-wide 09 Jan

Nov-07 Mariana 1998 186,001 59-61 67,500 N. China Shipping Rizal 20/30 Nov

Nov-07 Madeira 2007 177,000 11-13 165,000 STX PanOcean PMO 15/20 Nov

Nov-07 Mineral Hong Kong 2006 175,000 11-13 170,000 Kleimar Passero 24/27 Nov

Nov-07 Pierre LD 2005 171,876 22-24 130,000 N. China Shipping China 20/30 Jan

Nov-07 Navios Cello 2003 75,829 11-13 74,000 Choking Marvels 09/10 Dec

Nov-07 Nord Orion 2006 75,318 11-13 76,250 Navios Beilun 20/30 Dec

Nov-07 Dionne 2001 75,172 11-13 82,000 Shagang Skaw-Passero 01 Jan

Nov-07 Thaliana 2001 75,115 59-61 31,500 MOSK World-wide Jan/Mar-08

Nov-07 Filippo Lembo 1997 74,500 11-13 79,000 Eylex Shanghai 15/24 Nov

Nov-07 Ocean Dragon 1994 12,419 12-14 14,000 SK Shipping World-wide 20/22 Nov

Dec-07 Mineral Noble 2004 170,649 11-13 170,000 STX PanOcean Rotterdam 25 Dec

Dec-07 Mulberry Paris 2004 76,492 47-49 51,250 Komrowski World-wide Jan/Feb-08

Dec-07 Riruccia 1997 74,002 11-13 71,000 Constellation World-wide 01/29 Feb

Jan-08 Channel Navigator 1997 172,058 59-61 53,500 Shagang World-wide 31 Mar

Jan-08 North King 1981 127,907 11-13 29,000 Winning N China 15 Mar

Jan-08 Pole 1997 73,049 59-61 67,000 Cosco Bulk World-wide 01 Feb

Jan-08 Giovanni 1996 72,394 23-25 54,000 Cosco Americas A-R-A 15/20 Feb

Jan-08 Dong Bang 1995 71,747 11-13 49,000 Sealink Jintang 28/30 Jan

Jan-08 Darya Brahma 2006 56,056 11-13 50,000 MUR Nemrut Bay 01/02 Feb

Jan-08 Navios Kypros 2003 55,180 35-37 35,350 Sanko Shanghai 27/30 Jan

Jan-08 Lepta Galaxy 2002 52,378 11-13 47,500 Cetragpa Greece 04/08 Feb

Feb-08 Private 2007 177,000 18-21 121,000 Chinese Far East 05 Mar

Feb-08 Cape Jupiter 1997 172,480 11-13 132,000 Cosco Bulk World-wide 01/29 Feb

Feb-08 Anangel Eternity 1999 171,176 59-61 70,000 Cosco Far East 01/31 Jul

Feb-08 Vogebulker 1999 169,168 11-13 132,000 Cosco Bulk Far East 01 Apr



Feb-08 Star Beta 1993 165,133 11-13 130,000 Oldendorff Zhoushan 21/24 Feb

Feb-08 Jag Arjun 1996 164,796 11-13 130,000 Oldendorff Far East 01/05 Apr

Feb-08 Oceanic Breeze 2005 77,075 23-25 61,000 Cosco Bulk PMO 25Mar / 05Apr

Feb-08 Nicole 2007 77,000 35-37 50,000 Hanjin World-wide 01/31 Mar

Feb-08 CMB Florentina 2005 76,838 11-13 64,500 STX Panocean Japan 20/22 Feb

Feb-08 Arabella 2001 75,563 11-13 66,500 Golden Ocean Guangzhou 15/17 Mar

Feb-08 Danae 2005 75,349 35-37 52,000 Cosco Europe Tobata 03/05 Mar

Feb-08 Nirefs 2001 75,311 23-25 60,500 Cosco Bulk Cape Passero 05/15 Mar

Feb-08 Maria Bottiglieri 1995 75,265 11-13 72,000 Skaarup Amsterdam 25/26 Mar

Feb-08 Alcyon 2001 75,247 57-60 34,500 Cargill Kemann 20/29 Feb

Feb-08 Roger M Jones 1992 74,868 11-13 59,500 Transfield Piraeus 27/29 Feb

Feb-08 Calipso 2005 73,691 11-13 64,000 Rizhao Steel Taiwan Prompt

Feb-08 Hua Shan Hai 1998 72,769 23-25 61,000 Deiulemar S’pore-Japan 11/20 Apr

Feb-08 Fu Min 1997 72,437 11-13 66,000 Armada Toyohashi 25/28 Feb

Feb-08 JOSCO Yangzhou 2005 55,621 11-13 48,000 Oldendorff WC India 01/29 Feb

Feb-08 Yasa Unsal Sunar 2007 55,526 11-13 57,500 Glory Wealth Far East 10/25 Mar

Feb-08 Serenity I 2006 53,580 11-13 59,250 Korean Surubaya 06/17 Mar

Feb-08 Apageon 2005 52,438 11-13 58,000 Oldendorff Thailand 25/28 Feb

Feb-08 Hawk I 2001 50,296 11-13 58,000 Chinese S’pore-Japan 01Mar / 01Apr

Feb-08 Orchid Ocean 1994 45,262 11-13 51,000 Eitzen Bulk PMO 04/06 Mar

Mar-08 Manasota 2004 171,061 23-25 115,000 NSS World-wide 01/31 Mar

Mar-08 Anangel Enosis 1995 75,464 11-13 73,500 COSCO Tarragona 25Mar / 03Apr

Mar-08 Nordrhine 2001 75,253 11-13 72,000 Glory Wealth Cape Passero 03/06 Mar

Mar-08 Anna Smile 2004 74,823 11-13 75,000 STX Panocean N China 01/31 Mar

Mar-08 Anangel Omonia 1996 73,519 23-25 58,600 Daeyang Egypt 15/20 Mar

Mar-08 Christina IV 2000 72,493 35-37 68,000 Korea Line World-wide 01Apr / 10Jun

Mar-08 Stella Maris 2007 52,500 11-13 63,000 Eitzen Bulk Cristobal 07/10 Mar

Mar-08 Sea Lantana 2005 52,471 35-37 41,500 Armada Jintang 10/12 Mar

Mar-08 Victoria 2005 52,200 35-37 41,900 Korea Line Marmara 15/25Mar

Mar-08 Jin An 2000 50,786 11-13 61,000 Oldendorff Port Harcourt Prompt

Mar-08 Honesty Ocean 1997 47,240 11-13 55,000 Ocean Glory Haldia 06/10 Mar


106

Appendix 2: Representative Bulk Carrier Sales

Reported Vessel Dwt Built Yard Price $m Buyer

Jan-07 Lowlands Beilun 170,162 1999 Halla Samho 71.50 Quintana

Jan-07 Spring Brave 151,066 1995 Nippon Kokan Tsu 60.00 Dryships

Jan-07 CHS Moon 151,040 1990 Sumitomo Oppama 45.00 Transfield

Jan-07 Aeolian Spirit 76,015 2002 Tsuneishi 49.25 Tolani

Jan-07 Iolcos Grace 71,749 1990 Hitachi Maizuru 25.80 Odysea Carriers

Jan-07 Delray 70,029 1994 Hudong 37.00 Britannia Bulk

Jan-07 Mandarin Glory 49,400 2003 Nantong Ocean 39.50 COSCO

Jan-07 Desert Sky 48,320 1990 Split 24.25 CITIC

Jan-07 Flores 46,609 1997 Mitsui Tamano 32.50 Akmar Deniz

Jan-07 Future Confidence 42,055 1986 Nipponkai 16.00 Sunwoo

Jan-07 Vamand Wave 28,303 1985 Mitsubishi Kobe 10.60 Eastwind Hellas

Jan-07 George 26,589 1987 Sasebo 13.00 J&J Trust Ship

Jan-07 Grand Slam 24,112 1999 Saiki Jukogyo 24.00 Sider Navigation

Jan-07 Delos 24,000 1997 Shanghai SY 21.00 Lamda Maritime

Feb-07 Pantelis Sp 169,883 1999 Daewoo HI 81.00 Chang Myung

Feb-07 Amazon 149,495 1990 China SB Kaohsiung 48.00 Dryships

Feb-07 Thios Costas 145,229 1982 Nippon Kokan Tsu 18.00 STX Panocean

Feb-07 Dynasty 133,082 1982 Hitachi Nagasu 15.00 Panocean

Feb-07 Fortune Glory 53,350 2003 Toyohashi 46.50 Eagle Bulk

Feb-07 Fortune Bright 53,343 2003 Toyohashi 46.50 Eagle Bulk

Feb-07 Highgate 46,650 1985 Sunderland 15.00 Bogazzi

Feb-07 J. Lucky 28,460 1994 Imabari 22.60 ID Shipping

Feb-07 Lark 23,723 1996 Shin Kurushima 21.75 Navibulgar

Feb-07 Clipper Range 20,200 2002 INP HI 21.70 Massoel Gestion

Mar-07 Cape Pelican 180,235 2005 Imabari 107.00 Diana

Mar-07 Johnny K 175,048 1994 Gdynia 64.00 Essar

Mar-07 Winner 174,004 1985 Hitachi Nagasu 30.00 COSCO

Mar-07 Cape Kassos 170,012 2004 Hyundai Samho 100.00 Alcyon Shipping

Mar-07 Martha Verity 157,991 1995 Sasebo 63.00 Swiss Marine

Mar-07 Americana 148,982 1987 Astano El Ferrol 33.00 COSCO

Mar-07 Ullswater 123,503 1990 Daewoo 45.00 COSCO

Mar-07 Raffaele Iuliano 75,473 1995 Fincantieri Stabia 40.50 Dryships

Mar-07 Restless 72,561 2000 Sasebo 46.20 Topships

Mar-07 Oinoussian Legend 71,662 1997 Hitachi Maizuru 41.00 Dryships

Mar-07 Gladstone 64,951 1986 Hitachi Maizuru 22.00 Samsun

Mar-07 Hille Oldendorff 55,566 2005 Nantong Ocean 50.25 Primera

Mar-07 Halo Friends 47,240 1997 Oshima 35.20 Great Eastern

Mar-07 Lily 47,043 1984 Caneco SA 9.00 Kristen Marine

Mar-07 Mount Baker 32,600 2007 Kanda Kawajiri 38.50 Ocean Longevity



Mar-07 Ambassador 26,465 1993 Hakodate 22.90 VinaLines

Mar-07 Cynthia Harmony 23,724 1994 Shin Kurushima 20.50 Northern Shipping

Apr-07 Winner 174,004 1985 Hitachi Nagasu 37.50 COSCO

Apr-07 Nautical Dream 151,439 1994 China SB Kaohsiung 63.50 Dong-A-Tankers

Apr-07 Arimathian 149,782 1994 Dalian New 26.00 Blumenthal

Apr-07 Boss 139,816 1985 Namura Imari 31.00 SMI Shipping

Apr-07 Global Peace 132,049 1982 Mitsui Tamano 19.50 Intrepid

Apr-07 Rule 73,744 1999 Sumitomo HI 48.50 Dryships

Apr-07 Salmas 73,506 1995 Hyundai HI 42.00 Topships

Apr-07 Quint Star 72,413 1998 Imabari Marugame 47.00 Dryships

Apr-07 Anangel Loyalty 71,550 1995 Hitachi Maizuru 41.50 Bright Navigation

Apr-07 Kerasia S 52,808 2004 Onomichi 53.00 Seastar

Apr-07 Prabhu Yuvika 43,648 1994 Tsuneishi 33.50 Middle Eastern

Apr-07 Marina Gr 43,214 1984 Sanoyas 16.00 Ikarus Marine

Apr-07 Wave Bulker 27,308 1994 Mitsubishi Shimonoseki 24.25 Franca Naviero

Apr-07 Anne Bulker 26,455 1991 Hakodate 21.00 ID Shipping

Apr-07 Eco Chaser 21,538 1985 Watanabe Hakata 11.50 S Korean

Apr-07 Sider Green 18,800 2007 Yamanishi 24.60 G Bros Maritime

May-07 Zorbas 174,505 1996 Gdynia 86.00 Pacific King

May-07 Fertilia 172,632 1997 Constantza 50.50 Samsun (Charterers)

May-07 Ingenious 169,962 1999 Daewoo HI 64.20 Bocimar

May-07 Anangel Dawn 149,321 1994 Hyundai HI 67.00 Chang Myung Shipping

May-07 Australian Fame 1 145,500 1982 Hyundai HI 21.00 Parkroad Corp

May-07 Marijeannie 74,540 2001 Daewoo HI 55.60 Seajustice

May-07 Anangel Galini 74,362 2002 Daewoo HI 56.50 Ocean Freighters

May-07 Jin Kang 50,212 2001 Mitsui Chiba Ichihara 53.72 Mistral

May-07 Grand Festival 43,620 1993 Tsuneishi 33.50 Odysea Carriers

May-07 Magic Triangle 42,512 1985 Mitsui Chiba Ichihara 19.50 STX PanOcean

May-07 Pioneer 28,399 1997 Hakodate 32.25 Sammok Shipping

May-07 Jupiter Charm 26,587 1985 Kurushima Onishi 11.80 STX Panocean

Jun-07 Orient Fortune 160,993 1984 Mitsubishi Nagasaki 28.00 COSCO

Jun-07 Patya Bulker 75,926 2004 Tsuneishi 67.00 Tolani

Jun-07 H Duckling 74,000 2001 Sasebo 55.00 Order Shipping

Jun-07 Leda 69,235 1987 Imabari Marugame 27.00 Samsun

Jun-07 Santa Maria 1 67,296 1984 Imabari Marugame 21.00 Jin Ocean

Jun-07 Nord Mariner 53,000 2006 Shanghai Chengxi 52.70 Akmar Deniz

Jun-07 Crystal Lily 48,913 1999 Ishikawajima Tokyo 39.00 Koreans

Jun-07 Rubin Stella 28,379 1995 Imabari 30.50 Franco Naviera

Jun-07 Aonoble 27,308 1994 Mitsubishi Shimonoseki 27.50 Korean

Jul-07 Ferro Fos 176,000 2006 Universal 550.00 Quintana

Jul-07 Great Moon 145,967 1984 Nippon Kokan 30.00 SMI Shipping

Jul-07 Sundance 74,274 2001 Namura 59.80 Allseas

Jul-07 Athina Zafirakis 74,204 2002 Oshima 65.00 Dryships

Jul-07 Theodoros P 73,870 2002 Namura 70.50 Tolani

Jul-07 Edelweiss 73,624 2004 Jiangnan Group 64.00 Transmed

Jul-07 Star Phoenix 56,042 2004 Mitsui Tamano 61.00 Uljanik Plovidba

Jul-07 ABG Madhava 44,875 1994 Halla Inchon 37.00 Go Shipping


108

Jul-07 Ocean Eagle 42,972 1984 Hashihama Zosen 23.50 Hannah Maritime

Jul-07 Island Gem 28,005 1984 Hitachi Maizuru 14.00 Armada

Jul-07 BBC Barranquilla 22,051 1995 Saiki Jukogyo 24.70 Free Bulkers

Aug-07 Ce-Mikela 82,329 2006 Tsuneishi 85.00 Lykiardopolu

Aug-07 Nord Mercury 76,629 2004 Imabari Marugame 69.50 Dryships

Aug-07 Formentera 70,002 1996 Hudong 63.00 Pareto

Aug-07 Chios Gem 65,298 1985 Nippon Kokan Tsurumi 30.00 Fujian Guohong

Aug-07 Voc Gallant 51,215 2002 New Century 65.60 Top Tankers

Aug-07 Orchid Sky 43,609 1985 Tsuneishi 22.00 Empremar

Aug-07 Dimitra 41,455 1995 Varna 38.50 Lydiamar

Aug-07 Castle Peak 28,545 1997 Imabari Marugame 31.60 ID Shipping

Aug-07 Stentor 28,445 2006 Imabari 46.00 Genco

Aug-07 Lake Joy 28,251 1996 Kanasashi Toyohashi 304.00 ID Shipping

Aug-07 Protagonist 23,581 1996 Saiki Jukogyo 30.50 VOSCO

Sep-07 Cape Maria 177,754 1982 Mitsui Chiba Ichihara 43.00 Sealink

Sep-07 Thalassini Niki 170,800 2005 Daewoo 275.00 en bloc

Diana Shipping

Sep-07 Thalassini Kyra 164,218 2002 Kaohsiung

Sep-07 Carol 75,608 1999 Mitsui Chiba Ichihara 73.00 NYK

Sep-07 Yarrow 70,653 1986 Shin Kurushima 36.00 Koreans

Sep-07 Genco Trader 69,338 1990 Imabari Marugame 44.00 SW Shipping

Sep-07 CMB Talent 52,403 2001 Tsuneishi 53.53 Third Millenium

Sep-07 Giorgos 47,893 1984 Namura 25.00 China Shipping

Sep-07 Genco Commander 45,518 1994 Tsuneishi 44.75 Dan Sung Shipping

Sep-07 Archimidis SB 45,320 1995 Oshima 43.00 Kassia Maritime

Sep-07 Ocean Leader 28,097 1984 Hitachi HI 16.50 KS syndicated by

Sep-07 Gold Carrier 27,601 1985 Mitsui Tamano 16.50 Korean

Sep-07 Gebe Oldendorff 23,398 1998 Tsuneishi Balamban 32.00 TBS

Oct-07 Peace Glory 166,058 1984 Astano El Ferrol 57.00 Ravenscroft Shipping

Oct-07 Marine Hunter 164,891 1984 Boelwerf Vlaan 45.00 WEM Lines

Oct-07 Tiger Lily 149,190 1995 Kaohsiung 90.00 Dryships

Oct-07 Loch Maree 75,798 2004 Sanoyas 85.00 Pacific Carriers

Oct-07 Countess 1 70,280 1986 Sanoyas Corp 40.00 Samsun Logix

Oct-07 Golden Bridge 69,050 1995 Imabari Marugame 68.00 Rizhao Steel

Oct-07 Aegean Hawk 50,326 2000 Mitsui Tamano 63.40 Dryships

Oct-07 Nord Viking 45,208 1994 Kanasashi Toyohashi 55.00 Chinese

Oct-07 African Shark 32,772 1985 Minami-Nippon Usuki 23.22 Thai Pacific

Oct-07 Hanjin Tampa 27,209 1995 Hanjin 40.00 Ocean Longevity

Oct-07 DS Splendour 19,167 1999 Keppel 32.00 Greek

Nov-07 Gran Trader 172,529 2001 Nippon Kokan 153.00 Dryships

Nov-07 Sumihou 171,071 1996 Ishikawajima Kure 106.00 Rizhao Steel

Nov-07 Netadola 149,475 1993 Keelung 97.00 Far Eastern buyers

Nov-07 Captain Vangelis 145,856 1992 Fincantieri 87.50 Dong-A-Tankers

Nov-07 Nicole 77,000 2007 Namura 103.50 Daebo

Nov-07 Anna 72,516 1995 Daewoo HI 72.00 Alexandria

Nov-07 President G 69,344 1988 Hashihama Zosen Tad 50.00 First Shipping

Nov-07 Soyang 66,822 1984 Sumitomo Oppama 36.00 Boo Kwang

Nov-07 Lake Maine 53,531 2001 Imabari Marugame 71.50 Louis Dreyfus




Nov-07 Ioannis Theo 45,320 1995 Oshima 61.00 Koreans

Nov-07 Silver Star 42,838 1984 Mitsubishi Nagasaki 31.00 Tradeline

Nov-07 Ypermachos 28,166 1984 Hitachi HI 26.00 TBS

Nov-07 African Cobra 26,648 1986 Kurushima Onishi 26.60 Pelias Maritime

Nov-07 Sifnos Bay 26,591 1985 Hakodate 24.50 Greek

Nov-07 Changi Hope 18,320 2000 Shikoku 29.00 Greek

Dec-07 Anangel Enosis 75,464 1995 Hyundai HI 75.00 Undisclosed

Dec-07 Angele N 69,315 1990 Imabari Marugame 60.00 Undisclosed

Dec-07 Lowlands Saguenay 66,995 1985 Nippon Kokan Tsurumi 38.00 Vietnamese

Dec-07 Minoan Flame 65,960 1982 Namura 35.10 Falcon

Dec-07 Shikra 41,096 1984 Oshima 30.00 Undisclosed

Dec-07 Sea Diamond 28,467 1992 Imabari 38.40 Altanska Plovidba

Jan-08 Nord Wave 53,489 2005 Iwagi Zosen 71.00 Vietnamese

Jan-08 Pinar K 52,455 2002 Tsuneishi Cebu 75.00 Nemtas

Jan-08 Tango Glory 48,193 2001 TaiheIyo Kisen 70.00 Undisclosed

Jan-08 Fortune Pearl 45,585 1996 Hashihama Zosen 58.00 Vietnamese

Jan-08 2x Blystad newbld 32,800 2009 Jinse 50.00 Safety Mgmnt

Feb-08 Athinoula 42,842 1985 Mitsubishi Nagasaki 30.30 TBS

Feb-08 Tzini 42,004 1991 Oshima 44.00 Romeo

Feb-08 Amanda C 41,373 1984 Nipponkai 28.00 Samsun Logix

Feb-08 Victory 34,676 2002 Xingang 80.00 German KG

Feb-08 Milena Star 22,056 1995 Saiki Jukogyo 35.50 Korean

Mar-08 Arethousa 171,779 1999 Hyundai HI 133.00 Rizhao Steel

Mar-08 Nord Luna 73,288 2000 Sumitomo HI 72.50 Undisclosed

Mar-08 Lanzarote 73,008 1996 Hudong 65.00 Undisclosed

Mar-08 Snow Falcon 50,246 2003 Mitsui 67.40 Undisclosed

Mar-08 Tango Glory 48,193 2001 Oshima 65.00 Transmar

Mar-08 Ansac Orient 28,399 1995 Imabari 39.35 Korean


110110

Appendix 3:Representative Tanker Fixtures

Reported Vessel Hull Dwt Built Period (months)

Rate, $pd Charterer Comment

Jan-07 Universal Queen DH 309,375 2005 35-37 48,000 Mercuria

Jan-07 Eagle Vermont DH 306,400 2002 35-37 45,000 STX PanOcean

Jan-07 Hellespont Trooper DH 147,916 1996 11-13 42,500 Teekay

Jan-07 Ocean Amber SH 147,500 1989 23-25 24,000 BPCL

Jan-07 Glenross DH 90,679 1993 35-37 26,000 AET part of en bloc sale

Jan-07 Loch Ness DH 90,607 1994 35-37 26,000 AET part of en bloc sale

Jan-07 Ratna Shalini DH 89,960 1987 23-25 17,800 BPCL

Jan-07 Freja Dania DH 53,000 2007 59-61 20,750 STX PanOcean

Jan-07 Torm Cecilie DH 46,946 2001 12-18 23,000 Trafigura

Jan-07 Stavanger Eagle DH 45,898 2004 23-25 21,000 Navion

Jan-07 Sanmar Serenade DH 45,696 1992 23-25 22,500 Trafigura IMO 2/3 stainless

Jan-07 Jag Pradip DH 45,683 1996 23-25 24,000 ST Shipping

Jan-07 Jag Pratap DH 45,683 1995 11-13 24,000 ST Shipping

Jan-07 Torm Gunhild DH 45,457 1999 23-25 22,500 Trafigura

Jan-07 Cape Beira DH 40,000 2005 17-19 22,500 WECO

Feb-07 Eagle Vienna DH 318,000 2004 35-37 45,000 TMT

Feb-07 Desh Vaibhav DH 316,000 2005 11-13 50,000 Koch

Feb-07 Eagle Valencia DH 306,999 2005 35-37 45,000 TMT

Feb-07 Tromso Trust DH 154,970 1991 11-13 36,000 Mercuria

Feb-07 Naviga DH 150,841 1998 11-13 39,500 Great Eastern

Feb-07 Stena Atlantica DH 113,500 2006 23-25 35,000 Eiger Ice class 1A

Feb-07 Arafura Sea DH 105,856 2000 11-13 33,000 Phoenix

Feb-07 Young Lady DH 105,250 2000 11-13 32,000 Shell

Feb-07 FR8 Spirit DH 51,000 2007 11-13 25,000 Cargill

Feb-07 Nord Observer DH 47,000 2007 23-25 22,500 Trafigura

Feb-07 STX Ace 7 DH 45,800 2007 35-37 21,000 ExxonMobil

Feb-07 Futura DH 40,085 2006 11-13 22,750 Motia

Feb-07 Port Louis DH 38,000 2002 16-18 21,500 Ravennavi

Feb-07 Port Russel DH 38,000 2002 16-18 21,500 Ravennavi

Feb-07 Kerel DH 37,297 2002 35-37 21,500 Total

Feb-07 Kuldiga DH 37,000 2003 11-13 24,750 PDVSA

Feb-07 FR8 Pride DH 23,400 2006 17-19 28,500 Scorpio

Mar-07 Maersk Navarin DH 300,000 2007 59-61 46,000 Sinochem

Mar-07 Mayfair +2 DH 298,400 1995 35-37 45,000 Great Elephant

Mar-07 Formosapetro Empire DH 298,300 2004 35-37 45,000 Samsun

Mar-07 Genmar Orion DH 159,992 2002 35-38 38,000 Litasco


111Global Shipping Markets Review 2008 111Global Shipping Markets Review 2008

Mar-07 Cerigo SH 95,987 1989 11-13 19,500 Mercator

Mar-07 Targale DH 51,800 2007 11-13 25,000 Mercuria

Mar-07 Jutul DH 37,000 2004 23-25 22,000 Palmyra

Mar-07 Peterpaul DH 35,994 1998 11-13 19,000 Trafigura IMO 2/3

Apr-07 SKS Saluda DH 159,000 2003 11-13 42,000 Repsol

Apr-07 Mare Tirrenum DH 110,000 2004 17-19 31,800 Teekay

Apr-07 Ocean Lady DH 105,250 2002 23-25 27,500 ExxonMobil

Apr-07 Torm Emilie DH 74,999 2004 23-25 28,000 Vitol

Apr-07 Overseas Sextans DH 51,000 2007 35-37 22,500 Vitol

Apr-07 Trogir DH 40,727 1995 11-13 22,500 ST Shipping

Apr-07 Fresia DH 37,230 2003 23-25 22,000 Palmyra IMO 2/3

Apr-07 Dukhan DH 37,000 2003 35-37 21,500 Heidmar

May-07 Maersk Nautilus DH 300,000 2006 59-61 46,000 Sinochem

May-07 La Paz DH 299,700 1995 35-37 45,000 SK Shipping

May-07 Flawless DH 154,970 1991 11-13 44,500 PDVSA Opt 11-13

May-07 Nevskiy Prospect DH 114,597 2003 11-13 35,000 Stena Bulk Ice class 1A

May-07 Rich Queen DH 105,000 2007 11-13 31,750 Stena Bulk

May-07 Omega Queen DH 72,000 2004 11-13 30,500 PDVSA Epoxy

May-07 FR8 Endeavour DH 50,529 2006 35-37 22,000 Stena Bulk

May-07 Skylark DH 34,620 2004 11-13 25,250 PDVSA

Jun-07 Shinyo Navigator DH 300,549 1996 11-13 49,500 Koch Opt 11-13 at $51,000

Jun-07 Safaniyah DH 300,361 1997 47-49 48,750 Hanjin

Jun-07 2x Genmar newbuild DH 155,000 2008 35-37 38,500 Litasco

Jun-07 Desh Shakti DH 146,840 2004 12-16 43,750 ST Shipping

Jun-07 Krasnodar DH 114,800 2003 11-13 33,000 Palmyra

Jun-07 Mare Italicum DH 110,000 2007 23-25 32,500 Teekay

Jun-07 Ambelos DH 105,400 2006 35-37 27,900 ChevronTexaco

Jun-07 Ambrosia DH 105,363 2006 35-37 29,750 Trafigura

Jun-07 Senatore DH 72,514 2004 35-37 26,000 BP Shipping

Jun-07 Ugale DH 51,800 2007 11-13 26,000 Navig8

Jun-07 Northern Dawn DH 47,950 2003 11-13 25,500 AP Moller

Jun-07 Navig8 Stealth DH 47,465 2002 23-25 24,250 Teekay

Jun-07 Evros DH 45,300 2005 47-49 21,700 Petrobras

Jun-07 Santa Ana DH 39,768 2002 12-14 21,450 Highlander

Jun-07 Nordic Ruth DH 35,820 2000 59-61 20,250 ST Shipping IMO 2/3

Jul-07 Gulf Sheba DH 299,000 2007 35-37 52,000 TMT

Jul-07 Sparto DH 114,550 2004 11-13 34,000 Stena Bulk

Jul-07 Altius DH 73,400 2004 11-13 29,500 Stena Bulk

Jul-07 Nord Observer DH 47,371 2007 11-13 26,150 Petrobras

Jul-07 Okhotsk Sea DH 47,363 1999 59-61 21,750 ChevronTexaco

Jul-07 Ivory Point DH 47,300 2004 35-37 24,750 AET

Jul-07 Lofoten DH 97,078 1991 11-13 23,000 PTT

Jul-07 Seaexpress DH 45,800 2007 23-25 24,450 Petrobras

Jul-07 Chang Hang Tan Suo DH 45,719 2006 59-61 22,200 Westport

Jul-07 Bosporos DH 37,000 2007 35-37 20,000 Scorpio

Jul-07 Sable DH 40,000 2008 35-37 21,750 BP





Aug-07 SCF Caucasus DH 159,173 2002 35-37 38,500 BP

Aug-07 Intisar DH 102,850 2002 11-13 34,000 Teekay

Aug-07 Zaliv Amerika DH 102,357 2008 35-37 29,500 Tesoro

Aug-07 General Zamora DH 68,198 1993 11-13 30,750 PDVSA

Aug-07 Ioannis P DH 46,349 2003 23-25 24,000 Petrobras

Aug-07 Silvia DH 35,841 2000 11-13 22,500 Navig8

Sep-07 Millennium DH 301,171 1998 59-61 45,000 STX PanOcean

Sep-07 Sks Skeena DB 159,000 2006 18-24 39,000 Shell

Sep-07 Nassau Spirit DH 107,181 1998 35-37 29,000 ConocoPhilips

Sep-07 NS Commander DH 105,000 2006 23-25 29,000 Trafigura

Sep-07 Eagle Hope DH 73,800 2008 35-37 28,000 Norden

Sep-07 Gulf Progress DH 64,959 2000 11-13 27,500 Vitol

Sep-07 Silver Lining DH 45,800 2003 35-37 22,700 Petrobras

Oct-07 Crudesun DH 306,000 2007 35-37 51,500 TMT

Oct-07 Crudesky DH 306,000 2007 35-37 51,500 TMT

Oct-07 Althea DH 84,992 1999 11-13 32,000 Teekay

Oct-07 Fedor DH 70,000 2003 11-13 27,500 Teekay

Oct-07 St. Michaelis DH 51,000 2005 11-13 23,300 PTT IMO 2

Oct-07 St. Pauli DH 47,149 2003 23-25 22,500 ST Shipping

Oct-07 St. Georg DH 47,141 2002 23-25 22,500 ST Shipping

Nov-07 Utah DH 299,498 2001 35-37 45,000 CSSSA

Nov-07 Matterhorn Spirit DH 114,980 2005 23-25 32,000 Eiger

Nov-07 Mare Adriacum DH 110,500 2004 11-13 31,000 Shell

Nov-07 High Venture DH 51,087 2006 17-19 24,000 Cargill

Nov-07 Chemtrans Petri DH 47,228 2000 11-13 22,500 Trafigura

Nov-07 Pro Giant DH 46,732 2004 23-25 23,000 FR8

Nov-07 Torm Ragnhild DH 46,186 2005 35-37 22,500 Vela

Dec-07 Neptune DH 319,360 2002 35-37 52,500 TMT

Dec-07 Smiti DH 281,000 2005 12-15 52,500 BP

Dec-07 Nataly DH 142,498 1993 11-13 36,000 Russian

Dec-07 Pink Sands DH 93,891 1993 35-37 27,450 ExxonMobil

Dec-07 Piltene DH 51,800 2007 11-13 24,500 Vitol

Jan-08 La Paz DH 299,700 1995 11-13 65,000 TMT

Jan-08 Venture Spirit DH 298,287 2003 47-49 47,500 Wah Kwong

Jan-08 Ocean Emerald DH 152,680 1991 11-13 31,000 TNK

Jan-08 Maria M DH 40,000 2006 11-13 22,750 Not reported

Feb-08 Spyros DH 319,000 2007 11-13 70,000 TMT

Feb-08 Crude Progress DH 300,000 2002 11-13 70,000 Not reported

Mar-08 Kaspar Schulte DH 72,650 2004 Nov-13 29,750 Vela



Appendix 4: Representative Tanker Sales

Reported Vessel Hull Dwt Built Yard Price, $m

Buyer Comment

Jan-07 Windsor DH 162,000 2007 DSME 95.50 Knutsen Dely May-07

Jan-07 Knock Stocks SH 138,105 1993 Harland & Wolff 32.75 Perenco Dely May-07, for conversion

Jan-07 Olympia DH 107,181 1999 Koyo Mihara 31.10 T.E.N. Purchase option from Oct-06

Jan-07 Archon DS 105,896 1985 Hyundai HI 16.80 PetroProd En bloc, price each, for conversion to FPSOJan-07 Archimidis DS 105,896 1985 Hyundai HI 16.80

Jan-07 Gonen DH 47,102 2000 Onomichi 47.50 Vosco

Jan-07 Seapurha DS 39,672 1987 Hyundai HI 16.00 Warm Seas For conversion

Jan-07 Active SH 22,291 1983 Verolme Heusden 6.70 MSI Ship Mgmnt Shuttle tanker

Feb-07 Nuri SH 285,933 1992 Daewoo HI 39.00 Transmed SS/DD due jul-07

Feb-07 Nordatlantic DH 105,344 2001 Sumitomo HI 59.50 Liwa Mobilien. Incl. TC to 2Q-2012at $23,500

Feb-07 Omega Theodore DH 73,672 2006 STX 64.50 Omega Navigation

En bloc, price each. Ice class 1A. Incl. 2y TC to ST Shipping at $25,500 pd with p/s

Feb-07 Omega Emmanuel DH 73,672 2006 STX 64.50

Feb-07 Chang Han Feng Jin DH 46,346 2007 Bohai 48.25 Formosa Plastics

Mar-07 Suzuka SH 269,581 1992 Kawasaki HI 39.00 TMT

Mar-07 Eliomar DH 149,999 2002 Nippon Kokan 85.50 Dr Peters Incl. 5y TC to Seearland at $35,000

Mar-07 Errorless DH 147,048 1993 Harland & Wolff 52.50 Ever Energy

Mar-07 Ocean Pride DS 62,482 1990 Hudong 18.00 Modec For storage

Mar-07 Ganmur DH 47,034 2001 Onomichi 47.50 Bien Dong Shipping

Apr-07 Nordasia DH 105,994 1998 Hyundai HI 59.00 Neunte Schiffahrts.

Apr-07 Celebrity DH 105,200 2004 Sumitomo HI 73.00 GNMT Libya

Apr-07 Serenity DH 105,200 2004 Sumitomo HI 73.00 GNMT Libya

Apr-07 South View SH 64,035 1983 Hitachi Nagasu 6.50 Pacific Blue Shipping

For conversion

Apr-07 Alam Cantik DH 35,000 2006 Dalian 85.00 KGAL En bloc, price both, incl. 5y TC to Handytankers.Apr-07 Alam Cepat DH 34,671 2007 Dalian

May-07 Savoie DH 306,430 1993 Nippon Kokan Tsu 82.20 CS&P Skibe

May-07 Eagle DH 301,690 1993 Sumitomo Oppama 75.00 Kolsten Navigation

May-07 Eastern Fortune SH 277,020 1989 Hyundai HI 40.00 Neu Seeschiff. For conversion

May-07 Georgios S DH 159,981 2001 DSME 178.00 Capital Ship Mgmnt

En bloc, price both

May-07 Yannis P DH 159,924 2002 DSME

May-07 Tromso Trust DH 154,970 1991 Hyundai HI 48.00 BLT En bloc, price each, incl. TC to Feb-08 at $33,500

May-07 Tromso Reliance DH 154,970 1991 Hyundai HI 48.00

May-07 Star Ohio DH 149,562 1992 Samsung HI 50.00 Marine Management


Buyer Comment

May-07 Arteaga SH 147,067 1990 Esp. Puerto Real 54.00 Arpeni En bloc, price both, for conversion to bulkerMay-07 Butron SH 147,067 1991 Esp. Puerto Real

May-07 Juniper DH 47,465 2002 Uljanik 100.00 Stealth Maritime En bloc, price both, IMO 2/3, epoxyMay-07 Jasmine DH 47,355 2002 Uljanik

May-07 British Endeavour DH 37,224 2002 Hyundai Mipo 85.00 Ocean Tankers En bloc, price both, IMO 2/3May-07 British Endurance DH 32,967 2002 Hyundai Mipo

Jun-07 Venus Glory DH 299,089 2000 Daewoo HI 237.00 Blystad En bloc, price both

Jun-07 Mars Glory DH 299,089 2000 Daewoo HI

Jun-07 Discovery DH 164,533 2003 Hyundai HI 96.00 Palmali

Jun-07 Unicorn DH 152,250 2002 Hyundai HI 94.00 Palmali

Jun-07 Front Horizon SH 149,500 1988 Daewoo HI 28.00 Thistle Marine

Jun-07 Stemnitsa DH 147,093 2000 Samsung HI 88.50 Great Eastern

Jun-07 Maersk Pristine DH 110,000 2004 Dalian New 71.00 Cardiff Marine

Jun-07 Athens 2004 DH 107,181 1998 Koyo Mihara 184.00 Atlas Maritime En bloc, price all

Jun-07 Maria Tsakos DH 107,181 1998 Koyo Mihara

Jun-07 Olympia DH 107,181 1999 Koyo Mihara

Jun-07 Maersk Rye DH 35,000 2004 Dalian 86.00 Libyan Sea Carrier

En bloc, price both

Jun-07 Maersk Ramsey DH 35,000 2004 Dalian

Jul-07 Neptune DH 319,360 2002 Hyundai Samho 136.50 Samho Dely Mar-08

Jul-07 Sunrise SH 264,165 1993 Mitsubishi Nagasaki

48.00 KDB Capital Corp. For conversion

Jul-07 Minerva Nounou DH 147,450 2000 Samsung HI 88.50 Great Eastern

Jul-07 LMZ Nafsika DH 69,431 2006 Daewoo-Mangalia 260.00 Eletson En bloc, price all

Jul-07 LMZ Artemis DH 69,250 2004 Daewoo-Mangalia

Jul-07 LMZ Nefeli DH 69,180 2005 Daewoo-Mangalia

Jul-07 LMZ Afroditi DH 69,180 2005 Daewoo-Mangalia

Jul-07 Glenross DH 90,607 1993 Gdynia 42.00 Groton Pacific En bloc, price each, incl. 3y TC to AET at $26,000

Jul-07 Lochness DH 90,607 1993 Gdynia

Jul-07 Valle Azurra DH 50,100 2007 SPP 58.00 Navi. Montanari

Jul-07 Morning DH 50,530 2006 SPP 53.75 Vinalines IMO 2/3

Aug-07 Han-Ei SH 259,999 1994 Ishikawajima Kure 49.00 Tanker Pacific For conversion

Sep-07 Titan Virgo DH 299,999 1993 Daewoo HI 91.00 Emarat Maritime

Sep-07 Ottoman Dignity DH 152,923 2000 Hyundai HI 90.30 Double Hull Tankers

Incl. 10y BB to OSG at $26,600

Sep-07 Lucky Sailor SH 146,387 1989 Kawasaki HI 30.00 Chinese

Sep-07 Cape Taft DH 73,000 2008 New Century 125.00 OSG En bloc, price both

Sep-07 Cape Talara DH 73,000 2009 New Century

Sep-07 Emerald Hill DS 70,887 1991 Tsuneishi 52.80 Chinese En bloc, price both

Sep-07 Emerald Bay DS 69,999 1990 Hashihama Zosen

Sep-07 Nord Sound DH 45,975 2003 Shin Kurushima 51.00 Koenig En bloc, price each

Sep-07 Nord Strait DH 45,800 2004 Shin Kurushima 51.00

Aug-07 Merlion Park DH 41,354 1993 Minami-Nippon 33.00 Greek IMO 2/3

Sep-07 Seadevil DH 32,250 1996 Lindenau 37.00 Thai Oil

Oct-07 Arietis SH 91,717 1989 Sumitomo Oppama 30.00 TMT For conversion to bulker

Oct-07 Lidong DH 50,530 2007 SPP 60.50 Vinashin

Oct-07 Stena Conqueror DH 47,000 2003 Uljanik 150.00 Gest. Armatoriali En bloc, price all

Oct-07 Stena Italica DH 47,000 2004 Uljanik

Oct-07 Stena Conquest DH 47,000 2003 Uljanik

Oct-07 Formosa Fourteen DH 45,400 2005 Shin Kurushima 56.00 Blystad IMO 2/3



Buyer Comment

Oct-07 British Engineer DH 37,343 2003 Hyundai Mipo 46.25 Interorient En bloc, price each, IMO 2/3Oct-07 British Experience DH 37,343 2003 Hyundai Mipo 46.25

Nov-07 Younara Glory DH 300,000 2004 DSME 132.00 Dr Peters Incl. 11y TCB at $53,400 + p/s + $71m p/o

Nov-07 First Olsen NB x2 DH 159,000 2010 Bohai 180.00 Nordic American Price both. Dely Dec-09 & Apr-10

Nov-07 Sarla DS 105,896 1986 Hyundai HI 16.30 Undisclosed For conversion to bulker

Nov-07 Verona I DH 46,980 2006 Hyundai Mipo 113.00 FSL En bloc, price both

Nov-07 Nika I DH 46,980 2006 Hyundai Mipo

Nov-07 Alam Cergas DH 34,671 2007 Dalian 45.00 Middle Eastern

Dec-07 Else Maersk DH 308,491 2000 Hyundai HI 122.00 Eastern Med

Dec-07 Chelsea DH 298,432 1995 Daewoo HI 101.00 Blystad

Dec-07 Shinyo Splendor DH 306,474 1993 Nippon Kokan Tsu 778.00 EIAC DH ships incl. avg. 9.24 yrs TC at $37,940. SH ships incl. avg.2.77 yrs TC at $33,422

Dec-07 Shinyo Navigator DH 300,549 1996 Hyundai HI

Dec-07 C. Dream DH 298,570 2000 Hitachi HI

Dec-07 Shinyo Ocean DH 281,395 2001 IHI

Dec-07 Shinyo Kannika DH 281,395 2001 Ishikawajima Kure

Dec-07 Shinyo Sawako SH 275,616 1995 Hitachi Nagasu

Dec-07 Shinyo Mariner SH 271,208 1991 Nippon Kokan

Dec-07 Shinyo Alliance SH 248,034 1991 Mitsubishi Nagasaki

Dec-07 Shinyo Jubilee SH 240,401 1988 Ishikawajima Kure

Dec-07 Yangtze Star SH 265,995 1994 Mitsubishi Nagasaki

58.10 Platon Shipping

Dec-07 Noiseless DH 143,750 1992 Samsung HI 48.00 Vinashin

Dec-07 Neverland Soul DH 115,000 2004 Samsung HI 72.00 Thenamaris En bloc, price each

Dec-07 Hulls 1658 &1659 DH 114,800 2008 Samsung HI 76.00

Dec-07 Amalthea DH 107,116 2006 DSME 81.50 Minerva

Dec-07 Young Lady DH 105,528 2000 Sumitomo HI 62.00 Eastern Med

Dec-07 Polar DH 72,825 2005 Hudong 62.00 Paradise Navigation

Dec-07 Overseas Aquamar DH 47,236 1998 Onomichi 43.00 Polyar SS due Mar-08

Dec-07 Kerlaz DH 37,000 2004 Hyundai Mipo 42.00 Difko IMO 2/3. Incl. 3y BBB at $11,000

Jan-08 Diamond Hope DH 264,340 1995 Mitsubishi Nagasaki

52.00 Chinese

Jan-08 Ishwari DH 145,200 1991 Hyundai HI 51.50 Nexus Energy For conversion to FPSO

Jan-08 Minerva Libra DH 105,364 1999 Samsung HI 62.00 AET En bloc, price each

Jan-08 Minerva Emma DH 105,364 1999 Samsung HI 62.00

Jan-08 Jag Arpan DS 66,183 1986 Hyundai HI 15.00 Undisclosed En bloc, price each

Jan-08 Jag Anjali DS 64,000 1986 Hyundai HI 15.00

Feb-08 TBN newbuilding DH 310,000 2009 Hyundai HI 163.00 Minerva Dely Mar-09

Feb-08 Olinda DH 149,258 1996 Fincantieri Breda 65.00 Oceanfreight

Feb-08 2x Schoeller newbuilds

DH 114,000 2009 New Times 152.00 Stealth Maritime En bloc, price both. Incl. 5y BB at c.$20,500

Feb-08 Meribel DH 95,773 1990 MisubishI HI 38.00 Chandris

Feb-08 Minerva Alice DH 46,408 1999 Daedong 89.00 Ancora Investments

En bloc, price both. IMO 3Feb-08 Minerva Zen DH 46,344 1999 Daedong

Feb-08 Jag Payal DH 37,400 2007 Hyundai Mipo 102.00 Motia En bloc, price both. Ice class 1AFeb-08 Jag Panna DH 37,400 2007 Hyundai Mipo

Mar-08 Sea Runner DH 47,070 1992 Halla Inchon 28.50 Greek Ice class C, epoxy


116

Appendix 5: Representative Containership Fixtures

Reported Name Dwt Nominal TEU

Laden TEU

Blt Gear Rate Period Charterer Speed Consumptn

Jan-07 Germany 60,200 4,158 3,124 1996 0 24,000 24 MSC 23.0 150.0

Jan-07 Maersk Tampa 53,310 3,466 2,723 1984 0 19,100 36 MSC 23.0 160.0

Jan-07 Najade 37,900 2,702 2,095 2007 0 19,300 24 K-Line 221.8 88.0

Jan-07 Pona 37,570 2,741 2,116 2007 0 18,750 12 CMA-CGM 22.0 80.0

Jan-07 Leda Trader 34,000 2,442 1,886 2000 3x40 19,250 24 MOL 21.8 75.0

Jan-07 Kyoto Tower 21,900 1,798 1,260 2007 0 14,500 12 WHL 19.7 60.4

Jan-07 August Schulte 34,622 2,566 1,853 2001 4x45 19,850 24 NYK 20.5 80.0

Jan-07 Paris 1,743 1,310 11,650 1990 3x40 11,650 24 PIL 18.8 48.0

Feb-07 HLL Baltic 65,734 4,306 3,046 1995 0 29,000 48 APL 24.2 160.0

Feb-07 Conti Cartagena 33,000 2,456 1,780 1997 3x40 20,000 24 MOL 21.0 69.0

Feb-07 Baltrum Trader 34,017 2,472 1,851 1999 3x45 19,000 24 CLAN 21.0 67.0

Feb-07 HLL Pacific 58,200 4,701 3,270 2002 0 27,500 60 APL 25.0 144.0

Feb-07 San Antonio 30,538 1,829 1,350 2002 2x40 19,400 24 HMM 19.4 61.0

Feb-07 Viking Eagle 23,579 1,740 1,295 2005 2x20 15,500 12 Wan Hai 20.5 58.0

Feb-07 Cape Mondego 37,800 2,742 2,116 2006 0 20,750 12 DAL 21.8 93.0

Feb-07 Cape Fulmar 20,250 1,440 1,050 2007 0 12,500 12 CMA-CGM 19.8 52.8

Feb-07 HS Scott 38,250 2,778 2,005 2007 0 20,750 12 CMA-CGM 23.0 110.6

Feb-07 Olivia 27,950 2,690 2,080 2007 0 19,300 24 K-Line 21.8 88.0

Feb-07 Nordspring 44,985 3,586 2,501 2007 0 24,500 36 CMA-CGM 23.4 121.0

Feb-07 Stadt Koeln 23,850 3,388 2,425 2007 0 28,350 36 Cosco 22.4 106.0

Feb-07 Northern Dedication 41,500 3,534 2,353 2007 0 25,000 60 PIL 23.5 122.0

Feb-07 Christina A 22,100 1,604 1,163 2007 3x45 15,000 12 K-Line 19.0 49.0

Feb-07 Arelia 39,200 2,732 2,150 2007 3x45 22,000 24 CLAN 22.2 99.0

Feb-07 Conti Salome 31,200 2,122 1,530 2007 3x45 18,500 24 CMA-CGM 21.8 65.0

Mar-07 Fabian Schulte 22,250 1,608 1,086 1997 3x45 14,200 24 CMA-CGM 21.0 60.5

Mar-07 Buxhansa 33,300 2,460 1,828 1998 3x40 20,500 24 CMA-CGM 21.0 69.0

Mar-07 Francisca Schulte 22,250 1,608 1,086 1998 3x45 15,000 12 CMA-CGM 21.0 60.5

Mar-07 Otto Schulte 25,685 1,702 1,330 1999 0 15,100 12 UASC 20.0 66.0

Mar-07 Jupiter 34,000 2,452 1,881 2001 0 21,500 36 Hamburg Sued 21.0 75.0

Mar-07 CSCL Yantai 33,900 2,452 1,886 2001 3x45 21,500 36 Hamburg Sued 21.8 75.0

Mar-07 Juturna 33,917 2,452 1,886 2001 3x45 21,000 38 Hamburg Sued 21.8 75.0

Mar-07 ER Bremerhaven 33,800 2,496 1,810 2002 3x45 18,500 12 MSL 22.1 88.0

Mar-07 ER Bremen 33,800 2,496 1,810 2003 3x45 21,000 24 CCNI 22.1 88.0

Mar-07 Flottbek 16,000 1,600 1,090 2005 0 16,600 12 Hapag Lloyd 20.0 49.5

Mar-07 Cape Flint 20,250 1,440 1,050 2006 0 13,150 12 MCC 19.7 5.7

Mar-07 Ava 20,600 1,578 1,065 2007 0 14,500 12 TSL 20.0 47.0

Mar-07 King Andrew 37,800 2,741 2,116 2007 0 21,700 24 CSAV 22.0 79.0

Mar-07 King Aaron 37,800 2,741 2,116 2007 0 21,700 24 CSAV 21.8 88.0



Laden TEU



Mar-07 HS Bach 44,985 3,586 2,501 2007 0 26,750 48 CMA-CGM 23.4 130.0

Mar-07 Nordsummer 44,985 3,586 2,501 2007 0 26,950 48 K-Line 23.4 121.0

Apr-07 Asian Trader 20,794 1,404 1,186 1991 0 13,500 12 Zim 19.0 41.0

Apr-07 Marcrotone 23,456 1,687 1,180 1994 0 14,600 12 STX PanOcean 19.0 48.5

Apr-07 Westerhever 22,340 1,572 1,100 1994 3x40 14,400 24 APL 19.5 53.0

Apr-07 Buxmoon 23,150 1,687 1,191 1995 0 14,600 12 STX PanOcean 19.0 48.0

Apr-07 Sofia Russ 22,984 1,728 1,115 1996 3x40 15,250 12 CCNI 19.5 51.5

Apr-07 Conti Bilbao 33,300 2,460 1,810 1997 3x40 20,500 36 APL 21.0 69.0

Apr-07 Helene J 26,260 1,900 1,330 1997 3x45 15,900 12 CMA-CGM 20.0 60.0

Apr-07 Westermoor 35,600 2,730 2,000 2001 3x45 23,500 24 IRISL 23.0 99.0

Apr-07 Janus 34,000 2,452 1,886 2001 3x45 21,000 38 Hamburg Sued 21.0 75.0

Apr-07 ER Wilhelmshaven 34,859 2,496 1,780 2002 3x45 22,000 24 Hapag Lloyd 22.1 88.0

Apr-07 HS Chopin 44,985 3,586 2,501 2007 0 27,250 48 Zim 23.4 130.0

Apr-07 GE Lessing 23,400 1,740 1,330 2007 2x40 16,150 12 CSAV 21.0 64.0

Apr-07 Hansa Papenberg 23,579 1,740 1,295 2007 2x40 15,250 24 CLAN 21.0 64.0

Apr-07 Leopold Schulte 23,579 1,740 1,330 2007 2x40 15,000 24 Hamburg Sued 21.0 64.0

May-07 Cape Race 35,071 2,259 1,920 1993 4x40 21,000 36 MSC 20.0 67.5

May-07 ER Hobart 33,523 2,004 1,552 1994 0 15,500 36 MSC 19.0 63.0

May-07 London Tower 23,884 1,525 1,250 1994 2x40 15,250 12 PIL 19.0 43.0

May-07 Elbe Trader 22,525 1,600 1,090 1994 3x40 15,450 12 TS Lines 21.0 59.0

May-07 Amasis 35,020 2,908 2,090 1995 0 22,500 36 CMA-CGM 22.0 90.0

May-07 Cap Colville 23,083 1,510 1,200 1997 0 14,250 12 PIL 19.0 44.0

May-07 Vancouver 27,100 2,113 1,514 1997 4x40 18,100 24 CMA-CGM 20.0 51.0

May-07 Contship Rome 30,781 2,171 1,748 1998 3x45 21,500 23 Hapag Lloyd 20.5 86.0

May-07 Weserwolf 39,300 2,732 2,267 1999 0 25,000 42 UASC 22.5 85.5

May-07 Santa Felicita 30,200 2,169 1,668 1999 2x45 20,750 12 CCNI 19.7 50.7

May-07 Hansa Kristiansand 20,630 1,550 1,029 2002 2x20 14,995 12 MOL 20.5 55.0

May-07 Hermann Wulff 39,300 2,732 2,267 2006 0 25,000 42 UASC 22.2 89.0

May-07 Buxharmony 37,900 2,702 2,095 2007 0 22,900 36 CLAN 21.8 88.0

May-07 Northern General + 4 newbuilds

53,480 4,294 2,820 2008 0 27,000 60 Hamburg Sued 24.0 134.0

May-07 Rio Cadiz 55,400 4,300 2,900 2008 0 28,950 60 CSAV 24.0 140.0

May-07 Rio Charleston 55,400 4,300 2,900 2008 0 28,950 60 CSAV 24.0 140.0

May-07 4x Schulte newbuilds

85,000 7,000 4,912 2009 0 37,250 60 APL 25.0 220.0

Jun-07 Buxlagoon 23,456 1,687 1,180 1994 0 15,850 12 CMA-CGM 19.0 48.5

Jun-07 Marcampania 23,150 1,684 1,152 1994 3x40 15,600 24 NDAL 19.0 48.0

Jun-07 Zrin 35,100 2,275 1,908 1994 4x40 21,900 24 Hapag Lloyd 19.6 64.0

Jun-07 Mare Caspium 34,600 2,959 2,018 1995 0 25,000 48 CMA-CGM 22.0 85.0

Jun-07 Magnavia 30,300 2,078 1,705 1996 0 20,150 12 KMTC 21.5 68.0

Jun-07 Merkur Cloud 22,026 1,584 1,086 1996 3x40 15,500 24 Hanjin 21.0 60.5

Jun-07 Hanse India 43,368 3,424 2,411 1997 0 29,000 36 IRISL 22.5 100.0

Jun-07 Nordriver 22,420 1,684 1,100 1997 3x45 15,700 12 CMA-CGM 20.0 49.5

Jun-07 Champion 30,450 2,080 1,670 1998 3x40 20,000 12 MOL 21.0 72.0

Jun-07 ER Hamburg + ER Santiago

30,705 2,074 1,744 1998 3x40 22,250 36 Maersk 21.0 86.0

Jun-07 CSAV Peru 33,568 2,474 1,950 1998 3x45 21,900 24 Hapag Lloyd 21.0 66.5

Jun-07 Wehr Flottbeck 23,040 1,730 1,120 1999 3x40 15,500 12 CCNI 20.0 54.5


Laden TEU


118

Jun-07 Hansa Augustenburg 23,508 1,740 1,295 2003 2x40 16,000 12 NYK 20.5 58.0

Jun-07 Cosco Boston & Cosco New York

67,410 5,100 3,350 2007 0 38,000 24 CMA-CGM 24.3 164.5

Jun-07 Posen 37,570 2,741 2,116 2007 0 26,950 24 OOCL 22.0 80.0

Jun-07 Northern Debonair + Northern Defender

42,318 3,524 2,353 2007 0 28,000 66 CSAV 23.5 122.0

Jun-07 Hansa Cloppenburg 23,500 1,740 1,330 2007 2x40 15,500 24 NDAL 21.0 64.0

Jun-07 Santa Brunella + Santa Bianca

38,200 2,824 2,030 2008 0 21,500 36 Hamburg Sued 24.0 95.0

Jun-07 4x Schulte newbuilds

50,500 4,253 2,805 2009 0 27,000 60 UASC 24.5 133.0

Jul-07 Conti La Spezia 23,300 1,597 1,148 1990 0 15,850 12 Seacon 18.0 45.0

Jul-07 Libra Australia II 24,444 1,432 1,212 1994 0 14,950 12 OOCL 18.7 42.3

Jul-07 Santiago 32,380 2,000 1,600 1996 3x40 22,500 32 WSL 20.0 65.5

Jul-07 Northern Grandeur 61,100 4,787 3,355 1998 0 34,700 60 CSAV 24.5 164.0

Jul-07 Fei Yun He 25,723 1,702 1,305 2000 0 17,250 24 Wan Hai 20.0 101.0

Jul-07 Marchicora 20,501 1,300 1,000 2000 2x60 13,500 36 NDAL 16.7 30.0

Jul-07 Hansa Oldenburg 23,508 1,740 1,330 2002 3x40 18,650 12 Seacon 20.5 58.0

Jul-07 Hansa Brandenburg 23,579 1,740 1,330 2003 2x40 17,250 24 BTL 20.5 58.0

Jul-07 Wilhelm Busch 23,400 1,740 1,275 2007 2x40 17,000 12 Hapag Lloyd 21.0 55.0

Jul-07 Quadriga 42,250 3,414 2,410 2008 0 28,500 60 CSAV 23.2 105.0

Aug-07 Helene Rickmers 23,106 1,728 1,120 1998 3x40 17,850 24 CMA-CGM 20.0 54.5

Aug-07 Oder Trader 30,300 2,008 1,628 1998 3x45 22,750 30 Safmarine 20.8 73.0

Aug-07 Viona 22,200 1,875 1,285 2006 3x45 19,250 24 Safmarine 21.0 67.0

Sep-07 Northern Fortune 30,685 1,899 1,600 1991 0 21,000 24 Hanjin 19.2 65.0

Sep-07 Jolly 29,693 2,098 1,700 1992 0 22,500 12 Hanjin 18.0 47.0

Sep-07 Cap Colorado 24,066 1,510 1,200 1997 0 17,500 12 Seacon 19.0 44.0

Sep-07 Cape Negro 24,133 1,510 1,249 1998 0 18,000 12 Seacon 20.0 44.0

Sep-07 Euro Max 29,300 2,732 2,267 2004 0 27,900 48 CMA-CGM 22.5 80.0

Sep-07 Sima Sadaf 20,250 1,440 1,050 2007 0 16,150 12 STX PanOcean 19.6 45.0

Sep-07 Madison Strait 25,899 1,795 1,312 2007 2x40 15,000 60 MOL 20.5 60.0

Sep-07 Mario A 22,100 1,604 1,163 2007 3x45 18,000 12 Hapag Lloyd 19.0 49.0

Sep-07 Northern Dexterity + N. Dependent

53,350 3,534 2,353 2008 0 28,000 60 APL 23.5 122.0

Oct-07 Independent Action 20,455 1,388 1,030 1992 0 15,250 12 IRISL 17.0 39.0

Oct-07 Lal Bahadur Shastri 18,966 1,869 1,534 1993 0 17,800 12 OOCL 17.5 43.0

Oct-07 San Fernando 20,050 1,512 1,188 1996 2x40 17,250 12 MSC 19.7 47.0

Oct-07 Dorothea Rickmers 23,027 1,728 1,120 1998 2x40 17,600 24 CMA-CGM 20.0 54.5

Oct-07 Violetta 22,200 1,856 1,285 2007 3x45 18,500 12 CMA-CGM 21.0 67.0

Oct-07 Haugsburg 23,579 1,740 1,330 2008 2x45 18,000 24 Wan Hai 21.0 64.5

Oct-07 2x Doehle newbuilds 52,300 4,200 2,875 2009 0 30,125 60 UASC 24.2 133.0

Oct-07 4x Offen newbuilds 50,500 4,253 2,805 2009 0 30,125 60 UASC 24.5 133.0

Nov-07 Hansa Africa 43,600 3,424 2,411 1997 0 31,400 36 CLAN 23.5 115.0

Nov-07 Wehr Altona 23,051 1,730 1,120 1997 3x45 16,800 21 CCNI 19.6 54.5

Nov-07 Wehr Koblenz 23,001 1,730 1,120 1998 3x45 16,800 21 CCNI 19.6 54.5

Nov-07 Wehr Rissen 23,190 1,730 1,120 1999 3x45 16,500 12 MOL 19.6 54.5

Nov-07 Mi Yun He 24,259 1,432 1,200 2000 0 17,400 17 Simatech 19.0 38.0

Nov-07 Hansa Liberty 33,899 2,478 1,898 2000 3x45 27,500 24 STX PanOcean 22.0 78.0



Laden TEU



Nov-07 Torge S 33,216 2,450 1,896 2003 3x40 27,000 28 Hapag Lloyd 22.5 79.8

Nov-07 Hansa Coburg 23,579 1,740 1,330 2007 2x40 18,000 24 NDAL 21.0 64.0

Dec-07 Wilhelm E 20,406 1,452 1,034 1995 0 14,500 15 Yang Ming 18.0 45.3

Dec-07 Corelli 15,475 1,445 1,119 1997 0 15,475 12 GSL 18.0 35.0

Dec-07 Sevilla 25,900 1,812 1,312 2008 2x40 17,800 17 Westwood 50.2 45.0

Jan-08 Zenit 21,500 1,617 1,203 1998 3x45 15,500 45 MOL 20.5 70.0

Jan-08 Marcalabria 23,150 1,684 1,152 1993 3x40 17,800 30 CCNI 19.0 45.8

Jan-08 Cape Magnus 37,800 2,742 2,115 2008 0 27,250 18 UASC 22.0 85.0

Jan-08 King Brian 24,200 1,706 1,250 2008 0 17,000 12 OOCL 19.5 50.0

Jan-08 Helene C 32,800 2,450 1,820 2006 3x40 27,100 24 K-Line 22.5 80.0

Jan-08 San Adriano 28,324 1,819 1,300 2008 3x45 19,500 18 UASC 21.8 82.6

Jan-08 Viking Eagle 23,579 1,740 1,295 2006 2x40 17,850 24 K-Line 20.5 58.0

Feb-08 Just Trader 20,250 2,462 1,851 1998 3x45 20,250 24 Maruba 21.0 67.0

Feb-08 Conti Lissabon 39,000 5,744 4,172 2000 0 33,500 96 Hanjin 26.0 210.0

Feb-08 El Zorro 13,769 1,118 700 2006 0 12,300 12 GSL 19.5 36.0

Feb-08 Sinotrans Tianjin 37,856 2,742 2,126 2005 0 28,300 18 RCL 22.5 80.5

Feb-08 Scotia 25,360 1,716 1,295 2000 3x45 19,500 12 Hapag Lloyd 21.0 64.0

Feb-08 Wehr Blankanese 23,021 1,726 1,210 1999 2x40 17,750 22 K-Line 19.6 54.0

Mar-08 Pontresina 32,900 2,700 2,010 2008 0 26,000 48 PIL 23.0 93.0

Mar-08 Samaria 25,414 2,000 1,714 2000 3x40 18,500 12 ZIM 21.0 64.0

Mar-08 Hansa Aalesund 20,461 1,550 1,029 2001 2x40 17,400 12 K-Line 20.0 50.0

120

Appendix 6:Representative Containership Sales

Reported Vessel Nominal TEU

Dwt Blt Yard Price $m

Buyer Comment

Jan-07 OOCL Belgium 2,808 40,972 1998 Daewoo HI 480.0 Luxembourg buyer

En bloc, price all

Jan-07 OOCL Britain 5,344 67,958 1996 Mitsubishi Kobe

Jan-07 OOCL California 5,344 67,765 1995 Mitsubishi Nagasaki

Jan-07 OOCL America 5,344 67,741 1995 Mitsubishi Nagasaki

Jan-07 OOCL Japan 5,344 67,752 1996 Mitsubishi Nagasaki

Jan-07 OOCL Rotterdam 8,063 99,518 2004 Mitsubishi Nagasaki

Jan-07 OOCL Hong Kong 5,344 67,637 1995 Samsung HI

Jan-07 OOCL China 5,344 67,625 1996 Samsung HI

Feb-07 APL Holland 5,510 67,500 2001 Samsung HI 88.0 APL En bloc, price each, p.opt.Feb-07 APL Scotland 5,510 67,500 2001 Samsung HI

Feb-07 Maersk Rimini 1,048 15,174 1990 J J Sietas 10.9 Dania Marine

Feb-07 Providence 1,684 22,420 1995 Szczecin 21.2 Komrowski

Feb-07 Maersk Vancouver 1,678 22,308 2001 J J Sietas 123.0 IMTC En bloc, price all

Feb-07 Maersk Valletta 1,678 22,300 2002 J J Sietas

Feb-07 Maersk Vigo 1,678 22,200 2002 J J Sietas

Feb-07 Maersk Venice 1,678 22,308 2002 J J Sietas

Feb-07 CMA-CGM Lilac 2,824 39,295 2005 Hyundai Mipo 47.0 Papathomas En bloc, price eachFeb-07 CMA-CGM Violet 2,824 39,200 2006 Hyundai Mipo

Feb-07 CMA-CGM Camellia 2,824 39,200 2006 Hyundai Mipo

Feb-07 CMA-CGM Dahlia 2,824 39,200 2006 Hyundai Mipo

Mar-07 Kestrel 1 1,939 25,684 1988 Gdansk Lenina 14.0 Cosmoship En bloc, price eachMar-07 White Swan 1,939 26,132 1989 Gdansk Lenina

Mar-07 Birte Ritscher 1,452 20,346 1995 Kvaerner Warnow 19.5 Euroseas

Mar-07 West Gate Bridge 2,878 40,928 1986 Kawasaki HI 17.2 Goldenport

Mar-07 CSAV Peru 2,478 33,914 1998 Volkswerft 40.0 Seacastle

Mar-07 Libra Brasil 1,742 30,078 1992 Thyssen 21.2 Virginia Key

Apr-07 Cala Pinar Del Rio 1,354 20,275 1994 Szczecin 27.0 Hansen & Lange

May-07 YM Victory 1,110 19,325 1997 China Shipbuilding 89.0 Arkas Deniz. En bloc, price all

May-07 YM Champion 1,119 19,332 1997 China Shipbuilding

May-07 YM Container 1,119 19,353 1997 China Shipbuilding

May-07 YM Union 1,119 19,338 1997 China Shipbuilding

May-07 Dal East London 2,420 33,745 1994 Gdansk Lenina 36.0 Goldenport

May-07 Mukaddes Kalkavan 1,145 12,123 1997 Sedef Tuzla 20.0 JR Ship Mgmt En bloc, price eachMay-07 Selma Kalkavan 1,145 12,310 1999 Sedef Tuzla 20.0

May-07 Bunga Pelangi Dua 4,469 61,428 1995 Hyundai HI 50.0 MSC

Jun-07 Cosco Charleston 5,100 67,600 2007 Hanjin Pusan 93.0 CMA-CGM En bloc, price eachJun-07 Cosco Norfolk 5,100 67,600 2007 Hanjin Pusan 93.0


Reported Vessel Nominal TEU

Dwt Blt Yard Price $m

Buyer Comment


Jun-07 Beauty River 1,923 33,667 1990 Halla Inchon 18.0 Eurobulk En bloc, price each. Dely Sep-07

Jun-07 Honor River 1,923 33,668 1990 Halla Inchon 18.0

Jun-07 Montemar Europa 1,730 22,900 2003 Szczecinska Nowa 31.0 Ship Finance Intl

Jun-07 Nedlloyd Juliana 2,556 34,273 2003 Hyundai HI 44.0 Blue Star Reederei

En bloc, price eachJun-07 Nedlloyd Adriana 2,556 34,567 2003 Hyundai HI 44.0

Jun-07 Nedlloyd Marita 2,556 32,000 2003 Hyundai HI 44.0

Jun-07 Nedlloyd Valentina 2,556 34,315 2004 Hyundai HI 45.0

Jul-07 Hyundai Sprinter 2,181 24,767 1997 Hyundai HI 150.0 Danaos En bloc, price all

Jul-07 Hyundai Stride 2,181 24,777 1997 Hyundai HI

Jul-07 Wan Hai 251 2,181 24,777 1997 Hyundai HI

Jul-07 Hyundai Future 2,181 24,799 1997 Hyundai HI

Aug-07 Steindeich 1,205 18,355 1996 Stocz. Gdynia 21.5 Marconsult Schiff.

Aug-07 City of Hamburg 2,228 30,400 1990 Hyundai HI 24.0 Marconsult Schiff.

Aug-07 MSC Mara 5,050 68,121 2006 Hanjin Pusan 90.0 Seacastle En bloc, price each, incl. 4y TC back

Aug-07 MSC Benedetta 5,050 67,600 2006 Hanjin Pusan 90.0

Aug-07 MSC Debra 5,050 67,600 2006 Hanjin Pusan 90.0

Aug-07 MSC Olga 5,050 67,600 2006 Hanjin Pusan 90.0

Aug-07 Sinar Lombok 1,057 23,724 1989 Naikai Setoda 10.0 Virginia Key

Sep-07 Cap Bonavista 2,442 33,917 1999 Thyssen 64.0 Allseas

Sep-07 Thorkil Maersk 1,106 21,238 1990 Tsuneishi 16.5 Eastwind En bloc, price eachSep-07 Torben Maersk 1,106 21,238 1990 Tsuneishi 16.5

Sep-07 Trein Maersk 1,106 21,229 1990 Tsuneishi 16.5

Sep-07 Tobias Maersk 1,106 21,229 1990 Tsuneishi 16.5

Nov-07 Mare Hibernum 1,016 12,571 1995 Szczecin 20.0 Danish KS Inc. TC to May-10 at $15,000

Nov-07 Emirates Jumeirah 1,048 15,162 1990 J J Sietas 13.5 Phoenix KS

Nov-07 ARA J 1,122 16,833 1998 Peene-Werft 20.4 Scott Shipping

Dec-07 Maersk Rades 1,118 13,760 2005 Jingjiang Traffic 29.2 Asian owner

Dec-07 Fa Mei Shan 1,118 13,760 2005 Jingjiang Traffic 28.5 Hasco

Jan-08 APL Jebel Ali 2,470 33,817 2002 Aker MTW 57.0 All Ocean

Jan-08 Regina Maersk 6,000 84,900 1996 Odense 280.0 Costamare En bloc, price all, incl. 10y-TCB at $35,000

Jan-08 Kirsten Maersk 6,418 90,456 1997 Odense

Jan-08 Katrine Maersk 6,418 84,900 1997 Odense

Jan-08 Hyundai Highway 2,181 24,757 1998 Hyundai HI 90.0 Danaos En bloc, price all, incl. 10y TCBJan-08 Hyundai Bridge 2,181 24,772 1998 Hyundai HI

Jan-08 Hyundai Progress 2,181 24,766 1998 Hyundai HI

Jan-08 Vento Di Meltemi 1,022 13,333 1985 Bremer Vulkan 21.2 Dutch

Jan-08 ACX Mimosa 1,551 24,497 1992 Kanasashi Toyo. 21.5 American

Jan-08 CMA-CGM Ipanema 1,730 23,051 2001 Szczecin 33.8 Varship Incl. TC to DAL to Apr-08 at $13,000

Feb-08 CMA-CGM Copernic 2,741 37,570 2007 Aker MTW 67.0 Unknown

Feb-08 Cala Palmira 1,132 14,717 1995 Volkswerft 19.5 Unknown Incl. 13m TC

Feb-08 King Anton 2,741 37,800 2008 Aker Ostsee 68.1 STX PanOcean En bloc, price eachFeb-08 King Attila 2,741 37,570 2007 Aker MTW 68.1

122

A Note on Sources

This report necessarily draws on a wide range of sources,

including our own research and network of contacts

and correspondents on a worldwide basis. A number of

third-party sources have also been consulted, including:

the Baltic Exchange, the BBC, Bloomberg, BP, Clarkson

Research Studies, Containerisation International, CRU Steel

Monitor, E.A.Gibson Weekly Tanker Report, the Economist,

Eurostat, Factiva, Fearnley’s Weekly, the Financial Times,

Global Insight Inc, Howe Robinson & Company Container

Research, HSBC Bank Plc, the International Energy

Agency, the International Grains Council, the International

Iron and Steel Institute, the Journal of Commerce, Lloyds

List, Lloyd’s Shipping Economist, Lloyds Register-Fairplay,

Maersk Broker Container Charter Market Monthly, Maritime

Strategies International Ltd, Meps (International) Ltd., the

Metal Bulletin, Mitsui O.S.K. Lines Container Shipping

Research, MoneyWeek, National Bureau of Statistics of

China, Odin Marine Inc, PIERS, Poten and Partners, South

China Morning Post, US Department of Energy (Energy

Information Administration), the Wall Street Journal, Xinhua

News Agency. We gratefully acknowledge all of these.

Should you wish to commission any specific reports then

please contact Nigel Prentis or Mark Williams at +44 20

7719 6605 / 6606.

All information supplied in this report is supplied in good

faith. HSBC Shipping Services Limited does not accept

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report, and cannot be held responsible for any action taken,

or losses incurred, as a result of the details in this report.

This report is distributed to the primary user of the delivery

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express written agreement of HSBC Shipping Services

Limited. The primary user may make copies for his or her

exclusive use.

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Research & Consultancy Division

13/3/08

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