Future of DRY bulk Ship –Owning

Capt Rahul Bhargava

Baltic Dry Index

Future of Dry Bulk Ship –owning

Historically what went wrong Its impact Year gone by 2016 Present market Future of ship- owning Game changer

Historical facts

Market started to pick up post 2002- China building

Less ships and more cargo – freight rallyChina Olympic fuelled the freight market New Ship yards – order books full for 5 years Indian iron ore exports Private Steel Mills in India Indian thermal power plants World GDP growth

World GDP – 3.54(e) 2017

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20160

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Year 2008 China slowed down after Olympics Lehman brothers – developed world

economy Less trade, negative cargo growth Expensive ships in water Supply/ Demand mismatch Bloodbath on street

Year gone by 2016 Lowest BDI in history. Vessels were idling, put on cold storageCancelation / deferment of future new builds. 3rd Highest level of demolition Asset prices lowest level ( inflation adjusted) Banks off loading distressed assetsLowest contracting of new builds since 2001 (

in DWT) 2H saw surge in China stocking coal.

Increasing the freight rates.

Year gone by 2016 On world news

BrexitMr. Donald trump becoming President of

USA .. America first policy Indian currency demonetisation Opening of Panama Canal locks

Present status

Type of vessel 2013 2014 2015 2016M.Dwt M.DWT M.DWT M. DWT No. M DWT 2017 2018 2019+ Number m.DWT % Fleet

Cape (100k+) 293.8 308.1 309.2 315.1 1663 317.3 15.8 14 6.5 144 36.3 11.40%

Panamax (65-100k) 184.3 192.3 195.2 196.3 2479 198.9 9.5 2.9 0.4 155 12.8 6.40%

Handymax (40-65k) 158.6 166.8 179.6 188.4 3493 191.5 12.5 2.4 0.6 256 15.5 8.10%

Handysize (10-40K) 90.2 91.4 92.7 94.1 3345 94.9 6.2 1.9 0.8 251 8.9 9.40%

Total 726.9 758.6 776.7 793.9 10980 802.5 44.1 21.1 8.2 806 73.5 9.20%

Total on order 2017 Order Book & Delivery

Present status

Fleet growth has been 2.6% y-o-y.

Expected fleet growth in 2017 is 1.6%

Capes constitute 40% of total fleet

World trade is expected to grow by 3% CAGR from 2017~2012 (Sources: Technavio research)

Dry BULK - Drivers Dry bulk market is driven by heavy industrial activity and

fossil fuel60 % of cargo is moved for steel industry China changing focus from infrastructure, housing and

heavy industry to consumer and service industryDrop in use of fossil fuel for energy Thermal coal import to UK dropped 80% y-o-y in 2016Its reported that energy supply from coal hit zero for half

a day in UKIndia is reducing imported thermal coal to domestic coal.

Dry bulk Owner’sDry bulk shipping is extremely

fragmented. Owners have very little influence and

bargaining power with traders/end users.

Shipping is more profitable as asset play than a logistic support to trade.

Conservative owners are comfortable running their vessels on long term charter.

Game Changer Zero Supply side growth

Consolidation or evaporate Merger of NOL/APL within CMA CGM Absorption of UASC into Hapag Lloyd Maersk line acquired Hamburg SudCreation of J Line – merger of NYK, Mitsui OSK and K-

line. Loss of Hanjin Line

Game Changer Ship owner’s strategy has to change from asset play

to logistic provider and focus on Return of Capitol. 30 Valemax have been ordered for delivery in 2018 by

three Chinese Owners with b-t-b 25 years charter with Vale.

Vale max once all delivered will carry 50% of Brazilian iron ore.

Banks may not be the biggest support of ship acquisition.

Basel III norms will make less cash available with banks.Non Banking finance like export credit agencies,

bonds, public and private equity will be investors. Higher equity component and higher interest rate.

Game Changer Large Ship Owners will develop long term

relationship with major customers. Banks will fund them making them competitive over small owners.

Large owners will have resources to create, deliver a flexible and value added logistic solution.

Likewise, major customers would like to work with fewer shipowners

Vale signed long term CoA’s with Cosco, China Merchant Group and ICBC.

Once the bulk of business is covered on long term contracts, the intensity and frequency of cycles will decrease.

Asset play will be less attractive

Game Changer Small ship owners

Banks reluctant to finance Higher equity infusion Higher CAPEXUnable to enter long term CoA due to fleet

size Mostly work on spot market, exposed to

market vagaries

Road to Recovery • One Belt one road initiative

Road to Recovery Iran has opened up for trade.Bunker prices are lower. BMW regulations SOX and NOX regulations

Construction related seaborne trade growth

Thanks