Shipping Review Outlook Spring 2016 Summary

8/17/2019 Shipping Review Outlook Spring 2016 Summary

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Clarksons ResearchSpring 2016 7

SHIPPING MARKET OUTLOOK1. SHIPPING MARKET OUTLOOK

EXECUTIVE SUMMARY

! The shipping markets have been subject tosignificant stress over the past six months, witha number of markets close to “rock bottom”.Although the Clarksea Index averaged $14,410/ day in 2015, up 23% on the previous year, thiswas supported by an excellent tanker marketand continued strength in the VLGC market. Thebulkcarrier market remained very depressed,with idling and lay-up now an increasing feature,whilst the containership charter market also fellback towards historical lows in the second halfof 2015. The downturn in the offshore marketdeepened. However, there was some positivityin niche sectors including ferries, Ro-Ro andcruise.

! The world economy has remained fairlysubdued, and global GDP growth projectionshave been revised downwards; world GDP iscurrently projected to expand by 3.4% in 2016,compared to 3.1% in 2015. However, risksappear to be building and are now morefocussed on the developing economies. Thereremain concerns over Chinese growth(projected at 6.3% in 2016) as the economymatures and diversifies away from a focus onheavy industry. Low commodity prices, which

have placed significant financial pressure ondeveloping world exporting countries, alsopresent some downside risks.

! Global seaborne trade expanded 2.0% in2015 to 10.7bt, compared to 3.2% in 2014.Global dry bulk trade contracted by 0.1% in2015, with limited iron ore trade growth anddeclining coal volumes as the Chinese economyslowed. Meanwhile, container trade growthslowed significantly to 2.3%. Conversely total oiltrade expanded strongly at 4.7%. In 2016, globalseaborne trade is projected to see fairly muted

growth of 2.2% to 11.0bt, with dry bulk tradeexpanding 0.3%, container trade growing by4.0% and oil trade by 3.5% in 2016.

! Newbuild contracting across 2015 waslimited, totalling 1,348 ships of 99.0m dwt, down38% on 2014, and the lowest level since 2009.This was largely due to a fall of 68% in thenumber of bulkers ordered (250 units). However,tanker ordering rose by 22% to 414 vessels.There was a “rush” to order before the Tier IIINoX deadline and in early 2016 newbuild activity

has been very subdued, with the outlook quiet.

! On the back of reduced contracting, theorderbook has declined, standing at 283.2m dwtat the start of March 2016, compared to 326.8mdwt at the start of 2015. Newbuilding priceshave continued to fall, but re-sale opportunitieslook highly competitive in comparison, placingfurther pressure on shipyards. Deliveriesincreased in 2015 to 96.6m dwt, and areexpected to increase this year before falling in2017. Further removals of shipyard capacity areexpected in an increasingly tough environmentfor yards.

! Recycling volumes have been significantduring the first two months of 2016, at 11.7m

dwt, following 38.9m dwt in 2015. Bulkerrecycling reached 30.6m dwt last year and isexpected to remain robust in 2016, with a further9.2m dwt sold for recycling in 2016 so far.Containership recycling is also expected toincrease. Overall, the world fleet is projected togrow by 3.1% in 2016 and by 2.7% next year,compared to levels of 8-9% five years ago.

! The sale and purchase market remainedrelatively active in 2015, with 1,365 units sold.There has been strong activity so far in 2016,

with 165 vessels reported sold in the first twomonths. Pricing trends have been mixed withbulkcarrier and containership prices falling andtanker asset prices relatively steady, beforesliding in the year to date. The ship financelandscape continues to undergo significantchanges, with an increasing focus onrestructuring in current market conditions.

! Overall sentiment in the shipping marketsfeels just as bearish as in the immediateaftermath of the financial crisis in late 2008.Fundamentals across the sectors are mixed,

with a few markets performing well, but ingeneral the freight market environment remainsdepressed, particularly in the bulkcarrier sector,with surplus capacity combining with lacklustredemand growth in many cases. Meanwhile,downside risks to global seaborne trade growthremain, including further turbulence in theChinese economy. Overall, if vessel demandgrowth remains relatively sluggish, it may takelonger than previously expected to achieve amore balanced supply-demand environment,which would be needed to support a sustained

recovery in a number of markets.


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Clarksons Research8 Spring 2016

SHIPPING MARKET OUTLOOK

The major volume shipping markets haveexperienced very different fortunes over the lastsix months. Earnings levels in the tanker market

have remained healthy, but bulker earnings areunder severe pressure and containership rateshave fallen back to historical lows.

In the tanker market, earnings have remainedfirm in the last six months, averaging $30,090/ day across the sector as a whole. VLCCearnings topped $100,000/day in December forthe first time since mid-2008, and averaged$73,063/day in the six months from September2015 to February 2016, up 30% compared tothe previous six months. While performance inthe other crude tanker markets has been mixedover the last six months, this has still beenanother positive period. The tighter marketconditions since late 2014 have been supportedby low oil prices, which boosted seaborne crudeoil trade in 2015 after several years of decline.Additionally, fleet growth has been subdued,with crude tanker fleet capacity increasing by just 2% in 2015. In the product tanker market,earnings improved in 1H 2015, but have sincesoftened slightly. While seaborne productstrade also grew strongly by 6% in 2015, partlyreflecting the lower oil price, an acceleration in

fleet growth has kept a partial lid on earnings.

Meanwhile, the last six months have beenexceptionally difficult for the dry bulk market.Average bulker earnings dropped 20% in thesix months to February 2016 to less than$6,000/day, close to typical operating costs. Allsectors of the market have seen significantlyweaker earnings, with Capesize earnings falling12%, and Supramax trip rates down 29%. Whilerapid supply growth in 2010-13 had led to abuild up of surplus capacity, deliveries havesince slowed, allowing bulker fleet growth toease to 2.4% last year, the slowest pace since

1999. However, the problem has now shifted tothe demand side, with the dramatic slowdown inChinese dry bulk imports in 2015 contributing toa 0.1% decline in seaborne dry bulk trade lastyear, causing a further build up of oversupply.

The containership market has also weakenedconsiderably in the last six months. Despite

rapid growth in the large containership fleet, thetightening of supply in the charter market fleetin recent years, combined with a slowdown of akey part of the ‘cascade’ trend from late 2014had seen significantly improved earnings levelsin 1H 2015. However, seaborne container tradegrowth slowed to 2.4% last year, and thecumulative impact of this led to weaker shipdemand in the second half of the year. Ratesfor all charter market sizes have decreased inthe last six months back to historically lowlevels, and overall containership earnings have

dropped 33% to $6,663/day.

In summary, the last six months have seensentiment deteriorate further across the majorshipping sectors, to levels comparable to theonset of the global economic downturn. Thetanker market has performed well, but there areconcerns over its sustainability. After years ofpressure from supply growth, the focus in thevolume shipping markets has clearly shifted tothe demand side, with muted growth inseaborne trade presenting continued problemsfor the market balance in many sectors.

1.1 Freight Market Overview

Containership Earnings

Avg. $/day Mar '15- Sep '15- %

Aug '15 Feb '16 Change

6,800 teu gls (3yr t/c) 25,667 16,167 -37%

4,400 teu gls (1yr t/c) 14,767 6,742 -54%

3,500 teu gls (1yr t/c) 12,500 7,150 -43%

2,500 teu gls (1yr t/c) 11,417 6,983 -39%

2,000 teu gls (1yr t/c) 9,483 7,258 -23%

1,700 teu grd (1yr t/c) 10,050 7,492 -25%

1,000 teu grd (1yr t/c) 7,883 6,633 -16%

Weighted Avg. 9,907 6,663 -33%

Tanker Earnings



VLCC (c. 2010-built) 56,281 73,063 30%

Suezmax (c. 2010-built) 44,688 45,599 2%

Aframax (c. 2010-built) 37,876 34,219 -10%

Products (dirty) 25,485 24,916 -2%

Products (clean) 23,536 17,682 -25%

Weighted Avg. 31,050 30,090 -3%

Bulkcarrier Earnings



Capesize 8,995 7,889 -12%

Panamax (spot) 7,910 6,227 -21%

Panamax (trip) 6,076 4,085 -33%

Handymax (52k) 7,125 5,053 -29%

Handysize (t/c) 6,490 5,615 -13%

Weighted Avg. 7,414 5,947 -20%


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Figure 1.1.3 Figure 1.1.4


0

10

20

30

40

50

60

J a n - 0 6

J a n - 0 7

J a n - 0 8

J a n - 0 9

J a n - 1 0

J a n - 1 1

J a n - 1 2

J a n - 1 3

J a n - 1 4

J a n - 1 5

J a n - 1 6

$ ,000/d

Source: Clarksons Research

ClarkSea Index

0

10

20

30

40

50

60

70

J a n - 0 6

J a n - 0 7

J a n - 0 8

J a n - 0 9

J a n - 1 0

J a n - 1 1

J a n - 1 2

J a n - 1 3

J a n - 1 4

J a n - 1 5

J a n - 1 6

$ ,000/d


Tanker Average Spot Earnings

0

10

20

30

40

50

60

70

J a n - 0 6

J a n - 0 7

J a n - 0 8

J a n - 0 9

J a n - 1 0

J a n - 1 1

J a n - 1 2

J a n - 1 3

J a n - 1 4

J a n - 1 5

J a n - 1 6

$ ,000/d


Bulker Average Spot Earnings

30

40

50

60

70

80

90

100

110

120

J a n - 0 6

J a n - 0 7

J a n - 0 8

J a n - 0 9

J a n - 1 0

J a n - 1 1

J a n - 1 2

J a n - 1 3

J a n - 1 4

J a n - 1 5

J a n - 1 6

'93 = 100


Containership Earnings Index


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The last six months have seen continuedpressures on global economic growth, withseveral forecasters strongly highlighting theemergence of increased downside risks facingthe world economy. In the aftermath of theglobal financial crisis, it was principallyproblems in the developed world that posed thegreatest difficulties, but as the US andEuropean economies have continued togradually improve, the focus has increasinglyshifted to the strength of growth in emergingmarkets, particularly China. During the lastyear, trends in the Chinese economy and incommodity prices have had a significant globalimpact, and in early 2016, the IMF stressed thatglobal growth could be derailed if key

transitions are not successfully managed.

The picture in developed economies has beenone of continued gradual recovery. USeconomic activity has been fairly resilient,sufficient to allow the US Federal Reserve toraise interest rates slightly in late 2015.Economic difficulties in Europe remain, butoverall growth in the region has improved inrecent years. The low oil price environment hassupported this to some extent. The price ofBrent crude averaged $52.5/bbl last year, down

47% y-o-y, and prices fell further in the first twomonths of 2016 to closer to $30/bbl, althoughthey have subsequently increased slightly.

While lower oil prices helped to support oildemand and consumption in Europe and Japanin particular in 2015, this is expected in part tobe a ‘one-time’ boost, and the decline in priceshas also caused a number of negative impactselsewhere. Growth prospects in a number of oil-exporting countries have been significantlyreduced as a result of the decline, includingRussia, and exporters in South America, Africa

and the Middle East, whilst declines in othercommodity prices are also having an impact. InRussia, GDP declined by nearly 4% in 2015,whilst the rouble continued to weaken andinflation surged. Saudi Arabia had appearedrelatively resilient to low prices, but revenue hasdropped sharply and growth is expected toslow. Other producers within OPEC havestruggled significantly, and growth has declinedin Nigeria, whilst economic conditions inVenezuela have deteriorated further. The

recession in Brazil has deepened, with GDPdeclining by 3.8% in 2015. Oversupply in the oilmarket is expected to persist in the short-term,despite projections for US oil production todecline this year. This is likely to maintainpressure on oil exporting countries, and recentdownward revisions to global growth forecastshave been focussed on commodity-exportingdeveloping nations.

There has also been a continued focus on theChinese economy in recent months, as thepace of growth has slowed and the countrycontinues to transition away from a focus onheavy industry towards a more mature,diversified economy. Chinese GDP growthreportedly slowed to 6.9% in 2015, the slowestpace in 25 years. The slowdown largely

reflected a slowdown in the pace of exportgrowth and reduced fixed-asset investment, aswell as weakness in the domestic propertysector. While the service sector in China isgrowing rapidly, there remain concerns over theslower pace of expansion in industrialproduction, and China’s efforts to addressstructural overcapacity in a number of industrialsectors and improve air quality in major cities ishaving a significant impact. Volatility in theChinese stock market has also contributed towider negative trends in global financial

markets.

However, there have been some areas ofpositivity. The Indian economy has continued togrow at a strong pace, and other emergingAsian economies have recorded a positiveperformance. The lifting of nuclear-relatedsanctions on Iran in January 2016 could alsoprovide some positive impetus from thecountry’s increased re-integration in the worldeconomy. Nevertheless, the outlook for anumber of emerging nations remains cloudedby trends in China and the weak commodity

price environment.

Overall, despite pockets of improved economicperformance, growth in most regions cameunder pressure in 2015, with global economicgrowth slowing to 3.1%, from 3.4% in 2014.Global GDP expansion is currently expected topick up slightly in the short-term, to reach 3.4%in 2016, but it seems clear that risks remaintilted to the downside, with significantimplications for trends in seaborne trade.

1.2 World Economy


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Table 1.1 Economic Growth Figure 1.2.1

-20

-15

-10

-5

0

5

10

15

20

25

30

J a n - 0 1

J a n - 0 2

J a n - 0 3

J a n - 0 4

J a n - 0 5

J a n - 0 6

J a n - 0 7

J a n - 0 8

J a n - 0 9

J a n - 1 0

J a n - 1 1

J a n - 1 2

J a n - 1 3

J a n - 1 4

J a n - 1 5

% p.a.


Industrial Production

Pacific - Asia & India

Atlantic - US & Europe

0%

1%

2%

3%

4%

5%

6%

7%

8%

World AdvancedEconomies

EmergingEconomies

China

% y-o-y

Source: IMF

World GDP Trends

2014

2015(e)

2016(f)

0

20

40

60

80

100

120

140

160

J a n - 0 5

J a n - 0 6

J a n - 0 7

J a n - 0 8

J a n - 0 9

J a n - 1 0

J a n - 1 1

J a n - 1 2

J a n - 1 3

J a n - 1 4

J a n - 1 5

J a n - 1 6

$/bbl


Brent Crude Oil Price

GDP (% yoy) 2013 2014 2015 2016* 2017*

OECD 1.1 1.8 1.9 2.1 2.1

USA 1.5 2.4 2.5 2.6 2.6

Japan 1.6 0.0 0.6 1.0 0.3

European Union 1.7 3.4 3.5 3.5 3.6Germany 0.4 1.6 1.5 1.7 1.7

France 0.7 0.2 1.1 1.3 1.5

UK 1.7 2.9 2.2 2.2 2.2

Italy -1.7 -0.4 0.8 1.3 1.2

Russia 1.3 0.6 -3.8 -0.6 1.0

China 7.7 7.3 6.9 6.3 6.0

Developing Asia 7.0 6.8 6.6 6.3 6.2

South Korea 2.9 3.3 2.7 3.2 3.6

Taiwan 2.2 3.8 2.2 2.6 2.9

Hong Kong SAR 3.1 2.5 2.5 2.7 2.8

Singapore 4.4 2.9 2.2 2.9 3.2

Thailand 2.8 0.9 2.5 3.2 3.6

Malaysia 4.7 6.0 4.7 4.5 5.0

India 6.9 7.3 7.3 7.5 7.5

Africa 5.2 5.0 3.5 4.0 4.7

S & C America 2.9 1.3 -0.3 -0.3 1.6

WORLD 3.3 3.4 3.1 3.4 3.6* Forecast , Source: IMF (Jan 2016)


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Around 85% of the volume of total world tradeis transported by sea. In 2015, world seabornetrade is estimated to have expanded 2.0%y-o-y, to total 10.7bn tonnes (equivalent to 1.46tonnes per capita). Trade growth last year wasnotably slower than the average 4.9% p.a.expansion recorded between 2010 and 2014,when trade was supported by strong Chineseimport demand, particularly for raw materials,as well as continued containerisation of goodsand a shift of production globally away fromdemand centres. In 2010-14, the rate ofincrease in world seaborne trade eitherexceeded or was close to the rate of globaleconomic growth. However, last year, seabornetrade (2.0%) is estimated to have grown at a

slower pace than global GDP (3.1%).

In 2015, the slowdown in trade growth wasparticularly notable in the dry bulk sector. Drybulk trade, which accounted for 44% of globalseaborne trade, fell marginally y-o-y last year,totalling 4.7bn tonnes. This was the first year ofdecline since 2009, and significantly slowerthan the average 7.0% p.a. expansion seen inthe preceding 5 years, when strong Chineseeconomic growth boosted import demand forraw materials for use in steel production and

power generation. The maturing of China’seconomy partly led to lacklustre dry bulk importdemand, with imports to the country falling 3%y-o-y. Overall, global seaborne coal trade fellfor the first time in almost 30 years, to total1.1bn tonnes, on the back of slower GDPgrowth and strict coal restrictions in China, aswell as sluggish Indian import demand.Seaborne iron ore trade grew 2.0% y-o-y to1.4bn tonnes, following a 12.5% rise in 2015,partly due to a fall in Chinese steel output. In2016, seaborne dry bulk trade is expected toremain fairly steady y-o-y.

The pace of expansion in container trade alsoeased in 2015, to 2.3% (the slowest pace since2009), with volumes totalling 175.2m TEU dueto negative trends in the world economy. Boxtrade volumes on the peak leg Far East-Europeroute fell by an estimated 3.7% y-o-y on theback of weaker European import demand, aslump in Russian box imports, and inventoryadjustments. Elsewhere, growth on North-Southroutes was limited by the impact of low

commodity prices on emerging economiesheavily reliant on commodity exports.Meanwhile, growth in intra-Asian trade cameunder pressure from the slowdown in China. In2016, container trade growth is expected toaccelerate slightly. However, this is subject tomajor risks in the global economy.

In contrast, seaborne oil trade (crude andproducts combined) grew in 2015, following twoconsecutive years of decline and very slowgrowth prior to this. Crude trade rose 3.6% to37.6m bpd, with OPEC members ramping up oiloutput to attempt to retain market share. Oilprices decreased significantly, leading toimproved refinery margins and increased crudeimports in Europe. Meanwhile, Chinese crudeimports grew 9% in 2015 to 6.1m bpd, on the

back of stockbuilding activity and greaterrefinery throughput. The oil price collapse alsosupported products import demand, particularlyfor transportation fuels. Seaborne productstrade grew 6.2% in 2015 to 22.0m bpd. Thepositive impact of low oil prices on trade seen in2015 is expected to moderate in 2016. China isexpected to remain a key driver of crude tradethis year, as domestic refiners shift fromprocessing fuel oil to crude, and globalseaborne crude oil trade is expected to expand3.5% in 2016. Meanwhile, products trade is

expected to rise 3.6%, supported by refinerycapacity expansions in the Middle East and theapproval of products export quotas in China.

Elsewhere, global seaborne LPG trade grew byaround 9% in 2015 to 78mt, reflecting a firmrise in US exports, as well as robust growth inChinese and Indian imports. Expansion inseaborne LNG trade was limited by a decline inimports to some Far Eastern countries.Meanwhile, seaborne chemicals trade rosefirmly, by an estimated 3%, partly supported byan improvement in downstream demand in

some regions due to the low oil price.

Looking forward to 2016, world seaborne tradeis projected to continue to grow at a relativelymuted pace. Current projections indicate a2.2% expansion in seaborne trade volumes,slower than projected global GDP growth andbelow the historical average. Overall, seabornetrade is projected to total 11.0bn tonnes thisyear, although we will need to monitor closelyfor deviation from this trend.

1.3 Seaborne Trade


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Figure 1.3.3 Table 1.2 Seaborne Trade


-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

2

4

6

8

10

12

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

2 0 1 0

2 0 1 2

2 0 1 4

2 0 1 6 ( f )

bn tonnes


Seaborne Trade 1996-2016

Dry Bulk Crude Oi lOil Products ContainerOther Dry Gas & Chems

y-o-y % growth

Seabornetradegrowth

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1 9 9 0 - 9 4

1 9 9 5 - 9 9

2 0 0 0 - 0 4

2 0 0 5 - 1 0

2 0 1 1 - 1 4

2 0 1 5 ( e )

2 0 1 6 ( f )


Seaborne Trade Growth/GDP

Growth 'Multiplier'

Note: The average multiplier in 2005-10 excludes 2009.

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

500

1,000

1,500

2,000

2,500

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

mt


Chinese Seaborne Imports

Oil

Dry Bulk

Other

y-o-y % growthGrowth in total

Chineseseaborne imports

2012 2013 2014 2015(e) 2016(f)

Iron Ore 1,110 1,190 1,338 1,365 1,344

5.5% 7.2% 12.5% 2.0% -1.5%

Coal 1,123 1,179 1,213 1,135 1,130

12.3% 5.0% 2.8% -6.4% -0.4%

Other Dry Bulk 1,999 2,112 2,143 2,188 2,228

3.4% 5.7% 1.5% 2.1% 1.9%

Total Dry Bulk 4,232 4,481 4,694 4,687 4,702

Trades (mt) 6.2% 5.9% 4.8% -0.1% 0.3%

Crude 1,906 1,836 1,805 1,872 1,938

2.9% -3.7% -1.7% 3.8% 3.5%

Products 915 957 965 1,026 1,063

0.5% 4.5% 0.9% 6.3% 3.6%

2,822 2,793 2,770 2,899 3,001

2.2% -1.0% -0.8% 4.7% 3.5%

556 571 585 601 623

1.1% 2.7% 2.5% 2.7% 3.7%

1,463 1,543 1,638 1,686 1,762

3.6% 5.4% 6.2% 2.9% 4.5%

768 796 825 845 869

5.4% 3.7% 3.6% 2.5% 2.8%

9,841 10,184 10,512 10,718 10,958

4.3% 3.5% 3.2% 2.0% 2.2%

Seaborne Trades

(mt)

Total Oil Trades

(mt)

Total Gas &

Chems Trade (mt)

Total Container

Trade (mt)

Total Other Dry

Trade (mt)

Total Seaborne

Trade (mt)


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In 2015, there was a marked improvement inconditions in the tanker market, largely support-ed by strong crude oil and oil products tradegrowth. OPEC members continued to ramp-upor maintain high levels of oil production in orderto retain market share, which contributed tolower oil prices. The price of Brent crude fell47% y-o-y in 2015 to average $52.5/bbl in2015. This sharp drop supported firm oil de-mand growth and boosted crude oil trade. Thecrude tanker sector also benefitted from slowfleet growth. Overall, average tanker earningsincreased 73% y-o-y in full year 2015, to reach$31,036/day, the highest level since 2008.

Tanker Demand

Following average growth of 1.0% p.a. in 2005-14, seaborne oil trade (crude and productscombined) grew by an encouraging 4.7% in2015, supporting tanker demand. Seabornecrude trade grew 3.8% to 37.6m bpd in 2015,as the low oil price boosted refinery throughputand spurred stockbuilding. The surge in tradealso led to greater waiting time, whilst demandfor tankers for oil storage also increased. Crudetanker deadweight demand is estimated to haverisen 3.6% in 2015, with long-haul trade from

the Middle East to Asia rising firmly. Seaborneproducts trade rose 6.3% to 23.0m bpd, partlyunderpinned by firmer demand for transporta-tion fuels. Expansion in refinery capacity in theMiddle East bolstered products trade from theregion, particularly to Asia, and intra-Europeantrade also increased. Overall, product tankerdemand grew by an estimated 5.9% in 2015.

Tanker Supply

Crude tanker fleet growth has been fairly slowin recent years. The fleet grew 2.4% in dwt

terms in 2015 and at the start of March 2016numbered 3,451 ships of 386.9m dwt. In 2014and 2015, 9.3m dwt and 8.4m dwt of crudetanker capacity respectively was delivered,below the annual average of 25.6m dwt of deliv-eries in the preceding 5 years. Strong marketconditions led to very limited demolition andstrong ordering. During 2015, the crude tankerorderbook grew 60% y-o-y to 71.2m dwt, thehighest level since October 2011. Elsewhere,the product tanker fleet grew relatively rapidly,

1.4 Tanker Market Overview

Table 1.3 Oil Trade Summary

Oil Trade SummaryOil Demand

(MBpd) 2011 2012 2013 2014 2015 2016(f)OECD Europe 14.3 13.8 13.6 13.5 13.7 13.7

-3.0% -3.2% -1.1% -0.9% 1.5% 0.0%

North America 23.4 23.0 23.4 23.5 23.7 23.8-2.0% -1.8% 2.1% 0.2% 0.8% 0.4%

Non-OECD Asia 20.4 21.2 21.9 22.5 23.5 24.12.9% 3.9% 3.4% 2.6% 4.5% 2.8%

Others 31.1 32.2 32.4 32.6 32.8 33.22.5% 3.4% 0.6% 0.6% 0.7% 1.2%

TOTAL 89.1 90.1 91.4 92.1 93.7 94.80.5% 1.1% 1.4% 0.7% 1.8% 1.2%

Crude Oil Supply

(MBpd) 2011 2012 2013 2014 2015 2016(f)Saudi Arabia 9.5 9.8 9.7 9.7 10.4 10.4

6.3% 4.0% -1.4% 0.4% 6.8% -0.1%

Other Middle East 16.8 18.0 18.4 18.3 18.9 19.25.5% 6.8% 2.5% -0.5% 3.0% 2.0%

Latin America 7.1 7.4 7.4 7.5 7.7 7.84.4% 4.2% 0.4% 1.6% 1.5% 1.4%

Africa 10.5 9.7 9.1 8.5 8.5 8.72.1% -7.3% -6.4% -7.0% 0.6% 1.8%

FSU 13.5 13.7 13.9 13.9 14.0 14.02.4% 1.5% 1.1% 0.2% 0.6% 0.3%

Others 31.6 32.0 32.6 35.2 36.4 36.0-4.3% 1.2% 1.9% 7.9% 3.4% -1.1%

Total 88.9 90.6 91.1 93.1 95.8 96.1

1.0% 1.9% 0.5% 2.2% 2.9% 0.3%Total includes NGLs and pro cessing gains

Crude Exports

(MBpd) 2011 2012 2013 2014 2015 2016(f)Middle East 17.9 17.4 17.6 17.1 17.4 18.1

8.9% -2.8% 0.8% -2.8% 1.9% 3.9%

Africa 6.3 7.4 6.6 6.3 6.1 6.2-13.8% 16.9% -10.6% -4.8% -2.6% 1.8%

Caribs & L .Am 4.5 4.6 4.4 4.5 4.7 4.71.2% 1.4% -5.0% 3.6% 3.6% 0.5%

FSU 4.8 4.9 4.8 4.7 5.1 5.2-8.0% 1.9% -1.8% -2.3% 8.4% 2.7%

Others 3.6 4.0 3.5 3.7 4.3 4.7-12.1% 10.3% -11.1% 4.0% 17.5% 8.7%

WORLD TOTAL 37.2 38.3 36.9 36.2 37.6 38.9-1.1% 2.9% -3.7% -1.7% 3.8% 3.5%

Crude Imports

(MBpd) 2011 2012 2013 2014 2015 2016(f)United States 6.7 6.1 5.1 4.5 4.2 4.4

-7.4% -9.0% -15.7% -13.3% -6.5% 4.4%EU Europe 9.0 9.6 9.0 8.9 9.4 6.2

-3.9% 6.9% -5.6% -1.7% 6.2% -34.1%

China 4.6 4.9 5.1 5.6 6.1 4.74.2% 7.4% 3.6% 10.1% 9.3% -23.2%

Other Asia 12.8 13.5 13.4 13.3 13.8 5.22.4% 5.3% -0.8% -1.0% 4.5% -62.3%

Others 4.1 4.2 4.2 4.0 4.0 18.40.3% 1.4% 0.3% -4.1% -0.5% 359.4%

WORLD TOTAL 37.2 38.3 36.9 36.2 37.6 38.9-1.1% 2.9% -3.7% -1.7% 3.8% 3.5%

Products Exports

(MBpd) 2011 2012 2013 2014 2015 2016(f)Asia 5.5 5.5 5.8 5.8 6.1 6.4

4.4% -1.2% 6.1% 1.0% 3.7% 5.0%

Europe 5.1 5.4 5.5 5.4 5.6 5.74.2% 6.1% 1.2% -2.5% 4.4% 1.6%

Latin America 0.7 0.7 0.7 0.6 0.6 0.6-14.0% -1.9% -2.0% -9.8% -5.7% 4.5%

Others 8.4 8.2 8.7 9.1 10.0 10.43.6% -1.5% 6.2% 3.7% 10.0% 3.7%

WORLD TOTAL 19.7 19.8 20.7 20.9 22.2 23.03.2% 0.5% 4.5% 0.9% 6.3% 3.6%

Products Imports

(MBpd) 2011 2012 2013 2014 2015 2016(f)Europe 6.5 6.5 6.8 6.7 6.9 7.1

2.3% -0.1% 5.3% -2.3% 2.8% 3.0%

Total Asia 7.2 7.3 7.7 7.8 8.4 8.65.8% 2.7% 5.0% 1.1% 7.0% 2.6%

Others 6.0 6.0 6.1 6.4 7.0 7.41.1% -1.3% 3.1% 4.1% 9.2% 5.3%

WORLD TOTAL 19.7 19.8 20.7 20.9 22.2 23.03.2% 0.5% 4.5% 0.9% 6.3% 3.6%

Source: Oil and Tanker Trades Outloo k: Clarksons Research. (f)=forecasts.

Crude demand derived from crude and DPP trade. Products demand derived from DP P,

CPP and veg oil trade.


9/27



Figure 1.4.2

Figure 1.4.1 The Tanker Market

• The tanker market per-formed very well in 2015.Althugh the market hascome off slightly in 2016 sofar, it is still 7% above the

long-term trend. In the firsttwo months of 2016, spotearnings in the VLCC andSuezmax sectors have re-mained notably above thelong-term trend.

•Average VLCC spot earn-ings in the six months up toMarch 2016 rose 56%y-o-y to $73,063/day, withearnings reaching morethan $100,000/day inDecember 2015.

•Benchmark secondhandprices in the majority oftanker sectors have gener-ally declined in the year todate. The price for a 5 yearold uncoated Aframaxstood at $40m at the end ofFebruary 2016.

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Crude Tanker Market Cycles

Tanker Lay-Up

VLCC 1 Year T/C

Aframax 1 Year T/C

Soft

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Strong!

Average Values,2006-2015

-120%

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Where are we in the Tanker Cycle ?Market 2006-15

Ship by Type Rate Average Market % diff. from Market % diff. from

Indicator Value Rate Average Rate Average

Spot ($/day) 43,583 64,846 49% 59,417 36% -12% Worse1 year t/c ($/day) 40,821 48,433 19% 52,667 29% 10% Better

5 year old ($m) 90.8 80.0 -12% 76.0 -16% -4% Bit Worse

VLCC Average 19% 16% -2% Bit Worse

Spot ($/day) 35,031 46,713 33% 41,067 17% -16% Worse

1 year t/c ($/day) 30,529 35,875 18% 37,444 23% 5% Bit Better


Suezmax Average 15% 10% -5% Bit Worse

Spot ($/day) 35,031 37,954 8% 30,302 -14% -22% Worse!

1 year t/c ($/day) 22,744 26,712 17% 29,778 31% 13% Better

5 year old ($m) 47.4 46.0 -3% 40.0 -16% -13% Worse

Aframax Average 8% 1% -7% Bit Worse

Spot ($/day) 16,813 21,536 28% 16,676 -1% -29% Worse!

1 year t/c ($/day) 17,862 17,769 -1% 18,194 2% 2% Bit Better


Clean Products Average 5% -6% -10% Worse

Tanker Average 13% 7% -6% Bit Worse

2015 2016 YTD

This Year…

VLCC

Suezmax

Aframax

Clean Products

(30k dwt)


10/27



by 5.8% in dwt terms, partly as demolition al-most halved y-o-y to 0.8m dwt and deliveries(8.7m dwt) reached the highest level since2008. The MR and LR2 fleets expanded partic-ularly rapidly in 2015, by 9% and 10% respec-tively. Meanwhile, product tanker ordering hasbeen fairly subdued since 2014. This, as well asstrong delivery levels, led to a decline in thesize of the product tanker orderbook in 2015.

The VLCC Market

Conditions in the VLCC market were very posi-tive in 2015, supported by a tight supply-demand balance. Average VLCC earningsmore than doubled y-o-y to $64,846/day in2015 and exceeded $100,000/day in Decemberfor the first time since mid-2008. VLCC demand

rose firmly, as the low oil price boosted oil de-mand and stockbuilding, while fleet growth wassluggish. Reflecting the strong market condi-tions, demolition activity was very subdued, with just two units reported scrapped, while contract-ing doubled y-o-y to 20.4m dwt.

The Suezmax Market

In 2015, the Suezmax fleet grew 1.9% in dwtterms, while deadweight demand expanded by5.0%. Improved refinery margins in Europe, on

the back of the low oil price, boosted intra-regional crude trade and shipments to the re-gion from WAF and the Middle East. Suezmaxmarket fundamentals improved notably, withaverage earnings rising 68% y-o-y to $46,713/ day. Ordering remained firm, while demolitionactivity has stalled.

The Aframax Market

Average Aframax earnings increased 54% y-o-yin 2015 to $37,954/day. Following two consecu-tive years of decline, crude Aframax demand

expanded last year (by 2.2%) on the back offirm growth in intra-regional trade. Meanwhile,crude Aframax fleet growth remained very lim-ited. Crude Aframax contracting increased in2015, with 59 vessels ordered, compared to just8 and 11 in 2013 and 2014 respectively.

The Products Market

The products market performed strongly in2015, with earnings firming across all size sec-

tors, despite robust fleet expansion. Seaborneoil products trade expanded significantly in2015, largely supported by the low oil price,

which drove improved refinery margins and in-creased oil demand in a number of countries.An expansion in refinery capacity and productsexports from the Middle East, as well as firmnaphtha import demand in Asia supported theLR market east of Suez. LR2 earnings on theGulf-Japan route increased 67% y-o-y to$30,497/day, while LR1 earnings on the sameroute rose 63% y-o-y to $24,847/day. Mean-while, clean MR earnings rose 71% y-o-y toaverage $21,444/day, as refinery throughput inthe US and Europe increased, boosting Atlantic

trade. Dirty Panamax earnings firmed to aver-age $26,548/day in 2015, the highest levelsince 2008.

Tanker Market Outlook

In 2016, seaborne crude and products tradegrowth is projected to grow 3.5% and 3.6% re-spectively, as the boost from the slump in theoil price is expected to ease. Although this isslower growth than in 2015, it is still historicallyrelatively firm. Crude tanker fleet capacity isprojected to expand 5.0% in dwt terms in 2016,reflecting an expected influx of deliveries of thelatter half of this year, which may exert somepressure. Meanwhile, the outlook for producttanker demand in 2016 appears fairly positive,supported by refinery capacity expansions inthe Middle East, and firm Chinese products ex-ports. However, the product tanker fleet is ex-pected to expand 4.9% in dwt terms. Overall,the outlook for the tanker sector is reasonable,but there is potential for supply to increase laterin the year.

Table 1.4 Tanker Fleet

Year End Forecast

2013 2014 2015 2016 2017

VLCC 190.2 194.2 200.3 213.4 224.1

1.6% 2.1% 3.1% 6.6% 5.0%

Suezmax 76.2 76.0 77.4 80.8 86.7

4.9% -0.3% 1.9% 4.5% 7.2%

Aframax 96.9 96.0 99.0 103.0 108.0

-0.7% -0.9% 3.1% 6.6% 4.9%

Panamax 29.9 29.8 29.4 30.2 31.2

0.4% -0.3% -1.3% 2.5% 3.4%

Handy 107.7 111.7 118.3 123.7 127.0

2.6% 3.8% 5.9% 4.6% 2.7%

Total Fleet >10k dwt 500.8 507.8 524.3 551.0 576.8

% Change 1.8% 1.4% 3.3% 5.1% 4.7%

Tanker Fleet (m.dwt)


11/27





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Product Tanker FleetCrude Tanker Fleet

2016/17 = Forecasts

m. dwt, end year.

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5 year Old Tanker Price Index (LHS)

Aframax One YrT/C Rate

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Oil Tanker Fleet Trends

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Seaborne Oil Trade

Crude Oil

Oil Products

y-o-y change


12/27



Bulkcarrier market conditions came under re-newed severe pressure in 2015, reflecting theimpact of a considerable slowdown in seabornedry bulk trade and existing oversupply pres-sures. Average bulkcarrier earnings declined28% y-o-y to $7,123/day in 2015, the lowestlevel since 1999, and have slumped even fur-ther in 2016 so far. Asset prices have de-creased significantly, and pressure on bulkcarri-er owners has been severe. Against this back-drop of extremely challenging market condi-tions, bulker demolition surged last year, help-ing to limit overall fleet growth to the slowestpace in fifteen years. Meanwhile, newbuild con-tracting activity was very subdued in 2015 andfell to the lowest level since 2001, and the or-

derbook declined by almost 30% in terms oftonnage over the course of the year. Idling andlay-up of bulkcarrier tonnage has also in-creased significantly in recent months.

Bulkcarrier Demand

2015 saw a significant shift in bulkcarrier de-mand, with seaborne dry bulk trade estimatedto have declined marginally to total 4.7bntonnes, following average growth of around 7%p.a. in the preceding five year period. Chinese

dry bulk imports have been a key driver of theoverall expansion in dry bulk trade in recentyears. In 2010-14, growth in dry bulk importsinto China accounted for more than 50% of theexpansion in global seaborne dry bulk trade.However, Chinese dry bulk imports fell by 3% in2015, partly reflecting the maturing of the Chi-nese economy. Weakness in China’s construc-tion industry and property sector contributed toa 2% decline in the country’s steel output, limit-ing growth in seaborne iron ore imports to 2% in2015, following expansion of 15% in 2014.Meanwhile, global seaborne coal trade declined

for the first time in almost three decades to total1.1bn tonnes in 2015, reflecting the impact ofweak coal demand and coal quality restrictionsin China, as well as expanding domestic coalproduction in India. Meanwhile, growth in minorbulk trade softened to 0.7%, following averageannual growth of 5.3% in 2010-14.

Bulkcarrier Supply

The bulkcarrier fleet expanded 2.4% in dwtterms in 2015, which was the slowest pace of

1.5 Dry Bulk Market Overview

Table 1.5 Dry Bulk Trade Summary

Summary of Dry Bulk TradeIron Ore Imports

(mt) 2011 2012 2013 2014 2015(e) 2016(f)China 665.4 723.5 794.9 913.8 939.7 921.6

10.4% 8.7% 9.9% 15.0% 2.8% -1.9%Other Asia 222.4 225.9 229.2 249.5 249.8 249.4

1.9% 1.6% 1.5% 8.9% 0.1% -0.2%EU 27 112.6 107.2 112.2 115.8 112.1 106.3

-3.2% -4.8% 4.7% 3.2% -3.2% -5.2%Others 52.3 53.6 53.2 59.2 63.0 67.0-3.9% 2.5% -0.8% 11.4% 6.4% 6.2%

TOTAL 1,052.7 1,110.2 1,189.6 1,338.3 1,364.6 1,344.26.2% 5.5% 7.2% 12.5% 2.0% -1.5%

Iron Ore Exports

(mt) 2011 2012 2013 2014 2015(e) 2016(f)Australia 437.8 493.7 579.0 717.0 766.9 803.4

9.0% 12.8% 17.3% 23.8% 7.0% 4.8%Brazil 326.3 322.4 320.4 337.7 362.0 358.5

6.5% -1.2% -0.6% 5.4% 7.2% -1.0%Other 288.5 294.1 290.2 283.7 235.8 182.3

1.9% 1.9% -1.3% -2.2% -16.9% -22.7%TOTAL 1,052.7 1,110.2 1,189.6 1,338.3 1,364.6 1,344.2

6.2% 5.5% 7.2% 12.5% 2.0% -1.5%

Coking Coal Imports

(mt) 2011 2012 2013 2014 2015(e) 2016(f)India 32.6 35.2 35.0 43.8 49.2 51.9

-6.1% 8.0% -0.4% 25.1% 12.2% 5.4%China 24.6 34.6 60.0 47.7 35.5 32.7

-23.6% 40.4% 73.6% -20.5% -25.4% -8.0%EU 27 46.3 44.9 44.2 45.0 44.0 42.1

2.2% -3.2% -1.4% 1.7% -2.3% -4.2%Others 4.8 4.9 4.8 4.7 5.1 5.2

-8.0% 1.9% -1.8% -2.3% 8.4% 2.7%TOTAL 224.4 233.7 264.4 262.1 252.0 250.2

-5.0% 4.2% 13.2% -0.9% -3.9% -0.7%

Coking Coal Exports

(mt) 2011 2012 2013 2014 2015(e) 2016(f)Australia 117.1 124.2 145.7 150.9 153.7 155.6

-17.9% 6.1% 17.3% 3.6% 1.9% 1.2%USA 59.3 59.0 56.4 53.2 39.7 36.9

24.1% -0.5% -4.5% -5.5% -25.4% -7.0%Other 48.0 50.5 62.4 58.0 58.6 57.7

4.8% 5.2% 23.5% -7.1% 1.0% -1.6%TOTAL 224.4 233.7 264.4 262.1 252.0 250.2

-5.0% 4.2% 13.2% -0.9% -3.9% -0.7%

Steam Coal Imports

(mt) 2011 2012 2013 2014 2015(e) 2016(f)India 94.6 122.9 140.3 172.1 162.1 157.1

26.8% 29.8% 14.2% 22.7% -5.8% -3.1%China 141.0 194.1 204.9 191.4 128.3 118.0

29.2% 37.6% 5.6% -6.6% -33.0% -8.0%Other Asia 337.6 347.5 354.4 363.7 373.0 388.7

2.9% 2.0% 2.6% 2.6% 4.2% 4.2%EU 27 128.9 147.6 138.9 136.7 127.7 120.9

19.0% 14.5% -5.9% -1.6% -6.6% -5.3%Other 73.6 77.4 76.3 86.5 91.6 94.8

1.5% 5.3% -1.5% 13.3% 6.0% 3.5%TOTAL 775.8 889.5 914.9 950.4 882.7 879.6

11.8% 14.7% 2.9% 3.9% -7.1% -0.4%

Steam Coal Exports

(mt) 2011 2012 2013 2014 2015(e) 2016(f)Indonesia 350.6 381.8 415.5 408.2 355.6 346.7

18.4% 8.9% 8.8% -1.8% -12.9% -2.5%Australia 154.8 184.2 199.2 224.2 224.5 231.2

3.4% 19.0% 8.1% 12.6% 0.1% 3.0%Others 270.3 323.5 300.2 318.0 302.6 301.7

8.9% 19.7% -7.2% 5.9% -4.8% -0.3%TOTAL 775.8 889.5 914.9 950.4 882.7 879.6

11.8% 14.7% 2.9% 3.9% -7.1% -0.4%Grain and Minor Bulk Trade(mt) 2011 2012 2013 2014 2015(e) 2016(f)Wheat&Coarse Grain 254.5 279.0 286.8 315.1 319.1 325.9

3.5% 9.6% 2.8% 9.9% 1.3% 2.1%Soybean 90.7 95.9 104.8 116.6 127.7 134.0

-6.8% 5.7% 9.2% 11.3% 9.4% 4.9%Minor Bulk* 1588.6 1624.1 1720.7 1711.4 1740.8 1768.2

7.9% 2.2% 5.9% -0.5% 1.7% 1.6%TOTAL DRY BULK 3,986.6 4,232.4 4,481.1 4,694.0 4,687.0 4,702.0

6.7% 6.2% 5.9% 4.8% -0.1% 0.3%

*Minor bulk total includes phosphate rock and bauxite/alumina

(f)=forecasts

Source: Dry Bulk Trade Outlook: Clarksons Research


13/27



Figure 1.5.2

Figure 1.5.1 The Bulkcarrier Market

• The dry bulk market hasremained under pressure,with average earnings in allsectors in the year to datedown y-o-y. Capesize spot

earnings in the first twomonths of 2016 fell 52%y-o-y to average $3,262/ day, and the Capesizemarket is 80% below thehistorical average.

•Secondhand prices felldeclined in all sectors dur-ing 2015 and have contin-ued to fall in the year todate, reflecting weak mar-ket sentiment. Thesecondhand price for a 5year old Capesize stood at$23.8m at the end of Feb-ruary 2016, down 39%y-o-y.

•Overall, the dry bulk mar-ket is 75% below the long-term historical trend.

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Bulkcarrier Lay-Up

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Where are we in the Bulkcarrier Cycle?Market 2006-15


Indicator Value Rate Average Rate AverageCapesize Spot ($/day) 40,623 9,060 -78% 3,262 -92% -14% Worse

(170k dwt) 1 year t/c ($/day) 40,797 10,049 -75% 5,331 -87% -12% Worse

5 year old ($m.) 60.3 25.0 -59% 23.8 -61% -2% Bit Worse

Capesize Average -71% -80% -9% Bit Worse

Panamax Spot ($/day) 19,340 7,335 -62% 4,916 -75% -13% Worse



Panamax Average -63% -72% -9% Bit Worse

Supramax Trip ($/day) 19,835 6,578 -67% 3,356 -83% -16% Worse



Supramax Average -62% -74% -12% Worse

Dry Bulk Average -65% -75% -10% Bi t Worse

2015 2016 YTD

This Year…


14/27



growth since 1999. Weak market conditions ledto a surge in demolition last year, with 30.6mdwt reported scrapped, almost double the 2014level. Deliveries continued at a relatively steadypace, with 49.3m dwt entering the fleet. Bulkerordering was very subdued in 2015, with just250 units of a total 17.7m dwt reported ordered,compared to an average of 74.2m dwt p.a. inthe previous ten years. Some owners alsochose to convert existing orders to other vesseltypes including tankers and boxships. In 2015,the bulker orderbook declined by 28% in termsof tonnage, and at the start of March 2016stood at 1,391 vessels of 112.5m dwt, thesmallest it has been since early 2007.

The Capesize Market

A notable slowdown in the pace of seaborneiron ore trade growth in 2015, largely due tosluggish Chinese import demand, placed signifi-cant pressure on the Capesize market in 2015.Capesize spot earnings declined 44% y-o-y toaverage $9,060/day and the market has weak-ened even further in 2016 so far, with earningsreaching a record low of $2,690/day in Febru-ary. Capesize fleet growth slowed to just 0.4%in dwt terms in 2015, on the back of firm demo-lition (totalling 15.4m dwt). Meanwhile, new-building interest has collapsed contributing to a

decline in the size of the orderbook, which wasequivalent to 14% of the fleet at the start ofMarch 2016, compared to 21% a year earlier.

The Panamax Market

Following average growth of 10% p.a. in 2010-14, Panamax fleet growth slowed to 1.5% in2015. Despite this, conditions in the Panamaxmarket remained challenging last year, as sea-borne coal trade declined on the back of weakdemand in Asia and Europe. Overall, averagePanamax spot earnings softened 6% y-o-y to

$7,335/day in 2015, and fell even further to$4,831/day in February 2016.

The Handymax Market

The Handymax fleet, which includes Ultramax-es and Supramaxes, expanded rapidly by 7.7%in dwt terms in 2015. This firm pace of growth,coupled with a decline in seaborne coal tradeand only limited growth in minor bulk trade vol-umes, placed considerable pressure on the

Handymax market in 2015. Average Supramaxtrip rates fell 28% y-o-y to $6,578/day in 2015.Weak sentiment contributed to a fall in contract-

ed in 2015, with just 4.9m dwt of Handymaxtonnage reported ordered, compared to 31.2mdwt in 2013 and 17.9m dwt in 2014.

The Handysize Market

The build-up of surplus capacity in theHandysize market in recent years, as well aslimited growth in seaborne minor bulk trade lastyear (the slowest pace since 2009), continuedto place pressure on fundamentals in 2015. Av-erage Handysize trip rates decreased 28%

y-o-y to $5,485/day during the year.

Bulkcarrier Market Outlook

The extremely difficult operating environmenthas seen owners take significant supply sideaction, and demolition is expected to remainvery firm this year. This is projected to helpbulkcarrier fleet growth slow to just 1.5% in2016, and 0.7% in 2017, whilst newbuilding in-terest is expected to be subdued. Despite thisnotable supply-side adjustment, the outlook forseaborne dry bulk trade growth remains diffi-

cult. China’s continued economic transition anda focus on reducing overcapacity in someheavy industries is likely to impact trade.Growth in global iron ore trade is expected tobe limited as a result, and coal trade is alsolikely to come under further pressure fromweaker Chinese and Indian demand. With drybulk trade growth expected to remain subduedin coming years, with expansion of just 0.3%projected for 2016, the market is likely to re-main under pressure for some time yet.

Table 1.6 Bulkcarrier Fleet

Year End Forecast

2012 2013 2014 2015 2016 2017

Capesize 280.0 293.9 308.2 309.4 309.7 308.3

12.0% 5.0% 4.9% 0.4% 0.1% -0.4%

Panamax 169.2 184.2 192.3 195.2 196.6 198.5

12.0% 8.9% 4.4% 1.5% 0.7% 1.0%Handymax 147.4 158.3 166.6 179.4 189.7 195.8

12.2% 7.4% 5.2% 7.7% 5.7% 3.2%

Handysize 90.1 89.5 90.6 91.9 91.8 90.9

1.6% -0.7% 1.3% 1.5% -0.1% -1.0%

686.7 726.0 757.7 775.8 787.8 793.5

10.6% 5.7% 4.4% 2.4% 1.5% 0.7%

Dry Bulk Fleet

(m.dwt)

Total Fleet


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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0

100

200

300

400

500

600

700

800

900

1 9 9 5

1 9 9 7

1 9 9 9

2 0 0 1

2 0 0 3

2 0 0 5

2 0 0 7

2 0 0 9

2 0 1 1

2 0 1 3

2 0 1 5

2 0 1 7


Bulkcarrier Fleet by Type

Handysize

Handymax

Panamax

Capesize

2016/17 = Forecasts.

m. dwt, end yr.

Orderbook as% of Fleet


0

8

16

24

32

40

48

56

64

72

80

0

10

20

30

40

50

60

70

80

90

100

J a n - 9 2

J a n - 9 4

J a n - 9 6

J a n - 9 8

J a n - 0 0

J a n - 0 2

J a n - 0 4

J a n - 0 6

J a n - 0 8

J a n - 1 0

J a n - 1 2

J a n - 1 4

J a n - 1 6

$ ,000/d$ million


Bulkcarrier Prices & T/C Rates

Panamax 1 Year T/C

5 Year OldPanamax

15 Year OldPanamax

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

2 0 1 0

2 0 1 2

2 0 1 4

2 0 1 6 ( f )

mt


Seaborne Dry Bulk Trade

Iron OreCoalGrain

Minor BulkDry Bulk Trade Growth

y-o-y growth

0

20

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60

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1 9 8 8

1 9 9 0

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m dwt


Bulkcarrier Fleet Trends

Contracting

Deliveries

Scrapping

year to date


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Over the last six months, the containership mar-ket has come under renewed pressure, partlyas a result of slower growth in seaborne boxtrade. Boxship charter earnings were volatile in2015, and improved in the first half of the year,having remained at historically weak levels forsome time. However, these gains were relin-quished in the second half of the year. Earningshave remained at historically low levels into ear-ly 2016, with the Panamax one year charterrate standing at $5,800/day in February 2016,down from over $15,000/day in mid-2015. Whilethe slowdown in a key part of the cascadetrend, and limited supply growth in the smalland medium sized boxship fleets had supportedimproved earnings in early 2015, the cumulative

impact of slower growth in seaborne containertrade took its toll on the market as the yearwent on. Reduced vessel demand also contrib-uted to an increase in the level of idle capacity,to more than 8% of the fleet by early March2016, the highest level in six years. Meanwhile,the box freight market remained highly volatileand subject to severe downward pressure in2015 and into early 2016, significantly impact-ing liner company performance. Freight rateshave declined to near-record lows on severaloccasions since mid-2015, as liner companies

continue to struggle to manage the impact ofrobust deliveries of very large containerships.

Containership Demand

Box trade growth is estimated to have slowed to2.3% in 2015, less than half the pace of growthachieved in 2014. While volume growth on theTranspacific remained fairly robust, volumes onthe key Far East-Europe trade declined by 4%,on the back of weak European import demand,reduced Russian imports and cutbacks in in-ventory restocking. Growth in intra-Asian vol-

umes slowed to around 3% in 2015, as a resultof slowing Chinese economic growth and weak-er performance elsewhere in Asia. Meanwhile,container imports into commodity exporting de-veloping economies also slowed in the secondhalf of 2015, with total North-South trade in-creasing by just 1.1% in the full year.

Containership Supply

At the start of March 2016, the containershipfleet numbered 5,230 ships of 19.8m TEU. Con-

tainership fleet growth accelerated further in2015, with expansion of 8.1% recorded duringthe year in terms of capacity. Deliveries totalled

1.7m TEU last year, with 87% of this volume inthe 8,000+ TEU sector. Meanwhile, container-ship demolition slowed in 2015 to 0.19m TEU,from 0.37m TEU in 2014. Contracting activitydoubled last year compared to 2014 levels, with231 ships of 2.1m TEU ordered last year, themajority of which was in the ‘mega’ boxshipsector, although there was some activity in the‘feeder’ segment. By the start of March 2016,the orderbook totalled 439 ships of 3.7m TEU,equal to 19% of fleet capacity. Slow steamingcontinues to absorb capacity and despite the

lower bunker prices, there has been no indica-tion of a significant increase in service speeds.

Containership Outlook

Supply growth in the fully cellular containershipfleet is expected to slow in 2016 to 3.9%, as thepace of ‘mega’ boxship deliveries eases slight-ly. However, large containership deliveries arestill expected to remain firm (and are projectedto accelerate again in 2017), and this is likely tocontinue to exert pressure on freight rates in theshort-term. Supply side fundamentals in the

charter market remain positive as a result ofgreater demolition, limited deliveries in thesmaller segments, and the likely continuedslowdown of the cascade of surplus capacity.However, charter rates are not expected to in-crease until growth in container trade improves.The build up of surplus capacity, especially inthe Post-Panamax sector, is also likely to re-quire time to absorb. Global box trade expan-sion is currently expected to increase to around4% in 2016, although this projection remainssubject to a number of downside risks.

1.6 Containership Market Overview

Table 1.7 Containership Fleet

Year End

2013 2014 2015 2016 2017

Small 4,083 4,009 4,015 4,009 3,992

(


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Figure 1.6.2

Figure 1.6.1 The Containership Market

Figure 1.6.3

•Following improvements inearly 2015, containershipcharter earnings have re-turned to historically lowlevels and remain under

pressure.• In the first two months of

2016, charter rates wereon average 49% below thelong-term historical trend,reflecting slower growth inboxship demand and thebuild up of surplus fleetcapacity. Charter rateshave declined particularlysignificantly in the Post-Panamax sizes.

•Asset prices have comeunder renewed pressureon the back of weaker mar-ket sentiment. The guide-line price for a 10 year oldgearless 2,750 TEU con-tainership reached $9.0min February 2016, 59% be-low the long-term average.

0

5

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15

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45

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J a n - 9 6

J a n - 9 8

J a n - 0 0

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J a n - 1 0

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J a n - 1 6

$ ,000/d


Containership Charter Rates

2750 TEU gls

4400 TEU gls

1700 TEU grd

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

2 0 1 0

2 0 1 2

2 0 1 4

2 0 1 6

'000 TEU


Containership Fleet Trends

year to date

Deliveries

Contracting

Scrapping

Where are we in the Containership Cycle ?Market 2006-15


Indicator Value Rate Average Rate Average1 year t/c ($/day) 7,846 8,220 5% 6,475 -17% -22% Worse!

10 year old ($m.) 10.2 6.0 -41% 4.8 -53% -12% Worse

-18% -35% -17% Worse

1 year t/c ($/day) 9,904 10,825 9% 7,000 -29% -39% Worse!!

10 year old ($m.) 14.8 8.5 -43% 7.0 -53% -10% Worse

-17% -41% -24% Worse!

1 year t/c ($/day) 10,592 11,339 7% 6,650 -37% -44% Worse!!


-21% -48% -27% Worse!

1 year t/c ($/day) 13,042 13,544 4% 6,000 -54% -58% Worse!!


-23% -57% -33% Worse!!

1 year t/c ($/day) 18,222 15,660 -14% 5,875 -68% -54% Worse!!

10 year old ($m.) 21.2 12.0 -43% 9.5 -55% -12% Worse

-29% -61% -33% Worse!!

Container Charter Market Average -22% -48% -27% Worse!

1,000 teu geared

2016 YTD

This Year…

2015

4,400 teu gearless

2,750 teu gearless

2,000 teu gearless

1,700 teu geared

Soft

Softer

Firm

Firmer

Strong!


-120%

-90%

-60%

-30%0

+30%

+60%

+90%

+120%

-48%Weak!


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Outside of the three major volume sectors, mar-ket performance has also been mixed over thelast six months. For more details on each of thefollowing markets, see Section 2.

Gas Carrier Sector

Market conditions in the LNG and LPG sectorsdiverged considerably in 2015. In the LPG sec-tor, VLGC earnings rose further from very firmlevels in 2014, to average $88,508/day in 2015,up 15% y-o-y. The market was supported byrapid LPG trade growth, driven by strong ex-pansion in US exports. However, conditions inthe smaller LPG carrier sectors were mixed.Meanwhile, short term rates in the LNG carrier

market weakened in 2015. Subdued Asian LNGdemand undermined expansion in seaborneLNG trade, whilst the fleet has continued togrow fairly quickly. The guideline spot rate for a160,000 cbm carrier fell in 1H 2015, and aver-aged $36,038/day in the full year, down 50%y-o-y, and by February 2016 had dropped to$27,750/day. The drop in LNG spot prices hasalso led to increased delay in LNG project de-velopment, although increased volumes areexpected and there were newbuild ordersplaced for long-term projects.

Chemical Tanker Sector

The chemical tanker market continued to gradu-ally improve in 2015. The average one yeartimecharter rate for a 19,999 stainless steeltanker rose by 8% y-o-y in 2015 to$15,233/day, and reached $16,250/day by Feb-ruary 2016. Growth in seaborne chemical tradeaccelerated in 2015, partly reflecting the posi-tive impact of low energy prices on downstreamdemand in some regions.

MPP Sector

The MPP market has come under considerablepressure in recent years. The sector has contin-ued to face competition from the containershipand bulkcarrier fleets, two sectors with sizeablelevels of surplus capacity. Shipments of projectcargoes have also reportedly weakened, owingto reduced investment in energy and offshoreprojects. The guideline one year charter rate fora 21,000 dwt MPP stood at $9,500/day at theend of February 2016, down 5% y-o-y.

Reefer Sector

Reefer market conditions improved slightly in2015, with the decline in the fleet in recentyears helping to balance the market to an ex-tent. However, spot rates have decreased sofar in 2016, and the outlook remains challeng-ing. The sector is expected to continue to losemarket share to boxships into the long-term.

Car Carrier Sector

2015 was a difficult year for the car carrier sec-tor. Charter rates and asset prices have de-clined, whilst idling of tonnage has increased.The one year charter rate for a 6,500 ceu carri-er fell to $22,500/day in February 2016, down14% from mid-2014. Having recorded gradual

improvement in 2009-14, the sector has sincecome under pressure from the impact of lowerdemand growth in recent years, as seabornetrade in cars has expanded at a slower pace.

Ro-Ro/Passenger Sectors

In the Ro-Ro and passenger ferry sectors, themarket has tightened significantly, and notableimprovements in charter rates and asset priceshave been seen. The one year charter rate for a3,500lm Ro-Ro reached €21,000/day in Febru-

ary 2016, up from €14,500/day at the start of2015. Following a period of depressed marketconditions, elevated levels of demolition andlimited contracting in recent years have led to adecline in the Ro-Ro fleet, and limited expan-sion in the passenger ferry fleet, allowing grad-ual demand improvements to tighten the mar-ket. Major operators are now expected to un-dertake fleet renewal programmes in comingyears, in part to meet increasingly stringentemissions regulations.

Cruise Sector

The rate of expansion in the cruise industry hascontinued unabated, and newbuilding interesthas been strong in recent years, leading to arecord orderbook of 48 units by start March2016. The cruise lines are continuing to expandoperations in Asia, and optimism about pro-spects for growth in the region has led somecompanies to order new ships and modify exist-ing vessels for the growing Chinese market.

For detailed analysis of the offshore sector, see Section 2.1

and ‘Offshore Review and Outlook’.

1.7 Overview Of Other Sectors


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0

20

40

60

80

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180

J a n - 1

1

J u l - 1 1

J a n - 1

2

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3

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4

J u l - 1 4

J a n - 1

5

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J a n - 1

6

LNG and LPG Carrier Markets

$,000/day


LNG Carrier160,000 cbm

Spot Rate VLGC TimecharterEquivalent Earnings

0

10

20

30

40

50

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J a n - 0

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2

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3

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4

J a n - 1

5

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6

$000/day

6,500 ceu PCTC

4,500 ceu PCTC

PCTC Timecharter Rates


5

10

15

20

25

30

M a y - 1

2

A u g - 1

2

N o v - 1

2

F e

b - 1

3

M a y - 1

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A u g - 1

3

N o v - 1

3

F e

b - 1

4

M a y - 1

4

A u g - 1

4

N o v - 1

4

F e

b - 1

5

M a y - 1

5

A u g - 1

5

N o v - 1

5

F e

b - 1

6

€000/day

3,500-4,000 lm Ro-Ro

2,000-2,500 lm Ro-Ro

2,000-2,500 lm Ro-Pax

Ro-Ro & Ro-Pax Timecharter Rates


0

2

4

6

8

10

12

14

16

18

A p r -

1 2

J u

l - 1 2

O c

t - 1 2

J a n - 1

3

A p r -

1 3

J u

l - 1 3

O c

t - 1 3

J a n - 1

4

A p r -

1 4

J u

l - 1 4

O c

t - 1 4

J a n - 1

5

A p r -

1 5

J u

l - 1 5

O c

t - 1 5

J a n - 1

6

$000/day


19,999 dwt Stainless Steel Tanker

13,000 dwt IMO II Chemical Tanker

Chemical Tanker One Yr T/C Rates


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Ordering Trends

The global orderbook now totals 283m dwt,equivalent to 16% of the fleet, with nearly twothirds of tonnage on order due for delivery in2016. However newbuild ordering dropped 30%in 2015 and in general yards struggled with in-creasingly challenging conditions as the yeardeveloped. In the mid-2000s, builders benefit-ted from record newbuild demand and yard out-put peaked in 2010/11. After several years oflimited ordering after the economic downturn,contracting rose to relatively healthy levels in2013 and 2014, partly fuelled by “eco ships”and investors judging a market cycle opportuni-ty. Last year, NOx Tier III regulation provided a

one-off boost to yards as owners looked to se-cure slots to avoid the cost of compliance. De-spite this, contracting in 2015 fell to its lowestlevel since 2002, totalling 1,348 orders of 99mdwt. Meanwhile the Clarksons Newbuild PriceIndex has fallen by 5% since the start of 2015.

2016 has begun quietly, with some of the low-est monthly ordering volumes for 30 years.Lower order potential is anticipated for 2016,particularly in the volume bulker sector (buyershave been relatively active in the re-sale market

however) and the value-added offshore sectors(many largely finished units remain in shipyardsundelivered). The cruise market remains a“bright spot”, with a record orderbook stretchingout beyond the end of the decade.

Shipbuilding Activity

In 2015, global shipyard output rose for the firsttime in five years with a reported 36.9m CGTdelivered. This was largely driven by higher out-put in the tanker and gas sectors. Chinese andSouth Korean yards each accounted for 35% of

global deliveries while yards in Japan delivered18% of global output in terms of CGT. However,the recent drop in bulker ordering has generallyhit Chinese yards the hardest and their share ofglobal orders fell to 30% in 2015, from 38% in2014 in terms of CGT. Having lost market sharesince 2003, South Korean and Japanese yardstook a greater share of global orders in terms ofCGT in 2015, 30% and 27% compared to 28%and 22% in 2014 respectively. Korean yardscontinue to take the largest share of large tank-

er and ‘mega’ boxship orders (although Chinahas begun to grow market share) and are domi-nant in tanker and large gas carrier construc-tion. However, Chinese yards have had somesuccess in diversifying their product mix; theyaccount for 64% of the 8-12,000 TEU boxshiporderbook in TEU terms. Japan was the onlynation to increase orders in 2015, with currencymovements helpful. Japanese yards’ reputationfor a high quality of build , as well as a largedomestic owner base (Japan was the largestnewbuild investor in 2015), saw yards theresecure a 20% share of global contracts in 2012-15 in terms of CGT.

Global Shipyard Capacity

Over the previous decade, the global shipbuild-

ing industry underwent a dramatic, almost un-paralleled, expansion, largely driven by rapidgrowth in Chinese shipyard capacity. Commer-cially available shipyard capacity is estimated tohave fallen over 20% from its peak in 2011 toaround 50m CGT at the end of 2015, with thenumber of active yards dropping significantly.However, the current market situation is ex-pected to put further pressure to reduce capaci-ty and the major shipbuilding nations face arange of issues. In South Korea, dealing withproblematic offshore orders is a particular is-

sue, with large financial losses reported. Chinais meanwhile facing very limited demand fromits core bulker market.

Looking Ahead

Despite being remarkably resilient in recentyears, it looks like shipyards will face anothertesting period, with weak order volumes ex-pected and pressure on pricing set to continue.While shipyard output is projected to rise againin 2016, global delivery volumes are expectedto fall back in 2017 as the backlog of orders is

worked through. A further downward adjust-ment to shipbuilding capacity appears to berequired to reduce the current surplus, with allof the major shipbuilding nations facing difficul-ties. In the long-term, newbuilding demandshould recover to some extent due to the con-tinued expansion of seaborne trade and thereplacement of older, more inefficient (and pol-luting) vessels. However, the shipbuilding sec-tor will remain under significant pressure in theshort-term.

1.8 The Shipbuilding Market


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0

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1 9 9 0

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2 0 0 2

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2 0 0 8

2 0 1 0

2 0 1 2

2 0 1 4

2 0 1 6

m dwt


Shipbuilding Deliveries byBuilder Country

ChinaSouth KoreaJapanOther AsiaEuropeOther

2016: year to date

0

1,000

2,000

3,000

4,000

5,000

6,000

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

2 0 1 6

No.


Shipbuilding Contracts

OtherOffshore

Gas CarriersContainershipsBulkersTankers

2016: year to date

Average no. ofannual contracts in

2007-15

50

75

100

125

150

175

200

J a n - 0

0

J a n - 0

2

J a n - 0

4

J a n - 0

6

J a n - 0

8

J a n - 1

0

J a n - 1

2

J a n - 1

4

J a n - 1

6

Index


Newbuilding Price Index

0

100

200

300

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500

600

700

M a r -

0 1

M a r -

0 2

M a r -

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M a r -

0 4

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0 6

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m dwt


Orderbook by Vessel Type

OthersGas CarriersContainershipsTankers

Shipping Review Outlook Spring 2016 Summary

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