Annual Review 2005-A

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SHIPPING AND SHIPBUILDING MARKETS

2005

Shipbrokers since 1856

Existe en version anglaise

SHIPPING AND SHIPBUILDING MARKETS

2005
1 q 3 q 25 q 31 q 45 q 51 q 55 q 65 q 69 q 75 q 87 q 91 q 95 q 97 q

The BRS annual review of world shipping and shipbuilding developments in 2004 and prospects for the coming months…

Foreword The shipbuilding market in 2004 The cruise market in 2004 The tanker market in 2004 The offshore market in 2004 The chemical carrier market in 2004 The liqueﬁed petroleum gas shipping market in 2004 The liqueﬁed natural gas shipping market in 2004 The dry bulk market in 2004 The containership market in 2004 The Ro-Ro market in 2004 The marine insurance markets in 2004 French shipyards deliveries and orderbook in 2004 French orders to foreign shipyards in 2004

POINTOFVIEW

ANOTHER

I

f we were able to rejoice in 2003 for the excellent year that we experienced in shipping, what can be said about 2004 where we went from record to record? The healthy state of the industry has had one consequence, which has gone relatively unnoticed, the reconciliation of the shipping world with the stock market. Historically the Stock Exchange had never shown much interest in the shipping sector, too uncertain, too volatile, too specialised, and shares always showing a chaotic tendency and too low p/e ratios. However, discreetly, the shipping sector has enjoyed this past year one of the best performances amongst all other quoted industries. The few indexes which comprise the evolution of shares in shipping show an overall progression of nearly 30 % with strong disparities within the sectors. For example, according to the “Tradewinds Equity Index”, values of oil tanker

companies have moved on average between January 2003 and December 2004 from an index of 100 to nearly 400 and for the container sector from 100 to 250. A number of values have tripled or even quadrupled in the course of the year, taking the ﬁnancial analysts by surprise, as up till now they have paid little or no attention to shipping and maritime activities. This discovery by the ﬁnancial markets of our sector of activity opens up new ﬁnancing options for owners (in addition to the traditional mortgage financing) and should also allow for substantial merger & acquisition operations, which we have had a glimpse of in 2004: ◆ In April, Teekay Shipping bought Naviera Tapias, who own four gas carriers and nine modern Suezmaxes, with the intention of developing the LNG business and introducing Teekay LNG partners onto the stock market.

Foreword

1

◆ The oil tanker owner Stelmar, having rejected an offer from OMI and Athenian Tankers, is ﬁnally on the point of accepting an offer from OSG (Overseas Shipholding Group) of $48 per share, or $1.3 billion. ◆ Elsewhere, John Frederiksen, the leading tanker owner, has taken shares in Hyundai Merchant Marine (6%), in P&O Nedlloyd (10%), and in General Maritime (4.3 %). Nobody expects that he will be satisﬁed with a minority shareholding. ◆ At the end of the year, the Greek owner Restis managed to lay his hands on the bulk shipping activity of MISC (Malaysian International Shipping Corp.) namely 32 ships for $740 million. Some owners, encouraged by the success of General Maritime Corp., whose shares more than doubled in the course of the year, are now looking at a quotation on Wall Street, such as the Stena group with their subsidiary Arlington Tankers or Greek owners Dynacom, and this trend should be accentuated, unlocking important investment capacities within the shipping community. Ironically, the rise in shipping costs has as a consequence called into question this service, which is often minimised in the economic chain and has made operators reﬂect more deeply into their logistics and operations, but also as to the qualitative differences between owners. All that is expensive is not necessarily good value… Curiously it is in this context of highly priced markets that charterers are seeking long positions to

which owners are resisting, given the inflated values in the short term. Arbitrages between long term/short term and purchase/chartering become more and more strategic, with certain choices being crucial in case of a brutal change in the markets. This year has also witnessed the steady decline of the dollar, concealing to some extent the effects of rocketing oil prices and shipping costs as expressed in euros, but disastrous for European shipyards, wiping out their productivity gains and thus accentuating the competitive advantage of the Asian countries with the exception of Japan. However, if the dollar continues its downward trend, a revaluation of some currencies, such as the Korean won and the Chinese yuan would become inevitable. Today this is a major concern of Chinese and Korean shipyards who already suffer from a massive rise in their supply costs, steel in particular. Asian shipyards certainly have their orderbooks full, but proﬁts are not yet forthcoming despite substantial increases in their sale prices. A revaluation of their local currencies could jeopardise, at least temporarily, their expansion. We begin this new year with conﬁdence, even if we believe that certain excesses will correct themselves, since the growth of the developing countries, and especially that of China, is still very much a reality. We remain nonetheless cautious as to the evolution of the dollar which could upset a number of economic calculations and tarnish the current glitter of the shipping sector. ■

2

Shipping and Shipbuilding Markets 2005

SHIPBUILDING
MARKET IN

THE

2004

2004, the year that broke all records !

F

or the shipbuilding markets, 2004 can justiﬁably be considered as the year that broke all records. This phenomenal upsurge of newbuilding activity in 2004, has been characterised by a number of salient factors: ◆ A ﬂood of new orders in the shipyards. This has been equalled only by the record volumes across tonnage types achieved in 2003. During the course of 2004, the world orderbook jumped from 125 million gt to nearly 165 million gt, representing more than 3,700 ships. This ﬁgure was only 65 million gt in mid 2002. Deliveries are spread out to year-end 2008, and in some cases the shipyards are committed through to 2009. ◆ A strong rise in sale prices. The top prices achieved for tankers and bulk carriers at the beginning of the 1990’s have been reached again and even exceeded. The long-standing symbolic barrier of $100 million for VLCCs and very large containerships has been surpassed; in some cases by as much as 20 %. Exceptionally high freight rates have brought on ﬁerce competition between owners.

This has been witnessed in the numerous resales of ships under construction, and in the second-hand market ships have been purchased at prices above newbuilding prices. These factors have conspired to bring about the price hikes we have seen in 2004. At the same time, builders have been facing exceptional cost increases mainly due to more expensive supplies and a depreciation of the dollar. Shipyards have in this respect received only the meagre leftovers of the lucrative ﬁnancial results being enjoyed in the shipping sector. ◆ An increase of global shipbuilding capacity. Korea has once again consolidated its position as the world shipbuilding leader with an orderbook of about 62 million gt compared with 49 million gt in 2003. Japan has reafﬁrmed its second-place position with nearly 54 million gt as opposed to 43 million gt twelve months earlier. China has continued its inexorable ascent with near to 26 million gt against 17 million gt at the end of 2003. Against this increase in orders in the Far East, the Asian shipyards’ saturation has helped to bring about an

The Shipbuilding Market in 2004

3

increase in activity in the West and East European shipyards. Between year-end 2003 and year-end 2004, West and East European orderbooks climbed from 6 to nearly 8.5 million gt and 5 million to nearly 7.5 million gt, respectively. The desperate search for newbuilding berths with early delivery dates has sent owners off to other more remote destinations (Vietnam, Iran, Russia, India, Brazil, Dubai…) whose ﬁgures have gone up from 4 to 7 million gt. ◆ An adaptation to the new situation. Builders and owners have been seen to adapt their attitudes facing this new situation. Builders have become more and more discriminatory. They have given preferential treatment to ships of which the values maximise the turnover of each of their berths, or standard designs. They have also been seen to give priority to their faithful clients, and clients who are deemed not too demanding. This behaviour has been brought on in large part due to the worrying cost increases on existing contracts, which have seriously dented shipyards’ proﬁt margins in 2004, despite the rise in newbuilding prices during the year. Owners, who are reaping the ﬁnancial beneﬁts due to a freight market, which has been unequalled in modern times, are visibly more relaxed and even sometimes euphoric. Whereas only a short time ago, owners used to bitterly discuss technical speciﬁcations, prices and payment terms, nowadays they are more pragmatic, accepting terms and conditions imposed by shipyards, provided that they allow them to place new orders. The economy and trade In 2004, the world economy made strong gains with an average GDP growth rate of 5 % per year. This signiﬁes the largest increase during the past 30 years. In tandem with world growth, commercial trade has ﬂourished, increasing almost 9 % compared to a growth of commercial trade of 5 % in 2003. This rapid expansion and the increase in the demand of raw material, largely explains the unprecedented hike in freight rates as well as the large number and
IMF Forecast (as % of GDP)
World 2003 2004 2005 3.9 5.0 4.3 USA 3.0 4.3 3.5 Japan 2.5 4.4 2.3 Euro zone 0.5 2.2 2.2 China 9.1 9.0 7.5

volume of transactions on the second-hand and the newbuilding markets. Freight rates Dry bulk freight rates continued their irresistible ascent and achieved historic levels. This frenzy has been fed by the enormous demand for raw materials generated by China, which has become the world’s main importer of most raw materials in a few years. This drastic rise in rates has brought about a fear of overheating throughout the year. The declarations of the Prime Minister of China at the end of April certainly set the tune for the serious correction that occurred during the spring. This correction was however short-lived. By the beginning of summer, rates had started to climb again. Despite very high volatility (the Baltic Dry Index swung between 2,600 and 6,200 points), these rates, which had already doubled on average between 2002 and 2003, doubled again between 2003 and 2004. In 2004, containership rates were bolstered by the growth in commercial trade and Chinese exports. The American commercial deﬁcit has reached historically high levels at nearly $ 600 billion. By and large the containership rates manifested less volatility compared to the dry bulk or liquid markets as it is characterised by line operators employing owned or long-termed chartered ships on their routes. Containership rates, which doubled on average between 2002 and 2003, have tripled between 2003 and 2004. For the ﬁrst time the price of crude oil broke the $ 55/bbl barrier in 2004, and the oil market has remained extremely nervous throughout the year. Freight rates for tankers doubled on average between 2003 and 2004. Despite relatively high volatility, freight rates thus have achieved record levels in 2004, allowing owners to get substantial investment leverage for ordering new ships. It was by no means obvious at the end of 2003 that owners would be able to order in 2004 as many ships as the previous year. Yet they did so, and at higher prices and for later deliveries.

Orders
Bulk carriers With nearly 37 million dwt ordered compared with 33 million in 2003, orders for bulk carriers and in particular for Capesizes were numerous in 2004. The orderbook has increased and gone from 53.1 million dwt at year-end 2003 to 71.6 million dwt year-end 2004. The ﬂeet on order at the end of 2004 represented nearly 22 % of the existing ﬂeet,

IMF - September 2004

General trends
2002 World GDP World trade 3.0% 3.3% 2003 3.9% 5.1% 2004 5.0% 8.8% 2005 4.3% 7.2%

IMF - September 2004

4

Shipping and Shipbuilding Markets 2005

Freight rates evolution since 2000
Index 1,000 = January 98 6,000 P/C 1,700 teu 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Apr 00 Oct 00 Apr 01 Oct 01 Apr 02 Oct 02 Apr 03 Oct 03 Apr 04 July 00 July 01 July 02 July 03 July 04 Oct 04 Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Baltic Dry Index (BDI) VLCC 250,000 t G.Pers./Japan

as against 17 % in 2003. The uncertainties surrounding the future necessity for double-hulled vessels was settled in May 2004 with a decision to keep the status quo. Owners faced several problems in ﬁnding berth space to order their bulk carriers, ships often judged to be too simple by builders. Korean shipyards prefer to build ships with better returns and bulk carriers in Korea only represent 5 % of the shipbuilding market as compared to 25 % in 2000. Apart from certain shipyards that today are making it their spe-

ciality (like Shanghai Waigaoqiao Shipyards (SWS) and Bohai for Capesizes, Jiangnan and HudongZhonghua for Panamaxes), Chinese shipyards are by and large moving to other types of ships. This leaves predictably Japanese builders with the lion’s share New orders during the year
(million dwt) Tankers > 25,000 dwt Bulkers > 15,000 dwt Containerships > 1,000 teu 1999 12.7 21.9 7.0 2000 34.3 17.6 13.7 2001 25.0 7.7 7.1 2002 19.9 21.6 7.1 2003 52.5 32.9 26.6 2004 43.7 36.8 25.4

Percentage of the active fleet on order by type
% dwt of fleet on order 60 Oil Tanker Bulk 50 Containership

40

30

20

10

0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

The Shipbuilding Market in 2004

5

Shipbuilding countries market shares evolution for containerships
Japan % 100 Korea Germany Others

90

80

70

60

50

40

30

20

10

0 Mar 00 June 00 Sep 00 Dec 00 Mar 01 June 01 Sep 01 Dec 01 Mar 02 June 02 Sep 02 Dec 02 Mar 03 June 03 Sep 03 Dec 03 Mar 04 June 04 Sep 04 Dec 04

of this sector, with nearly 65 % but they also give priority to domestic owners and are saturated. Owners and operators are looking for economies of scale and a number of 200,000 dwt bulk carriers as well as 230,000 and 300,000 dwt ore carriers have been ordered. The latest very large ore carriers were delivered by Hyundai Heavy Industries in 1992 and Daewoo in 1997. In sum, demand for bulk carriers remains strong and has not been totally satisﬁed yet. Containerships With close to 26 million dwt on order, demand for containerships has been as sustained as in 2003. The orderbook has grown at a consistent pace, going from 35.5 million dwt at the end of 2003 to 54.3 million dwt in 2004. The ﬂeet under construction at year-end 2004 represents a ﬁgure of 53 % of the existing ﬂeet, as against 35 % in 2003 (only cellular ships), which gives rise to some concerns. Korean shipyards, which hold nearly 65 % of the market were unable or did not want to satisfy the totality of this buoyant demand. They have concentrated almost exclusively on very large containerships, leaving opportunities for Chinese, Taiwanese, Singaporean, German and Polish shipyards to ﬁll the void. In a way, containerships have set the pace for the newbuilding market in pushing prices higher. It is indeed the sector which has seen the strongest demand. Amongst the main three segments that form the core of newbuildings, this is the one that

offers the highest prices to the builders, other factors being equal. The added value to the shipyards is also higher as these ships require less steel, less external procurement, are often ordered in series and can be easily adapted or modiﬁed. As was the case in 2003, a number of over-Panamax containerships were ordered in 2004. With close to 50 units over 7,500 teu in service, 170 units were on order by the end of 2004. New size records were achieved with the order of container carriers of 9,300 teu for the account of AP Moller, whilst CMA CGM and Hyundai Heavy Industries agreed to extend the capacity of ships previously ordered from 8,300 teu to 9,300 teu. The 10,000 teu barrier will shortly be broken, probably bringing about a new wave of orders, motivated by a race for size between operators. The coming about of a new generation of containerships above 10,000 teu will nonetheless require to adapt port handling facilities. In the meantime, demand for smaller container carriers (1,100, 1,800, 2,700, 3,500, and 4,300 teu), which are usually employed as feeders for the large mother vessels, has also been very healthy. This trend can be expected to continue. Given that the ratio of the ﬂeet on order versus the existing ﬂeet is particularly high and that the predictable growth in teu terms is above international trade progression, the number of new orders might logically slow down in the coming months. Tankers With some 44 million dwt ordered, demand for tankers has remained strong, although lower than that of 2003 with 52 million dwt.

6

Shipping and Shipbuilding Markets 2005

New orders of standard vessels 2002, 2003 & 2004
Dwt 30,000,000

2002 2003

2004

509 495

25,000,000

20,000,000
57 58 100

15,000,000
79 106 142 208 49 72 85 118 200

10,000,000

238

228

5,000,000

29

62

0 VLCC Suezmax Aframax Panamax Tankers MR Products Capesize Panamax Handy Containership (above 1,000 teu)

The orderbook has nonetheless increased and has gone from 83.5 million dwt at year-end 2003 to 102.3 million dwt at year-end 2004. The ﬂeet on order at the end of 2004 represented some 31 % of the existing ﬂeet as compared to 26 % a year earlier. How does one explain this relatively-speaking smaller demand this year, especially in comparison to the progression of containerships and bulk carriers? To understand this, it is important to recognise that the renewal of the tanker ﬂeet, started earlier, following

the oil pollution disasters of the ‘Erika’ in 1999 and the ‘Prestige’ in 2002. The average volume ordered each year since 1999 has in fact been 30 million dwt for tankers as against 22 million dwt for bulk carriers and 14 million dwt for containerships. In addition, the competition with containerships in the shipyards has also played its part. Demand for ice-strengthened tankers has remained sustained despite a mild winter, essentially responding to the development of loading of crude or reﬁStena Polaris 75,000 dwt, ice class 1A Panamax product tanker, ordered at Split by Concordia Maritime for delivery 2006 and long-term chartered to Fortum Oil

The Shipbuilding Market in 2004

7

Specialised vessel contracting 2002, 2003 & 2004
Number of ships 80
77 76 80

2002 2003

2004

70

60

59

59

50
45

40

30
26

27 20 13 6 7 4

20

13

10

0 Chemical carriers* (dwt) LPG carriers (cbm) LNG carriers (cbm) Ferries (grt) Ro-ro (dwt) Car carriers (cars) Cruise vessels (grt)

ned products out of the Gulf of Finland, the White Sea and from the Sakhalin islands, where Russia and the Baltic states are in the process of building new ports and expanding their export capacities. Thus there are 72 MR product carriers, 25 Panamaxes, 41 Aframaxes, and 17 Suezmaxes which are ice-classed out of respectively 407, 161, 174 and 89 ships on order. In addition, trafﬁc is considerably increasing in some tight waters and it is very likely that the strong growth in Russian exports out of the Baltic or the Black Sea will result in the enforcement of new regulations and security measures from the bordering countries to protect their coastlines. There is regrettably one incident a month in the Baltic. Some oil companies and European owners, who want to improve the security of their ships, have jumped the gun and ordered ships with double propulsion. Specialised tonnage New orders for specialised tonnage have also considerably increased this year with the exception of Ro-ro’s, and reefer ships. The number of specialised ships remains, however, weak compared to standard ones. Few sectors have remained inactive, which is a sign of the vitality of the shipping market in 2004. Stainless steel chemical carriers The number of stainless steel chemical carriers ordered has gone from 59 in 2003 to 77 in 2004. The orderbook is growing and has increased from 1.6 million dwt year-end 2003 to 2.1 million dwt year-end 2004. The ﬂeet under construction at the end of 2004 represented some 16.5 % of the exis-

ting ﬂeet, against 13.8 % a year earlier. Most of these ships have been ordered at Japanese shipyards. The demand has not even been entirely met, given that the price of stainless steel has suddenly become much more expensive and that yards also suffered from supply disruption. LNG carriers During the course of the year the number of LNG carriers ordered nearly quadrupled, going from 20 to 76. The orderbook has gone from 63 ships at the end of 2003 to 116 ships, making a total capacity of 17.1 million cbm, by the end of 2004. The ﬂeet under construction represents about 80 % of the existing ﬂeet compared to 48 % a year earlier. Many ships have been contracted without longterm employment. This market, which has been so far very conservative, is quickly changing. The maximum size of ships, which was in the past ranging from 125,000 to 130,000 cbm, has progressively moved up to 140,000 cbm and then 150,000 cbm. In order to meet the requirements of the gigantic Qatari LNG export project, a series of LNG carriers of 210,000 cbm has been ordered in Korea. In addition, diesel-electric propulsion seems to be progressively more sought after. The majority of the orders was placed in Korea and Japan in 2004. The European shipyards who invented this sophisticated type of transport and banked on a strong future demand, are practically absent from this market. This year, Hudong-Zhonghua of Shanghai joined the “club” of LNG carrier builder with the order in August 2004 for two ships of 147,000 cbm.

8

Shipping and Shipbuilding Markets 2005

LPG carriers The number of new orders for LPG carriers has practically doubled, going from 26 in 2003 to 45 in 2004. The orderbook has also risen, from 1,6 million cbm at year-end 2003 to 2,6 million cbm at year-end 2004. The majority of the orders of small LPG carriers has been placed at Japanese yards, whereas those of bigger sizes have been placed in Korea, with the exception of some large units contracted with Mitsubishi Heavy Industries and Kasawaki Heavy Industries in Japan and with Gdynia in Poland. Ferries and Ro-pax The number of Ferries and Ro-paxes on orders went from 13 to 27. The total orderbook increased from 32 ships at year-end 2003 to 46 ships year-end 2004. With the exception of a Ferry ordered in Japan by a domestic owner and an option to declare by Norfolk Lines for a newbuilding at Samsung in Korea, the 27 Ferries and Ro-paxes ordered in 2004 have been placed at European shipyards, with the Italians being awarded nearly half of this total. This situation is largely due to the concentration of Asian builders on more standard ships. Ro-ro’s Only a few Ro-ro’s were ordered in 2004. The few European shipyards which possess a real expertise in this type of ship are quoting prices in euros, which are often prohibitive to charterers, given the freight levels in this sector. Only a handful of projects actually materialised.

Car-carriers The number of Car-carriers ordered went from 59 in 2003 to 80 in 2004. The orderbook has increased and reached a capacity of nearly 800,000 vehicles at year-end 2004, a considerable increase from 526,000 vehicles at year-end 2003. New orders have almost exclusively been placed for large PCTC (Pure Car Truck Carriers) with a capacity of 4,300 up to nearly 7,000 cars. These orders have been contracted with yards in Japan and Korea, and also in Croatia and Italy. This sustained demand is a response to the growth of the world automotive industry. The outsourcing of production and the development of new markets, as in China, have helped increasing the demand for new vehicles shipments. The latest forecasts indicate an annual traffic of about 10 million vehicles by 2008 as compared to 8.7 million in 2004. New requirements could soon come about for intermediate size ships, around 2,000 to 3,000 cars, to be used as feeders for large carriers or for regional trades in the intra-European or intra-Asian markets. Cruiseships 2004 signalled a comeback of conﬁdence by cruiseship operators of with 13 new orders, all signed up with the four leading European builders who are specialised in this sector. It has been the best year since 2000. (see our article on the cruise market.)

Evolution of Steel Prices since 2001
$/ton
800 Hot Rolled Coil 700 Hot Rolled Plate Cold Rolled Coil 600 (ex-works prices, world average)

500

400

300

200

100

0 Jan 01 Apr 01 Jul 01 Oct 01 Jan 02 Apr 02 Jul 02 Oct 02 Jan 03 Apr 03 Jul 03 Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 Jan 05

The Shipbuilding Market in 2004

9

Average exchange rates to the US$
$ US 1.40 1.35 1.30 1.25 1.20 1.15 1.10 1.05 1.00 0.95 0.90 0.85 0.80 100 yen 1,000 won 1 euro

Aug 04

Mar 04

May 04

June 04

Sep 04

Jan 03

Jan 04

Feb 04

Apr 04

July 04

Nov 04

May 03

June 03

Aug 03

Nov 03

Mar 03

Dec 03

Prices
Newbuilding prices expressed in dollars have quickly progressed in 2004. The increase for all tonnagetypes was on average 40 %. By contrast the ﬁgure was roughly 20 % in 2003. This ﬁgure appeared to be a relatively modest rise given the strong increase in the volume of new orders over the year (110 million dwt in 2003 as against 50 million in 2002). The volume of orders in 2004 remained at the same high level as in 2003 (more than 100 million dwt). Nevertheless the situation has been different in 2004 as the production capacities of builders, whose orderbooks in 2004 were spread out over three to four years as against roughly two in 2002, became saturated. This factor militated to push up prices to levels not seen since before the Asian crisis of 1997 / 1998. We have seen cascade effects on prices starting from the newbuilding market to have then an impact on newbuilding resales and ﬁnally on second-hand tonnage. The demand for tonnage at any cost has pushed up the prices of ships with prompt delivery dates, as well as the prices of recent units, to levels above the price being asked by builders for far later deliveries. The latter have been able to use these new benchmarks to increase their own prices. Swift and signiﬁcant ﬂuctuations in prices help foster speculation. The behaviour of owners and builders alike, has changed over the course of 2004. One saw a much greater reactivity on the part of builders, who have become more alert to the outside world thanks to the availability of instanta-

neous information. They have thus apprehended news of the latest deals concluded more rapidly. However, for the moment builders are not getting any beneﬁts from this situation. They had to face unprecedented costs increases, as the raw material market took off in 2004. Steel prices doubled and went from $ 300/t to more than $ 600/t; stainless steel and non-ferrous metal prices have tripled. This rising cost movement has affected not only steel plates and proﬁles, but also pipes, cables, bulkheads, machinery, pumps, heat exchangers and so forth. It should be remembered, for reference, that the main engine onboard a 8,500 teu containership weighs 2,400 tons. Finally, in addition to all this, energy also became more expensive. Could the shipyards have protected themselves against such increases? Shipyards traditionally ordered their materials and spare parts, with suppliers and equipment makers, soon after having signed the newbuilding contracts in order to ﬁx their costs. This was at the time when ships could still be expected to be delivered within two years’ time. But the expansion of orderbooks, entailing procurement exposures much further into the future, no longer allows for this. As to steel, it is usually payable by the builder the day of its delivery to the shipyard, which means about twelve months before the delivery of the ship, given effective building delays which have become shorter. In other words, the yard has to pay for its steel requirements nearly two years after contract has been signed. Worst still, shipyards have had to face delays in supplies whilst they have nevertheless had to honour ﬁrm commitments with their clients. Steel shortages

10

Shipping and Shipbuilding Markets 2005

Dec 04

Sep 03

Feb 03

Apr 03

July 03

Oct 03

Oct 04

Newbuilding prices variations (in million US$)
1993 Tankers VLCC Suezmax Aframax MR Product Capesize Panamax Handymax 100 62.5 45 32.5 48 29 25 4Q 2001 70 45 36 26 36 20 19 4Q 2002 64 43.5 34 27 36 21.5 20 4Q 2003 76 50 42 31.5 40 24 21.5 4Q 2004 107 70 60 39 63 35.5 29
Source BRS

Bulkers

came to public attention when Nissan, the car maker, announced at the end of November 2004 that they had to halt production for at least a week. Korean authorities decided during the year to postpone all exports of steel. Other sectors were also hit. It was already by the end of 2004 becoming virtually impossible to ﬁnd slow speed diesel engines for delivery in 2007 due to a disruption in the supplies of essential parts. The dollar’s unrepentant decline has been another thorn in the pillow of shipyards. Exchanges rates at the beginning of 2004 were about 1,200 South Korean won and 106 Japanese yen for one dollar. By year-end the won stood at 1,050 and the yen at 103 to the dollar. This trend has as yet shown no signs of weakness. Despite a ﬁxed exchange between the yuan and the dollar, Chinese builders have had to buy a large quantity of equipment overseas (from Europe, Japan, and Korea) and have thereby suffered from a similar exchange rate pressures for their supplies. During 2002 in a difﬁcult

market, some builders had accepted delayed payment terms and now face signiﬁcant currency losses as a consequence. Prices for specialised tonnage have also risen, given the increases in raw materials costs and a more sustained demand compared to 2003. But these increases were less signiﬁcant, as competition between shipyards remained strong. As an example, the number of LNG carriers builders is basically the same as for VLCCs or Capesizes. Thus the price of LNG ships of 145,000 to 150,000 cbm remained at the very low levels achieved in 1999, in the region of $155 million, until mid 2004, when it gradually increased to reach $185 million at the end of the year. The unprecedented demand, the difﬁculties shipyards face in executing current contracts, the numerous doubts as to the price of materials and equipment, the continued uncertainty of exchange rates and the recurrent difﬁculties in obtaining supplies without too long delays, should continue to push newbuilding prices higher in 2005. As a saving

South Korean Shipyards Orderbook & Market Share
million gt 70 Orderbook Market share 60 40 50 Source: Lloyd’s Register - BRS percentage 50

30 40

30

20

20 10 10

0 end 1995 end 1996 end 1997 end 1998 end 1999 end 2000 end 2001 end 2002 Mar 2003 June 2003 Sep 2003 Dec 2003 Mar 2004 June 2004 Sep 2004 Dec 2004

0

The Shipbuilding Market in 2004

11

grace, we can probably expect a steadier evolution than we saw in 2004. South-Korea 2004 was a new record year for Korea, which once again conﬁrmed its role as world leader. The Korean orderbook went from 49 to 62 million gt between the end of 2003 and year-end 2004. By contrast the Korean orderbook stood at only 27 million gt at the end of 2002. All the yards are full until the ﬁrst or second quarter of 2008, with only very limited exceptions. Within some yards, certain berths are committed up until the end of 2008. Korean shipbuilding remains very concentrated. The Korean portfolio, which represents slightly over 1,100 ships, is split up between 15 shipyards. The orderbook of the three largest Korean builders Hyundai Heavy Industries (HHI), Daewoo Shipbuilding and Machinery Engineering (DSME) and Samsung Heavy Industries (SHI), are largely focused on the very large containerships, LNG carriers and tankers (VLCCs, Suezmax, Aframax). Hanjin exclusively builds very large containerships. Hyundai Mipo Dockyard and STX, who have previously concentrated on product tankers, have now considerable orders of containerships, of 2,800 teu for the former and from 2,700 to 3,500 teu for the latter. Shin-A remains concentrated on building Medium Range product-chemical carriers. The smaller Korean shipyards have been ambitious and have succeeded in making a remarkable presence on the international scene. INP has attracted

the very top names in the shipping industry and by year-end 2004 could count 20 ships on order. Others like 21st Century, Samho, Nokbong, Kwangyang have succeeded in selling extensive series of product tankers of 5,500 dwt, 12,800 dwt, and 13,000 dwt to different owners. Daesun continues to be active in the construction of containerships of 900 to 1,100 teu. How have the Korean shipyards been able to increase their portfolio from 49 million to 62 million gt without creating a single new berth? Above all, by spreading out over time their orderbook, and by constantly improving their productivity, but also by opening new docks. HHI has used its dry-land building facility, usually dedicated to offshore units, to build a series of 16 Aframaxes. STX has recovered its old construction site in Busan (ex Daedong), now renamed STXBusan, to build a series of 12 product tankers of 10,000 dwt for Clipper. DSME and SHI have invested heavily in ﬂoating docks. Recourse to subcontracting, especially for steel blocks, has grown. SHI, which possesses a steel blocks factory at Ningbo in China, intends to increase its production from 60,000 to 200,000 tons as of 2005 (corresponding to the equivalent of 5 VLCCs or 8 LNG carriers). Hyundai Corporation has decided to invest in a Chinese shipyard, Lingshan, near to Qingdao. The Sun Dong shipyard, which specialises in the building of blocks, has decided to launch itself into newbuildings and has signed contracts for a series of Panamax bulkers which should become effective upon receipt of bank refund guarantees.

Japanese Shipyards Orderbook & Market Share
million gt 60 Source: Lloyd’s Register - BRS 35 50 30 40 Orderbook Market share 30 20 25 percentage 40

15 20 10 10 5

0 end 1995 end 1996 end 1997 end 1998 end 1999 end 2000 end 2001 end 2002 Mar 2003 June 2003 Sep 2003 Dec 2003 Mar 2004 June 2004 Sep 2004 Dec 2004

0

12

Shipping and Shipbuilding Markets 2005

Shipbuilding countries market shares evolution for bulk carriers
% 100

Japan Korea

China Others

90

80

70

60

50

40

30

20

10

0 Mar 00 June 00 Sep 00 Dec 00 Mar 01 June 01 Sep 01 Dec 01 Mars 02 June 02 Sep 02 Dec 02 Mars 03 June 03 Sep 03 Dec 03 Mars 04 June 04 Sep 04 Dec 04

Some Korean shipyards (DSME, STX) have also plans to expand in China which remain to be materialised. Others like HHI and HMD could give priority to new developments in North Korea when the moment comes. South-Korean shipyards are worried about having ﬁlled their orderbooks too early and at too low prices. By the end of 2004, it was obvious that several Korean shipyards were facing difﬁculties in spite of higher sale prices. Japan 2004 was also a new record year for Japan, which conﬁrmed its second place among world leading shipbuilding nations. Japanese builders’ orderbooks went from 43 up to 54 million gt between end 2003 and year-end 2004. It was 24 million gt at year-end 2002. All the yards are generally full until 2008, but certain are committed up to 2009. Contracts for such late delivery dates might not be signed before another year or two, but berths are already booked. Even more than elsewhere, Japanese shipyards give priority to their dynamic domestic owners and it has become more and more difﬁcult for a foreign owner to place an order with them. It seems that Japanese owners are also less demanding and even more accommodating than their foreign counterparts, this has had a visible impact on the number of hours spent on each ship and on the ﬁnal net result of each building contract. Japanese shipbuilding industry is less concentrated than in South Korea. The Japanese portfolio, which

has practically an identical number with more than 1,100 ships, is spread out between ﬁfty construction sites. How have Japanese shipyards been able to increase their portfolio from 43 million to 54 million gt? Above all, this has been achieved through extending their orderbook over a longer period of time, up until 2009 for some yards. Additionally, it has been achieved by a constant improvement of their productivity. For instance, at the beginning of February 2004, Mitsubishi announced that they were planning to reduce the construction time of a VLCC between keel-laying and delivery from 7 to 5.5 months. New production capacity has also been created. Imabari opened a new site specialising in the construction of bulkers. Naikai Zosen has absorbed its afﬁliate Nichizo IMC to improve productivity. Murakami Hide has expanded one dock. Other yards, such as Namura and Kyokuyo, have decided to invest in new workshops and lifting equipment to increase the size of the berths and the number of ships they can handle. Proximity with China, where Japanese owners like NYK and K Line have already placed orders, could represent a danger for Japanese builders. But it has also been an opportunity as they can increase their purchases of equipment and sub-contracting there. Tsuneishi has created a production site for steel blocks in the province of Zhejiang. The success of NACKS shipyard, opened in 1998 in Nantong (China) -a joint venture between the Japanese builder Kawasaki Heavy Industries and the

The Shipbuilding Market in 2004

13

Chinese Shipyards Orderbook & Market Share
million gt 30 Orderbook Market share 25 14 Source: Lloyd’s Register - BRS 16 percentage 18

20

12

10 15 8

10

6

4 5 2

0 end 1995 end 1996 end 1997 end 1998 end 1999 end 2000 end 2001 end 2002 Mar 2003 June 2003 Sep 2003 Dec 2003 Mar 2004 June 2004 Sep 2004 Dec 2004

0

Chinese owner Cosco- is another example of cooperation and possible development. One has to admire the perseverance and dynamism of Japanese shipyards. They reflect the ambition of Japan, a developed country with a well-paid workforce, not only to maintain but also to develop shipbuilding in a highly industrialised country. Japan demonstrates that it is possible to build ships at market prices with a more expensive workforce than in Korea and China, thanks to a remarkably high level of organisation and highly automated production process. China 2004 was also once again a record year for China, which conﬁrms its third place in the world ranking. The orderbook of Chinese builders went from 17 to 26 million gt between year-end 2003 and yearend 2004. In 2002, by comparison, the Chinese orderbook stood at 9 million gt. It is a remarkable performance when we remember that the orderbook of Japanese builders was 24 million gt at the end of 2002. Contrary to their Japanese and Korean counterparts, Chinese yards still have some berths available in 2008. The strength of the Chinese orderbook is not only explained by having been spread out over 3 years but, above all, by the expansion of existing facilities and the creation of new shipyards. There are about two hundred shipyards with merchant ship building capability in China and about ﬁfty competing on the international market.

Signing of newbuilding contracts in China generally takes a longer time than in Korea and Japan. Whilst this was a handicap to Chinese yards in the middle of the Asian crisis in 1998, when prices were falling, it was rather to their advantage in 2004 with a rising market. They have been able to adjust their prices closer to the market. One should also be aware of the arrival of a new generation of management in the shipyards, more internationally minded and much better informed, thanks largely to the internet, who carry out a close monitoring of the markets. Nonetheless, this rapid development is not without some hitches, and even some frustration with clients of certain provincial shipyards. Letters of intent have in some cases not been transformed into ﬁrm contracts at agreed prices, signed contracts have not been formalised, options have not been conﬁrmed or at least not on agreed terms, etc. Some yards have encountered real problems in obtaining ﬁnancial support from their bankers who criticise them for having signed at too low levels which are insufﬁcient to cover their costs. Some even had to renegotiate contracts with their clients, facing rising costs and weak ﬁnancial situations. Chinese shipyards work in a constantly changing environment and have to juggle with a number of difﬁculties. They have been affected by energy shortages and steel or main equipment supplies, like engines, which they had to buy abroad at higher prices. Chinese shipyards should pursue their efforts to produce quality ships. In the current market, they have been able to beneﬁt from the rise in prices and, above all, to obtain terms and conditions on

14

Shipping and Shipbuilding Markets 2005

a par with their Korean and Japanese competitors. The expectations of owners on the quality front are high and it is important not to deceive them as the reputation of Chinese yards is at stake. Quality is the best way to reduce costs. To deliver a good vessel, in order to avoid expensive surveys, repairs, waste of materials or even problems that can compromise ship’s operations once in service, is the best way to save money. Expansion projects and creation of new shipyards are continuing, but some ambitions have been contained. The central government has put a hold on credit access and some projects have not obtained the necessary government authorisations. The ambitious project of Nantong Rongshen seems to be one such casualty. Restructuring is taking place. Shanghai Shipyard has left the centre of Shanghai for the island of Chong Ming. Chengxi and Shanghai Shipyard are now part of the same group. Jiangdu shipyard has been taken over by the private group Sinopaciﬁc, which now controls three yards: Zhejiang, Dayang, and Dadong. Dalian (old) and Dalian New have restructured their management. As with the Japanese yards, Chinese shipyards have also given priority to domestic owners who have enormous needs. Hudong Zhonghua has signed up this year for two LNG carriers of 147,000 cbm for delivery in 2006 and 2007 in the context of the Guangdong project. Negotiations are in process for two supplementary ships linked with the Fujian project. Chantiers de l’Atlantique (France) are undertaking the technology transfer.

Messidor 55,300 dwt, built in 2004 by NACKS, owned by Setaf-Saget (Groupe Bourbon)

The yuan vs dollar ﬁxed parity offers an undeniable competitive advantage to Chinese builders, even if they have to purchase a large share of equipment in Europe, Korea, or in Japan. There were talks between governments this year about adjusting this parity, and even to ﬂoat the Chinese currency. The Chinese yards have even sometimes used this possibility as a sales pitch. Chinese shipyards are in an enviable position, since most investments are the result, directly or indirectly, of the government. Shipyards in other countries, particularly in Europe, would be delighted to be able to beneﬁt from such a support to modernise their production base, without bearing the costs. China is investing in some gigantic shipbuilding sites, capable of competing in the future with the biggest Japanese or Korean facilities. There are currently 8 docks for building a VLCC in China, compared to 14 in Korea and 14 in Japan. By 2008 / 2009, China might have no less than 22 VLCC docks. One can however fear that this expansion plan will come to overturn the existing equilibrium

Shipbuilding countries market shares evolution for tankers
% 100

Japan Korea

China Others

90

80

70

60

50

40

30

20

10

0 Mar 00 June 00 Sep 00 Dec 00 Mar 01 June 01 Sep 01 Dec 01 Mar 02 June 02 Sep 02 Dec 02 Mar 03 June 03 Sep 03 Dec 03 Mar 04 June 04 Sep 04 Dec 04

The Shipbuilding Market in 2004

15

Western Europe Shipyards Orderbook & Market Share (15 countries)
million gt 10 Orderbook Market share 8 16 Source: Lloyd’s Register - BRS 18 percentage 20

14

6

12

10

4

8

6

2

4

2

0 end 1995 end 1996 end 1997 end 1998 end 1999 end 2000 end 2001 end 2002 Mar 2003 June 2003 Sep 2003 Dec 2003 Mar 2004 June 2004 Sep 2004 Dec 2004

0

and destabilise the industry in the coming years. In a short while, Chinese shipyards will be in direct competition with Japanese and Korean shipbuilders for the same types of ships (VLCC, LNG, very large containerships). Taiwan The orderbook of Taiwanese builders went from 1.9 to 3.2 million gt between year-end 2003 and yearend 2004. Taiwan thus occupies the 5th place in the world ranking. The state shipyard CSBC gave priority to domestic owners such as Yang Ming, Wan Hai and China Steel Corporation. Their orderbook extends until end 2008 and comprises essentially containerships: with a capacity of 1,800 teu in Keelung and of 4,250, 5,250 and 6,000 teu in Kaohsiung, as well as a few Capesize bulk carriers of 200,000 tons. Other countries in the Indo-Asian zone The search for newbuilding sites has pushed owners to less traditional destinations. Ha Long and Nam Trieu shipyards of the Vinashin group in Vietnam signed up with Craig from the UK, for an important series of Handymax dry bulk carriers of 53,000 dwt. Danish owner Clipper placed an order for several Handysize bulk carriers of 30,000 dwt with Cochin shipyard in India. Iranian shipyards have signed some noteworthy orders with domestic accounts and are now looking for some international clients. Dubai Drydocks has booked its ﬁrst order for bunkers vessels of 6,500 dwt. Others should follow.

Europe The search for construction sites with early delivery dates has also brought owners towards European shipyards. The European shipyards have beneﬁted from the overﬂow of a saturated Asia. They have been able to offer earlier deliveries: 2006 as against 2007 or 2008, for which owners have been prepared to pay a premium. The mainstream of business for Asian shipyards being standard ships, the recovery of demand for specialised tonnage has certainly helped the European yards to regain some ground. It is worth stressing that the West European orderbook has progressed this year for the ﬁrst time for ages. They have moves up from 5.9 to 8.4 million gt between end 2003 and end 2004. It is of course a pleasure to see this recovery of business. But the basic handicaps of West European shipyards in comparison with their Asian competitors still remain: dispersed production, poor investment, ageing installations and workforce, unfavourable tax regimes, high social security costs, too much bureaucracy and too few effective working hours. The drop of the dollar against the euro and the impending termination of subsidies of up to 6 % on March 31st 2005 will not help the European shipyards’ task. It is a pity to see that there is not a more efﬁcient European industrial policy. Too much public money is spent to reduce workforce, to put employees on early retirement or to close yards. It should be possible to conceive of a more proactive and wilful policy

16

Shipping and Shipbuilding Markets 2005

Eastern Europe Shipyards Orderbook & Market Share
million gt 8 Orderbook Market share Source: Lloyd’s Register - BRS 12 percentage 14

6 10

8 4 6

4 2

2

0 end 1995 end 1996 end 1997 end 1998 end 1999 end 2000 end 2001 end 2002 Mar 2003 June 2003 Sep 2003 Dec 2003 Mar 2004 June 2004 Sep 2004 Dec 2004

0

aimed at using the inherent social funds to help the industry to adapt, develop and prepare for the future rather than liquidate the past. Japan has demonstrated that this option was not totally illusory. France The orderbook of French shipbuilders has gone from 380,000 gt at year-end 2003 to 450,000 gt year-end 2004. Gaz de France decided to entrust the building of another LNG carrier of 153,000 cbm to Chantiers de l’Atlantique, which took their total backlog of such ships to three. As with the two preceding ships, signed in 2002 and 2003, this one will be equipped

with a diesel-gas-electric propulsion, the power being provided by gas engines. It is also the method of propulsion that AP Moller has adopted this year with its orders at the Korean shipyard Samsung. Chantiers de l’Atlantique have taken advantage of the revival in the cruise market and signed up two new ships of 90,000 gt and 3,000 passengers with Mediterranean Shipping Cruises who, on their side, have taken delivery of the ‘MSC Opera’, a passenger liner of 59,058 gt, with 795 cabins. But Chantiers de l’Atlantique, faced with a declining demand for cruiseships compared to the glory years of the late 1990s, need to adjust their building capacity, which should be reduced from 5.5 to
Breuil 600 dwt, self-propelled barge, delivered in 2004 by De Hoop, operated by Socatra, dedicated to the carriage of blocks of the A380 airplane on the Gironde estuary

The Shipbuilding Market in 2004

17

Italy There are some ﬁfteen shipyards or building sites in Italy. Cruiseships, Ferries, Ro-ros and Car-carriers form the core of Italian production (Fincantieri, Visentini). But there are also some very good specialist shipyards such as De Poli or Di Pesaro for chemical carriers, gas carriers and small bunker tankers. Italian shipyards have been particularly successful in obtaining over half of the new orders for Ro-ros, Ro-paxes and Ferries. Fincantieri, for its part, succeeded in capturing 6 out of the 13 cruiseships ordered in 2004 and has conﬁrmed its place as the European leader in the cruise sector. The orderbook of Italian shipbuilders has gone from 1.25 to 1.8 million gt between year-end 2003 and year-end 2004. Italy holds the 4th position in Europe and the 8th position in the world shipbuilding ranking. Spain There are still some twenty shipyards or sites in Spain, but the question that has to be asked is for how much longer? Spanish shipbuilding is in a crisis and is going through a drastic change, somewhat in the same mould as in other European countries during the 1980s and 1990s. European authorities have told Spanish authorities to put an end to certain practices which they consider to be contrary to EU regulations. In particular, they have asked Izar to reimburse subsidies received in 1999 and 2000. Under these circumstances, Izar, who did not have any new order in 2003, has not been authorised to take on any new business in 2004. The separation between military and commercial sites should be done and be followed with the privatisation of the latter. The Spanish shipyards’ situation remains fragile on the overall. It is a shame that Spain has not been able to beneﬁt from the revival in the newbuilding market. However, this allow them to propose very prompt delivery dates and would put them in a position to take advantage from the healthy sales prices in 2005. The Spanish shipbuilding orderbook has gone from 500,000 to 135,000 gt between end 2003 and end 2004. It is one of the few countries in the world with a shipbuilding tradition that has seen its portfolio decline this year. Finland There are three construction sites in Finland, which however work under the single banner of the Aker Yards group. In September, the Aker group announced the merger between Kvaerner Masa and Aker

“Catamaran rapide” Artist impression of a 450 seats fast catamaran ordered by Conseil Général de la Vendée at the Norwegian shipyard Fjellstrand for a service between Fromentine and Ile d'Yeu

2.5 equivalent cruiseships. This reduction in capacity should be accompanied by a reduction in the workforce, a drive for further economies of scale with a more important reliance being placed on sub-contracting and Asian supplies. The Piriou shipyards delivered two ﬁshing vessels, a tug boat and a PSV. They are building 5 trawlers, 3 tuna purse seiners -one of which is 83 m in lengthand 2 fast intervention aluminium crewboats. In 2004, Constructions Méchaniques de Normandie (CMN) have delivered a patrol boat to the French Maritime Administration and have under construction a corvette for the Emirates Navy within a programme of six boats for the same client, and two motor yachts of respectively 58 and 42,6 m in length. Germany There are some twenty shipyards in Germany of which about ﬁfteen build almost exclusively containerships between 800 and 4,000 teu. Meyer Werft, reputed for its cruiseships, has even ﬁlled up its orderbook with a series of four containerships of 1,500 teu. Amongst the major shipyards, only Flensburger and Lindenau are specialising in other types of ships such as Ro-ros and Ro-paxes on one hand, product tankers on the other. German builders have naturally beneﬁted from the enormous demand in the containership sector and, above all, from the sustained interest for feeders, a size which the three large South-Korean yards have abandoned. They have also been able to offer prompt delivery dates which are particularly sought after by German investors (KG) whose proximity helps business relationships. The orderbook of German shipbuilders has gone from 2.3 to 3.1 million gt between year-end 2003 and year-end 2004. Germany occupies the 2nd position in Europe behind Poland and is ranked 6th in the world.

18

Shipping and Shipbuilding Markets 2005

Finnyards, under the combined name of Aker Finnyards Inc. This new entity will employ 4,500 people of which 1,000 on the Rauma site, 2,000 in Turku and 1,250 in Helsinki. Cruiseships, Ferries, and Ro-ros are the mainstay of the Finnish production. The recovery in these sectors has helped them and their orderbook has moved from 400,000 to 550,000 gt between yearend 2003 and year-end 2004. The Turku site (ex Kvaerner-Masa) picked up in 2004 the order for a second ‘Ultra Voyager-type’ cruiseship, 160,000 gt and 3,600 passengers, for RCCL. The Helsinki shipyard (ex Aker-Finnyards) was awarded the order for an ice-breaking containership for Russian account and has signed a letter of intent to build a cruiseship for NCL. Finally the Rauma site obtained the order for three carriers specialised in the transport of forest products and a 2,800 passenger ferry. Finnish shipyards have an uncontested know-how in building ships for navigating in polar latitudes, and should therefore beneﬁt from the growth in this trafﬁc with the Russians. Denmark The last major Danish shipyard Odense Lindo keeps on building series of over-Panamax containerships for the account of its main shareholder, the AP Moller group, which has become the only client of this yard. In the current context, to be the owner of a shipyard when you are also ship owner is a clear advantage. Netherlands There are still some ﬁfteen Dutch shipyards, whose production is mainly concentrated on building gene-

ral cargo ships, multi-purposes, small containerships, small product tankers and offshore supply vessels. The Dutch shipyards’ orderbook has gone from 280,000 to 490,000 gt between year-end 2003 and year-end 2004. After a difﬁcult year 2003, which saw the closure of a number of sites, Dutch shipyard workers held massive protest meetings at the beginning of 2004 to attract the attention of the authorities. The government, in turn, conceded a form of temporary defence mechanism, while they also beneﬁted from the market upturn. The Dutch shipyards operate largely by sub-contracting hulls to Romania, Ukraine, Poland and Turkey, without which they could not be competitive today with small yards in China, Korea, Turkey, Romania, or Poland. Some shipyards even succeed in having a full orderbook without doing any construction in their own sites in the Netherlands, this of course, creating other problems. Norway Norway has some ﬁfteen shipyards. Their production is largely concentrated on offshore units such as PSV or AHTS. There was also the rare order at the end of the year for an orange juice carrier of 40,000 dwt at Kleven Werft. Norwegian shipyards also sub-contract a lot of hulls in Eastern Europe and have succeeded in 2004 to renew fruitful relationships with some Russian shipyards. Thus, Fosen has become associated with Baltiyskiy Zavod for building Ro-ros for the account of Stena, while Kleven Maritime has joined up with Sevmash for a series of coated chemical carriers for the account of Odfjell.
Wisby Verity 7,600 dwt delivered in July 2004 by Ferus Smit, owned by Wisby Tankers of Sweden and on long term charter to Preem Petroleum.

The Shipbuilding Market in 2004

19

Portugal The last large Portuguese shipyard, Viana do Castelo, is currently building a product tanker of 19,000 dwt for the account of the French owner Fouquet-Sacop and another of 14,000 dwt for the Finnish owner Fortum, as well as two coastal passenger vessels for a domestic account. They also have an agreement to build a signiﬁcant series of vessels for the Portuguese Navy. Poland Poland has four main shipyards whose production is largely geared to build containerships, openhatch bulk carriers, car-carriers and Ro-ros. The orderbook of Polish yards has gone from 2.5 to 3.3 million gt between year-end 2003 and year-end 2004. Poland keeps its 1st place within Europe and the 4th place in the world ranking. Poland, now part of the European Union, has to progressively abide by its regulations. In particular, the shipyards in Gdynia and Gdansk, which have beneﬁted from state funding, will see their capacity being limited to 390,000 cgt over the next ten years. Polish yards, which have experienced serious ﬁnancial difﬁculties, have given priority to their traditional clients and to build series of existing, proven designs thus reducing their risks. Croatia There are ﬁve shipyards in Croatia whose orderbook has gone from 1.5 to 2.7 million gt between yearend 2003 and year-end 2004. Croatia occupies the 3rd place in Europe and the 7th place in the world. Croatian yards have largely beneﬁted from the demand of product tankers and of car-carriers. The orderbook of Treci-Maj and Uljanik are full until mid-2008, Trogir and Split are full until early 2009. Romania Romania has six shipyards. The revival of Romanian shipbuilding which was already ﬁrmly in place has been consolidated by the strong demand throughout the year 2004, both for complete vessels as well as sub-contracted hulls from West European shipyards. The orderbook of Romania yards has gone from 230,000 to 550,000 gt between year-end 2003 and year-end 2004. Romanian production is diversiﬁed and consists of offshore units (PSV), product tankers, Panamax tankers, and containerships. German owner Gebab has ordered six containerships of 4,800 teu at Daewoo Mangalia. This excellent performance is largely due to the strategic investments made by three foreign groups:

Aker, Daewoo, and Damen. These Norwegian, Korean, and Dutch companies have supplied their own know-how and the beneﬁt of their reputation to the respective shipyards: Aker Tulcea, Aker Braila, Daewoo Mangalia and Damen Galatz. Russia There are ten shipyards in Russia, whose orderbook has doubled from 350,000 to 615,000 gt between year-end 2003 and year-end 2004. They have been able to beneﬁt from considerable domestic orders. Baltiyskiy Zavod has thus been given the order for a tanker of 75,000 dwt for Rosneft. The foreseeable increase in oil exports from this country and the need for ice-class ships capable of navigating in polar latitudes should probably help feed Russian shipyards with new orders. Russian shipbuilding has also been able to take advantage of the world demand and the programmes of cost-cutting by European yards in the form of sub-contracting. Baltiyskiy Zavod is going to build in co-operation with Fosen shipyard two Ropaxes for the account of the owner Stena. Sevmash in conjunction with Kleven Maritime will build a series of eight chemical carriers of 40,000 dwt for the account of Odfjell. Turkey Apart from a few sites, Turkish shipbuilders are mainly located in the bay of Tuzla, located some thirty kilometres from the heart of Istanbul, in Anatolia. There are about 35 shipyards next to each other in a semi-circle with a radius of about 1,000 m. Currently it is brimming with activity. Most of the ships under construction are less than 10,000 dwt. Between 2003 and 2004, the ﬁve biggest builders in the bay took on orders for ships between 15,000 and 20,000 dwt. One of them, Celik Tekne, is even building a sophisticated product-chemical tanker of 25,000 dwt for delivery in 2005. These shipyards display a remarkable dynamism and special ingenuity. They seek to increase their building capacity by constructing new berths, new lifting procedures, new workshops and study numerous expansion projects. Current production is mainly concentrated on product tankers and chemical carriers (including some stainless steel units), but there are also cement carriers and containerships in the orderbook. A number of hulls bought in Romania or in Bulgaria have been towed there in order to be ﬁtted out and ﬁnished. Most of the Turkish shipyards’ clients are West European owners, but also West European shipyards who sub-contract hulls. Some Turkish owners have

20

Shipping and Shipbuilding Markets 2005

contributed in the form of orders for which they basically act as shipbuilders: they build their own ships using the yards’ facilities but supplying the design, steel and equipment. The orderbook of Turkish yards has gone from 250,000 to 365,000 gt between end-2003 and end-2004 United States The American shipbuilding industry is concentrated on its national market. Despite a strong rise in construction costs and a search for new capacities, American shipyards remain too expensive and have not been able to take advantage of the current situation. As an example, Kvaerner Philadelphia (Aker Yards) have only sold four containerships of 2,600 teu since 2002, at a unit price of roughly $ 70 million, namely more than double the price inked with Asian yards. Avondale and National Steel (NASSCO) are the two large commercial American shipyards where tankers of 140,000 and 185,000 dwt are under construction. They belong to American shipping defence companies, respectively Grumman and General Dynamics, but have not registered any new merchant ship orders this year. New orders for merchant ships are scarce, except for the offshore industry. Besides, a part of the homeland security budget is dedicated to the building of a number of ships for the account of the U.S. Coast Guard, which should keep the civil shipyards busy for several years.

Prospects
2004 has been an exceptional year on many aspects. An unequalled growth, unprecedented freight rates, unsurpassed second-hand ships’ values, a record world orderbook and raw materials (oil, coal, steel) at historical highs. Will the orders intake remain as high as over the past two years? Will the price of ships continue to climb? Are the markets able to absorb the capacity of such an orderbook? Numerous factors suggest a continuation of this trend due to the enormous requirements of China, to which can be added those of India and other emerging countries. Some believe that the strength of the freight market could last through 2005 or even beyond into 2006. Others claim that the engine of the Chinese economy will keep on running at full speed until the Olympics Games of 2008, or even the Universal Exhibition in Shanghai of 2010. Finally, the most optimistic seems to detect economic miracle signs in China of an identical cycle to that of the post World War II in the Western world.

Whereas more than 110 million dwt of ships were ordered in 2003 and builders’ portfolios were already spread out for over three years, the continuation of this trend in 2004 was surprising. With an economic development and a world trade superseding the most optimistic forecasts, and as a corollary an unprecedented rise of freight rates and the improvement of owners’ financial stanHuntestern 37,179 dwt, built in 2004 by Jinling, owned by Rigel Schiffahrts

The Shipbuilding Market in 2004

21

World Orderbook vs Newbuilding Prices since 1991
m.gt/m.$ 180 VLCC newbuilding price (m.$) 160 Capesize newbuilding (m.$) World orderbook (m.gt) 140

120

100

80

60

40

20

0

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

ding, these are the underlining explanations for the volumes ordered. First, shipyards became euphoric with their commercial success, but they progressively realised that the increases in newbuilding prices obtained in 2003 were hardly sufﬁcient to cover the rise in their own costs. They discovered, with dismay, that they had taken enormous risks and that in fulﬁlling existing contracts they could jeopardise their ﬁnancial results. Builders could well exercise additional caution in 2005 by not agreeing to take on any new orders except at substantially higher prices, especially as they have time on their side. This could cause owners to slow down as well, as they have taken on commitments over the next three years themselves (165 million gt on order).

where the same single-hulled VLCC would have cost around $ 90 million. At the same time, the price of a 300,000 dwt double-hull VLCC reached the $ 110 million region. If we expect the current upward cycle to last as long as the previous one, there is no doubt that newbuilding prices still have some margin to go up. Much will depend on the further development and stability of the dollar exchange rate, which remains a serious issue. We can also draw some comfort in the extrapolation of most economists, whose sentiments are that the dollar is not about to appreciate substantially against the currencies of the main shipbuilders. Of course we would like to be able to predict newbuilding prices evolution and we would like to know if an eventual drop could send us again towards the very low levels seen in mid 2002. Given the size of shipyards’ orderbooks, the pressure placed on an already strained raw materials markets and world growth forecasts, it seems probable that newbuilding prices will continue to climb during 2005 and 2006 as long as steel prices do not drop. There is nevertheless reasons to be careful about the enormous building capacity that China will put on the market as from 2008 / 2009. This, coupled with the steady productivity improvement achieved by the Chinese shipbuilding industry, may start to break this delicate balance. The outcome will then depend to a large degree on the capacity of resistance offered by the Japanese and South■ Korean shipbuilders.

Shipbuilding prices in 2004 reached new levels, equalling and in some cases surpassing the records obtained at the beginning of the 1990s (in actual values). Owners can reasonably ask themselves, in such heady time, if they might not soon encounter a decline. However, one should keep in mind that $ 100 million in 2005 is worth considerably less than the same $ 100 million in 1991 (in current values) and meanwhile the price of steel has risen. The analysis of the cycle that shipbuilding experienced in the 1980s is instructive. In 1985, a VLCC of 250,000 dwt would have been contracted for around $ 35 million at the Asian shipyards. The upward cycle then followed a six year trajectory, into the beginning of the 1990s, to the point

22

Shipping and Shipbuilding Markets 2005

2004

Certiﬁed since 1997, BRS quality system has been successfully renewed in 2003 under the new ISO 9001:2000 rules.

[

This renewal reﬂects BRS constant commitment to improve its services to clients since it was founded in 1856.

23

BRS Research and Information Department

The Research and Information Department maintains a large data basis and information library which covers all sectors of activities handled by BRS, and is available for consultation or advice of clients. This Department handles the information reports, analyses, studies and statistics covered on the company’s internet site. It works in co-operation with the brokers in each departments to meet the needs of clients. The Research and Information Department also offers its know-how and the companies’ international network and expertise available to the shipping world to assist and answer any queries.

You can reach this service directly at the following address:

[email protected]
Or through your broker.

24

Shipping and Shipbuilding Markets 2004 2005

CRUISE IN MARKET

THE

2004

I

f we were able to hand out “Oscars” in the cruise market, we would indisputably have two big winners this year: the Carnival Cruise Line group, on one hand, and Fincantieri shipyards, on the other, both having developed a fruitful co-operation. The Carnival group closed its annual results with a proﬁt of nearly $ 2 billion for a turnover of roughly $ 10 billion, namely a net margin of 20 %. This result confirms both the success of the merger between the P&O / Princess group and the Carnival group, as well as the growth of the cruise market in the US and Europe in 2004. Fincantieri ended the year with an orderbook of ten cruise ships, all for the Carnival group, representing 60 % of the world orderbook and slightly over $ 5 billion in value, guaranteeing full employment for their three cruiseship construction sites until 2008. The enthusiasm which these magnificent results inspire should however be tempered in a global outlook of the market. The cruise industry has just

experienced three difﬁcult years since the attack of September 11th, 2001 and began the year 2004 with a new challenge, that of absorbing ten ships representing about 23,500 lower-berths, or 10 % of the current capacity. Once again, demand was able to match this new supply thanks to the increase in the number of cruise passengers which should surpass the 13 million mark in 2004. At the beginning of 2004, there were only three ships to be delivered in 2005 and four in 2006. However, despite the continuing decline of the dollar lifting the cost of construction in Europe, owners could not resist the temptation to consolidate their commercial position by ordering new ships, in this booming market. Once again, the signal was given by Carnival who as early as January ordered a ship, the ‘Costa Concordia’, 112,000 gt, 1,900 cabins, for delivery in the summer of 2006, at € 450 million, for its subsidiary Costa. In October, two ships of 68,000 gt, 1,000 cabins, were ordered by another Carnival afﬁliate, Aida, with Meyer Werft, for delivery in April 2007

The Cruise Market in 2004

25

Cruiseships delivered in 2004 and scheduled firm to 2009
Lower berths 30,000 Lloyd Werft Meyer Werft 25,000 10 ships Aker Yards 9 ships Mitsubishi H.I. Fincantieri 20,000 Ch. de l'Atlantique

6 ships 15,000

10,000

4 ships

2 ships 5,000 1 ship

0 delivered in 2004 2005 2006 2007 2008 2009

and April 2008, for a unit cost of € 315 million. But above all, the biggest order ever placed was made with Fincantieri for a total ﬁgure of $ 2.6 billion for four ships to be delivered in 2007-2008 and the extension of the future ‘Queen Victoria’ by 11 meters for Cunard, for a complementary cost of $ 95 million. The four ships are broken down as follows: x one for Carnival, 110,000 gt, at a price of $ 500 million, x one for Princess Cruises, 107,000 gt, at a price of $ 525 million, x two similar ships for Europe, priced respectively at € 475 and € 490 million, with the Carnival group keeping the option to dedicate these two ships to either of its brands during the year 2005. This order is exceptional in both its size and the fact that Fincantieri agreed to deal both in dollar and in euro, with client and supplier sharing the currency risk. At the end of the year, Carnival thus has 12 ships on order and in January 2005, this owner will add a sistership of the ‘Concordia’ for its subsidiary Costa, for delivery in 2007 at a price of € 475 million. RCCL declared in September its option with Kvaerner Masa Yard, which has become Aker Finnyards, for a second ‘Ultra Voyager’ of 163,000 gt, 3,600 passengers, at a price of € 580 million. RCCL continues to invest in these mega-ships with success, but it is likely that Carnival will start to compete in this market of very large carriers, since its

‘Pinnacle’ project of 180,000 gt is already on the drawing boards. RCCL has also opted this year for the extension of the ship ‘Enchantment of the Seas’ which should see its capacity increased by 150 cabins for a cost in the region of $ 55 million. The new section will be built at Aker Yards and installed in the Netherlands during the second quarter of 2005. Norwegian Cruise Line (NCL) began the year with some concerns due to the financial losses of its mother company in Asia and the accident of the ‘Pride of America’ under construction at Lloyd Werft. Finally, the group has successfully put in place a financial restructuring, which allows it to raise $ 1 billion and to order two ships in December: x one of 92,000 gt, 1,200 cabins, for delivery in February 2007 with Meyer Werft, at a price of € 370 million, x the other of 89,000 gt, 1,000 cabins, with Aker Finnyards, for delivery in the spring of 2007, with an option for another unit to be lifted in August 2005 for delivery in the spring of 2008, at a price of € 385 million per unit. An agreement was ﬁnally signed with Lloyd Werft to take delivery of the ‘Pride of America’ in June 2005, whilst the ‘Norway’ has definitively been stopped, awaiting a sale. NCL, under the NCL America banner, continues to develop its cruise business in Hawaii under the American flag, despite some teething problems

26

Shipping and Shipbuilding Markets 2005

linked to restrictions with the American ﬂag. Four ships are still programmed for this market over the next three years. In Europe, the year began sadly with the demise of Festival who should have celebrated ten years of existence in 2004, but which allowed MSC to expand its development policy by taking over the ‘European Vision’ and ‘European Stars’ at a price of some € 215 million per unit. Mediterranean Shipping Cruises (MSC) has become a main competitor to Costa in Europe and also plans to consolidate its position as European cruise operator in the American market. Comforted by being the second largest owner of containerships in the world, MSC does not hide their plans to become a prime player in the European cruise scene. In September MSC completed six months of negotiations with Chantiers de l’Atlantique for the order of two 3,000 passenger ships, for delivery in the summer of 2006 and in the spring of 2007, at a price of € 400 million each, with an option for an additional ship. The European market should increase from 3.1 million lower-berths in 2004 to 3.7 million in 2007, profiting from a potential steady growth and should continue to absorb a quarter of the world ﬂeet. It is true that if we apply the American model

to Europe, there could be ten million cruise passengers in ten years time. Finally 12 ships were ordered in 2004, representing 33,000 lower-berths, plus an additional three on option. The orderbook at the end of the year thus comprises 21 ships ﬁrmly booked, for a total of 56,000 lower-berths, or an average capacity per ship of 2,650 passengers, of which nine ships are of postpanamax size. Ten new ships representing 23,500 lower-berths were delivered during the year, of which seven went to the Carnival group. These deliveries were broken down as follows: For Carnival Cruise Line: ◆ ‘Carnival Miracle’, 85,700 gt, 2,124 lowerberths, 1,057 cabins, delivery February 2004, built by Aker Finnyards, ◆ ‘Carnival Valor’, 109,500 gt, 2,974 lowerberths, 1,438 cabins, delivery November 2004, built by Fincantieri. For Princess Cruises: ◆ ‘Caribbean Princess’, 112,894 gt, 2,998 lowerberths, 1,557 cabins, delivery March 2004 built by Fincantieri,
Carnival Miracle 85,700 gt, delivered in 2004 by Aker Yards, operated by Carnival Cruise Line

The Cruise Market in 2004

27

◆ ‘Diamond Princess’, 115,875 gt, 2,674 lowerberths, 1,337 cabins, delivery March 2004, ◆ ‘Sapphire Princess’, 115,875 gt, 2,674 lowerberths, 1,337 cabins, delivery May 2004 built by Mitsubishi. For Costa: ◆ ‘Costa Magica’, 102,200 gt, 2,702 lowerberths, 1,358 cabins, delivery November 2004 built by Fincantieri. For Holland America Line: ◆ ‘Westerdam’, 81,769 gt, 1,848 lower-berths, 924 cabins, delivery April 2004 built by Fincantieri. For Royal Caribbean Cruise Line: ◆ ‘Jewel of the Seas’, 90,090 gt, 2,100 lowerberths, 1,055 cabins, delivery April 2004 built by Meyer Werft. For Mediterranean Shipping Cruises: ◆ ‘MSC Opera’, 59,058 gt, 1,526 lower-berths, 795 cabins, delivery in June 2004 built by Chantiers de l’Atlantique. For Birka Line: ◆ ‘Birka Paradise’, 33,000 gt, 1,800 lower-berths, 728 cabins, delivery November 2004 built by Aker Finnyards. The revival of the cruise market during the year gave life to the second-hand market which was enlivened by the auction sales of vessels owned by companies in financial difficulties (notably ROC and Festival), as well as the sale of ships from the group My Travel (Sun Cruises) who decided to shutdown their activity as shipowners. These sales allowed one to gauge the relatively firm prices which were established, partly due to the rise in the cost of construction and to some extent due to the weakness of the dollar. Amongst the more notable sales were: ◆ ‘Carousel’, 23,000 gt, 1,000 lower-berths, built

1971, ‘Seawing’, 16,700 gt, 754 lower-berths, built 1971 and ‘Sunbird’ 37,773 gt, 1 414 lowerberths, 633 cabins, built in 1982 (chartered by Thomson) to the owner Louis Cruises, at respectively $ 14, $ 9 and $ 71 million, whereas the ‘Sun Dream’ 23,000 gt, 1,000 lower-berths, built 1970 was sold to Caspi Shipping. ◆ ‘European Vision’ renamed ‘MSC Harmonica’, and ‘European Stars’ renamed ‘MSC Sinfonia’, 58,000 gt, 1,506 lower-berths, 783 cabins, built in 2001 and 2002, bought by Mediterranean Shipping Cruises at the cost of € 215 million each. ◆ ‘Mistral’, 47,276 gt, 1,196 lower-berths, 598 cabins, built in 1999, sold to a Spanish tour operator Viajes Iberojet for a price of about € 130 million. ◆ Iberojet also bought the ‘Superstar Capricorn’, 23,400 gt, 755 lower-berths, built in 1972, renamed ‘Grand Latino’ at a price of $ 20 million. ◆ ‘Superstar Aries’, 37,000 gt, 611 lower-berths, built in 1981, renamed ‘Holiday Dream’ was sold to Pullmantur for a price of $ 44 million. ◆ ‘Bolero’, 15,800 gt, 761 lower-berths, built in 1968, renamed ‘Orient Queen’ was sold to Lebanese buyers at the price of $ 9.5 million, whilst the ‘Azur’, 9,200 gt, 694 lower-berths, built in 1971 was sold to the Israeli owner Mano Maritime (renamed ‘Royal Iris’) at a price around $ 10 million, and the ‘Flamenco’ bought by Ravenscroft for $ 12.25 million at auction, has been charted by Travelplan in Spain. ◆ The German ﬁnancial organisation KfW, creditor of Royal Olympic Cruise, who had bought the ‘Olympia Explorer’ and the ‘Olympia Voyager’, built in 2000 and 2002, 24,500 gt, 840 lowerberths, 27 knots, for respectively $ 82.7 million and $ 97.2 million, resold the ‘Olympia Explorer’ for $ 85 million to a maritime university, whilst the ‘Olympia Voyager’ was chartered out for on a long term period with a purchase option to the Spanish Iberojet. ◆ ‘Paul Gauguin’ was sold by the ﬁnancial owner Centre Solution to the tour operator Grand Circle/Vantage for a price in the region of $ 40 million, but the ship should remain in service in Tahiti for Radisson for the next two years, 2005 and 2006. The project easyCruise, which caused a lot of curiosity from all the professionals in the sector, should start in the spring of 2005 following the purchase and the transformation of ‘Renaissance Two’ bought for $ 7 million and transformed in Singapore, doubling its capacity to accommodate 180 passengers. This ship, renamed ‘easyCruise 1’ will serve as a test to the promoter, Stelios Haji-

Diamond Princess 115,875 gt, delivered in 2004 by Mitsubishi H.I., operated by Princess Cruises

28

Shipping and Shipbuilding Markets 2005

MSC Opéra 59,058 gt, delivered in 2004 by Chantiers de l’Atlantique, operated by MSC Cruises.

Iouannou, to develop on a much larger scale the ambitious project of easyCruise, which is planning to expand the range of products offered in the cruising industry in trying to capture a much younger clientele. ◆ The sister ship, ex ‘Renaissance One’ was sold to Singaporeans at a price of $6 million to operate casino cruises. ◆ Also to be noted was the purchase of the ‘Discovery’, 20,186 gt, 472 lower-berths, built in 1972 by the tour operator All Leisure Group (Voyages of Discovery) which chartered the ship for six months of the year, thus becoming an owner. These sales show the activity of some tour operators, especially Spanish, Spain having become the fourth market in Europe within several years with 300,000 cruise passengers, after the United Kingdom with over 1 million, Germany with near to 600,000 and Italy with more than 350,000 cruise clients. We have not seen any new mergers within the cruise companies this year, the sector being already concentrated in the hands of a few big groups, but there was one promising diversifying operation with the entry of CMA CGM into 70 % of the capital of the Compagnie des Iles du Ponant, who exploit three small cruiseships under French ﬂag, and in the tour operator Tapis Rouge. Let us hope that this major containership owner will wish to develop rapidly in this new activity. Whilst we might have imagined that the sector would take a pause after the strong growth in the fleet at the beginning of this decade, it appears that cruise companies are looking to achieve a

controlled growth of around 5 % per year, which should result in some ten ships being ordered each year. Once again, the question is whether there are too many shipyards in Europe to serve the needs, which overall have become relatively moderate, although owners have no interest in seeing reduced competition amongst shipyards as this has helped boost their growth. The decline in the dollar has of course been a constraint on the ambitions of American companies, but the growth of the market and a wiser decision-making process in the annual ordering of ships should permit, as seen this year, an increase in cruise prices compensating the rise in construction costs expressed in dollars, taking into consideration that amortisation of the vessel can be spread out over a very long period. The cruise industry, which in twenty years has become a well-known and appreciated leisure activity, has no need to be under-priced to survive and the sector should experience a much more controlled development than in the past, particularly as only ten ships will be coming out of the yards over the next two years, four in 2005 and six in 2006, which should allow a better occupancy rate and price optimisation given a demand which is continuously expanding. ■

The Cruise Market in 2004

29

The BRS Web site

www.brs-paris.com
BRS offers a web site with regular updated information on international maritime transportation. In addition to the numerous pages with free access, BRS has available for clients data and on line services adapted to their speciﬁc needs.
PAGES WITH FREE ACCESS:

• Group proﬁle • Contacts for each department • Annual review • Newsletters: – Weekly: dry cargo, crude oil and petroleum products – Monthly: liner shipping, LPG, sale and purchase
PAGES WITH PRIVATE ACCESS:

• A daily press report • Statistics (freights, prices, orderbooks…) • Weekly analyses • Speciﬁc studies

30

Shipping and Shipbuilding Markets 2005

TANKER
MARKET IN

THE

2004

Crude oil transport: a year of records

2003

was marked by a sharp difference between the high freight rates of the first and fourth quarters and a fairly significant drop during the second and third quarters. If 2004 was also characterised by an endemic volatility of the markets, with signs of relative weakness in the second and third quarters, the shortlived dips never reached the lowest levels of the preceding years. However, the record levels of rates registered throughout the second half, with the exception of the month of December, will remain in the annals, even if one should moderate this excess somewhat with a particularly unfavourable dollar / euro exchange rate. For more than 20 years and in all categories of tankers, one has not seen freight at such levels with daily returns surpassing $ 200,000 per day for VLCC, ﬂirting with $ 150,000 for the Suezmax and exceeding the $ 100,000 level for the Aframax. At the same time, crude oil prices broke the historic level of $ 50 per barrel for a brief period.

Such exceptional results, which few could have predicted with such a sustained strength, require a detailed analysis permitting on one hand to justify (or not) these record levels, and on the other hand, to try to predict in the medium term a forecast for a realistic evolution of our markets. Objective factors World oil consumption has been continuously rising for the past four years. Thus in the fourth quarter of 2004 world demand reached 82.5 million barrels / day, its highest level for over 10 years. Forecasts by the International Energy Agency predict a new probable increase in demand for 2005 of 700,000 barrels/day. OPEC production on its own is nearly 30 million barrels/day, its highest level since 1990. Some countries have registered record increases in their demand. Compared to 2003, China saw an increase of over 20 % of its imports (rising from 90 to nearly 120 million tons), with Brazil nearly 15 %

The Tanker Market in 2004

31

and India 11 %. By comparison, Europe saw its needs increase by 6 % and the U.S. by over 3 %. In the case of China and India, who played a minor role in world oil traffic only a few years ago, it is expected to see the rhythm of growth being maintained, which, given the size of these countries, will give them a preponderant position in shipping terms in the coming years. The other objective factor explaining the steady rise of freight rates during the past two years, has been the selective quality of chartered tonnage. It has become more and more rigorous and the progressive elimination of single-hulled tankers is now a fairly standard generalisation. Parallel to this and, as we shall see later, the situation of the shipyards up until 2008 and the constantly rising price of newbuildings, justiﬁes the attitude of owners and explains their optimism for at least two to three years to come. Subjective factors Despite the various objective elements which have just been cited, this certainly does not justify the extent of the freight increases which we have witnessed during the second half of 2004. Some purely psychological factors, even speculative, can only explain the mad rising spiral which we have seen. A fear of insufficient raw material helped foster the speculative increase in oil prices, and this psychosis pushed the level above $ 50 per barrel. Some even forecast a price of over $ 60 per barrel in the coming months.

While it is true that there is a problem of availability of sweet crude in the longer term, world proven reserves remain healthy and do not in any way justify the pronounced fears. To illustrate this, the announced drop in American stocks, which largely contributed to the rise in crude prices, was only a very short term phenomenon. After the announcement at the beginning of December of much less alarming figures, oil prices rapidly plunged and went below $ 40 per barrel in less than a week. However OPEC’s decision to reduce its production quota by 1 million barrels/day, has meant that at the end of December crude prices were up around $ 45 per barrel. If numerous psychological factors have had a signiﬁcant impact in these last months, one in particular seems important to us: the increasingly important part played in the market by “derivatives”, in connection with both the oil and shipping markets. Particularly speculative, this market has certainly had an unforeseen effect not only on crude prices but also on freight levels. After this general introduction, we shall try, as we do each year, to analyse each sector by type of tanker to enable us then to give a realistic synopsis of the past year and try to draw some conclusions and predictions for the short and medium terms. VLCC This sector of the ﬂeet undeniably remains the driving force today in the freight market. If we revert

$/day
240,000 220,000 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 250,000 t MEG/Japan - TCE 275,000 t MEG/Continent - TCE 260,000 t Forcados/Loop - TCE

VLCC tanker freight rates Average earnings

April 04

July 04

Oct 04

Mar 02

June 02

Dec 02

May 03

Aug 03

Nov 03

32

Shipping and Shipbuilding Markets 2005

Dec 04

Jan 02

Sep 02

Feb 03

Jan 04

Minerva Eleonora 104,875 dwt, delivered in 2004 by Samsung HI, operated by Minerva tankers.

to the forecasts for growth and production over the coming years, we note the following main elements: in 2010 the share of production from the Arab-Persian Gulf will be about 42 million barrels per day or 47 % of the estimated world production of around 89.3 million barrels per day. In 2020 the world production will be 107.3 million barrels per day and it is estimated that the Gulf countries will contribute around 58 million barrels per day. It is calculated that such a ﬁgure will require the presence of 27 VLCC per day to cover these exports, equal to an increase in the ﬂeet of nearly 170 units in the next 16 years… Even if these figures should be taken with some caution, it is nonetheless indisputable that the predominance of this geographical zone and this size of ship is here to stay. As tangible proof : there was a monthly average of 91 ships ﬁxed out of the Gulf in 2002, this ﬁgure rose to nearly 120 in 2004 (+30 %). At the same time the fleet only increased by 5 %. This simple statistic explains already the strong surge in the freight rates. As we have already stated, the increasingly preponderant share of exports to China and India plays an essential role in the evolution of these rates. One has seen in the last two years that the ratio East / West of exports has gone from 70 / 30 to about 75 / 25. Parallel to this, one observes that in this category of size the proportion of single-hulls is the highest within crude tankers, namely some 40 % of the current ﬂeet in service (177 ships). With less than

110 VLCC currently on order and a progressive and inevitable elimination of older ships, owners have good reasons to remain optimistic even if a large part of single-hull ships now in service were built at the end of the ‘80s or beginning of the ‘90s and still have a number of years’ trading left. With the main trafﬁc bound to the East and Chinese and Indian owners up till now being the principal takers of single-hulls, the analysis of the evolution of freight rates is all the more signiﬁcant. On the three main routes in our graph, the average returns of a modern VLCC (on the basis of a simple round-voyage) have not stopped rising, going from $ 22,550 dollars per day in 2002 to $ 52,500 in 2003 and over $ 95,000 in 2004. Over the past 12 months, the minimum return for a double-hulled VLCC was $ 41,000 per day in April and the record was achieved in mid-November with $ 228,000 per day. In such a climate it is clear that the number of tankers being sent for demolition was low. At the same time few owners of modern ships were willing to ﬁx their ships on long term charters. However, on the basis of the few transactions concluded, we can estimate a time-charter rate for one year at about $ 80-85,000 per day, and at about $ 57,500 per day on the basis of a three year charter. Suezmax Generally speaking, this category experienced similar rate variations to those of VLCC, which is hardly surprising given the direct influence that one size has on the other.

The Tanker Market in 2004

33

$/day
180,000

Suezmax tanker freight rates Average earnings
130,000 t Sidi Kerir/Fos

160,000

130,000 t Forcados/Texas City

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0
Jan 02 Feb 02 Mar 02 May 02 June 02 July 02 Sep 02 Oct 02 Dec 02 Jan 03 Feb 03 May 03 June 03 Aug 03 Sep 03 Nov 03 Dec 03 Jan 04 Mar 04 June 04 July 04 Aug 04 Oct 04 Nov 04 Dec 04 Avr 03 Avr 04

As with VLCC, the average daily returns have been constantly rising over the past three years. On the basis of the two routes West Africa / Gulf of Mexico and cross-Mediterranean, these have moved from $ 20,500 per day in 2002 to $ 42,900 in 2003 and have slightly surpassed $ 70,000 in 2004. If the rate movements have often been erratic, the returns have never been below $ 20,000 per day in 2004, the record being reached in mid-November with over $ 160,000 per day for a cross-Med movement. Even though the voyages are short, we can see yet again that the driving force is the Mediterranean market and especially Russian exports out of the Black Sea. It should also be observed that this new improvement in freight rates has come about despite exports of Iraqi crude from Ceyhan being particularly weak and erratic following the successive sabotage of the pipeline feeding the terminal. Exports of Russian crude have not stopped rising and the coming into service of the new pipeline between the Caspian Sea and Ceyhan should help reinforce the role of this zone as a barometer of the Suezmax market. Record delays of over 20 days during the winter of 2003 in order to transit the Turkish straits have not been repeated. Thanks to new navigational rules and milder weather, round trip voyages have scarcely exceeded 10 days. Despite an increasing share of exports being taken by VLCC out of West Africa (always with a proportion of 70 / 30 between East / West destina-

tions), units of one million barrels continue to ﬁnd a stable market in this zone. While Nigeria remains the main exporting country, there has been significant and confirmed export growth from other countries, notably Angola, where deep-sea drilling is being pursued at a sustained rhythm, justifiable in view of the current level of oil prices. One has also seen a growing number of ﬁxtures out of the Arabian-Persian Gulf at record freight rates this year, following the spectacular highs set by VLCC. Thus on some spot business rates have gone up to over Worldscale (WS) 400 for voyages to China. As with other sizes, the elimination of old units has been particularly quick since for the fleet in service at the end of the year, there are only slightly over 20 % of single-hull ships. Furthermore in line with the other categories, few owners were inclined to place their modern ships out on time charter, but rates can be estimated between $ 55-60,000 per day on the basis of a one year contract. Aframax This market has been particularly boosted since the accidents of the ‘Erika’ and above all the ‘Prestige’. Security measures adopted by the main players and the increase in trade movements has allowed owners with renewed fleets to obtain freight rates which give a rapid payback on their investment.

34

Shipping and Shipbuilding Markets 2005

$/jour
140,000

Aframax tanker freight rates Average earnings
80,000 t UK/Continent - TCE 80,000 t East Med/West Med - TCE

120,000

100,000

80,000

60,000

40,000

20,000

0
Jan 02 Feb 02 Mar 02 May 02 June 02 July 02 Sep 02 Oct 02 Dec 02 Jan 03 Feb 03 Apr 03 May 03 June 03 Aug 03 Sep 03 Nov 03 Dec 03 Jan 04 Mar 04 Apr 04 June 04 July 04 Aug 04 Oct 04 Nov 04 Dec 04

As an example and only on the European market, if the average returns were only $ 12,500 per day in 1999, they jumped to $ 40,000 in 2000 and then dropped to $ 21,500 in 2002, when the ‘Prestige’ accident in November 2002 totally overturned the supply / demand balance. This European trafﬁc has been in continual growth since 2002, as between the Mediterranean and the North Sea, the level has gone from 45 % to 50 % of all spot charters done world-wide. Despite a more marked volatility compared to other sizes, the average daily returns have moved up from $ 42,500 per day in 2003 to about $ 58,000 per day over the last 12 months. Proof of the extreme volatility of this market are the large variations in Mediterranean demand which often put freight rates into a roller-coaster movement, difﬁcult to foresee and to control, but with a strong upward pressure. Returns on crossMed voyages jumped from about $ 17,000 per day in April up to $ 110,000 per day at end October! It should be noted that the record levels reached at the end of the year were the result of a higher demand, without any particular inﬂuence of delays due to bad weather, such as experienced in 2003 with the transit of the Turkish straits. As to the structure of the ﬂeet, today the proportion of modern double-hulled units is predominant. The survival of some single-hulled ships is limited to several Russian traders out of the Black Sea, but their days are numbered…

In the North Sea, freight variations and returns closely followed the trends in the Mediterranean with an average yearly rate working out at WS 189 on the short cross-North Sea voyages. In parallel there was also a strong progression of Russian exports out of the Baltic and Murmansk. For such voyages, even though ice-classed ships are now more numerous, rates continued to be extremely high since the beginning of the winter season (up to WS 440). In the Caribbean market, with the rise in American imports to help reconstitute inventories, we saw an increase in local movements and the average annual rates were around WS 255 compared to WS 207 in 2003. In such a situation, there were few time charter transactions given that the spot market enjoyed a steep rise. Nonetheless, there are a number of owners who expect downward pressure in the months to come, which would then be a justiﬁcation for some commitments to time charter contracts.

Prospects
In face of the particularly erratic ﬂuctuations in rates, any realistic prediction either for the medium or long term is a highly precarious exercise. The slightest event of either macro-economic or geopolitical nature will continue to have an impact on the freight markets. Nonetheless, as with our preceding report, we consider that owners can reasonably expect to see

The Tanker Market in 2004

35

Major charterers "eligible" fleet evolution & prospects to 2007
dwt 140,000,000 Aframax 120,000,000 Suezmax VLCC 100,000,000

80,000,000

60,000,000

40,000,000

20,000,000

0 end 1998 (under 25 years) end 2000 (under 15 years) end 2002 (under 15 years) end 2004 (double-hull) end 2005 (double-hull) end 2006 (double-hull) end 2007 (double-hull)

freight rates remaining firm over the next two years. Even if on the economic front, various analyses suggest that there will be lull in the growth for a number of importing countries, the energy needs of China and India alone will continue to have a determining inﬂuence on the world tanker trafﬁc. It is however unlikely that we will see in the next 12 to 24 months the exceptional levels of freight rates experienced this year. We should witness a steady decline in the average rates and reach a level probably close to that of 2003, therefore still considerably in favour of owners. Tankers on order (number of ships)
2004 2005 2006 2007 Total Aframax 58 67 62 50 237 Suezmax 29 29 24 29 111 VLCC 31 35 21 40 127

As we did in our previous report, the study of the “eligible ﬂeet” adds a clear indication to the forecasts, and gives an initial response which counterbalances the pessimism of those who only look at the massive tonnage arriving on the various markets. This time we only compare the global tonnage at the end of 1998 (corresponding to the main criteria used at this time by the main charterers namely an age limit of 25 years) with what will be the figures in the coming years but only taking into account ships with double-hulls. One observes that despite a constant increase in tonnage in each of the categories, none of the volumes surpasses the level achieved at the end of 1998. The cost of new ships should continue to rise, especially with the continuing increase in the cost of raw materials from which they are built. The organisation between owners leading to the creation of commercial pools should help avoid sudden drops in the market and allow freight rates to continue for a prolonged period at levels we have seen recently. Finally, the drastic safety measures will continue to be reinforced and the balance between supply and demand, which determines the rates, will be more and more linked to the quality of ships effectively meeting the requirements imposed by the main charterers and not just by simple comparing supply and demand ﬁgures. ■

The arrival of new units into the ﬂeet is obviously a cause of concern, with such imposing numbers as the table above indicates. On the other hand we can expect that deletions will not be sufﬁcient to compensate for the number of new units. A good number of Asian countries continue to use old single-hull ships and probably do not respect the letter of the law as laid down by international organisations.

36

Shipping and Shipbuilding Markets 2005

The crude tanker second-hand market “Quo non ascendent!”: how far up will it keep going!

T

his motto, which comes from a large French noble family in the 17th century, seems to be ideally suited to the family of tanker owners if they were wise enough to follow the secondhand market of their ships throughout the course of the year. If the price of tankers progressed overall by 20 to 35 % between the end of 2002 and the end of 2003, they experienced an increase in the order of 50 to 60 % between 2003 and 2004 for the more modern double-hulled tankers and up to 100 % for some of the single-hulls, aged between 15 and 20 years old. It has been the explosion in the daily returns which quite logically has caused this phenomenal appreciation. During the year, owners were continuously on the horns of a dilemma between the desire to profit from these colossal returns and the desire to make some cash by selling off their assets. This dilemma only got worse during the months: the more prices and returns increased, the less opportunities there were to seek out alternative investments. In fact, the evaluation of other types of ships followed the same tendency, as was the case with bulk carriers and containerships as well as gas carriers and, to a lesser extent, chemical product carriers. The rocketing rise of daily returns was thus the main cause for the increase in values but also contributing was the demand forecast for China and India which incited a good number of owners from these countries to rush massively into the second-hand tanker market. In fact, they were quite aggressive and clearly contributed to the spiralling prices. Their thirst for tonnage even allowed some smart operators to buy and re-sell the same ship in the course of the year, and realise very substantial gains. Chinese and Indian owners have thus gained a foothold in this market and are showing to all that they have no intention to leave the care and attention of transporting crude and oil products, which the economic growth of their countries requires, to third-party players. Another factor determining the rise in the price of second-hand tankers this year is the increase in the newbuilding price of ships, combined with the late delivery dates being proposed by shipyards (2007 and 2008). Consequently a number of modern ships with prompt delivery dates have seen their

values increase substantially sometimes over the contract price for a new vessel. Two other elements have characterised the year 2004. First there has been a noticeable increase in the number of en-bloc transactions comprising at least three ships: with only seven transactions some 32 units changed hands. Teekay and Genmar were particularly active in this type of business as they were involved in ﬁve of them. The companies mentioned were in this way able to respond to their shareholders expectations, either by realising short term profits or else by showing their strength and their desire to expand. The other significant factor was the unexpected effect that the explosion of spot freight rates had on German KG buyers. The latter have been very active over the past two years, but have had to abandon their role as principal player to others this year due to prices being too high in comparison to the long term charter rates that the KGs could obtain on the market. Whilst the spot rates went through the ceiling, the long-term charterers (3 years and more) did not follow the levels being asked by owners. Without a safe charter back, numbers of KGs were forced to abandon this sector. The VLCC second-hand market This segment of the market saw very sustained activity, the volumes of transactions exploded as from May and prices took off. The volume virtually doubled compared to last year. We registered no less than 82 sales (for further trading) of second-hand VLCC, which actually only concern 76 ships as 6 of them changed hands twice during the year. It should be noted that only 44 units were sold in 2003, 24 in 2002 and 37 in 2001. Logically in view of their small number, very few ships from the ‘70s changed hands. Only four VLCC of this generation were sold for storage projects, such as the t/t ‘Folk Sun’ of 323,100 dwt, built in 1979, for a price in the region of $ 19.5 million. By contrast, we saw a real plethora of sales of single-hull units built between 1980 and 1995, as 51 changed hands this year compared to 18 during the previous year. If the buyers of 2003 were mostly Greeks, they cleverly came out as discrete sellers in the course of 2004, placing their

The Tanker Market in 2004

37

Tankers - deletions (demolition, conversion, total loss)
dwt 14,000,000 Aframax 12,000,000 Suezmax VLCC 10,000,000

8,000,000

6,000,000

4,000,000

2,000,000

0 2001 2002 2003 2004

ships with Far Eastern buyers and showing once again their astute sense of timing. As an example, we can cite the sale of m/t ‘Progress’ of 238,898 dwt, built in 1987, going to buyers in Hong-Kong for a price of $ 49.7 million in December 2004, whilst its acquisition price in September 2003 was around $ 16.5 million. Some operators succeeded in buying such ships at the beginning of the year, operating them very successfully for several months on the spot market, to finally sell them several months later with a considerable profit. Such was the case of m/t ‘VL Venus‘ of 238,770 dwt, built in 1986, bought in January for $ 18.0 million and sold in June for $ 24.6 million. It should be pointed out that buyers of VLCCs for conversion are increasingly considering this age category, given the virtual disappearance of the previous generation of ships. It is the reason why three units out of the 51 sales left the fleet to become FSO or FPSO, such as m/t ‘Apollo’ of 257,882 dwt, built in 1981, sold for conversion at a price of around $ 20 million. The number of double-hull VLCCs built after 1993 sold this year was also higher, even though not quite as dramatic, since we have registered 31 sales in 2004 as against 23 in 2003, only 5 in 2002 and 14 in 2001. We can easily understand that owners of these ships have shown a greater resistance to the temptation of selling, since the double-hull vessels have a longer life expectancy, and furthermore the hull conﬁguration meets today’s norm to which the most exposed charterers have to conform. We could

cite as an example the sale of m/t ‘Oriental Topaz’ of 319,430 dwt, built in 2002, for a price close to $ 116 million (for prompt delivery), whereas the cost of ordering a new ship at the same time is some $ 10 to 15 million less. Amongst the 31 transactions, there are 6 contract resales of which in June the en-bloc one of the hulls 1,540 and 1,541 of only 260,000 dwt being built at Hyundai Heavy, for delivery at the end of the year for $ 92 million each. This year, only 5 ULCC / VLCCs went for demolition against 29 newbuildings coming into the fleet. This figure is falling compared to the 27 and 36 units demolished respectively in 2003 and 2002. The rising freight rates as well as the very small number of ships still in service and affected by the phasing-out of single-hulls explains this minimalist ﬁgure. It should be contrasted with the 105 units which are due for delivery between 2005 and 2009. The second-hand Suezmax market This size category, namely from 120,000 to 200,000 dwt, did not benefit from an increased volume of transactions comparable to that of the VLCCs. Nonetheless the price increases were similar since, in line with the VLCCs, single-hull units saw their values virtually double while those of double-hulls only went up by 55 to 60 %. While we were able to count 53 sales of Suezmax in 2003, the year 2004 only saw 43 units changing hands; actually 45 transactions as two ships saw

38

Shipping and Shipbuilding Markets 2005

three different owners in the course of the year. This sector of the market was particularly susceptible to en-bloc transactions and was highly favoured by NYSE listed companies. For the ﬁrst time, and quite logically, no ship built in the ‘70s changed hands (for further trading) since these should be phased-out of the ﬂeet next year at the latest. They have not altogether disappeared however since some are waiting for storage projects. As to the single-hulls built between 1988 and 1993, we saw 15 transactions concluded in 2004 (for 13 ships) which was a similar ﬁgure to that of last year. There was the noteworthy en-bloc sale of three single-hulls, the ‘Genmar Transporter’, ‘Genmar Traveller’ and ‘Genmar Centaur’ of 142,031 dwt, built respectively in 1989, 1990, and 1990 for around $ 66.3 million. In addition also signiﬁcant was the sale of the m/t ‘Sandra Tapias’ of 147,253 dwt, built in 1991, which formed part of an initial en-bloc transaction in March and was then resold in September for a price around $ 28 million. Finally, as with the VLCCs, nearly all the sales of the single-hulls were concentrated in the second half of the year when the values were at their highest. As was the case last year, the majority of the deals concerned modern double-hull ships, namely 30 compared with 37 in 2003. The unusual aspect for this type of Suezmax was the high proportion of these sales, some 26 out of the 30 units, featuring in en-bloc sales. Is this size category therefore signalling profound changes in owners’ attitudes? It is not certain, since the reason for this concentration is mainly due to the accessibility of funds with the New York Stock Exchange rather than a real desire on the part of owners. The next downward cycle, which will inevitably arrive sooner or later, could well herald an end to this type of operation. As an example we can cite the sale of the m/t ‘Aegean Lady’ and ‘Aegean Eagle’ of 165,000 dwt built in 2003 for a price of $ 70.3 million each. The number of Suezmax sold for scrap this year was identical to that of last year namely 10 units, compared with 15 in 2002. Twenty-six new ships entered the ﬂeet in 2004, but 86 already ﬁgure in the orderbooks of shipyards over the next 5 years! The second-hand market for Aframax tankers The number of second-hand transactions for Aframax also was signiﬁcantly higher this year since we have registered 85 sales in 2004 as against 70

during the previous year (and only 35 in 2002). Ships included in this category are vessels of 60,000 to 80,000 dwt with a beam of more than 32.2 metres. As with the Suezmaxes, as we observe that for the ﬁrst time there have been no transactions (for further trading) of Aframax built in the ‘70s. The split between sales of single-hull Aframax built between 1980 and 1993 and sales of double-hulls built after 1990 were nearly identical. The first registered 45 transactions, whilst the double-hulls reached the ﬁgure of 39 sales, including 11 resales. The single-hulls from the early ‘80s found buyers in the Far and the Middle East, where regulations do not require double-hulls for transporting dirty products and crude oil yet. The sales of ships in this generation were concentrated in the ﬁrst part of the year, even though the prospects of this market were most encouraging. We can cite the sale of the m/t ‘Montrose’ of 85,619 dwt built in 1981, sold for $ 7.5 million, and the en-bloc sale of the m/t ‘Spectrum’ and m/t ‘Solaris’, of 96,000 dwt, built in 1985, for about $ 16.5 million each. The huge difference in price between these two sales (not double-hulls) despite a small age difference (4 years), can be explained by the fact that the 1981 ship, if the latter is not SBT (Category 1 OMI) or SBT but does not conform to the IMO 13-G ter norms, should be phased-out next year, whereas the 1985 ship which is SBT (Category 2) can navigate up until 2010. The modern, double-hulled Aframax were again in strong demand, since 39 of them changed hands. This figure would have been higher, without doubt, had owners not preferred to employ this type of ship on the spot market rather than to sell them, despite the exceptional prices being proposed by buyers desperate for tonnage. We can note the sale of the m/t ‘Seachem’ of 95,621 dwt built in 1993 for about $ 30.5 million as well as the sale of a ship under construction with Daewoo to be delivered in January 2005 for a price of $ 62 million. In addition this category of ship was the only one which got the attention of the German KG buyers, since they bought 11 of them of which the hulls 1,467 and 1,468 deliverable at the end of 2004 by Samsung, which were sold for a price of $ 109 million en-bloc. Thirty Aframaxes as were demolished this year, as compared to 35 the previous year and only 20 in 2002. This is in contrast to the figure of 55 ships delivered in 2004 and the current orderbook com-

The Tanker Market in 2004

39

prising to date no less than 182 ships to be delivered from 2005 to 2008. The second-hand market for Panamax tankers Panamax ships by comparison witnessed a far more modest volume of business than larger tankers. Twenty-nine units changed hands against 45 in 2003, 11 in 2002 and 22 in 2001. The breakdown by age was about a third for single-hulls built between 1981 and 1987 (9 sales) and two-thirds for double-hulls built from 1985 to 2006 (20 ships of which 8 were resales). The following signiﬁcant sales were done this year: the m/t ‘Nile’ 65,755 dwt built in 1981 sold for $ 5.2 million, the m/t ‘United Will’ of 68,961 dwt double-hull, built in 1992, for $ 25.3 million and the m/t ‘Tavropos’ of 70,000 dwt, built in 2004, sold for $ 45 million (compared to a similar Panamax built in 2003 and sold for $35 million in 2003!). This category has remained the darling of the German KGs, who showed the same appetite for this type of tonnage as they did last year. The investment amount, the age of the ships concerned and the charter party rates which can be obtained, make Panamax vessels attractive to investors. With thirty-ﬁve ships of this category added to the ﬂeet in 2004 and an orderbook totalling 168 ships at the end of the year, the market should see an increase in demolitions in order to remain healthy. Thirteen Panamax were sold for demolition, only two less than the previous year despite the surge in rates. It is difficult to predict whether we shall see an increase in the Panamax going to the scrapyards in 2005, as a large number of existing ships over 20 years are SBT. The second-hand market of OBO ships. This market continued its return to fortune started in 2003 and again beneﬁted from the interests of both bulk and tanker owners. The reluctance of certain charterers as to the OBO conﬁguration was gradually discarded with the progressive rise in rates. Thus, the volume of transactions as well as their values logically increased. In line with last year’s figures, 23 ships changed hands. We should recall that only 9 and 11 sales were reported in 2002 and 2001. To illustrate this revival, we can mention the sale of the OBO ‘Snapper’ 135,160 dwt, built in 1982, which changed hands in 2003 at a price of $ 6.1 million and was resold in 2004 for a price of $ 15 million, with a charter attached for only one year at a rate of around $ 27,000 per day.

We must also mention a major transaction in this market since the 10 OBOs, ‘SKS Tyne’, ‘SKS Tana’, ‘SKS Tweed’, SKS Tugela’, ‘SKS Tagus’, ‘SKS Trent’, ‘SKS Torrens’, ‘SKS Tanaro’, ‘SKS Tiete’ and ‘SKS Trinity’, which belong to a joint venture composed of two owners were taken over by one of them for an en-bloc value of $ 150 million (basis 50 %). These ships are 110,000 dwt and built between 1996 and 1999. We have seen 4 OBO sold for demolition this year, as against 5 in 2003. As of now, the orderbook is non-existent. Tomorrow’s market Above all it should be remembered that in 2005 tankers, which come under the Category 1 OMI (pre-Marpol and non-SBT) will leave the fleet as well as those in the Category 2 (post-Marpol SBT) built before 1978. Ships in this second category built afterwards will leave the ﬂeet progressively as from 2010 and/or 2015 based on their classiﬁcations and ﬂags. The lack of demolition observed in 2004 and the increase in the tanker ﬂeet capacity, due to the massive deliveries of new tonnage, should most probably change the equation in the medium term. Values should logically see the start of a decline during the course of 2005, if demand for crude in general and in China in particular does not match the levels of 2004. Nonetheless this weakening will take time, as history shows us that owners have a capacity to resist selling their assets at reduced levels. This capacity to resist will be sustained by the vivid memory of peak prices obtained in 2004 and the large margin that owners enjoy at the current spot rates. The volatility and the instability of rates seem now to be facts to which owners are getting accustomed and their accumulated reserves will allow sellers to take a more relaxed position. Perhaps in 2005 we shall see some prudent or far-sighted owners disposing of some ﬁrst generation double-hulled ships thus cashing in on their current valuation. Europe is looking into the need of penalising more severely certain forms of pollution, but a consensus between the 25 member states seems a distant prospect. We regret yet again that the discussion on the concept of “place of refuge” is not clearly written into the agenda and is not currently being examined. At the expense of being simple and efﬁcient, it should remain a top priority for each state and the E.U. if they really want to minimise the consequences of the perpetual possible future accident of either single or double-hulled ships! ■

40

Shipping and Shipbuilding Markets 2005

The transport of reﬁned oil products

2004

will remain a memorable year for owners for the second year in a row, since the market for product tankers registered an increased level of average daily returns. There has been a progress of over 20 % for all size of ships both for spot and period business. As in 2003, the exceptional rise in this market has been due to the high level of growth in the US and the Far East, even if the development of the “paper” market, aided by some speculation particularly on the TC1 (75,000 mt naphtha Middle East Gulf / Japan) and the TC2 (33,000 mt UMS Continent / US Atlantic Coast) routes, helped contribute to the strong performance of the freight market. The rise in rates, which began in December 2003, peaked in February, with daily returns approaching $ 40,000 per day. The drop registered in the months of March and April corresponded to an easing in the fuel oil market, before rates started to perk up again in May and June at around $ 25,000 per day. The traditional low point in the summer was around $ 20,000 per day and the expected recovery came at the beginning of October, which allowed the Medium Range product carriers (MR) to enjoy once again returns of $ 40,000 per day, whereas the Long Range (LR) were flirting with the $ 60,000 per day level. Like last year, the rates paid for period charters were largely lagging behind the spot market.

Nonetheless, if charterers were reticent about committing themselves to long term business at high levels, they accepted to pay record levels for shorter periods and started using floating rates agreements indexed on the spot market or linked to a proﬁt sharing scheme. However, whilst the market was able to absorb the some 130 MR ships, totalling 5.5 million dwt delivered in 2004, there is some doubt as to the chances of repeating this exploit in 2005, 2006, and 2007…

The evolution of product tanker freight rates in 2004
The Handysize (Handy product tankers) of 30,000 to 39,999 dwt Yields for Handysize ships surpassed those obtained in 2003 by more than 20 % at nearly $ 25,000 per day, despite the “ice class” premium being virtually non-existent due to the mild winter season which started in 2004. Whilst these ships were most frequently employed in the Atlantic zone, some started to find employment around the Far East, especially the “shallow draft” units with a capacity of 45,000 cbm. Within the European zone, both in North Europe as well as in the Mediterranean - Black Sea area, over half of the fleet was used once again in the transport of fuel oil and crude, with owners not hesitating to switch from clean to dirty and viceBro Etienne 37,179 dwt, delivered in 2004 by Jinling, owned by Broström Tankers

The Tanker Market in 2004

41

$/day
60,000

Product tanker freight rates Average earnings
55,000 t MEG/Japan 35,000 t Rotterdam/New York

50,000

28,500 t Caribs/USAC

40,000

30,000

20,000

10,000

0 Jan 03

Mar 03

May 03

Juil 03

Sep 03

Nov 03

Jan 04

Mar 04

May 04

Juil 04

Sep 04

Dec 04

versa, based on the rates differentials that could be obtained respectively in both sectors. Charterers were not really keen to commit themselves to long period business due to the high expectations of owners, but starting in October and facing a strong surge in spot rates, they ﬁnally had to accept paying levels above $ 20,000 per day for periods of 12 to 18 months. The Medium Range (MR product tankers) of 40,000 to 49,999 dwt Ships operating in the Atlantic beneﬁted from the sustained level of American demand for gasoline and fuel oil. Daily returns for a 33,000 t voyage UMS - Continent / US, varied between $ 16,250, at the bottom of the market during the summer, to $ 40,000 per day in February and December, with the annual average working out at $ 26,500 per day.
Garonne 37,178 dwt, delivered in 2004 by Hyundai Mipo, operated by OMI Corp.

Parallel to this, a traffic of gas oil developed between the US Gulf and Europe. In 2004 Europe imported 11.5 million barrels of gas oil from the US, which is the equivalent of 13 % of the American production. As in 2003, ships operating in the East of Suez took advantage of the economic strength of the Far East zone, led by the growth in China, India, and Japan. Despite a seasonal decline in the spring, returns remained comfortably above $ 20,000 per day, notably after the month of October. Long term period business was scarce, but traders such as Vitol, Trafigura, and especially Glencore were very active in the short period business (3 to 12 months) and did not hesitate to pay rates above $ 30,000 per day to the extent that they were able to hedge their positions on the “paper” market. The Long Range (LR product tankers) from 50,000 to 90,000 dwt The LR2 and the LR1 were also particularly helped by the strong demand coming from throughout the Far Eastern zone, notably China and Japan. As from mid-September, daily returns went from $ 30,000 to $ 60,000 per day for the LR1, whereas the LR2 were over $ 70,000 per day. In this sector of the market, the “paper” business has an important role, but if the route TC1 (LR2 75,000 mt - Middle East Gulf / Japan) was heavily

42

Shipping and Shipbuilding Markets 2005

traded at the beginning of the year, it soon became obvious that the market was far more liquid on the TC5 route (55,000 mt - Middle East Gulf / Japan). The market was also well supported by the numerous movements of kerosene from the Middle East Gulf to Europe and by the European exports of distillate and gasoline to the US. Some long term period business was concluded on ice-class LR2 ships, but it was the LR1 size which was being sought after for trading clean products, fuel oil and crude. The majority of these fixtures were done in the first half of the year, which explains why the rates were around the $ 22,000 / 23,000 per day for periods of 3 years. Despite the large number of new ships being delivered, 2005 should again be a year favourable to owners of product tankers. Even with a considerable increase in modern tonnage, the complete renewal of the ﬂeet will be far from being accomplished by the end of 2005. Delivery of new ships should result in: ◆ ships from 30 to 40,000 dwt: 48 ships totalling 1.75 million dwt, ◆ ships from 40 to 55,000 dwt: 78 ships totalling 3.70 million dwt, ◆ ships from 55 to 90,000 dwt: 40 ships totalling 2.75 million dwt, to which will be added some 20 coated Aframax tankers totalling nearly 2.0 million dwt.

Supply of tonnage will therefore increase significantly especially since the demolition level is low. At current rates, even the simple decision to put a vessel in technical lay-up is to be taken by the top management of the company. Notwithstanding, at the end of 2005, the Major’s eligible ﬂeet will only comprise some 650 ships for a little less than 30 million dwt against over 950 ships and 35.0 million dwt at the beginning of 1999. The withdrawal of the older ships has been postponed due to the fact that certain niche business continues to be very remunerative: gas oil movements from the Black Sea, clean products for West Africa or even the market for vegoils and molasses. In addition, the high freight levels have convinced several owners to undertake necessary reﬁtting work to obtain the mandatory certiﬁcates (C.A.S.(1) / CAP 1 or 2), which will allow them to operate their ships beyond their twentieth anniversary. Nonetheless the international safety measures and the vetting services of oil companies continue to put pressure on owners of old vessels, whose days are numbered. We predict therefore that demolition will gradually increase throughout the coming year. Demand for shipping of clean and dirty products bound to the American zone or the Far East has been, like in 2003, the main factor maintaining the healthy state of the freight market.
(1) Condition Assessment Scheme

Eligible MR product tankers fleet to 2007 (30,000 to 53,000 dwt)
dwt 45,000,000

40,000,000

35,000,000

30,000,000

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0 End 1998 (under 25 years) End 2000 (under 15 years) End 2002 (under 15 years) End 2004 (double-hull) End 2005 (double-hull) End 2006 (double-hull) End 2007 (double-hull)

The Tanker Market in 2004

43

Cape Limboh 15,305 dwt, built in 2003 by Okean shipyards for Petromarine

ecological factors are curbing the expansion of refinery capacity and that the increase in capacities are not keeping pace with the demand in the Far East. Under these conditions, the demand for transport of reﬁned oil products should continue to increase in 2005, especially as the trend toward longer trade routes is likely to continue. There are even some projects being carried out to transport naphtha and condensate from the Mediterranean to China! As we stated last year, “it is unavoidable that the large number of vessels being delivered in the next 2 to 3 years will affect the product tankers market”. One can add that there has been some doubt expressed recently as to the persistence of the American growth and the reliability of the Chinese expansion (at the current pace of 9.5 % per year, the Chinese economy will double within 6 years)….and finally cannot exclude the risk of a ﬁnancial crisis in the Asian zone. Nonetheless, except a major event, the year 2005 gives every sign of being propitious to product tankers owners. The arrival of over a hundred new ships should however dampen the volatility of the market and cause a modest drop in the daily average returns. ■

Once again, it was the fuel oil market in the Atlantic zone which sparked off the rise in rates in midSeptember. At the end of November only, rates obtained by the clean products have catched up with the levels achieved by fuel oil and crude. The clean products followed this trend a month later and they were able to match and then overtake the dirty product rates only by the end of November. In the Far East, the increase in rates started at the beginning of September, namely two months earlier than usual. Then the very high levels tended to tumble, as much due to lack of available tonnage as due to technical shutdowns at several reﬁneries in the Middle East Gulf. However, the fundamental explanation is the continuing high level of imports, resulting from a lack of local refineries able to meet domestic demand in oil products. It is known that in the US

The product tankers second-hand market

T

he steady rise of product tankers freight rates during the year 2004 also had an impact on second-hand values. In a higher volume of transactions (around 150 Medium Range and Handy product tankers built since 1980 have changed hand in the course of the year) prices have dramatically risen. The value of a five year-old standard double-hull 45,000 tonner, which was around $28 million at the end of 2003, progressed to $32 million by the end of June and up to an average of $39 million in December.

This rise also applied to the older units as, for instance, the value of a 20 year-old, single-hull, 45,000 dwt ship started at around $5 million in January 2004, to reach $7 million at the end of June and ended the year at around $9 million. Lastly, a single-hull 40,000 dwt product tanker built at the end of the 1980’s, for which one had to spend $ 11.5 million at the end of 2003, ended the year at around $16 million. ■

44

Shipping and Shipbuilding Markets 2005

FUTURES
L I M I T E
BACKGROUND
BRS Futures Ltd was set up in 2003 and is a subsidiary of one of the most respected and long-established international shipbroking ﬁrms, Barry Rogliano Salles of France. The parent company has more than 150 years’ experience in providing a range of services to clients in the shipping industry. The last few years have seen substantial growth in the use of derivatives to reduce and manage exposure to risk in many markets. The international shipping market is no exception, and in response to clients’ needs, BRS has added freight derivatives to the range of services it provides.

D

SERVICES PROVIDED
BRS Futures Ltd acts as a broker in principalto-principal freight derivative contracts. The company offers a broking service in existing tried and tested contracts for freight swaps and options, and aims to continue developing its range of freight and ship valuebased derivative products as appropriate. The aim of BRS Futures Ltd is to provide existing and prospective clients

with the opportunity to use standardised risk management tools for hedging and optimisation of shipping/freight portfolios. BRS Futures Ltd is a member of the Forward Freight Agreement Brokers Association (FFABA), and BRS is a panel-member contributor to market data co-ordinated and published by the London-based Baltic Exchange.

BRS FUTURES LIMITED
10 Napier Place - London W14 8LG - Royaume Uni
Contacts Chris Reilly or Ramon Muga Tim Jones François Walon Tel.: +44 20 7602 5670 Tel.: +33 1 41 92 12 34 Tel.: +33 1 41 92 12 34 Email : [email protected] Email : [email protected] Email : [email protected]

BRS Futures Ltd is a wholly-owned subsidiary of Barry Rogliano Salles, registered in the UK (company registration number: 04565913) and is authorised and regulated by the Financial Services Authority of the UK (FSA reference number: 223290)

45

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46

Shipping and Shipbuilding Markets 2005

SPECIALISED SHIPS MARKETS IN

OFFSHORE AND

THE

2004

T

he year 2004 will remain unique in the history of the oil and gas industry for two reasons: ﬁrst, world oil demand (excluding gas) reached its highest level ever and second, the price of oil also registered a peak at around $ 50 per barrel. The offshore sector at last is feeling the initial beneﬁts of the surge in prices and oil companies are again targeting to increase their proven reserves of oil and gas. About $ 125 billion was spent on exploration and oil production in 2004. This level, comparable to that achieved in 2001, should increase to $ 135 billion in 2005. This figure excludes Russian and Chinese projects, but includes the Kashagan and Kazakhstan projects in the Caspian Sea. This drive will be a stimulus in the ﬁrst instance to the development of traditional offshore equipment in shallow waters, but also to very deep-sea offshore equipment, which comprise a number of drilling units used at the limit of their capacities. Geophysical offshore exploration will see a certain stability, even with some expansion

in India. The increase in offshore drilling expenses in 2004 illustrates the upward trend and the best indicator of this growth being the percentage of jack-up rigs operating, which has gone from 75 % at the beginning of the year to 90 % at the end. Offshore Support Vessels Most of the major companies in this branch of the offshore market decided this year to order a large number of Platform Supply Vessels (PSV) as well as Anchor Handling Tug-Supply (AHTS). The order pattern was mainly: ◆ at the beginning of the year, for PSVs in the size range of 3 000 tons deadweight or more, ◆ for mid-size AHTS, with 60 to 120 t bollard pull, dynamic positioning and equipped with ﬁre-ﬁghting systems. The majority of orders were placed with Far Eastern shipyards, currently favoured for their cheap labour

The Offshore and Specialised Ships Markets in 2004

47

Jack-ups utilisation rates
Utilisation % 100

90

80

70

60

50 North Sea - NW Europe West Africa 30 North America

40

20

10

0 Jan 01 Apr 01 July 01 Oct 01 Jan 02 Apr 02 July 02 Oct 02 Jan 03 Apr 03 July 03 Oct 03 Jan 04 Apr 04 July 04 Oct 04 Jan 05

costs as well as the weakness of the dollar. The other signiﬁcant trend of this market is the halt on the evergrowing size of PSVs and of the engine power of AHTS. Our explanation for these phenomena is triple: there are few orders coming from Norwegian owners as the North Sea market has remained ﬂat for most part of 2004, oil companies’ needs have been concentrated on production in deep waters and ﬁnally, owners are following the general movement towards cost cutting. It is worth noting an inversion of trend during the course of the year for Norwegian shipyards, which have ﬁlled their orderbooks, even though they were

limited by their Polish or Romanian sub-contractors production capacities to build the hulls. This general demand from charterers to reduce “logistics” costs in the exploration/production process, passed onto owners, has resulted in an effort to standardise ships with more orders for series and the research into more optimised designs coming also from the Far East. In this respect, the diesel-electric engine solutions mainly developed by Norwegian manufacturers incorporate true advantages, particularly in relationship with dynamic positioning equipment compatibility, which is now a standard feature on most new ships, for a reduced price. The choice of diesel-electric propulsion, combined with the installation of azimutal propulsion sets, has also contributed to reduce construction costs by simplifying the hull forms. In 2004 both PSVs and AHTS delivered by the yards found employment, even if charter rates were not always at levels hoped for by the owners. The North Sea market was the catalyst in the recovery of the offshore market. As an example, an AHTS of 200 t bollard pull chartered out on the spot market at the beginning of the year at 15,000 $ per day, obtained 45,000 $ per day in December. It was the same for the Gulf of Mexico where the employment rates of vessels ﬁnally saw an increase after four very poor years. Egypt, the Middle and Far East also saw chartering rates on the rise by employing more powerful AHTS.

Kaori Port tug, delivered by President Shipyard in 2004, operated by CMC Noumea (New Caledonia).

48

Shipping and Shipbuilding Markets 2005

Semi-Submersibles utilisation rates
Utilisation % 100

90

80

70

60

50

40 North Sea - NW Europe 30 West Africa North America 20

10

0 Jan 01 Apr 01 July 01 Oct 01 Jan 02 Apr 02 July 02 Oct 02 Jan 03 Apr 03 July 03 Oct 03 Jan 04 Apr 04 July 04 Oct 04 Jan 05

At the end of 2004 several important owners no longer had any modern units to charter out, which leads us to be relatively optimistic as to the market’s ability to absorb the large number of PSVs and AHTS that are due for delivery in 2005. There has been a rapid increase in the already substantial ﬂeets operated by Singapore owners. As an example we can cite Jaya, which had 21 AHTS, 2 PSVs and 6 other ships under construction at the end of 2004. Fleets that are in the hands of Middle East owners have also seen a signiﬁcant development with, for instance, Maridive in Egypt which controls nearly 50 ships including 7 under construction in India. Western owners have started or boosted their fleet renewal programmes. Groupe Bourbon has ordered 8 PSVs (GPA 670 type) and 4 AHTS (Conan Wu type of 70 and 80 tons bollard pull) in China. There are also 4 AHTS (120 t bollard pull, Conan Wu design) with Keppel Singmarine in Singapore, as well as 2 fast supply ships in aluminium based on an innovative French concept (Mauric design) with the Piriou shipyard. The Bourbon Group is continuing to expand and hopes to conquer new markets. We can mention the example of Tidewater, which has ordered 8 AHTS, 4 PSVs and half a dozen of smaller units. They have ordered these ships with the intention of replacing some older units and thus avoid important expenses to keep them in proper running condition and getting them re-classiﬁed.

Edison Chouest Offshore has ordered 7 offshore vessels and 4 fast supply ships. In 2004, Seabulk Offshore contracted with Labroy shipyard of Singapore 8 AHT/AHTS mainly for the West African market. Swire Paciﬁc Offshore has 9 AHTS on order in the Far East, of which 7 of the UT 780 type – 4,800 bhp with Labroy. Delivery of new units ordered in Asia are spread out until 2006. Beside these PSV and AHTS fleets, we have seen a noticeable increase in the demand for fast craft, over 20 knots, built of aluminium, 40 metres long or more, designed to carry dozens of passengers and some cargo on deck. In the future, under deck bulk capacities are also being envisaged. At last a new market has emerged concerning small, speciﬁc units aimed at providing security protection for offshore oil ﬁelds capable of carrying armed men aboard. In addition, several governments, particularly in Europe, have launched programmes to renew or to complete their ﬂeets for assistance or intervention as well as anti-pollution surveillance ships. These building programmes are beneﬁting essentially European shipyards. Ice-breakers The opening of the Russian market, giving access to the Arctic, from the Barents Sea to the Bering Straits, has stimulated orders for the offshore markets, but

The Offshore and Specialised Ships Markets in 2004

49

also to serve the exports terminals of the “on-shore” production. Amongst these we can mention: ◆ Swire Paciﬁc / Primorsk with an order for three UT 758 of 90 meters, ice-breaker, at Aker Yards for 500 million Norwegian kroner. ◆ Rieber Shipping / Primorsk with an order for a icebreaker / tug, at Aker Langsten for 351 million Norwegian kroner. ◆ Sevmorneftegaz / Fesco with an order for two icebreakers at the Havyard Leirvik shipyard for 53 million euros. Underwater construction and installation – IRM Market (Inspection Repairs and Maintenance) The year 2004 was characterised by a marked revival in the underwater construction activity and also with the happy resolution of financial crisis of Stolt Offshore, who managed to transform its debts into capital and was able to win contracts at more favourable conditions. The Stolt Nielsen group sold its interests in Stolt Offshore thus ending an historic participation in the sector. McDermott has strengthened its presence with an expansion programme. This industry has continued its consolidation of which one of the stages was the repurchase by Siem Industries Inc. of the remaining 50 % share of Subsea 7 previously controlled by Halliburton. It appears also that Torch Offshore is in a particularly precarious
Bourbon Helios Platform supply vessel, GPA design, 3,300 dwt, to be delivered by Zhejiang in 2005, will be operated by Groupe Bourbon Offshore division.

situation and is likely to dispose of a number of ships especially the ‘Midnight Express’. European underwater contractors are in a better shape than their American rivals, with the exception of Cal Dive and Global Industries. The revival of socalled traditional offshore activities in shallow water in the Gulf of Mexico, should help contribute to their improved situation. The start of large installation projects in West Africa, Egypt, and Brazil is helping to bolster activity, to the point that some operators are announcing that they have almost none of their main ships available until 2008. The Far East, traditionally in low profile, will also absorb some ships in 2005. Subsea 7 has made a remarkable break-through in West Africa, a market up until now shared essentially between Technip Offshore, Saibos and Stolt Offshore. The possibility to have the right vessel at the right time is a key to success in the underwater construction market, but it should be appreciated that the fleet is ageing. In practice, with the exception of several units coming into service at the initiative of owners of supply vessels, such as the ‘Boa Deep C 1’, the ‘Normand Cutter’ (a converted cable-layer chartered to Sonsub) the barge-laying ‘Jascon 5’ and the construction of the future ‘Normand Installer’ (a joint project between SBM and Solstad), no major project has been launched or realised in 2004.

50

Shipping and Shipbuilding Markets 2005

North Sea supply vessel market
Average reported day rates in £/day 25,000 AHTS > 10,000 bhp PSV > 2,000 dwt 20,000

15,000

10,000

5,000

0
July 01 Oct 01 July 02 Oct 02 July 03 Oct 03 July 04 Apr 01 Apr 02 Apr 03 Apr 04 Oct 04 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05

Consequently 2005 should see the launching of several signiﬁcant projects by the Majors, namely large laying and installation ships (150 m x 30 m or more) capable of laying pipes of 16 to18 inches at a depth of over 2,000 metres. The major concern will be the response capability of the shipbuilding market, which has never seen such a level of activity. The recovery of the underwater construction market both in the area of new developments and in the area of the maintenance of new ﬁelds, has logically helped sustain and stimulate the activity of supply vessels such as the MPSV (Multi-Purpose Supply Vessels) fitted with a strong lifting capacity (more than 100 tons at sea-level). They are also employed in light construction works and more generally in the IRM market of which the main players remain the owners of supply ships mentioned in the previous chapter. The seismic market The four principal operators, WesternGeco, Veritas, Petroleum Geo Service (PGS) and Compagnie Générale de Géophysique (CGG) have also beneﬁted from a surge in activity. Hardened pessimists have been obliged to revise their opinion about the future of this activity, which particularly suffered over the past four years. CGG seems to have abandoned its ambition to merge with PGS after its offer was declined by the latter’s shareholders. Nonetheless, a new consolidation would benefit this sector. At the start of 2005, operators are working already on the programme for 2006, which is exceptional given the average duration of seismic acquisition contracts.

Technologies continue to improve the quality, but also the range of seismic work, since it is now possible to detect oil or gas up to a depth of 6,000 meters. These gains will incite operators to improve their marine logistics globally and probably to charter more speciﬁc supply ships for longer periods. Drilling market The offshore drilling industry is undergoing a real change in situation which began at the start of 2004, with an increased level of utilisation of jack-up rigs to drill in shallow waters. At the end of 2004, few units of the 300 feet jackup rigs type remained available in the short term. Freight rates for deep-water drilling rigs are heading toward the $ 300,000 per day level. The second generation semi-submersibles, which drill at 1,500 / 2,000 feet depths, are beneﬁting from the rebound in the North Sea market and obtain more than $ 100,000 per day for short term contracts. The industry continues to gravitate around the ﬂeets controlled by the six American majors, Pride, Diamond, Ensco, GlobalSantaFé (GSF), Noble, Transocean and by four competitors of substantially smaller size namely Stena Drilling, Maersk Drilling, Atwood and Rowan. By and large, the drilling companies dedicated 2004 to consolidating their balance sheets. Pride should probably sell some supplementary assets, with a view to be in a better position for new investments over the coming 2005 / 2006 period. As to GSF, they anticipated the change in the market and ﬁxed four

The Offshore and Specialised Ships Markets in 2004

51

two zones, which regularly require Suezmax size units. In the second-hand market, which is somewhat overvalued, it is obvious that the number of available ships has become considerably reduced. In addition, oil companies are more and more reluctant to accept hulls over 20 years old. As from now, charterers of FPSOs are proposing either to use modern ships or to build new hulls to meet their standards, in line with the order placed by Modec (Mitsui group) and awarded to Samsung. The dredging market From the point of view of contractors, the sector has continued to consolidate. 2004 saw the ﬁnal absorption of Ballast-Ham by Van Oord. Despite a difficult context due to the halt of the huge Singaporian projects, a revival in world demand in volume is expected for 2005. Current projects in the Persian Gulf, China and the Sakhalin Islands have continued to keep the contractors busy. Jan de Nul is pursuing his modernisation programme and the expansion of his ﬂeet. It’s the only Major that has built up his investments in an original and audacious strategy, by ordering small sized dredgers in China. These orders have demonstrated Jan de Nul’s know-how in engineering and project management. In France, DTM has confirmed the order of a 2,200 cbm sand-dredger with the Barkmeijer shipyard in the Netherlands, for delivery in 2005. GIE Dragages-Ports has concentrated on restructuring and rationalising its fleet. It should confirm in 2005 an order for a 700 cbm grab hopper dredger ﬁtted with a dredge pipe. Finally, there has been the U-turn of the IHC group, which has ﬁnally abandoned its shipyards, including the famous IHC Holland, designer and builder of dredgers. The expertise of Dutch dredging specialists tends to be concentrated in the engineering work and the manufacturing of dredging equipment.

Goenisio Barroso Anchor-handling tug supply, delivered in 2004 by Fels Setal, operated by Delba Maritima (Brazil)

units which are being completed in Singapore (2 semi-submersibles and 2 jack-ups). Opportunities to convert, modernise and build new drilling rigs will be possible as soon as the oil companies offer long term charter opportunities. It is worth mentioning the order of three jack-up rigs in Singapore on a speculative basis by a group of Norwegian investors, as well as another unit ordered by the Norwegian Odfjell. In this sector, the Keppel Fels group plays a predominant part, which is based on its world-wide network of yards for repairs and shipbuilding, on its capacity to offer the market standard jack-up rigs, also adaptable to specific needs for drilling, and finally on its role as a speculative investor. The Sembawang group for its part maintains a share of the market due to the specific expertise of PPL Shipyard. Finally Chinese builders, such as Dalian, have emerged but remain principally concentrated on their domestic market. Production market (surface systems) This year has seen Stolt Offshore shed itself of engineering, construction projects and integrated production systems by the sale of its affiliate Paragon. The leaders, who are Saipem and Technip, obtained some prestigious but high resource-consuming contracts, linked to developments in West Africa but also in the Persian Gulf (Qatar project) and the Caspian Sea (Kashagan phase 1). Despite the small number of contracts recently awarded (of which SBM with Petrobras of Brazil and Bergesen with Woodside in Mauritania), the number of tenders open or due to come out in 2005 for leasing FPSOs has considerably increased. These tenders are primarily related to West Africa, Brazil, South East Asia and Australia. These projects require storage ship hulls of two million barrels, except for the last

Conclusion
A lot of uncertainty has been removed by the outcome of the American elections. In addition the forecast is for a new increase in world oil and gas demand. Oil companies today possess very important ﬁnancial capacities. Exploration has been considerably reduced these last few years, whereas the increase in proven reserves is now a strategic target. These circumstances augur well for the offshore industry as a whole for the year 2005 and should apply to all geographical zones. ■

52

Shipping and Shipbuilding Markets 2005

CARRIER MARKET IN

CHEMICAL

THE

2004

H

aving started in the second half of 2003, the improvement in freight rates of chemical product carriers reached record heights this year, which have not been seen since the preceding periods of tensions in 1991 and 1995. This revival, which lasts for more than a year, shows no signs of losing pace at the start of 2005. It was however paradoxical that the market was one of the few not to follow the general rise in the movement earlier, which was set by the dry bulk shipping market, oil tankers and containerships. Sooner or later the chemical products should follow this upward spiral of the other shipping sectors. It was high time for all participants that the market found its balance, for the last ten years the surplus of tonnage kept the level of freight rates often below running costs, which resulted in

owners ending up with their balance sheets in the red. In order not to slip further down or go under, the market has seen all over the year the formation of pools or other partnership agreements. This year again some changes have been carried out, with the Vopak Essberger pool renamed Broere Essberger Chempool, but with a single shareholder. Ahrenkiel has left the UCT pool and with Odfjell they have formed a new pool for inter-European movements: Odfjell Ahrenkiel Europe GmbH. In response, Schoeller, the other partner in UCT, has associated with Seatrans to form United Seatrans Chempool. Too much out on a limb in this market, Naviera Quimica and la Navale Francaise have been bought by Camillo Eitzen, who, with his other ships coming out of Copenhagen Tankers, will operate a fleet of 25 chemical carriers.

The Chemical Carrier Market in 2004

53

Chemical carriers on order as at January 1st, 2005 (in deadweight)
dwt 500,000

3,500-6,000 dwt 6,000-10,000 dwt 400,000 10,000-20,000 dwt over 20,000 dwt

300,000

200,000

100,000

0 delivered in 2004 2005 2006 2007+

Freight rates
European short sea On all European routes, spot freight rates have been continuously on the rise with an even more significant increase between September and December. The North European market has naturally profited from this improvement, but very often the majority of owners didn’t have the opportunity to take an interest in the spot market being largely covered with contracts. With few offers, and therefore less competition, freight rates increased by 20 to 30 % on average over the year. The rise in bunkers costs should be taken into account in the operational results, but with virtually all transactions being in the European currency, this has allowed owners to stay in line with the currency of their ﬁxed costs. Mediterranean movements are always split in two, with on one hand the older “unapproved” ships and on the other hand the modern ships. But contrary to previous years all ships benefited from the improved freight rates. Demand for “unapproved” ships, but with stainless steel tanks was very strong in Eastern Mediterranean and notably in the Black Sea for acid movements. Nonetheless a large number of ships disappeared from the fleet, with owners not hesitating between the high maintenance costs and the very attractive rates being offered for scrap, but renewal of these ships is not taking place in the Medi-

terranean. There are openings in this market for owners in search of new outlets, but rates should rise further, or at least stabilise at current levels which have followed the same hike as in Northern Europe. The strategy of owners for renewing contracts has considerably evolved. Generally speaking, owners who have until now not been able to beneﬁt from the rise in the spot market (being too committed on their contracts) now ask for a minimum and a maximum on the negotiated quantities, in order to be able to participate in the spot market when it is attractive. Open contracts are disappearing, as they allow charterers to play on the spot market when it drops and to take up the 100 % allowance with their contractual partner when it rises. Long haul movements On movements from the U.S. to Europe, already benefiting from a very strong hike in rates at the end of 2003, the market continued to firm through the first quarter and saw a minor slide until the end of the summer. From the autumn, activity suddenly rebounded to reach heights which had not been attained since the spring of 2002 and in 1997. In a market dominated by contracts, and apart from regular movements of cumene and styrene, we have witnessed a more sustained export of ethanol, MTBE and benzene out of South America and especially Brazil.

54

Shipping and Shipbuilding Markets 2005

Chemical carriers on order as at January 1st 2005 (in number of ships)
number 30 3,500-6,000 dwt 6,000-10,000 dwt 25 10,000-20,000 dwt over 20,000 dwt 20

15

10

5

0 delivered in 2004 2005 2006 2007+

On the eastbound leg, in a more contrasted manner than on the westbound one, freight rates continued to rise right until the end of the first quarter then sharply dropped before settling out during the summer period and ﬁnally increasing by more than 30 % at the end of the year for lots of 2,000 tons. The ﬁrmness in the market was much more evident in the size lots of 5,000 tons and more. As in previous years, the main movements seen coming out of Europe were with cargoes of caustic soda, sulphuric acid, base oils, benzene and pygas. On average, freight rates increased from about $ 45 per ton up to nearly $ 65 per ton for lots of 2,000 tons, and this rise of 40 % was also reﬂected in the renewal of contracts at the end of the year. Movements from Europe to Asia this year saw an explosion in freight rates which has not been seen for 25 years. Starting from an extremely ﬁrm market in 2003, Chinese demand for chemical products contributed to a jump in rates of over 50 % on average, with a spread of 100 % between the lowest and the highest levels within the year 2004. Rates very quickly took off, in particular for the small lots of 1,000 to 2,000 tons and the latter went from $ 60 to more than $ 100 per ton. The rise in bunker prices, the lack of modern tonnage available and the optimisation of charterers’ nominations within their contracts, are part of the explanation towards such a movement in the mar-

ket. This evolution has on the reverse side incited some exporters on the spot market to postpone their shipments, or else to undertake “swaps” with Asian producers and even to export small lots of 500 to 1,000 tons with ISO containers. This revitalising of the market should also give the four main parcel tanker owners cause to reﬂect and to review their strategy in reducing the proportion of their fleet dedicated to contract business to take better advantage of the very ﬁrm spot market and offer more space to European exporters.

The ﬂeet
Deliveries of new chemical carriers with stainless steel tanks reached a record level in 2004 with some ﬁfty ships for a total of 800,000 dwt, which brings the average age of the combined fleet to 11.7 years. Sizes of ships are also well distributed, with 16 ships between 5,000 and 10,000 dwt, 15 ships between 10,000 and 20,000 dwt and a dozen above 20,000 dwt. The orderbook is also filled, with more than 60 ships to be delivered in 2005 of which half between 15,000 and 20,000 dwt. More than 80 % of the ships delivered this year were built in Japan and in 2005 we will witness the first deliveries of newbuildings out of China (5 units). Deliveries beyond 2005 are for the moment far fewer, with 30 ships expected in 2006 and 15 ships in 2007. Demolition of chemical carriers has doubled this year with 21 ships sold for scrap for 220,000 dwt.

The Chemical Carrier Market in 2004

55

$/t 120 110 100 90 80 70 60 50 40 30 20 10 0

Chemical tanker spot freight rates 2,000 t easy chemical

Rotterdam - WC Italy Rotterdam - USG Rotterdam - Taïwan

July 03

Sep 03

Mar 04

June 04

Mar 00

June 00

Sep 00

Nov 00

Mar 01

May 01

Aug 01

Nov 01

Dec 03

Sep 04

Jan 00

Feb 02

July 02

Oct 02

Jan 03

Avr 03

This trend should continue as 138 ships of more than 20 years are still in service, of which 70 are more than 25 years. 2004 has thus been a good year for owners, but it will remain above all a year full of promises for the future – or at least the next two years. Starting from 2005, freight contracts renegotiated at higher levels will begin to generate a supplementary revenue to owners. Delivery of newbuildings, although signiﬁcant, should only serve to replace the older ships leaving the ﬂeet. In effect, the quality measures imposed by charterers combined with the new directives set out by

the IMO beginning in 2007 for the transport of vegoils (imposing IMO III ships but with a doublehull) will mean that a number of large units will disappear from the market. Modern ships will thus be greatly solicited. It should be added that shipyards are currently fully booked, plus the fact that the price of steel is prohibitive for orders of chemical carriers ﬁtted with stainless steel tanks. In the past we have experienced peaks in the market but generally over fairly short periods. The current situation is new and seems to be solid, without any major accidents or a decline in economic activity, this should continue to last quite some time. ■

56

Shipping and Shipbuilding Markets 2005

Dec 04

Avr 02

LIQUEFIED PETROLEUM GAS
SHIPPING MARKET

THE

2004
Out of the doldrums to a sharp and sustained recovery
Signiﬁcant events
The main evolutions, of which some have been in evidence for several years, can be described as follows: ◆ Joint-ventures and pool agreements between owners and ship operators, leading to an optimisation of operations and a higher specialisation by groups of operators within the various categories of ship sizes and speciﬁc trade routes. ◆ The cross-purchases of ships, or even whole ﬂeets, within the smaller sizes. ◆ A slow-down in newbuilding orders over the last few years, given the poor returns on investments in the gas shipping sector. Even if we have seen a correction during the last six months within the liqueﬁed gas sector, shipyards’ orderbooks are now sufﬁciently ﬁlled-up with orders of other ship types from sectors which have been riding high over the last two to three years (LNG, bulk carriers, and tankers). As of now, the lack slots availability

IN

A

t the same time last year, we drew a comparison between the different shipping markets with the take-off of the oil and bulk sectors compared to the depressed state of the LPG sector over the recent years, marking a significant break in the respective evolution of these markets. We also evoked the main readjustments, which were already taking place, susceptible of causing a reversal of this trend and bringing about a revival in this specialised shipping segment. All these factors became more pronounced throughout the course of 2004 and gave rise as from May / June to a sharp jump in freight rates, for all sizes, both on the spot as well as on time charter market.

The Liquefied Petroleum Gas Shipping Market in 2004

57

in the yards does not allow any further deliveries before end 2007 / beginning 2008, thus not before another three years! ◆ Demolition remained at the same limited pace as last year but with even higher values given the price of steel. The hurdle of $ 400 per lightweight ton has been surpassed, putting the value of a 75,000 cbm VLGC of 25 years or more at nearly $ 8 million apiece! Since the beginning of the year some 19 units have been sold for demolition for a total capacity of nearly half a million cbm. ◆ A sustained surge of imports to North America linked to the constant appreciation of natural gas prices, which have reached a level near to $ 8 per mmbtu* last November. ◆ An expansion in LPG and ammonia production and the long-awaited revival in petrochemicals, after the depression of the last few years, linked to an increase in deep-sea trade affecting voyage lengths and demand expressed in tonne-miles. ◆ A burst of imports into developing countries, such as China with its enormous population, making it susceptible to an impressive growth of such magnitude that it should spill over in the short and medium terms to a redistribution of major trades and economic movements in the world. ◆ A depreciation of the dollar against other curProducts Crude oil, Middle East Gulf ($/bbl) Brent crude, North Sea ($/bbl) Naphtha CIF Rotterdam ($/mt) Natural gas ($/mmbtu US Henry Hub) Propane CP (contr. price FOB Saudi Arabia) ($/mt) Butane CP (contr. price FOB Saudi Arabia) ($/mt) Anhydrous ammonia (FOB Black Sea) ($/mt) Ethylene (contr. price Europe) (€/mt) Propylene poly gr (contr. price Europe) (€/mt) Butadiene (Europe spot) (€/mt) VCM (CIF Korea/Taiwan) ($/mt)

rencies, resulting in the necessity to give more dollars for the same front values. Most of these trends have been building up over some time, but the year 2004 saw the confirmation of these expectations at such an accelerated rhythm that even the most astute forecasters have been confounded. We shall not dwell in detail on the reasons for such a market correction, largely anticipated, but rather on the extent of this new situation and the consequences that might develop from such a change in situation. ◆◆◆ In line with the freight market, which saw a steady rise, but more pronounced as from the third quarter, product prices also underwent a very strong appreciation right throughout the year. This increase gathered pace particularly in the second half, with highly volatile variations which allowed arbitrage movements between East and West. The threshold of $ 500/t was crossed at the end of the year for LPG C&F sales into the Far East! Our annual table showing the evolution of price levels for the main oil and gas related products over the last three years shows:
Nov 2002 24 24 235 4.25 (Dec.) 327 327 127 400 470 520 460 Nov 2003 28 29.5 285 6.75 (Dec.) 280 280 240 512 425 490 590 Nov 2004 35.5 45.2 365 7.80 (Dec.) 463 473 270 700 620 627 800 % + 27 % + 53 % + 28 % + 15 % + 65 % + 69 % + 13 % + 37 % + 46 % + 28 % + 36 %

Shipping and freight levels in all sizes saw a marked increase as from the middle of the year and especially towards the end of the year.
Ships by size/category (cbm) VLGC 75/85,000 cbm spot MEG/Far East ($/mt) VLGC 75/85,000 cbm 3-6 months t/c ($/mth) LGC 52/59,000 cbm 2-6 months t/c ($/mth) Mid-size 24/35,000 cbm equiv. t/c of spot voyage ($/mth) 12/22,000 cbm equiv. t/c of spot voyage ($/mth) 6/11,000 cbm ethyl. equiv. t/c of spot voyage ($/mth) 4/8,000 cbm semi ref. 2-3 months t/c or equiv spot 4/8,000 cbm pressurised 2-3 months t/c or equiv. Spot
* Million British thermal units

We would point out that these average freight rates (in time charter equivalent of spot voyages) exclude any eventual ship’s idle time (awaiting
Nov 2002 28 600,000 575,000 575,000 405,000 300,000 225,000 185,000 Nov 2003 30 650,000 650,000 575,000 425,000 340,000 240,000 180,000 Nov 2004 42 1,050,000 800,000 775,000 650,000 575,000 425,000 325,000 % + 40 % + 62 % + 23 % + 35% + 53 % + 69 % + 77 % + 81 %

58

Shipping and Shipbuilding Markets 2005

Gaschem Baltic 8,600 cbm, built in 2004 by Severnav, operated by Gaschem

employment between voyages) and are neither representative of net profit for owners operating their ships on the spot market, nor of the long term transactions (two years or more).

13 new orders were registered during the year for delivery between end 2006 and 2008 at prices over $ 70 million for the latter orders. The entry of AP Moller into this sector was signalled with their order of four 82,000 cbm in Korea for delivery in 2007 and their subsequent commitment for a three-year charter of the VLCG ‘Oriental Queen’ -82,000 cbm- delivered to Unique Shipping in September 2004. Market prospects in this size category remain positive for several years to come, but we cannot avoid to signal the risk of seeing again an imbalance, if the pace of new orders were to intensify or even to remain steady at the same rate as the last few months. The big jump in newbuilding costs and the late delivery dates might however limit such a development or at least give rise to some reconsideration of market assessments. LGC (Large Gas Carriers) from 52,000 to 60,000 cbm This segment size which had already fared well last year, improved strongly throughout 2004 to reach occasionally monthly time charter rates of nearly one million dollars on some voyages, with the average being around $ 800,000 per month. These units, mainly employed on the major ammonia and LPG trade movements, beneﬁted from the strong revival of exports of these two products to

Situation by vessel size
VLGC (Very Large Gas Carriers) from 70,000 to 80,000 cbm A strong variation in spot freight rates characterised the ﬁrst half of the year, leading to tighter and more stable levels in the second half. Starting around $ 30/t on the Middle East / Japan route at the beginning of the year, rates went over $ 40/t and then approached $ 48/t in October, with a critical peak period between June and September. A slight easing was felt as from November, but the level remained slightly above $ 40/t at the end of December. These spot rates represent equivalent monthly time charter rates between $ 700,000 and $ 1,200,000 with a year average of about $ 850,000. The firmness of the naphtha market was again a determining factor throughout the whole year, with the returns on naphtha voyages substantially surpassing those of an LPG equivalent, thus providing 6 to 10 VLGCs being employed in this market. Four units from the 1970’s were scrapped at twice the price levels of the preceding year, thanks to steel prices remaining high.

The Liquefied Petroleum Gas Shipping Market in 2004

59

US$ 1,000 pcm 1,600

LPG carrier 24,000 - 85,000 cbm Short-term T/C or T/C equivalent to spot voyages

24-43,000 cbm 1,400 52-60,000 cbm 70-85,000 cbm 1,200

1,000

800

600

400

200

0 Jan 98

July 98

Jan 99

July 99

Jan 00

July 00

Jan 01

July 01

Jan 02

July 02

Jan 03

July 03

Jan 04

July 04

Jan 05

North America: ammonia due to the steady and sharp rise in the price of natural gas, from which it is derived, with a consequent drop in local production; and butane / propane due to the arbitrage which the price ﬂuctuations within Europe, the Middle East and the US allowed. Four newbuildings of 59,000 cbm were delivered respectively for Sonatrach, Solvang, and Yara, whilst two more are due to be delivered to Sonatrach and Yara in the course of 2005. Bergesen sold two 53,000 cbm units, built in 1973 and 1979, for demolition. Whereas the delivery of 10 newbuildings spread out between 2003 and 2005 might have led one to expect an occasional marginal overcapacity, it seems that the scrapping of the older units combined with the recent recovery of the market has allowed for a good balance, and even a slight improvement in the demand for these ships. All of this was supported by the ﬁrmness in the VLGC market and the contribution from the naphtha market. Midsize carriers 23,000 to 43,000 cbm A good vintage for this category of vessel conﬁrming earlier expectations, with a steady progress and satisfactory results for owners. It is nonetheless worth underlining that the consequences of the market’s recovery as from the sum-

mer was less obvious in this size segment than in the others. A particularity we can attribute to the fact that this category had already registered far better results comparatively to the others since several years. From a level of around $ 575,000 in November 2003, the monthly time charter rate (equivalent t/c for spot voyages or short period t/c) for 24,000 to 35,000 cbm ships averaged at around $ 775 000 in 2004. The main ammonia trade routes are highly demanding this type of ship with a solid growth in transatlantic movements, as well as the Black Sea and the Middle East Gulf to Indian Ocean and inter Asia. With only 30 %, the share of LPG in this segment is declining. The average idle time due to nonemployment in this sector is now below 6 % whereas it was still over 14 % in 2003. Contrary to what we expected last year, the stability of the market during the last few years and increased production forecasts, have triggered a mini-explosion in new orders for ships with a 35,000 to 38,000 cbm capacity for delivery between 2006 and 2007 (for account of K Line, Zodiac, Iino, Unique/Itochu, Bakri, and Sovcomflot). These eleven orders came on top of five 38,500 cbm ships ordered since last year for delivery in 2005 and 2006, which makes a total

60

Shipping and Shipbuilding Markets 2005

US$ 1,000 pcm 900

LPG carrier 3,000 - 22,000 cbm Medium-term T/C (6-18 months)

800 10-22,000 cbm 700 6-8,000 cbm Ethylene 3-6,000 cbm 600

500

400

300

200

100

0 Jan 98

July 98

Jan 99

July 99

Jan 00

July 00

Jan 01

July 01

Jan 02

July 02

Jan 03

July 03

Jan 04

July 04

Jan 05

of 16 units coming into service between end 2005 and 2007. It should be noted that the last 35,000 cbm ships were ordered at over $ 50 million per unit, whereas the previous orders inked in 2003 were done at just over $ 40 million, thus representing an increase of 20 %. One should however remember that the depreciation of the dollar since September 2003 has been of around 20 %, a detail which should not be ignored in analysing price rise or increase in freight rates. Semi-pressurised/refrigerated gas carriers 8,000 to 22,000 cbm Among all the size segments, this category has been the first to benefit from the market revival. The chemical gas sector, and more particularly ethylene and propylene, were the principal driving force of this recovery. There were a few promising indications at the end of 2003 which were conﬁrmed and then helped transform and amplify this trend as from July. Most ethylene carriers which previously were forced to find alternative employment in LPG returned to their normal trade where the deep sea voyages have multiplied, giving a substantial increase in demand expressed in tonne-miles. We have seen a lively recovery in exports of ethylene and propylene out of the US into Europe and

Asia, an increase in movements from the Middle East to Asia and more arbitrage positions being taken out of Europe to Asia. Additional movements from Asia to Europe have been motivated by the pressure on product prices resulting from shutdowns of crackers, planned or not, within the different geographical areas. All these simultaneous movements created a tremendous pressure on demand, causing spot freight rates to hit levels never seen before, with increases of up to 70 %. ◆ about $ 300/t for propylene lots of 6,000 to 8,000 mt from the U.S. to Asia ◆ up to $ 180/t for ethylene in 2,000 to 4,000 mt lots from the U.S. to Europe ◆ up to $ 250/t for ethylene in 4,000 to 5,000 mt lots from S.E. Asia to Europe ◆ about $ 350/t for butadiene in 3,000 to 4,000 mt lots from Europe to Asia.
Jessie Maersk 35,559 cbm, built 1991 by Hyundai H.I., owned by A.P. Moller

The Liquefied Petroleum Gas Shipping Market in 2004

61

Hermann Schulte 5,673 cbm, built in 1980 by Meyer Werft, operated by Dorchester Marine

Most charters were renewed for 2005 at levels ranging from 30 to 50 %, depending on the size and trading route. Some owners or operators had to refuse taking on new contracts due to a lack of potential tonnage. A ﬁrst for several years! At the same time, the LPG activity was equally well supported by the arbitrage movements between Europe and the U.S. caused by the huge volatility of LPG prices in turn affected by the variations in oil prices. Time charters were also greatly inﬂuenced by the market’s recovery as from the middle of the summer and the majority of renewals for period busi-

ness saw somewhat less pronounced increases ranging between 25 to 30 %. On the newbuilding front, two orders of 22,000 cbm semi-ref were signed by Sonatrach / Hyproc with Namura for delivery in 2007 / 2008, two 16,000 cbm ethylene carriers were ordered by the Taiwanese Formosa Plastics with Jiangnan in China for delivery in 2006, whilst Lauritzen Kosan decided at the end of the year to order four 8,000 cbm ethylene carriers with INP in Korea for delivery in 2007. A vessel of 15,000 cbm built in 1976 was sold for scrap at the beginning of 2004.

US$/ton 80

LPG freight rates (spot voyages) VLGC and 2,500/5,000 cbm
VLGC: MEG/Japan

70

Small vessels 2,500-5,000 cbm European coasting

60

50

40

30

20

10

0 Jan 98

July 98

Jan 99

July 99

Jan 00

July 00

Jan 01

July 01

Jan 02

July 02

Jan 03

July 03

Jan 04

July 04

Jan 05

62

Shipping and Shipbuilding Markets 2005

LPG carriers deliveries shedule of ships on order - end 2004
number of ships 18

16

3-11 000 cbm 20-60 000 cbm

14

> 75 000 cbm

12

10

8

6

4

2

0 FH 2005 SH 2005 FH 2006 SH 2006 FH 2007 SH 2007 FH 2008 SH 2008

In the same period, Sigloo (with a majority control by Camillo Eitzen) purchased seven 8,000 to 12,000 cbm ethylene carriers built in the 1980’s, which Bergesen was looking to dispose of for quite some time, for a total value of around $ 75 million. Given the general optimism prevalent in the petrochemical sector (new productions, increase in consumption and demand in Asia) and the little addition of newbuildings tonnage over the next two to three years, the market for this size sector should remain very sustained in the coming years. Gas carriers of 8,000 cbm and less (pressurised and semi-pressurised) Same causes, same results! Except that the market level for this size range was extremely weak over the previous two to three years, so that the recovery has been even more signiﬁcant, compared to the other segment. The increase in demand was felt right at the start of the year and then gradually developed during the first half. It was even more noticeable in the second half, both for semi-pressurised as well as pressurised ships. A 3,500 cbm pressurised carrier was being traded at an equivalent time charter monthly rate of $ 130,000 to $ 140,000 at the beginning of the year, whereas the same vessel was trading at a level of $ 250,000 to $ 275,000 at the end of the year. A 6,000 cbm semi-reﬁgerated vessel would fetch in the same periods a level of $ 250,000 rising up

to nearly $ 450,000 monthly t/c or equivalent spot rate, with an even more pronounced variation for ethylene carriers where a 6,000 cbm rose from $ 275,000 up to $ 550,000. It should also be noted that there has been a correction in the traditional differentials between the levels of semi-refrigerated and pressurised carriers, with the latter catching up and nearly obtaining the same returns as the former. Another sign of the market’s tendency! As far as the time charter business is concerned, several contracts spanning up to 5 years, were principally undertaken by some owners-traders deciding to ﬁx their position for the future. A substantial rise in new orders, in particular for pressurised vessels between 3,500 and 9,000 cbm, was registered with Japanese shipyards for domestic owners-operators’ account, placing these new units under long term contracts with Eastern and Western majors. We have counted currently some ﬁfteen orders placed in 2004 for ships with a capacity between 3,500 and 9,000 cbm, of which two 8,600 cbm semi-refrigerated, for delivery between 2006 and 2008, as well as new orders which should be conﬁrmed imminently for units of 4,000 to 9,000 cbm in Italy. These past twelve months have also witnessed new merger transactions and ﬂeet purchases between owners, which were anticipated for several years given the poor levels of past results…

The Liquefied Petroleum Gas Shipping Market in 2004

63

During the second quarter, the Exmar Kosan pool took control of 12 pressurised carriers of 3,500 to 5,000 cbm from Far East Shipping, thus taking an additional grip on this inter Asian market. Several months later five 3,000 to 6,500 cbm semi-refrigerated carriers of Gibson Gas Tankers were acquired by Camillo Eitzen. A Greek owner, Stealth Maritime, already well established in other types of ships, made a noteworthy entry into the gas sector with the acquisition of some ten small gas carriers of 3,000 to 5,000 cbm at prices well above those obtained last year.

which are over 30 years, or even 28 years, might hardly ﬁnd employment and will probably be forced to retire in the coming years. Recent orders for newbuildings have achieved prices which are some 20 to 30 % higher than in 2003 and the trend remains on the rise. Even taking into account the depreciation of the dollar, owners will have to find revenues allowing them to pay back their investment made at higher prices and over a shorter period. Intra-Asia trade is to increase with the start up of new petrochemical production units at the end of 2005, thus absorbing a growing number of ships with a capacity of 4,000 to 8,000 cbm, which until now has been employed on deep-sea routes. The horizon therefore seems fairly clear and relatively predictable for the two or three coming years, excepting a major crisis which would undermine all the fundamentals! Taking long term shipping decisions has up to now often been limited by the important differential between spot freight market levels and the floor price below which an owner couldn’t commit over a certain period of time. The current improvement should allow this disparity to be corrected and favour longer term commitments by each contract party, be it charterer or owner, for a better control and appreciation of his shipping needs. Let us hope however that the market players will remain reasonable and do not go into an overinvesting circle with the risk of creating new imbalances. ■

Prospects
Conditions for a very ﬁrm freight market seem to be in place for the next few years. Although it was already fairly clear, all the ingredients are now solidly anchored for the trend to pursue in the same direction. Arrival of new tonnage over the next two years remains very limited and will probably not satisfy even a marginal growth in demand, whilst numerous factors tend to suggest that this is on an upward path, led by the ineluctable advance of energy demands from China and the developing countries. Even if this is likely to slow down one day, the tendency is still quite sustained. Despite the high steel prices, which have allowed scrap values to double or even triple, owners will be tempted to extend the life of their ships in a market which pays well. But the new safety regulations and chartering practices of the Majors, are applying to more and more geographical areas and can no longer be much too “elastic”. Units

LPG second-hand market

Ships over 50,000 cbm Once again the second-hand market has not provided the opportunity to allow the rejuvenation of ﬂeets or to invest into new ones, making owners who are looking to buy LPG carriers of less than 15 years to turn towards the newbuilding market, even if the prices proposed seem apparently higher and higher.

Only Bergesen, by means of a purchase option attached to long term charter, was able to acquire the ‘Sunny Hope’, 78,000 cbm, built in 1990, for about $ 33 million. Elsewhere we have registered prices close to those of scrapping, in the case of the sale of ‘Yuyo’, 83,000 cbm, built in 1979, or substantially more for the ‘Gaz Concord’ built in 1978.

64

Shipping and Shipbuilding Markets 2005

While awaiting to take delivery of their newbuildings, Sonatrach has combined the sale of the ‘Nemja’, 56,000 cbm, built in 1983, at a reported price close to $ 15 million, with a one year time charter of a much more modern carrier. Ships between 20,000 and 50,000 cbm Indian buyers, such as Varun, have once more shown their ability to offer to Bergesen and Exmar attractive prices for carriers of less than 25 years, conditioning the sale to a period charter of at least two or three years back to the sellers’ pool. The two oldest carriers, ‘Hektor’ and ‘Hermion’, 24,000 cbm, built in 1982 and 1984, were sold for about $ 17 million each, whilst the ‘Libin’, 43,000 cbm built in 1982, was sold for about $ 20 million. Ships between 10,000 and 20,000 cbm At the start of the year, Geogas sold the ‘Victoire’, 17,500 cbm, built in 1990, for a price above $ 20 million, while retaining control over the ship for the next 5 years. Thereafter, the sale by Exmar of her three ethylene carriers of 10,500 cbm, built at the end of the 1980s and beginning of the 1990s, for a price above $ 40 million against a 5 year time charter, was the only one who livened up the sector. Ships below 10,000 cbm It is in this sector that there has been the largest number of transactions this year. The rise in freight rates ﬁnally allowed sellers to ﬁnd buyers for their ﬂeets, and for buyers to be able to justify such investments thanks to the better economic environment. The strong increase in newbuilding costs for this type of carrier also played its part in reactivating interest in second-hands, but for the moment buyers can only count on the older units, which then logically will push potential buyers of more modern carriers to newbuildings. Camillo Eitzen, who took over the Kil ﬂeet several years ago, has bought the ﬂeet of his Norwegian compatriot Igloo for about $ 75 million (7 ethylene carriers of 8,000 to 10,000 cbm, built between 1982 and 1989). This same owner then bought the Gibson Tankers fleet (3 carriers of 6,000 cbm built in 1982 and 2 carriers of 3,500 cbm built in 1991). In the pressurised sector, the sale of the Japanese owner’s Far East Shipping ﬂeet (9 carriers of 3,500 cbm built between 1996 and 2003 and two carriers of 5,000 cbm built in 1994 and 1995) to Exmar Kosan, for about $ 85 million, caused quite a sensation at the end of the first quarter. The reported values revealed a price varying from $ 6 million for a carrier of 3,500 cbm built in 1996 to $ 9,5 million for one delivered in 2003 on one hand, and on the other hand a price of around $ 7 million for carriers of 5,000 cbm. These values show an increase of 20 % over the lowest levels achieved for comparable ships in 2002 and 2003. During the third quarter with freight rates reaching more encouraging levels, the market saw the entrance of a new name in the LPG sector, the Greek Vaﬁas, buyer of 9 pressurised and semi-ref LPG carriers of 1,500 to 6,500 cbm. The level of prices paid put the value for 10 year old pressurised carriers of 5,000 cbm and 3,500 cbm at respectively around $ 12 and $ 8,5 million. In the same way, the purchase of two semi-refs of 3,500 cbm built at the beginning of the 1990s, allowed these ships to obtain in 2004, prices above those reached in 2000 and above all a 70 % increase over the prices they got in 2003. As an illustration, it is worth recalling that freight rates for a 12month period has been following a similar evolution: $ 220,000 in 2000, $ 170,000 in 2003, and about $ 320,000 at the end of 2004. If it maintains, the improvement in freight rates should encourage a revival of newbuilding orders although construction costs are higher and since the second-hand market offers too few opportunities for the renewal of ﬂeets. ■
Gas Sriracha 3,514 cbm, built in 1996 by Uzuki Zosencho, sold to Centaurus Transport Ltd and now renamed ‘Grampian’

The Liquefied Petroleum Gas Shipping Market in 2004

65

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66

Shipping and Shipbuilding Markets 2005

SHIPPING MARKET

LIQUEFIED NATURAL GAS

THE

2004
LNG
Shipping has become one of the most active sectors in shipping with unparalleled new orders, forecast growth expected to continue, at least 19 speculative orders, new owners entering the “Club” along with increased sizes and the possible demise of the steam turbine. And all of this has occurred in 2004! ◆ Korean shipyards control over 75 % of the new orders, ◆ GTT membrane designs account for 82 % of the orderbook, ◆ 16 ships on order are not steam turbine and 2 of them are purely speculative, ◆ 8 ships are over 209,000 cbm fitted with reliquefaction plants, ◆ China ﬁnally signed their long awaited order for 2 new ships, ◆ 1 new Korean yard (Samho) has gained an order just a few weeks after a new Japanese yard (Imabari) enters the Club, ◆ One recent LNG entrant has been bought out by an even newer entrant, ◆ Two new Russian LNG owners have joined, ◆ 4 newcomers have won the sought after (but non lucrative?) Qatar orders, ◆ Yard prices have risen as steel prices have increased and yard slots have disappeared,

IN

The ﬂeet
At the end of 2003 there were 152 LNG vessels in service with a further 34 on order, the largest of which was 153,500 cbm capacity. RasGas II had a tender for up to 8 ships with market talk of about another 47 ships needed with the likelihood that we would see 200,000 cbm and larger vessels ordered. At the end of 2004 there were 174 ships in service with 113 ships on order, but let us look at these ﬁgures in more detail:

The Liquefied Natural Gas Shipping Market in 2004

67

LNG carrier fleet as at January 1, 2005
Number of ships 160 Existing 140 On order 120

100

80

60

40

20

0 Under 120,000 cbm 120,000 - 163,000 cbm 163,000 m3 and over

◆ Greek shipowners have 8 ships on order, 4 of which are unﬁxed, ◆ Charter rates and periods are falling: 2 new orders ﬁxed against 10 year charters, ◆ 2 new orders have been placed at Universal for 75,000 cbm ships for Mediterranean trade. However we must stress that, among all types of ships, LNG carriers are the ones that have recorded the smallest rise in newbuilding prices, due to a ﬁerce competition among shipyards in this sector. Shipyard’s strategy has also diverged among the LNG builders: Daewoo and Samsung have invested in the construction of series of ships, Hanjin has decided not to take LNG orders any more and Hyundai has chosen to concentrate on “standard” ships as prices for the latter have risen more sharply and account for less cgt (compensated gross tons) than their LNG counterparts. Of the 113 ships on order at end 2004, 69 have been placed this year which in some respects follows the old school of LNG (circa early 1980’s) where projects and Japanese buyers prefer to order rather than charter ships that are available or are already on speculative order – 19 ships on order are unfixed with 4 existing new ships sitting idle. Technical Developments Ever since the company has been involved in LNG shipping, the standard line used by banks and projects has been “No new or unproven technology

and we will not be first of a class”: this probably accounts for no new developments in nearly 40 years! However, in the space of 12 months we have seen the size rise from 145,000 cbm in January to 154,000 cbm in August and to 216,000 cbm in November. Likewise, the need for the reliable steam turbine engine was an absolute must, with much scepticism voiced at the innovative French companies of Gaz de France and Chantiers de l’Atlantique for building dual fuelled diesel electric (hereafter DFDE) vessels, but that was until November when it would seem that several parties threw caution to the wind when first BP ordered 4 DFDE ships, swiftly followed by AP Moller ordering 2 similar vessels. However, these owners were clearly outdone by Qatar, aided by ExxonMobil, who conﬁrmed their long awaited selection by allocating 8 new 200,000 cbm plus vessels with slow speed diesel engines equipped with re-liquefaction plants Commercial Developments The year started with almost historically low LNG shipyard prices, but it closed with prices having risen by over $ 30 million per unit. Twenty years charter hire period was the usual duration for the shipping contracts, twenty years matching the SPA (sales and purchase agreement). However, the long term would appear to be stretching out to 25 years with short term

68

Shipping and Shipbuilding Markets 2005

settling around 3-5 years, with the exception of the occasional spot fixture of which the year’s low was reported to be $ 25,000 per day. This is a strange phenomenon when VLCC’s were fixing at $ 260,000 per day, yet there is a rush of tanker owners wanting to get into LNG. Does the new world LNG need some explanation to the new entrants? The tonne-miles demand for LNG is increasing as the Atlantic Basin and West Coast US source the gas from further afield. The increased distance inﬂates the transportation costs that would naturally reduce the net revenue for the LNG producer if the end market could not absorb a higher price for the transportation. The transport costs can be reduced by increasing the amount of cargo carried, and hence delivered, on each ship, reducing the fuel costs and keeping the daily hire rate as low as possible. The Qatar projects of RasGas II and Qatargas II have clearly been the most successful projects in reducing transport costs, as they have managed to combine all three of the above elements. New entrants would appear to have been the most cooperative with the Qatar shareholders, as they have secured 15 of the 16 contracts awarded in 2004. So, was there a price to enter the hallowed “Club”?

And what is there for 2005?
2004 has been a phenomenal year for LNG shipping and it would be impossible to repeat this in 2005. However the Qatari projects will continue to expand, likewise Nigeria. New projects will be agreed in Brass River, Angola, Yemen, Iran, Libya and Australia that should produce in total a requirement for about a further 70 ships. If the fashion for non steam turbine continues, there could be some obsolescence of the older, smaller, thirsty tonnage that could promote some more orders but only if there are the slots available. No doubt ever more new entrants will arrive, even though Qatar and ExxonMobil continue with their selection criteria – cheapest wins. Ship prices may peak but stability in steel prices and exchange rates will be needed. Technological innovations have apparently been accepted so there may be a new containment system developed to compete with the membrane design and perhaps another new propulsion system will be ordered: Shell is rumoured to be seriously looking at a gas turbine design. The standard ships design should rise to 163,000 cbm as this is the optimal size to access most of the existing terminals, as opposed to the dedicated terminals required for the 216,000 cbm size. ■

The Liquefied Natural Gas Shipping Market in 2004

69

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70

Shipping and Shipbuilding Markets 2005

DRY BULK
MARKET IN

THE

2004

T

ogether with all the other sectors of the shipping market, 2004 was an exceptional year in the dry bulk. On the back of a very strong surge at the end of 2003, rates peaked in March before taking a plunge until the end of June. Then, they rebounded until December to reach and sometimes surpass previously established records. One only has to look at the figures of the following daily returns: $ 35,000 per day for a Handymax, $ 50,000 per day for a Panamax, and over $ 100,000 per day for a Capesize. World demand for industrial dry bulk commodities increased sharply and exerted a strong pressure on charterers. All raw materials were affected. Demand took off, notably in the coal and ore sectors, which represent over half of the total volumes. Tonnage transported for iron ore went from roughly 520 million tons in 2003 to about 570 million tons in 2004. Coking coal increased

from about 185 million tons to nearly 200 million and steam coal from over 420 million tons to 440, an overall rise of 7 %. Depending on sources, the growth in volume in 2005 is expected to be around 5.5 to 6 %. Such ﬁgures make people ﬁll dizzy and cannot be compared with what was experienced during the last fifteen years where we usually saw an average growth of 2 to 4 % depending on the years. There is one key player who emerges from any analysis of the market: namely China. Having shown its potential over recent years, the rise in strength of the country has never been as clearly deﬁned as in 2004. The press has largely been following and reporting this phenomenon. Carried along by strong growth, Chinese demand for steel grew by more than 13 % in 2004 over the year. According to the

The Dry Bulk Market in 2004

71

Dry bulk carriers fleet over 43,000 dwt by age class end 2004
dwt 80,000,000 Handymax 70,000,000 Panamax Capesize 60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0 25 years and over 20 to 24 years 15 to 19 years 10 to 14 years 5 to 9 years Under 5 years On order

Chinese Association for Ore and Steel (CSIA), domestic production went from 225 million tons in 2003 to 270 in 2004, with the aim of reaching 300 million tons in 2005. At the same time, imports of iron ore went from 110 million tons in 2002 to nearly 200 million tons in 2004 (of which 80 million tons originating from Australia and from Brazil). As a result, there was heavy congestion in loading and discharging ports at the beginning of the year, which inevitably

affected the global supply of available tonnage. This situation improved as from March when the Chinese authorities became aware of the extent of the problem and decided to implement de-stocking measures in the ports. Once begun, freight rates started to drop signiﬁcantly. During the month of June demand took off again, thus indicating that the efforts by the Chinese government to slow down economic growth were insufficient, precipitating another sharp rise in

Dry cargo freight rates - Capesize
US$/ton 30 Capesize Coal Puerto Bolivar / Rotterdam 150,000 t Capesize Iron ore Tubarao / Fos 145,000 t 25

20

15

10

5

0 Jan 02 Mar 02 June 02 Sep 02 Dec 02 Mar 03 Mai 03 Aug 03 Nov 03 Feb 04 Mai 04 July 04 Oct 04 Dec 04

Source : Baltic Exchange - BRS

72

Shipping and Shipbuilding Markets 2005

Ingrid Oldendorff 75,000 dwt, built in 2005 by Jiangnan, operated by Oldendorff Carriers

rates. Swept along by the dynamics of the market and the anticipation of high freight levels, this in turn provoked a surge in time-charter activity. At the same time, operators became actively engaged on the freight futures market. Encouraged by the volatility of the physical market, a number of players found an answer to their needs of getting forward cover with derivatives. In many respects, it could be said that 2004 paved the way towards a maturing of these markets. It is worth noting that their inﬂuence in the decision making process for both owners and charterers, especially on

contracts of affreightment and period charters, is growing. Simultaneously, and also to reduce their exposure to an increasing volatility of the market, the main charterers and owners have been putting an emphasis on concluding long term partnerships, giving a long term business ﬂow to the latter and a guarantee of regularity and stability in supply costs to the former. However in this euphoric context, there are some signs that suggest a certain caution, starting with the rising supply of tonnage.

Dry cargo freight rates - Panamax
US$/ton 80 Panamax Grain US Gulf / Japan - 54,000 t 70 Panamax Coal Richards Bay / Le Havre - 70,000 t

60

50

40

30

20

10

0 Jan 02 Mar 02 June 02 Sep 02 Dec 02 Mar 03 May 03 Aug 03 Nov 03 Feb 04 May 04 July 04 Oct 04 Dec 04

Source : Baltic Exchange - BRS

The Dry Bulk Market in 2004

73

Average time-charter rates for bulk carriers
$/day
70,000 64,000 58,000 52,000 46,000 40,000 34,000 28,000 22,000 16,000 10,000 4,000 Jan 02 Modern Handymax - 3/5 months t/c (del./redel. Pacific) Modern Panamax - 3/5 months t/c Modern Capesize - 12 months t/c

June 02

Nov 02

Apr 03

Sept 03

Feb 04

July 04

Dec 04

Numerous orders placed in 2003 and 2004 will start to be handed over to the market in 2005 and 2006. This historically high level of deliveries combined with a virtually non-existent volume of demolition should eventually start to have consequences on the market balance during the next few years. Thus for Capesize, 8 million dwt were delivered in 2004, 8.7 are due in 2005 and 9.5 in 2006. For Panamax, 6 million dwt were delivered in 2004, and in 2005 the ﬁgure should be 6.8 million dwt. And for the Handymax, after 4.5 million dwt added in 2004, 6.2 million dwt can be expected in 2005! Some factors could act in the favour of reducing the pace of delivery, for instance, the price of steel and the difficulties shipyards have in buying engines. There is a high probability that we shall see numerous delays in deliveries. On the demand side, the slightest change in the economic policy of the Chinese government, with implications on imports and exports, will be measured in the light of the strategic role played by China today on the international scene. Based on CISA forecasts, the level of ore imports should reach 240 million tons in 2005, an increase of around 20 % compared to the 40 % witnessed in 2004. Finally, a serious question mark remains as to the capacity of the main Australian and Brazilian ports to be able to handle the increase in demand as, at the same time, their productivity seems to be

unable to improve in the short term. If this congestion phenomenon lasts, this will prevent a further growth of the trade flow and consequently new tonnage that will be introduced on the market would generate a surplus. Some old ships could then ﬁnd their way to the scrapyards. 2004 will therefore be classiﬁed as an outstanding vintage, a historic year that is only seen once in a lifetime. This year has signalled the break with the long decades of cheap or even undervalued transport. The importance that China has acquired in world trade and her appetite for raw materials, has been and will remain the determining factor within the market evolution. The imbalance between supply and demand has led freight rates to levels never achieved before. However, one should not underestimate the impact that the massive deliveries of new ships will have and although it is difficult to measure precisely, it will logically push owners to sell some older ships for scrap. In addition, even if demand is strong, the logistical difficulties encountered either with the distribution network or with port infrastructures, as well as a possible slowing down of China’s imports, could cast a shadow on the market. ■

74

Shipping and Shipbuilding Markets 2005

The dry bulk second-hand market
The second-hand market for Capesize Unbelievable! Swallowed up like so many others by the ferocious appetite of China for raw materials, freight rates took off to levels that nobody would have imagined and even less hoped for. The scarcity of berths for newbuildings helped feed this frenzy to purchase second-hand ships or newbuilding contracts with prompt delivery, the latter being able to be quickly repaid given the rates they can obtain on the market. When in December 2003, a 5 years old 170,000 dwt ship, built in a good shipyard was worth about $ 48 to 49 million, its value was close to $ 62 million in March 2004! At the end of June or early July, after a rather severe correction in the market, brought about by statements from the Chinese Prime Minister concerning necessary measures which were needed to slow down the economy that had become overheated, this same type of ship saw its value drop back to a level of around $ 45 million. However the market did not cool off for long and the year ended with prices rising again to $ 65 to 66 million. We have been able to record some fifty transactions in the course of this extremely active year. It is surprising to see that the rise in values has affected all ships irrespective of age and that a number of new buyers have emerged, principally Chinese, for whom purchasing has rapidly become an alternative to chartering at prohibitive rates. In order to stay in the competition, some transactions have often been made without any inspection being carried out on the ship. At the end of the year a distinct bullish trend was still clearly perceptible. The second-hand market for Panamax, Handymax and Handysize bulk carriers For all of us in shipping, 2004 will be the year we shall remember for a very long time. We thought that 2003 was THE year but 2004 surpassed all expectations. We had concluded last year’s review by stating: “If the world economic data and indicators available can be considered as reliable then we would expect the dry bulk freight market to remain at levels considered as very firm and we would not therefore expect bulk carrier prices to ease off any time soon. In fact we would expect prices to ﬁrm further, so, for those contemplating an investment in dry bulk tonnage the sooner this is undertaken the better it will be” and we added “Today’s extremely ﬁrm price becomes tomorrow’s normal market price and a few weeks later it is considered as cheap”. This was exactly what happened and even more, much more… Prices for second-hand tonnage followed the freight market increases without a miss. On some occasions the increase in values was much more important than the equivalent freight rate increase, as buyers and sellers alike were anticipating further increases. Comparing second-hand values, for the various sizes under consideration, at the end of 2004 against those at the end of 2003 we’ve noted: ◆ an average of 45 % to 65 % increase in the Panamax size, ◆ an average of 50 % to 60 % increase in the Handymax size, ◆ an average of 40 % to 50 % increase in the Handy size. Demolition sales remained at an all time low and of course prices achieved by dry bulk tonnage sold for demolition remained extremely high. They moved from $ 270-275 per ldt at the end of 2003 to the “astronomical” levels of $ 370-380 for vessels sold for demolition to India, whereas the ChiEric LD 169,900 dwt, built in 1999 by Daewoo HI, sold at the end of the year by Louis Dreyfus Armateurs to Diana Shipping Agencies

The Dry Bulk Market in 2004

75

nese were paying about $ 320 per ldt at the end of 2004 compared to about $ 290 about 12 months earlier. 2004 was the year of the large “en-bloc” deals, it was also the year when traditional tanker owners diversified in the dry bulk sector, the year during which a 15 to 20 year-old bulk unit was worth more than ever before, prompting several owners (e.g. Oceanbulk Maritime) to sell a large number of such vintage ladies and at last the year of some successful Initial Public Offerings (IPO’s) shipping companies (mostly Greek controlled) managing and involved in dry bulk vessels, in the U.S. public equity markets. Among these “en-bloc” transactions it is worth noting: ◆ The Restis group acquisition for $ 740 million of the whole MISC dry bulk fleet consisting of 32 bulk carriers (9 Panamaxes, 9 Handymaxes and 14 Handies) ◆ The General Maritime Group (Peter Georgiopoulos), acquisition for $ 420 million of the Top Glory ﬂeet consisting of 16 bulk carriers (5 Panamaxes, 6 Handymaxes and 5 Handies) ◆ Precious Shipping concluded a number of enbloc acquisitions in the Handysize segment (all mid/early 1980’s built): 9 Handies from PNSL (Malaysia) in March, 6 Handies from Paciﬁc Basin in February and in addition, there were linked to another 10 to 12 purchases of Handies over the year. Some of the traditional tanker owners have been actively participating in the dry bulk carriers second-hand market, like General Maritime (mentioned earlier), Frontline (John Fredriksen), and others. Ship’s values evolution At the end of the year a 10 year-old Panamax bulk carrier was worth about $ 32 to 33 million, representing an increase of about 65 % over the past 12 months, a 5 year-old Panamax bulk carrier was

worth about $ 40 million, which represents about 48 % appreciation when compared to the value recorded one year earlier. A 10 year-old Handymax bulk carrier was worth about $ 25 million, representing an increase of about 55 % over a period of 12 months, a 5 yearold Handymax bulk carrier was worth about $ 31 million, which represents a 55 % appreciation when compared to the same period one year earlier in December 2003. A 10 year-old Handy bulk carrier was worth about $ 16 million, representing an increase of about 45 % over a period of 12 months, a 5 year-old Handy bulk carrier was worth about $ 21.5 million, which represents a 48 % appreciation when compared to how much it was worth one year earlier in December 2003.

Prospects
Concluding this year’s review of the second-hand dry bulk carrier markets, the eternal and unavoidable question is still on everyone’s mind “How long will this freight market and consequently the second-hand market last?” There is no clear answer and as always all involved in shipping will be trying to analyse the world economic data, the supply and demand situation which is fundamental in all markets, but, more importantly, everybody will be looking closely to the Chinese economy and the availability or rather the non-availability of building berths for dry bulk carriers (in the sizes we have been referring to). We may therefore witness the second-hand prices for Panamax, Handymax and Handy bulkers behaving in a much more volatile style than during the past 12 to 24 months and as such any investment in this sector should be pursued cautiously. The other face of the coin, would of course be to capitalise on the present very high values and sell any tonnage, purchased at much lower levels. ■

76

Shipping and Shipbuilding Markets 2005

FUTURES
L I M I T E
BACKGROUND
BRS Futures Ltd was set up in 2003 and is a subsidiary of one of the most respected and long-established international shipbroking ﬁrms, Barry Rogliano Salles of France. The parent company has more than 150 years’ experience in providing a range of services to clients in the shipping industry. The last few years have seen substantial growth in the use of derivatives to reduce and manage exposure to risk in many markets. The international shipping market is no exception, and in response to clients’ needs, BRS has added freight derivatives to the range of services it provides.

D

SERVICES PROVIDED
BRS Futures Ltd acts as a broker in principalto-principal freight derivative contracts. The company offers a broking service in existing tried and tested contracts for freight swaps and options, and aims to continue developing its range of freight and ship valuebased derivative products as appropriate. The aim of BRS Futures Ltd is to provide existing and prospective clients

with the opportunity to use standardised risk management tools for hedging and optimisation of shipping/freight portfolios. BRS Futures Ltd is a member of the Forward Freight Agreement Brokers Association (FFABA), and BRS is a panel-member contributor to market data co-ordinated and published by the London-based Baltic Exchange.

BRS FUTURES LIMITED
10 Napier Place - London W14 8LG - Royaume Uni
Contacts Chris Reilly or Ramon Muga Tim Jones François Walon Tel.: +44 20 7602 5670 Tel.: +33 1 41 92 12 34 Tel.: +33 1 41 92 12 34 Email : [email protected] Email : [email protected] Email : [email protected]

BRS Futures Ltd is a wholly-owned subsidiary of Barry Rogliano Salles, registered in the UK (company registration number: 04565913) and is authorised and regulated by the Financial Services Authority of the UK (FSA reference number: 223290)

77

ALPHALINER

®

Alphaliner is an on-line information service on liner shipping markets.
Interactive checking of: ships, owners and operators as well as services and alliances. A monthly newsletter presented by ship’s size and geographical zones which is tailored to individual user’s needs. Daily update of new deliveries, ships on order and demolitions. Detailed orderbooks. An interactive classiﬁcation of the top 100 liner operators world-wide. Fleet proﬁles. A detailed analysis on a particular aspect of the liner shipping sector each month. Chartered ﬂeet compared to owned vessels. News update : daily coverage on markets developments. Vessels’ casualty records and successive owners. The data base holds currently: • over 1,200 services • over 9,000 ships • over 300 operators The annual subscription for the site : e 3,400. Numerous pages are available for free.

www.alphaliner.com

Alphaliner is a Barry Rogliano Salles trademark.

78

Shipping and Shipbuilding Markets 2005

CONTAINERSHIP
MARKET IN

THE

2004

A

fter the 2001 traumas, the year 2002 was a year of convalescence and the full health was restored in 2003. As for 2004, it has been the year of the superlatives. It has witnessed a shipping boom unseen since the early 1970s oilbased boom. This time, the international trade is sitting on a much larger base than 35 years ago, both in commodity variety and in geographical pattern. One country has however become an essential wheel: China. It is estimated that it is at the origin of one third of the world trade growth last year. With its economy growing at some 9 % a year and containerised exports reaching a 30 % annual increase, China is itself at the origin of the containership shortage and the concomitant unprecedented levels of charter rates. But China is not alone to fuel the shipping frenzy. First, and it is important, it is inseparable from the purchasing power of the USA and of Europe. Second, there

are other countries which are also witnessing high levels of exports, such as India, Thailand, Vietnam and Chile. The rise of the Euro against the US Dollar and Asian currencies has also implications on the containership demand. It makes Asian products and especially Chinese ones cheaper for Europe. All along the year, volumes have soared on the Far East-Europe route, which needs more ships than the Asia-US route because of the longer distances. Shipowners, liner operators and port operators have been taken by surprise by this surge. They can hardly cope with the volumes. Ships are full to capacity out of Asia and there are not enough of them to scoop up all the boxes that flow out from this continent. The congestion of terminals, especially in Europe and the US, compounds the problem, as they cause delays to busy ships and disrupt the tight schedules of

The Containership Market in 2004

79

usually well oiled weekly loops. This is a challenge for 2005. In order to save ships, liner operators have rearranged loops and have cut capacity on the comparatively stagnant transatlantic trade in order to send ships on busiest routes. The optimisation of a number of services has also led to a better overall ﬁlling ratio, especially at each end of the loops (even if it means filling with empty boxes, which cannot be discounted as they have to be repositioned in one way or another). Owners of hired container tonnage are rewarded above all expectations, with charter rates which are 50 % higher than the historical peaks. Leading liner operators have anticipated a further rise in demand for 2005 and beyond by chartering ships for periods much longer than usual and have committed themselves in huge newbuilding programmes. During the second half 2004, there has been intense chartering activity for ships to be delivered in 2005 so that the pool of ships left available has shrunken fast, which could in turn lead to a further round of charter rate rises once the Chinese New Year festivities (February) end.
Evolution of the cellular ﬂeet 1988 - 2008 Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Number 1,165 1,198 1,248 1,320 1,407 1,498 1,596 1,743 1,918 2,113 2,343 2,524 2,623 2,746 2,905 3,046 3,187 3,362 3,672 3,970 4,252 Teu 1,498,286 1,604,192 1,710,233 1,848,223 2,005,566 2,201,172 2,378,918 2,642,853 2,970,868 3,347,946 3,853,767 4,274,538 4,503,004 4,912,346 5,515,713 6,097,445 6,639,276 7,290,305 8,257,000 9,350,000 10,684,000 Progr. 7.1% 6.6% 8.1% 8.5% 9.8% 8.1% 11.1% 12.4% 12.7% 15.1% 10.9% 5.3% 9.1% 12.3% 10.5% 8.9% 9.8% 13.3% 13.2% 14.3%

Huge orderbook matches strong trade growth In early 2005, the cellular ships orderbook stood at 3.9 million teu, representing 53 % of the existing fleet. As big as it is, it does not seem excessive, although it looks like somewhat on the high side, especially for the year 2007. The huge influx of capacity could reasonably be absorbed by the bullish international trade, itself supported by a strong world economic growth. The world GNP growth has reached around 44.5 % in 2004 (against 2-3 % for the long term historical average). Although a slight softening is expected in 2005, the GNP growth should remain above the historical average, and this performance could be repeated in 2006, in the absence of unpredictable events. As for the international trade, it is estimated to have grown by 7 % in US$ terms during 2004 (against 4-5 % for the long term average). Alas no ﬁgures are available in volumes, as it is difﬁcult to assess because of the wide variety of goods. The observation of long term trends shows that the cellular ﬂeet has grown, roughly, twice as fast as the trade growth. It means that if the bullish trade growth of 7 % recorded for 2004 is to be prolonged during the next two or three years, then it will generate containerised volumes needing to be moved by a ﬂeet growing at 14 % per annum. This is precisely the rate at which the ﬂeet is expected to grow during the next three years, according to BRS-Alphaliner forecast. Even in case of a softening, the supply-demand ratio of containerships is to remain on the owners side, at least in 2005 and 2006, because of the catch up effect: the shortage which has developed in 2004 must be compensated by deliveries higher than the natural growth. Given this, the capacity coming on stream should be swiftly absorbed by the transportation demand during the coming months, while a return to a balanced supply-demand ratio could occur in 2006. This should mark a turning point in box rates and charter rates. The situation in 2007 and beyond is another matter. Some forecasters say that the world economic and trade growths are to remain sustained for the remaining years of the decade, although not at 2004 levels as a softening is expected. The question is: what amplitude will take this softening ? The supply-demand balance for 2007 is thus difﬁ-

• Figures are given at 1st January of each year. • Figures for 2006 to 2008 are derived from the orderbook

80

Shipping and Shipbuilding Markets 2005

Evolution of charter rates - 1998-2004
USD/day
50,000 (12 months tc rates) (Source : BRS-Alphaliner)

45,000

4,000 teu 2 500 teu 1 700 teu

40,000

35,000

1,000 teu

30,000

25,000

20,000

15,000

10,000

5,000

0
Jan 98 May 98 Sept 98 Jan 99 May 99 Sept 99 Jan 00 May 00 Sept 00 Jan 01 May 01 Sept 01 Jan 02 May 02 Sept 02 Jan 03 May 03 Sept 03 Jan 04 May 04 Sept 04 Jan 05

cult to assess. Trade growth should remain however higher than the historical average and it is a reasonable bet. As for 2008-2009, the orderbook has yet to be ﬁlled in. So, orders of containerships for these two years may ﬂow in the coming months. Assuming that a 6 % growth in trade is maintained, almost 1.3 million teu should be delivered in 2008 and 1.45 million teu in 2009 only to maintain the equilibrium. If the omens for the second half of the decade are good, a number of worries must not be overlooked, which could affect the container shipping market. They are :
◆ the weakness of the US dollar and uncertainties

three or four years, without knowing what the future has in store. Actually, the charter market is not led by demand alone as far as long term expectations are concerned. It is also propelled by skilled operators who play the shortage game, locking up charterers for years against discounts on rates. These discounts remain somewhat limited when one considers the progression of charter rates over the past two years. With ships sometimes hired at twice their total operating costs (including repayment of capital), owners enjoy an unprecedented situation since container ships started to be offered for charter, some 35 years ago. Owners of containerships derive proﬁts which are reminiscent of those accumulated by oil tanker owners in the early 1970s (Onassis, Niarchos, YK Pao, CY Tung and a crowd of other more or less known names). Indeed, a B-170 locked for three years at $ 27,000 per day will raise enough profit to order a brand new ship of the same size! With this in mind, it is not surprising that charterers look at buying ships. But with exceptional returns expected on hires, sellers’ conditions defy gravity and buyers think twice before taking the plunge. Over the last 12 months, prices of secondhand ships have roughly doubled! Only a few operators have taken steps in order to be less dependent on chartered ships. It concerned

on exchange rates,
◆ a possible hard landing of the Chinese eco-

nomy,
◆ a slowdown in the US consumption of imported

products due to a weak dollar combined with possible interest rate increases. More immediate and foreseeable, problems will affect container shipping in 2005 :
◆ the shortage of cellular ships, ◆ congestion in ports, leading to delays, accen-

tuating the ship shortage,
◆ strain on inland transportation networks.

Charter fortunes Operators are living a strange paradox as they are rivalling to fix ships at peak rates for periods of

The Containership Market in 2004

81

mostly MSC and, to lesser extent, CMA CGM. Both have bought second-hand ships as well as existing newbuilding contracts. Far behind, PIL and Simatech have also bought second-hand tonnage. In another deal, Zodiac Maritime has bought eight Panamax containership contracts for assignment to the associated company Zim (which has sold ships as well). Although there is a trend among operators to order tonnage in their name, they still rely heavily upon non operating owners, which have relentlessly continued to book ships all along the year. There has been indeed a signiﬁcant regular drop in the share of chartered ships in the cellular ship orderbook, from 63 % in January 2004 to 52 % January 2005. The lion’s share of this reduction concerns the VLCS orderbook: their chartered component has shrunk from 58 % to 36 % (thanks, for a great part, to MSC buying or exercising purchase options on chartered units). Conversely, existing ships have been sold to non operating owners. P&O Nedlloyd has sold en bloc 14 Panamax, while Zim has sold five 3,000 teu units and Hanjin five 4,000 teu ones. All these ships were sold with charters back to the sellers. However, these deals have more to do with ﬁnancial engineering than with market play. These diverging moves led actually to a slight increase in the chartered component of the existing cellular ﬂeet, which stands at 47.4 %, against 47.0 % one year ago. German owners continues to dominate the charter scene, as they control 63 % of the chartered fleet, dwarfing Greek owners (11.5 %) and Japanese owners (7.2 %). A few operators are however taking advantage of peak charter rates. As strange as it seems, they

have been accepting, if not actually welcoming, ever increasing rates for longer and longer periods throughout the year. Maersk Sealand, MSC and CMA CGM have been keen rivals in this race to land as many possible ships, at the expense of others, who are either hesitant or simply do not have a sufﬁciently strong ﬁnancial base to follow. These three carriers have swooped on as much ships as they could (not to mention their unceasing order waves of newbuildings) and are thus in a position to strongly improve their market share. Actually, with these peak charter rates, we are on the eve of a new era of precipitating the concentration of the ﬂeet in a few hands with a new sort of natural selection. This may explain why there has been no hurry in attempts to take control of other operators last year. The charter market We had speculated in our last annual report that the highest rates observed in 2003 could well represent the average rate for 2004. Not only did they, but they went much higher! With ships as rare as ever, charter rates have exploded to levels which are 50-60 % above the historical highs observed during the summer 2000. Besides record rates, the year 2004 has been characterised by a lengthening of charter periods and by ﬁxing ships six or twelve months in advance. These two latter trends have dried up the pool of large ships (both existing and newbuildings) available in 2005. Charterers are now eating into the 2006 available ﬂeet, and a market for sublets has started to emerge. The rally on the charter market continues and owners are reaping the beneﬁts of the shortage of

Availability of ships for charter (as at 1st January 2005) Size 4,000-5,000 teu 3,000-4,000 teu 2,500-3,000 teu 2,000-2,500 teu 1,500-2,000 teu 2005 Exp 1 23 14 29 65 2005 Nbdg 0 2 5 2 6 2006 Exp 7 20 26 33 81 2006 Nbdg 4 10 26 2 6 2007 Exp 12 26 n/a n/a n/a 2007 Nbdg 7 20 n/a n/a n/a 2005 Existing 01/01/05 268 265 249 300 425 2005 Charter 01/01/05 111 107 145 172 281

Exp: number of ships for which the charter expires in the reference year (and no options attached) Nbdg: newbuildings believed free of charter in the reference year Existing: total existing ﬂeet as at 1st January 2005 Charter: indicates the number of ships on charter from non-operating owners
Note: As the duration of charters decreases with size, indication of the number of charters due to expire in 2006 for the small sizes is not relevant and is therefore not indicated.

82

Shipping and Shipbuilding Markets 2005

tonnage. The lack of adequate tonnage to launch new intercontinental loops has thwarted the plans of several carriers. In December 2004-January 2005, 4,000 teu ships were hired at $ 40-45,000 per day for 12 months period while 2,500 teu ships were valued at $ 3537,000. Ships of 1,700 teu peaked at $ 27,000 for 4 years periods. 1,000 teu ships were negotiated at $ 18,000 for 6-12 months. The tonnage scarcity and the high demand on regional and feeder trades have sent rates soaring for smaller ships as well. Cellular ships of 800-850 teu are not cheap, as they reach now the $ 15,000

mark for 12 months (against $ 8,000 end 2003). Modern ships of 500 teu ended the year at $ 9,000 for 12 months (against $ 4,400-4,800 during the three years pre-2004, and for periods of 3 to 6 months). If top rates are good news for owners, carriers relying only upon chartered tonnage do not share the same enthusiasm. Among them are several niche regional carriers and feeder operators. They use small ships (under 1,500 teu), which until early 2004 could still be hired at fair rates, but have since reached such levels that services will have to be reviewed or cut.

Slot charters follow the trend A little spoken aspect of the container trades concern slot charter rates. As ship charter rates have soared, so have slot charters. Some slot chartering agreements are referring to charter market conditions, and the slot charter rates are reviewed at regular intervals. Other ones are fixed for the duration of the agreement which is usually not more than two years. Slot charter rates can be indexed on ship charter rates as well as other operational costs, such as voyage costs, including cost of bunkers, canal tolls or port dues. As the ship charter rates item is the heaviest one, it is then not surprising that slot charter hires have risen strongly, leading even to the non-renewal of some agreements. In this period of tonnage scarcity, those who run the ships may find quite profitable to fill them at full capacity and may not wish to offer their precious earning space to others (which are after all rivals), unless they pay the price. Operators are now very careful when it comes to enter slot exchange agreements with other lines, as they evaluate risks of failure of partners, especially in the case of small operators whose financial standing may not be strong enough to survive the high charter hires. There has been during the past year a number of changes in partnerships and slot buyer participation, which may have been caused by tensions created by space shortage on a background of ship shortage and of peak charter rates. On the other side, several operators are teaming up to launch new services with chartered ships, thus sharing the burden of expensive charter hires while being able to offer the needed weekly frequency. Such a way of doing business is of course not new, but it is exacerbated by current market conditions.

Long term charters dominate the market Periods of four years and more for 4,000-5,000 teu ships accounted for 86 % of the reported fixtures in 2004, against 49 % in 2003 and 17 % in 2002, according to a BRS-Alphaliner analysis. Smaller ships have also been ﬁxed for much longer periods than the usual 12 months. Periods of 24 to 40 months for 1,5002,000 teu ships accounted for 46 % of the reported ﬁxtures in 2004, against 7 % in 2003 and only 2 % in 2002. The accompanying table details how the duration of charter periods evolved from 2002 to 2004.

The Containership Market in 2004

83

Duration of charter periods in relation to year of charter contract
Number of ﬁxtures reported in 2002 and 2003 and share of total number of ﬁxtures for each size range

Nb. Duration Size 2002 2003 2004 Size 2002 2003 2004 Size 2002 2003 2004 Size 2002 2003 2004 Size 2002 2003 2004 Size 2002 2003 2004 8 5 8 40 15 6 42 25 11 285 190 52 257 208 54 45 36 2

% < 8 months 27% 12% 11% 44% 17% 15% 48% 19% 8% 77% 55% 21% 81% 66% 22% 71% 54% 5%

Nb.

% 9-18 months

Nb.

% 24-40 months 20% 30% 3% 8% 48% 25% 0% 44% 25% 2% 7% 46% 2% 2% 43% 0% 7% 62%

Nb.

% > 40 months 17% 49% 86% 6% 6% 60% 6% 11% 63% 0% 1% 7% 0% 1% 8% 0% 0% 5%

Total

11 4 0 38 25 0 40 35 6 80 130 63 86 95 67 18 26 10

4,000 - 5,000 teu 37% 6 9% 13 0% 2 3,000 - 4,000 teu 42% 7 29% 41 0% 10 2,400 - 3,000 teu 46% 0 27% 58 4% 35 1,500 - 1,750 teu 22% 7 37% 24 26% 112 1,000 - 1,250 teu 18% 5 30% 6 27% 108 B-170 29% 39% 27% 0 5 23

5 21 61 5 5 24 5 14 88 0 4 16 0 4 20 0 0 2

30 43 71 90 86 40 87 132 140 372 348 243 318 313 249 63 67 37

Source : BRS-Alphaliner

Average charter rates for 12 months charters Size Average 1998 Average 1999 Average 2000 Average 2001 Average 2002 Average 2003 Average 2004 Lowest 2004 Highest 2004 Rise 2003-2004 Average 5 years 2004 vs 5 years 4,000 teu ns 24,781 26,511 19,259 18,415 28,792 41,994 37,477 43,519 46% 26,994 56% 2,500 teu 14,438 12,342 18,617 15,092 10,600 20,417 33,231 27,375 37,000 63% 19,591 70% 1,700 teu 10,353 8,534 12,731 9,413 7,722 13,311 22,975 19,653 26,379 73% 13,230 74% 1,000 teu 7,476 5,908 7,995 7,365 6,029 8,237 13,574 9,596 16,732 65% 8,640 57% 500 teu 5,171 4,423 4,429 4,536 4,181 4,599 7,288 5,814 8,721 58% 5,006 46%

ns: not signiﬁcant (absence of market for large ships) Average 5 years: average rates on last 5 years (2000-2004) 2004 vs 5 years: performance of 2004 compared to 5 years average 500 teu: charters of 6 months considered Note : in order to avoid distorsion in the calculations of average rates, only representative modern ships have been selected, as far as possible (old ships, slow ships and ships with unusual characteristics have been excluded).

84

Shipping and Shipbuilding Markets 2005

CMA CGM Hugo 100,400 dwt, delivered in 2004 by Hyundai, owned by Conti Reederei, operated by CMA CGM (copyright CMA CGM)

The ﬂeet
At 1st January 2005, the cellular fleet reached 3,362 ships for 7.29 million teu, in progression of 9.8 % on 12 months, a relatively modest increase as the average annual progression during the past 10 years has reached 10.7 %. The cellular fleet accounts for 89 % of the total ﬂeet deployed on liner trades in teu terms. The containership fleet counts 49 units of more than 7,500 teu and there are 165 more of these giants on order, some of them reaching the 10,000 teu mark. By the end of 2007, there will be enough of these leviathans to run 15 Asia-Europe and 15 Asia-US loops. 2004 deliveries stood at 175 ships for 645,000 teu (against 177 ships for 575,000 teu in 2003). Orders stood at 464 ships for 1,692,000 teu, which is signiﬁcantly less than the record 520 ships for 2,123,000 teu ordered in 2003. The total value of cellular ships ordered in 2004 reached almost $ 22.2 billion (using conversion rates at time of order), a figure similar to 2003, reflecting the steep rise in newbuilding prices ($ 13,150 per teu instead of $ 10,350 per teu in 2003 – raw ﬁgures unadjusted for capacity). The total orderbook reaches 3.9 million teu in early 2005, representing 53 % of the existing ﬂeet. It is dominated by large ships, with ships over 4,000 teu accounting for 74 % of the total orderbook. As

for deletions, only five ships for 2,450 teu were sold for scrap last year. The teu capacity which will enter the market during the three years 2005, 2006 and 2007 corresponds to 47 % of the existing ﬂeet. In other terms, the ﬂeet is to rise by almost 14 % per year, well above the 10 % average observed during the past 15 years. The cellular ﬂeet is expected to reach 10.8 million teu in January 2008 (assuming no scrapping). The operators From 1st January 2004 to 1st January 2005, the combined fleet of the Top 25 carriers has grown from 5,955,000 teu to 6,640,000 teu (+11.5 %). Its share of the world ﬂeet deployed on liner trades has risen from 79.6 % to 81.3 % in teu terms, conﬁrming the concentration trend. The ﬁve largest carriers alone operate 36 % of the capacity effectively deployed on liner trades. The total teu capacity deployed on liner trades has grown by 9.1 % in 2004, reaching 8,168,000 teu as at 1st January 2005, against 7,485,000 teu one year earlier. In deadweight terms, the ﬁgure stands at 7.5 %, with 120 million dwt at 1st January 2005 against 111.5 million dwt one year earlier. These figures take into account all the types of ships deployed on liner trades (cellular, multipurpose, ro-ro). The cellular fleet itself amounts to 7,290,000 teu (it represents 89.2 % of the total teu ﬁgure deployed on liner trades).

The Containership Market in 2004

85

Cellular ships - Deliveries and orders
teu 900,000 Deliveries 800,000 Orders Daily rate (1,700 teu) 700,000 quarterly - Source - BRS Alphaliner USD/day 30,000

600,000

20,000

500,000

400,000

300,000

10,000

200,000

100,000

0 1997-1 1997-3 1998-1 1998-3 1999-1 1999-3 2000-1 2000-3 2001-1 2001-3 2002-1 2002-3 2003-1 2003-3 2004-1 2004-3 2005-1 2005-3 2006-1 2006-3 2007-1 2007-3

0

The two largest carriers, APM-Maersk and MSC contributed to 29 % of the fleet growth in teu terms, with 197,000 teu out of the 683,000 teu added (+101,000 teu for MSC and + 96,000 teu for APM-Maersk). APM-Maersk became last December the ﬁrst teu millionaire, as its ﬂeet reached 1,016,000 teu on 1st
Cellular ships: Deliveries & Orders - Year 2004 Size range > 7,500 teu 6,000 / 7,499 teu 5,500 / 5,999 teu 5,000 / 5,499 teu 4,500 / 4,999 teu 4,000 / 4,499 teu 3,500 / 3,999 teu 3,000 / 3,499 teu 2,500 / 2,999 teu 2,000 / 2,499 teu 1,750 / 1,999 teu 1,500 / 1,749 teu 1,250 / 1,499 teu 1,000 / 1,249 teu 750 / 999 teu 500 / 749 teu 350 / 499 teu 200 / 349 teu 100 / 199 teu TOTAL nb 20 5 22 20 8 9 2 3 19 11 5 5 1 10 22 12 1 175 DELIVERIES teu 161,009 33,214 124,542 100,742 37,932 38,002 7,060 9,273 49,662 26,978 9,270 8,532 1,406 11,442 18,182 8,049 240 645,535

January 2005. APM-Maersk controls Maersk Sealand, Safmarine, Norfolkline and APMSS-MCC. MSC comes at the second position with 637,000 teu. These two leaders are however not among the top teu gainers in relative terms. MSC grew by 18.9 % and APM-Maersk by 10.4 %. They are distanced by four carriers (within the Top 25) which have logged

USD M 1,462 320 1,199 897 370 378 80 99 636 372 123 120 20 173 343 160 5 6,757

nb 49 32 4 30 29 54 14 16 63 15 19 21 16 63 29 10

ORDERS teu 438,136 201,666 23,552 151,964 138,210 228,346 49,204 51,378 172,888 35,418 34,436 41,730 21,758 70,753 25,937 6,940

USD M 4,955 2,541 280 1,820 1,831 2,862 626 724 2,587 530 520 678 382 1,285 510 136

464

1,692,316

22,267

Prices shown at delivery correspond to contractual prices at the time of order

86

Shipping and Shipbuilding Markets 2004

Operators : transactions and signiﬁcant moves in 2004
Straight sales & mergers ◆ Temasek Holdings (Singapore) has taken full control of NOL, parent company of APL. ◆ Royal Nedlloyd B.V. (Netherlands) has taken 100 % control of P&O Nedlloyd Containers Ltd (UK) through the purchase of the 50 % stake held by the Peninsular and Oriental Steam Navigation Co (i.e. P&O Group). The resulting company, Royal P&O Nedlloyd Ltd, is listed on the Amsterdam Stock Exchange. ◆ The Ofer Group (Israel) has taken control of Zim Navigation, since renamed Zim Integrated Shipping Services Ltd. ◆ Costa Container Line took over the deep sea liner trades of Gilnavi srl di Navigazione, the liner arm of the Grimaldi-Genoa branch. ◆ The Carlyle Group has sold Horizon Lines to private equity ﬁrm Castle Harlan. ◆ STX Corp. (Korea) has bought 67 % of Pan Ocean Shipping Co (Korea). ◆ Neptune Orient Lines (NOL - APL parent company), Singapore, agreed to sell its 28.7 % stake in Lorenzo Shipping Corp to National Marine Corp. (both Philippines). ◆ Neptune Orient Lines Ltd (NOL) has sold Neptune Associated Shipping Pte Ltd (NAS) (tankers & bunkering). ◆ Eimskip (Iceland) and Faroe Ship (Faeroe Islands) have merged. ◆ Euro Container Line AS (ECL) (Norwegian company co-owned by Eimskip and Wilson Line) took over Norwegian operator CoNor Line. ◆ Rickmers Reederei GmbH & Cie KG (Bertram Rickmers Group), has taken over all of the shares in CCNI GmbH (Deutschland) from Compañía Chilena de Navegación Interoceánica SA (Santiago). ◆ Egyptian company MISR Shipping has been absorbed by its compatriot National Navigation Co (NNC). ◆ Trailer Bridge Inc. (USA) bought 100 % of Kadampanattu Corp. (K. Corp.) from the Estate of Malcom P. McLean (USA) Transfers and moves within operating groups ◆ NYK and its afﬁliate TSK have decided to spin off their respective domestic liner service operations and related businesses, to set up NYK Line Japan Ltd (effective April 2005). ◆ China Shipping Container Lines (CSCL) boosted its share in the Shanghai Puhai Shipping Co, Ltd (SPS) from 50 % to 90 % held by other China Shipping units. ◆ Hamburg-Süd abandoned its trade name Ellerman Line. New operators of liner services ◆ Manson Shipping (Taiwan) – services TaiwanHong Kong-Vietnam-Philippines. ◆ Winland Shipping Co, Ltd (China) – services Weihai-Japan. ◆ Dalian Beiliang Logistics Containers (China) - service Dalian-Weihai-Japan. ◆ HAL Shipping (Halship) (Canada) – service Halifax-USEC. ◆ Delphis NV (Belgium) is incorporated (intra Europe services). ◆ AC Forwarding (ACF) and Hudig Veder & Dammers (HVD) form AC Ireland Line. ◆ Black Sea Container Shipping Co launches intra Black Sea service. Cessations of activity in liner shipping ◆ CT Navigation (Taiwan) closed its services (Taiwan-Hong Kong-Vietnam-Philippines). ◆ Hong Kong Ming Wah (HKMW) has closed its only service (Hong Kong-North China), marketed under the Chiu Lun Transportation name. ◆ SPM Shipping (St Pierre & Miquelon) ceased its activity – service Halifax-USEC. ◆ Armada Line closes its North Europe-Med service. ◆ Blue Container Line (Greece) closed its services (Intra Med and Black Sea). Signiﬁcant other moves ◆ China Shipping Container Lines (CSCL) has been listed on Hong Kong Stock Exchange. ◆ Norwegian shipowner John Fredriksen has bought stakes of 3 to 10 % in Hanjin Shipping, Hyundai Merchant Marine, Royal P&O Nedlloyd and NOL. ◆ EOX Group Bhd has been renamed HubLine Berhad. ◆ The liner division of Unicorn Lines has been renamed Ocean Africa Container Line (OACL). ◆ TECO Lines is created by Samskip and Estonian Shipping Co. ◆ DAL left the West Africa trades. ◆ Steamers Maritime (Singapore - Keppel Group) has sold its whole ﬂeet of ten containerships.

The Containership Market in 2004

87

Liner operators ‘Top 25’ - at 1st January 2005
(Source : BRS-Alphaliner) Maersk-SL + Safmarine Mediterranean Shg Co Evergreen Group P & O Nedlloyd CMA CGM Group APL Hanjin / Senator NYK COSCO Container Lines China Shg. C.L. (CSCL) OOCL K Line Zim Mitsui-OSK Lines (MOL) CSAV Group CP Ships Group Hapag-Lloyd Yang Ming Line Hamburg-Süd Group Hyundai M. M. Pacific Int'l Lines (PIL) Wan Hai Lines UASC Delmas Group IRIS Lines 0 200 400 600 800 1,000 in '000 teu 1,200 Operated fleets Based on existing fleet at January 01 2005 teu capacity available on board operated ships - All subsidiaries are consolidated www.alphaliner.com

growths of 28-33 %: CSAV, CSCL, Yang Ming and CMA CGM. Outside the Top 25, the emergence of two Chinese regional companies is worth noting: SYMS (+24.4 %) and SITC (+20.2 %). On the mergers & acquisition side, no large mergers or takeovers occurred between rival carriers. The most significant one has been the buying by Costa Container Line of its compatriot Gilnavi. It appears that aggressive carriers (read: potential buyers) have found ways to increase market share in securing as many ships as they can, leaving conservative ones with what is left, i.e. not much choice and pricey. On the other side, some potential targets have protected themselves from raiders, such as NOLAPL or TUI-Hapag-Lloyd, in steering clear of market listing. Despite this, there is still a choice of ﬁrst class carriers which remain potential targets: CP

Ships, Royal P&O Nedlloyd, Hanjin-Senator and Hyundai M.M. There has been however important initiatives on the corporate side, such as Temasek Holdings, the Singapore state investment vehicle, taking control of NOL, parent company of APL, in what can be seen as a move to keep at home the Singapore historical carrier, until then listed on the local Stock Exchange. Other large deals concerned the purchase by Royal Nedlloyd of the whole stock of P&O Nedlloyd and the takeover of Zim by the Ofer Group. CSCL made the news with its listing on the Hong Kong Stock Exchange in June, while intentions to list Hapag-Lloyd faded away as parent company TUI changed its mind and preferred to keep the full control of its Hamburg jewel. There has been numerous smaller deals, which are summed up in the accompanying table. ■

The containership second-hand market in 2003

2004

an exceptional vintage! This is certainly true for almost all shipping markets. The year 2004, with no less than 265 sales of pure containerships (of which 44 resales of ships under construction or ordered) and 126 other ro-ro and multipurpose ships, compared to respectively 181 and 104 ships last year. Nonethe-

less this leaves a feeling of frustration for a number of buyers who were not able to achieve all their intended investments. This frustration is caused by the evident lack of tonnage for sale, even at very high prices. Many owners, due to lack of prompt yard slot availability, preferred to go on the charter market for per-

88

Shipping and Shipbuilding Markets 2005

iods sometimes as much as 3, 4 or 5 years, but who can blame them… A simple example illustrates the mood that reigned throughout the second half of the year: the owner of the m/v ‘Lissy Schulte’ (B170 – 1,730 teu, built in 1995) refused an offer of no less than $ 30 million and has ﬁnally been ﬁxed ﬁrm to P&O for 48 months at level of $ 26,500 per day! According to our calculations the result of this charter is equivalent to about $ 35 million. We now understand why this ship has not been sold even at such a price level. The other specificity of the second-hand market for containerships in 2004 is, without any doubt, the number of sales in the 500 to 2,000 teu size range, and more precisely from 800 to 1,200 teu. There were no less than 15 to 20 potential buyers who found themselves chasing the rare units being put on the market. There was again this year an outright winner in the person of Mr Aponte (MSC, Geneva), with a total of some thirty ships bought in 2004, to which should be added the purchase of some ten newbuilding contracts initially ordered by German owners. German owners bought some sixty ships. It is interesting to note in this respect that it is virtually impossible to compete with a German buyer on a modern ship offered on the market when it is controlled by German interests. A good lesson in self-protection! Also, whilst in the past ships already under longterm charter were gaining popularity amongst buyers, this year ships that were “time-charter free” were by far the most sought after. In the absence of charter free tonnage in 2004, a large number of buyers went after containerships still employed up until the end of 2005. Despite the high prices paid, buyers had to be patient for several months before they were able to beneﬁt from a chartering market for which they hope it will stay at least as good as today’s levels. As to liner operators, purchases of this kind proved to be essential once they had to ensure operating the necessary tonnage on their regular services. The principal “en-bloc” sales which can be reported this year are:
◆ 5 x 3,500 teu and 9 x 4,200 teu (14 ships) built

◆ 8 x 4,250 teu Dalian New contracts for delivery

between 2006 and 2007 resold by Bertram Rickmers to Zodiac.
◆ 7 x 1,538 / 1,658 teu built between 1998 and

2000 by Jiangnan and HDW, from clients of Silver Line (who bought the entire ﬂeet in 2001 for $ 100 million) to MSC for $ 130 million.
◆ 10 ships of 369 to 1,012 teu, sold by Keppel

Group (Steamers) to Interorient for $ 91 million.
◆ 4 x 5,050 teu, Hanjin shipyard contracts for deli-

very in 2006, resold by Rickmers to MSC for $ 63.5 million each.
◆ 5 x 3,039 teu built between 1990 and 1992 by

HDW, sold by Zim to Torvald Klaveness and Icon Capital for $ 35 to $ 38 million each, with a bareboat charter back to Zim.
◆ 4 x 2,394 teu (20 knots) built in 1994 in Spain,

sold by Zodiac Maritime to MSC for just over $ 30 million each.
◆ 4 x 2,524 teu built by Kvaerner in 2003 and

2004, sold by an Andreas Ugland-associated company to the bare-boat charterer of the ships, Hamburg-Sud, for $ 35 million each. Number of pure containerships sold by size
Less than 900 teu From 900 to 2,000 teu From 2,000 to 3,000 teu Over 3,000 teu Total number of ships sold in 2004 Total capacity of ships sold in 2004
* of which 28 contract resales

82 83 42 58 * 265 500,145 teu

Containerships under 900 teu Together with the normal ﬂow of activity this year, we have seen a search by certain buyers for ships smaller than what they originally needed. Prices for some ships have occasionally doubled between mid-2003 and end 2004. Even ships that can hardly been classiﬁed as “suitable” on this market, such as a slow-speed vessels or those with gears unable to perform a standard loading/unloading rate, have found buyers at more than favourable conditions for their owners. Buyers based in the Far East, Germany and Greece were, in this order, the most active within this size category. Interorient’s deal of buying the feeder ﬂeet of the Keppel Group for $ 91 million fairly well reflects the mood of the market this year. A fleet which has been on the market throughout the whole

in 1991, 92, 93, 94 and 95 from P&O Nedlloyd to MPC Capital for a total of $ 660 million.
◆ 4 x 2,824 teu Hyundai contracts for delivery bet-

ween 2005 and 2006 resold by Erck Rickers to CMA CGM for $ 44 million each.

The Containership Market in 2004

89

year 2003 and which was ﬁnally sold at the beginning of 2004. Since then, one can estimate the theoretical gain in the value of each ship to be at about 50 to 60 %. Containerships of 900 to 2,000 teu This has been by far the most active sector of the second-hand containership market! A cascade of sales, dozens of buyers, ships sometimes for sale, sometimes withdrawn, escalating negotiations with the seller rising his price at each stage of the negotiation….. in short a happy shambles within the context of euphoric freight rates and secondhand prices. This situation is particularly true since the summer of 2004. At that time buyers were struggling with the steady disappearance of charter-free ships. The few units still available in 2004 and 2005 will become targets for owners such as MSC, Zim or CMA CGM… Containerships of 2,000 to 3,000 teu This sector saw only a small progression this year with some fifteen more ships sold compared to last year. At the end of the year owners of newbuilding contracts for delivery in 2005 did not hesitate to ask for € 45 million ($ 60 million) for a gearless ship of 2,700 teu. In short, the lack of tonnage explains some excess in ship’s valuations. Containerships of 3,000 teu and more Fifty percent of the 58 deals done this year were newbuilding contract resales. This segment of the market was dominated by Zodiac, MSC and above all the German KGs, always very keen about ships of this size, which combine several favourable factors to investors:
◆ a market predominately stable and secure, ◆ a popular size and already well-known in Ger-

One of the rare pure second-hand operation done this year was the one involving the 3 ships of 3,187 teu controlled by Talcar, Israel, built respectively in 1986, 1986, and 1988 at a price of $ 80 million en-bloc with delivery in 2005 to MSC. Demolition Out of the 52 ships demolished in this category, only 5 were pure containerships, the latter totalling a mere 2,450 teu. The others were either multipurpose or conventional cargo ships. This low scrapping level is a direct consequence of the ﬁrmness in the freight market. Scrap metal price levels have been hovering in the region of $ 400 per lightweight ton.

Conclusion
The world cellular ﬂeet has increased this year by 9.8 % to reach 3,362 ships (7,290,000 teu). This evolution is in line with the annual average growth of the past 15 years. However we already know by now that the shipyards will deliver a capacity of 47 % of the existing ﬂeet in the course of the next 3 years. This represents a growth of about 14 % per year!

The demolition market usually hits ships of 27 years or more on average, which in the best case will only shrink the world ﬂeet by 3.2 % of its current capacity. The question is therefore: will Asia, and especially China whose strong export industry has continued to expand, be able to absorb this additional tonnage? A large number of players, both on the industrial as well as the shipping side, believe that it will. It is however a very complex exercise to predict the strength of such a market. As we all know, to simply maintain it at its present levels, it depends upon China and its neighbours, whose growth in turn seems to be in their own hands. ■

many, thus a relatively good market knowledge by investors,
◆ a satisfactory “liquidity” of the assets and

reliable charterers.

90

Shipping and Shipbuilding Markets 2005

MARKET IN

RO-RO

THE

2004
What is really new?

A

fter the continuous ups and downs of 2003 due to numerous military fixtures, the year 2004 has seen the market going back to more basic economic factors, without the previous excesses caused by military emergencies. A quick look at the ﬂeet evolution shows that the “pure Ro-Ro” concept is still in fashion in some areas, but by all accounts limited in its capacity to spread further afield. The Ro-Pax concept today seems to be a more promising direction in terms of fleet renewal. Thus there were 6 pure Ro-Ro and 18 Ro-Pax ships ordered in 2004, of which none unfortunately were dedicated to tramping. These figures should be compared with the 78 PCTC ships ordered in the same period to emphasize the huge gap between these two categories of ships, but which could perhaps promote a closer synergy in the not too distant future. This distortion within

the fleet evolution of the deep sea and the short sea ﬂeets was already largely apparent before, particularly in 2003. In addition we have seen 17 ships sold for scrap whose average age was 33 years for an average capacity of 900 lane meters. At the same time, 6 new Ro-Ro units were delivered largely compensating the demolitions taking into account the much larger average size of modern ships (between 2,000 and 4,000 lane meters). Thanks to good fundamentals in an admittedly very restricted market, freight rates ﬁrmed up in a healthy and steady trend throughout the year without any noticeable seasonal effect. It should be noted that nearly all business is transacted in euros, which is fairly unique in shipping circles being the result of a market concentrated around Europe and further supported by a strong currency. We are still a long way from the rocketing rates which have been

The Ro-Ro Market in 2004

91

experienced by containerships, bulk carriers or even tankers -all directly dependent on the Chinese economic boom- but the freight levels achieved ﬁnally allowed the few owners who ordered ships during the last 5 years to obtain good return on their investments, and for those who bought second-hand ships 3 to 5 years ago to enjoy today excellent proﬁts. Second-hand activity has been very sustained throughout the year 2004 with over thirty pure Ro-Ros changing hands as well as a dozen RoPaxes. With the majority of ships bought or ordered having been ﬁnanced in dollars, owners have often been able to appreciate that market values in euros were considerably higher than those in dollars in their books. In the same way as for newbuildings, the philosophy of second-hand buyers is rarely speculative, they most frequently are operators of lines, or else, owners whose investment is backed by a decent time charter commitment (3 to 5 years). We have seen in particular transactions of modern units such as the purchase of two ships from the Turkish owner UND (2,700 lane meters, 21.5 knots) by Norfolkline, but also 3 ships from compatriot EGE (2,500 lane meters, 20 knots) by Grimaldi (Naples). These sales go together with a rationalisation of the ﬂeet employed between the Adriatic and Turkey since three of these ships will be replaced by two bigger units (3,700 lane meters, 22,5 knots) on order for UND at Flensburger shipyard.
Ville de Bordeaux 5,200 dwt, built in 2004 by Jinling, owned by Louis Dreyfus / Hoegh, dedicated to the carriage of blocks of the A380 airplane

Second-hand car transport and its limits in supporting the market The seaborne trade of second-hand cars bound to West Africa and the Middle East continued on the spurt of the second half of 2003, absorbing almost all ships equipped with at least one car-deck, but also the smaller car-carriers. During the autumn, Iraq decided to limit car imports to 4 year old units with effect from January 2005. If this regulation is to be applied for a long period of time, ships employed on this trafﬁc might go through a difﬁcult period and see their rates severely corrected downwards, since few of these units are able to find employment in standard short sea trade, as the majority have deck heights or speeds which make them incompatible with the requirements of liner operators. Consequently, we anticipate a possible two-tiered market with firmer rates for the more modern units employed on mix trailers / containers trade routes and a waker rates for ships of proven low specifications but to whom the shortage of car-carrying tonnage has given in 2004 a second lease of life. As far as intra-EU seaborne transportation of new cars is concerned, we have seen a reshuffling of the game, with Suardiaz, the long-standing privileged operator for Gefco, being pushed out of their contracts, principally to the benefit of Trasmed and UECC on the Atlantic runs, but also of Grimaldi Naples and LD Lines in the Mediterranean.

92

Shipping and Shipbuilding Markets 2005

The future of short sea trade For several years, projects for “highways of the seas” have been proliferating in the hopes of obtaining subsidies from the EU, but as of now none have really seen the light. We are rather afraid that these “subsidy hunters” will shortly be seeing the doors to this treasure closing, as the rise in freight rates makes these projects even less economically viable. A very strong rise in oil prices and therefore bunker prices could proportionally give back a little competitiveness to the maritime option over the road, but the business world by and large is unlikely to get too keen about such a scenario. It is very likely that the European short sea market will see its next boost based on the logistics model proper to containership trade. In other words, faced with the tremendous growth in the PCTC ﬂeet, the major owners of this sector are seriously contemplating a hub and spokes concept, which will allow the giant PCTCs (nearly 8,000 cars for the largest units) to reduce their rotation times, and thereby limiting costly port calls, by being linked to smaller ships which would manage the cargo distribution in combination with other existing trades.

KESS, the short sea trade arm of K-Line has longterm chartered 4 ships of 2,100 cars with collapsible decks ordered by Ray Shipping in Poland. It is likely that this concept will be repeated in the future, possibly with even larger ships. In addition, the outsourcing of production units of the major car manufacturers towards Eastern Europe will very probably transform the Adriatic into a main crossroads of car trade.

Prospects
We anticipate that hire rates will continue their ﬁrmer trend for quite a time. This is in fact indispensable to enable the few tramp owners to make a step towards ordering new tonnage. However as newbuilding prices have shot up both in Asia as well as in Europe, it will be necessary to wait for prices to calm down before we can see this process getting off the ground. Meanwhile, it is highly probable that in the next 2 to 3 years, the rare orders for pure Ro-Ros of even Ro-Paxes will be exclusively limited to owners who will operate the ships themselves. On the other hand, a further important depreciation of the dollar against the euro is quite likely to be a factor which would set off speculative orders for newbuildings in shipyards outside the euro zone. ■

The Ro-Ro Market in 2004

93

Cap-Marine
Assurances & Réassurances S.A.
Shipping and transport insurance and re-insurance broker
Headquarter 4/12, Bd des Belges - BP n° 10 - 76001 Rouen Cedex - France Tel : + 33 (0)2 35 98 26 46 - Fax : + 33 (0)2 35 98 32 58 - E.mail : [email protected] Neuilly ofﬁce 11, bd Jean Mermoz - 92522 Neuilly sur Seine Cedex - France Tél : + 33 (0)1 41 92 54 00 - Fax : + 33 (0)1 41 92 54 10 - E.mail : [email protected] Nantes ofﬁce “Le Beaumanoir” - 15, rue Lamoricière - BP n°78704 - 44187 Nantes Cedex 4 - France Tél : + 33 (0)2 40 69 31 96 - Fax : + 33 (0)2 40 69 29 55 - E.mail : [email protected]

94

Shipping and Shipbuilding Markets 2005

INSURANCE MARKETS IN

MARINE

THE

2004

2004, a mixed year for marine insurers 2005, a year full of dangers!

T

he reduction in the number of major casualties, which characterised 2003, did not repeat itself in 2004, which saw a signiﬁcant increase in the frequency and the average cost of the latter. The very healthy standing of the freight market and shipping in general led to a considerable increase in shipping activity, but also of the accidents linked to navigation. A fragile marine insurance market and more and more concentrated In this market, particularly favourable to the insured parties of the shipping world, the insurers seem forever subject to the erosion of their proﬁt margins. Apparently the marine insurance market seems proﬁt averse, since over the last ten years it

has caused a number of large bankruptcies. The number of “run off” companies has become so important that we can now speak of a real “run off market”. The proportion of companies which have stopped underwriting between 1997 and 2003 are: ◆ 42 % of the marine syndicates of Lloyds, ◆ 38 % of companies on the London market, ◆ 60 % of companies on the European market, ◆ 67 % of insurers of the American marine market. However the capacity of the international market has never been as high as in 2004. Lloyds of London registered for 2004 a record underwriting capacity. Nonetheless it should be emphasised that, in an attempt to help stabilise a maritime and ship-

The Marine Insurance Markets in 2004

95

ping insurance market, still looking for a good balance and in order to “correct” it, Lloyds is proposing to lower the capacity in 2005 by some 9 %. Hull and Machinery: a steadying of the increases In our 2003 report, we mentioned a slowing down at the end of the year of the rate increases that have been prevalent since 2000. In fact, 2004 would probably have only allowed insurers to maintain an upward pressure on their clients who were showing negative statistical results. In 2004 competition increased considerably, encouraged by the new capacities notably coming from Russia, South Korea, and Poland. A strong ﬂow of new investors, particularly in London and in Scandinavia, combined with these new capacities, helped stabilise the level of premiums. The insured and their brokers can be pleased with the stabilisation of premiums for performing owners, but it would be dangerous for the quality of the Hull and Machinery market to see it drop again to lower levels, which would discourage some insurers who are still trying to balance their results! For a lot of insurers who have voiced their opinion in the specialised press, as well as at the IUMI in 2004, the increases of the last 4 years are still considered inadequate and some see the end of the upward cycle as being a critical turning point. The rate increases have been very patchy according to the companies and despite some impressive percentages, the increase in premiums has been restrained and leaves no room for comfort. The arrival of new capacities could be explained by the desire of certain re-insurers to push the “regional” insurers and/or the less specialised towards underwriting international hulls, in order to avoid a too strong concentration of capital in the hands of the “leading underwriters”, who are becoming stronger and less numerous. Specialised insurer brokers are thus having to question as to which line of action to follow : ◆ to encourage additional supply by proposing the new capacities to the detriment or in addition to traditional insurers (the current leading underwriters could then get discouraged and abandon this sector which is sometimes considered too cyclical) ◆ to concentrate their placings with the traditional markets or insurers taking the risk of losing their client who naturally is looking for the most competitive option!

With a world Hull and Machinery premium volume in 2003 of around $3 billion, the main markets are the following ($1 000):
Japan UK (Lloyds) Norway France 377,080 348,140 337,400 333,192 USA Italy UK (IUA) Spain 298,987 258,681 194,700 166,743

Ship’s hulls under construction In general, newbuilding and repair yards have been heavily penalised as a result of ﬁres, producing severe losses in this sector: the comparison of claims/premiums has resulted in nearly 250 % over the last three years. The ‘Pride of America’ casualty, which occurred on January 13 th 2004 while under construction in the Bremenhaven shipyard, has been the most important: the claim is estimated at $ 228 million. In conjunction with the premium increases, prevention measures are now imposed systematically by insurers. Cargo market insurance Competition has remained fierce on the main domestic markets for the coverage of goods carried for the own account of producers. This is also the case for large industrial projects. Nonetheless this sector produces positive results and the market has kept its tariffs stable. In this type of risk there has been a diversiﬁcation in the insurance offered, with on one hand the disappearance of traditional players due to effects of concentration, and on the other hand the arrival of new solid participants proposing top level ﬁnancial capacities and technical skills. With the most speculative risks notably that involving trading, the cargo insurance market is becoming more internationalised and some Dutch companies are taking a preponderant part of it. Protection and Indemnity Clubs Taken altogether, results have been in the red over the last 6 years and, as a consequence, renewals on February 20th 2004 have been on the increase. As a whole, Clubs have achieved an average rise of about 10 %. Only five Clubs (American Club, Britannia, the Japan Club, the Shipowners’ Club, and Skuld) have been able to produce a proﬁt in their technical results (before investments) and none of them were able to achieve anything substantial.

96

Shipping and Shipbuilding Markets 2005

The pressure to increase premiums continues in 2005 but to a lesser extent, especially as a number of insured parties who have posted proﬁts for their Club no longer accept the systematic increases (General Increase), even if this is in line with the basics principles of the P&I Clubs which is to be a “mutual”. War risks – Political risks The shipping industry is having to face a growing threat: piracy. This is developing by 20 % per year and prospers in under-surveyed territorial waters, where both dangerous as well as high added value goods are transported. However, this threat comes not only from pirates attacking merchant ships, but also from the outcome of a real maritime terrorism whose aims and intentions are far more sinister and whose potential to disrupt and disorganise the ﬂow of international economic trade seems to have been largely underestimated. Market organisations The main market places involved in international risks are organising themselves to increase their productivity. In this respect Lloyds has launched the BPR (Business Process Reform), in order to optimise its output (delay and quality of issued papers), claims procedures and ﬁnancial systems.

Through the implementation of “Optiflux”, the French marine insurance market is more modestly seeking to optimise its financial circuits, with the set up of new electronic procedures for co-insurance management. Legal developments The 1996 protocol has come into force in May 2004. Based on this protocol, levels of responsibility have substantially increased, by about 150 %, although for small ships up to 500 tons the ﬁgure is close to 500 %. For the moment these limits only apply to the ten states that ratiﬁed the protocol in 1996, namely Australia, Denmark, Finland, Germany, Malta, Norway, Russia, Sierra Leone, Tonga and Great Britain. In June 2004 during the closing session of the Vancouver Conference, the Maritime International Committee (CMI) adopted several amendments to the York and Antwerp Rules concerning General Average: salvage costs, crew wages and maintenance, for the period when the ship is in a port of refuge, will no longer be included under General Average balance. With increased liabilities (in value, quantity and in legislation) will 2005 mark a new turning point in the maritime insurance market cycle? This is a great concern and there are already some signs of reducing premiums while specialised marine insurers and P&I Clubs continue to produce weak technical results. ■

The Marine Insurance Markets in 2004

97

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98

Shipping and Shipbuilding Markets 2005

FRENCH SHIPYARDS DELIVERIES AND ORDERBOOK IN 2004
Chantiers de l’Atlantique
Ships delivered in 2004
I 32 Mistral (front part)
Deployment and command vessel

2004

DCN
199 m x 32 m Diesel electric - 15,000 kW on 6.20 m 19 K.

L 32

MSC Opera
Cruise vessel

2004
59,058 gt – 795 cabins 1,526 lower berths

MSC
251 m x 28.80 m 2 x 10,000 kW on 6.60 m 21.7 K.

Ships on order as at 1/1/2005
J 32 Tonnerre
Deployment and command vessel

2005

DCN
199 m x 32 m Diesel electric - 15,000 kW on 6.20 m 19 K.

M 32

Gaz de France energY
LNG tanker

2005
74,130 cbm

Gaz de France
219.50 m x 34.95 m Diesel gas electric - 18,560 kW on 9.93 m 18.2 K.

N 32

Provalis
LNG tanker

2005
153,500 cbm

Gaz de France
290 m x 43.35 m Diesel gas electric - 28,000 kW on 11.75 m 19.5 K.

O 32

Sea France Berlioz
Ferry

2005
33,796 gt - 1,900 passengers 700 cars - 2,000 lm

Sea France
186 m x 28 m 39,000 kW on 6.50 m 25 K.

830

Pourquoi Pas ?
Research vessel

2005
Accomodations : 40 pers.

Ifremer
107 m x 20 m on 6.80 m 14.5 K.

P 32

Gaselys
LNG tanker

2006
153,500 cbm

Gaz de France
290 m x 43.35 m Diesel gas electric - 28,000 kW on 11.75 m 19.5 K.

Q 32 R 32

MSC Musica MSC Orchestra
Cruise vessels

2006 2007

MSC on 7.85 m 23 K.

90,000 gt - 2,550 lower berths 294 m x 32.20 m Diesel electric - 2 x 17,000 kW

Alstom Leroux Naval
Ships on order as at 1/1/2005
829 Yacht

2005

71.71 m x 13.5 m Diesel electric - 2 x 1,500 kW on 3.75 m 16 K.

-

Ferry

2006
450 passengers 32 cars

Conseil Général du Morbihan
46 m x 12 m 2 x 1,000 kW on 2.75 m 12.5 K.

French Shipyards Deliveries and Orderbook

99

Constructions Mécaniques de Normandie
Ship delivered in 2004
PM 41 Thémis
Patrol boat 400 CL 52

2004

Affaires Maritimes
52.50 m x 9 m Diesel 2 x MTU 16V 4000M 70 on 2.27 m 21 K.

Ships on order as at 1/1/2005
Corvette BR 70

2005

United Arab Emirates
68 m x 11 m 35 K.

-

Yacht

2006

58 m x 11.20 m 15.5 K.

-

Yacht

2005

42.60 m x 8.60 m 13.8 K.

Chantiers Piriou
Ships delivered in 2005
C 256 Luzolo
AHTS UT 721

2004
1,500 dwt DP 2 FIFI 1

Bourbon Maritime
69.70 m x 17.20 m 4 x 3,600 bhp - Bergen BMH8 on 6.1 m 16 K.

C 257

Saint Antoine Marie II
Tuna boat

2004

Thon du Roussillon - Perez
43.41 m x 9.50 m 2 x 400 kW - Wartsila

C 258

Capall Oir
Longliner

2004

O' Malley
36 m x 9.80 m 650 kW - ABC

C 261

Le Croisic
Tug

2004

Les Abeilles
30.30 m x 10.40 m 2 x 1,800 kW - ABC on 4.35 m 12.5 K.

C 262

Mariette Le Roch II
Trawler

2004

Armement Petrel
45.80 m x 11.80 m 1,850 kW

C 269

Arundel
Trawler

2004

Acav - Les Sables d'Olonnes
18 m

Ships on order as at 1/1/2005
C 254 C 255 Bourbon Express Bourbon Oceane
FSIV

2005 2005
263 dwt 50 passengers

Bourbon Maritime 53.55 m x 10.80 m 5,296 kW 4 KTA 50 on 4.4 m 20 K.

C 263 C 264

Jean Claude Coulon II Jack Abry II
Trawlers

2005 2005

Armement Petrel 45.80 m x 11.80 m 1,850 kW

C 267 C 268 C 270

Roger Christian IV
Tuna boat

2005 2005 2005

Delponte Sète
36 m

Eric Marin
Tuna boat

Armement Cisberlande / Marin Sète
38 m

Glenan
Tuna boat

Cobrecaf
83.20 m x 13.80 m 4,000 kW on 6.7 m 17 K.

C 271

Renaissance II
Trawler

2005

Acav - Les Sables d'Olonnes
18 m

100

Shipping and Shipbuilding Markets 2005

FRENCH ORDERS TO FOREIGN SHIPYARDS IN 2004
Ships delivered in 2004
Meyer Werft (Germany) 650 Pont-Aven
Passenger ferry

2004
41,748 gt – 652 cabins 2,400 pass. - 650 cars

Brittany Ferries
184.30 m x 30.90 m 43,200 kW - MAK on 6.60 m 27 K.

Peene Werft (Germany) 514 Marfret Douce France
Container vessel

2004
17,250 dwt 1,200 teu

Marfret
155 m x 24.50 m 11,060 kW - B&W 19 K.

De Hoop International Lobith (Netherlands) 402 Brion 403 Breuil 2004
Coastal roro vessels 1,300 dwt

Socatra
75 m x 13.80 m 2 x 735 kW - Caterpillar on 2.60 m 11 K. on 6.10 m 12 K.

-

Vissolela
Multi functional support vessel 3,320 dwt

77.30 m x 18 m 4 x 1,800 kW

Aker Brattvaag (Norway) 104 Antenor 105 Asterie
PSV UT 755 L

2004 2004
3,119 dwt

Bourbon Maritime 72 m x 16 m 2 x 2,500 kW - Rolls Royce on 5.91 m

Yardimci (Turkey) 32 FS Clara

2004

Fouquet Sacop
105.50 m x 16.80 m 2,270 kW - B&W on 8.22 m 14 K.

Product and chemical tanker IMO II 5,961 dwt

Jinling (China) JLZ020503 Bro Etienne

2004

Broström S.A.S
185 m x 31m 8,580 kW - B&W on 10.50 m 15.2 K.

Product and chemical tanker IMO II 37,179 dwt

JLZ020401 Ville de Bordeaux
Roro carrier

2004
5,200 dwt

Louis Dreyfus / Hoegh
154.26 m x 24 m 2 x 8,400 kW - MAK on 6.50 m 21 K.

Nacks (China) 026 Messidor
Bulk carrier

2004
55,300 dwt

Setaf Saget (Bourbon Maritime)
189.90 m x 32.26 m 11,149 kW - B&W on 11.10 m 15.9 K.

Hyundai Mipo (South Korea) 0378 Kerlaz 0379 Kermaria

2004 2004

Socatra 182.55 m x 27.34 m 12,900 kW - B&W on 11.20 m 15.2 K.

Product and chemical tankers IMO II 36,770 dwt

1532 1534 1535

CMA CGM Hugo Paciﬁc Link CMA CGM Vivaldi
Container carriers

2004 2004 2004
100,400 dwt - 8,189 teu

CMA CGM (Conti) 335 m x 42.80 m 70,306 kW - B&W on 14.50 m 25.5 K.

French Shipyards Deliveries and Orderbook

101

Niestern Sander (Netherlands) 816 Dupuy de Lome
Research vessel

2004
Accomodations 110 pers.

CNN / Thales
101.75 m x 15.88 m 2 x 2,970 kW 16 K.

Samsung (South Korea) 1457 CMA CGM Bellini 1458 CMA CGM Chopin 1459 CMA CGM Mozart 1460 CMA CGM Puccini 1461 CMA CGM Rossini 1462 CMA CGM Strauss 1463 CMA CGM Verdi 1464 CMA CGM Wagner
Container carriers

2004 2004 2004 2004 2004 2004 2004 2004
65,792 dwt - 5,770 teu

CMA CGM 277.30 m x 40.20 m 57,891 kW - B&W on 14.50 m 26 K.

STX (South Korea) 1131 Nizon

2004

Socatra
183 m x 32.20 m 12,900 kW - B&W on 12.20 m 14.5 K.

Product and chemical tanker IMO II 45,779 dwt

Austal Ships (Australia) Aremiti 5
Catamaran

2004
700 passengers 30 cars

Aremiti Paciﬁc Cruises
56.6 m x 14.5 m 4 x MTU - 2,320 kW at 2,000 rpm 35 K.

Ships on order as at 1/1/2004
Fjellstrand (Norway) 1673 Catamarans

2005 2006
442 passengers

Compagnie Yeu Continent 45.5 m x 11.6 m 32 K.

Myklebust Verft AS (Norway) 39 Abeille Bourbon 40 Abeille Liberté
Multi purpose salvage tugs UT 515

2005 2005

Bourbon Maritime S.A.S 80 m x 16.50 m 4 x 4,000 kW - MAK 8M32C on 5 m 19.5 K.

E. N. Viana do Castelo (Portugal) 227 FS Philippine
Product and chemical tanker IMO II

2005
19,000 dwt

Fouquet Sacop
140 m x 23 m 6,300 kW - MAK on 8.30 m 14 K.

H.J. Barreras (Spain) 1629 Guyenne
Product and chemical tanker IMO II

2005
11,000 dwt

Petromarine
119.90 m x 18.80 m 4,320 kW on 8.10 m 13.5 K.

RMK Marine (Turkey) 65 Chantaco 66 Chiberta

2006 2006

Petromarine 143 m x 23 m 2 x 4,000 kW on 8.90 m 14 K.

Product and chemical tankers IMO II 19,000 dwt Ice class 1A

Torgem (Turkey) 83 Minorque
Product tanker

2005
1,500 dwt

Petromarine
59.20 m x 10.80 m 1,000 kW - Caterpillar on 4.50 m 9 K.

84

Majorque
Product tanker

2005
3,300 dwt

Petromarine
79.90 m x 14.25 m 2,560 bhp on 5 m 12 K.

102

Shipping and Shipbuilding Markets 2005

Yardimci (Turkey) 35 Product tanker

2005
5,961 dwt

Fouquet Sacop
105.50 m x 16.80 m

40

FS Charlotte
Sulphur and bitumen carrier

2005
11,000 dwt

Fouquet Sacop
118.37 m

Jinling (China) JLZ020504 Bro Edward JLZ020506 Bro Elliot

2005 2005

Broström S.A.S 185 m x 31m 8,580 kW - B&W 6S 50ML on 10.50 m 15.2 K.

Product and chemical tankers IMO II 37,300 dwt

Nacks (China) 027 Dalior Fructidor
Bulk carriers

2005 2005
53,500 dwt

Setaf Saget (Bourbon Maritime) 189.90 m x 32.26 m 11,149 kW - B&W on 12.49 m 15.9 K.

Daewoo Shipbuilding & Marine Engineering (South Korea) 1159 2005 1160 2005
Double hull bulk carriers 173,000 dwt

Louis Dreyfus Armateurs 289 m x 45 m 22,920 bhp - B&W on 17.80 m

Hyundai Mipo (South Korea) 0302 Faouet
Product tanker Ice class 1A

2005
37,340 dwt

Socatra
183 m x 27.34 m 12,900 bhp - B&W on 11.20 m

0420 0421 0422 0423

CMA CGM Lilac CMA CGM Violet CMA CGM Camellia CMA CGM Dahlia
Container carriers

2005 2006 2006 2006
38,200 dwt - 2,824 teu

CMA CGM 222 m x 30 m 34,300 bhp

Hyundai Samho (South Korea) S-253 CMA CGM Tosca S-254 CMA CGM Traviata
Container carriers

2006 2006
100,400 dwt - 8,189 teu

CMA CGM 334 m x 42.80 m 70,306 kW - B&W on 14.50 m 25.4 K.

S-255 S-256

CMA CGM Medea CMA CGM Norma
Container carriers

2006 2006
118,740 dwt - 9,163 teu

CMA CGM 350 m x 42.80 m 70,306 kW - B&W on 14.50 m 25.4 K.

S-279 S-280

CMA CGM Orca CMA CGM Dolphin
Container carriers

2007 2007
65,890 dwt - 5,100 teu

CMA CGM 294.1 m x 32.20 m 77,600 bhp - B&W on 13.50 m 25.1 K.

Hyundai Ulsan (South Korea) 1646 CMA CGM Fidelio 1647 CMA CGM Nabucco
Container carriers

2005 2006
100,400 dwt - 8,189 teu

CMA CGM 334 m x 42.80 m 70,306 kW - B&W on 14.50 m 25.4 K.

1648 1649

CMA CGM Othello CMA CGM Rigoletto
Container carriers

2006 2006
118,740 dwt - 9,163 teu

CMA CGM 350 m x 42.80 m 70,306 kW - B&W on 14.50 m 25.4 K.

1710 1711 1768 1769 1770 1771

CMA CGM Blue Whale CMA CGM White Shark Container carriers

2007 2007 2007 2007 2007 2008
65,890 dwt - 5,060 teu

CMA CGM 294.1 m x 32.2 m 77,600 bhp - B&W on 13.50 m 25.1 K.

French Orders to Foreign Shipyards

103

Keppel (Singapore) 279 Bourbon Aladin 280 Bourbon Apsara 281 Bourbon Alexandre 282 Bourbon Artemis
AHTS

2005 2005 2005 2006
2,000 dwt

Bourbon Maritime 67 m x 15.40 m 8,120 kW - Caterpillar on 6.10 m 14 K.

Zhejiang (China) ZJB03114 Bourbon Helios ZJB03115 Bourbon Hermes ZJB03116 Bourbon Hera ZJB03117 Bourbon Hector
PSV - GPA 670

2005 2005 2005 2005
3,300 dwt

Bourbon Maritime 73.20 m x 16.50 m 4,002 kW - Cummings on 5.50 m 13 K.

ZJB03118 ZJB03119 ZJB03120 ZJB03121

Bourbon Hestia Bourbon Harmonie Bourbon Hemera Bourbon Helene
PSV - GPA 670

2006 2006 2006 2006
3,230 dwt

Bourbon Maritime 73.20 m x 16.50 m 5,475 kW - Cummings on 5.50 m 13 K.

Austal Ships (Australia) Ferries

2005 2006

L'Express des Iles 45 m 4 x MTU 16 V 396 TE74L 38 K.

104

Shipping and Shipbuilding Markets 2005

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