Flexibility and Complexity: How to Unlock Value in Today s Shipping Markets

Transcription

1 Flexibility and Complexity: How to Unlock Value in Today s Shipping Markets James Frew- Maritime Strategies International (MSI) Marine Money Asia 19 th September 2018

2 Agenda Flexibility and Complexity 1. Demand Drivers 2. Supply Side Response 3. Earnings Context 4. What Drives Prices 5. Market Outlook 6. Where is the Best Value Maritime Strategies International 2

3 Flexibility and Complexity Demand Drivers Maritime Strategies International

4 Trade Growth Improving (bar Tankers) 40% YoY Ch 35% 30% 25% Accelerating trade growth for most sectors 20% 15% 10% 5% 0% Crude Products Dry Cargo Container LNG Maritime Strategies International 4

5 Actual Vessel Demand is Stronger 60% YoY Ch 50% 40% Trade Vessel Demand Longer distances are driving up vessel demand even faster 30% 20% 10% 0% Crude Products Dry Cargo Container LNG Maritime Strategies International 5

6 Crude tug of war Mn b/d (yoy change) OPEC Middle East Venezuela+Libya United States Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Maritime Strategies International 6

7 Impact of long haul crude trade 250 Mn Dwt Americas East + 'Other' Long-haul ME-West ME-East Diversification of crude supply helping drive longer-haul distances Maritime Strategies International 7

8 Demand for hydrocarbons is evolving MnT Products Crude LNG Coal % Products/Crude (RH Axis) % LNG/Coal (RH Axis) 60% 50% 2000 Crude oil and coal are losing ground to products and LNG 40% % % % 0 0% Maritime Strategies International 8

9 LNG trade evolving enter the US MnT USA-PRC East Australia & PNG-PRC 160 Middle-East-Japan Middle-East-PRC East Australia & PNG-Japan Middle-East-India West Australia-PRC Middle-East-South Korea 140 West Australia-Japan SEA-Japan PRC People s Republic of China Maritime Strategies International

10 Dry bulk don t underestimate small ships Year-on-Year Incremental Growth in Dry Bulk Dwt Demand in 2018 Iron Ore ~14 Capesize Ships Coal ~48 Panamax Ships Total increment = 18 Mn Dwt (up 2.8% yoy) Grains ~52 Supramax Ships Minor Bulks ~230 Handysize Ships Mn Dwt Maritime Strategies International 10

11 Dry bulk the different drivers Maritime Strategies International 11

12 Small containers the threat of cascading For containerships, it isn t just about trade but also about competition between vessel classes Maritime Strategies International 12

13 Panamax Market Share vs. Feeder Deployment Panamax vs Feeders, 2018 vs 2013 Time at Sea vs Size LOSS of feeder deployment as Panamax market share rises GAIN in feeder deployment as Panamax market share rises Maritime Strategies International 13

14 Innovation Across Offshore Development The downturn has been sufficient in length to enact structural change. Lower activity levels and a lack of pricing power has given the impetus to change how the industry works and how the supply chain is reimbursed Market Innovation Impact Seismic Full Waveform Inversion Enhances seismic image clarity, particularly areas below salt structures Drilling Integrated drilling contracts Single drilling services workstream. Interfaces reduced, waste removed Subsea Production Subsea % reduction in size, weight and cost of parts SURF Electric Trace Heating Allows for longer-distance subsea tiebacks Integrated SURF/SPS Vertical integration Single subsea workstream. Shortens time to market and reduces capital cost Floating Production Fast4Ward Standardisation of FPSO construction and delivery process

15 The shape of offshore construction Yesterday Today Maritime Strategies International 15

16 Flexibility and complexity Supply Side Response? Maritime Strategies International

17 Newbuild Contracting Driven by Demand? 150% YoY Ch Contracting and demand aren t very well correlated (only 47%) 275% YoY Ch 12% 100% 8% 50% 4% 0% 0% -50% Newbuild Contracting (CGT) -4% Total Seaborne Cargo (Tonnes, RH Axis) -100% % Maritime Strategies International 17

18 Tankers Contracting vs Earnings 30 Mn Dwt $ k/day 70 VLCC Ordering VLCC 1 Yr T/C Rate Instead, in general there is a good correlation between earnings and newbuild contracting (taking a three year moving average) Maritime Strategies International 18

19 Balanced Global Fleet Dynamics at last Maritime Strategies International 19

20 Flexibility and complexity The Earnings Context Maritime Strategies International

21 Where on the Earnings Cycle Were We? Marine Money Asia 2017 Schematic for illustrative purposes only! Crude and Product Tanker OSVs LPG Carrier Maritime Strategies International Rigs LNG MPP Chemical Tanker PCTC Container Bulker RoRo

22 What a difference a year makes Marine Money Asia 2018 RoRo Schematic for illustrative purposes only! Crude and Product Tanker Maritime Strategies International OSVs Rigs LPG Carrier PCTC Chemical Tanker MPP Container Bulker LNG

23 Flexibility and complexity What Drives Asset Prices Maritime Strategies International

24 The Complete Pricing Jigsaw Earnings NB Price Life Expectancy Scrap Price Maritime Strategies International 24

25 Wrestling Price Drivers Aframax Tanker Panamax Bulker Newbuilding Price Anchor Maritime Strategies International 25

26 Replacement vs Return 120% VLCC %age Net Replacement Value 100% % % % 20% Depreciation curves are dynamic and shaped by the earnings environment 0% 0 Yr Old 5 Yr Old 10 Yr Old 15 Yr Old 20 Yr Old Maritime Strategies International 26

27 How the envelope has moved 160 $ Mn VLCC 5 Yr Old Price Price assuming 1980 NB and Scrap Newbuild prices played a key role in the superboom Maritime Strategies International 27

28 Flexibility and complexity Market Outlook Maritime Strategies International

29 Can we even forecast? Plans are worthless, but planning is everything Dwight Eisenhower, 1957 Maritime Strategies International 29

30 Shipbuilding Capacity Outlook Mn CGT Other Europe China Continuing consolidation of capacity expected 40 Korea Japan Maritime Strategies International 30

31 NB Price Drivers 120 Index Yard Forward Cover (RH Axis) Yard Cost Index Yard Price Index Years Maritime Strategies International 31

32 If consolidation doesn t happen 2500 $/CGT, Bulk Ships If we don t have further consolidation, newbuilding prices could weaken rather than strengthen Base Case No further consolidation Maritime Strategies International 32

33 The impact of NB Prices 85 VLCC 5 Yr Old Price, $ Mn 80 which then undermines asset prices Theoretical VLCC 5 Yr Old Price (NB & Scrap only) MSI Forecast VLCC 5 Yr Old Price No Consolidation Scenario Maritime Strategies International 33

34 Flexibility and complexity Where Is the Best Value Maritime Strategies International

35 MSI - FMV MSI Forecast Marine evaluator (FMV) is the first web-based tool to provide forecast and historical price data covering virtually all of the deepsea shipping fleet. Data includes forecasts of newbuilding, second-hand prices, 1 year timecharter rates and operating costs for specific vessels. MSI FMV draws on MSI s proven, proprietary models and a consistent cross-sectional view across all principal shipping sectors. It puts asset values in the context of the near term market to enable reliable benchmarking with outputs based on annual averages. Coverage: Crude Oil Tanker Chemical Tanker Multi Purpose Product Oil Tanker LPG Carrier Containership Dry Bulk Carrier LNG Carrier PCC/PCTC AHTS /fmv PSV Maritime Strategies International 35

36 MSI projected IRR Purchase age in 2018 (sell end 2021): 0 Year old 5 Year old 10 Year old 15 Year old Maritime Strategies International 36

37 MSI Background For over 30 years, MSI has developed integrated relationships with a diverse client base of financial institutions, ship owners, shipyards, brokers, investors, insurers and equipment and service providers. MSI s expertise covers a broad range of shipping sectors, providing clients with a combination of sector reports, forecasting models, vessel valuations and bespoke consultancy services. MSI is staffed by economists and scientists offering a structured quantitative perspective to shipping analysis combined with a wide range of industry experience. MSI balances analytical power with service flexibility, offering a comprehensive support structure and a sound foundation on which to build investment strategies and monitor/assess exposure to market risks. Maritime Strategies International 37

38 Disclaimer While this document has been prepared, and is presented, in good faith, Maritime Strategies International assumes no responsibility for errors of fact, opinion or market changes, and cannot be held responsible for any losses incurred or action arising as a result of information contained in this document. The copyright and other intellectual property rights in data, information or advice contained in this document are and will at all times remain the property of Maritime Strategies International. Maritime Strategies International 38

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