FREIGHT MARKET FORECASTA Challenge Simplified

29th November, 2012.

Mr. ASHOK JAINMANAGING DIRECTOR

DIAMOND SHIPBROKERS PVT. LTD.

BASIC SHIPPING CYCLE

PILLARS DEFINING THE FREIGHT CYCLE

CYCLICAL NATURE

BALTIC INDEX

RELATED INDUSTRIES AFFECTING FREIGHT

SUPPLY SIDE : DEFINING FUNDAMENTALS

DEMAND SIDE : DEFINING FUNDAMENTALS

CURRENT MARKET.

INDEX

BASIC SHIPPING FREIGHT CYCLE

DYNAMIC PILLARS OF THE FREIGHT CYCLE

FREIGHT MARKETSRATES VS OPERATING COSTS

SALE & PURCHASE MARKETSECOND HAND PRICESCOMPARISON WITH NEW BUILDING RATESLAY UP ACTIVITY

NEW BUILDING PRICES (DETERMINED BY EXISTING FREIGHT RATES IN THE MARKET)EXISTING ORDERBOOK

DEMOLITIONSCRAP PRICESLEVEL OF ACTIVITY (BREAKING YARD AVAILABILITY, LABOUR RATES, ETC)

FINANCINGDEFAULTSLENDING ACTIVITIES

WHY IS SHIPPING CYCLICAL ???

Shipping is Cyclical in Nature – Inflexible

supply side Vs Dynamic Demand Side.

Time Lag makes supply side less elastic

Volatility in Operating costs

Bunkers

Inflation (Wages, DD, etc)

WE ARE CLEARLY FACING THE CHARTERER’ S SURPLUS IN THE CURRENT MARKET….

WHERE SHIPOWNERS WILL CONTINUE TO BLEED UNLESS WE REACH AN EQUILIBRIUM

BETWEEN SUPPLY AND DEMAND…

1990-11-271993-08-151996-04-241999-01-072001-09-242004-08-172007-06-152010-03-090

2000

4000

6000

8000

10000

12000

14000Baltic Index (1990 - 2012)

TIME

BDI

HISTORIC TREND IN BALTIC INDICES

Numerous Short Cycles within Shipping History

BALTIC INDEX IN LAST 10 YEARS

2002-11-212003-12-052005-01-102006-01-162007-01-022007-12-132008-11-282009-11-162010-11-022011-10-202012-10-100

2000

4000

6000

8000

10000

12000

14000

Baltic Dry Index 2002-2012

Time

BDI

World Financial Crisis

Stimulus PackagesCHINA EFFECT

Robust New Deliveries Hit the Market.

2001-01 2002-01 2003-01 2004-01 2005-01 2006-01 2007-01 2008-01 2009-01 2010-01 2011-01 2012-010.00

200.00

400.00

600.00

800.00

1000.00

1200.00

1400.00

1600.00Bunkers Prices 2001 – 2012 (Fujairah)

380cst MDO

Time

USD PMT

25 - 35 % of Freight Cost to Owners

60 - 80 % of Freight Cost to Owners

Operating Costs.

Going Higher than the TC rates itself in last 3-4 yrs.

Silver Lining – Eco Engines

RELATED INDUSTRIES AFFECTING FREIGHT: BUNKERS

Up by more than 4 times in the last 10 years.

All forecasts continue to point towards high

volatility

2002-11-212003-12-152005-01-262006-02-062007-01-312008-01-252009-01-192010-01-122011-01-052011-12-230

2000

4000

6000

8000

10000

12000

14000

Time 2002 -2012

BDI

CHINESE STIMULUSChina inviting Greek Owners to order Ships in Chinese Shipyards with Chinese Funding.

Freight rates UPRequirement for ships UPShipyard Capacities UPFinancing UPMain Financers : Banks + KG Funds

WHO NOW ???

Fleet Growth: 46% Vs Trade Growth 58% Fleet Growth: 47% Vs Trade Growth 18%

BALTIC DRY INDEX – SHIP FINANCERS PERSPECTIVE

Interest Rates Globally

Lack of Lenders since 2008

Introduction of New Lenders post 2008 – EG:

Chinese Shipyards / Governments

Existing World Fleet

Shipbuilding

Demolition

Fleet Productivity

Freight Rates.

Supply Side : Defining Fundamentals.

Supply Side Changes .

Time lag is the major hindrance in supply side .

Lack of flexibility in supply side.

CURRENT DRY FLEET BREAKDOWN.

Total Current fleet: 9,462 vessels;(676m dwt)

Capesize16%

Panamax24%

Handymax28%

HandySize32%

SIZE PROFILE

0-5 Yrs44%

5-10 Yrs15%

1-10 Yrs12%

15-20 Yrs12%

20-25 Yrs5%

25-35 Yrs12%

35+ Yrs1%

AGE PROFILE

Majority of these New Buildings are the bigger

vessels which were ordered on the back of the Chinese Boom in the last

decade.

DRY FLEET DELIVERIES

2007 2008 2009 2010 2011 2012 2013 2014 2015 20160

200400600800

10001200140016001800

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

327 355555

9931189 1094

515

920

34045 6

8.6%

56.3%

78.9%

19.7%

35.3%

DRY BULK DELIVERIES (No of Ships)

ORDERBOOK DELIVEREDGROWTH

Year

NO

OF SHIPS

2007 2008 2009 2010 2011 2012 2013 2014 2015 20160

20

40

60

80

100

120

140

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

25 2443

8098 91

39

73

283 0

-1.4%

76.7%85.7%

22.8%

32.0%

DRY BULK DELIVERIES (Million DWT Tonnes)

ORDERBOOK Dwt

Del Dwt (Mil-lion Tonnes)

GROWTH

Year

Million DWT

Tonnes

On order: 1,880 vessels (149m DWT)

19981999

20002001

20022003

20042005

20062007

20082009

20102011

20120.00

5.00

10.00

15.00

20.00

25.00

30.00

Total Bulkcarrier Demolition Million DWT

RANK YEAR DEMOLITION IN MILLION DWT TOTAL EXISTING FLEET (m DWT)1 2012 30 So far 6152 2011 23.30 5363 1986 12.35 1974 1998 12.25 2655 2010 10.60 458

DRY FLEET SCRAPING

DEMAND SIDE : DEFINING FUNDAMENTALS.

World Economic Cycle

Seaborne Commodity Trade

Average Haul (Calculated in Ton Miles)

Political Events

Alternate Transportation Costs

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

20162017

-1.0000

0.0000

1.0000

2.0000

3.0000

4.0000

5.0000

6.0000

World G.D.P. Growth

Year

Grow

th (%

)WORLD ECONOMIC CYCLE

DEMAND FOR DRY BULK SEABORNE TRADE

4% Demand in 2013 will to a large extent depend on the Container Markets

Record number of Deliveries expected in the Container Market.

Smaller bulk parcels may start moving in containers if freight rates drop in the box trade

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

500

1000

1500

2000

2500

3000

3500

4000

4500

-5%

0%

5%

10%

15%

20%

6%8%

6%7%

7%3%

-2%

13%

6%5%

4%6%

7%

7%

7% 7%

10%

17%

14% 14%

9%

Demand For Dry Bulk Trade Vs Net Fleet Growth

Dry bulk SeaborneTradeGrowth of Seaborne TradeNet Fleet Growth

SHORT TERM SUPPLY DEMAND AFFECTING FREIGHT MARKET ADJUSTMENTS.

LONG RUN SUPPLY DEMAND AFFECTING FREIGHT MARKET ADJUSTMENTS.

Demand Continues to grow.

Fleet Growing at faster pace than demand.

Demolitions unable to bridge the gap created by oversupply

SUPPLY DEMAND INTERPLAY

CURRENT MARKETS

Increase Demand

Shrink Fleet

INCREASE DEMAND

Political Will and Actions Globally.

Financial Stability across Europe.

SHRINK FLEET

Reduction in order book.

More Lay up Activity

Demolition of old and obsolete

fleet

FREIGHT

DEMAND (TON MILES) / SUPPLY (DWT)

How do we see the market today ???

&

What does commercial shipping

require ???

TOOL TO FORECAST THE FREIGHT MARKET

1. FREIGHT CYCLE

3. NEW BUILDING MARKET 2. SALE & PURCHASE MARKET (2ND HAND)

4. DEMOLITION MARKET

Demand

Supply

LOW

LOWLOW

LOW

HIGH

HIGH HIGH

HIGH

FREIGHT RATES

EARNINGS SCRAP REVENUE

Scrapyards

Scrap Sales by Ship owners

SCRAP RATES

NEW BUILDING RATES

PAY SHIP YARDS

Shipyards

Ship owners Orders

CASH FROM BUYER

CASH TO SELLER

SECOND HAND RATES

Ship owner Buyer

Ship owner Seller

Industry Cash Flow

CONCLUSIONS

WORLD GDP WILL CONTINUE TO GROW GRADUALLY FOR THE NEXT FEW YEARS.

FLOODING OF NEW DELIVERIES WILL GRADUALLY BE PLUGGED THROUGH 2013

MARKET WILL CONTINUE TO CONSOLIDATE

‘U–SHAPED’ RECOVERY - SLOW , PAINFUL, BUT A STRONG BASE.

REFRESHED DRY FLEET

Contact Details

DELHI OFFICE

5-J & 5-K, UPPAL'S PLAZA, M-6, JASOLA DISTRICT CENTRE, NEW DELHI- 110 025 (INDIA)

Tilak Narang, General ManagerTEL: 011-46109000 FAX: 011- 46109031/46109032 drychart@diamondshipbrokers.com

MUMBAI OFFICE

C-319, 3RD FLOOR, 215 ATRIUM,ANDHERI-KURLA ROAD, ANDHERI (E),MUMBAI 400 059.(INDIA)Ashok Jain, Managing DirectorTEL. : +91-22-6149 0000DIR : +91-22-6149 0001FAX : +91-22-6149 0002CELL : +91-98202 89413jain@diamondshipbrokers.comdrychart@diamondshipbrokers.com

Diamond Shipbrokers Pvt. Ltd. is a part of the Sharaf Group, UAE, one of the UAE’s largest and most respected business conglomerates with diverse and highly successful business interests in about 20 countries. Sharaf Group is one of the largest shipping agency houses in the Middle East and India

In India, the shipping agency is conducted under the name of Samsara Group with 54 offices at 44 different locations covering all Indian ports and inland locations.

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