Future of Shipping & the Capital Markets

Transcription

1 Future of Shipping & the Capital Markets Marine Money Conference 12th Annual German Ship Finance Forum Hotel Grand Elysee - Hamburg February 21, 2013

2 Future of Shipping & the Capital Markets Year of the Snake..What forecast do you buy into? Cyclical Downturn or Structural Change? The Next Peak Market.it s going to come but when? German Ship Owning sector Actions that could result in a different near term outcome The Carrier Dilemma Implications to Asset Ownership & Investment New designs begin to take shape Equity and Capital Markets What the Future may look like Capital Markets A solution for some So, the Future looks like.?

3 The Year of the Snake A Water Snake Year is supposedly marked by great peace and quiet. It also means that industries related to water can hope to do well good for Shipping companies Companies linked to metal (including finance) could also have a decent year good news for the Banks.. People born in the Year of the Snake are said to be lucky and insightful.and although they can include a scheming mind, they are usually charming and likeable! There is another view Snake years are often marked by major transformations and sometimes great upheaval The Snake seldom smiles and therefore it is going to be a sad year with tears. Let s hope that the optimistic Feng Shui Master is right for 2013 Source: Week in China, 8 February 2013

4 Background Operating Environment Shipping continues to be affected by a downturn that now has been with us for most of the last 5 years these challenges will be with us for some time to come Volatility Softening economic growth Sovereign debt concerns and financial markets remain in turmoil Collapse of the German KG system Destruction of asset values Geopolitical turmoil Sustained high oil prices Massive losses for some Balance sheet stress for most Fundamental shifts in the banking system.virtual lock up of traditional sources of financing Question is this just the cyclicality of an asset heavy industry, or is there more at work here that is structural

5 The Next Peak Market its going to come when? 2014 hope! Earlier.hard to see 2015.more likely Even later.could happen Behavior is the driver more than any other factor

6 German Shipowning/Asset Management sector Many single ship KG companies are struggling to maintain financial viablitiy some are in the process of restructuring as they attempt to survive Insolvencies begin to increase Consolidation in the German Shipowning sector has begun to pick up pace

7 Actions that could produce improvement in the near term There are levers that carriers can pull that would mitigate the impact of the structural over-supply of tonnage in the near term Idling of capacitiy still holds the potential to have an effect on ocean freight rates With global utilization levels projected in the low 80%, more capacity needs to be taken out of play; requires not only the will to do but cooperation in sharing the capacity that remains employed Greater cooperation on the phase in of new tonnage Broadening of alliance relationships; cover more tradelanes e.g., G6 Simply increasing rates; not a sustainable option without some or all of the above

8 Carriers Dilemma The downturn and the pressure on profitability will continue for some time to come Over the next two years there is little need for growth They desperately need new assets to reduce costs They have to solve for moving many owned ships that are high costly/less efficient out of their networks in order to make way for new more efficient ships They need chartering alternatives to ownership due to; balance sheet damage, high existing debt, and need to build flexibility into their fleets Carriers have to develop greater comfort with not only sharing space/slots but asset procurement as well; some implications to competitive mindsets

9 Carriers Dilemma Asset prices are at historic lows but for how long? Significant growth of capacity in the short term would be damaging to a recovery They must dramatically reduce their costs The route to dramatic cost reduction requires different ships They need a charter option they cannot and don t want to own all their assets Financing is not there for many.at least for awhile Structural changes e.g., a widened Panama Canal will force changes in how they serve certain markets There is a limit to how many new orders can be undertaken without creating a lengthening of the downcycle.or the next bubble What to do?

10 Implications to Asset Ownership & Investment To achieve a more optimal cost base, there will have to be less loops of larger tonnage and greater cooperation than has been the case in the past Individual carriers will trigger a collapse in the market pricing environment if they solve for their own needs only More collaboration in network and tonnage planning; inclusive of a shared approach to asset procurement will: Spread risk Share the financial burdens of the massive investment required Minimize the impact on the market Increase the chances of bringing dramatically lower cost assets into play but in a more well thought out process To do so requires a commitment to longer alliance/cooperative agreements and some setting aside of individual marketshare ambitions We ve seen how it works for every carrier and too many shipowners to bring excess tonnage to the market What to do?

11 Trade development INDIA CHINA Intra-Asia

12 Trade development ME INDIA CHINA Transpacific U.S.A. SE ASIA AMERICAS Intra-Asia

13 Trade development EUROPE Asia-Europe ME INDIA CHINA Transpacific U.S.A. SE ASIA AMERICAS Intra-Asia

14 Newbuilds New designs begin to take shape The current fleet is inefficient compared to new designs demand for more efficient tonnage will increase as carriers struggle with their costs The market is suffering from long term over-supply but the key is how to deal with the number of relatively inefficient ships that will need to be replaced over time Carriers operating cost must come down With financing for newbuildings either not available or very difficult to come by for most players the risk of creating another asset bubble is low unless dramatic developments occur Asset prices are at or nearing historically low levels too attractive to pass up In spite of the current environment, some ships will be ordered and this will impact on the supply-demand balance in 2014/2015 Hopefully new projects are undertaken in a cooperative fashion to minimize the impact in the market Combination of stressed balance sheets, difficulty of digesting existing deliveries a weak market, and the lack of financing will translate into relatively few orders in the near term

15 Fuel cost - Bunker efficiency for new design 10,000 teu ship Comparison of Daily Fuel Oil Consumption 120, , , , , , USD mt/d old design New design (Korea) Knots old design New design (Korea)

16 Equity Investors Alternative financiers some players have already entered the asset market: In 2010, Apollo Management founded Principal Maritime, an advisor to Veritable Maritime Holdings, owning 11 Suezmax tankers; In March 2011 Carlyle, Tiger Group and Seaspan announced their cooperation for the acquisition of Super-Post-Panamax newbuildings; up to USD 900 million equity investment contemplated; In August 2011 Wilbur L. Ross Invesco invests about USD 300 million in Diamond S. Shipping, a ~33% stake in 30 product tankers; In September 2011, Omers closed its acquisition of V.Group, shipmanagement and crewing provider; In February 2012, J.P. Morgan and Harren & Partner announced a JV in the super-heavy-lift sector with institutional investors represented by J.P. Morgan; Eton Park and Rhone Capital invested into Euromar LLC., reportedly USD 175 million Kelso forms Delphin Shipping with Sophocles Zoullas as partner in the Dry-bulk segment, also supporting Greek owner Techomar Oaktree Capital Management partners with the Rickmers Group in 2013 and launches newbuild program; initially 8 +8 options for 5,000 7,000 teu container ships

17 So, the future may look like.. Volatility is a condition we will deal with long term Failing dramatic developments the Container Shipping sector will continue to be under rate pressure a sustained recovery may not come until beyond 2014 There will likely be significantly fewer German Shipowning companies; financial stress will force consolidation industry recovery will come too late for many Ships will be financed from non-traditional sources; the pace of this change will pick up as new players; PE, Shipyards, Sovereign Funds enter the space and other investment vehicles are created The Capital Markets will play a greater role! The transformation of the world fleet will begin slowly and pick up pace only at the point in time that there is the clear beginnings of a sustainable upswing in the industry condition and new sources of financing are in place.and only avoids another bubble if we learned from the current disaster!

18 Rickmers-Linie Thank You Maritime Assets Maritime Services 2012 could easily produce larger losses than 2011 for Liner Shipping.2013 will likely also be challenging As usual for this crowd, global economic growth and other factors will have an impact, however the outcome has more to do with behavior