SHIPBUILDING MARKET MONITORING 2014 1Q Report N 35 June 2014 HEADLINES Shipbuilding Market: - The global orderbook continues the growth trend that began in 2013 after 5 years of decline, standing at 108M CGT. - In the 1Q 2014 global new orders increased 60% compared to the same period last year, accounting for a total of 14.5M CGT. - 9.7M CGT were delivered in the 1Q 2014. - China tripled the new orders compared to the 1Q 2014, and Japan doubles the contracts thanks to the enhancement of the Yen s competitiveness through governmental intervention. - European yards hold the 3 rd position in terms of value of the orderbook ($31.5bn) and new orders ($3.3bn). Japan follows with $29.5bn orderbook and $2.2bn new orders. News: - Asian financing brings new orders to their shipyards. Far Eastern banks increase their financing to European owners - Chinese Government s policy for restructuring Shipbuilding Industry positions China as world leader in number of new contracts - Major shipbuilding countries promote local content by governmental support (Brazil, US, China, Korea, Japan), which is a threat to EU suppliers - European Commission DG COMP adopts Innovation Aid for R&D&I, including a clarification about Shipbuilding - Europe working towards a Blue Growth Economy, more modern, safer and greener maritime economy. - The EU adopts stronger rules to better defend its rights under Trade Agreements PAGE 1 OF 41
Summary Statement Global newbuilding activity increased in the first months of 2014 continuing the trend that began last year. Despite that it is too early to speak of recovery, signs of stabilization can be seen globally. New orders for all type of vessels have increased compared to the same period last year. Bulk carriers have tripled demand, followed by gas tankers and other cargo carriers. Demand for these vessels is driven by the easy access to credit facilitated by China and other Far Eastern Countries which are financing the building of new more efficient cargo carriers built in their own countries. Demand for non-cargo carriers has also increased. More efficient designs for reducing fuel consumption and to comply with new international and European regulations for safer and less pollutant maritime operations are driving the demand for these vessels. European shipyards are increasing their activity and maintain a good position in terms of value thanks to the specialization of the industry on Passenger, Offshore and other specialized non-cargo vessels. However, Far Eastern countries continue leading the shipbuilding market thanks to the governmental policies, cheaper production costs and availability of financing. On the other hand, European marine equipment providers are market leaders with a 43% of global shares. With the aim of increasing their market shares, some Asian shipyards are offering considerable price reductions for installing national equipment on board. In addition, the existence of market barriers for European companies and the need of outsourcing part of the production to access these markets are issues which are challenging the European industry. In order to face these challenges, European maritime technology industry continues at the forefront of innovation and developing new technologies of the highest quality and reliability. In the line of the above mentioned circumstances, it is expected that the new environmental and safety requirements will continue bringing demand for innovative high technology vessels and equipment, benefiting the European maritime technology industry. Restriction of use and Copyright notice This report is intended for internal circulation only within the membership of SEA EUROPE. Due to copyright restrictions from the data sources, please contact SEA EUROPE and ask for prior permission for any use of the information contained in this publi- PAGE 2 cation. OF 41
GENERAL OBSERVATIONS SHIPBUILDING FINANCING 1. Asian Shipbuilding Industries Rapid growth in steel production capacity in Japan, South Korea and China facilitated the growth of shipbuilding. Shipbuilding also requires skilled labour. Labour costs are a significant component of vessel costs, and low costs in China estimated to be between a 10th and a 15th of OCED countries have helped its shipbuilding grow. In recent years, however, skilled labour shortages have contributed to rising wage costs in China. A third requirement is technological knowledge. Traditionally, Japan and South Korea have offered superior technology and reliability compared to China. However, following investment, China now produces better ships in more complex segments such as ultra-large container ships of 12,000-14,000 20-foot equivalent units (TEU). China is also now making inroads into the fast-growing LNG segment. A fourth input that drives shipbuilding is government support. Many governments champion shipbuilding because it creates skilled employment, stimulates related industrial activity and has potential political and military importance. However, while political support for shipbuilding is important, financial support matters more. For example, in South Korea shipbuilding is concentrated among the chaebol (industrial conglomerates), such as Samsung Heavy Industries and Hyundai Heavy Industries, which receive strong support from policy banks and a significant proportion of South Korea s export credit agency (ECA) funding. Similarly, in Japan, ECAs make buyer financing available and facilitate low cost working capital for shipyards (which is crucial given the three to four-year shipbuilding timeframe). In China, government support includes access to capital from government agencies and policy banks and programmes to support buyers. It is focused on larger shipbuilding companies such as China Shipping Development Company and China State Shipbuilding Corporation. One final factor that has driven Asia s shipbuilding dominance is the growth of the offshore segment, prompted by the deep-sea drilling boom. Demand for Arctic Class semisubmersible ships, which can cost up to US$1bn each, has soared. While the sophisticated drilling equipment on Arctic Class ships is manufactured in Norway, the hulls (which represent 70%- 80% of the total cost) are built in either China or South Korea. Similarly, the dramatic boom in shale gas in the US and Australia has spurred an increase in spending on LNG vessels of almost 40% between 2008 and 2012. Japan s revival Following the introduction of the package of measures aimed at reviving the Japanese economy (including bond purchases and increased government spending) the yen was depreciated by over a third against the US dollar. Most shipbuilding is priced in US dollars so local currency depreciation improves pricing for buyers. Moreover, the risk of FX volatility is taken by the shipyard, despite only 20% to 30% of the purchase cost being paid up front. Japanese costs are now comparable to South Korea and China while relia- PAGE 3 OF 41
bility and consistency are considered superior: consequently activity increased. The flexibility of Japan s ECAs, Japan Bank for International Cooperation (JBIC) and Nippon Export and Investment Insurance (Nexi) has also supported its shipbuilding resurgence. South Korea The shipbuilding sector and buyers of ships from the country have traditionally had easy access to funds from ECAs and development banks, such as Korea Trade Insurance Corporation (K-Sure) and the Export-Import Bank of Korea (Kexim) and policy banks, including Korea Development Bank (KDB), Korea Exchange Bank (KEB) and the Korea Finance Corporation (KFC). However, the South Korean government is consolidating some of the agencies that support shipbuilding. While government support overall is certain to remain strong in the long-term, the restructuring of support is having some short-term impact on financing availability. Consolidation in China China s shipbuilding capacity tripled to 63 million DWT from 2008-2013. This explosive growth is now causing problems as it is geographically dispersed but concentrated in the bulker segment (an estimated 60% in 2012), which is the worst performing sector in recent years. State-owned and policy banks support only 10% of shipbuilding companies. Despite frantic cost cutting by some shipyards in order to win business, ship buyers have been careful not to simply give business to the lowest cost shipbuilders. Instead, there has been prudent scrutiny of shipyards strength and the likelihood of closure. At the same time as consolidation of capacity is taking place, the industry is trying to capture more of the higher end value chain, such as LNG and offshore vessels. To help strengthen China s reputation in these segments, orders have been placed by state-owned enterprises. In addition, China has worked to secure technology support and supervision for such projects from Japan. GTReview.com 2014 2. Chinese policy banks continue to woo Greek owners Lenders give priority to offshore, eco-design and hi-tech orders China s major ship finance institutions are continuing to court the top echelon of Greek shipowners as part of their expansion strategy but are still restricting themselves mostly to transactions linked to building tonnage in Chinese shipyards. Although newbuilding orders in China are overwhelmingly for dry bulk carriers, a sector that accounted for 86% of yards ship orders in the first quarter of this year, the shipping portfolio of the Export-Import Bank of China is skewed towards crude oil tankers and offshore units, followed by bulkers and containers. We will continue to finance conventional vessels, but eco, hi-tech and offshore will be the top priorities, said Chen Bin, deputy general manager of Cexim s transport finance department. According to Cexim, China s builders scooped 46% of ship contracts in the first quarter and a 44% share of offshore orders. In the offshore sector, first-quarter figures showed jack-up drilling rigs as the main type of offshore asset contracted at the country s yards, representing 29% of China s offshore orders. They were followed by drillships and semi-submersible drilling rigs with 14% each. An impressive 45% of Cexim s shipping portfolio, which spans $14.5bn in commitments and almost 400 vessels, has financed companies in Europe. Asia was the second-largest borrower, with 32%. However, ship exports account for only about 10% of its total disbursements. Mr Chen said Cexim is prepared to finance purchases of secondhand ships as well as newbuildings, but the vessel would have to be Chinese-built. Although there can be some flexibility for lend- PAGE 4 OF 41
ing on secondhand acquisitions, this is mainly within the scope of a wider relationship with a shipowner that includes building vessels in China. For approved projects, Cexim can provide financing for up to 80% of the investment amount. China Development Bank, which has a shipping loan book of more than $12bn, also pays high attention to the Greek market, said An Gu, deputy general manager of CDB s Ship Finance Centre. In 2010, CDB was exclusively mandated to administer a new $5bn China-Greece ship-development fund. Lending under the fund has been comparatively modest, however, with commitments so far over $1bn, financing more than 30 ships of various types. Faced with several years of shipping-market adjustment, CDB has strengthened its risk management and diversified the ways it supports shipowners. Mr Gu s outlook for the industry is that probably, the downside potential is limited but the time of revival might still be uncertain. Lloyd s List - 10 June 2014 3. Greece - China Multi-Billion Shipbuilding Trade Deals Greece and China have signed multiple trade and investment agreements in areas including shipping and energy worth approximately $4.6 billion, according to the Greek Development Ministry. The signings took place within the framework of Chinese Prime Minister Li Keqiang s official three-day visit to Greece. The deals, among others, include multi-billion-dollar Chinese bank loans to build at least ten Greek-owned ships in Chinese shipyards.during a joint press conference at the Maximos Mansion in Athens, Greek Prime Minister Antonis Samaras said: We seek to bring China closer to Europe. Greece can become China s gateway in Europe, and the start of a European trade corridor. These investments might herald a new era for the Greek slumping economy, and blaze the path for future investors. China is said to have already set sights on a few potential investment opportunities, namely a 67% stake in the Piraeus Port Authority, which is to be privatized as part of Greek government s shipping revitalization plan. A number of other Greek ports, including the second largest Port of Thessaloniki, await privatization under a state asset programme mandated under the country s EU-IMF debt rescue. World Maritime News Staff, June 20, 2014 4. Greek ship lending slumps as caution rules European banks Petrofin says private equity has filled the gap but banks should bounce back soon. One of the largest annual drops in the amount of bank financing for the Greek-owned fleet has been reported in a new survey that identifies lingering doubts in the European banking industry and an influx of private equity financing among factors contributing to the reduction in conventional loan finance. Petrofin Bank Research s snapshot of the industry showed that Greek ship finance fell by 6.5% last year. Although the fall was not as dramatic as in 2009, when the aggregate portfolio plummeted by 8.5%, total lending to the industry at end-2013 stood at $61.5bn, back to estimated levels of mid-2007. According to Petrofin managing director Ted Petropoulos, more time was needed before a revival of confidence in the industry could translate to a wider pick-up in lending activity. Many shipping banks also needed time to reduce their shipping exposure to a more desirable level or had implemented criteria for lending that was too strict, ruling out most potential loan transactions. However, said Mr Petropoulos, more significant reasons for banks lack of ship lending appetite stemmed from weakness in the liquidity and capital ratios of European banks in the light of Basel III and the new European Central Bank regulatory overview. PAGE 5 OF 41
Banks simply lacked the resources and the risk appetite to step on the gas pedal, he said. European banks especially found themselves bracing for the ECB loan review and proving their financial robustness. In a world of doubt, to banks profitability came second to financial strength. According to Petrofin s statistics, European banks provided 72% of global ship finance in December 2013, and 90% of finance for Greek owners. European banks difficulties had a profound effect on financing of Greek companies and last year s reduction in portfolios came at the same time as a surge in the size of the Greek-owned fleet to a record capacity of 291m dwt. However, owners have been able to turn increasingly to US private equity funding. As the finance gap widened, private equity funds were for many Greek owners often the only way to take advantage of what promised to be a healthy shipping recovery, said Mr Petropoulos. Funds were not only active but often scoured Greece for opportunities to co-invest and lend to Greek owners. A trend for the share of mortgage financing for the world fleet to fall was even more pronounced in Greece, Mr Petropoulos said. We believe that there are over 40 joint ventures in place today, he said. Most individual banks saw some PAGE 6 OF 41
reduction in Greek shipping exposure during last year although there were quite a few notable exceptions. Amid the ranks of top 10 lenders to Greek owners, international banks that increased their activity last year included Credit Suisse, which is estimated to have boosted its portfolio by more than 9%. With a Greek portfolio of about $5.7bn, including $900m committed but undrawn for newbuildings, the Swiss lender now stands clear second in terms of exposure. Although it fell one place in the rankings to fifth, DVB increased its lending to the Greek market by 25%, to $3.7bn. HSH Nordbank, now ranked ninth, also increased its loan book, while the survey also confirmed the market reputation of banks such as ABN Amro and ING as among the more active recent lenders. The overall leader in Greek ship finance remains Royal Bank of Scotland, with a portfolio at year s end of $8.8bn, or a market share of 14.4%. However, it was one of the fastest-shrinking portfolios, marking a 16.5% decrease from 12 months earlier. Its total includes about $213m in committed but undrawn loans, but another 10 banks led by Credit Suisse have committed more in future newbuilding support. Other sharp reductions were at Commerzbank, which last December was still the third-largest bank in Greek shipping, but it is exiting ship finance, and at Calyon, which is estimated to have shed about 21% of its exposure. The leading Greek domestic banks also emerged as growing in the field, with fourth-placed Piraeus Bank, sixth-placed National Bank of Greece and eighth-placed Alpha Bank all registering hefty portfolio gains, but these were the result of absorbing other banks portfolios, in most cases due to taking over smaller Greek banks. The number of Greek banks left in ship finance has fallen to five, from 15 a decade ago, while the overall number of banks involved in Greek shipping last year fell from 51 to 46. A number of Far Eastern banks, including Cexim, China Development Bank and Kexim, also increased their financing of Greek owners last year. Petrofin said that provided the shipping recovery continued, which it said was a big if, it expected private equity interest in the industry to wane over the next two years. But this, and a recent slowdown in Chinese ship lending to western owners, would be offset by the increasing confidence and financial ability of European and North American banks. Western banks would again be attracted by the high loan yields of Greek shipping based on modern eco design vessels, said Mr Petropoulos. Lloyd s List 23 April, 2014 5. UK - Chinese Firms Close Multi-Billion Trade Deals The UK and Chinese firms have signed 14 billion (circa USD 23.7 billion) of trade and investment deals. The annual UK-China summit takes place just 6 months after the UK Prime Minister s visit to China and with bilateral trade at record levels up by 8% overall in 2013. UK exports to China have more than doubled since 2009, and are growing faster than the country s French and German competitors. Last year UK exports to China averaged more than 1 billion each month. The UK benefited from Chinese investments worth over 8 billion in 2013/14 alone, creating or safeguarding over 6,000 jobs in the UK. World Maritime News, June 17, 2014 6. China Eximbank lends $1.2 billion to German firms for Chinese ships Export-Import Bank of China (EximBank) will lend $1.2 billion to German shipping firms Peter Dohle Shiffahrts-KG and Bernhard Schulte for the purchase of Chinese ships, the official Xinhua news agency reported. The deal will increase chances that German shipping firms will purchase PAGE 7 OF 41
more China-made ships, Xinhua reported the EximBank as saying. A prolonged slump in shipping and pressure to shrink bloated loan books have forced many European banks to abandon or scale down lending to the sector. The EximBank loan deal was signed during Chinese President Xi Jinping's state visit to Germany. Reuters - 31 March, 2014 7. Korean Kexim enhanced relationships with European players since 2013 The Export-Import Bank of Korea signed in December 2013 memorandums of understanding with European firms and lenders to enhance financial co-operation, as it seeks western partners and clients to support South Korea s export-oriented economy. The deals were signed during the state visit to France and the UK this week by South Korean president Park Geun-Hye. According to Kexim, the counterparties include European Bank for Reconstruction and Development, UK Export Finance, Barclays, Société Générale, Proparco and Seadrill. Kexim pledged to provide $1bn financing to John Fredriksen s oil-drilling business Seadrill, which has ordered 17 offshore units at South Korean yards for $8.9bn. It will also jointly provide $1bn with EBRD for developing logistics and infrastructure projects across Europe and Asia, such as the Eurasia Tunnel beneath Turkey s Bosphorus Strait. The agreement states that the two lenders will promote projects that support sustainable economic and social development from central Europe to central Asia and southern and eastern Mediterranean. Meanwhile, Kexim and UK Export Finance have agreed to provide $1bn in financing to firms from the two countries that are developing export projects. UK Export Finance and Korea Trade Insurance signed a separate MoU that has a similar purpose but with no headline figure. Lloyd s List December 2013 8. European banks lend $830m on Star Cruises vessel. Rare case of Asian owner looking west for finance KFW Ipex-Bank, Crédit Agricole and the Singapore branch of DNB Bank are to provide just under 600m ($829.4m) of the 700m financing required for a new cruiseship ordered by Star Cruises from the Meyer Werft shipyard in Papenburg last October. The move is a rare example of European banks lending to an Asian owner as most purely German commercial banks are pulling back from shipping exposure as their counterparts in the Far East are opening their coffers to keep domestic shipyards in business. However, Europe retains a lead in the cruiseship market and KfW s remit expressly includes lending to assist the German and wider European economies. The loan will be paid in US dollars and has a term of 12 years from delivery. The deal was structured by KfW and is backed by export credit insurance issued by the German government. With this high-volume financing, we are underlining both our expertise in structuring within the cruiseship industry and our role as one of the world s leading players in ship financing, said Christian Murach, the responsible management board member at KfW Ipex-Bank. We are also helping to support German exporters [and] especially north Germany as a shipbuilding location. The new vessel has a gross tonnage of about 150,000 gt, more than 1,600 passenger cabins on 18 decks and a length of approximately 330 m. This makes it the largest ship in Star Cruises fleet and one of the biggest cruiseships based out of Asia. Lloyds List 15 April 2014 PAGE 8 OF 41
9. Norway says yes to new shipping bank M&M prepares a capital issue having secured its private trading licence. Maritime and Merchant, the new Norwegian financial institution that launched last year, has secured a licence to trade as a private bank from the country s financial supervisory authority. M&M is preparing a capital issue with a target of $300m-$350m in equity to build up its operations, create its banking system and to form its organisation. Pareto Securities and DNB Markets will be joint lead managers and bookrunners, and the bank intends to start operations in April. M&M managing director Halvor Sveen said stricter requirements on lenders at a time of growing opportunity as the markets recover made for good timing for the new bank to launch. M&M has described itself as a small operation that will conduct business on a personal level and keep overheads as low as possible. With funding from shipowners Henning Oldendorff and Arne Blystad, M&M was unveiled last October with the brief to provide standard financing to shipping and offshore companies as many of the industry s traditional lenders move away from what they see as a high risk industry. Apart from Mr Oldendorff and Mr Blystad, each with 30% stakes, the backers and shareholders include Pål Utvik and David Wu, through Shanghai-based Landmark Holdings 18.75% stake. Nergaard Investment Partners, based in Singapore and controlled by Alex and Birger Nergaard, will have an 11.25% share. Lloyd s List - 03 February 2014 10. China s 3 year plan for upgrading and restructuring Shipbuilding Industry: China's State Council has issued a three-year plan to upgrade and restructure its shipbuilding industry. China has become one of the most influential shipbuilding countries in the world. But China's shipbuilding industry is now facing unprecedented challenges, due to the plunge in demand worldwide. The plan states that many important measures need to be taken as part of the industry's three years development. In the coming three years, the restructuring and upgrading of China's shipbuilding industry will focus on accelerating innovation, strictly controlling new capacity, promoting high-end products and stabilizing the industry's international market share with greater funding support. "The three-year plan has three measures. One is to expand domestic demand and promote export. To expand domestic demand, the plan is to encourage the scrapping of older ships and more military-civilian cooperation in vessel design and development. To maintain a more stabilized international environment, the plan encourages financial institutions to increase credit support for foreign buyers of vessels and equipment, and study securitization of shipbuilders' loans. Besides restricting new shipbuilding capacity, the government is encouraging mergers and acquisitions and the pooling of resources in the industry. The plan also encourages the development of offshore engineering equipment such as drilling platforms and large LNG ships. "The new three-year plan is focusing on long term sustainable development. It aims at changing from big to strong. It no longer eye at maintain or expand the development scale of the industry." Cao Yousheng said. The statement says that local authorities and agencies should formulate supporting policies and ensure the timely completion of targets. China Daily Augost 2013 PAGE 9 OF 41
11. Japan: Abe Revives Dying Shipyards as JBIC Loans Jump 30% For a sign of success for Prime Minister Shinzo Abe s economic stimulus policies look no further than Japan s once-stricken shipbuilding industry. Japan Marine United Corp. has work scheduled for more than two years and is building two types of large bulk carriers at its Ariake shipyard that are about 20 percent more fuel efficient, spokeswoman Shoko Aoyama said. Japanese shipbuilders orders reached the highest level since 2007 last fiscal year, industry data show. Japan Bank for International Cooperation boosted ship loans to foreign customers by 30 percent in the period, Katsuya Mogaki, director at the bank s marine and aerospace finance division, said in an April 16 interview. Overseas shippers and ship owners are coming to Japan, betting now s the chance to buy Japanese vessels, Mogaki said. The yen has weakened 15 percent against the dollar since the end of 2012 after Abe took steps to end deflation, making ships manufactured in Japan more cost competitive. Japanese shipbuilders are also winning orders with fuelsaving technology, even as vessel makers worldwide struggle to recover after the global financial crisis. Better Yields Japan s commercial banks are eager to lend to shippers to get better yields than domestic loans, which are at record lows because corporate demand for funds remains weak, according to Standard & Poor s. Oslo-based DNB ASA said its margins on new ship loans range from 200 to 300 basis points over the Norway interbank offered rate. Mogaki declined to give an estimate for margins in Japan. The average commercial loan rate in Japan is an unprecedented 0.808 percent, Bank of Japan data show. Compared with ordinary loans to large companies in Japan, ship financing gives banks better returns that reflect risks such as moves in exchange rates and the shipping market, Ryoji Yoshizawa, a Tokyo-based director of financial institution ratings at S&P, said by phone yesterday. It s pretty difficult though for the banks to accurately measure the credit risk of overseas shippers, he said. Mogaki expects overseas appetite for funds to purchase ships to remain high in 2014 after such JBIC loans increased to about 30 billion yen ($293 million) last fiscal year. JBIC and overseas customers may sign contracts to finance purchases of at least 14 or 15 Japanese ships in the year started April 1 and the number could exceed 20 if buyers place bulk orders, Mogaki said. They used funds from the bank for 17 vessels last financial year including two Japanese ships built at an overseas site, up from 13 the previous year. 2014 Problem Before Abe became prime minister, the companies were concerned that orders to build ships would run out by 2014, as the global supply glut caused vessel prices to plummet and the yen s strength pushed up the price of made-in-japan products. That was dubbed the Year 2014 problem, according to Mogaki. The state lender stepped up support for the Japanese shipyards exports after their biggest customers Nippon Yusen (9101) K.K., Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha (9107) Ltd. all refrained from buying new ships during the global financial crisis. The market turmoil triggered by the collapse of Lehman Brother Holdings Inc. in 2008 caused shipping demand to plunge. JBIC and local commercial banks increased loans to overseas companies to enable them to pay for Japanese vessels as European banks stopped financ- PAGE 10 OF 41
ing after the crisis, Mogaki said. The exposure of Germany s top seven shipping lenders stood at 86 billion euros ($119 billion) in the middle of 2013, down from 97 billion euros in mid-2012, according to the Bundesbank s Financial Stability Review. Commerzbank AG announced its exit from ship financing in 2012. In Japan, new ship orders at domestic yards climbed 76 percent to 16.5 million gross tons last fiscal year, an April 11 statement by the Japan Ship Exporters Association shows. European banks are gradually returning to the market, but they won t dominate like in the past, Mogaki said. Japan s market share may rise a little bit. Some are buying Japanese ships because they like them and others are because they are cheap now. Bloomberg 24 April 2014 EU POLICY 12. The European Parliament backs down on extended plans for a greenhouse gas emissions monitoring scheme for shipping. The European Parliament has, in its environment committee, debated proposals for what is seen as a potential regional precursor to a global monitoring reporting and verification system for ships carbon dioxide emissions. The committee had however decided to propose the scope of shipping falling under the scheme to include vessels larger than 400 gt, rather than 5,000 gt, as originally proposed, and to include NOx emissions along with CO2 emissions. The plenary has now rejected these proposals. The Parliament, probably following the May European elections, will debate the proposals in camera with the Council and the Commission ahead of a formal acceptance of what will then be a new European regulation, probably before the end of this year. Under the remaining proposals all ships calling at European ports will be expected to record and report their CO2 emissions, having previously prepared a reporting plan. The current expectation is for reporting to start from January 2018. The decision to reject proposals to include smaller ships and NOx emissions has been welcomed by the European Community Shipowners Association. Ecsa secretary-general Patrick Verhoeven notes that Brussels timeline will buy some time for the International Maritime Organization to work on a more suitable global solution for shipping. Debate at the International Maritime Organization over the way shipping s CO2 emissions will be curbed with the use of a market-based measure has been progressing slowly due to political stalling at other UN bodies. The decision to work on a means of understanding the levels of CO2 emitted from global shipping is seen as a less controversial step in finding a final acceptable future market-based measure such as a levy or emissions trading scheme. Lloyd s List -18 April 2014 13. European Parliament votes for more modern inland waterway transport The European Parliament voted on April 15 th in first reading on two proposals by the Commission regarding inland waterway transport: a proposal to facilitate the use of the Reserve fund and another relating to technical requirements for inland waterway vessels. Commission Vice- President Siim Kallas, responsible for Transport said I welcome the vote of the Parliament on these two proposals. The inland waterway sector needs to be a real alternative for transport and our package of proposals is needed to use Europe's rivers and canals to their full potential to the benefit of the transport network." The NAIADES II "Towards quality inland waterway transport", adopted in September 2013, sets out an action programme for the period 2014 PAGE 11 OF 41
2020 aiming at creating favourable conditions for inland navigation in the field of infrastructure, innovation, functioning of the market, environmental standards, and jobs and skills. The Reserve fund in the inland waterway transport sector includes currently around 35 million and has never been used. With the vote, Parliament agrees to broaden the scope of the measures towards training schemes, not only for workers in the sector, but for all crew members. Additionally, it will be possible to use the funds for innovation of vessels and their adaption to technical progress with regards to the environment. With the approval of the European Parliament, and since the Council of Ministers has already given its agreement, the amended Regulation can enter into force in this legislature. The proposal for a Directive laying down technical requirements for inland waterway vessels aims at facilitating and improving the adoption procedures when adapting and updating the technical standards for inland waterway vessels. After the vote in the Parliament, the Council of Ministers is expected to take its position on the proposed Directive. Rapid EC news 15 April 2014 14. The European Parliament adopts the Marine Equipment Directive. Modern marine equipment rules for safer EU ships. The European Parliament adopted on 15 th April the Commission's proposed new Directive on marine equipment. Better rules on marine equipment in the EU will result in safer journeys for the ships and their crew, less red tape for Member States, reduced costs for business, and increased competitiveness of the EU industry. European Commission Vice-President Siim Kallas, responsible for transport, said "These new rules are an important development in this sector as marine equipment represents a significant fraction of the value of a ship, and its quality and safe operation are critical for the safety of the ship and its crew. It is equally important for the prevention of maritime accidents and pollution of the marine environment". The law that has been adopted today contains three main innovations. The possibility to introduce an electronic tag or electronic wheel mark: This is an electronic version of the wheel mark proof of conformity for compliant marine equipment traded within the European Economic Area. The electronic tag should be cheaper for users and administrations to deal with than the physical mark, which can be hard to affix on products. The electronic version can be read at a distance and will help with stock control, market surveillance and the fight against counterfeit equipment. Administrative simplification: a simpler system for the transposition of IMO requirements into EU law will decrease the administrative burden on Member States. Furthermore, clear and harmonised rules across the EU will strengthen the competitiveness of Europe's industry. Law revision: the new directive addresses the problems encountered in the current Directive, which dates from 1996, such as weak market surveillance, as well as obligations for manufacturers, importers and distributors (with certain adjustments specific for the marine equipment sector). Following the vote in the European Parliament, the Council is expected to endorse the text as adopted by the Parliament, in accordance with the informal agreement reached between the two institutions in February 2014. The new Directive is expected to be adopted towards the end of 2014 and become applicable two years later. Rapid EC news 15 April 2014 PAGE 12 OF 41
15. Commission welcomes European Parliament's vote for renewed resources for combating pollution at sea The European Parliament adopted in April a financial package of 160.5 million for a period of 7 years (2014-2020) for the EMSA to allow continued action to combat marine pollution. This vote follows an informal agreement reached with the Council in March and shows the support and confidence in the European system to combat pollution at sea established in EMSA. This system which has proven its added-value and cost-efficiency relies on satellite services to detect pollution and a network of specialised anti-pollution vessels available to Member States to recover pollutants. The funds from the Union's transport budget will allow continued detection, monitoring and cleaning up of spills from ships and for phase-in activities to fight spills from oil and gas installations given the extended mandate of the Agency1 following the Deepwater Horizon oil spill. The Council is expected to endorse the Regulation as adopted by Parliament, in accordance with the agreement reached between the two institutions in March 2014. By having those funds for this specific activity over a seven-year period, EMSA can conclude multiannual contracts for the required equipment and services which is kept on stand-by in order to address incidents in the waters of individual Member States or in sea basins with neighbouring countries which cannot combat large pollution on their own. Since 2007, EMSA pollution response services have been used during 25 incidents including four mobilisations of "response vessels" in Europe as well as one equipment assistance package to the USA during the Deepwater Horizon incident in the Gulf of Mexico. Emergency support to affected coastal states has included "response vessels", satellite imagery, MAR-ICE activation (Marine Intervention in Chemical Emergencies Network) in relation to chemicals, and onsite expertise. Rapid EC news 15 April 2014 16. European Commission adopts new rules for RDI including a clarification on Shipbuilding Commission adopts new rules facilitating public support for research, development and innovation that will facilitate the granting of aid measures by Member States in support of R&D&I activities. The new R&D&I state aid Framework sets out the conditions under which Member States can grant state aid to companies to carry out R&D&I activities. Moreover, the scope of measures that no longer need to be notified to the Commission for prior approval has been widened under the new General Block Exemption Regulation (GBER). These new rules will help Member States reach the targets of the Europe 2020 Strategy for smart, sustainable and inclusive growth, while at the same time limiting distortions in the Single Market. Under a Questions and Answers section Shipbuilding is specifically mentioned: Q: The rules for innovation aid to the shipbuilding industry will expire soon, so innovation aid for this sector is now subject to regular R&D&I rules. Will this put the European shipbuilding industry at a disadvantage compared to its global competitors? A: No. First of all, those activities that could be supported with innovation aid under the shipbuilding framework can clearly continue to be supported as experimental development under the R&D&I Framework. Moreover, the conditions for such aid will be more favourable than under the previous shipbuilding framework: for example, the allowed aid intensity for prototype development is higher under the new rules, and commercial profits from prototypes even if there PAGE 13 OF 41
will be a whole series of ships based on that same prototype do not have to be offset with the aid. EC DG Competition June 2014 17. EU adopts stronger rules to better defend its rights under trade agreements The European Commission welcomes a new legal framework approved by the European Parliament on April 2 and by the EU Council in May to better enforce EU rights under international trade agreements. The new rules will allow for a more effective EU response to illegal measures taken by our trading partners. The new regulation gives the EU a single horizontal framework to react swiftly and effectively to make sure that trade agreements translate into real benefits for EU businesses and workers. These new enforcement rules will help us ensure that trade agreements are respected and deliver benefits for the EU economy. The EU is now better equipped to take action when other countries don't play by the rules," said EU Trade Commissioner Karel De Gucht. If an international trade panel a WTO panel or a dispute settlement panel created under a free trade agreement finds an EU partner country does not abide by international trade rules, the Commission will now be able to adopt trade sanctions under a streamlined procedure. Recourse to lengthy legislative procedures, which are ill-suited for the swift adoption of effective enforcement measures, will no longer be necessary. The Commission can now increase customs duties, set an import quota or impose limitations on access to public contracts in the EU by means of an executive decision to prompt the offending country to remove their illegal measures. The Commission will now also have legal powers to compensate for import restrictions imposed on EU products in exceptional situations (so-called safeguard measures), or to react to cases where a WTO member raises its import tariffs without adequate compensation for the EU. EC DG Trade May 2013 PRICES, FUEL, FREIGHT & EXCHANGE RATES MARKETS 18. Suezmax crude tankers saw zero fleet growth in first quarter. Positive sign for most pressured tanker segment Two vessels were delivered into the global fleet during the quarter, according to Clarksons data: the 157,055 dwt Dragoa Do Mar and the 158,000 dwt Almi Voyager. However, two vessels were sold for scrap, hence zero net fleet growth. The suezmax crude tankers sold to the breakers during the quarter were the 1994-built, 158,670 dwt Ruby and the 1992-built, 149,544 dwt Vinashin Atlantic. The global suezmax fleet on the water stands at almost 500 vessels, with only around 40 on order, according to Clarksons. This relatively small orderbook, coupled with zero fleet growth, is positive for the segment. Diminishing trading opportunities for these vessels means the segment would certainly not benefit from fleet growth. Fixtures dropped from 226 in January to 200 in March. The main reason for the drop is the weakening of the West Africa to US Atlantic coast trade, traditionally the main suezmax crude trade. Since the increase in US domestic shale oil production, this route has essentially become non-existent. West Africa to Asia crude trades are growing, but very large crude carriers are generally being employed for this rather than suezmaxes. The only hope for suezmaxes on this route is if it becomes more cost effective to employ two suezmaxes over one VLCC a development that happened on occasion in the first PAGE 14 OF 41
quarter. For suezmaxes to see any type of significant, sustained improvements in freight rates, it is clear that the segment would benefit from continued zero fleet growth in the coming quarters. Lloyds List 15 April 2014 19. The maritime industry will see a "big growth in scrubbing" for the long term. Marine and Energy Consulting's managing director Robin Meech said at the 35th International Bunker Conference in Copenhagen, that the cost of resorting to scrubbers would be a big motivating factor for growth. Subject to some economies of scale and the age of vessels, scrubbing is "the cheapest method to comply for existing ships less than 15 years old," he added, comparing scrubbers to low sulfur bunker fuel and LNG. The approximate cost of a scrubber is around $4 million, varying on ship size, industry sources said previously. Scrubber systems are air pollution control devices that can be used to remove some particulates and/or gases. On board a ship, scrubbers are installed on ships' engines to remove sulfur from bunker fuel. If a ship spends a lot of time in ECA areas, it would make sense for it to use scrubbers or LNG, said Meech. By 2025, the projected figure for heavy fuel oil being scrubbed annually is set at 28 million mt, and the industry would have a cumulative investment of $15 billion, he said. By 2025, he projects around 6,000 scrubbers will be in operation. In the current market, scrubber supplier Wartsila said that "as of March 2014, Wartsila has 45 vessels contracted for a total of 94 exhaust gas cleaning systems for both new building and retrofit projects." By 2035, Meech projects that these numbers will "more than" double. OTHER FACTORS How shipowners choose to comply with upcoming regulations will not only depend on the vessel's age but also on the availability of compliant fuels, access to financing, flexibility to move ships to non-eca trade areas, technological developments and their level of confidence in predicting fuel and technology prices, said Meech. The developing situation of global LNG infrastructure will also be another key factor, as will the question of when the IMO will introduce the global sulfur cap of 0.5%, he said. The IMO is due to review the global sulfur cap of 0.5% in 2015 and will make recommendations by 2017, just three years ahead of the proposed implementation in 2020. This will be a drastic drop from the current 3.5%. FUTURE OF LNG In considering LNG as a bunker fuel in non-lng tankers, there are several pros and cons to consider, and shipowners will have to weigh the advantages of lower emissions against disadvantages such as retrofit costs, which might end up being more expensive than scrubbers, Meech said. The cost to outfit a newbuild with LNG fuel tanks and engines can be 20-40% more, he said. And with LNG in unchartered territory as a bun-ker fuel, there is uncertainty about price, he added. In projected figures, if LNG does take off, the market should see some 8 million mt/year of LNG used as bunkers, and this volume will be used mainly by around 1,700 smaller vessels, Meech said. This volume will account for around "11% of bun-kers consumed," he said. Hellenic Shipping News - 04 April 2014 PAGE 15 OF 41
NEWBUILDING MARKET 20. South Korean shipbuilders new orders plunge 70% in March South Korean shipbuilders saw their new orders tumble more than 70% in March from a year earlier due to increased ship prices, industry data showed. South Korean shipyards clinched new orders totalling 434,774 compensated gross tons (CGTs) in March, down 70.1 percent from 1.45 million CGTs a year ago, according to the data by global market researcher Clarkson Research Services. The number accounted for 22.8 percent of the total global ship orders, with South Korean shipyards outpaced by Chinese rivals. Chinese shipbuilders won orders totalling 1.05 million CGTs in March, equaling 54.9 percent of the global total, the data showed. CGT, an indicator of the amount of work needed to build a given ship, is used as a tool to compare inter-country shipbuilding output. It is the generally used measure for the volume of orders received. The plunge in March orders left South Korean shipbuilding companies trailing their Chinese rivals in the January-March period. In the first quarter, South Korean shipbuilders won 4.03 million CGTs, or 37.4 percent of the global total, while Chinese companies garnered 4.29 million CGTs, or 39.8 percent. In the first two months, cumulative orders of local shipbuilders reached 3.13 million CGTs, 34.7 percent more than the 2.32 million CGTs of Chi-nese shipbuilders. According to industry watchers, the March plunge resulted from global shipping companies' unwillingness to place new orders amid rising ship prices. Yonhap-07 April 2014 21. Japan's shipbuilding orders up Japan s shipbuilding industry receives number of substantial contracts this year. Total new export orders of ships undertook by shipbuilding enterprises in Japan amounted to 27.72 million tonnes or 658 vessels this year ended March. The amount of export orders was 16.49 million tonnes in the previous fiscal year. According to Shipbuilders Association of Japan the demand for ship plate will reach 2.71 million tons this year. Hellenic Shipping News / Yieh 29 April 2014 22. Japan: Shipbuilders face uncertain future despite weak yen The nation s shipbuilding industry faces uncertain waters. As shipbuilders scramble to secure construction orders for large passenger ships and special-purpose vessels that require advanced technology, profits continue to disappoint. Shipbuilders have been able to survive thanks to the yen s depreciation, but the prospect of having to fight an uphill price war against Chinese and South Korean shipbuilders has left them deeply concerned. While Japanese shipbuilders saw their shares in the global shipbuilding market halve from 27 percent in 2005 to 13 percent over a period of eight years the combined shares of Chinese and South Korean shipbuilders increased from 53 percent to 77 percent in the same period. Chinese and South Korean shipbuilders have the advantage of lower production costs, which translates to lower prices and increased orders, particularly in the case of cargo ships and tankers because of their comparatively simple structures. Complex structures can cause complex problems, as the experience of Mitsubishi Heavy Industries, Ltd. shows. The firm lost 13 billion building two large passenger ships from an order it accepted in 2000. Nonetheless, MHI continued accepting orders for large-scale passenger ships as a survival strategy. But the strategy PAGE 16 OF 41
seems to have backfired. In March, MHI took extraordinary losses of 60 billion for the construction of two other large passenger ships. Though the initial construction order was valued at approximately 100 billion, additional costs were incurred when the ships had to be redesigned at the insistence of the clients, who were dissatisfied with the liners interior design. The company will therefore revise its focus on large-scale passenger ships, including the possibility of withdrawing from their construction altogether. A senior official of the firm said, They incur too many losses compared to their scale. In other developments in the industry, Mitsui Engineering & Shipbuilding Co. said it will seek more orders for underwater probe vehicles after it failed to merge with Kawasaki Heavy Industries, Ltd. last spring. Mitsui Engineering & Shipbuilding President Takao Tanaka is still seeking a merger partner. He said his company needs a partner to secure funding for research and development and to win orders for big projects. The total number of shipbuilding orders for exports accepted by domestic shipbuilders in fiscal 2013 increased dramatically by 222 compared to the previous fiscal year. Japanese shipbuilders are regaining their competitive edge thanks to the yen s depreciation, although shipbuilding in Japan had been projected to disappear by 2014. But Takahiro Mori, an analyst at Merrill Lynch Japan Securities Co., said: Sooner or later, Chinese and South Korean manufacturers will technologically catch up with Japan. Domestic manufacturers have to reduce their production costs as they expand their scale through a restructuring of the industry. The Japan News- 29 April 2014 23. China shipbuilding sector in recovery mode China s shipbuilding sector has embarked on a path to recovery, aided by the overall global economic rebound and policies from Beijing to help the shipyards, after more than five years of downturn, according to China Association of the National Shipbuilding Industry (Cansi). The shipbuilding sector has been bogged down by excessive shipyard capacity amid the ongoing vessel tonnage glut, leading to low newbuilding prices and reduced orders, not to mention the widespread bankruptcy of many bottom-rung yards. Tan Naifen, deputy director of Cansi, said that the number of vessels to be delivered from Chinese yards would decrease significantly in 2014 and 2015 as the sector consolidates, an outcome that would alleviate the global vessel tonnage glut that has been stripping away profit for shipowners. And as China s shipbuilding sector consolidates, Tan noted that the yards have been raking in profits in the first two months of 2014, with 87 of the country s stronger yards generating revenue of RMB30.8bn ($4.9bn), up 10.8% year-on-year and profit of RMB480m, skyrocketing 123.3%. While Tan believed that the recovery process has started, she did not give a forecast on when the shipbuilding sector will witness a boom again. The resolve by Beijing to revive the shipbuilding sector has been the driving force for an optimistic outlook, as China s State Council has banned shipbuilders adding new yard capacity and is incentivising owners to scrap old vessels. Meanwhile, deputy minister of China s ministry of industry and information technology Su Bo believed that China will become the world s strongest shipbuilding nation within the next 20 years. In the next 10 to 20 years, China will become the world s most important and leading shipbuilding nation as the country continues to transform and enlarge its maritime sector, Su was reported saying. China is already the world s second largest economy, and its shipbuilding sector is expected to raise its standards to PAGE 17 OF 41
meet international demands. The shipbuilding industry is also expected to spearhead the growth of China s maritime sector, he added. Seatrade Global 29 April 2014 24. Newbuild Crude Tankers Rise in Popularity Low shipbuilding prices and the North American energy boom are leading ship operators and investors to finance billions of dollars into building crude tankers, according to IMDO s Weekly Market review. New drilling and extraction technology enabling the shale oil and gas boom has triggered plans for LNG projects, led Canada to boost crude exports and historically, led the US to consider lifting their long-standing crude oil export ban. Removing the ban would be controversial and far off, however the willingness of the US government to debate such an idea has led shipping executives to try and position themselves to take advantage. Used tanker prices have risen by about 15% since November, after four years of falling prices, and many operators are considering newbuilds. Indeed prices of newbuild VLCCs have risen 10% since mid-2013 and are now in excess of $100m. Despite this, orders for new VLCCs, jumped from just three in 2011 to 47 last year, with 18 ordered during the first quarter this year. One Greek owner who asked not to be named commented, We are looking into buying three new VLCCs on the assumption that the US will reverse its crude oil ban It is a huge gamble, but I ve been in the tanker business for 30 years and never seen so much movement on this issue. IMDO, June 19, 2014 25. Helsinki shipyard benefits from renewed interest in icebreakers. Finnish and Russian orders for icebreakers offer promise for once struggling yard Helsinki s shipyard, Arctech, is about to hand over the world s first oblique icebreaker to its Russian owners. In another world first, it is also starting work on the first dual-fuelled icebreaker, which must be handed over to the Finnish government in two years time. Arctech also has a third vessel on its orderbook, a coastal icebreaker for Russia. There is a positive feeling again in Helsinki over the city s shipyard as its new focus on vessels dedicated for work in ice conditions, particularly for Russia, is paying off, but the era of change for the yard is far from over. Arctech has been using Russian facilities to build most of the blocks for the orderbook before the vessels are assembled, painted and fitted out in Helsinki. Arctech has had the new oblique icebreaker and oil spill response vessel Baltika out for two sea trials, with the vessel back in Helsinki for final adjustments and fitting out of the accommodation areas. Its eventual owner is the Russian Federal Agency of Sea and River Transport. While it is an icebreaker, it is more a rescue and oil combat vessel for work in the Gulf of Finland. The most notable aspect of this vessel is its lack of symmetry. One side of the vessel will act as an oblique icebreaker, creating 50 m wide channels in ice by using the vessel s length. The other side of Baltika has oil recovery equipment for open waters. Lloyds List 15 April 2014 PAGE 18 OF 41
I. SHIPBUILDING STATISTICS Figure 1.1 Summary of activity in World Shipyards (CGT) Data source: IHS Fairplay Global orderbook continues the increasing trend began in 2013 after 5 years of drop. Demand for new vessels stands at 14.5M CGT, 60% increase compared to the 1Q 2013 (8.8M CGT). Deliveries have slowed down compared to precedent years. Figure 1.2 Summary of activity in Chinese shipyards (CGT) Data source: IHS Fairplay Chinese yards have contracted 41% of the global orders with 347 vessels accounting 6M CGT; just 2M CGT less than the average contracts in previous year. The orderbook continue growing. PAGE 19 OF 41
Figure 1.3 Summary of activity in South Korean shipyards (CGT) Data source: IHS Fairplay South Korean orderbook is recovering after 5 years of downturn. In the 1Q 2014 have contracted 124 new vessels accounting 4.2M CGT, 1M CGT more than in the same period of 2013. Even affected by overcapacity in the cargo markets, owners are placing new orders for more efficient tankers, bulkers and containerships. Figure 1.4 Summary of activity of Japanese shipyards (CGT) Data source: IHS Fairplay Thanks to the Japanese government s decision for devaluating the Yen, Japanese yards have positioned themselves as more competitive at the export market. Continuing the growth trend of 2013 the orderbook stands at 15M CGT. In the 1Q 2014 Japanese yards contracted 3M CGT, tripling the levels of the same period last year. Completions remain at 2013 levels. PAGE 20 OF 41
Figure 1.5 Summary of activity of EU28+ Norway shipyards Data source: IHS Fairplay The European orderbook continue the growing trend initiated last year. Compared to the 1Q 2013 new orders have increased 30%, despite is still at low levels. Completions stand at the same levels of last years. Figure 1.7 Evolution of the Orderbook in Number of Vessels by Country Number of vessels Data source: IHS Fairplay Global orderbook stands at 6354 vessels, increasing a 6% since the end of 2013. Chinese orderbook contains 2402 vessels, half of them bulk carriers, but also containerships, tankers and offshore supply and support vessels. Korean orderbook contains 945 vessels, mainly tankers but also some containerships and bulkers; Korean yards have also on order 40 drilling ships, few FPSOs and Gas Processing vessels of high value. Japanese have 906 vessels in the orderbook, mainly bulkers and tankers. Europe 28+Norway orderbook contains 474 vessels, mainly high technology and value vessels such as Offshore supply, passenger vessels, workboats and other special purpose vessels. PAGE 21 OF 41
Figure 1.7 Evolution of the Production in Number of Vessels by Country Number of vessels Data source: IHS Fairplay Global production slowed down a 16% in 2013 compared to previous years. Around 740 vessels were delivered in the 1Q of 2014. China leads the production with 230 vessels delivered, 30 vessels less than in the same period last year. Japan delivered 157 vessels, 6 less than in the 1Q 2013. S. Korea with 89 completions has slowed down in 40 ships and European yards with 46 stay in the same level of the 1Q 2013. Figure 1.8 Evolution of New Orders in Number of Vessels by Country Number of vessels Data source: IHS Fairplay 794 vessels have been ordered in the 1Q 2014. Chinese yards, with 347 new orders, have secured 55% more contracts than the same period last year. Japanese, thanks to the Yen devaluation have increased 60% the new orders compared to 1Q 2013, standing at 192 vessels. S. Korea has contracted 124 new ships, 20 more than 1Q 2013 and Europeans 61 vessels, increasing the contracting activity in 1Q 2013 by 25%. PAGE 22 OF 41
Figure 1.9 New Orders by Area Data source: IHS Fairplay In CGT terms, China leads the new contracts market in the 1Q 2014. Compared to the same period last year Japanese and Chinsese are the countries with a higher gowth (Japan, with 3M CGT, tripled their new orders and Chinese doubled their shares in 1Q 2013 with 6M CGT). European yards have also increased their new contracts a 30% compared to 1Q 2013, despite standing in 4 th place with 0.7M CGT. S. Korea contracted 4.2M CGT, 1M more than 1Q 2013. Figure 1.10 New Orders by Main Ship Types Data source: IHS Fairplay Demand for cargo carriers picked up in 2013 and the trend continues. Driven by efficient design demand for bulkers has almost tripled the new orders in the same period last year. Also demand for tankers and LPG vessels has considerably increased. Non cargo vessels demand grew as well, for passenger/ro-ro, ferries and offshore vessels. PAGE 23 OF 41
Figure 1.11 Completions by Main Shipbuilding Areas Data source: IHS Fairplay 10M CGT have been delivered at world shipyards, slightly smaller figure than in the same period last year when 11.3M CGT were delivered. No significant changes can be seen regarding the vessel types or the shipbuilding areas. Bulk carriers and containerships still lead the deliveries. Figure 1.12 Completions by Main Ship Types Data source: IHS Fairplay PAGE 24 OF 41
Figure 1.13 World Orderbook by Area Data source: IHS Fairplay The world orderbook has grown compared to the end of 2012. China leads the orderbook with 40M CGT followed by Korea with 33M CGT, Japan 15M CGT and EU 28+Norway 6.2M CGT. The orderbook has increased thanks to owners choose for more fuel efficient vessels, and an increase can be seen in both cargo carriers and non-cargo and offshore vessels. Figure 1.14 World Orderbook by Ship Types Data source: IHS Fairplay PAGE 25 OF 41
Figure 1.15 Value of the Orderbook by main Shipbuilding Areas and Ship Types Data Source: Clarkson Clarkson estimates that global commercial orderbook stands at aprox. $298bn. South Korean orderbook is the most valuable with $106bn, 50% of its value corresponding to offshore. European orderbook, composed by passenger ships, offshore vessels and non-cargo carriers is estimated in $31.5bn, and Japanese orderbook in $29.5bn. Figure 1.16 Value of the New Orders by main Shipbuilding Areas Data Source: Clarkson Besides in number of vessels and CGT European yards have contracted less than Japan, in terms of value seems that have higher value new orders, given the type of advanced technology vessels built in Europe. EU28+Norway have 13% of the global market shares in value terms. PAGE 26 OF 41
Figure Types 1.17 Value of Completions by main Shipbuilding Areas Data Source: Clarkson In the first 3 months of the year world shipyards delivered vessels accounting $22.8bn. Asian yards lead the production in terms of value, followed by European yards. Figure 2.1 Monthly Newbuilding Price Index Data Source: Clarkson Clarkson s ship prices index shows an improvement of US $, Korean Won and Japanese Yen. Euro and Yuan are still at lower levels, despite fluctuations in the last year. Yards are still facing a complicate situation of low pricing to compete for low incomes. PAGE 27 OF 41
Figure 2.2 Evolution of Cargo Carriers Time Charter Rates Data Source: Platou Cargo carriers charter rates are still at very low levels hardly covering operating costs, despite a slight recovery for bulk carriers and tankers. Figure 2.3 Bunker Fuel and crude Oil prices Data source: BunkerWorld.com and World Bank Crude oil and bunkering fuel continue at historical high levels. Bunker fuel stands at $ 581.75 per tonne making hard for shipowners efforts to cover shipping costs and influencing the choice of owners for more efficient design vessels and other bunker fuels. PAGE 28 OF 41
Figure 2.4 Ship Scrapping Data source: Clarksons Data Source: Clarkson Low earnings from shipping and overcapacity have favoured an increase in scrapping over the last years. In total 205 vessels of 6M GT were sold for demolition in the 1Q 2014. Slightly lower figure than in the same period 2013. Scrapping of Containership tonnage was the largest, followed by bulkers and tankers. Figure 2.5 Materials Price Data source: MEPS.co.uk Despite slight fluctuations over the last 2 year prices of the hot rolled plate have decreased. Asian average steel price stands at $634/ton while European stands at $703/ton. PAGE 29 OF 41
Figure 2.6 - Exchange Rates evolution Data source: X-Rates.com Exchange rates against the dollar continue to fluctuate making financial planning difficult in a period already challenging. Japanese Yen was devaluated by the government to help the industry and is now more competitive in the export markets. Korean Wan continues approaching more competitive rates. The Euro is still at the least competitive rate. Figure 2.7 Evolution of Global Investment in Newbuilding Activity: 87.1 103.6 Dat 24.8 Data source: Clarkson Current financial crisis has lead to a cut of investment in the global newbuilding market. $ 24.8bn were invested in newbuilding in the 1Q 2014, out of which $ 6.6bn were invested in Offshore. PAGE 30 OF 41