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Freight market: development forecasts, influence factors & Butterfly effect

Freight market: development forecasts, influence factors & Butterfly effect Nikos Marmatsouris. FICS Maritime Days Odessa, May 2013. Africa. Americas. . . . Middle East. Asia Pacific. . Algeria Angola Benin Cameroon Congo Democratic Rep. of Congo Egypt Gabon

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Freight market: development forecasts, influence factors & Butterfly effect

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  1. Freight market: development forecasts, influence factors & Butterfly effect Nikos Marmatsouris. FICS Maritime Days Odessa, May 2013

  2. Africa Americas    Middle East Asia Pacific  • Algeria • Angola • Benin • Cameroon • Congo • Democratic Rep. of Congo • Egypt • Gabon • Guinea • Ivory Coast • Kenya Europe, Med & Black Sea  Indian Subcontinent  • Mauritania • Mozambique • Nigeria • Senegal • South Africa • Tanzania • Togo GAC Global Network • Norway • Poland • Russia • Spain • Sweden • Turkey • Turkmenistan • UK • Ukraine • Cyprus • Czech Republic • Denmark • France • Greece • Italy • Kazakhstan • Lebanon • The Netherlands • Argentina • Brazil • Chile • Colombia • Ecuador • Mexico • Panama • Peru • Trinidad & Tobago • USA • Uruguay • Venezuela • Australia • Cambodia • China • Hong Kong • Indonesia • Japan • Korea • Malaysia • Philippines • Singapore • Taiwan • Thailand • Oman • Qatar • Saudi Arabia • United Arab Emirates • Yemen • Bahrain • Iraq • Jordan • Kuwait • Bangladesh • India • Pakistan • Sri Lanka

  3. Who can tell us - what’s next?

  4. A brief market summary • Deepening financial market problems cause an exaggerated effect on shipping. • Dry cargo shipping sector – quite severely hit due to excess over supply. • China business downturn playesa major role on world shipping as China accounts for almost 45% of total world trade. • Commodity prices severe fluctuation not a factor for freight stability. • BDI is way ahead from recovering it’s May 2008 peak of 11700 points, which now seems like ..science fiction! • The “Butterfly Effect”

  5. Grains business – a stress story?

  6. World Major Crop Production Source: AGResource Company

  7. 2002-2012 Change in Primary Grain Production - Up 325.4 MMTs 2012: 1,475,719 MMTs 2002: 1,150,320 MMTs 53,095 North America South America European Union 29,113 165,891 Former Soviet Union Africa 39,650 Asia Australia 32,235 Source: AGResource Company

  8. 2012 World Droughts & Floods • = Central US drought has been the worse since 1956. An approx. 100 MMTs • of corn have been been lost. • = Russian crop losses amount to 27-29 MMTs with wheat production to be below the 2010 export ban level, at 38 MMTs. • = N.America seems to be the leading supplier of world grain importers • during ’13. • = It is feared that extreme world weather conditions will persist during • 2013 thus adding to lack of world crop cushions!

  9. The Dire ‘12 Russian Drought

  10. FSU 12 Grain and Oilseed Stocks; Lowest since 2007 MMTs Grains Oilseed 50 45 40 35 30 25 20 15 10 5 0 Source: AGResource Company

  11. FSU-12 Corn/Wheat/Barley Export; Down 23 MMTs! MMTs Wheat Corn Barley 70 60 50 40 30 20 10 0 Source: AGResource Company

  12. FSU a Reliable Grain Supplier? Weather twice as variable comparing to US! Russia is an Less reliable Grain Exporter Because of Weather (Although Area Fluctuates, Changes in Russian Grain Production Largely A Function of Yield) Mil MT & HA MT/HA 2.45 120 112 2.30 Harvested Area (Mil Ha) 104 Grains Production (Mil MT) Yield (MT/HA) 2.15 96 88 2.00 80 1.85 72 1.70 64 1.55 56 1.40 48 1.25 40 32 1.10 24 0.95 16 0.80 8 0 Source: AGResource Company

  13. 2012/13 World Grain Stocks Drop a Record 41 MMTs MMT 100 80 60 40 20 -20 -40 -60 Source: AGResource Company

  14. World Corn/Wheat Trade; Down a Record 45 MMTs! 1,000 MT 180,000 Corn Wheat Soybeans 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 Source: AGResource Company

  15. 2013Wheat forecasts

  16. 2013Wheat forecasts = Ukraine and Russian Wheat exports exhausted based on diminished crop yield (drought). EU wheat export sales are on the rise. = The US/Canada will be the benefactors and are setting world price direction in 2013. = The world wheat stocks are in decline and market prices should naturally be on the rise. Adverse new crop weather in the US and Europe adds to upside potential = The Black Sea exported 14 MMTs in the Nov-May period of 11/12, while S. Hemisphere wheat exports down 17 MMTs. There is a 31 MMTs of import potential that has to be filled by US/Canada/Australia and India. = Can expect very unstable & rising prices if US/EU/Russian crops are affected by any reason within 2013, as there are very little other supply alternatives.

  17. World Wheat Trade by Origin MMTs 45 4035 Argentina Australia Canada EU-27 30 25 20 15 FSU-12 10 5 0 Source: AGResource Company

  18. Shipping to the future

  19. Dry Bulk Deliveries + Orderbook by Size (only units over 20,000 dwt, in mln dwt) - A significant number of new buildings has been delivered over the last five years. - Actual deliveries in 2013 expected to be less than the total for 2012. Source: Banchero Costa

  20. Total Dry Bulk Fleet Growth only units over 20,000 dwt, in mln dwt) Source: Banchero Costa The excessive number of new building deliveries resulted in strong growth in shipping cargo capacity over the last few years. However, a combination of fewer deliveries over the next few years and strong demolition activity is expected to reduce overcapacity and help rebalance the supply - demand environment.

  21. Bunker costs constitute a large % of the freight cost Typical Panamax bunker cost on the grain route from Paranagua to Qingdao 150 75% 140 70% 130 65% 120 60% 110 55% 100 50% 90 45% 80 40% 70 35% 60 30% 50 25% 40 20% 30 15% 20 10% 10 5% 0 0% Freight: Paranagua to Qingdao Bunkers as percentage of freight Source: Clarksons

  22. Scrapping set new records due to weak freight market Ratio of gross annual earnings to scrap value Drybulk demolition activity 7 550 500 6 450 5 400 4 350 300 3 250 520 2 200 392 150 278 1 100 141 50 0 2009 2010 2011 2012e CapesizePanamaxHandymaxHandysize Source: Clarksons

  23. The older ships which are smaller get scrapped Panamax average scrapping size Handymax average scrapping size 50,500 180 140 72,500 71,948 49,935 50,000 72,000 49,812 130 160 120 49,500 71,500 140 110 49,000 71,000 70,792 100 120 48,500 70,500 90 80 48,000 70,000 100 47,500 47,336 70 69,500 47,274 60 80 47,000 69,000 68,796 50 60 46,500 68,500 40 40 46,000 45,939 30 68,000 67,776 20 67,473 45,500 20 67,500 10 45,000 0 0 1991- 1996- 2001- 2006- 2011- 1991- 1996- 2001- 2006- 2011- 1995 2000 2005 2010 2012 1995 2000 2005 2010 2012 No of ships scrapped No of ships scrapped Average scrapping size Average scrapping size Source: Clarksons

  24. Conclusions • World economic activity and therefore demand for shipping has slowed down last year, but things are improving for 2013 and outlook is not necessarily as bad as it seems, especially for the smaller size vessel operators. • Freight to remain volatile and on the low side due to excessive world fleet growth, with dry cargo fleet still expanding significantly in 2013. • This is rather good news for grain traders however not so good for ship operators who will have to sustain another year of consolidation. • Smaller vessel operators may get luckier in relative future freight terms due to minimal renewal of this type of tonnage.

  25. Positive for better days ahead…

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