Many Faces, Many Futures The New Dynamic Face of Greek Shipping 4th Hydra Shipping Conference 15th September 2012 Dr Martin Stopford, President, Clarkson Research, London
The Drivers of Change How do you play this hand? • The 7 Faces of Shipping • Dynamics of Globalization • Greek Shipping Evolution • Six Challenges • Conclusions
1. The Seven Faces of Shipping 3. PUBLIC COMPANY 2. PRIVATE COMPANY 4. PRIVATE PARTNERSHIP KG etc 5. SHIP OPERATOR 1. Shipowner 7. LEASING COMPANY 6. MANAGEMENT COMPANY
Before the 2nd World War the world the world (and shipping) was dominated by European Empires In 1944 at the Bretton Woods conference in USA set the scene to change the system The aim was to “globalize” of the world economy 2. The Dynamics of Trade We must build a dynamic world economy US Treasury Secretary Henry Morgenthau at Bretton Woods in 1944
1944 Global Free Trade Policy At Bretton Woods in 1944 US Treasury Secretary Henry Morgenthau outlined the objective of creating "a dynamic world economy ". The method was to establish a new, liberalized trade regime To assist in achieving this aim the World Bank, the IMF and GATT were founded. MEETING AT BRETTON WOODS IN USA “The objective, gentlemen, is to create a dynamic world economy” Delegates at the Bretton Woods Conference in 1944 5 06/06/2014 2nd April 2008
The Result – A “Flood” of Trade 1950-2011 Index 1950=100 2012 Sea trade 16 times as big as in 1950 Sea trade grew at 4.3% per annum 2012 World GDP 8 times as big as in 1950 World GDP Grew at average of 3.6% per annum
The Shipbuilding Cycle Shipyards expand to replace the ships built in the 1970s boom 2 Million Dwt Deliveries 162.5 m dwt in 2012 FORECAST Deliveries 61 m dwt in 1976 1 Last phase of 1970s scrapping!
Globalization Part 1 2000-2050 6 billion Non-OECD population want to consume at OECD levels 1950-2000 OECD’s 1.3 billion population
Bulk Liquids Unit Load Refrigerated Manufactures Bulk Shipping Homogeneous cargoes Specialised Shipping Specialized cargoes Container Shipping Unitized cargoes Air Freight Urgent cargo Bulk carrier, tanker Specialised ship Container ship Air freighter Sea Transport was mechanized:- A new Shipping Model developed in the 1950s The mechanization of sea transport lies at the heart of globalisation – adding value takes place by inter-segment competition
Figure 3The Potential Cargo Matrix (PCM) 2. Air Freight 3. Specialised Transport High A B Value $ per tonne C 4. Bulk Transport 1. Liner Transport Low Low High Volume tonnes per year Business Model Maturing • Low returns, chasing size • High investment requirement • Finance problems • Increased energy costs • Complexities of globalization
3. Greek Owners' Evolution • Globalization provided a massive opportunity for independents • Control of the fleet moved from imperial owners to independents • Greece led the way Built as Bellucia, 1937 renamed Leonidas M. Leonidas M SS was a Greek Cargo Steamer of 4,573 tons built in 1929. On the 19th July 1942 when on route from RIO DE JANEIRO for SYDNEY (N.S.) carrying a cargo of 6,700 tons of iron ore she was torpedoed by U-332 and sunk and finally sunk by gunfire. 2...see wreck
Greek Owned Fleet & Globalization Shows Gross tonnage and growth rate Million GRT Greek owners used charter back $ loans to build the fleet in the 1960 2000s 5% pa 1990s 7% pa 1970s 7% pa 1980s -1.4% pa 1960s 6% pa 1950s 18% pa
Greek Finance1949 to 2012 Greece’s share of the fleet grew from 3% in 1949 to 18% in 2008 % World Fleet 1996-2012 Steady at 15-17% 1974-1990 5% cut back during 1970s/80s recession 1949-1973 Rapid growth based on time charters & Euro$ loans Equity Markets Bond Markets Euro$ market starts 1958 Charter backed finance
Greek Owned Fleet - Top 10 Owners in 1969 • In 1969 the ten biggest international Greek companies owned 502 ships, accounting for 28% of Greek owned GRT
Greek Owned Fleet - Top 10 Owners in 2012 • In 2012 the ten biggest international Greek companies owned 672 (much bigger) ships, accounting for 29% of Greek owned GRT.
Greek Owned Fleet 2012 546 Greek companies owning ships over 5000 dwt Number of ships owned • Top 10 own 672 ships • The core are the medium sized companies with 3-15 ships Small Medium Big Owners Top 10 Owners
Greek Owned Fleet: Ship Value • Greek companies owned ships worth $70.6 billion • $14.8 billion owned by listed companies • Medium companies have assets worth $32 billion (funding requirement of, say, $20 billion??) Small (5% value) Medium (45% value) Big Owners (27% value) Top 10 Owners (23% value) Values at 1st May 2012 (over 5000 dwt)
Greek Owned Fleet By Type • Broad portfolio, 80% tankers and bulkers • Containers only 10% which is low for the third biggest world fleet segment (5,100 ships worth $100 billion). Tankers 37% Bulkers 42% Other 20%
Future Challenges How do you play this hand? • Over-capacity • Energy costs • Regulatory focus • Globalization part 2 • IT & Comms revolution • Container model
World Cargo Fleet 1963-2013 Challenge 1: Shipping Over-Capacity Surplus shipping capacity (% right axis) From 2009 world fleet surges ahead of demand Demand for sea transport runs ahead of supply
Challenge 2: Energy Costs THE SHIP USED TO COST MUCH MORE THAN BUNKERS BUT. TODAY BUNKERS COST MORE THAN THE SHIP. 2005 Ship costs 3x fuel 2012 Ship costs half fuel Based on Aframax tanker, 1 year TC rate and Rotterdam bunker price
Challenge 3: Regulation • Requirement that new ships must comply with the EEDI, a clear attempt to drive efficiency improvements • The focus on air emissions; ballast water; recycling; energy efficiency and the carbon footprint. • The dilemma of gas oil versus scrubbers and the uncertainty over of which ballast water system. • Many shipyards, after a decade when they were able to sell standard ships, are struggling to respond.
Eco-Ship Design – Complex Shows the effect on fuel cost (green lines) & ship cost (yellow line) of changing speed in 1 knot increments on 5000 mile voyage EEDI Shipping lanes Back haul scrubbers LNG best speed at $1500/tonne bunkers No ballast wind NUCLEAR Fuel Cells COATINGS logistics best speed at $200/tonne bunkers 80% saving Hull form Engineering Speed of ship (knots) Note 1: Just difficult decisions
Over the last 50 years the OECD countries dominated growth Asia started to grow in 1970s & China in the 1990s. Non OECD trade overtook OECD in 2006 The next phase of globalization will see more countries; more pressure on resources; and more geo-political tension (piracy a sign) Challenge 4: Globalization Part 2 Non OECD Fleet Ownership OECD
Challenge 5: IT & Comms Gordon Moore Invented “Moore’s Law” Fibre optic cable network
Challenge 6: Container Business Model The container business will be at the heart of change Billion tons Will the exponential trend of 8.8% trend continue? “Over the centuries technical developments in liner shipping has been not so much a continuous process as an occasional leap forward precipitated by a compelling call for change. In between there have been long periods of conservatism". Ronnie Swayne, Chairman OCL 1973 This chart shows container cargo growing to 1.5 billion tonnes today. In 2009 the trade had its first serious “wobble”.
7. Conclusions • Lousy hand so aim 1 is to survive • Major revolution in fuel costs, technology, software and systems • Challenging regulatory focus which the industry is still struggling with • Globalization “Part 2” will change the pattern of trade & it’s geopolitics • IT Revolution will create “soft” opportunities • The container business is due for a “great leap forward” “fuel costs and environmental regulations are the Wild Cards”
“Play the players, not the cards. • Watch them from the minute you sit down. • Play fast in a slow game , slow in a fast game. • Never get out when you are winning. • Look for the sucker and, if you don’t see one , get up and leave because the sucker is you” Amarillo Slim’s Advice
Oceanic Steam Navigation Company Ltd • The company is better known as White Star Line which owned the Titanic • 100 years ago the Chairman was Thomas Bruce Ismay • In the film Titanic he is the arrogant man who ordered the Captain of the Titanic to go imprudently fast • He looks bad, but he had a problem the film did not tell you about, which you will understand. Chairman Bruce Ismay Chairman 1912
Oceanic Steam Navigation Company Ltd 7 year average earnings (in arrears) Titanic loss 2012 Collapse of earnings 1900 to 2010 Cut throat competition between Cunard and White Star Bruce Ismay, Chairman
Seaborne Trade – 9 billion Tonnes Sea Trade in 2011
Seaborne Imports – 9 billion Tonnes China Sea Trade in 2011 Rest of the world
Greek Owned Fleet - Ship Type Prospects The “Ratio” is “orderbook as a % fleet” ÷ trade growth trend