2014 Market Forecast Report

2014 Market Forecast Report

Newbuilding Requirements 2014-2035 | SEA Market Forecast WG

3

Contents

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Global Economic Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Global Energy Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Global seaborne trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Newbuilding Requirements: Cargo Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

a. Containerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

b. General Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

c. Bulk Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

d. Oil and Chemical Tankers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

e. LNG carriers:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

f. LPG carriers: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Newbuilding Requirements: Offshore Oil & Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

a. Offshore E&P: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

- Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

- Floating Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

b. Construction & Subsea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

c. Offshore Supply & Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Newbuilding Requirements: Cruise Ships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Newbuilding Requirements: Special Vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

a. Port tugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

b. Dredgers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

c. Research vessels. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

d. Fishing vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

e. Other special vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

5

Foreword

Since the beginning of the seventies, SEA Europe1 has been preparing newbuilding requirement forecasts. SEA Europe has a good cooperation with its colleagues overseas SAJ, KOSHIPA and CANSI2, and annually they all meet to discuss results and methodology for their forecasting at the International Shipbuilding Forecast Expert Meeting (ISFEM).

In 2014, the latest forecast (to 2035), was launched, based on the same methodology as previous years. The forecast is based on macro-economic forecasts, taking the economic development in the world and the global production, energy consumption and the expectation for future energy mix into consideration. Based on these factors, the global trade is investigated into the individual product types such as major bulk, oil and gas cargo and general cargo and minor bulk. Unfortunately, the valid trade figures often fall short and this gives the forecasting team some challenges, which it believes that it has overcome. The future seaborne trade is forecasted including the expectations for the future trade patterns.

Newbuilding requirements are evaluated by individual ship types and sizes, considering the average age and scrapping perspectives. Over the last couple of years SEA Europe has invested further efforts in the forecasting of specialized ship types, however, it is important to have in mind that all the different ship types alongside each other best reflect the market and the future opportunities.

Before going further into detail SEA Europe wants to make clear that this report is forecasting the newbuilding requirements and not the demand. Demand is usually affected by the competitive inte-rests of the individual ship-owners and the history and market have shown that both concepts don’t necessarily go together. On the other hand, the forecast looks into the long term, to better understand where the mega trends may drive the newbuilding market in 2035. Short term forecasts are usually left for individual companies.

The figure below illustrates the methodology:

The forecast shows that the newbuilding requirements will increase in the coming years, even at re-latively low levels. However, the increase of transport needs and environmental considerations will influence the need for the replacement of the fleet and this will show up in the demand.

Despite the newbuilding demand increasing in the forecasted period, it cannot be expected to see the high demand for newbuilding seen in the mid 2000’s. The industry will have to act upon the global overcapacity both with regard to shipbuilding capacity and seaborne transport capacity, and thereby some structural changes are to come.

Jenny N. Braat - Chairwoman

Sarai Blanc Ralph Dazert Marika Kletzander Sandra WeersElina Vahaheikkila Paulino Fernandez Vergilius Vals Runnar Hadal

1) Previously AWES & CESA 2) SAJ = Shipbuilders’ Association of JapanKOSHIPA = Korean Shipbuilders’ Association - CANSI = Chinese Association of National Shipbuilding Industry.

Global trade

• trade patterns• type of trade• sea borne/land• etc .

Fleet requirement to 2035

• Existing fleet size & age• deleted ships & replacement• regulations• etc .

Newbuildng requirement

to 2035

Macro economic • GDP• demography• production• energy mix• etc .

7

Global Economic Situation

The current macroeconomic situation is a tale of record-breaking stock prices laden with uncertainty. Four macro considerations to keep in mind when looking forward include oil prices, the US financial situation, growth forecasts, and the Eurozone recovery.

Because of the US development of tight oil and a weak world demand at present, prices are low and could go lower, if:

Instability in the Middle East does not disrupt extraction efforts;

The US lifts export restrictions on domestic oil;

OPEC does not agree to limit the supply. Going forward, however, there are less large discoveries, and oil will be more difficult to extract, deeper, and technologically challenging. Marginal fields will make more of a business case as global growth marches along and technologies improve.

There is ongoing robustness on the world’s major stock markets currently: News headlines can make the market jumpy, but there is underlying momentum- for now. Lower than expected profit prospects/ Ebola/ End of QE in the US/ ISIS/ Russian expansion have not proven enough to upset the stock mar-kets. These issues are long from dead and buried and could act as a strain on consumer confidence over time.

The IMF has lowered their world growth forecast for 2015, coupled with lower economic activity in China and G7 economies particularly Germany.4 Couple that with persistent unemployment in the Eu-rozone- especially among youth and a severe debt burden in some Eurozone countries - and we would need to redefine what a recovery is. As regards unemployment many youth with STEM educations are heading to Silicon Valley, and these would-be entrepreneurs are not creating the job-delivering small-and-medium enterprises that would be absorbing young and highly educated workers. The risk here is of a higher tax burdens or imposing more user fees as Europe’s demographic ages.

-8,00%

-6,00%

-4,00%

-2,00%

0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (IMF) 2015-20 2020-25 2025-30 2030-35

GDP Development

Total OECD Developing Countries Total Transisition Economy World

Source: SEA Europe MF

3) http://www.ihs.com/info/0514/crude-oil.aspx4) http://www.imf.org/external/pubs/ft/survey/so/2014/new100714a.htm

ShipbuildingShipowners should see a short-term return to profitability based on lower bunker prices. Global shipbuilding cycles follow shipowner’s profit margins - not necessarily freight rates. Despite gloomy macroeconomic news, shipping volume forecasts - if driven by solely by global demographics - are posi-tive. With low oil prices come fewer investments in offshore extraction and fewer incentives to invest in offshore wind. Slower offshore activity in the short-term could pose a challenge for Europe to maintain her prowess in advanced service vessel segments over the long-term.

9

Global Energy Consumption

Multilateral and International Energy Organizations forecast that world energy consumption will grow more than 1.5% per year between 2014 and 2035. World energy use may rise from over 13.000 mill. tons oil equivalent in 2013 to over 18.000 mill. tons. oil equivalent in 2035.

Most of the growth in energy consumption occurs in non-OECD countries, where demand is driven by strong and sharp long-term growth. Energy use in non OECD countries will increase about 2.5% per year between 2013 and 2035, while in OECD countries the increase will be around 0.5%.

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

18.000

20.000

2006

2007

2008

2009

2010

2011

2012

2013

2015

2020

2025

2030

2030

mill

ion

tons

(Oil

equi

vale

nt)

World Energy Consumption million tons (Oil equivalent)

Total non-OECD Europe & FSU

Other developing countries

Asia

OCDE coutries


Energy consumption sources In the next two decades, renewable energies and nuclear power are expected to be the world’s fa-stest-growing energy sources, each increasing over 5% per year. However, liquid fuels will continue to supply almost 80% of world energy use by 2035.

Petroleum and other liquid fuels have entered in a great structural changes period. The main reason is that potential new suppliers of oil from tight and shale sources, like the US, have entered in oil and natural gas markets at the same time. Potential for growth on the demand of liquid fuels is focused on emerging economies, while improvements in energy efficiency will slow down the growth of liquid fuel consumption among OECD economies. Also, world natural gas consumption increases nearly 2% per year versus oil crude increase above 1% per year until 2035. Increasing supplies of tight gas and shale gas will support this growth in projected worldwide natural gas use.

On the other hand, coal use will grow faster than petroleum and other liquid fuels use after 2030, mo-stly due to China’s consumption of coal and rapid growth in liquids demand attributed to slow growth in the OECD regions.

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

18.000

20.000

1990

1995

2000

2005

2010

2012

2015

2020

2025

2030

2035

mill

ion

tons

(Oil

equi

vale

nt)

World Energy Consumption million tons (Oil equivalent)

Total Renewables Consumption Total Hydroelectricity Consumption Total Nuclear Energy Consumption

Total Coal Consumption Total Natural Gas Consumption Total Liquids Consumption


11

Global Seaborne Trade

Almost 90% of the total trade is carried by sea. The low cost of shipping compared to other means of transport, improvements in port infrastructures and logistic chains, and the new generation of ener-gy efficient vessels are meant to benefit seaborne trade to continue leading the international freight transport.

The growth of seaborne trade is driven by the growth on demand. Since 2010, when the world trade recovered from the downturn suffered in 2009 after the economic and financial crisis exploded, exi-sting overcapacity of the merchant fleet, historically high oil prices and the use of slow steaming have influenced a moderated growth of seaborne trade. Dry bulks and containerized cargoes constitute 70% of the global seaborne trade while oil and gas tankers account for the other 30%. Given the expecta-tions that world economy will almost double by 2030 it is clear that additional seaborne transport capacity will be required.

Oil

Total five major bulk

Minor bulks

General cargo

Containerised

LPG

ChemicalsLNG

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

4.500

5.000

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

mill

ion

tons

Global Seaborne Trade


Dry bulks trade is forecasted to continue growing in the long term, driven by the demand in developing economies, mainly Asian countries, which will need iron ore, coal and other minerals for their industry and power generation. Containerized trade is expected to grow at higher levels compared to the last couple of years together with the stabilization of the financial and economic situation in the US and the expected increase of the western consumers demand of goods manufactured in Asia and other de-veloping countries. Regarding seaborne trade of oil and petroleum products, given world economies’ resilience in fossil fuels the demand is expected to continue growing. The unexpected drop in oil prices is benefiting shipping as lower bunker costs are providing higher margins to the shipowners and the freight rates are decreasing with the consequent increase on demand for shipping. The decrease in oil price seems to benefit as well the growth on the imports of oil in some countries, such as China, with the aim of increasing their oil reserves.

13

Newbuilding Requirements: Cargo Carriers

a. ContainershipsContainerization has played a crucial role in the development of global trade. It greatly reduced the cost of international trade and increased its speed, especially of consumer goods and commodities. Standardized containers made it possible to ship increasing volumes of goods around the globe in a cost effective way.

The constant growing of containerization’s significance is a reflection of the changes that have occurred over time in the international system set up of manufacturing and production. Between 1982-2005 containerized trade grew 3.5x as fast as the world GDP and 40% faster than international trade overall. As of 2011, approximately 90% of non-bulk cargo worldwide was moved by containers stacked on tran-sport ships; 28% of all container transhipments were carried out in China.

Nowadays, the biggest container ships in the world can carry up to 19,100 TEUs. Containerized ship-ment has increased due to globalization and to world trade growth, but also compared to other ship-ping segments due to the fact that containers shipping price is not linked to the distance, like general cargo ships, but to parameters like availability, supply and demand. In addition, compared to roro ships, container ships are much more flexible and growingly cost effective. The structural changes that contai-ner shipping is undergoing, will provide large economies of scale and the demand and supply ratio will continue to put pressure on container freight rates.

In 2013, the containership fleet accounted 213.15 mil. DWT (4930 vessels, 16.84 mil TEU), which means 5% growth compared to previous year. In the past 3 years, although the fleet in DWT rose from 183.6 mil. - 2011 to 196.85 - 2012 and 213.15 mil.dwt - 2013, the percentage in world’s total fleet slightly dropped from 12.98% in 2011 to 12.81% in 2012 and 12.68% in 2013 but, it is expected to increase. 2013 average age for containerships was 10.8 years.

258 191 210 212 174 177 216 260 287 0,00 1,00 2,00 3,00 4,00 5,00 6,00 7,00 8,00 9,00

2010 2011 2012 2013 2015 2020 2025 2030 2035

Mil.CGT

No.

Containership Completions Actual and Forecast


The completions-fleet ratio continues to stay on a level of 18-22%, as in the previous forecast. The 6000-9000 TEU class will continue to dominate (in 2013, almost 85% of completions came within this segment), but the vessel size is expected to increase, in order to improve cost efficiency and exploit economics of scale. In long term, we can notice a predilection for eco-friendly designs.

In 2013, 73% of the 1,88mil.TEU scheduled for delivery was actually delivered. This includes 3% of new orders. 25% of the original orders have been delayed, while 5% were canceled. As in the previous years, 95% of containerships are built in Asia (China and South Korea).

4993 5095 4930 5235 6069 7036 8158 9455 0

1000

2000

3000

0 50

100 150 200 250 300 350 400 450

2011 2012 2013 2015 2020 2025 2030 2035

trade mil.tonesMil.DWT

No.

Containership Fleet evolution Actual and Forecast


Container fleet requirement forecasts for 2020/ 2025/ 2030/ 2035 are: 263.37 mil.DWT, 305.34 mil. DWT, 354.05 mil. DWT and 410.33 mil. DWT.

Containership trade saw a moderate improvement in 2013 compared to previous year. For a long time, containerized trade flows could be predicted by looking at the performance of world GDP with the mul-tiplier effect of the container volume growth ranging between three to four times the growth of GDP.

In the short term, due to today’s economic recovery, the supply is growing faster than the demand of containerships, but in future, this situation is expected to change, so the demand for newbuilding will raise.

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 demand 2,4 10,5 11,6 13,4 10,6 11,2 11,4 4,2 -9,0 12,8 7,1 3,3 5,0 supply 8,5 8,0 8,0 8,0 10,5 13,6 11,8 10,8 4,9 8,3 6,7 5,2 6,0

-15,0 -10,0 -5,0 0,0 5,0

10,0 15,0

Annual demand/supply growth rates Container shipping


An important motivation for the raise of newbuildings demand will be the replacement of old aged vessels. In 2013 ~ 32% of total containers are over 15 years old.

15

Containership demolitions reached a record level in 2013, when 197 vessels ~ 435.000 TEU have been removed. 80% of these vessels were below 4000TEU but 15 vessels were within the 4000-6000TEU range. Demolitions are expected to increase further, the size of ships being scrapped is also expected to increase while the age for demolition is expected to decrease.

61 182 197 121 12 22 35 270,01,02,03,04,05,06,07,0

2011 2012 2013 2015 2020 2025 2030 2035

Mil.DWT

No.

Containership DeletionsActual and Forecast


>15 y

32%

10-15 y17%

5-9 y

34%

-5 y17%

Containership fleetage structure

Slow Steaming

Slow steaming started around 2007 - 2008, along with the financial crisis, when the market started to face an oversupply of tonnage, declining freight rates, and increasing bunker prices. Through slow ste-aming, vessels try to save bunker fuel, which is the largest component of operating costs structure. So, the practice of deliberately slowing down the speed of a ship was based mainly on economic reasons.

But nowadays, despite falling oil prices, slow steaming is still a common practice due to the fact that reduced fuel consumption leads to less air emissions and bring about a more energy efficient opera-tion. Indeed, slow steaming offers not only cost savings but also reduced emissions and it seems that the care for environment weights heavily in accepting this practice. In addition, slow steaming keeps over 1 million TEU employed, the equivalent of 5-8 percent of the global container fleet capacity, and if vessels speed up it will probably lead to overcapacity in the market and put downward pressure on freight and charter rates.

There is much speculation in the market that slow steaming would be a normal practice for the futu-re. The question is, will ships return to regular speed or sail faster in case of continued low oil prices? During previous periods of critical market conditions for container shipping very few owners / opera-tors were adopting the slow steaming practice.

The Cheap Slots

The current cheap slots cost will affect in a positive way the container shipping profitability and actual slots costs are expected to decline at faster rate than average freight rates.

Bunker prices have fallen dramatically since early September 2014 reducing the largest cost element for ship operators .The main beneficiaries of a lower oil price are containerships companies, which benefit directly as bunker is not a passed through cost in container shipping.

Low fuel prices will also stimulate consumer spending, which will increase the demand for container shipping, which is an important fact for container shipping profitability in the next period.

Another effect of the low oil price is the return of the feeder vessels onto the market offering lower bunkering prices per unit. In recent years feeders have been passed by for being more expensive and slower than large vessels.

Also, the alliances formed in the market (95% of the container shipping market is controlled by 4 alliances) limit the amount of port calls due to the large vessels for the main routes, which results in an increased number of feeders especially for small ports and shorter shipping routes.

b . General CargoUntil the 20th century, ships generally were all-purpose cargo vessels, with very little specialization. All cargoes were carried in general-purpose holds, or on deck. Modern commercial cargo vessels are designed and built to carry specific different cargo types.

Since the late 1960s the volume of general cargos has declined dramatically worldwide as containeriza-tion has grown, allowing ships to spend less time in port and thus being more efficient. General cargo is still handled in the conventional manner and in some trade routes this remains the predominant method. Some cargoes will always remain as general cargo commodities.

In 2012 the General Cargo fleet decreased, from 81.15 mil.DWT in 2011 to 78.13 mil. DWT in 2012, then was followed by an increase in 2013 - 80.80 mil. DWT. The percentage in world’s total fleet drop-ped from 8.5% - 2010, 5.47% - 2011 (16822 vessels) to 4.9% - 2013 (16174 vessels) and it is expected to decrease even more in long term largely to the benefit of container ships. Nevertheless, some goods, in particular dry cargo that is too large for containers, will always require transport as break-bulk. 2013 average age for general cargo ships was 25 years.

Actual and Forecast

16822 16289 16174 17048 17744 18440 19484 20440 0

600

1200

0,00 20,00 40,00 60,00 80,00

100,00 120,00

2011 2012 2013 2015 2020 2025 2030 2035

Trade mil.tones Mil. Dwt

General Cargo fleet evolution


17

The General Cargo fleet is expected to grow steadily until 2035 with a percentage of 4 - 5% annually. The new orders are still on a very low level and are expected to increase, especially during 2025-2035 due to need of replacement. Almost 85% of new orders are acquired by Asia (China, Japan, South Korea, Vietnam), as in the last years.

Fleet requirement for general cargo ships is forecasted to reach 88.53 mil. DWT in 2020, 92.01 mil. DWT in 2025, 97.21 mil. DWT in 2030 and 101.98 mil. DWT in 2035.

In 2013 deliveries amounted 2.4 mil GT/ 2.09 mil. CGT/ 3.3 mil. DWT for 279 vessels. Almost 50% of the general cargo vessels delivered in 2013 were size <4999 DWT, but the size of the vessels are expected to rise in future, this fact can be seen in the orders already booked.

Actual and ForecastMil. CGT

403 426 371 279 217 341 497 688 602 0,00 0,50 1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50 5,00

2010 2011 2012 2013 2015 2020 2025 2030 2035

No.

General Cargo Completion


Despite the existing situation and low freight rates global new orders are climbing after years of decli-ne, driven by efficient design and low newbuilding prices. Owners are investing in new design energy efficient vessels in order to reduce the shipping costs and raise their incomes.

Demolition for general cargo ships are forecasted to oscillate in the range of 1 - 2mil.DWT/year. An increased value should be reached during 2025-2030, when the amount is estimated to increase until ~2.4mil.DWT in part due to a large number of old-aged vessels to be scrapped.

Mil.DWT

No.

Actual and Forecast

263 222 178 241 202 358 480 393 0,00

0,50

1,00

1,50

2,00

2,50

3,00

2011 2012 2013 2015 2020 2025 2030 2035

General Cargo Deletions


General Cargo - Inland Waterways

The world’s inland waterways play a vital role in the economic development of remote rural areas and in the welfare of their inhabitants, who are usually among the lowest of low-income groups in the region. Inland water transport has been crucial for moving goods and commodities from production sources to consumption destinations.

An important amount of general cargo vessels are involved in inland water transport (mainly in China, having more than 125,000 km of navigable inland waterways, the most extensive inland waterways system in the world, comprising more than 5,600 navigable rivers, of which 3,000 km is suitable for navigation by vessels of 1,000 dwt or more. There are approximately 2,000 inland ports, including 85 leading ports which provide 52 berths capable of accommodating vessels of up to deadweight tonnage of 10,000. Seven of these ports each have an annual cargo throughput of at least 10 million tons.)

It is hard to quantify and to consider the number these vessels involved in inland water transport be-cause is difficult to get relevant information, inter alia because many of these vessels do not carry an IMO number. But, for example, in 2010 China’s fleet of vessels playing the inland waterways numbers 231.000, with a total deadweight tonnage of 20.67 million, and general cargo also has an important share of this tonnage used in inland waterway traffic. Therefore, the general cargo vessels used for domestic trade/inland waterways are not included in the actual & forecasting study above.

C . Bulk CarriersDemand for major bulks is expected to continue growing driven by the imports from Asia. Emerging economies like China and India will increase their demand for coal, iron ore and other minerals for their industrial development. Demand for grain is also forecasted to steadily grow, driven by the increase of the global population.

Iron ore

Coal

GrainBauxite/aluminaPhosphate Rock

Minor bulk

0,0

1.000,0

2.000,0

3.000,0

4.000,0

5.000,0

6.000,0

7.000,0

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

mill

ion

tonn

es

Bulk Seaborne Trade


The existing oversupply in the bulkers shipping market has been affecting the freight rates since the cri-sis years, standing at historically low levels. Despite the oversupply situation, increase on seaborne tra-de and historically low newbuilding prices have driven the demand for new bulkers in the last 2 years.

Scrapping is also influenced by low earnings. In the past 2 years demolitions reached record levels. In 2013 430 bulk carriers accounting 23.2 million dwt were sold for scrap. The average age of demolition for vessels over 80.000 dwt is 23 years old, while for smaller sizes is 28 years old. More than 50% of the fleet is less than 5 years old and 20% of the fleet will become 20 years or older by 2017, however, the oversupply situation in the shipping market will moderate the demand for the renewal of the fleets in the mid term.

19

0

50

100

150

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250

1.1.2020 1.7.2025 1.7.2030 1.7.2035

Tonnage to be Deleted in million dwt

Less than 10.000 dwt Bulkers 10.000-60.000 dwt Bulkers 60.000-100.000dwt Bulkers 100.000 dwt and over

Large bulkers, mainly used for the trade of iron ore in long routes connecting the Asian importers with Brazilian, Austra-lian or western African mines. China is the biggest importer of iron ore, with a 60% of the global demand, and the global leader in the export of steel. The need of importing iron ore for their industries is expected to continue growing in the long term, despite at slightly lower levels, due to the overcapacity of the steel industry in China and the governmental plans to reduce it. Regarding the demand of coal, in the medium-long term, demand from emerging countries will increase, despite in other countries such as European ones coal will slowly be replaced by renewable energy sources balancing the demand of new fleet.

0,0

50,0

100,0

150,0

200,0

250,0

300,0

350,0

400,0

01.01

.2007

01.01

.2008

01.01

.2009

01.01

.2010

01.01

.2011

01.01

.2012

01.01

.2013

01.01

.2014

01.01

.2015

01.01

.2020

01.01

.2025

01.01

.2030

01.01

.2035

Fleet requirements in million dwt

Less than 10.000 dwt Bulkers 10.000-60.000 dwt Bulkers 60.000-100.000 dwt Bulkers over 100.000 dwt and over


For smaller sized bulkers, used for the trade of minor bulks, grain and other bulks to ports where the infrastructures are not prepared to berth larger vessels, the demand is also expected to increase. The trade of grain and minor bulks is expected to increase together in line with the development of the emerging economies, and the expected increase of global population.

0 to 5 56%

5 to 10 16%

10 to 15 10%

15 to 20 10%

20 to 25 5%

25+ 3%

Average Age of the fleet


D. Oil and Chemical TankersIn the period 2003-2007 (“Great Moderation” period) oil consumption grew by 1.9% annually, slowing down in the period 2008-2012 (the crisis and post-crisis period), when oil consumption grew 0.3% per year. Forecasts until 2035 estimate an average growth of 0.96% per year in global oil consumption.

-3

-2

-1

0

1

2

3

4

5

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

4.500

5.000

1985

1990

1995

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2015

2020

2025

2030

Ann

ual i

ncre

ase

%

mill

ion

tons

(Oil

equi

vale

nt)

World Oil Consumption million tons (Oil equivalent)

Total non-OECD Europe & FSU Other developing countries Total other Asia Total OECD Annual increase % - Right Axis


Growth of oil seaborne trade until 2035 is estimated at 1.7% per year. It is expected that the share of oil trade to China and other Asian countries will increase while the share of OECD countries decreases.

3.800

3.900

4.000

4.100

4.200

4.300

4.400

4.500

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

18.000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2015

2020

2025

2030

Aver

age

dist

ance

mill

ion

tons

(Oil

equi

vale

nt)

Interarea Seaborne Trade in Crude Oil and Petruleum Products (million tons-miles)

Bill. ton-miles

Average distance, n. miles - Right Axis


21

0

500

1.000

1.500

2.000

2.500

3.000

2012

2020

2025

2030

mill

ion

tons

(Oil

equi

vale

nt)

Crude Oil Inter-trade Movement: import countries

Others Asia-Pacific China India S.E. Asia Japan Africa OECD Europe L. America N. America

Tanker Fleet

In the past decade the volume of the tanker fleet grew more than the volume of oil seaborne trade, generating fleet overcapacity. In contrast to that period when tanker fleet grew at a rate close to 5% per year, we expect that by 2035 the oil tanker fleet requirement will expand at a rate of 0.84% per year in terms of dwt. According to the SEA Europe forecasts, new building requirements will account for 275 units per year (included chemical tankers and oil tankers), 18 dwt million p.a., and 6 million CGT p.a.

-6,0%

-4,0%

-2,0%

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

2008

2009

2010

2011

2012

2013

2015

2020

2025

2030

2035

Ann

ual G

row

t %

Oil Seaborne Trade Growth and Tanker Fleet Growth

Tanker Fleet Growth (dwt)

Oil Seaborne Trade Growth (mill. tons)


E . LNG CarriersWith rapid growth in the trading of spot and short term LNG cargoes, fluctuations in spot shipping char-ter rates are having an increasingly important impact on the pricing and flow of LNG. The LNG shipping market has evolved rapidly over the last decade, driven by growth in global liquefaction capacity. But the order and delivery of LNG vessels has been quite cyclical in nature.

Shipping charter rates constitute the largest component of the cost of moving LNG around the globe. Break even charter rates are estimated to be around 60,000 $/day. But recent years have seen some wild swings in spot charter rates above and below this level.

LNG shipping-the basics

The global LNG fleet consists of around 380 vessels. The standard size for an LNG carrier has traditio-nally been 155,000 mcm. However over the last 3 to 4 years the size of many delivered carriers has increased to 170,000 mcm as infrastructure has evolved to deal with larger vessels.

The fundamental drivers

Historically, source to destination LNG contracts backed by dedicated shipping capacity made the fo-recasting of shipping capacity requirements relatively straight forward. However over the last decade, the evolution of LNG portfolio optimization and growth in trading of spot cargoes has resulted in ship-ping market dynamics becoming much more complex.

Despite this complexity, demand of LNG shipping capacity can be broken down into two main drivers:

The volume of LNG to be shipped. Higher LNG demand means higher demand for shipping capacity.

Average journey time and the proportion of ballasted (un-laden) voyages and a higher proportion of ballasted voyages requiring more shipping capacity to move a given volume of LNG.

In other words, understanding of LNG trade flows as well as global LNG demand growth is important in understanding tightness in LNG shipping capacity.

LNG shipping flows

The shipping of LNG is focused on moving gas from producing nations to Asia. Key shipping routes include the Middle East to Asia, Australia and South East Asia to Northern Asia and Africa to Southern Europe.

23

The shipping outlook

Historically, the delivery of new LNG carriers has been somewhat out of sync with LNG market demand for shipping capacity. The primary issue is that there is typically a 2+3 year lead time for ship delivery.

0

10

20

30

40

50

60

1970s 1980s 1990s 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Num

ber o

f Ves

sels

LNG Carrier Fleet and Orderbook

Short Term Contract/Uncommitted Long Term Contract


This cyclicality has resulted in some pronounced fluctuations in shipping market balance, with the im-pact on spot charter rates.

Development of LNG trade

Mtons bton-miles Needed fleet capacity (Mio m3)

2012 196,9 778,75 40.562020 290,9 1.150,5 59.922025 371,4 1.468,5 76.472030 474,0 1.874,6 97.60


Development of LNG carrier fleet

2015-2020 2020-2025 2025-2030 2030-2035 2015-2035 LNG No.Ships 22 58 147 109 336

0

50

100

150

200

250

300

350

400

No.

Shi

ps

LNG Tonnage to be completed


F . LPG carriers Increasing LPG Exports from the U.S due to rising production of shale gas resulted in increasing demand for very large gas carriers (VLGC). These gas carriers are used for transporting LPG and have a capacity of approximately 82,000 cubic meters. With the increasing demand of LPG from developing economies the demand of large carriers is also increasing to optimize the logistics cost and increase profitability margins. The enlarged Panama Canal is projected to open in late 2016; this would decrease the transit route between the East coast of North America including the Gulf and Asia Pacific region. The trade between the U.S. and Asia Pacific region is anticipated to increase at a rapid pace owing to the decre-ase in transportation costs. High LPG prices in the Middle East restrained Asian consumers to buy LPG from this market leading to increased demand from the U.S. market. The U.S. shale gas revolution is the primary game changer for the increasing demand for very large gas carriers.

The increasing demand for LPG especially in the Asia Pacific region is the primary driver bolstering the demand for very large gas carriers. The energy hungry countries such as Japan, China and India are the major centers for LPG imports. The widening of the Panama Canal in Central America would further enhance the demand for these large carriers. Taking into account the route between North America and Far East, the widening of the Panama Canal will reduce the cost of transportation to a huge extent. This would increase the U.S. exports to the Asia Pacific region. This increasing demand of clean fuel sources would encourage the construction of VLGC’s. The high prices of crude oil over the last years have influenced that developing economies were looking for cleaner sources such as LPG to fulfill their energy needs. This increasing demand from developing Asia Pacific region would encourage the ship-ping companies to construct very large gas carriers. However the market for LPG is still unpredictable and though the demand for LPG will certainly increase in the short term, the long term trend is still uncertain. This uncertainly in LPG demand and the increasing fuel prices could hamper the demand of very large gas carriers.

25

The rising demand of LPG in Asia Pacific region makes it the most attractive market for very large gas carriers. North America would be the major player in the LNG trade market in the future, thus a majo-rity of the shipping companies in the U.S. has placed orders for construction of these large gas carriers. The Middle East region is also one of the major exporters of LNG, which would provide further growth opportunities for the VLGC market. The European shipping industry is also recovering from the global economic crisis of 2008. The shipbuilders in Europe have now slowly started taking orders for new construction. Moreover the rising demand of LPG due to strict environmental regulations could lead to increase in demand of LPG ships in this region. Rising LNG exports from Russia and South American nations could also augment the demand for very large gas carriers.

Development of LPG carrier fleet

0

5

10

15

20

25

1999 2001 2003 2005 2007 2009 2011 2013

LPG Vessel Capacity in Million Cubic Meters

VLGC LGC MGC Small (1-23K)

2015-2020 2020-2025 2025-2030 2030-2035 2015-2035 LPG No.Ships 121 126 141 157 545

0

100

200

300

400

500

600

No.

Ship

s

LPG Tonnage to be completed


d

27

Newbuilding Requirements: Offshore Oil & Gas

With a growing global population, increasing industrialization and urbanization, growth in energy de-mand where oil and gas will dominate for decades, the long term outlook for offshore is promising. However, after all time high ordering activity in several vessel segments combined with lower growth in offshore spending, oversupply is a risk in the short term. The oil price is under pressure and the cost development for oil companies requires cuts and postponement of projects. However, as we have seen before lower growth in investments and spending may lead to a new upturn later as lower growth in production leads to a higher oil price.

The Offshore fleetThe global offshore fleet consists of around 10,000 vessels across 30 vessel sub types with anchor handling tugs, platform supply vessels and crewboats representing more than half of this. These supply and service vessels are supporting over 1000 drilling rigs and floating production units in exploration and production activity. In addition there are over 1000 offshore construction, crane, subsea support, pipelaying, inspection, maintenance, repair vessels in many shapes and sizes.

The Market DriversThe key driver for offshore newbuilding demand is the prevailing oil price and the perception of future oil price development vs. actual and expected cost development. With higher oil price we get higher number of profitable offshore fields, more exploration activity and thus higher spending and a higher demand for rigs and ships.

0

20

40

60

80

100

120

0

100

200

300

400

500

600

700

800

1980 1985 1990 1995 2000 2005 2010

Offshore contracting

Oil Price

Connection between oil price, exploration,

number of profitable fields and the need for

offshore vessels

Oil price as key market driver for offshore Number of vessels $/bbl real terms (2014)

NOTE: including all vessel sizes (all vessels with IMO number) Source: SEA Europe MF

There are significant differences in recognised oil analyst’s prognosis on future oil price. As it is a chal-lenge to predict future oil price development it is also a challenge to predict the future level of vessel demand.

The oil price may drop further in short term with no OPEC unity around cutting supply so far. How- ever, the current oil price around $50 per barrel is not regarded as sustainable in the longer term. Most observers see higher oil prices in 2016 or already in 2015.

Falling oil prices will help GDP growth and higher GDP growth will lift demand for oil. Decline in invest-ments in future production could also lead to a supply shortage and a significant price increase at some point.

New significant discoveries in one region will usually affect the sentiment to oil companies. New disco-veries and high hit rates in areas previously regarded as not promising will be a key driver for increased interest and further exploration activity.

In emerging regions the infrastructure is often limited, distances may be longer and the rig density is low. Thus, a higher number of support vessels per rig will be needed. Operation in arctic areas will drive this number even further.

Mature regions with predicted lower future production are often interpreted as declining offshore markets. However, lower production is also an important driver for higher exploration activity when there is a sufficient focus on replacing reserves. In addition there will be higher focus on increasing the production rate per field or well. Development of marginal fields and tie-backs will also require sub-sea vessels. A mature installed base of subsea wells and pipelines will require vessels for inspection, maintenance and repair. Then at some point there will be a need for decommissioning and specialist vessels accordingly. Activity in mature areas is often key for driving innovation with the North Sea as a good example.

Countries’ aiming to get less dependent on oil or gas import is also an important activity driver. For national oil companies (NOC) there will often be less attention on short term profitability and more attention on long term growth of reserves and production. This will depend on government policy. Still, as NOCs usually share production licences with international companies the challenge will be to make licences and projects as attractive as possible.

Within oil and gas production there is a trend towards offshore growing faster than onshore and within offshore deepwater is growing faster than shallow water. This trend is expected to continue. Since 2008 60% of oil and gas offshore discoveries have been in deepwater (boe).

In addition distances from shore are increasing leading to higher demand for more efficient vessels. With this there are new requirements and a need for more rigs and ships capable of operating in these areas in the most efficient and safe way. More cost efficient vessel designs and systems are also im-portant drivers for newbuild demand as vessels then will have a competitive advantage, obtain higher utilisation and thus be preferred in the market.

The offshore shipping market is volatile. Oil price development has always been one reason for this, but other reasons are sometimes low market visibility, speculative orders, lack of discipline, the fight for market shares and overreaction from too many of the market players. There is often a trigger point: when fleet utilisation exceeds a certain level the day rates are skyrocketing. If the market believes this will continue there will be a boom in new orders for the relevant vessel type. However, what is often the case is an order book containing too many vessels at the time when day rates start to drop again. The consequence may be several years with a low number of offshore orders.

The Effects of Shale BoomIn the past decade the oil industry has moved towards deeper fields and the marginal barrel has to a large extent become ultra-deepwater barrels. However, as a result of the shale revolution in the US, the marginal barrel may change towards shale oil.

One main advantage of shale oil versus offshore is a far shorter lead time from development to pro-duction start, reducing the time until a project turns cash positive.

A disadvantage of shale oil wells is the higher decline rates compared to offshore, where the typical

29

shale oil well declines 80% in production within the first three years. However, this becomes less of a concern when taking into account the lead times and costs.

Given the current focus on cash flow, this is a factor in favour of shale oil developments, which can be quickly halted and restarted depending on the oil price relative to the cash cost and economic return of specific projects.

Thus, due to shale development there is a risk of slowdown or postponement of the most expensive offshore projects, incl. Arctic.

OPEC’s decision to keep its production target, leaving the market with a supply glut, could trigger a wave of debt defaults by U.S. shale oil producers. The impact of a continuous oil price decline may only become apparent in 2015/16 after companies’ hedged positions have unwound and external finance becomes to increasingly difficult to attract.

Offshore SpendingOil and gas companies are facing a challenging year, with exploration and production players set to feel the sting of low oil prices first. While E&P companies will be the first to be hit by the current low oil price environment, oilfield service providers and midstream energy operators also face challenges due to the knock-on effect of reduced E&P spending.

There was a trend shift in 2013, moving from double to single digit growth. Going forward the total investment spending in development the next two years is expected to be significantly weaker than what we saw leading up to 2013. Key reasons for this are recent cost development for oil companies now combined with an expected weaker oil price development.

The offshore market outlook

A. Offshore E&P:

• Drilling

In the drilling market there has been an all time high ordering activity in recent years, but now there is a weakening underlying trend in short term with lower utilization and lower charter rates. This is both due to a high number of rigs being delivered, but also the lower growth in demand as oil companies are cutting costs and postponing projects. However, in the long term the floater demand is expected to outstrip supply (semi submersibles and drillships).

• Floating Production

In the market for floating production (FPSOs) the number of projects has doubled last 5 years and drill-ing is not a ”bottle neck” anymore. However, while more than 170 projects involving oil production floaters and 35 floating liquefaction projects are in various stages of planning, low oil prices has meant final decisions for many of them are on hold. The timing for when the projects will materialise is uncer-tain. This market is also an important driver for subsea and other offshore support vessels.

B. Construction & Subsea

Subsea wells will dominate new offshore production going forward (65% for oil, 50% for gas) and the growth in number of subsea projects will be significant the next ten years. Field development will be the key driver, but growth in installed base will also drive the Inspection Maintenance Repair market in the long run (IMR).

Tasks are increasing in both scope and complexity for the vessels and this require a substantial shift in equipment. There will be a need for more high-end vessels accordingly.

However, there are a significant number of vessels on order and postponement of projects is expected the next few years. Thus, the level of new orders is expected to slow down from a very high level. Still, we see continued long term “bullishness”.

C. Offshore Supply & Service

Demand for platform supply vessels and anchor handling tug supply vessels mainly derives from drilling activity, field development work, and production facility support.

The oil price drop has sparked fears over the health of these demand drivers, but it would be wrong to view the global Offshore Supply & Service market as a homogeneous block and link a slide in the oil pri-ce with any certainty with lower demand for vessels in any given market. Different regions and vessel classes will offer different opportunities. The age of a vessel, its technical specifications, and even flag state will play a role in its demand and utilisation.

We have seen a dramatic fleet increase for large platform supply vessels in recent years and the market has had an amazing ability to absorb new tonnage. However, after years with all time high ordering activity there is a significant order book and lower utilisation is expected as new vessels hit the water. Thus, a significantly lower level of newbuilds is expected to be ordered going forward the next two years. We could also see some cancellations of the most recent orders.

For anchor handling tug supply vessels the situation has been a bit different, especially for the larger vessels. The level of new orders has been low since 2008 and going forward the number of anchor handling tug supply vessels per rig is decreasing. The drilling market is the key driver, but also the FPSO market will play a more important future role.

The utilisation is still moderate for anchor handling tug supply vessels and the charter rates are volatile, but the market is expected to better than for platform supply vessels, especially in the high-end of the market.

0

100

200

300

400

500

600

700

800

2000 2005 2010 2015 2020 2025

Offshore Supply & Service

Construction and Subsea

Offshore Exploration & Production

Number of vessels by contract year


31

Newbuilding Requirements: Cruise Ships

The world cruise Industry has faced some challenging times in recent years, linked to both supply (mainly from changing ship sizes and safety/environmental issues) and demand (economic turmoil, security concerns etc.)

By its very nature, the sector is inherently dynamic in that cruise lines are continuously seeking new ways to attract first-time and repeat passengers - the profiles of ships, itineraries, onboard features, and destinations are therefore continuously changing. Given the very different features of many of the leading potential markets (in terms of customer preferences, desired cruise destinations, onboard facilities, culture etc), and the different niche markets within the larger national markets, the option vessel deployment profile for the leading international operators is one involving a delicate balance of cruises/vessels simultaneously geared to very different sectors of the overall markets.

The future prospects for different markets are therefore critical in shaping future vessel design, orde-ring and deployment.

World Cruise Ship FleetThe distribution of the world cruise fleet in vessel numbers is heavily skewed towards the lower end of size spectrum in respect of passenger capacity. However, while small category vessels with <1,000 lower berths

account for 51% in terms of vessel numbers, they account for only 14,4 in overall capacity. Large cat-egory vessels of 2,000+ lower berths5 represent 29% in vessel number but 62% in passenger capacity.

Analysis of the development profile of the world cruise fleet over the past decades reveals that there exists a distinct trend of vessels becoming larger. This had led to rapid growth, not only in vessel num-ber but more markedly in vessel capacity, for the large categories.

The Cruise Ship Market OutlookThe current new orderbook re-affirms this trend of vessels becoming larger. Among the new orders, the large vessels category (2,000+ berths) represents almost 95% of the total vessel capacity (73% in vessel number), and vessels of 3,000+ berth capacity account for 59% in vessel numbers and 83% in berth capacity.

The resurgence of cruise ship newbuilding volumes and the trend towards increasing significance for the larger vessel sizes are both manifest in the age and year of build profile of the current fleet. The average size of vessels built in the first half of the 1990s was under 900 berths- this developed to over 1,600 a decade later and to over 2,200 for the period since 2005.

The current world orderbook for cruise ships newbuildings features 32 confirmed vessels on order (not including options), with a total capacity of 103,915 lower berths and a total order of 402,214 Gross Tonnage.

5) Lower berth capacity: The number of beds of standard height on a cruise vessel. The number of lower berths determines the vessel’s normal passenger capacity. Maximum passenger capacity refers to the total number of passengers that can be accommodated on the cruise vessel in lower berths and other flexible berths (also referred to as upper berths)

0

50.000

100.000

150.000

200.000

250.000

2013 2014 2015 2016 2017 2018 2019 2020

Gro

ss T

onna

ge

delivery

Orderbook Cruise Vessels

Fincantieri

MEYER WERFT Mitsubishi

STX

MEYER TURKU


0

5000

10000

15000

20000

25000

30000

35000

Low

er b

erth

Cruise Ship Deliveries since 1991

Others

Mitsubishi

Fincantieri

Meyer Turku

STX Finland

STX France

Meyer Werft

1991

19

92

1993

19

94

1995

19

96

1997

19

98

1999

20

00

2001

20

02

2003

20

04

2005

20

06

2007

20

08

2009

20

10

2011

20

12

2013

20

14

2015

20

16

2017

20

18

2019

Delivery Year


On the basis of a set of reasonable assumptions on average vessel life, and a rising average vessel size for newbuildings, then the number of extra vessels required (addition to the current orderbook) to meet the projected cruise demand, approximate 6-8 vessels in the following years.

Cruise ship demand will continue, as in the past, to be partly supply-driven, with the introduction of new ships, new itineraries, and new themes promoting customer interest and sales. Long-term trends will continue to be subject to short-term factors-but will be linked to underlying trends in international tourism, economic growth, and population development.

33

0

2

4

6

8

10

12

14

2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031

No.

Of V

esse

ls (2

.500

Low

er B

erth

) Extra Cruise Ship Newbuilding Requirements

High Case

Base Case

Low Case


Global passenger numbers are estimated at 21.7 million for 2014, North America is the world’s biggest cruise market (55.1 percent passenger source share) – with significant growth of internationally sour-ced passengers – especially Europeans at 6.4 million.

0

10

20

30

40

50

60

2000 2005 2010 2015 2020 2025 2030 2035

MIL

LIO

N P

ASS

ENG

ERS

Forecast: World Cruise Demand To 2035 By Source

ROW

Asien

Europa

North America

9,6

14,3

19,1

24

29,7

36,4

44,4

54,17

0

10

20

30

40

50

60

2000 2005 2010 2015 2020 2025 2030 2035

MIL

LIO

N P

ASS

ENG

ERS

Forecast: World Cruise Passengers To 2035

35

Newbuilding Requirements: Special Vessels

A . Port tugsGrowth in the fleet of port tugs is driven by growth in world trade, which in turn is related to world GDP growth. Growth in world trade means more vessel movements. Most of those vessels require tug assistance. In order to accommodate increased trade, a lot of ports are being expanded or newly con-structed, mainly in Asia, Africa and South America. Australia is also seeing a lot of activity due to the construction of new terminals and LNG FPSO’s for export of natural gas by LNG tankers. These vessels require sophisticated terminal tugs to guide them safely in and out of ports. A further driving force is fleet renewal: large port tug operators like Svitzer, Smit and Kotug are all experimenting with energy efficient and environmentally friendly tugs with new propulsion forms, such as hybrid propulsion (bat-tery/diesel) and dual fuel engines fuelled by LNG or diesel.

The world fleet of port tugs currently numbers about 16,000 vessels. The average size of the vessels delivered since 2004 is 309 GT. Deliveries from 2009 onwards have been averaging around 660 vessels per year. The high level of deliveries in recent years is reflected by the fact that 40% of the current world port tug fleet was built between 2004 and 2013. However, another 30 percent of the world fleet is aged 30 years or over, highlighting the longevity of port tugs. As the industry publication “Workboat World” recently pointed out, port tugs can easily last 25 years with the first owner and then move on for a further career with a second owner. What the ageing of the fleet also highlights is the need for large scale fleet replacement in the not-too-distant future.

SEA Europe expects the scrapping of tugs to start rising in the period 2016-2020 and to peak in the pe-riod 2021-2025. Increasing scrapping and continuing growth in world trade will lead to an increase in tug deliveries from around 680 per year in 2014 to around 1,050 per year by the year 2025. Thereafter, tug deliveries will come down again to around 600 per year in the period 2026-2030 with a further decrease to around 540 per year in the period 2031-2035.

0

200

400

600

800

1.000

1.200

0

200.000

400.000

600.000

800.000

1.000.000

1.200.000

1.400.000

1.600.000

1.800.000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2020 2025 2030 2035

Tug Completions, Actual and Forecast CGT Vessels


Note: the bars represent CGT, while the line represents number of vessels

B . DredgersThe driving forces behind orders for dredgers are somewhat similar to those driving port tug orders: growth in world trade necessitates increases in port capacity and also expansion and creation of ship-ping canals. Examples of the latter activity are the recent work on both the Panama and Suez Canals and the possible construction of the Nicaragua Canal. A further source of dredging activity is the main-tenance of flood defences. This used to be an activity mostly restricted to the Netherlands and surroun-ding countries, but as water levels rise worldwide, interest in this activity is increasing. Large scale land reclamation as witnessed in recent years in for example Dubai is currently on a lower level, but could take off again in the future, as many of the world’s largest cities are located near the sea. These cities will need both extra land space and protection against the sea.

The ordering of dredging vessels has been somewhat subdued in recent years, but is bound to rise in the next years. The size of vessels to be ordered might retreat to more modest sized hopper suction dredgers of around 5000m3, in contrast with the very large hoppers built in the period before the eco-nomic crisis. The reason for the expected increase in demand for smaller vessels lies in the current fleet profile: Half of the existing fleet of some 1,600 vessels is 30 years of age or older. However, these old vessels will eventually have to be replaced and many independent dredging companies are currently sitting on a pile of cash after several years of good earnings and conservative spending on vessels. Fleet replacement is therefore expected to start soon and will drive up scrapping from the current 15-20 vessels per years to 35-40 vessels per year in the period 2016-2030. A further contributing factor to the increase in newbuild orders is expected to be the rise of national dredging companies from countries like China, India and Russia. The bulk of older vessels should be replaced by 2030 and scrapping is then expected to decrease again to the more usual 15-20 vessels per year.

Fleet replacement and growth in activities will drive a strong growth in dredger deliveries in the period 2016-2030. Deliveries will triple from the current 27 vessels per year to around 82 vessels per year by the year 2030. Thereafter, deliveries are expected to recede to a more modest 40 vessels per year in the period 2030-2035.

0

10

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70

80

90

0

100.000

200.000

300.000

400.000

500.000

600.000

700.000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2020 2025 2030 2035

Dredgers Completions, Actual and Forecast CGT Vessels



37

C. Research VesselsThe market for research vessels basically falls apart in two categories: research vessels owned by gover-nment entities and geophyiscal/seismic research vessels owned by private companies and used in the offshore oil and gas industry. Order levels for government research vessels are driven by government planning and government budgets, while order levels for the research vessels related to the offshore industry (from here on also referred to as “survey vessels”) are linked to the growth in exploration activities for oil and gas.

The level of exploration activities is related to expectations about the future price of oil and gas. Be-fore the onset of the economic crisis, contracting of particularly seismic research vessels peaked at 17 vessels per year in 2008. Afterwards, it never returned to the same level, despite the quick recovery of the oil price after the severe dip of 2009. The reasons for this low level of contracting might lie in the backlog of vessels ordered before the crisis and the rise in size and complexity of newbuilds. Orders for seismic vessels (but also the other types of survey vessels for the oil and gas industry) hovered around five units of each type per year between 2009 and 2014, when orders went down even further. The oil price went down considerably from mid-2014 onwards and is presently quite low. This has had an immediate effect on the plans for oil and gas exploration: owners of seismic research vessels are recor-ding losses and older less competitive vessels are being laid up or, in rare cases, scrapped. However, in the longer term, oil companies must keep up their exploration activities or else their known oil and gas reserves will decrease too much. In addition, almost half of the existing fleet of close to 700 survey ships was built before 1984. Recovery of exploration activities and fleet renewal will help to restart investment in survey vessels, but it remains to be seen whether the contracting levels of 2007-2008 will be reached again.

As mentioned before, orders for government owned research vessels are related to government bud-gets. It will come as no surprise that these budgets have been under serious pressure in Europe and the USA in recent years. On the other hand, the newly emerging economic powers of China and India are spending a lot of money on expansion of their research fleets as they venture out further in the quest for energy sources and other raw materials.

The existing fleet of research vessels (government and private (energy industry)) will need replacing: almost half of the existing fleet of close to 1,000 research vessels is 30 years of age or older. Over a quarter of the existing fleet dates from the 1960s and 1970s. Due to the aforementioned budget con-straints in mature Western economies, it is highly likely that existing research vessels in those countries will be replaced by fewer but larger and more capable research vessels. China and India will in all likelihood keep expanding their research fleets for at least a decade, while Russia will need to replace about half of its existing fleet in the next decade: 46 of the 87 Russian flagged research vessels were built in 1984 or before.

Due to fleet replacement, scrapping is expected to rise in the mid-term, from 27,000 GT per year to nearly 70,000 GT per year by 2035. Part of this increase in scrapped tonnage will be due to an increase in absolute numbers of vessels being scrapped, but part of it is also due to the growth in size of rese-arch vessels being retired. Research vessels built in the early 90s measure 2,700 GT on average, while vessels built before 1985 measure about 1,100 GT on average. Deliveries of newbuilds are expected to average 18 vessels per year for the period 2016-2025 with an average tonnage of around 3,800 GT per vessels. For the period 2026-2035, deliveries are expected to increase to 20 vessels a year with an average size of 4,500 GT per vessel, reflecting the gradual growth in size of vessels witnessed in the past decades as well.

D. Fishing VesselsThe future market for fishing vessels is one of the hardest markets to predict of all vessel types. This is largely due the fact that fleet size is mostly dictated by government policies rather than market requi-rements. Several studies have shown that fish stocks have been seriously overfished in many areas of the world. A rise in fish quota restrictions is therefore to be expected. Coupled to these restrictions is a likely decrease in the world fishing fleet size. At the same time, a rise in the number of vessels active in fish farming is to be expected. There will still be a newbuild requirement for fishing vessels, as a certain degree of fleet renewal will be necessary to replace part of the current ageing fleet.

The total world fishing fleet as per IHS Fairplay currently numbers over 22,000 vessels with a total tonnage of 9.9 million GT. Basis of our forecast is the assumption that the current fleet will shrink by 10 percent to 9 million GT by 2035. Scrapping is expected to increase gradually from 120,000 GT per year for the period 2016-2020 to 220,000GT per year for the period 2031-2035. Newbuild deliveries are expected to rise from around 175 vessels in the period 2016-2020 to around 346 vessels per year in the period 2031-2035. While the latter may seem like a significant amount of vessels, it is still lower than the amount of vessels deleted from the fleet in that same period, resulting in a further drop of the fleet size.

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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2020 2025 2030 2035

Fishing vessel Completions, Actual and Forecast CGT Vessels



E. Other Special VesselsThe remaining group of specialised vessels is a very mixed group of about 4,000 vessels, consisting of a wide variety of vessel types. Numbering over 1,100 vessels, the largest subgroup is the so-called “lan-ding craft”: a very versatile kind of small cargo carrying craft with a front-end loading ramp. Almost 800 of these 1,100 have a gross tonnage smaller than 500GT. The second largest group are patrol vessels, numbering close to 600 vessels. Of course the patrol vessels are more related to navy ships than to re-gular commercial vessels, although many are built these days by commercial shipbuilders and to com-mercial standards. Also, the smaller patrol vessels often have a multi-role design which is also offered as a crew boat or supply tender. Production of patrol vessels is rising. Developing nations are building up their navies, while navies in the Western world are increasingly looking to deployment of patrol

39

vessels as a more cost effective way of performing some duties which used to be performed by frigates and corvettes, enabling the latter shiptypes to deployed more exclusively on the more dangerous tasks.

Utility vessels and work/repair vessels also form a relatively large group, amounting to over 500 ves-sels. These are small multirole vessels, commonly known as “workboats” and often used as auxiliary vessels in port construction, dredging and offshore construction projects. These vessels are usually equipped with a crane and an open deck and often have a catamaran hull form in order to provide a relatively stable working platform on such a small vessel.

Most of these other special ship types are built in very small numbers, with production in the low single digits each year. The most notable exceptions are, as expected, the larger categories of landing craft, workboats and patrol vessels. Production of landing craft has averaged 50 units a year in the period 2004-2013, double the average of the preceding period 1994-2003, which was 25 units per year. The same trend can be seen with patrol vessels, which average production almost doubling from 15 units a year in the period 1994-2003 to 27 units per year in the period 2004-2013. The production of utility vessels and work/repair vessels has also sharply increased to an average of around 30 units per year in the period 2004-2013.

The economic crisis of the past few years has not had a noticeable effect on the production numbers of these other special vessels. The use of the many of these vessels is related to port operations and port development, both of which are activities which continue to grow steadily in line with the growth in world trade. Workboats are also increasingly being employed in the construction of offshore win-dfarms, an industry which is growing fast in Europe, but which has yet to really take off outside Europe. Possibly growth areas for offshore wind are China, Japan and the United States.

One other category of special vessel which deserves our attention is the category of icebreakers and other ships capable of Arctic operations. As global temperatures rise, the Arctic areas of the world are opening up to shipping and exploration and extraction of natural resources, oil and gas in particular. The market potential is massive: the value of the Arctic Maritime Transport Market could run up to 30 billion euros until 2020 (Source: Team Arctic Finland). The Arctic Society of Finland estimates that in the next 10-20 years, around 20-40 new icebreakers will be needed to replace existing ships alone. Further vessels will be needed to guide ships through the Northern Passage and to pave the way for offshore energy operations. Icebreaking offshore support vessels and icebreaking construction vessels are expected to see increasing demand. The oil and gas reserves in the Arctic areas are located under ice-covered, deep water and extraction will have to take place in very harsh conditions. Hence, Arctic offshore energy operations will require top-of-the-range vessels.

Traditionally, Finland and Russia have been strongholds of icebreaker expertise, with Finnish yards in particular having built both ships for domestic use, in addition to most of the current Soviet/Russian icebreaking fleet. Finnish, Russian and Norwegian yards are currently increasing production of icebre-akers and icebreaking supply vessels, while (Russian owned) German yards also have received some orders for these shiptypes.

Russia is also investing heavily in its own yards in order to start building specialised Arctic ships of its own, like new nuclear-powered icebreakers and icebreaking LNG carriers. However, competition from Asia is intensifying: Korean yards have grabbed all orders for Arctic LNG carriers for Russian projects so far as the Russians are not yet ready to build their own LNG carriers. Also, some yards in China and Singapore have taken orders for specialised Arctic ships in the past few years.

The Arctic shipping industry faces a lot of uncertainty though: the current political crisis between Rus-sia, Europe and the United States is taking a heavy toll on the Russian economy. However, the real problem at the moment for Russia is the low oil price. According to several sources, it costs anywhere between USD 80 and USD130 per barrel to produce Arctic oil , so at current low oil price levels, many investments in Arctic oil and gas exploration are likely to be cancelled or at least postponed in the short term. In the longer term, the oil price has to come up again as expansion of production slows down too much. A third challenge is the lack of surrounding (port) infrastructure in the Arctic. This will need to be addressed in order to facilitate expansion of Arctic shipping.

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Summary

The expectation for the coming years until 2035 with the development of emerging economies and stabilization of OECD countries, increasing energy consumption and growing population will lead to an increase in the international trade of raw materials and manufactured products, and consequently will lead to a higher demand of seaborne trade. Environmental and safety considerations, the age of the fleet and need of additional seaborne trade capacity will drive the newbuilding requirement of new cargo carriers.

Newbuilding requirement for non-cargo carriers such as dredgers and tugs is also expected to grow, given the expected increase in seaborne trade and the development of ports, inland waterways and the projections of new infrastructures. A progressive increase in new offshore renewables and other offshore activities will also require new technologies, vessels and structures for ocean surveillance, con-struction and support of new activities in the sea.

However, the global offshore market will be still dominated by offshore oil and gas activities in the coming decades. Given that the oil price is the main driver for the demand of offshore vessels, and given the current (1Q 2015) unexpected drop on oil prices, it is very difficult to predict the next peak, as it is with predicting the future oil price development depending on future global economic growth, energy demand and international politics. The outlook will depend on hurdle rates for investment, profitability, financing possibilities and state controlled oil companies often with higher focus on self-sufficiency than short term profitability.

The mix of onshore, shallow water, deepwater, ultra deepwater activity and effects of increased activity in remote areas is also key. Longer distances will drive demand for offshore vessels. Innovation and technology development, costs and efficiency improvements is of course also important. In the short term most offshore markets will take a hit while a few others may be picking up, but increased activity is again expected towards 2020. The market balance is also often sensitive with trigger effects. As we have seen in the past when utilization level is increasing above a certain level the charter rates are sky rocketing with an order boom as a result. Thus, the peaks may get higher and downturns deeper than what are possible to predict in a newbuilding prognosis.

On the other hand, the growth on the global economy, the increase of world population and the under-lying trends in international tourism will stimulate the growth on the demand of passenger seaborne transport. The progressive recovery of US and EU economies and the GDP growth in developing coun-tries are expected to increase the demand for cruise trips, leading to an increase in newbuilding requi-rements of cruise ships.

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1980

19

86 19

88 19

90 19

92 19

94

1996

19

98 20

00 20

02 20

04

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20

08 20

10 20

12 20

14

2016

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18 20

20 20

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2026

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28 20

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32 20

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Total Real

Projected SEA Europe

GNS

Newbuilding Requirement: Actual 1980 - 2014 & Forecasted 2015 - 2035 in mill. CGT


The SEA Europe forecast is based on a baseline case scenario and it is quite conservative compared to the expectations of some of its Asian counterparts. This can be seen when comparing the newbuil-ding requirement expectations from each shipbuilding association (SAJ, CANSI, KOSHIPA, SEA Europe) shown at annual ISFEM meetings.

In summary, our forecast of newbuilding requirements based on macro-economic considerations, the development in the world population, global production, energy consumption and the expectation for future energy mix shows that the newbuilding requirements will increase in the coming years, even at relatively low levels compared to the boom times experienced in 2006-7. However, the increase of transport needs and environmental considerations will influence the concerns for the replacement of the fleet and this will show up in the demand.

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Documents

2014 Market Forecast Report