Shipyard Capacity Conundrum: What Next? - · PDF fileShipyard Capacity Conundrum: What Next? Dr Adam Kent - Maritime Strategies International (MSI) 8th Annual Marine Money London Ship

Shipyard Capacity Conundrum: What

Next?

Dr Adam Kent - Maritime Strategies International (MSI)

8th Annual Marine Money London Ship Finance Forum – 25th Jan 2016

Agenda

© Maritime Strategies International www.msiltd.com2

Shipyard Capacity Conundrum: What Next?

1. The ‘Issue’

2. Current Situation

3. Solutions

4. The Link

5. When does NB begin to make

sense?

The ‘Issue’

© Maritime Strategies International www.msiltd.com

Shipyard Capacity Conundrum

Contracting Perfect Storm Timeline

4© Maritime Strategies International Ltd.

Evolution of Effective Shipyard Capacity


0

10

20

30

40

50

60

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Mn CGT

Other Europe China Korea Japan

Orders supported a rapid

increase in shipyard

capacity


0

25

50

75

100

125

150

175

200

2000

2007

2016

0

25

50

75

100

125

150

175

200

2000

2007

2016 0

25

50

75

100

125

150

175

200

2000

2007

2016

Chinese Yard Proliferation

# of yards taking contracts for ocean going vessels

China

South Korea

Japan

China and Korea adopted

different growth strategies

Current Situation




Year

ReportedShipyard Country Status

2016 Samsung Heavy Industries South Korea Self Restructuring

2016 STX Offshore & Shipbuilding South Korea Restructuring

2016 Zhong Chuan Heavy Industry Shipbuilding China Bankrupt

2016 DSME South Korea Self Restructuring

2016 Hyundai Heavy Industries South Korea Self Restructuring

2016 Sainty Marine Co. China Bankrupt

2016 Wuzhou Shipbuilding China Filed for bankruptcy

2016 Sinopacific Zhenjiang China Bankrupt

2016 Sinopacific Yangzhou Dayang China Restructuring

2016 Dung Quat Yard Vietnam Possible bankruptcy

2016 Qingdao Yangfan Shipbuilding China Bankrupt

2016 ExampleBankruptcies & Restructurings

2016 Juxtaposition


0

2

4

6

8

10

12

14

So

uth

Ko

rea

Ch

ina

Jap

an

Eu

rop

e

Oth

ers

Mn CGT

Deliveries Contracts

Orderbooks eroded rapidly

in 2016


Quarters Since Last Order

Increasing number of

yards redundant


0

2

4

6

8

10

12

20

14

20

15

20

16

20

17

20

18

20

19

South Korea

0

2

4

6

8

10

12

14

16

20

14

20

15

20

16

20

17

20

18

20

19

China

0

1

2

3

4

5

6

7

8

9

20

14

20

15

20

16

20

17

20

18

20

19

Japan

0

1

2

3

4

5

20

14

20

15

20

16

20

17

20

18

20

19

Others

Mn

CG

T

Actual/Scheduled Deliveries Empty Capacity

Is there still an issue?

2016 – The Reality


0

5

10

15

20

25

Ch

ina

Ja

pa

n

So

uth

Ko

rea

Oth

er

Mn CGT

2016 scheduled 2016 actual

Chinese phantom

orderbook strikes again


Phantoms – The Rationale Explanation

pre 2010

2010

2011

2012

2013

2014

2015

Slipped 1 year

Slipped 2 years

Cancelled

Tanker

Bulker

Gas

Container

Other

S Korea

China

Japan

Other

Fate of 2016 – Non Deliveries 2016 Non Deliveries – Year of Contract

2016 Non Deliveries – Sectors to Blame Reoccurring Nightmare – 2015*

* Vessels scheduled for 2015

delivery that are still on order

Q4 2016 Orders and Time to Delivery


0

2

4

6

8

10

12

14

16

18

200

to

12

mo

nth

s

12

to

18

mo

nth

s

18

to

24

mo

nth

s

24

to

30

mo

nth

s

30+

mo

nth

s

# of vessels China Japan S Korea

Recent orders support the view that over

a third of the Chinese

orderbook will ‘disappear into the night’

Solutions?



16

Contracting Drivers

Cargo Demand Replacement Tonnage Earnings

Herd Mentality Calculated StrategyMarket Insight

www.msiltd.com

Obsolescence

Investment Thesis


Cargo Growth

Increase in cargo growth

although ‘average’ levels

Replacement Tonnage


0%

10%

20%

30%

40%

50%

60%

70%

80%

0

50

100

150

200

250O

il T

an

ke

r

Bu

lke

r

Ch

em

ica

l

LP

G

LN

G

FC

C

MP

P

Re

efe

r

Ro

Ro

Cru

ise

sh

ip

Ve

hic

le

Mn CGT

25+ Yrs old 20-24 Yrs old 15-19 Yrs old10-14 Yrs old 5-9 Yrs old 0-4 Yrs old% over 20 years (RH Axis)

Fleet remains young

(looks better in 5yrs time)


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

20

40

60

80

100

120

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Mn CGT PCC/RoRo/RoPax/Cruise MPP

FCC Gas

Container Bulker

Tankers % Commodity

Contracting Forecast


Business Model - Grass is Always Greener

SE Asia China Korea Germanyany


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011

2016

2019

% Share

Others Containerships Gas CarriersChemical Tankers Bulkers Oil Tankers

China Shipyard Evolution-Contracting Share by Vessel Type


A Cog in a Larger Machine - Diversification

Source: Hyundai Heavy Industries I.R.


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20

10

20

11

20

12

20

13

20

14

20

15

20

16

% ShareInternational Domestic

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20

10

20

11

20

12

20

13

20

14

20

15

20

16

% ShareInternational Domestic

Domestic Ordering

Japan China

China cannot rely on domestic orders – unlike Japan


0

2

4

6

8

10

12

14

2017

2018

2019

Mn CGT Incremental Chinese shipping demand * Chinese 20+ year fleet replacement **

Chinese Shipyard -Extreme Self Help Scenario

* Incremental demand taken from MSI’s econometric models (tanker, bulker, container only) based on cargo moved translated into requirement for shipping

** Chinese 20+ year fleet assumes all Chinese vessels are scrapped once they are 20 years old and are replaced with new contracted tonnage

Enough to keep Chinese yards

busy for a couple of years

The Link




Shipyard Capacity is no longer a limiting factor

Newbuilding Prices part of the secondhand price jigsaw

Why’s it Important?

Directional Analysis


-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Q1 0

9

Q2

09

Q3

09

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2 1

1

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

Q4

12

Q1

13

Q2

13

Q3

13

Q4

13

Q1

14

Q2

14

Q3

14

Q4

14

Q1

15

Q2

15

Q3

15

Q4

15

Q1

16

Q2

16

Q3

16

Q4

16

QoQ % Change NB Price 1 Yr TC Rate 5 Yr Price

VLCC

Quarters Where 2nd hand Price Moves with NB Price Only


0

20

40

60

80

100

120S

up

ram

ax

Pa

nam

ax

Ca

pesiz

e

MR

Afr

am

ax

VL

CC

# of Quarters

No Yes

Since 1990


NB Price Outlook

FC Pricing Power - OWNERS

FC Pricing Power - YARD

FC = forward cover


Yards Don’t Just Disappear

Yards have become ghost

towns… but haven't disappeared

Source: Google Earth

Shipyard Elasticity


0

10

20

30

40

50

60

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

Mn CGT

Other Europe China Korea Japan

When does NB begin to make sense?



MSI - FMV


• MSI Forecast Marine eValuator (FMV) is the first web-based tool to provide forecast and historical price

data covering virtually all of the deepsea shipping fleet.

• Data includes forecasts of newbuilding, second-hand prices, 1 year timecharter rates and operating costs

for specific vessels.

• MSI FMV draws on MSI’s proven, proprietary models and a consistent cross-sectional view across all

principal shipping sectors. It puts asset values in the context of the near term market to enable reliable

benchmarking with outputs based on annual averages.

• Coverage:

Crude Oil Tanker

Product Oil Tanker

Dry Bulk Carrier

Chemical Tanker

LPG Carrier

LNG Carrier

Multi Purpose

Containership

PCC/PCTC

www.msiltd.com/fmvAHTS PSV

http://www.msiltd.com/fmv


IRR - NB versus Modern Tonnage


Thank you for listening

For over 30 years, MSI has developed integrated relationships with a diverse clientbase of financial institutions, ship owners, shipyards, brokers, investors, insurersand equipment and service providers.

MSI’s expertise covers a broad range of shipping sectors, providing clients with acombination of sector reports, forecasting models, vessel valuations and bespokeconsultancy services.

MSI is staffed by economists and scientists offering a structured quantitativeperspective to shipping analysis combined with a wide range of industryexperience.

MSI balances analytical power with service flexibility, offering a comprehensivesupport structure and a sound foundation on which to build investment strategiesand monitor/assess exposure to market risks.

MSI Background


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Documents

Shipyard Capacity Conundrum: What Next? - · PDF fileShipyard Capacity Conundrum: What Next? Dr Adam Kent - Maritime Strategies International (MSI) 8th Annual Marine Money London Ship