Martin Stopford, President Clarkson Research

RUSI International Sea Power Conference 1st July 2014

Economic Relevance

Tanker in convoy Arabian Gulf 1980s

Operation Ocean Shield, Horn of Africa 2013

1. The Trend in Maritime Trade2. Merchant Shipping’s Economic Relevance3. Merchant Shipping’s Structure4. Conclusions

• What makes the business climate so difficult today is that shipping investors must deal with several major changes taking place simultaneously. What are the changes, how will they interact and where they might lead?

What is the Economic

Relevance of maritime power?

1

Source: Naval Power in India’s Geopolotics, Humberto Santos Rocha, Rio Jan 2013

The Growth of Sea Trade 1850-2013

0.0

1.0

2.0

3.0

4.0

5.0

6.0

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10.0

1850

1860

1870

1880

1890

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

Bill

ion

tonn

es s

ea im

port

s

1950-2013Sea tradeGrew at 4.3% pa

Source: "Will the next 50 years be as Chaotic in Shipping as the Last?“ Dr Martin Stopford, Hong Kong Shipowners 50th Anniversary Jan 2007

Almost all the growth of sea trade has occurred since 1840

First steamships viable on deep sea routes appeared in

the 1860s

First steamships in 1830s (mainly tugs & packets)

Colonial era of sea trade Free trade era of sea trade

1850-1950Sea tradeGrew at 3.2%pa

Martin Stopford

11/04/2023

The Colonial Shipping Era 1850-1950

Colonies in 1800Colonies in 1914

•Between 1850 and 1950 the European network of colonies spread across almost the entire globe•Colonial trade dominated shipping. It was protective & nationalistic. •Colonial shipping used ships which were small, interchangeable & versatile in terms of cargo . It was not very efficient

Martin Stopford

11/04/2023 6

The Global Free Era 1950-2050?

• In the post WW2 era shipping got much more efficient

• 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 free trade regime

• To assist in achieving this the World Bank, the IMF and GATT were founded.

• Multinationals were free to develop global trade and they built a maritime transport system using big, specialized ships

Delegates at the Bretton Woods Conference in 1944

“The objective, gentlemen, is to

create a dynamic world economy”

Martin Stopford

11/04/2023

Sea Trade Grew Faster Than GDP 1950-2013

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200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

1950

1952

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2010

2012

Sea Trade World GDPIndex 1950=100

2013Sea trade

was 18 times as big as in

1950Sea trade grew at 4.3% per annum

World GDPGrew at average of

3.6% per annum

Figure 3 Sea trade growth followed a different path from GDP

2013World GDP was 10 times as big

as in 1950

Martin Stopford

• In 1950 mechanization of cargo handling was urgently needed to carry rapidly growing trade

• Today the sea transport system, which transcends national boundaries, underpins the economic prosperity of the major nations of the world

• There are FOUR reasons why merchant shipping might become increasingly important in the naval sea power model 8

System change improved productivity

Martin Stopford

Reason 1: Unequal Sea Trade Volume

0.20

0.6

0.8

3.80

6.30

7.50

0 1 2 3 4 5 6 7 8 9 10 11 12Tonnes of sea imports per person a year in

2010

Japan

Europe

N. America

China

S America

Africa

OECD Countries1.3 billion

Population import about 5 tonnes per

person

Non OECD Countries6 billion Non-OECD

population import less than 1 tonne per person

Martin Stopford

Reason 2: Sea Cargoes Are Indispensable

Energy

Metal Industry

Agricultural

Container

Other cargo

0 500 1000 1500 2000 2500 3000 3500 4000 4500

Crude OilProductsSteam CoalGasIron oreCoking CoalOther oresAgribulksContainerisedOther2

Million tonnes of cargo 2012Manufactures & semi-manufactures

Martin Stopford

19501953

19561959

19621965

19681971

19741977

19801983

19861989

19921995

19982001

20042007

20100%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

At-lantic

Atlantic imports & exports

Pacific imports & exports

Shows the of Atlantic and Pacific Trade (inc. Japan) volume as a % of world trade

Atlantic Cargo has fallen from 80% of world trade

to 46% in 2010

Pacific cargo share has

increased from 18% to 53% in

2010

Reason 3: Control of Cargo is Changing

Martin Stopford

Reason 4: Growth Will Pressure ResourcesIt’s the Field of Dreams Scenario

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55

Bil

lio

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rad

e Total TradeSea Trade Scenario

26 billion tons of trade in 2055 may be too extreme. How can the

50% cut in carbon footprint be achieved?

How long to double again? This shows 30 years, averaging 2.25%

pa

Cargo doubled from 5 bn to 10bn tonnes in 18 years

4.4%pa

Martin Stopford

13

• Containerisation introduced in 1965 revolutionised the transport of general cargo

• Specialised Shipping: ships designed to optimise transport of a specific cargo

• Bulk shipping, introduced in the 1950s, revolutionised the transport of raw materials

Linershipping

Bulkshipping

Specializedshipping

Martin Stopford

0 100 200 300 400 500

Dry bulk carriers

Oil Tankers

Combined carrier

Containerships

Ro-Ro

Multipurpose

General cargo

Reefer

Chemical tanker

Vehicle carrier

Liquified Gas

Cruise

Ferries

Offshore

Tugs

Dredgers

Million Gross Tons

Specialised cargo fleet

(Chapter 12)

Bulk cargo Fleet

(Chapter 11)

General cargo fleet(Chapter 13)

Non cargo fleet(Chapter 12)

Special-ised10%

Non cargo53%

Bulk cargo28%

General cargo

7%

World fleet by type May 14 (numbers of vessels)

Merchant Fleet 2014 1.1 billion GT, Worth $1 trillion

Source: Maritime Economics 3rd Ed, Martin Stopford, page 68

In June 2014 there are 57,967 cargo ships and 30,668 non-cargo ships

Many Small Shipping Companies

World Fleet by Company Size : For vessels >2,000 GT

Company Size**Number of Companies

Number of Vessels m.GT

% of fleet (no. ships)

Over 100 ships 22 2,899 141 7%51-100 ships 101 5,196 184 13%21-50 ships 373 8,326 300 21%

Medium (11-20) 657 7,405 192 19%Small (6-10) 999 5,878 125 15%Small (1-5) 5,577 9,818 167 25%

Total 7,729 39,522 1,109 *Based on Beneficial Owner, excludes unknown owners**Company size based on full fleet >100 GT

Martin Stopford

77% of Tonnage is “Flagged Out”

• 1.2 billion DWT of “flagged out” tonnage

• 77% of the merchant fleet is now registered offshore

• Up from 42% at the end of the 1980s (see chart)

• Shipping now a global business

National & Foreign Flag Fleets M DWT

19891992

19951998

20012004

20072010

20130

200

400

600

800

1,000

1,200

1,400National FlagForeign Flag

Move to offshore flag accelerates in 2000s boom

National flag registrations pretty static

Martin Stopford

0 50 100 150 200 250 300

Panama

Liberia

Marshall Is

Hong Kong

Singapore

Bahamas

China PR

Malta

Greece

Cyprus

Million Gross Tons

Top 10 Flag States – Not Many Navies!

Top 10 Flags73%

The rest27%

World Fleet M GT

Martin Stopford

Top 10 Fleets By Owner Nationality

-

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000 Greece Japan China P.R.Germany South Korea United StatesNorway Singapore ItalyDenmark

Based on the nationality of the shipowner, not the flag of the ship

1. Greece

2. Japan3. China

4. Germany

5. S Korea6. USA

Martin Stopford

Piracy Activity 2008-2014

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mb

er

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vess

els

in m

on

th

Vessels capturedEscapedVessels held (end month)

5 shipscaptured by pirates

in 2014

62 unsuccessful

attemptsSo far in

2014

Updated June 2014 from Piracy stats June 2014 spreadsheet

Unaudited data collected by Clarkson Research – only a rough guide to activity levels

Martin Stopford

1. Since 1950 merchant shipping has built a highly efficient sea transport system.

2. The trade in fuel, minerals, food, intermediates and manufactures is so integrated that the world economy cannot operate for long without it.

3. To carry this trade merchant shipping depends on open seaways and safe passage.

4. Over the last 50 years this has not been a problem because the trading environment has been stable.

5. Today the framework of trade is changing as the epicentre moves to the Non-OECD countries and more pressure on resources, leading to new trade scenarios.

6. Recent piracy activity has raised legal & security issues which are still unresolved.

7. Bottom line – I believe sea transport belongs in the big league of strategic risks, alongside the global financial system and climate change.

Today there is one global

economy & sea trade is at

its core

Martin Stopford