BMTI Outlook 2015

Europe's leading trend experts for the shipping industry 02 January 2015 Page 1 of 19 Yr33/1

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bmti daily and independent

BMTI OUTLOOK 2015

FOR BMTI-SUBSCRIBER .

TABLE OF CONTENTS .....................................................................................................................................................Page Introduction: Embarking on the Next Chapter in Shipping ........................................................................................... 1 Global Dry Bulk Market in 2015............................................................................................................................................. 1 European Short Sea Market in 2015 ...................................................................................................................................... 6 Containership and Project Cargo Markets in 2015..........................................................................................................11 Market View from South America........................................................................................................................................12 Market View from New Zealand ...........................................................................................................................................14 Economic & Ship Investment Developments in 2015..................................................................................................15 Focus: The Future is Now — The Promise of New Technologies..........................................................................................17

Introduction: Embarking on the Next Chapter in Shipping

One of the benefits of collecting views about the year ahead is being able to take stock of the year past. This time last year, in Outlook 2014, viewpoints were largely optimistic about prospects for 2014, thanks in part to the last quarter of 2013 being such a surprisingly positive one. That late-year boost of sentiment and market activity emboldened all but the most pessimistic market players to cautiously proclaim 2014 as a year of recovery. In hindsight, we see that apart from a short jump in Q1, 2014 turned out to be a disappointment to the most positive forecasts. Now we find ourselves in the reverse position—the end of 2014 was a sour note in a year of unfulfilled revival. Perhaps a bit inevitably, the majority of prognoses here are of a more cautionary and bearish outlook for the year ahead—let us hope, for the market's say, that we are all proven wrong

and that 2015 will defy expectations once again, bringing a surprisingly strong market despite our earlier low expectations. We are most pleased with the contributions that were kindly provided by our friends and readers, professionals and leaders of their fields, giving their unguarded opinions and highly-considered thoughts about a market that seems to be getting more complex and unpredictable by the year. Nearly all contributions are published here anony-mously to encourage the highest degree of honest opinion, but we named any contributors who pre-ferred to be named. We value this exchange of ideas and trust there are pearls of wisdom to be gained by even the most experienced shipping participant. In the interest of a successful and rewarding 365 days of experience, we wish readers of this year's Outlook 2015 report all the best in this new year of shipping!

Global Dry Bulk Market in 2015

Unpalatable Prospects for Chartering in 2015 — Thoughts from a Continental Broker

The bears have taken a beating and now slightly wounded seem to be limping off the stage, where the bulls have been lurking in the background

waiting for the right moment to hold the whip hand. We aren't that far yet. But all indications give reason to be more optimistic in 2014 than we were for

Daily & Independent www.bmti.de [email protected]


2013. The market was totally different. But now after an almost three-month period of steadiness accompanied by rising rates across the board, which justifies the word "sustainable", there is reason to hope for a new period of relative prosperity for the months to come. Trade volume is expanding and the shipping industry can hope for steady demand to continue. Cape owners and brokers have also been expressing very optimistic views for 2014. The spectre of newbuilding deliveries is not off the table to haunt particularly the Supramax section, but its

effect will be limited in 2014. The pillars in the Atlantic remain the USG and the new season in ECSA. Should the present recovery in that area hold until the new season arrives, we can expect a bullish market in the Atlantic driving demand all over the place. The East looks a bit shakier, but with the Atlantic out-performing the East owners' desire for Backhaul business will intensify whilst their desire for fronthaul trips is going to decline sharply unless charterers are paying a lot of money.

Shipping in 2014 and Looking Forward to 2015 — Market Outlook from BIMCO

Global Economy: Fragile recovery highlights the need for more political initiatives

2014 started with plenty of optimism for a con-siderably better global economy and an improved shipping market. Things turned out somewhat differently. Adverse weather conditions in the US during winter were the dominant factor, creating a difficult first half of the year for the global economy. The developing and emerging markets continued on a downward trend, while a sunnier outlook from the US and Europe had the effect of moving the already more advanced economies forward. The quantitative easing programme of the US Federal Reserve has now ended. This is a landmark in terms of recovery. Following a quadrupling of the US monetary base, unemployment has come down, the stock market has gone up and economic growth has become more robust. The UK followed the same path as the US, with similar results. This is outstanding in the other-wise sluggish European economic development.

In Japan, "Abenomics" is facing headwinds caused by a hike in sales taxes and a subsequent return to recession. Japan's economy has been stagnating for decades, and it is unlikely to move much further forward from this in 2015. The slowing of the Chinese economy is adding uncertainty to the level of shipping demand generated in the Far East. Its soft landing seems to incur turbulence, with some indicators suggesting the official GDP data may not give us the full story. Growth in emerging markets and developing economies is set for a comeback in 2015, with GDP-growth improving from 4.4% in 2014 to 5.0% in 2015. The advanced economies are likely to stay on the recovery track, and improve their GDP-growth to 2.3% in 2015 (1.8% in 2014). The common challenges remain poor inflation expectations, a lack of structural reforms and lack of job creation. There is clearly room for more political initiatives in 2015 to support the global economy.

Supply: Stalling orderbook = reality has hit home

The total orderbook remained unchanged during 2014. This signals that the industry is now realising that more new orders may not be the right thing to do after all. The fundamental oversupply of capacity in all of the major shipping segments has not changed much over the past year. A higher level of demand has only just matched the net supply of new tonnage coming on stream.

Crude oil tankers are the only exception to the status quo in the balance of freight markets. A multi-year low inflow of new tankers has stimulated earnings growth of some 20% compared to 2013. Meanwhile, the growing supply pressure in product tankers neutralised most of the growing demand side, with earnings coming in just a little shy of 2013.

Containerships keep getting bigger, breaking pre-vious size records for both individual ships and the average size across the fleet. The CSCL Globe, with a capacity of 19,000 TEU, was launched in November, and the average TEU capacity of a 2014-newbuild increased to 7,400 TEU, up from 6,600 TEU in 2013. Next year the scheduled average is 8,000 TEU.

Looking forward to 2015, BIMCO expects the dry bulk fleet to have found a new "normal" level of supply side growth, expanding by 5.1% (5.5% in 2014). Regrettably, the level is still too high to reduce the glut of ships in the market. For tankers, BIMCO expects the dirty segment to grow by 1.7% (1.3% in 2014). Three years of low supply growth has led to more positive short-term prospects for crude oil tankers. In the clean segment, the estimated supply growth for 2015 is 4.6% (4.3% in 2014). Supply growth in the container ship segment is expected to drop to 5.8% in 2015 (6.2% in 2014).



Source: BIMCO, Baltic Exchange, Shanghai Shipping Exchange

Dry bulk: New challenges await as demand slows

BIMCO expects dry bulk demand to slow in 2015 to a rate of 4-5%. Iron ore demand will again be the centre of attention. In recent years, demand growth has been biased heavily towards the Capesize seg-ment. In 2014, 70% of the total volume growth came from increased iron ore demand driven by China. BIMCO expects this trend to continue, with Capesizes outperforming the smaller sizes relatively.

Strong iron ore demand in 2014 was somewhat neutralised by weaker coal demand to China. Mean-while, Indonesia's ban on exports of unprocessed bauxite and nickel ore resulted in a weak Supramax market in the Far East. Towards year's end, the late arrival of iron ore strong exports out of Brazil proved to be insufficient to deliver on the promise of 2013, when rates for all segments went up. While earnings had hit the floor in 2012, BIMCO expected 2014 to build on the optimism of 2013 and continue on the road to recovery. That did not materialise.

Tanker: what is the "new normal" demand level?

The crude oil tanker market started 2014 on a very positive note, with a five-year-high for earnings in the first quarter. The market's strength showed clearly in early autumn and in the current winter

market. The export of crude oil from West Africa has shifted from West to East as the US has reduced its imports to almost zero. This has given the demand side momentum, as West Africa now export more to the Far East, creating many more ton-miles.

For product tankers, the final quarter of 2014 con-trasts greatly with the dull and flat market we have seen for most of the year. Despite US oil product export growth slowing, it remains a positive story overall. Demand growth managed to match supply growth as the positive events arrived late in the year for shipping markets as well as in global economics.

Falling oil prices stirred some positive unrest in the tanker market, with rising tonnage demand in their wake. In spite of the price drop arising from weak oil demand and oversupply, a currently low and volatile commodity price is good for trading and shipping. With a dramatic fall in bunker prices, it is vital for a continued industry recovery that all shipping segments resist higher speeds. Failure to do so may compromise improvement of the fundamental balance, which is essential to bring prosperity back.

Container: High demand & slow steaming stays?

Strong demand growth on the large-volume trades from Far East to US and Europe has brought lower



volatility in freight rates on key trades while re-activating most of the previously idle ships. How-ever, in peak season, the steep drop in freights on the Far East to Europe trade made it clear that the utmost care is constantly required for the supply side, while the introduction of ever-larger ships continues.

Improved industry earnings currently rest on one central requirement: slow steaming and defence of individual market share. This highly competitive market only returns a positive margin if the cost base

is extremely low. BIMCO expects containership sup-ply to continue to grow at its "new normal" level of around 6%, making the demand side a focal point. European demand has been stronger than private consumption figures indicated, and we may well see further improvement for US demand. The USEC could build further on a remarkable year as the ports prepare for the imminent arrival of ultra-large con-tainer ships. Enlargement projects in the Panama and Suez Canals will further influence ship deployment.

Expectations & Estimations from a Black Sea-Based Shipping Analyst

My expectations are from my estimates by analysing indicators in the past 10-15 years. I read the data of demolition markets, newbuilding markets, bulker TCs, spot markets and BDI index changes only. Looking to demolition market indicators, I saw that between 1981-1991 (for 10 years) the demolition level was in 10-30m dwt band. But from 1991 until 2008 the same band continued for 17 years. Then, after 2008 until today, the demolition level has been increased over 30m up to 40m dwt drastically. It means that, the normal demolition balance should be in a 10-year period for the same levels.

But, in the 1991-2001 period, the demolition bal-ance was the same, however after 2001 till 2008, it was not changed. It means that, the old ships were remained in market till 2008. In that respect, after

2008 the demand on demolition has been drastically increased up to 2012. The maximum level was 40m dwt and, after that point, the demolition level started its recession again and has continued in the current year. This means that in 2015 the old ships will stay in the market as well. It also means that the freight competition will be effected by these actors to stay at the same level that was in 2014.

On the other hand, in 2015 newbuild deliveries will be about 95m dwt. And in 2016, it will be 118m dwt as per present orders. This means if commodity demands stay at the same level as 2014, that freights will go down due to the increasing of dwt capacity by new deliveries! Have a look at the table below. The data on the table below are only approximate information from the market from my research:

USD/day T/C market data of bulkers SPOT market data of bulkers 2013 2014 Moved to 2013 2014 Moved to Cape 20,000 17,000 down 24,000 20,500 down Pmax 13,000 10,000 down 11,000 8,500 down Hmax 10,000 80,00 down 9,000 7,000 down The movement direction of daily hiring rates from 2013 to 2014 has been going down for both TC and spot markets. In 2015, it will continue trading in the same band, as per my estimation. Maybe after 2016 (including the first half), it will be able to start to rise. But, this would depend on the commodity markets.

Let's take a look at the BDI behaviour between 2009 and 2014. It was around 1,250 in February 2009, after which it rose until February 2010 over 2,000 to 4,000 but then fell again under 2,000 drastically and continued to fall into around the 1,600-1,200 band from February 2011 upon July 2013 dates as per my reading for comparison of monthly change tables. In this way, I see that the BDI will continue to be on the same level in 2015 within the 1,000-1,400 band. This means that the freight market will be change by

very small recessions in 2015. When I check the bunker price changes by years, I saw that there was not drastically changes on bunker prices if comparing the period of 1992-2004 (first period = 12 years) and the period of 2004-2014 (second period = 10 years). In the first period MGO prices approximately were at 200-400 (USD/tonne) band but in the second period the band was changed drastically to the 400-1,000 band. Besides, In the first period, the 380 CST price was approximately on 100-200 (USD/tonne) band but in the 2nd period the band was changed drastically to 200-600 band. In my opinion, the bunker prices will not affect the freight market with drastically alters in 2015, too.

Finally, in 2015 I don't expect to see more changes from 2014! But for 2016, we may discuss again.

Bulk Market Expectations from a North African Charterer

The world economy was slow in 2014. However, rates were 3.8% over 2013. It was a result of low

fleet growth from 5.5% to 3% In 2014, freights be-gan strong (9.42% over Q4-2013) and changes were



(-) 25.89, (-) 2.41, (+) 16.66 Q-to-Q consequently. Wheat imports to Egypt were from the Black Sea and France. Egyptian flag ships by NNC increased per-formance from 2009 (one) to 40 shipments in 2014.

For 2015 prospects:

The world economy will pick up in output and trade comparing to 2014, there will be increased trade in coal from South Africa as well as increase in demand on iron ore as benefit of its low price effecting increase Capesizes' revenue 40-60% than 2014.

In MENA, the market showed the biggest decrease in oil prices. In light of keeping production levels from Gulf countries for the next six months the market will be in consumers' hands and no improvements will happen until the fourth quarter.

Wheat imports, the strategic commodity for North Africa, will show a considerable decrease in prices in converse to what was last done in 2014.

UNCTAD 2014 highlighted an increasingly im-portant role for the services sector in its post-2015 trade report. Applying to this recommendation Egypt is going to effect the following developments:

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Fleet growth is expected to be 2-3% while tonnage demand will grow 5-6% instead of 7-8% in 2014. Therefore, we expect freight rates to be 6% lower.

Looking Ahead at 2015 from a Major European Shipbroker

As everybody seems to be bearish for 2015, and everybody willing to be short on tonnage, I would not be surprised if this results in more spot fixing activity, particularly from the grain houses (who were burning their fingers with their period ships in

2014). This increased spot fixing activity may result in higher (normal) spikes during the relevant grain seasons, but generally there is not much else to look forward to for owners.

Speculation about the Coming Year from a Continental Owner-Operator

I find it almost impossible to predict the market for the coming year. Geopolitical unrest in many parts of the world, a strong US dollar, the Russian econo-my and the erosion of the oil price all pose indivi-dually or in combination a great risk for the world economy and the shipping market in particular. The world seems to have forfeited their achievement of an open minded and peaceful world, with only a very few exceptions, allowing and supporting the free transfer of technology, goods and money. The Cold War seems to be on the rise again with all the negative effects and new restrictions on world trade.

For the container market, however, my gut feeling is carefully optimistic, although the trade is also still full of uncertainties. The consolidation continues, big is beautiful. Strangely enough all new joint ven-tures have received approval from the anti-trust agencies, except for the bravest plan to combine the three biggest lines. Trade growth is robust and will likely outstrip supply, although only marginally. Of the new tonnage entering the market, the majority will be very large size of ships that will, at least for the time being, increase the cascading momentum. How far down in size will this go and will this make a certain size of tonnage obsolete? It is well possible.

I expect this to have a positive effect on the feeder markets with the ever growing SECA areas demand-ing new distribution concepts and creating a new individual market. Slow steaming has been intro-duced on all major routes, offering the best TEU/ mile ratio, thus absorbing additional tonnage. Will the lines react now that the price for fuel oil has dropped so drastically and unexpectedly? Are to-day's price levels sustainable? Will the lines decide to speed up again? It would only be logical to do so sooner or later if they continue to always offer the most economical way to move the boxes.

The newbuilding spree seems to be running out of steam, except for the biggest size ships to be ordered by the lines that entered a consortium recently in order to homogenize their fleets. Traditional ship banks are still exiting the market and are not willing wait any longer or avail fresh money, thus scrapping will continue at high levels, although this year fewer ships than expected were sent to the torch. In view of the poor TC market scrapping may be the only alternative for owners with ever younger ships.

To reach balanced market conditions may still take some more time but looking at the recent developments it does not seem unrealistic any more.



European Short Sea Market in 2015

Short Sea Economic Expectations from a Black Sea Broker & Market Analyst

As last year, more or less during the same period, I tended to be a bit optimistic due to soaring rates while I managed to contain my enthusiasm and miraculously managed to conclude as follows: "If someone decides to drop another bomb at the heart of the Middle East, or after Spain, Italy and France cause additional worries in Europe prompting the ECB to throw more money on the fire, that is another (and rather well-known) story." That is a perfect demonstration of how a tiny bit of prudence can save an economist from being regarded as completely inaccurate.

However, I shall continue being upbeat, (after all even a broken clock shows the correct time twice a day). But I have other (viable) reasons. Let's start with Black Sea. It is true that the region is engulfed in a conflict and that the Russia-Ukraine tension is being fanned by at least visible external factors that could depress trade. It is also true that the recent oil price plunge could seriously deteriorate Russia's commercial and financial stability. But a depreciating ruble could and would lead to "other" commodities being much more competitive in the Mediterranean, which was a lost cause until recently as China started exporting its surplus steel to the region. This could be partially reversed if the ruble stays depreciated. The same goes for oil-related products like fertili-zers. Cheap oil and a weak ruble might contribute to Russian exports. Grains are priced on USD or EUR terms in the region whereas Russian farmers incur manpower, fertilizers, and even the fuel they burn on their reapers in ruble.

Anyone with an in-depth micro and macro-eco-nomic commodity view can make even more so-

phisticated comments on these, which could largely contribute to the above. My point is: while econo-mies "might" suffer, exports will flourish due to price competition reflecting somewhat positively on the Black Sea coaster rates.

Considering the Med, the ECB has embarked on a Fed-like monetary easing programme, one largely aimed at Southern European economies like Italy, Spain and France, which were seemingly recovering last year but suddenly started to slide again. This might be the last chance of a much sought-after recovery (despite the near "rebukes" drawn from Germany) and if it is really going to work, it must stimulate growth, spending, employment, etc. If this is successful, demand will start to finally pick up in the region. But this is, I'm afraid, among the best case scenarios for the Mediterranean—has anyone been following the recent news from Greece?

In North Africa, Libya is now producing oil at an increasing rate, but there is a de facto split situation in the country. Egypt is in better shape compared to last year, but the Arab Spring will always be just around the corner as Syria is still in shambles. Algeria is doing well, but we have yet to see how oil and gas prices will affect this energy-exporting country.

Overall, I'm generally optimistic about the Black Sea, unless conflict deepens. I'm a bit concerned about South Europe, but sincerely wish good luck to Mr. Mario Draghi and finally, I'm reluctant about North Africa. Everybody is tired of reports pointing to the "significance of this quarter, importance of that agenda" so I won't insist, but I should still say, "The second quarter of 2015 might see new dynamics introduced to the global commercial paradigm."

Key Factors for the European Coastal Market in 2015 from a Continental Broker

Weak fundamentals from economical growth and industrial production within the EU and adjacent regions for the shipping market in Europe will also remain in 2015. Economical growth forecasts for the European Economies (especially the major econo-mies) have been downgraded very recently. This will continue to play its role on shipments of unfinished goods and industry raw material. Seasonal factors (grains, agriprods, ferts etc) will certainly play a role in the first quarter of 2015 if grain prices increase again which is likely to happen if Russia reduces its exports by introducing tariffs. This may temporarily lift freight rates in the northern European trades.

Trade in 2014 was also influenced by political tensions, especially the one between Ukraine and Russia. This will continue to harm shipping in 2015 as a simple and quick solution seems unlikely and the psychological factor for business (taking into consideration the ongoing sanctions) should not be underestimated. The introduction of SECA in 2015 covering the Baltic, North Sea and English Channel will have no big impact on freights within or from those trades as long as the freight market does not pick up and as long as the bunker prices remain low (which is more than likely in the short term).



Scrapping will continue to play a role on the tonnage side. Scrapping potential is still huge with a nearly non-existent newbuilding orderbook. Owners will be further forced to consolidate as cash flow prob-lems will stay on their agenda, lacking availability of bank finance. The positive thing related to this is as long as there will be no fresh bank finance there will be no new orders for newbuildings. With stronger

regulations for banks in force, increased ship finance is not expected. Therefore, the risk of an oversupply in the short term in this segment remains very low.

In sum, we do believe that the activity of the freight market in 2015 will not be able to catch up with the one in 2014 but owners may be able to compensate this with further decreasing or steady bunkerprices.

Short Sea Predictions from a Scandinavian Shipbroker

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Crystal Ball Insights from a European Short Sea Owner

After a long period of down turn we have seen now for the first year 2014 a small upswing in rates and even kept it strong to the year end, Christmas time. What we see for the 2015 will be again a crystal ball story. Being in shipping already a few year it never been so hard to get charterer to give some prospect for the period coming. Do they rely don't know? Are they hiding them self and be affright for another wrong market indication?

NO they are right, this world has been changing as from financial crisis we just came out of, wars coming from all directions and then the change of important rules like the IMO's in January 2015. We scarcely survived the crisis and shipowners have to invest in new demand for the SECA waters. People will say, but that was known already long time, yes, right you are, but we had other problems to take care of. Bankers created the financial crisis and are over-reacting, trying to correct their own balance sheets. Calling in their loans and starting to own the (bank) vessels. This would not affect the market when they would be willing to help the shipping by lay-up the vessels. But no, they put them back in trade and create competition for the remaining owners. Let's see when this will come to an end, fighting your own bankers—it's the world upside down.

In this new financial playing field, we see it's hard to find financing grounds for new projects like inno-vation for new SECA areas. The trend goes to LNG. Owners have to invest in this concept, but can hard-ly find financiers to assist in these high capital in-vestments. Even though LNG projects emerge all over the SECA trading area, it seems bankers believe they are not being built for LNG-powered vessels.

The scrubber concept for the short sea vessels up to, say, 8,000 dwt is far too expensive and the ships lack

sufficient space for a build-in of this system on existing vessels. This means owners have only one option, leaving the SECA area (reverting on this).

Innovation for new fuels is ongoing and of course a set-back for investing was coursed by the sliding Barrel price. Market is telling that pricing will be US$ 70 for 2015 and US$ 75 for 2016. That will mean that innovation projects like Scandinavia's first lithi-um-ion-powered electric car ferry will need more time to become economical. But sure it will come—owners will keep on innovating. We need to keep up with the new standards of life.

Not only owners are changing fuels. Power stations have also started to no longer use regular fuels and are moving to bio fuels like wood, RDF and other new sources. This off-course will generate new trades and new vessels to be built. Looking to the problems that owners will face in SECA, we will see that owners with older vessels will leave the SECA area due to technical reasons, being unable to refit to MGO burning tier II engines, unable to finance the available scrubber systems and refit for LNG.

I would believe they will look for new market playing grounds in the Mediterranean. Vessels with a higher age also could move further to India as the Indian government has granted the shipping in-dustry a high subvention to increase their domestic sea transport. The background is that their roads are fully congested and this needs to be reduced.

For the Baltic, we will then see a quite positive up-swing as vessels leave the SECA area. Now new vessels are being built for the new standards and new products (bio) moving. Perhaps this coming winter nature could help owners to get paid better when Old Man Winter shows his real face.



That will affect the rates upwards and one could believe that it will remain strong for a longer period as supply of new ships will be slow due to difficult financing and long building times. In short, the Baltic will get stronger and could be even return to normal rates as seen in 2005-2006.

For the Med we are more hesitant, why?

The Mediterranean is not yet a SECA area, therefore all the vessels that have problems to meet up with the regulations will look for shelter in the Med. The sanctions for Russia will of course also effect trading to and from Russia as well as the Black Sea market. This could result in a downturn in this market.

But on the other hand, the IMO regulations also could help the Med, as the big liners are not able to

comply with the new regulations, and it could very well be they will seek non-SECA ports in the Med.

In result this will increase the cargo flow extensively. This would mean that far more short sea vessels will be needed, but as the ports are not yet ready in the Med to take this hub already possible on short notice. It will take years to get the ports ready and, in due time, the Med will be also be a SECA area.

Having digested the above, I feel charterers need to refresh their fleets to be ready for the market changes. The Baltic goes stronger and the Med will be difficult. Owners will find new ways of financing in due course and, if the economy does catch up, we are all in a better position. Sailing full speed ahead.

Forecast from a Russia-Based Owner & Broker

As an owner in the sector of modern 10-20,000mt dwt as well as charterers of the same size, we do see that next year (2015) will not bring any good news at all. The situation will get even worse. There is definitely an oversupply of ships as many owners of overaged tonnage of this size in the Med and Baltic are greedy enough to send their ships for scrapping.

Provided the major transit, there will be a decline of market-driving cargoes like coal, steels and grain. Further, sanctions imposed on my country, Russia, and the sliding rouble will cause export activity to reach very limited numbers. Thus, we here share the common opinion that freight rates, at least in H1-2015, will be 30% less than now. The second half of 2015 is really a gray zone without perspective.

Personal Feelings on the 2015 Market from an Italian Short Sea Broker

Commercial trade it looks generally quite "blocked" due to a very limited trading margin return for all traders/producers for almost all materials in the European-Mediterranean-Black Sea areas.

In addition, due local economic crises in the EU area, political and economic crises in the Black Sea and some of the African Med countries, the consumption of many commodities (which are driving this mar-ket) like fertilizers, steels, alu products and minerals (we are not much involved in cereals transport) are deeply frustrating the general expectations for the next year and are not even limited to them.

Thus, we expect the volume of dry transport in such areas for 2015 to almost reflect 2014 or maybe even worsen within the possible short "waves" of im-provement that might depend on stabilizing in some countries and may determine a certain normalization of production, export or import, locally.

The purchase price of most of commodities (fer-tilizers, steels, minerals, alu prods and so on) may still limit sales due to the short margin in the same for traders of producers. It will be still be a problem for many of the cargoes' trade that raw materials prices could still be too high compared to the final product's manufacture (aluminium world or steels) or the final consumer (fertilizer costs for farmers respective to crop returns).

Most of the trades we are following since 33 years limit the shipping size or reduce them constantly due to lower demand. Nowadays, it might become difficult in the aforementioned areas to find small 3,000-4,000 dwt ships with proper standards be-cause of the increase of demand for such small ships in the bulk trade market in view of the limitation of the levels of consumption and trade mentioned here.

In terms of volume, we expect almost the same as 2014 but feel we could eventually bet on worsening rather than ameliorating the same due to historical changes of trade, production or shareholder changes of many commodities producers in such areas.

Liquid - stainless steels ships

Even in such a market (we are only specialized in phosphoric acid), the situation will not be brilliant. Due to the crisis, the volume of cargoes will be kept almost reduced as in 2014 or may even worsen (less sulphuric acid available due shutdowns of various refinery plants in the UE area) and, on the other side, ever fewer shipowners have the financial capability to keep investing and renewing such small ship's size fleet in comparison with the freight margin return of the last few years. It appears that the poor luck of stainless steel ships in the Med-Black Sea area



(3,000-10,000dwt) might be more sensitive and this might determine a possible, small improvement

of freights for such ships, even if cargo volumes will always be almost the same or even reduced.

Brief Prognosis from a European Small Size Bulker Charterer

Sorry, but we see no improvement for 2015 but would estimate a slight market decrease as from the second quarter 2015 for the tonnage between 30-

55,000 mt. Finally, the short sea market will remain unchanged. This is what our crystal ball shows us.

A Continental Short Sea Broker Asks: Is Short Sea Bulk Traffic Back to Normal?

After 2014 has shown clear signs of a return to a balanced supply and demand situation over most of the year, several reasons point to a return to a normal market in 2015. Despite the fact that there still is an oversupply of vessels in most other markets, the only down risk for the small European bulkers is the new conflict in the Ukraine and the dare-scenario's between Russia and the EU. Nevertheless this scenario has apparently not shown any effect in the past months, so the influence appears to be limited.

On the upside, we see the strengthening economies in Europe, the expected push for investments from the European Union and, last but not least, the in-fluence of traffic changes due to the new SECA Zone. Although this factor is probably the most obvious and hardest, its effect still remains the most difficult to predict. European coastal traders who inevitably will continually move inside and outside the SECA Zones obviously are well-prepared for the change,

but this may not be the case for some other traders. If only a few larger vessels decide to drop and/or pick up their cargoes outside the SECA area and have the rest of the job done by smaller feeders and/or distributers, this may very well have an influence on some ports as well as on short sea demand.

Reduced fuel prices initiate two other factors but they are work in opposition. Whilst slow steaming becomes unattractive, possibly making more trans-port capacity, taking longer ballast into account for the better paying cargo is an option again, obviously absorbing transport capacity for ballast voyages.

Despite this slow but steady return to normality, average market returns for small bulkers are still below levels needed for full service of loan capital and a long way from attracting fresh investment to new ships. Thus, for those who've managed to stay in the market there is still room for improvement.

Prospects for the coming year — A European Coaster Charterer's Perspective

We suppose year 2015 will be more or less quiet and smooth. Many things happened in political and economical aspects in 2014 and the task for 2015 is to adapt to those changes. Speaking of European and Med economies, we'd expect somewhat recession or "zero or slightly minus" growth. We think owners will benefit from lowered oil and fuel prices. On the other hand, freight markets will probably remain relatively weak during most time of the next year.

But on the average we suppose coaster owners will benefit from more or less stable markets and reduced bunker expenses. Implementation of new SECA areas is also one more happening to which everyone needs to adapt in coming year. Probably also many shippers (charterers) will have a "slow" year in sales. So we hope for more or less stable and smooth year, which could be a good thing to wish for.

Looking at 2015, Thoughts from a German MPP Operator

2015 will be more challenging than 2014. We will see less volatile market and the liquidity is likely to remain tight. Charterers (including Cargill, Glencore, ADM, etc) consolidate their position as massive de-facto operators, competing with the more traditional owners and operators. Using their huge fleets to cover their own execution and absorbing what else is out there in the market, that poses a serious new type of competition backed up by derivatives and massive own cargo books. We will continue to see rates being undercut by operators to keep cash flow running and might see one or two traditional operators in trouble. I don't expect more consoli-dations as counter party risk will remain high. I do see a new generation of economical and envir-onmentally friendly vessels being delivered as from

2015. Such vessels will have an impact as they will remain competitive in a depressed market—it has nothing to do with eco speeds, but rather directly in connection with the fact these new vessels will burn much less fuel. These ships are also much better prepared for the new regulations to come in force in the future, while a lot of the existing fleet is still behind and will have to retrofit the system in many cases. Owners with ships built before 2010 will have to already start thinking about extra costs, adding even more pressure. Therefore, for 2015 a conscious review of how one operates and maintain their fleets will be as important as being on top of the market conditions. There is one hope I have for 2015: Less Rockefeller-minded investors will enter our market and hostile takeovers will be rarely heard. We need



shipping people in our sector and not cowboys, because the challenges ahead are for those with a

thick skin and not those looking for quick bucks.

View on the Year Ahead from a Black Sea & Azov-Based Short Sea Owner

It is always difficult and risky to predict anything in this life (save, probably, for my wife's negative and brutal attitude to my smoking) but it is doubly risky to make predictions for the shipping sector, especi-ally for the Black Sea market in 2015. There are too many "ifs" and subjects that the market heavily depends on. In addition to usual factors that we took into consideration in the past, it looks like geo-politics may well prevail against all others in the coming year. Just a year ago we saw 2015-2017 as bright ones and a turning point, potentially bringing good earnings. Now with rising tension between Russia from one side and Ukraine supported by some countries from the other and non-stop warlike activities in the Mid East, we are not so optimistic. Furthermore, there are heavier sanctions against Russia that quite possibly bring devastating conse-quences to Black Sea coaster markets. All owners operating coasters in the Black Sea are very much dependent on Russian exports, and if it stops then

we all will see numerous defaults. We do hope the wisdom, as from one so from the other, will prevail. As always one of the most influenced and driving forces of Black/Azov Sea coaster markets is the Russian grain crop, the forecast for which 2015 is not all that encouraging over a rather torrid autumn in southern Russia. In recent days, disturbing news and rumours as to possible interruptions in Russian grain exports do not bring joy to owners and traders at Christmas Eve and New Year holidays.

Nevertheless, generally we expect Black/Azov Sea coaster market to be on sideway trend in 2015, lowering in the first and second quarters and rising in the second half of the year. We are of opinion that so called sea/river going vessels of about 3,000-4,000mt dwt will be able to earn in average about US$ 2,700-3,000 daily and 5,000-6,000 toners - about US$ 4,800-5,000 daily. Earnings of other, deeper draft and incapable to call river ports, coasters are expected by us to be about 30 % lower then that.

Market Outlook from a Sea of Azov-Based Short Sea Broker

First of all, let me repeat our annual mantra: "every year sea river tonnage is getting older and older." Mostly it's already older than 30 years, so it doesn't completely suit charterers' requests. We're always talking abt this, but nothing positive happens. Only big companies at sea-river market can afford themselves to buy a new tonnage, however they don't hurry to replace their old one. We can discuss many reasons for such reluctance, but it's not the aim of this report. I've heard abt few newly-built sea-river vessels, but it doesn't bear mass effect and companies have ordered them only for specific cargoes/voyages. The most seen current approach is to maximize profits for a short term, to wringer all from the old tonnage, spend as less as possible for repairs and then sell the vessel or demolish her. As a result significant part of tonnage is in poor condition. And i think charges will come only with support from government, which is not highly expected keeping in mind current economic crisis in Russia. From the other hand, if the things go this way without charges many European and Turkish companies will consider to enter freed market, freight rates for sea-river tonnage especially in inner waters historically higher than at deep sea. But they will face a lot of bureaucratic hindrances to enter the market. Well, let's see how the things will develop.

The second issue that worries me is the grain market ex-Russia-Kazakhstan. As you might know, Russia has applied export taxes for export cereals. It's not a secret that it has been made wary of high volatile currency followed by a terrific increase in sales in late December at ludicrous markets for foreign traders. I hope the currency rate will become stable and as soon as it maintains stability export tax will be taken off. Maybe it's too positive from me, but it's exactly the right time to make wishes.

The Caspian Sea market will be overflowing until opening of river navigation in the second half of April, especially at Aktau-Makhachkala to Iran routes. Many vessels failed to leave the region due to unexpected severe cold weather at Volga rived and as a resulted thickness of ice reached in patches 15 cm. So, some of them are still staying at Astrakhan, the others working at Caspian Sea with the considerably reduced rates. USD 4 less for couple of weeks as i see is not the bottom line. I've heard the grain crops from Kazakhstan are lower than has been expected, so it might be not a bad idea to lay up the vessel until spring. But generally I do believe that we'll have a great prosperous New 2015 Year. We wish the best of luck to BMTI and all its subscribers.

Meditation on 2015 from an Azov-Based Shipbroker

It's quite hard to see now how the Azov Sea market will develop in 2015. Especially in the current cir-

cumstances when we have political pressure, grain export restrictions, etc. Of course the freight market



will stay highly dependent for the grain market in Russia. I guess the first half of the year the freight will be less favourable for owners, market will loose large volume of grain cargoes; owners will have to struggle. However, owners have earned a lot during

the second half of 2014, thus they can relax during the next few months. After that nobody knows what we will face as from the new grain season. Forecasts already say that the 2015 crop may not be that large.

Containership and Project Cargo Markets in 2015

Expectations from BMTI's Container Market Correspondent

Now there are about 6,000 container vessels plying the waters of the world and a total of some 19m TEU is moving around with an additional 1.75m TEU expected to enter the market in 2015. With the average age of container vessels hovering around 11 years scrapping candidates for 2015 are rare so the estimates are about 350,000 TEU for the whole year—all in all, a rather bleak perspective.

Freight rates in the container shipping industry are expected to head lower over the next two years meanwhile the trend of upsizing to megaships will not come to an end. Some companies will be pushed out of the game when not being able to keep up with this development and survive some times without meaningful profitability. The fight for market share and ordering new modern and fuel-efficient vessels will determine the market dynamics for the next year. A brake on this will only be seen if raising interest rates were to show up. New alliances may come to light and mergers are expected to take place. Port congestion is another topic that will remain hot in 2015 as infrastructure expansion is still lagging behind vessel size development.

Volatility in freight rates will be seen throughout the year and general rate increases (GRI) are hardly expected to succeed. The imbalance between supply capacity and demand will continue for quite some time and even increase in 2015 as a substantial global growth in GDP is not to be expected.

Despite an only fragile recovery of worldwide eco-nomy forecasted in 2015, some analysts expect an increase of 5-7% in container trade with Intra-Asia boosting the figures although more realistic seems a

growth on a par with world GDP at about 3.5-4% as some analysts are forecasting. But there are also an-alysts like Clarkson Research who expect an increase of 7% for the major Asia-Europe trade volume in 2015 and some 6% for the main trans-Pacific routes but these figures seems more than optimistic in view of the just moderate economic gains expected for most of the countries in 2015 and growing un-certainties due to elevated geopolitical risks, under-cutting confidence, spending and investment.

"Made in China" is declining further with an ongoing shift towards Vietnam, Cambodia, Laos and Bangla-desh. Production in China is now moving inland.

Companies offering more customized services and special offers for long-term customers with inno-vative technologies for route design, fuel usage sup-ervision, better stowage plans or even accepting ideas from employees (!), may result in having some future advantages, thinking in new ways, having an 'open horizon' and better using new information.

Sustainability of growth is an increasing discussion among governments. In 2015, the United Nations is expected to adopt sustainable development goals to build upon the Millenium Development Goals. The shipping industry will be affected in many ways. Ballast water, emissions, safety, oil and for instance fertilizer spills, harmful materials in the construction of ships and ports are some of the topics involved.

There are still some headwinds to face until the present transition in the shipping industry regarding technological advances related to fuel efficiency and environmental requirements has settled and the world economy gets more stable…maybe.

Predictions for 2014 from a Prominent UK Shipbroker

The container market will remain very challenging for owners into 2015 and beyond as the industry continues to be "the author of its own misfortunes". The insane race for having the largest possible con-tainer ships confined to a few routes in an effort to keep slot costs low and compete with rival operators is leading to a continuing ordering spree. Whilst the number of ships entering service may not be dis-

turbing, their capacity is truly alarming. Some operators report that they are profitable, but I sus-pect that creative accounting is as much the source of this alleged profitability as any genuine financial well-being. It is the vanity of the largest operators and the partnerships that keep the container "arms race" alive. Cargo volumes are healthy and have easily surpassed pre-financial crisis volumes. Were it



not for the unnecessary fleet growth, the industry would be highly profitable. For so many ships, their owners are just able to cover operating expenses and perhaps pay the interest outstanding on the mort-gages. How the capital is being repaid is a mystery—

something will snap one day! And as for those investors in the USA who seem so free and easy with their millions, they seem to have more money than sense. But one day surely someone will ask where are the returns they were encouraged to expect.

Outlook 2015 for Break Bulk and Heavy Lift Shipping from a European Project Specialist

The recent substantial decline of bunker oil prices may have allowed taking a breath for a short while. The advantage, however, is a leveller for all market participants and as such can not be taken as a kind of turn point or trend set for better commercial results in 2015. 2013 and a good part of 2014 was the worse year for the multi-purpose ship owners and industry itself since the recession started in 2009-2010. For year 2015 we foresee more bulk and steel cargoes to be carried by MPPs whilst project cargoes seem to become less by volume. The trend toward heavier and more voluminous transport units will certainly continue to the advantage of the upper class heavy lift ships with lifting capacities of 1000 metric tons and above. Competition from container lines on their traditional trade routes will definitely continue to increase substantially and will create deficits to the traditional break bulk owners. Smaller ships able to call draft and size limited sea and river

ports will always remain engaged by the industry at a reasonable level of income. One may hesitate to con-sider a positive outlook when reports say that global steel production is expected to grow by about 4-6% over the next two years. The outlook for project cargo is definitely less encouraging after we saw the project cargo volume fall by some 12-18% over the year, however as usual one can interpret some given signs that the volumes may pick up towards the end 2015 and even start growing in 2016-2017.

Fortunately, the orderbook for traditional MPP new-buildings is very moderate, which certainly will ease the income situation. Our very unfortunate pre-diction however remains that we don't see the in-dustry substantially returning to a good earning situ-ation, including interest repayments, loan replace-ments and rising operational reserves until 2017-18 ("unforeseen circumstances always excepted").

Market View from South America

A Look Ahead at the Year Ahead from a Brazil-Based Shipbroker

2015 projection seems to be an impossible task with so many uncertainties that we face today. Economic, political, environmental, health (read: Ebola) among other issues that affect our industry, even though one or the other may not even play a direct effect in the trades of our concern, e.g., Latin America.

Economic: Will Barak Obama be a lame duck and thus bring the US growth to a slowdown? What will the OPEC do to safeguard the interest of smaller members, highly prejudiced by the current price versus volume policy and putting oil and gas in-vestments in Brazil, Columbia and Peru in jeopardy? Will Japan re-elect Abe and allow him to continue Abenomics? Will China's growth continue slowing and maintain or even reduce their current demand of commodities? What will happen to the EU and Great Britain's membership? How will Russia han-dle the economic downturn it faces with sanctions and low oil prices and how will same affect Mr. Putin and his buddies? And this is just to name a few.

Political: Will Dilma Rouseff's PT government sur-vive the billion dollar corruption scandals or is im-peachment likely? Where will Argentina go in their 2015 presidential elections? Will the Maduro gov-ernment in Venezuela survive current oil pricing or

the Cuba-US renewed relationship ? All this is to be considered, to say nothing of Ukraine, ISIS and other conflicts that are, or may be, taking place next year.

Environmental: How will low sulphur policies affect Latin America's trade to the US and Europe. Regular carriers have already announced the ne-cessity to apply a surcharge for cargoes bound to the USA. Will they succeed in implementing the same, thus increasing the cost of exports to our North American brothers? Will Brazil be able to implement all scheduled infrastructural growth, or will the environmental agency IBAMA slow the same down or even block one or the other projects? How will Brazil's largest industrial and economical state, São Paulo, handle and survive the current drought and likely long term lack of water? What impact will global warming and clearly visible climate changes have on international trade, commodities, etc.?

Health: We have started to see some Ebola quaran-tine policies implemented in various Brazilian ports, which imply in days or weeks of delay to vessels being able to clear. Some charterers are refusing to consider ships that have recently called West African countries, even beyond those considered of risk.



2015 Vision: How can I reasonably forecast our fortunes for 2015 with so many unpredictable factors? A crystal ball won't be enough. A trip to Uruguay may help to see what one can not visualize consciously. Low commodity prices will help all majors, be it in the energy, mining or agricultural industry, strengthen their market. While they will suffer because of reduced income, they will manage to keep undesired "newcomers" off their toes, with many likely abandoning their projects. In order to off-set such reduced income, investment portfolios will be cut or may be even stopped completely. This will, subsequently, impact the project shipping in-dustry, with reduced inbound business, particularly from Asia, but of course also from the EU and US.

Such reduction in investment will impact the country's labour market with lay-offs and higher unemployment, which in turn will go on to reduce the purchase power and affect internal sales.

This, although, might eventually impact positively on the outbound business, which for the past 2-3 years has been relatively miserable for the owners. On one side there will be less available ships coming open with import cargoes; on the other side we may see increased export of cargoes that had been sold in the internal market . The steel industry has already shown clear signs of such development over the past

months, and I believe there is more to come. This should also provide added outbound opportunities to the Handy up to Ultramax owners and operators. As you all may have seen, certain stems have gone from 40,000 to 50-55,000 and occasionally even 60,000 tonnes . While Brazilian steel mills may be selling at a loss, they try to compensate this with lower freight rates thanks to higher volumes.

The inbound business for this size of ships will stay relatively stable. Brazil will keep importing wheat (15-25,000mt stems), ferts (25-40,000mt stems) and coal or coke, in Handymax up to Panamax stems. The occasional Cape may find inbound employment.

As for the agricultural industry, I'm at odds with my-self. I don't expect record crops this season. An over-all lack of rain has been detrimental to output of all customary products, and volumes are likely below previous years' figures. Sugar, though, may rise. Re-duced oil prices should decrease ethanol usage even further, and thus more sugar cane will most likely go to the refineries rather than the distilleries.

Last but not least, iron, manganese and/or bauxite ore, as previously mentioned, will be at China's and a handful of players' mercy. Potential newcomers will simply abandon their projects if prices remain at current levels. Good luck to all in 2015!

View from a South American Shipbroker — Prospects for Brazil and for Shipping

Prospects for Brazil, the most important economy in South America and one of the famous BRICS are more than dire. The recently re-elected leftist gov-ernment under President Dilma has been unable to continue on the financially secure and stable (social liberal democratic) course drawn by Fernando Hen-rique and later on continued up to a certain extent by President Lula, dropping the country into a turmoil of corruption, social unbalance and, even worse, juridical instability. Nothing is there that could make one believe that things should change. It looks more like a continuation of the mess and following the course of Venezuelan or Argentine politics.

National growth for 2014 has been near to zero, the trade balance is negative, the economic household showed a huge debt and things will get worse. This means no big positive signs can be expected from this part of the world and surely it won't be Brazil that can effectively assist in world trade growth and the fight against recession. To the contrary, it will be Brazil that will be one of the hurdles the world economy has to cope with. So it doesn't look nice.

Of course, we shall not forget that Brazil has a popu-lation in excess of 200m and is now already one of the world main suppliers as of commodities like

soya and iron ore, not to mention meat, poultry, orange juice and others. This means that the existing trade volumes and patterns will continue, changing to focus more and more on Brazil-to-Europe, Brazil-to-USA and Brazil-to-Asia, namely China. But nothing leads us to believe that this means that, due to the above patterns, Brazil will be able to influence shipping positively—to the contrary. From here, unfortunately, not much positive can be expected and additionally the normal logistic bottlenecks and bureaucratic burden will continue and likely even get worse. For us working here in Brazil, it only can mean: fasten your seat belts.

Regretfully, the market is as negative as described. It doesn't make any sense to sugar-coat the situation – it's my job to analyze the market circumstances as truly they are. Especially at this point in time, in shipping to much white-washing is happening, misleading about the true state of the market. The situation is much more dramatically negative than officially communicated. Nobody is going to be the "whistle blower" of the true reality. Plummeting bunker prices have at the last possible moment saved owners from unavoidable bankruptcy—but this is only a very short reprieve.



Thoughts on 2015 by a Charterer in Brazil — View from a South American Perspective

For the last three years we've made predictions that have, sadly, been proven to be woefully optimistic, especially on the BDI. But then if we aren't opti-mistic, we've no right to be in the shipping busi-

ness—there's always steady work at the undertakers. That said, the outlook for 2015 is undoubtedly gloomy and as our chart shows, we expect pretty much zero growth in Brazil in the next 12 months.

Event Dec 2013 actual Dec 2014 prediction Dec 2014 actual Dec 2015 prediction Exchange rate 2.35 2.50 2.65 3.00 Inflation 5.8% 8% 6.5% 6.5% GDP growth 2.3% 1.8% 0.3% 0% BDI 2134 2500 838 1500 Handy future 9850 11000 7300 8000

We have been saddled with another four years of wishy-washy government under a president who has lost all authority due to the massive corruption scandals at Petrobras (and that's only the tip of the iceberg). The economic 'policy' has been completely adrift and where there has not been corruption with the usual privileges for the comrades, there has been downright incompetence. The only ray of sunshine is the appointment of a market-oriented finance minister who should be able to get things back on track but it will be a long and slow process that will show results only in 2016—and only if he is allowed to prescribe the necessary medicine which is a big question mark given the President's propensity for

micro-managing every single area of government. Whilst the lower oil price should eliminate Brazil's deficit on imported gasoline it will be a disaster for development of the ultra deep-water exploration (pre-salt) if the price drops below US$50. Similarly the falling price of iron ore is going to contribute to a worsening of the balance of payments so we really need China to increase their demand and help keep Brazil afloat. On the Valemax front, the 400,000 dwt vessels are still not berthing in China with full car-goes, but the recent sale of four vessels to Cosco linked with a 25-year COA must surely mean that ports will finally open to these monsters in 2015.

Market View from New Zealand

New Zealand's Shipping Outlook for 2015 from a Log Shipping Logistics Manager

New Zealand's shipping outlook for 2015 appears to be in the lap of the gods (or perhaps the hands of some pretty crazy people). First off, on the supply side of the equation, logger tonnage is increasing as newbuilding continues unabated. These vessels are generally 32,000 dwt sized (14% larger than the 28s described by the BHSI) and 38,000 dwt (even bigger at 36%). The quite adequate "original" fleet of the 28,000 dwt vessels continues to ply the trade (BHSI 5 & 6). The balance sheet values of these ships are (mostly) inflated above market and, with scrapping a poor option, will continue for the "foreseeable fu-ture" (if there is indeed such a thing). This surplus of tonnage will continue to drive freight costs down.

On the demand side, news for owners is equally dis-tressing. Inbound bulk cargoes are largely driven by the agri sector (fertilizer essentially). Unfortunately for farmers (and New Zealand Inc.) the whole milk powder price has fallen 50% in the past 12 months. Incidentally, this situation is resultant from com-modity oversupply (sound familiar?) which does not appear to be reversible in the short term. The current inbound/outbound ratio of bulkers is probably 1:2.

With farmers less inclined (or able) to invest in increasing production inbound cargoes of fertilizer will decrease. In this environment the haven of the ballast bonus will most likely be eroded which is bad news for ship owners with long term COAs.

Demand for another 14m cubic metres of New Zea-land logs (±400 voyages) in 2015 is in question. The building boom in China appears to be over with more economic pundits and commentators predict-ing catastrophe than otherwise. The "elephant in the kitchen" has been the "carry trade" that has driven demand for logs in 2013 and 2014. This essentially involves raising finance on cargoes, selling short and using the funds in (shadow banking) arbitrage op-portunities. This practise appears wide spread across the broad spectrum of commodities and can explain why with wharf stocks at record highs, and building demand diminishing, cargoes continue to be or-dered. When Chinese authorities eventually get to addressing this issue (in the log market) we can anticipate a structural change. The current oligopoly is expected to be replaced by a fragmented market of second tier traders and end users. Consequently,



smaller consignments will become the norm, thus putting further pressure on the larger ships and increasing the need for consolidated exports.

But wait there's more: Russian currency devaluation (50%) will increase their competitiveness and their market share of the Chinese log & lumber market. This cargo is delivered to China by rail, not sea. The

US, Canada and New Zealand will find it increas-ingly difficult to compete and cargoes on the BHSI 5 & 6 will fall. Economics, that dismal science, dictates that freight revenues will fall further in lockstep with diminishing demand. Predicting rain they say is easy—building an ark is the hard part. In this current environment, though, I think there is sufficient tonnage and a spot charter may be the answer.

Economic & Ship Investment Developments in 2015

Outlook 2015 from a Continental Ship Investor

The shipping markets in 2015 will be continuously governed by weakness due to the following reasons: Bunker rates will continue to remain at cheap levels, tempting owners with the calculation to further employ elder ladies instead of scrapping them. Re-flecting this background, the cost advantage for new buildings compared to elderly vessels will diminish, further depressing the charter rates for quite a while.

Based on the continuing weakness of the worldwide economy, interest rates will remain at low levels, bringing even more speculative investments for new

buildings into the Shipping market, thus further delaying a market recovery. Due to the expected deliveries of very large tonnage, the container market will continue to remain in a depressed state, fuelling a knock-on effect with the negative impact on tramp operators for quite some time. Even so, the bulk market will be ruled as well by the continuing tonnage surplus that is fuelled by an increasing number of expected new buildings in 2015. We expect the tanker market to have the best per-formance compared to the container and the bulker markets, benefitting from the new trade routes.

Outlook 2015 from a Specialized EU Short Sea Financing Expert

Demand will remain flat as no serious GDP growth is foreseen for 2015 and 2016. The good news is that the short sea fleet shrinks for the second consecutive year in 2014 with 1.4% (2013: 3.4%) and will shrink further by scrapping and transfer to other areas. Profitability of the short sea industry is still far below standards allowing attracting new equity, but there are good exceptions. Return on

invested capital is on a level of 2.5%. No improve-ments for 2015 are expected, new SECA measures will increase costs of shipping (direct bunkering cost or capital and operational expenses for scrubber installations), but far lower bunker prices will compensate, depending on who pays the fuel bill. It will take another 3-5 years before normal pro-fitability in the short sea will be restored.

Shipping Finance Prospects in 2015 from Karatzas Marine Advisors & Co.

It's a well-established fact that shipping is a capital intense industry; successful owners have to be both good vessel operators and managers, and also have to have a solid financial strategy in good times but mostly in challenging times as well. The need for a financial strategy is heavily pronounced at present when access to capital is a formidable task. It's a formidable task because shipping is still working through the excesses of the boom years (excess of tonnage, lots of ships of poor quality and design, etc.) while the traditional funders of the industry (shipping banks) have significantly curtailed their activities in the industry. One can almost say that while ships were the underlying asset and shipping finance was the first derivative of the business, now shipping financing is the primary 'asset' and the ships and 'steel' have become the derivative concept; accessing and deploying financing has become a higher priority than the 'real' industry. As the saying goes, making predictions, especially about the

future, is a hard task, but, in our opinion, 2015 will likely bring an extenuation of trends in shipping finance that are already in development.

For debt financing from banks, the market will continue its bifurcation and the distinction between the 'haves' and the 'have-nots'. Lending into shipping from traditional lenders will be remain limited, or at the very best, well below the amounts the industry requires to function on this 'normal' business model. Banks will show a bias to stay away from shipping as an industry, and to the extent that they will be extending credit to shipping, their preference will be for corporate finance, to owners with consolidated financials and balance sheet, 'projects' with cash flows attached, projects with energy or offshore exposure. Borrowers complying with such characteristics will be crowding out the traditional, independent shipowners looking for plain vanilla ship mortgages. And, as banks will be



competing for the same (and small pool of such) owners, spreads—the differential over Libor—will be thin. For the shipowners looking for mortgages, the preference by the banks will be for modern vessels—nothing older than ten years old, and fairly low advance rates (approx. 50% of the vessel's value). We think that traditional independent owners, looking to acquire older but quality tonnage will likely be having an impossible time obtaining bank financing, which may have a disproportional effect in certain markets such as in the Greek market.

With funding from banks and traditional lenders offered on limited basis, shipowners will continue exploring alternative sources of financing, including discussions with leasing companies and institutional investors (whether equity and/or debt). Despite the heightened expectations, the reality is likely to disappoint as many of these new transactions have often not been placed on an 'even keel': a short-circuited 'investment box' with a five-year invest-ment horizon and heavily based on unrealistically discounted asset prices will drive away many of the legitimate projects. Many have the opinion that private equity funds will be sellers of distressed assets on their own right, many of their investments so far not performing to their expectations, but, in our opinion, there is still a long time left, if and when, for an eventuality like this to present itself. While many institutional investors will continue their policy of equity investments on highly opportunistic basis, there will be more sources of funding for debt, both for senior, junior and gra-dations in between. For now, there are funds lending in shipping, but their 10% minimum interest rate requirement has phased them out of the market, for all practical purposes. Likely in the coming year(s), there will be newcomers to offer debt financing in shipping at lower rates and likely capable of accommodating some of the owners and projects that the shipping banks remaining in the industry will not be able to lend to. Again, such newcomers will not have the funding capacity or flexibility to fill the whole funding gap left by the banks, but

marginally and selectively will be able to provide debt for shipping projects; the funding gap itself and the business opportunity will be too great to resist and sufficiently big enough to dig up business opportunities.

And again, following the present trend of owners trying to broaden their investment horizons, there will be more owners looking to access the public capital markets, for equity (for IPOs, etc) and also for debt (for bonds, etc). We believe that this is a very legitimate trend that will keep going strongly and for some time. Not that every shipowner will file for an IPO (quite frankly, a great deal of them do not meet minimum requirements for an IPO); however, there are many substantial owners who do qualify and who, while taking a second look at the public mar-kets, will come to appreciate the benefits of such, benefits that in the past were easy to dismiss. And while there will be many owners seeking to access the capital markets, public investors will have better choices for top tier owners, legitimate owners with established businesses and long track records. Hope-fully the era of shipping IPOs in the last boom, shipping IPOs that at present are trading over-the-counter as 'penny stocks', would have provided 'food for thought' about what exactly makes success-ful shipping investments, as ships, as projects, as owners, as publicly traded shipping companies.

There are still many dislocations in the market since the boom years were phenomenal in every respect and the excesses still have a way to go. There are still plenty of business opportunities on individual basis, but the overall market trend has been toward a more 'institutionalized' approach to shipping. A freight market recovery has still a ways to go, and market participants from charterers to financiers want to see an 'institutional' approach with critical mass and economies of scale, efficient and lean operations, focus on market segments and ability to persevere and succeed over a prolonged market recovery. For now the 'institutional' aspect is taking precedent over the 'entrepreneurial' element of shipping. Still, many may opt to disagree with the last statement.

Considerations about 2015 from a Northern Europe Investment Analyst

Year by year in the last five years, the forecast for the upcoming year was more or less driven by expec-tations that the markets will encounter a turnaround some time within the next twelve months. We all had been wrong with our optimistic approaches, crises levels continued and the light at the end of the tunnel was just an illusion. This year, the majority of market participants seem to be far less optimistic compared to past years. The problem with any analysis of the shipping market is that everything

seems to be changing. With an oil price going crazy and hence unpredictable bunker price levels, what will be the engine of choice? What will be the perfect vessel size for what trade? Nothing seems to be clear anymore—even for those who expect to see a stable or even enhancing world economy for 2015.

As we could see a lot of sale and purchase, or even new building activities, supported by some huge financial investors like Oaktree with their own oper-ational setups, we are not too optimistic for a long



lasting or significant upswing in all of the major shipping markets. There will be enough tonnage available to trade cargoes in place, so that expecta-tions on increasing charter rates should be limited in general. On the other hand, there are environmental issues coming up that might not have been taken seriously enough by market participants thus far. There has been a huge new-building program with respect to the required phase-out of single-hull tankers but we do not see enough new-building activities for securing the fleet within the SECAs.

The financial investors with their turnaround ex-pectations had been concentrating on certain pre-ferred sizes and they did not have a focus on special situations within the major markets. There will be a

significant shortage of tonnage able to operate in the Baltic Sea where ice class is needed as well as other SECA areas. Small bulkers for certain cargoes seem to be less attractive for most of the remaining shipping investors. "Volume matters", a common strategy of some PE firms, may turn out to be a false approach! The market eruptions, the Jones Act brought up, probably are a blueprint for what may happen with-in the short sea trade markets in the upcoming years.

For those who are interested in investing in the maritime sector, we strongly advise to focus on spe-cial situations subsequent to an in-depth analysis of certain markets, instead of investing in such a way that only a general upswing of the world economy might generate some returns on their investments.

Focus: The Future is Now — The Promise of New Technologies

The Fix is In — Thoughts from BMTI's Technology Correspondent

Hallelujah! The oil price has dropped through the floor. This is the exact stimulus the global economy needed, equivalent to a growth in GDP of 2%. I'm on a roll. Pass me the champagne. I think I'll have a cigar. S**t! The oil price has dropped right through the floor—all my investments and bets on high oil prices are crashing like a house of cards. Pass me the gin. So, which is it to be? Happy New Year, or Horrific New Year. Terrific or terrible?

In our interconnected global economy, if you are still a fossil fuel addict, you'll be either on a soaring high or a crashing low. That's the nature of addiction. But if you are doing cold turkey on kicking the old economy habit then this may be just the lift you need to realise the wisdom of that hard decision.

Those transitioning to renewables are enjoying the show. The wind keeps blowing, the sun keeps shining, the tides come in and out, the waste keeps coming, and the trees keep growing. The power keeps being generated. And plummeting oil price is curtailing the costlier exploration projects, leading to reduced fossil supply.

Sure, this oil thing, it's a blip. And nope, we didn't see it coming. But is it sustainable? Financially, or environmentally? Not financially: once the OPEC dealers have reasserted market control and kicked the smaller, troublesome peddlers off the street, they'll be back in control of the fix and push it again at any price they want. The addicts will pay; it's what addicts do. And what will the bruised would-be producers do next? We might anticipate aggression.

Environmentally time is running out for our species. 2014 looks to be the hottest year on record. That's hot. This kind of temperature change will alter eco-

systems, create food shortages and lead to mass migration. We're likely to see some more aggression. The 'do-gooders' are getting increasingly vocal and militant. No longer prepared to stand back and allow a bunch of unruly addicts to trash the only neigh-bourhood we have. In Lima, at the back end of 2014, the Peruvians held it together long enough to thrash out a sort-of, quite good, UN deal on climate change. One of the proposals discussed at Lima, and still an option for the Paris climate change talks, is phasing out of fossil fuels completely. Holy Moly! That's on the table! It sets the stage for the next conference in Paris 2015. It's still a bit uncertain but the zealous converts to a new economy are a gathering force. Last year saw organised climate protests in over 100 countries led by the head of the UN and supported by A-list actors and multitudes of ordinary people driven by desperation and prepared, finally, to act. Expect more of that, louder drums and shriller calls for action. A correspondingly increasing likelihood of legally binding and stringent carbon reduction targets driven by this rise in a noisy and organised public will drive vote-starved politicians to respond.

Sooner or later—and the later it is the harder it'll be—climate legislation will make you think that the ECAs we're facing today were a fun, intellectual challenge. Like any addiction, the longer you put it off the harder and more painful it is to quit. Being clean brings a whole new perspective. No longer dependent on the dealer and able to produce your own energy gives a sense of security and wellbeing. It may not be as thrilling as the roller coaster ride of the uppers and downers but steady, predictability stimulates creativity in whole new unexpected areas. 2015 is going to be one big adventure. Bring it on!



Market Estimate from a Scandinavian Biomass Trader

Last year we wished that owners would build some high cubic capacity small wood chip carriers for the inter-European market. In 2014, we certainly need-ed them. The market for biomass is shifting gears. The mild winters have no doubt had a knock-on effect on the pellets trade, and we see more available pellets. US and Canadian supplies to Europe have peaked and stocks are up, pricing down. It is a tough time for pellet producers. The woodchip market is shifting due to the US dollar's strength, and supplies from Baltic States to the Med are in fact now booked. It is exciting to see a new trade starting. The wood quality required does create a challenge for suppliers where the old debarking systems are now coming back into use. The ongoing trend from fossil fuels to biomass remains strong. The latest fall in coal and oil prices though makes it easier for power producers to chose their source of energy. We believe that unless the CO2 rights system improves very soon, it will backfire into the biomass for energy world.

Last year we predicted the steel to start to move up, but must say we were wrong. Our steel mill client did though last year give concern as to a last dip, we didn't consider it, but it came, we have seen iron ore and steel scrap go down following the iron ore prices, also the coal market has changed and prices has fallen. The word is now from our steel mill client is we have seen the bottom now, and they are currently expecting things again to start moving with upward going prices. In last quarter of this year we have seen Asian-produced steel dumped in Europe and at prices being low. This trend the steel mill expects to stop. Scrap steel from ships was as well adjusted severely down during 2014, but not to the extent as expected. Yet it is more difficult to find

ships for demolition at the prices the yards are willing to pay, this may cause some reduction in volumes of available demolition ships, hence supporting the price of scrap steel. The European scrap steel market is still to a large extend priced by the Turkish, however the flow of material has reduced and regular players are not building stocks unless they get the scrap steel at a bargain.

On the European short sea market we have noticed a long period with steady freights, to see some in-crease in the end of 2014. The low sulphur rules from 1 January 2015 will have impact, as larger ships will have to burn MDO or the expensive HFO cleaned from sulphur soon to hit the market. The indication is a difference in pricing from low sulphur MDO to low sulphur HFO type fuel is a small gap of 15-25 USD/mt. In our opinion, the small coaster ships on MDO, also the older ones, will enjoy better times ahead with big HFO-burning ships having extra costs in the coastal north Europe market. The gap in rates will be less because HFO burners will need to use MDO or expensive low sulphur HFO.

Again this year we wish some owners start to build short sea chip carriers, just size 150,00cbm taking 5,000mt woodchips would be fine. In steel markets, we hope our steel mill client is correct in assuming at least we are all ears. A strong winter chill in the next months will only assist biomass and pellets markets this season but we doubt it will happen because with the latest average temperature weather recorded in most European countries, 2014 was the warmest year ever and we still have warm seas to cool down. Today (late December), outside is 8 degrees Celsius, I would have expected less than 2 degrees Celsius.

Wind Tide and Renewables with Cockenzie and the Changing World — A UK Perspective

The shipping market is, as always, erratic and un-certain. This is particularly true around the UK east coast as the offshore wind turbine market emerges bringing the necessity to find suitable port facilities to handle the capacity of large vessels and land that this industry requires. Cockenzie is being looked at as a new facility as an alternative to established ports that do not have large enough capacity to cope with the new vessels that are involved in the manufacture and shipping for the offshore wind farms.

New facilities are being sorted and the Humber is an example of where new ports can, and are, being developed. Cockenzie has the promise of a nascent port for the new industry as well as present oil and gas business and the future of offshore rig and plat-form decommissioning. It can be developed to 'go out' into deeper water, regaining the capacity such

emerging trades require. The land where the power station and coal storage used to be can take some of the manufacturing space to build the blades, tower, nacelles, castings and gearboxes that are land hungry.

Many thousands of turbines will be built and many hundreds of offshore platforms will be decommis-sioned in the next 15-20 years and the size of the component parts simply mean that 'nothing' can move by road. Some of these parts can be manu-factured and handled in existing ports but the assembly of the structures need very large facilities to cope. One can look across the Forth from Edin-burgh to Methil and see the size of the Samsumg turbine. This is in shallow water and they will get larger as the industry develops. We are going deeper and bigger—it is the new oil and gas industry start-ing all over again. The picture is quite similar, off-



shore structures producing oil and gas with a pipe-line running to shore as opposed to wind turbines producing electricity with a cable running to shore.

These are fascinating and exciting times. The evo-lution of alternative energy is upon us and will change what we know, just as the shale gas industry is turning the US energy market upside down with compounding affects of that knowledge across the

globe. The cost of all this power generation is always part of the discussion, but all energy is fiscally ad-justed. Put into the context of shale, nuclear and wind (and other energy sources), it gets spreadsheets combusting. As one US economist said when asked how big shale gas is, he replied, "About as big as the world wide web." If only I were 30 years younger—what fabulous opportunities and what fun!

forthcoming holidays

Date Country 2 Jan 2015 Albania; Cuba; Eritrea; Haiti; Kazakhstan; Mauritania; Montenegro; Morocco; New Zealand;

Philippines; Romania; Russia; Samoa; Seychelles; Scotland (United Kingdom)

3 Jan 2015 Birth of the Prophet (Muslim) in 31 localities, Russia

4 Jan 2015 Angola; Bangladesh; Brunei; Dem. Rep. of Congo; India; Myanmar; Russia; Sao Tome; Sri Lanka

5 Jan 2015 Fiji; Russia

6 Jan 2015 Croatia; Cyprus; Greenland; Dominican Republic; Finland; Greece; Guadeloupe; Iraq; Italy; Lebanon; Mexico; Montenegro; Poland; Puerto Rico; Russia; Spain; Sweden; U.S. Virgin Islands; Uruguay

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BMTI Outlook 2015