Economic Imperatives - IMO

IMO Seminar 10 June 2013 17/06/2013

Martin Stopford, President CRSL 1

IMO Seminar : The Future of Ship SafetySession 4: The Driving Forces on Maritime Safety

London, 10th June 2013

EconomicImperatives

Martin StopfordPresident,

Clarkson ResearchFuture

safetyofmaritim

eIndustry



1. Regulatory economic model2. Key economic drivers for future3. Example, single hull phase out4. Conclusions for maritime safety



1. Shipping plays a central part in the world economy.2. The Stakeholders are central to the regulatory process

Is that a newregulation on the

horizon?



Investment Model: A massive job ahead

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1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

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2004

2007

2010

2013

2016

2019

2022

2025

2028

Billio

nto

nnes

ofca

rgo

..

15 Bn tonnesIn 2030??

Japan

China

The riskshipowners

take

Replacedinvestm

entTrading

$1.3 Trillion investmentneeded by 2030 to carryworld trade safely (roughly)



Transport Model: industrial stakeholders

AIR FREIGHTBULK SHIPPING LINERSPECIALISED SHIPPINGLarge parcels, low value Smaller parcels, high value

COMPANIESMajor market for energy,buildings, capital goods and

Consumables

POWERGENERATION

Power stations are major usersof oil, coal and gas, oftendealing direct with the primarysuppliers

CONSTRUCTIONUses steel, timber products,NFMs•Residential, Commercial•Infrastructure

TRANSPORTMajor user of energy, vehicles& infrastructure (Cars, rail & air

travel, ships)

CONSUMERSThe final market, but

shipping industry has littledirect contact except cruise

& ferry

END USERS

END MARKETS

RETAILERS

MIningMetal ores•Iron ore,•Scrap steel•Manganese ore•Bauxite, Alumina•NFM OresMinerals•Salt, Sulphur, Limestone•Sand & gravel

AGRICULTUREDry Cargo•Grain, Oilseeds & cake•Animal feeds n.e.s.•Rubber, SkinsRefrigerated•Fruit & vegetables•Meat & fishLiquid•Oils, Wine, Fruit juices•MolassesLive Animals

FORESTRY•Logs, Lumber•Wood chips

RAW MATERIALSENERGY

•Oil,•Gas (LNG LPG)•Coal & coke•Molten sulphur, Bio fuels

Liquid BulkCoal, coke,crude oil &

Gas

Dry BulkAgriculturalmaterialsand forestproductsshipped toconsumingmarkets

LiquidVegetableoils & fats

Dry BulkMetal ores,metal scrap,

crudefertilizers,

salt

Unit loadLogs,

lumber,paper, pulp

Sea TransportOIL REFINING

•LPG, Naptha, Gasoline etc

STEEL•Pig iron, & products

CHEMICALS•Organic & Inorganic

TEXTILES, SHOES &CLOTHING

FOOD PROCESSING•Meat, dairy, sugar etc

WOOD & PAPER•Pulp & Paper

PROCESSIN

G

MANUFACTURING

MOTOR VEHICLES•Cars and trucks, tractors

LIGHT ENGINEERING•White & Electrical goods

manufacturingManufactured goods &

materials shippedto manufacturers

Liquid BulksLiquid

products ofoil refiningand chemicalprocessing

General CargoManufacturedproducts of alltypes shippedto companiesand private end

users

Sea Transport



1. Ship owners

What should I doabout emissionregulations?

5. Governments

How willregulationsdeal withfuturechange?

4. Financiers

Could I have aloan to financemy fleet ofecoships?

“We want tobuild our own

feet"

3. Shippers2. Shipbuilders

We build shipsand we canmake them

more efficient

Decision Model: The key stakeholders



2. Offshore OilMobile structuresSupply ships

7,158

Containerships

Gen cargo

Reefer ships*

Heavy Lift*

Ro-Ro*

Multipurpose

Barge carrier*

1.1 General Cargo25,784

Designs

• Non Cargo23,859

Tugs

Fishing boatsPassenger ships

Dredgers

Designs

Bulk carrier

Chip carrier

Open hatch*

Ore carrier

Vehicle carrier*

1.2 Dry Bulk6,631

Cement carrier

Designs

Combined Carrier

Crude tanker

Chemical tanker*

Products tanker

1.3 Oil & Chemicals11,250

Designs

GROUP

SECTOR

SHIPTYP

E

* Indicates specialized ship type

LPG*LNG*

1.4 Liquid Gas1,317

1. Cargo ships47,433

Designs

Merchant Shipping74,398 vessels

Research ships

2. Offshore OilMobile structuresSupply ships

9,974

Containerships

Gen cargo

Reefer ships*

Heavy Lift*

Ro-Ro*

Multipurpose

Barge carrier*

1.1 General Cargo28,403

Designs

Non Cargo

Tugs

Fishing boatsPassenger ships

Dredgers

Designs

Bulk carrier

Chip carrier

Open hatch*

Ore carrier

Vehicle carrier*

1.2 Dry Bulk9,568

Cement carrier

Designs

Combined Carrier

Crude tanker

Chemical tanker*

Products tanker

1.3 Oil & Chemicals13,089

Designs

GROUP

SECTOR

SHIPTYP

E

Source: Maritime Economics (2009) Figure 14.1 updated from Clarkson World Fleet Register 1/3/2013

LPG*LNG*

1.4 Liquid Gas1,317

LPG*LNG*LPG*LNG*

1.4 Liquid Gas1,622

1. Cargo ships53,286

Designs

Merchant Shipping87,119 vessels

Research ships

Ship Type Model: Many Different Designs

Value $809 Billion March 2013



Company Model: Shipping companiesare prime movers & most are small

No Ships Number of % fleet Ships perin fleet Companies # Ships (No. of ships) companyOver 200 10 4,074 11% 407100-200 22 2,754 7% 12550-99 80 5,538 15% 6920-49 256 7,520 20% 2910-19 460 6,211 17% 145-9 669 4,389 12% 7

Under 5 4,021 6,417 17% 2Grand Total 5,518 36,903 100% 7

Includes deep sea vessels, including bulk, specialised and linerSource: CRSL



Techno-Economic Focus• Shipping model is dominated by a widerange of stakeholders (people)

• Regulatory economics provides theframework & should take account ofeconomic consequences for stakeholders

• Focus might include:-– Commercial market consequences– Interest of investors and charterers– Specialized market segment needs– People & company “friendliness“



What economicissues today?

1. Regional cargo volumes2. Shipping cycles3. Foreign flag registration4. The cost revolution5. The information revolution



Driver 1: Trade patterns will change

17/06/2013 ©Martin Stopford 11

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

1950-2000OECD’s 1.3 billion

population

2000-20506 billion Non-OECDpopulation want to

consume at OECD levels



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5

10

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20

25

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40

45

50

1965

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2007

2008

2009

2010

2011

2012

2013

ClarkseaIndex$000/day

(Clarksea Index is a weighted average of earnings bytankers, bulkers, containerships & gas.) 2004

$39,000/day

2008$50,000/day

Here

$22,800/day

2000$24,000/day“Wow”

$8,500/day $12,000/day$14,000/day $9,938/day

Driver 2: Shipping cycles will continue



Driver 3: Flag/ownership will be an issue

-

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

1,000.0

198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012

Foreign Flag

National Flag

National & Foreign Flag Fleets M GTIn 2013 1 billion tonnesof ships will operateunder a “foreign” flag

NATIONAL FLAG

FOREIGN FLAG



Driver 4: The ship cost revolution

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,00019

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

12

Bunker cost 1 Year TC Rate

2005Ship costs3x fuel

2012Ship costshalf fuel

Based on Aframax tanker, 1 year TC rate and Rotterdam bunker price

FUELSHIP

$ per day



Driver 5: The information revolution

Fibre optic cable network

GordonMoore

Invented “Moore’s Law”

• Massive potential for information about ship activities• New applications will require regulation (e.g.reduced manning levels )



• The Exxon Valdez incidenttriggered new regulations.What lessons?

• The Valdez incidentresulted in regulations tophase out single hulltankers by 2010

• It laid down the precisedesign of double hullrequired

• Implementation was leftto the market. How did itwork out?



Single Hull Tanker Phase Out

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500

1982

1984

1986

1988

1990

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1996

1998

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2008

2010

2012

Million Dwt

Double HullSingle Hull Fleet

ExxonValdes1989

US OilPollutionAct 1990

MARPOL1992

amendments



Single Hull Tanker Phase Out

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10

20

30

40

50

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Number ofships

removed

Bulker Offshore Scrapped

convertedto bulkcarriers

Convertedto offshorestructures

scrapped



Age of VLCCs Demolished

02468101214161820222426283032

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Average Age ofVLCCs

Scrapped

NODE

MOLITION

NODE

MOLITION

25 year life “norm”



Summary of Double Hull

1. Phase out completed on time2. Design was specified as a result of

working parties, so little confusion overspecification

3. Concerns over early removal of youngerships proved groundless

4. The industry developed its own strategyof scrapping older ships and convertingyounger ones



1. Investors will spend $1.3 trillion on new(safer) ships by 2030

2. Shipping regulations operate in aneconomic framework driven by people

3. A checklist of the economic/marketconsequences for STAKEHOLDEERS ofregulatory changes would help PLANimplementation

4. Several economic drivers today are likelyto have regulatory consequences

5. The single hull phase out suggestseconomic review can give good results

Independent Shipownerstake risks nobody elsewants to take. Regulatorscan help them to manage

these risks.

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Economic Imperatives - IMO