Shipbuilding - the boom and bust industry by Erik. Ranheim@INTERTANKO Shipbuilding - the boom and bust industry by Erik.Ranheim@INTERTANKO.com Manager Research and Projects OECD Working group on Shipbuilding Paris 3 December 2009 INTERTANKO is the International Association of Independent Tanker Owners INTERTANKO has been the voice of independent tanker owners since 1970, ensuring that the oil that keeps the world turning is shipped safely, responsibly and competitively. Membership is open to independent tanker owners and operators of oil and chemical tankers, i.e. non-oil companies and non-state controlled tanker owners, who fulfil the Association's membership criteria.  Independent owners operate some 80% of the world's tanker fleet and the vast majority are INTERTANKO members. The organisation has 270 members, whose combined fleet comprises more than 2,700 tankers totalling 225 million dwt, which is 70% of the world's independent tanker fleet. INTERTANKO's associate membership stands at some 300 companies with an interest in shipping of oil and chemicals. INTERTANKO is a forum where the industry meets, policies are discussed and statements are created. It is a source of first-hand information, opinions and guidance. INTERTANKO has a vision of a professional, efficient and respected industry, that is dedicated to achieving Safe transport, cleaner seas  and free competition. INTERTANKO industry spokesperson The strong support that INTERTANKO enjoys allows it to speak authoritatively and proactively on behalf of tanker operators at international, regional, national and local level. It is also able to maintain a 26-strong secretariat and a network of 14 committees and four regional panels that coordinate an extensive work programme that comprises more than 50 agenda items. Governments and shipping regulators have taken a closer interest in tanker shipping in recent years. INTERTANKO has responded by establishing, strengthening and maintaining relationships with legislators on all levels, working with them to ensure a fair and equitable distribution of the responsibilities and liabilities involved in carrying oil and chemicals by sea. Underlining its commitment to representing its members where key decisions are made, INTERTANKO opened offices in Singapore and Washington DC in 1999, in addition to its principal offices in Oslo and London. Within the shipping industry itself, INTERTANKO participates in discussions within the International Maritime Organisation (IMO) where we have NGO status and the International Oil Spill Compensation Fund.  In addition, it has consultative status at the United Nations Conference on Trade and Development. Oil and its derivatives will remain the world’s most critical commodity in the foreseeable future and tankers will be needed to distribute it to where it is needed.  As long as tankers are vital to this distribution INTERTANKO will provide leadership in the development and implementation of industry standards and practices, and international regulations  for maritime safety and environmental protection. Erik Ranheim has been with INTERTANKO for 25 years and has been involved in both the technical and commercial aspects of tankers shipping. He is an economist and has also sailed as an officer in the merchant navy. He has been involved in both technical and commercial issues and has written several INTERTANKO publication on specific topic related to the tanker market and the tanker industry.

The boom and bust indsutry World shipbuilding capacity has to be reduced. The Japanese are not helping the matter by price cutting to keep their yards busy, and there should be more cancellations of remaining tanker deliveries. The banks played a dominant role in financing the problem, they are the ones to help undo it. The banks should……recognize that some shipowners – and a lot of shipyards – should be allowed to go bust. The economist January 1976 During the 1980s more than a hundred shipyards had been closed. South Koreans, the most competitive of all ship yards of the time, had lost $250 million in 1986. H Clakson/Martin Stopford

Seaborne crude oil trade Volume back to the 1970s level bn tonne-miles Source: INTERTANKO, Fearnleys

World GDP and oil demand change % Source. IMF/BP/IEA/Fearnleys

Crisis over? Stine Bosse CEO TryggVesta A major Danish Insurance Company She predicted the finance crises and saved her company for some 2 billions DKK in losses I believe that we are in for another correction, not as serious as the previous one, but it will take at least two years before we see the next upturn. In general the CO2 emission has developed in line with energy consumption, which again has developed according to the population the growth in the population. Over the last years oil consumption has developed stronger that the population growth because the strong economic growth in large countries such as Russia, India and in particular China . Cos emission has also developed stronger than energy consumption because coal increased its part of energy consumption. The strong growth in seaborne trade can firstly be attributed to the strong import to China of raw materials and the strong growth in finished good from China to Europe and the US. Source: Dagens Næringsliv

Oil demand, tonne-mile, and tanker fleet indices Tanker fleet increase 2002-2010: 46% Source: IEA, Fearnleys, INTERTANKO

Middle East oil production Jan - 00 to Oct- 09 on the Baltic rates mbd In general the CO2 emission has developed in line with energy consumption, which again has developed according to the population the growth in the population. Over the last years oil consumption has developed stronger that the population growth because the strong economic growth in large countries such as Russia, India and in particular China . Cos emission has also developed stronger than energy consumption because coal increased its part of energy consumption. The strong growth in seaborne trade can firstly be attributed to the strong import to China of raw materials and the strong growth in finished good from China to Europe and the US. Source: Baltic exchange/INTERTANKO

Tanker deliveries, removals - phase out m dwt Year Growth in tanker fleet since 2000 The fleet will continue to grow even if all SH tankers are phased out (Delays in deliveries must be anticipated)

Investments in shipping $ bn $253 bn 7 years $435 bn 4 years $400 bn 2 years Total orderbook mid 2009 just under $ 600 bn? Source: Source: Clarkson World Shipyard Monitor

Number of tankers used for floating storage 17 61 12 42 Source: EA Gibson

Need for new contracts assuming 4% increase in demand m dwt Assumptions: All SH out by 2010 (questionable) Balanced market end 2008 (some slack existed) Current orderbook 24 years life time DH tankers as from 2014/all older cleared by 2013 Ordering 1999-2008 ranged between 11 and 80 m dwt per year (50 m dwt in 2008) 4% increase in demand

Worldwide output potential estimates in m cgt - small and big ships (Aug 09) In general the CO2 emission has developed in line with energy consumption, which again has developed according to the population the growth in the population. Over the last years oil consumption has developed stronger that the population growth because the strong economic growth in large countries such as Russia, India and in particular China . Cos emission has also developed stronger than energy consumption because coal increased its part of energy consumption. The strong growth in seaborne trade can firstly be attributed to the strong import to China of raw materials and the strong growth in finished good from China to Europe and the US. Source: Worldyards/INTERTANKO

Ahead Pressure on prices Currency – continued weak $? Costs steel plate etc Market balance No need for additional tanker orders over the next of years