Global Maritime Sector: A Review

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Global Maritime Sector A Review

• Shashi Kumar, Ph.D., Master Mariner

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Outline
1. Introduction
2. Market Developments
3. The U.S. Merchant Marine
4. Global Issues
5. Outlook
3
Introduction

• Not since the days of the Vikings
• Concurrent highs in all three major shipping
  markets
• Spectacular year for the industry
• Major drivers
• PRC
• India
• U.S.A.
• Other fast growing nations

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Shipping Fleet Valuation 2003 Vs. 2004
Source R.S. Platou 2005
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Market DevelopmentsNewbuildings
Source LSE
Source LSE
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Market Developments2nd Hand Price, 5 Yr Old Ships
Source LSE
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Market DevelopmentsTankers Average Freight Rate
in 1,000/day
Source R.S. Platou 2005
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Market DevelopmentsDry Bulk

• Capacity utilization -- 97
• Capesize tonnage--100K/day max, 62,500/day
  average
• Average daily earnings doubled for Capesize and
  Panamax size

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Market DevelopmentsLiners

• Revenue per 20 foot container rose 6.4
• Trans-Pacific trade grew at 13
• The Wal-Mart rumor
• NVO Service Agreement approved in 2004
• Confidential contracts allowed for OTIs from 2005

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Market DevelopmentsCruise Industry
Carnival Cruise Lines Net Revenue Yield Changes
Source AP
Best ever operating year for CCL 175,000 people
on CCL ships at any one time
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Market DevelopmentsShipbuilding

• S. Korean yards are now the undisputed world
  leaders
• Record orders for new construction
• All three S. Korean yards posted losses
• Increasing price of steel
• Appreciation of the Won
• China State Shipbuilding Corp now is among the
  top five shipyards

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The U.S. Merchant Marine

• Some signs of life
• International Shipholding Group to build an
  undisclosed number of LASH vessels
• New entrant eyeing the Hawaii trade
• Pasha Transport Hawaii
• Ocean Blue Express
• Matsons aggressive response
• Puerto Rico trade
• Trailer Bridge bought out K Corp.
• Capital market developments

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Shipping-related IPOs in 2004
Source LSE
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Developments in the U.S.

• The American Jobs Creation Act
• Subchapter R to the Internal Revenue Code
• Tonnage Tax option
• Also amends subpart F of the tax rules
• Marad, Ex-Im Bank joint initiative
• Working capital loan for freight forwarders who
  could extend credit to their export clients
• Security-related developments
• ISPS and MTSA went into effect on 7/01/2004
• USCG approved 9200 VSPs, 3100 PFSPs, 43 RSPs
• CSI operational in 33 ports, 21 countries
• C-TPAT has 8,200 voluntary members

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Developments in the U.S.

• Security-related developments
• Are our ports and facilities more secure today?
• More vessel detentions for safety reasons
• Highly vulnerable to nuclear threat
• Congressional Research Service Report
• Who should pay for the security costs?
• U.S. Gulf ports model

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Developments in the U.S.

• Short-sea shipping
• Marads blue highways SCOOP
• Expansion of Osprey Lines gulf coast
  container-on-barge service
• Columbia Coastals Albany Expressbarge service
• PoNY/NJs Port Inland Distribution Network

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Developments in the U.S.

• Maritime Security Program
• Boost the nations military support capability
• Assist the merchant marine and the shipbuilding
  sector
• 60 ship fleet is now complete
• 47 ships approved in 2003
• 13 approved in 2004
• Have a balanced fleet
• 1st five slots to be issued to U.S.-flag product
  tankers owned by U.S. citizens
• Temporarily assigned to three Maersk tankers
  under charter to OSG and 2 heavy lift ships
• National Defense Tank Vessel Construction
  Assistance program is now in limbo!

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Developments in the U.S.

• Marad Ship Scrapping Program
• Ghost Fleet to be scrapped by September 30, 2006
• 121 ships still at anchor
• Four ships sent to Hartlepool, U.K., have run
  into legal problem
• Marads leadership, management acumen, and its
  contracting practices under criticism

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Developments in the U.S.

• East Coast Stevedoring Contract
• Six year master contract ratified in June 2004
• Considerable opposition from newer ILA members
• Baltimore, Charleston, and Hampton Roads rejected
  master contract as well as supplementary local
  agreements
• Will cost employers 8.7 billion over the next
  six years

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ILA ILWU Base Hourly Wages Comparison
Source ILA
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ILA Investigation

• Investigation of mob influence within ILA
• Several indictments in 2004
• Extortion
• Conspiracy
• Mail and wire fraud
• Many top ranking leaders behind the slammer!
• Exec VP of ILA
• Member of the ILA Exec Council
• ILA International VPs in Miami New York

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Port and Terminal Operations

• Massive bottlenecks at LA and LB
• Increased automation did not help
• Unprecedented growth in volume
• 80 new Post-Panamax container ships expected to
  enter the market in 2005
• Resurgence of all-water services to the East
  Coast
• New distribution centers at East Coast ports
• Panama Canal wins in the short-run

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Panama Canal Rate Hikes
Source PCA
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The LNG Era
Source EIA
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The LNG Era

• Iran, Russia, and Qatardominant LNG fields
• 30 billion investment in the next 20 years
• World LNG consumption to double in the next 15
  years
• LNG infrastructure controversy
• Local
• Regional
• National

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The Human Element

• A two-year global collective bargaining agreement
  between ITF and the Joint Negotiations Group
• Significant increase in the cost of operating
  specialized vessels
• Crew cost for VLCCs went up by 7.8 in 2004 and
  now comprises 40 of the total
• Crew cost for Panamax bulk carriers46
• Very tight market for senior officers with
  special endorsements like LNG
• As a career, shipping has lost its charm

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Maritime Piracy
Source IMB
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Outlook

• Will the brilliant market conditions continue?
• Will the Chinese economic miracle run out of
  steam?
• The new Excelerate Energy Bridge terminal in
  LAharbinger of the future?
• The sea is too unpredictable to be lulled into
  complacency