Confessions of a Shipping Cyclist
Wheeee…
Wrong againsuckers!
Martin Stopford, President Clarkson Research Marine Money, 26th February 2015
Surviving the Shipping Cycle
1. Secrets of our rich cycle
forecasting heritage
2. Why shipping cycles are
sexy
3. Predicting the shipbuilding
super-cycle
4. How to predict the oil price
5. Predicting the shipping
super-cycle
OK, I confess.
Everything I told
you last year was
completely wrong
Forecasting Expert
1. Secrets of our Ancient Cycle Forecasting Methods
The old
ways are
still the
best
ItNo,
was
fantastic!!
Useless
Wasitit
Was
good?
good?
6
3
Mirror
4
Absolutely &
we have some
very nice ones
for sale
Lights
Should I buy a
Panamax?
Honey
cakes
1
2
Smoke
5
Antonius Van dale 1700
Method 2: Aristotle – The Rational
Approach
• Aristotle's logic revolves
around deduction
(sullogismos).
• A deduction leads to our
notion of logical
consequence: If X and Y are
true, then Z must be true
• For example “If you buy our
shares AND you’re a sucker,
we’ll buy them back for 30%
at the bottom of the cycle”
Aristotle Onassis – Early Greek Shipowner
Method 2: The Computer Model
• The computer model is the
direct descendent of the
Aristotelian approach of
deduction
• It uses data to summarise the
relationships in the world
economy
• We type things into a plastic
box and it tells us the market’s
about to recover
DATA
All I did was
scrap 3 more
ships and now
we have a boom
Method 4: Blame the Banks….
"The rates today are lower than ever before. This was
brought about by the over-production of ships fostered
by reckless credit given by banks and builders, and
over-speculation by irresponsible and inexperienced
owners.
J.C.Gould, Angier & Co, 31 December 1894
Shipping’s success over a century
Wales to Singapore 1871 $11.4/ton (coal)
Tubarao to Japan 2002 $8.70/ton (ore)
2. Why Shipping Cycles are Sexy
Three types of shipping market cycles
2.Short Cycle
(5-10 years)
1.
Shipping cycles fall
into three categories
1. Seasonal Cycles
2. Short Cycles
3. Long Cycles
3. Long cycle
50 years?
1. Seasonal cycle
(12 months)
60 Years
60 Years
60 Years
Figure 3.1 Compiled by Martin Stopford from various sources
Seasonal shipping cycles
Deviation of VLCC monthly earnings from trend
50%
37% 37%
40%
30%
17%
20%
13%
8%
10%
0%
-10% -1%
-8%
-20%
-16%
-16%
-23%
-25%
-30%
-40%
-38%
-50%
May
April
March
Feb
Jan
Dec
Nov
Oct
Sept
Aug
July
June
23 Dry Cargo Cycles 1741-2014
Stopford Era
Index 1741=100
700
600
500
Bulk Era
Steam Ship Era
Sailing Ship Era
400
300
200
100
2001
1981
1961
1941
1921
1901
1881
1861
1841
1821
1803
1781
1761
Source: Maritime Economics 3rd Edition 2009
1741
0
The length of 24 “short” shipping cycles
Cycle length in years
25
20
20
15
16
15
10
10
17
15
14
13
11
11
7
5
0
1700
For example this
cycle lasted 14
years peak to
peak
7
1800
1850
1900
11
10
11
7
6
6
5
1750
13
4
1950
3
44
2000
2050
3. Predicting the Shipbuilding Super-Cycle
One free with
every ship
The shipbuilding super-cycle
Million Dwt
Shipyards expand in the 1970s boom & again in the 2000s
300
Orders Placed
250
Deliveries
200 Step i: take orders
150
for a lot of ships
Step 2: predict the
market will get
worse next year,
then recover
100
2011
2007
2003
1999
1995
1991
1987
1983
1979
1975
1971
1963
0
1967
50
Figure 22
How Shipbuilders Saw the Market 1978-1984
How will
output
develop?
Million CGT
24
June 1980
forecast
June 1978
1 forecast
21
18
1
15
2
12
3
2
4
Actual world
shipbuilding
completions
6
0
4
April 1982
3 forecast
9
3
June 1984
forecast
Note: This graph tracks how between 1978 and 1984 a group of international shipbuilding experts revised
their forecast of future shipbuilding completions as the 1980s recession developed
1975
1980
Fig 17.1 Comparison of forecasts of world shipbuilding completions
1985
1990
1995
4. How to predict oil prices
If he’d paid
more attention
to the IEA he’d
be up here with
me
130
120
110
100
90
80
70
60
50
40
30
20
10
0
1861
1867
1873
1879
1885
1891
1897
1903
1909
1915
1921
1927
1933
1939
1945
1951
1957
1963
1969
1975
1981
1987
1993
1999
2005
2011
$ per barrel at market prices
The Oil Price – Hard to Predict
Winner of the Shipping cycle yellow jersey
$ money of the day
IEA’s Price Forecast Leads the Way
160
When it comes to forecasting oil prices the IEA
has all the information – just follow them
Oil Price $/barrel
140
120
100
80
60
40
In 1993 the oil price was $17 a barrel.
What was the forecast for 2010?
20
Source: BP energy review
Marttin Stopford 7 Junel 2011
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
0
Source: BP energy review
Marttin Stopford 7 Junel 2011
2030
2025
2020
2015
2010
2005
2000
1995
1985
1993 forecast
1980
1975
1970
1965
Oil Price
1990
160
150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
0
1960
Oil Price $/barrel
World Oil Price - The 1993 Forecast
160
1993 forecast
Oil Price
140
1994 forecast
120
100
80
60
40
Source: BP energy review
Marttin Stopford 7 Junel 2011
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
0
1965
20
1960
Energy Use Mill Tonnes Oil Equiv
World Oil Price & 1994 Forecast
160
Oil Price
140
1993 forecast
1994 forecast
1995 forecast
120
100
80
60
40
Source: BP energy review
Marttin Stopford 7 Junel 2011
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
0
1965
20
1960
Energy Use Mill Tonnes Oil Equiv
World Oil Price & 1995 Forecast
World Oil Price & 1996 Forecast
160
140
Oil price $/barrel
1994 forecast
1998 forecast
Future price
1996 forecast
1995 forecast
120
100
80
60
40
Source: BP energy review
Marttin Stopford 7 Junel 2011
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
0
1960
20
World Oil Price & 2000 Forecast
1993
Oil Price
140
1994
1995
1998
2000
120
100
80
60
40
20
Source: BP energy review
Marttin Stopford 7 Junel 2011
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
0
1960
Energy Use Mill Tonnes Oil Equiv
160
World Oil Price & 2004 Forecast
160
140
Oil price $/barrel
1993 forecast
2000 forecast
Oil Price
1998 forecast
1994 forecast
2004 forecast
1995 forecast
120
100
80
60
40
Source: BP energy review
Marttin Stopford 7 Junel 2011
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
0
1960
20
World Oil Price & 2006 Forecast
160
Oil price $/barrel
140
120
Oil Price
1993 forecast
1994 forecast
1995 forecast
1998 forecast
2000 forecast
2004 forecast
2006 forecast
100
80
60
40
Source: BP energy review
Marttin Stopford 7 Junel 2011
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
0
1960
20
Oil Price $/barrel
World Oil Price & 2007 Forecast
160
Oil Price
1993 forecast
1994 forecast
140
1995 forecast
1998 forecast
2000 forecast
2004 forecast
2006 forecast
2007 forecast
120
100
80
60
40
Source: BP energy review
Marttin Stopford 7 Junel 2011
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
0
1960
20
Oil Price/barrel
World Oil Price & 2008 Forecast
160
Oil Price
1993 forecast
140
1994 forecast
1995 forecast
120
1998 forecast
2000 forecast
100
2004 forecast
2006 forecast
80
2007 forecast
2008 forecast
2008
2007
60
2006
40
Source: BP energy review
Marttin Stopford 7 Junel 2011
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
0
1960
20
World Oil Price & 2010 Scenarios
Oil Price/barrel
140
120
100
Future actual
1994 forecast
1998 forecast
2004 forecast
2007 forecast
2010 "Current Policies"
Scenarios
Oil Price
1993 forecast
1995 forecast
2000 forecast
2006 forecast
2008 forecast
2010 Carbon 450
160
2008
80
2007
60
2006
40
Source: BP energy review
Marttin Stopford 7 Junel 2011
2035
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
0
1960
20
5. Predicting Today’s Cycles
Seems like we’re still under water, folks
Oil tanker market 1947-2015 – each decade different
1.
Tight
Supply
shortage
of ship
yards
150
13% trade
growth pa
with 2%
standard
deviation
110
11% trade
growth pa
with 1.5%
standard
deviation
0% trade
growth pa
with 7%
standard
deviation
3.5% trade
growth pa
with 3.4 %
standard
deviation
6.
Superboom
3.5% pa
growth
with 2% st.
dev.
7.
Kicking
can
down
road
0.7% pa
trade
growth
with 2.4%
st. dev.
90
70
50
30
2013
2010
2007
2004
2001
1998
1995
1992
1989
1986
1983
1980
1977
1974
1971
1968
1965
1962
1959
1956
1953
-10
1950
10
1947
W/S Gulf Europe
130
4.
5.
Distressed Long trough
market & no
working
demand
surplus out
growth
of system
2.
3.
Shipper
Investment
driven
bubble
market
Run by
oil majors
VLCC Net Earnings 1970-2013
VLCCS made good money in 16 out of 44 years (36%)
Free cash flow in $ million
Free cash $ m VLCC
The
average ship value
was $75 m and the
average return was $.6m ,
a 1% return
15
10
5
0
-5
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
-10
1970
Net earnings after OPEX interest & depreciation
20
Dry bulk market cycles 1947-2015
Peak 23
2008
80
75
70
65
Peak 22
2004
“fortunes
made”
55
50
45
40
35
30
25
20
15
10
5
Peak 20
Peak 19
1979-81
1973-4
"Rates
"An exciting
boomed"
market"
1975-7
“Un1971-2
profitable"
“Very
poor"
Peak 24
2010
2000
“Stronger"
Peak 21
1999
1995
"Firm" “Sentiment
rock
bottom"
1982-6
"Worst
ever"
2014
“recovery
next year”
Source: compiled by Martin Stopford from various sources
Note: based on the US Gulf-Japan grain freight 1964-2015.
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
0
1970
$000 1 year TC
60
1.
2.
3.
4.
5.
“Play the players, not the
cards.
Watch them from the minute
you sit down.
Play fast in a slow game , slow
in a fast game.
Never get out when you are
winning.
Look for the sucker and, if
you don’t see one , get up
and leave because the sucker
is you”
Amarillo Slim’s Advice (and mine too!)