Dry Cargo Freight Market Unchartered Territory

1. Dry Cargo Freight MarketUnchartered Territory FONASBA OCTOBER 2007

2. The Development of Seaborne Trade • The development of seaborne trade is, of course, linked to the evolution of the world’s economies. Over the past fifty plus years, the global economy has • evolved from a small group of closed economic zones dominated by the European and Sino-Soviet empires, to a free trade economy between more than 100 independent countries. All of this has had a major effect on marine transportation. • 1) In the 1950s, Europe dismantled its colonial system and rebuilt its • economy after the war around free trade principles. • 2) In the early 1960s, the Japanese economic miracle produced a • decade of growth during which Japanese imports reached 600 • million tons. • 3) In the 1960s and 1970s, growth exhibited by South Korea and other • Asian economies followed the pattern. • 4) In the 1990s, China started its development and became an active members of the world market and eventually transformed the maritime industry.

3. TheBDI

4. HOW HIGH DID THEY GO ??

5. THEN AND NOW 12 Months T/C rates

6. Dry Bulk Demand Factors • Strong commodity demand as the world economy continues to expand at a rapid rate, it best performance since the late 1960’s • As trade routes expand, vessels are spending longer sailing from more distant ports thereby reducing the capacity available at any time and pressuring prices. • Severe Port congestion, forcing vessels to wait for up to four weeks to load cargo, is adding to the strain • China’s development has dominated the dry bulk industry in the past couple of years. China’s development is expected to continue being the most important demand factor in the dry bulk market in the near and medium term. • Based on historical and current fundamentals, China’s development should not slow for at least another 7 – 10 years. Historically, the European trade development cycle lasted 23 years from 1950 to 1973, while Japan’s lasted for a little more than a decade due to its smaller size. In terms of population and geography, China is the largest country to move through a trade development cycle in recent history.

7. India • China’s boom has been a blessing for India. • Iron ore exports have tripled since 1995: 32 MMT versus 91MMT 2007 • Steel production has doubled as well: 22 MMT versus 45 MMT • Coal imports increase from only 5 MMT in 2005 to 29 MMM in 2007 and 38 MMT in 2008 • Not difficult to imagine the infrastructure issues which accompany this growth. If the transport system cannot be improved, economic growth will suffer. • The Deep Water Project at Gangavaram on the East Coast. • Master plan for 29 berths of 21m draft with room to go to 35M. Phase 1 – March 2008 Five berths to handle iron ore, coal, steel, alumina etc. • India’s population currently 1.12 Billion

8. Chinese Demand • So far this year, Chinese coal imports surged 44 and steel exports more than doubled over same period last year. • China is now the world's largest importer of soybeans and import growth is expected to rise by at least 7% a year to 2010. • Chinese iron ore production, while increasing should not significantly impact imports as domestic ore is of low quality. • Despite Government intervention steel production remains at 90% of capacity. • China will become a net importer of coal, which will affect countries presently buying coal from China. Japan, Taiwan and Korea will source coal from origins further away, such as Australia, Indonesia, S.Africa and Latin America. • China’s rapid economic growth has resulted in it’s lower classes having much greater spending power than those of India. China’s bottom 20% of the population is better off than in most countries. • Each year 19 million Chinese move from rural areas to new cities

9. Port Congestion – Front Page News • The volume of bulk carriers at anchor off coal, iron and grain ports is unprecedented.. • Failure to foresee the explosion in raw material demand has resulted in disastrous levels of congestion. • Weather delays / damages to infrastructure have added to the delays • Overselling by overzealous commercial departments • Losses to the Australian economy are estimated at about $ 1billion / year. • Intention to increase amount of coal wagons/locomotives. • Further expansion of ore and coal production.

10. Steel Production & Iron ore Imports • Seaborne Iron ore Steel Production • 1980 385 Million 715 Million • 1990 400 Million 770 Million • 2000 490 Million 850 Million • 2007 825 Million 1,325 Billion

11. Commodity Developments • Australian Coal – 50/70/90/120/140/154 Mostly all of which will ship via Newcastle and Gladstone • CVRD iron ore production: 300 MMT in 2007 / 450 MMT by 2012 • New Steel Mills in Brazil • New Coal fired power plants in England / S.Korea • Argentine/Brazilian exports of soyabean/meal up from 71 to 81 during trade year October 07 – September 08

12. Dry Bulk Fleet Developments • For the past three years the dry bulk fleet has grown consistently, scrapping has been minimal and there has been no detrimental impact on freight. Orderbooks in 2007 have grown at an astonishing pace with Capers leading the pack. Existing fleet On order 08 On order 09 Over 20 yrs 10 – 40 2742 105 234 1736 40 – 60 1512 130 372 389 60 – 100 1427 78 300 350 100 – 220 702 39 315 131 220 plus 27 12 44 10 (Total Number of ships)

13. The Historical Dry Bulk Market Cycle Over-ordering by speculators/bargain hunters Over-tonnaging Newbuilding prices fall as capacity comes free Less shipyard capacity prompts price rise Newbuilding demand rises Freight rates drop Freight rates start recovery Newbuilding demand drops Fleet shrinks Demolition increases

14. Today’s Dry Market Guy Are we spinning out of control?