1. 13th December 2005Galbraith's Ltd1 Global Insight Dec 2005 The Freight Market 2005-06 ~ The Analysts View FICS, FCILT Dr Philip Rogers FICS, FCILT Head of Research Galbraiths Ltd Bridgegate House 124-126 Borough High Street London SE1 1BL http://www.galbraiths.co.uk research@galbraiths.co.uk Ph: +44 20-7898-5555 Fx: +44 20-7959-1086

2. 13th December 2005Galbraith's Ltd2 Market Slide in 2006?

3. 13th December 2005Galbraith's Ltd3 Freight Summary December 2005 Market fell substantially in first half of year from the record high levels in Q4 2004 Market fell substantially in first half of year from the record high levels in Q4 2004 Underlying demand has continued to expand – albeit not quite so rapidly as last year Underlying demand has continued to expand – albeit not quite so rapidly as last year Fleet supply is outpacing demand growth when measured in equivalent units Fleet supply is outpacing demand growth when measured in equivalent units Market currently trending downward/upwards Market currently trending downward/upwards Overall average rates remain at the second highest level of all time Overall average rates remain at the second highest level of all time

4. 13th December 2005Galbraith's Ltd4 Coal Rates from Bolivar

5. 13th December 2005Galbraith's Ltd5 Coal Rates from Richards Bay

6. 13th December 2005Galbraith's Ltd6 Coal Rates from Australia

7. 13th December 2005Galbraith's Ltd7 Freight rate premium from Richards Bay has reversed this year

8. 13th December 2005Galbraith's Ltd8 Queensland coal very difficult to compete on freight basis

9. 13th December 2005Galbraith's Ltd9 Although Chinese imports of iron ore and steel-related products are driving the surge in demand the knock-on effect is felt across all commodities and in all sizes

10. 13th December 2005Galbraith's Ltd10 Dry Bulk Demand

11. 13th December 2005Galbraith's Ltd11

12. 13th December 2005Galbraith's Ltd12 Demand has fallen each month since March

13. 13th December 2005Galbraith's Ltd13

14. 13th December 2005Galbraith's Ltd14 Steel Production led by China

15. 13th December 2005Galbraith's Ltd15 Iron Ore flat except for China

16. 13th December 2005Galbraith's Ltd16 Coal: Long term growth slowing…

17. 13th December 2005Galbraith's Ltd17 Step jumps in Chinese iron ore imports

18. 13th December 2005Galbraith's Ltd18 Grain trade: has been relatively flat for many years

19. 13th December 2005Galbraith's Ltd19 NB Other Bulks comprises 80+ different trades covering many representative commodities

20. 13th December 2005Galbraith's Ltd20 Robust Demand Growth in 2005 & 06 So most growth over next 2 years to be seen in iron ore and focused on China and Asia The Question: Will new fleet supply be sufficient to cope with this demand growth?

21. 13th December 2005Galbraith's Ltd21 Dry Bulk Fleet Supply

22. 13th December 2005Galbraith's Ltd22 Structure of Dry Bulk Fleet by Size

23. 13th December 2005Galbraith's Ltd23 No. of Ships on Order is large in all sizes

24. 13th December 2005Galbraith's Ltd24 …but when put in Dwt terms !

25. 13th December 2005Galbraith's Ltd25 Fleet Developments Dry Bulk

26. 13th December 2005Galbraith's Ltd26 Fleet Supply ~ huge orderbook

27. 13th December 2005Galbraith's Ltd27 Net Fleet Changes So on 7 voyages per year the net fleet growth should be able to cope with the estimated cargo growth of 170 Mt Sensitivity: If cargo growth (demand) has been underestimated and the actual growth is 50% more than 170 Mt & reaches 255 Mt this should still be capable of being carried by the fleet expansion over 24 months as the cargo capability is 160+148=308 Mt

28. 13th December 2005Galbraith's Ltd28 Supply/Demand – Dry Bulk Dry Bulk Demand Dry Bulk Demand Since mid-2003 demand has been dominated by all things Chinese. As compared to 2002 iron ore imports have jumped from 111 Mt to 265 Mt; steel exports have risen from 5.4 Mt to 21 Mt; coking coal imports have risen from 1 Mt to 8 Mt Since mid-2003 demand has been dominated by all things Chinese. As compared to 2002 iron ore imports have jumped from 111 Mt to 265 Mt; steel exports have risen from 5.4 Mt to 21 Mt; coking coal imports have risen from 1 Mt to 8 Mt In other countries (to generalise) only steam coal imports have continued to rise consistently (albeit weakly) In other countries (to generalise) only steam coal imports have continued to rise consistently (albeit weakly) Fundamentals more important than economic headlines Fundamentals more important than economic headlines Fleet Supply Fleet Supply Although the fleet continues to expand and vessels are, on average, larger as designs are optimized and economies of scale prevail, these vessels are added to the fleet at a steady pace and have sometimes not matched the step jumps in imports The current orderbook is huge and dominated by Capesize tonnage Congestion is increasingly a factor when these demand surges occur

29. 13th December 2005Galbraith's Ltd29 Will Cape growth exceed Chinese demand?

30. 13th December 2005Galbraith's Ltd30 Conclusion ~ Dry Bulk Market Demand remains very firm but the fleet continues to expand at a rapid pace and appears more than adequate to cope with demand growth in 2006 Demand remains very firm but the fleet continues to expand at a rapid pace and appears more than adequate to cope with demand growth in 2006 There are mixed views about the short-term direction for Q1 2006 with very firm demand underpinning the market There are mixed views about the short-term direction for Q1 2006 with very firm demand underpinning the market Owners: Sentiment is changing – in 2005 they had hoped for a strong market recovery as per 2004; instead most now expect a strong stable market in contrast to the exceptional fireworks of the final quarter of last year Owners: Sentiment is changing – in 2005 they had hoped for a strong market recovery as per 2004; instead most now expect a strong stable market in contrast to the exceptional fireworks of the final quarter of last year Charterers: believe the market is coming down but are reluctant to take too much risk and compromise their cargo commitments Charterers: believe the market is coming down but are reluctant to take too much risk and compromise their cargo commitments

31. 13th December 2005Galbraith's Ltd31 Overall Freight Market remains firm… Owners have no reason to scrap … yet

32. 13th December 2005Galbraith's Ltd32 Sensitivities or where it could all go wrong! Oil price continues to rise to >$80 Oil price continues to rise to >$80 Sentiment continues to focus on China but major event occurs in another country Sentiment continues to focus on China but major event occurs in another country China announces cut-backs in steel industry and imports of iron ore China announces cut-backs in steel industry and imports of iron ore China actually exceeds even most optimistic expectations China actually exceeds even most optimistic expectations Congestion prevents demand being satisfied and freight rates reach record levels Congestion prevents demand being satisfied and freight rates reach record levels Paper trading leads to market distortions Paper trading leads to market distortions

33. 13th December 2005Galbraith's Ltd33 FFA rate ideas heading downwards….

34. 13th December 2005Galbraith's Ltd34 The Freight Market Outlook 2005-06 Galbraiths Ltd Bridgegate House 124-126 Borough High Street London SE1 1BL http://www.galbraiths.co.uk research@galbraiths.co.uk Ph: +44 20-7898-5555 Fx: +44 20-7959-1086

35. 13th December 2005Galbraith's Ltd35 Back-up slides – not part of presentation

36. 13th December 2005Galbraith's Ltd36 From 1985 to mid-2003 much of the freight market fell within ±25% of long term average. However market rules were re-written in 2003 due to the exceptional and sustained Chinese demand for raw materials especially iron ore.

37. 13th December 2005Galbraith's Ltd37 Up to 2002 freight rates traded in a relatively modest band; since then the market has moved up to a new higher level with a wider trading range

38. 13th December 2005Galbraith's Ltd38 Handymax rates have mirrored overall market with larger trading range and more volatility

39. 13th December 2005Galbraith's Ltd39 Shipping Dynamics Cargo Demand Shipbuilding Fleet supply Grain – 2 seasons Age profile Deliveries Coal – 2 commodities ContractingDeletions Iron Ore – multiple drivers Yard capacity Lay-up >20 other significant commodities Ordering in waves Slow steaming

40. 13th December 2005Galbraith's Ltd40 Cape, Pmax & Hmax modern; old fleet for Handysize

41. 13th December 2005Galbraith's Ltd41 Panamax size optimised ~ Impact of Kamsarmaxes 75 on order

42. 13th December 2005Galbraith's Ltd42 Evolution of Panamaxes Other yards building Kamsarmax type designs include the 3 Japanese shipyards: Universal, Oshima and Sanoyas