TheClassof2004/2005

Marsoft/LorangeShippingMarkets&Strategy,Zurich

CONFIDENTIAL

ShippingReturnsareCyclical...
Theannualinvestmentreturnsoverthe19802014periodusingthemarktomarket
approachhighlightthecyclicalnatureoftheshippingindustry.

MedianReturns
Tanker:
DryBulk:
Container:

11%
15%
13%

AllShipping: 10%
S&P:
12%

30April2015

CONFIDENTIAL

...WithAFewInstancesofVeryHighReturns
Thecumulativedistributioncurvehighlightstheprobabilityofeachshippingsectorgenerating
alevelofreturnbasedonthehistoricaloneyearreturnsduringthe19802014period.
ShippingSectorReturnsforOneYearInvestmentPeriods(19802014)
CumulativeDistributionCurvesforQuarterlyObservations
ProbabilityOneYearReturnislessthanTargetReturn

100%
90%
80%
70%
60%

Thedrybulksectorhasdeliveredthe
mostvolatilereturns,whileofferingthe
highestprobabilityofexceptional
returnsofallshippingsectors.

50%
40%
30%

Shippingreturnsassume35%leverage

20%
10%
0%

TargetReturn

Tanker

30April2015

DryBulk

Container

CONFIDENTIAL

ReturnAnalysis:Medianvs.AverageReturns
MedianreturnIsusedtomeasureinvestmentperformance

ShippingReturnswith35%Leverage
19802014

Medianreturnisabettermeasureofinvestmentperformance
thanaveragereturn.

Median Average Std.Dev. Median

Annual Annual Annual MtM
Return Return Return Return
TankerMarket
11%
20%
44%
9%
DryBulkMarket
15%
34%
75%
13%
ContainerMarket 13%
24%
50%
15%
AllShipping
10%
21%
45%
11%
S&P500
12%
11%
15%
11%

Theconsistentlylowermedianreturnscomparedtoaverage
returnsareareflectionofafewperiodsofexceptionallyhigh
returns(>80%),ashighlightedbythehistogramsbelow.

19902014
Median Average Std.Dev. Median
Annual Annual Annual MtM
Return Return Return Return
TankerMarket
5%
15%
40%
7%
DryBulkMarket
10%
33%
78%
11%
ContainerMarket 11%
17%
42%
10%
AllShipping
9%
18%
41%
12%
S&P500
12%
10%
15%
10%

Theperiodsofexceptionallyhighreturnsforanysectorwereduring
thelate1980sandmid2000s

Theonlyperiodofexceptionallylowreturns(<80%)foranysectorwas
in2009

Additionally,averagereturnsaredistortedasariseintheindex
willproducealargerabsolute%changethanasimilarfall.

20002014
Median Average Std.Dev. Median
Annual Annual Annual MtM
Return Return Return Return
TankerMarket
29%
25%
47%
21%
DryBulkMarket
25%
53%
96%
23%
ContainerMarket 14%
19%
52%
9%
AllShipping
17%
23%
51%
21%
S&P500
8%
5%
15%
8%

TANKER

DRYBULK

CONTAINER

FrequencyDistributionofIndexReturns,1yearinvestment,35%debt,
floatinginterestrate

FrequencyDistributionofIndexReturns,1yearinvestment,35%debt,
floatinginterestrate

FrequencyDistributionofIndexReturns,1yearinvestment,35%debt,
floatinginterestrate

30

30

25

25

20

20

15

15

10

10

30

25

20

15

10

0
<80%

>80%&< >60%&< >40%&<

60%
40%
20%

>20%&
<0%

>0%&<20%

FrequencyofTankerReturn

30April2015

35

>20%&
<40%

>40%&
<60%

>60%&
<80%

>80%

0
<80%

>80%&< >60%&< >40%&<

60%
40%
20%

>20%&
<0%

>0%&<20%

>20%&
<40%

>40%&
<60%

>60%&
<80%

>80%

<80%

>80%&< >60%&< >40%&<

60%
40%
20%

FrequencyofDryBulkReturn

Above:HistogramsofOneYearInvestmentReturnsCollectedQuarterlyduringthe19802014Period

>20%&
<0%

>0%&<20%

>20%&
<40%

>40%&
<60%

>60%&
<80%

>80%

FrequencyofContainerReturn

Baseline
Imagineyouareembarkinguponcareerasa
shipowner justtenyearsago.
Atthattimeyouwereconsideringbuyinga5year
oldSupramax in2004,with50%leveragebutno
chartercover.
Presumenocrystalball.Howlikelyisitthatyou
wouldneedtocalluponcashreservestooffseta
shortfallincharterrates?Howmuchwouldyou
needtoholdinreservetoeliminatedefaultrisk?
5

ShippinginthePublicMarkets
16ShippingCompanieswerepublicorWentPublicIn
2004/05
7of16wereforcedintorestructuringsince2011
1morerestructuredin2008
About$8billioninenterprisevaluelost

5 Survived
Buttheirprospectsareunclear

4OutperformedtheirPeers
Whatmadethemsospecial?

SharePricePerformance

People

DistinctionbetweenWinners&LessWinners?

ManagementExperience&Training
Size&AccesstoCapital
MarketConcentration
TooMuchDebt
TooLittleCharterCover
InvestmentTiming

Larger,onAverage,SeemsALittleBetter
(in$MMUSD)

Stars

Survivors

Restructured

Navios
GoldenOcean
Seaspan
Teekay
Average
DHT
Knightsbridge
Dryships
TsakosEnergy
Diana
Average
OSG
Eagle
Excel
Genmar
Torm
Genco
Frontline
Average

Dec05 Dec07 Sep14

263
139
564
3,303
1,067
4,645
434
185
725
490
1,296
1,988
508
226
1,570
1,690
441
2,595
1,196

925
943
1,695 661
1,257 2,152
3,887 4,366
1,941 2,030
389
444
456
648
2,784 1,410
1,423 633
1,686 848
1,348
796
2,323 210
1,256
21
805
1
961
1
2,573
65
1,636
35
3,632 158
1,584
59

Trend

10

TooMuchDebt&TooLittleLiquidity?
FiscalYear2007
Navios
GoldenOcean
Stars
Seaspan
Teekay
Average
OSG
Eagle
Excel
Genmar
Restructured
Torm
Genco
Frontline
Average

2007DebttoEquity 2007Liquidity
39%
234%
155%
186%
154%
83%
116%
92%
247%
82%
144%
84%
121%

Liquidity=ratioofcurrentassetstocurrentliabilities.

188%
103%
829%
110%
308%
377%
1534%
451%
232%
29%
380%
180%
455%
11

TooNarrowlyFocused?TooDiluted?
FleetCompositionasofend2007
Dry

Stars

Re
structured

Navios

GoldenOcean

Tank

Con
tainer

LNG

Teekay

OSG

Eagle

Excel

Genmar

X2
X3

X
X

Frontline
Torm

Other
X1

Seaspan

Genco

LPG

X
X

X4

1)Logistics;2)Shuttletankers,FSO,FPSO;3)JonesAct,Lightering;4)OBOs

12

SSW:CostofCapital,NoRisk,DesignPioneers
80

<=14,000teu
<=10,000teu
<6000
<4000teu

NumberofShips

60

16

21
40

20

SeaspanSaver
Design
Extremely
FuelEfficient

3
2
8

14

2005

2007

23

32

2010

mid2014+odb
13

TransportationCost,Asia/Europe
Bunker:$650/tonne
2350

2300

Bunker:$150/tonne
2300
1800

1800
1440
1320

1300

1300

980
800

800

770
670

460
300

300
12knots
5100teu

22knots
10,000teu

380
360
12knots

780
570
530
22knots
14000teu

IndustryDilemma:SpeedUp?

15

Navios MaritimeQ22014InvestorPresentation
Navios controls
63bulkers,
HandythruCape

16

ConfidenceIntervalandTurningPoints
Asof2014Q3,forforecasts
publishedbetween1990and
2014acrossthedrybulk,
tanker,andcontainership
markets,actual1yearTCrates
havebeen+/25%from
MarsoftsBasecase1year
aheadTCforecasts60% 80%
ofthetime.
Analternativereversionto
meanforecastwouldhave
beenwithinthatrangejust
40%ofthetime.
MarsoftsBasecase1yearTC
forecastshaveaccurately
predictedmarketupturnsand
downturns72%ofthetimeon
a1yearaheadbasis.In
contrast,theturningpoint
accuracyofameanreverting
methodologyisjust43%.

6Month AheadForecastAccuracy(19902014)
MarsoftsBaseCase

Mean Reverting

83%

42%

+/25%fromActual

1YearAheadForecastAccuracy(19902014)
MarsoftsBaseCase

Mean Reverting

60%

40%

+/25%fromActual

1YearAheadMarketUpturn/DownturnForecastAccuracy (19902014)
MarsoftsBase Case

MeanReverting

Container

74%

36%

DryBulk

68%

45%

Tanker

73%

47%

All

72%

43%

Confidential

17

10yearTrackRecordfortheBulkerMarket
Thistrackrecordincludesdata
forCape,Panamax,and
Handymaxcharterratesandall
MarsoftsBaseCasescenarios
publishedfrom1990Q1.

Excludingthoseyears,actual1
yearTCrateshavebeen
between15%and21%from
MarsoftsBasecaseforecasts.*
Ifweexpandtheanalysisto
includealldatapointsfrom
1990,the1yearahead
forecasterrormedianwouldbe
1.7%overthepast24years.

100%
%Error(Actual<>MarsoftForecast)

In2006 2009MarsoftsBase
caseforecastsunderestimated
thestrengthoftheChinese
steelboomandconsequences
forcharterrates.

Marsoft's1yearahead1yearTCRate
ForecastAccuracy:DryBulk
79%

80%

61%

56%

60%
40%
20%

21%

20%

10%

9%

0%
20%

5%

7%

5%

15%

40%

*)Basedonaremedianquarterlyforecasterrors.

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
1yraheadForecastError

Confidential

18

AnticipateUncertaintiesbeyondtheBaseCase:
HighandLowCaseRiskAnalyses
Marsofts LowandHighcases
supplementtheBasecaseby
highlightingtheareasof
greatestuncertaintiesand
presentingpossiblestrongand
weakmarketalternatives.

200,000
180,000
160,000
140,000
USD/Day

Acomparisonofactualrates
andMarsoftsforecastratesfor
acapesizebulkershowsthat
ourBase,High,andLowcase
forecastsin2007successfully
capturedthetimingand
magnitudeoftheupcoming
marketcrash. Marsofthas
helpedourclientssavemillions
ofdollarsinmarketcyclesby
theapplicationofour
expertise.

MarsoftForecastAccuracyforCapeSize,170,000
dwt,1YearTCRate

120,000
100,000
80,000
60,000
40,000
20,000
0

2007BaseCaseForecast

2007HighCaseForecast

2007LowCaseForecast

Actual

Confidential

19

Marsoft vs.ResearchAnalysts
Anotherwaytobenchmarkourtrackrecordistocompareourforecastperformancewiththatofotheranalysts.We
recentlysampledanalystprojectionspublishedbetweenDec13andFeb14by6researchanalysts,includingDNB
Markets,Fearnley Securities,Jefferies,MorganStanley,Pareto,andRSPlatou.
ThetablebelowcomparesMarsoftforecastsofspotratesinour2014Q1scenariotoanalystsprojectionsfor2014
averagerates,totheadjusted10yearaverage,andtoactualrates(actualaverageoftherelevantBalticDrySubIndex
throughSeptember).Theleftmostfourcolumnsshowtheforecastandactualrates.Therightmostthreecolumnsshow
thedeviationbetweentheactualratesandtherealizedrates.Theaverageforecasterror(acrossallfourvessel
benchmarks)isshownatthebottomofthedeviationssection.
OverthisperiodMarsoftsforecastwereabout10%aboverealizedmarketconditions.Incontrast,theanalystswere
nearly50%higherthanactualmarketconditionsand85%aboveforthehistoricalbenchmark.
Marsoftssuperiorforecastperformancehelpedourclientsmakebetterdecisions.
$PerDay
BALTIC INDEX
Cape
Panamax
Supramax
Handy

MARSOFT
PROJECTIONS
$13,950
$10,744
$10,850
$8,405

Projected/RealizedRates
%Higher/(Lower)thanRealizedRates
2014ANALYST
10YR AVG
MARSOFT
2014ANALYST
10YR AVG
REALIZED
PROJECTIONS
(EXCL 07/08)
RATES
PROJECTIONS
PROJECTIONS
(EXCL 07/08)
$23,467
$31,664 $14,206
(1.8%)
65.2%
122.9%
$14,383
$18,325 $7,886
36.2%
82.4%
132.4%
$13,267
$15,897 $10,481
3.5%
26.6%
51.7%
$10,175
$11,479 $8,578
(2.0%)
18.6%
33.8%
9.0%
48.2%
85.2%
AVERAGE
Confidential

20

MarsoftHelpsClientsAnticipateMarket
ThreatsandOpportunitiesand
ActtoMaximizeRiskAdjustedReturns
Boston

London

Oslo

Singapore

55FederalSt,Suite1000
1
Boston,MA20110
UnitedStates
T:+1(617)3697800

32BuckinghamPalaceRoad
1
LondonSW1W9SA
UnitedKingdom
T:+44(0)2074933880

Inkognitogaten33
0256Oslo
Norway
T:+4722049450

Marsoft(Singapore)PTE.Ltd.
105CecilStreet#1116
Singapore069534
T:+6565212910

www.marsoft.com info@marsoft.com
21