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August 24, 2010

Shipping recovery boosts Clarksons' revenue

One barometer of the strength of the recovery in international shipping is rising revenue for shipbroking giant Clarksons.

London headquartered Clarkson PLC reported results for the six months ended June 30, 2010 that included a 14 percent rise in revenue up 14 percent to UKP 101.0 million (2009: UKP 88.9 million) reflecting improved market conditions in shipping as a result of increased international trade. Operating profit increased by 62 percent to UKP 18.8 million (2009: UKP 11.6 million) and profit before taxation up 49 percent to UKP 16.7 million (2009: UKP 11.2 million).

Shipbroking activities accounted for UKP 83.5 million of revenues.

"Uncertainty remains as to the speed and sustainability of global economic and trade growth," commented Chief Executive Andi Case, who said the "strong set of results" was ahead of the board's expectations.

Commenting on the group's broking activities in a London Stock Exchange filing, Mr. Case gave some interesting market insights.

Dry Bulk:

China remains the cornerstone of the dry bulk freight market, although the revival of other economies since the beginning of the year added to demand.

The dry bulk market was characterized by a significant increase in spot activity, with the weighted average of spot earnings 91% higher than in the comparative period in 2009. These levels are similar to those experienced in the second half of 2009 and reflect a degree of uncertainty over Chinese economic growth in the remainder of 2010. The smaller bulk carriers (below 100,000 dwt) have benefited most from the shift to spot market business.

The dry bulk fleet expanded by 34 million dwt or 7.4 percent during the first half of 2010. Although new tonnage held back earnings in the capesize sector, strong international coal trade to China and India mitigated most of the fleet growth in the smaller dry bulk ships. Port congestion, and the widening imbalance between rates of industrial growth in Asian and Western economies, added to fleet inefficiencies and resulted in increased tonne-miles, ship-days and freight rates.

The dry bulk markets outperformed expectations for most of the period and spot revenues in Clarksons' dry bulk business were nearly 60 percent higher on increased transaction volumes relative to the comparable period last year. The Baltic Dry Index, having reached its peak for the period in May, has subsequently fallen significantly. The dry bulk outlook remains uncertain.

Deep Sea:

A degree of global economic recovery had a positive effect on tanker freight earnings. Oil intensive activities, such as transportation and industry, picked up and this improvement looks set to continue throughout the remainder of 2010. Spot earnings in the first half improved significantly from the lows experienced in 2009. During the first half they were between 35 percent and 94 percent higher than full year 2009 earnings for all vessel types. In addition, the use of tankers for storage, and lower than expected deliveries of new vessels, continued to support freight rates.

Clarksons' spot revenues were up 28 percent on the comparative period, with increased transaction volumes accounting for most of this.

Specialized Products:

We witnessed a number of "green shoots" of recovery within the specialized products marketplace. Global economic conditions improved faster than expected and robust freight rates have steadied the market with rates and earnings on the main arterial trade lanes remaining resilient throughout the half.

Chemical production trends continued to shift, as substantial capacity was added in the Middle East and China.

Clarksons' revenues and transaction volumes from specialized products once again increased during the period.

Gas:

Pressure on freight levels continued into early 2010, as a result of reduced volumes and expansion in the fleet. Growth in LPG volumes was constrained by weaker LNG demand and start up delays for new projects. However, export volumes started to recover through the course of the second quarter as new projects in Qatar and Abu Dhabi began to come on stream and as regional pricing differentials have supported trading opportunities from Western producers into Asia.

The Very Large Gas Carrier (VLGC), Large Gas Carrier (LGC) and Midsize sectors all came under pressure from weaker LPG trade combined with a slow start to the year in the ammonia market. A recovery in ammonia exports from the Former Soviet Union (FSU) countries, stronger demand in the US and healthy import volumes in Asia have improved prospects for the LGCs as the first half progressed. Rates were also supported by a recovery in the fortunes of the VLGC sector.

Whilst the market was under pressure during the first half, spot revenues were marginally ahead of the comparative period in 2009.

Sale and Purchase:

Confidence started to return to the markets, which resulted in a firming of values across the sectors as buying activity increased. This was despite the continued reluctance of traditional shipping banks to undertake new projects as new sources of finance, principally from private equity and the U.S. investor market, were willing to step in and replace them.

Spot revenues and overall transaction volumes in both secondhand and offshore markets together increased by around 150% over the comparable period last year. Our success was achieved by maintaining relationships with our key clients and also helping them take advantage of the new sources of funding. However, with significantly quieter markets since the period-end, it may prove difficult to repeat this performance in the second half.

Containers:

Following 2009, when the container shipping markets came under severe downward pressure on the back of a substantial contraction in trade and continued growth in fleet capacity, there was some recovery. Trade volumes returned to positive year-on-year growth on most routes, most significantly out of and within Asia, and this created additional demand for containership capacity resulting in an uplift in the containership charter market.

On average, across a selection of ship sizes, one-year containership charter rates were up by over 80 percent across the first half of 2010, from the historical lows at the end of 2009. Containership secondhand prices also benefited, with ten-year-old prices up on average by almost 60% in the first half of 2010, whilst trade growth has also enabled operators to reactivate the majority of the capacity idled in 2009.

As a result, spot revenues were more than three times greater than in the first half of 2009 on increased volumes.

Looking ahead, global container trade growth is projected to reach between 9 percent and 10 percent for the full year 2010 with the fundamentals for the sector looking likely to sustain improvements on last year, although risks to the sustainability of the recovery do remain, most notably on the demand side from the potential threat of double dip recession, levels of unemployment in the advanced economies, and the contagion of financial problems within the European economies.


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