CIMB Part II

Lately, I have gone through a very steep learning process as well as having a very fun two or three weeks since I blogged. Life has been pretty balanced out lately, and some could say I am living the "adult working life", although not so dramatic as that sounds. It is because I work everyday now from 7.30am to 5.30pm and after that I go out with friends or come home. I go out about twice weekly in weekdays, so thats 3 times at home and 2 times out, and on weekends I tend to spend one out of two days with friends and the other with family.

Anyhow, in CIMB it has been truly enjoyable. The first marked the entry of my buddy intern Lionel into the equity research department as well. The story of the time we met is a funny one. That's because just two days before the day he came in(Monday), we were both at Sky Bar at the same time on the Saturday before, just that, we didn't know each other. And then when we got introduced on Monday, only then did I find out. But such irony, the world is a small place after all. It's really good to have another intern working with you because there is much opinions we could share from the same perspective about internships and university, etc.

Lately, Raymond, who is my true mentor in CIMB, has been teaching me alot about shipping. Turns out that the shipping market is not simple at all, with it mostly being a global market. I started off by learning about the different types of ships. Raymond introduced to me the 3 main types of ships: bulkers, tankers and containers. For a graphical representation, please google it up. It is always good to know how the things we are talking about actually looks like. And then I continued to learn further that there are many types of tankers such as the crude tanker and the product tanker. Crude tankers carry oil mainly, and product tankers carry processed oil, there is a distinguishing difference.

Further, tankers vary in sizes. First of all, the largest of the lot is called the VLCC, which stands for the very large crude tankers. It is then followed by the Suezmax, so called because its width can fit the Suez canal, and then the Aframax, not so sure why it is called but it is the smallest of the lot.

Then there are also the bulk carriers or bulkers. Mainly they are the Capesizes, which is the largest, and then followed by the Panamax, and sub-panamax. They mainly carry physical goods to be exported/imported to various locations all over the world.

Technicals aside, the whole shipping market consists of a big supply chain. First of all, there are the ship builders, then there are the ship owners/operators, then there are the port operators and also the ship repair/demolition markets. A ship owner/operator would request shipbuilders to build ships by putting their orders in an orderbook, waiting for their respective turns. Ships normally take about 2 years to build. Then the ship owner or operator would, as part of their main business, get cargo on board and charge the charterer a fee. Ports are the places where cargo is obtained/dropped off usually. And finally when ships are old, they are demolished in the ship demolition market.

People in the shipping industry like to call their ships liners, for a reason I don't know why. Perhaps it just sounds more cool. Then for ship sizes, there are two main types of measurements, typically the TEU or twenty-foot equivalent unit and also DWT or deadweight-tonne. Its just shipping technicals which I don't want to go into too detail because it is abit boring. But the shipping industry so far has delighted me because of its complexity. There is even a shipping "stockmarket index" known as the BDI, or Baltic Dry Index, which measures the demand for goods in the shipping industry. Supply in the shipping industry is a straight line, so it is very inelastic. It is because ships are very hard to store away and even docking them in a harbour takes months, and so supply is mostly fixed. Demand, however, fluctuates according to the economy. Hence, when there is strong demand, prices skyrocket, but when demand is low, prices crash. Raymond said that it is the closing thing to a perfectly competitive market in the real world.

Of late, I heard news that every ship owner/operator are making losses. That is because the BDI has crashed 98%. Shipping rates at its peak used to be about $300,000 per day. Now it is only about $6000 per day, which is below breakeven cost.

To be a shipping expert, one must know intricately all the details about shipping in this big, big market. Shipping demand is a kind of derived demand. For example, take iron ore. There has to be demand for houses first. Then there is demand for construction, followed by demand for iron ore, followed by demand for exports and finally demand for ships. I was introduced to many shipbuilders and ship owners/operators. The big giants in the ship building industry are mainly the Chinese, Korean and the Japanese. They basically make up easily 90% of market share. There are about 151 Chinese shipyards, 33 Korean yards and 28 Japanese yards. However, the ship owners/operators are vast, with big names such as Maersk(Danish), CMA CGM(French), Rickmers group(German I think) and Hanjin Shipping(either Chinese or South Korean).

Right now, Raymond is teaching me alot of it bit by bit, and there is much to learn for me. I also managed to do an analysis for tankers and bulk carriers, where I had to see where fixtures(word for contracts in the shipping industry) were made and their destinations in 2008 for each ship in each country. Once you have done that, you can know where your demand is coming from and you can conduct a sensitivity analysis. For the supply part, it is easier because you can look at shipyard's orderbooks to see which ships are due in which year. In current markets right now, there is an over-tonnage, meaning there are too many ships that can carry a specific amount of dwt, but the demand in dwt is much less than that. So that, as one of the reasons, caused the fall in shipping freight rates.

It will definitely take me more than 2 months to master the shipping industry, but slowly, over time if I continue persisting, then I know I can be a master of the shipping industry one day. Not easy, but it will take time. So far there are great sources like Lloyd's List(shipping newspaper) and also worldyards.com(shipyard database) that is of much use and also very expensive, but luckily CIMB has subscriptions to those. I think I've covered mostly everything I've learned in the shipping industry so far, and would continue to update you on more.