South Carolina International Trade ConferenceSouth Carolina International Trade ConferenceCarrier Cost Changes & Changing Market OutlookCarrier Cost Changes & Changing Market Outlook

Rick WenV.P. Business Development

OOCL (USA) IncMay 29th 2008

Agenda• Trade Outlook

• ILWU Negotiation Progress

• Changing Market Dynamics

• Carrier Supply-Demand & Cost Structure Issues

• Market Conditions

• Outlook & Conclusions

TRANS-ATLANTIC6.3 million Teu

4% growth

ASIA-EUROPE20.47 million Teu

15% growth

TRANS-PACIFIC22.19 million Teu

4.2% growth

INTRA-ASIA48.3 million Teu

9% growth

Major Containerized Tradelanes 2007Major Containerized Tradelanes 2007

DrewryDrewry

Container Growth & LA-LB

2007:15.7M TEU’s

60% Trans-Pacific Imports & 25% Exports via LA-LB

25% via USEC15% Other Ports

Forecast: Despite flat growth in 2007 volumes expected to triple by 2020

ILWU Negotiation 2008

Longshore Issues

1. Employment levels

2. Pension and Health

3. Jurisdiction

4. Safety

5. Environment

PMA Issues

1. Productivity-technology

2. 2 x 10 hour shifts vs. HOOT+2 x8 hour shifts

3. Safety

4. Environment

Market Conditions

• Dollar impact reverses Trade balance• Surging export demand (+15%)

• Imports soften (-5%) 1st QTR 2008• Overall Trade capacity declines• Outbound Vessels full - space at a premium • Freight rates taking quantum increases• Export no longer a repositioning cost

recovery model

OUTLOOK – MORE OF THE SAME

Round Trip unit income under pressureRound Trip unit income under pressure

Source: Drewry

Liner Shipping is Import DrivenLiner Shipping is Import Driven

Source: Drewry

Trans-Pacific Export as % Import MarketTrade Balance Improving

0

10

20

30

40

50

60

70

80

90

88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

TPT W/B Market Size as percent of TPT E/B Market Size

Data from Piers' "Trade Horizons" Data from OOCL's database - Std Mkt

March

Trans Atlantic Imbalance(‘000 TEUS/Quarter)

200250300350400450500

EASTBOUND WESTBOUND

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Export TPT Market Timeline• In 2007, the market shifted from 65% to 120%

industrial load factor• Why…

– Dollar Impact– Global Market growth– Bulk Market maxed out

• Supply & Demand balance affecting relationship between Carriers and Customers– Export no longer the stepchild of E/B repositioning– Subsidy of exports is not an option or requirement for

carriers

Carrier Cost Challenges

• Bunker costs at historical highs• Rail contract rates increased over 30%• Inland fuel factors

– Rail approaching 40%– Truck requesting 52%

• Weak dollar impact on all cost segments• Stagnant US import market • Panama Canal tolls and restrictions• Vessel deployment and capacity management• Viability of Trans-Pacific all-water service

Liner Shipping Cost Components

Three years ago:

1. Terminals

2. Transportation

3. Voyage

4. Equipment & Repositioning

Today:

1. Voyage

2. Transportation

3. Terminals

4. Vessel – slot cost

Bunker Recovery through Surcharge

Asia-Europe

Transpacific

Bunker $

0

10

20

30

40

50

60

70

80

90

100

Q105 Q205Q305 Q405 Q106Q206 Q306 Q406Q107 Q207 Q307Q407

% of bunker cost

-

50

100

150

200

250

300

350

400

450

500US//MT

Asia-Europe

Transpacific

Bunker $

Bunker Fuel Cost Calculation

Bunker Fuel Cost : $986 per Feu (weighted @ 75%/25% WC/EC)

Top Ten Trans-Pacific Exports Feb 08 Feb 07 TEU TEU Chg in

TEUs % of Mkt TEUs % of Mkt Change Pct Chg Shr Pts

Waste Paper 87,700 16.7% 68,505 16.9% 19,195 28.0% -0.2

Metal Scrap 53,643 10.2% 31,198 7.7% 22,445 71.9% 2.5

Grain 30,568 5.8% 10,378 2.6% 20,190 194.5% 3.3

Soybeans 27,989 5.3% 13,196 3.3% 14,793 112.1% 2.1

Resin 19,124 3.7% 22,541 5.6% -3,417 -15.2% -1.9

Hay 16,124 3.1% 16,823 4.2% -699 -4.2% -1.1

Cotton 16,629 3.2% 13,374 3.3% 3,255 24.3% -0.1

Lumber Logs 20,560 3.9% 16,269 4.0% 4,291 26.4% -0.1

Plastic Scrap 15,014 2.9% 10,282 2.5% 4,732 46.0% 0.3

Wood Pulp 13,694 2.6% 8,851 2.2% 4,843 54.7% 0.4

Top Ten 301,045 57.5% 211,417 52.2% 89,628 42.4% 5.3

Smaller 222,584 42.5% 193,627 47.8% 28,957 15.0% -5.3

Market Total 523,629 100.0% 405,044 100.0% 118,585 +29% 0

Top Ten Trans-Pacific Imports Mar 08 Mar 07 TEU TEU

TEUs % of Mkt TEUs % of Mkt Change Pct Chg

Furniture 97,019 16.7% 117,106 16.9% -20,087 -17.2%

Apparel 55,386 10.2% 67,565 7.7% -12,179 -18.0%

E-GDS, Ex Wh GDS 59,572 5.8% 63,823 2.6% -4,251 -6.7%

Toys 25,948 5.3% 29,763 3.3% -3,815 -12.8%

Misc. Genl CGO-Dry 33,698 3.7% 38,567 5.6% -4,869 -12.6%

Auto Parts 39,750 3.1% 41,871 4.2% -2,121 -5.1%

Footwear 29,675 3.2% 33,481 3.3% -3,806 -11.4%

Auto &Tr Tires 26,912 3.9% 26,585 4.0% 327 1.2%

Comp &REL Eqp 23,598 2.9% 24,763 2.5% -1,165 -4.7%

Plas Mfg GDS 19,974 2.6% 21,252 2.2% -1,278 -6.0%

Top Ten 411,532 57.5% 464,776 52.2% -53,244 -11.5%

Smaller 468,646 42.5% 514,382 47.8% -45,736 -8.9%

Market Total 880,178 100.0% 979,158 100.0% -98,980 -10%

Top Ten North Atlantic Exports

COMMODITY teu rank teu rank %TTL Growth

AUTOS 94085 1 156358 1 11% 66%WOOD PULP 72799 2 69955 3 5% -4%RESINS 63500 3 87430 2 6% 38%AUTO PARTS 57463 4 60136 5 4% 5%MISC,GENL CGO - DRY 48664 5 63740 4 4% 31%KRAFT PAPER 39976 6 48354 6 3% 21%LOGS & LUMBER 39795 7 37285 7 3% -6%CLAYS 26883 8 25241 12 2% -6%HOUSEHOLD GOODS 24785 9 30234 8 2% 22%WINES AND SPIRITS 23500 10 26082 11 2% 11%

GRAND TOTAL 1292146 1484455 15%

2006 2007

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Top Ten North Atlantic Imports

COMMODITY teu rank teu rank % TTL growth

BEER & ALE 169456 1 174295 1 10% 3%AUTO PARTS 129363 2 117397 2 7% -9%WINES AND SPIRITS 87874 3 91658 3 5% 4%PAPER, EXC W/P, KLB 71722 4 60974 4 4% -15%FURNITURE 65697 5 59896 5 4% -9%MISC,GENL CGO - DRY 63437 6 57390 6 3% -10%RESINS 43131 7 34467 9 2% -20%HOUSEHOLD GOODS 41594 8 43099 8 3% 4%JUICE,SODA+: NON-RFR 37973 9 57261 7 3% 51%AUTO & TRUCK TIRE 33492 10 27518 13 2% -18%

GRAND TOTAL 1756611 1679693 -4%

20072006

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Challenges in 2008• EU decision to repeal anti trust rules• North Atlantic Conference ends Oct 18, 2008• Bunker recovery• Rising costs• Infrastructure funding• Security & Environmental mandates• Trans-Atlantic trade imbalance • 5000 TEU import = 3000 TEU export capacity• Equipment and space shortages

Conclusions: Carriers & Customers - A New Relationship

• Export pricing will increase during 2008• Understand the capabilities from both sides• Commitments by carrier and customer must

be planned and actioned together• Partner with as many lines as you can• Plan and know the fight is for Equipment and

Space• Negotiations will be tough