AAPA – 2016 Conference

January 2016

Paul J. Birnbaum

Vice President – Marketing & Sales

Ports America Group

G:\Finance\FP&A Project Folder\Ad-hoc\PAS KB Kick-off Deck Jan 2016\Presentation

Operations in Over 42 Ports and 80 Locations

Industry Update

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Key Industry Developments

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Global and US Growth

• 2016 global cargo growth is forecasted in the 3.3%, correlated with global GDP

• US GDP growth forecasted to decelerate to 1.9% in 2016, down from 2015’s 2.4%

Ship Supply, Vessel Size and Carrier Rates

• 2015 was a difficult year for carriers, beset by a severe ship supply / demand imbalance― Carriers adding capacity faster than it can be absorbed; idle fleet at 5-year high

• Global vessel fleet increased 8% in 2015, with 5-6% annual growth in 2016-2018 – 2-3xvolume growth

• More than 50 ultra large container vessel deliveries estimated in 2016

• Over-capacity and weak demand causing downward pressure on carrier rates

Carrier Margins; Alliance Changes

• Carriers operating at negative margins – ultimately adds pressure to our business

• Carrier alliance structures and members are expected to change in the short-term in response to challenging supply / demand dynamics, falling rates and margin erosion― More mergers, acquisitions and/or new partnerships expected

• Despite recovering economies, more pain is in store for the shipping industry

Key Industry Developments (continued)

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Mixed US Fundamentals

• Potential upside for autos after record year US sales in 2015 – new all-time high

• Deceleration in construction growth, with big machinery growth not yet recovered

• US energy prices stabilizing but remain depressed – oil business is in recession

Terminal Consolidation

• Increase in vessels and size will strain existing infrastructure – investment needed

• Terminal consolidation will be essential in key markets as future port demand evolves

• Less fragmented terminal capacity options

• Greater throughput peaks at terminals and improved productivity

Port Assets • The ongoing attractiveness of port assets for investors will continue into 2016

6-7% US Container Import Growth Forecasted in ‘16-’17

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• JOC forecasts growth of 5.5% in 2016 and 6.5% in 2017 for US containerized import volume on: ― Favorable income growth and consumer spending― Positive exchange rate prospects

Source: JOC, Container Shipping Outlook, December 2015

Total US Imports 2014-2017

19,070

20,100

21,200

22,570

17,000

18,000

19,000

20,000

21,000

22,000

23,000

2014 2015 2016 2017

Tho

usa

nd

s o

f TE

Us

4-6% US Container Export Growth Forecasted in ‘16-’17

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• JOC forecasts growth of 4.1% in 2016 and 5.8% in 2017 for US containerized import volume, down from previous forecasts, citing: ― Recession or weak growth in numerous global economies: Japan, Brazil, China, Russia, Eurozone― Strengthening of the US dollar

Source: JOC, Container Shipping Outlook, December 2015

11,950

11,650

12,115

12,820

11,000

11,500

12,000

12,500

13,000

2014 2015 2016 2017

Tho

usa

nd

s o

f TE

Us

Total US Exports 2014-2017

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

12,000

14,000

16,000

18,000

20,000

22,000

24,000

2011 2012 2013 2014 2015 2016 2017 2018

Fle

et

Gro

wth

Tota

l Glo

bal

Fle

et

Total Global Fleet (Year-End) Fleet Growth

Ship Supply Forecast: Over-Capacity Continues to Increase

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• Vessel supply and size both continue to grow, further widening the capacity gap

• 2015 global fleet capacity increased 7.9%, with 5-6% annual growth forecast in 2016-2018

• Ultra large container vessel deliveries will accelerate in 2017, with more than 50 units due― The largest ULCVs will be deployed on the Asia-Europe route, with smaller units on the FE-NA route

• Similar trend playing out in the RoRo sector – carriers deploying more and larger vessels

Source: Drewry Q3 2015 Container Forecaster

Global Container Fleet Growth 2011-2018

96

98

100

102

104

106

108

110

$1,000

$1,050

$1,100

$1,150

$1,200

$1,250

$1,300

$1,350

2012 2013 2014 2015F 2016F

Sup

ply

/De

man

d In

de

x

Car

rie

r Fr

eig

ht

Rat

e

Weighted East-West Freight Rate (incl. fuel) East-West Supply Demand Index

Carrier Freight Rates on the Decline

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• The supply / demand imbalance and overcapacity are resulting in downward pressure on carrier rates― 7% rate decline in 2015, with another 5% decline projected in 2016

• Drewry’s Supply/Demand Index declined in 2015 and is projected to decline further in 2016

Freight Rates and Supply / Demand Index

Source: Drewry Q3 2015 Container Forecaster. Freight rate reflects weighted average of two-way Transpacific, Europe-Far East and Transatlantic trades.

MSC

Maersk

Hapag-Lloyd

MOL

OOCL

NOL (APL)

NYK

Hyndai

Evergreen

COSCO

Hanjin

Yang Ming

K Line

CMA CGM

CSCL

UASC

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2M G6 CKYHE O3

Co

nta

iner

Fle

et S

ize

(TEU

'00

0s)

6,711

3,585 3,360

2,924

Carrier Alliances Expected to Change

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• Carrier alliances’ structures and members are expected to change in the next year or so in response to challenging supply / demand dynamics

Global Container Shipping Competitive Landscape following COSCO / China Shipping Merger

Source: Goldman Sachs Global Investment Research, August 2015

Hamburg rumored to join Ocean 3

CMA has offered to acquire NOL

Merger announced

Thank You!

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