World container cargo prospects

Neil Davidson, Research Director Drewry Shipping Consultants Ltd

25th IAPH World Ports Conference Houston, 30 April 2007

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Presentation structure

• Forecast container demand growth

¾By trade lane ¾By port region ¾By type of activity ¾Ship size growth ¾Shipping line consolidation

• Port capacity issues – accommodating the demand

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Container demand growth: by trade lane

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Container traffic growth (head-haul direction)

2004 2005 2006 Transpacific 15.6% 13.1% 11.7% Asia - 16.5% 10.3% 13.0% N.Europe Transatlantic 6.1% 3.4% 4.0%

20

15

10

5 %age growth %age

0 2004 2005 2006

Transpacific e/b Asia-N. Europe w/b Transatlantic w/b

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Container traffic growth (head-haul direction)

2007 2008 2009 Transpacific 10.0% 7.6% 7.8% Asia - 11.1% 9.3% 9.7% N.Europe Transatlantic 5.0% 4.2% 3.4%

20

15

10

5 %age growth %age

0 2007 2008 2009

Transpacific e/b Asia-N. Europe w/b Transatlantic w/b

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Container trade by route, 2005

Intra-Asia 35 30 25 Transpacific North-South 20 Europe- Other Intra-regional 15 Other East-West

Million teu Million 10 Transatlantic 5 0

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Container demand growth: by port region

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Global container ports: Relentless growth

2000-2005 CAGR = 11.0% p.a. 400

300 1990-2000 CAGR = 10.4% p.a.

200 1980-1990 CAGR = 4.0% p.a. Million teu Million 100

0 1980 1990 2000 2005

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry The China factor

2006 comparison

4 3.5 3 2.5 2 1.5 1 Million TEU Million 0.5 0 growth Houston total throughput

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry The China effect

12 10 8 6 4

%age growth %age 2 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

North American GDP growth North American teu growth

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Container port volumes - The shift to the east

China/HK 22.7%

Rest of the World Rest of Other FE 51.9% the World 11.6% 75.4% SE Asia 13.8%

1980 = 38.8 million teu 2005 = 399 million teu

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Forecast growth to 2011

Region CAGR North America 7.1% p.a. North Europe 7.8% p.a. South Europe 7.3% p.a. South East Asia 7.6% p.a. Far East 10.6% p.a. South America 9.2% p.a. Africa 10.3% p.a. Global 9.1% p.a.

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Container demand growth: by type of activity

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Port volumes – Emergence of transhipment

Transhipment Transhipment

Import- export Import-export

1980 = 38.8 million teu 2005 = 399 million teu

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Transhipment

• 27.2% of global port throughput in 2005

• Forecast to be 27.6% of the total by 2011

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Port volumes – Empties don’t change

Empties

Empties

Fulls Fulls

1980 = 38.8 million teu 2005 = 399 million teu

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Empties

• 20.5% of global port throughput in 2005

• Forecast to be 20.8% of the total by 2011

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Ship size growth

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Largest ….to smallest

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Growth in size

Year Average ship size Largest ship in world fleet (teu) (teu + max. draft)

1980 975 3,057 - 11.6m

1990 1,355 4,409 - 14.0m

2000 1,741 7,200 - 14.5m

Current 2,191 13,500 - 15.5m

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Maximum ship size

• Big ships can only work as part of a global network, making extensive use of transhipment to fill them • Big ships are inflexible. Could be a serious liability in a downturn • Even bigger ships = even bigger risk • Big ships need deeper water, bigger cranes, longer berths, bigger container yards. Who will pay for these port infrastructure improvements? Big ships have had a free ride to date. • Increased time in port can quickly outweigh economies of scale • Greater frequency of service is as attractive to shippers, if not more Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Dr. Yung-fa Chang, Chairman, Evergreen, 22/2/06

• Big is by no means the best • Evergreen will definitely not go for mega ships of 10,000 teu or more • Big ships are only good in an economic boom, but what if a recession sets in? • The slot costs of a half empty ship do not make economic sense • Lines are ordering 10,000 teu class ships to keep up with the Jones’s

Ever Ultra, 5,364 teu

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Shipping line consolidation

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Shipping line consolidation

• P&O Nedlloyd and CP Ships - latest evidence of consolidation

• Each shipping line or alliance brings ever larger volumes to each terminal

• Implications for utilisation and “spare” capacity

• Does consolidation increase or decrease customers’ bargaining power?

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Port capacity issues

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Capacity expansion plans to 2011

• 2006 global capacity = 550 million teu p.a. • Forecast confirmed expansion to 2011 = 122 million teu • Total confirmed capacity by 2011 = 672 million teu p.a. • Total forecast demand by 2011 = 672 million teu

• Estimated capital cost of building 122 million teu of capacity….. ……. in excess of US$25 billion

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Longer planning horizons necessary

Project Delay due to planning approval issues (years) Le Havre – Port 2000 3 Antwerp - Deurganckdok 4 Rotterdam – Euromax Terminal 5 Rotterdam – Maasvlakte II 10 Flushing – Westerschelde Terminal 7 Wilhelmshaven – JadeWeser Terminal 4 UK – Gateway Terminal 4 UK – Bathside Bay Terminal 5

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Forecast average capacity utilisation

120

110 100

90 %age 80 70

60 2005 2006 2007 2008 2009 2010 2011

Far East South East Asia North Europe South Europe North America

Note: Excludes unconfirmed capacity additions

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Forecast average capacity utilisation

150 140 130 120 110 %age 100 90 80 70 2005 2006 2007 2008 2009 2010 2011

Africa Central America South America South Asia Eastern Europe

Note: Excludes unconfirmed capacity additions

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Supply-demand balance issues

• Not all capacity will be filled up by demand (wrong place, wrong type etc) • 100% utilisation of capacity in every region will not happen, plus significant regional variations within global total • What unconfirmed capacity expansion projects will become reality ?

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry Conclusions

• Continued strong growth in container volumes can be expected • Average and largest container ship sizes will continue to increase, but there are limits • Customer consolidation is a double edged sword • Creation of capacity to meet demand is increasingly challenging • Average utilisation rates can be expected to rise in almost all locations

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry The challenge is to….

…avoid this…. …and ensure this…!

Drewry Shipping Consultants Ltd www.drewry.co.uk Drewry Drewry - the trusted independent maritime adviser

Neil Davidson Research Director Drewry Shipping Consultants Ltd [email protected]

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