“Liner Shipping Revolution”

Sales and Marketing of Container Shipping Session 19.May.2014 Michael Lee

“Liner Revolution”

Sales and Marketing of Container Shipping

IFSPA 2014

Key Notes: 1. Liner History and Development 2. Liner Operation Model 3. Liner Operation – Characteristics 4. Liner Business Challenges 5. Market Today 6. Key to success 7. Utilization 8. Network Design 9. Capacity Management 10. Network Strategy 11. Long Term Clients Base 12. Opportunity

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Liner History and Development

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Liner Operation Before 50’

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Maritime Industry

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Bulk Business

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Vessel Position List Update on Date : 18-Apr-14

Vessel Name Open At Free : MM / DD DWT/MT

Draft/M BLT Flag LOA BEAM GrainM3 Gear

SINGAPORE 04/24 04/25

7067 7.429 98.17 18.8

13789.79 20T x 4 Drk JAKARTA 05/02 05/03

7067 7.429 1990 Panamanian 98.17 18.8 13789.79 20T x 4 Drk

++++++++++++++++++++++++++++++++++++++++++++++++++++++

Free/Open at SINGAPORE

Open Date From 2014/4/24 To 2014/4/25

Vessel Name

DWT_MT 7067

Draft_M 7.429

TPC 0

BLT 1990

Flag Panamanian

LOA 98.17

BEAM 18.8

GRT 5552

NRT 2351/Hold 2/ Hatch 2

GrainCub 13789.79

BaleCub 12611.69

VslType Handy Size (Bulk)

DeckType Tween Deck

Gear 20T x 4 Drk

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Open Vessel

-----Original Message----- From: info@sxxxxx.gr [mailto:info@xxxxxx.gr] Sent: Friday, February 10, 2012 12:08 AM To: chartering Subject: FM: xxxxx CHARTERING S.A. - PIRAEUS, HELLAS. TEL: +30 210 xxxxxxx Fax:+30 210 xxxxxxxx 09/02/12-18:07:57 / REF:427225-CNB A/c Acali Maritime 25,000mt 5% bagged rice SF abt 49 cft hcmc / 1-2 cuba 9.70m 17/28 February 2012 1500/1500 shex eiu 5 pus essential: max loa 186m - beam 26m (try 27m) geared min 10t cranes able 15 cycles per hour elec-mechanical vent max 25 years old no usa p&i club no marshall islands flag Cell 0030 xxxxxxxxxxx Best Regards/STC S.A. - As Brokers Only IFSPA 2014

Open Cargo

Liner Business

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There is no system for Liner capacity management!

Rest of world……

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New Business Transaction Model

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Liner Operation Model

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Liner Operation Model

1. Vessel Available /Ship Owner 2. Cargo Origin /Shipper and Consignee 3. Sailing against weather / Fuel /Insurance 4. Loading and discharging / Cost 5. Freight

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There is need for innovation and revolution!

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Liner Operation - Characteristics

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Liner Operation - Characteristics

• Product Invisible • space cannot be stored • Fix Cost higher than Variable Cost • Long business deal transaction • High Capital of investment • High Risk – Act of God • Low Return on investment • Tradition with Family oriented or government favor

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As a CEO what is your leading strategy to against All above down side?

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Liner Business Challenges

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Marco Issues Micro Issues

Liner Business Challenges

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Marco Issues

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Marco Issues 2010-2015

• Poor Forecasting on supply and demand

• Heavily Over Capacity

• Race to build and deploy the largest

• High bunker fuel price

• Financial Crisis – lack of founding

• Trade imbalance enlargement and Changing of global logistics model

Source: Alphaline TPM Asia Oct.2013

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Container Lines 1988-2014

Source: Alphaline Apr.2014

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Will the super large container vessel which Can really bring cost down?

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Marco Issues 2010-2015

• Heavily Over Capacity

Base on Lloyd’s Intelligence* Feb.2014 Reported

“ there are total 5,031 vessels and 17 million TEU deployed.

“And there are additional 486 new vessel on order with 3.7 million TEU capacity

Which is going to inject into the market through to 2016. “

IFO380 Bunker Fuel USD per Ton 2001-2014

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Source: Ministry of Transport New Zealand

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Is it possible to predict fuel price or demand of 2024?

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What is impact of high bunker fuel cost?

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What is impact of high bunker fuel cost?

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What is impact of high bunker fuel cost for operator? 1000 Teu Vessel Route Taiwan Kaohsiung and Hong Kong as example :

100% Actual full loading 750 TEU, Revenue $80USD Teu FIO/FIO

1. Daily charter hire rate:

2. 380Fuel consumption 35Tons/Day/$650USD/Tons:

3. Diesel Consumption Port Stay 1.5

Tons/Day/$1200USD

4. Port Charge x Origin/Dest.

5. Sailing time X 2 Days

6. Port stay time 1.5 Days

$7,000USD

$22,750USD

$1,800USD

$10,000USD

$10,000USD

(1+2)X 2 +3

$120,000USD/ round trips 50% Actual full loading 750 TEU, Revenue $80USD Teu FIO/FIO ?

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What is impact of high bunker fuel cost for ship owner?

A brand new 1000 Teu Vessel, cost aprox $18Million USD A 15 years old 1000 Teu vessel Cost aprox. $4 Million USD Cost of capital Interest Operation cost = aprox. $5,000USD per day $6000-7500USD income per day

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0 5000

10000 15000 20000 25000 30000 35000 40000 45000 50000 55000 60000 65000 70000 75000 80000 85000 90000 95000

100000 105000

500TEU 700TEU 1000TEU 2500TEU 4000TEU

USD

T/C Day Rate Vs. IFO380 Fuel Consumption/Day

T/C

Fuel 380

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Mirco Issues

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Commoditization Liner operator has difficulty to differentiate their products Customers is not willing to pay more for service There is no penalty when booking cancel or ship delayed

Pricing Oriented Industry consolidation is not happened.

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Market Today

Top 20 Container Lines

Source: Alphaline Mar.2014

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Carriers post 2013 results

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Illusion? Or Magic?

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Illusion? Or Magic?

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Is there any key to success?

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Key to success

Slow Steam

Economic scale

Upgrade IT system

Carriers Alliance

Key to success

Lean organization

Good customer service

Excellent IT system

Excellent documentation service

Fast transit time

Schedule reliable

Lay up

scrapping

Improve vessel sharp

Find new fuel-LNG

Sale vessels and charter back

Concentrate on core business

Key clients program

Fast react market rate

Long term contract

Own hub terminal

Collect surcharge

Build more 18,000TEU ULCV

Reduced of bunker price

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Key to success

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Key to Success

Network Designed + Capacity Management = Utilization

Long term Clients Base

Detail Cargo Planning per origin and dest.

Yield Mix

Deployment Cost

Utilization

Connection/Window/Buffer

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Utilization

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Demand

Supply

Liner fix cost Vs. Demand

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Network Design

IFSPA 2014 Source : From Staistac.com 100 200 300 400 500 600 700

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Class Size TEU No.of Vessels Total Capacity

A Class 1068 13 13884 Regesburg Class 1118 8 8944 T Class 1367 8 10936 T Class US 1597 4 6388 C Class 1647 1647 2 3294 C Class II 1734 3 5202 Vilnius Class 1800 4 7200 Vermont Class 2023 3 6069 Nele Maersk Class 2320 5 11600 Pembroke Class 2902 7 20314 Japan Maersk Class 3003 3 9009 Batam Class 3078 9 27702 Olga Maersk 3267 4 13068 Inverness Class 3460 3 10380 G Class 4116 2 8232 L Calss 4258 6 25548 Conakry Class 4530 19 86070 M Class 4814 15 72210 K Class 5314 13 69082 Atlanta Class 6200 12 74400 Kiel Class 6690 4 26760 Klaipeda Class 6820 4 27280 Tanjong Class 8112 4 32448 S Class 8160 30 244800 Sovereign Maersk 8160 1 8160 Lima Class 8700 16 139200 G Class II 9418 6 56508 Altair Class 9640 4 38560 Stepbica Class 9643 5 48215 Ebba Maersk 15550 1 15550 PS Class 15550 8 124400 EEE Class 18340 1 18340

227 1269753

Maersk Fleet Structure

No.Ship TEU Ships% TEU% 1000-2000 50 73517 20% 5% 3000-3400 27 83476 11% 6% 4000-5000 60 266148 24% 20%

5300 13 69082 5% 5% 6000-6800 21 134968 9% 10% 8000-8700 51 424608 21% 32% 9400-9600 15 143283 6% 11%

15000 8 124400 3% 9% 18000 1 18340 0.4% 1%

246 1337822

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50

26

55

20

66

9

1

2000TEU

3000TEU

4000-5000TEU

6000TEU

8000-9000TEU

15000TEU

18340TEU

20%

24% 9% 11%

21% 3%

Maersk Line Own Fleet Structure-No. of vessels per type

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Capacity Management

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2000TEU

3000TEU

4000-5000TEU

6000TEU

8000-9000TEU

15000TEU

18340TEU

10% 43%

21%

6% 6% 11%

Maersk Line Own Fleet Structure – Capacity per vessel type

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COSCO Structure

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Cosco No. of Vessels TEU Post Panama 74 565951 Panama 39 153576 Sub Panama 5 13715 Handy 31 46890 Other 30 19647 Sub Total 179 799779 Scrap 71 166913

41% of COSCO vessels are going to scrap! Which counts 21% of total COSCO capacity

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COSCO Structure Name Year TEU JING CHENG HE 1983 1234 XING HE 1984 1328 XIN YIN HE 1984 1328 CHUN HE 1984 1322 XIN CHUN HE 1984 1322 XIN QIU HE 1984 1322 BIN HE 1985 1696 XIANG HE 1985 1686 ZHUANG HE 1985 1668 XIN XING HE 1985 1328 CHAO HE 1985 1322 XIN CHAO HE 1985 1322 SONG HE 1986 1699 YU HE 1986 1686 MIN HE 1989 2761 TAI HE 1989 2716

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COSCO Structure NORFOLD 1989 265 DONG HE 1990 2761 GAO HE 1990 2761 PU HE 1990 2716 弘泰28 1992 633 EMPRESS HEAVEN 1993 3494 DAINTY RIVER 1993 1932 PRETTY RIVER 1993 1932 DA HE 1994 4221 SHAN HE 1994 4221 ZHEN HE 1994 4221 FEI HE 1994 4215 TENG HE 1994 4215 YUAN HE 1994 4215 ZHONG HE 1994 4215 RIVER ELEGANCE 1994 4196 RIVER WISDOM 1994 4196

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COSCO Structure EMPRESS DRAGON 1994 3494 EMPRESS PHOENIX 1994 3494 EMPRESS SEA 1994 3494 LONG HE 1994 725 SHENG HE 1994 725 PAN HE 1995 725 XIAO YUN 1995 327 PROSPER 1996 1504 BAVARIA 1996 1203 HANSA GREIFSWALD 1996 1016 CHAO SHAN HE 1996 836 XIN HUI HE 1996 836 ZHAO QING HE 1996 836 DA QING HE 1996 764 YONG DING HE 1996 764 ZI YA HE 1996 764 YAN HE 1996 725 CHUAN HE 1997 5446 COSCO QINGDAO 1997 5446 JIN HE 1997 5446 LU HE 1997 5446 WAN HE 1997 5446 YUE HE 1997 5446 BU YI HE 1997 3400 HA NI HE 1997 3400 JING PO HE 1997 3400 NA XI HE 1997 3400 XI BO HE 1997 3400 YU GU HE 1997 3400

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上海

Shanghai

Yantian

18,000 Teu

Each Asia Ports needs to deliver avarage 4000TEU per weekly Voyage 平均每航次各港口必须承揽 4000TEU

Ningbo

Singapore

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上海

18,000 Teu

Each Asia Ports needs to deliver avarage 4000TEU per weekly Voyage 平均每航次各港口必须承揽 4000TEU

Singapore

G Type C Type

C Type

S Type

A Type

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Network Strategy

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+

Network Strategy

+ + =

+ + + + + = +

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MCC

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SEAGO

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SEALAND Maersk Line to Bring SeaLand Back Maersk Line announced today the revival of the SeaLand brand with formation of a new US-headquartered, intra-Americas container shipping firm of the same name. Maersk Line notes in an emailed statement, “this new affiliate will have a structure similar to Maersk’s other successful regional carriers including: intra-Asia carrier MCC Transport and intra-Europe carrier Seago Line,” and the new company will be built from Maersk Line’s existing regional service network. Maersk Line veteran Craig Mygatt has been appointed CEO of the new company, however the location of SeaLand’s head office is yet to be determined. Maersk Line notes that SeaLand will officially commence independent operations at the start of 2015 with a team of 240 employees.

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Long Term Client Base

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上海

Shanghai

Yantian

18,000 Teu

Each Asia Ports needs to deliver avarage 4000TEU per weekly Voyage 平均每航次各港口必须承揽 4000TEU

Ningbo

Singapore

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ZARA Key Clients’ Corporate Logos

Liner Pricing – Cost = Revenue?

Price Vs. Cost

Price Vs. Loading Factor

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Loading Factor=Ultilization

Loading Factor is the key Loading Factor Vs. Capacity Management Capacity Management Vs. Client Base

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Liner Complicate Operation and Commercial Issues

Liner Business involves long term planning with clear long term strategy and vision.

Network, ships building, containers customers base all involve long term planning.

There is almost no influence on industry supply and demand as individual operator.

hence manages operation in low cost is key.

Utilization is more important than high freight but sailed empty vessel. Vs. Time!

Long term planning requires long term customers base.

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State of The Art

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Opportunity - Applied Sciences!

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Opportunity

Opportunity for Ports and terminal operators Hub selection

Shipping Lines Regional Feeder and consolidation

Ship Building New Build / IMO EEDI Qualified

Forwarder / NVOCC / Space to grow

Shipper/Consumers / lower logistics cost lower price at end

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Thanks Q & A