U.S Export Market Update

U.S Export Market Update Robert F. Sappio Senior Vice President Pan-American Trade, APL JOC TPM, Long Beach, CA March 1, 2010 Page 1

Agenda Trade Growth Drivers of Surging Exports US Terminal & Intermodal Services Direct to Customer Rotterdam Export-Import New York Mismatch Los Angeles Vessel Capacity Port-to to-port Service Asia Intermodal & Integrated Feeder Services Chiwan Hong Kong Shanghai Port-to to-port Service Los Angeles Eastbound Westbound Algebra A Path Forward for Carriers and Shippers Page 2

2009 Trade Growth

World Containerized Trade Outlook Global containerized trade continues to slow down in 2009; possible to start recovering in 2010 Intra-Asia Global Asia-Europe (HH) Containerized Trade Growth 2008 2009F 2010F 7.3% 6.5% 4.4% 4.7% 4.0% 2.2% -0.7% -3.6% Global Trade Growth 2009 2010 Morgan Stanley (Sep) -9.0% - Drewry (Sep) -10.3% 2.4% Clarkson (Nov) -9.3% 3.5% Deutsche Bank (Aug) -6.6% 7.1% Transpacific Trade Growth 2009 2010 PIERS (Dec) -15.4% 15.8% Drewry (Sep) -14.9% 4.0% Clarkson (Nov) -14.8% 2.5% Asia-US (HH) -10.0% -9.0% -14.8% -14.8% Asia Europe Trade Growth 2009 2010 Drewry (Sep) -14.8% 2.2% Clarkson (Nov) -16.6% 0.5% Citi (Sep) -15.0% 4.0% Note: Based on analysts forecast and Global Insight & JOC data, SLM estimates Page 4

Transpacific Westbound Market Volume 2009 Full year West Coast market volume declined 5% while East Coast volume increased 10% Strong volume growth was seen during last few months of 2009 resulting in full year volume almost at same level as 2008 Total Market Volume Growth 2009 Vs. 2008 West East Jan (29%) (24%) Feb (32%) (20%) Mar (11%) (2%) Apr (11%) 7% Volume Growth (YoY) 2009 YoY growth at -0.3% May (10%) 8% Jun (2%) 8% Jul (11%) 6% Aug (4%) 13% Sep 4% 25% Oct 7% 31% Nov 29% 44% Dec 30% 44% FY (5%) 10% Source: PIERS, dry statistics Page 5

Transpacific Eastbound Market Volume Volume Growth (YoY) YTD market volume to West Coast & East Coast were down 16% and 13% respectively Rate of volume decline to both West and East Coast has slowed to a single digit decline in October & November with December reverting back to positive growth of 2% Source: PIERS, dry statistics Total Market Volume Growth 2009 Vs. 2008 West East Jan (16%) (13%) Feb (42%) (17%) Mar (9%) (22%) Apr (23%) (14%) May (26%) (16%) Jun (19%) (16%) Jul (12%) (13%) Aug (18%) (16%) Sep (13%) (9%) Oct (8%) (8%) Nov (4%) (6%) Dec 3% 1% FY (16%) (13%) Page 6

Demand Forecast in the Transpacific Trade Westbound Year APL PIERS Drewry Clarkson 2005 9.1 9.4 7.4 10.4 2006 6.5 8.1 7.6 8.1 2007 17.8 16.5 17.0 15.0 2008 5.7 5.2 6.0 5.3 2009-5.7-0.6-8.0-8.6 2010 6.5 4.1 3.1 2.0 2011 6.5 6.9 5.3 - Eastbound Year APL PIERS Drewry Clarkson 2005 13.4 13.6 13.4 14.0 2006 11.8 11.8 10.1 11.0 2007 1.0 0.8 2.2 0.3 2008-7.8-7.8-7.1-6.8 2009-17.4-14.8-15.9-14.8 2010 6.7 15.8 3.5 2.5 2011 7.3 10.9 5.8 - Figures in percentages Source: PIERS, Drewry 4Q 09, Clarkson 4q 09, EIU Jan 10, analyst reports, company researches Forecast in shades Page 7

Trade Mismatch / Imbalance TP Eastbound TP Westbound 2009 10.9 million Teu 2009 5.9 million Teu TSA Average 1 REV/F WTSA Average 1 REV/F 1. Average of Q4, 2009 $2,706 $1,707 Page 8

Drivers of Surging U.S. Exports

Weakening U.S. Dollar. 120 115 110 105 100 95 90 85 The U.S. dollar has been depreciating against most currencies U.S. Dollar Index (against major currencies) 80 75 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan Page 10 Source: Federal Reserve Dollar Index

Economic Outlook Selected Economic Indicators (% Growth) GDP Growth (%) 2005 2006 2007 2008 2009F 2010F 2011F World 3.6 4.0 3.8 1.7-2.4 2.5 2.4 United States 3.1 2.7 2.1 0.4-2.5 3.0 3.1 Asia excluding Japan 7.2 7.9 8.7 5.5 3.8 5.8 6.4 China 10.4 11.6 13.0 9.0 8.3 9.3 8.3 India 9.2 9.7 9.1 6.1 6.5 7.1 7.8 Japan 1.9 2.0 2.3-1.2-5.6 1.4 1.0 United States 2005 2006 2007 2008 2009F 2010F 2011F Consumer Price Inflation 3.4 3.2 2.9 3.8-0.3 1.6 1.3 Unemployment Rate 5.1 4.6 4.6 5.8 9.3 9.7 9.2 PCE 3.4 2.9 2.7-0.2-0.8 1.2 1.4 Gross Fixed Investment 6.5 2.3-2.1-5.1-18.6 1.8 3.5 Global economic activity has picked up steam in the second half of 2009, on the back of fading inventory reductions and an aggressive fiscal and monetary stimulus increasingly have an impact Most major countries appear to have moved out of recession in the third quarter of 2009 and some, notably China and India, continue to surprise on the upside. However, strength of recovery will be weak In U.S., growth is expected to slow over the course of 2010 as the impact from fiscal stimulus and the inventory cycle begin to fade Source : EIU, Blue Chip Economic Indicators and analyst reports Page 11

Export Import Mismatch

Surging Westbound Volumes Annual volume of containerized exports to Asia doubled (+105%) from 1999 through 2008 while 2009 registered -0.3% growth as the recession hit. Last four months of 2009 saw volume bounce back strongly with a 21% growth over same period in 2008 U.S. Container Export (million TEUs), to Asia 1999-2010 Market Growth (YoY) 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% Source: PIERS 16% 2010 2010 15% forecast forecast 13% 9% 7% 8% 4% 6% 5% 4% -1% -2% 1.5 1.8 1.7 1.8 2.1 2.2 2.4 2.6 3.0 3.2 3.2 3.4 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010p Market Volume Market Growth 4.0 3.5 3.0 2.5 2.0 1.5 1.0 Volume (in million Teu) 0.5 0.0 Page 13

Softening Eastbound Trade U.S. containerized import growth reflects significant softening in recent years registering the deepest decline in 2009 U.S. Container Import (million TEUs), from Asia 1999-2010 Market Growth (YoY) 25% 20% 15% 10% 5% 0% -5% -10% 12% 14% 0% 20% 10% 15% 14% 12% 1% 2010 2010 forecast forecast -8% -15% 7% 16.0 14.0 12.0 10.0 8.0 6.0 4.0 Volume (in million Teu) -15% -20% 6.4 7.4 7.4 8.8 9.7 11.1 12.6 14.1 14.2 13.1 11.2 11.9 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010p Market Volume Market Growth 2.0 0.0 Source: PIERS Page 14

US EC & WC Container Volume Growth The imbalance in export-import growth has put tremendous pressure on empty box requirements US-Asia WC Trade Volume Growth, 2004-2009 US-Asia EC Trade Volume Growth, 2004-2009 20% 15% 10% 5% 13% 4% 12% 10% 12% 7% 16% 6% 25% 20% 15% 10% 21% 9% 20% 8% 18% 11% 10% 9% 8% 0% -5% -10% -15% Import Export -2% -11% -5% 5% 0% -5% -10% Import Export 1% 4% -20% -16% 2004 2005 2006 2007 2008 2009-15% -12% 2004 2005 2006 2007 2008 2009 Source: PIERS Page 15

Export Import Mismatch within the U.S. Existing mismatch between exporting & importing states is getting worse as WB volumes surge Corn growing regions Legend Major Inbound DCs/ Warehouses Wheat growing regions Major Outbound Agricultural/ Manufacturing Sites Page 16

Export Import Mismatch also in Asia Mismatch in Asia is worsening at a significant pace, requiring purchase of additional boxes and increasing cost of repositioning back to feed EB demand zones Top EB countries are not growing their WB volumes as fast as other Asian countries, creating increasing mismatch of in/ out volumes in Asia North China South China Japan Thailand Indonesia India US Exports growing to SEA, S Asia which need longer transit Repositioning Repositioning Boxes need to be repositioned to major exporting regions e.g. North China Page 17

2005 2009 Rate Trends & Differential with EB rate $4,500 EB WB $4,000 Gross Revenue Per Feu $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 Jan 05 $2,502 Dec 05 $2,633 Dec 06 $2,378 Dec 07 $2,300 Dec 08 $1,674 Dec 09 $989 $500 $0 2005 2006 2007 2008 2009 WB rate trend shows a flat line from 2005 until 2008 when rates went up and peaked in last quarter of 2008. The start of 2009 saw rates start to decline with the Q4 showing some recovery. The differential between WB rate & EB rate currently stands at $1,000. Page 18

Shortage of Vessel Capacity

Industry Loss a in 2009 & 2010 a. Drewry s prediction The industry will lose another $7.2 billion in 2010, following an estimated loss of $22.0 billion loss in 2009 Nearly $15 billion had been raised as of the end of November 2009, through: Equity & share issues ($8 billion) Bond issues ($3 billion) Government guarantees and other measures ($3 billion) Cash outflow in 2010 Operating loss ($3 billion) Capital investment ($10 billion on new ships/deliveries that cannot be cancelled) Even if the industry can secure the same amount of fresh cash in 2010 as it received from shareholders and from bondholders in 2009, it will not be sufficient to cover its cash needs Carriers need to raise another $4 billion of cash in 2010 from other sources (other than equity/share and bond issues) This requires companies to sell assets 1 to raise cash Source: Drewry January 2010 1. OOIL sold its property division for $2.2 billion at the beginning of 2010 Page 20

Bunker Price Rising Again $780 $680 After falling below $250 per MT in December 2008, bunker price has started gaining lost ground - rising by about 105% over the Dec 08 low $748 Jul 08 Platts Bunker Price / MT $580 $480 $380 $280 $180 May $136 Jan 02 2009 2H to 2010 Jan Monthly Bunker Price $173 Jan 03 $175 Jan 04 $228 Jan 05 $343 Jan 06 $295 Jan 07 $246 Dec 08 $486 Jan 08 $269 Jan 09 $505 Jan 10 $80 Jan Page 21 01 02 03 04 05 06 07 08 09 10 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Laid Up Vessels 000 TEU Laid Up Vessels as of Feb 10 1,600 1,400 1,418 1,310 1,310 1,300 1,315 1,240 1,219 1,280 1,310 1,340 1,279 1,310 1,298 1,352 1,413 1,430 1,480 1,510 1,440 1,370 1,200 1,000 800 600 400 200 As of 0 No. of idle begin mid vessels 485 486 Apr Apr Tonnage 09 09 as % of total fleet begin 511 May 09 mid 511 May 09 begin 533 Jun 09 mid 517 Jun 09 beg mid beg mid beg 509 520 532. 538 524 Jul 09 Jul 09 Aug Aug Sep 09 09 09 mid 528 Sep 09 beg 548 Oct 09 mid beg 568 577 Oct Nov 09 09 mid beg beg 566 572 581 Nov Dec Jan 09 09 10 11.3 10.4 10.3 10.2 10.3 9.7 9.4 10.0 10.3 10.4 9.9 10.0 10.0 10.4 10.9 11.0 11.7 11.6 11.0 10.4 mid 562 Jan 10 beg 532 Feb 10 Non-operating owner s share of total idle fleet size 27% 31% 37% 42% 37% 45% 48% 46% 36% 45% 45% n.a. 50% 50% 48%. n.a. n.a. 44%. 46%. 46%. Note: Non-operating owner s info for certain period not available from Alphaliner reports Source: AXS Alphaliner Page 22

Idle Container Fleet Eases but Remains High The idle containership fleet fell to 9.9% as carriers slow steaming operations and Lunar New Year extra loaders absorbed some excess capacity Idle Fleet Percentages & Teu count (in million) of the cellular fleet Early Dec 2009 11.7% 1.52m Mid Dec 2009 11.4% 1.48m Beginning of Jan 2010 10.4% 1.37m As at Feb 15 2010 9.9% 1.30m Top 10 Carriers Idle Fleet Source: Alphaliner, data as at Feb 15, 2010 NOO: non-operating owners Page 23

Eastbound Westbound Algebra

A 4,000 TEU ship may only have a carrying capacity of 3,139 TEUs Factor Nominal capacity Weight of cargo Containers vary in height Description Theoretical maximum number of empty TEUs a ship can physically accommodate in perfect conditions Cargo weight differs based on the type of commodity shipped Cargo weight differs by trade Many ships not designed to carry high-cube containers without displacing some lift capacity Certain routes have line of sight height limitations 4,000 TEUs Lose 522 TEUs (3,478) Lose 139 TEUs (3,339) Ship design Most vessels have locked in 20 foot slots making full use of available slots difficult Lose 100 TEUs (3,239) Empty containers Page 25 Stack weight and stability limitations impact profile for loaded containers Lose 100 TEUs (3,139) Page 25

Deadweight Issues on Westbound Heavier cargo on westbound constrains the number of boxes that can go on a ship before it hits deadweight limits Transpacific Eastbound Vs. Transpacific Westbound Average Cargo Weight = 10.3 MT 40 Eastbound cargo is generally lighter than westbound thus eastbound vessels can carry a full complement of loaded containers, while staying within vessel capacity weight limits. Average Cargo Weight = 21.3 MT Westbound cargo is heavier than eastbound fewer loaded containers can be carried without exceeding vessel capacity weight limits. Westbound vessels will reach their deadweight capacity before reaching their container carrying capacity. Vessel space is optimized by carrying empty containers back to Asia. Page 26

Path Forward for Carriers and Shippers

Fundamental Changes Impacting Westbound The weak US Dollar is making US exports very competitive Strong demand for agricultural products and Reefer commodities in foreign markets Migration from Bulk to Containerization continues due to Increasing imports of base commodities in Asia Some carriers curtailing their inland network due to substantial increase in truck/ rail costs High fuel costs affecting domestic re-positioning. Mismatch of imports vs. exports locations Carriers allocation of space based on yield and equipment flows Overbooked ships on all export trades No material growth in capacity will likely take place until Eastbound demand growth rebounds.space for U.S. exports will continue to be tight Strength in Westbound Growth and strong demand for U.S. products will continue Rates and level of Fuel recovery will continue to need to increase to cover raising cost Page 28

Solutions Work in Progress Both shippers & carriers need to work hand-in-hand to begin to alleviate the current situation Better demand forecast & planning Shippers-Carriers Working Closely Shippers commitment to real bookings Adequate coverage of increasing costs Re-configuring vessel networks Carriers commitment to space & equipment Page 29

Thank You Page 30

Appendix Page 31

TAED Total Market Volume YOY Change Full Year 2008 to 2009 change = -24% YOY % Change 0% -5% -5% -10% -8% -15% -15% -13% -20% -25% -25% -23% -30% -35% -28% -29% -32% -32% -32% -34% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Page 32

TAWD Total Market Volume YOY Change Full Year 2008 to 2009 change = -19% YOY % Change 0% -5% -10% -11% -7% -15% -14% -16% -20% -18% -18% -25% -22% -24% -20% -25% -22% -30% -28% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Page 33

Export Import Mismatch within U.S. There is a significant mismatch between import & export flows equipment ends up in different locations than where growing export demand is Corn growing regions Source: PIERS YoY Growth Year 2007 2008 2009 08-07 09-08 via USEC 5.80 5.90 5.63 1.8% (4.6% ) Inbound 3.79 3.81 3.35 0.5% (12.1%) Outbound 2.01 2.09 2.28 4.2% 9.1% Im b alan ce 47% 4 5% 32 % via USWC 14.48 13.58 11.88 (6.2%) (12.5%) Inbound 10.44 9.32 7.84 (10.8%) (15.9%) Outbound 4.04 4.27 4.04 5.7% (5.3% ) Im b alan ce 61% 5 4% 48 % Wheat growing regions Page 34

Deadweight Issues on WB Note: Composition of top 10 commodities Shifting cargo mix towards heavier cargo such as waste paper and scrap is putting pressure on WB ship space -0.9%% W ASTEPAPER, 16% W ASTEPAPER, 15% + 2.2% W ASTEPAPER, 18% + 1.4% SCRAP-IRON/STEEL, 8% SCRAP-IRON/STEEL, 9% flat SCRAP-IRON/STEEL, 9% RESINS, 4% RESINS, 4% HAY PRODUCTS, 4% HAY PRODUCTS, 3% GRAINS/FLOUR, 3% GRAINS/FLOUR, 4% LUM BER/TIM BER/LOGS, 4% LUM BER/TIM BER/LOGS, 3% WOODPULP, 3% WOODPULP, 3% CHEMICALS NOS, 3% CHEMICALS NOS, 3% SOYBEANS, 4% SOYBEANS, 4% + 1.3% RESINS, 5% HAY PRODUCTS, 4% GRAINS/FLOUR, 4% LUM BER/TIM BER/LOGS, 3% WOODPULP, 3% CHEMICALS NOS, 3% SOYBEANS, 3% COTTON-RAW, 3% COTTON-RAW, 3% COTTON-RAW, 2% Source: PIERS 2007 2008 2009 Page 35

TSA Carriers West Coast Revenue per Feu Trend $3,000 $2,500 $2,500 $2,626 $2,416 $2,348 $2,338 $2,310 (Jun 08) $2,254 $2,093 Rev/F (excl BAF) dropped $763 $500 $400 $300 Rev/F (excl BAF) $2,000 $1,500 $1,000 $500 $127 ($211) ($68) ($10) ($28) ($56) ($160) $1,905 ($188) $1,601 $1,314 $78 $87 $1,392 $1,479 $9 $1,488 $1,454 ($34) $37 $1,491 $200 $100 $0 ($100) ($200) Rev/F Change (Vs. Prior Period) ($304) ($287) ($300) $0 May-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jan-09 Apr-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 ($400) Source: TSA data Change from Prior Period (Right Axis) REV/F, net of BAF, (Left Axis) Page 36

TSA Carriers East Coast Revenue per Feu Trend $4,500 $4,000 (Jun 08) $3,784 $3,892 $3,834 $3,836 $3,864 $3,875 $3,848 $3,880 $3,476 Rev/F (excl BAF) declined $1,206 $600 $400 Rev/F (excl BAF) $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $108 ($58) $2 $28 $11 ($27) $32 ($404) $3,258 ($217) $2,623 $46 $56 $2 $2,669 $2,727 $2,725 $2,642 ($14) ($71) $2,656 $200 $0 ($200) ($400) Rev/F Change (Vs. Prior Period) $500 ($635) ($600) $0 May-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jan-09 Apr-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 ($800) Source: TSA data Change from Prior Period (Right Axis) REV/F, net of BAF, (Left Axis) Page 37