Ocean Carriers

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Ocean Carriers in Recession
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Introduction

• With the difficult and loss-making container
  market deteriorating
• further, we believe losses to the carriers are
  inevitable this year
• (losses could continue into 2010).
• Positive near-term drivers are hard to envision
  since demand
• remains weak, the large order book is a concern
  and rates likely will
• continue to decline.
• We believe container freight rates will rebound
  when they hit the bottom.
• The question is when?
• Can ocean carriers ensure sustainability of
  service in this difficult
• economic times?

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Carriers Actions

• Carriers will need strong cash flow generation to
  support their financial
• leverage in a deteriorating industry environment.
• A number of carriers have decided to trim their
  cost by taking steps
• such as
• gt consolidating routes and sailings
• gt entering vessel-sharing alliances
• gt laying up ships
• gt returning chartered ships
• gt adding ships to service strings as
  part of slow-steaming strategies
• to conserve fuel
• gt laying off staff and reducing back
  office support functions

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• But the damage has been done and the delivery of
  84 x 10,000 TEU
• ships in the next two years will cause much pain.

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Containership order book by size and scheduled
delivery year (at September 2008)
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Idle Fleet as of March 17, 2009

• 484 ships 1,410,000 TEU 11.3 of world cellular
  fleet
• 
  (12,500.000 TEU
  worldwide)
• 243 ships 370,000 TEU
• are charter market ships awaiting employment
• 241 ships 1,040,000 TEU
• are controlled by ocean carriers (either owned or
  chartered)
• Source AXS-Alphaliner

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• With revenue under pressure and excess capacity,
  many carriers are
• being monitored closely by rating agency such as
  Standard Poor
• and some of them are placed on credit watch
  because of rapidly
• weakening conditions in the container trades.
• The SP CreditWatch review and other reliable
  market intelligence
• enable us to gain a better understanding of the
  adverse industry
• conditions, and the likely impact of carriers
  actions on how they run
• their business their financial risk factors.

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• We see presently the trend that carriers are
  laying off staff in operation /
• customer service back office functions to
  reduce costs expect further
• drop of service quality / performance towards
  customers.

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How do we as an international freight forwarder
and NVOCC to evaluate behind the scenes the
ocean carriers to ensure sustainability of
service during these difficult economic times?

• Lead by our Central Procurement Capacity
  Management team in
• North America, Europe, Asia Pacific and South
  America.
• Weekly market assessment (global view)
• Weekly carrier risk assessment (global view)
• Report to Executive Board and the Area Head of
  Ocean Freight with
• recommendation on possible adjustment on carrier
  policy and carrier
• selection on timely manner to protect interest of
  our customers.

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• Basic Criteria
• Service integrity
• Financial stability
• Cost Management
• Capacity management
• What the carrier will prioritize when things get
  tight
• Insight and readiness for recovery
• Relationship in stressful times

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Market Assessment (week 13) 2009

• The financial situation for some lines must be
  dramatic resulting in some desperate commercial
  action.
• The general mode of the market has not changed
  spot rate offers extreme low.
• Carrier insist rate increases for major markets.
• Capacity cuttings show a tendency, that supply
  and demand will get closer.
• Idle report 1,410,000 TEU (as per week 12)

Situation

• The buying market remain basically buyer
  markets but the times for all possible rates
  and validities are over we are getting closer to
  the horizontal line.
• Carrier will try to stabilize the market by
  increasing the spot/FAK market during the 2Q2009.
• Full market recovery is still not expected
  earlier than Q3 2009 (unless a massive carrier
  bankruptcy will take place).

Conclusion
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Carrier Risk Assessment (week 13) 2009
Situation

• Pressure on all lines remain.
• APL has reported heavy losses
• MAERSK LINE has announced a potential loss of
  1.9 billion USD (for 2009)
• MSC will continue to bring ALL new tonnage to
  service.
• Continously re-scheduling e.g. Asia/Europe via
  Cape of Good Hope

I Potential WINNER II Potential SURVIVOR III Potential CRITICAL
     
ABC Line PRS Line YXW Line
     
DEF Line TUV Line VUT Line
     
GHI Line WXY Line SRP Line
     
JKL Line ONM Line  
     
MNO Line LKJ Line  
     
     
     
     

Remaining
g
Carriers
Conclusion

• Tactical adjustment of our carrier policy the
  management is in hands of the Central Procurement
  Team. Joint collaboration Corporate and Area
  responsible.

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• Key to Success
• Get factual update about the state of the
  industry, where we are, and where
• were headed.
• Learn how the economic crisis has shifted
  industry dynamics, what it
• means for your business, and when to expect a
  turn around from those
• who truly know their stuff.
• Be prepare for recovery.

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• Thank You