Logistics Session Part 2 - Transportation

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Logistics Session Part 2 - Transportation

• Henry L. (Rick) Wen Jr.
• VP Business Development Public Affairs
• OOCL (USA) Inc.
• 2006 AAFA International Sourcing, Customs
  Logistics Integration Conference
• Savannah, March 22-24, 2006

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Agenda

• Introduction to OOCL
• Record trade growth from Asia and Chinas impact
  upon US transportation infrastructure
• California Crisis-Shipping Landscape-How cross
  industry collaboration improved results
• Affect on cost and infrastructure investment
• Future outlook and trends

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Introducing OOCL

• Hong Kongs largest container shipping company
• Grand Alliance member
• Publicly traded and privately held
• 4M shipments 4.7B in annual revenue
• China expert
• ISO certified and process driven
• Technology Innovation IRIS 2 CargoSmart
• Highest industry return on revenue in 2004
• Green Flag Award environmental recognition

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World Container Flow 2005
TRANS-PACIFIC 18 million TEU 10.4 Growth
ASIA-EUROPE 12.2 million TEU 10.9 Growth
TRANS-ATLANTIC 5.4 million TEU 5.3 Growth
OTHER TRADES North-South 19.2 million
TEU Intra-Regional 16.1 million TEU
Source Drewry Consultants, 2005
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Chinas Share of U.S. Import Volume
1995
2000
2005
Source PIERS Trade Horizons
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Chinas Share of Trans-Pacific Imports
1995
2000
2005
Source PIERS Trade Horizons
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Chinas apparel footwear trend
China market share China-US growth p.a.
Source US Census Bureau
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Major Port Throughput
Source Drewry Shipping Consultants Ltd (figures
include empties and transshipment)
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Volume Growth (m Teu)
Source Ports (Dec est.)
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Projected Growth (POLA/POLB)
(in Million TEUs)
Source Marine Exchange of Southern California
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2004 California Crisis

• West Coast problem was compounded by many issues
  
• Trade growth and inadequate customer forecasting
• Shortage of longshore labor and lower
  productivity of new hires
• Port congestion
• State and Federal regulations
• Intermodal equipment (railcar, locomotive) and
  crew shortages
• Terminal crane capacity
• Rail volume capacity (ramp, on dock rail limits,
  trackage pinch point at Cajon Pass)
• Strained truck capacity and limited trailer
  availability
• Chassis shortage
• Larger Mega Ships
• Rising costs of doing business

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2004 Labor Shortage
No. of In-Service Cranes
Source www.pmanet.org
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Shipping Landscape

• New mega ships increase trade capacity
• Global trade growth outpaces United States
  infrastructure, including port, railroad,
  trucking, terminal and warehouse.
• Congestion delays reduce effective vessel
  capacity
• Panama Canal approaches 100 capacity
• Supply chains become pro-longed and segmented
  West (intermodal) and East (all-water)
• Cross-industry collaboration and synchronized
  activities improved shipment performance
  efficiency after 2004 crisis Heres how

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2006 Port Congestion Beyond 2006

• US Ports Lag International Productivity
• Throughput (Teu) per gross acre
• East Coast /Gulf 4,100
• West Coast 4,600
• Major world ports 10,000 to 15,000

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Port Terminal Capacity Constraint
Million TEU
Source SSA
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Port Terminal Capacity Constraint
Source SSA
Million TEU
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Cross Industry Collaboration Ocean Carrier and
Terminal Action

• More labor, high capacity cranes and terminal
  equipment (resources)
• Convert from wheeled to grounded operations
  increase terminal capacity (space)
• Extend Terminals Hours of Service Pier-Pass
  appointment system to increase capacity (time)
• Implemented on July 23, 2005
• Over 30 of daily cargo moves during off-peak
• 1 Million container milestone December 2005

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Cross Industry Collaboration Ocean Carrier and
Terminal Action

• Redeploy ships to East Coast and Pacific
  Northwest ports to balance port capacity (asset
  utilization)
• Reduce terminal free time from 5 to 4 days to
  accelerate goods movement (velocity)
• Implement 1st receiving dates for exports to
  minimize terminal congestion (space)
• Synchronize block stowage and promote on dock
  rail to improve intermodal rail performance and
  maximize terminal efficiency (congestion)
• Develop off-dock Container Yards to relieve
  terminal congestion (overflow capacity)

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Cargo Interest

• Order earlier and prepare to hold more inventory
  in your pipeline
• Move information up your supply chain (at origin)
  and available at least 24 hours prior vessel
  loading
• Align your delivery schedules with changes in the
  international delivery process
• Focus more on time definite vs. time to market
  and avoid double dipping
• Use cost of goods sold profit model (20 cents a
  kilo vs. 6 dollars a kilo?) to build your supply
  chain

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Value per kg of shipment
Source US Census Bureau
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Increased Cost of Liner Shipping

• Bunker fuel and inland fuel
• Additional labor
• Terminal
• Extended operation hours
• Wheeled to ground operation (expensive yard
  machinery)
• Terminal appointment system
• Storage charges have increased
• Equipment
• Trade imbalance (import export) increases empty
  repositioning
• Cost of equipment is up as steel costs doubled
• Carriers are building larger vessels but
  equipment supply lags behind
• Rail
• Trucking

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TSA Revenue Index Trending
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Future Outlook Trends

• Intermodal rail service improves
• More Hub and Spoke shipments (inland
  distribution)
• Less West Coast transloading
• More East Coast distribution using trucks instead
  of rail
• Integration of international with domestic
  transportation
• International intermodal outpaces domestic growth
• Railroads drive double stack intermodal
• Smaller and more frequent shipments favor
  container vs. trailer
• Cost and environmentally friendly for shipments
  gt700 miles
• Domestic infrastructure changes to accommodate
  international
• CPRR bans cross Canada intermodal trailers
  effective January 1st 2006 (others to follow)
• TTX converting 48 car wells to 40 wells
• New flatcar wells will be mostly 40

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Future Outlook and Trends

• Economy of Scale Asset Utilization
• More and larger container vessels
• More and larger consortia of carriers
• More mergers and Acquisitions
• Dont put all your eggs in one basket
• Liner shipping logistics plays a more strategic
  role in supply chain including domestic
  applications
• Technology drives standardized efficiency,
  shipment visibility and Home Land Security
  applications
• Moving towards a global economy