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

AgendaAgenda

Introduction to OOCL Record trade growth from Asia and China’s

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

Introducing OOCLIntroducing OOCL

Hong Kong’s 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

TRANS-PACIFIC TRANS-PACIFIC 18 million TEU18 million TEU

10.4 % Growth10.4 % Growth

ASIA-EUROPE ASIA-EUROPE 12.2 million TEU12.2 million TEU

10.9% Growth10.9% Growth

TRANS-ATLANTIC TRANS-ATLANTIC 5.4 million TEU5.4 million TEU

5.3% Growth5.3% Growth

INTRA-ASIA INTRA-ASIA 33 million TEU33 million TEU(including Australia, (including Australia,

Indian Subcontinent and Indian Subcontinent and Middle East)Middle East)

12 % Growth12 % Growth Source: Drewry Consultants, 2005

OTHER TRADESOTHER TRADES

North-South North-South 19.2 million TEU19.2 million TEU

Intra-RegionalIntra-Regional16.1 million TEU16.1 million TEU

World Container Flow 2005World Container Flow 2005

China’s Share of U.S. Import VolumeChina’s Share of U.S. Import Volume

China15%

Other85%

China26%

Other74%

Source: PIERS Trade Horizons

1995

2000

2005

China38%

Other62%

1995

2005

2000

Source: PIERS Trade Horizons

China’s Share of Trans-Pacific ImportsChina’s Share of Trans-Pacific Imports

China50%

Other50%

China31%

Other69%

China66%

Other34%

China’s apparel & footwear trendChina’s apparel & footwear trend

Growth RoW-US growth 20052003 2005 2002-05 2005 y/y - excluding China

Clothing 11.7% 26.6% 46.7% 71.9% -0.5%Footwear 84.1% 86.0% 3.4% 3.9% -4.1%Machinery 29.0% 37.4% 21.4% 15.6% 11.7%Electronics 48.2% 55.1% 12.7% 10.2% 4.5%Auto 6.7% 14.8% 41.3% -0.6% 4.1%Optronics 38.3% 50.3% 19.2% 9.2% -21.1%Furniture 64.6% 71.4% 17.4% 13.7% 4.2%Toys 86.7% 90.4% 6.1% 1.0% -3.4%Total 40.4% 45.9% 15.9% 11.5% 4.9%

China market share China-US growth p.a.

Source: US Census Bureau

Major Port Throughput Major Port Throughput

Source: Drewry Shipping Consultants Ltd (figures include empties and transshipment)

Major Port Throughput 1-3Q 2005(m Teus)

17.3 16.8

13.211.7

10.4

4.53.7 3.6 3.5 3.1 2.5

1.4

0

2

4

6

8

10

12

14

16

18

20

Singap

ore

Hong K

ong

Shanghai

Shenzh

en

LA/LB

Qingd

ao

Ningbo

New Y

ork/N

J

Tianjin

Guangzh

ou

Xiam

en

Savan

nah

2002 2003 2004 2005 02-05 2005 VS '04

Growth

LA/LB 10.63 11.84 13.10 14.85 11.7% 13.3%NY/NJ 3.75 4.07 4.48 4.80 8.6% 7.1%SEA/TAC 2.91 3.22 3.57 4.00 11.2% 12.0%OAK 1.71 1.92 2.04 2.08 9.3% 2.0%CHS 1.59 1.69 1.72 1.97 7.4% 14.5%SAV 1.33 1.52 1.66 1.90 12.6% 14.5%HOU 1.15 1.24 1.32 1.65 11.9% 25.0%

Volume Growth (m Teu)Volume Growth (m Teu)

Source: Ports (Dec est.)

Projected Growth (POLA/POLB)Projected Growth (POLA/POLB)

5.4

9.5 10.6 11.8

16.7

35

0

5

10

15

20

25

30

35

1995 2000 2002 2003 2010 2020

(in Million TEUs)

Source: Marine Exchange of Southern California

2004 California Crisis2004 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

2004 Labor Shortage2004 Labor Shortage

Vessel Gang Demand Worked vs Ordered (Day)

020406080

100120140160180200

OrderedWorked

Source: www.pmanet.org

No. of In-Service Cranes

Shipping LandscapeShipping 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 Here’s how:

US Ports Lag International Productivity:

Throughput (Teu) per gross acre:East Coast /Gulf 4,100West Coast 4,600Major world ports 10,000 to 15,000

2006 Port Congestion: Beyond 20062006 Port Congestion: Beyond 2006

Port Terminal Capacity ConstraintPort Terminal Capacity Constraint

Million TEUSource: SSA

Port Terminal Capacity ConstraintPort Terminal Capacity Constraint

Million TEUSource: SSA

Cross Industry Collaboration: Cross Industry Collaboration: Ocean Carrier and Terminal ActionOcean Carrier and Terminal Action

More labor, high capacity cranes and terminal equipment (resources)

Convert from wheeled to grounded operations: increase terminal capacity (space)

Extend Terminal’s Hours of Service “Pier-Pass” appointment system to increase capacity (time) Implemented on July 23, 2005Over 30% of daily cargo moves during off-

peak1 Million container milestone December 2005

Cross Industry Collaboration: Cross Industry Collaboration: Ocean Carrier and Terminal ActionOcean 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)

Cargo InterestCargo 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

Value per kg of shipmentValue per kg of shipment

Source: US Census Bureau

China-US freight(US$/kg)2002 2004 2005

Clothing 14.4 12.4 11.5Footwear 7.2 7.6 8.2Machinery 6.6 7.8 8.1Electronics 7.0 7.3 7.8Auto 2.5 2.4 2.5Optronics 11.6 11.1 10.9Furniture 2.3 2.4 2.5Toys 4.8 4.7 5.2Total 5.2 5.4 5.8

Increased Cost of Liner ShippingIncreased 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

TSA Revenue Index TrendingTSA Revenue Index Trending

Future Outlook & TrendsFuture 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 >700 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’

Future Outlook and TrendsFuture Outlook and Trends

Economy of Scale & Asset Utilization More and larger container vessels More and larger consortia of carriers More mergers and Acquisitions Don’t 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