Roberts Bank Terminal 2 container vessel call forecast study

Transcription

1 Roberts Bank Terminal container vessel call forecast study November 0, 08

2 Contents. Introduction Objective.. Report structure.3. Executive summary. Industry events and trends and impacts on PNW vessel services. 9.. Major industry events and trends.. Restructuring of carrier alliances and vessel sharing agreements.3. Vessel upsizing in east-west trades and smaller vessels in minor trades.4. Expansion of the Panama Canal locks and resulting volume share shifts.5. Changes in US and Canadian rail line operations.6. New container vessel technology and evolving ship designs 3. Infrastructure assessment of container terminals in the PNW Prince Rupert 3.. Port of Vancouver 3.3. Port of Seattle (NWSA) 3.4. Port of Tacoma (NWSA) 3.5. Capacity assessments of terminals 3.6. Vessel service capacity assessments of terminals 4. Vessel deployments to/from the PNW coastal zone Overview 4.. Synopses of Asian services by design 4.3. West Coast port rotation sequences for Asian services 4.4. Port competition frameworks 4.5. Competitiveness for Asian imports to key inland regions 4.6. West Coast port rotation sequences for Non-Asian services 5. Forecast aggregate head-haul volumes for the PNW Overview and methodology 5.. Baseline fleet forecast schedule 5.3. Share of imports via Vancouver 5.4. PNW import volume by ship-service routes and port 5.5. Volume forecast: do not build RBT scenario 5.6. PNW import volume by ship-service route and by port 6. Specific carrier deployments for near-term forecasting Overview 6.. Projections of PNW vessel services for Projections of PNW vessel services for Projections of PNW vessel services for 00 and 05: Asia Eastbound 6.5. Projections of PNW vessel services for 00 and 05: Other lanes 7. Projection of long-term vessel deployments Overview 7.. Vessel deployment baseline 7.3. Projection of long-term vessel deployment Appendix A Maximum ship size capabilities of container NWSA terminals A.. Port of Seattle A.. Port of Tacoma

3 . Introduction.. Objective.. Report structure.3. Executive summary 3

4 Introduction Located on the southwest coast of British Columbia (BC) in Canada, the Port of Vancouver extends from Roberts Bank and the Fraser River up to and including Burrard Inlet. The Port of Vancouver is Canada s largest port and supports trade with more than 70 economies around the world. More than 90% of the port s total volume serves Canadian import and export markets across a diversified range of cargoes. The Port of Vancouver offers ship line a choice of four common-user container terminals. The Port is also linked with Central/Eastern Canada, the US Midwest, and selected South-Central US states by transcontinental main lines of the Canadian National (CN) and Canadian Pacific (CP) railways. Continued growth of Asian imports moving to local markets and to interior US and Canadian rail-served markets, supported by exports from BC to the world, will continue to drive volume growth through the port. Due to the projected increase in container traffic, the Vancouver Fraser Port Authority (VFPA) is in the process of developing the Roberts Bank Terminal (RBT). With a planned annual capacity of.4 million TEUs, RBT has the potential to attract new business and position the Port of Vancouver to better satisfy increased market demand. VFPA seeks to obtain a forecast of the numbers and sizes of containership deployments that will likely make scheduled port calls in the Pacific Northwest (PNW) region, specifically at: the ports of Vancouver, Prince Rupert, and the Seattle Tacoma complex, the latter also known as the Northwest Seaport Alliance (NWSA). Objective Mercator International (Mercator) has been retained to provide a container vessel call forecast for the RBT project. This report presents a forecast for the period of 08 to035 analyzing twoscenarios: (i) Build RBT (ii) Do not build RBT Report structure In addition to the Executive Summary presented in the subsequent slides, this report is structured according to the following sections: Section. Industry events and their impacts on PNW vessel services Section 3. Infrastructure assessment of container terminals in the PNW Section 4. Vessel deployments to/from the PNW coastal zone Section 5. Forecast of aggregate head-haul volumes for the PNW Section 6. Specific carrier deployments for near-term forecasting Section 7. Projection of long-term vessel deployments Study area ports with container terminals in the Pacific Northwest Prince Rupert Port of Vancouver Port of Seattle (NWSA) Port of Tacoma (NWSA) 4

5 Executive summary Background and geographical/analytical framework The number of separate vessel deployments operated to and from a port (or group of proximate ports) is the sum of the number of deployments running in each distinct trade lane corridor linking that port with key offshore regions. Given the geographic location within North America of the PNW region, there are only three distinct offshore regions that are linked directly with Vancouver and the rest of the PNW by dedicated vessel deployments: Northeast/Southeast Asia, which accounts for nearly 94% of PNW international port traffic Europe, which accounts for about 5% of PNW international traffic, and Australia/New Zealand (ANZ), contributing the remainder [PNW traffic to and from Latin America is transported on the vessel deployments that link the PNW region with Europe, and these Latin American containers are relayed in Caribbean Basin/Panamanian ports to and from other vessel services these volumes are counted already in the 5% portion for Europe. There are no direct vessel services between the PNW and Africa or South America.] All of the international vessel deployments that containership lines operate to serve the PNW region are designed primarily to handle the traffic flows to/from one of these three regions listed above. In particular, there are presently three separate, weekly-frequency deployments running between Europe and the PNW region, via the Caribbean Basin, the Panama Canal, and California and there is just one service between Australia/New Zealand and the PNW region, with bi-weekly frequency (and which also calls in California ports). Conversely, there are currently ten weekly-frequency deployments that are designed to transport Asia-origin containers to Vancouver and the Puget Sound ports, along with two services that call Vancouver, but not Seattle or Tacoma [all twelve of these services are collectively referred to as Asia Salish Sea Asia deployments]. There are also two other weekly-frequency deployments that are primarily designed to transport Asia-origin containers to ports in California but which stop first after sailing eastbound from Northeast Asia to make short, intermediate calls at Prince Rupert, and thus are carrying containers that would otherwise be carried by dedicated Asia PNW services. Thus, to address VFPA s mandate for this study, Mercator is attempting to forecast how many separate vessel deployments are likely to be operated in each of four separate timeframes (00, 05, 030 and 035) in each of four distinct service-types (Asia Salish Sea, Asia Prince Rupert/California, Europe PNW/California, and ANZ PNW/California) and what average sizes of ships are likely to be used in each forecasted deployment. 5

6 Executive summary Key factors for consideration and analysis In order to project the number of separate vessel deployments likely to be operated within a particular trade lane corridor in the future (whether it is the Asia, Europe, or ANZ corridor), Mercator needed to take into account a number of key factors for this assignment, including: The current number of services and the average ships sizes of those services The average weekly volume of container traffic flow in the head-haul direction for the Asia trade lane, the inbound, import direction is the head-haul to the region and the expected growth rate in that volume, utilizing and adapting the most recent forecast study, Container Traffic Study: Port of Vancouver, 06, produced for VFPA by Ocean Shipping Consultants (OCS). Note that the number of vessel deployments likely to call the port of Vancouver is not a function of the head-haul volume of containers destined only to Vancouver, but to Vancouver plus the other PNW ports (for Asian services) or to Vancouver, other PNW ports, and California ports (for European and ANZ services). The number of separate ocean carriers and composition of vessel sharing alliances that are currently serving the trade, and how these might evolve in the future, considering the changing structure of the liner shipping industry The relative concentration or fragmentation of market share among the carriers serving the trade The number of ports and port regions in the offshore region that require (for commercial reasons) direct (non-relay) service Harbor/terminal/rail infrastructure constraints for the ports in the region that might limit the sizes of ships that can access those ports The amount of terminal capacity available in Vancouver, based on whether the RBT facility is built or not The number of ships required to operate a commercially competitive deployment with a weekly frequency The importance of the trade lane corridor to an ocean carrier, relative to the other trade lanes that the carrier serves The composition of the ocean carrier s fleet of ships An underlying force that has been driving the number of deployments in a trade lane corridor for more than 40 years, and continues to drive aggregate sailing frequency levels in every corridor, is the ongoing pursuit by ship line executives to enhance the competitive cost position of their respective ocean carriers by achieving economies of scale through the use of the largest ships that can be reliably and effectively utilized in each deployment in the carrier s network. This ongoing pursuit of scale economies through the assignment of largest-feasible ships to deployments has led to (and will continue to result in) the consistent presence of vessel sharing agreements in most trade lane corridors and in periodic waves of mergers and acquisitions of ocean carriers. 6

7 Executive summary Other significant assumptions utilized In constructing our forecasts of the numbers and ship sizes of deployments for each corridor, Mercator employed several assumptions that should be noted here: The Canadian Class I railway companies will maintain their major cost and transit advantages over the Burlington Northern Santa Fe (BNSF) and Union Pacific (UP) for transporting containers from BC ports to Chicago (and other major US Midwest markets) versus from US West Coast ports to those same Midwest markets, across the forecast period. Once the current Centerm Expansion Project is completed in 0, the footprints, berth lengths, and terminal capacities of Vanterm, Centerm, and Deltaport will remain essentially unchanged through the forecast period to 035. There will be enough suitable berths and terminal capacities in Seattle and Tacoma after 00 and through 035 to handle the numbers and sizes of vessel deployments forecasted to call in the Puget Sound. In other words, no Puget Sound port calls for forecasted vessel deployments to/from the PNW region will need to be cancelled (with corollary volumes channeled through Vancouver) due to terminal infrastructure constraints in these two Washington State ports. The vessel sharing agreements currently in place in all three corridors will continue to operate through 05, with relatively few changes in the carrier composition of each agreement. By 030, the liner shipping industry will be dominated by seven to eight very large global carriers, six of which will be supported directly or indirectly by the government of their headquarters country (specifically, China, Japan, Korea, Taiwan, Germany and Denmark) and one or two of which will be privately-owned, family-controlled carriers. In the Asia PNW corridor, most of these seven to eight global carriers will be operating in one of three vessel sharing agreements, with at least one such global carrier operating independently, and there will continue to be one or two niche carriers serving this trade. 7

8 Executive summary Principal conclusions Mercator projects that if RBT is built, there will likely be Asia Salish Sea deployments operated in 035 that will call at Vancouver. Seven of the are predicted to call in the Roberts Bank precinct of the port complex. Four of the are predicted to call in the Burrard Inlet precinct, and of the in the Fraser River precinct. Two of the would utilize ships with less than 5,000 TEUs of capacity, while eight of the would be operated with ships that have 0,000 TEUs or more of capacity (and six of those would be using ships of 3,000 TEUs or more of capacity). There would also likely be European services, both of approximately 3,000 TEU scale and both calling in the Roberts Bank precinct, along with ANZ service that would likely need to use one of the Burrard Inlet terminals Mercator projects that the nine vessel services using the Roberts Bank precinct would generate approximately 4.36 million TEUs in 035, accounting for about 70% of Vancouver s total port throughput, and thus the terminals there would operate at about 9% capacity utilization. In this scenario, we also project that the five vessel services using the Burrard Inlet precinct would generate roughly.737 million TEUs in 035, accounting for about 8% of total port throughput, and resulting in aggregate capacity utilization for this precinct of about 74%. Should RBT not be operational before 035, Mercator projects that there will still be the same number of services (5) and trade lane distribution of those services ( for Asia, two for Europe, one for ANZ) as in the first scenario, but with several differences: Five of the Asia Salish Sea services would call in the Roberts Bank precinct, and an equivalent number would call in the Burrard Inlet precinct (with two niche services calling in the River precinct). The five Asian services and two European services in the Roberts Bank precinct would be expected to generate.94 million TEUs in 035, amounting to roughly 47% of total port throughput. The five Asian services and one ANZ service in the Burrard Inlet precinct would be expected to generate. million TEUs, equivalent to roughly another 47% of total port throughput. Several deployments would use smaller ships than would have been assigned in the first scenario, and average consignment sizes for all of the Asian services would be lower, reflecting diversions of Asia intermodal volumes away from the Vancouver gateway to the Prince Rupert and Southern California port gateways. Thus, if RBT is not built, Mercator projects that there will not be a reduction in the number of separate vessel deployments that will likely call Vancouver in 035 (and in 030), but average ship sizes will be smaller this absence of a reduction is because of: The expected number of carriers and alliances in the Asia PNW corridor, coupled with the size/importance of the local Vancouver market and carriers desires to provide direct links to that market from SE Asia, the Pearl River Delta, the Yangtze Delta, and Busan The relatively low incremental cost for an Asia PNW deployment to call in both Vancouver and the Puget Sound The consignments for the European and ANZ services being unaffected by Vancouver s terminal development 8

9 . Industry events and trends and their impacts on PNW vessel services.. Major industry events and trends.. Restructuring of carrier alliances and vessel sharing agreements.3. Vessel upsizing in east-west trades and smaller vessels in minor trades.4. Expansion of the Panama Canal locks and resulting volume share shifts.5. Changes in US and Canadian rail line operations.6. New container vessel technology and evolving ship designs 9

10 Identification of near-term industry events and trends that could impact PNW vessel services Overview The global container shipping industry continues to experience major changes that could have potential impacts in the near-term on North American ports, and some of these developments will also affect the sizes and numbers of vessel services calling the Port of Vancouver. The diagrams below outline the major industry events in the boxes to the left, along with their potential impacts in the boxes to the right. Major industry events and trends Consolidation of ocean carriers Delivery of high capacity vessels Opening of new Panama Canal locks Development of ULCS-capable terminals* potential impacts potential impacts potential impacts potential impacts Specific ports and terminals could experience increased levels of concentration of container volumes. Acquired carriers volumes could shift to other terminals being called by the acquiring carriers. Further concentration of volumes could occur on fewer, larger vessels and in fewer ports. Deliveries of 8,000-0,000+ TEU ships into the Asia North Europe trade will result in cascading ships of 0,000-5,000 TEU capacity into Asia North America trades over the next several years. Ocean carriers are expected to continue increasing vessel service capacities on the Asia - US East Coast route through the Panama Canal, and use all-water container routings to greater extent. Some North American terminals will be forced to enhance their infrastructure, with large investments required to handle ultra-large container ships (ULCS) or Mega-Max/Malaccamax (MMX) ships of 5,000-,000 TEU scale. Volumes will further concentrate, as these terminals will be highly incented to maximize throughput to reduce operating expenses per unit, and could price their services aggressively. *see table on page 44 for explanation of ship-size terminology Potential impacts of particular relevance to Asia - PNW vessel services Higher capacity vessels in Asia trades Consolidation of ocean carriers potential impacts A higher percentage of Asia PNW services are likely to be operated with ships of 0,000 4,000 TEU capacity over the next five to 0 years. Fewer alliances and carriers makes it easier to consolidate deployments and use larger ships. Changes in North American port calls potential impacts Due to water depth constraints, Portland has ceased to be called by Asia PNW vessel services. Carriers have changed the sequence of port calls on Asian services within the PNW region in recent years to facilitate routing more intermodal containers via the BC ports, rather than Seattle and Tacoma. 0

11 Restructuring of carrier alliances and vessel sharing agreements Consolidation of major ocean carriers From 05 to the second half of 07, the container carrier industry consolidated as a result of merger and acquisition (M&A) activity and the bankruptcy of Hanjin in August 06, contracting from 6 global carriers to. From 07 to 08, the global carrier count contracted further to nine, following COSCO s purchase of OOCL, and the replacement of MOL, NYK, and K Line by the Ocean Network Express (ONE) alliance. During this time, Maersk also acquired Hamburg Sud. After this further round of consolidation and the latest configuration of the carrier alliances, the survivors as of 3Q8 now enjoy substantial economies of scale and increased market power over the smaller players in competing trades. Changes in carrier alliance structure 05 to 3Q H07 3Q08 M + H M + H M Maersk MSC Ocean 3 CMA CGM CSCL UASC Hamburg Sud CKYH+E COSCO K Line YangMing Evergreen G6 APL Hapag-Lloyd Hyundai MOL NYK OOCL Maersk MSC Hyundai Hamburg Sud Ocean Alliance CMA CGM/ APL COSCO/CSCL Evergreen OOCL THE Alliance Hapag-Lloyd/UASC K Line MOL NYK YangMing Maersk MSC Hyundai Ocean Alliance CMA CGM/ APL COSCO/CSCL Evergreen OOCL THE Alliance Hapag-Lloyd/UASC ONE YangMing M&A activity included: Hamburg Sud acquired by Maersk APL and Mercosul acquired by CMA CGM OOCL and China Shipping acquired by COSCO UASC acquired by Hapag-Lloyd

12 Weekly capacity (TEU) Restructuring of carrier alliances and vessel sharing agreements Concentration of capacity shares by alliance and carrier Presently, three major alliances dominate the Far East West Coast North America (WCNA) trade lane in terms of weekly TEU capacity: Ocean, Transport High Efficiency Alliance (THE), and M+H, with the Ocean Alliance being the largest. There is also an agreement between COSCO (one of the Ocean Alliance members), Wan Hai, and PIL, but this is considered to be a separate vessel sharing arrangement from the Ocean Alliance. The three alliances operating in this lane have the largest ships deployed, whereas a few independent carriers use smaller vessels. Recent restructuring of alliances is having corollary impacts, including: After a brief slowdown in vessel ordering in 07, order placement, especially of ULCS ships, is more robust this year. Over-capacity in the major east-west trades persists, resulting in cost-control strategies, such as slow steaming, continuing to be prevalent. Carriers have been unsuccessful in negotiating higher freight rates in the major trade lanes, and thus, earnings in 08 are forecasted to be depressed. The continued ordering of large vessels is putting pressure on marine terminals and port authorities to make costly investments to enhance their physical infrastructures and operating capabilities. Formation of the ONE joint venture appears to have strengthened the commitment of NYK and MOL to the K Line terminal in Tacoma. Weekly capacity by alliance: Asia-WCNA trade Weekly capacity shares for Asia WCNA trade 00,000 95,855 Ocean % 80,000 75,094 THE Alliance 4% 4% 60,000 40,000 0,000 43,463 8,8,99 0,605 4,705 M HMM Cosco, Wan Hai, PIL (CMA CGM, APL) 7% 7% 37% 0 Ocean THE Alliance M HMM Cosco, Wan Hai, PIL (CMA CGM, APL) SM Line Zim Source: Developed by Mercator with data from Alphaliner, August 08. SM Line Zim 9% Source: Developed by Mercator with data from Alphaliner, August 08.

13 Vessel upsizing in the East-West trade and cascading of smaller vessels to minor trades Impacts of liner industry consolidation on operational capacity and vessels on order As of 3Q8, the four mega-carriers (APM-Maersk, MSC, COSCO, and CMA CGM) control 65% of the vessel fleet capacities of the world s largest lines. The next three largest global lines (ONE, Hapag-Lloyd, and Evergreen) control 3% equivalent to 4.9 million TEUs. Top carriers ranking by operated capacity in TEU (active + on order 3Q8) APM Maersk 4. MSC 3.6 COSCO CMA CGM % The eighth- and ninth-largest lines (Yang Ming and Hyundai Merchant Marine - HMM) are more than 40% smaller than the seventh (Evergreen) in terms of TEU capacity. ONE Hapag Lloyd Evergreen % This scale dichotomy, coupled with consolidation of carriers in China and Japan, is likely causing the Taiwanese government to consider engineering the absorption of Yang Ming by Evergreen and possibly supporting an Evergreen/Wan Hai merger. Yang Ming HMM PIL % As the chart to the right indicates, if Yang Ming is merged with Evergreen, it would have a scale much larger than ONE. Although there are clearly political and legal hurdles, the likelihood for this transaction taking place within the next few years is high. Similarly, SM Line and other Korean lines are potential targets for an acquisition by HMM to gain operational capacity/scale and be more competitive with the top carriers. Scale dichotomies among the four mega-carriers and the rest are also visible when analyzing the number of vessels onorder. Though ONE, Evergreen, and Yang Ming have ordered vessels, they are primarily comparatively modest in scale. Overall, the following trends will be predominant going forward: Industry leaders ordering the largest scale ships will increasingly continue to pull further away from the smaller carriers in terms of operational capacity. Any carrier with under one million TEUs of capacity will have a notable scale disadvantage competing with the mega-carriers. Zim 0.4 Million TEUs Evergreen + YM Container vessels on order and capacity by carrier and vessel size (3Q8) Carriers 8,000 5,00 7,999,500 5,099 0,000,499 Source: Developed by Mercator with data from Alphaliner, August, On order 7,500 9,999 <7,500 Total TEU Maersk ,008 MSC ,05 COSCO ,69 CMA ,054 Hapag ONE ,740 Evergreen ,584 YML ,450 ZIM HMM ,000 3

14 Delivery year Vessel upsizing in the East-West trade and cascading of smaller vessels to minor trades Prospects for further concentration beyond 08 The numbers and sizes of new vessel orders are primarily driven by competitive dynamics among top carriers and infrastructure constraints in key origindestination ports on each trades. Vessels with capacities between 0,000 and 4,999 TEUs started to enter containership fleets in 006 and peaked in 0, making up 49% of the deliveries for that year. After 05, the delivery of vessels surpassing the 5,000 TEUs started replacing vessels in the 5,00 9,999 TEU range. Deliveries of vessels in this smaller range are expected to sharply diminish after 08, increasingly being replaced by vessels of 5,000 TEUs and above. Containership deliveries by size, (net of scrapping) <5,00 5,00-9,999 0,000-4,999 >5, % 33% 9% 0% 0 0 5% 4% 36% 6% 49% 49% 0% % 03 6% 36% 30% 8% 04 5% 7% 4% 6% 05 % 33% 5% 3% F 09F 00F % 3% 8% 7% 8% 0% 9% 4% 6% 43% 0% 4% % 8% 35% 7% 38% 4% 54% 57% 0% 0% 40% 60% 80% 00% Source: Alphaliner, August, 08. The very largest vessels have typically been deployed on trades between East Asia and Europe due to the size and configuration of that trade. Most of the vessels with a capacity of 0,000 TEUs or greater were originally intended to be deployed in services between Europe and Asia. However, vessels over 8,000 TEUs are increasing their share in this market and are now becoming the norm. As a consequence, a number of 8,000 to 3,000 TEU ships have been cascaded into North American and Latin American trades, calling ports that can accommodate them, driven primarily by two fundamental reasons: The slowdown in Europe - Asia trade growth since 009 pushed ocean carriers to further pursue economies of scale, accelerating purchases of 3,000 TEU and larger vessels for this trade. Previous infrastructure constraints were eliminated or mitigated such as the old Panama Canal locks, the previously lower height of the Bayonne Bridge at the Port of New York/New Jersey (NY/NJ), and water depths less than -5 m in some ports. Consistent with the cyclical nature of the container shipping industry, January 08 was a record month for new vessel deliveries, as carriers continue to order bigger ships. New, larger tonnage is expected to be introduced on the main arterial trade lanes of Asia - Europe and Asia - North America, with existing tonnage cascading onto secondary trade lanes increasing the average size of vessels deployed across all the main trade routes. 4

15 Slot cost - US$ / TEU Vessel upsizing in East-West trade lanes and cascading of smaller vessels to minor trades Economies of scale In the search for economies of scale, it is a prevailing pattern of ocean carriers to constantly assign the largest ships they can effectively utilize in each trade lane covered by their respective service networks. This quest for economies of scale is the ultimate driver of the vessel upsizing and cascading trends. Operating slot costs and savings by vessel capacity scale $450 North China-US West Coast service with each service using six ships $ % $3-3.7% $0 $350 This pattern has been exhibited by the liner shipping industry over the last three decades primarily for the following reasons: $300 $50 Given that capital and fuel account for the large majority of operating costs of ships, a larger ship will have a lower operating cost/teu than a smaller one, offering an economic incentive to the ship owner favoring the use of larger vessels. $00 $50 $00 $44 $39 $33 Ocean carriers have unilateral control over the sizes of ships they assign to their respective vessel services, but have relatively less control over other major components of their operating costs, such as the costs of rail transportation, trucking, and moving containers through marine terminals. $50 $0 6,500 8,500 3,500 Vessel capacity in TEUs Hence, upsizing ships in deployments and reducing the numbers of separate liner services in a given trade lane by sharing those services has become a prevalent response by carrier management to mitigate static or declining rates and earnings. Subsidization of ship yards and M&A of ocean carriers have further stimulated this pattern. M&A activity and participation in carrier alliances also are drivers of the pursuit of economies of scale (and vice versa). As illustrated in the example above, the economies of scale that can be obtained for a liner service running between North China and the US West Coast can be very significant. Cost savings start becoming noticeable by upsizing the ships in the deployment from the 6,500 TEU scale to 8,500 TEUs with a -7.5% reduction in the cost per slot. Upsizing the ships in the deployment from the 6,500 TEUs to 3,500 TEUs can save up to 3.7% per slot. 5

16 Compound annual growth rate Vessel upsizing in East-West trade lanes and cascading of smaller vessels to minor trades Key drivers fleet capacity growth of industry leaders Fleet expansion is being influenced by carriers vessel upsizing and vessel cascading strategies and keen desire to achieve economies of scale and subsequent cost savings. Even without acquisitions of other carriers, the four mega-carriers - Maersk, MSC, COSCO, and CMA CGM - expanded their fleets more aggressively than most of their peers over the past ten years as shown in the graph. Over this same period, carriers deployed increasingly larger vessels in the east-west trades between ports with the physical infrastructure, water depth and operating capabilities that can accommodate these mega-vessels. The four mega-carriers will continue to drive the upsizing of Far East WCNA and Far East East Coast North America (ECNA) services. Fleet capacity compounded annual growth rates by carrier, % 0.0% 8.0% 6.0% 4.0%.0%.% 5.8% 8.% 0.0% 0.9% 7.6% The cascading of larger ships from the major trade lanes to minor trades (i.e., north-south and interregional trades) has taken place as well as the transfer of mid-size vessels to other services calling at minor ports within the east-west lanes. To remain competitive, carriers will likely cascade the majority of vessels under,000 TEUs from east-west trade lanes to minor trades over time. Mercator expects that the four mega-carriers will likely grow their fleets at a more rapid rate than the industry overall and faster than market growth over the next ten years. 0.0% NAM Port Thruput Global Capacity MSK MSC CMA COSCO Source: Developed by Mercator with data from Alphaliner, August, 08. 6

17 Number of services Service / ship counts Vessel upsizing in East-West trade lanes and cascading of smaller vessels to minor trades Key drivers cascading of ships from larger trades As mentioned previously, the largest ships are typically being deployed in the Asia North Europe trades. Deployment of large vessels in this trade has resulted in a cascading effect on other trades where smaller vessels are being displaced. The following bar charts indicate how the number of Asia North Europe deployments using ships greater than 6,000 TEUs in size will increase from seven to eleven over the next two years, while the number of services of,500 to 4,000 TEU scale will contract from seven to four. Current size distribution of Asia North Europe services Q08 Projected size distribution of Asia North Europe services 00 M OCEAN THE HMM M OCEAN THE HMM 0 0 The M carriers are expected to upsize one service with new 0,000+ TEU ships and cascade or more ships to other lanes < > < >6000 Scale Range (TEU) Scale Range (TEU) Presently, 9 separate vessel deployments are being operated between the Far East and North Europe, six of which use ships with capacities in excess of 8,000 TEUs. The M Alliance has a clear scale advantage here, with five services using ships greater than 6,000 TEU capacity, versus only one apiece for the Ocean Alliance and THE Alliance. Over the next two years, we expect the Ocean Alliance to deploy 3 or more 0,000+ TEU ships now under construction into the Asia North Europe trade. This will upsize three of their vessel services in this lane and cascade 3 or more Neo-Panamax (NPX) ships to other trades, some of which will come to the Far East WCNA lanes. 7

18 Vessel Capacity Expansion of the Panama Canal locks and resulting volume share shifts Impacts on Asia PNW vessel services Prior to the opening of the larger locks at the Panama Canal in June 06, the Canal could only transit container ships with capacities of up to about 5,000 TEUs. Currently, the new locks can accommodate vessels in the range of 3,000 to 4,000 TEUs. The ability for higher-capacity vessels to transit the new Panama Canal locks has had the greatest impact on all-water services between Asia and the US East Coast (USEC), such that there is now only one Asia Panama USEC deployment being operated with ships of 5,000 TEU scale, as compared to during the first quarter of 06. All-water Asia - ECNA 40 roundtrip slot cost comparison Panama Canal expansion 3000 $,405 $ $,50 $ $,670 $ $,05 $0 $500 $,000 $,500 $,000 $,500 Roundtrip 40' Slot Cost - $400 per ton Source: Autoridad del Canal de Panama, 06. As the chart above indicates, the use of larger ships on this route has significantly lowered the ocean transport cost for the carriers, enabling them to route Asian containers into various inland markets (such as Columbus and Atlanta) via East Coast ports more cost-competitively than via West Coast ports. However, to date, the loss of share by Pacific Coast ports to Atlantic Coast ports, following the opening of the larger locks, has been modest, without enough volume diversions yet to cause a reduction in the number or scale of Asia PNW services being operated. 8

19 US and Canadian rail line operations and routes Comparative inland rail access among West Coast gateway port regions As the schematic diagram below indicates, neither the NWSA ports nor the San Pedro Bay (SPB) ports of Los Angeles and Long Beach are competitive gateways to Central or Eastern Canada, because neither the UP nor BNSF railways have their own rail lines to those inland Canadian regions. Thus, the BC ports have a duopolistic position for Asian import containers to Central/Eastern Canada. Conversely, neither Canadian National (CN) nor Canadian Pacific (CP) has its own rail lines from the BC ports into the major cities of the Northeast or Southeast US states, so Asian imports routed over West Coast ports and destined to those states need to be routed through NWSA and/or SPB ports. Because CN and CP each has a route from one or both BC ports across the prairie provinces to Chicago and selected other US Midwest points, Asian container traffic destined to those Midwest markets is strongly contested among these three gateway port regions. CN s route into Chicago also extends to Memphis, New Orleans, and Mobile, which enables the BC ports to compete with the NWSA and SPB ports for Asian traffic into selected South Central and Gulf Coast states. Key inter-regional Class I rail routes for Asia imports CN CP Central Canada CN CP Ontario CN CP Quebec CN CP CN CSXT CSXT BNSF NS NS UP Midwest CSXT Ohio Valley CSXT Northeast BNSF UP BNSF UP Gulf NS CSXT Southeast 9

20 US and Canadian rail line operations and routes Comparative advantages of CN and CP routes for Asia Midwest traffic The two Canadian Class I railways, CN and CP, have certain fundamental advantages versus the NWSA and the SPB ports: Rail network serving the BC ports of Prince Rupert and Vancouver Ships sailing from Asia can arrive at BC ports two to three days sooner than arriving at Los Angeles or Long Beach at SPB. Provided that their respective main lines and local networks are not congested, CN and CP can move eastbound intermodal trains away from the Fairview Terminal in Prince Rupert and Deltaport in Vancouver into uncongested rural areas far faster than either UP or BNSF can move their respective eastbound intermodal trains away from the terminals in either the Puget Sound or in SPB. Rail at BC ports The Prince Rupert terminal, of course, is in an relatively isolated area, and is located at the terminus of the CN main line. The Roberts Bank Rail Corridor enables trains departing Deltaport to bypass the rail networks of central Vancouver, Burnaby, New Westminster, Coquitlam, and Surrey and access the CN and CP main lines in the less congested portion of the lower Fraser River Valley. Prince Rupert CN CP Port of Vancouver Rail at NWSA ports Conversely, BNSF eastbound intermodal trains departing from on-dock or near-dock rail transfer terminals in the ports of Seattle and Tacoma have to transit on north-south oriented tracks through a congested rail network between Tacoma, Seattle, and Everett (a distance of about miles), before they can access the BN s primary east-west main line to head to Chicago. UP trains have to run south from Seattle/Tacoma to Portland (40-70 miles) to access UP s east-west main-line to Chicago. Rail at SPB ports Similarly, eastbound intermodal trains departing from on-dock or near-dock rail transfer terminals in the ports of Los Angeles and Long Beach must transit out of a congested rail network around the harbor area before they can access a grade-separate, dedicated double-track and triple-track corridor (known as the Alameda Corridor) and then still have to run through miles of densely populated urban development before exiting the greater Los Angeles metropolitan area. Rail network serving the ports of Seattle and Tacoma (NWSA) BNSF UP Port of Seattle (NWSA) Port of Tacoma (NWSA) 0

21 US and Canadian rail line operations and routes Additional advantages of CN and CP routes for Asia Midwest traffic The two Canadian Class I railways have certain other advantages versus the NWSA ports, and separately relative to SPB ports as highlighted below. Cost advantages The CN main line over the BC Coast Mountains and then again over the Canadian Rockies has more gradual ascents and descents, as well as a lower elevation at both summits, than the BNSF route from the Puget Sound over the Cascade Mountains (in western Washington) and the US Rockies, or the UP route over the Blue Mountains (in eastern Oregon) and the US Rockies. This means CN trains have lower fuel costs from the BC ports to the US Midwest. Similarly, the CN main line has more gradual ascents and descents, as well as a lower elevation at both summits than the BNSF and UP routes from SPB to Chicago. Because of rail infrastructure constraints in the Puget Sound area, BNSF and UP have to run shorter-length double-stack trains than CN or CP, giving the latter an operating cost advantage per container. Because the CN and CP incur their labor costs in less expensive Canadian dollars, but can and do charge ocean carriers in US dollars for rail intermodal services from the BC ports to the US Midwest, they have another cost advantage over the BNSF and UP. Beneficial cargo owners (BCOs) located in the US that route their Asia import containers through BC ports can avoid having to pay the US Harbor Maintenance Fee (HMF) that is levied on imports moving through US ports. This fee is levied at 0.5% of the declared value of the cargoes. For a container transporting goods worth US$80,000, the fee amounts to a US$00 penalty for routing Asia Midwest containers through NWSA or SPB terminals. All of these advantages, and those discussed on the prior page, in combination with aggressive pricing by CN and CP, have enabled the two BC ports to capture an increasing share of Asia US intermodal imports, especially since the opening of Fairview Terminal in Prince Rupert. Potential implications for future vessel deployments This development has certain ramifications for the evolution of the group of vessel deployments that are designed to transport Asian imports to the PNW region and interior regions of North America that are rail-served over PNW gateway ports. Carriers and alliances are likely to continue to operate a few vessel deployments that are mainly designed for the Asia California market segment (along with the Asia South Central/Southeast/Midwest segments), but which make a brief, intermediate eastbound call at Prince Rupert to discharge intermodal containers to the US Midwest and to East/Central Canada. Although these deployments delay the transit times by two days to California for the other Asia containers on the ships, it enables the carriers running them to lower their rail transport costs for a portion of their Asia Midwest containers. Carriers and alliances will likely have the majority of their Asia PNW deployments make first-inbound calls in one of the two BC ports, before calling NWSA ports, in order to discharge a higher portion of their Asia Midwest boxes at ports served by CN and/or CP.

22 New container vessel technology and evolving ship designs Overview Several innovations are emerging that will change the way vessels are designed and constructed, while others will improve safety, vessel-generated underwater noise levels, and commercial/operational performance. Some are being driven by regulations imposed by government entities and individual ports to mitigate the negative effects of climate change. Certain innovations, on their own or in combination with others, will likely result in fundamental changes in the industry. Several important and promising ones are described below. Compliance with LSF00. LSF00 refers to the new Low Sulfur Fuel regulations that will come into effect on January, 00. These regulations are the most significant in a series of steps by the International Maritime Organization (IMO) to reduce marine pollution in response to the threat of climate change. The LSF00 emission regulations mean ships must significantly reduce emissions on the high seas and in coastal areas. There are three methods of compliance:. Switch to using new, compliant 0.5% Low Sulfur Fuel. Though this is the simplest way to comply, it may prove to be the most expensive. Oil industry experts estimate 0.5% percent Sulfur ( Low Sulfur ) Fuel will be $50 to $50 more expensive per ton than the current 3.5% Sulfur Heavy Fuel Oil. This is estimated to increase shipping costs by approximately 0% - around $80 to $0 per TEU.. Install an Exhaust Gas Cleaning System (EGCS). An EGCS or scrubber is a desulphurization system that removes unwanted particles from exhaust gas flows in a closed-loop, open-loop or hybrid operation, enabling the carrier to continue to burn the cheaper 3.5% Sulfur Heavy Fuel Oil. Operating in open-loop mode removes the pollution from the exhaust gases and then flushes it into the sea instead of into the atmosphere. Operating in closed-loop mode retains the pollution in tanks on board the ship, which is impractical for long distance journeys. To date, these systems have only been used with cruise liners and short sea ferries, not with large container ships. There is also a risk that regulations will change in the coming years and will prohibit flushing the pollution into the sea at all. 3. Switch to Liquefied Natural Gas (LNG). Consuming clean-burning LNG would satisfy the new emission regulations, but requires special equipment and additional LNG tanks that consume cargo space and increase the cost of the ship. Also, currently there is low demand for marine LNG and so little infrastructure is available for delivering LNG fuel to ships, but this is expected to change as the fuel is more widely adopted. Power and propulsion. Power generation will substantively change, with alternative fuels such as hydrogen fuel cells, energy-saving devices, renewable energy like solar and wind, and hybrid power generation being incorporated. This is being driven by rising fuel costs and fleet overcapacity. Sensors for wireless monitoring. Sensor technologies, which have been miniaturized and have self-calibration characteristics, can reduce the need for inspection and monitoring by crew. Acquiring such data should enable shipowners to improve maintenance cycles.

23 New container vessel technology and evolving ship designs Overview Communications: the connected ship. The growth in communications from Wi-Fi to 5G connectivity will bring about the connected ship, which will allow operators to access live audio and HD and 3D video from on-board recording devices, further reducing the need for physical on-board inspection, lowering crew costs and maintenance costs. Advanced materials at the nano scale. Though metals will remain the dominant materials for ship structures, the opportunity to refine their characteristics through microscale or nano-scale manipulation will emerge. More efficient ships could be the result of using advanced high-strength steel, aluminum, glass fiber and carbon-fiber composites. Autonomous systems. Autonomous systems are finding wider application in the air and automotive sectors, and could gain more traction in the vessel industry, in combination with other technologies. Already, smaller crews than in the past are operating many classes of vessels. Norwegian company Yara has teamed with maritime technology company Kongsberg to build the world's first all-electric and autonomous container ship the Yara Birkeland (shown in the drawing) - scheduled to be launched in late 08 initially as a manned vessel before transitioning to remote operation in 09 and fully autonomous control by 00. Numerous practical and regulatory hurdles stand in the way of widespread application of autonomous vessels. Increased size. In May 08, the Journal of Commerce mentioned the recent paper by Adam Kaliszewski, chief financial officer at Baltic Container Terminals in Gdynia, Poland, in which an academic speculates that the maximum size of container ships could at some point reach 50,000 TEUs. This sheer size would present formidable engineering challenges for naval architects including designing the hull shape and strength able to withstand the hydrodynamic effects of sailing on the high seas safely and efficiently, as well adaptation of port infrastructure and landside transportation networks. Artist rendering of an autonomous zero emission vessel 3

24 New container vessel technology and evolving ship designs Implications for the fleet forecast The ship technology and design trends described in the prior slides fall into two broad categories: Those that will increase the cost of ships and ship operations and, therefore, reinforce the trend toward larger ships Those with the potential to reduce the costs of ships and shipping operations The low sulfur fuel regulations will increase the cost of fuel (or the cost of ships themselves), and therefore, encourage carriers to continue seeking cost savings through increases in ship sizes and the increases in the fuel efficiency per container-mile that result from larger ships. The introduction of new sensor and communications technology that facilitates remote or autonomous ship operations could reduce the cost of ship operations, and lead some operators to seek competitive advantage through technology, rather than through scale. For example, if the size and cost of crews to operate ships fall significantly, it may become economically and commercially more attractive to operate an increased number of smaller ships rather than fewer larger ships. Of these two broadly countervailing trends or groups of trends, the more immediate and important trend is likely to be the trend towards higher energy costs, which will continue to support the existing trend toward larger ships. Mercator does not, therefore, expect that carriers preference to operate the largest tonnage that can effectively be utilized in a given trade lane will change in a meaningful way during the roughly 0 year period covered by the fleet forecast. The potential exists for greatly increased ships sizes, carrying as much as 50,000 TEUs, but even if such ships could be designed and built, there are practical issues with implementation that are likely to make adoption slow and limit it to only the largest trade lanes and port pairs. Trade volumes would need to increase significantly in order to create the traffic density required for such ships. Service levels, as measured by transit time and frequency, would be reduced due to the longer port times required for loading and unloading and the reduction in number of sailings required to concentrate cargo on the largest ships. Most BCOs value the better and more flexible service that can be provided by more frequent sailings, creating a commercial disincentive for greatly increasing ship scale beyond current limits. The cost advantage per unit carried achieved by increasing ship size diminishes as size increases, whereas the negative landside consequences escalate. It is expected, therefore, that a practical limit to ship sizes will eventually be reached. Massive new investment in ports would be required to support such ships, making rapid adoption of these designs unlikely. 4

25 3. Infrastructure assessment of container terminals in the PNW 3.. Prince Rupert 3.. Port of Vancouver 3.3. Port of Seattle (NWSA) 3.4. Port of Tacoma (NWSA) 3.5. Capacity assessments of terminals 3.6. Vessel service capacity assessments of terminals 5

26 Infrastructure assessment of container terminals in the PNW Overview This section presents an assessment of the infrastructure of each terminal within the PNW region in order to be able to support the vessel fleet/service forecasting effort by addressing two key questions: What is the largest-sized containership that each terminal in this region can physically and efficiently handle, considering its current infrastructure and improvements that could realistically be implemented for that terminal during the forecast period? Given the dimensions/layout, acreage, operating mode, rail transfer facility, and gantry cranes for each terminal, what is its practical throughput capacity, and how many vessel services that are operated with NPX ships could it handle each week? How many services operated with post-npx ships could be handled there on a normal weekly basis? Before answering the second question above, this section will first provide high-level profiles of each of the terminals indicated on the map to the right. These profiles are sequenced by port, from north to south. Container terminals in the PNW Prince Rupert Fairview container terminal Port of Vancouver Centerm Vanterm Deltaport Port of Seattle (NWSA) T-46 T-8 T-30/5 T-5 Port of Tacoma (NWSA) PCT Evergreen WUT Hyundai Husky ITS 6

27 Infrastructure assessment of container terminals in the PNW Prince Rupert Prince Rupert s only container terminal opened in 007, following the conversion of what had been a single-berth, break-bulk facility, and is pictured below. Port of Prince Rupert: Fairview Container Terminal 7

28 Prince Rupert terminal infrastructure profile Fairview Container Terminal DPW Linear berth section of 390 m ( m) Second section of 40 m Water depth of 7.0 m STS cranes 7 cranes in total 3 x 5 wide (newer*) 4 x wide On-dock rail facility 7 working tracks providing a combined 8,000 ft to load/unload railcars 7 adjacent storage tracks with,000 ft without container handling equipment arrival/departure railroad track connecting to CN Nearly all traffic arrives/departs by rail Container yard About 45 acres including Phase A (estimated) Estimated capacity.35 million TEUs/year Fairview Container Terminal layout: existing and expansion areas Phase A 40 m Depth 7.0 m Phase A 360 m Depth 7.0 m *Only 3 of the 4 planned STS cranes (shown in green) were installed as of August m Gross terminal area: 79 acres (including Phase A) (green shade indicates expansion) The Phase A project, completed in 07, increased capacity with the construction of a second berth, the expansion of the container yard, six RTGs, and the installation of only three new STS cranes. Expansion projects The Phase B expansion, expected to begin construction in 09 and to be completed in 0, will increase annual throughput capacity to at least.8 million TEUs/year by expanding on-dock rail facilities and adding one more STS crane (for a total of eight STS cranes). The 07 No RBT diversion forecast assumed a capacity of.0 million TEUs for Prince Rupert, which appears reasonable if some further investments are made. 8

29 Infrastructure assessments of container terminals in the PNW Port of Vancouver Vancouver s four existing container terminals are located in three separate areas two within the Burrard Inlet and proximate to the Central Business District, one at Roberts Bank, and the fourth up the Fraser River, in the Municipality of Surrey. Port of Vancouver: overview of container terminals and existing surface transportation infrastructure Centerm Vanterm Fraser Surrey Docks Delta Port Roberts Bank Terminal Project Source: Adopted from Port of Vancouver Land Use Plan. 9

30 Port of Vancouver terminal infrastructure profiles Centerm DP World Linear berth section of 74 m: 646 m existing 78 m expansion (operational in 09) Water depth of 5.5 m Centerm container terminal: existing configuration and Expansion Project 08 gross terminal area: 7 acres Projected gross terminal area: 9 acres STS cranes 7 cranes in total by 09: x 3 wide 3 x wide x 9 wide x 7 wide On-dock rail facility 5 working tracks totaling 5,000 ft 4 working tracks totaling 8,000 ft New working tracks totaling 7,000 ft (operational in 09) arrival/departure track ultimately connecting to both CN and CP Container yard 40 acres (08, estimated) 55 acres (post-expansion, reported) Estimated capacity (08) About 900,000 TEUs/year Expansion project Source: Adopted from Centerm Expansion Project, VFPA Environmental Permit Report, 06. The Centerm Expansion Project, illustrated in the figure above, is expected to increase the annual capacity of the terminal from 900,000 TEUs to.5 million TEUs on or before December 3 st, 0. In addition, VFPA is pursuing a multi-year initiative with CN and CP to enhance the capacity for, and fluidity of, intermodal train movements to and from Centerm. 30

31 Port of Vancouver terminal infrastructure profiles Vanterm GCT Linear berth section of 69 m Water depth of 5.5 m STS cranes 6 cranes 4 x 4 wide* x wide On-dock rail facility 9 working tracks totaling 9,600 ft adjacent storage track of,500 ft arrival/departure track Urbanization constrains expansions Container yard 30 acres (reported) Estimated capacity About 850,000 TEUs/year Aerial view of Vanterm container terminal (July, 07) 69 m Depth: 5.5 m Gross terminal area: 76 acres Expansion plans As of March 07, GCT has made public its intentions to invest $60 million in infrastructure improvements at Vanterm; however, no details about the expansion plan have been released. * For these 4 cranes, the 4 wide across beam has been assumed, based on most recent GCT crane purchases for Deltaport, since crane specifications were not publicly available. This information was not confirmed by GCT or VFPA. 3

32 Port of Vancouver terminal infrastructure profiles Deltaport GCT Linear berth section of,00 m Water depth of 5.9 m STS cranes cranes in total: x 4 wide 6 x wide x 0 wide x 8 wide On-dock rail facility 8 working tracks totaling 8,000 ft arrival/departure track Container yard 0 acres (estimated) Estimated capacity About. million TEUs/year Aerial view of Deltaport container terminal (Jul, 07),00 m Depth: 5.9 m Rail yard Gross terminal area: 0 acres Expansion plans Completion of the ongoing rail yard densification/capacity enhancement project, expected at the end of 08, will increase capacity to about.35 million TEUs/year. 3

33 Port of Vancouver terminal infrastructure profiles Robert Banks Terminal Project (RBT) The RBT Project is a proposed new three-berth container terminal at Roberts Bank adjacent to the existing Deltaport terminal. The Project would provide.4 million TEUs per year of container capacity, if and when completed. RBT s major project elements are illustrated below. Roberts Bank Terminal Project conceptual plan view of the terminal layout Source: The Vancouver Fraser Port Authority 33

34 Port of Vancouver terminal infrastructure profiles Fraser Surrey Docks Pacific Rim Stevedoring Linear berth section of 690 m Water depth of.7 m STS cranes Aerial view of Fraser Surrey Docks container yard (Jul, 07) 690 m Depth:.7 m 4 x 3 wide On-dock rail facility working track totaling about,500 ft 4 adjacent storage tracks totaling 0,000 ft arrival/departure track that ultimately connects connected to CP, CN and BNSF Container yard 30 acres (reported) Estimated capacity About ,000 TEUs/year -- however, ship size limitations render it unsuitable for most services in the main east-west Transpacific trades Rail yard Expansion plans None made public. Fraser Surrey Docks is a multipurpose terminal with container handling capabilities; however, it is located 35 km from the mouth of the Fraser River, with an.7 m water depth, which allows it to receive ships up to only about 4,500 TEUs capacity. 34

35 Infrastructure assessments of container terminals in the PNW Port of Seattle (Northwest Seaport Alliance) There are four marine terminals dedicated for container-handling operations for international liner companies in the Port of Seattle, the names and locations of which are indicated in the aerial photograph below. The T-5 terminal was leased and operated by APL until early 04, when that carrier prematurely terminated its lease, and the facility has been vacant since then (the picture below was taken in 03). Port of Seattle: overview of container terminals /5 35

36 Rail yard Port of Seattle terminal infrastructure profiles T-8 (SSA Marine) and T-46 (TTI) T-8 (Jun, 07) Channel m,359 m Depth: 5. m Gross terminal area: 96 acres Linear berth section of,359 m Water depth of 5. m STS cranes On-dock rail yard 0 cranes in total: 6 x 4 wide x 3 wide 3 x 9 wide On-dock rail facility 4 working tracks totaling about 7,600 ft 0 adjacent storage tracks totaling 0,600 ft arrival/departure tracks connecting to BNSF and UP Container yard 0 acres (estimated) Estimated capacity About.7 million TEUs/year T-46 (Jun, 07) 700 m Depth: 5. m Gross terminal area: 8 acres Linear berth section of 700 m Water depth of 5. m To near-dock rail yard,53 m Depth: 6.8 m Gross terminal area: 86 acres STS cranes 5 cranes in total: 3 x wide x 6 wide On-dock rail facility None (near-dock only) Container yard 60 acres (estimated) Estimated capacity About 700,000 TEUs/year 36

37 Port of Seattle terminal infrastructure profiles T-5/30 (SSA Marine) and T-5 T-30/5 container terminal (May, 07) 353 m Depth: 5. m T-5 Gross terminal area: 70 acres 470 m Depth: 5. m T-30 Channel m Linear berth section of 470 m (T-30) section of 353 m (T-5) Water depth of 5. m STS cranes 6 cranes in total: 3 x 3 wide (T-30) 3 x 3 wide (T-5) On-dock rail facility Near-dock rail yard None (near dock rail yard accessed by truck only) Container yard 40 acres (estimated) Estimated capacity About 50,000 TEUs/year available for international traffic T-5 Improvements Project Preferred Alternative (currently vacant) Gross terminal area: 85 acres 883 m Depth: 5. m Linear berth section of 883 m with depth of 5. m (existing) To be deepened and strengthened under improvement project STS cranes 8 x 4 wide (planned) On-dock rail facility working tracks totaling about 7,000 ft (existing) adjacent storage tracks totaling about 54,000 ft (existing) arrival/departure tracks connecting to UP and BNSF (existing) On dock rail yard Container yard 05 acres (estimated); stacking capacity to be enhanced Estimated capacity.3 million TEUs/year, if preferred improvement project is completed Source: Adopted from Terminal 5 Improvements Project Status, NWSA, accessed August

38 Port of Seattle terminal infrastructure profiles Near-dock rail facilities Near-dock rail facilities As noted in the previous slides, only T-8 and T-5 have on-dock rail transfer facilities. Intermodal containers moving inland from or to T-46 and T30/5 are drayed by truck to or from two near-dock intermodal facilities, which are located on the photo to the right: BNSF's Seattle International Gateway (SIG) UP s Argo Yard T-8 s on-dock rail transfer facility has very limited capacity (due to being difficult to switch railcars into and out of it), so a portion of T-8 s intermodal movements are also trucked to and from SIG and Argo. As the map indicates, both the SIG and Argo facilities are bounded by dense urban neighborhoods and thus have no ability to be expanded horizontally. The characteristics of the two near-dock intermodal yards are described next. Port of Seattle terminals and near dock rail intermodal yards T-30 T-46 BNSF's Seattle International Gateway (SIG) BNSF's Seattle International Gateway (SIG) Yard 6 working tracks totaling about 8,000 ft 9 adjacent storage tracks totaling 55,000 ft arrival/departure tracks connecting to BNSF and the UP yard to the south 58 acres T-5 T-8 T-5 UP Argo Yard 5 working tracks totaling about 6,300 ft adjacent storage tracks totaling 4,000 ft arrival/departure tracks connecting to UP and BNSF s SIG yard to the north 48 acres Union Pacific Argo Yard 38

39 Infrastructure assessments of container terminals in the PNW Port of Tacoma (Northwest Seaport Alliance) Until recently, there were six container terminals in the Port of Tacoma, shown in the photo below, but one of these (West Sitcum) has been repurposed for roll-on roll-off (RoRo) and break-bulk cargoes, and for domestic container services to/from Alaska. Management of the OCT facility was recently consolidated with that of the Husky terminal, and the TOTE facility remains dedicated to that carrier s Alaskan services. Hence, there are three terminals in this port for international liner services: Husky, Washington United Terminal (WUT), and Pierce County Terminal (PCT), as illustrated below. All three are located along what is referred to as the Blair Waterway. Port of Tacoma: overview of container terminals North Intermodal Yard West Sitcum OCT Husky TOTE South Intermodal Yard WUT WUT Intermodal Yard PCT PCT Intermodal Yard 39

40 Port of Tacoma terminal infrastructure profiles Pierce County Terminal (PCT) Evergreen Linear berth section of 636 m Water depth of 5.5 m STS cranes 7 x 3 wide On-dock rail facility working tracks totaling 3,800 ft arrival/departure track connecting to BNSF and UP railroads Rail facility switched by Tacoma Rail (a city-owned short-line railroad) Container yard 80 acres (estimated) Estimated capacity About.0 million TEUs/year Vessel access Because PCT is located at the lower end of the Blair Waterway, and because of the latter s width (at its narrowest points), ships require 3 tugs to safely arrive and depart this terminal. It is unclear yet whether post-npx ships can access PCT unless no other ships are on berth in the Waterway. Aerial view of Pierce County Terminal (May, 08) On-dock rail yard Gross terminal area: 40 acres 636 m Depth: 5.5 m Gate area / storage 40

41 Rail yard Port of Tacoma terminal infrastructure profiles Washington United Terminal Hyundai Linear berth STS cranes On-dock rail facility Container yard section of 79 m Water depth of 5.5 m 6 cranes in total: x 4 wide 4 x 8 wide 4 working tracks totaling 8,600 ft 4 adjacent storage tracks totaling 6,700 ft arrival/departure track 75 acres (estimated) Estimated capacity About.0 million TEUs/year, increasing to.5 million Aerial view of Washington United Terminal (May, 08) Gross terminal area: 3 acres 79 m Depth: 5.5 m,53 m Depth: 6.8 m Gross terminal area: 385 acres On-dock rail yard 4

42 Port of Tacoma terminal infrastructure profiles Husky Terminal ITS Linear berth STS cranes On-dock rail facility Container yard section of 900 m Water depth of 5.5 m 8 cranes in total: 4 x 4 wide (4 more on order) x 8 wide x 7 wide x 6 wide 8 working tracks totaling 3,000 ft arrival/departure tracks 75 acres (estimated); about 0 acres with East Sitcum included Estimated capacity About.5 million TEUs/year with East Sitcum and planned cranes Aerial view of Husky Terminal ITS (May, 08) 900 m Depth: 5.5 m On-dock rail yard Husky current gross terminal area: 93 acres The Husky Terminal reconfiguration and expansion project is under development, and is expected to include the realignment of the terminal backlands, incorporation of certain areas now part of the East Sitcum (formerly named TCT Olympic Terminal) and the building of the Lot-F gate complex. East Sitcum (former TCT/Olympic Terminal) Gross terminal area 54 acres. 4

43 Infrastructure assessment of container terminals in the PNW Capacities To support the regional volume forecast and no RBT diversion estimates, OSC adopted certain capacity assumptions for each port. Mercator reviewed these assumptions and subdivided port capacity by terminal as shown below in order to assess the scale and number of services that each terminal could accommodate. Capacity share by port region in 08 P. Rupert Vancouver Seattle Tacoma 3% 8% % 37% Capacity: OSC capacity assumptions by port and corresponding capacity estimates by terminal Mercator estimates Port Terminal * OSC Capacity assumptions Current Future Prince Rupert Fairview DPW,350,000,000,000,350,000,000,000 Total Prince Rupert,350,000,000,000,350,000,000,000 Port of Vancouver Centerm DPW 900,000,500,000 Vanterm GCT 850, ,000 Deltaport GCT,00,000,350,000 Fraser Surrey Docks Total VFPA 3,950,000 4,700,000 4,50,000 4,700,000 Seattle (NWSA) T-8 - SSA,700,000,700,000 T-46 - TTI 700, ,000 T-30/5 - SSA 50,000 50,000 T-5 - Vacant 650,000,300,000 Total Seattle 3,300,000 3,950,000 3,350,000 3,950,000 Tacoma (NWSA) Pierce County - Evergreen,000,000,000,000 WUT - Hyundai,000,000,60,000 East Sitcum (ex Olympic) 400,000 - Husky Terminal - ITS 800,000,500,000 Total Tacoma 3,00,000 3,760,000 3,400,000 3,760,000 Total PNW International Terminals,800,000 4,40,000,350,000 4,40,000 43

44 Infrastructure assessment of container terminals in PNW Region Port and terminal parameters for vessel services by ship size Large ships with high container exchange require many cranes in order to achieve manageable lengths of port stay. The duration of port stay is typically a function of three central variables: (i) the number of containers exchanged, (ii) number of cranes and their productivity rates, and (iii) number of shifts worked per day. The following table analyzes this relationship for different services by vessel size. This analysis assumes a container exchange of 55%, typical for a first-inbound call in Vancouver or Seattle/Tacoma. Port stay versus number of cranes Ship class Mega-Max Ultra Large Neo-Panamax Large Small (MMX) (ULCS) (NPX) Post-Panamax Post-Panamax Panamax TEU Range 8-3, , ,000 9-, ,000 4,500 Containers wide <8 <=6 Required crane height (m) Effective ship capacity (TEU) 8,000 5,000,500 0,000 7,000 4,000 Utilization 90% 90% 90% 90% 90% 90% % st Call discharge / load 55% 55% 55% 55% 55% 55% Weekly TEUs 7,80 4,850,375 9,900 6,930 3,960 Weekly lifts 0,0 8,343 6,95 5,56 3,893,5 Avg. cranes / shift: basic Gross moves / hour (gmph) Number of 8-hr shifts Days ( shifts / day) Avg. cranes / shift: high Gross moves / hour (gmph) Number of 8-hr shifts Days ( shifts / day) MMX or ULCS ships worked with five cranes on day and night shifts would be in port for nearly a week. Eight or 0 cranes would not be too many to have available for a ULCS or MMX ship with container exchange in the 5-8,000 TEU range, but few terminals have sufficient cranes for that. Even with high crane counts (seven units), ULCS and MMX ships would be expected to stay in port for.8 to 3.5 days, making it difficult to schedule more than one large ship each week on a given berth, given preferred days of the week for sailings from the major Asian ports. 44

45 Maximum ship size capabilities of container terminals in the PNW Overview In order to determine the maximum ship size that can be served by a container terminal, the first necessary step is to identify the characteristics and terminal suitability criteria for the ship class categories calling or more likely to call a particular terminal in the near-future. The next table shows the ship characteristics and terminal suitability criteria for five ship classes, which range from just under the 9,000 TEU scale to the,000+ TEU scale. Ship characteristics and terminal suitability criteria Ship class Units Mega-Max (MMX/MMX-) Ultra-Large (ULCS) Neo- Panamax (NPX) Large Post-Panamax (LPPX) Post- Panamax (PPX) Vessel scale TEU 8,000-3,000 5,000-8,000 3,000-4,000 9,000 -,000 <9,000 Length overall (LOA) m Number of containers across beam Boxes Estimated height (waterline to top tier) m Required lift height above dock m Subsequently, based on the ship characteristics and terminal suitability criteria, Mercator evaluated the maximum ship size that could possibly call at each of the PNW container terminals analyzed. The next table illustrates the major findings. Maximum ship size capabilities of container terminals in the PNW Port Terminal Max Ship Comments P. Rupert Fairview - DPW MMX Port of Vancouver Centerm - DPW NPX Lift height of older cranes may need to be increased. Vanterm - GCT NPX Lift height of older cranes may need to be increased. Deltaport -GCT MMX Fraser Surrey Docks Panamax Constrained; not relevant for main T-P services. Port of Seattle T-8 SSA MMX (NWSA) T-46 TTI Post-Panamax More large cranes needed to serve NPX or ULCS. T-30/5 SSA Post-Panamax Terminal scale and crane sizes not suited to Large PPX. T-5 - when rebuilt MMX Rebuilt, should be suitable for ULCS / MMX. Port of Tacoma PCT - Evergreen NPX Turning basin and access preclude ULCS/MMX. (NWSA) WUT - Hyundai ULCS Assumes more large cranes acquired for ULCS. East Sitcum (TCT/Olympic) Panamax To be redeveloped into part of Husky. Husky Terminal - ITS MMX 900 m berth suitable for x MMX per week. Five terminals could serve MMX ships: Fairview, Deltaport, T-8, T-5 (rebuilt), and Husky. Four terminals can serve NPX vessels: Centerm, Vanterm, PCT, and WUT. For Centerm and Vanterm, located behind the Lions Gate Bridge, the maximum keel to mast height (KTMH) allowed ranges between 68.5 and 7 m depending on high and low tides respectively (assuming minimum draft of m allowing for m clear below the bridge). For PCT and WUT, constraints involve turning basin radii and crane heights. Only two of the remaining four can serve PPX ships: T-46 and T-30/5. 45

46 Maximum ship size capabilities of container terminals in the PNW Overview The table below indicates the maximum number of deployments of a given size class that a given terminal could effectively handle each week, considering the facility s annual capacity, berth lengths, water depths, and number/height/reach of STS cranes, that are currently in place or planned by 00. The next pages provide the details about Mercator s calculations and scenario development to arrive at these capabilities for the container terminals in Vancouver and Prince Rupert. [The same analyses for the Puget Sound terminals are included in Appendix A.] Maximum ship size capabilities of container terminals in the PNW Deployment size class Large Mega-Max Ultra-Large Neo-Panamax Post-Panamax Small Post-Panamax Post-Panamax (MMX) (ULCS) (NPX) (PPX) (SPPX) Port Terminal (LPPX) Max ship P. Rupert Fairview - DPW 3 MMX Port of Vancouver Centerm - DPW Lions Gate Bridge Lions Gate Bridge NPX Vanterm GCT Lions Gate Bridge Lions Gate Bridge NPX Deltaport GCT MMX RBT Project MMX Port of Seattle T-8 SSA MMX (NWSA) T-46 TTI Post-Panamax See Appendix A. T-30/5 SSA Post-Panamax T-5 - when rebuilt MMX Port of Tacoma PCT - Evergreen NPX (NWSA) WUT - Hyundai NPX See Appendix A. Husky Terminal ITS Panamax E. Sitcum(TCT/Olympic) MMX Prince Rupert, which receives relatively smaller container exchanges (due to its lack of a local market, services calling there discharge only about 5-35% of inbound volume, with the majority discharged at a subsequent port), will have capabilities to handle more MMX, ULCS, NPX, and Large PPX deployments than other terminals in the PNW. The Port of Vancouver, without RBT, would only be able to handle first-inbound calls of two MMX deployments (discharging 50-60% or more of inbound volumes), placing the port at a competitive disadvantage against Prince Rupert in that scenario. Similarly, without T5, the Port of Seattle can only accommodate first-inbound calls of one MMX per week (at T-8). In Tacoma, only Husky can accommodate up to one MMX, on a first-inbound call basis. Ship size suitability is considered terminal-by-terminal in the following pages. 46

47 Maximum ship size capabilities of container terminals in the PNW Prince Rupert Fairview Container Terminal FCT is suitable for handling MMX ships. The published capacity planned for Phase B is.8 million TEUs. OSC has assumed a future capacity of.0 million TEUs, which is not unreasonable for the two-berth terminal, which is handling almost exclusively short-dwell intermodal containers. A minimum of nine STS cranes will be required in all scenarios analyzed to handle million TEUs per annum. Fairview Container Terminal: terminal characteristics and ship-call service menu Prince Rupert Berth Berth Calendar Cranes Cranes Cranes Total Capacity Crane length depth year 5Wide Wide Wide cranes TEU/Yr GMPH Current 800m 7.0m ,350, ,000,000 Ship classes MMX ULCS NPX LPPX PPX SPPX TEU range 8-3, , ,000 9-,000 <9, Containers wide Weekly TEUs,340 9,450 7,875 6,300 4,75 3,080 TEUs p.a. per weekly call 589,680 49, ,500 37,600 45,700 60,60 (35% disch/load) Total no. Service of MMX ULCS NPX LPPX PPX SPPX Terminal Min combinations services TEU/Yr cranes Scenario 4 3,04, Scenario 4 3,043, Scenario 3 5 4,965, Scenario 4 6 6,965, Scenario : x PPX and 3x MMX would approximately fill FCT to its future capacity of million TEUs assumed by OSC in 0. Scenario : x LPPX, x NPX, and 3 ULCS would also likely fill FCT to its future capacity of million TEUs. Scenario 3: 6x LPPX. Mercator assumes that the existing or planned berths, for this and all other terminals analyzed, will be able to accommodate all vessels under each scenario based on efficient scheduling and vessel turnaround times. Similarly, Mercator assumes that additional STS cranes will be installed as required by demand. 47

48 Maximum ship size capabilities of container terminals in the PNW Port of Vancouver Centerm Centerm is not suitable for handling MMX and ULCS ships because the clear height (air gap) under the Lions Gate Bridge is about 6 m (i.e., a maximum KTMH of 7 m, assuming a m draft and m margin), which varies with the tide. The published capacity planned for 00 is.5 million TEUs. Three of the four scenarios analyzed indicate a minimum of eight STS cranes will be required to handle.5 million TEUs. Centerm: terminal characteristics and ship-call service menu Centerm Berth length Berth depth # Cranes 3Wide # Cranes Wide # Cranes 9Wide # Cranes 7Wide Total cranes Capacity TEU/Yr Crane GMPH Current 646 m 5.5 m , m 5.5 m (deliv 07),500,000 Ship Classes MMX ULCS NPX Lg. PPX PPX Sm. PPX TEU Range 8-3, , ,000 9-,000 <9, TEUs p.a. per weekly call 96,640 77,00 643,500 54, ,00 5,680 (55% disch/load) Service Combinations Svc Count Scenario 3 MMX ULCS NPX Large PPX PPX Small PPX Terminal TEU/Yr Min cranes,538, Scenario 3 Located behind the,45, Scenario 3 4 Lions Gate Bridge 4,544, Scenario 4 6 6,50, Scenario : x SPPX and x NPX would likely exceed Centerm s future capacity of.5 million (planned for 00). Scenario : x PPX and x LPPXis the only scenario analyzed that would not likely exceed Centerm s future capacity. Scenario 3: 4x PPX also exceed Centerm s future capacity. Scenario 4: 6x SPPX also exceed Centerm s future capacity. 48

49 Maximum ship size capabilities of container terminals in the PNW Port of Vancouver Vanterm Vanterm is not suitable for handling MMX and ULCS ships because it is also located behind the Lions Gate Bridge. Currently, Vanterm has a capacity of 850,000 TEUs per year. For all the scenarios analyzed, the minimum number of cranes required do not exceed the six STS cranes already installed in the terminal. Vanterm: terminal characteristics and ship-call service menu Vanterm Berth Berth # Cranes # Cranes Total TEUs p.a. Crane length depth 4* Wide Wide Cranes Capacity GMPH 69 m 5./5.5m ,000 5 (p. '05-'07) Ship Classes MMX ULCS NPX Lg. PPX PPX Sm. PPX TEU Range 8-3, , ,000 9-,000 <9, Typ. Cont Wide Wkly TEUs 7,80 4,850,375 9,900 7,45 4,840 TEUs p.a. per weekly call 96,640 77,00 643,500 54, ,00 5,680 (55% disch/load) Service Combinations Svc Count MMX ULCS NPX Large PPX PPX Small PPX Terminal TEUs p.a. Min Cranes Scenario 895, Scenario Located Behind Lions Gate 766, Scenario 3 Bridge 77,00 4. Scenario , Scenario : x SPPX and x NPX would likely exceed Vanterm s capacity of 850,000 TEUs. Scenario : x SPPX and x LPPXwould not exceed Vanterm s capacity. Scenario 3: x PPX would not exceed Vanterm s capacity. Scenario 4: 3x PPX would not exceed capacity. * For these four cranes, the 4 wide across beam assumed based on most recent GCT crane purchases for Deltaport since crane specifications were not publicly available. This information was not confirmed by GCT or VFPA. 49

50 Maximum ship size capabilities of container terminals in the PNW Port of Vancouver Deltaport Deltaport can handle up to ULCS ships, and recently installed two new MMX STS cranes. Currently, Deltaport has a capacity of,00,000 TEUs per year, with a planned expansion to,350,000 TEUs expected in 09. For all the scenarios analyzed, a minimum of STS cranes will be required. In order to efficiently handle MMX vessels, as described in Scenario, additional MMX STS cranes would be required. Deltaport: terminal characteristics and ship-call service menu Deltaport Berth # Cranes # Cranes # Cranes # Cranes Total TEUs p.a. Crane Length Berth Depth 4Wide Wide 0Wide 8Wide Cranes Capacity GMPH Current 00 m 5.9 m 6,00, (deliv 07),350,000 Ship Classes MMX ULCS NPX Lg. PPX PPX Sm. PPX TEU Range 8-3, , ,000 9-,000 <9, Typ. Cont Wide Wkly TEUs 7,80 4,850,375 9,900 7,45 4,840 TEUs p.a. per weekly call 96,640 77,00 643,500 54, ,00 5,680 (55% disch/load) Service Svc MMX ULCS NPX Large PPX PPX Small PPX Terminal Min Combinations Count TEUs p.a. Cranes Scenario 3,39,380. Scenario 3 3,36,600.5 Scenario 3 4 3,36,600.5 Scenario 4 5 4,30,880.5 The available terminal capacity of,350,000 TEUs/year would likely be fully consumed in each of these scenarios: Scenario : x PPX and x MMX Scenario : 3x ULCS Scenario 3: x PPX and 3x NPX Scenario 4: x SPPX and 4x LPPX 50

51 Maximum ship size capabilities of container terminals in the PNW Port of Vancouver RBT The RBT project is planned to handle MMX. The RBT project is expected to have a capacity of,400,000 TEUs per year. A minimum of STS cranes will be required for all the scenarios analyzed. RBT: terminal characteristics and ship-call service menu RBT Berth # Cranes # Cranes # Cranes # Cranes Total TEUs p.a. Crane Length Berth Depth 5Wide Wide 0Wide 8Wide Cranes Capacity GMPH 00 m 5.9 m,400,000 5 Ship classes MMX ULCS NPX Lg. PPX PPX Sm. PPX TEU Range 8-3, , ,000 9-,000 <9, Typ. Cont Wide Wkly TEUs 7,80 4,850,375 9,900 7,45 4,840 TEUs p.a. per weekly call 96,640 77,00 643,500 54, ,00 5,680 (55% disch/load) Service combinations Svc count MMX ULCS NPX Large PPX PPX Small PPX Terminal TEUs p.a. Min Cranes Scenario 3,39,380. Scenario 3 3,36,600.5 Scenario 3 4 3,36,600.5 Scenario 4 5 4,30,880.5 Scenario : x PPX and x MMX would approximately fill RBT close to its,400,000 TEU/yr planned initial capacity. Scenario : 3 ULCS would also likely fill RBT close to its,400,000 TEU/yr planned initial capacity. Scenario 3: x PPX and 3x NPX would also fill RBT close to capacity. Scenario 4: x SPPX and 4x LPPXwould also fill RBT close to capacity. 5

52 4. Vessel deployments to/from the PNW coastal zone 4.. Overview 4.. Synopses of Asian services by design 4.3. West Coast port rotation sequences for Asian services 4.4. Port competition frameworks 4.5. Competitiveness for Asian imports to key inland regions 5

53 Vessel deployments to/from the PNW Region Overview The map below indicates the segregation of liner shipping services to and from the PNW region by the offshore region that those deployments are designed to serve. Container vessel services calling at PNW ports Asia E/B 04,00 Asia W/B 3,500 PNW Europe 8,800 4,500 Of the separate scheduled vessel services, 4 are designed mainly to transport Asian imports to the PNW, while another three are deployments that run from Asia to California, but return via stops in Puget Sound ports to pick up exports back to Asia. The three European services stop in one or more Caribbean Basin/Panamanian hub ports and thus also carry PNW Latin America containers via relay. The Oceania string has a weekly frequency to/from California, but only a bi-weekly frequency to/from the PNW 53

54 Vessel deployments to/from the PNW Region Synopses of Asian services by design As indicated below, there are services, with a collective weekly nominal capacity of about 83,500 TEUs, that operate from Asia to Vancouver (0 of which also call at NWSA ports, and two of which also call Prince Rupert). 00% of the capacity for each of these strings is allocated for Asia PNW/inland North America traffic. There are also two services that stop eastbound in Prince Rupert en-route to California, which do not call at Vancouver, with a combined capacity of about,000 TEUs/week (of which roughly 5% is allocated for the Prince Rupert call). The three services that call in the Puget Sound after calling in California ports discharge minimal eastbound volumes from Asia, and instead are designed to lift export loads, particularly reefers, and empties back to Asia. Container vessel services calling at PNW ports: Asia trades Trade Alliance Carrier Service P. Rupert Vancouver Seattle Tacoma California No. of ships Min ship scale (TEU) Max ship scale (TEU) Aug 08 Capacity (TEU/Week) Asia - P. Rupert California - Asia Asia EB Ocean Cosco PSW FCT California 7 0,000 4,500 0,000 Asia EB M Maersk - MSC TP-8 FCT California 6,000,000 0,700 Total Asia - P. Rupert California 0,700 Asia Salish Sea Asia Asia EB Ocean CMA CGM APL PNW GCT Vanterm T8 8,500 0,000 0,600 Asia EB Ocean Cosco PNW FCT DPW Centerm 8,500 0,000 9,600 Asia EB Ocean Evergreen PNW3 GCT Vanterm PCT 6 5,300 7,000 6,300 Asia Ocean OOCL PNW4 GCT Deltaport T8 6 5,500 6,000 6,600 Asia THE Alliance ONE PN GCT Deltaport Husky 6 5,300 7,000 5,700 Asia THE Alliance ONE PN GCT Deltaport Husky 7 8,00 8,750 8,500 Asia THE Alliance ONE PN3 FCT GCT Deltaport T8 7 3,000 3,00 3,00 Asia M Maersk - MSC TP-9 DPW Centerm T46 6 7,000 7,800 7,00 Asia ZIM ZMP GCT Deltaport 5 4,00 4,500 4,700 Asia HMM PN GCT Vanterm WUT 6 4,700 5,400 5,000 Asia SM Line PNS FSD T8 6 3,00 4,500 4,00 Asia Westwood PNW DPW Centerm T8 OCT 7,000,000,000 Total Asia-Canadian ports (excl. P. Rupert California) 83,500 Asia California Salish sea Asia Asia WB HMM PS WUT California 6 6,300 6,800 6,500 Asia WB Evergreen PSW8 PCT California 6 8,500 8,500 8,500 Asia WB COSCO/PIL/WHL TP Loop T30 California 6 6,600,900 8,500 Total California-PNW 3,500 54

55 Vessel deployments to/from the PNW Region West Coast port rotation sequences for Asian services There are six separate port call rotation patterns among the 4 services that transport Asia import containers to the PNW region, as follows: Prince Rupert first call + Vancouver second call (one service PNW) Prince Rupert first call + Vancouver second call + NWSA third call (one service PN3) Prince Rupert first call + LA/Long Beach second call (two services PSW, TP-8) Vancouver first call + NSWA second call (three services PNW4, TP-9, PNS) Vancouver first and only call (one service ZMP) NWSA first call + Vancouver second call (six services) Port rotation sequences of vessel services calling at Canadian ports: Asian trades (September 08) Alliance Ocean THE Alliance M Independent Alliance Carrier CMA APL COSCO Evergreen OOCL COSCO ONE ONE ONE Maersk MSC Maersk MSC ZIM HMM SML Westwood Carrier Prince Rupert Prince Rupert Vancouver 3 Vancouver Seattle 3 a Seattle Tacoma Tacoma California California Service PNW PNW PNW3 PNW4 PSW PN PN PN3 TP-9 TP-8 ZMP PN PNS PNW Service a Also calls at Everett WA; frequency may vary. 55

56 Vessel deployments to/from the PNW Region Port competition frameworks Because of the geography and transportation infrastructure of North America, other port zones compete intensively with the PNW ports for Asia container traffic destined to, or originating from, inland regions (other than the PNW provinces and states). Coastal zones competing with the PNW coastal zone for Asian traffic Onshore trade region East Canada Northeast US US Midwest Ohio Valley Southeast US Key competing gateway ports Halifax, Montreal New York, Norfolk Los Angeles, Long Beach Savannah, Charleston Coastal zones on the Atlantic Coast East Canada, US North Atlantic, US South Atlantic compete with the PNW ports for Asian traffic in selected inland regions, relying on vessel services that operate through either the Panama or Suez canals. These zones are especially competitive for traffic originating in Southeast Asia. The two Southern California ports compete intensively for Asia Midwest/Ohio Valley and Asia Southeast traffic with the PNW ports. Within the PNW Region, inter-port competition differs by onshore trade region. PNW ports competing with the Port of Vancouver for Asian traffic by onshore region Onshore (inland) region Central Canada East Canada US Midwest Ohio Valley US Southeast Competing PNW ports Prince Rupert Prince Rupert Northwest Seaport Alliance Minimal Asia import containers destined to BC consignees are routed through Prince Rupert because the vast majority of those consignees are concentrated in the greater Vancouver area, over 900 miles away (by road). Similarly, very few Asia containers destined to BC consignees are routed through Seattle/Tacoma, given the high costs of trucking such containers across the border. Reciprocally, few Asia boxes for importers in Washington, Oregon, or Idaho are routed through Vancouver due to the high cross-border trucking costs. 56

57 Vessel deployments to/from PNW Region Competitiveness for Asian imports to key inland regions As noted on the prior page, the PNW Region ports are competing with other North American port zones for Asian imports into different inland regions of the continent. The graphic below depicts the general competitiveness of the PNW Region ports (in aggregate), versus other North American port zones, for each major region of the continent. PNW Region gateway competitiveness by inland region Prince Rupert BC Canadian Prairies Port of Vancouver Eastern Canada Strongest competitive market (US NW, BC, Canadian Prairies) Seattle/Tacoma (NWSA) US Northwest US Midwest Stronger competitive market (E. Canada for BC ports only) Portland From Asia US Southwest, Texas, and Oklahoma US Northeast US Southeast Very good competitive market (US Midwest) Weaker competitive market (US Northeast and Southeast) Weakest competitive market (US Southwest + TX) From Asia Via Panama Canal 57

58 Port rotation sequences of vessel services calling at Canadian ports Non-Asian trades As of August 08, four weekly vessel deployments link the PNW with the following two Non-Asian tradelanes: Europe ANZ Vessel services calling at Canadian ports: Non-Asian trades Alliance Carrier THE ONE MSC H-L Maersk CMA H-L Alliance Carrier The port rotations of these deployments along the West Coast are plotted in the graphic to the right and have the following characteristics. As can be observed, for each string, California is called before and after the Salish Sea ports. Prince Rupert Vancouver Seattle c 3 c Prince Rupert Vancouver Seattle Also for each string, both Vancouver and an NWSA port are covered Tacoma Tacoma California California Service AL5 b Cali- Express b MPS b Oceania Service b Via Panama Canal Container vessel services calling at PNW ports: Non-Asia trades Trade Alliance Carrier Service P. Rupert Vancouver Seattle Tacoma California No. of ships Min ship scale (TEU) Max ship scale (TEU) Aug 08 Capacity (TEU/Week) Other Salish Sea Non-Asia Europe THE Alliance Hapag/ONE AL5 GCT Deltaport T8 LAX-OAK 0 4,600 5,000 4,900 Europe Hapag/HS MPS GCT Deltaport T8 LBC-OAK 4,00 4,800 4,700 ANZ Hapag/HS Oceania GCT Deltaport T8 LBC - OAK 4 4,000 5,000 4,500 Europe MSC Calif-Expr GCT Deltaport T46 LBC-OAK 0 8,800 9,400 9,00 Total Non-Asia Canadian ports,400 58

59 5. Forecast aggregate head-haul volumes for the Pacific Northwest 5.. Overview and methodology 5.. Baseline fleet forecast schedule 5.3. Share of imports via Vancouver 5.4. PNW import volume by ship-service routes and port 5.5. Volume forecast: do not build RBT scenario 5.6. PNW import volume by ship-service route and by port 59

60 Volume forecast input to fleet forecast Overview and methodology Mercator was directed to forecast the number and size of container vessels to call Vancouver on the basis of the volume forecasts previously presented by Ocean Shipping Consultants (OSC) in its 06 report. The size and number of ships calling Vancouver depends not only on the volume of containers moving to Vancouver itself, but rather on the total container volume carried in each of the trades in which Vancouver is a regular port of call. The three main tradelanes to/from the PNW include: (i) Asia, (ii) Europe, and (iii) Australia/New Zealand. Said another way, the collection of services calling at Vancouver carries not only traffic for Vancouver, but also for the other ports in the region called by these same services; hence, these services must be sized based on this aggregate demand. To achieve this, the first step is to forecast the overall cargo flows in these trades, and then determine the portion of ship services in each trade that will call at Vancouver. Using OSC s volume forecasts prepared in 06 as a basis, Mercator s methodology is summarized as follows: From OSC s Table.36, the total volume forecast of traffic to and from ports in the PNW (i.e. the N. American West Coast, excluding Mexico and California) was extracted. These port volumes, however, included US domestic flows and other US PNW port volumes that are not part of the main trade lanes serving Vancouver, and therefore needed to be excluded. Because the objective is to isolate the volume that will be moved on services that call in Vancouver, the OSC forecast was refined to include only the international traffic thatmoves through theports of Seattle, Tacoma, andportland. From OSC s Tables.38.40, the total volume of traffic to and from the Pacific Gateway (comprised of the BC ports of Prince Rupert and Vancouver only) was estimated. Volumes from each of the Tables were subtracted from Table.40 to yield a provisional US PNW volume. This provisional US PNW volume would match the actual volume moving through the ports of Seattle and Tacoma (if not for domestic and other traffic included in the PNW forecasts of Table.36). The domestic and other port traffic to be excluded from OSC s aggregate forecast was identified by subtracting the actual Seattle/Tacoma/Portland international volumes from the provisional US PNW volume for the same historical years. Finally, the domestic and other volumes are subtracted from OSC s PNW forecasts to get the long-term international trade forecasts for traffic moving on services that call Vancouver. PNW port volumes From OSC Report, Table.36 - (minus) Pacific Gateway (BC ports only) From OSC Report, Tables = (equal) 3 All US PNW volumes Includes domestic traffic and Non-Seattle/Tacoma/Portland traffic) Subtracting the domestic and other traffic (item 5) from the PNW port volumes (item ) results in the International Traffic for BC, WA, and OR, which is in the volume moving on the international vessel services through Vancouver that is required for the fleet forecast. - (minus) 4 Actual US International traffic Traffic via Seattle/Tacoma/Portland = (equal) 5 Domestic and other to be deducted from OSC s forecast Deduction leaves the international traffic driving PNW deployments The vessel service capacity requirements are based on volumes moving in the head-haul direction (imports for the critically important Transpacific T-P tradelane). 60

61 Volume forecast input to fleet forecast Baseline vessel service forecast schedule Using the OSC forecast figures for the all PNW / Pacific Gateway / Vancouver traffic, and deducting from them the non-international NWSA traffic included in those forecasts, Mercator prepared the following International Import volume plan by PNW port. The vessel services calling Vancouver and the other PNW ports will be sized to carry this forecasted volume plan. Developing the the volume Volume schedule Schedule that That drives Drives fleetfleet forecasts Forecasts 0A 03A 04A 05F OSC PNW* Base Case Table.36 7,560 7,790 7,780 8,40 OSC Pacific Gateway (BC) Base Case Table.38 (Import),769,8,97,09 Table.39 (Export),509,550,64,8 Table.40 (Combined) Total In + Out 3,78 3,36 3,53 3,83 Diff: USA PNW (ALL traffic, incl domestic and other ports) 4,8 4,48 4,49 4,309 Actual USA PNW (SEA/TAC/Port) International Volumes: NWSA (SEA + TAC) Intl,795,664,557,76 Portland (POR) Subtotal SEA/TAC/POR International TEUs,978,84,7, Diff: Provisional PNW Less Actual PNW Int'l.,304,586,57,56 5 This is volume included in the OSC Port TEU forecasts but but NOT carried by PNW International Servic This volume needs to be deducted from the OSC forecast to arrive at the PNW International traffic. Components of this Excluded Volume include: SEA/TAC (NWSA) Domestic Other NA PNW Ports (eg. ANC, Everett, etc.)

62 Volume forecast input to fleet forecast Baseline vessel service forecast schedule Using the OSC forecasts for the all PNW / Pacific Gateway / Vancouver traffic, and deducting from them the non-international traffic included in those forecasts, Mercator prepared the following International Import volume plan by PNW port. The vessel services calling Vancouver and the other PNW ports will be sized to carry this forecasted volume plan. Base case import TEUs by port in the PNW with RBT Base Case IMPORT TEUs By PNW Port - With RBT Historic / Actual Figures Forecast Figures Year Ref: OSC 06 Report 0 A 03A 04A Vancouver Imports Table 7. &.40,450,508,557,58,636,78,85,99,03,406,740 3,0 Prince Rupert Imports Calculated: PG minus VFPA Pacific Gateway Imports Table.38 &.40,769,8,97,09,04,0,99,393,484,907 3,30 3,650 OSC's All PNW Port Traffic OSC Table.36 (imports = 50%) 3,780 3,895 3,890 4,070 4,445 4,660 4,840 5,035 5,5 5,995 6,730 7,470 Deduct 50% of the Non-International TEUs (65) (793) (764) (763) (833) (873) (907) (944) (979) (,4) (,6) (,400) During forecast period, grow at same rate as OSC's PNW TEUs RESULT: PNW International Import TEUs 3,8 3,0 3,6 3,307 3,6 3,787 3,933 4,09 4,46 4,87 5,469 6,070 of which are NWSA Imports PNW Int'l. minus Pac Gateway,359,90,0,88,508,586,634,699,76,964,59,40 Total International Import Traffic - With RBT, Base Case, by Gateway Port Group Prince Rupert, BC Vancouver, BC,450,508,557,58,636,78,85,99,03,406,740 3,0 NWSA, WA,359,90,0,88,508,586,634,699,76,964,59,40 Total PNW Region 3,8 3,0 3,6 3,307 3,6 3,787 3,933 4,09 4,46 4,87 5,469 6,070 Pacific Gateway (i.e. BC only),769,8,97,09,04,0,99,393,484,907 3,30 3,650 6

63 Volume forecast input to fleet forecast Share of imports via Vancouver The vessel services and port calls will be forecasted on a vessel service lane basis, and so the overall volume forecast is subdivided into trade lanes based on the historic mix of import cargo origins handled at Vancouver. This mix of origins applies to Vancouver. Only Transpacific (T-P) services call at Prince Rupert, so 00% of Prince Rupert traffic is in the T-P service lane. Data for NWSA traffic yielded only a slightly different breakdown origin mix (0.9% ANZ, 7.6% Europe, 9.5% T-P). Share Share of of import Import Container container Tonnage tonnage Through through Vancouver Vancouver By Origin Region and Ship Service Lanes Svc Lane Region 04% 05% Avg % ANZ Oceania.09%.% ANZ USA 0.% 0.05% ANZ Subtotal.3%.7%.9% ANZ.9% Europe 4.43% Europe Africa 0.3% 0.3% Europe Carib 0.00% 0.00% Europe Cen Amr 0.% 0.8% Europe ECSA 0.3% 0.40% Europe Europe.03%.3% Europe Mexico 0.4% 0.39% Europe WCSA.35%.6% Europe Subtotal 4.35% 4.50% 4.43% T-P E Asia-China 60.80% 60.6% T-P E Asia-HKG 4.08% 3.9% T-P E Asia-Japan 3.04% 3.5% T-P E Asia-Kor 0.7% 0.44% T-P E Asia-Twn 4.4% 4.08% T-P Middle East 0.06% 0.4% T-P SE Asia 9.84% 0.35% T-P So Asia.99%.89% T-P Subtotal 94.33% 94.3% 94.8% 00% 00% 00% T-P 94.8% ANZ Europe T-P 63

64 Volume forecast input to fleet forecast PNW import volume by ship-service routes and port The vessel services and port calls will be forecasted on a vessel service lane basis, and so the overall volume forecast is subdivided into trade lanes based on the historic mix of import cargo origins handled at Vancouver. PNW International import annual volume by ship-service routes (Transpacific (T-P), Europe, ANZ) and by port PNW International Import Volume By Ship-Service Routes (T-P, Europe, ANZ) and by Port TEUs (000s) per Year For Vancouver T-P Services,70,809,898,69,583,848 Europe Services ANZ Services Total VFPA Import,85,99,03,406,740 3,0 For Rupert T-P Services Europe Services ANZ Services Total Rupert Import For NWSA T-P Services,495,554,6,797,975,4 Europe Services ANZ Services Total NWSA Import,634,699,76,964,59,40 Total PNW Int'l. Per Year T-P Services 3,690 3,837 3,98 4,567 5,8 5,69 Europe Services ANZ Services ,933 4,09 4,46 4,87 5,469 6,070 This mix of origins applies to Vancouver. 64

65 Volume forecast input to fleet forecast PNW import volume by ship-service routes and port For the purposes of fleet/service forecasting, it is convenient to consider volume flows on a weekly basis, which are shown below. PNW International import Import Volume weekly By volume Ship-Service by ship-service Routes (T-P, routes Europe, (T-P, ANZ) Europe, and ANZ) by Port and by port TEUs (000s) per Week For Vancouver T-P Services Europe Services ANZ Services Total T-P 000s/wk For Rupert T-P Services Europe Services ANZ Services Total Van BC 000s/wk For NWSA T-P Services Europe Services ANZ Services Total NWSA 000s/wk ALL PNW T-P Services Europe Services ANZ Services Total PNW 000s/wk

66 Volume forecast input to fleet forecast Volume forecast: do not build RBT scenario The VFPA requested that Mercator forecast Vancouver s vessel service calls for the scenario in which RBT is not built, and to base this forecast on the forecasted traffic diversions that were presented in OSC s 07 Report, Potential Impact of a Failure to Develop RBT at VFPA. The Vancouver traffic diversions as forecast by OSC are summarized below. Vancouver traffic diversions as forecasted by OSC in Total Volume ReRouted from VFPA 0, ,394,38,463,945,58,400,000,400,000 Imports (full+empty) ,39 389, ,54 908,668,055,75,06,88 Exports (full+empty) ,39 389, ,08,036,589,344,48,93,9 British Columbia Imports (full) Imports (empty) Exports (full) Exports (empty) Alberta & Prairies Imports (full) Imports (empty) Exports (full) Exports (empty) C&E Canada ,03 657,36 74,547 Imports (full) ,0 57,08 408,58 Imports (empty) Exports (full) ,0 333,389 Exports (empty) ,0 88,3 0 US 0 0, ,394,38,463,590,33,705,488,68,756 Imports (full) ,39 389, ,54 747, ,73 798,73 Imports (empty) Exports (full) ,954 95,89 08,04 5,444 Exports (empty) ,39 389, ,54 747, ,73 704,589 Others ,73 37,5 39,696 Imports (full) Imports (empty) Exports (full) ,73 37,5 39,696 Exports (empty) Source: OSC 07 Report, Table 3. 66

67 Volume forecast input to fleet forecast Volume forecast: do not build RBT scenario The OSC forecast of Vancouver traffic diversions by new gateway is summarized below, along with the resulting No RBT import traffic forecast by PNW gateway. Alternate case: traffic by port in the PNW do not build RBT scenario Alternate Case Traffic By PNW Port - Without RBT Re-Routes (000s TEUs) Derived from Table 5.3, OSC 07 Report Vancouver - (56) (390) (684) Prince Rupert NWSA SPB Imports w/ No RBT (net of Re-Routes) Vancouver,85,99,03,350,350,337 Prince Rupert NWSA,634,699,76,964,59,74 Pacific Northwest (PNW) 3,933 4,09 4,46 4,87 5,469 6,070 Pacific Gateway (PG - Subset of PNW),99,393,484,907 3,30 3,39 Source: OSC 07 Report, Table 3. 67

68 Volume forecast input to fleet forecast Volume forecast: do not build RBT scenario Making a simplifying assumption that all of the re-routed volume will naturally be T-P volume (very little if any ANZ or Europe volume will be intermodal traffic), and dividing the annual volumes by 5 weeks, the resulting forecast of weekly International TEUs by port and trade is as follows. PNW import volume by ship-service route (T-P, Europe, ANZ) and by port do not build RBT scenario Distribution of PNW Import Volume By Ship-Service Routes (T-P, Europe, ANZ) and Port - No RBT Scenario TEUs (000s) per Week For Vancouver T-P Services Europe Services ANZ Services For Rupert T-P Services Europe Services ANZ Services For NWSA T-P Services Europe Services ANZ Services ALL PNW - 000s TEUs/yr T-P Services Europe Services ANZ Services

69 6. Forecasting PNW vessel deployments for the near-term 6.. Overview and framework 6.. Discussion of PNW Asia eastbound vessel services for Discussion of PNW Asia eastbound vessel services for Projections of PNW Asia eastbound vessel services and sizes for 00 and Discussion and projections of PNW vessel services for other trade lanes for 00 and 05 69

70 Near-term projections of vessel deployments Overview and framework 00 Timeframe In the development of projections for the number of separate vessel deployments that are likely to be operated to and from the PNW region in 00, as well as the distribution of those deployments by vessel size, Mercator utilized a carrier-specific approach, with the following assumptions: The Ocean, THE, and M alliances will continue in place, with no changes in membership. The vessel sharing agreement currently in place in the West Coast North America Mediterranean trade between Hapag-Lloyd and Hamburg Sud (now a Maersk subsidiary) will continue, as will the vessel sharing agreement between those same two carriers and CMA CGM in the West Coast North America ANZ trade. Zim, HMM, SM Lines, and Westwood are expected to continue to operate their respective Asia PNW services. In addition to these assumptions, Mercator takes into consideration various commercial requirements that selected ocean carriers have for particular deployments, the broader service networks and near-term vessel fleet composition of each carrier, and carrier ownership positions in terminals (where applicable), in projecting deployments in Timeframe Mercator also utilized a carrier-specific approach for projecting deployments by 05, but with the perspective that the number and composition of the major east-west global carrier alliances could be different by that time. Some of the structural changes that could conceivably occur between now and then with ramifications for alliances T-P networks include: An absorption by Evergreen of Yang Ming, together with the main Taiwanese carrier ending its alliance with COSCO/OOCL and CMA CGM, and instead joining the alliance between ONE and Hapag-Lloyd The acquisition of Zim by Maersk or MSC The termination of the M Alliance A merger between CMA CGM and Hapag-Lloyd (although it is highly uncertain whether the EU would approve such a transaction) Consequently, Mercator addressed the expected sustainability between now and 05 of each vessel deployment, based particularly on which specific carriers are providing ships to each service, and the expected impacts of potential structural changes on certain services. 70

71 Projections of PNW vessel services for 00 Asia eastbound trade lane Salish Sea deployments: THE Alliance ONE, Hapag-Lloyd, and Yang Ming currently operate three Asia Salish Sea deployments, but do not have any of their Asia California services making intermediate eastbound calls at Prince Rupert. The three strings are as follows: PN- loads in Asia in the Yangtze River Delta (YRD), North China, and Japan, and uses mainly 5,600 TEU ships, all provided by ONE. PN- loads in Southeast Asia (Singapore, Laem Chabang, Cai Mep), Taiwan, and the Pearl River Delta (PRD), and uses ships with capacities ranging from 800 to 8700 TEU in capacity four from ONE and three from Hapag-Lloyd. PN-3 loads in the PRD, YRD, and Korea, and uses 3,000 TEU ships, all provided by Hapag-Lloyd. It is unlikely that THE will decide by 00 to consolidate PN- and PN- because: Each string covers different origin markets in Asia, with no overlap in the eastbound trade. A single string would need to operate with ships of about 3,000 TEU capacity, and neither ONE nor Hapag-Lloyd will have enough available ships of that size range by 00 for a new PN-/PN-. However, we would expect ONE to replace the 3 x 8,00 TEU ships in the PN- with 8,500 TEU vessels in the next 8 months, but likely keep the PN- at its current scale, given estimated current utilization levels. The PN-3 cannot be upsized by 00 because neither Hapag-Lloyd nor ONE nor Yang Ming has larger ships available for this trade. Mercator thus expects THE Alliance to operate these same three strings in 00 and will continue to have PN- and PN- call in Tacoma first, because of ONE s ownership stake in that port s Husky Terminal. If THE Alliance needs additional Asia PNW capacity by 00, above the modest increases in the scales of the PN- and PN-, it is expected to have one of its Asia California deployments stop in Prince Rupert anyway, and will, therefore, be able to shift capacity allocations for the PN-3. PN-: Pacific North PN-: Pacific North PN-3: Pacific North 3 7

72 Projections of PNW vessel services for 00 Asia eastbound trade lane Salish Sea deployments: OCEAN Alliance CMA CGM, COSCO/OOCL, and Evergreen presently operate four Asia PNW deployments within the Ocean Alliance. PNW loads in Asia in Singapore, PRD, South China, YRD, and Korea, and uses mainly 9,500-0,000 TEU ships, all provided by CMA CGM. PNW also loads in Singapore, PRD, and YRD, but does not call in South China (Xiamen) nor in Korea, and instead calls in Vietnam (Cai Mep) and North China (Qingdao). PNW uses ships with capacities ranging from 9,400 to 0,000 TEU in capacity all supplied by COSCO. PNW3 loads mainly in the PRD, Taiwan, and YRD, and uses ships with capacities ranging from 5,300 to 7,000 TEUs all provided by Evergreen. PNW4 loads mainly in the PRD and Taiwan, and uses ships with capacities ranging from 5,700 to 8,000 TEUs all provided by OOCL. It is unlikely that either CMA CGM or Evergreen will cease to operate their respective PNW strings by 00, considering their market positions, obligations to the NWSA, and preferences for controlling their core services. It is also unlikely that COSCO will try to consolidate the PNW- and PNW-4 strings into one single deployment by 00, because: A single string would need to operate with ships of at least 5,000 TEU capacity, and the COSCO group will not have enough available ships of that size range by 00 to be assigned to this trade lane. Mercator thus expects Ocean Alliance to operate these same four strings in 00, with basically the same rotation. However, we project that Evergreen will phase out the smaller ships in the PNW3, and that COSCO/OOCL will do the same in the PNW4, operating at the 7,000 TEU and 8,000 TEU scales, respectively. Should the Alliance need additional Asia PNW capacity, beyond upsizing the PNW3 and PNW4, its members would likely agree to have another of their Asia California strings add a stop in Prince Rupert (not included in our forecast). PNW PNW3: PNW4 7

73 Projections of PNW vessel services for 00 Asia eastbound trade lane Salish Sea deployments: other alliances and carriers TP9/Maple Maersk and MSC currently operate one Asia PNW service (TP9/Maple), using a mix of 7,00-7,800 TEU ships, loading eastbound in PRD, Taiwan, South China, YRD, and Korea. The world s two largest carriers clearly do not presently assign a high priority, in terms of sailing frequency and capacity allocation to this market lane, compared to their competitors in the Ocean and THE alliances. Mercator accordingly projects that by 00, the M Alliance will continue to operate just the current one service, upsizing it to the TEU scale. HMM presently operates one Asia PNW service, with a mix of 4,700-5,400 TEU ships, loading eastbound in the PRD, Taiwan, the YRD, and Korea. Because of HMM s financial condition, Mercator would expect this carrier will only replace some of the smaller ships in this string between now and 00. The SM Lines service in this lane is very similar to the HMM deployment and for similar reasons, Mercator expects only a modest upsizing of this string by 00, through the replacement of some of its smaller ships. PNW ZIM operates a pendulum service, with a Black Sea/East Med Far East Vancouver Far East Black Sea/East configuration, with a mix of 5 ships, with capacities ranging between 4,00 and 5,00 TEUs. Here again, because of this carrier s financial position, Mercator would expect Zim to replace some of the smaller ships with chartered ships between now and 00, resulting in a modest increase in capacity. ZMP No changes are expected in the Westwood service and ships by

74 Projections of PNW vessel services for 00 Asia eastbound trade lane Prince Rupert/California deployments Maersk and MSC currently operate one Asia California service via Prince Rupert, TP-8, using a mix of 0,000-3,300 TEU ships, loading eastbound in China, South Korea, and Japan. The M carriers added the Prince Rupert call to the TP-8 earlier this year, when they contracted from two Asia Salish Sea Asia deployments down to one and wanted to continue exploiting the service/cost benefits of the Prince Rupert gateway. Even though the TP-8 call at Prince Rupert adds two days of transit time onto Asia California eastbound boxes transported on this service, the M carriers apparently believe that the benefits of the intermediate stop outweigh any negative commercial impacts due to the extra transit time. Mercator accordingly projects that by 00, the M Alliance will continue to maintain the Prince Rupert call on the TP-8, and probably will replace the smaller ships in the deployment. COSCO presently operates one Asia California service via Prince Rupert, PSW-, with a mix of 0,000-3,300 TEU ships, loading eastbound in Xingang, Qingdao, and Shanghai. COSCO launched this service in April 07, originally from North and Central China to Prince Rupert and California. COSCO was the first major carrier to route containers through Prince Rupert, so it is not surprising that the Chinese carrier would maintain this particular service feature (of stopping in Prince Rupert on one of its Asia California services). Given the carrier s schedule of deliveries for new large vessels, and considering that COSCO recently consolidated two strings into one, Mercator expects that it will upsize the PSW to the 3,000-4,000 TEU scale between now and 00. TP-8 Eastbound rotation PSW- Eastbound rotation 74

75 Projections of PNW vessel services for 05 Asia eastbound trade lane Overview and Assumptions: Asia Salish Sea deployments It is admittedly uncertain what will be the number and composition of vessel sharing alliances covering the Asia PNW trade lane by 05. However, when one considers how each current deployment is supplied, in terms of vessel contributors, it can guide the formation of conclusions regarding the numbers and sizes of Asia Salish Sea Asia vessel strings for 05. For example, as noted on a prior page, each of the four of the Ocean Alliance Asia Salish Sea Asia deployments has all of its ships provided by a single carrier (one string from CMA CGM, one from Evergreen, and two from COSCO/OOCL). o Thus, even if Evergreen, for instance, were to leave the Ocean Alliance and join ONE, Hapag-Lloyd, and Yang Ming by 05, the deployment that it controls would most likely continue operating. o Similarly, even if CMA CGM and Hapag-Lloyd were to merge by 05 (as another example), each carrier s controlled string would likely continue operating (especially since the new company would not have enough 0,000+ TEU ships by then available to be assigned to this trade). o While COSCO is unlikely to be acquired, and instead might acquire another line between now and 05, it will undoubtedly want to maintain two separate strings -- not only because of a lack of availability of 6,000+ TEU ships, but also in order to have one service focused on the PRD and South China, and another service focused on the YRD and North China. o Therefore, we can conclude that all four deployments currently being operated by the four Ocean Alliance carriers are likely to continue to be operated in 05, regardless of whether CMA CGM, Evergreen, and COSCO/OOCL are in an alliance together or not. The outlook is less clear for the three Asia Salish Sea THE Alliance strings, because one of the three uses a mixture of ONE and Hapag-Lloyd ships. Nonetheless, whether the ONE is independent or merged with another carrier, it is reasonable to assume that the existing string which is supplied entirely with ONE ships and which is the only Asia Salish Sea deployment (other than the niche Westwood service) to make eastbound calls in Japan (i.e., the PN- ) will continue to be operated by 05. Similarly, Hapag-Lloyd appears to be heavily committed to the string in which it contributes all of the vessels (PN-3), because the scale of this deployment and Hapag-Lloyd s concentration of volumes on it through Vancouver provide it with unit cost advantages. We, therefore, conclude that at least two of the three THE Alliance strings are likely to continue to operating regardless of whether or not the current carrier composition of this alliance remains unchanged. The outlook for the remaining THE Alliance string (PN-) in 05 will depend on whether Hapag-Lloyd and ONE are still together in the alliance, whether Hapag-Lloyd has merged with another line or not, etc. In our forecast, Mercator assumes that Hapag-Lloyd and ONE are still operating together, with or without Yang Ming. 75

76 Projections of PNW vessel services for 05 Asia eastbound trade lane Assumptions for other alliances and carriers: Asia Salish Sea deployments Presently, all of the vessels running in the M Alliance s TP-9/Maple deployment are provided by Maersk. Regardless of whether Maersk and MSC maintain their M Alliance through 05, Mercator would consequently expect Maersk to continue operating the TP-9, though potentially with smaller ships if MSC was not sharing its capacity. Because the term of the Maersk/MSC alliance agreement, as filed with the US Federal Maritime Commission, extends to 05, Mercator s projections for 05 are based on the M Alliance continuing through that year. Moreover, Mercator expects that by or before 05, Maersk and MSC will rectify the sailing frequency disadvantage that they have in this lane, relative to other alliances, by adding a second Asia Salish Sea string. To reduce the financial risks attendant with an additional string, Maersk and MSC are expected to extend their recently-announced collaboration agreement with Zim (for the Asia US East Coast trade) to include the Asia PNW lane. This will enable Zim to upsize its ZMP deployment (now being operated with inefficient 4,00-5,00 TEU ships) and for Maersk/MSC to obtain a second sailing in the lane for far less network cost. Considering the support that HMM is receiving from the South Korean government, the importance to Korean exporters of having liner service from a Korean carrier, and the one-carrier supplier of ships to the PNS string, it is reasonable to assume that this deployment will continue to operate through 05. However, the scale of this service (now at the 4,700 TEU range) could be increased significantly, if SM Lines struggles financially and if accordingly, the Korean government encourages and facilitates the consolidation of SM Lines into HMM Mercator assumes this scenario in our projections of deployments in 05, and hence forecasts a significant upsizing of the PNS string. With an expected consolidation of two Korean-carrier deployments into one string, Mercator assumes that by 05, another independent, niche carrier will have entered the Asia PNW trade, using sub-panamax ships this carrier could potentially be Wan Hai, PIL, Wan Hai and PIL jointly, or some other Asia-based operator. Westwood is a unique ocean carrier in this market, being focused on supporting westbound shipments of forest/paper products and on operating specialist ships that can carry containers and break-bulk cargoes. Mercator expects that Westwood will retain its focus on those commodities and accordingly continue to use multi-purpose ships with relatively small capacities for containers through

77 Projections of PNW vessel services for 00 and 05 Asia eastbound trade lane Forecast summary for Asia Salish Sea services By applying all of the assumptions outlined on the preceding pages, and by considering the current vessel fleet of each carrier (as well as the ships each line has being built at this time), Mercator derived the projections to the right. Our assumptions led to the conclusion that in 00, the vessel services being operated presently will likely continue in place, along with the vessel sharing agreements and carriers by which these services are provided. Aggregate capacity is projected to increase only by 4.5% from the third quarter of 08 until the beginning of 00. While this might seem low, relative to the growth forecasted for eastbound container volumes to the region over the timeframe (of 7.9%), other factors need to be recognized: Several carriers (including Zim, HMM, ONE, Hapag-Lloyd, and SM Lines) are under significant financial pressures, and hence are unlikely to be able to significantly increase the capacities of their respective vessel strings over the next 8 to 4 months. All carriers are seeking improvements in rate levels and many have already demonstrated in 08 that they are willing to reduce capacities to stabilize ocean freight rates. The CMA and COSCO services (PNW and PNW) have pendulum configurations (Arabian Gulf Far East PNW Far East Arabian Gulf) that require ships apiece to operate. These strings were only established in 08, and it is unlikely that either carrier will want to incur the ship repositioning expenses associated with upsizing a -ship string during the next 8 to 4 months. Projections of Asia -Salish Sea Asia vessel deployments, Vessel service name Lead operating carrier Vessel service scale (TEU/week) PNW CMA PNW COSCO PNW3 Evergreen PNW4 COSCO/OOCL PN- ONE PN-3 Hapag PN- ONE/Hapag TP9/MAPLE Maersk/MSC Maersk/MSC/Zim 8000 ZMP Zim PN- HMM PNS SM Lines PNW-NEA Westwood TBD New niche line 4000 Total Group 83,000 86,700 0,600 77

78 Projections of PNW vessel services for 00 and 05 Asia eastbound trade lane Forecast summary for Asia Salish Sea services (continued) Mercator s projections for 05 result in a 7% increase in capacity over the levels forecasted for 00, which is relatively consistent with OSC s forecast of roughly a 5% growth in import volumes to the region. As discussed earlier, the 05 projections were developed partially on the basis that eight of the current twelve vessel deployments (PNW thru PNW4, PN-, PN-3, TP9, and PNW-NEA) are controlled by seven individual ocean carriers that will likely want to continue these services, whether they remain as independent companies or not (and most of the seven will likely remain independent). Our assessment of the expected level of upsizing for each of these eight deployments from 00 to 05 incorporated an analysis of each carrier s vessel fleet to determine how many numbers of ships of different size classes might be available in 05 for re-assignment to the Asia PNW trade. The projections for the other four deployments were derived after predicting that: ONE and Hapag-Lloyd will likely still be in an alliance together in 05, as will Maersk and MSC. The Maersk/MSC/Zim collaboration in the Asia USEC trade will be extended to this market. The Korean government will effect a consolidation of HMM and SM Lines. A new, niche carrier will enter the market, in response to the contraction of three strings into two. Projections of Asia - Salish Sea Asia vessel deployments, Vessel service name Lead operating carrier Vessel service scale (TEU/week) PNW CMA PNW COSCO PNW3 Evergreen PNW4 COSCO/OOCL PN- ONE PN-3 Hapag PN- ONE/Hapag TP9/MAPLE Maersk/MSC Maersk/MSC/Zim 8000 ZMP Zim PN- HMM PNS SM Lines PNW-NEA Westwood TBD New niche line 4000 Total Group 83,000 86,700 0,600 Note This table is a duplicate of the table on the prior page, and is displayed here for the reader s convenience 78

79 Projections of PNW vessel services for 00 and 05 Asia eastbound trade lane Forecast for Prince Rupert/California services As noted earlier, there are presently two vessel strings that carry a portion of the Asia PNW import traffic flow because they each make an intermediate eastbound port call at Prince Rupert, where the import loads are discharged for movement to central/eastern Canadian markets and US Midwest/South Central markets. These services are not very competitive for transporting export loads from those same intermodal markets back to Asia because the ships in the deployments spend three to four days transiting south to SPB, and then are along the California coast for five to six days consequently, the majority of containers loaded onto these ships at Prince Rupert are empties. Although this causes westbound container equipment positioning issues for Maersk/MSC and COSCO/CMA CGM/Evergreen, these carriers clearly value the commercial advantages and rail transport cost savings that they obtain on the eastbound intermodal boxes that they discharge at Prince Rupert. The THE Alliance had a similar service from April of 07 until the third quarter of this year, but eliminated that string to improve overall demand/supply balance in the Asia California trade. Between 00 and 05, to enhance its competitive position vis-à-vis the M and Ocean Alliances, Mercator expects THE Alliance to either add back the Asia Prince Rupert California Asia deployment that was recently cancelled (PS-8), or otherwise upsize and modify one of its current seven Asia California strings such that it includes an intermediate call in Prince Rupert. We do not expect the M carriers to upsize the TP-8 between 00 and 05 beyond the,000 TEU scale, because they are more likely to add a fourth Asia California deployment during this period to mitigate their sailing frequency disadvantages vis-à-vis the Ocean Alliance and THE Alliance (that operate eight and seven separate services, respectively, in this lane), and will, therefore, want to avoid adding too much capacity to the market. We also do not expect COSCO to upsize the PSW- by 05 beyond the anticipated 3,000 TEU scale, because the carrier will likely not have much larger ships available by then that can be assigned to the trade, and also because the complete economic benefits of stopping an ultra-large ship for the intermediate call (with more pronounced and costly repositioning issues for empty containers and with greater delays to more eastbound containers destined to California) become marginal. Hence, we project the following deployments and space allocations for this category of deployments by 05. Projections of Prince Rupert/California vessel deployments to 05 Vessel service scale (TEU/week) Allocation for Prince Rupert (TEU/week) Vessel service name Lead operating carrier PSW COSCO TP8/ORIENT Maersk/MSC PS-8 or PS-6 ONE Total Group 0,700 4,000 33,000 5,75 6,000 6,600 Mercator estimates that the capacity that these carriers allocate on their respective services for Prince Rupert discharge is currently limited to 5%, and that this would drop to 0% with the addition of a third service in

80 Projections of PNW vessel services for 05 West Coast port rotation sequences for Asian services Mercator reviewed the current port call sequences within the PNW region (as shown earlier, and which are assumed to remain unchanged for 00) and reached the following conclusions regarding expected changes in those sequences for 05: CMA CGM/APL is expected to add a Prince Rupert call before the Seattle call on the PNW, once its volume guarantee to the Port of Seattle expires in 04. The other four Ocean Alliance services, and the three current THE Alliance services are expected to have no changes in their respective port call sequences within this region. When the M carriers incorporate Zim into their vessel sharing alliance in this corridor (as assumed by Mercator to happen before 05), the second M+Z deployment (an upsizing of what is currently the ZMP) will add a Seattle call after the Vancouver call. No changes in port call sequences are expected for the existing M services, the HMM, and the Westwood services, while the new niche carrier replacing SM Lines is projected to call Vancouver first-inbound. Evergreen, ONE, and HMM are expected to maintain first-inbound calls in Tacoma in 05 to maintain competitive advantages in the Puget Sound local market, and to generate additional volumes for their affiliated terminals. Expected port rotation sequences of vessel services calling at Canadian ports: Asian trades, 05 Alliance Ocean THE Alliance M+ZIM Independent Alliance Carrier CMA APL COSCO Evergreen OOCL COSCO ONE ONE Hapag YML Maersk MSC ML/Zim Maersk MSC HMM niche Westwood Carrier Prince Rupert Prince Rupert Vancouver 3 3 Vancouver Seattle 3 a Seattle Tacoma Tacoma California California Service PNW PNW PNW3 PNW4 PSW PN PN PN3 PS8 TP-9 TP-4 TP-8 PN PNS PNW Service 80

81 Projections of PNW vessel services for 00 and 05 Other trade lanes European trades review of current operations There are three separate deployments that link the PNW with exporters and importers in Europe. All three strings turn-around in the Salish Sea and stop in California ports in both the southbound and northbound directions to and from the Panama Canal. The AL-5, which is operated by ONE and Hapag-Lloyd, is the only direct, weekly-frequency containership service between the WCNA and North Europe, and uses 0 ships of 4,800-5,000 TEU capacity, all provided by ONE (although the largest user of the deployment s capacity, and the largest carrier by market share for this trade, is Hapag-Lloyd). The MPS runs between the West Mediterranean region and WCNA, and uses 0 ships of 4,600-5,000 TEU capacity, eight contributed by Hapag- Lloyd and two by Hamburg Sud. The two carriers have operated this service jointly and continuously since 0, but Hapag-Lloyd inherited the deployment when it acquired CP Ships in 005. The California Express was launched in 00 by MSC between WCNA and the West Med to put competitive pressure on Hapag-Lloyd s MPS service (which was then the only weekly containership service in this trade). There are 0 ships in this string, with capacities in the 8,800-9,400 TEU range these ships were introduced by MSC shortly after the new locks of the Panama Canal became operational in July 06. All three deployments make westbound/northbound and/or southbound/eastbound stops in one or more Central America/Caribbean Basin ports, and all three carriers use those stops to relay PNW traffic to and from Latin America. Moreover, MSC uses its North Europe West Coast South America service to exchange WCNA North Europe boxes to and from the California Express at its hub terminals in Panama, thereby enabling it to compete with Hapag-Lloyd/ONE in that market as well. AL-5: Atlantic Loop 5 California Express 8

82 Projections of PNW vessel services for 00 and 05 Other trade lanes European trades outlook The trades between Europe and the WCNA have typically grown at lower rates than the Asian trades to/from WCNA. Based on statistics that Mercator has viewed on container volumes of the California Express through the WCNA ports, it is apparent that utilization levels on this deployment are not high enough to warrant an upsizing of this service by 00, considering the expected head-haul traffic growth on this lane. Moreover, we would anticipate that MSC will not upsize the deployment by 05 either, but instead will add a shorter-haul deployment (such as a feeder string between Panama and Southern California) to gain more capacity on this route, if needed. What is more uncertain, though, is what Hapag-Lloyd and Hamburg Sud (Maersk) will want to do strategically regarding the MPS deployment. At present, the MPS has significantly higher ocean transport costs per TEU, versus the California Express, with 4,600-4,800 TEU ships versus 8,800-9,400 TEU ships. However, the Med WCNA market is not large enough to support a second string of comparable scale to the California Express. At the same time, even though they are the only carriers providing direct service between North Europe and WCNA, it is sub-optimal for ONE and Hapag- Lloyd to be operating old-panamax ships (of less than 5,000 TEU capacity) on a long-distance deployment through the Panama Canal. Thus, Mercator anticipates that Hapag-Lloyd will re-configure its network by 05 in a manner that enables North Europe WCNA and Med WCNA traffic to be transported on the same vessels between WCNA and Panama (or Cartagena), resulting in an amalgamation of the AL-5 and MPS (with or without Hamburg Sud/Maersk), and operating with a larger scale. If Maersk/Hamburg Sud is not invited by Hapag-Lloyd/ONE to participate in the amalgamated AL-5/MPS, then it will likely upsize its Med WCSA and North Europe WCSA services, and relay Med WCNA and North Europe WCNA boxes in Panama to an expanded California WCSA service (that could be extended to the PNW region). However, we have assumed here that Maersk will have capacity on AL5/MPS. Projections of Europe/PNW vessel deployments to 05 Vessel service name Lead operating carrier Vessel service scale (TEU/week) AL5 Hapag Lloyd 4,900 4,900 0 MPS Hapag Lloyd 4,700 4,700 0 AL5/MP5 HL/ONE/Maersk Calif-Express MSC 9,00 9, Total group 8,800 8,800 7,900 Mercator anticipates that by 05 Hapag-Lloyd will consolidate its N. Europe WCNA and Med WCNA traffic resulting in an amalgamation of the AL-5 and MPS. 8

83 Projections of PNW vessel services for 00 and 05 Other trade lanes ANZ trade review and forecast Hamburg Sud/ANL/Hapag-Lloyd: WCNA-ANZ 'Oceania' joint service As noted earlier, there is only one direct vessel deployment linking the PNW region with ANZ, operating jointly by three carrier-groups (Maersk/Hamburg Sud, CMA CGM/ANL, and Hapag-Lloyd). This deployment is operated with a bi-weekly sailing frequency, using eight ships of 4,000-5,000 TEU capacity, four of which are provided by Maersk/Hamburg Sud, two from CMA CGM/ANL, and two from Hapag- Lloyd. The service calls in Oakland and Long Beach every week, but only runs to the PNW every other week. This service is just being launched, after many years in which CMA CGM, Hapag-Lloyd and Hamburg Sud operated one weekly-frequency deployment between California and ANZ with seven ships of 3,500-5,000 TEU capacity, and a separate bi-weekly deployment between Oakland/PNW and ANZ, with four ships of 500-,700 TEU capacity. Mercator expects minimal changes to this deployment between now and 00, other than potentially replacing a few of the smaller ships now being assigned to it. By 05, we would project the Oceania Joint Service to be operating at the 5,500 TEU scale (as there will be no shortages of that vessel type available then), but with the bi-weekly sailing frequency for the PNW region maintained. With no competition from other direct services, the three carrier-groups have no need to increase the PNW frequency to weekly, since doing so would cost them several million dollars per year of additional fuel expense without generating any additional volume/revenue. 83

84 Number of services Number of services Projections of VFPA vessel services for 00 and 05 Summary of all trade lanes Expected size distribution of vessel deployments Mercator s projections for all three deployment groups relevant to VFPA (Asia Salish Sea, Asia Prince Rupert/California, PNW Europe, and PNW ANZ) are summarized in the bar charts to the right, for 00 and 05. As noted on preceding pages, Mercator projects separate Asia services to the Salish Sea, along with three from Europe and one from ANZ, to be operated in 00. Projected distribution of VFPA services by ship size for all trades, One of the 6 is projected to use ships of under 4,000 TEU capacity, and another four are likely to be operated with old-panamax ships (of 5,000 TEU or less capacity). Four of the 6 are expected to be using ships of 9,000 TEU capacity or larger. By 05, we project the number of deployments for all three groups, in aggregate, to diminish by one, as a result of a consolidation driven by Hapag-Lloyd of two European services into one. As the chart to the lower right indicates, Mercator projects that seven of the 5 deployments will be using ships of 9,000 TEU capacity or larger Service scale (TEUs) Projected distribution of VFPA services by ship size for all trades, Note: These charts cover the international liner services that do or would call in the Port of Vancouver, but excludes the three services that run from Asia to California to Seattle/Tacoma (but not Vancouver) and back to Asia. These three services (operated by Evergreen, HMM, and COSCO) provide additional sailings to move reefer loads and empties westbound, but also to generate more volumes for the Puget Sound terminals affiliated with those three carriers we do not project any of these three strings to add Vancouver calls between now and Service scale (TEUs) 84

85 Projections of PNW vessel services for 00 Distribution of deployments within Vancouver port complex Precinct distribution Projected split of vessel services and throughputs by harbour precinct, 00 The current distribution of vessel deployments among the three harbour precincts of the Vancouver port complex (Burrard Inlet, Roberts Bank, and River) is projected by Mercator to be largely the same for 00. The one change anticipated is a relocation of the HMM PN- service from the Burrard Inlet to Roberts Bank, due to terminal capacity constraints in the former. With the HMM PN- switch, Mercator projects the Burrard Inlet precinct to handle about 4% of the throughput forecasted by OSC for VFPA, with the Roberts Bank precinct handling 49%, and the River precinct moving the balance. These projections are summarized in the table to the right. 85

86 Projections of PNW vessel services for 05 Distribution of deployments within Vancouver port complex Precinct distribution Projected split of vessel services and throughputs by harbour precinct, 05 By 05, the additional capacity in the Burrard Inlet precinct (from the completion in 0 of the Centerm expansion project) should enable this portion of the port complex to handle the upsized ZMP service (by now assumed to be absorbed into a M+Zim alliance), as well as an upsized Oceania service that is now too large for the River precinct. Although the Roberts Bank precinct is projected to lose the ZMP service by this time, it would likely gain the THE Alliance-driven, consolidated and upsized AL5/MPS service, which will be too large for the River precinct by 05. With each of the Asia services that call in this precinct expected to upsize, throughput levels here are projected to increase modestly. The River precinct s volumes are projected to drop, with the losses of the SM Lines, Oceania, AL5, and MPS services, partially offset by gaining the Westwood service and a new niche carrier replacing SM Lines in the Asia trade. These projections are summarized in the table to the right, which show a projected volume split of 48%/45%/7% among the three precincts. 86

87 7. Projection of long-term vessel deployments 7.. Overview and framework 7.. Projections of vessel deployments for 030 and Projections of distribution of vessel deployments and consignment sizes by VFPA precinct 87

88 Long-term projections of vessel deployments Overview and framework 030 and 035 timeframes The structure of the liner shipping industry, along with the corollary number of vessel sharing alliances (and the carrier memberships in those alliances) becomes increasingly ambiguous beyond 05. Nonetheless, in order to formulate a logical view on the number and average vessel size of separate deployments that could be expected to be operated in 030 and 035 especially for the critical Asia Salish Sea Asia segment Mercator makes the following assumptions on liner structure: There will continue to be, through the forecast, one global carrier operating one or more Asia Salish Sea deployments from each of the following countries China (COSCO), Japan (ONE), Korea (HMM), Taiwan (Evergreen), Germany (Hapag-Lloyd), and Denmark (Maersk) considering the direct and/or indirect support that those carriers will likely continue to receive from their host governments and major exporting/industrial companies. Because MSC and CMA CGM are family-controlled businesses, there is perhaps some possibility that one or both companies are acquired by a member of the first group, or potentially merge with each other to obtain scale advantages. However, between these two carriers (regardless of whether or not they remain independent, or remain in their current alliances, or merge), they will operate at least one Asia Salish Sea deployment with their own ships through the forecast period. With support from forest/paper products exporters in the PNW and importers in Japan/Korea/Northeast China, and with the continued use of multipurpose ships designed for those commodities, Westwood should be able to sustain its niche operation through the forecast period. There is likely to be one non-major ocean carrier operating an independent Asia Salish Sea deployment at least intermittently through the forecast period, given patterns of the past thirty years, during which new entrants have periodically launched such operations. Based on these structural assumptions, we further assume that the six to eight global carriers (plus Zim and Yang Ming, if still independent, which is unlikely) will be configured in three to four alliances of unequal scale by

89 Projections of PNW vessel services for 030 and 035 Asia eastbound trade lane (assuming RBT is built) Assumptions and forecast for Asia Salish Sea Asia services Mercator assumes that for the 030 and 035 timeframes, there will be three separate vessel sharing agreements in place within the Asia PNW (and Asia California) lanes. These alliances will be of differing scales, with the largest carrier-group providing four services to the market, and with the other two operating three and two separate deployments, respectively depending on their respective sailing frequency requirements for different origin regions of Asia. We also assume that there will be one global carrier that chooses to (or is forced to) operate independently, outside of the other three alliances. Two niche carriers one of which would be Westwood (or a successor specialist ship line) will also be each running their own independent strings. These projections are displayed in the table to the right, and are consistent with forecasted trade growth rates. Forecast for Asia Prince Rupert/California services Mercator projects three services in this category for 030/035 as shown below. Projections of Asia Rupert/California vessel deployments with RBT Vessel service number Alliance or Carrier Vessel service scale (TEU/week) Alliance A Alliance B Alliance C Total Group 36,000 39,000 Projections of Asia -Salish Sea Asia vessel deployments with RBT Vessel service number Alliance or Carrier Vessel service scale (TEU/week) Alliance A Alliance A Alliance A Alliance A Alliance B Alliance B Alliance B Alliance C Alliance C Global Carrier Westwood New niche line Total Group,000 8,000 89

90 Projections of PNW vessel services for 030 and 035 West Coast port rotation sequences for Asian services Considering the vessel service projections from the preceding page, Mercator forecasts the corollary port call sequences for these deployments as shown below, with the following notes: All three of the alliances would be expected to have at least one service with first-inbound calls at Prince Rupert, but the largest alliance would likely have two of its four Asia Salish Sea deployments calling Prince Rupert first. All three of the alliances would be expected to have one of their services make first-inbound calls in the Puget Sound to maintain a competitive position in the latter s local market. With three or more Asia Salish Sea deployments, Alliance A and Alliance B would each likely configure a first-inbound call in Vancouver on one of their respective services. The independent global carrier and niche carrier will each call Vancouver first-inbound to exploit the favorable rail economics/service levels via that gateway, versus via the Puget Sound gateway. There should be sufficient terminal capacity in the Vancouver port complex to avoid carriers needing to change Vancouver port calls to be after Puget Sound calls in order to route more intermodal volumes through the latter gateway. Expected port rotation sequences of vessel services calling at Canadian ports: Asian trades, 030 and 035 Alliance Alliance A Alliance B Alliance C Independent Alliance Carrier Global Carrier niche Westwood Carrier Prince Rupert Prince Rupert Vancouver 3 3 Vancouver a Seattle NWSA Tacoma California California Service SAL- SAL- SAL-3 SAL-4 CAL- SAL-5 SAL-6 SAL-7 CAL- SAL-8 SAL-9 CAL-3 SAL-0 SAL- SAL- Service 90

91 Projections of PNW vessel services for 030 and 035 Asia eastbound trade lane with RBT not built Assumptions and forecast for Asia Salish Sea Asia services If RBT is not built, the diversions of import volumes forecasted by OSC to be diverted through primarily Prince Rupert and SPB ports is projected to cause no Asia Salish Sea deployments to be eliminated (versus the projections for the Build RBT scenario) because carriers will still need and want to maintain sailing frequencies and Asia-origin direct connections into the local Vancouver market. However, the upsizing projected for selected vessel deployments in the Build RBT Scenario (as presented on the prior page) will likely be reduced, and the amount of aggregate weekly capacity for this deployment group will likely be reduced. These impacts can be observed in the table to the right (vessel services using smaller ships in this scenario, versus the build scenario, are indicated with a red font). Forecast for Asia Prince Rupert/California services Mercator projects no increase in the number of separate services in this category for 030/035, as a result of RBT not being built. However, we would expect at least one of the alliances to upsize its string to the 5,000 TEU scale, in response to the OSC-forecasted diversion of volumes from Vancouver to Prince Rupert, as shown in the table below. Projections of Asia -Salish Sea Asia vessel deployments without RBT Vessel service number Alliance or Carrier Vessel service scale (TEU/week) Alliance A Alliance A Alliance A Alliance A Alliance B Alliance B Alliance B Alliance C Alliance C Global Carrier Westwood Projections of Asia Rupert/California vessel deployments without RBT Vessel service number Alliance or Carrier Vessel service scale (TEU/week) Alliance A Alliance B Alliance C Total Group 36,000 43,000 New niche line Total Group,000 7,500 9

92 Projections of PNW vessel services for 030 and 035 Other trade lanes with and without RBT Assumptions and forecast for European services Mercator projects that this lane will continue to be covered by just two vessel services after 05. The risks of mounting a new, third service will be too great for another carrier or alliance to incur, given the number of ships required for the deployment, the size of the trade, and sizes of ships required to be cost competitive. Whether or not RBT is built will have no impact on the number and size of these Europe PNW strings. Projections of Europe PNW services Vessel service number Alliance or Carrier Vessel service scale (TEU/week) Alliance A Alliance B Total Group,000 6,000 Assumption and forecast for ANZ service Mercator projects that this lane will continue to be covered by just one vessel service after 05. However, at some point during the forecast period, we would expect the sailing frequency to increase from bi-weekly to weekly. The scale of the service will likely increase from the 5,500 TEU level in 05 to 7,500 TEU by

93 Projections of PNW vessel services for 030 and 035 Distribution of deployments within Vancouver port complex (with RBT) Precinct distribution Projected split of vessel services and throughputs by harbour precinct, 030 As vessel strings upsize in the Asia Salish Sea trade segment, with corollary increases in the average weekly consignments (TEUs exchanged between the vessel and the terminal), and as the first phase of RBT becomes operational, the smaller capacity terminals of the Burrard Inlet precinct are expected to lose services and volumes to the Roberts Bank precinct. Moreover, the Asia services calling at Burrard Inlet terminals are expected to be secondinbound calls, given the relatively lower levels of intermodal transfer capacity at those facilities relative to the Roberts Bank terminals. Thus, Mercator projects that the Roberts Bank precinct would likely handle about 6% of the port s throughput in 030, while the Burrard Inlet precinct stevedores about 33% of Vancouver s volume, with the River precinct handling the balance. These projections are summarized in the table to the right. 93

94 Projections of PNW vessel services for 030 and 035 Distribution of deployments within Vancouver port complex (with RBT) Precinct distribution Projected split of vessel services and throughputs by harbor precinct, 035 Once RBT is fully built out by or before 035, and as vessel strings upsize further, almost all of the strings using ships of 0,000 TEUs or more will likely be assigned to the Roberts Bank precinct. Concurrently, as average consignment sizes increase on the Asian strings, it will be more difficult for at least one of the Burrard Inlet terminals to handle more than one such deployment. Hence, Mercator projects the distribution of expected vessel deployments among the port s precincts in 035 as indicated in the table to the right. The Roberts Bank precinct s share of the port s total throughput is projected to climb to 70% by 035, with only 8% processed in the Burrard Inlet precinct, and only % handled in the River precinct. Capacity utilization within the Roberts Bank precinct would be in the 90% range, and nearly 75% in the Burrard Inlet precinct. 94

95 Projections of PNW vessel services for 030 and 035 Distribution of deployments within Vancouver port complex (without RBT) Precinct distribution Projected split of vessel services and throughputs by harbor precinct, 030 Without the development of RBT, Mercator projects that the Roberts Bank precinct will still handle the majority of vessel deployments that call Vancouver and use ships of 0,000 TEU capacity or greater. However, greater use will be required of the capacity in the Burrard Inlet precinct. Mercator s projections of the distribution of vessel strings by precinct for this scenario are displayed in the table to the right, with a volume split of 45%/48%/6% among the three precincts. In this scenario, we expect the Roberts Bank precinct to be essentially at capacity (98% utilization) by 030, while the Burrard Inlet precinct would also be operating at a very high utilization level (of 9%). Although the River precinct would have some nominal capacity available, beyond the volumes projected for its two services, there would likely be no other deployments calling the port complex by that time that use ships of a size which could feasibly access this precinct. 95

96 Projections of PNW vessel services for 030 and 035 Distribution of deployments within Vancouver port complex (without RBT) Precinct distribution Projected split of vessel services and throughputs by harbor precinct, 035 Without the development of RBT, Mercator projects that the Roberts Bank and Burrard Inlet precincts will have to split the 0 forecasted Asia Salish Sea deployments of the major carriers by 035. In this scenario, the River precinct will still be needed to handle the two niche carrier Asia services. The upsized European services will likely call in the Roberts Bank precinct, while the upsized ANZ service calls in the Burrard Inlet precinct should that prove to be unworkable, due to berth conflicts, this deployment could potentially be switched to the Roberts Bank precinct or otherwise the call could be dropped (with containers trucked to and from Seattle). Mercator s projections of the distribution of vessel strings by precinct for this scenario are displayed in the table to the right, with a volume split of 47%/47%/6% among the three precincts. In this scenario, we expect both of the main precincts to be close to capacity, at 93% utilization, handling slightly less volume than in 030, due to diversions of intermodal traffic through other gateway ports. 96