Trade Report. Maersk Group. Optimism Over Brazil Growth in 2017 Timid BRAZIL Q4 2016

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1 Maersk Group Trade Report 2016 BRAZIL Optimism Over Brazil Growth in 2017 Timid Capacity to remain unchanged during the whole year Exports to struggle amid lack of space and equipment Carriers costs increasing, empty equipment resupply is a must, bunker fuel keeps rising 2016 imports improved but well below 2012, 2013 and 2014 levels Brazilian trade is starting to show signs of what is expected to be a slow recovery. Imports grew during 2016 but exports struggled to expand amidst an appreciating Real, a high base of comparison and ultimately a lack of equipment and space on ships servicing trade between the region s largest economy and the rest of the world. Indeed, for 2017, Maersk Line, the world s largest container shipping company, expects imports will grow less than 1% whilst exports are seen finishing the year flat - provided the Real stays around the BRL3 to the dollar mark. This comes after exports in the fourth quarter dipped year on year and imports managed to grow nearly across all categories. The latest numbers confirm our concerns and predictions around Brazilian trade performance. Imports showed a sign of improvement linked to the need to resupply inventories but far away from the glory years where imports were the engine of the economy. This means exporters are going to continue to find it hard to expand because there is no empty equipment on the coast and also space PAGE 1

2 Maersk Group Trade Report / 2016 / BRAZIL is limited on ships, and carriers will continue to be impacted by the increasing costs of bunker and extremely high cost of moving empty equipment into the country, says Antonio Dominguez, Managing Director for Maersk Line s East Coast South America cluster. Imports need to increase significantly before shipping lines can start to think about justifying the cost of bringing new ships to Brazil and we do not see that happening in We remain concerned with the stronger local currency as exports will become less competitive if the Real crosses the BRL3 to the dollar barrier, exposing once again the country s lack of competitiveness, infrastructure and supply chain inefficiencies that require a green light for auctions and further investments. Carriers cannot be expected to continue to carry the high cost of all these inefficiencies, considering the current financial situation the whole shipping industry is battling, he adds. In the last decade, Maersk as a group has invested more than US$8.5 billion (R$25.9 billion) in Brazil from ships to terminals, oil and gas and training versus more than US$2.5bn in the rest of Latin America. At the moment, Maersk is moving forward with the announced acquisition of Hamburg Sud pending due diligence and regulatory approvals. This acquisition will provide customers unique advantages as the networks of both carriers are highly complementary. We can see optimism among clients but statistically, Brazil is bouncing off two extremes, the all-time high experienced in exports last year and the all-time low in imports, any losses or gains are going to look much bigger than they really are, so for now, while we are encouraged by what looks to be the start of an economic recovery, we are taking a very sober view on Brazil, says Nestor Amador, Commercial Director for Maersk Line East Coast South America. The import market is showing very timid signals of recovery and while we compare YOY 4Q 2016 versus 2015, volume expansion so far is yet to signal that we are on a solid path for growth. When we compare December 2016 versus.2014 and even 2013, the drop in volumes is 23% and 34% respectively. Imports did perform better as a result of stock levels reaching rock bottom figures and replenishing inventory levels in Manaus and production lines. On the exports side, the strength seen during the first half of 2016, faced a challenging ending as the Real appreciated against the dollar. Also limited space to Asia and a lack of equipment in the country has led to new orders being moved back to break bulk vessels, which in turn will result in increasing logistic costs for customers, he adds. Market Growth per Trade - Import Total Market Growth per Trade - Export / Import Total Fourth Quarter In the fourth quarter, exports declined 4.1% but imports increased 13.8%, putting total maritime trade growth at 2.9%, according to statistics provided by Datamar to Maersk. The numbers look good but imports are coming from a very low base of comparison by historic standards, considering that Brazil was officially a net importer until the first quarter of 2016 when imports tanked and the nation became a net exporter by the second quarter. In contrast, the decline of exports is partly told by the high base of comparison. Imports were primarily driven by restocking among automakers as Manaus started to come back to life right at the end of the fourth quarter. Meanwhile, potato imports, for example, also helped prop up numbers with strong demand for produce from Portugal and Argentina. On the flipside, retail continued to hurt with finished manufacturing down 1.5% year on year. In terms of the four core global regions, imports saw double-digit increases in volumes from Europe (17.6%), Far East (11.9%), Africa (10%) and the Middle East (48%). PAGE 2

3 Maersk Group Trade Report / 2016 / BRAZIL Containerized Import Growth - Main Segments Industry Segment Apparel & Recreational -9.7% Automobile & Transportation 22.2% Beef 13.8% Chemicals 18.9% Cotton 216.4% Finished Manufacturing - Primarily Consumer Goods -1.5% Fish 17.2% Food & Beverage 15.4% Fruits, Vegetables & Plants 53.9% Machinery, Appliances & Electronics 9.6% Metals, Mining & Construction 2.3% Other Meat 19.8% Plastic & Rubber 18.8% Pulp & Paper 0.0% Residues From Food Industries -2.7% Textile & Leather 39.4% Wood 3.0% For exports, lower numbers were principally driven by weaker commodities, in particular, soy and cotton, which had a strong and evenly distributed performance during 2016 but not a concentrated result like the fourth quarter of However, it was reefer exports that suffered the largest drop, declining 11% in the fourth quarter versus 1.7% for dry. Reefer exports were all down with Europe (-7.6%), Far East (-6.5%), Africa, (-11.7%) and the Middle East (-12%). Beef sunk 24%, fish fell 5.9%, fruits and vegetables declined 3.8%, poultry was 11.6% weaker and other meat was also 8.8% lower in the fourth quarter year on year. Containerized Export Growth - Main Segments Industry Segment (DRY) Apparel & Recreational 15.5% Automobile & Transportation 18.2% Chemicals 0.2% Coffee -2.0% Corn -93.5% Cotton -31.5% Finished Manufacturing - Primarily Consumer Goods 8.5% Food & Beverage -14.9% Machinery, Appliances & Electronics 6.2% Metals, Mining & Construction 4.1% Plastic & Rubber 9.5% Pulp & Paper 3.4% Residues From Food Industries -58.0% Soy -74.1% Sugar 10.8% Textile & Leather -12.7% Tobacco -8.7% Wood 27.4% Industry Segment (REEFER) Beef -23.7% Chemicals 10.6% Fish -5.9% Food & Beverage -23.5% Fruits, Vegetables & Plants -3.8% Other Meat -8.8% Pork 3.0% Poultry -11.6% PAGE 3

4 Maersk Group Trade Report / 2016 / BRAZIL January Brazil is in better shape in January than it was the same time a year ago but economic signals continue to be mixed for now from disinflation to high employment. Indeed, inflation in January reached its lowest ever recorded level for the month. With the Real just above the BRL3.00 mark, you can spur demand for imports without hurting exports but should it dip below BRL3.00 to the dollar, exporters are going to have a tougher time to compete, says Joao Momesso, head of Trade and Marketing for Maersk Line across its East Coast South America cluster. Provided the Real remains stable, we expect a lack of equipment and ship capacity to be the factors where customers will focus to maximize their exports potential in 2017, he adds. In terms of products, imports were again better but retail remains under pressure whilst cotton exports are down year on year as the season pattern is different. Regional Breakdown From a regional standpoint, the northeast put in the best performance on the imports side in the fourth quarter, showing the best recovery. The southeast was more steady. Both regions have an opposite story to tell, says Momesso. The Northeast was the first region to be hit by the crisis in the third quarter of 2015 and also the most impacted so it is consequently the first that we now see recovering the fastest, whilst the southeast, which was the last to be impacted by the crisis is the region putting in the most modest improvement, he adds. APM TERMINALS REGIONAL BREAKDOWN: North and Northeast Owing to the fast ramp up of productivity levels at APM Terminals Pecém, container trade is migrating from northeast cargo outflow ports such as Natal (Rio Grande do Norte) and Suape (Pernambuco) to Pecem (Ceara) where APM Terminals operates one of its three terminals in Brazil. The expectation is that volumes will grow 20% in 2017 thanks to fruit and refrigerated cargo exports as well as increasing imports from North America, Europe and the Middle East South The challenging Brazilian economic backdrop, drop in consumption and reduction in import volumes, impacted the increase in demand for shared containers, principally in mature markets, like Itajai in Santa Catarina. That said, LCL (less-than-container-load) services offered by APM Terminals at Itajai, for example, increased 40% in January 2017 in relation to the same period in 2016 after doubling its levels last year versus The company now leads the Santa Catarina market with 62% of its operations of this modal concentrated at the Itajai terminal. Export Brazilian Trade Growth by Region Southeast 12.8% 8.3% 2.8% -3.1% South 20.8% 7.6% 3.4% -5.9% Northeast 19.1% 22.0% 2.4% -1.5% North -6.5% 4.3% 8.6% -0.3% Import Southeast -27.5% -15.2% -11.9% 5.6% South -33.2% -18.3% -3.2% 22.7% Northeast -28.0% -7.1% 2.9% 30.2% North -51.2% -45.7% -17.7% 28.8% Total Southeast -10.0% -3.7% -4.7% 0.8% South -4.9% -2.2% 0.9% 2.9% Northeast -7.2% 5.7% 2.6% 10.2% North -40.8% -33.0% -11.3% 18.3% PAGE 4

5 Maersk Group Trade Report / 2016 / BRAZIL About Maersk Line Maersk Line, the world s largest container shipping company, runs 16 SAMMAX (South American Maximum) ships worth US$2.2 billion that were especially designed for Brazil s shallow water ports. Maersk Line has a 15% market share of the Latin America container shipment market. About Maersk Group Maersk Group, which has annual revenue of around US$40 billion and operates in more than 130 countries, finished a US$4bn investment cycle in Brazil in The group has more than 6,500 staff in Latin America and 88,000 in the world with more than 2,000 in Brazil. The company is also engaged in oil and gas production, towage and emergency services at sea, oil drilling, and tankers, focusing heavily on the safety and training of its highly-skilled staff as well as sustainability. About APM Terminals APM Terminals is a global leader in port productivity and terminal operations with a presence in 69 countries and 72 terminals. APM Terminals operates in the port of Pecem, is a lessee at the container terminal Itajai and also has a 50% stake in Brasil Terminal Portuario, or BTP, in Santos with a minority stake in TCP at Paranagua, Parana state. APM Terminals also operates inland terminals for empty containers and repairs in the south. For further details and interview requests, please contact PR Consulting Brasil André Mascarenhas Tel: / Anthony Dovkants Tel: / More Trade Reports from other markets at PAGE 5