The Impact of the Panama Canal Expansion

Transcription

1 The Impact of the Panama Canal Expansion Reinventing Supply Chains Atlanta, Georgia Don Anderson, VP Bill Loftis, Senior Principal - Tompkins International August 26-28, Supply Chain Leadership Forum

2 Topics for Discussion Value Driver: Changes in Capacity and Frequency Value Driver: Competitive Position for U.S. East Coast and Gulf Ports Value Driver: More Transportation Options Survey Results: Shipper Priorities and Price Sensitivity Concluding Thoughts Discussion Points 2

3 Panama Canal Expansion Changes Shipping Dynamics Existing service options for goods flowing from Asia to the U.S. compete on the basis of total transit time, cost, and shippers desire to balance inventory costs and transportation/distribution costs. Supply chain leaders are planning for change. U.S. Intermodal System Route Panama Canal Route Suez Canal Route 3

4 Panama Canal Expansion Changes Shipping Dynamics Flow of Goods: Asia to U.S. Routes, Transit Days, and Volume Share (2008) Asia WC Landbridge EC Days 75% Asia Panama Canal EC 21 Days 19% Asia Suez Canal EC 21 Days 6% 4

5 Value Drivers for Business Multiple factors contribute to Asia-U.S. transportation and subsequent distribution strategies. Effective transportation planning and execution requires an evaluation of how expanded canal capacity will affect supply chain performance. A. Changes in capacity and frequency at U.S. Gulf and East Coast ports of entry will create new opportunities and challenges. B. Improved consistency in ocean services through the Panama Canal will improve competitive position of U.S. East Coast and Gulf ports. C. More transportation options for serving U.S. markets will offer new efficiencies for U.S. distribution networks. 5

6 A. Changes in Capacity and Frequency Create New Opportunities and Challenges Multiple scenarios for expansionenabled future ocean services exist, each with its own implications on transit times and costs. Single service, regional specialization, hub-and-spoke Current alternatives to Panama Canal will continue to offer cost and transit time options in a post-expansion shipping environment. Manzanillo Ensenada, Punta Colonet and Prince Rupert, efficient land bridge networks, and avoidance of U.S. Harbor maintenance tax Cooperative initiatives such as Kansas City SmartPort are precipitants for change 6

7 A. Changes in Capacity and Frequency Create New Opportunities and Challenges Carrier efficiencies increase significantly when deploying Post-Panamax vessels vs. Panamax vessels: Weekly service of 11 Post-Panamax Vessels (8,000 TEUs) serving U.S. East Coast ports has an annual productivity of 38,000 TEUs*/vessel and total annual service of 410,000 TEUs via Suez Canal. Same service using Panamax vessels (4,800 TEUs) through Panama Canal has an annual productivity of 31,000 TEUs/vessel and total service capacity of 248,000 TEU/year. The economic impact on carrier of using Panama Canal pre-expansion is 18% decrease in each vessel s productivity and a 40% reduction in total service capacity. *TEUs = twenty-foot equivalent unit (ACP example, cited in USDA January 2010 study) 7

8 B. Improved Trans-Canal Service Performance Improves Competitive Position of East Coast and Gulf Ports Canal transit time performance improvement The 1999 transit time was 9 hours; it was 13 hours in Expansion will lead to reduced transit times and improved consistency. 8

9 B. Improved Trans-Canal Service Performance Improves Competitive Position of East Coast and Gulf Ports U.S. market changes indicate certain ports stand to improve competitive position. Demographic profile shift favors Gulf and East Coast ports. Norfolk, Charleston, and Savannah are example beneficiaries. Short-term challenges exist but will be overcome. Port capacity and depths Truck/intermodal networks 9

10 C. More Transportation Options Offer New Efficiencies for Distribution Networks Increased volumes to Gulf and East Coast ports are driving expansion of intermodal capabilities and extending the competitive posture of East Coast/Gulf ports westward. NS and CSX expansion of intermodal network in the southeast U.S. Continuing improvements in West Coast intermodal network will remain competitive. 10

11 C. More Transportation Options Offer New Efficiencies for Distribution Networks 11

12 Respondent Profile: Retailer What would be the most important factors to your company if it were considering a change in U.S. ports utilized for overseas imports? Consideration Routing Change Priorities Rank 1 Rank 2 Rank 3 Rank 4 Rank 5 Rank 6 Overall Rank & Weight International shipping costs and port charges 59.0% 17.9% 10.3% 5.1% 0.0% 7.7% 1 (5.08) Inland transportation costs from port 12.8% 28.2% 15.4% 17.9% 15.4% 10.3% 2 (3.74) International shipping reliability 15.4% 15.4% 28.2% 17.9% 12.8% 10.3% 3 (3.72) International shipping speed 10.3% 15.4% 30.8% 10.3% 28.2% 5.1% 4 (3.54) Inland transportation reliability from port 0.0% 15.4% 10.3% 30.8% 10.3% 33.3% 5 (2.64) Inland transportation speed from port 2.6% 7.7% 5.1% 17.9% 33.3% 33.3% 6 (2.28) There is virtually no difference between rank 2 (Inland Costs) and rank 3 (International Reliability). Relative to manufacturers, retailers emphasize reliability over speed. 12

13 Respondent Profile: Manufacturer What would be the most important factors to your company if it were considering a change in U.S. ports utilized for overseas imports? Consideration Routing Change Priorities Rank 1 Rank 2 Rank 3 Rank 4 Rank 5 Rank 6 Overall Rank & Weight International shipping costs and port charges 48.8% 23.3% 16.3% 7.0% 2.3% 2.3% 1 (5.02) Inland transportation costs from port 18.6% 27.9% 14.0% 18.6% 9.3% 11.6% 2 (3.93) International shipping speed 18.6% 16.3% 20.9% 14.0% 20.9% 9.3% 3 (3.70) International shipping reliability 4.7% 18.6% 18.6% 25.6% 16.3% 16.3% 4 (3.21) Inland transportation speed from port 4.7% 11.6% 9.3% 18.6% 27.9% 27.9% 5 (2.63) Inland transportation reliability from port 4.7% 2.3% 20.9% 16.3% 23.3% 32.6% 6 (2.51) Relative to retailers, manufacturers emphasize speed over reliability. 13

14 C. More Transportation Options Offer New Efficiencies for Distribution Networks Secondary ports provide more competitive shipper economics. Port throughput time/costs, distribution center (DC) facility and labor costs, access to truck-rail-intermodal Enterprise use of strategic and tactical network optimization tools allows companies to capitalize on available new efficiencies and increased competition. 14

15 Panama Canal Price Sensitivity by Region How much less expensive would total transportation costs need to be for you to switch from your current method to shipping via the Panama Canal? Price Sensitivity Retailer East Coast (+5 Days) Inland East (+6 Days) Gulf Coast/Lower MS Valley (+ 4 Days) $50 - $149 / TEU 0.0% 0.0% 16.7% $150 - $249 / TEU 18.4% 19.4% 8.3% $250 - $349 / TEU 7.9% 8.3% 11.1% $350 - $449 / TEU 5.3% 5.6% 2.8% $450 or more / TEU 7.9% 5.6% 5.6% We would not consider a substantially longer transit time regardless of savings. 10.5% 11.1% 8.3% We already ship to this region via the Panama Canal. 36.8% 22.2% 5.6% We do not currently ship anything to this region. 13.2% 27.8% 41.7% 15

16 Panama Canal Price Sensitivity by Region How much less expensive would total transportation costs need to be for you to switch from your current method to shipping via the Panama Canal? Price Sensitivity Manufacturer East Coast (+5 Days) Inland East (+6 Days) Gulf Coast / Lower MS Valley (+ 4 Days) $50 - $149 / TEU 4.4% 2.3% 9.1% $150 - $249 / TEU 13.3% 11.6% 4.5% $250 - $349 / TEU 6.7% 9.3% 9.1% $350 - $449 / TEU 2.2% 11.6% 4.5% $450 or more / TEU 20.0% 11.6% 11.4% We would not consider a substantially longer transit time regardless of savings. 11.1% 11.6% 13.6% We already ship to this region via the Panama Canal. 17.8% 9.3% 11.4% We do not currently ship anything to this region. 24.4% 32.6% 36.4% 16

17 C. More Transportation Options Offer New Efficiencies for Distribution Networks Greatest competition for market share 17

18 Panama Canal Expansion Perspectives Which of the following statements most closely represents your company's planning for the opening of the Panama Canal expansion in 2015? 13% Retailers 3% Expansion is extremely critical to our operations and formal network optimization scenarios and contingency planning have already begun. We believe the canal expansion presents an opportunity but no analysis has been done to date on how to capture business from the opportunity. 25% Not enough info Does Not Affect 18% No Analysis 10% 33% We use the canal in our business model but don't believe there is any reason to look at changes to our international shipping patterns. The Panama Canal expansion does not affect our business model and thus we have not planned any changes to our strategy. We're aware of the expansion and its potential but don't have enough information at this time to assess and prepare for the opportunity. This issue isn't currently under consideration and won't be until we are able to determine how it affects our operations once the Canal is opened. 18

19 Panama Canal Expansion Perspectives Which of the following statements most closely represents your company's planning for the opening of the Panama Canal expansion in 2015? Manufacturers 9% 19% No Analysis 25% Not enough info Does not affect 43% 4% Expansion is extremely critical to our operations and formal network optimization scenarios and contingency planning have already begun. We believe the canal expansion presents an opportunity but no analysis has been done to date on how to capture business from the opportunity. We use the canal in our business model but don't believe there is any reason to look at changes to our international shipping patterns. The Panama Canal expansion does not affect our business model and thus we have not planned any changes to our strategy. We're aware of the expansion and its potential but don't have enough information at this time to assess and prepare for the opportunity. This issue isn't currently under consideration and won't be until we are able to determine how it affects our operations once the Canal is opened. 19

20 Concluding Thoughts Adopt a strategic agenda that includes these five steps: 1. Understand the present and future profile of products, markets, and the need to appropriately balance transportation velocity versus cost. 2. Evaluate how distribution networks will be impacted by transportation cost and service changes at Gulf and East Coast ports. 3. Map any cost and service effects of U.S. truck, rail, and intermodal network service changes resulting from shifts in expected port capacities. 4. Quantify current and future end-to-end transportation and regulatory/entry costs and cycle times. 5. Develop scenarios and contingency plans that incorporate canal expansion and related impacts; leverage existing and emerging best practices. 20

21 Concluding Thoughts Leaders Perpetually Rethink Global Supply Chain Strategy The Supply Chain: BUY, MAKE, MOVE, STORE, and SELL are the supply chain processes. Achieving the optimal cost/service ratio is the holy grail of MOVE. Using this framework, leaders must rethink business models, global networks, sourcing distribution locations, and total delivered costs. Existing and emerging best practices guide informed decisionmaking. Top supply chain companies will integrate Panama Canal expansion-related changes into their supply chain strategies. 21

22 Continued shifts in global manufacturing centroid Away from China toward Western India; U.S. East Coast inbound volume through Suez Canal How real is nearshoring/reshoring? How long? Potential equalization of transportation costs Carrier costs Discussion Points Panama Canal and Suez Canal transit costs Increased competition for shipping volumes 22

23 Appendix

24 Respondent Profile Which of the following choices most closely describes your business? Company Type 6.2% Other responses may be summarized as financial sector and other nonlogistics services n = % 11.4% 25.7% 39.5% Retailer Manufacturer Wholesaler / Distributor Logistics Service Provider Other 24

25 Demographics: Respondent Profile Annual Revenue 14.8% 13.8% > $25 billion 16.2% 9.5% Between $10 billion and $25 billion Between $1 billion and $10 billion Between $250 million and $1 billion < $250 million 45.7% 25

26 Demographics: Respondent Profile Segment In almost all cases, Other responses for this question may be summarized as industrial or chemical companies. Apparel, fabric, and accessories Automotive and Truck Parts Department Store and Discount Electronics Grocery, Food, and Beverage Hardware and Home 7.1% 4.3% 5.2% 6.2% 5.2% 20.5% n = 210 Hobby, Toys, Arts & Crafts Home Products, Furniture, 3.3% 6.2% Personal Care and Drugs 5.2% Specialty 5.2% Logistics Service Provider 17.6% Other 13.8% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 26

27 Company Type Demographics: Company Type by Revenue > $25 billion Between $10 billion and $25 billion Revenue Between $1 billion and $10 billion Between $250 million and $1 billion < $250 million Total Retailer Manufacturer Wholesaler / Distributor Logistics Service Provider (LSP) Other Total 44.8% 35.0% 25.8% 17.6% 12.9% 26.1% 23.6% 12.7% 45.5% 10.9% 7.3% 100.0% 41.4% 40.0% 43.3% 44.1% 19.4% 39.3% 14.5% 9.6% 50.6% 18.1% 7.2% 100.0% 6.9% 10.0% 12.4% 17.6% 6.5% 11.4% 8.3% 8.3% 50.0% 25.0% 8.3% 100.0% 3.4% 15.0% 12.4% 14.7% 48.4% 17.1% 2.8% 8.3% 33.3% 13.9% 41.7% 100.0% 3.4% 0.0% 6.2% 5.9% 12.9% 6.2% 7.7% 0.0% 46.2% 15.4% 30.8% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 13.7% 9.5% 46.0% 16.1% 14.7% 100.0% 27

28 Company Type Import/Export Profile by Company Type Import / Export Profile Import only Export only Both import and export Neither import nor export Total Retailer Manufacturer Wholesaler / Distributor Logistics Service Provider (LSP) Other Total 56.9% 0.0% 11.8% 20.7% 26.1% 60.0% 0.0% 18.2% 21.8% 100.0% 25.9% 90.0% 50.6% 27.6% 39.3% 18.1% 10.8% 51.8% 19.3% 100.0% 5.2% 0.0% 12.9% 17.2% 11.4% 12.5% 0.0% 45.8% 41.7% 100.0% 8.6% 10.0% 20.0% 22.4% 17.1% 13.9% 2.8% 47.2% 36.1% 100.0% 3.4% 0.0% 4.7% 12.1% 6.2% 15.4% 0.0% 30.8% 53.8% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 27.5% 4.7% 40.3% 27.5% 100.0% Note: Due to shipment profile and, to a lesser degree, size and participation percentages, data analysis is focused on retailers and manufacturers. 28

29 Demographics Respondent Profile: n = companies with annual transportation spends in excess of $1B Many LSP and Other companies chose not to respond to this question > $1.0B - $1.5B > $500M - $750M > $300M - $400M > $200M - $250M > $125M - $150M > $75M - $100M > $40M - $50M > $20M - $30M > $10M - $15M > $5.0M - $7.5M Annual Transportation Spend > $2.0B < $2.5M 6.7% 3.3% 3.9% 4.4% 6.1% 3.9% 3.9% 4.4% 5.6% 5.0% 2.8% 5.6% 3.3% 6.1% 2.8% 2.8% 2.2% 4.4% 4.4% 2.8% 2.2% 6.1% 7.2% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 29

30 Respondent Profile: Import / Export Retailer (n r = 52) Activity Percentage Import only 61.1% Export only - Both import and export 16.7% Neither import nor export 22.2% Manufacturer (n m = 83) Activity Percentage Import only 18.1% Export only 10.8% Both import and export 51.8% Neither import nor export 19.3% For both categories, food & beverage was the segment most likely to select neither. 30

31 Appendix Slides Not Used 31

32 Respondent Profile: Retailer Please indicate which entity has primary responsibility for the following order process control points for U.S.-bound imports from overseas. Order Processing Control Point North American Staff Overseas Staff Supplier (inbound) Logistics Service Provider (LSP) International Carrier Routing (mode / service selection) 78.0% 0.0% 4.9% 17.1% 0.0% Carrier / NVOCC selection 72.5% 2.5% 5.0% 20.0% 0.0% Transfer of goods from Vendor / Supplier to International Carrier 17.9% 0.0% 23.1% 56.4% 2.6% Origin Port Selection 47.5% 2.5% 20.0% 27.5% 2.5% Destination Port Selection 75.0% 0.0% 5.0% 17.5% 2.5% Transfer of goods from International Carrier to Domestic Carrier 42.5% 0.0% 2.5% 50.0% 5.0% 32

33 Respondent Profile: Retailer Import Destination Region Average Eastern Coastal 39.6% Inland East Coast 10.4% Gulf Coast / Lower MS Valley 4.7% West 45.3% Modal Profile - Imports Mode Average Ocean 96.1% Air 3.9% Sourcing Origin Average China 66.3% Japan 0.3% Northern Asia 2.4% Southern Asia 9.3% Pacific Rim 5.5% Central / South America East Coast Central / South America West Coast 3.4% 9.1% Europe 3.1% Africa / Middle East 0.6% 33

34 Respondent Profile - Retailer Import Breakout Profile Average Non-container 0.0% Container 100.0% Combination 0.0% Port Utilization - Imports Mode Average East Coast 31.9% Gulf Coast 8.5% West Coast 59.6% TEUs Imported Annually Range Average > 100, % 50, , % 10,000 49, % % % % < % 34

35 Respondent Profile: Manufacturer Please indicate which entity has primary responsibility for the following order process control points for U.S.-bound imports from overseas. Order Processing Control Point North American Staff Overseas Staff Supplier (inbound) Logistics Service Provider (LSP) International Carrier Routing (mode / service selection) 63.8% 17.1% 8.5% 10.6% 0.0% Carrier / NVOCC selection 68.2% 9.1% 4.5% 18.2% 0.0% Transfer of goods from vendor / supplier to international carrier 28.3% 15.2% 23.9% 32.6% 0.0% Origin port selection 35.6% 22.2% 20.0% 22.2% 0.0% Destination port selection 68.9% 11.1% 4.5% 13.3% 2.2% Transfer of goods from international carrier to domestic carrier 48.9% 4.4% 2.2% 37.8% 6.7% 35

36 Respondent Profile - Manufacturer Import Destination Region Average Eastern Coastal 40.0% Inland East Coast 16.4% Gulf Coast / Lower MS Valley 9.6% West 34.1% Modal Profile - Imports Mode Average Ocean 83.2% Air 16.8% Sourcing Origin Average China 44.4% Japan 3.1% Northern Asia 5.2% Southern Asia 11.3% Pacific Rim 2.2% Central / South America East Coast Central / South America West Coast 8.8% 4.3% Europe 19.8% Africa / Middle East 1.0% 36

37 Respondent Profile: Manufacturer Import Breakout Profile Average Non-container 4.3% Container 80.9% Combination 14.9% Port Utilization - Imports Mode Average East Coast 38.5% Gulf Coast 7.9% West Coast 53.7% TEUs Imported Annually Range Average > 100, % 50, , % 10,000 49, % % % % < % 37

38 Perspective Canal Expansion Perspective by Revenue Retailers > $25B $10B - $25B Expansion is extremely critical to our operations and formal network optimization scenarios and contingency planning have already begun. We believe the canal expansion presents an opportunity but no analysis has been done to date on how to capture business from the opportunity. We use the canal in our business model but don't believe there is any reason to look at changes to our international shipping patterns. The Panama Canal expansion does not affect our business model and thus we have not planned any changes to our strategy. We're aware of the expansion and its potential but don't have enough information at this time to assess and prepare for the opportunity. This issue isn't currently under consideration and won't be until we are able to determine how it affects our operations once the Canal is opened. Total Revenue $1B - $10B $250M - $1B < $250M Total 9.1% 0.0% 0.0% 0.0% 0.0% 2.5% 100.0% 0.0% 0.0% 0.0% 0.0% 100.0% 36.4% 0.0% 41.2% 20.0% 50.0% 32.5% 30.8% 0.0% 53.9% 7.7% 7.7% 100.0% 0.0% 40.0% 5.9% 20.0% 0.0% 10.00% 0.0% 50.0% 25.0% 25.0% 0.0% 100.0% 9.1% 40.0% 17.7% 0.0% 50.0% 17.5% 14.3% 28.6% 42.9% 0.0% 14.3% 100.0% 36.4% 20.0% 11.8% 60.0% 0.0% 25.0% 40.0% 10.0% 20.0% 30.0% 0.0% 100.0% 9.1% 0.0% 23.5% 0.0% 0.0% 12.5% 20.0% 0.0% 80.0% 0.0% 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 27.5% 12.5% 42.5% 12.5% 5.0% 100.0% 38

39 Perspective Canal Expansion Perspective by Revenue Manufacturers > $25B $10B - $25B Expansion is extremely critical to our operations and formal network optimization scenarios and contingency planning have already begun. We believe the canal expansion presents an opportunity but no analysis has been done to date on how to capture business from the opportunity. We use the canal in our business model but don't believe there is any reason to look at changes to our international shipping patterns. The Panama Canal expansion does not affect our business model and thus we have not planned any changes to our strategy. We're aware of the expansion and its potential but don't have enough information at this time to assess and prepare for the opportunity. This issue isn't currently under consideration and won't be until we are able to determine how it affects our operations once the Canal is opened. Total Revenue $1B - $10B $250M - $1B < $250M Total 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% % 0.0% 22.2% 20.0% 16.7% 19.6% 18.2% 0.0% 54.6% 18.2% 9.1% 100.0% 0.0% 25.0% 3.7% 0.0% 0.0% 3.6% 0.0% 50.0% 50.0% 0.0% 0.0% 100.0% 33.3% 50.0% 44.4% 40.0% 50.0% 42.9% 12.5% 8.3% 50.0% 16.7% 12.5% 100.0% 33.3% 0.0% 22.2% 30.0% 33.3% 25.0% 21.4% 0.0% 42.9% 21.4% 14.3% 100.0% 11.1% 25.0% 7.4% 10.0% 0.0% 8.9% 20.0% 20.0% 40.0% 20.0% 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 16.1% 7.1% 48.2% 17.9% 10.7% 100.0% 39

40 Perspective Price Sensitivity by Perspective (East Coast / + 5 Days) Retailers Expansion is extremely critical to our operations and formal network optimization scenarios and contingency planning have already begun. We believe the canal expansion presents an opportunity but no analysis has been done to date on how to capture business from the opportunity. We use the canal in our business model but don't believe there is any reason to look at changes to our international shipping patterns. The Panama Canal expansion does not affect our business model and thus we have not planned any changes to our strategy. We're aware of the expansion and its potential but don't have enough information at this time to assess and prepare for the opportunity. This issue isn't currently under consideration and won't be until we are able to determine how it affects our operations once the Canal is opened. $50 - $149 Price Sensitivity $150 - $249 $250 - $349 $350 - $449 $450 or more Would not consider longer transit time Already ship via the Panama Canal Do not ship to this region % 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.7% 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% Total % 66.7% 0.0% 66.7% 25.0% 35.7% 25.0% 32.4% 0.0% 8.3% 16.7% 0.0% 16.7% 8.3% 41.7% 8.3% 100.0% % 0.0% 0.0% 0.0% 0.0% 21.4% 25.0% 10.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 75.0% 25.0% 100.0% % 0.0% 0.0% 33.3% 50.0% 0.0% 50.0% 16.2% 0.0% 16.7% 0.0% 0.0% 16.7% 33.3% 0.0% 33.3% 100.0% % 0.0% 100.0% 0.0% 0.0% 35.7% 0.0% 24.3% 0.0% 22.2% 0.0% 22.2% 0.0% 0.0% 55.6% 0.0% 100.0% % 33.3% 0.0% 0.0% 25.0% 7.1% 0.0% 13.5% 0.0% 40.0% 20.0% 0.0% 0.0% 20.0% 20.0% 0.0% 100.0% Total % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 0.0% 18.9% 8.1% 5.4% 8.1% 10.8% 37.8% 10.8% 100.0% 40

41 Perspective Manufacturers Expansion is extremely critical to our operations and formal network optimization scenarios and contingency planning have already begun. We believe the canal expansion presents an opportunity but no analysis has been done to date on how to capture business from the opportunity. We use the canal in our business model but don't believe there is any reason to look at changes to our international shipping patterns. The Panama Canal expansion does not affect our business model and thus we have not planned any changes to our strategy. We're aware of the expansion and its potential but don't have enough information at this time to assess and prepare for the opportunity. This issue isn't currently under consideration and won't be until we are able to determine how it affects our operations once the Canal is opened. Price Sensitivity by Perspective (East Coast / + 5 Days) $50 - $149 Price Sensitivity $150 - $249 $250 - $349 $350 - $449 $450 or more Would not consider longer transit time Already ship via the Panama Canal Do not ship to this region 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% % 50.0% 33.3% 100.0% 0.0% 0.0% 37.5% 20.0% 25.0% 9.1% 27.3% 9.1% 9.1% 0.0% 0.0% 27.3% 18.2% 100.0% 0.0% 0.0% 33.3% 0.0% 0.0% 0.0% 12.5% 0.0% 4.5% 0.0% 0.0% 50.0% 0.0% 0.0% 0.0% 50.0% 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 66.7% 60.0% 37.5% 60.0% 40.9% 0.0% 0.0% 0.0% 0.0% 33.3% 16.7% 16.7% 33.3% 100.0% 0.0% 50.0% 33.3% 0.0% 22.2% 40.0% 12.5% 20.0% 25.0% 0.0% 27.3% 9.1% 0.0% 18.2% 18.2% 9.1% 18.2% 100.0% 50.0% 0.0% 0.0% 0.0% 11.1% 0.0% 0.0% 0.0% 4.5% 50.0% 0.0% 0.0% 0.0% 50.0% 0.0% 0.0% 0.0% 100.0% Total Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 4.5% 13.6% 6.8% 2.3% 20.5% 11.4% 18.2% 22.7% 100.0% 41

42 Survey Participant Comments How did you determine your answers to the previous questions about pricing and/or why do you feel this way? The price decrease would have to more than cover the increase inventory required to maintain the same service levels. - Manufacturer, Food ($1B - $10B revenue) My goal in answering these questions was to analyze how much a time/cost change on Panama Canal routing would weigh in the overall picture of our routing decisions. From what we have heard to date regarding guesses on how the Canal expansion will impact costs and transit times, we don't expect it will be enough to change significantly the way we ship. However, we will continue to watch the issue and re-evaluate as more is known. - Retailer, Home Products ($1B - $10B revenue) We already ship to the regions specified via the Panama Canal. With the expansion of the canal we will be seeking savings commensurate with our volume. - Retailer, Crafts ($1B - $10B revenue) 42

43 Survey Participant Comments How did you determine your answers to the previous questions about pricing and/or why do you feel this way? Our business lead times require short times. We can't accept 5 more days. - Manufacturer, Industrial ($1B - $10B revenue) Percentages would be an easier determination as the origin shipping locations will determine the container costs to each region. A price decrease of 15-20% would be needed to add additional inventory into the system. - Retailer, Specialty ($>25B revenue) Extended lead time adds costs and reduces flexibility therefore the cost savings need to be substantial to make this a viable alternative that covers the added cost of ownership. - Manufacturer, Home Products ($1B - $10B revenue) Lead time is a greater concern to us and our customers and not pricing. - Manufacturer, Arts & Crafts ($250M - $1B) 43

44 Survey Participant Comments How did you determine your answers to the previous questions about pricing and/or why do you feel this way? Value of time versus money. Longer transit times need a serious savings opportunity to even consider the lost time element. - Retailer, Apparel ($1B - $10B revenue) We only ship internationally via air freight. - Manufacturer, Pharma ($1B - $10B revenue) 44

45 Survey Participant Comments What, if any, are your primary concerns or questions about shipping goods via the Panama Canal? Our primary port we ship into is Baltimore and it's set up to handle the larger ships the canal will support, so we'll benefit from this. Retailer, Apparel ($250M - $1B revenue) Delays once the Canal opens that we are not experiencing now. Manufacturer, Appliances ($10B - $25B revenue) Potential delays due to congestion, labor, weather that always increase due to routing through the Canal. If one lands the goods at the coast and moves them intermodally across the States, one has more options should issues arise. The Canal can be a bit of a bottleneck, where the shipper has no other choice but to wait it out. - Retailer, Home Products ($1B - $10B revenue) I already ship from Chile through the canal, am concerned about price increases to pay for expansion forcing me to West Coast instead. Retailer, Grocery ($10B - $25B revenue) 45

46 Survey Participant Comments What, if any, are your primary concerns or questions about shipping goods via the Panama Canal? Cost, time and waiting to get through. The new canal will assist with all these - Manufacturer, Pharma (>$25B revenue) Time additions going through the canal. Not sure what kind of delays might occur there when it opens. - Manufacturer, Industrial Equipment ($250M - $1B) Longer transit time loss of flexibility to expedite/divert. - Retailer, Apparel ($1B - $10B revenue) 46

47 D. Shifts in Global Manufacturing and Competitive Profile of Suez Canal Require Planning Considerations Beyond Panama Canal 47