International Union of Marine Insurance (IUMI) Conference Singapore September 13, 2004 Address by NOL Group President and CEO, David Lim Growth, Interdependency and Convergence Challenges in the Container Shipping Industry
Introduction Shipping: Old and Risky Business Facing New Risks Page 2
Fundamental Global Changes The Global Economy And Its Challenges for the Shipping Industry Page 3
The Global Economy Dominance of Market Economies Page 4
Dominance of Market Economies Closed Economies Open Up Resources released Page 5
Dominance of Market Economies: Resources Released China has added 1.3 billion people into the global market (more than US, EU and Japan combined). 2003 Population (Source : EIU) China EU 25 EU 25 425m 1,400 US Japan US 290m China 1,295m Japan 127m 2003 Population (Million) 1,200 1,000 800 600 400 200 1,295m 127m 425m 290m 0 Data Source: EIU Page 6
Dominance of Market Economies Closed Economies Open Up Resources released New Demand created Page 7
Dominance of Market Economies: Purchasing Power Consumption increased with increased purchasing power Page 8
The Global Economy Dominance of Market Economies Globalisation of National Economies Page 9
Globalisation of National Economies Interdependence of economies around the world 2003 FDI and Export Figures US-Asia FDI: US$22.4bn Export: 3.6m TEU EU-Asia FDI: US$16.3bn Export: 2.9m TEU Asia-EU FDI: US$7.3bn Export: 6.3m TEU Asia-US FDI: US$13.4bn Export: 9.4m TEU Data Source: CEIC, US Government Export Portal, European Newswire, Global Insight Page 10
The Global Economy Dominance of Market Economies Globalisation of National Economies Increase in Volatility Page 11
Increase in Volatility Threats and risks magnified by globalisation Inter-dependency break in supply chain = stop work in factories and stores. Page 12
Increase in Volatility The nature of risks have also changed Sudden Contagious Massive New Page 13
The Global Economy Fundamental changes Growth in Resources and Markets Page 14
The Global Economy Fundamental changes Growth in Resources and Markets Interdependency Page 15
The Global Economy Fundamental changes Growth in Resources and Markets Interdependency Volatility Page 16
Challenges for Container Shipping Coping with Growth Complex Supply Chains New Strategies Page 17
Challenges for Container Shipping Coping with Growth Page 18
Coping with Growth: Increase in Demand World container traffic growth has been in excess of 8% p.a. over the past 20 years CAGR: 9.1% Page 19
Coping with Growth: Increase in Supply World containership orderbook is approximately 45% of fleet capacity as at July 2004 3 million TEU, ~ 45% of Total Fleet Page 20
Coping with Growth: Supply Delivery The current order book is spread over the next 3 to 4 years? Page 21
Coping with Growth: Congestion Major ports around the world are working at full capacity Page 22
Coping with Growth: Building Infrastructure NEEDED: GOVERNMENT LEADERSHIP Page 23
Coping with Growth: Building Infrastructure NEEDED: GOVERNMENT LEADERSHIP LOCAL environmental concerns Page 24
Coping with Growth: Building Infrastructure NEEDED: GOVERNMENT LEADERSHIP LOCAL environmental concerns NATIONAL infrastructure priorities Page 25
Coping with Growth: Building Infrastructure NEEDED: GOVERNMENT LEADERSHIP to find BALANCE between LOCAL environmental concerns and NATIONAL infrastructure priorities Page 26
Coping with Demand: Industry Leadership NEEDED: INDUSTRY LEADERSHIP Page 27
Coping with Demand: Industry Leadership NEEDED: INDUSTRY LEADERSHIP to improve LABOUR and MANAGEMENT relations Page 28
Coping with Demand: Industry Leadership NEEDED: INDUSTRY LEADERSHIP to improve LABOUR and MANAGEMENT relations CARRIER and SHIPPER cooperation Page 29
Coping with Demand: Industry Leadership NEEDED: INDUSTRY LEADERSHIP to improve LABOUR and MANAGEMENT relations and CARRIER and SHIPPER cooperation to increase PRODUCTIVITY Page 30
Challenges for Container Shipping Coping with Growth Complex Supply Chains Page 31
Complex Supply Chains Globalised Manufacturing Intermediate Goods Finished Goods Raw Materials Page 32
Complex Supply Chains Elements of an Integrated Supply Chain Ocean Transportation covers a small segment of the total supply chain Supplier & Vendor Management Consolidation Distribution International Ocean / Air Transportation Document Delivery Deconsolidation Distribution Domestic Multi-Modal Transportation Warehousing & DC s Delivery to Point-of-Sale Origin Services / Export Management Destination Services / Import Management Warehouse / D.C. Management International Freight Management Domestic Freight Management Page 33
Complex Supply Chains: Convergence Players converge to provide integrated services and solutions Freight Forwarder Integrated Service Provider Integrated Solutions Asset Based Transport Subsidiary Contract Logistics Provider Page 34
Challenges for Container Shipping Coping with Growth Complex Supply Chains New Strategies Page 35
New Strategies New Strategies Dealing with Cyclicality Page 36
New Strategies: Dealing with Cyclicality 110 Average Freight Rate* (1Q 1994-1Q 2004) Source : Containerisation International (* weighted average freight rates in the Transpacific, Asia-Europe and Transatlantic trade lanes) 105 100 95 90 85 80 75 70 1Q 94 3Q 94 1Q 95 3Q 95 Freight Rate Index (1Q 1994 = 100) 1Q 96 3Q 96 1Q 97 3Q 97 1Q 98 3Q 98 1Q 99 3Q 99 1Q 00 3Q 00 1Q 01 3Q 01 1Q 02 3Q 02 1Q 03 3Q 03 1Q 04 Page 37
New Strategies: Dealing with Cyclicality Cyclicality: Reducing Fluctuations PRICE vs NON-PRICE Factors Service Integrity Integrated Services Global coverage Page 38
New Strategies New Strategies Dealing with Cyclicality Innovation and R&D Page 39
New Strategies: Innovation and R&D Real Value of Supply Chains Discount: 1 + 1 = 1.5 Page 40
New Strategies: Innovation and R&D Real Value of Supply Chains Discounts vs Value Adding Discount: 1 + 1 = 1.5 Value Adding: 1 + 1 = 5 Page 41
New Strategies New Strategies Cyclicality Innovation and R&D Industry Standards Page 42
New Strategies: Industry Standards e.g: Rosettanet data and process integration Manufacturing Information Marketing Product Information Project Status Information Retailer Publisher Demand information Suppliers Manufacturer Supply information Distributor Technical Product Information Transportation Operator Corporate Reseller Financing Provider End User Financial Information Page 43
Conclusion Global Changes Growth: new resources and demand Page 44
Conclusion Global Changes Growth: new resources and demand Interdependence: threats and risks Page 45
Conclusion Global Changes Growth: new resources and demand Interdependence: threats and risks Challenges Convergence: servicing global players Page 46
Conclusion Global Changes Growth: new resources and demand Interdependence: threats and risks Challenges Convergence: servicing global players Infrastructure, Innovation, Standards: building foundations Page 47
Conclusion Global Changes Growth: new resources and demand Interdependence: threats and risks Challenges Convergence: servicing global players Infrastructure, Innovation, Standards: building foundations Towards sustainable profits and growth Page 48