Gene Seroka APL President, Americas April 27, 2012 Specialty Crop Trade Council - San Diego, CA
Global Demand for Key Markets & Trades TRANS-ATLANTIC 2010 Size: 4.8 m TEU 2011 HH Growth: ~ 3-5% ASIA-EUROPE 2010 Size: 23.9 m TEU 2011 HH Growth: ~ 3-5% TRANS-PACIFIC 2010 Size: 21.9 m TEU 2011 HH Growth: ~ 1% INTRA-ASIA 2010 size: 40.7 m TEU 2011 Overall Growth: ~ 7-10% LATIN-AMERICA 2010 Size: 14.5 m TEU 2011 HH Growth: ~ 5% Note: TP, TA, LTNS market share from JOC, IALH from IRA, ASEU from CTS Source: Market size- GI (Jul 11), PIERS, Australia Ports data, SLM estimates Market growth- GI (Jul 11), Clarksons, Drewry, Morgan Stanley, PIERS 1
Pre-2008 containerised growth historically averaged 10% or 3x global GDP per annum, but lower growth rates are expected Growth Rates % Container demand growth GDP growth (global) Forecast Source: Seabury, IMF
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Forecast GDP suggests possible contraction in EU economy with modest to moderate growth pace in US and Asian economies GDP Growth Trend Analysts YoY % Growth 15% 10% 8.1% 6.3% India China CAGR (2001-2007) Percent 8.0 11.2 Consens us (2012F) Range (%) 6.8 7.3 8.0-8.6 5% 0% 2.0% 2.0% -0.8% Global US EU27 4.4 2.6 1.9 2.7 3.6 2.1 2.5-0.3-0.5-5% Note: (1) IMF & EIU economic growth forecast error range estimated up to 1% based on past history; EIU GDP forecasts used for 2011-2016 (2) Whereas GDP forecast for EU27 is not available, Euro area is used as proxy for consensus range purposes Source: WEO (Sep 2011), JPMorgan, Goldman Sachs, Deutsche Bank, UBS, BoA, EIU
Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Mar-11 Jan-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 While US has improved job prospects, worsening unemployment and escalating debt crisis continue to take its toll on Europe s consumer sentiment and spending Consumer Confidence Index USA, China Consumer Confidence Index EU27 EU27 US China 120 100 80 60 40 20 0 0-5 -10-15 -20-25 -30-35 Source: CEIC
Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Retail sales are still resilient and growing in China and US, while EU remains sluggish Retail Sales Growth Percent, YoY USA EU27 China 25 20 15 10 5 0-5 -10-15 -20 Source: CEIC, US Census Bureau
Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Continued lean inventories suggests some restocking could occur if improving unemployment results in upside consumption surprise Retail Inventory to Sales Ratio USA 1.65 1.60 1.55 1.50 1.45 1.40 USA Retail Inventory to Sales Ratio (seasonally adjusted) Inventory to sales ratio still maintained at relatively conservative level 1.35 1.30 1.25 1.20 1.15 1.10 Source:CEIC
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-11 Relatively high oil prices remains a concerns on corporate and consumer sentiment US$ per barrel 160 140 120 Financial crisis begins Recovery in demand Jan 25: Protest begins in Egypt Feb 16: Protest begins in Libya 100 80 60 40 20 0 Source:Bloomberg
Supply growth of nearly 30% of global fleet over the next 3 years Newbuild Orders as of Each Qtr TEU thousands 8,000 % of existing fleet (RHS) Pipeline of newbuild orders (to be delivered) % of Existing Fleet 7,000 6,000 5,000 4,000 3,000 2,000 1,000 As of 0 Source:MDS Oct 2011 8
Suggests current container shipping oversupply will continue into 2012 Container demand/ supply growth % 20 Demand growth Supply growth Demand growth range Forecast 15 10 5 0-5 -10 2000 01 02 03 04 05 06 07 08 09 10 11F 12F 13F 14F 2015F Note:1) Demand growth range is a combination of the GDP-trade multiplier methodology based on GDP growth estimates from IMF, Goldman Sachs, JP Morgan, Deutsche Bank and UBS, as well as and forecast for container trade from shipping analyst Source: MDS Oct 2011, IMF; Global Insight, Drewry (2000-10), EIU
Vessel delivery is expected to peak at beginning of next year, exerting pressure on shipping rates Thousand TEU 700 600 500 400 300 200 100 Delivery is expected to peak by 1Q 12, with over 0.5 M TEUs coming on stream that quarter 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0 0.0% 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13 3Q 13 4Q 13 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 3Q 15 4Q 15 Scheduled Newbuild % of Global Fleet Source: MDS Sep 11 10
11 Idle capacity is on the rise
Market Dynamics In order to remain competitive many carriers have ordered ultra large ships. Thirteen different carriers have ordered ships over 12,500 TEU. Demand growth is not keeping pace, resulting in pressure on rates which have already reached non-compensatory levels in key trades. Most carriers are operating in the red, resulting in capacity being curtailed: more slow-steaming and vessels being laid up. In the trans-pacific eight strings have been terminated in the past five months. Carriers are looking for ways to control costs while still providing quality service and innovative solutions to their customers. 12
Trade flows to/from Asia have shifted significantly. Shifting pattern in Asia is producing a significant increase in equipment repositioning as inbound flows are growing in countries other than China where the outbound demand is highest. Top EB countries are not growing their WB volumes as fast as other Asian countries, creating increasing mismatch of in/ out volumes in Asia North China South China Japan Vietnam UAE Malaysia US Exports growing to SEA, M East which need longer transit Repositioning Boxes need to be repositioned to major exporting regions e.g. North China This relatively recent shift in flow creates longer equipment turn, drives up repositioning cost to get the boxes to China where they are needed to support outbound demand, and increases the size of the equipment fleet carriers must have to service the market.increasing costs. 13
Paradigm Shift Overview Carriers are considering the following approaches -Continue with current program Carrier provided - Pool Participation Continue to supply chassis, but join a pool -Trucker model Divest chassis, new owner charges trucker 14
What is APL doing APL will phase out its container chassis fleet beginning 2012 and will conclude by 2014. By relying on providers who specialize in chassis management, this will ensure that equipment is deployed more efficiently. In Spring 2012, APL will begin a pilot program at terminals in Denver and Salt lake City. 15
Continued Environmental Initiatives Eco-responsible operations for a sustainable future Optimize speed, schedule, weather routing and best practices to reduce CO 2 emissions (Slow Steaming) Low Sulphur Fuel Cold Ironing Seawater Scrubber Ballast Water Treatment Slide Valves Environmentally friendly paint on ship hulls Voluntary Speed Reduction in Southern California waters to reduce emissions Eliminating drayage thru on-dock rail 16 16
Increasing Innovation Product innovator Established more efficient trade links with the hinterlands of India with the groundbreaking IndiaLinx container rail freight service Offered customers greater capacity with Ocean53 the world s largest ocean capable containers Provided customers with greater control and certainty with innovative time definite products for both full-containerload and less-than-containerload cargoes Created an alternative for customers shipping sensitive highvalue cargo with SMARTemp that enables real-time temperature and humidity monitoring 17 17
Service Reliability 94% on-time performance within the Trans-Pacific Trade 18
Value Chain Origin services Our value chain Destination services Warehouse Land Consol Terminals Container shipping Terminals Deconsol Land Warehouse Visibility NOL s container shipping and logistics businesses form a value chain which offers customers reliable, time-definite and cost-effective services from origin to destination. As supply chains become more complex, our total value chain proposition offers strong advantages for customers. 19 19
End-to-end solutions 20
While uncertainty remains in 2012, we continue to focus on managing costs and operational efficiencies Ordered 34 new vessels which can potentially replace existing charters Capacity management Cost Structure Example Slow steaming Exploring technological advancements New vessel specifications Fixed cost Bunker G&A Variable cost Enhancing operational efficiencies Densification of volume (e.g. costs efficiencies through volume increase in own terminals) Centralization of processes (e.g. Global Service Centre, Chongqing, China) Relocation of US headquarters to Phoenix 21
Navigating Our Future Building Integrated Partnerships Collaboration TSA discussions with the Shipper Advisory Council Establish multi-year contracts to reduce rate volatility Planning Accurate forecasting tied to equipment and space commitments Use IT solutions to exchange business information and optimize visibility Integrated Partnerships Sharing TSA revenue index Adjusted TSA bunker formula Share pain points and KPIs thru regular business reviews Innovation Identify opportunities and create new solutions up and down the supply chain Find creative ways to contract, seeking stability and clarity 22
Thank You