OCEAN FREIGHT MARKET UPDATE

DHL Global Forwarding, Freight OCEAN FREIGHT MARKET UPDATE August 2018 Dominique von Orelli Global Head, Ocean Freight 1

Contents TOPIC OF THE MONTH Capacity crisis in the US trucking industry HIGH LEVEL DEVELOPMENT MARKET OUTLOOK Freight Rates and Volume Development ECONOMIC OUTLOOK & DEMAND DEVELOPMENT CAPACITY DEVELOPMENT CARRIERS REGULATIONS? DID YOU KNOW? New Global Sulphur Cap effective 1 Jan 2020 2

Topic of the Month Capacity crisis in the US trucking industry Part of the business cycle or systemic issue? Source: DHL, JOC, Bloomberg Nearly 71% of all freight tonnage moved in the US goes on trucks. In 2003 trucks moved 9.1 billion tons of freight. By 2017, over 10.4 billion tons were moved. Shortage of drivers, new regulations and a solid demand have pushed up freight cost, lead to delays and chassis shortage. Many transportation consultants and executives don t see this bull market for truckers coming to an end and pricing power returning to shippers anytime soon. They believe the market is dealing with a systemic, rather than cyclical issue. While cyclical issues with all kinds of ebbs and flows work themselves out over time, systemic issues require action to address. In the past transportation was relatively cheap in part because truck carriers often did not know their true costs. Rapid technology development is now putting business management and pricing tools in the hands of large and small carriers alike. E-commerce, shifting consumer purchasing patterns and expectations are reshaping supply chains and transportation strategies. Trucking companies now need to fix their operations, get rid of inefficiencies and correct bad shipping habits. DHL Global Forwarding intermodal department in the US and is well established to deal with this situation and to offer adequate solutions to our customers. 3

High Level Market Development Supply and Demand ECONOMIC OUTLOOK GDP GROWTH BY REGION 1) 2018F 2019F 2020F 2021F 2022F CAGR (2019-22) EURO 2.2% 2.0% 1.9% 1.8% 1.8% 1.8% MEA 3.5% 3.8% 3.9% 3.6% 3.5% 3.7% AMER 2.7% 2.8% 2.2% 1.9% 1.9% 2.0% ASPA 5.0% 4.9% 4.7% 4.8% 4.8% 4.7% DGF World 3.4% 3.3% 3.1% 3.0% 3.0% 3.0% DHL TRADE BAROMETER 6) 80 70 60 50 40 30 Q1 '16 Q2 Q3 Q4 Q1 '17 Q2 Q3 Q4 Q1 '18 Ocean Global Q2 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% SUPPLY/DEMAND GROWTH (ANNUALIZED), IN % 2) Demand Growth % Supply Growth % 2015 2016 2017 2018F 2019F 2020F 2021F WORLD CONTAINER INDEX (WCI) 3) SHANGHAI CONTAINERIZED FREIGHT INDEX (SCFI) 4) 3,000 1,200 BUNKER PRICE INDEX 5) 1,000 2,500 2,000 1,500 1,000 500 0 1,000 800 600 400 200 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 17 18 16 17 18 17 18 1) real GDP, Global Insight, Copyright IHS, Q2 2018. All rights reserved 2) Demand growth = Port-to-Port Container Traffic growth. Supply growth = Fleet Growth. Source: Drewry Maritime Research. 3) Shanghai Shipping Exchange, in USD/20ft container & USD/40ft ctnr for US routes, 15 routes from Shanghai. 4) Global Insight, Drewry, 5) Bunker Index, in USD/metric ton, Bunker Index MGO (BIX MGO) = avg. Global Bunker Price for marine gasoil (MGO) port prices; (BIX 380= avg. Global Bunker Price for all 380 centistoke (cst) port prices; both index published on the Bunker Index website., 6) DHL Global Trade Barometer Mar18, index value represents weighted average of current growth and upcoming two months of trade, a value at 50 is considered neutral, expanding above 50, and shrinking below 50. 800 600 400 200 0 BIX 380 BIX MGO 4

Market Outlook August 2018 Major Trades High utilization supports GRI implementation on various trades EXPORT REGION IMPORT REGION CAPACITY RATE EURO AMNO = + AMLA =/- + ASPA = - MENAT = - SSA = = EXPORT REGION IMPORT REGION CAPACITY RATE AMLA AMNO = = ASPA + + EURO + + MENAT = = SSA -- ++ AMNO AMLA = + ASPA - = ASPA ASPA -/= +/= AMNO - + EURO = = AMLA = - MENAT = = EURO = + SSA = = MENAT = = KEY Strong Increase ++ Moderate Increase + No Change = Moderate Decline - Strong Decline - - OCEANIA = (NZ) / + (AU) + Source: DGF 5

Market Outlook August 2018 Ocean Freight Rates Major Trades Market outlook on smaller trades available in the back-up O C E A N F R E I G H T R A T E S O U T L O O K ASPA EURO EURO ASPA & MEA Strong load factors reported by the carriers, thus expect another round of GRI s in August. Due to the impact of increasing bunker cost, long term rates are going up. Utilization is still relatively stable; some carriers trying to secure spot FAKs with lower rates ASPA AMLA ASPA AMNO EURO AMNO ASPA MENAT ASPA ASPA AMNO EURO Rates drop to ECSA in a concerted effort to drive smaller carriers out. Thereafter rates are expected to surge again. But space remains very tight to Mexico & WCSA, rates set to rise even more in August due to very high demand and load factors. High utilization. Shipping lines are limiting NAC bookings in favor of FAK freight. Ocean rates are strong and still increasing; inland carriages in US remain challenging Rates remain constant, no huge increase to FAK, except for West Africa. Carriers are now trying to implement GRI on fortnightly basis. Carriers have successfully implemented Emergency Bunker on all FAK. Blank sailing planned at the end of July on the IPBC trade. August GRI has been announced. Moderate congestion currently at China ports, partly due to the impact of Typhoon Ampil. Carriers have announced that they will stop accepting plastic scraps and waste imports to all Vietnam ports. Market rates will remain stable in August. Capacity will slightly decrease in week 34 compared to previous week (3 000 TEU less) Source: DGF 6

Economic Outlook & Demand Development Global economic growth is peaking EURO AMNO Escalating global trade tensions are a key concern, with potential spillovers to domestic demand through multiple channels. IT political developments, market stress, and contagion also remain potential drags. Meanwhile Q1 real GDP growth for the UK economy was revised up to 0.2% quarter-on-quarter. Economic momentum in the US remains strong with a strong May report on international trade in goods. Some of this strength was due to a surge in exports of soybeans, which IHS Markit expects to be reversed in H2 of this year. Growth in domestic demand was also robust in Q2. ASPA EMERGING MARKETS DEMAND DEVELOPMENT A slowdown in CN industry & construction output was offset by a pickup in service growth YoY. Monthly data shows decelerations in industrial value added & fixed investment in June. Trade actions will cut GDP growth a little further and the CN government will likely shift its policy balance toward growth support. In JP a drop in export orders raises concerns about the impact of trade frictions. The US and CN each buy about 19% of JP s exports. In IN, as in many other large emerging markets, the main dangers of the US-CN trade war will be the erosion of confidence & greater financial market volatility. Additional capital outflows from IN and further pressure on the Indian rupee would also stoke domestic inflation The Reserve Bank of India already started raising interest rates in June for the 1 st time in 4 ½ years. Other large emerging markets face similar challenges on top of leveling-off of global growth and commodity prices. For some, incl. RU, higher revenues from rising oil production will cushion the blow. Global PMI for export orders has plunged in recent months, and the June surveys were consistent with the smallest rise in global trade for almost 2 years. The outlook among manufacturers was the least optimistic in 19 months. Among the major world economies, US businesses are the most upbeat, and among the world s developed markets, US price expectations are the highest. Source: IHS Markit Global Executive Summary, IHS Purchasing Manager Index Manufacturing, a PMI at 50 is considered neutral, expanding above 50, and business shrinking below 50. 7

Capacity Development 1/2 C A P A C I T Y D E V E L O P M E N T The announcement by the 2M partners (Maersk and MSC) and ZIM of new strategic cooperation on the Far East US East Coast (FE-USEC) trade, effective from Sep 2018, will have significant implications for the transpacific all-water market. Weekly capacity on this trade will be reduced from 53,900 TEU on the 7 existing strings operated separately by the 2M and ZIM, to about 45,000 TEU on the five new 2M/ZIM strings to be launched in September. The removal of two strings is expected to result in a 5.2% reduction in total FE-USEC weekly nominal capacity from 161,700 TEU as at Jul 2018 to 153,300 TEU in September. However, the reduced capacity still represents a year on year growth of 2.7% over the 149,520 TEU deployed in Sep 2017. The rationalization will free up around 20 ships. The total number of weekly FE-USEC services will fall to only 17 in Sep 2018 compared to a high of 25 strings in 2015. The number of weekly services via the Panama Canal (on the headhaul leg) will be reduced by 2 and fall to only 12 in September (5 services via the Suez Canal remain stable). The Panama Canal s share of the total all-water headhaul capacity will fall back to 70%, from a peak of 74% in 2017. The planned service rationalizations are the first cuts on this route since Jan 2017. Carriers failed to remove capacity during the slack season last year, defying the market practice on the previous 6 years when various winter season deployment cuts were implemented during October March period. 2M and ZIM did not specify if some of the capacity withdrawn would be re-instated in 2019. Current capacity utilization on the trade is running at over 95% and this may pave the way for the entry of new carriers on this route. THE Alliance and OCEAN Alliance will each take out 1 Far East US West Coast (FE-USWC) string at the end of July and August, respectively, following the 2M carriers decision to withdraw 1 of their transpacific strings at the end of June. Combined, these 3 FE-USWC service cancellations will remove a weekly total of 21,300 TEU from the route, or 6.7% of the trade s total capacity to the West Coast as at the end of June. The capacity withdrawals are being implemented during the traditionally busy summer peak season, and they have triggered a sharp increase in spot freight rates from the FE to USWC. These capacity reductions will be partly offset by the launch of APL s new Eagle Express X service in August and the upgrade of the carrier s current Eagle Express 1, which will add some 6,600 TEU of nominal weekly capacity to the route. FE - North America Capacity Share by Alliance Source: Alphaliner, carriers 8

Capacity Development 2/2 C A P A C I T Y D E V E L O P M E N T Maersk Line and MSC plan to add 1 extra North Europe US link to be operated within the scope of the 2M agreement, to their portfolio in late August. The service will bring the number of 2M loops covering the USEC and US Gulf ports to 4. The additional loop will focus on the US East Coast. MSC said in a statement that the 4 loop s overall capacity will remain similar to the current service offering, as fleet adjustments are planned for the three existing stings. So far however, full details have not been provided. The idle containership capacity has continued to move up, reaching 122 units for 315,175 TEU or 1.4% idle TEU as % of total fleet as at 9 Jul 2018 as carriers begin to cut capacity across several key trades in view of a worsening demand outlook. Maersk Line and MSC have announced plans to temporarily suspend one of their Asia-North Europe services in late September/early October due to the anticipated slowdown in demand after the Golden Week holidays in China. The carriers plant to re-boot the suspended service in December, subject to improved demand. The potential removal of 1 of the 6 services operated by the 2M could result in a 5.1% reduction on overall capacity in the Asia North Europe route, albeit only temporarily. Yang Ming confirmed on 5 July that it agreed to charter 10 containership newbuildings of 11 000 12 000 TEU from Costamare and Shoei Kisen. The ships are part of a 20-ship newbuilding program that Yang Ming unveiled in February. Deliveries are scheduled between Q2 2020 and Q2 2021. Only 30 000 TEU of relatively old tonnage has been scraped this year so far, the slowest start since 2007. Scrapping is expected to remain slow until new fuel regulations take effect in 2020. Source: Alphaliner, Seabury, carriers 9

Carriers C A R R I E R S COSCO Shipping Holdings and OOIL have announced in the dispatch of the final composite document to complete the acquisition of OOIL (parent company of OOCL) by COSCO Shipping and SIPG (Shanghai International Port Group) on 6 July 2018. COSCO obtained the final pending approval from the CFIUS (Committee on Foreign Investment in the United States) on 6 July 2018. However, COSCO had to pay a high price to secure the US approval, as the shipping line was forced to sell OOCL s Long Beach Container Terminal (LBCT). The facility was at the centre of the US regulators national security concerns, which had earlier threatened to derail the COSCO-OOIL deal. COSCO reached the agreement with the US Departments of Homeland Security and Justice to divest LBCT to a suitable, unrelated third party, acceptable to the US Government on commercially reasonable, arms-length terms. The highlyautomated LBCT is the most advanced terminal in the US and its annual handling capacity should reach at least 3.30 MTEU when the terminal is fully completed by 2020 or 2021. COSCO will have to secure preferential user terms with the new owner of LBCT in order to retain a competitive advantage against its transpacific rivals. Following the closing of the acquisition, OOIL s global headquarters will remain in Hong Kong, with COSCO and OOCL continuing to operate under their respective brands. The expected addition of OOCL s fleet of 100 ships for 688,977 TEU will bring COSCO s total fleet to 2.74 MTEU, allowing the shipping line to become the third-largest carrier in the world, according to Alphaliner s latest capacity rankings. Source: Alphaliner, Seabury, carriers 10

Regulations R E G U L A T I O N S South Africa: As of 1 Aug 18 all origin shipping to South Africa must provide the ZA Manifest data to South Africa destination 72 hours prior to vessel loading at origin/transhipment point. Iran: Due to the recent developments, several carriers, banks and other essential business partners have announced the withdrawal of services for any Iranian business. Therefore, DGF limits our service to/from Iran as of 1 Aug 18 to specifically licensed or exempted commodities in particular pharmaceuticals, aid, relief and food. Source: DHL 11

Did you know? New Global Sulphur Cap effective Jan 1st, 2020 The first Emission Control Area (ECA) was created in the Baltic Sea more than 10 years ago. Since the creation of the ECAs, seafaring vessels are subject to stricter regulations at both a global and regional level. As of Jan 2015, the regulations set in place by the International Maritime Organization (IMO) allow for a maximum sulphur content of 0.1 % in the ECAs. To date, there are ECAs in the English Channel and North Sea, North America and Caribbean Sea. The IMO recently also announced to conduct a study about the benefits, costs and feasibility of establishing a sulphur emissions control area in the Mediterranean. Low-Sulphur fuel oil is more expensive than marine diesel fuel, so as a result, carriers and forwarders released explanations and tariff tables on how the cleaner low-sulphur fuel is offset by the Low Sulphur Surcharge. For non-ecas, the IMO has set a new global sulphur cap, to come into effect Jan 1 st, 2020, requiring ships to use fuel oil with a sulphur content of no more than 0.5% m/m, a huge drop from the current limit of 3.5%. China is a key player in this area, as it introduced the 0.5% sulphur cap roadmap in the Yangtze River Delta, Zhujiang (Pearl River) Delta ports and Bohai Sea zones. This sulphur cap has been implemented for, in addition to its environmental benefits, the positive impact it can have on human health, particularly for those who live and work close to port cities and coastal communities. As a primary source of SO2, ships produce colorless, reactive gaseous air pollutant known to cause respiratory diseases that lead to premature death. DHL Global Forwarding will inform in more detail over the coming months as more information will be available from the ocean carriers. Source: DHL DGF Ocean Freight Market Update August 2018 12

B A C K - UP 13

Market Outlook August 2018 Ocean Freight Rates Additional Trades (1/2) O C E A N F R E I G H T R A T E S O U T L O O K EURO AMLA EURO SSA AMNO MENAT AMNO SSA AMNO AMLA AMLA Exports AMNO ASPA Capacity remains very short on EC and WC. Pre-notice of bookings need to be placed between 2-5 weeks in advance. Further rate increases / PSS have been announced by some carriers for August, subject to EBAF. Rates remain stable and space is available. Rates were rising in the past few months but are stable in July & August. Space continued to be a major issue especially from US Gulf Coast and USEC with bookings out 3-4 weeks. Rate and capacity unchanged. Space is available. Hamburg Sud will join the direct service from USA to South Africa in August (direct service is currently shared by Maersk/Safmarine/MSC). Space is tight from US to WCSA, direct and trans ship services remain fully subscribed. Rates and fuel rising in cost to both ECSA and WCSA. US to CENAC stable. Carriers issuing new surcharges and restrictions on free time w/efforts to drive additional revenue. Roll over and space constraints affecting entire region. MX/BR/SAWC region facing port omissions and backlogs (Market Restructuring-BR Strike backlog, Weather). Serious congestion being faced in T/Shipment ports like CTG, BUN and MIT. Shippers are strongly urged to provide forecasts 4-8 weeks out. Carriers pricing behavior mirrored throughout trade. GRI s and Emergency Fuel surcharges announced daily on all trades. Capacity will be reduced by 6.7 % from USWC ports & 5 % from USEC ports over the next month. Countries in Asia are implementing strict acceptance guidelines for waste products (paper, plastic & metal scrap) which will impact export volumes. Source: DGF 14

Market Outlook August 2018 Ocean Freight Rates Additional Trades (2/2) O C E A N F R E I G H T R A T E S O U T L O O K EURO MED - AMNO EUR MED AMLA EURO MED ASPA EURO MED MENAT EURO MED SSA ASPA-SPAC further increases connected to US deliveries to be expected. Ocean Freight rates are stable Unchanged / stable Unchanged / stable Unchanged / stable Unchanged / stable As the peak season begins to set in, we are seeing strong bookings along with market utilization at 100-110%. We anticipate that the timely Australia capacity increase in August for Ocean Alliance and HMM will ease the cargo rush slightly while oppositely, blanking in New Zealand portion will tighten up space. Market is still keeping good vibes for a surge in the cargo demand. GRI announced for August at USD 300/TEU for China Australia and USD 200/TEU for China New Zealand. Source: DGF 15

Market Outlook Volume Outlook in Main Trade Lanes, 2018 Estimate & 2019/22 Growth Forecast in % 2018e, in mteu 2019e-2022e CAGR, in % N O R T H A M E R I C A I n c l. M E X I C O 4.0 mteu +3.0% F A R E A S T 8.1 mteu +2.5% N O R T H A M E R I C A I n c l. M E X I C O 2.1 mteu +3.4% 12.8 mteu +2.3% 19.0 mteu +2.8% 2.0 mteu +5.6% 1.5 mteu +3.6% L A T I N A M E R I C A 1.6 mteu +4.7% 1.8 mteu +3.5% E U R O P E I n c l. M E D 7.3 mteu +2.7% I N T R A A S I A excl. Oceania 1.7 mteu +4.3% 4.1 mteu +4.4% L A T I N A M E R I C A 41.6 mteu +4.8% G L O B A L C O N T A I N E R T R A D E 2 0 1 8 e 1 5 2. 6 m T E U + 4. 0 % C A G R 2019e- 2022e Mid-term growth is mainly driven by Asian tradelanes. Source: Seabury Jun18 update 16

Drewry s Altman Z-Score as of 1 Jun 2018 Company Period Period Ended Units Net Sales EBIT Assets Book Value Liabilities Total Current of Equity Total Current The Z-Score is a statistical analysis to predict a company s probability of failure in the next two years, using data from the company s financial statement. Retained Earnings Z-Score AP Moller-Maersk 3 months 31. Mrz 18 million US$ 9'253-3 61'639 21'794 34'313 27'326 10'127 29'723 2.26 OOIL 1) Annual 31. Dez 17 million US$ 6'108 208 10'069 2'965 4'683 5'387 1'380 4'620 2.03 CMA CGM Annual 31. Dez 17 million US$ 21'116 1'574 19'657 5'624 5'644 14'013 5'956 4'619 1.89 Wan Hai 3 months 31. Mrz 18 million NT$ 14'918 146 72'753 23'665 33'705 39'048 19'566 12'065 1.66 NYK group Annual 31. Mrz 18 billion Yen 2'183 28 2'072 567 588 1'484 520 345 1.60 K Line group Annual 31. Mrz 18 billion Yen 1'162 7 1'042 396 243 799 283 67 1.54 Hapag-Lloyd Holding 3 months 31. Mrz 18 million euro 2'617 54 14'331 2'136 5'870 8'462 2'749 3'146 1.45 MOL group Annual 31. Mrz 18 billion Yen 1'652 23 2'226 480 628 1'598 383 307 1.26 Evergreen Marine Corp 3 months 31. Mrz 18 million NT$ 36'841 493 196'599 57'390 65'845 130'754 45'021 12'183 1.25 China Cosco 2) 3 months 31. Mrz 18 million RMB 21'923 699 129'359 34'792 43'356 86'003 40'728 9'959 1.10 Pacific International Lines Annual 31. Dez 17 million US$ 4'037-267 6'107 1'471 1'906 4'201 2'068 1'078 0.92 Yang Ming 3 months 31. Mrz 18 million NT$ 31'035-2'066 130'908 25'968 24'320 106'587 50'022-3'460 0.62 Zim Annual 31. Dez 17 million US$ 2'978 135 1'802 580-93 18'996 687-1'892 0.36 Hyundai Merchant Marine 3 months 31. Mrz 18 billion Won 1'112-164 3'399 1'227 749 2'650 682-2'890-0.16 Z-Score 2.99 = company is safe ; Z-Score between 1.8 and 2.99 = exercise caution ( grey zone ); Z-Score 1.8 = Higher risk of the company going bankrupt ( distress zone ) Source: Drewry Sea & Air Shipper Insight February 2018, 1) parent of OOCL, 2) parent of Cosco Container Lines; Z-score is calculated as follows: T1 = (Current Assets - Current Liabilities) / Total Assets, T2 = Retained Earnings / Total Assets, T3 = Annualized EBIT / Total Assets, T4 = Book Value of Equity / Total Liabilities, T5 = Annualized Sales / Total Assets, Z-score bankruptcy rating = 1.2*T1 + 1.4*T2 + 3.3*T3 + 0.6*T4 + 1.0*T5 17

Topic of the Month Top 12 Carriers by Operated Capacity (in Mil. TEU), December 2017 5 4 After triggering regulatory approval processes in 23 jurisdictions, Maersk finally aquired Hamburg Süd. Over the next five months, Maerk will terminate some of Hamburg Süd s overlapping services on certain trades. 3 2 1 0 APM- Maersk, Hamburg Süd MSC COSCO, OOCL CMA CGM, Mercosul Hapag-Lloyd ONE (NYK, MOL, K Line) Evergreen Yang Ming PIL Zim HMM Wan Hai Source: Alphaliner, incl. pending mergers 18

Acronyms and Explanations 2M - Carrier Alliance: Maersk / MSC AMLA - Latin America AMNO - North America AR - Argentina ASPA - AsiaPacific BR - Brazil CAGR - Compound Annual Growth Rate CENAC - Central Amercia and Caribbean CKYHE - Carrier Alliance: Cosco, K-Line, YangMing, Hanjin and Evergreen CNC - CNC Line (Cheng Lie Navigation Co. Ltd.) DG - Dangerous Goods DWT - Dead Weight Tonnage EB - Eastbound ECSA - East Coast South America EURO - Europe FMC - US Federal Marine Commission G6 - Carrier Alliance: APL, Hapag Lloyd, Hyundai, MOL, NYK and OOCL GRI - General Rate Increase HJS - Hanjin Shipping HMM - Hyundai HSUD - Hamburg Süd HWS - Heavy Weight Surcharge IA - Intra Asia IPBC - India Pakistan Bangladesh Colombo IPI - Inland Point Intermodal ISC - Indian Sub Continent MENAT - Middle East and North Africa mn - Millions MoM - Month-on-Month NOO - Non-operating (vessel) owners Ocean 3 - Carrier Alliance: CMA, UASC, China Shipping OCRS - Operational Cost Recovery surcharge OWS - Overweight Surcharge PH - Philippines PNW - Pacific North West Ppt. - Percentage points PSW - Pacific South West RR(I) - Rate Restoration SAEC - South America East Coast SAWC - South America West Coast SOLAS - Safety of Life at Sea SPRC - South People s Republic of China South China SSA - Sub-Saharan Africa SSL - Steam Ship Line T - Thousands TEU - Twenty foot equivalent unit (20 container) TP - Trans Pacific TSA - Trans Pacific Stabilization Agreement ULCS - Ultra Large Container Ship USGC - US Gulf Coast US FMC - US Federal Maritime Commission USEC - US East Coast USWC - US West Coast VGM - Verified Gross Mass VLCS - Very Large Container Ship VSA - Vessel Sharing Agreement WB - Westbound WCSA - West Coast South America YML - Yang Ming Line YoY - Year-on-Year YTD - Year-to-Date 19