Robert Sappio FTDC 5 08 06

FOOTWEAR TRAFFIC AND DISTRIBUTION CONFERENCE : 

FOOTWEAR TRAFFIC AND DISTRIBUTION CONFERENCE Robert F. Sappio Senior Vice-President Trans-Pacific Trade May 8, 2006

Presentation Overview: 

Presentation Overview APL Overview Changing Transportation Landscape Continued Sourcing Shift to Asia Increasing Demands on U.S. Infrastructure What Needs to be Done Outlook for the Future

APL: 

APL Since 1848 Sixth-largest carrier Around 100 vessels 2005 volumes: 1.95 million FEUs Service to 6 continents in all major trade lanes History of innovation and industry firsts Helped pioneer containerization Introduced StackTrain

APL Logistics: 

APL Logistics Supply Chain Solutions International Freight Services Consolidation/Vendor Services Warehouse Management Services Freight Management Services More than 4,500 employees 269 locations in 58 countries

Slide5: 

The US economy has been transformed by unprecedented growth in containerized imports. Growth in US freight transportation infrastructure and improvements in freight transportation productivity have not matched this growth. A National Freight Policy is in the process of being formulated; however, the private sector will have to play a larger role. Government alone does not have the funds to solve this problem. U.S. Transportation – The Fundamentals Have Changed

Slide6: 

Interdependent Economies Asia-US FDI: US$15.8bn Export: 10.4m TEU EU-Asia FDI: US$25.3bn Export: 3.3m TEU US-Asia FDI: US$35.0bn Export: 4.0m TEU 2005 FDI (estimates) and Export Figures Source: CEIC, UNCTAD, Global Insight Asia-EU FDI: US$14.0bn Export: 7.6m TEU

Sourcing Shifts to Asia: 

Sourcing Shifts to Asia Source: Clarkson Research Studies

Slide8: 

Foreign Direct Investment Growth Source: EIU

Slide9: 

Source: JoC *note Asia - China, HK, Indonesia, India, Japan, Malaysia, Philippines, Singapore, S. Korea, Taiwan, Thailand, Vietnam US Destination Growth US Containerised Imports from Asia 0 1 2 3 4 5 6 2000 2001 2002 2003 2004 China Rest of Asia Million teus

Commentary/Analysis: Deloitte: 

Over the next three years, 55% of NAM manufacturers and 39% of W European manufacturers plan to enter or expand their sourcing in China.” “Road, air and rail transportation systems have trouble keeping up with the requirements for a 21st century supply chain.” “Manufacturers that underestimate the strain on the global network and have limited insight into the true cost of products sold can jeopardise their investments and growth plans.” Global expansion is inevitable. Vast new markets await most manufacturers in areas such as China, India, Eastern Europe, and South America Commentary/Analysis: Deloitte Deloitte Research study of nearly 800 companies Globally, combined revenues of close to US$1 trillion:

The Challenge: 

The Challenge Raising the awareness that U.S freight transportation capabilities are not keeping pace with demand Persuading those with a stake to engage Getting alignment of the various constituencies Breaking down the barriers to bring about improvements Developing specific projects that attract investment and the mechanisms to pay for them Coping with growth in the meantime

U.S Government Actions : 

U.S Government Actions Highway Bill: The Safe, Accountable, Flexible, Efficient Transportation Equity Act (“SAFETEA”) Nominal impact on intermodal infrastructure USDOT left with no discretionary spending Recognition that problems cannot wait to be addressed USDOT has developed a “framework” upon which future U.S. transportation policy will be built A National Freight Policy being formulated

Improved Collaboration, Alignment & Focused Engagement: 

Improved Collaboration, Alignment & Focused Engagement A National Freight Policy is required Focus on Port Productivity a Must Intermodal Infrastructure & Rail Performance Must Improve Trade Growth Will Continue to Stress the System

Slide14: 

Source: Ports Volume Growth (MM TEU) 1 LB-Dec est 2 Jan-Nov act, Dec est

Trans-Pacific: Total Market Growth: 

Trans-Pacific: Total Market Growth 0 2000 2001 2002 2003 2004 2005 2006F 2007F 2008F 2009F Year Volume ('000 TEUs) Total TP Volume Yearly Additional Growth 2006 - 2009 Forecasts Source: Piers/JoC Trans-Pacific Volume Profile

Trans-Pacific All Carriers profile – 2005 (Total volumes & East Coast): 

Trans-Pacific All Carriers profile – 2005 (Total volumes & East Coast) Via US East Coast (via Panama) 2004 volume growth 19%

Slide17: 

Forecast Port Capacity/Demand Modern Terminals Limited

Port of Los Angeles: 

Port of Los Angeles

Vessel Calls, Southern CA Los Angeles/Long Beach Arrivals: 

Vessel Calls, Southern CA Los Angeles/Long Beach Arrivals Vessel Arrivals: Los Angeles/Long Beach Decline in 2nd half of 2004 due to diversions and missed voyages during worst of congestion problems 2005 vessel calls trending up as new and larger tonnage deployed in Transpacific and alternate gateways becoming tight 2003/ 2004 Average

Port Productivity: 

Port Productivity San Pedro Productivity (lifts/gang hr) Productivity has not improved in 10 years As port expansion in the future is limited, productivity must improve to accommodate volume growth

Berth Productivity Comparison: 

Berth Productivity Comparison Estimate of Annual Container Berth Productivity at World Container Ports

North American Terminal Situation: 

North American Terminal Situation Info Charleston/Savannah No new berths in the short term. 290-acre new terminal under consideration, ready by 2010 subject to approvals Berth usually available. Terminal & gate congestion. 2005 Volume: 1.97M/1.9M TEU YOY Growth: 14.5%/14.5%

Panama -- Not a Panacea: 

Panama -- Not a Panacea

Slide25: 

Drewry Panama Canal Study for APL Liner services currently not experiencing material transit delays Improvements the canal authority is making will likely minimize delays in the next 2-3 years 4-5 years into the future, growth in traffic will likely begin to negatively impact all-water services. New locks that enable larger vessels to transit 2014 – 2020? Unclear how construction would impact performance? Costs?

Fighting Traffic Congestion in SoCal: 

Fighting Traffic Congestion in SoCal

Pier Pass: Public/Private Cooperation: 

Pier Pass: Public/Private Cooperation Collaborative effort by marine terminal operators and the shipper community in LA/LB $50/TEU fee imposed on local cargo moving via truck during peak hours Initial results shows 30%+ of total truck traffic moving off-peak Reduced port-related truck congestion at peak times Positive impact on turnaround times and environmental impact will result

Port Operations Outlook: 

Port Operations Outlook Los Angeles/Long Beach Lots of environmental pressure LA/LB vessel calls back to pre-04 congestion levels Labor OK so far, but more ships coming? ILWU contract in 2008 As go the railroads, so goes the West Coast

Rail Infrastructure Under Pressure: 

Rail Infrastructure Under Pressure

Rail Performance: 

Rail Performance

Rail Performance : 

Rail Performance LA/LB Basin – coping but delays remain for customers Seattle/Tacoma – capabilities are stretched. 2-3 day transit delay the norm even in “slack;” 4-6 days common Inland terminals suffer from insufficient capacity and bunching/surges of cargo

UPRR Actions to Improve Velocity in 2006: 

UP Unified Program Elimination of work events for trains en-route to destination on the UPRR network. Rationalization of terminal facilities Chicago Los Angeles Basin Northern California Continue Aggressive hiring plan Locomotive purchase Infrastructure development UPRR Actions to Improve Velocity in 2006

Trucking Industry Challenges: 

Trucking Industry Challenges Trucker Supply / Demand – expect supply shortages to continue throughout the US Industry not attracting enough drivers and operators to keep pace with demand Fuel Costs – cost per barrel, unrest in the Middle East and limited refining capacity will continue in 2006 forcing cost per gallon to rise

Near and Medium Term Outlook: 

Near and Medium Term Outlook 2006 Trade growth likely moderates from prior years; volume growth will further stress capabilities Rail and rail infrastructure will continue to be a challenge 2007 Trade growth projected to moderate further Some terminals will begin to tighten (So. California)

Near and Medium Term Outlook: 

Near and Medium Term Outlook 2008 - 2010 Most critical challenges will still be intermodal/rail capability Terminal throughput becoming a larger factor 2008 West Coast labor negotiations will be a concern

In Conclusion . . .: 

In Conclusion . . . The dominant pattern of East/West cargo flow will continue to be in place for the foreseeable future There will be continued consolidation in the ocean shipping industry. Large mega carriers will be the driver of changes in containerized transportation over the next five to ten years. Carrier alliances will continue as a defensive mechanisms against mega carriers Ultra large ships, ocean ports and physical choke points will be a fact of life Major terminal operators will continue to expand and perhaps even consolidate The changing regulatory landscape post OSRA has yet to realize its full potential and will have a material change in how we do business Overlaying all these complications will be the matter of security and shipper identity/supply chain custody

Slide37: 

Thank You