1
James G. CarrickDirector, Marketing & Logistics, TransPacific Trade, APL
Wednesday June 18, 2008Marriott Waterfront, Harborside BallroomBaltimore, Maryland
Expanding Global All-Water Trade Routes:Implications for U.S. Ports and
Inland Transportation
A Container Liner’s Perspective
2
APL Company Overview
• Celebrating 160 years this year
• Today operates a modern world class fleet of more than 135 vessesls
• More than 4,000 employees in 200 offices in more than 80 countries
• Provides worldwide container transportation to more than 25,000 locations in 140 countries on 6 continents using comprehensive global network of nearly 50 linehaul vessel services routes, marine terminals, trains and trucks
• WWW.APL.COM
3
APL’s Global Service Network
4
• APL’s 160 year perspective on all-water routes and railo Pioneering spirit by industry, government, leaders, citizens
o “Game Changers”
• Trade route drivers & trends (past 10 years)o Transit time-distance to market vs. money issueso Asia trade has been the keystone to U.S. trade growth
• Current environment & outlook (next 10 years)o Asia trade will remain center stage, but with increasing need for more
diversified delivery routes
o Infrastructure and productivity issues
• New “game changers” ……. next 20 – 50 yearso Panama Canal expansion
o Fuel costs & environmental concerns (e.g. carbon emissions)
o What else?
Expanding U.S. - Global All-Water Trade Routes
51848 1855 1867 1869 1869 1914 1924 1956 1961 1977 1979 1984 1988 1996 2007
APL’s 160 Year Perspective
1848: Predecessor company, Pacific Mail Steamship Company,
incorporated by State of New York to carry mail from Panama to Oregon
territory
Game changer called “Gold Rush” in 1849
1855: Company’s founder constructs 1st rail road across
the isthmus
Game changer: Cuts travel time from New York to San Francisco from 60 days to 21 days
1867: PMSC steamer Colorado sails for Japan
from San Francisco inaugurating first regular service to Yokohama and
Hong Kong
1869: Transcontinental
Railroad completed
Game changer: New York to
San Francisco in 7 days
1914: Panama Canal opens
1924: The President Harrison inaugurates Dollar Line’s round-
the-world service through Suez
1869: Completion of the Suez Canal
The President Harrison
1977: APL terminates round-the-world
ending USEC port calls
1961: APL shifts towards containerization
1956: Containerized ocean transportation
is born1984: APL introduces
pioneering “double stack” train technology with compelling operating economic and service
model
1979: APL ushers in modern era of containerized
intermodal rail with first dedicated express
LinerTrainTM across U.S.
1996: APL reintroduces all-water service to USEC
after nearly 20 years
1988: APL introduces the world’s first “Post-Panamax” containerships (C10 Class),
committing its future fleet to the West Coast intermodal
model
2007: APL reintroduces regular U.S. flag Suez
service after more than 30 years. “Post-Panamax”
C10 is now seeing the U.S. East Coast for the first time!
6
Trade Routes Drivers
• Transit time (since 1849!)• “Time is money”, especially for high value goods• Growth and addition of more vessel service loops
allows for more and more direct “port-pair” specific service & faster transit
• Comparative advantage• Unique materials or process expertise• Labor cost
• Infrastructure constraints• Population: Consumption centers
• Transportation cost
TechnologyManufacturing/agriculture centers
7
Trade Route Drivers • Distribution Decisions (semi-fixed)
• Wharehouse locations or availability• Deconsolidation / Domestic distribution scheme• ‘Customer’ demands or requirements
• Transactional• Rail costs (few providers)• Ocean carrier pricing scheme (hugely competitive)• Infrastructure costs (Alameda corridor, Pier Pass, Canal tolls)• Environmental assessments• ILWU / ILA bargaining power• Congestion delays (unplanned) – port/rail
• Offshore intra-region labor rates (e.g. Thailand vs. Philippines vs. Vietnam)
• Interest rates (trade financing terms)
(continue)
8
Outer arrow1 = 2007 volumeInner arrow1 = 1997 volume
Note 1. scaled to volume
Asia to West Coast
Asia to East Coast via All Water Service
Europe to East Coast
Latin Americato West Coast
Europe toWest Coast
Expanding Global All Water Trade Routes
Latin Americato East Coast
U.S. container trade import trends (past 10 years)
Source: PIERS statistics, container cargo
9
U.S. Container Trade Import Trends (Past 10 Years)
0.0
2.0
4.0
6.0
8.0
10.0
Asia Europe Latin Total
19972007 0.0
2.0
4.0
6.0AsiaEuropeLatinVolume by Source Region
(in Million Feu)
Volume Growth
(in M
illio
n Fe
u)
0%
50%
100%
150%
200%
AsiaEuropeLatinTotal
(Gro
wth
Per
cent
ages
)
Growth Percentages
U.S. container imports increase 3-fold from 3.3 million Feu to
9.2 million Feu
Source: PIERS statistics, container cargo
80% of growth originates from Asia
10
U.S. Container Trade Import Trends (Past 10 Years)
1997
USEC/Gulf share of U.S. container import market, while growing 19% (*CAGR) over 10 years,
nevertheless has gained little share from USWC
Source: PIERS statistics, container cargo
37%63%
40% 60%
2007
West Coast East Coast / Gulf
*CAGR: Compound Annual Growth Rate 1997 - 2007
11
0%
20%
40%
60%
80%
100%
WC EC
19972007
Europe
0%
20%
40%
60%
80%
100%
WC EC
19972007
LatinAmerica
WC = U.S. West Coast; EC = U.S. East Coast & Gulf
Asia West Coast Gateway volume Share of Total Asia Import declines 10 percentage points over past years (1997 ~ 2007)
0%
20%
40%
60%
80%
100%
WC EC
19972007
Asia
83%73%
27%17%
Source: PIERS statistics, container cargo
U.S. Container Trade Import Trends (Past 10 Years)
WC EC WC EC WC EC1997 83% 17% 9% 91% 13% 87%2007 73% 27% 12% 88% 14% 86%
Asia Latin AmericaEuropeWest & East Coast Gateway Volume Split
12
Import Volume Growth
While the East Coast has seen less aggregate volume growth over past 10 years, that long term trendmay be changing
60% of the USEC & Gulf Gateway volume growth of 2.51 million Feu originates from Asia
Source: PIERS statistics, container cargo
U.S. Container Trade Import Trends (Past 10 Years)
3.29
0.100.07
3.47
1.51
0.60
0.40
2.51
0.0
1.0
2.0
3.0
4.0
U.S. West Coast U.S. East Coast / Gulf
Asia Europe Latin Total
(in M
illio
n Fe
u)
13
-5%
0%
5%
10%
15%
20%
25%
30%
Past 10 Years CAGR 2007 '08 YTD
Total WC EC Panama Suez
Asia to U.S. Y-o-Y GrowthY
-o-Y
Vol
ume
Gro
wth
Rat
e
Source: PIERS statistics (’97 thru ’07), container cargo; 2008 forecast (company research data)
Panama
Suez
East Coast
West Coast
Total
Past: Past 10 Years, CAGR
’08 YTD: Jan - Apr
Past 2007 '08 YTDTotal 13.3% 1.5% (6.4%)WC 11.7% (0.9%) (10.8%)EC 19.3% 8.7% 6.4%Panama 21.5% 5.7% 0.7%Suez 15.0% 21.6% 28.9%
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Aggregate Volume Growth from Asia
Source: PIERS statistics, container cargo; 2008F: company forecast
SuezPanama
WC
EC
Total
-50,000
0
50,000
100,000
150,000
200,000
Suez Panama
WC
EC
Total
-110,000
-60,000
-10,000
40,000
90,000
140,000
190,000
Vol
ume
(Feu
)
Vol
ume
(Feu
)
2007 Vs. ‘06 2008F Vs. ‘07
West Coast volumes are declining
15
Current Environment
10%
9%
11%
49%
55%
APL figures
36%
31%
80%
67%
All carriers* * Intermodal Association of North America (IANA)
U.S Inland Story (APL Experience)
16
Current Environment & Outlook (Next 10 Years)
• Asia will remain the engine for container imports
• India Subcontinent / Latin America / Eastern Europe hold promise for alternate sourcing but hard evidence of a major shift absent
• Panama infrastructure a constraint for next 7-10 years
• U.S. marine terminal and rail infrastructure congestion has been well documented
o 2007 - 2008 import slow down has provided temporary “reprieve” providing a window of opportunity for “catch-up”
17
Port Productivity Comparisons
Falling Farther Behind
*Compound Annual Growth RateSource: TransSystems, CI Database, Seaports of the Americas, Port Data
Port Productivity Comparisons
U.S. Asia
Seattle/Tacoma 25-28 Tokyo 35
Los Angeles 25-28 Shanghai 28-30
New York Harbor 25-28 Hong Kong 30
Savannah 30 Mumbai 20-24
Marine Terminal Crane Moves per Hour (GMPH)
18
22.0
25.0
28.0
31.0
34.0
Mar-04 Jul-04 Oct-04 Jan-05 May-05 Aug-05 Dec-05 Mar-06 Jul-06 Oct-06
BNSF UP Linear (BNSF) Linear (UP)
U.S. Intermodal Train Speed
U.S. Intermodal Productivity
• U.S. Intermodal Productivity
• Railroad investment
• Heartland corridor project ($266 million)
$2.45 Billion
$1.43 Billion$1.60 Billion
$3.10 Billion2008
BNRR
NSCSX
UPRR
Mile
s pe
r hou
r
Source: AAR
19
Heartland Corridor Project
2010 Completion Target
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• Suez alternate route being developed meantime
o APL’s Suez Express
o Asia sourcing via Suez
• USEC port development to provide alternative gateways moving ahead relatively slowly
Current Environment & Outlook(continue)
21
APL’s - Suez Express Service (Westbound to U.S.)
Suez Canal
22
Asia Sourcing via Suez
(2,000)
3,000
8,000
13,000
18,000
Vietna
mInd
ones
iaTh
ailan
d
China
Malay
sia India
Bang
lades
hSin
gapo
rePa
kistan
Sri L
anka
Othe
r
Ranked by 2007 Volume Growth Rate
Asia to U.S. East Coast & Gulf via Suez Canal
(Volume in Feu)
2007 Vs. 2006
Gro
wth
Vol
ume
(Feu
)
Source: PIERS statistics, container cargo
Rank Country 2,006 2,007 Var. Growth1 China 1,899 10,753 8,854 466%2 Vietnam 11,237 28,712 17,475 156%3 Indonesia 24,478 38,234 13,755 56%4 Malaysia 15,403 23,895 8,491 55%5 Thailand 29,314 40,843 11,528 39%6 Singapore 5,670 7,476 1,807 32%7 Banglades 16,832 21,551 4,719 28%8 India 137,264 142,209 4,945 4%9 Pakistan 46,666 46,991 325 1%
10 Sri Lanka 14,056 12,273 (1,783) (13%)Other 23,073 23,510 436 2%
Total 325,894 396,446 70,552 22%
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Major U.S. Container Gateways
Seattle/Tacoma
Portland
Los Angeles /Long Beach
Oakland
HoustonNew Orleans
Boston
PhiladelphiaNY / NJ
Miami
Jacksonville
Savannah
Baltimore
Norfolk
Wilmington
Charleston
24
U.S. Port Working Depths
U.S. East Coast MLWBoston 38’New York / New Jersey 43’Philadelphia 38’Baltimore 40’Norfolk 48’Wilmington 42’Charleston 47’Savannah 42’Jacksonville 38’Miami 39’
U.S. Gulf MLWHouston 40’New Orleans 35’
U.S. West Coast MLWLos Angeles / Long Beach 50’Oakland 50’Portland 35’Seattle / Tacoma 50’
Depths at Mean Low Water (MLW)
25
Panama Canal expansion
New Game Changers
2008 2015Length 965’ 1,400’Beam 106’ 180’Draft 39.5’ 60’
26
Panama Canal Expansion
Comparison between the largest Panamax container vessel that can transit the current Canal and a Post-Panamax size vessel with 12,000 TEUs container capacity. The larger vessel has 2.5 times the cargo carrying capacity of the Panamax vessel.
27
World Containerized Trade: Impact of Larger Vessels on Infrastructure
Order Book by Size Range (% of Capacity at January 2008)
2008 and Beyond will see more large vessels and 31% of the teu capacity coming on-board will be 10,000+ teu type of ships
28
Fuel costs and environmental concerns as drivers of future trade route patterns require
thought & planning
New Game Changers
29
Historical Comparison of Crude Oil vs Bunker Fuel Price
$210
$260
$310
$360
$410
$460
$510
$560
May
-05
Jun-
05Ju
l-05
Aug
-05
Sep
-05
Oct
-05
Nov
-05
Dec
-05
Jan-
06Fe
b-06
Mar
-06
Apr
-06
May
-06
Jun-
06Ju
l-06
Aug
-06
Sep
-06
Oct
-06
Nov
-06
Dec
-06
Jan-
07Fe
b-07
Mar
-07
Apr
-07
May
-07
Jun-
07Ju
l-07
Aug
-07
Sep
-07
Oct
-07
Nov
-07
Dec
-07
Jan-
08Fe
b-08
Mar
-08
Apr
-08
May
-08
$49
$59
$69
$79
$89
$99
$109
$119
$129
$139
Bunker Fuel Cost per Ton Cost of Oil Per Barrel
Bun
ker
Fuel
Cos
t per
Ton
Cost of O
il per Barrel
• Oil hit an all-time high of $139 on June 6, 2008• Oil prices* are likely to hit $150 a barrel this summer• Oil prices* may shoot up to $200 within the next two
years as part of a "super spike."
*Goldman Sachs Forecast
30
Cost Per Unit: MLB Vs. All Water @ $340/MT
$1,050
$2,500
$0
$1,000
$2,000
$3,000
$4,000
WC - 5 Ships EC - 8 Ships
Round Trip Cost 1R/T Rail Cost WC – NYC
Note 120% fuel surcharge
Shipment of a Forty-foot Equivalent Unit (FEU) from Asia to NYC
All figures are per Feu
2007 AprilBunker Fuel
$1,050
$3,050
$2,500
$0
$1,000
$2,000
$3,000
$4,000
WC - NYC EC - NYC
MLB > by $1,600/FEU
31
$1,400
$3,200
$0
$1,000
$2,000
$3,000
$4,000
$5,000
WC - 5 Ships EC - 8 Ships
Round Trip Cost 1R/T Rail Cost WC – NYC
Note 140% fuel surcharge
Shipment of a Forty-foot Equivalent Unit (FEU) from Asia to NYC
All figures are per Feu
2008 AprilBunker Fuel
$1,400
$3,800$3,200
$0
$1,000
$2,000
$3,000
$4,000
$5,000
WC - NYC EC - NYC
Cost Per Unit: MLB Vs. All Water @ $540/MT
MLB > by $2,000/FEU
32
Carbon Emission
0.2090.274
0.804
0.0
0.2
0.4
0.6
0.8
Deep Sea OceanVessel
Longhaul Rail Longhaul Truck
Source: The Network for Transport and the Environment; Container Shipping Information Service
CO2 Emission per teu-mile by Transportation Mode
Kg/
teu-
mile
33
Carbon Emission
2,1041,929 1,986
0
500
1,000
1,500
2,000
Ship/Rail (MLB) All Water viaPanama
All Water viaSuez
Source: BSR Intermodal Calculator Tool
Kg
/ TE
U(continued)
CO2 Footprint per TEUHong Kong to New York
34
Will the USEC Port and land infrastructure be
ready for the challenges posed come 2015 ?
35
• Ports on the East and Gulf Coasts and not the Panama Canal will become the functional limitation
• U.S. port capacity is only one important component of the U.S. intermodal infrastructure chain
• Industry/Federal/State & Local government funding, partnerships, leadership, & continuous communication critical!!
• Pioneering investment-development spirit still required …….
End Notes
36
Thank You!
37
Appendix
38
Transit Time to New York
Origin West Coast East Coast (Panama Canal)East Coast
(Suez Canal)
Hong Kong 21 30 27Singapore 26 34 24Nhava Sheva 33 39 19(Transit Time figures in days)
Via:
39
Transit Time to Savannah
(Transit Time figures in days)
Origin West Coast East Coast (Panama Canal)East Coast
(Suez Canal)
Hong Kong 24 28 30Singapore 29 32 27Nhava Sheva 35 40 25
Via:
40
2004 2005 2006 2007 2008
China 1.0 1.2 1.4 1.6 1.8India 0.9 1.1 1.2 1.3 1.5U.S. 22.9 23.6 24.5 25.2 26.0Eastern Europe
Czech Republic 7.6 8.6 10.1 12.0 12.6Hungary 6.8 7.5 8.0 9.4 9.9Poland 6.0 7.1 7.8 8.7 9.0Russia 1.3 1.7 2.1 2.4 2.7Slovakia 5.2 6.0 6.7 8.0 8.3Latin America
Brazil 3.5 4.7 5.5 5.4 5.5Mexico 1.9 2.0 2.1 2.1 2.1
Source: EIU, Company analysis
2004 2005 2006 2007 2008
China 9.0 9.0 8.6 7.3 7.0India 6.1 6.1 4.9 5.0 4.6U.S. 2.8 1.4 1.4 1.3 2.0Eastern Europe
Czech Republic 4.0 4.5 4.7 4.5 4.1Hungary 5.2 4.1 4.0 3.7 4.1Poland 3.0 1.0 3.2 3.4 3.1Russia 5.0 5.2 5.2 5.2 4.6Slovakia 5.1 3.9 3.9 4.0 4.5Latin America
Brazil 1.7 -1.4 1.4 1.4 1.2Mexico 2.3 1.2 1.7 1.5 1.3
Table 1: Projected Labor Costs Per Hour (US$) Table 2: Productivity Growth (%)
Comparative Labor Rates/Productivity
41
Regional Offshore Drivers
IndiaSubcontinent
Latin America
Europe
East Asia
2015F20071997
Source: PIERS statistics, Horizon forecast (2007 Winter), Company data
U.S. Container Cargo Import (Million Feu)
#CAGR: compound annual growth rates
6.6%
6.6%
3.4%
6.9%
2007 /2015CAGR*
42
Panama Canal• Operating at 95 – 98% capacity utilization• Reservations for vessel transit day being made one year in advance!!• Cannot handle ships larger than 5,000 TEU and completion of new locks
able to accommodate up to 12,000 TEU ships is not expected until 2015
Cross section of the new locks with its water saving basins, shown with a post-Panamax container vessel with a nominal capacity of 12,000 TEUs
43
Total Vessel Cost (Transpacific)2004
Fuel @ $186 / MTFuel @
$500 / MT
“Fixed Vessel Cost” is Not So Fixed
Fuel: $585/MTFuel: $585/MT(Average May (Average May ’’08)08)
44
End
Slide Number 1APL Company OverviewAPL’s Global Service NetworkExpanding U.S. - Global All-Water Trade RoutesAPL’s 160 Year PerspectiveTrade Routes DriversTrade Route Drivers Expanding Global All Water Trade RoutesU.S. Container Trade Import Trends (Past 10 Years)U.S. Container Trade Import Trends (Past 10 Years)U.S. Container Trade Import Trends (Past 10 Years)U.S. Container Trade Import Trends (Past 10 Years)Asia to U.S. Y-o-Y GrowthAggregate Volume Growth from AsiaCurrent EnvironmentCurrent Environment & Outlook (Next 10 Years)Port Productivity ComparisonsU.S. Intermodal ProductivityHeartland Corridor ProjectCurrent Environment & OutlookAPL’s - Suez Express Service (Westbound to U.S.)Asia Sourcing via SuezMajor U.S. Container GatewaysU.S. Port Working DepthsNew Game ChangersPanama Canal ExpansionWorld Containerized Trade:�Impact of Larger Vessels on InfrastructureNew Game ChangersHistorical Comparison of Crude Oil vs Bunker Fuel PriceCost Per Unit: MLB Vs. All Water @ $340/MTCost Per Unit: MLB Vs. All Water @ $540/MTCarbon EmissionCarbon EmissionSlide Number 34End NotesSlide Number 36Slide Number 37Transit Time to New YorkTransit Time to SavannahComparative Labor Rates/Productivity Regional Offshore DriversPanama CanalSlide Number 43Slide Number 44