Procurement Policy Monthly Report CONFIDENTIAL Procurement Policy Monthly Report HYUNDAI MERCHANT MARINE Co. Ltd. September 2012 Purchasing Team / Strategic Purchasing Part August. 2012 Based Data

Table of Contents Ⅰ. The Purpose of the Procurement Policy Ⅱ. The Summary of Key Indicator Ⅲ. The Summary of Monitoring (August. 2012) A. Spend Analysis B. Supplier Evaluation C. Contract Management Ⅳ. Procurement Policy Monitoring ※ Appendix - Supplier Evaluation Manual - Vendor information Manual - Contract Management Manual 1

Ⅰ. The Purpose of the Procurement Policy CPO CPO [Chief Procurement Office] An organization which carries out the monitoring and guiding on the company-wide cost management and procurement processes in relation to procurement of all goods and services at HMM Contract Service Provider Helper Watcher Carrying out entire procurement operation from establishing a procurement strategy to making decisions and concluding contracts Establishing a procurement strategy, Monitoring, managing and controlling the overall procurement procedure Monitoring, managing and controlling the overall procedure of procurement Acquiring visibility on all procurement activities carried out at HMM

Ⅰ. The Purpose of the Procurement Policy CPO Policy Monitoring * Acquiring visibility on all procurement activities carried out at HMM : Total 19 Services * Through diversification of the supplier base, should promote price competition among suppliers * Differentiating each supplier according to the supplier evaluation result and strategic importance * Minimizing the potential internal and external risk ☞ Sending Procurement Policy Monitoring Report every month Indicators Definition Unit Formula Remarks Supplier Evaluation Evaluating Major Suppliers on a Regular Basis (Target Suppliers: Upper 80% of Total Purchasing Amount) Evaluated Suppliers ∑(Evaluated Suppliers) ∑(CPO Target Suppliers) * Evaluate the target suppliers at least once a year * The supplier should be evaluated more than 3 people. Contract Management Acquiring Visibility on Procurement Operation New & Updated Contract Check the Contract Uploaded in ELMS system * Check the contract effective date * Check the contract amount of new & updated contract Spend Ratio Checking Spend Ratio of CPO Target Suppliers’ purchasing amount Total amount of CPO Target suppliers ∑(CPO Target Supplier’s Amount) ∑(Total Purchasing Amount) * Keep 80% Spend Ratio

Ⅱ. The Summary of Key Indicator Supplier Evaluation (Aug.) Contract Management (Aug.) Spend Ratio (Aug.) [No. of Suppliers] Bulk Agent (2) Long-term con. (2) [Million U$] 5 2,274 6 Spare parts (7) 32 Feeder (16) 1,819 12 Feeder New van (8) 13 455 Fuel & Lub. (9) 장기임차 Total Amount Non-Target Amount Target Amount Target Suppliers Incomplete Complete The number of the contract from Jan. to Aug. There is no target suppliers in August. Target suppliers of September will be shown in advance in this report. (Depot / 8suppliers) 44 contracts were made in 2012 (Feeder, Fuel & Lub. Spare parts, New van Long-term container, Bulk Agent) Total purchasing amount is U$ 71,221,850 ( The purchasing amount above is only about New van, Long-term container and Feeder. The other contracts don’t have fixed total amount when they make contract.) CPO Target suppliers - Spend Ratio: 80% - USD 1,819million (Total USD 2,274million) HMM Minimum standard 80% is passed.

Ⅲ. The Summary of Monitoring A. Spend Analysis [Unit: USD] No. Service Total Purchase Amount CPO Target Amount Spend Ratio 1 Long term container 34,122,214 30,416,933 89% 2 Docking Repair 8,540,295 6,810,105 65% 3 Fuel&Lubricant 1,188,255,821 1,117,425,439 94% 4 New van&Reefer 43,415,000 39,942,500 92% 5 Short term container 18,968,060 17,656,643 93% 6 Spare parts 31,603,882 26,195,177 83% 7 Legal Insurance 18,411,652 18,048,529 98% 8 General Administration 7,065,476 3,569,327 51% 9 C. Feeder 87,975,097 44,756,492 10 Trucking 128,385,450 67,338,248 52% No. Service Total Purchase Amount CPO Target Amount Spend Ratio 11 Bulk Agent 4,311,854 956,497 22% 12 Terminal 499,031,488 323,652,846 65% 13 Depot / CY 26,913,876 7,302,750 27% 14 M&R 24,773,086 13,587,028 55% 15 Barge 24,444,526 16,483,446 67% 16 Bulk Stevedore 31,277,811 13,254,676 42% 17 Container Agent 21,695,730 5,830,775 18 CUT 47,766,459 43,989,499 92% 19 WUT 24,523,819 19,986,246 83% 20 KHT 2,879,686 2,186,690 76% * HMM Local branch cost will be excepted in Container agent service. * ‘General Repair’ is excepted in spend analysis list from August because of separate management. Total Amount Total Target Amount Spend Ratio 2,274,361,283 1,819,389,846 80%

Ⅲ. The Summary of Monitoring A. Spend Analysis Update Target Suppliers ▣ Newly updated target suppliers were notified in the beginning of 2012. For managing accuracy of visibility on all procurement activities, we purchasing team requested to update target suppliers of some services which had low spend ratio. (20%~50%) ▣ Target services for updating is like below. ▣ Added & Deleted services - General Administration: Add (1) / Delete (1) - C. Feeder: Delete (5) Service Spend Ratio (Until June) General Administration 50% C. Feeder 51% Depot/CY 29% Container Agent 26% Notice for update

Procurement Policy 19 Services Total Purchasing Amount (Monthly) Ⅲ. The Summary of Monitoring A. Spend Analysis Procurement Policy 19 Services Total Purchasing Amount (Monthly) [Million U$] Total Purchasing Amount CPO Target Amount [Unit: million U$] Item　 2011. 09 2011. 10 2011. 11 2011. 12 2012. 01 2012. 02 2012. 03 2012. 04 2012. 05 2012. 06 2012. 07 2012. 08 Total Purchasing Amount 178 321 270 285 246 294 352 291 273 260 272 284 CPO Target Amount 133 225 237 195 234 281 230 217 214 215 229 Spend Ratio 75% 85% 83% 80% 79% 81% The average of total purchasing amount per month is USD 284million, the average of CPO target amount per month is USD 227million. The average of spend ratio for 2012 is 80% (Jan.~Aug. 2012 Based Data)

Evaluation status of CPO Target in August Ⅲ. The Summary of Monitoring B. Supplier Evaluation Evaluation status of CPO Target in August * Spare parts Target supplier’s grade * Average grade is 61.6, and there are 6 suppliers whose grades are above average among 8 suppliers. The gap between the lowest mark and the highest mark is 2.5 point. Whole target suppliers got low marks in this evaluation, and they have similar things to be improved. ‘Loading/Unloading rate’ , ‘Productivity’ is similar to each other. If the terminal shows lower rate and higher productivity, it can have competitiveness than ours. In over storage case, half of the terminals provide 3~7 days of free time, and other half of the terminals provide more than 7 days of free time. While most target suppliers have proper free time, cargo management & service area shows low performance. 5 suppliers have unsatisfying performance due to several times of occurring problem in cargo management. "Cargo management" includes RF Monitoring, CY Handling, OOG/DG Cargo Handling. In addition, all target suppliers are not supportive when they provide relevant information about port and terminal. As whole target suppliers have no preference compared to other terminals, target suppliers should do their best to compensate the defects which is stated above. Average: 61.6

New & Updated Contract (Jan. ~Aug.) Ⅲ. The Summary of Monitoring C. Contract Management New & Updated Contract (Jan. ~Aug.) * Contract Amount & Number of Contract (Jan. ~Aug.) * Contract Status for Each Month Service Contract Amount (U$) Contract Amount Ratio No. of Contract No. of Contract Ratio Feeder 25,280,000 35% 16 36% Fuel & Lub. - 9 20% New van 43,682,500 61% 8 18% Spare parts 7 16% Long-term con. 2,259,350 3% 2 5% Bulk Agent (Gas) Total 71,221,850 100% 44 28 13 2 1 ※ Feeder contract amount is estimated by purchasing amount of last year. ※ Fuel & Lub. cost will be changed everyday by international bunker price. ※ Spare parts, Bulk cost will be calculated as it occurs. • 28 contracts were made in January among total 44 contracts. (64%)

General Administration Ⅳ. Procurement Policy Monitoring Re-selection of CPO Target Suppliers for 2012 CPO Target Suppliers for 2012 are updated based on 2011 data → Newly updated target suppliers will be evaluated by the group in charge at least once a year. → New evaluation plan in 2012 is like the attached file. Evaluation Plan No. Service The number of target suppliers 1 Long term container 11 8 Legal Insurance 6 15 M&R 37 2 Docking Repair 9 General Administration 7 16 Barge 31 3 Fuel&Lubricant 23 10 C. Feeder 25 17 Bulk Stevedore 99 4 New van&Reefer Trucking 98 18 Container Agent 57 5 Short term container 12 Bulk Agent 46 19 CUT General Repair 13 Terminal 39 20 WUT 24 Spare parts 35 14 Depot / CY 65 21 KHT Total 667

Ⅳ. Procurement Policy Monitoring Re-selection of CPO Target Suppliers for 2012 CPO Target Suppliers for 2012 are updated based on 2011 data Month The No. of suppliers Target Service 1 39 KHT, Depot, Mater lease, M&R 2 - 3 4 9 Depot, Bulk agent 5 13 WUT, CUT, Bulk agent 6 36 CUT, Spare parts 7 8 New van (Box, RF) 55 Terminal, KHT, WUT, CUT, Depot 10 197 Terminal, KHT, WUT, Feeder, Trucking, Barge, Depot 11 194 WUT, KHT, Feeder, Fuel & Lubricant, Trucking, Barge, General repair Stevedoring, Bulk Agent, 12 117 Docking repair, Feeder, Long-term lease, Legal affairs & insurance, General Management, Trucking, Barge, Bulk agent, Container agent Total 667

Ⅳ. Procurement Policy Monitoring Spend Ratio  Collect the total purchasing amount of 19 services using CPO system The people who are in charge of CPO Evaluation can use ZMMR0840 in SAP program for checking evaluation marks. Manual for ZMMR0840 Supplier Evaluation  Evaluate the CPO Target Suppliers at least once a year ☞ Flash manual : P. Pak (http://ppak.hmm21.com/gm/folder-1.11.5521) Web page (Check the ※Appendix for simple Ver. Manual) ☞ Follow the link http://hmmcpo.hmm21.com→ Evaluation → Evaluation Plan → Vendor List ☞ Give a Total Feedback after complete every evaluation of service suppliers  Total score of every suppliers will be presented in the next month report Contract Management  Figure out the contents of the contract, and it will be used as evidence if the trouble is occurred with suppliers ☞ Acquiring visibility on procurement operation: Contents of the contract (Contract Amount, General Terms and Conditions, Contract Period, etc.) ☞ Portal log on → ELMS → Contract Review → Contract Management) Related Mail (KOR)

※ Appendix Supplier Evaluation Manual 1) Visit CPO home page, The URL is http://hmmcpo.hmm21.com/ 2) Click ‘Evaluation Plan’ under the ‘Evaluation’ menu. 3) Click the period and the service on the Drop-down list for searching the supplier. (Ex. October, Feeder)

※ Appendix Supplier Evaluation Manual Click the Checklist button for Evaluation. 2) Click the position and working period on the Drop-down list. 3) Start to answer about the question. 4) Click ‘Evaluation’ tab for next step after you complete the answer and save it. 5) After you complete the evaluation sheet, please move on to next supplier.

※ Appendix Vendor Information Manual 1) Click ‘Vendor Information’ under the ‘Evaluation’ menu. 2) Click the service name which you want to put the information on the Drop-down list. 3) You can also put the supplier name in the search bar. 4) Click the appropriate vendor name on the list.

※ Appendix Vendor Information Manual 1) Click ‘Edit’ for entering the information. 2) Click ‘Save’ after you complete the form. ( The items with red star should be entered necessarily.) * Vendor information should be completed during supplier’s evaluation period.

※ Appendix Contract Management Manual 1) Click ‘ELMS’ in system link for managing new and updated contract. (You can also access ‘ELMS’ using this URL) http://elms.hmm21.com/index_main.jsp 2) Click ‘Contract Management’ in ‘Contract Review’ category. 3) Click ‘New Entry’ for entering contract information.

※ Appendix Contract Management Manual Search the vendor code Fill the CPO Evaluation period out Summarize the contents of contract here. Click here and attach the contract.