Fednav Limited Incorporated in 1944 Privately held Largest Canadian dry cargo shipping group Headquartered in Montreal 275 employees About 1,200 crew members and hourly labour Offices in Asia, Australia, Europe, and North and South America

Main Lines of Business | Dry Bulk & Breakbulk Freight Operators Fednav International Ltd. (FIL) Worldwide trade routes 25,000 shipdays of operation Leading international Great Lakes operator 23 million tonnes carried in 2009 Current long-term fleet of 61 vessels Total of 2.2 million MT DWT Average age of 9.4 years Current order book of 14 vessels

Evolution of North Atlantic Trade Traditional two-way trade between North America and Europe has stalled Severity of the situation has been amplified by the 2008/2009 financial crisis What is the situation for the St. Lawrence Seaway and Great Lakes’ port system?

Benefits to the St. Lawrence Seaway and Great Lakes St-Lawrence river and Great Lakes ports have ample and efficient capacity They are competitively priced No congestion in comparison to overseas ports

Port Congestion Venezuela: One month to discharge 20,000 MT wheat Brazil: One month to discharge 30,000 MT potash One month to load 35,000 MT sugar 25 ships at anchorage awaiting iron ore berth Australia: 129 ships at anchorage awaiting coal berth China: Up to 13 days waiting for iron ore discharge berth

Shipping as a Chain Shipping can be seen as a chain: From inland place of origin to inland destination Ports are links in the chain Cheapest and most efficient chain wins and designates the ports Does the chain still pass through the Great Lakes/St. Lawrence Seaway port system?

Shifts in World Trade Bulk demand growth has shifted from the Atlantic to the Pacific World bulk fleet is adapting to new reality Environmental concerns that may break the chain Some ports will lose out Some should benefit

Deep Sea Bulk Trade Evolution (2000 – 2010) Asian Infrastructure Development Iron ore/coke-coal imports % Asia % Europe % China % In Million Metric Tons

St Lawrence Seaway and Great Lakes Ports Distant from import markets Situated in a mature economic market Geographically linked to other mature economies with minimal growth Ships are drained from Atlantic to Pacific Atlantic freights are higher for trade within the Atlantic Also at premium for Pacific destinations

Deep Sea Bulk Fleet Evolution (2003 – present) Fleet Additions Less Deletions e2011e 10/39, /59, /99, , In Million DWT Tons

Deep Sea Bulk Fleet Evolution (2003 – present) A huge investment for vessels unable to trade physically or economically above Québec High scrapping and low investment in the 10/39,999 sector which trades above Québec and the Great Lakes This emphasis on larger vessels has repercussions for the St. Lawrence Seaway and the Great Lakes

Consequences for St. Lawrence Seaway and Great Lakes Ports Capesize + post Panamax (85,000+ DWT) Abundance of vessels will bring freight rates down from Québec/Port Cartier/Sept Iles Asian iron ore importers seeking diversification of origin despite distance Capesize vessels load iron ore directed to Asia and returns empty Chinese coke to Great Lakes steel mills only need to offset part of ballast cost favouring Québec as transshipment port Panama Canal: new dimensions as of 2014/2015 shortens distance for baby capes from St. Lawrence to Asia

Consequences for St. Lawrence Seaway and Great Lakes Ports Supramax Ships mostly used to support imports/exports in/out of infrastructure lacking ports in countries in development Almost all vessels not suited or refusing to breach IWL Bigger and deeper: cutting cargo intake to trade above Québec Need to lighten or top off below Québec to achieve full load

Consequences for St. Lawrence Seaway and Great Lakes Ports Handysize Fleet is old – Large investment made in the 80s – will be the most numerous vessels to be demolished in weak market conditions Least of recent years’ investments made in this sector of the fleet DeliveriesScrappings (31J)12435

Consequences for St. Lawrence Seaway and Great Lakes Ports Handysize Investment shifting towards larger Handies of 37,500 DWT – Not lakes suitable Numerous new environmental protection regulations for air/water for technologies not yet developed Cost increase as volumes decline Possibility for Great Lakes to be closed to Salties and domestic Lakers

Worst Case Scenario What if the Seaway closed for Salties and domestic Lakers? No inbound/outbound transshipment of iron ore/grain/coal involving domestic Lakers Montreal/Sorel/Three Rivers have rail connections but are draft restricted Québec has rail and deep draft Port Cartier and Baie Comeau receive no grain

Less Damaging Scenario If seaway closed only to Salties: River ports need to increase transshipment capacity provided: Cost of shipping via Pacific Coast or Mississippi River is not cheaper than the domestic Laker alternative Demand for Canadian grain in Euro-Med- North Africa does not lose out to FSU competitors

Steel Imports vs. Grain Exports 2010 imports approximately double 2009 imports Volumes are immensely less than previous ten year averages and unlikely to revert to similar levels The composition of steel cargoes has changed from heavy coils/slabs to lights structurals and wire rods Steel mills are not working to capacity and the car industry is moving South

Steel Imports vs. Grain Exports Salties with inbound cargo can provide competitive rates to the grain trade When/If grain export volumes exceed inbound volumes, Salties need to ballast up from the St. Lawrence River Cost of such operations keep mounting as the overall cost of services in the lakes is shared amongst fewer vessels

Steel Imports vs. Grain Exports Salties are facing a multitude of environmental constraints Overall, Salties loading at lake ports become a last resort safety valve to use when/if grain exports exceed predictions

Conclusion Many challenges remain ahead A lot of government help is needed to ensure that the seaway remains competitively open A lot of hydroelectricity needs to remain available to the aluminium and titanium industries to maintain operation Québec has to remain attractive to mining development

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