1. Seaports & Shipping in a Changing Environment
March 15th, 2017

2. GLDPartners Team Participants
Adam Wasserman Managing Partner, Feasibility, Finance
Brendan Dugan Ports and Terminals
Lois Yates Market/Competitiveness & Econ Devt
Eric Peterson Political & Trade Policy

3. About GLDPartners Purpose-built international investment and advisory
Two main business areas:
Advise on supply chain strategy and facility site selection requirements
Clients: Global manufacturers
Projects at and around airports, seaports and strategic inland trade and logistics hubs
Clients: Investors, public and private asset owners, economic development organizations, MPOs, States
Offices in US, Canada, Mexico and the UK

4. GLDPartners Approach: Story Behind What’s in the Box
Demand-centric focus
Market direction/sector intelligence
Supply chain and trade lanes
Competitive forces are requiring seaports to understand their market sweet-spots
Some examples later on

5. Ports Webinar Outline Ocean carriers Ports and terminal operators
1. Challenges and resulting consequences of current state of container shipping industry, on
Ocean carriers
Ports and terminal operators
Beneficial cargo owners
2. Current overview of Breakbulk Shipping
3. Political climate affecting trade, ports, and related infrastructure for both Container and Non-Container ports & shipping
4. Potential forward-thinking strategies

6. Ocean Carrier Financial Challenges Create Container Industry Uncertainty
Overcapacity-too much new vessel capacity ( too many large container ships chasing too little freight
Slowdown of Chinese economy = decreased demand
Decreased demand = lower container freight rates = lower ROI
Vessel construction cycle ( around 3 years) lags faster-paced economic developments
Freight demand increased steadily following 2009 recession, leading vessel owners to start this latest cycle of overbuilding capacity
Capital cost hurdles for existing ocean carriers & for new entrants become steeper, make it more difficult to “stay afloat”

7. Consequence 1: Container Industry Consolidation
CMA-CGM acquires APL
Hapag Lloyd Acquires UASC
Cosco & China Shipping Merger
Hanjin Bankruptcy
Merger of Japanese Container Carriers (NYK, MOL, K-Line)

8. Consequence 2: Carrier Alliance Consolidations
Three major ocean carrier alliances will control approximately 95% of capacity on the major East-West trade lanes = potential cost control and desired upward readjustment of freight rates:
2M Alliance: Maersk & MSC (potentially plus HMM)
“ The Alliance”: Hapag Lloyd ( incl. UASC) + 3 Japanese carriers + Yang Ming
Ocean Alliance: Cosco, Evergreen, CMA-CGM ( incl. APL), and OOCL

9. Consequences 3: Disruption - Port & Container Terminal Industry
Realignment of what carriers/alliances call at what terminals
Creating challenges for leases, operating agreements, and for committed and projected terminal investment
Based on container carrier bankruptcies and consolidations, carrier-owned terminals are on the market, creating further uncertainty
Ocean carrier financial challenges result in carriers putting added pressure on ports and terminal operators to renegotiate the financial and operating terms of leases and agreements

10. Consequences 4: Challenges for Beneficial Cargo Owners (BCOs)
Carrier consolidations & formation of fewer/larger alliances result in BCOs having fewer carrier negotiating choices
Potentially higher freight rates put cost pressers on BCOs
BCO logistics managers face corporate pressures,
Limited boardroom understanding of industry challenges
BCO logistics managers are frustrated by results of ocean carrier cost-cutting measures,
e.g. Increased on-line booking/customer service systems, instead of being able to speak to a person to solve logistics requirements

11. Breakbulk vs. Container Shipping
Break Bulk Shipping
Container Shipping
Mostly unscheduled
Usually port to port
Significant degree of specialization in subsectors
Consequently, capability is typically more important than size
Panama Canal expansion effect small
Scheduled (fixed day of the week)
Often includes intermodal
Little specialization
Consequently, economizes of vessel size are important
Panama Canal expansion expected to have a material (not dramatic) effect

12. International Breakbulk Shipping Industry Profile
Approximately 20,000 vessels
- Vary significantly: size, type, capability & age
Highly fragmented overall-100s of companies
– Many one vessel corporations
• High concentration in selected industry subsectors
– Vehicles
– Reefer
– Heavy Lift
– Project Cargo
• Overall low growth

13. Current Status of Breakbulk Shipping & Port Industry
Commodities
• Forest products
• Iron & steel
• Vehicles
• Industries
• Construction
• Manufacturing
Economic drivers (similar to container business)
• GDP
• Population
• Consumption
• Income
• Trade policies

14. Breakbulk Market Segments
Basic
RoRo
Reefer
Project
Iron & Steel
Forest Products
Ag Products
Passenger, new & used
Trucks
Buses
Ag & Construction Vehicles
Fruits
Meat
Vegetables
Machinery & Heavy Lift
Power Generation
Plant & Equipment
Oil & Gas
Yachts

15. Key Commodity Market Drivers
Iron & Steel Products have driven US Breakbulk Import Demand
-Iron Ore imports to China increasing for domestic
production, but steel exports from China to Europe Asia, and US decreasing. This is beneficial for US steel producers, but will that mean increased exports?
Forest Products have driven US Breakbulk Export Demand
- But how will slowdown in Chinese economy affect demand?

16. Breakbulk Market Summary
Each segment is unique
– Technologies
– Structure
– Market drivers
– Port requirements
Market characteristics vary significantly by region, country, coastal range, port and terminal
There are multiple customers
– Carriers
– BCOs (importers, exporters)
– Third parties: 3PLs, forwarders, brokers

17. Breakbulk Supply Chain
Similar to Container Supply Chain (req. just as much attention)
BCOs
- Importers/Exporters & Buyers
- Overseas Suppliers & Consignees
Transport Providers
- Ocean Carriers
- Overseas & Domestic terminal operators
- Truckers and Railroads
Agencies
- Customs
- DOA
- Coast Guard
Third Parties
- 3PLs
- Warehouse Operators & Consolidators

18. Breakbulk Multipurpose Terminal Strategy
Same facility can be flexible enough to handle multiple cargo types
Common berth and terminal area facilitates ability to maximize berth and terminal utilization, thereby amortizing facility capex easier
Fosters both cooperation and competition across multiple stevedoring companies
Some Examples:
- Baltimore Dundalk
- Houston City Docks
- Jacksonville Blount Island

19. Examples of Political, Trade, & Infrastructure Issues Affecting Ports
Pacific Merchant Shipping Association warns that Trump Administration trade policies could have negative affect on US trade and ports
Trump Adminsitration instructs USTR to pursue trade cases against China, both in the US and in WTO. China’s Trade Minister Gao Hucheng warns that a US-China trade war should not be a serious option.
Demise of NAFTA & threat of increased tariffs threatens agricultural trade between US-Mexico, as well as automotive trade between US, Mexico, & Canada
Florida Governor threatens to withold funding for Florida ports doing business with Cuba
ASCE rates US transportation insfrastructure a D+

20. Trade Issue Effects
NAFTA demise affects Breakbulk, particularly RoRo (automobile), reefer, trades & forest products
China trade disputes affect both container and non-container trades
Tax Reform affects infrastructure investment, which in turn is important to both container and non-container ports
Any trade restrictions (ex. Florida/ Cuba) affect potential of business development for potentially competitive US ports

21. Supply Chain Food For Thought: Pharmaceuticals
Disruptive Influences in the Pharmaceutical Industry:
Pharmaceutical companies switching from air freight to ocean freight
Air cargo share of global pharma products has declined from 17% in to 11% in 2013
Seabury Consulting reports that every year 0.5 million tons of pharma products are transported by air, compared to 3.5 million tons by sea
8 out of 10 pharma shipments will require cold chain services
$34.1B in losses associated w temperature excursions: air freight
Many are doing it, others are evaluating it, but it is not for everybody
Consolidation hubs in the future?

22. Supply Chain Food for Thought: Automotive
Radical evolution in the automotive industry:
Largest and most sophisticated global production supply chain
Asia is the focus of global production unit growth
China is now the largest domestic consumption market in the world
China is becoming a major production-for-export center (to NA and Europe)
Mexico: risen to global production top-tier, dependent on trade agreements
Technology is main driver to innovation & competitive advantage
Commodity production patterns will remain relatively consistent, but with far more emphasis on China, SE Asia
Automotive technology is redefining the sector: new entrants, types
Autotech research, development, & production will have own separate hubs
US will be the main focus in autotech for the next five years, and then increasingly Europe and Asia - estimated approx. 10 hubs globally

23. Demand-Driven Business Strategy
At the end of the day, it is all about the requirements of specific supply chains
Critical to define your seaport’s competitive proposition
In our opinion, many seaports are missing-out on opportunities resulting from supply chain changes in the market
Those assets that do not understand the market and their sweet spot will fall behind

24. GLDP: A Trusted Partner
We’re happy to have a confidential conversation
To vet and review
Concept
Feasibility
Bureaucracy and political appetite
Discuss probable competition, development & refinement of business plan and application
GLDPartners can help you develop the project from concept to successful implementation

25. GLDPartners Webinar Series
Future Webinar Program Topics
Washington Days
May 17th 2PM EST
UK and Europe Outlook Post Brexit
June

26. GLDPartners|Global Logistics Development Partners