1. Copyright © 2004 Global Insight, Inc. Short Sea Shipping in Latin America January 11, 2004 TRB Annual Meeting Omni Shoreham Hotel Washington, DC Robert West Managing Director Global Trade & Transportation 781-301-9078 robert.west@globalinsight.com

2. Agenda Cabotage in Central America Cabotage in South America

3. 3 Copyright © 2004 Global Insight, Inc Definitions Cabotage – Cargo and passenger traffic by sea, between ports within a country. Regional Cabotage – Cargo and passenger traffic by sea, between ports within an agreed region. Feeder – Maritime movement from one port to another where a transoceanic vessel then exports the cargo (reverse for imports).

4. 4 Copyright © 2004 Global Insight, Inc Develop Regional Cabotage as a complementary and competitive alternative to land transport, with substantial participation in both intra-regional and extra-regional trade – through feeder services between the region’s ports, to reduce total transportation costs and increase the cargo volumes through the ports. Central America Cabotage Feasibility Study

5. 5 Copyright © 2004 Global Insight, Inc Roll-On/Roll-Off (Ro/Ro) – Ship that transports wheeled cargo over a ramp for loading/unloading. It can carry cars, busses, trucks depending on its design. Lift-On/Lift-Off (Lo/Lo) – Container ship, using onboard crane or land-based carne. Roll-On/Lift-Off (Ro/Lo) – Ship that combines the above two features. TEU - Twenty-foot Equivalent Unit, Standard measurement of containerized cargo. A 40’ container equals 2 TEU’s. Ship Definitions

6. 6 Copyright © 2004 Global Insight, Inc Cabotage can be an integral part of the supply chain. Complements road transportation Environmentally favorable –Less contamination –Lower road maintenance and repair costs Ship versus rail and truck capacities (Europe): –7,451 tons of general cargo are equivalent to: 291 trucks, or 10 trains, or 1 average size RoRo

7. Cabotage in Central America Not much now, but - - -

8. 8 Copyright © 2004 Global Insight, Inc Projections – Central America Cabotage Atlántic/Pacífic Feeder Atlántic/Pacífic

9. 9 Copyright © 2004 Global Insight, Inc Quetzal Acajutla Corinto Caldera Cabotage Service Intra C.A. San Lorenzo Guatemala Honduras Nicaragua Costa Rica El Salvador Possible Cabotage Service Cabotage Intra C.A. Ship: Ro/Ro

10. 10 Copyright © 2004 Global Insight, Inc Commercial interchange within Central America shows some potential. The Pacific Coast shows promise for intra-CA cabotage. On the Atlantic Coast, there is not sufficient cargo for a profitable cabotage service. Potential Cabotage: Intra-Central America Tons (000) Note: 1998 figures are estimates of the potential only – not actual. Pacifico Atlántico

11. 11 Copyright © 2004 Global Insight, Inc Demand Summary - 2002 * Atlántic after 2015 Cabotage Intra C.A. - Pacífic* Cargo S/B:592 TEU’s / Week Cargo N/B:806 TEU’s / Week Feeder C.A. –Atlántic S/B: 4,680 TEU’s / Week N/B: 4,942 TEU’s / Week –Pacífic S/B: 4,930 TEU’s / Week N/B: 6,838 TEU’s / Week

12. 12 Copyright © 2004 Global Insight, Inc Cabotage - Pacific: Service to each C.A. country:Weekly Proposed ship type: RO-RO Transit time (R.T.):7 days Ship capacity:264 TEUs Average ship utilization: 80% Ship speed in service:15 knots Number of ships:1 Ship Market potential:N/B:806 TEUs/Week S/B:592 TEUs/Week

13. 13 Copyright © 2004 Global Insight, Inc Once up and running, the Pacific cabotage service would be profitable. Revenue - $64 million, including land portion Costs - $47 million, including land portion Profit - $17 million

14. 14 Copyright © 2004 Global Insight, Inc Cooperation with the truckers - Experience in Other Countries Cabotage is complementary, not competitive Compatibility of land and sea equipment Contractual flexibility between sea and truck: –European experience Involvement of the trucker in maritime transport: –As stockholder or partner

15. 15 Copyright © 2004 Global Insight, Inc Feeder Atlántic Feeder Pacífic Possible Feeder Services Ship: Lo/Lo

16. 16 Copyright © 2004 Global Insight, Inc Potential Cargo for Feeder Services Europe CA-Europe has few direct services. Trade with Europe could be transshipped in Panama or in a Caribbean port. Of the 3 markets, Europe is the biggest and fastest growing. Asia-Australia All the trade with Asia is through the Pacific Coast. The trade with Asia could be transshipped in Balboa or in Manzanillo, México. Rest of the World Other markets Exports: 21% Pacífic, 19% Atlántic Imports: 7% Pacífic, 33% Atlántic Global Insight examined the potential markets, excluding services to the US where there are direct services. Also, liquid and dry bulks were excluded. Pacific Atlantic 6 millon tons 2000

17. 17 Copyright © 2004 Global Insight, Inc Feeder on the Atlantic – Central America Service in all CA nations, and Panama:Weekly Proposed ship type: LO-LO Transit Time (RT):7 días Ship capacity:1,130 Teu’s Average ship utilization: 50% Ship speed in service:16 knots (Cap.18) No. Ships in initial service:1 ship Potencial del Mercado:S/B:4,680 Teu’s/Week N/B: 4,942 Teu’s/Week

18. 18 Copyright © 2004 Global Insight, Inc In the first full year of operation, the Pacific Feeder service would be profitable. Revenue - $78 million, including land portion Costs - $56 million, including land portion Profit - $22 million

19. 19 Copyright © 2004 Global Insight, Inc Combination Feeder - Cabotage on the Pacífic * The Pacific Feeder service could transship in Manzaillo, Mexico, or in Balboa, Panama. Ship: Ro/Lo

20. 20 Copyright © 2004 Global Insight, Inc Service in all CA nations, incl Panama:Weekly Ship proposed for service: RO-LO Transit Time:9 days Ship Capacity:1.130 TEUs Average ship utilization: 72% Ship speed in service: 16 knots Number of Ships:1 vessel (3 future) Market Potential:N/B: 7,644 Teus/Week S/B: 5,522 Teus/Week Combination Feeder - Cabotage on the Pacífic Also Profitable

21. 21 Copyright © 2004 Global Insight, Inc Considerations – Central American cabotage The financial results are for a combined land-sea operation, with common ownership. Reducing the costs of land transport by 10% would improve the profitability of the cabotage service by $3 million. The 5 countries must work AS A REGION with unified regulations and treatment of cabotage as a unifying effort.

22. 22 Copyright © 2004 Global Insight, Inc Panamá and México Panamá. A member of CAUCA but not a signatory to the Multilateral Treaty or to CAFTA (2004). Cabotage is not an important factor in the consideration of an international treaty, but at the same time, this indicates the necessity to give cabotage an independent treatment. México. Represents another important element because of the Plan Puebla-Panamá proposal and because of the trade agreements, either current or in prepartion, between México and the Central American nations.

23. 23 Copyright © 2004 Global Insight, Inc Maersk-Sealand already operates a related service. Source: Jan Hoffman, UN

24. 24 Copyright © 2004 Global Insight, Inc INTERNATIONAL TRAFFIC MERCOSUR Open Partial Open Partial Open Partial Open Partial Open To all Open To all Open To all Controlled ANDEAN CABOTAGE TRAFFIC NAFTA EUROPEAN UNION EUROPEAN UNION Controlled Open - Regional Open - Regional CEN AMER Controlled Open To all Open To all Each regional block has its own criteria for controlling, or opening, local and international navigation. The EU is the most “open” for cabotage and international traffic.

25. Cabotage in South America Great possibilities – Many problems

26. 26 Copyright © 2004 Global Insight, Inc South American Cabotage -2000 Tons (000) Chile Colombia Ecuador Guyana Paraguay Brasil Suriname Argentina Peru Bolivia Liquid Bulk 14.939 Dry Bulk 2.355 General Cargo 412 Venezuela Uruguay TOTAL Total 17.707 n/d 4.140 2.289 n/d 00351 4183163.857 n/d 1120 n/d 76.743103.356 456 n/d 351 3.122 n/d 0 22.480 52.09613.5701.76167.428 6.8553.0611.18611.103 n/d 456 3318657

27. 27 Copyright © 2004 Global Insight, Inc Intra-MERCOSUR Trade THIS THIS route is not allowed. Source: Jan Hoffman, UN

28. 28 Copyright © 2004 Global Insight, Inc Global Networks Maersk-Sealand operates in this international route, with Buenos Aires as the final destination, in order to avoid the legal restrictions on cabotage. Maersk-Sealand Source: Jan Hoffman, UN

29. 29 Copyright © 2004 Global Insight, Inc Global Networks Evergreen Source: Jan Hoffman, UN

30. 30 Copyright © 2004 Global Insight, Inc Global Networks Lykes Lines Source: Jan Hoffman, UN

31. 31 Copyright © 2004 Global Insight, Inc Question If it were possible, would the international services carry cargo from San Antonio to Iquique? Source: Jan Hoffman, UN

32. 32 Copyright © 2004 Global Insight, Inc Ship capacity connecting Chile ports with other South American ports. Source: Jan Hoffman, UN

33. 33 Copyright © 2004 Global Insight, Inc Intra-Andean Pact Trade (CAN) THIS THIS route is also not allowed. Source: Jan Hoffman, UN

34. 34 Copyright © 2004 Global Insight, Inc Advantages of a Regional Agreement international cargoLess international cargo on the highways More options and frequencies for the customers Lower transport costs fleetAdvantage of the regional fleet over the extra-regional port trafficMore port traffic integrationLarger regional integration

35. 35 Copyright © 2004 Global Insight, Inc Example: European Union Factsheet 4.5.8.: third parties “ Regulation 4055/86 applies the principle of open delivery of services for maritime transport among Member Countries and between Member Countries and third parties.”

36. 36 Copyright © 2004 Global Insight, Inc For CAN, this would mean - - - Open International Trade Regional Cabotage

37. 37 Copyright © 2004 Global Insight, Inc as well as pure cabotage and feedering. Also Open? “Feedering”

38. 38 Copyright © 2004 Global Insight, Inc...even cabotage by international lines. International Lines would carry cargo between Buenaventura & Cartagena

39. 39 Copyright © 2004 Global Insight, Inc Conclusions Cabotage needs special treatment –Regulatory aspects: customs, legislation and regulation –Appropriate installations in the ports –Special tariff treatment at the ports –Definition of the appropriate enterprise (business structure) –Harmonization with road transport

40. Copyright © 2003 Global Insight, Inc. Short Sea Shipping in Latin America January 11, 2004 TRB Annual Meeting Omni Shoreham Hotel Washington, DC Robert West Managing Director Global Trade & Transportation 781-301-9078 robert.west@globalinsight.com