March 15 th , 2017

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 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 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 • 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

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

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 2000 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 Update @120 Days • May 17th 2PM EST • UK and Europe Outlook Post Brexit • June

26. GLDPartners|Global Logistics Development Partners www.gldpartners.com 623.341.1383