Global Maritime Sector: A Review

1. Global Maritime Sector: A Review Shashi Kumar, Ph.D., Master Mariner SK 2005

2. Outline 1. Introduction 2. Market Developments 3. The U.S. Merchant Marine 4. Global Issues 5. Outlook

3. Introduction • “Not since the days of the Vikings” • Concurrent highs in all three major shipping markets • Spectacular year for the industry • Major drivers • PRC • India • U.S.A. • Other fast growing nations

4. Shipping Fleet Valuation: 2003 Vs. 2004 Source: R.S. Platou 2005

5. Market Developments—Newbuildings Source: LSE Source: LSE

6. Market Developments—2nd Hand Price, 5 Yr Old Ships Source: LSE

7. Market Developments—Tankers Average Freight Rate in $1,000/day Source: R.S. Platou 2005

8. Market Developments—Dry Bulk • Capacity utilization -- 97% • Capesize tonnage--$100K/day max, $62,500/day average • Average daily earnings doubled for Capesize and Panamax size

9. Market Developments—Liners • Revenue per 20 foot container rose 6.4% • Trans-Pacific trade grew at 13% • The Wal-Mart rumor • NVO Service Agreement approved in 2004 • Confidential contracts allowed for OTIs from 2005

10. Market Developments—Cruise Industry Carnival Cruise Lines’ Net Revenue Yield Changes Source: AP Best ever operating year for CCL 175,000 people on CCL ships at any one time

11. Market Developments—Shipbuilding • S. Korean yards are now the undisputed world leaders • Record orders for new construction • All three S. Korean yards posted losses • Increasing price of steel • Appreciation of the Won • China State Shipbuilding Corp now is among the top five shipyards

12. The U.S. Merchant Marine • Some signs of life • International Shipholding Group to build an undisclosed number of LASH vessels • New entrant eyeing the Hawaii trade • Pasha Transport Hawaii • Ocean Blue Express • Matson’s aggressive response • Puerto Rico trade • Trailer Bridge bought out K Corp. • Capital market developments

13. Shipping-related IPOs in 2004 Source: LSE

14. Developments in the U.S. • The American Jobs Creation Act • Subchapter R to the Internal Revenue Code • Tonnage Tax option • Also amends subpart F of the tax rules • Marad, Ex-Im Bank joint initiative • Working capital loan for freight forwarders who could extend credit to their export clients • Security-related developments • ISPS and MTSA went into effect on 7/01/2004 • USCG approved 9200 VSPs, 3100 PFSPs, 43 RSPs • CSI operational in 33 ports, 21 countries • C-TPAT has 8,200+ voluntary members

15. Developments in the U.S. • Security-related developments • Are our ports and facilities more secure today? • More vessel detentions for safety reasons • Highly vulnerable to nuclear threat • Congressional Research Service Report • Who should pay for the security costs? • U.S. Gulf ports model

16. Developments in the U.S. • Short-sea shipping • Marad’s “blue highways” SCOOP • Expansion of Osprey Lines’ gulf coast container-on-barge service • Columbia Coastal’s Albany Expressbarge service • PoNY/NJ’s Port Inland Distribution Network

17. Developments in the U.S. • Maritime Security Program • Boost the nation’s military support capability • Assist the merchant marine and the shipbuilding sector • 60 ship fleet is now complete • 47 ships approved in 2003 • 13 approved in 2004 • Have a balanced fleet • 1st five slots to be issued to U.S.-flag product tankers owned by U.S. citizens • Temporarily assigned to three Maersk tankers under charter to OSG and 2 heavy lift ships • National Defense Tank Vessel Construction Assistance program is now in limbo!

18. Developments in the U.S. • Marad Ship Scrapping Program • Ghost Fleet to be scrapped by September 30, 2006 • 121 ships still at anchor • Four ships sent to Hartlepool, U.K., have run into legal problem • Marad’s leadership, management acumen, and its contracting practices under criticism

19. Developments in the U.S. • East Coast Stevedoring Contract • Six year master contract ratified in June 2004 • Considerable opposition from newer ILA members • Baltimore, Charleston, and Hampton Roads rejected master contract as well as supplementary local agreements • Will cost employers $8.7 billion over the next six years

20. ILA & ILWU Base Hourly Wages Comparison Source: ILA

21. ILA Investigation • Investigation of mob influence within ILA • Several indictments in 2004 • Extortion • Conspiracy • Mail and wire fraud • Many top ranking leaders behind the slammer! • Exec VP of ILA • Member of the ILA Exec Council • ILA International VPs in Miami & New York

22. Port and Terminal Operations • Massive bottlenecks at LA and LB • Increased automation did not help • Unprecedented growth in volume • 80+ new Post-Panamax container ships expected to enter the market in 2005 • Resurgence of all-water services to the East Coast • New distribution centers at East Coast ports • Panama Canal wins in the short-run

23. Panama Canal Rate Hikes Source: PCA

24. The LNG Era Source: EIA

25. The LNG Era • Iran, Russia, and Qatar—dominant LNG fields • $30 billion investment in the next 20 years • World LNG consumption to double in the next 15 years • LNG infrastructure controversy • Local • Regional • National

26. The Human Element • A two-year global collective bargaining agreement between ITF and the Joint Negotiations Group • Significant increase in the cost of operating specialized vessels • Crew cost for VLCCs went up by 7.8% in 2004 and now comprises 40% of the total • Crew cost for Panamax bulk carriers—46% • Very tight market for senior officers with special endorsements like LNG • As a career, shipping has lost its charm

27. Maritime Piracy Source: IMB

28. Outlook Will the brilliant market conditions continue? Will the Chinese economic miracle run out of steam? The new Excelerate Energy Bridge terminal in LA—harbinger of the future? The sea is too unpredictable to be lulled into complacency