www.drewry.co.uk

Container terminal industry:

weathering the stormMaritime Silk Road, Ningbo

13th June, 2018

www.drewry.co.uk2

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Content

• The storm

• Weathering the storm

• Strategies

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The Storm

0

100

200

300

400

500

600

700

800

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Mill

ion

TEU

North America Europe Asia Middle East & ISC Latin America Africa Oceania

Global container trade: slower growthThe global container trade has grown at a CAGR of 4.5% between 2010 – 2017, down from

CAGR 8.3% 2000-09.

Global Container Trade: Global Port Handling

North America

9%

Others91%

Europe17%

Others83% Asia

54%

Others46%

Middle East &

ISC9%

Others91%

Latin America

6%

Others94%

Africa4%

Others96% Oceania

2%

others98%

Global Container Trade: 2017 % TEU Share and CAGRs

CAGR 00 – 09: 3.2% CAGR 10 – 17:

3.8%

CAGR 00 – 09: 7.3% CAGR 10 – 17:

3.2%

CAGR 00 – 09: 5.9% CAGR 10 – 17:

3.4%

CAGR 00 – 09: 10% CAGR 10 – 17:

5.1%

CAGR 00 – 09: 12.4% CAGR 10 – 17:

5.2%

CAGR 00 – 09: 6.6% CAGR 10 – 17:

3.8%CAGR 00 – 09:

10.7% CAGR 10 – 17: 4.9%

CAGR 00 – 09: 8.3% CAGR 10 – 17:

4.5%

Source: Drewry

Concentrating customer base

2017

Hapag-

LloydUASC

HL merges

with UASC

MOL NYK K-Line

Ocean

Network

Express

2018 (Container Operations Only)

MaerskHamburg-

Sud

Maersk

acquires

Hamburg

Sud

2016

CMA-CGM APL

CMA-CGM

acquires

APL

COSCO CSCL

COSCO

merges

with CSCL

OOCL

2017

2M

Ocean

THE

Containership sizes double on most trades

• · ·

Evolution of average ship sizes on major trade routes

Source : Drewry Maritime Research

Source : Drewry Maritime Research

Trade Route (TEU) 1Q09 1Q12 1Q15 1Q18

Far East/N Europe 7,779 9,552 12,235 15,291

Far East/Mediterranean (direct) 5,488 6,848 8,625 10,998

Transpacific headhaul 5,079 5,869 6,740 7,828

Transatlantic headhaul 3,609 3,872 4,458 4,703

ECSA/Far East 5,074 3,240 8,314 9,236

WCSA/F East 5,100 2,681 7,207 7,751

Eur/S Africa 3,301 3,116 7,657 8,096

Far East/S Africa (direct) 5,255 3,651 7,061 5,068

Eur/W Africa (direct) 1,965 1,636 2,578 2,965

Far East/W Africa (Direct) 2,755 2,220 4,846 5,490

Asia/Mid-East and South Asia (direct)

2,926 3,692 5,594 5,409

Capex is rising to accommodate larger vessels

• More cranes

• Larger cranes (outreach and height)

• Longer and deeper berths

• Deeper approach channels

• Greater air draft

• Larger or more densely stacked yard

Larger ships drive up opex

10,000 moves per week

4 x 7,500 TEU vessel calls

10,000 moves per week

2 x 15,000 TEU vessel calls

QC x 6

22 rows

48m high

QC x 4

18 rows

38m high330m quay

14m depth

400m quay

16m depth

5,000 moves

per call2,500 moves

per call

Larger

yard to

handle

peak

loads

Higher peak

manning

The Storm

Softening of demand

growth rates

Vessel upsizing: cost

pressure

Concentration of volume: risk

Weak carrier profitability: pressure on

price

Pressure on margins

and returns

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Weathering the storm

Weathering the storm

Softening of demand

growth rates

Higher opexand capex

costs due to bigger ships

Increased business risks from larger liner alliances

Carriers pressuring for lower

prices

Global demand growth has recovered from stagnation in 2016

to growth of over 6% in 2017

Prices appear to be holding firm for several reasons

Cost saving initiatives have enabled many terminal

operators to mitigate upward opex pressures

Weathering the stormConcentration increases risk

Change in market share: SE Asian transhipment hubs, 2004-17

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Singapore Port Klang Tanjung Pelepas

Weathering the stormConcentration increases risk

40.0%

45.0%

50.0%

55.0%

60.0%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Antwerp and Rotterdam volume share (%)

Antwerp Rotterdam Linear (Antwerp) Linear (Rotterdam)

Industry EBITDA and EBITDA Margins¹

2,802

2,364

2,741 3,326 3,232

3,490

3,903 4,203

4,646

5,145

37.7% 37.5%

39.0%

43.8%

39.9%

41.2%41.7%

43.4%

44.8% 44.9%

30.0%

35.0%

40.0%

45.0%

50.0%

0

1,500

3,000

4,500

6,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

(US

D m

illio

n)

EBITDA EBITDA Margin

Weathering the stormEBITDA margins sustained

EBITDA Growth (%)

Source: Bloomberg, DMFR

Note: (1) Includes Cosco Shipping Ports, CMPH, DP World, ICTSI and HHLA

na -15.6 15.9 21.3 -2.8 8.0 11.9 7.7 10.5 10.7

Weathering the stormReturns going down

Sample Port Operators: Return On Invested Capital (ROIC), 2008-17

4%

5%

6%

7%

8%

9%

10%

11%

12%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Average

Average exc APMT

Linear (Average)

Linear (Average exc APMT)

50.0

70.0

90.0

110.0

130.0

150.0

170.0

Apr-13 Nov-13 Jun-14 Dec-14 Jul-15 Jan-16 Aug-16 Feb-17 Sep-17 Apr-18

Inde

xed t

o 1

00

Chinese Terminal Operators - International Exposure Terminal Operators - Emerging Market Exposure

Single Location Terminal Operator - Mature Mkt Exposure

Weathering the storm

Note: (1) Chinese Multi-location Terminal Operators includes Cosco and CMPH; Multi-location Terminal Operators – Emerging Mkt Exposure include DPW and ICTSI; Single Location

Terminal Operator – Mature Mkt Exposure include HHLA

(24.8%)

12.5%

9.1%

5 year share price development

Share prices peaked in the third quarter of 2017; have declined substantially since

Weathering the storm

Still afloat

• Growth better than feared

• Margins sustained: rates and opex managed for now

• Returns down

• Concentration of carrier market remains a key risk:

‒ Volume and share volatility

‒ Price pressure

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Strategies

Strategies

Liner affiliation

• Hybrid category terminal operators are increasing in prominence

• More JV agreements for terminals between non-liner affiliated terminal operators and shipping lines

• Affiliated lines try to steer volume to owned terminals

• Alliance politics is complex

Consolidation and port and terminal alliances

• Alliances between ports

• Focus on filling existing capacity rather than building new terminals

• Terminal operator M&A/consolidation

• Creation of terminal alliances within ports

• Diversification by terminal operators

Port authorities

• Avoid beggar my neighbour competition

• Ensure true cost of accommodating ULCVs is met by the lines

• Getting closer to end users

• Catalysing hinterland connectivity

Ports and terminal industry needs to balance market power of large alliances.

Port authorities need to ensure true costs of ULCVs are met by lines

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