TOC Americas 2015 Panama Canal Expansion Impact on

TOC Americas 2015 Panama Canal Expansion Impact on Traffic and Transshipment Asaf Ashar National Ports & Waterways Initiative, USA Independent Consultant www. asafashar. com

“Traditional” T/S Forecast Model • T/S = Regional Traffic x T/S Incidence • Agree: Regional Traffic = f(Regional GDP) No/Slow Growth • But Assume: T/S Incidence = f(Ship Size, Port Constraints, Alliances) Dramatic Growth • Because Larger Ships Fewer Services, Less Direct Call, Port Constraints; Alliances Market Power to “Abandon” Ports • So why T/S Incidence Worldwide is “Stuck” at 30%?

Actual Effect of Ship Size & Alliancing • Direct Calls to More Regions (Baltic) and More Ports (Baltimore: Evergreen brings CKYH lines; MSC brings Maersk; G 6 to follow? 2 M: 799 1, 036 port-pairs) • Direct Calls at Adjacent Ports (Charleston + Savanna; Norfolk + Baltimore) • Port Constraints? 9, 300 -TEU already in 42 -ft Savanna; Near-Future deepening of US ports, Moin, Mariel, Veracruz… • Forecast based on “Incidence” is too general! Need detailed analysis of Service Patterns • My analysis focuses on Additional Traffic and T/S

Main Regional Service Patterns Cross-Canal Services (“Horizontal”) Asia / ECNA Asia / GCNA Cross-Canal Services (“Diagonal”) WCSA / Europe WCSA / ECNA Non-Canal Services (“Vertical”) ECSA / ECNA ECSA / GCNA Asia / WCSA “L” Consolidation: Parallel Intersection Global Asia / WCSA ”L” Ashar 2015

Parallel: AWP Consolidation (CKYHE) 24 Asia/N Am = 17 USWC+ 6 4 -5 AWP + 2 1 AWS; 3 CCT Stops Canal Traffic: 4, 400 + 4, 500 = 8, 900 TEU AWH: 10 x 4, 400 TEU AWC: 9 x 4, 500 TEU Transshipment: 4, 300 + 4, 250 = 8, 550 TEU AWY: 8 x 4, 250 TEU AWS: 9 x 4, 300 TEU “Abandon” Ports (Wilmington, Boston)? Add Ships (11), Speed (20 k)? Add Ports (Halifax, Miami, NOLA, Jax, Mobile, Cartagena)? Hanjin, Ashar 2015

Parallel: Eurosal Consolidation (HPL/CMA/HSD) 7, 900 + 2, 500 = 10, 400 TEU 3, 700 + 4, 200 = 7, 900 TEU Canal Traffic: Transshipment: “Abandon” Ports (Guayaquil, Paita)? Hubs in Panama or WCSA? SW 1: 10 x 4, 200 TEU SW 2: 8 x 3, 700 TEU SW 3: 6 x 2, 500 TEU Hapag Lloyd, Ashar 2015

Intersection: Asia/ECNA + Asia/WCSA Canal Traffic: • Massive T/S; but • Add Time to Asia/Mexico and Asia/WCSA • Different Line Groupings • Limited/No Scale Economies • Balancing Flows Difficult • High Reefer Content • Limited Prospects Transshipment: Asia / ECNA Asia / WCSA Feeder

Intersection & Global Consolidation Cross-Canal Services (“Horizontal”) Asia / ECNA Asia / GCNA Cross-Canal Services (“Diagonal”) WCSA / Europe WCSA / ECNA Non-Canal Services (“Vertical”) ECSA / ECNA ECSA / GCNA Asia / WCSA (“L”) Fourth Revolution Asia / WCSA ”L” Canal Traffic: Transshipment: Hapag Lloyd, Ashar 2015

Summary Observations • Regional GDP (Venezuela; Ecuador) – No Change T/S • Parallel Consolidation -- Modest Growth T/S – AWP Diverts AWS/IM: Traffic UP; T/S No Change – Diagonal Services: Traffic No Change; T/S Up; WCSA Hubs? • Intersection Consolidation -- Massive Growth T/S -Long-Term (if ever) • Special Factors – Alliance Concentration (2 M/Moin; O 3/Kingston) – Add/Eliminate Direct Calls (Cartagena, Houston, Veracruz, Moin, Mariel) – Add/Eliminate Specialized Services (CKHYE AWT; CMA PEX 2)

Contrarian Views • “Double digit jump in Panama transshipment activity as a result of the opening of the expanded canal in 2016” (Drewry) • “(Expansion) will boost the need and demand for transshipment and create opportunities for existing Caribbean hubs and the development of new ones” (World Bank) • “Growth in transshipment is inevitable, competition will be tough, Panama is key, Go for it” (Worley Parsons) • “(Expansion) increases Panama Canal’s traffic by 15 -20% due to recovering Asia/N America trade, but will only result in small growth (5%) in regional transshipment“ (Ashar)

TOC Americas 2015 Thank You! Asaf Ashar National Ports & Waterways Initiative, USA Independent Consultant www. asafashar. com