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OCEAN FREIGHT MARKET UPDATE

DHL Global Forwarding, Freight

January 2020

Publication Date 10th January 2020

Dominique von Orelli – Global Head, Ocean Freight

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Contents

TOPIC OF THE MONTH IMO 2020 – Low Sulphur Surcharge applicable from 1st Dec 2019

HIGH LEVEL DEVELOPMENT

MARKET OUTLOOK Freight Rates and Volume Development

ECONOMIC OUTLOOK & DEMAND DEVELOPMENT

CARRIERS

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DHL Global Forwarding | OFR Market Update | January 2020

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Source: Alphaliner, DHL

Topic of the Month IMO 2020 – Low Sulphur Surcharge applicable from 1st Dec 2019

DHL Global Forwarding | OFR Market Update | January 2020

Significant variations in IMO 2020 related surcharges amongst carriers

The IMO 2020 related surcharges announced by carriers effective from 1 December 2019, show significant variations in the way that the surcharge is named and calculated by the different carriers. The carriers did not provide full transparency of how the individual surcharges were calculated. Based on some first analysis, there appears no correlation between the relative efficiency of the various carriers based on the average size of vessels deployed and the surcharge applied by carriers. Even within the same alliances that operate similar size ships, there are significant variations in the charge applied. In 2019 the average yard stay for ships undergoing scrubber retrofits has reached 59 days, with 17% of these ships taking longer than 80 days to complete their retrofits. These yard delays mean that more ships than expected are still bunkering VLSFO. A short term supply crunch for VLSFO is therefore quite probable. Together with the ongoing tensions in the Middle East area this increases the risk of sharply rising bunker prices. And indeed, fuel prices for both HSFO and VLSFO have gone up over the last few days already. It will be interesting to see how carriers adjust to that situation and where the market level of the surcharge will settle over the next weeks.

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High Level Market Development – Supply and Demand

ECONOMIC OUTLOOK GDP GROWTH BY REGION1)

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1) real GDP, Global Insight, Copyright © IHS, Q4 2019 . All rights reserved. 2) Demand growth = Port-to-Port Container Traffic growth. Supply growth = Fleet Growth. Source: Drewry Maritime Research. 3) Drewry, in USD/40ft container, including BAF & THC both ends, 42 individual routes, excluding intra-Asia routes. 4) Shanghai Shipping Exchange, in USD/20ft container & USD/40ft ctnr for US routes, 15 routes from Shanghai. 5) Source: DHL. 6) DHL Global Trade Barometer Jun19, index value represents weighted average of current growth and upcoming two months of trade, a value at 50 is considered neutral, expanding above 50, and shrinking below 50.

WORLD CONTAINER INDEX (WCI)3) SHANGHAI CONTAINERIZED FREIGHT INDEX (SCFI)4)

DHL TRADE BAROMETER6)

500

0

1,000

1,500

2,500

2,000

3,000

Q1 ’18

Q2 Q3 Q4 Q1 ’19

Q2 Q3 Q4 Q1 ’20

800

400

500

600

700

900

1,000

1,100

1,200

Q3 Q1 ’18

Q2 Q3 Q4 Q1 ’19

Q2 Q4 Q1 ’20

30

35

40

45

50

55

60

65

70

75

Q2 Q1 ’18

Q3 Q3 Q1 ’17

Q2 Q4 Q4 Q1 ’19

Q2 Q3 Q4

Ocean

Global

Actual

Forecast

Actual

Forecast

SUPPLY/DEMAND GROWTH (ANNUALIZED), IN % 2)

Supply Growth %

Demand Growth

%

0%

1%

2%

3%

4%

5%

6%

2018 2019F 2020F 2021F 2022F 2023F

SUPPLY/DEMAND GROWTH (ANNUALIZED), IN % 2)

DHL Global Forwarding | OFR Market Update | January 2020

Dec19 index

predicts Dec-

Feb trade

development

BUNKER PRICES5)

2020F 2021F 2022F 2023F 2024F CAGR

(2021-24)

EURO 1.1% 1.2% 1.5% 1.6% 1.6% 1.5%

MEA 2.7% 2.7% 2.9% 3.2% 3.4% 3.2%

AMER 1.9% 1.9% 1.6% 1.6% 2.0% 1.7%

ASPA 4.2% 4.3% 4.3% 4.4% 4.4% 4.4%

DGF World 2.5% 2.6% 2.6% 2.7% 2.9% 2.8%

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Market Outlook January 2020 – Major Trades

Pre Chinese New Year rush in the 1st half of January is driving rate increases out of ASPA

KEY Strong

Increase ++

Moderate Increase

+ No

Change =

Moderate Decline

- Strong Decline

- -

EXPORT REGION1 IMPORT REGION CAPACITY RATE

EURO AMNO =/+ -

AMLA = =

ASPA -- +

MENAT -- +

SSA = =

AMNO AMLA = -

ASPA = =

EURO = +

MENAT = =

SSA = =

EXPORT REGION IMPORT REGION CAPACITY RATE

AMLA AMNO = =

ASPA = =

EURO = =

MENAT = =

SSA = =

ASPA ASPA -/= ++

AMNO - +

AMLA - +

EURO = ++

MENAT = ++

OCEANIA - +

DHL Global Forwarding | OFR Market Update | January 2020

Source: DGF

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Market Outlook January 2020 – Ocean Freight Rates Major Trades Market outlook on smaller trades available in the back-up

O C E A N F R E I G H T R A T E S O U T L O O K

ASPA – EURO The pre-CNY rush is in full swing and space is expected to be tight until end of January and carriers will implement a GRI on 1st January. After the CNY break an extensive blank sailing program is in the pipeline with over 50 sailings planned to be blanked.

EURO – ASPA & MEA Space remains tight on all eastern hemisphere trades.

ASPA – AMLA Pre-CNY rush in 1st half of Jan so overall utilization will be tight. Spot rates will be increased with GRI/PSS effective Jan 1st/15th. Blank sailings announcement in place from last week of Jan till 1st week of Feb 2020.

ASPA – AMNO Pre-CNY rush in 1st half of Jan so overall utilization will be tight. Spot rates will be increased with GRI/PSS effective Jan 1st/15th. Blank sailings announcement in place from last week of Jan through Feb 2020.

EURO – AMNO No space issues anymore, rates are dropping overall.

ASPA – MENAT Space tight all sectors until CNY. Middle east/East Med carriers are persistent full with rolls through Dec ~ Mid Jan. Africa rush expected from late Dec to Mid Jan after temporarily ease off since pre-Christmas arrival rush.

ASPA – ASPA

Rates in January for IPBC will remain high due to the extreme tight space caused by the cascading blank sailing since October. In addition, with the pre-CNY rush expected in mid January, space will be tight and rates will maintain at the level of December at least. For pure IA, FAK rates has seen an increase of approximate USD50/teu on average based on the announcement from various carriers. Blank sailing expected due to the pre-CNY rush as well.

AMNO – EURO Capacity remains stable . Rates are increasing with the implementation of the IMO2020 by all carriers.

DHL Global Forwarding | OFR Market Update | January 2020

Source: DGF

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Economic Outlook & Demand Development Top 10 IHS Economic Predictions for 2020

Source: Global Executive Summary, IHS, Dec 2019

DHL Global Forwarding | OFR Market Update | Jan 2020

1 2 3 4 5

6 7 8 9 10

US economy will grow at trend - around 2.0%.

Europe’s economy will stabilize, then recover a little.

Japan’s post-tax-hike growth stumble will be cushioned by more stimulus.

China’s growth rate will fall below 6.0%.

Emerging markets will continue to tread water, as debt reaches new peaks.

Commodity prices will trend down.

Inflation will remain subdued.

The global monetary easing cycle will probably come to an end.

The US dollar will rise a little more.

Despite historically high levels of policy uncertainty, recession is still not the most likely scenario.

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Market Outlook – Volume Outlook in Main Trade Lanes, 2019 Estimate & 2020-23 Growth Forecast in %

N O R T H A M E R I C A

I n c l . M E X I C O

4.2 mTEU +2.2%

2.1 mTEU +2.4%

1.6 mTEU +3.7%

1.8 mTEU +2.5%

N O R T H A M E R I C A

I n c l . M E X I C O

L A T I N

A M E R I C A

E U R O P E

I n c l . M E D

13.3 mTEU +3.8%

6.6 mTEU +2.5%

7.6 mTEU +3.4%

18.9 mTEU +3.3%

1.7 mTEU +4.0%

4.1 mTEU +4.1%

2019e, in mTEU 2020e-2023e CAGR, in %

F A R E A S T

I N T R A A S I A incl. Oceania

39.3 mTEU +3.1%

2.0 mTEU

+3.6%

1.5 mTEU

+3.2%

L A T I N

A M E R I C A

G L O B A L C O N T A I N E R T R A D E 2 0 1 9 e 1 4 8 . 2 m T E U + 3 . 6 % C A G R 2 0 2 0 e - 2 0 2 3 e

Mid-term reasonably healthy container trade growth is expected.

Source: Seabury Nov19 update

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C A R R I E R S

CMA CGM and Total have signed a second agreement as part of a wider contract under which the global energy French group Total will supply LNG to bunker the carrier’s upcoming fleet of gas-powered mainline container vessels. CMA CGM has already confirmed that the 11 LNG-powered 15,000 TEU containerships that it will receive in 2021 and 2022 will be deployed on the the Far East-Med trade lane. As part of the agreement, Total will position an LNG bunker vessel to Marseille-Fos and Total’s subsidiary Total Marine Fuels Global Solutions (TMFGS) will also provide CMA CGM with a complementary bunkering solution in Singapore. CMA CGM has taken a leadership positions when it comes to LNG as an environmentally friendly fuel for cargo ships. CMA CGM is so far the only global carrier to have opted for LNG to comply with the IMO 2020 sulphur rules while also offering a way to reduce its carbon footprint.

China Merchants Ports Holdings (CMP) on 20 December reached a definitive agreement to acquire interests in ten terminals from CMA Terminals (CMAT). The facilities will be transferred to Terminal Link, a joint venture of CMA CGM (51%) and China Merchants (49%). The deal is valued at $468M for a bond that will be converted into a 49% stake in Terminal Link, which will own the ten new terminals, as well as an additional $500M loan from CMP to Terminal Link. The loan will pay an interest of 6% per annum and mature in eight years. CMA CGM said it will use the cash proceeds of $968M to reduce debt. The carrier group’s debt stood at massive $19.7Bn as per end of September 2019. The remaining 22 port facilities in CMA Terminal’s portfolio, excluded from the China Merchants deal, will remain under CMA CGM control. The French Group has not disclosed any plans to dispose of further facilities.

DP World-controlled Unifeeder has acquired a 77% stake in the Feedertech Group, a Singapore based feeder and shortsea operator. The combined fleets of Unifeeder and of Feedertech will stant at 85,500 TEU, placing it as the 19th largest carrier in the world by operating fleet capacity. Apart from the feeder services operated by Feedertech, the Feedertech Group also runs regional shortsea network under the Perma Shipping Line brand. Through Feedertech and Perma, Unifeeder will have the capability to offer feedering and regional shortsea connectivity in Europe, the Mediterranean, North Africa, the middle East, the Indian Subcontinent and East Asia, even though Feedertech Group will continue to operate independently. The expansion will also increase Unifeeder’s logistics capabilites and will enable opportunities in the coastal short-sea trade and on the Indian Subcontinent, completmenting the existing India logistics strategy of DP World.

COSCO SHIPPING Lines (Europe) GmbH will officially transfer the intra-Europe Services to Diamond Line GmbH, as the shipping company pre-announced on October 10, 2019. Diamond Line GmbH is the wholly-owned subsidiary of COSCO SHIPPING Lines (Europe) GmbH and registered in Hamburg. Cosco stated that following the transfer they will be in a better position to improve overall customer service and benefit from synergy advantages in the organization. The specific time of service transfer shall be subject to the cut-off voyage published, it is anticipated to begin on January 15, 2020. After the transfer, Diamond Line GmbH will be the carrier identified for the Intra-Europe Services and the B/Ls will be issued under the name of Diamond Line GmbH.

Carriers

DHL Global Forwarding | OFR Market Update | January 2020

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Source: Alphaliner, Dynaliners, carriers

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B A C K - U P

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Source: DGF

Market Outlook January 2020 – Ocean Freight Rates Additional Trades (1/2)

O C E A N F R E I G H T R A T E S O U T L O O K

EURO – AMLA General rate extensions into January, in some cases up to end Q1. No space issues.

EURO – MENAT ME region shows same trend as ASPA; space remains tight on all eastern hemisphere trades.

EURO – SSA Rates and space remain stable. Nigeria congestion surcharges are increasing due to local situation. South Africa is still suffering from port congestions due to weather conditions, strike actions and infrastructural problems.

AMNO – MENAT Rates remain stable. No changes are expected for January.

Space is tight out of USEC & USGC Ports as usual on services to M. East & India Subcontinent, but situation is expected to improve in

January. Currently no space issues out of USWC.

AMNO – SSA Rates to South Africa and West Africa remain stable. No changes in capacity. Space is available.

AMNO – AMLA Market soft/capacity stable. Rates slightly drifting downwards. IMO2020 resulting in some uncertainty moving forward given the wide gap of fuel charges from the carriers. COSCO may insert service USEC to ECSA which will further erode rates.

AMLA Exports Congestion in T/Shipment ports continue within CENAC.

Multiple carrier service changes announced.

Space constraints expected Q1 on WCSA due to AP blank sailings and CNY.

AMNO – ASPA All carriers are looking for new customers for TPWB and are very aggressive in pricing and terms.

DHL Global Forwarding | OFR Market Update | January 2020

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Market Outlook January 2020 – Ocean Freight Rates Additional Trades (2/2)

O C E A N F R E I G H T R A T E S O U T L O O K

EURO MED - AMNO Rates will remain stable. Depending on the agreement and provider IMO2020 bunker has been implemented.

EURO MED – AMLA Unchanged / stable. Depending on the agreement and provider IMO2020 bunker has been implemented.

EURO MED – ASPA Unchanged / stable. Depending on the agreement and provider IMO2020 bunker has been implemented.

EURO MED – MENAT Unchanged / stable. Depending on the agreement and provider IMO2020 bunker has been implemented.

EURO MED – SSA Unchanged / stable. Depending on the agreement and provider IMO2020 bunker has been implemented.

ASPA-SPAC Rates in January will be higher in the 1st half, as carrier make use of the final wave of Lunar New Year cargo rush to implement rate increases. However this will immediately fall into slack after, due to the upcoming holidays of Lunar New Year.

DHL Global Forwarding | OFR Market Update | January 2020

Source: DGF

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Carrier Financial Results 9 Months 2018-19 - revised

DHL Global Forwarding | OFR Market Update | January 2020

Source: Alphaliner; n.a. = not available, n.m. = not meaningful, 1) local currency numbers were converted into US$ using the average exchange rate for relevant financial period, 2) shipping activities only, excl. CEVA Logistics, 3) results are H1 of Japanese

financial year, i.e. Apr-Sep, not calendar year, 4) operating profit is “Core EBIT”, 5) operating profit is EBITDA, 6) Average excluding ONE, 7) Long Beach Container Terminal (LBCT) are excluded from Jul’18 pursuant the decision to sell the terminal

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CARRIER FINANCIAL RESULTS 9 MONTHS 2018-19 (US$ MILLION)

Revenue Operating Profit Operating Profit Margin Net Profit

Carrier 2018 2019 % 2018 2019 % 2018 2019 2018 2019 %

Maersk (Ocean business) 5) 21’083.0 28’366.0 35% 2’634.0 3’263.0 24% 12.5% 11.5% n.a. n.a. n.a.

CMA CGM 2), 4) 17’176.0 17’600.0 2% 376.8 815.8 117% 2.2% 4.6% 49.0 -213.1 -535%

COSCO SHIPPING Holdings 1), 4) 10’428.0 13’880.0 33% n.a. n.a. n.m. n.m. n.m. 126.0 296.0 135%

Hapag-Lloyd 1), 5) 10’141.0 10’654.0 5% 970.0 1’697.0 75% 9.6% 15.9% 15.0 333.0 2120%

OOCL (container transport & logistics)4), 7) 4’396.0 4’672.0 6% n.a. n.a. n.m. n.m. n.m. n.a. n.a. n.a.

Evergreen Marine Corp. 1), 4) 4’020.9 4’604.0 14% -38.4 122.4 419% -1.0% 2.7% -13.4 11.0 182%

Yang Ming 1), 4) 3’462.0 3’655.0 6% -209.9 16.9 108% -6.1% 0.5% -223.6 -107.3 52%

ONE 3) 4’847.0 5’984.0 19% n.a. n.a. n.m. n.a. n.m. -311.0 126.0 141%

Zim 5) 2’395.0 2’473.0 3% 79.0 285.0 261% 3.3% 11.5% -74.0 -14.0 81%

Wan Hai 1), 4) 1’614.1 1’745.0 8% 19.5 69.0 254% 1.2% 4.0% 28.0 77.2 175%

HMM (container shipping business 1) 3’007.0 3’021.0 0% -397.0 -222.0 -44% -13.2% -7.3% -527.0 -416.0 n.a.

Average 6) 62’899.0 72’118.0 15% 3’434.0 6’047.1 76% 5.5% 8.4% -619.9 -33.2 95%

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Carrier Mergers, Acquisitions and Alliances

A L L I A N C E S

F O R M E R A L L I A N C E S P R E S E N T A L L I A N C E S

2M MAERSK LINE

MSC OCEAN 3

CMA CGM

CHINA SHIPPING

UNITED ARAB

SHIPPING COMPANY

2M MAERSK LINE

MSC

OCEAN

ALLIANCE

OOCL

CMA CGM

CHINA COSCO SHIPPING

EVERGREEN

G6

HAPAG-LLOYD

MOL

NYK

APL

HYUNDAI

MERCHANT

MARINE

OOCL

CKYHE

COSCO

EVERGREEN

HANJIN

SHPPING

K-LINE

YANG MING THE ALLIANCE

HAPAG-LLOYD

ONE

YANG MING

HMM (from 1 April

2020)

*Source: Carriers

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DHL Global Forwarding | OFR Market Update | January 2020

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Acronyms and Explanations

AMLA - Latin America OWS - Overweight Surcharge

AMNO - North America PH - Philippines

AR - Argentina PNW - Pacific North West

ASPA - AsiaPacific Ppt. - Percentage points

BR - Brazil PSW - Pacific South West

CAGR - Compound Annual Growth Rate QoQ - Quarter on quarter

CENAC - Central Amercia and Caribbean SAEC - South America East Coast

CNC - CNC Line (Cheng Lie Navigation Co. Ltd.) SAWC - South America West Coast

DG - Dangerous Goods SOLAS - Safety of Life at Sea

DWT - Dead Weight Tonnage SPRC - South People’s Republic of China – South China

EB - Eastbound SSA - Sub-Saharan Africa

ECSA - East Coast South America (synonym for SAEC) SSL - Steam Ship Line

EGLV - Evergreen Marine Corp T - Thousands

EURO - Europe TEU - Twenty foot equivalent unit (20‘ container)

GRI - General Rate Increase TSA - Trans Pacific Stabilization Agreement

HMM - Hyundai USGC - US Gulf Coast

HL - Hapag-Lloyd US FMC - US Federal Maritime Commission

HSFO - High-Sulphur Fuel Oil (< 3.5% Sulphur) USEC - US East Coast

HSUD - Hamburg Süd USWC - US West Coast

HWS - Heavy Weight Surcharge VGM - Verified Gross Mass

IA - Intra Asia VLCS - Very Large Container Ship

IPBC - India Pakistan Bangladesh Ceylon (= Sri Lanka) VLSFO - Very Low-Sulphur Fuel Oil (< 0.5% Sulphur)

IPI - Inland Point Intermodal VSA - Vessel Sharing Agreement

ISC - Indian Sub Continent (synonym for IPBC) WB - Westbound

MENAT - Middle East and North Africa WCSA - West Coast South America (synonym for SAWC)

ML - Maersk Line WHL - Wan Hai

mn - Millions WRS - War Risk Surcharge

MoM - Month-on-Month YML - Yang Ming Line

NOO - Non-operating (vessel) owners YoY - Year-on-Year

OCRS - Operational Cost Recovery surcharge YTD - Year-to-Date OOCL - Orient Overseas Container Line

DHL Global Forwarding | OFR Market Update | January 2020

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