CONFIDENTIAL – FOR INTERNAL PURPOSES ONLY

OCEAN FREIGHT MARKET UPDATE

DHL Global Forwarding, Freight

July 2017

2

Content

Topic Of The Month

High Level Development

Market Outlook

Economic Outlook & Demand Development

Capacity Development

Carriers

Regulations

? Did You Know ?

Back-up

3

Topic of the Month – Qatar-Gulf crisis

Most Gulf states and Egypt cut diplomatic ties with Qatar – and imposed a blockade

Allegating that Qatar may be a secret ally to Iran and support terrorism,

Saudi Arabia, the United Arab Emirates , Bahrain, Egypt, and Yemen

have been blocking the country since the 5th June.

Freight forwarding implications of the blockade are numerous. All

cargo movements from the aforementioned countries have been

stopped, both on air, sea and land. As 95% of the Ocean containers to

Qatar transit via Jebel Ali and Khorfakkan (UAE), carriers must

navigate through alternative lines. Although it does not mean that

ocean shipments to Qatar have been stopped, they are now mainly

routed through Salalah (OM) and Sohar (OM). Abu-Samra, the only

land border for Qatar, is completely closed. Trucking is therefore not an

option to move cargo from/to the country. Alternatively, multimodal

transport via Oman can be used.

On Friday 23th June, a 13-point, 10-day ultimatum was issued to Qatar

by Saudi Arabia and its allies as a conditio sine qua non to lifting the

blockade. Demands include closing down broadcaster Al-Jazeera,

removing Turkish troops from the country’s soil, and cease most of the

cooperation with Iran and the Muslim Brotherhood.

Qatar’s income per capita is the highest in the world, thanks to the

countries’ gas and oil reserves. Tensions with its Arab neighbors

worsened after the Arab Spring, over Qatar’s support to Islamist

movements.

Source: The Guardian, Alphaliner, DGF Internal, Scribble Maps

4

High Level Market Development

Economic Outlook

GDP Growth by Region1)

Supply vs. Demand Growth4)

-2

0

2

4

6

8

10

Q3 Q1'15

Q3 Q1'16

Q2 Q1'17

Q2

Demand

Supply

Ocean Freight Spot Rate Index

Bunker Price Index5)

World Container Index (WCI)2)

Shanghai Containerized Freight Index (SCFI)3)

0

500

1'000

1'500

Q1

15

Q2 Q1

17

Q4 Q3 Q2 Q1

16

Q4 Q3 Q2

0

1'000

2'000

3'000

Q2 Q1

17

Q4 Q3 Q2 Q1

16

Q4 Q3 Q2 Q1

15

0

200

400

600

800

Q1

17

Q4 Q3 Q2 Q1

16

Q4 Q3 Q2 Q1

15

BIX MGO

BIX 380

Q2

Source: 1)real GDP, Global Insight, Copyright © IHS, Q4 2016 . All rights reserved; 2)Drewry, in USD/40ft container, including BAF & THC both ends, 42 individual routes, excluding

intra-Asia routes; 3) Shanghai Shipping Exchange, in USD/20ft container and USD/40ft container for US routes, 15 routes from Shanghai, 4) Global Insight, Drewry, 5) Bunker Index,

in USD/metric ton, Bunker Index MGO (BIX MGO) is the Average Global Bunker Price for all marine gasoil (MGO) port prices published on the Bunker Index website, Bunker Index 380

CST (BIX 380) is the Average Global Bunker Price for all 380 centistoke (cSt) port prices published on the Bunker Index website

2017F 2018F 2019F 2020F 2021FCAGR

(2017-2021)

EURO 1.8% 1.8% 1.7% 1.7% 1.8% 1.7%

MEA 2.6% 3.4% 3.7% 4.1% 4.0% 3.8%

AMER 2.1% 2.6% 2.5% 2.4% 2.4% 2.5%

ASPA 4.8% 4.6% 4.6% 4.5% 4.7% 4.6%

DGF World 3.0% 3.1% 3.1% 3.1% 3.2% 3.1%

5

Market Outlook July 2017 – Major Trades

Rates on North-South trades still increasing.

Export Region 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 = +

KEY Strong

Increase ++

Moderate

Increase +

No

Change =

Moderate

Decline -

Strong

Decline - -

Source: DGF internal analysis 2017

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Market Outlook July 2017 – Ocean Freight Rates Major Trades

Ocean Freight Rates Outlook

ASPA – EURO Unchanged strong booking situation with utilization continuing at high 90%. Carriers are pushing for a further GRI in July

2017.

EURO – ASPA Capacity is back to normal, but rates remain relatively stable; carriers very selective on cargo

ASPA – AMLA Rates continue to climb to ECSA, latest FAK is USD 3’800/40ft till mid-July. Space is extremely tight as we enter the peak

season for this trade and utilization is 125%. Mexico and WCSA is also tight space situation and high 90% utilization.

ASPA - AMNO Space situation expected to be tight especially into PSW. SSL have announced two revenue recovery plans, i.e. July 1st

GRI & July 15th PSS.

EURO - AMNO USA: space is tight still

Canada: space situation is ok, rates are stable

Mexico: space situation is ok, rates are stable

ASPA – MENAT Carriers still restrict low paying cargo, taking high paying cargo on board instead.

Due to the weight limitation problems, even for FAK cargo is being be rolled over from time to time.

With the political embargo for Qatar, all carriers have announced huge rate increases to Qatar.

Cargo into Qatar are now routed via Salalah (OM) or Sohar (OM), instead of Jebel Ali.

ASPA – ASPA Rates into South India have stabilized, but rates into rest of IPBC are still climbing in the face of tight space situation in the

market. Pure Intra-Asia port pairs continue to get lower priority for space / equipment, relatively to long haul trade lanes

which are generally still full. Due to tight space into IPBC, 2 to 3 weeks advance booking is necessary to allow more time for

further action in case booking rejected on desired departure date.

Source: DGF team

NEW: Market outlook on smaller trades available in the back up

7

Economic Outlook & Demand Development

2017 global economic growth is still strenghtening, to be the strongest since 2011

EMEA

EU growth is on the upside, except for UK. Eurozone grew 0.6% quarter on quarter during 1Q2017. UK grew 0.2%% at the

same period (down from 0.7% in 4Q2016).

OPEC countries are extending their production cut to March 2018.

European exports are expected to be spurred by higher global demand and favorable euro exchange rate.

European Commission is considering to remove VAT exemption for low value goods in favor of a single EU registration

scheme for import of goods < €150 by 2021.

AM

The political disturbances in Washingtom undermine growth and the planned reform agenda. The thealthcare and tax

reform have been slow. Growth is still set at 2.3% for 2017, up at 2.7 if the fiscal reform in reinforced.

2017 Exports forecast are up 0.7 pp vs. previous IHS forecast, in response to stronger economic growth in the countries

the US export to.

AP Japan post their fifth consecutive quarter or growth in 1Q2017, a first since 2006, but t is down at +0.3% quarter on quarter.

China’s development is softening, mainly due to excess in industrial capacity and debt.

EMERGING

MARKETS

Growth improves, challenges remain – 2017 growth will be the best since 2013.

Indian economy lost momentum due to cash shortages.

Brazil’s GDP grew in 1Q2017, after two years of decline. Howver, corruption scandals could delay the economic recovery.

Government-imposed restrain on consumer anbd business spending is fading in India, which should boost demand.

Source: IHS, IHS Markit / DGF Macroeconomic Outlook 2017

8

Capacity Development

Capacity Development

Port congestion at Yangshan Terminal in Shanghai (SHA) cleared, operations running smoothly again.

Idle fleet continues to creep up even as the traditionally stronger summer peak season is starting. Owners avoid scrapping surplus tonnage

due to the recent improvement in charter rates and resale prices.

Source: Alphaliner, carriers

9

Carriers

Carriers

Qatar Holing, a subsidiary of Qatar Investment Authority (QIA) which acts on behalf of the State of Qatar, holds a 14.4% share in the Hapag-

Lloyd after its merger with UASC. The diplomatic row involving Qatar and its Middle Eastern partners might complicate Hapag-Lloyd’s attempt

to raise quickly new capital to relieve its very high debt burden.

K Line, MOL and NYK have announced on 31 May ’17 that their container shipping joint-venture as ‘Ocean Network Express’ (ONE). The

new holding company is to be established in Japan, with an operating company planned in Singapore. The regional headquarters will be set up

in Singapore, Hong Kong, UK (London), USA (Richmond, VA), & Brazil (Sao Paulo). The JV is expected to be established on 1 Jul ’17 with

start of the joint business planned for 1 Apr ’18. NYK will hold 38%, NOL 31% and K Line 31% of the new company.

However, on the 21st June, the Competition Commission of South Africa has prohibited the merger. The same commission had already

found the three carriers to have colluded to set prices on the car carriers shipping market – even though the present JV would operate

independently from the carriers’ respective car business. Moreover, the joint venture has already been cleared by the Competition

Commission of Singapore. K-Line, MOL and NYK are expected to appeal the decision, and might even divest from the South African altogether

as last resort – NYK exited it in 2015.

Reports suggest China Cosco Shipping Corp is to acquire OOIL for at least USD 4bn, possibly as early as July. As the industry is witnessing

a strong upturn and valuations have risen materially, both the time and price is right. Drewry stated in early 2017 that “given receding pressure

short term on profitability, the shareholders would likely wait for discount to narrow in coming quarters in a bid to achieve a better price”. The

price upwards of USD 4bn will mean the OOIL will have materially narrowed its P/B valuation discount to its peers and industry averages,

which has plagued the company for years.

The $ 4bn deal would be in line with CMA CGM’s acquisition price of NOL. However, it is important to note that NOL was sold when the

industry was in the midst of severe crisis and consistently loss making.. OOIL has had a very strong earnings profile with a long history of

being profitable, even in a very challenging environment. If the deal were to take place at the reported price of USD 4bn, acquiring OOIL at 1x

P/B seems a very competitive price for China Cosco Shipping Corp.

CMA CGM will acquire Mercosul Line, Maersk’s Brazilian cabotage arm, from Maersk Line. Mercosul Line needs to be sold by Maersk Line

in order to obtain regulatory approval from Brazil’s antitrust regulators for its takeover of Hamburg Süd. The transaction is subject to Brazilian

regulatory approval. The acquisition would be in line with CMA CGM’s strategy to develop intra-regional sea transportation and complementary

services.

Source: Alphaliner, Carriers

10

Regulations

Regulations

India GST (Goods & Service Tax) Go live is targeted for 1 Jul ’17. As of this date the GST will be 18 percent. One of the key requirements

for the Indian consignee to avail the tax credit and completion of import process is to mandatorily have the IN GST registration umber of the

consignee. In the event the shippers not able to provide GST IN registration number, consignee contact details are needed.

Source: DGF team

11

Did You Know ?

Ocean Freight Throughput Breakdown by Region

The weight of China in the global containerized trade appears

more concrete than ever, as it (inclunding Hong Kong)

represents short of a 1/3 of the global volumes, according to a

recent chart published by Alphaliner.

To put this number into perspective, it is worth mentionning that

the trade from and to China is more prominent than that of all

the other Asia/Pacific regions combined.

Similarly, the Chinese numbers also exceed the combined

volumes of Europe and the Americas altogether. 9%

Other NE Asia

14%

SE Asia

6%

Middle East

3% S Asia

9% N Europe

6% S Europe

8% N America

7%

C+S America 4%

Africa

2%

Oceania

33%

China+Hong Kong

Source: Alphaliner

CONFIDENTIAL – FOR INTERNAL PURPOSES ONLY

BACKUP

13

Market Outlook July 2017 – Ocean Freight Rates Additional Trades (1/2)

Ocean Freight Rates Outlook

AMNO – ASPA &

SPAC

No increases have hit the market for the month of May.

Space continues to be a challenge specially for USEC ports. Pre-booking 2-4 weeks in advance is recommended.

AMNO - EURO Premium services with fast transit time are full ( AL3, ATA, USWC )

Shortage of equipment in Houston & New Orleans.

EURO - AMLA capacity and rates remain stable

EURO – MENAT Capacity is back to normal, but rates remain relatively stable; carriers very selective on cargo

EURO – SSA carriers are still reporting full vessels to West Africa and East Africa. East Africa still subject to PSS. South Africa remains

unchanged stable.

US – MENAT Space is still very tight from USEC & USGC Ports. Expected to be better in July. Increasing rate trend is slowed down in

May. More carrier choices to East Med and few other destinations with THE Alliance Services.

US – SSA Space is available to all destinations in South & West Africa. East Africa is tight due to routing via Med/Middle East Services

which are reaching near 100% capacity.

US – AMLA US to WCSA are trending upward as services remain full. Third GRI announced by Americas service carriers Hapag and

HSUD. Gulf to all AMLA destinations are under stress as resin and chemical segment is getting busy.

AMLA - AMNO Despite no change in capacity to the US, Asia and Intra SSA, carriers have announced various GRI’s. Rerouting of long

haul lanes via transshipment ports in S. America has created space & roll over conditions with S. America

Source: DGF team

14

Market Outlook July 2017 – Ocean Freight Rates Additional Trades (2/2)

Ocean Freight Rates Outlook

EURO MED -

AMNO

stable

EUR MED –

AMLA

Slight rate increases towards MX, rest of trade remains stable

EURO MED –

ASPA

Slight rate reductions can occur depending on the provider

EURO MED –

MENAT

Unchanged

EURO MED –

SSA

Depending on the service slight rate increase can occur

Source: DGF team

15

Drewry’s Altman Z-score

Drewry’s Altman Z-score financial stress index (as at May’17)

Company Period Period Ended Unit

Net Sales EBIT

Asset Total

Asset Current

Book Value of Equity

Liabilities Total

Liabilities Current

Retainted Earnings Z-Score

AP Moller-Maersk Annual 31 Dec 16 mn US$ 35’464 -226 61’118 11’143 32’090 29’028 10’733 28’677 1.90

OOIL1) Annual 31 Dec 16 mn US$ 5’298 -138 9,405 2’566 4’519 4’885 1’313 4’457 1.89

Wan Hai Annual 31 Dec 16 mn NT$ 57’351 1’874 76’320 29’398 34’305 42’015 15,526 10,079 1.73

Hapag-Lloyd Holding Annual 31 Dec 16 mn EUR 7,734 26 10’593 1’421 4’729 5’864 2’393 2’914 1.49

K Line Group 9 months 31 Dec 16 bn Yen 761 126 11,331 1,608 5,058 6,272 2,639 3,153 1.48

CMA CGM Annual 31 Dec 16 mn US$ 15’977 -100 18’656 5’706 4’928 13’729 6’009 5’076 1.42

NYK Group 9 months 31 Dec 16 bn Yen 1’415 -16 2’076 599 593 1’483 496 240 1.34

Pacific International Lines Annual 30 Dec 15 mn US$ 3’732 146 5’830 1’215 1’979 3’851 1’493 1’184 1.26

MOL Group 9 months 31 Dec 16 bn Yen 1’081 -2 2’191 552 629 1’562 435 369 1.20

Evergreen Marine Corp Annual 31 Dec 16 mn NT$ 124,468 -7,848 189,754 53,977 53,639 136,115 42,031 4,985 0.87

China Cosco2) Annual 31 Dec 16 mn RMB 69,833 -5,041 119,653 45,362 37,549 82,104 33,555 8,107 0.93

Hyundai Merchant Marine Annual 31 Dec 16 bn Won 4,585 -1,472 4,398 1,290 979 3,419 810 -1,485 0.43

Yang Ming Annual 31 Dec 16 mn NT$ 115,400 -15,156 136,043 25,289 16,279 119,765 42,550 -17,657 -0.23

Zim Annual 31 Dec 16 mn US$ 2’539 -52 1’704 466 -101 1’804 531 -1’893 -0.25

The Z-score is a statistical analysis to predict a company’s probability of failure in the next 2 years, using data from the

company’s financial statement.

A Z-score >= 2.99 company is “safe”. A Z-score between 1.8 and 2.99 exercise caution (“grey zone”). A Z-score < 1.8 higher

risk of the company going bankrupt (“distress zone”). All indications based on these financial figures only.

Weak operating performance of all carriers, together with the weak balance sheet position of some carriers, have resulted in

generally poor Z-scores for all carriers involved in container shipping

None of the companies were able to reach the ‘safe zone’ Z-score of 2.8 or more.

Source: Drewry Sea & Air Shipper Insight; Z-score is calculated as follows: T1 = (Current Assets-Current Liabilities) / Total Assets, T2 = Retained Earnings / Total Assets, T3 =

Annualised EBIT / Total Assets, T4 = Book Value of Equity / Total Liabilities, T5 = Annualised Sales / Total Assets, Z-score bankruptcy rating = 1.2T1 + 1.4T2 + 3.3T3 + 0.6T4 + 1.0T5

1) parent of OOCL, 2) parent of Cosco Container Lines