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2017 State of TradeA Port Perspective

May 18, 2017

Gene SerokaExecutive DirectorPort of Los Angeles

Global Review: Port-related Investments

State of Container Trade

Implications of Alliances and Big Ships

The Challenges Ports Face

Port of Los Angeles Approach

Agenda

Draft - For Discussion Purposes Only 2

Through 2026 there are 522 “planned and under construction” projectsglobally

Existing infrastructure in many emerging countries is inadequate andrequires investment to overcome capacity constraints

Consumer demand in developing countries is driving infrastructureinvestment for growing containerized trade

3

Global Port Investment

Source: BMI Research

Port investment in the US and many other countries correlates with policies to boost economic growth

Very Large Container Ships (VLCS) drive particularly costly/lengthy infrastructure investment

US ports and private sector partners’ forecasted spend on port infrastructure improvements between 2012 and 2016 was $46 billion

4

Heavy Investment in the Americas

Forecasted spend between 2016 and 2020 is $154.8 billion ($22.6B ports/$132.2B private sector)

Best current outlook for US federal freight infrastructure investment is about $25 billion (US DOT FAST Act, TIGER Grants, and US Army Corps of Engineers)

AAPA Planned Infrastructure Investment Survey (3/26/16)

Optimism Supports Ship

OrdersSupply

exceeds demand/

trade growth slows

Ship over capacity

Freight rates drop

Demand for ships / ship orders drop

Fleet growth slows. Trade

recovers

Supply -demand realign

Freight rates recover

Demand for new ships

Shipping Market Cycle

State of Container Trade

Source: Drewry Oct 2016

Shipping Line Alliance Structure

POLAEMS

Everport

POLBPCT

LBCT

2M

G6

CKYHE

Ocean 3

Alliance Formations before April 2017

2M-H

THE Alliance

Ocean Alliance

POLATRAPAC

YTIWBCT

POLBITS

POLAAPMTCUT

POLBTTI

Alliance Structure as of April 2017

6

Larger Shipping Line AlliancesWhat does it mean for Beneficial Cargo Owners?

Sailing Frequencies and Weekly Capacity for Asia to/from San Pedro Bay Ports

Second Half 2016 Second Half 2017Weekly Capacity (TEU): 205,300 214,900

Number of Eastbound Sailings: 27 27- by Global Carriers 26 23- by Independent Carriers 1 4

Source: Mercator Intl.

Marine Terminal SelectionShifting of services between terminals causes some terminal volumes to dramatically increase while others are under-utilized

• Service providers are required to obtain new cargo volume forecasts by terminal (rail, chassis)

• Increased chassis repositioning requirements• Potential impact to truck turn-times

7

There are 258 vessels of various size presently on order (2.5M TEUs)*

This equates to 12.7% of existing global capacity (approx. 5,000 vessels and 19.9M TEUs)*

On routes served by VLCS’s, infrastructure and innovation are critical to carrier success

*Alphaliner (all info provided as guidance)

Over-Capacity A Continuing Trend

Shipping lines’ scale may limit choices

Higher operating costs and capital expense due to larger vessels

Shipping lines are pressuring ports for lower rates

Implications For Port Operators

Source: Drewry Oct 20169

Drive for higher performance• More operational cooperation with shipping lines• Technical innovation to manage complexity

Increasing Capital Expenditures and Operating Expenses• Higher costs for terminal handling• Closer cooperation with shipping lines to manage peak

Investments• Cautious investment by existing terminal operators• Terminals live with higher risk and lower return • A few port and terminal investors exit the industry

Source: Drewry Oct 2016 10

Implications For Port Operators

10-Year Capital Improvement Projects: $2.6B

1

2

3

5

4

8

6

Terminal Projects1. TRAPAC container terminal: Most advanced container

terminal with advanced technology for new backland and rail yard

2. Yang Ming container terminal : Reconstruction of existing container berth and expansion of existing rail yard

3. Everport container terminal: Upgraded wharf and backland 4. Cruise Terminal: AMP system expansion 5. YTI container terminal: Upgraded wharf and expansion of

TICTF 6. APMT: Expanded rail support and loading tracks, Crane-raising

initiative 7. Container Terminal Support Facility (proposed)

Transportation Projects8. I-110 Connector Improvement Projects (completed in 2016)

Marine Oil Terminal Engineering & Maintenance Standards Implementation (MOTEMS)

Liquid bulk wharves upgraded/replaced (various locations )

2015-2024

7

Process Management• Supply Chain Optimization efforts -- 100+ stakeholders

• Continuing strong engagement with State & Federal Policymakers, including FMC and Departments of Commerce, Labor & Transportation

Technology• Increase development and application of Blue & Green technology

Strategic Land Use• Ongoing terminal modernization projects

• Re-purposing surplus land to support short- and mid-term cargo needs

• Terminal Alliances

Critical Focus Points

Process Management: Future-Facing Teamwork

Deeper Joint-Port Collaboration

Dialogue with Supply Chain Stakeholders

Develop efficiency programs that improve:

• Cargo Flow

• Secondary Conveyance (Truck and Rail)

• Chassis availability

Develop Performance Metrics that can are embraced by Supply Chain Stakeholders

Technology: Data Solutions Portal Concept

Partnership with GE Transportation

One terminal, two steamship lines, and one string of ships

Channeled, secure access to data that supply chain stakeholders need

Benefits supply chain efficiency, predictability, and reliability

Keeps the supply chain flowing

Chassis Pool

Cell Phone Holding Yard / Bobtails

Wheeled Storage

Potential Solar Operation

Gate Entry

80 Acres(32.37 Hectares)

Strategic Land Use

Container Terminal Support Facility Concept

Robust infrastructure investment will help bring many ports into the 21st Century. Keys to success include:• Technology• Public-Private Partnerships • Long-term national infrastructure funding plan that includes port

and multi-modal freight transportation improvements

Container lines need to find their way to profitability in the coming years• Carriers must “right-size” their fleets and leverage alliance

partnerships to reduce excess capacity

Communication and collaboration between carriers, ports and supply chain operators is more critical than ever

Moving Forward

16

Thank You