Forecasting theIntra-Asia Market

in 2017

- Contents -

1. Outlook of domestic and World

economy

2. Development of container seaborne

trade volume and fleet volume

3. Development of deep-sea and intra-

asia freight

4. Influence of panama canal’s

expansion

5. Outlook

1. Outlook of Domestic and World Economy

■ World Economy

Due to advanced nations including U.S. and emerging country, world

economy will grow in 2017

- Developed countries’ economy will grow as execution of quantitative

easing

- Emerging countries’ economy will grow as surplus of current-account and increase of

exports

- U.S. presidential election, U.S. rate hike and U.K.’s brexit negotiation will act as fear

factors of world economic growth

3.1-3.2% in 2015⇒ 2.9-3.1% in 2016 ⇒ 3.2-3.6% in 2017

(Unit : %)

2015 2016e) 2017f)

IMF 3.2 3.1 3.4

OECD 3.1 2.9 3.2

World Bank 3.1 3.1 3.6

Global Insight 3.2 3.0 3.4

6 Investment Bank Average

3.2 3.0 3.4

< Outlook of world economic growth>

(Source : Bank of Korea)

■ Domestic Economy

Similar to the previous year, domestic economic growth will increase by 2.8% in 2017

- Domestic demand will depress similar with the previous year as increase of exports

< Outlook of domestic economic growth >

2015 2016e) 2017f)

GDP 2.6 2.7 2.8

Exports 0.1 0.5 0.9

Domestic demand 2.5 2.2 1.9

(Unit : %)

(Source : Bank of Korea)

■ Oil Price

Slight increase of oil price in 2017 due to improvement of world GDP

- If OPEC agrees reduction of oil production, oil price will increase

- Oil producing country’s reduction, change of dollar price and production of

shale oil will act as fear factors of oil price

- Especially, oil price cannot excess shale oil’s production cost

(Unit : dollar/ barrel)

2015 2016e) 2017f)

Deutsche Bank 52.4 45.0 55.0

Barclays Capital 52.4 45.0 57.0

JP Morgan 52.4 44.8 55.8

Citi 52.4 45.0 60.0

< Outlook of oil price>

(Source : Bank of Korea)

※ Brent Oil Price

2. Development of CNTR seaborne trade and Fleet volume

■ Side of demand

Trade volume, fleet volume and GDP growth

- Oversupply aggravate due to the exccessive of fleet volume per seaborne trade volume

GDP growth(A)

Seaborne trade volume Fleet volume

Change(B) (B/A) Change(C) (C/A)

2005 4.8% 10.6% 2.21 9.8% 2.04

2008 3.0% 4.3% 1.43 13.6% 4.53

2009 △0.1% △8.9% 12.7%

2010 5.4% 12.3% 2.28 5.9% 1.09

2012 3.5% 3.1% 0.89 12.5% 3.57

2014 3.4% 5.3% 1.56 5.5% 1.62

2015 3.1% 1.7% 0.55 6.5% 2.10

Aver. 3.8% 5.7% 1.51 9.7% 2.55

< Development of trade volume, fleet volume and GDP growth >

(Source : Clarkson, UNCTAD and IMF)

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

GDP

물동량

선복량

< Transition of container trade volume, fleet volume and GDP growth >

Trend of world and intra-asia seaborne trade

- After the financial crisis in 2008, 2009 trade volume was sharply decreased,

and in 2010 the volume was increased by the base effect and then, the

growth rate of trade volume slowed down

- Trade volume of intra-asia has stayed at 40% of world trade volume

< Trend of world and intra-asia seaborne trade volume >

(Source : Clarkson)

World Intra-asia Ratio of intra-asiaSeaborne trade Change Seaborne trade Change

2005 105.7 - 39.4 - 37.3%

2006 117.6 11.2% 44.9 13.9% 38.2%

2007 131.0 11.4% 53.1 18.3% 40.5%

2008 136.6 4.3% 56.3 6.0% 41.2%

2009 124.5 △8.9% 50.4 △10.5% 40.5%

2010 139.8 12.3% 56.8 12.7% 40.6%

2011 150.0 7.3% 56.7 △0.1% 37.8%

2012 154.7 3.1% 60.5 6.7% 39.1%

2013 162.6 5.1% 64.1 5.9% 39.4%

2014 171.2 5.3% 68.0 6.1% 39.7%

2015 175.1 2.3% 70.1 3.1% 40.3%

Aver - 5.3% - 6.2% 39.5%

(Unit : Mil TEU)

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

전 세계

인트라 항로

< Trend of world and intra-asia seaborne trade volume >

■ Supply

World container fleet growth

- In the late 2000, the tonnage of container fleet was sharply increased,

but after the financial crisis, its growth was slow down

- After 2011, many Megaships of more than 8,000TEU were added to

the market so that world tonnage was sharply increased eventhough

the number of vessels were not significantly increased

- And, average size was increased to 3,591TEU(66% increase compared

to 2005)

< Container Fleet volume in the world >

(source : Clarkson)

YearNo. of Vessel Fleet volume average size

no Increasing rate mTEU Inc.rate TEU Inc.rate

2005 3,378 - 727 - 2,152 -

2006 3,643 7.8% 821 12.9% 2,254 4.7%

2007 3,999 9.8% 957 16.5% 2,393 6.2%

2008 4,381 9.6% 1,087 13.6% 2,481 3.7%

2009 4,745 8.3% 1,225 12.7% 2,582 4.1%

2010 4,807 1.3% 1,298 5.9% 2,700 4.6%

2011 4,970 3.4% 1,422 9.6% 2,861 6.0%

2012 5,082 2.3% 1,600 12.5% 3,148 10.0%

2013 5,085 0.1% 1,625 1.6% 3,196 1.5%

2014 5,083 0.0% 1,714 5.5% 3,372 5.5%

2015 5,114 0.6% 1,826 6.5% 3,571 5.9%

(unit : mTEU, average size : TEU)

< Transition of Fleet volume and type of mege CNTR SHIP >

(source : Clarkson)

(unit : mTEU)

Year

8,000-11,999TEU 12,000-14,999TEUMore than 15,000TEU

Total

No mTEU No mTEU No mTEU No mTEUAverage size(teu)

ageage2005 40 34 - - - - 40 34 8,500

2006 72 61 - - - - 72 61 8,472

2007 131 112 - - 3 5 134 117 8,731

2008 164 141 - - 7 11 171 152 8,889

2009 213 185 1 1.4 8 12 222 198.4 8,937

2010 243 213 6 8 8 12 257 233 9,066

2011 281 247 31 42 8 12 320 301 9,406

2012 317 281 66 33 8 12 391 326 8,337

2013 352 312 108 144 9 14 469 470 10,021

2014 401 355 136 181 15 25 549 561 10,219

2015 459 409 163 218 30 52 652 679 10,414

2016e) 534 480 182 245 57 101 773 826 10,686

(source : Clarkson)

(Unit : M TEU)

YearGlobal CNTR (A) More than 8,000TEU (B) (B/A)

No of ship Volume No of ship Volume No of ship Volume

2005 3,378 7.3M TEU 40 0.3M TEU 1.2% 4.7%

2015 5,114 18.3M TEU 652 6.8M TEU 12.7% 37.2%

Containership capacity vs. mega containership capacity

- No of ship : 1.2%(2005) → 12.7%(2015) 10% increase

- Fleet volume : 4.7%(2005) → 37.2%(2015) 33% increase

- Accordingly, shipping company without Mega CNTR ship will be withdrawn

from the market

- Intra-asia market will be depressed due to the effect of Cascading

Containership capacity development in Intra-Asia

- The container capacity in the Intra-Asia stay at 40% of the world fleet

YearGlobal containership capacity

(A)Intra-asia containership capacity

(B)(B/A)

2010 1,298 567 43.7%

2011 1,422 593 41.7%

2012 1,600 628 39.3%

2013 1,625 607 37.4%

2014 1,714 673 39.3%

2015 1,826 706 38.7%

(unit : mTEU)

(source : Alphaliner)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2010 2011 2012 2013 2014 2015

global

intra-asia

< Containership fleet volume development in Intra-Asia >

3. Ocean and Intra-Asia route freight trend

Since 2008, transport volume to TEU ratio has decreased continuously- Decreased 34% during past 10 years

< Worldwide Transported volume of containers and TEU trend >

(Source : Clarkson)

(Unit : 10k TEU)

YearsTransported

Volume(A)

Bottoms TransportCapacity

(A/B)TEU(B) Number of Average

TEU

2005 10,570 727 3,378 2,152 14.5

2008 13,660 1,087 4,381 2,481 12.6

2009 12,450 1,225 4,745 2,582 10.2

2010 13,980 1,298 4,807 2,700 10.8

2014 17,120 1,714 5,083 3,372 9.9

2015 17,510 1,826 5,114 3,571 9.6

Ocean freight was fluctuated between 2008 and 2012 since then the freight has decreased continuously

Years 2009 2010 2011 2012 2013 2014 2015

US 1,372 2,320 1,661 2,296 2,028 1,975 1,482

Europe 1,395 1,772 869 1,379 1,090 1,172 620

Int-Asia 780 850 850 850 750 740 580

(Unit : TEU / $)

(US/Europe : Shanghai Shipping Exchange, Int-Asia(Busan-Vietnam) : Korea Shipowners’ Association

< Ocean and Intra-Asia freight trend>

0

1,000

2,000

3,000

2009 2010 2011 2012 2013 2014 2015

US

Europe

Int-Asia

4. Panama canal expansion

■ Current state

The deployment trend of larger containership in Asia – USEC

route has accelerated after the panama canal expansion.

- 13,000TEU Containership can pass the panama canal

(Previously 5,000TEU possible)

- Ocean liner companies deployed larger containership and withdrew old-

panamax container ships(2,500~5,000TEU)

■ Impact Global alliances withdrew the existing routes and added new routes

AlliancesImplementation

Date Details

G6

‘16. April- Withdrawal of 3 loops from Asia-US East Coast(EC) trade

- 30 ships of 3,800TEU in the trade would be cascaded down

‘16. June - 10 ships of 10,000TEU were added to the Asia-US EC trade

CKYHE ‘16. June- It deployed 5 ships of 6,500TEU and 10 ships of 8,500TEU in

5 loops in Asia-US EC trade

(Source : KMI, etc)

We are expecting to see fierce competition due to ships of the

global carriers adding capacity to the intra Asia market

- ‘16. May, MCC added one ship of 1,000TEU and 2 ships of 2,000TEU

to the intra Asia market

- ‘16. July, HMM added 3 ships of 4,600TEU to the intra Asia market

- Some of 30 ships (operated by G6) withdrawn from the Asia-US EC G6 would

be added to the intra Asia market

■ Forecast

Container sizes and tonnage to be increased in Panama- Average size after 2019 and ahead; Expected to be 10,000TEU or bigger

< Expected average size in the Asia-US EC trade >

Period Average size

2014. First Quarter 4,554(130)

2014. First Quarter 4,606(102)

2016. First Quarter 4,538(121)

2016.June~2018 5,000~10,000(96)

2019 onwards 10,000~13,300(59)

(Unit : TEU/No. of Ships)

(Source : KMI)

Acceleration of Cascading effect by adding mega ships to the Asia-US EC trade- In the short term, average size in Intra Asia: 1,300TEU → 5,000TEU

- In the long term, average size in Intra Asia: 5,000TEU → 10,000TEU

< Trend of average size In intra Asia >

Withdrawal from Asia-US EC trade

Short term 3,300~5,100 (149)

Long term 5,000~10,000 (96)

(Unit : TEU, No.)

(Source : KMI)

Deployment to IntraAsia

Current 1,300TEU

3,300~5,100 (?)

5,000~10,000 (?)

Cascading effect

5. Forecasting the Intra-Asia market

■ Forecasting the volume of seaborne trade and fleet

Because of world economy’s steady improvement, narrow margins, fleet

growth rate of fleet will decrease due to the reduction of ship orders

- Trade : 181M TEU (2016) → 189M TEU(2017) 4.1% increase

- Fleet : 19M TEU(2016) → 20M TEU(2017) 2.3% increase

Slight increase of Transport capacity(Trade/Fleet) from 9.2 to 9.4

Container trade volume (A)

Fleet volumeTransport capacity

(A/B)Volume(B)

No of shipAverage type

of ship

2015 175M TEU 18M TEU 5,114 3,570TEU 9.6

2016e) 181M TEU 20M TEU 5,233 3,772TEU 9.2

2017f) 189M TEU 20M TEU 5,320 3,799TEU 9.4

■ Freight forecast in the Intra-Asia market

The Increase rate of fleet in Intra-Asia may be larger than that of

world market

2015 2016e) 2017f)

Increasing rate of trade volume (%)

3.1% 3.9% 4.4%

Increasing rate of fleet volume (%)

4.9% 2.5% 4.3%

(Source : Clarkson / Alphaliner)

The freight in the Intra-Asia market will remain stand still in 2017

- The reason of the market remain stand still in spite of the transport capacity

that have not changed since 2010?

• Ship’s size larger than before

• Ships bigger than 8,000TEU go into the market

• Fall in the freight due to an excessive competition

※ The freight of 2017 stand still due to cascading effect, larger container ship,

in spite of increasing of transport capacity.

< Forecast on the freight of Intra-Asia>

(Source : Clarkson / Alphaliner)

(Unit : 10KTEU)

Tradevolume (A)

Fleet volumeTransport capacity(A/B)

Freight(TEU/$)M teu

(B)No ofship

Average size

(TEU)

2010 57M TEU 5.6 3,649 1,554 10.0 850

2011 57M TEU 5.9 3,956 1,499 9.6 850

2012 60M TEU 6.3 4,001 1,570 9.6 850

2013 64M TEU 6.1 4,014 1,512 10.6 750

2014 68M TEU 6.7 4,023 1,673 10.1 740

2015 70M TEU 7.1 4,165 1,695 9.9 580

2016e) 73M TEU 7.2 4,207 1,720 10.1 420

2017f) 76M TEU 7.6 4,314 1,750 10.3 ?