Consolidation of the Industry: What’s Next ? Group

Corporate Presentation Rodolphe SAADE, Vice Chairman CMA CGM Financial department 19/03/2014 German Ship Finance Forum, Hamburg 26 February 2015

Today’s container shipping environment is evolving around two major trends:

1.

Concentration driven mainly by organic growth and to a lesser extent by mergers and acquisitions: • Organic growth is the usual path • Opportunistic ‘bolt on’ acquisition • Larger acquisitions or mergers from time to time

2.

February 2015

Operational integration through alliances and consortia, which now dominates the landscape of most East West trades and some of the North South long haul trades.

Marine Money Hamburg Feb 2015 – Consolidation of the Industry

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Industry still driven by strong growth…

Total World Containerized Fleet capacity - static 18,567,129

20,000,000 18,000,000 16,000,000

13,677,456

14,000,000 12,000,000 10,000,000 8,000,000

8,168,368

6,000,000 4,000,000 2,000,000 0

Source: alphaliner

Jan 2005

Jan 2010

Feb 2015

• Growth can still be surprisingly strong on the largest markets. • Demand forecast still in the region of 5% to 6% for 2016 / 2017 (Drewry Q4 Container forecaster).

• Growth is still fuelled by transfer from conventional to containers.

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This strong growth is captured by the largest operators and leads to increased concentration.

9.9%

Once current orderbook is delivered

39.9% 50.2% 11.1%

Feb 2015

39.8% 49.1%

Top 5

37.6% 41.4% 23.7%

Jan 2005

40.4% 35.9% 0.0%

›

06-20

21.0%

Jan 2010

below 20

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

What is the origin of the concentration ?

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85% of the growth of top 5 operators is organic and only 15% M&A Cagr 2005 2015 current top 5 M&A Jan capacity in 2005 -Feb Jan 2005 2015 Total current top 5 2 695 975 Nature of growth 15,2% 000 Teus

Organic growth

capacity in Feb 2015

5 447 84,8%

9 117

Hapag Lloyd

20.0%

CMA CGM

16.9%

MSC

16.7%

Current top 5

Origin of growth since Jan ‘05 of the current leaders 3,500 3,000

Maersk

12.6%

Evergreen 0.0%

2960

13.0%

9.0% 5.0%

10.0%

15.0%

2552

2,500 2,000 1,500 1,000 500

1,516

1668 1,914 1,166

978

960

336

516

637

94 408

452 190

444

MSC

CMA CGM

Hapag-Lloyd

Evergreen

429 1,016

0 APM-Maersk Organic growth

February 2015

M&A Jan 2005 -Feb 2015

capacity in Jan 2005

Marine Money Hamburg Feb 2015 – Consolidation of the Industry

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20.0%

25.0%

While only 5 years ago the large majority of operators were working on ad hoc agreements, alliances have now become the rule of the Industry

Situation as at January 2010 name market share APM-Maersk 15,0% Mediterranean Shg Co 10,9% CMA CGM Group 7,5% Evergreen Line 4,1% CSCL 3,3% CSAV 2,4% Hamburg Süd Group 2,3% Zim 2,2% UASC 1,4% PIL (Pacific Int. Line) 1,4% Other operators 21,0% APL 4,0% MOL 2,5% Hyundai MM 2,0% Hapag-Lloyd 3,3% NYK Line 3,0% OOCL 2,4% COSCO Container L. 3,3% Hanjin Shipping 3,2% K Line 2,5% Yang Ming Marine Corp. 2,3% Operators outside alliances Operators locked in alliance

February 2015

71,5%

8,5%

8,7%

11,3%

71,5% 28,5%

alliance Ad hoc VSAs Ad hoc VSAs Ad hoc VSAs Ad hoc VSAs Ad hoc VSAs Ad hoc VSAs Ad hoc VSAs Ad hoc VSAs Ad hoc VSAs Ad hoc VSAs Ad hoc VSAs New World Alliance New World Alliance New World Alliance Grand Alliance Grand Alliance Grand Alliance CKYH CKYH CKYH CKYH

Situation as at January 2015 name Hamburg Süd Group PIL (Pacific Int. Line) Zim Wan Hai Lines other operators APM-Maersk Mediterranean Shg Co CMA CGM Group CSCL UASC MOL APL OOCL Hapag Lloyd NYK Line Hyundai MM Evergreen Line COSCO Container L. Hanjin Shipping Yang Ming Marine Corp. K Line

market share 2,9% 1,9% 1,8% 1,1% 11,2% 15,9% 13,7% 9,0% 4,0% 2,1% 3,2% 3,0% 2,9% 5,2% 2,7% 2,1% 5,2% 4,4% 3,3% 2,3% 2,1%

Operators outside alliances Operators locked in alliance

Marine Money Hamburg Feb 2015 – Consolidation of the Industry

18,9%

29,7% 15,1%

19,0%

17,3%

18,9% 81,1%

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alliance Ad hoc VSAs Ad hoc VSAs Ad hoc VSAs Ad hoc VSAs Ad hoc VSAs M2 M2 O3 O3 O3 G6 G6 G6 G6 G6 G6 CKYHE CKYHE CKYHE CKYHE CKYHE

Alliances were mainly created to optimize VLCC fleet utilization: combining size for slot cost efficiency and frequency for commercial efficiency

Slot cost Asia Europe 18000

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On Asia Europe, where you need to deploy a minimum of 10 ships and up to 12 ships, the slot cost of a 18.000 TEU is 25% below the slot cost of a 11.500 TEU.

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Alliances will deploy in average 5 sailings per week on Asia-North Europe and will therefore require fleets of up to 60 VLCCs.

74.9

16000

81.0

14000

89.6

13000

92.0

11500

100.0 0.0

20.0

›

February 2015

40.0

60.0

80.0

100.0

120.0

Because they provide the best opportunity to optimize Slot Cost we are convinced alliances will remain strong in the years to come.

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Although alliances do not cover all trades, they are overwhelmingly present on the largest trades:

7%

Asia North America

15%

Asia Europe

1% 19% 35%

2M 13%

30%

2M

OCEAN 3

OCEAN 3

CKYHE

CKYHE

G6

G6

23%

Others 35%

Others 21%

Source: alphaliner Feb 15

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Alliances (and their 16 members) control 93% of the transpacific trade and 99% of the Asia Europe trade, in full compliance with relevant competition authorities regulations.

›

Smaller alliances or partnerships may occur on North South trades. CMA CGM has entered into agreement on Asia Africa with Maersk and on South America with Hamburg Sud.

February 2015

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What’s next ?

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It is not clear today if some of the alliances are a prelude to capitalistic mergers. Although we do not think so, there are some aspects of alliances which need further consideration. • The question of a combined or at least of a compatible order book between partners of the same alliance may lead to stronger relations than anticipated. • The high cost of VLCC fleets and the poor level of industry profitability may also convince individual operators to share the burden of order books.

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What’s next ? ›

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The current trend towards larger and larger ships may also convince governments or shareholders to join forces and create large national champions (China / Japan / South Korea, Germany, Taiwan) although most of the available candidates are in different alliances: Company CHINA Shipping COSCO

Country PR of China PR of China

Size Mkt share 743 366 4,0% 819 423 4,4%

Alliance O3 CKYHE

MOL K Line NYK

Japan Japan Japan

597 560 390 812 494 628

3,2% 2,1% 2,7%

G6 CKYHE G6

Hyundai MM Hanjin

Sth Korea Sth Korea

382 812 620 199

2,1% 3,3%

CKYHE G6

Hapag Lloyd Hamburg Sud

Germany Germany

977 799 531 174

5,3% G6 2,9% stand alone

Evergreen Yang Ming Line

Taiwan Taiwan

959 901 430 775

5,2% 2,3%

CKYHE CKYHE

As far as M&A activities are concerned they will probably become more challenging in the near future as strongly reduced bunker costs will allow struggling operators to return to profit.

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Thank you