Reefer Container MarketHong Kong - Sept 2015 Nigel Webster

Based on new-for-old replacement cost(new build ex-factory prices end 2014 - 2,420,000 teu)

Source: Drewry Maritime Research

Reefer Container Equipment – Population by Value, a $22b industry

World’s 10 largest reefer container owners

Source: Harrison Consulting and Drewry Maritime Research

Rank Name Owned Fleet (teu approx.)1 Maersk 483,0002 Seaco 288,5003 Triton 231,0004 Seacube 192,0005 Hamburg Süd 150,0006 TAL 134,0007 Textainer 104,0008 = CMA CGM 70,000

OOCL 70,00010 MSC 60,000

Top 5 Lessors

= 53% top 10

= 36% world fleet

Major reefer container lessors by fleet size,- end 2014

Lessor OperationalHeadquarters

Estimated FleetSize (teu)

MarketSegment

1 Seaco Singapore 288,500 26.5%

2 Triton USA 231,000 21.3%

3 SeaCube USA 192,000 17.7%

4 TAL USA 134,000 12.3%

5 Textainer USA 104,000 9.6%

6 Beacon USA 40,500 3.7%

7 CAI USA 39,500 3.6%

8 Florens Hong Kong 30,500 2.8%

9 Dong Fang Hong Kong 11,500 1.1%

10 Other 15,500 1.4%

Total Leased Fleet 1,087,000 100%

Source: Drewry Maritime Research

Lessor, operator and total Reefer container fleet(Quantities in teu)

Reefer Container Populationis growing ahead of ReeferTrade growth…

CAGR+7%

CAGR+3%

CAGR+13.3%

Source: Drewry Maritime Research

Shift to leasing / higher lessor fleethigher utilisation…

Upsurge, world reefer volumes – increased cargo + progressive containerisation

Aftermath of 2009…

Liquidity constrained shipping lines - weaker financial performance

Leasing companies easier funding access, due stronger performance metrics

Lines first financial needs - vessels, terminals, and formally higher bunker costs

High capital requirements for reefers - lines cut back on investment – meetingequipment needs principally via lower cost leasing

Technology changes also made some reluctant to invest in new equipment

Sale & Lease back also playing a role in the shift, in addition to new equipment

Estimated Fleet age profile- by owner category & production year…

27% of world fleet is Lessor owned

and bought in last 5 years

Production Year Lessor % Shipping Line % World Total % Total OriginalProduction*

2014 129,000 12.6 91,000 6.5 220,000 9.1 220,000

2013 149,000 14.5 54,000 3.9 203,000 8.4 203,000

2012 130,000 12.7 97,000 7.0 227,000 9.4 227,000

2011 134,000 13.0 169,000 12.1 303,000 12.5 303,000

2010 112,000 10.9 83,000 6.0 195,000 8.1 195,000

2009 51,000 5.0 51,000 3.7 102,000 4.2 102,000

2008 68,500 6.7 154,500 11.1 223,000 9.2 223,000

2007 84,500 8.2 139,500 10.0 224,000 9.2 224,000

2006 52,500 5.1 123,500 8.9 176,000 7.3 176,000

2005 35,500 3.4 134,500 9.6 170,000 7.0 170,000

2004 43,000 4.2 102,000 7.3 145,000 6.0 148,000

2003 35,000 3.4 89,000 6.4 124,000 5.1 132,000

pre-2003 3,000 0.3 105,000 7.5 108,000 4.5 1,448,000

Total 1,027,000 100.0 1,393,000 100.0 2,420,000 100.0 3,771,000Average Age (Years) 4.5 6.7 5.8

Source: Drewry Maritime Research

* includes all containers disposed of before end-2014

Costs of fleet developmentSource: Drewry Maritime Research

The Leasing sector has invested $13.5b inthe Reefer industry, last 7 years…

* investment in new reefer containers based in index price for the production year

Why Shipping Lines Lease Reeferequipment ?

1. No need to maintain container assets on the balance sheet

2. Flexibility for Shipping Lines to preserve capital

3. Flexibility, length of time as needed

4. Availability of a wide range of equipment, well maintained & inspected to standards

5. Meet peak demands, improves the ability to balance supply/demand

6. Additional equipment for new trades & services

7. Easy method to increase capacity on existing services

8. Allow more accurate lifecycle budgeting of container costs

9. Helps address equipment imbalances

10. Currently lower cost than ownership

Industry changes:- Shipping Lines - fleet overview

The top five shipping operate approximately 48%, the top 10approximately 66%, and the top 20 approx. 80% of the world reefercontainer fleet

Approximately 62% of the top 20 line capacity is operated by Europeanlines, 35% by Asian lines, and 3% by North American lines

Leadership by European lines reflects that Europe has for some timebeen world’s largest importer of reefer cargoes - but this is changing!

In the past 4-years many Lines have leased due to very low leasingcost, liquidity constraints and technological issues - many of the leasedeals have been with Asian carriers….

Reasons more container lines targetingreefer trades

The Reefer Container market has become more ‘Deconsolidated’

Economies of scale – lines striving for scale & cost/benefits advantages

Rate of growth – particularly intra-Asia, and new trade directions – Reefersgrowing globally more than dry (percentage-wise)

Higher-margin business, more value adds to offer

Changing trade directions, more new trades and loops opening up – Asia’sincreased consumption of Reefer cargoes

Greater stability of trade – Reefer cargo is less volatile, food produce,always moves

Average annual price of new 40ft high cube reefer,20ft standard dry freight and 20ft tank container as apercentage of the 2001 new price of that container

Source: Harrison Consulting

2001 price = 100 %

Leasing industry utilisationSource: Harrison Consulting

Cash-on-Cash / ICIR (ARPEC)Source: Harrison Consulting

…and Return on Equity is worse due to:

1. Mid-life re-lease assumptions

2. Potential lower mid-life Ute

3. Higher M&R costs than dry’s

4. Lower residuals as % of OEC

But here’s the problem….

Net cash effect– current typical new reefer lease…

Years

Years

Years

40’ high cube reefer price trackerSource: Seaco estimates, industry average price data

Reason 1 – equipment prices

Funding costsSource: US Federal Reserve and Bank of England

Reason 2 – Interest rates

Growth of major reefer lessor fleets(Volumes in teu)

Source: Drewry Maritime Research

NewEntrants

Reason 3 – competitive pressures

Key points today…

• Tough operating conditions...Margin erosion – first lease & re-lease

• Challenges on returns - will initiate further cost cutting, possiblefurther industry consolidation, and likely a more cautious approachto equipment investment, to curtail the S/D balance…

• Current fundamentals may not be open-ended i.e. low equipmentprices, low interest rates & multiple suppliers...

• But base market growth and natural replacements will still motivateLeasing industry support and investment… most likely Leasing willstill contribute $3½b of new equipment investment, next 4 years

• Equipment utilization remains relatively stable, underlying demandremains stable, a degree restraint on supply may restoreoperational performance

Thank You