2020

Hub Market

Introduction

The 2020 Hub Market report has been prepared as multiple forces have caused significant
shifts in the market. The report will focus on the key hubs, defined as Cartagena (Colombia),
Caucedo (Dominican Republic), Kingston (Jamaica), Freeport (Bahamas) as well as the 5
terminals in operation in Panama. The geographical scope of the report does not cover the
East Coast of South America, except when taking place in above hubs.

The report will to a lesser extent also examine the niche hubs that are drawing volumes from
the main hubs and are affecting pricing. The niche hubs are herein defined as Manzanillo
(Mexico), Lazaro Cardenas (Mexico), Buenaventura (Colombia), Posorja (Ecuador), Moin
(Costa Rica) and Port of Spain/Point Lisas in Trinidad. The CMA CGM operation in the French
West Indies do handle some transshipment but has been excluded as it a niche operation in a
draft restricted port so is seen as isolated from the other ports.

The report uses all available public data but this has its limits so many insights, including liner
strategies, market volumes and pricing, rely on industry sources. The report will start with an
Executive Summary, where after it will zoom in on Key Hubs, Niche Hubs, The Market and The
Clients, before providing a summary on what The Future might bring.

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Executive Summary

The history of Latin America transshipment started 16 April 1995 when Manzanillo
International Terminals (MIT) started operations. The terminal gained business from South
Florida ports that previously had handled volumes from Asia and Europe, heading to
destinations within the Caribbean Basin, using short-sea operators such as Crowley, King
Ocean and Seaboard Marine. 2 years later, Panama Ports Company (PPC) started in Balboa.

A transshipment hub enables the shipping lines to concentrate their volumes on larger
tonnage and, in return, reduces the cost of the transport per container. This allowed first
Maersk, later MSC and others, to deploy large vessels to Balboa where cargo to the West Coast
of South America was transshipped to smaller services or feeders. This market has gradually
been eroded as several ports in Chile, Peru, Ecuador and Colombia can handle NEO-Panamax
tonnage, though some with draft restrictions. It was and still is all about cost but a number of
things have changed, and it important to remember that transshipment rates are not the main
cost driver. Vessel cost and fuel consumption are the main drivers.

The location is important but most transshipment volume is now between 2 main liner
services crossing paths (inter-change model) on the way to and from different markets, as
opposed to a main liner service connecting to a smaller feeder, doing “last-mile delivery” to
smaller markets (traditional hub-and-spoke model). This makes location less important, to an
extent, as feeder distance play a relatively lesser role.

The most important change has been the Panama Canal expansion in 2016. The Alliance
formation had already made the deployment of Post-Panamax tonnage in several trades
possible and the Panama Canal expansion made it physically possible. There are now more
container vessels transiting through the NEO-Panamax locks than the old Panamax locks. But
Alliance formation also gave shipping lines access to broader liner networks, reducing the full
potential of transshipment volumes.

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Executive Summary

The transshipment volume increase comes of course from the growth in under-lying markets
but a bigger factor post-Panama Canal expansion has been when lines have sought to combine
volumes on 2 or more smaller services. Recent examples include the EUROSAL XL and MSC ‘s
California Express and SAWC services, and the closure of AGAS and MedAmericas services.
This will continue with vast majority of new capacity being vessels of 10,000 TEU and over.

The vessels will need to be deployed in a market with slow growth but the other reason it will
continue is the IMO 2020 regulations. Shipping lines are facing a USD 200 fuel premium so the
relative difference between deploying smaller and larger vessels will only go up, favoring the
larger vessels. So, the transshipment market will see further growth but it will not be
distributed equally amongst the shipping lines. Some have exhausted their main potential for
growth, others have a long way to go.

The Market
The market has become simpler, yet more difficult. Simple because there are fewer shipping
lines. More difficult as most of the key hubs have a single anchor client on which their
business depends. It is, however, a mutual dependency. The individual shipping lines now
have volumes concentrated in a single hub that makes it very difficult for them to shift to
another hub. This is changing the relatively negotiating position for the next contract rounds.
A few hubs – Cartagena and Caucedo in particular – also have the benefit of very significant
gateway markets. It is not quite a seller’s market but it is also not right to treat it like a buyer’s
market. It is not. The 19% demand growth has been overwhelmed by 55% supply growth but
the imbalance has mainly hit the Pacific and the industry consolidation has made over-supply
less important – unless Corozal and PCCP comes into play, of course.

The Clients
The 8 shipping lines do not all have equal decision power. Maersk, MSC, Hapag-Lloyd, CMA
CGM and Evergreen are in many ways the only 5 decision makers. ONE is now following
Hsapag-Lloyd and Cosco Evergreen. ZIM is so far staying independent but its 2M membership
may change this. CMA CGM ids a mixture, taking decisions on many services but following
partners with higher shares on other services. Each of them is in unique situations relative to
their respective market shares and past hub choices. Those will be outlined in the specific
section for “Clients” as well as “The Future”.

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Executive Summary

The Future

Predictions may be difficult but there are some definite indications of the most logical paths
forward for each of the 9 key hubs.

The future is bleak for the Pacific hubs, less so for the Caribbean ones. The shipping lines may
each act upon different circumstances (alliance structures, own market shares in different
corridors, fleet availability and more) but the main enabler is having services where vessel
tonnage upgrade is possible and different trades can be combined. Without this, volume
growth is entirely dependent on growth in the underlying markets served by transshipment
and this is limited, even if it outgrows key gateway terminal growth.

The 2 key Pacific hubs are facing a market with relatively fewer underlying markets, thanks to
dredging works. Ecuador will be a far smaller part of the underlying market in 2020, thanks
to both the deep-water port opened by DP World Posorja and dredging works completed in
Guayaquil. The Maersk decision to discontinue direct AC calls in San Vicente will give a small
volume boost but adding Guayaquil on AC and WCCA networks will reduce volumes much
more. MSC will perhaps not immediately but eventually discontinue an Ecuador feeder in
favor of direct SAWC calls. Dredging works will be done in Buenaventura by 2021 and Posorja
will lose its relatively small transshipment business. The only realistic opportunity on the
Pacific is for PSA Panama to with partner MSC to see if some volumes could move from
Caribbean to Pacific, noting a price difference that would benefit MSC.

The 7 key Caribbean hubs will fare better. The AGAS and MedAmericas have provided a
significant volume boost – Maersk, Hapag-Lloyd and CMA CGM - that will be reflected in
2019/2020 volumes, and forward. The Maersk volume boost has been less evident as the
Hamburg Sud acquisition and subsequent service deployment have also brought
transshipment volume reductions. Hub consolidation has also played a big role in the
Caribbean. Maersk is concentrating volumes at MIT in Colon and Hapag-Lloyd at SPRC in
Cartagena. ONE and CMA CGM (for Hapag-Lloyd related partner services) are going to follow
Hapag-Lloyd. All hubs except Caucedo will have a single anchor client. All shipping lines will
have more than 80% of their transshipment volumes concentrated around their particular
hub strategy. The transshipment has mainly settled into a fixed structure that will last for
several years. There are few lines and hubs with flexibility to pursue changes.

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Key Hubs

This chapter will first summarize metrics for each of the key hubs, then describe the
individual terminals. The key hubs are herein defined as defined as Cartagena (Colombia),
Caucedo (Dominican Republic), Kingston (Jamaica), Freeport (Bahamas) as well as the 5
terminals in operation in Panama. They are all characterized by the transshipment volume is
higher than their local cargo volume. Only Caucedo – competing with Rio Haina - is in a local
market where it is theoretically possible to move as much local volume as transshipment.

There remain 2 possible new hub terminals in Panama.

In the Pacific, there is the government promoted project at Corozal, adjacent to PPC Balboa.
The market has been in decline for some years and the only clients with existing volumes to
support such a project would be Maersk and – arguably – MSC. The Maersk contract with PPC
expires in 2022, as do the PPC concession, unless extended. MSC has equity in PSA Rodman.

In the Caribbean, PCCP (Panama Colon Container Port) was under construction but progress
has stalled, with limited commercial opportunities. The construction could re-start and be
completed in an 18-month period but with the 3 existing terminals having surplus capacity,
common sense would dictate that this project continues to be on hold for some years.

The 6 distinctive hub areas will thus likely have 9 terminals for the years to come and only
one other terminal – Moin in Costa Rica - has the location to enter into this exclusive club. The
other niche hubs do not have the location to capture a major share of the hub market. This
will be covered under the chapter “Niche Hubs”.

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Key Hubs
PPC Balboa

Panama Ports Company is owned 90% by Hutchison Ports and 10% by Panama, under a
concession expiring in 2022 coinciding with the end of the Maersk contract. Maersk was
originally the Balboa “market” and until 2008, matched its rapid growth to PPC capacity.

The Balboa market peaked several years ago – and a local market of just 280,000 TEU - as it
was based on large tonnage turned in Balboa and then feedered to smaller ports on the West
Coast of South America and Central America, plus a cross-isthmus rail connection to the
Caribbean. Maersk started this concept and was later followed by MSC but as deep-water
ports have become available in Chile, Peru and Colombia, much instead went on direct
services. Maersk have further eroded Balboa by transferring volumes to Buenaventura and
Lazaro Cardenas, both operated by APM Terminals, and taking slots on CMA CGM’s PEX2.

On the West Coast of South America, most ports and most volumes now have a deep-water
option with DP World Posorja (15.5 meters) starting operations in August 2019 and
Guayaquil being dredged to 12.5 meters. Paita is being dredged and there are plans for both
Buenaventura and Puerto Caldera to be able to handle NEO-Panamax in the future.

This will leave a transshipment market for larger intersecting services plus a few feeder
destinations but the prospects are pretty bleak. The Pacific terminals are able to compete for
parts of the business handled in the Caribbean but naturally only between 2 Panama Canal
crossing services.

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Key Hubs
PPC Balboa
Liner Services

The liner services clearly show the dependency on Maersk, with only 5 other liner services
calling at PPC Balboa. It should be noted that WCCA1 also calls PSA Panama, for the MSC
cargo. There are several developments underway:

- Maersk is discontinuing AC1 and WCMS (CarMed) services
- Maersk is adding a Guayaquil call on WCCA network
- Maersk is adding Guayaquil on AC network
- Maersk is taking San Vicente off AC network i.e. creating new transshipment volumes
- Maersk is upgrading plug capacity on ECUBEX and ECUMED
- The Guayaquil changes above will likely result in cancellation of Ecuador shuttle

The ONE services EC1 and EC3 only calls westbound.

The above changes could mean volumes fall below 2020 projection, depending on what
market share Maersk will keep via a transshipment product for San Vicente. The terminal is
currently 13% down on volumes compared to 2018 but trending up in third quarter.

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Key Hubs
PSA Rodman

PSA Panama is owned 60% by PSA with the remaining 40% owned by TIL (MSC) and Grupo
Lieberman. The terminal started operations in 2010 with a single berth able to handle
Panamax vessels. Its expansion was completed in April 2017, with 2 NEO-Panamax berths
and 8 NEO-Panamax cranes.

PSA was forced to enter an equity agreement with MSC (TIL) to secure volume in a market
where 85% of business was controlled by Maersk and MSC. Reportedly, MSC secured a
contract with MSC that halved their transshipment cost.

The Balboa market peaked several years ago – and local market just 280,000 TEU -, as was
covered under PPC Balboa section. The West Coast of South America, most ports and most
volumes now have a deep-water option with DP World Posorja (15.5 meters) starting
operations in August 2019 and Guayaquil being dredged to 12.5 meters. Paita is being
dredged and there are plans for both Buenaventura and Puerto Caldera to be able to handle
NEO-Panamax in the future.

This will leave a transshipment market for larger intersecting services plus a few feeder
destinations but the prospects are pretty bleak. The Pacific terminals are able to compete for
parts of the business handled in the Caribbean but naturally only between 2 Panama Canal
crossing services.

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Key Hubs
PSA Rodman
Liner Services

A good thing about MSC is as a partner is that they pull in partner services. PSA have seen
volumes go up just 3% in 2019 but NEO-Panamax berths only started to ramp up volumes
from April 2018. It is trending slightly up in 3rd quarter.

A significant risk are the 2 Ecuador shuttles if a decision was made to call Posorja with SAWC.
A significant part of the cargo is destined to the US East Coast and North Europe.

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Key Hubs
CCT Colon

Colon Container Terminal (CCT) is 85% owned by Evergreen and 15% by local partners. The
terminal started operations in October 1997 and has almost exclusively been used by
Evergreen until the Ocean Alliance was launched and Cosco starting using it. Evergreen and
Cosco has been in discussions about the possible acquisition of the terminal by Cosco.
Reportedly, Cosco has sought a majority share. CCT is building a 30HA logistics park.

Liner Services

The terminal is mainly handling cargo coming in on AWE network from Asia and then
transshipped to feeder or regional services – besides participation in local market of 600,000
TEU -, mainly run third parties or in cooperation with third parties. 2019 volumes are the
same as in 2018.

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Key Hubs
MIT Colon

Manzanillo International Terminals (MIT) started operations in 1995 and is owned 85% by
SSA and 15% by local partners. MIT is often seen as having low productivity but the real issue
is rather that they handle just 805 TEU per vessel call, including participation in the 600,000
TEU local market.

Maersk has been a key client since the beginning and MIT have had a good year, thanks to a
higher share of the Maersk business but a decline is expected in 2020 as Hapag-Lloyd is
looking to concentrate volumes in Cartagena and they are taking ONE and CMA CGM with
them. Maersk is likely to further increase MIT share at the expense of Cartagena but net effect
is expected to be negative.

MIT has other potential challenges. The current contract with Maersk puts restrictions on
how much Maersk can transship outside MIT, in the Caribbean Basin. MIT has granted
exemptions to this, mainly related to the Hamburg Sud acquisitions. This contract expires in
2020. A question is whether Maersk has a real choice. No other terminal can really handle
their volumes and their network is still being optimized from using cross-isthmus transfers.

Another risk is that the Moin terminal operated by APM Terminals could emerge as a hub for
reefers destined to North Europe and US East Coast.

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Key Hubs
MIT Colon
Liner Services

CMA CGM, Hapag-Lloyd and ONE is looking to move transshipment volumes to Cartagena.
Maersk will compensate this partially with a transfer of volumes from Cartagena but Maersk
is also looking to rationalize services towards Northern Europe. It is not yet clear how much
this may affect transshipment volumes.

2019 volumes are up 14% but been trending up and 3Q is 25% over same period in 2018.

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Key Hubs
PPC Cristobal

Panama Ports Company (PPC) in Colon is 90% owned by Hutchison Ports and 10% by
Panama. It was an attempt to offer terminal services on both sides of the Panama Canal but
the value creation from this was not enough to keep MSC at the Balboa terminal. The terminal
had a record year in 2017 following the hurricane closing down Freeport in Bahamas. It
handled more than 1.3 MTEU but is down 17% this year.

The biggest risk for the terminal is that MSC – practically the only client – is not under any
long-term contract and could in principle leave at any time. MSC still do cross-isthmus
volumes via truck so would need to leave for another Panama terminal and it might be
difficult to fit volumes into CCT or MIT.

PPC Colon is looking to dedicate a berth to bulk cargo

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Key Hubs
PPC Cristobal
Liner Services

The Maersk Colombia+Venezuela feeder, GOEX and Ecubex are making double calls at PPC
and MIT whereas TP16 and UCLA1 calls only at PPC, to cater for MSC business. Ex-Press
Feeders also is making double calls at PPC and MIT.

PPC is also partaking in local market of 600,000 TEU and the TP16 makes an eastbound call to
cater for the main Asia – Panama trade.

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Key Hubs
Puerto de Cartagena

Sociedad Portuaria Regional de Cartagena (SPRC) is owned by local partners. It has built a
business partnered with Hamburg Sud that for several years had a relatively market share
that left it making deployment decisions for a number of partners. This started changing
when Hapag-Lloyd and CSAV merged but the real change was only when Maersk acquired
Hamburg Sud.

SPRC has secured Hapag-Lloyd as an anchor client. Hapag-Lloyd is responsible for most of the
current transshipment market growth and is reportedly pulling both ONE and CMA CGM
volumes towards Cartagena. Maersk is gradually reducing Cartagena’s share of their business
but other clients are more than making up for it. The latest projection is that SPRC will do 3.8
MTEU in 2020.

It can be a weakness that capacity is split between Manga and Contecar terminals, especially
as the lines are interchanging slots on a number of services. SPRC will have a local cargo
opportunity to see Maersk volumes consolidate at their terminal – small in volumes but a big
boost in profitability, possibly taking a 10/12-percentage point leap in local market share
(local market is 725,000 TEU), as APM Terminals is abandoning CCTO project that is likely to
focus on bulk cargo going forward.

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Key Hubs
Puerto de Cartagena
Liner Services

There are no major service changes anticipated, except the vessel changes on ECUBEX and
CLX for Maersk. SPRC will also likely to get the 2 Maersk services calling CCTO, as per below.
CCTO is expected to do 120,000 TEU in 2019.

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Key Hubs
KFTL Kingston

Kingston Freeport Terminal Limited (KFTL) is owned by CMA Terminals and was intended as
a central transshipment hub for the CMA CGM business but their fellow Ocean Alliance
members Evergreen and Cosco have so far not shown much interest. CMA CGM may be the
fourth largest shipping line in the world as well as in Latin America but in Latin America a
large portion of their business is derived from smaller, specialized services difficult to
concentrate in one location, as well as partnerships with other lines driving them towards
other hubs.

There is also a natural reluctance by all the shipping lines to go to a terminal controlled by a
competitor. This is also reflected in Kingston Wharves local cargo market share, around half
of the 350,000 TEU local market.

The biggest potential opportunity remains becoming the hub for Ocean Alliance whereas the
main risk is the possible loss of ZIM. ZIM has been loyal to Kingston for many years but their
partnership with 2M makes it more logical to move volumes to Panama and Freeport.

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Key Hubs
KFTL Kingston
Liner Services

The majority of the services are thus driven by CMA CGM and ZIM. MSC earlier did some
volumes in Kingston but with Freeport capacity back, this is no longer the case. Kingston
Wharves will likely lose the Cagema 2 service as soon as there is space for it. It could also see
the last Seaboard service come to Kingston Wharves.

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Key Hubs
DP World Caucedo

DP World Caucedo is 50% owned by DP World and 50% by local partners. The terminal has
undergone an expansion and is gradually building up the adjacent logistics park. The terminal
is herein considered a key hub but amongst those, it is the one with the highest local cargo
component and the logistics park could further increase this, if it draws some of the short-sea
services currently calling in Rio Haina. Another opportunity is that country’s banana export to
Europe (about 15,000 TEU moving out of Manzanillo, Dominican Republic). Today, local cargo
accounts for 47% of the 650,000 TEU market (another 500,000 TEU is in Rio Haina).

Another opportunity may be higher pricing for local cargo for the vessels too large for Rio
Haina to handle. This is naturally a very difficult segmentation to execute.

A definite risk is the lack of an anchor client. Caucedo is not the most important hub for any of
the shipping lines and if MSC or Hapag-Lloyd try to further concentrate transshipment. MSC
has shown no so inclination but is spread over no less than 4 hubs and this is not optimal
from a deployment perspective. Their main services typically call multiple hubs. Hapag-Lloyd
do seem to gradually concentrate volumes (except French West Indies) in Cartagena

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Key Hubs
DP World Caucedo
Liner Services

Caucedo have relatively few vessel calls and is typically getting the larger tonnage vessels
whereas smaller vessels go to Rio Haina.

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Key Hubs
FCP Freeport

Freeport Container Port (FCP) is 51% owned by Hutchison Ports and 49% by TIL (MSC). MSC
partnership have meant that the port is called by no less than 5 x 2M services. This has meant
that Maersk volumes have gradually grown there as well.

It is well-located for particularly gulf business but an aspect to the business is also MSC
having spread their volumes over several hubs. Freeport has virtually no local business, just
1% is local cargo.

The greatest risk is naturally the annual hurricane season. In 2016, Hurricane Matthew wiped
out the FCP operation and sent MSC scrambling for transshipment capacity at the exact time
when they were increasing their volumes, as several Panamax services (now California
Express and SAWC) were being combined. In 2019, Hurricane Dorian also hit hard but not
lasting damage. This is important as MSC unlikely to base too much of their deployment on
Freeport and there is very little spare capacity at PPC Colon, thus explaining usage of
Caucedo.

Freeport can possibly make a bid for some of the ZIM business, using the 2M network.

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Key Hubs
FCP Freeport
Liner Services

The liner services are basically all driven by MSC, though Maersk has also started to use the
2M network for transshipment in Freeport.

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Niche Hubs

The niche hubs are herein defined as Manzanillo (Mexico), Lazaro Cardenas (Mexico),
Buenaventura (Colombia), Posorja (Ecuador), Moin (Costa Rica) and Port of Spain/Point Lisas
in Trinidad. The CMA CGM operation in the French West Indies do handle some
transshipment but has been excluded as it a niche operation in a draft restricted port so is
seen as isolated from the other ports. Otherwise the definition has been about 50% to qualify
as a key hub, as well as more than 500,000 TEU.

Manzanillo, Mexico
The port has 2 major terminals – SSA and ICTSI – that supplement the gateway business with
some transshipment volumes, mainly towards Central America and interchanges between the
Asia – Mexico – West Coast of South America services. Manzanillo would in competition with
Lazaro Cardenas mainly handle business in Asia and North America, whereas Balboa would
handle business originating on the West Coast of South America. Manzanillo and Lazaro
Cardenas can realistically on compete in the Central America market, the service interchanges
are determined by deployment decisions. The port is expected to handle 3.3 MTEU in 2020,
mainly local cargo where some 75-80% of revenues come from the BCOs (Beneficiary Cargo
Owners) and provide the financial foundation for the terminals.

Lazaro Cardenas, Mexico
The port has 2 major terminals – APM Terminals and Hutchison Ports – expected to handle
1.5 MTEU in 2020. Mainly APM Terminals is supplementing gateway business with Maersk
transshipment business, transferred from Balboa. Lazaro Cardenas otherwise compete for the
same business as Manzanillo, under same circumstances. The gateway cargo is affected by the
higher railway pricing to Mexico City, in spite of the lower distance.

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Niche Hubs

Buenaventura, Colombia
Buenaventura has 3 terminals but only SPRBUN and TCBUEN (majority owned by APM
Terminals) handle transshipment. Draft and Maritime Connectivity means neither will
become a major hub. SPRBUN had a price-driven volume boost where they made the mistake
of investing in capacity for transshipment that (Hapag-Lloyd, CMA CGM, Hamburg Sud) left
them, almost ending in August 2019 when DP World Posorja opened. SPRBUN is now deep
into red operating margins. TCBUEN still does some optimization for sister-company Maersk
but not major volumes, just interchanges between 3 services. Buenaventura will probably get
NEO-Panamax draft in 2021 but not recover transshipment volumes.

Posorja, Ecuador
DP World Posorja started operations in August 2019 and provided Hapag-Lloyd (and CMA
CGM and Cosco, to a lesser extent) with a cost-efficient deployment option. Eurosal XL could
become pre-carriage from West Coast of South America in US East Coast and Mediterranean
trades, closing the AGAS (VSA with Maersk / Hamburg Sud) and MedAmericas services. Like
in many cases, deployment cost could be reduced substantially. In this case, Maersk
(Hamburg Sud) leaving Eurosal XL made this necessary. Buenaventura lost its transshipment
volumes and some Buenaventura volumes now go via Posorja. This may last until
Buenaventura gets NEO-Panamax draft, but no longer. Posorja has some potential for
transshipment but mainly for smaller ports in Peruvian and Chilean ports. This is not
necessarily small volumes. Look at the recent decision by Maersk to abandon their most
southern port of San Vicente on their AC network.

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Niche Hubs

Moin, Costa Rica
The APM Terminals investment in Puerto Moin in Costa Rica has the potential to become a
specialized reefer hub, noting Costa Rica exports a 5,500 x 40’Reefer equivalent of primarily
bananas and pineapples. Naturally, Maersk could potentially shift volumes from MIT in
Panama and Moin is a significant terminal footprint. The concept cannot be discarded but it is
only a credible threat some years down the road.

Costa Rica is a significant market of over 1.5 MTEU. 80% moves via the Caribbean and it will
over time have to move via APM Terminals Moin, according to the concession. The terminal
has certain restrictions on non-local cargo and if this is combined with “natural” flow (cutting
at origin, market delivery at destination) the current investment plans will not allow for much
transshipment. Fast-forward to 2025 and this might change. It could also change from 2022 if
the additional investments were made within the next 6 months. This is considered unlikely
as Maersk is scaling back on fresh investments and the transshipment business is marginal
and would require splitting their transshipment operation further.

Port of Spain / Point Lisas, Trinidad
Trinidad is in the wrong location for any major transshipment operation. It is at the cross-
roads between the US East Coast and the East Coast of South America as well as
Mediterranean and Caribbean but neither provide major opportunities for growth. The
former is a relatively small market with 2 direct services, latter quite specialized – mainly
reefer – services. Trinidad manages less than 0.5 MTEU including local cargo.

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The Market

As 2013 was drawing to a close, it was time for some of the 9 key hub terminals to make an
important decision. 2013 volumes at the 9 terminals reached 12.7 million TEU versus a
capacity of 16.8 million TEU, so 76% utilization. The Panama Canal expansion that eventually
was delayed until June 2016 promised to bring larger tonnage and service consolidation that
elsewhere had increased transshipment volumes. The local markets – in particular in
Cartagena and Caucedo – also were promising. The important decision was whether or not to
expand capacity, and if so, by how much?

The decisions were made. Some at that time, some later. All the 9 key hub terminals decided
in favor of an expansion, except PPC in Balboa. PPC in Cristobal later cancelled the expansion,
instead favoring newer cranes that boosted productivity and thus throughput capacity. FCP in
Freeport also abandoned its expansion plans. And, in fairness, the DP World Caucedo decision
to expand only came some years later.

The Panama Canal expansion was completed and the new locks came into operation June
2016. Later, the Panama Canal first increased number of daily NEO-Panamax slots. It recently
confirmed NEO-Panamax dimensions to include vessels with a beam up to 20 rows. The
predicted changes towards NEO-Panamax tonnage on the Asia – US East Coast trade took
place, as did it on other select trades. The underlying markets (i.e. original port of origin or
destination port for the transshipment volume) grew. Thus, the predicted upsides became
reality.

Unfortunately, so did several downsides. First, the West Coast of South America continued
upgrading port capabilities. This undermined a large part of the volumes moved via Balboa, as
direct services were chosen over transshipment products. Similarly, industry consolidation –
in the form of M&A as well as alliance formation – continued, giving more lines access to more
direct services.

The volumes for the 9 key hub terminals have since increased by 2.4 million TEU, or 19% but
the capacity has increased by 9.2 million TEU, to 26.0 million TEU. There is thus significant
surplus capacity in the market, but the fortunes – or misfortunes – have not been distributed
equally amongst the 9 terminals.

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The Market

The 19% volume boost and the 55% capacity expansion have not been the only changes.
There has been a gradual move towards concentrating volumes towards individual hub
strategies by the shipping lines. Conceptually, Maersk is on a 2-hub strategy, MSC a 3-hub
strategy and everyone else on a single hub strategy.

The 9 key hubs receive a combined 232 weekly port calls, doing an average of just above
1,250 TEU per call. The terminal with the lowest TEU per call is MIT at 805 TEU, the highest
DPW Caucedo at 1,700 TEU. PPC in Balboa is at 1,660 TEU, PSA Panama 1,185 TEU, CCT 1,100
TEU, PPC Cristobal 1,140 TEU, SPRC 1,610 TEU, KFTL at 1,195 TEU and FCP 1,040 TEU.

There are just 8 lines with any transshipment volume to speak of, and it is expected that ONE
will follow Hapag-Lloyd and Cosco, Evergreen, at least for now. The section under “Clients”
will focus on these 8 lines.

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The Market

The 8 shipping lines will do more than 13.9 million TEU (out of 15.1 million TEU) in the 9 key
hubs, noting that volumes only registered where a line reach volumes of at least 50,000 TEU.
All volume estimates are rounded to nearest 50,000 TEU.

Maersk still has the largest potential, at 3.9 million TEU. It has significantly cut dependency
on transshipment thus it accounts for 26% of volumes in the 9 terminals, compared to a third
of the Latin America market. Maersk is concentrating its volumes in Panama but has taken
some volumes to Buenaventura and Lazaro Cardenas where APM Terminals have facilities.
They are gradually moving out of Cartagena and started to use Freeport for certain trades,
based on the 2M network.

MSC is only slightly smaller than Maersk, accounting for 23% of the market. Their SAWC and
California Express deployments following the Panama Canal expansion were responsible for a
large part of the volume growth, before the more recent Hapag-Lloyd contribution.

Hapag-Lloyd has almost tripled their volumes, driven primarily by the closure of AGAS and
MedAmericas services in favor of transshipment products where Eurosal XL is used as pre-
carriage service. Hapag-Lloyd is consolidating its volumes in Cartagena.

ONE is relatively (to Hapag-Lloyd) small in Latin America and is taking the lead from its
partner. THE Alliance has the network most integrated between Asia – US services and its
Latin America trades.

CMA CGM is clearly in favor of its own hub in Kingston but do not have the strength in
different partner services to insist. It is expected to move significant volumes via Cartagena,
driven by the closure of AGAS and MedAmericas plus a transfer of volumes from MIT in
Panama. There is some upward potential if and when the Ocean Alliance services are
synchronized with Latin America network.

Evergreen and Cosco are both quite focused on the Asia trades and all transshipment
business is handled at CCT in Colon, owned by Evergreen. Cosco has ambitions beyond this
and have become a vessel provider on the Eurosal XL service. There is some upward potential
if and when the Ocean Alliance services are synchronized with Latin America network.

ZIM has a diminishing potential and now only deploy a single service to Kingston, plus the 2
US services. It may make sense for ZIM to align its hub strategy towards 2M partners Maersk
and MSC, though those 2 lines are themselves not aligned.

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The Market
Pricing

The transshipment market is quite simple, yet complicated. Simple because the value
proposition consists of just 3 components: Location, Capacity and Price. Complicated because
it needs to be contrasted against the individual client, their strategy and their – very detailed
– market position. It is assumed – and a reality – that service levels for transshipment is quite
similar. There might be smaller differences but not consistent nor bankable ones. Accepting
these facts are fundamental to success in the transshipment market. Conversely, not accepting
these facts will lead to – have led to – some cautionary anecdotes. The transshipment market
is driven by very different factors than gateway markets.

The PSA Panama investment was into an already declining market, as underlying market
were upgrading capacity and could accept direct services. The investment thus depended on
getting a higher share of the expanding Caribbean-side side market, enabled by the Panama
Canal expansion. This has as of yet not taken place and Maersk – controlling by far the largest
transshipment volumes on the Pacific side – have eroded volumes by taking as much as
possible to their own terminals in Buenaventura and Lazaro Cardenas. PSA Panama had to
reduce MSC rates by 50% and offer equity to gain the business they have today.

SPRBUN in Buenaventura made significant investments to capture gateway business from
Hamburg Sud, Hapag-Lloyd and CMA CGM. It worked, somewhat, for 2 years. But then
Hamburg Sud was absorbed into the Maersk Group and everything changed. SPRBUN made a
desperate move and reduced transshipment rates by 40%, to USD 35 per move. It made no
difference. SPRBUN hardly handles any transshipment business today.

The Caribbean have shown more restraint, obviously helped by an expanding market. But it is
important to remember that USD 5, 10 or 20 per move is not what makes the difference.
There has been a massive concentration of transshipment volumes. And there need to be
room for expansion. Maersk thus needs capacity of 2.5 million TEU in each of their Panama
Hubs. MSC is much more flexible in their 3+1 hub strategy but they could not change from
PPC in Cristobal without a TEU 1.5 million capacity offered elsewhere – and they still do quite
some volumes in Panama via truck from the Pacific to the Caribbean. Hapag-Lloyd is now
captive to Cartagena, unless they completely change their network to support a multiple-hub
strategy – not an easy thing to do with their specific market positions. Everyone else are
following other lines or directed towards specific terminals because of ownership or history.

This suggests there is room for reversing the downward trend in pricing, based on very
detailed market segmentation. This is obviously a sensitive subject and must not be actioned
without detailed analysis on the specific client but the point is that lift rates alone do not
change liner networks. Some suggestions will be available under “The Future” chapter.

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The Clients

Maersk - herein including brands Hamburg Sud and Sealand – has close a third of the market
in Latin America but a more modest position in the Asia – US East Coast market where it Is
part of the 2M alliance together with MSC and ZIM. HMM will leave 2M per April 2020 to join
THE Alliance. The Ocean Alliance (CMA CGM, Cosco, Evergreen) and THE Alliance each have
larger Asia – US East Coast market than 2M. A logical move by 2M members might thus have
been seeking synergies between their joint 2M services and their individual Latin America.
This has, however, not taken place but it remains a future possibility, though MSC moving to
PSA Panama has made this less likely. Maersk was prohibited by competition authorities to
enter vessel-sharing-agreements (VSAs) on key Asia and North Europe trades from and to
Latin America but there remains the loop hole of slot charter agreements.

The Maersk strategy for Latin America is to deploy independent services wherever feasible
from a slot production cost perspective and not seeking synergies between the 2M Asia – US
East Coast and Latin America network. The hub strategy has stayed the same for past 2
decades, though an increased focus of Caribbean added Freeport and group strategy has
pushed some volumes towards own terminals in Buenaventura and Lazaro Cardenas. The
transshipment hub strategy is centered around the Panama Hub System. The process
following the Hamburg Sud acquisition but the split between MIT in Colon and SPRC in
Cartagena is now 80/20, from a pre-acquisition 50/50. Besides MIT and Cartagena Maersk is
also using Freeport in Bahamas but this is for different trades. In the Pacific, Maersk is besides
Balboa using APM Terminals facilities in Buenaventura and Lazaro Cardenas.

The 2020 forecast calls for 3.9 million TEU in the 9 key hub terminals (note: it includes local
cargo and volume cut-off is 50,000 TEU otherwise not listed). 3.0 million TEU is expected to
move via Panama and the balance include 0.5 million TEU in local cargo.

Maersk is not expected to grow in transshipment volumes beyond growth in the under-lying
markets, as it has a rather unique situation. It has been part of the mid-2019 discontinuation
of AGAS and MedAmericas services that drove transshipment demand up. In principle, the
company could further pursue combination of several services from West Coast of South
America and Caribbean to North Europe but their high reefer market share and relatively
lower dry cargo market share makes it difficult to find the right vessels.

Maersk will of course remain a significant force but it is expected only to grow with
underlying (i.e. origin or destination for transshipment cargo) markets, without significant
volume boosts in the transshipment market.

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The Clients

Maersk is currently making a number of network changes. AC1 and WCMS (CarMed) are
being discontinued. AC2-3 and WCCA have added Guayaquil but AC2-3 dropped San Vicente,
likely resulting in a reduced volume in Balboa. Lastly, vessel sizes will be changed some on
CLX, ECUBEX, ECUMED and CRX.

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The Clients

MSC has a bit less than a fifth of the market in Latin America and – like Maersk – a more
modest presence in the Asia – Us East Coast market where it Is part of the 2M alliance
together with Maersk and ZIM. HMM will leave 2M per April 2020 to join THE Alliance. The
Ocean Alliance (CMA CGM, Cosco, Evergreen) and THE Alliance each have larger Asia – US
East Coast market than 2M. MSC has unlike 2M partner Maersk always had a more holistic
view on deployment and the 2M services in the key transshipment hubs have calls there
mainly driven by MSC.

MSC has maintained the same 3-hub strategy for several years. The hubs of Balboa, Cristobal
and Freeport form the core of their deployment in the region but is backed by a smaller
presence in Caucedo. Freeport is a risk, as the complete closure following Hurricane Matthew
in 2016 proved. MSC used Caucedo, Cristobal and Kingston as well as ports outside region to
substitute capacity when Freeport was closed. MSC has – via TIL – equity in both PSA Panama
and Freeport Container Port thus those terminals will likely continue to be part of the
network.

MSC increased transshipment significantly when the Panama Canal expansion was completed
in 2016. Other lines were mainly combining 2 Panamax services on the same trade but MSC
also combined North Europe – US West Coast and Mediterranean – US West Coast trades into
a single product “California Express”. This combined with the SAWC (West Coast of South
America – North Europe) drove most of their transshipment growth. MSC was fiercely
independent but have since started more cooperation with other lines. This, in turn, have
allowed them to reduce transshipment volumes.

Their main partner in the 9 key hubs is still Maersk that operates all partner services used by
MSC, except just 3 services plus 3rd party feeders. MSC has more downside risk than upside
potential, in terms of transshipment volumes. The main upside would be a further integration
of the Asia – US East Coast and Latin America networks but partner Maersk has not shown
much interest in this.

The main risk is towards PSA Panama where the volumes are highly dependent on the 2
Ecuador feeders. Svendborg Maersk recently became the largest vessel to call in Guayaquil
with a length of 347 meters and beam of 43 meters. The largest vessel on the SAWC is 328
meters and beam of 48 meters. The draft requirement for a full vessel is 14.5 meters in both
cases so MSC may not be able to eliminate both feeders but one should be possible. This could
reduce transshipment volumes at PSA Panama by 200 - 250,000 TEU. Otherwise MSC is
expected to grow at rates matching the underlying markets.

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The Clients

There are no major deployment changes pending, except the 2M network will need to be
changed when HMM leaves the 2M alliance in 2020.

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The Clients

Hapag-Lloyd is the 3rd largest shipping line in Latin America. It holds a small position in the
Asia – US East Coast market but its membership in THE Alliance provides it with a very strong
network in this trade – thanks to strong market positions of ONE, plus Yang Ming and HMM -
and it is together with Maersk and MSC a leader in the North Europe – US East Coast trade,
mainly relevant – potentially – to Freeport.

Hapag-Lloyd has been a key driver in changing transshipment volumes in 2019 and this will
carry into 2020. The Eurosal XL calling Posorja, Ecuador and discontinuing calling
Buenaventura, Colombia in August 2019 reduced transshipment overall. The discontinuation
of the AGAS and MedAmericas services made Eurosal XL a pre-carriage service for those
trades, with Cartagena being the beneficiary.

The Hapag-Lloyd choice of Cartagena happened in 2019. Their hub choices had previously
been quite driven by partners. They were in Cartagena because of Hamburg Sud, in Colon
(MIT) because of ONE. They are now seeking to consolidate majority of their volumes in
Cartagena and is reportedly driving partners there too. CMA CGM as well as ONE are expected
to move most of their remaining Colon volumes to Cartagena. This will make MIT in Colon
almost exclusively dependent on Maersk.

Hapag-Lloyd and THE Alliance have been at the forefront of synchronizing Asia – US East
Coast and Latin America. THE Alliance has 4 services making 13 weekly calls at the 9 key hubs
so there might not be a lot of upside potential left. The main change expected is a transition
from MIT in Colon to Cartagena.

Hapag-Lloyd has almost tripled its transshipment volumes over past 3 years and is now
expected to do 2,350,000 TEU in the 9 key hubs. There is still significant upward potential if a
way is found to combine West Coast of South America – North Europe, US West Coast – North
Europe, US – Mediterranean and Caribbean – North Europe services but Hapag-Lloyd may not
pursue this. The company does not have the same need as several other lines to pursue
cascading larger vessels, nor will it in the medium-term as it has no vessels on order.

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The Clients

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The Clients

ONE is the 5th largest shipping line in Latin America but has 14% of the Asia – US market,
making it a key decision maker for THE Alliance. ONE has a history in Panama where MOSK
based their transshipment operation, including the use of the cross-isthmus rail connection.
The increasing dependence on THE Alliance services means ONE and Hapag-Lloyd need to be
considered as a single entity. ONE is reportedly leaving for Cartagena, however, signaling that
Hapag-Lloyd is driving the main hub decisions going forward. This will drive some volumes
per above from MIT to SPRC, though timing is not yet known.

ONE is not a major driver of transshipment volumes and mainly listed here as an important
Hapag-Lloyd partner. The volumes above are about half local cargo.

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The Clients

CMA CGM is the 4th largest shipping line in Latin America, noting their size is not far behind
MSC and Hapag-Lloyd. They do, however, not have the same concentrated market share as the
others but make up for it in various niche trades. In the Asia – US trade they have close to
15% share, thanks to the APL acquisition. Their Ocean Alliance partners Cosco and Evergreen
holds another 27%, making the Ocean Alliance the largest in the US trade.

The CMA CGM market position means a number of things. They have a transshipment
operation in French West Indies which logically cannot be moved. They are often not the
decisive stakeholder when it comes to hub choices, as they are minority partner on some of
the services, like Eurosal XL. Even when they are in a controlling position – like PEX2 – they
have chosen to call multiple hubs for the sake of their partners. The Ocean Alliance network is
ripe to be synchronized with their Latin America network for CMA CGM but their partners do
not have the same interest. Neither Cosco nor Evergreen are much in the Latin America – US
trades and are supporting the Evergreen-owned hub CCT in Colon whereas CMA CGM is
naturally pushing for its own hub in Kingston. No Ocean Alliance service calls at Kingston but
3 do at CCT in Colon.

CMA CGM owns via CMA Terminals the KFTL terminal in Kingston. It is not yet known
whether ownership will transfer to Terminal Link, the partnership owned 51% by CMA CGM
and 49% by China Merchants. China Merchants have thanked no to this particular terminal on
2 separate occasions but did do due diligence on KFTL related to the current transaction.

CMA CGM has sought to consolidate volumes at KFTL but their status as minority partner on
some services and the aforementioned issues with Ocean Alliance make this difficult. The
main growth – coming from the closure of AGAS and MedAmericas mid-2019 – is actually
expected to be directed to Cartagena. Cartagena is also expected to be the beneficiary of
deployment changes on the West Coast of South America, with the unique Oro Verde feeder
crossing the Panama Canal. Lastly, CMA CGM is expected to move volumes from MIT in Colon
to Cartagena in 2020.

The main upside potential would come from a combination of the Ocean Alliance network and
CMA CGM Latin America network. KFTL is now ready to receive the NEO-Panamax vessels
partially used on the Ocean Alliance network so this could happen in 2020, if CMA CGM can
negotiate this with partners Cosco and Evergreen.

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The Clients

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The Clients

The Evergreen presence is quite simple. It has about the same Latin America market position
as Cosco but is about a third smaller in the Asia – US trade. It is entirely focused on the Asia
trades, except some intra-Americas moves. It moves all its transshipment via CCT in Colon.
CCT is owned by Evergreen though Cosco has for past almost 3 years shown an interest in
taking a stake. The point of disagreement is reportedly which of the two companies would
end up with a majority stake – something both are seeking.

Evergreen is not expected to see major volume development, unless the company enters into
new trades. Evergreen will likely continue to develop together with Cosco.

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The Clients

Cosco has a modest but growing presence in Latin America but a 17% share in the US market.
It is looking for ways to become a more significant player in Latin America but the market has
concentrated amongst just a few players using large capacity vessels relative to trade
volumes, making barriers of entry quite high.

Cosco has partnered up with CMA CGM on the PEX2 service but is almost exclusively in Asia
trade, similar to Evergreen. The exception is its partnership on Eurosal XL with Hapag-Lloyd
and CMA CGM. Cosco do at present have less pressure to cascade vessels, with no order book
– at least for now.

Cosco has the ambition but have not found a way to expand its presence in Latin America so
transshipment volume growth is likely to be modest and Cosco will continue to use CCT in
Colon. An expansion into the US market is possible using the Ocean Alliance network, in select
markets, but for instance the closure of AGAS now means the West Coast of South America –
US East Coast market is exclusively a transshipment trade.

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The Clients

ZIM has been losing importance in the Latin America where it is focused on the Caribbean
Basin, essentially using its 2 Asia – US East Coast services (now down to one, plus partnership
with 2M) to cover the Asia market and 2 US – Caribbean services for US market. It has
supplemented this with CFS services, with transshipment in Kingston.

ZIM moved close to 500,000 TEU through Kingston in 2018 but now have only a single Asia
service there and is expected to see some volumes move through the 2M network, thus
Kingston volumes have been on the decline.

The main question on ZIM if they will join up with 2M members in Panama (for Asia services)
and possibly Freeport (for US services), leaving Kingston. Of course, at present Maersk is not
using the 2M network much for its Latin America business and Maersk and MSC are at
different terminals in Panama anyway.

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The Future

The transshipment market has seen periods of growth, driven by significant deployment
changes but this has been moderated by industry consolidation – in the form of M&A and
alliance formation – so net growth since 2013 has only been 19% though of course some
niche hubs have seen further growth. The Pacific market has even shrunk. The dredging in
Guayaquil, Paita and Buenaventura will further reduce the market. There is however also
potential for another growth spurt, or several ones.

The main growth opportunities are when service consolidation takes place. Service
consolidation is when two different trades are served via larger tonnage, using
transshipment. There are several such examples. The past Maersk deployment to Balboa,
using tonnage that at the time could not enter ports of the West Coast of South America, drove
growth in the Pacific. MSC combined its North Europe – US West Coast and Mediterranean –
US West Coast services into California Express. MSC also joined 2 of its West Coast of South
America – North Europe services, into SAWC. Recently, the closure of AGAS and MedAmericas
have been providing a growth spurt. But, it is important to note that without service
consolidation the net growth would have been negative.

The future holds more transshipment potential primarily ask shipping lines consolidate their
services, deploying larger tonnage om fewer strings.

Maersk would benefit from an integration between 2M Asia – US East Coast network and its
Latin America network. While a full-scale integration involving MSC is unlikely, MSC has been
adapt at getting select hub calls to its benefit. Maersk can do the same. This may be necessary
when HMM leaves the alliance in April 2020. 2M calls at MIT could for instance reduce cross-
isthmus rail moves for Asia – Caribbean business. This would not reduce transshipment per
se but shift it from Balboa to Colon. Maersk could further consolidate its West Coast of South
America – North Europe services CLX and ECUBEX, or CLX and CRX. The challenge will be to
find sufficient quantity of suitable vessels for such a deployment. The closure of WCMS
(CarMed) will in principle generate new transshipment volume but a driver behind the
closure was Hamburg Sud losing Del Monte business.

MSC has exhausted much of its potential and have through partnership agreements started to
reduce transshipment volumes from its peak. PSA Panama will eventually feel the loss of at
least one of the Guayaquil feeders, as MSC adds Guayaquil to SAWC rotation. There remains
potential adding select calls on 2M network, possibly a consolidation of North Europe – US
East Coast network under 2M. This would primarily benefit Freeport but if Freeport is full,
MSC could push volumes related to California Express into Caribbean.

Hapag-Lloyd and ONE will pursue further integration with the THE Alliance network and
shift business from MIT in Colon to SPRC in Cartagena. Hapag-Lloyd could copy the MSC move
made on California Express i.e. consolidating its services Mediterranean services from US East
Coast and US West Coast, via transshipment. Ideally this should be placed in Freeport but
Caucedo could be an option. Cartagena probably too far away. And Hapag-Lloyd may not have
the right tonnage for it. Another option would be to integrate its US West Coast –
Mediterranean service (MPS) with THE Alliance AL5 service, covering US West Coast – North
Europe. Both are using Panamax tonnage. Such a service could be placed in Cartagena,

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The Future

CMA CGM will see the tail end of growth coming from AGAS and MedAmericas closure. The
line would clearly prefer this additional business to be handled at its own huh in Kingston but
this has not proven possible, as CMA CGM is dependent on partner services. So, at least for
now, Cartagena will be the beneficiary. CMA CGM is also looking at transferring volumes from
MIT in Colon to SPRC in Cartagena. Ocean Alliance is another opportunity. The network only
makes calls at CCT in Colon, replacing what used to be Evergreen services. But it should be
expected that CMA CGM gradually gets Kingston included on one or more services.

Evergreen and Cosco has limited networks so their potential will rise only with growth in
underlying markets, unless they aggressively pursue market share gains. Neither have shown
much appetite for this so far but a more integrated Ocean Alliance network may allow them to
enter certain markets easily, for instance West Coast of South America – US East Coast.

ZIM has been staying loyal to Kingston but could quite easily leave and align more closely
with 2M partners Maersk and MSC. This would likely mean a move to Colon.

The 9 key hubs are thus facing quite different prospects.

The Pacific has its captive market as transshipment between services where one or both do
not cross the Panama Canal. The Caribbean is in the same situation. But for services that both
cross the Panama Canal, virtually all business is handled in the Caribbean. This makes sense
as Caribbean is the location for distribution to more markets and has significant export
markets. But as tariffs USD 10-20 per move lower in the Pacific (reference is to MSC at PSA
Panama) some business may be moved to Pacific. It is, however, important to note that price
often do not move transshipment business. As an example, SPRBUN in Buenaventura dumped
price to USD 35 per move but the business was lost anyway. It is not yet clear what DP World
did on transshipment rates but it would not have made the difference. Hapag-Lloyd decided in
early 2019 to make the move, on the basis of deployment cost. The rest was just procurement
optimization.

The Pacific will see negative volume growth. Guayaquil have been dredged and Maersk have
included the port on its AC and WCCA network. MSC will likely drop a feeder service in favor
of direct SAWC calls. Buenaventura will be dredged and Eurosal XL will return there, Posorja
losing a feeder from there. Paita is undergoing dredging works though less certain the
volumes there are sufficient volumes to warrant direct calls but it used to, to North Europe.
Maersk will continue to optimize its own terminals (Buenaventura and Lazaro Cardenas).

The Caribbean is facing a much more positive prospect. The main risk is that one or more
hubs give into pressure from lines and reduce the transshipment rates. It is difficult to
withstand this pressure, as most terminals are dependent on a single line. They may have
more clients but if their anchor clients go, so do the others. There is little risk of Evergreen
leaving CCT or CMA CGM KFTL of course but the others are in this situation. PPC in Colon is
dependent on MSC, MIT in Colon on Maersk, SPRC on Hapag-Lloyd (ONE and CMA CGM are
also big clients but are there because of Hapag-Lloyd), Freeport on MSC (Maersk only there
optimizing 2M network). Caucedo is unique as it is not the main hub for any of the lines, and
of course because the majority of its business is gateway business.

These unique situations mean the key and niche hubs are well advised to adopt different
strategies.

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The Future
Pacific

It is a declining market, as direct services replace transshipment products, so there are no
strategy leading to solid growth or high utilization for the key hubs. It is about optimization.

PSA Panama is facing a volume decline with the eventual loss of at least one of the MSC
Ecuador feeders. MSC has drawn in some partner business, and insisted on Maersk calling
with its WCCA service, for MSC volumes. What PSA Panama can do is engage MSC about
moving volumes from PPC in Colon, where both services cross the Panama Canal (notably
interchanges between SAWC and California Express. In principle the same discussion can be
had about Freeport business but as MSC (via TIL) has a 49% stake in FCP in Freeport and a
lower percentage in PSA Panama, this may not work. In any event, there are not the same
opportunities of crossing services. The value proposition towards MSC is quite simply lower
tariffs. There is a USD 25 per move gap between PSA Panama and PPC in Colon.

PPC Balboa is facing a concession renewal process in 2022, as well as the expiration of the
Maersk contract giving PPC exclusivity on the Pacific side of Panama. This can take PPC in
several directions. Key hubs are now highly dependent on a single shipping line but it is a
mutual dependency. Maersk has nowhere to place its 1.5 million TEU moved via Balboa and it
is geographically the only logical location. Maersk has already moved everything they can
from Balboa to Buenaventura and Lazaro Cardenas. Moving any part of the remaining 1.5
million TEU will subsidize the terminals, through increased slot production cost. 2022 is close
and no decisive action will be taken now but the right strategy for PPC Balboa is a 3-way
partnership agreement, with Maersk and Labor force for a long-term agreement that allows
PPC an extension. PPC will not regain former profitability, even if labor cost gets under
control, but a 3-way agreement will give it a foundation for a concession renewal.
Alternatively, Maersk or another operator – DP World? – could pursue the same arrangement.
On a side note, the adjacent Corozal project makes no sense. It could arguably be a viable
business with phased investments, Maersk as anchor client and a reset of labor cost but it is
building capacity not needed now nor in next 20 years.

The Mexican terminals in Manzanillo and Lazaro Cardenas will continue to carve out its
niche. Both ports have significant and growing gateway business. They have strong maritime
connectivity towards Asia, US West Coast, Central America and West Coast of South America.
The geographical position makes the terminals logical choices as hubs for Central America
and they can compete with Panama for West Coast of South America in several cases. They
should be able to increase pricing but it has so far been driven down, from competition
between the 4 main terminals. Gateway growth has slowed down, but gateway pricing is
showing a healthy upward trend. The key driver for maintaining transshipment is as hook for
gateway volumes. At market pricing transshipment do not contribute much to bottom line.

Buenaventura and Posorja will also get a mention, though both are either minor or
temporary, or both. SPRBUN made a massive investment to cater for transshipment, modelled
on how SPRC in Cartagena grew their business 20 years back. The transshipment volume
came, and went, in spite of a price reduction to USD 35 per move. Buenaventura has just
minor transshipment volumes left and most is at TCBUEN, owned by Maersk. Posorja
captured a Buenaventura feeder but when Buenaventura has been dredged (in 2021), then
this business too will be lost. There may be room to capture limited business from smaller
Chilean or Peruvian ports.

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The Future
Caribbean

It is an expanding market and has been for some years, through net growth has been
moderated by volume reductions from industry consolidation (M&A as well as alliance
formations). A key feature of the Caribbean market is that the 7 key hubs – except Caucedo -
there are now all based on a single anchor client. This increases the stakes for any terminal
but – like in the case of Maersk in Balboa – it a mutual dependency, except in a few specific
risk areas outlined under each terminal below. The terminals should not enter a price
competition over volumes that move according to slot production cost for the liner network.

CCT Colon has historically not been marketed broadly. It has managed the Evergreen
business and, through Evergreen partners, gotten some other business. But the terminal has
significant surplus capacity and could pursue other business. The Ocean Alliance business is
difficult to obtain as CMA CGM will push towards Kingston as much as Evergreen and Cosco
could push towards CCT. And calling both would not increase the CCT business, though it
would help KFTL. The more logical business would thus be regional lines (Seaboard Marine
and Deliverance) as well as bulk business.

MIT Colon is facing an increasing business from the Maersk Group but also the loss of Hapag-
Lloyd, ONE and CMA CGM business. It has seen healthy growth, as it was getting Maersk
Group previously in Cartagena (from the Hamburg Sud portfolio) but this will change in 2020.
MIT Colon has a few possible moves. It could make a bid to become the 2M terminal. It has 13
years left on its concession and would thus provide one of 2 Caribbean hubs (the other being
Freeport) for 2M. This would eliminate Inter-Terminal-Transfer cost but more importantly, it
would give Maersk and MSC a foundation for seeking synergies between 2M and Latin
America networks. A secondary move would be to pursue the ZIM business.

PPC Colon (Cristobal) is entirely dependent on MSC for container business, as well as some
bulk business. Their labor cost makes them a relatively low-margin business and while it is a
profitable business at 1.0 million TEU, it is not if and when it dips down to 0.6 million TEU.
MSC does not have a long-term contract here so what is keeping them is a mixture of having a
terminal exclusively to them and a lack of choice. MIT might now become that choice. PPC
Colon has a relatively high – and fluctuating – utilization so there is little incremental
container business they can pursue. They are in discussions to secure more non-container
cargo, as well as leasing out a berth.

SPRC Cartagena is currently the main beneficiary of volume growth. It is losing share of the
Maersk Group business. MIT in Colon will probably handle 6 times the transshipment volume
for Maersk. But, SPRC is likely to gain the 2 Maersk services currently at CCTO when the APM
Terminals – Compas partnership comes to an end. While the net volume loss is significant, the
financial one is not. Hapag-Lloyd has in the meantime seen significant volume growth driven
by AGAS and MedAmericas closure. Cartagena is the beneficiary of this as well as volume
transfer from MIT. Hapag-Lloyd is similarly pulling ONE and CMA CGM volumes towards
Cartagena so, all in all, Cartagena will handle an estimated 3.6 million TEU in 2020, or 24%
more than in 2018. Cartagena now needs to play defense on transshipment, secure the 2
Maersk services at CCTO - and perhaps even Seaboard Marine – and optimize gateway pricing
where there is room for gradual improvement. Cartagena is already experimenting with
multi-model transport, using barge-truck combinations but it comes from a position of
strength, given its superior maritime connectivity compared to other Colombian ports.

Prepared by CK Americas



The Future
Caribbean

KFTL Kingston of course has its owner CMA CGM as anchor client. It might lose ZIM that has
some to gain by aligning closer to its 2M partners and no other lines are interested in
increasing their dependency on a hub controlled by a competitor. The upsides need to come
from CMA CGM and the most logical next move is seeing Ocean Alliance services calling there
from April 2020. Evergreen and Cosco are in favor of CCT in Colon, not just because of
ownership but because their transshipment business is mainly about Asia. The volume
growth will then need to come from CMA CGM only. On gateway business, KFTL has not fared
well. Kingston Wharves – a multipurpose terminal in front of KFTL – still has about half the
gateway market and if ZIM leaves KFTL for Kingston Wharves, KFTL market share will go
down quite a bit. China Merchants did due diligence on KFTL twice and rejected being
partner. A hub terminal business can be viable but CMA CGM gets its market share from many
markets and services that are difficult to consolidate. It is many smaller streams that makes
up for its overall market share and except in a few niches – like French West Indies – it is
rarely the market leader or even second. So even as CMA CGM has the same volumes in the 9
key hubs than Hapag-Lloyd – and more if you count French West Indies – it is not possible to
consolidate these volumes the way Hapag-Lloyd is doing.

DP World Caucedo is different. It is mainly a gateway terminal – in volumes and certainly
much more in financial results – that have optimized the business with transshipment
volumes. DP World prudently avoided big investments to pursue incremental transshipment
business and the latest expansion – both berth and the logistics park – is more about gaining
gateway business. The gateway market continues to expand and there is a significant
potential for Caucedo to take away from neighboring Rio Haina. From the outside, it may
seem that circumstances have led them to this strategy but it is worth remembering that
several hubs made less wise investment decisions with the same facts as DP World Caucedo.
The obvious weakness is that Caucedo is a backup hub. There is not a single shipping line
using Caucedo as their main hub, thus no mutual dependence. Hapag-Lloyd will likely move a
higher share to Cartagena and it is in the eyes of MSC a small hub. DP World Caucedo will fare
very well, using its growing logistics park to attract services from Rio Haina but the
transshipment business is on less firm footing. It will need to position itself as the backup hub
for mainly MSC but also Hapag-Lloyd. This also mean it does not need to on par with pricing
in the main hubs. Today it is.

FCP Freeport is also different. Its core business is mainly about North Europe and
Mediterranean, for cargo to and from US East Coast, US Gulf and the Caribbean Sea. It also
handles some service interchanges and was originally intended as the hub for MSC’s
interchanges between SAWC and California Express – but hurricane Matthew in 2016
changed that plan. The majority of the Freeport business is thus quite captive and not
competing with the other 8 key hubs. MSC has a 49% stake in the terminal but 2M partner
Maersk has been growing its business there. This growth has been very gradual – in part as
Maersk has a limit in its MIT Colon contract on how much transshipment may move outside
Panama – but Sealand brand is eyeing it as a way to grow business for the Americas. ZIM may
be another choice, if aligning more with 2M network (note: ZIM agreement does not cover
North Europe – US East Coast trades today).

Prepared by CK Americas