WE DELIVER SOLUTIONS.

1. WE DELIVER SOLUTIONS. The West Coast An insider’s view of the advantages & challenges Affecting today’s supply chain David Bennett, Vice President, Sales & Development

2. The West Coast Insider 1. Congestion Concerns: Terminal and Rail 2. Labor Issues: ILWU, Trucker Shortages and Other Key Concerns 3. PierPASS: “The Real Story” 4. Impacts of the California Legislative and Environmental Agendas 5. Solutions!

3. Terminal Congestion: Labor • In 2004, average time to allocate labor to work a vessel reached 5 days • Lack of gains anticipated by technology advancements led to poor forecasting by the Pacific Maritime Association (PMA) in terms of labor requirements • Shortage of labor after “Bloody Thursday” resulting in massive gang shortages which led to congestion of massive proportions • NET RESULTS • labor shortage properly addressed in October 2004 • within 30 days, backlog of vessels was cleared

4. Terminal Congestion: Positives • Railroads remained fluidwithin the Los Angeles/ Long Beach basin throughout the year • ThePacific Northwest corridorwas forced to make much needed network improvements on the intermodal front • ThePMAwas forced to revise itsforecasting model, adding 7,500 casuals and 1,000 new ILWU “steadies” to the regional labor pool

5. Terminal Congestion: Negatives • Railroads reduced free timeat key interchanges throughout the network in order to remain fluid. Today, free time continues to expire over weekends! • Truckersabandoned the industry! Today, 30% more business is done at terminals with 25% fewer available drivers. • Strains on global trade, the result of vessels being forced to skip key port rotations to get back on schedule.

6. Rail Congestion: Today • TPS trade continues to grow at double-digit pace • 2006 growth is pushing 14.2% for the year (compared to a forecast of 8%) • Growth to the PNW grew at a pace of approximately 30% in 2005 (compared to 2004), requiring additional capacity on this alternative route to be completely allocated

7. Rail Congestion: Future Outlook • Continuedcrew and power shortagesthat result in East to West trains being delayed back to the PSW ports that not only position trains for the West to East movement, but the empty containers that are needed for empty loadback to Asia • In spite of capital improvements to the infrastructure that are averaging about $800 million annually by both railroads servicing this corridor, theycannot add track fast enoughto keep up with trade growth • Limited on dock facilitiesthat allow trains to be built direct from vessel discharge compared to having to move containers to the overburdened off-dock facilities in the LA/LGB basin

8. Rail Congestion: Result Train velocity remains down Heavy burden on the entire rail system Delays throughout network continue to mount As of July 2005, takes over 96 hours for trains to move out of the LA/Long Beach basin Chokepoints throughout the network

9. Labor Issues: Terminal The Good: Additional labor added as a result of the 2004 congestion has eliminated any labor shortages and terminals have remained fluid since November 2004. The Bad: Technology gains from the last contract have not been fully implemented and productivity remains at unacceptable levels. The Ugly: New leadership changes within the ILWU have been made this summer and contract talks for the new agreement are underway. There are still some very serious wounds that haven’t healed as a result of the 2002 lockout

10. Labor Issues: Trucking Industry • A Huge Problem… • scores of draymen left the business as a result of the 2004 congestion and never returned! • Rate Inequities… • rate structures for owner operators remain low due to market forces (i.e. store door trucking requirements by the consignees) • turn times remain very low due to the slow productivity mentioned above • Net Result… • few new drivers are being attracted to the trucking community • trade continues to grow at double-digit pace • this is a nationwide issue

11. Labor Issues: Other Concerns • Development of more power for the ILWU? Expanding their wings to take direct aim at the inland empire Distribution Centers through their “march inland” campaign to organize workers in off-dock warehouses! • Strong organizational efforts are taking place which would have significant impact! • Teamsters’ aggressive actions to organize the owner operators with promises to improve working conditions and wages!

12. PierPASS: The Real Story • What lead to the development of the PierPASS program? • Community Issue • Alan Lowenthal • Private Industry Solution • Projected Goals/Results • Failure Not an Option

13. PierPASS: Community Issues • Residents of San Pedro, Wilmington area around the port facilities developed a very strong community leadership • Took direct aim at the industry with a focus on the environmental impact of the number of trucks running along the 710 freeway and their respective communities during the day

14. PierPASS: Alan Lowenthal • State assembly memberfrom San Pedro/Wilmington & Long Beach, now state senator • Introduction ofAB2041which was a state bill that requiredall day time deliveriesof cargo to pay aFEEto the state and required by law that all terminal operators move to a24 hour, 7 day per week FULL gateto support the record volumes of cargo moving through the southern California port facilities that were impacting traffic and air quality concerns locally • Main issue:the money goesdirectly to the statewith nothing coming back to the community in terms of infrastructure improvements and the cost to the terminals to operate extended gates adds millions in expense • Lowenthal clearly had thecommunity and labor behind the billwith a proven track record of getting legislation aimed at the industry passed

15. PierPASS: Creation Story • Net result: marine terminal operators offered a private industry solution, forming the West Coast Marine Terminal Operators Agreement (WCMTOA); under FMC oversight, a special purpose entity – PierPASS – was formed • Program launched in July 2005 • Non-Profitentity designed to collect fees against the Traffic Mitigation Fee and disburse the money back to the marine terminal operators to off-set the cost associated with operating a full night gate. (Labor cost per the contract at 33% higher for the 2nd shift than 1st.) • Objectives were to improve turn times for the trucking community with the hopes of attracting drivers back and keeping cargo flowing / terminals fluid while avoiding legislative mandate vs. private industry solution resulting in withdrawal of AB2041

16. PierPASS: Projected Goals Percentage of Cargo to Be Shifted to Night Gates

17. PierPASS: Results So Far Percentage of Cargo Actually Shifted to Night Gates

18. PierPASS: Failure Not an Option • In spite of start up challenges, the program has been an enormous success as terminals are very fluid in terms of cargo movement, turn times are improving, and congestion on the area freeways as a result of container trucks has improved • LA/Long Beach volume continues to grow • 2005: 14.4 million TEU • 2006: 15.5 million TEU (forecast) • 2010: 19.7 million TEU (forecast) • 2040: 44.7 million TEU (forecast) • Ship capacity continues to grow at a tremendous pace • Infrastructural improvements locally are years away • Further port development is extremely limited

19. Legislative & Environmental Agenda Environmental plansdriven by the legislative agendas and community activists in Southern California have resulted in aggressive environmental programs that are being enacted by all the ports as well as ocean transportation providers that include the following advancements: • Equipment retrofits that are more environmentally friendly • Shore-side power requirements (cold ironing) • Alternative fuel requirements & vessel speed reduction programs Net result is that environmentally, ocean carriers have invested millions of dollars to exceed the expectations being put forth along with the marine terminal operators’ investments that have resulted in aggressive programs aimed at being environmentally responsible

20. Legislative & Environmental Agenda • December 2005, the Pacific Merchant Shippers Association (PMSA) representing marine terminal operators, stevedores, ocean carriers for the states of California, Oregon and Washington, was monitoring over 100 separate bills in the state assemblies of all three states, each with some form of container surcharge attached to the language of the bill • As an example, in California three bills (SB 1829, SB 760 and SB 764), as presented in the state assembly would represent billions of dollars in revenue to the State of California in fines/penalties and could potentially make the ports of Los Angeles and Long Beach insolvent.

21. Solutions: Congestion Concerns • Diversify your cargo flow • Increase pressure on your forecasting models • Communicate your needs to your service provider • Develop long-range contingency plans with your service provider

22. Solutions: Labor Issues • Focus on the issues to become more aware of the consequences. Even though you may sit thousands of miles from the waterfront, the impact to your supply chain is significant. • Work with your vendors to improve conditions for the trucking community. They are a critical link to the supply chain and we must work together to improve their situation.

23. Solutions: California Legislative and Environmental Agendas • Labor groups, ILWU, California Truckers Association and Teamsters outspend the MTO, ocean transportation providers by a 9 to 1 margin in Sacramento! Please take this brief overview to bring this critical issue to your Senior Management and become engaged in these issues that will have a huge financial impact on your supply chain as these agendas to prohibit growth in international trade continue to gain support in states such as California, Oregon and Washington. • Push your local congressional representatives for the need to develop a National Transportation Policy that will focus on the port rail issues that will continue to mount as cargo volumes from Asia continue to increase on a annual basis.

24. Question & Answer…