1. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Trans-Pacific Exporter Issues An Exporter’s Perspective Rob Shepard Director of Transportation & Logistics The Kraft Group/International Forest Products

2. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Page 2 March 1, 2010 The Kraft Group Entertainment Businesses Forest Products Businesses

3. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Page 3 March 1, 2010 OUTLINE 1.Why Exporters are the way they are 2.The Dilemma Carriers Face on Exports 3.Carriers’ Impact on Forest Products 4.Current Issues facing Exporters 5.What will happen after Chinese New Year

4. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Page 4 March 1, 2010 EXPORTERS ARE TRADERS Source: JOC 1. Why Exporters are the way they are AND FOREST PRODUCTS IS THE TOP EXPORT IMPORTERS ARE BRANDS

5. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Page 5 March 1, 2010 US Exporters compete against Global Markets Majority of TEU Export tonnnage is low value –Look for every advantage –Need efficiency & economy of movement Freight critical to trades –Most Efficient Routing Options –Find Best ways for Container Utilization Sourcing decisions can be based on Freight 1. Why Exporters are the way they are

6. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Page 6 March 1, 2010 1. Why Exporters are the way they are Freight Accounts for 30% of Landed Cost for Forest Products And Exports have much Lower Margin that can’t tolerate additional Costs

7. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Page 7 March 1, 2010 1. Why Exporters are the way they are Differences in Importer/Exports Does Formal RFP for annual contract Has certain loyalty to carriers for service considerations Service Strings tailored for Imports Requires more complex supply chain communications Requires Door Moves More imposing on Carriers to perform inland logistics Is interested in ports only as a conduit and throughput Non Exempt Commodities with 2-3 month validity. Operates in Spot Market Needs understanding of service strings to pick most efficient carrier Simple requirements with basic forwarding needs Operates on CY – CY basis. Performs inland logistics Interested in all Port Services An ImporterAn Exporter

8. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Page 8 March 1, 2010 Export rates started deteriorating 13 years ago Imbalance of Trade kept rates depressed Change in cargo type also contributes to this Export rates near 10 year high Historical Rate Levels on Transpacific Container Trade Souce: Containerization International 2. The Dilemma Carriers Face

9. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Page 9 March 1, 2010 Drop in Imports has led to more balanced Tradelane Less Backhaul pricing for commodities that have depended on it Exporters assumed immediate service & unlimited capacity Little margin to store cargo for any time 2. The Dilemma Carriers Face Source: JOC

10. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Page 10 March 1, 2010 If Carriers raise rates to compensatory levels, export volumes of base cargoes will drop sharply If Carriers keep rates at low levels to promote trades, they only hurt themselves In tight export markets, if Carriers abandon the larger volume base cargoes, they jeopardize damaging long term relationships and impacting sourcing decisions 2. The Dilemma Carriers Face

11. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Page 11 March 1, 2010 Largest volume commodity – 25% of Exports Steady Base Cargo Matches up with Carrier Asset management model –Waste paper prevalent around dense population areas –Pulp/Paper routing to Port Stuffing Sheds: Port – Port Good for forecasting – correlated to GDP growth Sustainability Why Carriers should stay committed to Forest Products 3. Carriers’ Impact on Forest Products

12. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Page 12 March 1, 2010 In Nov. Carriers imposed a two tier BAF formula making West Coast BAF $42/40’ less than East Coast BAF USWC WP gained $1.75/MT advantage Immediately impacted Flows Shows China will buy Fiber from lowest cost source and rate sensitivity of WP trade WTSA BAF Policy on WP: USWC = $44/40’; USEC = $86/40’ Souce: USITC Note uptick in West Coast Volume in Nov after BAF Split 3. Carriers’ Impact on Forest Products

13. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Page 13 March 1, 2010 Exporter Issues Rate: Rate Request turnaround, Rate Validities Space: Allocation guarantees, Service Changes Does Automation in Booking Process work? Equipment, Booking Execution, Doc Turnaround Shortened Delivery Windows with tighter cutoffs Port Congestion & Supply Chain Capacity constraints Free Time/Avoiding unnecessary charges 4. Current Issues Facing Exporters

14. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Page 14 March 1, 2010 Keeping up with the GRIs Carriers cannot offer quotes to extend to Q2 GRI announcements made with little notice to sell increase Announcements difficult to keep up with Rate Levels are deterring trades 4. Current Issues Facing Exporters

15. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Page 15 March 1, 2010 The Reality of a Tight Market Lack of Equipment at most ports –Smaller ports getting squeezed –Reduction of Inland CY Locations Less allocation due to reduced vessel capacity –Need to book farther in advance –Booking confirmation <> Space & Equipment guarantee –Requires tighter execution of supply chain partners Shorter times for booking execution –Increased chance of rolled bookings/per diem fees 4. Current Issues Facing Exporters

16. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Page 16 March 1, 2010 What will happen after Chinese New Year? Asia sitting on large raw material inventories Weather, other factors impacting supply Waste Paper Generation down due to no imports High FOB Costs for Material & High Freights All Commodities facing tight supply; less export Tightening credit in CN due to economic fears  Will China buy at same rate after CNY as before  Will deployment of Peak Season Capacity create relief for current Exporters’ woes

17. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Page 17 March 1, 2010 JOC TENS: 10 Ways to reduce Operational Risk 1.Know your Cargo Flow 2.Know risks at Key nodes 3.Know your Port Authorities 4.Know your marine/transit insurance policy 5.Establish Standards of Care 6.Know your incoterms 7.Get coverage for gaps in terms and insurance policy 8.Anticipate Supply Chain Shocks 9.Know Regulatory Risk 10. Build Relationships

18. Rob Shepard International Forest Products Trans-Pacific Exporter Issues: An Exporter’s Perspective Trans-Pacific Exporter Issues An Exporter’s Perspective Rob Shepard Director of Transportation & Logistics The Kraft Group/IFP Corp. March 1, 2010 Long Beach, CA