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A Conversation with Wim A. Lagaay,
Senior Vice President, Maersk Inc.

LQ: When you look at the rise of the Canadian and U.S. dollar in 2007, how has this impacted charter rates?

Wim Lagaay: We do not see any direct impact on charter rates. However, since most, if not all, of the charter fee is paid in the U.S. dollar, vessel operators with Canadian dollars in hand may benefit from the better exchange rate thanks to the appreciation of the Canadian dollar.

LQ: How have circumstances in the Middle East impacted vessel costs?

Wim Lagaay: The circumstances in the Middle East have impacted oil prices, eventually transferring to higher bunker costs for vessel operators.

LQ: With respect to drayage — is the shortage of truck drivers affecting your business and that of others in the industry?

Wim Lagaay: In general, a shortage of truck drivers has not been the case this year due to lower than expected industry volumes, but long term supply shortages remain a concern.

LQ: In terms of the railways, is there a capacity problem, and what is its impact?

Wim Lagaay: Similar to the above, there has been no rail capacity problem this year due to lower than expected industry volumes, but long term capacity shortages remain a concern. This can impact price, route choice and the mode of transport selected.

LQ: Can you tell me a little more about the impact of rising fuel costs.

Wim Lagaay: For the container shipping industry, variability or volatility in the bunker fuel price is at record high levels. The current container shipping contracting model prevents carriers from being fully compensated for the fuel cost increases. Since bunker fuel prices cannot be accurately predicted over the duration of most contracts, carriers are essentially accepting all of the risk for potential fuel pricing increases. While all cost items have increased, bunker has increased the most. As a result, bunker costs — as a share of network costs — have doubled in the last few years. Rising fuel costs have greatly impacted carriers’ability to make profit; however, with higher fuel costs, pressure to use the most efficient mode of transport in order to reduce exposure to costs place shipping ahead of rail, trucking and air transport.

LQ: What are your forecasts for trends for 2008 and as far as 2010?

Wim Lagaay: For 2008, it is projected that import volume will remain flat, while export volume will demonstrate continued growth. Import volume is expected to gain momentum from 2009 and return to a normal rate of growth by 2010. Barring any drastic appreciation of the U.S. dollar, export volume is project to be strong through 2010.

LQ: Do you see a weakening or strengthening of the charter market?

Wim Lagaay: The short-term outlook for the charter market remains positive. In the medium term, upward pressure on charter rates may continue if the market fundamentals remain positive. Sentiment in the market remains at a very high level and this should support the upward tendency in the short term at the very least.

LQ: With the pullback of Maersk service from Halifax, would there be an interest by Maersk in a feeder service from the Atlantic Canada area, without the benefit of rates and service of the feeder? In that case, what load port would be of interest to Maersk — New York, Richmond, Savannah, or Jacksonville?

Wim Lagaay: At this time, there is no plan for Maersk to offer feeder service to/from the Atlantic Canada area.

LQ: Which load port has an over-supply of empties returning to overseas destinations?

Wim Lagaay: West coast ports usually have an over-supply of empties. With the east coast ports, the situation is more dynamic and seasonal.

LQ: In reference to the CSX intermodal terminal being built at Buffalo. Would Maersk use this terminal to serve the Ontario market or does it target the upstate New York and Ohio area?

Wim Lagaay: This is an issue upon which no decision has been made.

LQ: Would Maersk look at options other than New York (rail and truck) inland to service Ontario, Quebec and Atlantic Canada? The options might be a combination of SSS and inland truck and/or rail.

Wim Lagaay: It varies from trade lane to trade lane. Maersk serves eastern Canada by railing cargo via Vancouver for cargo from Asia. For cargo from Europe, the Middle East, Africa and the Mediterranean, on the other hand, Maersk serves the area by moving cargo via Montreal. To/from the rest of the world, Maersk serves this area by moving cargo via New York. Questions for this Executive Interview Series have been prepared by Ed Kearns, LQ’s Maritime Editor and Advisory Board member.

Questions for this Executive Interview Series have been prepared by Ed Kearns, LQ’s Maritime Editor and Advisory Board member.