NOL - Citi

Management guides for strong 3Q — Full impact of Transpacific rate hike and Peak

Season Surcharge are expected to manifest in 3Q. Together with peak season
volumes, this will drive QoQ improvement in 3Q10 profitability. Volumes and rates
are expected to taper off in 4Q in line with seasonality and lapse of Peak Season
Surcharge. Bookings lack visibility thereafter.

 Capex update — Recent orders totaling ~100,000 TEU (including LOIs) were at
reasonable prices and meant to replace chartered-in vessels that are due to retire
so as to improve NOL’s cost structure. Additional orders will depend on ship price
trends and the market environment, allowing NOL to be more responsive to market
dynamics through capacity and cost management. Financing for recent capex has
not been finalized, but should not be an issue given NOL’s low gearing ratio.

 Dynamics behind slow steaming — A common concern was whether slow steaming
will reverse, given the recent strong volumes and lower bunker price (-13% YTD).
NOL observed that slow-steaming is still in place on most routes, and unlikely to be
reversed quickly. The decision whether to slow-steam would depend on i) bunker
price – how much cost savings can be reaped; ii) ship prices – whether there is net
savings by slow steaming and deploying more assets; iii) freight rates – whether
there is net earnings by increasing vessel speed to chase high freight rates and
volumes. Logistically, it would also be difficult to reverse slow-steaming due to rigid
berthing slot timings and the need to re-deploy excess assets.

 Box shortage — Box manufacturers are still working one shift and have room to
ramp up production by switching to a double shift if they choose. Some liners are
trying to implement surcharges to cover the higher box costs.