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STAYING AFLOAT IN CHOPPY WATERS March 2009 John Stokes Highstar Capital - Partner

STAYING AFLOAT IN CHOPPY WATERS March 2009 John Stokes Highstar Capital - Partner. THE TRANSPORTATION INDUSTRY IS IN TURMOIL. DECLINE IN IMPORT CONTAINER VOLUMES Port of Long Beach down 23.3% in January 2009 vs. January 2008 1 Port of Los Angeles down 7.6% in January 2009 vs. January 2008 2

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STAYING AFLOAT IN CHOPPY WATERS March 2009 John Stokes Highstar Capital - Partner

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  1. STAYING AFLOAT IN CHOPPY WATERSMarch 2009John StokesHighstar Capital - Partner

  2. THE TRANSPORTATION INDUSTRY IS IN TURMOIL • DECLINE IN IMPORT CONTAINER VOLUMES • Port of Long Beach down 23.3% in January 2009 vs. January 20081 • Port of Los Angeles down 7.6% in January 2009 vs. January 20082 • Port of Savannah down 18.1% in January 2009 vs. January 20083 • SHIFTING SHIPPING PATTERNS • All-water services to East Coast • What will happen to Transpacific trade? • STRESS ALL ALONG THE LOGISTICS CHAIN • Intermodal rail volumes are down 13% year-to-date through March 13, 20094 • THE BOTTOM LINE IS UNCERTAINTY • NOBODY KNOWS WHERE WE ARE HEADED 1 Port of Long Beach. www.polb.com/economics/port_stats/teus_year_to_date.asp 2 Port of Los Angeles. www.portoflosangeles.org/maritime/stats.asp 3 Port of Savannah. www.gaports.com/salesandmarketingbusinessdevelopment/GPAbythenumbers/tabid/435/default.aspx 4 Rick Patterson. UBS Rail Weekly. March 13, 2009.

  3. HOW IS PORTS AMERICA GROUP DEALING WITH IT? • REDUCING COSTS (THE OBVIOUS) • Limited range to control • Terminal infrastructure costs are fixed • THE REAL KEY WILL BE INCREASING VOLUME • Only reliable way to reduce unit cost • HAVE TO GAIN MARKET SHARE FROM COMPETITORS • Other Operators • Other Ports • Other Shipping Lines

  4. BASIS FOR COMPETITION IS IMPORTANT • LOW PRICE IS IMPORTANT • The parameter most often measured • Cost of stevedoring and terminal services is minimal as compared to the value of the box • HIGH VALUE TO THE CUSTOMER IS MORE IMPORTANT • But, it may be harder to produce • And, may even be harder to measure CUSTOMERS PAY FOR VALUE, NOT PRICE

  5. KEYS TO SURVIVAL • UNDERSTANDING WHAT IS VALUABLE TO YOUR CUSTOMER • FIGURING OUT HOW TO PRODUCE THAT PRODUCT OR SERVICE WHICH IS MOST VALUABLE TO YOUR CUSTOMER • HAVING THE MEANS TO EXECUTE SUCCESSFULLY

  6. WHAT IS A PRIVATE EQUITY INVESTOR? • NOT A PARENT COMPANY • NOT A LENDER • NOT A MANAGEMENT TEAM • PRIVATE EQUITY IS INVESTOR CAPITAL

  7. TYPES OF PRIVATE EQUITY FUNDS • LEVERAGE BUYOUT (“LBO”) FUNDS • Invest in diverse business sectors • Short hold periods (3-5 years) • Active Board Members (Set the Strategy) • Capital gains driven • INFRASTRUCTURE FUNDS (PENSION FUNDS) • Invest in infrastructure assets and businesses • Longer hold periods (sometimes indefinite) • Monitor from board level (rely on management to run business) • Cash flow (dividends) driven

  8. HIGHSTAR CAPITAL IS A HYBRID • LBO STYLE INVESTOR • Generally hold for 3-7 years • INFRASTRUCTURE SPACE • Operating businesses and assets • DIRECTLY ENGAGED WITH MANAGEMENT • Managers and operators create value • LONG TERM FOCUSED • Short-term gains last for the short-term • New investors pay for long term potential • CAPITAL GAINS DRIVEN • Generally do not take current dividends • Value is created by long term potential of the business

  9. INFRASTRUCTURE INVESTMENTS • ELECTRIC POWER GENERATION • WASTE-TO-ENERGY • SOLID WASTE DISPOSAL • NAUTURAL GAS PIPELINES • WATER AND WASTEWATER UTILITIES • AIRPORTS • MARINE TERMINALS

  10. OWNERSHIP OBJECTIVES • TRANSFORM THE BUSINESS • DEVELOP A STRONG, LONG TERM BUSINESS PLAN • BUILD BEST IN CLASS MANAGEMENT TEAM • INVEST IN GROWTH • OPTIMIZE CAPITAL STRUCTURE • STRONG, DEMONSTRABLE RESULTS • CAPITAL GAINS COME FROM FUTURE VALUE

  11. HOW DOES PRIVATE EQUITY SEE THE TERMINAL BUSINESS? • HIGH VOLATILITY SINCE 2007 • Shift from congestion to over-capacity • Shifting Imports vs. Exports • Shifting volume East Coast vs. West Coast • Increasing environmental pressures • Increasing cost pressures • THE VOLATILITY WILL ONLY INCREASE • Panama Canal Expansion • Loss of some carrier lines (customers) • Changing views toward captive (carrier-line) terminals • Changing views toward public independent terminals

  12. CAPITAL REQUIREMENTS WILL INCREASE DRAMATICALLY • IN THE TERMINAL • Stronger quays • Larger and more productive cranes • More sophisticated and effective IT • IN THE PORT • Deeper channels • Rail access • SURROUNDING INFRASTRUCTURE • Highway access • Rail clearing • Distribution centers

  13. THE SCENARIO FOR THE FUTURE • LIMITED GROWTH IN VOLUME • GREATER VOLATILITY • HIGHER CAPITAL DEMANDS • RESTRICTED ACCESS TO CAPITAL • INTENSE COMPETITION

  14. HIGHSTAR’S APPROACH • DIVERSE GEOGRAPHIC FOOTPRINT • Reduces exposure to shifting shipping patterns • Reduces exposure to natural disasters • Reduces exposure to political uncertainties • REDUCE VOLATILITY IN REVENUES AND CASH FLOW • WIDE CUSTOMER CONTACT • INITIALLY ACCOMPLISHED THROUGH ACQUISITION

  15. PORTS AMERICA MAP

  16. IMPROVE OPERATING EFFICIENCY • BEST IN CLASS MANAGEMENT TEAM • TRIMMED OVERHEAD COSTS • AGGRESSIVE BEST PRACTICES PROGRAM SHARED ACROSS TERMINALS • OPTIMIZING CAPITAL STRUCTURE • GOAL IS LOWEST POSSIBLE COST • WITHOUT SACRIFICING CUSTOMER SERVICE

  17. CUSTOMER FOCUS • COMMERCIAL FUNCTION IN SENIOR MANAGEMENT • KNOW WHAT IS VALUABLE TO EACH CUSTOMER • CREATE PRODUCTS AND SERVICES TAILORED TO SPECIFIC CUSTOMER NEEDS

  18. GAIN MARKET SHARE • FURTHER EXPAND GEOGRAPHIC FOOTPRINT • Oakland, California • Bayonne, New Jersey • Puerta Mexico (Toluca, Mexico) • EXPAND SERVICES • Do more for the same customers • Open windows to new customers • Help our partners gain customers

  19. PARTNERING WILL BE KEY • CAPITAL WILL BE TIGHT FOR EVERYBODY • PROJECTS WILL BE BIGGER AND MORE EXPENSIVE • THE COST OF FAILURE WILL BE HIGHER, BOTH IN TERMS OF DOLLARS AND SURVIVAL • MULTIPLE PARTNERS WILL BE NEEDED TO IMPROVE THE PROBABILITY OF SUCCESS • INTERESTS NEED TO BE ALIGNED

  20. PICKING THE RIGHT PARTNERS • KNOW YOUR OWN OBJECTIVES • KNOW YOUR OWN STRENGTHS AND WEAKNESSES • LOOK FOR PARTNERS WITH COMPATIBLE (NOT NECESSARILY IDENTICAL) OBJECTIVES • LOOK FOR PARTNERS WITH COMPLEMTARY STRENGTHS AND WEAKNESSES • IT MAY TAKE MORE THAN ONE PARTNER TO FILL OUT THE TEAM • BUT, AVOID EXESSIVE COMPLEXITY

  21. PORT OF OAKLAND OUTER HARBOR TERMINAL CONCESSION • PORT OF OAKLAND • Seeking reliable cash flow stream, increase throughput, and expand IPI cargo • Has terminal available for long-term concessionaire • MSC • In search of long-term West Coast port for cargo • Can provide cargo (including IPI) to bring to port • RAIL ROADS • In order to make investment, rail needed assurance that container throughput would increase • Rails need to invest in clearing for rail in order to double stack on certain routes • PORTS AMERICA GROUP AND HIGHSTAR • Brought together all constituents into a partnership • Efficient, multi-customer, facility operator • Capital to invest in infrastructure

  22. JAXPORT – GM SUV VOLUMES • GENERAL MOTORS • Closed Janesville, WI plant and moved production to Arlington, TX • Approximately 30,000 SUVs for export to Europe and Middle East required a port of disembarkment • CSX • Provide rail access from Texas through Florida panhandle • Estimated revenues of almost $6.0 million per year • JAXPORT • Added jobs to terminal facility and local community • Earned approximately $0.3 million in dockage, wharfage and security revenues for JAXPORT • AMPORTS • Had relationship, and capacity at current terminal in Jacksonville • Consolidator of relationships and solutions provider

  23. SUMMARY • THE WATERS HAVE ONLY BEGUN TO BECOME CHOPPY • SURVIVAL WILL REQUIRE FOCUS ON CUSTOMERS • THE ONLY NEW MARKETS WILL BE THOSE THAT YOU STEAL FROM OTHERS • TEAMING WITH THE RIGHT PARTNERS CAN IMPROVE THE PROBABILITY OF SUCCESS

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