Our decision to present our container terminal operations as a separate revenue-generating business unit – APL Terminals – will give our stakeholders visibility of this essential part of the NOL value chain. We believe a Terminal Operator linked to a Container Shipping line is a highly competitive and sustainable business model.

Our Container Shipping business, APL, contributes around two-thirds of Terminals’ total volumes and in the future we will strive to increase the synergies between APL and Terminals. At the same time, we will stay focused on delivering excellent services to our other customers, including our alliance partners and other third-party users. Terminals are an increasingly important component in our company’s ability to deliver reliable, time-definite services and assist in differentiating APL and our other customers from the competition.

Going forward, we aim to increase productivity, invest in technology and equipment, and strive for cost leadership. We also have investment plans for our existing Terminals network and new locations. We will invest in strategic gateways and hubs where customer demand is greatest and congestion is a threat.

In February 2008, NOL provided proforma accounts which detailed financial and performance information on our Terminals unit for the first time. These showed the significance of APL Terminals’ contribution to NOL’s overall revenue and profit performance in 2007. The proforma information on Terminals, as shown in the table, has been prepared as if the Terminals unit of the Group operates as a separate business and charges are at arm’s length. In practice, terminal handling forms an integral part of shipping.

Terminals delivered revenue of US$609 million – up 5% on the prior year. EBITDA of US$113 million was up 9% on 2006. Our EBIT margin was 15.3%, which is competitive with industry peers.

Over the course of 2007, APL Terminals made 2.47 million container lifts which, combined with our share of throughput from our terminal investments, converts to more than 4.5 million TEU. This places us among the world’s top-ten terminal operators. Average revenue per lift over the year was US$247.

While APL Terminals is a brand new business unit, our Group has over 30 years of experience operating a network of world-class terminal facilities, connecting Asian origins with destinations across North America.

The team established to manage APL Terminals has been drawn from existing management talent. The Terminals President reports to the Group CEO and is a member of NOL’s top leadership team, the Group Executive Team. Additional resources have been added to the APL Terminals business development team.

The APL Terminals value proposition is built around secure berthing and stevedoring services; hinterland connectivity; transhipment/feeder services; state-of-the-art container management systems; and the latest operating technology.

In North America, our facilities are located at Los Angeles, Oakland, Seattle and Dutch Harbor. Our Asian terminals are at Kaohsiung, Taiwan and in Yokohama and Kobe in Japan. In addition, we have investments in facilities at Ho Chi Minh City, Vietnam and Laem Chabang, Thailand.

Our Terminals unit has benefited greatly from a rich culture of innovation. In 1997, we created the world’s first super-terminals on the US West Coast. Global Gateway North and South, in Seattle and Los Angeles respectively, were the largest and most efficient facilities of their kind, with deep-water berths, post-Panamax cranes, on-dock rail, and sophisticated computerised container tracking systems.

Global Gateway South remains the jewel in our Terminals portfolio and among the best and biggest terminals in North America, with a throughput of 1.6 million TEU per year.

Middle Harbor at the Port of Oakland is strategically located along the eastern shore of San Francisco Bay, and serves as another vital entry point to the US West Coast.

Seattle’s Global Gateway North is another important facility located in the Pacific Northwest – with a particular focus on intermodal operations.

Our Dutch Harbor terminal in Alaska is located at the heart of the local fishing industry and has a well-established niche serving the shipment of reefer cargoes.

In Asia, our Kaohsiung terminal is one of our most important facilities. It is a major transhipment hub with utilisation levels among the highest in our network.

We serve Japan through our Yokohama and Kobe operations. Yokohama is a natural deep sea port and the most highly utilised facility in our portfolio. Kobe is a primary port of call for APL and its New World Alliance partner carriers.

In South East Asia, we have investments in facilities at Laem Chabang, which is Thailand’s most modern container port, and Ho Chi Minh City.

Vietnam is among Asia’s fastest-growing economies and our association with the country began more than 16 years ago. In 1998 NOL became the major investor in the Vietnam International Container Terminal (VICT), which was the country’s first purpose-built container handling facility, and this foresight is now being rewarded.

Our Terminals expansion plans are closely linked to the accelerated growth of our Container Shipping business.

We anticipate double-digit revenue growth in our Terminals business over the next five years.

This growth will be achieved by investing in existing terminals and capitalising on greenfield opportunities around the world. Leveraging APL and third party volumes enhances the ability to secure terminal concessions. New investments support our core Container Shipping business by ensuring berth availability, productivity and connectivity for future expansion.

We see development potential in high growth regions such as Greater China, India, South East Asia and the Middle East. There are also opportunities to expand in more established locations such as the US East Coast and Europe.

In 2007, we began to initiate strategic growth plans for our Terminals. We were part of the winning consortium for the hotly contested Maasvlakte 2 facility at the Port of Rotterdam. When completed, the 156-hectare facility will have a capacity of around four million TEU. It will provide fast, flexible services on a large scale and become the hub of our European Container Shipping operations.

Through additional investments in Terminals we will further differentiate our Container Shipping unit by providing land-side control at high volume locations and thus help customers navigate congestion issues which damage the efficiency of their global supply chains.

While the outlook for our Terminals business is bright, we do face challenges that must be met with innovative thinking.

For example, environmental issues remain a significant factor in limiting terminal expansion – particularly in the US and Europe. As many are waterfront, city-based operations, container terminals are often flanked by high value residential developments. Consequently, noise and emissions levels must be tightly controlled and any expansion must meet stringent environmental guidelines.

During the year, we took measures to reduce emissions at our US terminals. These included the introduction of low sulphur fuels into our container yard vehicles and our vessels calling at US facilities. We also extensively trialled “cold-ironing”. This is a process in which a berthed ship uses a shore-based power supply, rather than its own generators. These initiatives are discussed in the Environment section of this Report.

APL has a deserved reputation as an innovator and early adopter of technology. Accordingly, APL Terminals deploys some of the stevedoring industry’s most advanced technologies, including Optical Character Recognition (OCR), Radio Frequency Identification (RFID) and Global Positioning Systems (GPS), which assist the real time locating of individual containers and enhance equipment utilisation.

At an industry level, the terminals sector has enjoyed many years of expansion, in tandem with robust container shipping trade growth. The future is also positive as container shipping capacity is set to far outpace terminal capacity growth, and the value of terminals assets is now well-recognised by the financial community. These factors give us confidence that APL Terminals’ contribution to shareholder value will grow as we move forward.