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Interview With Vice Chairman And President

(*extracted from Annual Report 2017)

1. Which area of the logistics value chain do you expect to see exponential growth in the future, especially in the South and Southeast Asia region?

We aim to become a comprehensive service provider across the entire logistics value chain to meet the expected increase in demand in the years ahead as South and Southeast Asia continues to enjoy exponential economic growth.

The Asian Development Bank has projected economic growth of 7.2% in 2018, from 7% in 2017, for South Asian countries. The growth, driven by expected double-digit rise in middle class consumption of goods and services, will drive expansion of the logistics sector.

ASEAN (Association of Southeast Asian Nations) is expected to see an increase in trade volume by 130% at an estimated value of some US$5.7 trillion by 2023, mainly driven by a rise in demand for goods and services in China, India and other countries in the region.

The ASEAN grouping is seen as a single market with multiple free trade agreements with its Dialogue Partners such as China, Korea, Japan, India, Australia and New Zealand that augurs well for the volume of goods and services into the region.

The ASEAN Connectivity Master Plan envisages enhanced trade routes, improved speed and reliability of supply chains in each Member State and lower supply chain costs.

Singapore too, is an excellent location for the logistics business. It is an established prime location for major logistics firms, with 20 of the top 25 global logistics players operating here.

Furthermore, the Singapore government has introduced the Sea Transport Industry Transformation Map with the aim to expand the industry's real value-add by S$4.5 billion by 2025. It will be building on its existing strategies to develop Singapore into a global maritime centre and further reinforce its position as a leading logistics and supply chain management hub.

This augurs well for our Company as we transform ourselves into a regional logistics provider by growing our network further through acquisitions to leverage on economy of scale and the experience of our China Parent Company.

2. How do you think the Company can benefit from the One Belt, One Road ("OBOR") initiative by China in the years ahead?

We believe the belt and road initiative will help not only to strengthen economic relations between the 10 ASEAN member states and China, it will also connect the region with a much wider market and open up a lot of opportunities for further economic growth.

Two-way investment between China and ASEAN has been reported to have exceeded US$160 billion in 2016, as more Chinese companies venture into the region.

Bilateral trade which reached almost half a trillion US dollars in 2015 has been targeted to hit US$1 trillion by the end of 2020.

With the expected rapid expansion of trade between them, we can expect the ASEAN states to make more investments in infrastructure, including facilities to boost logistics capability and efficiency, such as road, ports and warehousing facilities. This will help to make the region an important trade node on the global map.

That will be good for our business. We will position our Group to take advantage of the economic expansion in the region to further grow our revenues.

3. In what ways does COSCO SHIPPING intend to expand the capability and competiveness of its logistics business in the years ahead?

We are on a mission to seek opportunities to reshape the Company by growing our business portfolio to expand our capability and increase our revenue streams. We will use the proceeds from the disposal of our loss-making shipyard assets to acquire new businesses in the logistics space.

There are certainly opportunities for us to synergise our newly-acquired logistics business with the operations of associated companies in the China COSCO SHIPPING Group. With the Group's co-operation and extensive network, we aim to increase our service offerings and further enhance our value propositions to support our strategy to grow our customer base and revenues.

We plan to further improve our infrastructure and service capability to become a leader in providing integrated logistics solutions across the entire logistics value chain.

4. What are your key considerations for investing in future logistics businesses?

One of the key considerations for any new investment will be its track record and how well it can fit into the overall strategy of our Company. It must have a lot of synergistic potential to further extend our service capability and market footprint.

It is also very important for us to take into consideration the target Company's market territory, the portfolio and location of its assets and the scalability of its business.

To ensure we can extract as much value as possible from the acquisition, we will carefully weigh the analyses and advice from our internal team and external consultants before recommending it to the Board.

While we are eager to grow our logistics business as quickly as possible, we must also exercise prudent due diligence to ensure that every new investment will be sustainable and will contribute positively to our Company's future.

5. Going forward, what is your sense of the market for the Group?

Globally, economic conditions seem to have improved in 2017 and reports have suggested that 2018 will be a better year. We certainly hope so.

Singapore's economy had performed remarkably well in 2017 with Gross Domestic Product (GDP) growth of 3.5%, outperforming even the government's earlier estimates. For 2018, government forecasters expect economic growth of between 1.5% and 3.5%.

The International Monetary Fund (IMF) had in its revised World Economic Outlook Report in January 2018 projected growth of 3.9% for 2018 and 2019, 0.2% point higher than its estimate for 2017, attributing the more upbeat forecast to the stronger pace of global growth. However, it cautioned that risk remained skewed to the downside over the medium term, including the increase in core inflation in advanced economies and interests rates. It said vulnerabilities include geopolitical tensions, political uncertainty and inward-looking polices.

Technology has also been changing the way business is being done, and continues to pose many challenges including greater competition across the entire market landscape.

We believe there will be much opportunity for us to further build our capability in the logistics space. We are moving forward positively, but with discriminate caution.

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