Wan Hai Lines Ltd.

In the face of a major global economic downturn triggered by recent financial turmoil, the shipping industry is expected to confront a bigger-than-expected fall in global container traffic. According to a recent survey by some institutions, the world economy is expected to expand by 2.2. percent in 2009. However, advanced economies such as the U.S., euro-zone and Japan are expected to contract by 0.25 percent. The decline in consumer confidence because of tightening financial conditions resulted in a rapid slowdown in cargo growth in the major east-west trade lanes in the latter part of 2008. Faced with an enormous rise in oversupply in the shipping industry, we expect more consolidation and collaboration between shipping lines in the near future. Through service cooperation, carriers can achieve a significant reduction in operating costs as well as risk exposure amid the cloudy outlook. With the continuing fall in time-charter rates and bunker prices, the operating cost environment is more favorable compared to the first half of 2008. Still, we believe shipping lines will remain cautious about starting new service strings because of concerns over the weakening economy. We believe there will still be some growth opportunities in the developing markets, where the economies continue to grow. Although economic recovery is bound to take place at some point, the most critical problem confronting the global shipping industry is the massive influx of new ships that will remain a key variable for carriers’ operating performance this year.