Global Logistics and Trade Competitiveness Conference

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Global Logistics and Trade Competitiveness
Conference Worldwide Logistics Challenges And
Opportunities October 13, 2005
Nick LaHowchic Executive Vice President, Limited
Brands President CEO, Limited Logistics
Services, Inc.
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Limited Brands, Inc. 2004 Indicators

• Reported Revenue 9.4 Billion
• Operating Income 1.1 Billion
• Number of Stores 3,779
• Selling Space 16 Million Sq.Ft.
• Employees 115,300
• Sourcing Countries 45

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Limited Brands Brand Strategic Organization
Limited Brands Today
Beauty / Personal Care / Home Fragrance
Lingerie
Apparel

• Victorias Secret
• Pink
• Henri Bendel
• Intimissimi

• Express
• Limited Stores

• Bath Body Works
• Victorias Secret Beauty
• Pink
• C.O. Bigelow
• Henri Bendel
• White Barn Candle Co.
• Slatkin Co.
• Intimissimi

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Themes Of Limited Brands Growth Strategy
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Our Sourcing Strategy Globally Look For
The Best Quality, Speed and Competitive Costs
Source Werner International, Inc.
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Limited Brands Sourcing Subsidiary MAST
Industries - Worldwide Offices

• Columbus, OH USA
• Hong Kong Region
• Taiwan
• Korea
• Italy
• Shanghai- PRC
• Indonesia
• Sri Lanka

• Mexico
• Philippines
• Guatemala
• Israel
• Shenzhen PRC
• Vietnam
• New York City USA
• India

Exited 9. Madagascar 10. Mauritius 16. South
Africa
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Logistics Worldwide Challenges

• Global Trade
• Ports/Marine Terminals
• Rail Intermodal Infrastructure
• Port rail terminals
• Inland terminals
• Line haul infrastructure
• U.S. Trucking
• Fuel

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Global Trade Ocean Overview

• While World GDP planned growth to continue in low
  single digits through 2006
• World Trade In Goods expected growth - high
  single digits
• Container Traffic expected growth - low
  double/high single digits

SOURCE IMF /EIU/ DREWRY
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Container Trade - Growth By Region And Direction
Effecting Service and Costs
SOURCEAPL/ IMF /CLARKSONDREWRY
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Asia Origin is Major Sourcing Shift
Source Clarkson Research Studies
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Port Capacity/Demand - Growing In All Markets -
2004 Vs 2010 (MM TEU)
Source Modern Terminals Limited
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Port Productivity - Continues To Be An Issue In
Key Markets
Port Productivity (U.S vs. Asia)
GM/hr
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Port Capacity/Infrastructure - Also An Ongoing
Issue
Charleston/Savannah
2004 Volume 2.0M/1.7M TEU YOY Growth 17/12.5

• Possible terminal expansion by 2010

• Periodic terminal gate congestion.

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U.S. Port Infrastructure Environment - Has
Improved But Port Congestion Will Get Worse

• Better
• 35 increase in available labor force appears to
  have made a difference.
• Diversions from LA/LB have also helped.
• Volume is up but terminal throughput, at this
  point, is fluid.
• Worse
• More than 150 x 8,000-9,200TEU vessels due in
  East-West trades by 2008
• Most ports ill-equipped for larger vessels
• Longer vessel turn times increased berthing
  delays, terminal congestion
• Flow impact on intermodal network 4,000
  containers discharge 2,000 truck moves 10
  stack trains x 200 containers
• Surge Factor impact of 8,000TEU vessels yet to
  be fully understood

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US Intermodal Rail Service - Struggling

• Volume is up in 2005 but not at peak estimates.
• 6.1 increase over 2004
• July 4 holiday week up only 1.3
• Railroad Network is Struggling
• Drowning in too much freight competing internal
  rail commodity markets (e.g.. grain/coal) for
  scarce resources
• 2-3 day transit delay the norm 4-6 days common
  (worse at the peak of congestion in 04)
• Wide swings in volume and asset velocity
• Any improvement in port transfer facilities (i.e.
  Alameda Corridor like) pushes problems to next
  choke point
• Inland terminals suffer from insufficient
  capacity and bunching/surges of cargo
• Poor financial returns restrict reinvestment in
  the business

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U.S. Rail Network - Fragile
Labor issues and congestion at Coquitlum causing
24 hour delays. Anticipate terminal delays in
the coming week.
Locomotive shortages persist causing delays to
train departures.
Delay in Chicago due to severe congestion, power
shortages and weather
Oakland expected to be periodically congested due
to rail to rail closures
Delays of 36-48 hours to inbound cargo loading to
the rail
Cargo delays due to congestion in Salt Lake City
Periodic embargo into Louisville .
Atlanta and Charlotte ramps are very congested
causing delays of 24-36 hours in availability.
Periodic delays in San Antonio .
Periodic cargo origin delays will continue as a
result of the rail route closures.
Congestion at the New Orleans interchange
continues to cause 24 hour delays
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US Trucking Services - Challenged

• Increased operating costs
• 2004 federal and state laws
• Reduced daily and weekly driving hours -- up 12
  reduction in annual revenue to drivers
• Escalating fuel prices
• Driver shortages effecting capacity
• Estimated 200,000 drivers have left the business
  since 2001.

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Fuel - Continues To Have A Dramatic Impact On
Logistics Costs And Services
OPEC Oil Embargo
1st Persian Gulf War
Iranian Revolution
West Texas Intermediate (WTI) Nominal Crude Oil
Prices (1947-2005)

• Average annual price change is (10) with a
  standard deviation of 33
• Since 1974, prices have been more volatile than
  1947 1973 period
• Largest annual price increase was 184 (July
  1974)
• Largest annual price decrease was 58 (July 1986)

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Medium-term Outlook

• Continued growth in Trade demand (around 10 per
  annum)
• New vessel capacity being added to respond to
  demand eventual over-supply
• Worsening port and intermodal congestion
• Diversion to other ports but LA/Long Beach
  remains primary gateway
• Intermodal network -- lack of capacity and
  erratic service reliability
• Recovery from adverse events will remain slow
• Panama Canal will become a limiting factor for
  all water routing
• Supply chain velocity will continue to slow
• Shippers/importers will need to adjust supply
  chains (where possible)
• Cost will escalate for all parties in the supply
  chain
• Higher costs will begin to flow through to
  consumers

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Industry Responses Required

• Ports/Ships
• Better planning for growth
• Coordination with railroads
• Share broad business conditions with each other
  channel partners
• Rail Intermodal
• Faster expansion of terminal and line haul
  capacity
• Consistent investment in locomotives, crews and
  equipment
• Greater cooperation among railroads
• More disciplined, scheduled operation
• Better planning for growth
• Share broad business conditions with each other
  channel partners
• U.S. Trucking
• Involve other supply chain partners
• Share broad business conditions with each other
  channel partners

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How We Are Managing Our Service Needs

• Exploring and moving volume to alternate gateways
• Sharing more flow plans with suppliers
• Maintaining key multi-year supplier relationships
• Looking at opportunities to flow volumes when
  possible more evenly through the year
• Using specialized service helping to maintain
  competitive cycle time in select lanes.
• Using priority trains to maintain our cycle time
• Re-evaluating US distribution capabilities to
  align with the need for multiple gateways
• Working within Industry groups engaging
  government for development of infrastructure
• Working through Industry group to improve West
  Coast performance
• Faster growth in terminal capacity
• Increased productivity
• More use of technology
• Improved labor-management relationship

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Thank You For Your Attention