Latvia Shipping Report Q3 2012

The Port of Riga is set to hold the top position in Latvia's maritime sector in terms of both total tonnage and container throughput in 2012 following another year of robust growth in 2011. Riga has a strong position to build on in 2012. Its 2011 throughput enabled the facility to retain its second place ranking amongst the Baltic states' container ports, after Lithuania's Klaipeda. Over the medium term we project further growth at the port of Riga. Ventspils, the country's second largest port in terms of the total throughput, has started its recovery, as it returned to positive growth in 2011. Headline Industry Data

2012 port of Riga tonnage throughput forecast to grow 9%, over the medium term we project a 21% increase.

2012 port of Riga container throughput forecast to grow 13%, over the medium term we project a 30% increase.

2012 total trade growth forecast at 7.4%. Key Industry Trends Upside Risk From Ventspils Dry Bulk Focus The Latvian port of Ventspils' plan to build a timber terminal highlights the facility's continued diversification away from an overreliance on liquid bulk cargoes by moving further into the dry bulk market. Ventspils plans to construct a US$18.62mn timber terminal, which is projected to be completed by mid-2013. The project offers upside risk to our already-robust throughput forecasts for the port. European Approval For Port Of Riga Move The European Commission has approved Latvia's plans to move part of the port of Riga facilities to a new location on Krievu Island, away from Riga's city centre. The project will cost LVL104mn, including LVL54mn provided by the Cohesion Fund. The move will decrease the journey of arriving vessels by 15- 20km, which will make the port more competitive. Risks to Outlook The base for growth at Latvia's ports stems from BMI's positive outlook for the country's economy. We project real GDP growth of 2.1% in 2012, down from 5.5% in 2011. However, in line with the projected slowing in Latvia's economic outlook, we still expect growth at the country's ports to slow. The main risk to our forecasts for Latvia remains the persistent eurozone sovereign debt crisis. A further deepening of the crisis would pose downside risks to most of our forecasts for Latvia's economy and our port throughput projections. Russia's development of the Ust-Luga port near St Petersburg, as it seeks to handle a larger percentage of its own trade needs, creates another downside risk to our forecasts as it is set to place downward pressure on Baltic states' port throughput. On the other hand, the investment that Russian firms continue to make into Baltic states' ports and country's facilities' efforts to diversify away from an overreliance on liquid bulk create an upside risk. Another such risk to our forecasts comes in the form of Japanese automobile manufacturer Mitsubishi potentially deciding to use Riga as part of a new transit route for products bound for its assembly plant in Kaluga, Russia.