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Lots of Moving Parts
Dan Solomon and Walter KemmsiesMoffatt & Nichol Advisory Group
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Moffatt & Nichol Background• Established in 1945 in Long Beach, California, currently:
• Offices in the Americas, Europe, Middle East and Pacific Rim• Practices: Goods Movement, Energy, Ports, Coastal, Urban Waterfronts & Marinas, Inspection &
Rehabilitation
• Planning and design of marine and freight transportation• Terminal design for all types of freight and passenger movement• Freight planning and market analysis• Investment/privatization analysis• Strategic development plans• Port selection/network analysis• Coastal engineering• Port and waterside construction (marinas)• Railroads and capacity expansion• Environment issues/emission modeling• Port security
Commentary and presentation materials on this occasion are based on the personal views of the speakers and may not coincide with opinions
held by Moffatt & Nichol or its employees.
4
Major Trends• State of the World
• US economy has been the main driver of global economic growth since 2011
• US economy at long term average activity levels but below potential output levels, the residential real estate market remains restrained due to contractionary financial regulations
• Europe is past its worst point but faces a long recovery period depending on the ECB’s success in implementing Quantitative Easing and fiscal stimulus, Grexit and Brexit not withstanding
• Asian manufactured goods exporters have low domestic demand growth
• Commodity export-driven economies will languish until Asian manufactured goods exporters regain growth momentum
• Key Uncertainties in 2015• Deflation is driven by excess commodity production capacity and automation as well as aging developed economy consumers
and insufficient demand in emerging markets
• Federal Reserve is slated to start raising interest rates which may have a larger impact globally than domestically and is likely to further increase the foreign exchange value of the US dollar
• Commodity prices, oil in particular, will be weighed down by a strengthening US dollar but could get a boost from a surge in global infrastructure investment
• Long Term Scenario Differentiators• US trade deficit is unsustainable and a major risk to global growth
• China and other emerging market economies, as well as the US, need to maintain “Fordism” policies
No Fordism in China China Emphasizes Fordism
US Infrastructure Investment Medium growth, deflation risk High growth, low inflation
No US Infrastructure Investment Low growth, deflation risk Medium growth, high inflation
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US has led global growth
After pulling the world economy into a severe recession, the US has been driving global economic recovery, more so in the last few years. Europe and Asia should be stepping up soon and eventually commodity-exporting economies.
CONTRIBUTIONS TO CHANGES IN GLOBAL REAL GDP GROWTH: 2014 COMPARED TO 2013
Source: Bloomberg, IMF, Moffatt & Nichol
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US Economic Scorecard is positive for 2015-2016The most significant factor is the degree to which the Fed feels it needs to preempt inflation. This is a Recovery Period score card, once the Fed starts hiking a different score card will be used. Real GDP growth is forecasted to be 2.9% in 2015 and 2016.
Indicator Score Considerations
Monetary Policy Neutral The Fed is withdrawing the punchbowl soon but very gently and politely
Inflation Positive A bit low, but little inflation risk.
Fiscal Policy Neutral Shifting towards deficit and debt reduction.
Financial Sector NeutralFDIC’s watch list declining, consumer credit increasing, regulatory stance has been contractionary, corporate bond market may present bubble risk
Causes of Last Recession Positive Residential real estate sector is in the long process of recovery
Leading Industries NeutralIndustries likely to lead growth in this cycle have been investing but energy got ahead of consumption trends
Production Costs Positive Low interest rates, wages, commodity prices
Labor Markets Positive Employment rising in expected industries, energy sector is shedding employees
Global Economy NeutralCentral banks are cutting interest rates and increasing liquidity, but Emerging Markets could be impacted by rising US interest rates and weak commodity prices, and Europe is still dealing with the legacy of austerity. Stronger US$ means weaker export and therefore economic growth
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US economy in a virtuous cycle until the Fed decides it isn’t
As of May 2014, employment in the US exceeded the previous peak level in December 2007. Monetary and fiscal policy supported increased spending by employed consumers which eventually reached levels where the private sector needed to hire more labor. This in turn helped consumer spending, resulting in more employment… a virtuous cycle.
EMPLOYMENT AND RETAIL SALES VOLUMES
Source: Bureau of Labor Statistics, National Bureau for Economic Research, Moffatt & Nichol
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Full-time US employment still short of pre-recession levels
Although the total US work force is larger today than it was just before the recession, full-time employment is yet to make a full comeback. However, March 2015 numbers put us just 262,000 full-times jobs shy of record highs.
US EMPLOYMENT IN NONAGRICULTURAL INDUSTRIES (Not Seasonally Adjusted)
Source: Bureau of Labor Statistics, Moffatt & Nichol
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Overcoming the bubbles
The fact that the US has come this far during the recovery is impressive given the levels of consumer credit and mortgage debt that the US consumer sector had in 2008
Consumer Credit & Home Mortgage Loans
Source: US Federal Reserve, Moffatt & Nichol
1990 1995 2000 2005 2010 20150
200
400
600
800
1,000
1,200
$ Bi
ilion
RIP: Consumer Credit Wart 2005 - 2011
1990 1991 1993 1995 1997 1998 2000 2002 2004 2005 2007 2009 2011 2012 20140
2,000
4,000
6,000
8,000
10,000
12,000
$ Bi
llion
2005 - 2011
Consumer Credit (Revolving) Mortgage Debt
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Inflation risk is less than growth risk
Core inflation (excluding volatile food and energy prices) provides a better indication of consumer price trends.
The Federal Reserve is not under pressure from inflation to raise interest rates. Japan finally broke out of deflation but economic growth remains stalled. The Euro Area is struggling to increase inflation. China is actually experiencing deflation.
CORE CONSUMER PRICE INFLATION TRENDS
Source: Trading Economics, Moffatt & Nichol
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%Ja
n-09
May
-09
Sep-
09Ja
n-10
May
-10
Sep-
10Ja
n-11
May
-11
Sep-
11Ja
n-12
May
-12
Sep-
12Ja
n-13
May
-13
Sep-
13Ja
n-14
May
-14
Sep-
14Ja
n-15
May
-15
Sep-
15
Japan
US
Euro Area
China
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Strengthening US Dollar may help imports and hurt exports
With the US economy leading global growth and inflation, US interest rates are likely to rise ahead of interest rates in other currencies. As long as an economy is relatively strong and this is reflected in rising (real) interest rates, its currency tends to strengthen. However, correlation between US Dollar strength and import/export growth is only mildly positive/negative. Strong growth in export destination countries can overcome the effect of a strengthening US dollar. Investments in infrastructure can also make exports more competitive.
DOLLAR-EURO EXCHANGE RATE AND THE SPREAD BETWEEN US AND GERMAN GOVERNMENT BONDS
Source: Trading Economics, Moffatt & Nichol
12
TotalTotal
LoadedImport Load
Export Load
Empty
2006 36,872,549 26,902,788 17,297,240 9,605,548 9,969,762
2007 37,263,101 28,331,823 17,342,377 10,989,446 8,931,278
2008 35,382,311 27,641,905 16,060,599 11,581,306 7,740,407
2009 30,368,529 23,920,945 13,444,526 10,476,419 6,447,584
2010 35,120,125 26,877,744 15,620,245 11,257,500 8,242,381
2011 35,650,253 27,722,873 15,780,519 11,942,354 7,927,380
2012 36,295,886 28,194,242 16,266,504 11,927,738 8,101,644
2013 37,227,612 29,053,063 16,645,540 12,407,523 8,174,549
2014 38,973,674 30,127,816 17,783,189 12,344,626 8,845,858
2015 Q1 9,186,063 7,004,802 4,273,205 2,731,598 2,181,261
2014 Growth 4.7% 3.7% 6.8% -0.5% 8.2%
2006-14 CAGR 0.7% 1.4% 0.3% 3.2% -1.5%
Import volumes led US TEU growth in 2014
Imports drove volume growth in 2014, this shows how the US has been supporting global growth. But looking back to the years before the recession of 2008-2009, exports have performed a lot better. It is worth noting that there are some months when loaded export TEUs almost exceed loaded import volumes, which seems to have happened in November 2013.
Peak season import growth is expected to be in the 6% to 8% range. Exports are expected to decline.
MONTHLY AND ANNUAL VOLUMES AT MAJOR US PORTS
Source: AAPA, Moffatt & Nichol
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US Trade deficit remains high but declining
The US has helped the world economy develop, particularly emerging market economies, by allowing its trade balance to be in deficit. This isn’t sustainable in the long run. Reducing the trade deficit is important for employment and therefore economic growth. The decreasing US oil trade deficit has directly helped strengthen our goods balance and in the process helped US employment recover from the deep 2007-2009 recession. But more, a further reduction in the deficit, is needed.
The US trade deficit skyrocketed by 43.1% in March 2015, led by a 7.7% increase in imports. Although the oil trade deficit continued to decrease in March, the total goods deficit today stands at $70.56 billion. Who are people blaming? US West Coast Ports and a strong dollar alongside weak global growth.
US TRADE DEFICIT
Source: US Census Bureau, Moffatt & Nichol
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Wage differentials drove offshoring, now near and on-shoring
It is unlikely that manufactured goods, which are labor intensive, will be produced in the US. In addition to lower production costs, emerging markets also have faster growing demand for manufactured goods. It is not surprising that many factories moved to China and other emerging Asian economies. Now, with wages rising, Chinese households could eventually be able to afford the goods they produce. This deliberate effort at “Fordism” sets China apart.
MANUFACTURING WAGE COMPARISONS IN US$ IN 2008 AND 2014E
Source: UN ILO, Moffatt & Nichol
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
$55,00044% of World Population 9% of World Population
Developed Market sourcing is shifting from China to Central America and South Asia
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The World’s Population is Aging
0%
10%
20%
30%
40%
50%
60%
1990 2000 2010 2020 2030 2040 2050
Japan
Europe
China
Canada
US
Brazil
Mexico
India
PROPORTION OF POPULATION ABOVE 55 YEARS OF AGE
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The ultimate global logistics challenge
Emerging markets are more than just large economies growing quickly, they are developing significant middle classes too. For the developed economies to sustain higher growth in the long term, they must focus on this market segment. Developed economies need growth in order to support their retirees. Need more infrastructure and less waste if these forecasts are correct. This is the ultimate global logistics challenge.
WORLD POPULATION AND OECD GLOBAL MIDDLE CLASS PROJECTIONS
Source: OECD, US Census Bureau
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Increasingly Urbanized, Increasingly Congested
Three major migration trends in the US are to the south, to the coasts and to urban areas. Rest of the world is urbanizing too. Substitution of capital for labor in rural areas and higher income offered by manufacturing and services in urban areas drive urbanization trends. Better service supply in urban areas also attracts retirees. In major port cities it is likely that congestion could worsen.
PERCENTAGE OF URBAN POPULATION AND AGGLOMERATIONS BY SIZE CLASS: 1980 AND 2011
Source: UN Department of Economic and Social Affairs
2008 2011
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Ecommerce continues to gain share of US retail sale
Ecommerce is gaining share of consumer spending in many countries, with the US among the countries leading the trend. Growing concentrations of populations in metropolitan regions and growing Internet subscriptions are main driver.
ECOMMERCE VS BRICK AND MORTAR RETAIL SALES
Source: US Census Bureau, Moffatt & Nichol
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Supply chain/final delivery evolving, impacting retail strategy
There are many new entrants in the ecommerce market and even more will join. Significant evolution is the only discernible trend.
ECOMMERCE SERVICE SUPPLIERS
Source: UPS presentation at Port of Long Beach Pulse of the Port event
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In China, watch consumers not producers
Investment in real estate, factories and infrastructure reached very high levels both in absolute terms and relative to GDP. Since 2011 China has tried to develop domestic consumer spending to reduce dependency on exports and infrastructure programs to drive growth. Slowing GDP growth in China is not indicative of a recession there but a transition to a more sustainable pattern of economic activity.
INVESTMENT CONTRIBUTIONS TO GDP IN SELECT ECONOMIES: 1990 – 2020E
Source: IMF WEO, Moffatt & Nichol
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Ships continue to get largerEVOLUTION OF CONTAINERSHIP SIZE
Source: Alphaliner, Moffatt & Nichol
12% > 10K
FLEET CAPACITY BREAKDOWN BY TEU SIZE RANGE
As of November 1, 2012
As of April 1, 2015
20% > 10K
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Ocean carriers: An industry in transition
Ocean carriers are purchasing bigger and bigger ships in an attempt to lower slot costs. Ocean carriers have also been getting rid of chassis, terminal assets, and other asset holding to cut costs. As a result of these gigantic vessels, the following is true:
• Fewer ports of call
• New Mega Alliances have formed to fill the ships and offer weekly schedules
• Automation of terminals to increase productivity is necessary
• There is a mismatch between ship infrastructure and landside infrastructure
Shipper demands:
• As fast as possible
• As reliable as possible
• As cheap as possible
SHIPPING ALLIANCES, EAST-WEST
G6 CKYHE O3 2M
APL Cosco Container Lines CMA GGM Maersk
Hapag-Lloyd K Line China Shipping Container Lines MSC
Hyundai Merchant Marine Yangming Marine Transport Co. UASC
Mitsui OSK Lines Hanjin Shipping Co. And Hamburg-Sud?
NYK Line Evergreen
OOCL
23
More freight in fewer gateways
As volumes concentrate in fewer ships to reduce average fixed costs per slot, they concentrate in fewer ports to increase revenue-generating time.
US INTERNATIONAL CONTAINER VOLUMES AND PORT SHARES: 1974-2014
Source: AAPA, Moffatt & Nichol
70%
75%
80%
85%
90%
95%
100%
0
5
10
15
20
25
30
35
40
45
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Share of Total
Mill
ions
of T
wen
ty F
oot E
quiv
alen
t Uni
ts (T
EU)
Top 10 Share (right) All Ports Top 10
24
Congestion is a global problem that needs local solutions
TRUCK LINES AT THE PORT OF PARANAGUA, BRAZIL PORT OF SHANGHAI, CHINA
PORT TRAFFIC IN SOUTHERN CALIFORNIATRUCK TRAFFIC IN ROTTERDAM
25
Battleground for North Asia container imports mainly in South
The Freight Analysis Framework database shows the economic zones that are dominated by West and Gulf/East Coast ports, and where neither has a dominated share.
TOTAL NORTH AMERICAN CONTAINER VOLUME TRENDS
Source: US Department of Transportation – Freight Analysis Framework
SHARES OF IMPORTS (TONS) ARRIVING ON VESSELS CARRYING CONTAINERS FROM ASIA
n West Coast Share >60% n East Coast Share >60% n No share >60%
0
5
10
15
20
25
3019
80
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Mill
ion
TEU
s
Pacific Atlantic Gulf
26
Commodity 2013 Rank 2007 Rank Change 2013 Tonnage 2007 Tonnage CAGR Cont. Rate 2007 Cont. Rate 2013 Change
Other foodstuffs 1 1 - 3,328,963 2,858,415 2.57% 87.15% 89.53% 2.39%
Plastics/rubber 2 5 3 1,811,616 1,531,998 2.83% 98.49% 97.54% -0.95%
Nonmetal min. prods. 3 2 (1) 1,743,109 2,043,613 -2.62% 82.24% 68.96% -13.28%
Textiles/leather 4 3 (1) 1,683,341 1,699,453 -0.16% 97.72% 95.71% -2.01%
Alcoholic beverages 5 4 (1) 1,544,785 1,604,170 -0.63% 96.64% 85.50% -11.14%
Coal-n.e.c. 6 26 20 1,341,952 78,605 60.47% 9.61% 0.79% -8.82%
Gasoline 7 28 21 1,293,845 53,282 70.17% 9.30% 0.71% -8.60%
LA/LB vs NY/NJ import composition
Import and export drivers vary from port to port.
LOS ANGELES/LONG BEACH TOP IMPORT COMMODITIES: 2007 VS 2013
NEW YORK/NEW JERSEY TOP IMPORT COMMODITIES: 2007 VS 2013
Commodity 2013 Rank 2007 Rank Change 2013 Tonnage 2007 Tonnage CAGR Cont. Rate 2007 Cont. Rate 2013 Change
Textiles/leather 1 1 - 5,169,112 4,805,260 1.22% 97.49% 95.21% -2.28%
Machinery 2 6 4 4,421,391 3,926,672 2.00% 96.01% 90.81% -5.20%
Plastics/rubber 3 4 1 4,380,449 4,536,329 -0.58% 98.40% 97.46% -0.94%
Electronics 4 5 1 4,060,202 4,179,234 -0.48% 97.02% 94.51% -2.52%
Furniture 5 2 (3) 3,695,839 4,603,383 -3.59% 99.39% 99.05% -0.34%
Articles-base metal 6 3 (3) 3,671,083 4,550,034 -3.51% 92.18% 89.03% -3.15%
Nonmetal min. prods. 7 7 - 2,736,062 3,784,259 -5.26% 98.77% 67.23% -31.54%
27
Dimensions of Panama Canal locks and ships
Source: Panama Canal Authority
SuperSession
28
Existing market shareDespite being further away (landside), LALB generally maintains a higher level of market share within the Midwest.
The US Midwest is an extension of LALB’s expansive hinterland
• These port’s maintain on average a 20-30% share within this market
• Volumes are predominantly North and Southeast Asian (Trans-Pacific) and would not “naturally” transit the Panama Canal
NYNJ is the gateway for lower Trans-Atlantic volumes
• North Asia accounts for the majority of volume in NYNJ (41% of imports, 32% exports) which suggests that this trade lane is currently being extensively served but is predominantly associated with the local Northeast market
• Europe, the Mediterranean and South Asia combined account for a similar share of throughput
• Expansion of the Panama Canal is not likely to have an impact on these volumes
Source: US Census Bureau, FHWA, Moffatt & Nichol
LA/LB % OF TRADE
81%
12%
7%
North AsiaSoutheast AsiaAll Other
LA/LB IMPORTS
NY/NJ % OF TRADE
NY/NJ IMPORTS
41%
20%
12%
8%
8%
10%
North Asia
Europe
Mediterranean
South Asia
Southeast Asia
All Other
SuperSession
29
So. California ports are the low-cost logistics path to Chicago
As larger vessels call East Coast ports after the Panama Canal expansion is complete, the estimated advantage should narrow, but not overcome, the competitive gap with West Coast ports.
SHIPPING COSTS* TO CHICAGO BY GATEWAY (FROM NORTH ASIA)
ASSUMED VESSEL SIZES (TEU)
SHIPPING COSTS* TO CHICAGO BY GATEWAY POST CANAL EXPANSION (FROM NORTH ASIA)
Scenario California PNW EC via Panama EC via Suez
Base (Today) 13,000 9,500 4,500 9,500
Scenario 1 (Post PC Expansion) 13,000 9,500 13,000 13,000
Scenario 2 (Post PC Expansion) 15,000 19,500 13,000 13,000
Post Expansion Scenarios• California ports remain the “low-
cost” gateways • Larger vessels to the East Coast
are estimated to narrow the competitive gap
• Panama Canal route is estimated to be only marginally cheaper than the Suez route
Source: Moffatt & Nichol
SuperSession
30
Asia to US transit times
Prince Rupert & the PNW ports potentially offer the shortest transit periods from Asia to Chicago when compared to all-water services. However, time is not the only factor impacting beneficial cargo owner route choices.
Source: Moffatt & Nichol
Days
Water Route Port Region Ocean Dwell Rail Total
TransPacific
S. California 14 2 2.8 19
N. California 15 2 3.0 18
PNW 13 2 3.0 18
BC-Prince Rupert 12 2 3.5 17
BC- Vancouver 13 2 3.5 18
Suez
N. Atlantic 31 2 1.3 34
M. Atlantic 34 2 1.5 37
S. Atlantic 36 2 1.5 40
Panama
N. Atlantic 26 2 1.3 29
M. Atlantic 25 2 1.5 28
S. Atlantic 25 2 1.5 29
Representative Time (Median) in DaysShanghai to Chicago
SuperSession
31
Competition from CanadaAggressive pricing by the Canadian railroads have yielded strong growth in inbound rail cars into the Midwest. Prince Rupert in British Colombia (BC) along with Canadian National (CN) pose a risk to US West Coast and Panama Canal-bound traffic
CN SYSTEM MAP
Source: BTS, Public Waybill Samples, Moffatt & Nichol
International Falls, MN
INBOUND RAIL CARS AT INTERNATIONAL FALLS, MN• The inflection point in inbound rail traffic at International Falls, MN in 2008/2009 coincides with the aggressive pricing (as estimated be revenue per ton) of the rail operations originating in BC. Broke from trend with US-based services.
• These BC operations have targeted the US Midwest markets
AVERAGE REVENUE PER TON INDEX BY RAIL ORIGIN
SuperSession
32
Potential impact of near-sourcing to Mexico
Mexico has captured share in some consumer and industrial-related commodities, a continuation of these trends could reduce the growth of maritime trade between the US and China. It is unlikely that all industries would migrate to the same location as China becomes less of a primary offshoring destination.
• Relative to Mexico, China continues to dominate total trade in most commodities (based on tonnage)
• A sharp increase in market capture by Mexico is unlikely, given the substantial manufacturing-related investments made in Asia over the past two decades, however, continued trend growth gains in certain commodities could be expected
APPAREL AND FOOTWEAR
Source: BTS, US Census Bureau, Moffatt & Nichol
ARTICLES OF IRON & STEEL
FURNITURESuperSession
33
What can the US competitively export?
Agriculture, Capital Goods, Energy
Labor is more expensive and capital is cheaper in the US compared to fast growing emerging market economies such as China. The US has comparative advantage (and competitive) advantages in the production of goods that use little labor. This is shown in the list of goods that the US has been prone to export.
TOP 10 HIGH POTENTIAL US NET EXPORTS*
Source: US Census Bureau, Moffatt &Nichol
Containerized Score
Wood Pulp Scrap and Waste 9.4
Oil Seeds (Soy) 1.1
Raw Hides and Leather 0.8
Cotton – Untreated, Yarn and Woven Fabric 0.7
Animal Feed 0.7
Meat and Other Edible Animal Parts 0.3
Plastic Feedstock and Manufactured Goods 0.2
Iron and Steel 0.1
Paper and Paperboard 0.1
Chemical Products 0.1
Cereals 0.1
Organic Chemicals 0.1
Bulk/Breakbulk Score
Oil Seeds (Soy 32.7
Meat and Other Edible Animal Parts 28.7
Cereal Grains 3.9
Animal Feed 3.4
Wood and Charcoal 0.4
Crude Oil and Refined Petroleum/Natural Gas Products 0.3
Live Animals 0.2
Wood Pulp Scrap and Waste 0.2
Fish and Crustaceans 0.1
Dairy Products, including Eggs and Honey 0.1
Organic Chemicals 0.1
Plastics Feedstock and Manufactured Goods 0.1
*Based on relative comparative advantage as defined by Bela Belassi
34
Asia is the dominant destination of US capital goods exportsUS CAPITAL GOODS EXPORTS (MILLION METRIC TONS) BY DESTINATION
Source: US Census Bureau, Moffatt & Nichol
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 +/- ShareAsia 34% 34% 32% 32% 31% 31% 34% 35% 33% 34% 34% 34% -0.4%
China 7% 8% 7% 7% 6% 7% 7% 7% 7% 7% 7% 8% 1.0%South/Central America 26% 26% 27% 28% 29% 30% 31% 32% 32% 31% 32% 30% 4.4%Europe 27% 25% 25% 25% 26% 24% 20% 19% 20% 20% 19% 20% -6.9%Africa 6% 7% 7% 8% 7% 8% 9% 7% 6% 7% 7% 8% 1.7%Australia and Oceania 6% 7% 7% 6% 6% 5% 5% 6% 7% 7% 6% 5% -0.7%North America 1% 1% 2% 1% 1% 1% 2% 1% 1% 2% 3% 3% 1.9%
100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
35
Asia is the dominant destination of US grains and oilseedsUS GRAIN AND OILSEED EXPORTS (MILLION METRIC TONS) BY DESTINATION
Source: US Census Bureau, Moffatt & Nichol
2003 2005 2007 2009 2011 2013 2014 +/- ShareAsia - East & Southeast 52% 53% 50% 63% 60% 62% 62% 10% China 11% 10% 10% 21% 21% 34% 30% 19%South & Central America 14% 15% 15% 13% 11% 15% 17% 3%Africa 13% 14% 14% 9% 11% 7% 6% -6%Europe 9% 5% 7% 4% 4% 6% 6% -3%North America 9% 7% 6% 7% 7% 7% 6% -3%Middle East 4% 5% 7% 4% 6% 3% 3% -1%Asia - South 0% 0% 1% 0% 0% 0% 0% 0% 100% 100% 100% 100% 100% 100% 100%
36
Empty container availability is very poor in less urban areas
Exporters in areas of the Midwest that are not very urban have the least amounts of containers available. This hampers agricultural exports that are best suited for containerization.
CONTAINER SHORTAGE INCIDENCE BY CITY
Source: US Department of Agriculture, Moffatt & Nichol
Dry Reefer
20ft 40ft 40ft High Average 40ft 20ft Average
East
New York 0% 0% 0% 0% 0% 0% 0%
Norfolk 0% 0% 0% 0% 0% 2% 1%
Charleston 0% 0% 0% 0% 13% 0% 7%
Savannah 0% 0% 0% 0% 8% 0% 4%
North-Central
Minneapolis 45% 68% 25% 46% 100% 100% 100%
Chicago 0% 51% 13% 21% 2% 4% 3%
Cincinnati 0% 0% 0% 0% 4% 49% 26%
Columbus 0% 6% 0% 2% 8% 32% 20%
Kansas City 2% 51% 4% 19% 0% 42% 21%
South Central
Memphis 0% 2% 0% 1% 13% 100% 57%
New Orleans 11% 15% 19% 15% 11% 28% 20%
Dallas 0% 0% 0% 0% 2% 98% 50%
Houston 26% 49% 2% 26% 0% 8% 4%
Denver 0% 0% 0% 0% 55% 70% 62%
West
LALB 0% 0% 0% 0% 0% 0% 0%
Oakland 9% 0% 0% 3% 8% 4% 6%
Seattle 4% 0% 21% 8% 0% 8% 4%
Tacoma 0% 11% 25% 12% 51% 2% 26%
Average 5% 14% 6% 8% 15% 30% 23%
37
Small vessels also matter to trade and economic growth
Agricultural goods exported by ports in the New Orleans custom district go to destinations all over the globe. The average monthly number of tons of dry bulk agricultural goods shipped to countries in various regions of the world are shown in the map below. The average Caribbean country receives 17,000 tons of cereals, oilseeds and/or DDGs per month. Central American and Caribbean countries receive shipments in a range that is best served through smaller capacity vessels.
TRIPS OF VESSELS WITH LESS THAN 13’ DRAFT – GULF INTRACOASTAL WATERWAY
Source: USACOE, USTO, Moffatt & Nichol
AVERAGE MONTHLY OILSEED AND GRAIN SHIPMENTS FROM THE NEW ORLEANS CUSTOM DISTRICT BY DESTINATION REGION
38
Major Trends• State of the World
• US economy has been the main driver of global economic growth since 2011
• US economy at long term average activity levels but below potential output levels, the residential real estate market remains restrained due to contractionary financial regulations
• Europe is past its worst point but faces a long recovery period depending on the ECB’s success in implementing Quantitative Easing and fiscal stimulus
• Asian manufactured goods exporters have low domestic demand growth
• Commodity export-driven economies will languish until Asian manufactured goods exporters regain growth momentum
• Key Uncertainties in 2015• Deflation is driven by excess commodity production capacity and automation as well as aging developed economy consumers
and insufficient demand in emerging markets
• Federal Reserve is slated to start raising interest rates which may have a larger impact globally than domestically and is likely to further increase the foreign exchange value of the US dollar
• Commodity prices, oil in particular, will be weighed down by a strengthening US dollar but could get a boost from a surge in global infrastructure investment
• Long Term Scenario Differentiators• US trade deficit is unsustainable and a major risk to global growth
• China and other emerging market economies, as well as the US, need to maintain “Fordism” policies
No Fordism in China China Emphasizes Fordism
US Infrastructure Investment Medium growth, deflation risk High growth, low inflation
No US Infrastructure Investment Low growth, deflation risk Medium growth, high inflation
40
Containerization Trends
Export and import tonnages have grown at CAGRs of 3.7% and 1.4%, respectively, since 2003. Containerization rates have increased 5% for both exports and imports. Export tonnage has generally been higher than import tonnage. What would happen to containerized export volumes if the value of exports increased and container rates did not increase as much?
EXPORT NON-ENERGY
Source: US Census Bureau, Moffatt & Nichol
IMPORT NON-ENERGY
41
Divergent port quality trends
The World Bank Quality of Port Infrastructure measures business executives' perception of their country's port facilities. Data are from the World Economic Forum's Executive Opinion Survey. Scores range from 1 (port infrastructure considered extremely underdeveloped) to 7 (port infrastructure considered efficient by international standards). China, the US and Brazil have been investing in port infrastructure but the composition of the global vessel fleet may be changing faster than the port infrastructure is being upgraded.
WORLD BANK PORT QUALITY INDEXES
Source: World Bank
0
1
2
3
4
5
6
7
2007 2008 2009 2010 2011 2012 2013
Port
qua
lity
Inde
x
US
China
Brazil
BESIDES LARGER CRANES
42
Bigger ships require just-in-time terminal optimization
• Analysis of dynamic processes taking place in real time and space
• Experiments involving individual process or complex combinations of processes to verify productivities or compare alternatives.
• Confidence in investment to stakeholders / investors.
• Visualization of processes through animations
Snapshot of Current
Configuration
FlexTerm
Real-WorldTerminal
Historical Terminal Operations Data
3D Virtual Terminal
SimulationKPI
Measurements
Scenario N
SimulationKPI
Measurements
Scenario 1
43
Deteriorating US inland infrastructure a serious problem
Soybean Transportation Coalition studied US inland waterways. Key points: 54% of the Inland Marine Transportation System’s (IMTS) structures are more than 50 years old and 36% are more than 70 years old. Along with water issues probably, this has impacted where grain is produced and exported. Grain increasingly moves on steel rivers (railways).
CHANGES IN SHARE OF CROP PRODUCTION: 1997 VS 2012Hours of Lock Outages by Year and by Type of Outage
2003 2005 2007 2009 2011 2013 2014 +/- Share
New Orleans 61% 52% 51% 52% 48% 49% 52% -8.7%Columbia-Snake 14% 16% 16% 15% 18% 20% 19% 5.2%Seattle, WA 8% 13% 11% 12% 12% 8% 8% 0.2%Los Angeles, CA 1% 2% 4% 3% 4% 4% 3% 2.1%Norfolk, VA 1% 1% 2% 2% 2% 3% 2% 1.9%Other 15% 16% 17% 15% 17% 16% 14% -0.6%
100% 100% 100% 100% 100% 100% 100%
SHARES OF US GRAIN AND OIL SEED EXPORTS
