Dr. Walter Kemmsies Managing Director, Economist and Chief Strategist JLL Ports Airports & Global Infrastructure (PAGI) 2019
What is PAGI JLL Ports, Airports and Global Infrastructure Team (PAGI). Unique and highly specialized group within CRE space. Mark G. Levy Washington, DC Keith Stauber, SIOR Chicago Steve Ostrowski Chicago Jonathan Walk Washington, DC/New York Dr. Walter Kemmsies Savannah, GA
Key message 1. 2. 3. International trade will continue to grow, but Why? Global middle class has reached critical mass the pattern of international trade is going to change, and Why? China, Canada, Mexico, Europe and other trading partners realize the world s largest economy cannot run the world s largest trade deficit without an eventual unhappy ending. sadly, US exporters may not benefit from improved access to global markets. Why? Chronic under-investment in infrastructure Autonomous trucks are not a short to medium term viable solution Intermodal and barges could be a viable immediate and long term solution Public sector may eventually IPO existing infrastructure and let the private sector lead
Manufactured goods leads global trade volume growth WORLD REAL GDP AND TRADE VOLUME INDEXES 1950-2015E 90 1950-2015 CAGR Relative to GDP Growth 80 70 GDP 3.7% 1.0 Manufactured Goods 7.0% 1.9 Fuels and Mining Products 3.8% 1.0 Agricultural Goods 3.5% 1.0 Total Trade 5.8% 1.6 China Trade is driven by: 60 50 40 Resources Demographics Trade Agreements Infrastructure Technology 30 20 Most trade agreements are focused on manufactured goods, not raw materials 10 0 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Volume Index Korea, Taiwan Japan, Brazil GDP Total Agriculture Fuels & Mining Manufactured Source: WTO, JLL
China has a disproportionate share of US containerized imports COUNTRY SHARE OF US CONTAINERIZED VOLUMES (METRIC TONS) Country 2003 Country 2005 Country 2007 Country 2009 Country 2011 Country 2013 Country 2015 Country 2017 Country 2018 China 25% China 31% China 37% China 36% China 35% China 36% China 35% China 36% China 36% EU 17% EU 16% EU 15% EU 16% EU 17% EU 18% EU 18% EU 17% EU 18% Brazil 6% Brazil 5% Brazil 5% Brazil 4% Japan 3% South Korea 4% Brazil 4% India 4% India 4% Japan 4% Japan 4% Japan 4% Japan 3% Brazil 3% Japan 3% India 3% Brazil 4% Brazil 3% Taiwan 3% South Korea 3% Taiwan 3% South Korea 3% South Korea 3% Brazil 3% South Korea 3% South Korea 3% Vietnam 3% South Korea 3% Taiwan 3% South Korea 3% Taiwan 3% India 3% India 3% Colombia 3% Vietnam 3% South Korea 3% Thailand 3% Colombia 3% India 2% Thailand 3% Taiwan 2% Taiwan 3% Japan 3% Japan 3% Japan 3% Mexico 2% Thailand 3% Thailand 2% Colombia 3% Thailand 2% Vietnam 2% Taiwan 3% Thailand 3% Thailand 3% India 2% India 2% Colombia 2% India 3% Indonesia 2% Thailand 2% Vietnam 2% Taiwan 2% Taiwan 2% Colombia 2% Mexico 2% Indonesia 2% Indonesia 2% Vietnam 2% Indonesia 2% Thailand 2% Indonesia 2% Indonesia 2% Indonesia 2% Indonesia 2% Chile 2% Chile 2% Colombia 2% Chile 2% Indonesia 2% Colombia 2% Turkey 2% Chile 2% Malaysia 1% Costa Rica 1% Vietnam 2% Chile 2% Colombia 2% Chile 2% Chile 2% Chile 2% Costa Rica 2% Chile 1% Malaysia 1% Costa Rica 1% Malaysia 1% Malaysia 1% Mexico 2% Turkey 1% Colombia 1% Malaysia 1% Australia 1% Australia 1% Malaysia 1% Guatemala 1% Guatemala 1% Malaysia 1% Malaysia 1% Mexico 1% Australia 1% Turkey 1% Vietnam 1% Guatemala 1% Australia 1% Costa Rica 1% Guatemala 1% Mexico 1% Malaysia 1% Guatemala 1% Costa Rica 1% Guatemala 1% Australia 1% Costa Rica 1% Mexico 1% Turkey 1% Guatemala 1% Guatemala 1% Turkey 1% Guatemala 1% Turkey 1% Mexico 1% Mexico 1% Turkey 1% Australia 1% Costa Rica 1% Costa Rica 1% Honduras 1% Honduras 1% Mexico 1% Honduras 1% Turkey 1% Australia 1% Costa Rica 1% Australia 1% Honduras 1% Belgium 1% Vietnam 1% Honduras 1% Turkey 1% Honduras 1% Honduras 1% Honduras 1% Honduras 1% Australia 1% Vietnam 1% Belgium 1% Belgium 1% Belgium 1% Belgium 1% Belgium 1% Belgium 1% Belgium 1% Belgium 1% Source: IMF, JLL PAGI
The largest global middle class ever WORLD POPULATION AND OECD GLOBAL MIDDLE CLASS PROJECTIONS 9 8 7 6.9 7.3 7.6 8.0 8.3 Billions 6 5 4 3 3.0 3.8 4.6 5.4 Reduction of trade barriers and investment in infrastructure to support global trade helped create a substantial global middle class. 2 1.8 1 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Global Middle Class World Population Source: OECD, US Census Bureau
Review and preview 1970s Cold war, GATT, Eisenhower, US Trade Deficit; Oil supply shocks, Brazilian Miracle 1980s Staggers Act; Cold War ends; US companies diversify; Brady Plan; Declining US middle class 1990s 2000s NAFTA 1, Maastricht / EMU; Tequila and Vodka crisis; Technology and Telecoms deregulated; China joins WTO; Highway Trust Fund deficit; Worsening US trade deficit; 1Bn global middle class US trade deficit explodes; BRICS; 1.8Bn global middle class reaches; Chinese currency policy; Real estate bubble; great recession 2010s Long recovery; US trade deficit resumes; US exports oil and gas; TPP; 3.8 Bn global middle; congestion; truck driver shortages, Bigger vessels; US changes global terms of trade; NAFTA 2 2020s Intermodal and barges pick up where trucks leave off; eventually dual fuel ships, airplanes, railroads, truck pelotons, and flying vehicles move freight; US trade deficit shrinks; global middle class reaches 5.4Bn
US containerized trade has recovered to new high levels CONTAINER VOLUME TRENDS MONTHLY 2006 TO 2017 (12 OF LARGEST 14 CONTAINER PORTS) PORT OF LOS ANGELES GROWTH TEU Millions 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 Source: American Association of Port Authorities 0.0 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 Import Export Empty Total Loaded Total Year Int'l Volumes Change Growth 2005 37,912,734 2006 40,291,297 2,378,563 6% 2007 40,867,520 576,223 1% 2008 38,664,705 (2,202,815) -5% 2009 33,597,661 (5,067,044) -13% 2010 38,593,130 4,995,469 15% 2011 39,244,570 651,440 2% 2012 39,919,197 674,627 2% 2013 40,816,094 896,897 2% 2014 42,622,719 1,806,625 4% 2016 44,265,397 1,642,678 4% 2017 47,368,071 3,102,674 7% The four largest ports (Los Angeles + Long Beach, New York/New Jersey, Savannah and Seattle - Tacoma) handled 65% of the national total in 2017 Source: OECD, US Census Bureau
Larger ships have lower average costs per container EVOLUTION OF CONTAINERSHIP SIZE Race to build larger ships Few innovations in industry apart from building larger ships
What it means to handle a 14K TEU vessel service 14,000 TEU Vessel 95% Full = 14,778 lifts to unload and load 77% moved by truck = 11,379 oneway truck trips = 131 miles of trucks end-to-end 23% moved by rail = 10 unit trains = 20 miles of trains end-to-end 691,600 (import and export) TEUs per year requires >60M sf of DC space Average Intermodal Shares of Various Ports Los Angeles / Long Beach 40% New York 25% Savannah 18% Norfolk 35%
Congestion is getting worse and ecommerce is growing 2020 CONGESTION FORECASTS, WITH TRUCKS Source: US DOT, Census Bureau, JLL
Ecommerce is growing ECOMMERCE VS. TOTAL RETAIL SALES 1,400 12% US$ Billions 1,200 1,000 800 600 400 200 10% 8% 6% 4% 2% 0 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 E-commerce Share Total E-commerce Source: US DOT, Census Bureau, JLL
Omnichannel strategy OPPERATING PROFILE VS. DISTANCE TO MSA What drives success? Why omnichannel
Inland hubs are becoming more numerous Source: JLL Research
More containers on rail UNITED STATES*** TOTAL INTERMODAL ORIGINATED RAIL TRAFFIC * Canadian traffic includes the U.S. operations of Canadian railroads. ** Mexican traffic includes the U.S. operations of Mexican railroads. Comparable railroad figures are not available for week 1-26, 2017. 2018 Jones Lang LaSalle IP, Inc. All rights reserved.
Mexico-US traffic is congested TEXAS BORDER CROSSING - TRAINS TEXAS BORDER CROSSING - TRUCKS 4,500 2,500,000 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 2,250,000 2,000,000 1,750,000 1,500,000 1,250,000 1,000,000 750,000 500,000 250,000 0 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Brownsville Trains Laredo Trains Brownsville Trucks Laredo Trucks 43,157 miles of trucks and trains (laid end to end) passed through these two border crossings in 2017, almost 120 miles of freight per day Laredo is the fastest growing border crossing with truck volumes growing 3.8% per year on average over the last 10 years. Train volumes has grown 0.9% per year on average. Brownsville has experienced declines. Source: JLL Research
Alternatives beyond rail and truck $100+ billion MX--US Southeast market struggling with a critical and worsening truck capacity shortage and no rail capacity. Container on barge, being developed by Work Cat Trans Gulf, is the only viable solution. Complements existing intermodal cargo networks Significant cost saving opportunities Promotes safety, security, service Source: JLL Research
The five miles of uncertainty Mile Zero: Where will import sources be? First Mile: Which port gateways will be able to improve connectivity? Middle Mile: How to reduce dependency on long distance trucking? Last Mile: How to maintain share of increasingly fragmented consumers? Next Mile: Which markets will absorb a larger share of US exports?
Key message More Trade New Patterns Disappointed Exporters (Happy savvy industrial real estate investors)