Trade Growth - Fundamental Driver of Port Operations and Development Strategies Marine Terminal Management Training Program October 15, 2007 Long Beach, CA Paul Bingham Global Insight, Inc. 1
Agenda Economic and trade outlook Implications for ports 2
World Outlook Weaker Near-term Performance U.S. A harder soft landing, without recession Europe Less immune to the U.S. economic problems Japan Weaker growth; more political uncertainty Asia Vulnerable to financial turmoil and a Chinese slowdown U.S. dollar exchange rate Still more to fall World recession risk Still fairly low Globalization continues to increase trade 3
Did world economic growth peak? -- yes, but The world economy is in recession when real GDP growth is below 2% 5 (Percent change, real GDP) 4 3 2 1 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Global Insight World Service 4
World container trade has been growing faster than the world economy, even while slowing and the gap shrinking 15 13 11 (Annual percent change) 2007 2008 GDP 3.6% 3.4% TEUs 7.8% 7.3% 9 7 5 3 1-1 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 World TEUs Source: Global Insight World Service and World Trade Service 5
Trade growth is influenced by factors beyond the underlying demand for consumption goods Global logistics sourcing by industry Emergence of global trading blocks Growth of regional trade facilitation Harmonization of trade and regulatory policies Trade security standards and information flows Impedance of freight traffic through trade corridors and at ports and border crossings While all regions have increased trade, growth is uneven 6
Trade is linked to GDP growth though uneven across the world; emerging markets are growing fastest 8 (Real GDP, percent change) 6 4 2 0 NAFTA Other Americas Western Europe Emerging Europe Japan Other Asia Mideast- N. Africa 2006 2007 2008 2009 2010 2011 2012 7
Growth is not uniform: Market shifts are coming and will affect U.S. trade and transportation (Country GDP Rank in Billions of Real (2003) U.S. Dollars) 2000 2010 2020 2030 2040 2050 U.S. U.S. U.S. U.S. U.S. China Japan Japan China China China U.S. Germany Germany Japan Japan India India U.K. U.K. Germany India Japan Japan France China U.K. Russia Russia Brazil Italy France India U.K. Brazil Russia China Italy France Germany U.K. U.K. Brazil India Russia France Germany Germany India Russia Italy Brazil France France Russia Brazil Brazil Italy Italy Italy Source: Global Insight World Service and Goldman Sachs 8
The U.S. economy is in a slowdown not recession, but with downside risks increasing 8 (Percent change) 6 4 2 0-2 -4 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 U.S. Real GDP Industrial Production 9
The U.S. Dollar Will Depreciate Further, Boosting Export Competitiveness and Dampening Import Demand Growth 1.3 (2000=1.0, inflation-adjusted) 1.2 1.1 1.0 0.9 0.8 0.7 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 Major Currency Index Other Important Trading Partners Index 10
U.S. Export Performance Has Tracked the U.S. Dollar Exchange Rate 6 4 2 0-2 -4-6 (Percentage points) (FRB broad index, March 1973=100) 80 85 90 95 100 105 110-8 115 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 U.S. Export Growth Less World Import Growth (Left scale) Real Exchange Rate (Right scale) 11
U.S. Imports Dampened By Decline in Home Furnishings Sales Due to the Housing Downturn 20 15 10 5 0-5 -10-15 -20 (Percent change, year-over-year, real dollars) 1988 1991 1994 1997 2000 2003 2006 2009 Consumer Spending (Furnishings ex. computers and software) Residential Fixed Investment 12
U.S. Current Account Deficit: Shrinking at Last 200 (Billions of dollars) (Percent of GDP) 1.5 0 0.0-200 -1.5-400 -3.0-600 -4.5-800 -6.0-1,000 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010-7.5 Current Account Deficit Deficit as % of GDP Source: Global Insight U.S. Macroeconomic Forecast Service 13
The U.S. was the engine of world growth, but in 2006 this shifted to Asia, which is now supporting the world economy Inflation remains under 4% in most of Asia (exceptions include Indonesia, India, and the Philippines) High saving rates mean Asian economies will continue to be capital exporters and potential investors in ports and transportation infrastructure China s economic boom should have a soft landing 1/3 of the world s container trade is now intra-asian North American trade with China is changing 14
China s U.S. market penetration in some sectors is reaching saturation 100% 90% 80% 70% Footwear Electrical Appliances 60% 50% Textiles 40% 30% 20% 10% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Global Insight World Trade Service Footware Electrical Appliances and Houseware Textiles 15
China has additional U.S. commodity market segments yet to penetrate 80% 70% 60% Office and Computing Equipment 50% 40% 30% 20% Semi-conductors, Electronic parts, etc. 10% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Semi-conductors, Electronic Tubes,etc Office and Computing Machinery Source: Global Insight World Trade Service 16
As China broadens its markets, the U.S. becomes less important, even while U.S. - China trade volume triples Source: Global Insight World Trade Service 40,000,000 US Share of China Exports 40.0% 35,000,000 30,000,000 39.0% 38.0% 37.0% 25,000,000 36.0% TEUs 20,000,000 35.0% 34.0% US Share 15,000,000 33.0% 10,000,000 5,000,000 32.0% 31.0% 30.0% 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 29.0% World Total United States United States Share of Ch Exp 17
India s Growth Lags China s, though Still Strong India and China Real GDP Growth Rates 12.0 10.0 China 8.0 6.0 India 4.0 2.0 0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 India Real GDP China Real GDP India s annual population growth is 1.5%; Real GDP 6.8% in 2006 India s container trade TEU growth averages 8% through 2010 18
U.S. Import Growth Within the Hemisphere 2007 3.2 million TEUs 2015 4.2 million TEUs U.S. sees almost 4% average annual growth from Latin America Far East Compare to Latin American exports to the Far East averaging growth of 6% per year and reaching 1.4 million TEUs by 2015 19
U.S. Export Growth Within the Hemisphere 2007 1.5 million TEUs 2015 2.0 million TEUs U.S. averages 3% annual export growth to Latin America Far East Compare to Latin American imports from the Far East averaging growth of 7.1% per year reaching 2 million TEUs by 2015 20
Agenda Economic and trade outlook Implications for ports 21
Port Development to Handle Cargo Growth Demand on North American ports for additional cargo throughput is still increasing, as well as for the connecting network infrastructure Economic geography, inside and out of the U.S., drives the geographic patterns of increased transportation system demand affected by relative costs, performance and productivity of the available route & service options for delivering to end markets Supply chain demands affect gateway sea ports, inland freight corridors and warehousing / distribution center space needs logistics choices are influenced by the combined efforts to minimize costs and risk and maximize reliability of delivery 22
Inventory Cost Share Down vs. Transportation 14 12 10 U.S. Logistics Costs as % of U.S. GDP % of GDP 8 6 4 2 Inventory Transportation 0 1985 1990 1995 2000 2004 Year Shippers think about logistics costs, not transportation costs As % of GDP, logistics costs have decreased 30% since 1985 Source: M. Turnquist, Cornell University 23
Carrier s Reactions to Sustained Trade Growth Increased utilization of physical assets and people Increased energy consumption management More optimization Increased complexity of operations Source: M. Turnquist, Cornell University 24
Demands on Ports to Adapt to Trade Growth Global trade expanding at a declining rate, yet a multiple of global GDP Domestic flows increasingly linked to movements through ports and border crossings Shippers are reconfiguring their logistics networks for more international shipments, overseas control Location, inventory and transport decisions Benefits some ports yet others lose share Coordinated decisions across the supply chain Among firms, not just within firms Sharing data Source: M. Turnquist, Cornell University 25
Conclusions 26
Bottom Line World economic growth and trade growth are trending slower yet trade outpaces overall economic growth, reflecting globalization Asia, East Europe and Latin America will experience the strongest growth; Western European and Japanese growth will be slow U.S. trade will grow faster than in other developed countries, but slower than for the developing economies Pressures from growth in container traffic builds as it continues to outpace growth in the U.S. economy Ports benefit from increased exports and more balanced trade but providing the infrastructure and productivity to handle relentlessly growing trade will remain a significant challenge 27
Thank You Paul Bingham (202) 481-9216 / (202) 481-9301 (fax) paul.bingham@globalinsight.com www.globalinsight.com 28