Shifts in Global Trade Patterns Presented to: AAPA Shifting International Trade Routes and Planning for the Panama Canal Expansion January 23, 2008 Port of Tampa Presented by: Robert West Managing Director Global Trade & Transportation Global Insight 781-301-9078 robert.west@globalinsight.com 1
Agenda The weakening economic outlook Shifts in trade patterns after the Canal expansion Conclusions 2
World Outlook Looking very shaky all of a sudden The Topic Subprime crisis Oil prices U.S. U.S. dollar Europe China India Other emerging markets World recession risk Implications for trade The Outlook A global problem How big of a threat? Could fall to $75 A harder soft landing Still headed down No longer immune to U.S. economic problems Risk of a hard landing after the Olympics Relatively insulated from global shocks Happy days may finally be over, LA looks strong Still fairly low Not too negative & shift to exports in the U.S. and no China hard landing 3
World economic growth has peaked and is slowing... 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 4
Container trade normally grows faster than the world economy. The age of double-digit growth is over. 15 13 11 (Percent change 2007 2008 GDP 3.8% 3.4% TEUs 7.2% 7.2% 9 7 5 3 1-1 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 World GDP% TEUs 5
Trade is linked to real GDP growth - uneven across the world and emerging markets grow fastest. 8 (Real GDP, percent change) 6 4 2 0 NAFTA Other Americas Western Europe Emerging Europe Japan Other Asia Mideast-N. Africa 2007 2008 2009 6
Europe in the long term a great museum? and the visitors will come from China! 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 odds of a mild U.S. recession have risen U.S. growth in 2008 is likely to come in between 1% and 1.5% The main culprits are still the housing/subprime crisis and high oil prices the double-shock economy Consumer spending will slow significantly, as employment growth grinds down Capital spending growth will be lackluster The only saving grace will be net exports In the danger zone recessionary or near-recessionary conditions in the first half of this year, with a high vulnerability to another shock The Fed will have to cut rates by another 50 basis points (to 3%) Bottom line: there is a 60/40 chance of a recession in early 2008 9
We are in the middle of the slowdown now. 8 6 (Quarterly percent change, 2000 dollars) (Unemployment rate - %) Real GDP Annual Growth 2007: 2.2% 2008: 1.5% 7 6 4 2 0 5 4 3-2 0.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2 Real GDP Growth Unemployment Rate 10
The U.S. dollar will depreciate further steady declines through mid-2008, due to the huge trade deficits ($800 billion). 1.3 1.2 1.1 1.0 0.9 0.8 (2000=1.00) A Euro costs $1.54 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 1998 2000 2002 2004 2006 2008 2010 2012 Another 2.3% drop against the Euro by mid-2008 0.7 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Industrial Countries Developing Countries 11
Agenda The weakening economic outlook Shifts in trade patterns after the Canal expansion Conclusions 12
Containerized Trade Movements (Thousands of TEUs) 2008 2010 2015 2008-2015 CAGR (%) Transatlantic 9,925 10,895 13,295 4.3 Transpacific 24,615 28,360 39,129 6.8 U.S. Atlantic/Asia 5,380 6,161 8,379 6.5 Europe/Asia 22,287 25,964 35,449 6.9 Intra-Asia 29,255 34,049 46,903 7.0 Total 117,837 137,074 185,120 6.7 1/3 of world TEUs are Intra-Asia 13
U.S. TEU imports slowed in 2007 to 0.2%, but should grow 4.4% in 2008. Chinese imports will grow fastest (8% on average through 2015). 18,000,000 16,000,000 China was 1/3 of US imports in 2000 14,000,000 and will be 1/2 by 2014. 12,000,000 On the USWC, China was 1/2 of imports in 2000 and will be 2/3 by 2011. China 10,000,000 8,000,000 6,000,000 Other Far East 4,000,000 2,000,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 China - HK Rest of Far East European Union Indian Subcontinent Latin Amer (Not Mexico) AFRICA Rest of World 14
For the U.S., TEU growth has shifted to exports. 16 14 12 2007 2008 2009 Exports 9.4% 6.6% 5.3% Imports 0.2% 4.4% 6.3% 10 8 ( % ) 6 4 2 0-2 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015-4 Exports Imports 15
If there is enough capacity in the ports and railways, USWC ports should gain share, but... U.S. Coastal Shares - Demand Driven 56% 54% 52% 50% 48% 46% 44% 42% 40% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 USEC Share USWC Share 16
TEU imports into Gulf and S. Atlantic will grow. Growth rates: 2008-15 Far East 5.8% Latin America 5.2% Europe 3.8% India 8.9% Africa 3.2% Rest of World 4.0% 7.4 million 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 2008 5.1 million 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 2015 17
Latin America s sea trade is expected to grow in line with general world sea trade growth. Exports will outpace imports, but the trade will be fairly well-balanced. 25,000,000 20,000,000 2007 2008% 2007-15 Imports 6,737,075 6.5% 6.3% Exports 7,935,046 6.7% 6.5% 15,000,000 TEUs 10,000,000 5,000,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Latin America Imports Latin America Exports 18
As China expands its markets, the U.S. becomes less important, but Latin America - - US Share of China Exports 70,000,000 36.0% 60,000,000 34.0% 50,000,000 32.0% 30.0% TEUs 40,000,000 30,000,000 28.0% 26.0% US Share 20,000,000 24.0% 10,000,000 22.0% 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Global Insight World Trade Model World Total United States United States Share of Ch Exp 20.0% 19
... could absorb 5% of China s container exports by 2015, with strong growth in consumer products. Latin America Share of China Exports 70,000,000 4.8% 60,000,000 4.6% 4.4% 50,000,000 4.2% 40,000,000 4.0% 30,000,000 3.8% 20,000,000 3.6% 3.4% 10,000,000 3.2% 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 3.0% Source: Global Insight World Trade Model World Total Latin America LA Share 20
With expanded capacity, container traffic will account for nearly 60% of all Canal tonnage in 2025. Panama Canal Tonnage: 2005 vs. 2025 Refer. Cargo 7% General Cargo 3% Car Carrier 13% Passenger 4% Liquid Bulk 12% 2005 Other 7% Container s 34% Dry Bulk 20% Car Carrier 11% Refer. Cargo 4% Passenger 4% Liquid Bulk 5% Dry Bulk 14% 2025 General Cargo 1% Other 2% Container s 59% After transiting the Canal, where will the big containerships go? Source: ACP; Norbridge, Global Insight forecasts 21
After the expansion, this is where the action will be. FREEPORT KINGSTON RIO HAINA SAN JUAN CARTAGENA CAUCEDO P. CABELLO P. of SPAIN COLON/MIT Caribbean Transshipment Triangle 22
Panama Suez Route Cost Comparison Northeast China to USEC 7,000,000 Suez Fees 6,000,000 Panama Fees 10.4% 11.1% 5,000,000 11.2% 4,000,000 3,000,000 2,000,000 1,000,000 0 14.5% 22.9% 16.7% 18.6% 25.1% 17.3% 34.3% 31.0% 30.0% 50.2% 47.7% 40.2% 38.7% 50.5% 13.2% 14.3% 10.3% 23.0% 9.9% 27.8% 25.1% 33.7% 41.6% 49.0% 59.5% 58.3% 51.6% 52.1% 42.2% 42.5% Panamá Suez Panamá Suez Panamá Suez Panamá Suez Panamá Suez Panamá Suez 30.3% 11.1% 38.9% Source: Panama Canal Authority 2001 2002 2003 2004 2005 2006 Ship provision costs Fuel costs - sea Fuel Costs - Port Fuel costs - Canal Canal fees Port fees 23
Some $9 billion+ Mexican alternatives are being discussed to feed UP + Hutchison the US market, in case there is a capacity squeeze. BNSF + Grupo Mexico MTC + Carlos Slim (IDEAL) SSA? Punta Colonet Container volumes will continue to grow. USWC port and rail congestion could return 5 years? All-water service costs will go up. But there are wrinkles to iron out in Mexico. Manzanillo MHFM Transport (Mexico) SPV (Japan) Arias Asia (China) Lazaro Cardenas Alfa-Omega Line (Tehuanepec) 24
Agenda The weakening economic outlook Shifts in trade patterns after the Canal expansion Conclusions 25
Bottom Line U.S. is sliding into a danger zone Once the Expanded Canal is open, there will be a boom in transshipment in the Caribbean Feeding North and South America If manufacturing shifts into Vietnam and India (for export), the USEC will see a lot more Suez traffic Despite the economic slowdown, container traffic growth within the next 5 years will push many ports to their full capacity limits, before the Canal is expanded the search for more extreme alternatives is on. 26
Shifts in Global Trade Patterns Presented to: AAPA Shifting International Trade Routes and Planning for the Panama Canal Expansion January 23, 2008 Port of Tampa Presented by: Robert West Managing Director Global Trade & Transportation Global Insight 781-301-9078 robert.west@globalinsight.com 27