The Changing Global Economy Impacts on Seaports and Trade Dr. Walter Kemmsies Chief Economist, PAGI Group, JLL (Port, Airport & Global Infrastructure)
Agenda Where are we in the cycle? What are the barriers to growth? What comes next?
Mar-94 Feb-95 Jan-96 Dec-96 Nov-97 Oct-98 Sep-99 Aug-00 Jul-01 Jun-02 May-03 Apr-04 Mar-05 Feb-06 Jan-07 Dec-07 Nov-08 Oct-09 Sep-10 Aug-11 Jul-12 Jun-13 May-14 Apr-15 Mar-16 Feb-17 Jan-18 Dec-18 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Best global economic environment in 20 years ANNUAL REAL GDP GROWTH 2001 2018(E) COMMODITY PRICES 1994 2018 (INDEXED TO 100 IN 2008) 16% 300 14% 250 12% 10% India 200 8% 6% 4% 2% China US Brazil Mexico Eurozone 150 100 Copper Raw Materials Agricultural Oil Steel 0% Japan 50-2% -4% 0-6% Source: Oxford, JLL 3
Where are we in the business cycle? Recovery, mid-cycle, recession? 2007 2016 was a 21 st Century Great Depression Financial system has recovered Europe had a triple dip recession Public sector financial crisis has been stabilized Inflation and growth risks are balanced Central bankers everywhere not under pressure to increase interest rates 4
Differentials in ages is equivalent to differentials in growth PROPORTION OF POPULATION OVER 55 YEARS OF AGE 60% 50% 40% 30% 20% 10% Typical maturing developed economies Highest growth potential economies Japan Europe China Canada US Brazil Mexico India 0% 1990 2000 2010 2020 2030 2040 2050 Source: Census Bureau, Kemmsies
What are the barriers to growth? Tight labor markets High capacity utilization Worsening congestion Need infrastructure and plant, property and equipment investment to grow Otherwise inflation could accelerate and induce central bankers to be aggressive 6
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $ Billions Share of Total Congestion is getting worse and ecommerce is growing 2020 congestion forecasts, with trucks ecommerce vs. total retail sales 1,400 10% 1,200 9% 8% 1,000 7% 800 600 6% 5% 4% 400 3% 200 2% 1% 0 0% Ecommerce Share (right axis) E-commerce Total Source: US DOT, Census Bureau, JLL
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Inventory-to-Sales Ratio Why is the inventory-to-sales ratio rising? Inventory-to-sales ratio: 1992-2017 1.8 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1 Some theories: Lower interest rates means capital tied up in inventories is less expensive Ecommerce/omnichannel means retailers hold more inventory in more places Worsening congestion and truck driver shortage requires greater safety stocks
Inland hubs are becoming more numerous Source: JLL Research
What comes next? New US trade terms ball is in trading partner s court Growth-oriented infrastructure policies 10
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 Trade growth trends underlie global economic growth World real GDP and trade volume indexes 1950-2015E 90 80 70 China 1950-2015 CAGR Relative to GDP Growth 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 60 50 Korea, Taiwan Trade growth drivers 40 Demographics Trade Agreements 30 20 Japan, Brazil Trade Growth 10 Technology Infrastructure 0 GDP Total Agriculture Fuels & Mining Manufactured Resource Constraints Source: WTO, JLL
International labor cost comparisons then and now Local manufacturing wages converted into us$ at prevailing exchange rates in 2001 and 2016 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Source: Government statistics agencies, Trading Economics. JLL
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Billions 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 6 5 5.4 4 4.6 3 3.0 3.8 2 1.8 1 0 Global Middle Class World Population Source: OECD, US Census Bureau
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Trillions Million Metric Tons The trade deficit value gap Goods trade deficit measured in us dollars: 2003 2016e Goods trade deficit measured in metric tons: 2003 2016e $1.25 1,200 $1.00 1,000 800 $0.75 600 $0.50 400 $0.25 200 $0.00 Source: US Census Bureau 0 Source: US Census Bureau Balance of Trade Value Import Value Export Value Balance of Trade Volume Import Volume Export Volume
Summary: trade, congestion and infrastructure Rumors of the death of globalization are premature (More people, more consumption, more trade) (Ecommerce, 3D Printing, Automation is a reaction to congestion) Freight movement is suffering from congestion (Not enough roadway capacity) (Worsening truck driver shortage) The 3 T s of Trump are creating opportunities to tap into global middle class growth (Trade agreements (NAFTA), Tax reform, Transportation infrastructure) (But the infrastructure market place is not waiting for Washington)
PAGI thanks you for your time For more information contact one of our team members: Mark Levy +1 703 389 4203 mark.levy@am.jll.com Walter Kemmsies +1 443 451 2607 walter.kemmsies@am.jll.com Keith Stauber +1 773 458 1386 keith.stauber@am.jll.com Jonathan Walk +1 202 531 6997 jonathan.walk@am.jll.com Steve Ostrowski +1 773 458 1417 steve.ostrowski@am.jll.com Michael Morehead +1 443 804 9505 michael.morehead@am.jll.com www.us.jll.com/pagi