a 3 rd update on west coast international trade economics
DESCRIPTION
A 3 rd Update on West Coast International Trade Economics. Pacific Northwest Waterways Association Annual Meeting June 28, 2011 Coeur De Alene Thomas J. McCollough, P.E. Moffatt & Nichol. Special Thanks. Dr. Walter Kemmsies, Chief Economist. Moffatt & Nichol Background. - PowerPoint PPT PresentationTRANSCRIPT
A 3rd Update on West Coast International
Trade Economics
Pacific Northwest Waterways AssociationAnnual Meeting
June 28, 2011
Coeur De Alene
Thomas J. McCollough, P.E.Moffatt & Nichol
Special Thanks
Dr. Walter Kemmsies, Chief Economist
• ENR Top 100 company, founded in 1945 in Long Beach, California• Offices: US, Guam, Canada, Europe, Middle East, Latin America and the Pacific Rim
• More than 500 Employees
• Practices: Goods Movement, Energy, Ports, Coastal, Urban Waterfronts & Marinas, Inspection & Rehabilitation
• M&N combines the expertise of technical and commercial specialists gained over 65 years of planning and engineering experience on over 6,000 projects:• Economic analyses of investment/privatization• Strategic development plans• Independent Market Consultant• Coastal engineering• Port and waterside construction (marinas)• Terminal design for all types of freight and passenger movement• Surface transportation connectivity • Railroads and capacity expansion• Environmental issues/emission modeling
Moffatt & Nichol Background
American Society of Civil EngineersJohn G. Moffatt – Frank E. Nichol
Harbor and Coastal Engineering Award
Observations
• It is risky to go forward by staring in the rear-view mirror
• Look where we are going and not where we have been
• The key question is, “What sector will lead this recovery cycle?”– Not what drove the last one
Take-Aways
Recovery is proceeding “as planned”, a bit early for an “all clear”Sustained World economic recovery depends on the USReal estate-exposed sectors will take a few more years to recoverInflation and government debt are a risk but not immediately
Long term concerns could be lessened by more balanced tradeUS needs to increase exports and reduce oil dependencyChina needs to withdraw from market interventions
Positive outlook for agricultural exports but avoid euphoriaEnergy costs are an issueNeed more action and less discussion
GDP Growth In Developed and Emerging Markets
• China and India are carrying the load by investing in infrastructure
Developed Economies Are Struggling…
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Mar
-08
Jun-
08
Sep-
08
Dec-
08
Mar
-09
Jun-
09
Sep-
09
Dec-
09
Mar
-10
Jun-
10
Sep-
10
Dec-
10
Mar
-11
Jun-
11
Sep-
11
Dec-
11
United StatesCanada
Euro Area
United KingdomJapan
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Mar
-08
Jun-
08
Sep-
08
Dec-
08
Mar
-09
Jun-
09
Sep-
09
Dec-
09
Mar
-10
Jun-
10
Sep-
10
Dec-
10
Mar
-11
Jun-
11
Sep-
11
Dec-
11
ChinaIndiaUnited StatesMexicoBrazil
… China and India Are Leading
World Economy StrainsTo Recover Without The US
• The US accounts for 25% of World GDP• US consumers account for 70% of US GDP, or 17.5% of World GDP• US population accounts for 4% of the world
US Consumer Spending and Global Real GDP Growth
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
World GDP US Consumer
World’s Major Economies
Country Millions Share Rank Current $ Rank PPP RankUS 310 4.5% 3 47,284$ 9 47,284 7China 1,341 19.7% 1 4,382$ 93 7,519 94Japan 127 1.9% 10 42,820$ 16 33,805 25Germany 82 1.2% 15 40,631$ 19 36,033 20France 63 0.9% 21 41,019$ 18 34,077 24UK 62 0.9% 22 36,120$ 22 34,920 22Brazil 193 2.8% 5 10,816$ 53 11,239 71Italy 60 0.9% 24 34,059$ 23 29,392 29Canada 34 0.5% 36 46,215$ 11 39,057 13India 1,216 17.8% 3 1,265$ 134 3,339 126Russia 140 2.1% 9 10,437$ 56 15,837 52
Population
World’s Major Economies
Country Millions Share Rank Current $ Rank PPP RankUS 310 4.5% 3 47,284$ 9 47,284 7China 1,341 19.7% 1 4,382$ 93 7,519 94Japan 127 1.9% 10 42,820$ 16 33,805 25Germany 82 1.2% 15 40,631$ 19 36,033 20France 63 0.9% 21 41,019$ 18 34,077 24UK 62 0.9% 22 36,120$ 22 34,920 22Brazil 193 2.8% 5 10,816$ 53 11,239 71Italy 60 0.9% 24 34,059$ 23 29,392 29Canada 34 0.5% 36 46,215$ 11 39,057 13India 1,216 17.8% 3 1,265$ 134 3,339 126Russia 140 2.1% 9 10,437$ 56 15,837 52
Population GDP per Capita
Growth Driven By Investment
Composition of China’s GDP: 1995 - 2010
0
10
20
30
40
50
6019
90
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
ChinaIndiaMexicoSaudi ArabiaWorldJapanBrazilUnited StatesGermany
0
50
100
150
200
250
300
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Recession Consumer Confidence Index Unemployed
High Unemployment, Low Consumer SentimentConsumer Sentiment and Unemployment Indexes
-600
-400
-200
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jan-
10
Feb-
10
Mar
-10
Apr-
10
May
-10
Jun-
10
Jul-1
0
Aug-
10
Sep-
10
Oct
-10
Nov
-10
Dec-
10
Jan-
11
Feb-
11
Mar
-11
Apr-
11
May
-11
Jun-
11
Private
Non-farm
Federal
State
Local
Accumulated Payrolls in thousands
Private Sector Has Led Employment Recovery
• Private sector efforts were offset by public sector cutting 400K jobs
Changes In Employment Levels in 2010 By Sector
Home Prices Still “Correcting”
• Home sales levels have stabilized by falling prices and low financing costs
US Home Prices and Consumer Price Index
0
50
100
150
200
250
300
350
400
1990
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
FHFA Home Price Index CPI Home Sales
Delinquencies Have Peaked – Inventory Remains High
Mortgage Foreclosures and Delinquencies
0
20
40
60
80
100
120
100
150
200
250
300
350
400
450
500
550
Jan-
92
Dec-
92
Nov
-93
Oct
-94
Sep-
95
Aug-
96
Jul-9
7
Jun-
98
May
-99
Apr-
00
Mar
-01
Feb-
02
Jan-
03
Dec-
03
Nov
-04
Oct
-05
Sep-
06
Aug-
07
Jul-0
8
Jun-
09
May
-10
Apr-
11
Billi
ons
of D
olla
rs
Retail Sales Inventories Industrial Production (right axix)
Retail Sales Recovering – Production, Inventories Lag
• Retail sales above December 2007, driven by replacement purchases • Slow inventory rebuild due to poor home sales and cautious managers
Retail Sales, Inventory and Inventory-to-Sales Ratio
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
Dec-
05M
ar-0
6Ju
n-06
Sep-
06De
c-06
Mar
-07
Jun-
07Se
p-07
Dec-
07M
ar-0
8Ju
n-08
Sep-
08De
c-08
Mar
-09
Jun-
09Se
p-09
Dec-
09M
ar-1
0Ju
n-10
Sep-
10De
c-10
Mar
-11
Jun-
11Se
p-11
Dec-
11
Index Total Total Loaded Exports Empties
+14.2%
+10.7%
+15.2%
+5.2%
+27.1%
US International Container Trade Trends
• Imported and empty containers led growth in 2010• Exports were surprisingly flat, some likely shifted to bulk• Decline in imports since 2011 peak is out of line with retail sales trends
Monthly TEU Volumes – 12 Largest US Ports
235 247 247
263
295
317
294
331
56 60 65 72
84 96
87 97
178 187 182
191
211 220
207
235
0
50
100
150
200
250
300
350
2003 2004 2005 2006 2007 2008 2009 2010
Total Containerized Not-Containerized
Millions of Metric Tons
US Non-fuel Export Trends
• Bulk began shifting into containers in 2007, shifted back some in 2010• Exports grew 12.7% in 2010; containerized 13.4%, other 11.1%
Non-fuel Exports By Weight By Type Of Vessel
Where We Are Going• Where is the bottom – approaching it now Q2 09 was bottom• Recovery may be “W” shaped, i.e. not sustained
– When & how inflation will occur– Response of policy makers …labor benefits not extended
• Economic drivers have not changed– Aging population (% of total leaving the work force)– Population growth slowed & will slow further– Buying more services than durable goods– Outsourcing will continue & will increase (import substitution)
• Efficiency /Reliability vs. Capacity (slow steaming problem for importers, increasing supply chain..decreasing control for merchants)
Economic Outlook for Major Trade Lane Economies
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
US Europe Nort Asia South Asia South East Asia
Emerging Markets have higher population and productivity growth Near term is weak due to mature economies Policy withdrawal creates uncertainty - look for “all clear” in 2011-H2 World trade patterns will change due to the changing relative size of emerging and mature
economies over the forecast horizon
Real GDP Growth (year on year) By Major Trade Lanes
Source: International Monetary Fund, US Department of Commerce, Moffatt & Nichol
US recession risk in 2011
Oil Consumption Trends 1965 - 2009
• 8 million barrels of crude oil were consumed daily in 2010• Since 2008 Emerging Markets consume more oil than Developed Economies
Crude Oil Consumption
Source: UN-ILO, Business Monitor, Moffatt & Nichol
$0
$20
$40
$60
$80
$100
$120
0
10
20
30
40
50
60
70
80
90
100
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
Mill
ions
of B
arre
ls P
er D
ay
Developed Economies Emerging Markets World WTI Annual Average (right axis)
Proportion of Population Above 55 Years of Age
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
-$80
-$60
-$40
-$20
$0
$20
1992
1992
1993
1994
1995
1996
1997
1997
1998
1999
2000
2001
2002
2002
2003
2004
2005
2006
2007
2007
2008
2009
2010
2011
Goods Balance Services Balance
Billions
Unsustainable Trade Deficit
• Including oil, the goods deficit is 4.8x the services surplus, 2.8x excluding oil • Increased import dependency is unavoidable – the US needs to export more
US Trade Balance Components: 1992 -2010
Source: US Census Bureau
45% of the trade deficit is due to petroleum imports
US Export Candidates • Bulk commodities and specialized capital goods (project cargo) fit the profile of
US comparative advantages
• Relative to faster growing Emerging Markets, the US has• A lower cost of capital, but a higher cost of labor• Relative abundance of scare resources such as water• More advanced biotechnology • More reliable quality control and surveillance of compliance
• Strong Emerging Market demand for bulk is expected to continue as these economies continue to grow and develop
• Grains and oilseeds• Meat • Biofuels – wood pellets• Coal and other raw materials
• Strong bulk demand also means strong demand for capital equipment – energy, construction, agricultural
• US has to develop infrastructure to compete in the global market place – its rivals have and continue to do so
America Is The World’s Bread Basket
• Lack of investment in inland waterway infrastructure is a significant bottleneck
Shares and Containerization of US Grain Exports Shares of US Grain Exports
Port 2003 2004 2005 2006 2007 2008 2009 2010 GainColumbia-snake 16% 19% 18% 16% 17% 19% 19% 18% 1%Los Angeles, CA 0% 0% 1% 1% 2% 2% 2% 1% 1%Minneapolis, MN 0% 0% 1% 2% 3% 1% 1% 2% 2%New Orleans, LA 59% 53% 50% 53% 50% 45% 51% 48% -7%Norfolk, VA 0% 0% 1% 1% 2% 2% 2% 1% 1%San Francisco, CA 1% 1% 1% 1% 1% 1% 2% 1% 1%Seattle, WA 5% 9% 10% 9% 8% 10% 9% 10% 2%
Containerization of Grain Exports By PortPort 2003 2004 2005 2006 2007 2008 2009 2010Total All Ports 1% 2% 2% 3% 4% 5% 5% 3%Columbia-snake 3% 2% 1% 5% 5% 3% 3% 1%Los Angeles, CA 32% 88% 76% 81% 80% 77% 91% 93%Minneapolis, MN 0% 0% 0% 5% 0% 0%New Orleans, LA 1% 0% 0% 0% 0% 0% 0% 0%Norfolk, VA 8% 14% 3% 3% 5% 10% 14% 8%San Francisco, CA 26% 32% 42% 46% 60% 68% 61% 53%Seattle, WA 1% 3% 7% 12% 14% 8% 4% 4%
Rail Replaces Inland Waterways
• Rail can handle agriculture exports in place of the inland waterway system
Containers Concentrate In Population Centers
• These are the locations where the bulk of consumption takes place• Containers increasingly retained near ports – hard to containerize exports
Currency Trends Are Generally FavorableUS Dollar Exchange Rate Indexes
0
20
40
60
80
100
120
140
16019
7219
7519
7719
7919
8119
8319
8519
8719
8919
9119
9319
9519
9719
9920
0120
0320
0520
0720
0920
11
Emerging Markets
Broad
Developed Markets
China’s Currency Policy Is A Global Economic Risk
0
1
2
3
4
5
6
7
8
920
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Yuan Per Dollar
Yuan Per Real
Real Per Dollar
Exchange Rates Between US$, Chinese Yuan and Brazilian Real
Summing Up...Recovery is proceeding “as planned”, a bit early for an “all clear”
Sustained World economic recovery depends on the USReal estate-exposed sectors will take a few more years to recoverInflation and government debt are a risk but not immediately
Long term concerns could be lessened by more balanced tradeUS needs to increase exports and reduce oil dependencyChina needs to withdraw from market interventions
Positive outlook for agricultural exports but avoid euphoriaEnergy costs are an issueNeed more action and less discussion