robert west

Slide1: 

TDL Industry Trends and Market Analysis - Shifts in Global Trade Patterns - Presented to: WIRED Transportation Distribution & Logistics Institute FedEx Center March 18, 2008 Memphis, TN Presented by: Robert West Managing Director Global Trade & Transportation Global Insight 781-301-9078 robert.west@globalinsight.com

Agenda: 

Agenda The weakening economic outlook Shifts in trade patterns after the Canal expansion Conclusions

World Outlook – Looking very shaky all of a sudden: 

World Outlook – Looking very shaky all of a sudden Subprime crisis Oil prices U.S. U.S. dollar Europe China India Other emerging markets World recession risk Implications for trade A global problem How big of a threat? $100+ We are in a recession 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 The Topic The Outlook

World economic growth has peaked and is slowing . . .: 

World economic growth has peaked and is slowing . . . (Percent change, real GDP) The world economy is in recession when real GDP growth is below 2%.

Container trade normally grows faster than the world economy. The age of double-digit growth is over.: 

Container trade normally grows faster than the world economy. The age of double-digit growth is over. 2007 2008 GDP 3.8% 3.4% TEUs 7.2% 7.2% (Percent change

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(Real GDP, percent change) Trade is linked to real GDP growth - uneven across the world – and emerging markets grow fastest.

Europe in the long term – a great museum?: 

Europe in the long term – a great museum? … and the visitors will come from China!

Growth is not uniform: Market shifts are coming and will affect U.S. trade and transportation: 

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) Source: Global Insight World Service and Goldman Sachs

The U.S. recession is here!: 

The U.S. recession is here! U.S. growth in 2008 is likely to come in at a weak 1.2% 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. January was a blockbuster! We are in a mild, saucer-shaped recession 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 tomorrow, and then another 25-50 points thereafter Bottom line: we are decreasing our economic output now, but will turn the corner in the second half, thanks to the Fed and Government stimuli

We are in a recession now. The snap-back is a bit artificial.: 

(Quarterly percent change, 2000 dollars) (Unemployment rate - %) We are in a recession now. The snap-back is a bit artificial. Real GDP Annual Growth 2007: 2.2% 2008: 1.2%

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The U.S. dollar will depreciate further – steady declines through mid-2008, due to the huge trade deficits ($800 billion). (2000=1.00) Another 1.2% drop against the major currencies by mid-2008

Agenda: 

Agenda The weakening economic outlook Shifts in trade patterns after the Canal expansion Conclusions

Containerized Trade Movements: 

Containerized Trade Movements (Thousands of TEUs) 1/3 of world TEUs are Intra-Asia

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).: 

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). China Other Far East China was 1/3 of US imports in 2000 and will be 1/2 by 2014. On the USWC, China was 1/2 of imports in 2000 and will be 2/3 by 2011.

For the U.S., TEU growth has shifted to exports.: 

For the U.S., TEU growth has shifted to exports. 2007 2008 2009 Exports 9.4% 6.6% 5.3% Imports 0.2% 4.4% 6.3%

If there is enough capacity in the ports and railways, USWC ports should gain share, but . . .: 

If there is enough capacity in the ports and railways, USWC ports should gain share, but . . .

TEU imports into Gulf and S. Atlantic will grow. : 

TEU imports into Gulf and S. Atlantic will grow. Far East 5.8% Latin America 5.2% Europe 3.8% India 8.9% Africa 3.2% Rest of World 4.0% Growth rates: 2008-15 7.4 million 5.1 million

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.: 

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.

As China expands its markets, the U.S. becomes less important, but Latin America - - : 

As China expands its markets, the U.S. becomes less important, but Latin America - - Source: Global Insight World Trade Model

. . . could absorb 5% of China’s container exports by 2015, with strong growth in consumer products.: 

. . . could absorb 5% of China’s container exports by 2015, with strong growth in consumer products. Source: Global Insight World Trade Model

With expanded capacity, container traffic will account for nearly 60% of all Canal tonnage in 2025.: 

With expanded capacity, container traffic will account for nearly 60% of all Canal tonnage in 2025. Panama Canal Tonnage: 2005 vs. 2025 2025 2005 Source: ACP; Norbridge, Global Insight forecasts After transiting the Canal, where will the big containerships go?

After the expansion, this is where the action will be.: 

P. CABELLO P. of SPAIN RIO HAINA SAN JUAN CAUCEDO After the expansion, this is where the action will be. Caribbean Transshipment Triangle FREEPORT COLON/MIT KINGSTON CARTAGENA

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Source: Panama Canal Authority Panama – Suez Route Cost Comparison Northeast China to USEC Suez Fees Panama Fees

Some Mexican alternatives are being discussed – to feed the US market, in case there is a capacity squeeze.: 

Some Mexican alternatives are being discussed – to feed the US market, in case there is a capacity squeeze. Punta Colonet Lazaro Cardenas Manzanillo Alfa-Omega Line (Tehuanepec) 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. MHFM Transport (Mexico) SPV (Japan) Arias Asia (China) $9 billion+ UP + Hutchison BNSF + Grupo Mexico MTC + Carlos Slim (IDEAL) SSA?

Agenda: 

The weakening economic outlook Shifts in trade patterns after the Canal expansion Conclusions Agenda

Bottom Line: 

Bottom Line U.S. is in recession now. 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, increasing its share of US container imports. 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!

Slide27: 

TDL Industry Trends and Market Analysis - Shifts in Global Trade Patterns - Presented to: WIRED Transportation Distribution & Logistics Institute FedEx Center March 18, 2008 Memphis, TN Presented by: Robert West Managing Director Global Trade & Transportation Global Insight 781-301-9078 robert.west@globalinsight.com