The world of shipping and trade has changed dramatically in the last 10 years and continues to evolve. Large port infrastructure investments require proper planning, which is possible even in shifting markets.
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3. Agenda
1. You don't know where you're going until you know where you've been
2. We don’t know what will happen in the future, but we know what may happen
and therefore can plan for it
3. Ports are, and should be, champions of infrastructure development
4. Conclusion
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4. You don’t know where you’re going until you know
where you’ve been
5. Three broad themes discussed at the 2008 AAPA Shifting Trade Lanes
conference in Tampa, FL
1. The weakening economic outlook
– 60/40 chance of recession
– Potential shock housing/sub-prime credit markets
2. The expected future opening of the Panama Canal
– Favoring all-water route to US East Coast via Panama Canal
– Increase in Caribbean transshipment
3. Capacity limits in Los Angeles & Long Beach lead to new gateways for U.S.
cargo, especially in Mexico
– Punta Colonet
– Intermodal route from Lazaro Cardenas to U.S.
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6. How well did our predictions pan out?
GREAT FINANCIAL CRISIS (GFC) U.S. EAST COAST GAINS SHARE
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AAPA 2019 Planning for Shifting Trade
PANAMA CANAL EXPANDS
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0%
10%
20%
30%
40%
50%
60%
2002
2004
2006
2008
2010
2012
2014
2016
2018
West Coast East Coast Gulf Coast
7. US container trade growth continues to outpace overall economic growth at
roughly 1.8X GDP
U.S. TOTAL CONTAINER TRADE (2002 – 2018)
Source: AAPA; MN
U.S. CONTAINER TRADE GROWTH & GDP
1.0
1.5
2.0
2.5
3.0
3.5
4.0
-20%
-10%
0%
10%
20%
2002 2004 2006 2008 2010 2012 2014 2016 2018
Multiplier
YOY%Growth
Multiplier (RHS) GDP Growth TEU Growth
Source: AAPA; MN
AAPA 2019 Planning for Shifting Trade
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1.8X Avg
Multiplier
3.0X Avg
Multiplier
-
10
20
30
40
50
60
2002 2004 2006 2008 2010 2012 2014 2016 2018
TEU(Millions)
4.2%
CAGR
8. Alliances dominate the Transpacific trade lane, less so on Transatlantic
SHARE OF ALLIANCE SERVICES FROM DEPLOYED CAPACITY
Source: Bluewater
AAPA 2019 Planning for Shifting Trade
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0%
25%
50%
75%
100%
Global - TEU Trans Pacific - TEU Global - TEU Trans Pacific - TEU Trans Atlantic - TEU
Early 2012 2018 YTD (July)
No Alliance 2M Alliance THE Alliance OCEAN Alliance CKYH Alliance G6 Alliance Grand Alliance New World Alliance
Vast majority of Trans-Pac
capacity is in alliance services
9. Average vessel sizes have increased on the order of 50-100% over the past
decade
AVERAGE VESSEL SIZE (TEU) AT SELECT U.S. CONTAINER
PORTS, 2008-2018
Source: COMPAIR
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AAPA 2019 Planning for Shifting Trade
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
*Mobile 2012-2018
*Tampa 2012-expected average following COSCO service deployment
0
5,000
10,000
15,000
20,000
25,000
Feb-08 Feb-10 Feb-12 Feb-14 Feb-16 Feb-18
VesselCapacity(TEU)
LA/LB Max NY/NJ Max Global Max
MAXIMUM VESSEL SIZE DEPLOYMENT BY PORT
10. Liner Consolidation and Alliances
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COSCO acquires OOCL
11. Consolidation trickling down to terminals
and port authorities
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12. Strong container growth at many North American ports
New Orleans,
0.6M
Prince Rupert,
1.0M
Houston, 2.7M
Savannah, 4.3M
Norfolk, 2.8M
NYNJ, 7.1M
Charleston,
2.3M
Oakland, 2.5M
LALB, 17.5M
NWSA, 3.8M
0%
2%
4%
6%
8%
10%
12%
14%
2018 estimated US port
growth: 5.1%
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AAPA 2019 Planning for Shifting Trade
2018 TEU volume (in millions) and year-on-year growth rate for selected ports
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Source: MN estimates, port authority websites
13. We don’t know what will happen in the future, but we
know what may happen and therefore can plan for it
15. Fewer levers left to manage the next recession; global growth slowing
AAPA 2019 Planning for Shifting Trade
THE US BUDGET DEFICIT IS INCREASING OECD: GLOBAL GDP GROWTH IS LOSING MOMENTUM
OECD Economic Outlook, 21 November 2018
16. 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Global EPU Index
There is a lot of near-term uncertainty, but infrastructure is long-term
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2019 AAPA Annual Conference
GLOBAL ECONOMIC POLICY UNCERTAINTY, JANUARY 1997 TO DECEMBER 2018
Source: PolicyUncertainty.com; Baker, Bloom and Davis
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Asian & Russian
Financial Crises
9/11 Invasion of
Iraq
Global Financial
Crisis
Eurozone Crisis, U.S.
Fiscal Battles, China
Leadership Transition
Brexit
Referendum
Immigration
Crisis, China
Economy
Fears
U.S. Elections & Politics
in Brazil, China, France,
South Korea and the UK
Shifting global
economy, Brexit, US
government
shutdown, tariff policy
18. Several factors have the potential to alter our
planning for trade lane growth
18
19. China’s effort to reduce waste imports is shifting US waste paper export
trading partners
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EXPORTS OF US WASTE PAPER (6-MONTH MOVING AVERAGE)
Source: US Trade Online
20,000
40,000
60,000
80,000
100,000
120,000
140,000
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
TEU
China India Korea, South Indonesia Vietnam Taiwan Thailand Other NonContainerized Equivalent
20. IMO 2020 could (temporarily?) shift up to 1.2 million TEU of discretionary
cargo to the West Coast
Cost Advantage of LALB over NYNJ for North Asian Import destined for Chicago
LALB – NORTH ASIAN IMPORTS – BASE CASE LALB – NORTH ASIAN IMPORTS – LOW SULFUR HFO
Source: MN
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AAPA 2019 Planning for Shifting Trade
LALB's Cost Advantage
More than $200
$151 to $200
$101 to 150
$51 to 100
$1 to $50
$0 or less
12
%
18%
Base
Case
Low
Sulfur
HFO
LALB's Cost Advantage
More than $200
$151 to $200
$101 to 150
$51 to 100
$1 to $50
$0 or less
21. US – China tariff hikes would slow GDP growth
-2.0
-1.6
-1.2
-0.8
-0.4
0.0
USA GDP China GDP World GDP World Trade Trade excl. USA & China
%
Total tariffs plus higher
uncertainty
Tariffs on rest of US-China
trade in 2019
Current tariffs rise to 25%
(The Jan increase
postponed 90 days)
Current US-China tariffs
AAPA 2019 Planning for Shifting Trade
IMPACT ON GDP AND TRADE BY 2021, PERCENT DIFFERENCE FROM BASELINE
Source: OECD
22. Conflicting trends and a diversity of business strategies for serving inland
markets
HIGHLY CONGESTED HIGHWAYS, 2045 PRECISION RAILROADING
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Source: USDOT, Bureau of Transportation Statistics, 2017
23. Ports are, and should be, champions of infrastructure
development
24. Smart infrastructure investment precedes, follows and facilitates trade
growth
SAVANNAH, GA: MASON MEGA RAIL 2020
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Source: GPA / Stephen A. Morton
25. Smart infrastructure investment precedes, follows and facilitates trade
growth
TAMPA, FL: MASTER PLAN: VISION 2030
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Source: Port Tampa Bay
27. Major Themes
1. US economy strong but showing signs of weakness; Global growth slowing
2. Near-term uncertainty over major economic policies, including trade policy
3. IMO 2020 has potential to cause short-term congestion challenges in West
Coast
4. Longer-term macro fundamentals favor continuation of slow shift to East and
Gulf Coasts, provided proper planning
5. Landside connectivity is an evolving challenge
6. Efficient freight networks require multiple entities working together
7. Infrastructure needs a champion: port authorities are that champion
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