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An Update on West Coast International Trade Economics Pacific Northwest Waterways Association Annual Meeting Lake Chelan, WA June 30, 2009
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An Update on West Coast International Trade Economics
Pacific Northwest Waterways Association
Annual MeetingLake Chelan, WA
June 30, 2009
Where We AreHow We Got Here
Where We May Be Going
Celebrating the PastShaping the Future
Larry W. Nye, P.E. Director of Port PlanningDr. Walter Kemmsies, Chief Economist
Tom McCollough, M&N Seattle
Take Aways
• Macro economic trends are still intact– Changing demographics– Need for outsourcing
• We are not headed for a depression– Have gone from terrible to bad
• 2012 should see a return to expanding economy
• PNW future to participate in international trade growth is uncertain– Population growth– All water route
• Look for export opportunities
West Coast International Perspective
• Where we are• How we got here• Where we are going• What it means to the transportation
industry
Where We Are:Excess Terminal Capacity
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
An
nu
al T
EU
's
West Coast Demand Forecast versus Terminal Capacity
Capacity at 11,000 TEU/Ac
Capacity at 8,000 TEU/Ac
Capacity at 6,500 TEU/Ac
Growth Scenario
Former Forecast2007
Where We Are:Excess Shipping Capacity
38 Idle Ships >6,000 TEU (as of April 20, 2009)
• Maersk Line – 14• APL – 8• CSAV – 5• CSCL – 3• IRISL, MSC, OOCL – 2 ea• COSCO, E/G, HMM, MOL, MSC, UASC – 1 ea
506 ships totaling 1.36 million TEU’s (10.6% of fleet)
Source: Cargo Business News (4/22/2009) & JOC Online (4/29/09)
How We Got Here• Bubbles burst
– Banking industry (excessive leverage on inflated home prices/mortgages)
– Automobile industry (cheap financing evaporated for SUV sales)
– Energy industry (inflated oil prices)• Consumer confidence is down
– Residential real estate prices have fallen– Pensions/401Ks are worth less– Not buying non-essential goods & services
• Inventories are down & production is down• Number of retailers has dropped (commercial real
estate may be the next shoe to drop)
• Import volumes have fallen
Twin Bubbles: Commodities and Real Estate
Source: Bureau of Labor Statistics, Bureau of Economic Analysis, Moffatt & Nichol
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
0
50
100
150
200
250
300
350
400
-$10
$10
$30
$50
$70
$90
$110
$130
$150
House Price Index CRB Metals Index Crude Oil Price
Ho
us
e a
nd
CR
B P
ric
e In
de
x
Pri
ce
pe
r B
arr
el o
f O
il
Consumer confidence eroded• Consumers are not buying non-essential goods & services
– Declining value of and/or inability to refinance residential real estate– Declining value of retirement savings invested in 401Ks, etc– 5.1 million jobs have been lost since the recession began in December
2007
0
1,500
3,000
4,500
6,000
7,500
0
500
1,000
1,500
2,000
2,500
Ja
n-7
0
Ja
n-7
5
Ja
n-8
0
Ja
n-8
5
Ja
n-9
0
Ja
n-9
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Ja
n-0
5
Ja
n-1
0
Ind
ex
ed
: 19
70 =
10
0In
de
xe
d: 1
97
0 =
10
0
Household Net Worth Personal Income Import Goods ex Oil- Right
Spike In Liquidations Reflects Consumer AND Retailer Moods
Source: Federal Reserve, Bureau of Economic Analysis, Rosenblatt
Bankruptcy Filings 1990-2008
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
19
90
19
91
19
92
19
93
19
94
19
95
19
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19
97
19
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19
99
20
00
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01
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08
20
09
Recession Total Filings Chapter 7 Chapter 11
With a declining economic base and aging population the majority of the spike in Chapter 7 filings may be retail businesses located in the Midwest
Businesses Have Been Downsizing• As consumer spending has slowed, business inventories have
been declining for 5 consecutive quarters from 2007-Q4 to 2008-Q4, the longest since 1983. Early estimates indicate inventories have declined in Q1-2009, which would make this the longest period of falling inventories since World War Two.
19
60
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19
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19
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20
00
20
02
20
04
20
06
20
08
20
10
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
Recessions All Inventories Retail Inventories
Ye
ar
on
Ye
ar
Gro
wth
Ra
te
December 2007
Source: Department of Commerce; Moffatt & Nichol
Where We Are Going
• Where is the bottom – approaching it now• Recovery may be “W” shaped, i.e. not
sustained• 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 vs. Capacity
Layoffs Appear To Have Peaked• A peak in new unemployment insurance claims growth heralds an end to the
recession
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
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72
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19
76
19
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80
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19
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98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
New Claims YOY% Continuing Claims YOY%
Layoffs Appear To Have Peaked• Continuing claims YOY appear to have peaked & new claims continue to fall
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
20
07
20
08
20
09
20
10
New Claims YOY% Continuing Claims YOY%
International Trade Volumes Appear to be Rebounding
-4%
-1%
2%
5%
8%1
98
01
98
11
98
21
98
31
98
41
98
51
98
61
98
71
98
81
98
91
99
01
99
11
99
21
99
31
99
41
99
51
99
61
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71
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81
99
92
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02
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12
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22
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32
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42
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52
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62
00
72
00
82
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92
01
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011
20
12
20
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20
14
20
15
20
16
Recession Real GDP %YOY
Look For “All Clear” In 2012 In The US
Source: Department of Commerce, Moffatt & Nichol
Real GDP Growth and Recessions
Assuming banking sector instability is resolved in Q2, expect recession to end in 2009-H2 but without the usual substantial recovery spike
As the recovery begins, inflation will begin to rise, forcing the Fed to start tightening again, unless infrastructure investment has an significant impact on productivity
Potential for a mild recession in late 2010/early 2011; expect low growth through 2011 After that the US could have 7-8 years of trend growth
The US Population is Aging
Source: Census Bureau
0%
5%
10%
15%
20%
25%
30%
35%
1940 1950 1960 1970 1980 1990 2000 2010E 2020E 2030E
% over 65 % over 55
Proportion Of Retirement Age
• On average 7,800 Americans will turn 62 everyday in 2009
Older Populations Spend More On Services
Proportion Of Consumer Spending On Goods And Services
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
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47
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99
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01
20
03
20
05
20
07
20
09
Percent Goods Percent Services
1982 is the crossover
Source: US Census Bureau, Moffatt & Nichol
Given the demographic projections, demand for services will continue to grow faster than the demand for goods.
Manufactured goods industries have relatively less pricing power than the service sector
Manufacturing Industry Wage Comparisons
Source: UN-ILO, Business Monitor, Moffatt & Nichol
Wages are rising in China but remain a fraction of US, EU and Japanese levels Low wages in Central and South America indicate they are prime locations for manufacturing “near-sourcing” Companies that outsource are able to service maturing markets more cheaply and gain access to growing
markets
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
Manufacturing Wage Comparisons in US Dollars At Prevailing Exchange Rates
What it Meansto the Transportation Industry
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
An
nu
al T
EU
's
West Coast Demand Forecast versus Terminal Capacity
Capacity at 11,000 TEU/Ac
Capacity at 8,000 TEU/Ac
Capacity at 6,500 TEU/Ac
Growth Scenario
Former Forecast
Source: Moffatt & Nichol
Efficiency vs. Capacity
Cargo is Attracted to Faster, Better, Cheaper Service
• Additional capacity will not be required for some time
• Focus on reducing cost and increasing velocity
• West Coast threats– Tolerance for automation on East Coast– All water route (Suez or Panama canals)– West Coast rail rates & capacity
Increase Velocity
• Reduce dwell times for imports• Improve intermodal system
components– Concern that rail capacity at the ramp
and on the mainline is constraining velocity of cargo flowing from west coast to Chicago and similar destinations
– Demographic analysis suggests that the great inland midwest will not grow as rapidly as coastal areas
Increase Efficiency
• Reduce cost per lift or cost per TEU– Automation is a partial answer– Double benefit
• Potentially reduces cost per lift• Potentially increases capacity
• Diversify Cargo Base– Non-traditional containerized cargoes– Bulk, break-bulk, project cargoes– Multi-purpose facilities
Respecting Our PastShaping Our Future
• An unfortunate series of events got us here
• We are nearing the bottom• The recovery will take a while• Growth will not take place at the pre-
crash rate• Short term strategy is to focus on
cost and speed vs. capacity• Don’t put all our eggs in one basket
Take Aways
• Macro economic trends are still intact– Changing demographics– Need for outsourcing
• We are not headed for a depression– Have gone from terrible to bad
• 2012 should see return to expanding economy
• PNW future to participate is uncertain– Population growth– All water route
• Look for export opportunities
Words of Caution:
“We should be careful to get out of an experience only the wisdom that is in it – and stop there; lest we be like the cat that sits down on a hot stove lid.
She will never sit down on a hot stove lid again, and that is well.
But also, she will never sit down on a cold one anymore.”
Mark Twain
