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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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Presentation on theme: "An Update on West Coast International Trade Economics Pacific Northwest Waterways Association Annual Meeting Lake Chelan, WA June 30, 2009."— Presentation transcript:

1 An Update on West Coast International Trade Economics Pacific Northwest Waterways Association Annual Meeting Lake Chelan, WA June 30, 2009

2 Where We Are How We Got Here Where We May Be Going Celebrating the Past Shaping the Future

3 Larry W. Nye, P.E. Director of Port Planning Dr. Walter Kemmsies, Chief Economist Tom McCollough, M&N Seattle

4 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

5 West Coast International Perspective Where we are How we got here Where we are going What it means to the transportation industry

6 Where We Are: Excess Terminal Capacity 2007

7 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)

8 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

9 Twin Bubbles: Commodities and Real Estate Source: Bureau of Labor Statistics, Bureau of Economic Analysis, Moffatt & Nichol

10 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

11 Spike In Liquidations Reflects Consumer AND Retailer Moods Source: Federal Reserve, Bureau of Economic Analysis, Rosenblatt Bankruptcy Filings  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

12 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 Early estimates indicate inventories have declined in Q1-2009, which would make this the longest period of falling inventories since World War Two. Source: Department of Commerce; Moffatt & Nichol

13 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

14 Layoffs Appear To Have Peaked A peak in new unemployment insurance claims growth heralds an end to the recession

15 Layoffs Appear To Have Peaked Continuing claims YOY appear to have peaked & new claims continue to fall

16 International Trade Volumes Appear to be Rebounding

17 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

18 The US Population is Aging Source: Census Bureau Proportion Of Retirement Age On average 7,800 Americans will turn 62 everyday in 2009

19 Older Populations Spend More On Services Proportion Of Consumer Spending On Goods And Services 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

20 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 Manufacturing Wage Comparisons in US Dollars At Prevailing Exchange Rates

21 What it Means to the Transportation Industry Source: Moffatt & Nichol

22 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

23 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

24 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

25 Respecting Our Past Shaping 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

26 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

27 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

28 Questions & Comments Contact Information: Walter Kemmsies Larry Nye Tom McCollough


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