1. 1 Copyright © 2007 Global Insight, Inc Economic Impact of Trade in Response to The Panama Canal Expansion Presented to: IAPH 3 May, 2007 Hilton Americas Hotel Houston, Texas Presented by: Robert West Managing Director Global Trade & Transportation Global Insight 781-301-9078 robert.west@globalinsight.com

2. 2 Copyright © 2007 Global Insight, Inc Agenda Global issues and trends affecting the world and U.S. economic outlooks Implications for sea trade in the Western Hemisphere Conclusions

3. 3 Copyright © 2007 Global Insight, Inc Key Global Issues and Trends Will higher oil prices derail the recovery? Will the dollar crash? China: Hard or soft landing? New and important players? NO - Not at $70-75 NO, but... SOFT YES, A COUPLE...

4. 4 Copyright © 2007 Global Insight, Inc Has world economic growth peaked? - - - yes, but… (Percent change, real GDP) The world economy is in recession when real GDP growth is below 2%.

5. 5 Copyright © 2007 Global Insight, Inc World container trade normally grows faster than the world economy. And 2006 was very healthy. 2006 2007 GDP 4.0% 3.5% TEUs 9.6% 8.9% 2006 2007 GDP 4.0% 3.5% TEUs 9.6% 8.9%

6. 6 Copyright © 2007 Global Insight, Inc Trade is linked to real GDP growth - uneven across the world – and emerging markets grow fastest. (Percent change, real GDP)

7. 7 Copyright © 2007 Global Insight, Inc Europe in the long term – a great museum? … and the visitors will come from China!

8. 8 Copyright © 2007 Global Insight, Inc 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) 200020102020203020402050 U.S. China Japan China U.S. Germany Japan India U.K. GermanyIndiaJapan FranceChinaU.K.Russia Brazil ItalyFranceIndiaU.K.BrazilRussia ChinaItalyFranceGermanyU.K. BrazilIndiaRussiaFranceGermany IndiaRussiaItalyBrazilFrance RussiaBrazil Italy Source: Global Insight World Service and Goldman Sachs

9. 9 Copyright © 2007 Global Insight, Inc The U.S. expansion is entering a new phase – a major U.S. slowdown is already here. The U.S. economy had strong momentum entering 2006. 5.3% in the first quarter Just 2.4% in the last quarter! Real GDP growth in 2007 will slip to 2.1%, below trend (3%). Home sales and construction are declining as affordability deteriorates; hurricane rebuilding will cushion the fall. Business investment is now leading the expansion, supported by record profits and global market growth, especially Asia. Non-residential construction is poised to grow, at last. Further dollar depreciation is expected, so exports will improve. A weak start and a faster finish in 2007

10. 10 Copyright © 2007 Global Insight, Inc (Annual percent change, 2000 dollars)(Unemployment rate - %) The U.S. economic expansion has slowed quickly. Modest improvements in 2007 –slower than the world. Real GDP 2006: 3.3% 2007: 2.1%

11. 11 Copyright © 2007 Global Insight, Inc A Record U.S. Current Account Deficit – over $800 billion as far as the eye can see. But peaking at last! (Billions)

12. 12 Copyright © 2007 Global Insight, Inc The U.S. dollar will depreciate further – steady declines through 2008, due to huge current account deficits. (2000=1.00) This could be another 10% drop in the dollar.

13. 13 Copyright © 2007 Global Insight, Inc The U.S. was the engine of growth, but in 2006 this shifted to Asia, which is now supporting world growth. Inflation remains under 4% in most Asian economies — exceptions include Indonesia, India, and the Philippines. High saving rates mean these economies will continue to be capital exporters - investors in ports and transportation infrastructure (even Canals?). China will have a soft landing. 1/3 of the world’s container trade is Intra-Asia!

14. 14 Copyright © 2007 Global Insight, Inc U.S. TEU imports will slow to 5.6% in 2007, and 7.6% in 2008. Chinese imports will grow fastest (10% on average). China Other Far East China was 1/3 of US imports in 2000 and will be 1/2 by 2013.

15. 15 Copyright © 2007 Global Insight, Inc China’s momentum is hard to slow down, but the government is trying - - - soft landing most likely.

16. 16 Copyright © 2007 Global Insight, Inc Market penetration in some sectors is reaching saturation … r Footwear Electrical Appliances Textiles

17. 17 Copyright © 2007 Global Insight, Inc But look at China’s penetration of new market segments. Office and Computing Equipment Semi-conductors, Electronic parts, etc.

18. 18 Copyright © 2007 Global Insight, Inc China Economic Summary There appears to be little risk at the macro- economic level. Even with a “soft landing” we will see growth in excess of 8% GDP through 2010. The exchange rate will revalue smoothly. The financial markets, although not exactly strong (week of Feb. 26), are also not seriously in danger of toppling. So long as Foreign Direct Investment continues, we will see the continuation of an export driven economy.

19. 19 Copyright © 2007 Global Insight, Inc There are some New Players on the world scene Chindia Colombia

20. 20 Copyright © 2007 Global Insight, Inc India could align with China (creating CHINDIA) and create a powerhouse from toys to high tech. $800 billion GDP 8%/year TEU growth to 2010 6.8% GDP growth this year (2006) 1.1 billion population is growing 1.5% annually India China INDIA

21. 21 Copyright © 2007 Global Insight, Inc In Latin America, Colombia is a new, fast-growing player. Free trade deal with the USA (hopefully) Potential growth is 5+% per year (GDP) – and steady Privatized ports Strong import growth for containers – 18% in 2006 Domestic economic strength – 6% in 2006 Growing consumer sector Port infrastructure is being expanded to meet demand growth. Main rail link to be revitalized in 2008. Colombia

22. 22 Copyright © 2007 Global Insight, Inc Agenda Global issues and trends affecting the world and U.S. economic outlooks Implications for sea trade in the Western Hemisphere Conclusions

23. 23 Copyright © 2007 Global Insight, Inc Latin America’s sea trade is expected to grow in line with general world sea trade growth. Imports will outpace exports.

24. 24 Copyright © 2007 Global Insight, Inc EXPORTS IMPORTS West Coast, South America East Coast, South America South America’s east & west coasts are export oriented, but imports will grow faster. TEUs

25. 25 Copyright © 2007 Global Insight, Inc Caribbean and Central America are fairly well-balanced. EXPORTS IMPORTS TEUs

26. 26 Copyright © 2007 Global Insight, Inc As China expands its markets, the U.S. becomes less important, but Latin America - - Source: Global Insight World Trade Model

27. 27 Copyright © 2007 Global Insight, Inc... could absorb 10% of China’s container exports by 2010, with strong growth in consumer products. Source: Global Insight World Trade Model

28. 28 Copyright © 2007 Global Insight, Inc Each part of Latin America depends much more on the Far East for imports than for exports.

29. 29 Copyright © 2007 Global Insight, Inc 20073.2 million TEUs 20154.2 million TEUs L.A. containers to the U.S. in 2006 = 3 million Almost 4% average annual growth Exports from Latin America to the Far East (China) will grow by 6.0%/year and hit 1.4 million TEUs in 2015. Far East

30. 30 Copyright © 2007 Global Insight, Inc L.A. imported 1.5 million TEUs from the U.S. in 2006. 20071.5 million TEUs 20152.0 million TEUs 3% average annual growth Imports from the Far East (China) will grow by 7.1%/year and hit 2 million TEUs in 2015. Far East

31. 31 Copyright © 2007 Global Insight, Inc With a third set of locks, container traffic will account for nearly 60% of all Canal tonnage in 2025. Panama Canal Tonnage: 2005 vs. 2025 20252005 Source: ACP; Norbridge, Global Insight forecasts

32. 32 Copyright © 2007 Global Insight, Inc CARTAGENA COLON/MIT P. CABELLO P. of SPAIN KINGSTON FREEPORT RIO HAINA SAN JUAN CAUCEDO Caribbean Transshipment Triangle

33. 33 Copyright © 2007 Global Insight, Inc Source: Panama Canal Authority Panama – Suez Route Cost Comparison Northeast China to USEC Suez Fees Panama Fees

34. 34 Copyright © 2007 Global Insight, Inc Punta Colonet Some Mexican alternatives are being discussed – to feed the US market, in case there is a capacity squeeze. Lazaro Cardenas Manzanillo Alfa-Omega Line 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. $9 billion UP + Hutchison BNSF + Grupo Mexico MTC + Carlos Slim Others? MHFM Transport (Mexico) SPV (Japan) Arias Asia (China)

35. 35 Copyright © 2007 Global Insight, Inc Agenda Global issues and trends affecting the world and U.S. economic outlooks Implications for sea trade in the U.S. and Latin America Conclusions

36. 36 Copyright © 2007 Global Insight, Inc Bottom Line World economic growth may have hit bottom in 2006, and 2007 should see slow increases in growth, but the U.S. will lag behind. Markets of Asia and Eastern Europe will experience the strongest growth; Western Europe and Japan will be very slow. Latin America will outperform the world. Enormous growth in container traffic within the next 5 years will push many ports to their full capacity limits, before the Canal is expanded – the search for alternatives is on.

37. 37 Copyright © 2007 Global Insight, Inc Economic Impact of Trade in Response to The Panama Canal Expansion Presented to: IAPH 3 May, 2007 Hilton Americas Hotel Houston, Texas Presented by: Robert West Managing Director Global Trade & Transportation Global Insight 781-301-9078 robert.west@globalinsight.com

38. 38 Copyright © 2007 Global Insight, Inc Trade is linked to real GDP growth - uneven across the world – and emerging markets grow fastest.

39. 39 Copyright © 2007 Global Insight, Inc Panama Canal Expansion: Key Points Canal expansion referendum approved October 2006 Start date: NOW Target completion date: 2014-2015 Estimated cost $5.25 billion Current lock dimensions: 110 feet wide; 1,100 feet long 4,500 TEU vessel max Expanded lock dimensions: 189 feet wide; 1,400 feet long 12,000 TEU vessel By 2025, expansion will allow container traffic to triple from 98 to 296 million PCUMS tons. Now – 2015:WHAT? After 2015:WHAT NEXT?

40. 40 Copyright © 2007 Global Insight, Inc Under a “probable” growth scenario (red line) the Canal will be able to expand its container tonnage to nearly 300M Canal tons by 2025 (daily containership transits will increase from 9 today to 24). Source: ACP; Norbridge Most probable

41. 41 Copyright © 2007 Global Insight, Inc If more capacity is not provided in the ports in all of the Americas... Cost of containerized goods will rise. “Just in time” will become a term used in textbooks only. Shippers and carriers will look for new routes. There will be winners and losers in the port sector.

42. 42 Copyright © 2007 Global Insight, Inc While all regions have increased trade, growth is uneven Trade growth is influenced by factors beyond the underlying demand for consumption goods. Global logistics sourcing by industry Emergence of global trading blocks Growth of regional trade facilitation Harmonization of trade and regulatory policies Trade security standards and information flows Increasing freight traffic and congestion along trade corridors and at ports and border crossings