Timing Out The Exports Turnaround 3/1/2016
Moffatt & Nichol Background Established in 1945 in Long Beach, California, currently: Offices in the Americas, Europe, Middle East and Pacific Rim Practices: Goods Movement, Energy, Ports, Coastal, Urban Waterfronts & Marinas, Inspection & Rehabilitation Strategic development of marine and freight transportation infrastructure Freight planning and market analysis Investment/privatization analysis Cost-benefit analysis to support public private partnerships Port selection/network analysis Strategic development plans Railroads and capacity expansion Terminal design for all types of freight and passenger movement Coastal engineering Port and waterside construction (marinas) Environment issues/emission modeling Port security Commentary and presentation materials on this occasion are based on the personal views of the speaker and may not coincide with opinions held by Moffatt & Nichol or its employees. 2
Summary Weak export growth is one of the greatest impediments to US economic prosperity and growth US has comparative advantages in Agriculture, Capital goods and Energy, which have a growing market Strong US dollar is not as significant a barrier to export growth as insufficient infrastructure 3
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $40 US Trade deficit remains high despite improving oil trade US TRADE DEFICIT $20 Services trade surplus $0 9% of the trade deficit is due to oil, used to be more than 40% -$20 -$40 -$60 -$80 Goods Balance Services Balance Oil Trade Balance Goods trade deficit The US has helped the world economy develop, particularly emerging market economies, by allowing its trade balance to be in deficit. This isn t sustainable in the long run. Reducing the trade deficit is important for employment and therefore economic growth. The decreasing US oil trade deficit has directly helped strengthen our goods balance and in the process helped US employment recover from the deep 2007-2009 recession. Reversal of the oil export ban will help, but more, a further reduction in the deficit, is needed. Source: US Census Bureau, Moffatt & Nichol 4
Growing global middle class WORLD POPULATION AND OECD GLOBAL MIDDLE CLASS PROJECTIONS Source: OECD, US Census Bureau 5
What can the US can competitively export? TOP 10 HIGH POTENTIAL US NET EXPORTS Containerized Score Bulk/Breakbulk Score Wood Pulp Scrap and Waste 9.4 Oil Seeds (Soy) 32.7 Oil Seeds (Soy) 1.1 Meat and Other Edible Animal Parts 28.7 Raw Hides And Leather 0.8 Cereal Grains 3.9 Cotton - Untreated, Yarn And Woven Fabric 0.7 Animal Feed 3.4 Animal Feed 0.7 Wood And Charcoal 0.4 Meat and Other Edible Animal Parts 0.3 Crude Oil and Refined Petroleum/Natural Gas Products 0.4 Plastics Feedstock and Manufactured Goods 0.2 Live Animals 0.3 Iron And Steel 0.1 Wood Pulp Scrap and Waste 0.2 Paper and Paperboard 0.1 Fish and Crustaceans 0.2 Chemical Products 0.1 Dairy Products, including Eggs and Honey 0.1 Cereals 0.1 Organic Chemicals 0.1 Organic Chemicals 0.1 Plastics Feedstock and Manufactured Goods 0.1 1 Based on relative comparative advantage as defined by Bela Belassi Agriculture, Capital goods and Energy. Labor is more expensive and capital is cheaper in the US compared to fast growing emerging market economies such as China. The US has comparative (and competitive) advantages in the production of goods that use little labor. This is shown in the list of goods that the US has been prone to export. Source: US Census Bureau, Moffatt & Nichol 6
US Dollar is cyclically strong but structurally weak DOLLAR-EURO EXCHANGE RATE AND THE SPREAD BETWEEN US AND GERMAN GOVERNMENT BONDS Generally speaking, a country s currency gains value in foreign exchange markets when its economy is getting stronger and this is reflected in rising interest rates. Financial markets under-valued the US Dollar relative to the Euro throughout most of 2014. Source: Trading Economics, Moffatt & Nichol 7
Stronger USD is correlated with lower commodity prices S&P GLOBAL GOLDMAN SACHS COMMODITY INDEX AND TRADE-WEIGHTED US DOLLAR INDEX OF EXCHANGE RATES Commodity prices are quoted and traded in US Dollars. In the last 15 months the US Dollar has appreciated against virtually every currency in the world. It is not surprising that commodity prices have declined. Source: Bloomberg, Federal Reserve, Moffatt & Nichol 8
Agricultural prices declined less than other commodities did ABSOLUTE AND RELATIVE PERCENTAGE CHANGE OF COMMODITY PRICES AND COMMODITY PRICE INDEXES Key Indexes Actual Date Yearly Relative to GSCI Industrial Metals Actual Date Yearly Relative to GSCI Consumer Agriculture Actual Date Yearly Relative to GSCI Baltic Dry 313.0 19-Feb -39% -8% Copper $ 2.09 19-Feb -19% 12% Corn $ 371.50 19-Feb -1% 30% CRB Index 162.4 19-Feb -29% 2% Iron Ore $ 46.50 19-Feb -27% 4% Soybeans $ 884.50 19-Feb -12% 19% GSCI Index 295.0 19-Feb -31% 0% Lead $ 1,714.00 19-Feb -4% 27% Wheat $ 462.25 19-Feb -10% 20% LME Index 2181.1 19-Feb -20% 11% Molybdenum $ 11,950.00 19-Feb -27% 3% Rice $ 10.96 19-Feb 2% 32% Nickel $ 8,326.50 19-Feb -40% -9% Canola $ 471.20 19-Feb 2% 33% Energy Actual Date Yearly Relative to GSCI Aluminum $ 1,522.00 19-Feb -15% 15% Cocoa $ 2,857.00 19-Feb -5% 26% Crude oil $ 29.87 19-Feb -40% -9% Tin $ 15,725.00 19-Feb -12% 19% Orange Juice $ 130.65 19-Feb -5% 26% Brent crude oil $ 33.31 19-Feb -45% -14% Zinc $ 1,746.00 19-Feb -14% 17% Coffee $ 116.65 19-Feb -22% 8% Natural gas $ 1.78 19-Feb -40% -10% Coal $ 50.90 19-Feb -28% 3% Oat $ 191.25 19-Feb -38% -7% Gasoline $ 0.97 19-Feb -41% -10% Cobalt $ 22,700.00 19-Feb -22% 8% Sugar $ 12.69 19-Feb -16% 15% Heating oil $ 1.03 19-Feb -51% -20% Steel $ 210.00 19-Feb -56% -25% Ethanol $ 1.41 19-Feb -4% 27% Livestock Actual Date Yearly Relative to GSCI Industrial Agriculture Actual Date Yearly Relative to GSCI Feeder Cattle $ 154.00 19-Feb -24% 7% Metals Actual Date Yearly Relative to GSCI Cotton $ 59.54 19-Feb -8% 23% Live Cattle $ 133.70 19-Feb -13% 18% Gold $ 1,222.27 19-Feb 1% 32% Rubber $ 155.30 19-Feb -30% 1% Lean Hogs $ 68.60 19-Feb 2% 33% Silver $ 15.27 19-Feb -6% 24% Lumber $ 259.70 19-Feb -16% 15% Beef $ 10.13 19-Feb 14% 45% Platinum $ 933.90 19-Feb -20% 11% Wool $ 1,273.00 19-Feb 17% 48% Palladium $ 499.00 19-Feb -36% -6% Commodities that have suffered the largest decline in prices were energy and metals. With a few exceptions agricultural commodity prices did not decline as much as energy and industrial commodities prices did. Some agricultural commodity prices have actually risen over the last 12 months. Source: Trading Economics, Moffatt & Nichol 9
Water is the overlooked looming resource crisis NUMBER OF MONTHS PER YEAR IN WHICH WATER SCARCITY EXCEEDS 100% BY GEOGRAPHICAL AREA Two-thirds of the planet s population, or 4 billion people, lives at least one month per year with water scarcity, according to the most detailed water scarcity assessment to date. Water is becoming increasingly scarce in Asia, the Middle East and in the Western half of the US. The Americas otherwise have abundant water and are likely to grow in importance as the world s breadbasket. Source: Mesfin M. Mekonnen, and Arjen Y. Hoekstra Sci Adv 2016;2:e1500323 10
Asia is the dominant destination of US grains and oilseeds US GRAIN AND OILSEED EXPORTS (MILLION METRIC TONS) BY DESTINATION 2003 2005 2007 2009 2011 2013 2014 +/- Share Asia - East & Southeast 52% 53% 50% 63% 60% 62% 62% 10% China 11% 10% 10% 21% 21% 34% 30% 19% South & Central America 14% 15% 15% 13% 11% 15% 17% 3% Africa 13% 14% 14% 9% 11% 7% 6% -6% Europe 9% 5% 7% 4% 4% 6% 6% -3% North America 9% 7% 6% 7% 7% 7% 6% -3% Middle East 4% 5% 7% 4% 6% 3% 3% -1% Asia - South 0% 0% 1% 0% 0% 0% 0% 0% 100% 100% 100% 100% 100% 100% 100% Source: US Census Bureau, Moffatt & Nichol 11
Deteriorating US inland infrastructure a serious problem HOURS OF LOCK OUTAGES BY YEAR AND TYPE Hours of Lock Outages by Year and by Type of Outage CHANGES IN SHARE OF CROP PRODUCTION: 1997 VS 2012 SHARES OF US GRAIN AND OIL SEED EXPORTS 2003 2005 2007 2009 2011 2013 2014 +/- Share New Orleans 61% 52% 51% 52% 48% 49% 52% -8.7% Columbia-Snake 14% 16% 16% 15% 18% 20% 19% 5.2% Seattle, WA 8% 13% 11% 12% 12% 8% 8% 0.2% Los Angeles, CA 1% 2% 4% 3% 4% 4% 3% 2.1% Norfolk, VA 1% 1% 2% 2% 2% 3% 2% 1.9% Other 15% 16% 17% 15% 17% 16% 14% -0.6% 100% 100% 100% 100% 100% 100% 100% Soybean Transportation Coalition studied US inland waterways. Key points: 54% of the Inland Marine Transportation System s (IMTS) structures are more than 50 years old and 36% are more than 70 years old. Along with water issues probably, this has impacted where grain is produced and exported. Grain increasingly moves on steel rivers (railways). 12
West South Central North Central East Empty container availability is very poor in less urban areas CONTAINER SHORTAGE INCIDENCE BY CITY Dry Reefer 20ft 40ft 40ft High Average 20ft Average Average New York 0% 0% 0% 0% 0% 0% 0% Norfolk 0% 0% 0% 0% 0% 2% 1% Charleston 2% 0% 0% 1% 4% 4% 4% Savannah 0% 0% 0% 0% 0% 0% 0% Minneapolis 44% 44% 17% 35% 100% 92% 96% Chicago 0% 10% 2% 4% 0% 2% 1% Cincinnati 0% 2% 4% 2% 2% 42% 22% Columbus 2% 2% 0% 1% 10% 31% 20% Kansas City 2% 19% 13% 12% 0% 29% 14% Memphis 2% 0% 0% 1% 8% 94% 51% New Orleans 4% 23% 12% 13% 0% 17% 9% Dallas 0% 0% 0% 0% 0% 98% 49% Houston 2% 29% 0% 10% 0% 0% 0% Denver 0% 0% 0% 0% 44% 98% 71% LALB 0% 0% 0% 0% 0% 0% 0% Oakland 0% 0% 2% 1% 0% 2% 1% Seattle 4% 0% 17% 7% 0% 0% 0% Tacoma 0% 6% 19% 8% 48% 12% 30% Exporters in areas of the Midwest that are not very urban have the least amounts of containers available. This hampers agricultural exports that are best suited for containerization. Less congestion in port gateways could improve container availability in the Midwest. Source: US Department of Agriculture, Moffatt & Nichol 13
Summary Weak export growth is one of the greatest impediments to US economic prosperity and growth US has comparative advantages in Agriculture, Capital goods and Energy, which have a growing market Strong US dollar is not as significant a barrier to export growth as insufficient infrastructure 14
Dr. Walter Kemmsies, Chief Economist Dr. Walter Kemmsies, Chief Economist Moffatt & Nichol, New York Moffatt 104 West & 40th Nichol Street 529 5 th Avenue New York 14 th Floor NY 10018 New York, NY 10017 T 212.768.7454 T: 212 F 212.768.7936 7454 www.moffattnichol.com E: wkemmsies@moffattnichol.com www.moffattnichol.com