Pacific Northwest Waterways Association Anne Landstrom June 20, 2017
Pacific Northwest Waterways Association 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 Planning and design of marine and freight transportation Terminal design for all types of freight and passenger movement Freight planning and market analysis Investment/privatization analysis Strategic development plans Port selection/network analysis Coastal engineering Port and waterside construction (marinas) Railroads and capacity expansion 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. Moffatt & Nichol 2
Pacific Northwest Waterways Association Where is this going Global uncertainty is a factor and it is changing the way business is done What are the US Macro factors affecting the US port industry Technological changes and their impact Changing ocean carrier and port industry Moffatt & Nichol 3
What we (think) we know The future is uncertain, but then again it always is Global Economic Policy Uncertainty, January 1997 to May 2017 375 325 U.S. Elections & Politics in Brazil, China, France, South Korea and the UK 275 225 175 Asian & Russian Financial Crises 9/11 Invasion of Iraq Global Financial Crisis Eurozone Crisis, U.S. Fiscal Battles, China Leadership Transition Immigration Crisis, China Economy Fears Brexit 125 75 25 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Global EPU Index with Current Price GDP Weights Global EPU Index with PPP-adjusted GDP Weights Source: PolicyUncertainty.com; Baker, Bloom and Davis Moffatt & Nichol 4
Pacific Northwest Waterways Association Data (and context) is now the most valuable asset Top ten companies by market cap, 1997 and 2017 1997 Industry Mkt. Cap ($bn) 2017 Industry Mkt. Cap $bn General Electric Conglomerate 223 Apple Tech/Data 753 Royal Dutch Shell Oil and gas 191 Alphabet Tech/Data 671 Microsoft Tech/software 160 Microsoft Tech/Data 509 Exxon Mobil Oil and gas 158 Amazon Tech/Data 423 Coca-Cola Beverage 151 Berkshire Hathaway Conglomerate 411 Intel Tech/hardware 151 Facebook Tech/Data 411 Nippon T&T Telecom 146 Exxon Mobile Oil and gas 348 Merck Health care 121 Johnson & Johnson Pharma 338 Toyota Automotive 117 JPMorgan Chase Financial 314 Novartis Health Care 104 Wells Fargo Financial 278
Pacific Northwest Waterways Association Job growth is only half the story stagnant wages are the other half Or.. Real U.S. personal spending is growing at about 2.6% year over year, when it should be closer to 4%, given the much-ballyhooed global recovery. Year-over-year growth in U.S. retail sales peaked at 8.3% in mid-2011 and has since slowed to 4.5% Moffatt & Nichol 6
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $ Billions Share of Total Pacific Northwest Waterways Association Stagnant Consumer Spending vs. Growth in E-commerce Ecommerce gaining share of US Retail Sales Ecommerce vs Total Retail Trade Sales 1,400 10% 1,200 9% 8% 1,000 7% 800 600 6% 5% 4% 400 3% 200 2% 1% 0 0% Ecommerce Share (right axis) Total Ex-Ecomm E-commerce Total Moffatt & Nichol 7
Case Study: Walmart Super Import Distribution Centers and Amazon Fulfillment Centers Moving closer to the consumer Moffatt & Nichol 8
Imported omnichannel goods distribution options DISTRIBUTION FLOW CHART Source: JLL
Where are Transportation & Logistics Jobs Concentrated in U.S.? Cities with 20,000 or more Jobs in the Transportation & Logistics Sector 10
Pacific Northwest Waterways Association Autonomous Vehicles Vessels Trucks Moffatt & Nichol 11
A Maturing Container Market GLOBAL CONTAINER THROUGHPUT VS GDP GROWTH (TEU-TO-GDP MULTIPLIER) Source: Alphaliner 12
Bigger Ships, Fewer Calls, More Congestion SHARE OF FLEET CAPACITY 2015 2012 78% 88% 22% 12% Coming soon - 20,000+ TEU 13
Congestion is a global problem that needs local solutions TRUCK TRAFFIC IN ROTTERDAM PORT TRAFFIC IN SOUTHERN CALIFORNIA PORT OF SHANGHAI, CHINA Unbalanced Investment bigger ships but not bigger roads Chassis Shortages physical and structural Labor Shortages regulatory and demographic Unstable Seasonal Patterns reaction to anticipated issues Customs Slowdowns government budget issues Inclement Weather climate change
Carrier Consolidation Four global shipping alliances in 2016 have consolidated to just three mega alliances in 2017 Further consolidation will occur in April 2018 when the three Japanese carriers come together to form ONE Not included in this list is Hamburg Sud, recently acquired by Maersk and soon to be part of the 2M Alliance The G6 and CKYHE have experienced the most changes with the former losing APL, OOCL and HMM CKYHE has seen the Chinese and Evergreen transfer to the Ocean Alliance ***Hanjin bankruptcy in 2016 has created further consolidation in the industry Moffatt & Nichol 15
Terminal/Port Consolidation Terminal consolidation has already occurred at the Port of Oakland and the Ports of Seattle and Tacoma (NWSA) Closure of T-6 in Portland has further reduced the choices for PNW shippers With Alliance changes, what is the future for the facilities in San Pedro Bay? Moffatt & Nichol 16
Carrier Alliances Intertwined with Terminal Operators 2M Ocean Allianc e APMT AP Moeller Maersk 100% EVERPORT PORTS AMERICA GCT SSA Evergreen 100% Dr. Chang Yungfa (Deaceased) Family Controlled MSC 65% Global Infrastructure Partners 35% Highstar Capital 100% Deutsche Bank selling NY/NJ terminal to McQuarrie and Prince Rupert to DP World Ontario Teachers Pension 100% CK Hutchinson Holdings Limited 80% PSA 20% Public Offering $5.5 B Carrix (Parent Company) Smith & Hemmingway Family 51% FRS Capital Corp 49% TIL MAHER HPH DP WORLD Publically Traded in Dubai (2007, NASDAQ Dubai Issued 3.818 billion shares) THE Allianc e TTI TIL 80% Hyundai 20% YTI Macquarie 49% NYK Ports 51% TRAPAC EUROGATE ICTSI PSA INT L Brookfield 49% MOL 51% Privately Held 70% APMT (30%) Enrique K. Razon Jr. 53.4% Public 37.9% Capital Group Companies 8.7% TEMASEK Holdings (Parent Company) 100% 17
Pacific Northwest Waterways Association Coastal share of container cargo 70% 60% 50% 40% 30% 20% 10% Source: AAPA 0% 1980 1985 1990 1995 2000 2005 2010 2015 West Coast East Coast Gulf Coast Moffatt & Nichol 18
U.S. Federal Infrastructure Funding Must Become Reliable Source: U.S. Department of Transportation (USDOT) 19
Pacific Northwest Waterways Association Asia is the dominant destination of US grains and oilseeds US Grain and Oilseed Exports by Destination (Million tons) 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% Source: US Census Bureau, Moffatt & Nichol Moffatt & Nichol 20
Tons EGT Port of Longview EGT Facility Longview, WA Port of Longview Grain Exports 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 Source: US Census Bureau 2003 2005 2007 2009 2011 2013 2015 First bulk grain export terminal built in the US in over 25 years in Port of Longview, WA opened in summer of 2012 Able to handle wheat, corn, soybeans, soybean meal and DDGs through both barge and rail Joint venture between Bunge North America, ITOCHU Intl. and STX Pan Ocean $200M estimated capital investment 36 Storage Silos: 140ft high X 45ft diameter; 500ft length dock, 43ft depth; 46,000 total feet of rail; 120,000 bushels per hour/ 3,000 MTs per hour loading 21
Conclusions Technology is changing the world Growth in maturing container market requires landside and waterside efficiencies Big ships will concentrate and exacerbate port-related congestion Inland supply chain competitiveness an increasing industry concern Our opportunity: U.S. public and private sector creativity and cooperation 22
THANK YOU Questions? A n n e L a n d s t r o m M o f f a t t & N i c h o l a l a n d s t r o m @ m o f f a t t n i c h o l. c o m 925-944- 5 4 11