1 copyright © 2007 global insight, inc economic impact of trade in response to the panama canal...

1 Copyright © 2007 Global Insight, Inc

Economic Impact of Trade in Response to The Panama Canal

Expansion

Presented to: IAPH

3 May, 2007Hilton Americas Hotel

Houston, Texas

Presented by:Robert West

Managing DirectorGlobal Trade & Transportation

Global Insight781-301-9078

[email protected]


Agenda

• Global issues and trends affecting the world and U.S. economic outlooks

• Implications for sea trade in the Western Hemisphere

• Conclusions


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 . . .


Has world economic growth peaked? - - - yes, but…

0

1

2

3

4

5(Percent change, real GDP)

The world economy is in recession when real GDP growth is below 2%.


World container trade normally grows faster than the world economy. And 2006 was very healthy.

-1

1

3

5

7

9

11

13

15

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

World GDP% TEUs

2006 2007

GDP 4.0% 3.5%

TEUs 9.6% 8.9%

2006 2007

GDP 4.0% 3.5%

TEUs 9.6% 8.9%


Trade is linked to real GDP growth - uneven across the world – and emerging markets grow fastest.

0

2

4

6

8

10

NAFTA OtherAmericas

Japan WesternEurope

EmergingEurope

Other Asia India Mideast &Africa

2005 2006 2007 2008

(Percent change, real GDP)


Europe in the long term – a great museum?

… and the visitors will come from China!


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)

2000 2010 2020 2030 2040 2050

U.S. U.S. U.S. U.S. U.S. China

Japan Japan China China China U.S.

Germany Germany Japan Japan India India

U.K. U.K. Germany India Japan Japan

France China U.K. Russia Russia Brazil

Italy France India U.K. Brazil Russia

China Italy France Germany U.K. U.K.

Brazil India Russia France Germany Germany

India Russia Italy Brazil France France

Russia Brazil Brazil Italy Italy ItalySource: Global Insight World Service and Goldman Sachs


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


(Annual percent change, 2000 dollars) (Unemployment rate - %)

The U.S. economic expansion has slowed quickly. Modest improvements in 2007 –slower than the world.

-2

0

2

4

6

8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2

3

4

5

6

7

Real GDP Growth Unemployment Rate

Real GDP

2006: 3.3%

2007: 2.1%


A Record U.S. Current Account Deficit – over $800 billion as far as the eye can see. But peaking at last!

-$1,000

-$800

-$600

-$400

-$200

$0

$200

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010-8

-6

-5

-3

-2

0

2

Current Account Deficit Deficit as % of GDP

(Billions)


The U.S. dollar will depreciate further – steady declines through 2008, due to huge current account deficits.

0.7

0.8

0.9

1.0

1.1

1.2

1.3

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Industrial Countries Developing Countries

(2000=1.00)

This could be another 10% drop in the dollar.


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!


US TEU Imports

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

20,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

European Union Latin Amer (Not Mexico) Middle East + ISC Other Far East China - HK

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.


China’s momentum is hard to slow down, but the government is trying - - - soft landing most likely.

1980 2004Real Per Capita GDP (2004$) $171 $964Real GDP as % of US Level, 2004$ 3% 14%Real GDP growth in previous 20 years 5.3% 8.6%Population (millions) 981 1,300Trade's share of GDP 15% 85%Number of Supermarkets 0 70,000Current Account Surplus ($ billions) 1 266Agriculture's share of GDP 30% 15%Urbanization 20% 33%


Market penetration in some sectors is reaching saturation …

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Footware Electrical Appliances and Houseware Textiles

Footwearr Electrical Appliances

Textiles


But look at China’s penetration of new market segments.

0%

10%

20%

30%

40%

50%

60%

70%

80%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Semi-conductors, Electronic Tubes,etc Office and Computing Machinery

Office and Computing Equipment

Semi-conductors, Electronic parts, etc.


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.


There are some New Players on the world scene

•Chindia

•Colombia


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 and China Real GDP Growth Rates

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

India Real GDP China Real GDP

India

China

INDIA


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


Agenda


• Implications for sea trade in the Western Hemisphere

• Conclusions


Latin America’s sea trade is expected to grow in line with general world sea trade growth. Imports will outpace exports.

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

20,000,000

TE

Us

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Latin America Imports Latin America Exports

2007 2007% 2005-20 2010-15IMPORTS 5,036,890 7.2% 6.4% 4.6%EXPORTS 7,782,651 5.7% 5.1% 4.1%


0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

Exports Imports

West Coast South America

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

Exports Imports

EC South America

EXPORTS IMPORTS

West Coast, South America East Coast, South America

South America’s east & west coasts are export oriented, but imports will grow faster.

EC South America 2006 2010 CAGR%Exports 4,242,497 5,050,706 4.5%Imports 2,078,162 2,620,572 6.0%

WC South America 2006 2010 CAGR%Exports 1,566,754 1,896,612 4.9%Imports 804,329 1,018,626 6.1%

TEUs


Caribbean and Central America are fairly well-balanced.

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

Exports Imports

Caribbean

EXPORTS IMPORTS

Caribbean 2006 2010 CAGR%Exports 765,407 912,922 4.5%Imports 941,749 1,093,995 3.8%

750,000

800,000

850,000

900,000

950,000

1,000,000

Exports Imports

Central America

Central America 2006 2010 CAGR%Exports 876,189 1,014,329 3.7%Imports 859,621 1,080,414 5.9%

TEUs


As China expands its markets, the U.S. becomes less important, but Latin America - -

US Share of China Exports

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

TE

Us

29.0%

30.0%

31.0%

32.0%

33.0%

34.0%

35.0%

36.0%

37.0%

38.0%

39.0%

40.0%

US

Sh

are

World Total United States United States Share of Ch Exp

Source: Global Insight World Trade Model


. . . could absorb 10% of China’s container exports by 2010, with strong growth in consumer products.

Source: Global Insight World Trade Model

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

World Total Latin America LA Share


Each part of Latin America depends much more on the Far East for imports than for exports.

WCSA Exports - 2006

Indian Subcontinent0%

AFRICA0%

Latin America9%

Far East17%European Union

22%

NAFTA48%

ROW3%

Middle East1%

WCSA Imports - 2006

Indian Subcontinent1%

European Union16%

Latin America 22%

NAFTA30%

Far East28%

AFRICA1% ROW

2%

Middle East0%

Imports ExportsWCSA 28 17ECSA 24 12Cen Amer 33 2Caribbean 17 1

Far East Share (%) of Container Trade


With a third set of locks, container traffic will account for nearly 60% of all Canal tonnage in 2025.

Dry Bulk20%Liquid Bulk

12%

Passenger4%

Car Carrier13%

Other7% Container

s34%

General Cargo

3%

Refer. Cargo

7%

Dry Bulk14%

Liquid Bulk5%

Passenger4%

Car Carrier11%

General Cargo

1%Other

2%

Refer. Cargo

4%

Containers

59%

Panama Canal Tonnage: 2005 vs. 2025

20252005

Source: ACP; Norbridge, Global Insight forecasts


CARTAGENA

COLON/MIT

P. CABELLOP. of SPAIN

KINGSTON

FREEPORT

RIO HAINA

SAN JUAN

CAUCEDO

Caribbean Transshipment TriangleCaribbean Transshipment Triangle


50

.2%

47

.7%

40

.2%

38

.7%

50

.5%

49

.0%

59

.5% 58

.3%

51

.6%

52

.1%

42

.2%

42

.5%

22

.9%

25

.1%

34

.3% 3

1.0

%

30

.0%

27

.8%

25

.1%

23

.0%

33

.7%

30

.3%

41

.6%

38

.9%

14.5%

16.7%

17.3%

18.6%13.2%

14.3%

10.3%

11.2%

9.9%

10.4%

11.1%

11.1%

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

Panamá Suez Panamá Suez Panamá Suez Panamá Suez Panamá Suez Panamá Suez

2001 2002 2003 2004 2005 2006

Ship provision costs Fuel costs - sea Fuel Costs - Port

Fuel costs - Canal Canal fees Port fees

Source: Panama Canal Authority

Panama – Suez Route Cost ComparisonNortheast China to USEC

Suez FeesPanama Fees


Pu

nta

Co

lon

et

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 billionUP + HutchisonBNSF + Grupo MexicoMTC + Carlos SlimOthers?

• MHFM Transport (Mexico)• SPV (Japan)• Arias Asia (China)


Agenda


• Implications for sea trade in the U.S. and Latin America

• Conclusions


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.

0

1

2

3

4

5

6

7

8

% A

nn

ual

Ch

an

ge,

2007

2007 Real GDP Growth


Economic Impact of Trade in Response to The Panama Canal

Expansion

Presented to: IAPH

3 May, 2007Hilton Americas Hotel

Houston, Texas

Presented by:Robert West

Managing DirectorGlobal Trade & Transportation

Global Insight781-301-9078

[email protected]


Trade is linked to real GDP growth - uneven across the world – and emerging markets grow fastest.

0

2

4

6

8

10

NAFTA OtherAmericas

Japan WesternEurope

EmergingEurope

Other Asia India Mideast &Africa

2005 2006 2007 2008


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?


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


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.

1 copyright © 2007 global insight, inc economic impact of trade in response to the panama canal...

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