The Path to the Crisis of 2008:
Beware of Future Expectations
Jean-Paul Rodrigue
Department of Global Studies & Geography, Hofstra University
Theo Notteboom
ITMMA - University of Antwerp and Antwerp Maritime Academy
Terminal Operators Conference - Europe
Valencia (Spain), June 8-10 2010
The Crisis is Over: Long Live the Crisis
• Many unfounded assumptions behind the
recovery:
-
Randomness and uniqueness.
The cause (debt) is the solution (more debt)
The soundness of economic theory (Keynesianism).
“Appropriate” response from central banks and
governments.
- No unintended consequences of moral hazard.
• Recession:
- Clear the stupidity out of the system.
- We have been very stupid (depression?).
The First Crisis of Globalization:
Reaping the Consequences of
Misallocations
Production
CAUSES
Monetary system
(fractional reserve
banking, fiat
currencies)
Distribution
SYMPTOMS
Debt, asset inflation
CONSEQUENCES
Misallocations
(bubbles)
Consumption
Business Cycles: The Trend that Time
Forgot
Demand
Transfer of future demand into
the present.
Supply
Misallocations because of
distorted expectations about the
future.
Asset price distortions.
Credit-Driven Boom
Peak
Credit-Driven Bust
Trough
Expansion
Recession
Expansion
Depression
Blowing Bubbles and Compounding
Distortions: From Technology to
Commodities
500.0
450.0
400.0
NASDAQ (Jan 1998=100)
350.0
TOL (Jan 2003=100)
300.0
BDI (Jan 2006=100)
250.0
200.0
150.0
100.0
50.0
0.0
Jan-98
Tech / Stock Bubble
Jan-99
Jan-00
Jan-01
Commodities /
Trade Bubble
Housing Bubble
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Globalization 2000-2008: A Bubble?
14
2
13
Seaborne Trade (billions of tons of goods loaded) - Left Axis
12
Exports of Goods (trillions of current $US) - Left Axis
11
Ratio Exports / Seaborne Trade - Right Axis
10
1.8
1.6
1.4
9
8
7
6
1.2
1
0.8
5
4
0.6
3
0.4
2
1
0
0.2
0
Changes in the Value World’s
Merchandise Trade, Production and
GDP, 1950-2009 (in %)
25.00
20.00
15.00
10.00
5.00
0.00
-5.00
Recession
Total Merchandise Trade
-10.00
World GDP
World Merchandise Production
-15.00
A Paradigm Shift in Neomercantilism?
Monthly Value of Exports or Imports, Selected Traders, 2006-2010 (Jan
2006=100)
225
China (Exports)
Japan (Exports)
Korea (Exports)
Germany (Exports)
Canada (Exports)
USA (Imports)
UK (Imports)
200
175
150
125
100
75
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
Jan-07
Nov-06
Sep-06
Jul-06
May-06
Mar-06
Jan-06
50
0
May-10
Jan-10
Sep-09
Housing Bubble
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Jan-07
Sep-06
May-06
Jan-06
Sep-05
May-05
Jan-05
Sep-04
May-04
Jan-04
Sep-03
May-03
Jan-03
6,000
Sep-02
May-02
Jan-02
Sep-01
May-01
Jan-01
Sep-00
May-00
Jan-00
Keeping Doing the Same Thing? Baltic
Dry Index, Monthly Value, 2000-2010
12,000
Commodities Bubble
10,000
8,000
-92%
4,000
2,000
Which Bubble?
150
140
130
120
Jan-05
Mar-05
May-05
Jul-05
Sep-09
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
Container Traffic Recovery Around the
Corner?
Monthly Total Container Traffic at Selected Ports (Jan 2005=100)
Los Angeles
New York
Busan
Hong Kong
Algeciras
110
100
90
80
70
60
15
-15
10
-20
5
-25
0
-30
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
Jan-90
Jan-89
Jan-88
20
Jan-87
Jan-86
Jan-85
Monthly Trade between China and the
United States, Billions of USD (19852010)
35
5
30
0
25
-5
Exports
Imports
-10
Balance
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Jan-02
Jul-01
Jan-01
Jul-00
Jan-00
Jul-99
Jan-99
Jul-98
Jan-98
Jul-97
350,000
Jan-97
400,000
Jul-96
Jan-96
Jul-95
Jan-95
Monthly Container Traffic at the Port of
Los Angeles, 1995-2010
450,000
Out Loaded
In Loaded
In Empty
Out Empty
300,000
250,000
200,000
150,000
100,000
50,000
0
American Foreign Trade by Maritime
Containers, 2008 (in TEUs): The Trade
Fundamentals
Importers
Whirlpool
JC Penney
Nike
Red Bull
Samsung
Jarden
General Electric
Ashley Furniture
Ikea
Heineken
Chiquita
Philips
LG Group
Lowe's
Costco Wholsale
Dole Food
Sears Holding
Home Depot
Target
Wal-Mart
Exporters
Newport Chinternational
Sims Metal Management
CGB Enterprises
Denison
JC Horizon
ExxonMobil
Delong
BASF
Archer Daniels Midland
Cedarwood-Young
Meadwestvaco
Procter & Gamble
Potential Industries
Dupont
Dow Chemical
International Paper
Koch Industries
Cargill
Weyerhaeuser
America Chung Nam
0
200,000 400,000 600,000 800,000
0
200,000 400,000 600,000 800,000
Value Propositions behind the Interest
of Equity Firms in Transport Terminals
Diversification
(Risk mitigation value)
Sectorial and geographical asset diversification.
Mitigate risks linked with a specific regional or
national market.
Asset
(Intrinsic value)
Source of income
(Operational value)
Terminals occupy premium
locations (waterfront).
Globalization made terminal
assets more valuable.
Traffic growth linked with
valuation.
Same amount of land generates
a higher income.
Terminals as fairly liquid assets.
Income (rent) linked with the
traffic volume.
Constant revenue stream with
limited, or predictable,
seasonality.
Traffic growth expectations
result in income growth
expectations.
Port and Maritime Industry Finance:
Who is Leveraging Whom?
Investors
Financial
Markets
Brokers
Corporations
Money Markets
Commercial
Banks
Private
Investors
Capital Markets
Mortgage
Banks
Investments
Managers
Equity Markets
Merchant Banks
Private
Placement
Finance Houses
•Insurance Companies
•Pension Funds
•Banks
•Trust Funds
•Finance Houses
Leasing
Companies
Shipping
Companies
Port
Operators
Earnings
Reviewing Assumptions: The Impacts of
“Financialization”
Physical assets seen as financial assets.
Disconnection
Rent-seeking
strategies
From market
knowledge
Focus on shortterm results
Asset inflation
High amortization
Expectations of quick capital amortization.
Expectations about future growth and the
corresponding volumes.
From long-term
business cycles
From outcome of
actions
Lack of
accountability
From local/
regional dynamics
Lack of regional
embeddedness
Loss of
embeddedness
Assets perceived simply from their expected
level of return.
Lower
contestability
Perceived liquidity.
Capacity to quickly enter and exit the market.
Dumb Money at Work?
Date
2005
Early 2006
Mid 2006
Mid 2006
End 2006
Transaction
DP World takes over CSX World Terminals
PSA acquires a 20% stake in HPH
DP World acquires P&O Ports
Goldman Sachs Consortium acquires ABP
AIG acquires P&O Ports North America
Price compared to EBITD
14 times
17 times
19 times
14.5 times
24 times
Early 2007
Ontario Teachers’ Pension Fund acquires
OOIL Terminals
RREEF acquires Maher Terminals
23.5 times
Mid 2007
25 times
EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization
World Container Traffic and
Throughput, 1980-2008. Reaching Peak
Growth?
World Traffic
World Throughput
Full Containers
Transshipment
Empty Containers
500
Million TEU
400
Niche markets
Maturity
Massive diffusion
Network complexities
Peak Growth
300
Network development
Productivity multipliers
200
100
Acceleration
New (niche) services
Productivity gains
Adoption
0
1980
1985
1990
1995
2000
2005
2010
Fallacies of Forecasting: 2020
Throughput Forecast, Selected Large
Ports, Linear and CAG Scenario
Port / Traffic 2007, M
TEU
R2 / CAG (1998-2007)
Traffic 2020 (Linear
Scenario) / CAG
Traffic 2020 (CAG 1998-2007
Scenario)
New York / 5.3
0.996 / +7.9%
9.6 M TEU / +4.7%
14.2 M TEU
Savannah / 2.6
0.968 / +13.5%
4.9 M TEU / +5.1%
13.6 M TEU
Los Angeles / 8.3
0.966 / +9.5%
16.6 M TEU / +5.4%
27.1 M TEU
Antwerp / 8.2
0.974 / +9.6%
14.5 M TEU / +4.5%
26.9 M TEU
Algeciras / 3.4
0.961 / +6.5%
6.0 M TEU / +4.4%
7.7 M TEU
Busan /13.3
0.983 / +8.4%
24.3 M TEU / +4.8%
38.1 M TEU
Shanghai / 26.1
0.948 / +23.9%
56.5 M TEU / +6.1%
423.8 M TEU
From under estimating to over estimating trends
Linearity prevalent in growth trends (1998-2007)
Compound annual growth common in forecasts
Non-contestability assumption
If you build it
they will come…
Terminal Operators; Well Positioned or
Overextended?
Then: Dynamics oriented towards expansion.
Now: Rationalization, performance
improvements and the search for niche markets.
Container Terminal Portfolio of the four
Main Global Terminal Operators, 2009
Container Terminal Portfolio of Other
Global Terminal Operators, 2009
Conclusion: Beware of Future
Expectations
• Intense phase of capital accumulation in the
shipping and port sectors.
• Some of the growth expectations based on
unsubstantiated assumptions.
• “Financialization” transformed the industry and
expanded misallocations.
• What could be some specific consequences on
the maritime industry?