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
Copyright © 2007 Global Insight, Inc
1
Agenda
• Global issues and trends affecting the
world and U.S. economic outlooks
• Implications for sea trade in the Western
Hemisphere
• Conclusions
Copyright © 2007 Global Insight, Inc
2
Key Global Issues and Trends
•
Will higher oil prices derail the recovery? NO - Not at $70-75
•
Will the dollar crash?
•
China: Hard or soft landing?
SOFT
•
New and important players?
YES, A COUPLE . . .
Copyright © 2007 Global Insight, Inc
NO, but . . .
3
Has world economic growth peaked? - - - yes, but…
The world economy is in recession when real GDP growth is below 2%.
(Percent change, real GDP)
5
4
3
2
1
Copyright © 2007 Global Insight, Inc
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
0
4
World container trade normally grows faster than the
world economy. And 2006 was very healthy.
2006
15
2007
GDP 4.0%
TEUs 9.6%
13
3.5%
8.9%
11
9
7
5
3
1
-1
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
World GDP%
Copyright © 2007 Global Insight, Inc
2005
2006
2007
2008
2009
2010
TEUs
5
Trade is linked to real GDP growth - uneven across the
world – and emerging markets grow fastest.
(Percent change, real GDP)
10
8
6
4
2
0
NAFTA
Other
Americas
Japan
Western
Europe
2005
2006
Emerging Other Asia
Europe
2007
Copyright © 2007 Global Insight, Inc
India
Mideast &
Africa
2008
6
Europe in the long term – a great museum?
… and the visitors will come from China!
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7
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
Italy
Source: Global Insight World Service and Goldman Sachs
Copyright © 2007 Global Insight, Inc
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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
Copyright © 2007 Global Insight, Inc
9
The U.S. economic expansion has slowed quickly.
Modest improvements in 2007 –slower than the world.
8
(Annual percent change, 2000 dollars)
(Unemployment rate - %)
7
Real GDP
6
2006: 3.3%
6
2007: 2.1%
4
5
2
4
0
3
-2
2
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Real GDP Growth
Unemployment Rate
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A Record U.S. Current Account Deficit – over $800 billion
as far as the eye can see. But peaking at last!
(Billions)
$200
2
$0
0
-$200
-2
-$400
-3
-$600
-5
-$800
-6
-$1,000
-8
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Current Account Deficit
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Deficit as % of GDP
11
The U.S. dollar will depreciate further – steady declines
through 2008, due to huge current account deficits.
(2000=1.00)
1.3
1.2
1.1
1.0
This could be another
10% drop in the dollar.
0.9
0.8
0.7
2000
2001
2002
2003
2004
2005
Industrial Countries
2006
2007
2008
2009
2010
Developing Countries
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12
The U.S. was the engine of growth, but in 2006 this
shifted to Asia, which is now supporting world growth.
•
•
•
•
Inflation remains under 4% in most Asian economies
— exceptions include Indonesia, India, and the
Philippines.
High saving rates mean these economies will
continue to be capital exporters - investors in ports
and transportation infrastructure (even Canals?).
China will have a soft landing.
1/3 of the world’s container trade is Intra-Asia!
Copyright © 2007 Global Insight, Inc
13
U.S. TEU imports will slow to 5.6% in 2007, and 7.6% in
2008. Chinese imports will grow fastest (10% on average).
US TEU Imports
20,000,000
18,000,000
16,000,000
China was 1/3 of US imports in
2000 and will be 1/2 by 2013.
14,000,000
12,000,000
China
10,000,000
8,000,000
Other Far East
6,000,000
4,000,000
2,000,000
0
2000
2001
2002
2003
European Union
2004
2005
2006
2007
Latin Amer (Not Mexico)
2008
2009
2010
Middle East + ISC
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2011
2012
2013
Other Far East
2014
2015
China - HK
14
China’s momentum is hard to slow down, but the
government is trying - - - soft landing most likely.
Real Per Capita GDP (2004$)
Real GDP as % of US Level, 2004$
Real GDP growth in previous 20 years
Population (millions)
Trade's share of GDP
Number of Supermarkets
Current Account Surplus ($ billions)
Agriculture's share of GDP
Urbanization
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1980
$171
3%
5.3%
981
15%
0
1
30%
20%
2004
$964
14%
8.6%
1,300
85%
70,000
266
15%
33%
15
Market penetration in some sectors is reaching
saturation …
100%
90%
Footwear
80%
Electrical Appliances
70%
60%
Textiles
50%
40%
30%
20%
10%
0%
1995
1996
1997
1998
Footware
1999
2000
2001
2002
2003
2004
2005
Electrical Appliances and Houseware
Copyright © 2007 Global Insight, Inc
2006
2007
2008
2009
2010
Textiles
16
But look at China’s penetration of new market
segments.
80%
Office and Computing
Equipment
70%
60%
50%
40%
30%
Semi-conductors,
Electronic parts, etc.
20%
10%
0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Semi-conductors, Electronic Tubes,etc
Copyright © 2007 Global Insight, Inc
2005
2006
2007
2008
2009
2010
Office and Computing Machinery
17
China Economic Summary
•
•
•
•
There appears to be little risk at the macroeconomic 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.
Copyright © 2007 Global Insight, Inc
18
There are some New Players on the world scene
• Chindia
• Colombia
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19
India could align with China (creating CHINDIA) and
create a powerhouse from toys to high tech.
India and China Real GDP Growth Rates
12.0
China
10.0
8.0
6.0
India
4.0
2.0
0.0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
India Real GDP
2005
2006
2007
2008
2009
2010
China Real GDP
INDIA
• $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
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In Latin America, Colombia is a new, fast-growing player.
Colombia
•
•
•
•
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.
Copyright © 2007 Global Insight, Inc
21
Agenda
• Global issues and trends affecting the
world and U.S. economic outlooks
• Implications for sea trade in the Western
Hemisphere
• Conclusions
Copyright © 2007 Global Insight, Inc
22
Latin America’s sea trade is expected to grow in line with
general world sea trade growth. Imports will outpace
exports.
20,000,000
18,000,000
2007
IMPORTS 5,036,890
EXPORTS 7,782,651
2007%
7.2%
5.7%
2005-20
6.4%
5.1%
2010-15
4.6%
4.1%
16,000,000
14,000,000
TEUs
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
Latin America Imports
Copyright © 2007 Global Insight, Inc
2009
2010
2011
2012
2013
2014
2015
Latin America Exports
23
South America’s east & west coasts are export oriented, but
imports will grow faster.
TEUs
EXPORTS
IMPORTS
EC South America
West Coast South America
4,500,000
4,500,000
4,000,000
4,000,000
3,500,000
3,500,000
3,000,000
3,000,000
2,500,000
2,500,000
2,000,000
2,000,000
1,500,000
1,500,000
1,000,000
1,000,000
500,000
500,000
0
0
Exports
Imports
Exports
West Coast, South America
WC South America
Exports
Imports
2006
2010
CAGR%
1,566,754 1,896,612
4.9%
804,329 1,018,626
6.1%
Imports
East Coast, South America
EC South America
Exports
Imports
Copyright © 2007 Global Insight, Inc
2006
2010
CAGR%
4,242,497 5,050,706
4.5%
2,078,162 2,620,572
6.0%
24
Caribbean and Central America are fairly well-balanced.
Central America
TEUs
EXPORTS
1,000,000
950,000
IMPORTS
900,000
850,000
800,000
750,000
Exports
Caribbean
Exports
Imports
Caribbean
Imports
2006
2010
CAGR%
765,407 912,922
4.5%
941,749 1,093,995
3.8%
1,000,000
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
Exports
Imports
Central America
Exports
Imports
2006
2010
CAGR%
876,189 1,014,329
3.7%
859,621 1,080,414
5.9%
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25
As China expands its markets, the U.S. becomes less
important, but Latin America - US Share of China Exports
40,000,000
40.0%
39.0%
35,000,000
38.0%
30,000,000
37.0%
TEUs
35.0%
20,000,000
34.0%
15,000,000
US Share
36.0%
25,000,000
33.0%
32.0%
10,000,000
31.0%
5,000,000
30.0%
0
Source: Global
29.0%
2000 World2001
Insight
Trade
World Total
2002
Model
2003
2004
2005
2006
United ©
States
Copyright
2007 Global Insight, Inc
2007
2008
2009
United States Share of Ch Exp
2010
26
. . . could absorb 10% of China’s container exports by
2010, with strong growth in consumer products.
70,000,000
12.0%
60,000,000
10.0%
50,000,000
8.0%
40,000,000
6.0%
30,000,000
4.0%
20,000,000
2.0%
10,000,000
0
0.0%
2000
2001
2002
2003
2004
World Total
2005
2006
2007
2008
2009
Latin America
2010
2011
2012
2013
2014
2015
LA Share
Source: Global Insight World Trade Model
Copyright © 2007 Global Insight, Inc
27
Each part of Latin America depends much more on the
Far East for imports than for exports.
Far East Share (%) of Container Trade
Imports
Exports
WCSA
28
17
ECSA
24
12
Cen Amer
33
2
Caribbean
17
1
WCSA Imports - 2006
Middle East
0%
European Union
16%
AFRICA
1%
WCSA Exports - 2006
Middle East
1%
ROW
2%
Far East
28%
Indian Subcontinent
1%
Latin America
22%
European Union
22%
AFRICA
0%
ROW
3%
Far East
17%
Indian Subcontinent
0%
Latin America
9%
NAFTA
48%
NAFTA
30%
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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
2005
Refer.
Cargo
7%
General
Cargo Other
3%
7%
Car Carrier
13%
Passenger
4%
Liquid Bulk
12%
2025
Container
s
34%
Refer.
Cargo
4%
Passenger
4%
Car Carrier
11%
Liquid Bulk
5%
Dry Bulk
20%
Dry Bulk
14%
General
Cargo Other
1%
2%
Container
s
59%
Source: ACP; Norbridge, Global Insight forecasts
Copyright © 2007 Global Insight, Inc
31
Caribbean Transshipment Triangle
FREEPORT
SAN JUAN
KINGSTON
RIO HAINA
CAUCEDO
P. of SPAIN
P. CABELLO
CARTAGENA
COLON/MIT
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32
Panama – Suez Route Cost Comparison
Northeast China to USEC
7,000,000
6,000,000
10.4%
5,000,000
11.1%
14.3%
9.9%
11.1%
38.9%
4,000,000
30.3%
23.0%
11.2%
10.3%
2001
Source: Panama
Canal Authority
Ship provision costs
Fuel costs - Canal
2002
Panamá
Suez
2003
33.7%
58.3%
Panamá
2004
Suez
Panamá
Suez
Panamá
2005
Fuel costs - sea
Fuel Costs - Port
Canal fees
Port fees
Copyright © 2007 Global Insight, Inc
42.5%
41.6%
25.1%
59.5%
49.0%
30.0%
50.5%
31.0%
Suez
42.2%
Panamá
13.2%
52.1%
Suez
38.7%
34.3%
Panamá
40.2%
47.7%
0
17.3%
22.9%
1,000,000
14.5%
50.2%
2,000,000
25.1%
18.6%
27.8%
16.7%
51.6%
3,000,000
Suez
2006
33
billion
Some$9Mexican
alternatives are being discussed – to feed
UP + Hutchison
the US
market,
inMexico
case there is a capacity squeeze.
BNSF
+ Grupo
MTC + Carlos Slim
Others?
Punta Colonet
•
•
•
•
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.
• MHFM Transport (Mexico)
• SPV (Japan)
• Arias Asia (China)
Manzanillo
Lazaro Cardenas
Alfa-Omega Line
Copyright © 2007 Global Insight, Inc
34
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
Copyright © 2007 Global Insight, Inc
35
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.
2007 Real GDP Growth
8
7
•
Latin America will outperform
the world.
% Annual Change, 2007
6
5
4
3
2
1
0
ela
•
zu
ne
Ve
a
tin
n
ge
Ar
ru
Pe
u
ug
Ur
ay
i
Ch
le
ica
aR
st
Co
r
do
ua
Ec
i
mb
lo
Co
a
il
az
Br
o
xic
Me
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.
Copyright © 2007 Global Insight, Inc
36
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
Copyright © 2007 Global Insight, Inc
37
Trade is linked to real GDP growth - uneven across the
world – and emerging markets grow fastest.
10
8
6
4
2
0
NAFTA
Other
Americas
Japan
Western
Europe
2005
2006
Emerging Other Asia
Europe
2007
Copyright © 2007 Global Insight, Inc
India
Mideast &
Africa
2008
38
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:
Now – 2015: WHAT?
• 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
After 2015:
WHAT NEXT?
By 2025, expansion will allow container traffic to triple from
98 to 296 million PCUMS tons.
Copyright © 2007 Global Insight, Inc
39
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).
Most
probable
Source: ACP; Norbridge
Copyright © 2007 Global Insight, Inc
40
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.
Copyright © 2007 Global Insight, Inc
41