Sunday, February 16, 2014

 Chief Economist Walter Kemmsies shares his Strategic View with American Shipper 

   Economic recovery has been uneven in most segments of the economy, particularly the freight movement industry. In some regions volumes have exceeded previous peak levels but in others they have not. This is particularly evident in port volume data. First, let’s review the good news. Severe winter weather notwithstanding, the U.S. economy is poised to grow more robustly in 2014 than it has in the years since the 2007-2009 recession. As consumer spending increases, imports are likely to grow and help other struggling economies. Growth of U.S. trading partners’ economies should eventually help export growth pick up. 

Every business cycle since the 1950s has been led by different industries. In the 1960s it was plastics and transistors, followed by energy and agriculture in the 1970s, aerospace in the 1980s and telecommunications and computers in the 1990s. In the 2000s growth in the United States was driven by the residential real estate boom. Looking forward, technological advances in shale oil and natural gas production and demand for food in emerging markets indicates these sectors should lead economic growth. Production and export of high-end capital goods such as airplanes, construction and farming machinery, as well as deep-sea oil production equipment, which are in demand in developing economies, are candidates to lead economic growth.
As U.S. exports increase, jobs will be created and the pace of economic activity will pick up. How much depends on various factors, including government policies and investments.

Now for the bad news. The picture for imports is not as hopeful as that for exports. U.S. households still have a high debt-to-income ratio and the number of people reaching retirement age each year through 2025 is slated to increase. Demographic trends and therefore trends in all segments of the U.S. economy have been driven by the Baby Boom generation since the mid-1940s. As this generation went through childhood, high school, college, joined the workforce and eventually moved to suburbs, various industries such as clothing, automobiles and real estate benefited.


These economic trends are visible in U.S. trade flows, particularly in port container volume trends. Although complete 2013 data is not yet fully available, estimates for the larger ports indicate the number of full containers exceeded the previous peak-level of 2007 for the first time since the 2007-2009 recession began. The recovery was led by exports since 2010. Import volumes have grown in the last three years, but remain below the 2007 peak.

Sources: AAPA, Moffatt & Nichol.

The share of import volumes handled at U.S. ports has declined from 62 percent to 58 percent. With the exception of New York, both East and West coast ports have seen the import share of their volumes decrease. West Coast ports have seen the largest decrease, from 68 percent in 2007 to 63 percent in 2013. Some of these declines may be attributable to growth in Canadian and Mexican ports, as well as the return of certain manufacturing elements such as plastics and fertilizers.

There is little reason to expect import volumes to grow faster than exports. The fastest growing U.S. demographic segment is the retiring Baby Boom generation. Older people generally spend more of their income on services (e.g. healthcare and leisure) than on goods, which will weigh on import volume growth. Other factors such as reduced packaging, digitization of reading materials, and the advent of 3-D printing could also slow imported container volumes growth.

Low overall volume growth does not mean all ports and their supply chain partners cannot sustain high growth. To do so requires positioning to support exports and imports that will grow with an aging population — items like eyeglasses, equipment to support mobility, pharmaceuticals and healthcare devices. The freight movement industry would do well to focus on those types of goods. It would also help if an export-oriented freight policy was developed: the key to expanding U.S. imports just may be a renewed commitment to expanding exports.
   Kemmsies is chief economist at Moffatt & Nichol, a marine infrastructure engineering firm. He can be reached at (212) 768-7454, or by email.