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U.S. Seaport Outlook 2013

Trends that shape global trade

U.S. prominence as global trader expected to double by 2020
As the United States gains steam out of the trough of the Great Recession, an emphasis on supply chain efficiencies, speed-to-market and access to key transportation networks will help drive industrial real estate decisions as occupiers aim to meet demand from a growing domestic consumer base. As the world’s largest combined importer and exporter, the United States accounts for over 20 percent of world trade by volume and is expected to grow its market share by 67 percent by 2020. As a result, domestic U.S. ports are expected to double gross cargo volumes during the same time period.

The growing importance of global gateway markets presents a unique opportunity for investors looking to capitalize on not only the growing domestic consumer demand but also the resurgence in American manufacturing and projected export growth over the next several years. Technology has further redefined how consumers are engaging in commerce. Through innovations pioneered by Amazon and other online retailers, e-commerce has turned traditional brick-and-mortar retailers on their head, forcing them to change the way in which they engage their end-consumers.

Not only are retailers trying to meet the needs of a growing population that consumes more, but they also must address concerns over speed-to-market and cost compared to a global pool of competitors. In making their warehousing and distribution decisions, firms are increasingly devoting resources to markets that offer access to both suppliers and consumers and efficient and reliable transportation networks, which, in turn, help them maximize value along their supply chain.

Globalization creating new challenges for managing supply chains
The last few years have proven just how interconnected global markets are to one another. In fact, a new range of global issues threatens to disrupt supply chains, sending ripples from the production line to the end-consumer. Businesses must address a range of supply chain barriers, including inconsistent infrastructure, limited market access and tariffs on foreign products.

As an example, the World Trade Organization (WTO) has cut its global trade growth forecast from 4.5 percent to 3.3 percent in 2013. The WTO cites the Euro zone slowdown as not only a crux to gradual economic improvement in the U.S., but also as a hindrance to export volumes coming out of China. Additionally, the World Economic Forum’s “Enabling Trade: Valuing Growth Opportunities” report projected capital investments in transportation and communication infrastructure, facilitation of trade and a business-friendly political environment could yield a minimum increase of 2.6 percent to gross world product (GWP). This is equivalent to 76 million jobs added worldwide, based on the GWP per employed person metric.

U.S. exports continue to set records, albeit at a more deliberate pace
Export volumes were a record $2.2 trillion in 2012. However, similar to previous quarters, the United States experienced limited export volume growth in the first quarter, raising a nominal $5.2 billion year-over-year. Some economists note the expiration of short-term stimulus programs, in addition to the still-hesitant domestic and international economic landscapes, may moderate export increases in the coming quarters.

Domestic energy production sustaining U.S. export growth
While the United States makes strides toward energy independence, the domestic energy sector continues to be a steady contributor to U.S. export growth. Coal, a cheap and dependable fuel for which the U.S. is the global supply leader, remains in high demand from key trade partners including Europe and China. Global reliance on coal for electricity generation and steel production is on the rise as comparable costs of local fuel sources are pushing other countries to seek out lower-cost imports from the United States. Additionally, the clean diesel and natural gas industries have presented an opportunity to further increase domestic export volumes.

U.S. containerized cargo growth may be hamstrung by trading partners’ uncertain economies
Decelerated growth in China has become a concern for domestic port stakeholders as the world’s second-largest economy shifts its focus from industrial manufacturing in favor of a more consumer-based growth model. Despite its slowdown, the country remains among the fastest-growing in the world, recording 7.7 percent GDP growth year-over-year in the first quarter. This rate of expansion, however, measures unfavorably against its historical standards of double-digit percentage gains.

The 27-nation European Union’s economy, burdened by historically high unemployment rates, heavy debt and tight fiscal spending, continues to face destabilizing pressures, prompting the largest trade surplus since its formation at €15.8 billion in March. Germany continues to perform well, contributing heavily to the export surplus, given the renewed demand for luxury vehicles in North America and China, while its fellow European Union members have weighed down the surplus due to minimal demand for imported goods.

Continued measures to abate the ongoing recession, notably via the European Central Bank enacting decreased interest rates and select governments reducing some of their more restrictive austerity programs, should help to stabilize the region’s economy in time.

India, like China, has recently been stricken by slowed manufacturing activity and depressed demand for exports while trading volumes declined. Fortunately, the second half of 2013 appears to be promising as inflationary pressures wane and borrowing rates potentially decline. The South American economy, reasonably dependent on commodities trading with China, has also recently experienced a slowdown. Most economists are predicting near-term, low, single-digit growth throughout South America, which will decline further if commodity prices decrease and demand from China dissipates.

Manufacturing a bright spot?
Improving domestic economic fundamentals are driving a resurgence of American consumer optimism. While the impact of the sequester is undoubtedly leaving its mark on other sectors of the economy, consumers have yet to fully realize its impact &ndash consumer confidence is now at a five-year high. As a result, foreign and domestic manufacturers may be poised to benefit from a growing base of consumers ready and willing to return to the market. However, the cost-competitiveness from outsourcing production to low-cost countries is being drawn into question as rising freight and fuel costs, as well as slower speed-to-market times, drive up total landed costs for manufacturers.

The auto industry and risk mitigation
The U.S. auto industry has been recently undergoing a sustained recovery since the 27-year low reached in 2009. Increasing consumer confidence, coupled with an aging U.S. fleet, is ensuring the current recovery in demand from U.S. automakers may be a lasting trend. Increased factory production to meet the growing demand has resulted in heightened auto parts imports.

To mitigate potential disruptions in the supply chain caused by unforeseen natural disasters, more companies are looking to source parts locally or regionally. Exports are also growing &ndash for the first three quarters of 2012, containerized exports of auto parts via U.S. ports were up 25.4 percent from the previous year. Additionally, North American automakers are growing their share of fully-built out vehicles; IHS Automotive forecasts the United States, Canada and Mexico will export over 1.4 million units in 2013, double their level in 2007.

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