Transcript Trade and Transportation Forecast Outlook

Trade & Transportation:
Logistics and Supply Chain Challenges
Atlanta, Georgia
May 25th, 2005
Presented by:
Ben Hackett
Analytical Services Division
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Agenda
• Factors Affecting The Supply Chain
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•
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Economic Factors
Trade
Infrastructure and Logistics Factors
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China’s Export-led Trade Growth has been
Fundamental to the their Economic Success
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The U.S. is expanding bilateral & regional Free Trade
Agreements, reducing barriers to increased trade
The U.S. makes strong demands on labor and environmental
issues but the U.S. will not truly open its agriculture sector.
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World Containerized Trade Volume Typically Grows
Much Faster than the World Economy
(Percent change)
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North America Imports from Asia Grow, But Not As
Fast
TEUs
Annual Pcnt Change
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CHINA: container exports to the world will continue to grow at
double-digit rates – NAFTA country share hits 48% this year.
TEU exports climb by
17.4% in 2005.
China’s imbalanced trade is mostly due to United States
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China’s Importance as U.S. Trade Partner Jumps
China’s Share of U.S. Merchandise Trade with Asia, Percent of Value
*
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China is increasing share as the source of container
imports into the U.S. – especially for the West Coast.
United States
U.S. Container Imports, Million TEUs
China was the source
of 41% of all imported
TEUs in 2004.
West Coast
• China was 32% of West
Coast imports in 1995.
• Now China is 58% of
US West Coast imports.
• China’s share could go
to 68% by 2008.
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China affects Coastal Distribution of U.S. Imports
Growth in all-water route traffic has only dampened growth in
West Coast port share
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India’s trade with U.S.: export growth slows from last
year and import growth turns positive
(Percent change in tonnage)
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Bottom Line – Trade
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growth milder in 2005
Trade growth is supported by continued economic growth.
Exchange rates and congestion temper growth on some lanes.
China remains key for continued import demand and export
supply.
2005 should be a relatively strong year for most countries’
imports and exports – but not as good as 2004.
Trade in lighter weight, higher value products will outpace growth
in bulk commodity categories, meaning more containerized trade,
and more pressure on container ports and intermodal transport.
Transportation infrastructure and logistics problems continue to
impede trade flows and force adjustments in supply chains.
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Logistics Accounts for 8.4% of Sales Cost
Source: Herbert W. Davis & Co. 2004
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Infrastructure and logistics enable or hinder trade
growth with problems found in many places
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Ports and Maritime Terminals
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Throughput capacity limited from operational and physical constraints
Inland Rail and Truck Transport Infrastructure

Off-dock rail terminals near ports require truck drayage
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Inland intermodal terminals
Expansion constraints and operational problems from high utilization

Railroad networks are not dynamic enough to adjust
In U.S. and Canada, western rail networks lacking capacity
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N. American / European trucking capacity problems
Congestion and increased regulation (e.g. HOS, emissions) reduce
productivity of existing truck fleets and drivers

Lean logistics practices
Using trucks and terminal storage as warehousing; Cost shifting
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Panama Canal’s Container Traffic on the Asia –
U.S. East Coast Route is Booming
Asia – U.S. Canal Container Volumes Have Increased at a
Compound Annual Growth Rate of 30% in Last Five Years
1,600,000
1,400,000
But the Canal
Is 95%
utilized
TEUs
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
FY 1999
FY 2000
FY 2001
FY 2002
FY 2003
Source: ACP
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Consequences of transport and logistics problems for
merchandise trade growth
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The velocity of international supply chains will continue to slow,
raising total delivered costs.
Cost increases pressure retailers and other importers to re-align
sourcing for cost minimization, including shifting between countryof-origin for supply.
Importer revisions to supply chains will be gradual as many of the
investments and resources already committed are not easy to
change overnight.
Increased costs passed through to customers affect spending on
imports and ultimately economic performance through changes in
trade.
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Panama Canal is the key to the All Water Route from
Asia to U.S. East Coast, but near capacity
Canal traffic is up significantly while capacity is not (yet).
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Total Canal container volumes increased 22% in FY 2003 over
previous year;
Over 94% of available transit reservation slots are now taken.
43% of Canal transits are now made by vessels at or near
Panamax size ( > 100 ft. width).
Canal expansion plans are now for adding locks to handle a
new generation of Post Panamax vessels of 10,500 TEU in size
– Expansion cost estimates range from $4 –$8 billion
– The Canal Authority says it can be financed from
revenues
If the Canal can’t expand or expand soon enough, a real
bottleneck to trade will occur, causing diversion.
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Panama Canal Expansion Plans are Advancing, yet
Final Funding and Approval are Still Not Certain
Questions that remain to be answered:
• How can the expansion be funded?
• How will the Panama Canal Authority (ACP) pay interest charges
associated with any loans it may have to incur?
• How much will tolls have to be increased to fund the project?
• What is the potential impact of toll increases on Canal traffic?
• At what point will toll increases create alternative routings for
ships? (i.e. U.S., Mexico or Canada landbridge, other ? )
• How will the expansion impact cargo traffic, by ship type and
route?
Global Insight is offering a multi-client study of this topic right now.
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TRUCK-FREIGHT FLOWS
Truck-freight system moved 11 billion tons valued at
$9.5 trillion over 2.6 trillion ton-miles in 2000
Tons (millions)
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RAIL NETWORK TRAFFIC
All Services Combined
Total Rail Tons
(mils)
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The Rail Network Needs Serious Investment and
Improvement in Productivity.
congestion at major rail interchanges
(Chicago, Memphis, New Orleans)
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The Supply Side of Container Transportation
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Containership Order-Book
• Large amounts of capacity on
order for 2005/06/07 delivery,
and already substantial
capacity on order for 2008
• Post-Panamax orderbook at
95% of fleet; Panamax
orderbook at 50% of fleet in
terms of capacity
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Dealing with the Cyclical Nature of Trade when
Managing the Supply Chain is a major Challenge!
• Decline in 2nd half of 2004 due to diversions and missed
voyages during worst of congestion
• Ability for further diversion limited to other West Coast
capacity, intermodal capabilities and Distribution Centers
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Port Productivity Needs Serious Attention in the U.S.
Source: APL
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The Port Interface is One Key Challenge That Must
Be Faced
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More than 150 x 8,000-9,200TEU vessels due in East-West
trades by 2008
Most ports ill-equipped for larger vessels
Longer vessel turn times (up to 5 days); increased berthing
delays, terminal congestion
Flow impact on intermodal network: 4,000 containers
discharge = 2,000 truck moves + 10 stacktrains x 200
containers
The ‘Surge Factor’ impact of 8,000TEU+ vessels has not
been properly planned for and caught everyone by surprise, here
and in Europe.
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Summarizing the Supply Chain Challenges
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Trade growth remains robust putting pressure on the system
Challenge of short term decisions to ship via different ports
and different coasts, as well as via Panama or Suez
Port labor productivity and way of working needs to change to
accommodate the changing nature of vessel supply
Rail needs to make major investments for their intermodal
business
Supply chain velocity will slow further
Importers need to rethink and adjust their supply chains, but
much of the investment has been made and resources already
difficult to change in the short term.
Higher costs will begin to flow through to consumers,
ultimately impacting inflation and consumption.
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Thank You!
Contact:
Ben Hackett
Global Trade & Transportation
Global Insight
[email protected]
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