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Shifting international trade routes and 'the grey tsunami'

Shifting international trade routes and 'the grey tsunami'
“Shifting international trade routes” was the subject of a two-day conference organised by the American Association of Port Authorities (AAPA), the trade group representing ports in North, Central and South America.

The superlative roster of speakers included well-known Walter Kemmsies, from consultant/ engineer Moffat & Nichol, who offered his own views on the big picture of trade flows.

Demographic trends, or “The Grey Tsunami”, framed much of this well -known economist’s remarks- focused largely on liner shipping. For the port and terminal industry, well represented at the event (held in Tampa, Florida), he emphasized the good timing, at present for upgrading freight movement infrastructure, even against the backdrop of “near term uncertainty due to structural changes” particularly in China - where policymakers have trumped economic fundamentals.

Kemmsies said that the “the United States has one more turn at the helm” as a dominant world economy a “pillar of support”, but that by 2020 as the population gets older, the economic might would be shifting over to China. In 2015, emerging markets accounted for 34% of world GDP, compared to 30% for the US, he said, adding that: “Right now, the guys that you need to listen to are policy makers in emerging markets.”

Failure to invest in landside infrastructure to move freight, a major theme throughout the event, represents what Kemmsies characterized as a “ticking time bomb” for the port industry in the Americas, which happily has made recent strides on the Washington DC legislative front. Most importantly, for the first time ever, ports “got a seat at the table”, in the words of other speakers, including AAPA Director Kathy Broadwater from the Maryland Port Administration, with the recently enacted Fixing America Surface Transportation Act (FAST Act), five year transport authorization legislation passed in December, 2015. As explained, port authorities are now able to apply for funding, in the form of grants, for projects that can speed up the movement of freight into/ out of ports.  

On the investment front, two Infrastructure finance experts from KPMG, Travis Hemphill and Justin Clark, talked about ongoing trends in port investments, and the market for US port assets, noting that recent deals are more in the less risky “landlord port” category, at still hefty multiples of EV/ EBITDA above 20 times. The pair touted an increasingly popular finance structure for brownfield projects, where “availability payments” enable construction risk to be separated out from operating risk.

The discussion was timely, following the high profile announcement that Ports America (backed by HighStar Capital- a group within Oaktree Capital) would be pulling out of what would have been a 50 year terminal lease in Oakland, California, where, ironically, the 18,000 teu containership CMA CGM Benjamin Franklin had docked the previous week. A speaker from Ports America , Paul Birnbaum, called Ports America’s move “a hard decision to make,” saying that the stevedoring giant would be putting more of its infrastructure dollars into other markets, including Los Angeles and Seattle/ Tacoma.

Bulk shipping was barely mentioned - except for perfunctory statistics on high iron ore flows and low Baltic Dry Index levels which appeared in various presentations - but Kemmsies did hint at continued growth for grain exports from the Americas, saying “We can support the world….we are the world’s farm.” He noted that the World Trade Organization “has declared war on agricultural tariffs.”