The investments could facilitate new trade lanes despite looming economic uncertainty.
Ports and port authorities need to invest in infrastructure plans and projects to accommodate a potential shift in trade lanes that could result from economic policy uncertainty, including trade policy, and stricter fuel regulations, said Josh Hurwitz, a senior consultant at the infrastructure advisory firm Moffatt & Nichol.
Although the U.S. economy remains strong, there are signs of weakness as the GDP is projected to drop from 2.5 percent in 2019 to 1.8 percent in 2020. The global economy is also generally showing signs of slowing down, Hurwitz said, but investments into infrastructure should continue to be made to facilitate growth.
“The key for me in our industry when it comes to infrastructure investments, which are long-term investments … is we need to weed out some of this short-term noise as best as we can and focus on longer fundamentals that support targeted infrastructure investments and projects that accommodate our future trade lane roads,” he said Wednesday during the first day of American Association of Port Authorities’ 12th annual Planning for Shifting Trade Conference in Tampa, Fla.
“Smart infrastructure investment precedes, follows and facilitates growth,” he said.
Despite the looming economic struggles, U.S. ports are expected to handle a volume of 69 million TEUs in 2030, Hurwitz said. East Coast ports are projected to gain a 5 percent market share between 2017 and 2030, which “would imply an 11 million increase in TEUs,” as trends — such as population growth projections, improved infrastructure and increased sourcing from Southeast Asia — favor the area, according to Hurwitz.
Southeast Asia, through the Suez Canal, could become an emerging trade partner if the postponed increase of Section 301 tariffs on $200 billion of Chinese goods is imposed on March 2, he said.
“It has an opportunity to shift the manufacturing base south to Southeast Asia and maybe provide an impetus for accelerated growth on other trade sites,” Hurwitz said. “From a planning perspective if enacted it won’t be good. The longer these tariffs last the worse it will be. From a long-term perspective with regards with things we can do in our planning, it opens another opportunity for another trade lane to grow.”
A shift to Southeast Asia and India has already had the opportunity to begin since China’s banning of waste paper imports in 2017. That year China represented 68 percent of the United States’ shipments, nearly all of which was exported through the West Coast, after a lot of waste paper transitioned to containerized trade in 2016 due to a drop in transpacific container rates, Hurwitz explained.
Since the ban, China’s volume has decreased by 45 percent from peak levels, but “India has really taken off,” Hurwitz said.
“Total exports have not changed. It’s just shifted around the globe,” he said. “That means there’s more containers being stuffed with waste paper exports heading to India, Southeast Asia. That’s an opportunity for them to refill those containers and send them back to the U.S.”
The cost effects of IMO 2020 — the International Maritime Organization’s decision to lower the maximum amount of sulphur content in marine bunker fuel — on shippers could also shift cargo back to West Coast ports, at least temporarily, Hurwitz said.
Shippers will be forced to introduce bunker accommodation factors to account for the cost, which could be $450 per FEU on head haul, he said. In 2020 to 2021, that price increase could shift 1.2 million TEUs in discretionary cargo to West Coast ports.
But as demand for low-sulphur fuel increases, the costs are expected to decrease over the long term, Hurwitz said, which could allow the East Coast to regain some of the market share.
“On the East and Gulf coast ports what we should be doing is thinking about how to use this reprieve over the short term to continue to make long-term infrastructure investments to regain market share,” Hurwitz said. “Recognizing that if West Coast ports, rail and trucks are able to adjust accordingly to the surge we’re able to raise the bar for competition.”
Consultant: Ports need to invest in infrastructure
