BMI's outlook for the US shipping sector in 2011 is cautiously optimistic. We expect volumes at major ports to continue recovering from the downturn as the consumer outlook brightens slightly. We expect to see continued investment in expansion and development in the port sector. This investment will be driven in some cases by rising Asian demand for US coal, which has highlighted the need for greater capacity at coal export facilities on both the east and west coast. The impending completion of the expansion of the Panama Canal will also be a major driver of investment, as east-coast ports rush to prepare for the arrival of Post-Panamax vessels in 2014, and the current west-coast hubs, LA and Long Beach, seek to minimise their losses. We note, however, that many new projects will either be privately funded, or come in the form of public-private partnerships (PPPs). Obama's 2012 budget proposal reflected the fact that a large number of ports have been competing for a diminishing pool of state funds. As such, we believe PPPs will increasingly come to the fore as the most efficient way for US ports to fund projects.
Headline Industry Data
.. 2011 port of Los Angeles tonnage throughput forecast to rise 5.1% with annual average growth of 5.1% during our forecast period.
.. 2011 port of New York/New Jersey tonnage throughput forecast to rise 0.6% with annual average growth of 0.9% during our forecast period.
.. 2011 port of Houston tonnage throughput forecast to rise 4.3% with annual average growth of 4.5% during our forecast period.
.. 2011 port of Los Angeles 20-foot equivalent unit (TEU) throughput forecast to rise 3.3% with annual average growth of 3.6% during our forecast period.
.. 2011 port of New York/New Jersey TEU throughput forecast to rise 5.2% with annual average growth of 4.7% during our forecast period.
.. 2011 port of Houston TEU throughput forecast to rise 7.9% with annual average growth of 7.6% during our forecast period.
Key Industry Trends
Shippers Increase East Coast Imports, As Transpacific Conference Highlights Panama Effects - The March 2011 Trans-Pacific Maritime Conference has highlighted the fact that, nearly 100 years since it was opened, the Panama Canal set to shake up the US port sector once more, potentially reshaping shipping and rail in the world's largest consumer state. Some major US importers are diversifying their US port gateways, increasing use of East Coast ports, in preparation for the completion of the Panama Canal expansion in 2014.
While shippers said it was too early to tell whether the Panama expansion would cause them to shift a higher proportion of their cargo to East Coast ports, BMI believes that it is significant that some major US importers have begun to increase the percentage of imports arriving at East Coast ports. Some 90% of retailer Target's Asian imports once came via the west coast, but the big-box retailer's East-West ratio now is 'just short of 60-40', said John Anfinson, senior manager, international transportation. We maintain our view that West Coast ports will need to continue investing in new infrastructure and developing better intermodal links if they are to minimise their losses post-2014.
Horizon Pins Hopes On New Capitalisation Plan As Financial Woes Continue - BMI believes that US container line Horizon Lines may once again have pulled itself back from the brink of bankruptcy. In May the beleaguered carrier was warned that it could face delisting from the New York Stock Exchange (NYSE) when its market capitalisation and stockholder equity fell below NYSE criteria. However, a new capitalisation plan, under which note holders are to take control of a huge stake in the company, could save it from delisting. BMI cautions, however, that we expect to see the company continue to struggle to operate on a firm financial footing.
Horizon Lines announced an agreement with holders of the majority of its 4.25% convertible senior notes that involves 'a complete refinancing, in conjunction with a new asset-based revolving loan facility (ABL) of up to US$125mn, which is under negotiation with a leading financial institution'.
Exports Boost LA And Long Beach Throughput, Domestic Consumer Activity Still Weak - BMI believes the major US box shipping ports of LA and Long Beach will continue recovering their pre-downturn throughput levels as the year progresses. The ports saw a combined 7.2% year-on-year (y-o-y) increase in throughput in April 2011. Tellingly, exports saw more growth than imports, reflecting weak US consumer confidence levels and Obama's drive to double US exports by 2015, which has been aided by a weaker dollar.
Combined imports and exports at LA and Long Beach, the busiest US container ports, rose 7.2% in April from a year earlier, led by a 7.8% gain in exports. Loaded import containers through LA rose 3.4% to 312,360TEUs. Imports through Long Beach jumped 12% to 270,107TEUs. Exports increased 5.8% to 167,448TEUs at LA and 10.4% to 143,683TEUs at Long Beach. The totals continued a trend of faster growth in exports, which have been aided by a weaker dollar that has fuelled overseas demand. Overall container volume, including empty boxes, increased 3.7% at LA and 14.6% at Long Beach. Shipments of empty containers, mostly to Asia for reloading with import cargo, rose 2% to 137,464TEUs at LA and 3.2% to 117,300TEUs at Long Beach.
Risks to Outlook
Downside risks to our outlook present themselves in the form of a slower-than-expected recovery in US consumer demand. Disposable income has been helped by government transfers and will continue to be helped in 2011 by payroll tax cuts, but these are merely temporary measures, and a stronger labour market will ultimately be required to sustain consumption in the future. Worryingly, petrol prices have headed up and higher prices would hurt lower-end consumers far more than wealthier US residents, but the overall effect would be negative for consumer sentiment and, if prolonged, consumption.
A further downside risk is the possibility of a slowdown in Chinese demand. This would have a knock on effect on US exports, putting downward pressure on US growth, negatively affecting our outlook for the US port and shipping sector.
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