We have upgraded our US real GDP growth forecast for 2012 to 2.0% from 1.6%, owing primarily to stronger-than-expected economic activity in Q411. Our overall outlook for the US economy, however, has not changed and we maintain our outlook for subdued growth at the US main container ports in 2012, on the back of continuing concerns about the health of the US economy. We remain concerned about the US air freight sector, which has been struggling with falling volumes and rising fuel prices. We expect road and rail freight to fare somewhat better, but we caution that there is downside risk here too, from the possibility of a drop-off in demand from China - the US biggest export market.
We believe that US private consumption growth will remain subdued and government deficit reduction will weigh on economic activity, while the European crisis poses downside risks to the export sector. We have lowered our expectations for external trade growth in 2012, with real imports now expected to rise by 3.8% (from 5.0%) and exports by 3.5% (from 5.0%). These factors combine to put considerable negative pressure on port throughput volumes.
Key Industry Data
- At the Port of Los Angeles (LA) we forecast 4.7% year-on-year (y-o-y) growth in total tonnage in 2012, to reach 67mn tonnes.
- At the east coast port of New York/New Jersey (NY/NJ), growth is forecast to be 3.88% y-o-y in 2012, to reach 145mn tonnes.
- We predict y-o-y growth of 3.6% in air freight volumes, to reach 72bn tonnes-km in 2012.
- We predict y-o-y growth of 4.1% in rail freight tonnes-km, with annual average growth of 5% during our forecast period.
Key Industry Trends
Charleston Secures State Dredging Funds, But More Needed To Fill Funding Gap
BMI believes that the proposed dredging works at the US port of Charleston are closer to being realised, with the facility having been awarded state level funding, as well as the federal funding it has been allocated in Obamas 2013 Fiscal Year Civil Works Budget. We caution, however, that other sources of funding will have to be found to come up with the shortfall to finance this expensive and lengthy project, which is unlikely to be finished in time for the expected increase in traffic in the region when the Panama Canal expansion is completed in 2014.
Railroads Look To Oil And Autos To Boost Volumes As Coal Shipments Disappoint
BMI believes US railroads may face a dip in volumes in 2012 as coal shipments fall amid concerns about domestic and external demand for the fuel. This is bad news for the sector, as coal makes up 40-50% of its volumes. On the upside, we maintain our view that there is growing potential for railroads to carry oil, chemicals and autos shipments, which should boost volumes.
More Mexican Participation Needed In Cross-Border Trucking Programme
BMI believes the success of the North American Free Trade Agreement (NAFTA) cross-border trucking pilot programme is at risk if more Mexican companies fail to sign up to participate. Concerned about low take-up, the US Department of Transport (DOT) is encouraging more Mexican companies to get involved, saying their enrolment is critical to the success of the three-year project. BMI cautions, however, that with Mexican truckers complaining of harsh conditions imposed on them by the project, there is unlikely to be a rush to participate over the short term.
Risks To Outlook
BMI believes the main risks to our outlook for US container shipping are on the downside. A bearish consumer outlook, combined with the withdrawal of shipping lines from the transpacific route and cuts to federal funding for port projects mean that growth in the freight sector could be slower than expected.
Over the longer term, the expansion of the Panama Canal, due for completion in 2014, presents upside risks to our forecasts for east coast ports, as well as for railways and road haulers with networks on the east coast. However, the development presents downside risk for those on the West Coast. In other areas, there is some upside for our rail forecasts, which should benefit from increasing shipments of autos and oil. Over the longer term, this freight mode should benefit from a shift towards more fuel efficient forms of transport.
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