The Americas and the future of ports Ricardo

The Americas and the future of ports Ricardo J. Sánchez Regional Expert on Infrastructure and Ports United Nations ECLAC

The near future 2

From private and governmental perspective, port industry is under stress Exogenous Factors Endogenous Factors Economy and trade Shipping industry Logistics services R T S S S E Port industry Firms Public sector Private sector influence Governance Administrative procedures Cyber security and safety management

From private and governmental perspective, port industry is under stress Exogenous factors Economy & trade Shipping industry Logistics services stress Endogenous factors Port industry Firms Public sector Private sector influence üGovernance üAdministrative procedures Cyber security / safety

Economic context ü Uncertainty: slow global economic and trade growth continued in 2016, but both are expected to pick up slightly in 2017. Positive expectations but GDP is yet in a slower growth phase ü Signs of normalization of interest rates in the United States may be accompanied by greater uncertainty and financial costs. ü Dynamism trade and throughput… hmmm. Commodity prices fell slightly in 2016 and should recover somewhat in 2017. ü Recent uncertainties in economic policies: i. Revision of TPP and NAFTA, and Brexit; ii. Policies on migration and remittances; iii. Production dynamics and value chains ü Very changing shipping and trade patterns and route

World: seasonally adjusted y-o-y trade volume growth 2003 -2017 % What about Latin America and the Caribbean? Source: UNECLAC, Economic Survey 2016 6

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External sector Current transfers balance Income balance Services balance Goods balance Current account balance 8

Financial flows Total financial flows Net direct investment Other financial flows (excl. net direct investment) 9

A modest recovery of the region’s trade is in progress VALUE OF LATIN AMERICAN AND CARIBBEAN EXPORTS, AND WORLD TRADE VALUE OF IMPORTS OF THE UNITED STATES, (Year-on-year growth rate, 3 -month moving average, percentage, 2014 -2017) EUROPEAN UNION, AND CHINA China U. E. Source: IDB, Trade Trend Estimates Latin America and the Caribbean (2017) based on the Integration and Trade Sector with data from official sources and CPB for world trade.

Domestic factors Central America (w/o Mexico) Mexico South America (w/o Brazil) Latin America Brazil 11

Macroeconomics comments ü ü ü ü Fiscal deficit Public debt Public revenue Public spending Domestic demand Currencies Real exchange rates International reserves 12

Economic growth Forecast 2017 -7. 2 India China Panama Nicaragua Emergerging economies Costa Rica Paraguay Bolivia Honduras Central America Guatemala Uruguay Canada Mundo Peru El Salvador Mexico United States Colombia Developed economies Argentina Eurozone Chile The Caribbean Latin America Ecuador South America Brazil Venezuela 7. 3 6. 6 5. 6 4. 7 4. 2 4. 1 4 4 3. 7 3. 6 3. 4 3 2. 8 2. 7 2. 5 2. 2 2. 1 2 2 1. 8 1. 4 1. 2 1. 1 0. 700000001 0. 600000001 0. 4 Source: UN-ECLAC and OECD data, 2017 13

From private and governmental perspective, port industry is under stress Exogenous factors Economy & trade Shipping industry Logistics services stress Endogenous factors Port industry Firms Public sector Private sector influence üGovernance üAdministrative procedures Cyber security / safety

Draft m Bigger ships and bigger alliances 1992 -2017 ASIA ECNA all water: Ship Container Evolution 2009 -2017 (max. ) Source: Eliana Barleta & Ricardo J. Sanchez, UN-ECLAC, 2017 LOA m 15

Bigger ships and bigger alliances 1992 -2017 concentration Source: updated from R. J. Sanchez & L. Mouftier (Porteconomics, 2017)

Bigger ships and bigger alliances 1992 -2017 Global containership fleet evolution: overcapacity Source: R. J. Sánchez & Eliana Barleta

Very large peaks in ports Hinterland transport Labour costs Bad impact on closer inhabitants lives Increase of labour work with more down time Urban congestion Negative environmental impacts The need for sufficient rail across to ports Externalities Newark Port of Baltimore Port of Oakland Port of Long Beach Port of Los Angeles BIGGER SHIPS Longer and stronger piers New improved piers Bigger cranes Bigger locks Bigger beams BIGGER CHALLENGES Operating basin Longer booms Road improvement Maritime access More intense dredging Bridge height Maneuverability More powerful tugs Sailing area 18

From private and governmental perspective, port industry is under stress Exogenous factors Economy & trade Shipping industry Logistics services stress Endogenous factors Port industry Firms Public sector Private sector influence üGovernance üAdministrative procedures Cyber security / safety

Higher transaction logistics costs. Import

Food exportation: Costa Rica and United States example 21

An approach to the magnitude of the avoidable costs 22

Why do we need to improve the logistics performance? 1. Medium-term expectations are positive 23

And the global economy moves … …to the East! Source: Global Marine Trends 2030 based on IMF / LR 24

Consuming power leads to shipping demand Total annual expenditure (trillion $2010 PPP) Source: Global Marine Trends 2030 based on ADB / LR 25

GDP and container per capita evolution 1990 -2016: Selected countries Source: Ricardo J. Sánchez & Eliana Barleta, 2017 based on World Bank, UNCTAD and Cepalstat

How will the global container market look like in 2030? Source: Global Marine Trends 2030 based on IMF / LR 27

Why do we need to improve the logistics performance? 1. Medium-term expectations are positive and… 2. Logistics performance is strategic “The results indicate that -in most cases- the probability of being a developed country increases when the logistics performance is improved. ” 28

Why we need to improve the logistics performance? 0. 520 50. 000 0. 420 40. 000 0. 320 30. 000 0. 220 20. 000 0. 120 10. 000 0. 020 0. 000 -0. 080 So ut Per h u Af ri M ca e Co xico lo m Ar bi ge a nt in a Br az il Ch i Tu le rk Lit ey hu an Es ia So to ut ni a h Ko A re Un ust a ite ral d ia St Ge ates rm an y 60. 000 IS THE LOGISTICS PERFORMANCE A DETERMINANT OF ECONOMIC DEVELOPMENT? SANCHEZ, Ricardo J. , PERROTTI, Daniel and CIPOLETTA TOMASSIAN, Georgina 29

From private and governmental perspective, port industry is under stress Exogenous factors stress Endogenous factors Economy & trade Shipping industry Logistics services Port industry Firms Public sector Private sector influence üGovernance üAdministrative procedures Cyber security / safety

The near future The “good old days…” ü Strong demand growth ü Limited growth in ship size ü Smaller shipping lines and alliances ü Generally, high returns ü New balance between risks and returns Not without risks, but usually a very good bet! Today and the near future → Weaker demand growth → Huge growth in ship size (raising terminal opex & capex) → Much bigger shipping lines and alliances → Lower returns => RISKS ARE INCREASING => RETURNS ARE REDUCING 31 Source: N. Davidson, DREWRY, 2016

Why are the returns reducing? Newbuild vessel size growth is accelerating. This is a global phenomenon… Average vessel size in global fleet evolution % GR CA . 7 +18 CAGR 1. 9% 32 Source: N. Davidson, DREWRY, 2017

Why are the returns reducing? New build vessel size growth is accelerating. This is a global phenomenon, but a regional too ECSA WCSA/WCNA Asia NA all water NCSA

Why are the returns reducing? Reduced service frequency and bigger ships = greater peaks 34

Why are the returns reducing? Terminal opex and capex* increasing * opex = operating expenses, are all expenses required for the day-to-day functioning of a business. 35 capex = capital expenditure, are funds used by a Company to acquire or upgrade physical assets such as property, industrial buildings or equipment

Concentration to North America… From Asia, all water 96% Asia - WCNA 83% North Europe - ECNA 93%

Concentration to South America… Europe - ECSA 75% Europe - NCSA 100% Europe - WCSA 99% Asia - ECSA 65%

Why are the returns reducing? Demand for fewer, larger terminals in each port Shipping cycle and its effects (no high rates) Losses => less costs goals Economies of scale; ∆ size Alliances, mergers, working agreements => Concentration + Market dominion + Port calls concentration + Efficiency & productivity + Competition + Size (? ) future fees A dramatic change in the bargaining power 40 Source: R. J. Sanchez and DREWRY, 2016

From private and governmental perspective, port industry is under stress Exogenous factors Economy & trade Shipping industry Logistics services stress Endogenous factors Port industry Firms Public sector Private sector influence üGovernance üAdministrative procedures Cyber security / safety

The balance between near and distant future 43

Matrix of the future Cyber security and cyber safety Robotic New trends & Q Broad scope of port business F. Technological change Automation Layout of ports E. Commercial change: New business context Internet of Things (Io. T) Hinterland D. Geographical and territorial change Foreland Institutions and governance C. Governance change Public-private, social and labour relations B. Environmental and climate change A. Cultural change Change and Innovation

Thanks a lot !!! Ricardo J. Sánchez Regional Expert on Infrastructure and Ports United Nations Economic Commission for Latin America and the Caribbean +56 2 2210 -2257 Client Logo Ricardo. SANCHEZ@UN. org http: //www. eclac. org/drni 45