BMI View: Despite our mixed outlook for the US' two main ports in 2015, we remain cautiously optimistic about the country's shipping sector. Although gains look less likely to be consolidated than we expected in previous quarters, our overall view that the US economy will post positive growth this year remains, and we forecast real GDP growth of 2.5% in 2015. C onsumer demand growth , although smaller than at the beginning of 2015, has stayed positive and will provide a boost to container volumes in particular.
We forecast mixed growth at the two major ports in the US in 2015, with the Port of Los Angeles and the Port of New York/New Jersey (NYNJ) experiencing opposite growth this year. The Port of Los Angeles is forecast to have positive tonnage throughput of 3.7%, reaching 64.2mn tonnes, while its container throughput will contract by 2.8%. In contrast, at the Port of NYNJ, there will be a surge of container throughput at 11.2% to reach 6.42mn twenty-foot equivalent units (TEUs) in 2015, while a slight contraction of 1.8% will bring our forecast down to 124.3mn tonnes this year. In the medium term to 2019, although growth may be modest over the next five years, we are currently forecasting very consistent, steady rates at both of the country's main ports. The Port of NYNJ will see average growth of around 4% in both tonnage and container throughput while the Port of Los Angeles will experience a more modest rate of between 2% and 4% in both categories.
Real GDP growth in the US will accelerate in the coming years, on the back of stronger private consumption and low borrowing costs. We see upside risk to the US economy in 2015, with forecast headline growth of 2.5% in 2015 and 2.6% in 2016.The outlook for the consumer sector also continues to improve, as unemployment maintains its broad downward trajectory, which reached 5.3% in July 2015 (latest available data). This bodes well for container volumes in particular. While household consumption has slowed in recent months from a healthy average of 4.5% y-o-y in the first two months of 2015, it has remained positive at 0.4% from March to July 2015. All of this could bode well for the US shipping sector, especially in the short term.
Key Industry Data
At the Port of Los Angeles we forecast 3.7% growth in total tonnage in 2015, reaching 64.2mn tonnes.
We forecast a contraction of 2.8% in TEU throughput in 2015, reaching 8.1mn TEUs at the Port of Los Angeles.
At the Port of NYNJ we forecast tonnage throughput to decline by 1.8%, reaching 124.3mn tonnes in 2015.
We expect a surge in container throughput at 11.2% at the Port of NYNJ, reaching 6.42mn TEUs by the end of 2015.
Key Industry Trends
Plans For New Inland Port In Georgia: Construction of a USD24mn Regional Appalachian Port was announced on July 28 2015 by Georgia Governor Nathan Deal. The inland port will open by 2018 and will be situated in Chatsworth, a city in landlocked Murray County. The port will benefit the nearby Chattanooga Volkswagen assembly plant and Atlanta-area drivers. The development will have the capacity to take 50,000 containers off the road by 2018. It will offer a more competitive option for the truck-only route between the Port of Savannah and the surrounding states of Alabama, Tennessee and Kentucky.
First Steps To Reform At The Port Of NYNJ: In late June 2015 a reform bill for the Port of NYNJ reached the first step to wider implementation when it was passed unanimously by the New York State Assembly. The bill is supported by the governors of both New York and New Jersey, Andrew Cuomo and Chris Christie, and will still need to pass through the New York Senate, the assembly and senate of New Jersey and will also require the signatures of both states' governors. The bill would enact a range of reforms including a two-year rotating chairmanship of the board of commissioners, greater financial reporting to lawmakers and the appointment of a Chief Ethics and Compliance Officer. Calls for reform have hit the port since the 2013 'Bridgegate' scandal, when a traffic jam on George Washington Bridge was manufactured by aides of Governor Chris Christie.
Horizon Lines Closes Operations: The sale of the final part of the company Horizon Lines to Matson Navigation Company was finalised on May 29 2015. Horizon Lines had been the largest Jones Act shipping company and accounted for around 37% of all US container shipments linking the continental US to Hawaii, Puerto Rico and Alaska. It had become a publicly traded company in 2005, but was fined in 2011 for price fixing in the Puerto Rico market. Its sale comes after an announcement in November 2014 that the whole company would be sold.
Risks To Outlook
In the short term, BMI believes there are more downside risks to the American shipping sector than upside. The slowdown in Chinese economic growth and recent devaluation of the currency has the potential to damage demand from the US' biggest export market. The eurozone remains unlikely to have the capacity to pick up the slack lost from other areas, although it should be noted that the eurozone is in a less precarious position than it was last quarter, now that a 'Grexit' scenario has been avoided. However, a bearish consumer outlook domestically in the US, combined with the withdrawal of shipping lines from the transpacific routes and cuts to federal funding for port projects mean that growth could still slow in the shipping sector. A strong rebound in oil prices could also force to re-evaluate our real GDP growth estimates, as our outlook on the US economy is partly formed by the stimulatory effects of lower fuel costs after the collapse in the price of crude.
Despite the coming years being potentially quite vulnerable for the US economy, upside risk comes in the form of the Panama Canal expansion, due to be finished by the end of 2015 and open by early 2016. The expansion will allow post-Panamax vessels - especially from East Asia - to pass through the Panama Canal to call at east coast ports. Previously these vessels would have been the sole domain of traditional west coast ports such as Los Angeles and Long Beach. Upside potential could also come from the US' projected higher exports of coal in the medium term, as domestic demand slows and Asian demand remains strong. The development of new port facilities on the West Coast, such as SSA Marine's Gateway Terminal, show US ports are already expecting to cater for an increase in coal shipments.