By Brian Dunn
It’s been a long and bumpy recovery since the 2008 recession with most of the world’s economies still suffering from sub-par growth, high unemployment, weak investment levels and lower levels of international trade, according to a leading trade specialist. “Emerging markets have hit major bumps. Brazil and Russia are in trouble due to weak commodity prices and sanctions,” Kenneth Courtis, former Managing Director, Goldman Sachs, Asia, said at the International Convention of the Chartered Institute of Logistics and Transport (CILT) in Montreal on May 11. The conference theme was “Linking North America to the World.”
India is performing well, but it’s mostly domestically-driven, while China is undergoing a massive rebalancing of its economy by moving from an industrial smokestack economy to a service economy, said Mr. Courtis who is now Chairman of Starfort Investment Holdings and who was recently appointed to the Canada Growth Council by the Minister of Finance.
“Japan is in the biggest trouble of any developed economy with little economic reform. The main thrust of government policy is monetary policy. Its main focus on political issues is to rebuild its military which doesn’t help the economy. I expect very little growth, maybe one per cent this year. And with 26 per cent of its population over 65 years old, I don’t see any big changes over the next few years.”
India’s economy is expected to grow between 6.5-7.5 per cent, mostly internally. It continues to import coal, oil and LNG, but is facing major competition from lower cost countries and the country will have no major impact on international trade, Mr. Courtis suggested. Southeast Asia is doing OK, but nothing spectacular, with Singapore being so tied to electronic products, he added.
China will face tremendous political pressure as many employees from the industrial economy are too old to be retrained for the service economy. At the same time, the industrial sector with its excess capacity will decline from 52 per cent to 41 per cent of GDP, said Mr. Courtis. Excess capacity will increase further if the U.S. and other countries enact protectionist legislation.
Meanwhile, Europeans are questioning the EU experience, with the U.K. threatening to pull out which is driving investments down and could result in a currency war. Investment and consumption in Germany is a “bit weak,” but most companies are well capitalized and 46 per cent of GDP is export based, so Germany has little appetite for sanctions against Russia.
“I believe oil prices have bottomed. Russia’s economy may contract by about two per cent, but long-term it will start a new moderate growth cycle. France is seeing better numbers recently with a projected GDP growth of two per cent. “In the rest of Southern Europe, unemployment continues to be a problem. Greece is facing a debt problem and Italy is going nowhere fast. Meanwhile, Slovakia and the Czech Republic are becoming manufacturing powerhouses.”
Turning to North America, the U.S. economy is slowing down with real income below 2007 levels and consumer spending sub par, while 15.9 per cent of U.S. mortgages are “still under water. The household debt situation is impacting the market, but I still see two per cent growth, not three per cent. If Trump becomes President, he threatens to impose a 45 per cent tariff on Chinese imports.”
Canada faces its own challenges with too much dependency on the oil industry to spur growth and a weak dollar which hasn’t boosted exports as much as expected, while 10,000 manufacturing companies have disappeared since 2008, noted Mr. Courtis. “One area where Canada is leading the rest of the world is infrastructure spending which makes sense with low interest rates on railroads, ports, bridges, roads, all productivity enhancing. The Canadian government is focused on infrastructure spending, but it’s not doing enough. The U.S. needs to focus on infrastructure spending to increase productivity.”
Demand for oil is increasing, while iron ore demand is down. Oil should hit $50 a barrel by yearend and $70 next year, predicted Mr. Courtis. There isn’t much upside for coal and metal prices are not up substantially. The main concern is weak demand for building commodities such as steel and lumber, while demand for food commodities is up.
“There is no sharp uptick in overall trade and there is a strong correlation between investment and trade. As a result, the shipping industry must continue to focus on costs and to hedge against higher oil prices. North America must invest in integrated infrastructure where ports and railroad companies work together which will help growth both in the short and long term. China has $3.5 trillion in foreign exchange reserves and already has world-class infrastructure and it is helping other Asian countries build their own infrastructure.”
In a session entitled, “Technology & Innovation: Trends and Impacts on our Industry, Challenges and Opportunities Ahead,” a list of threats to shippers were listed as “categories of destruction” by transportation specialist Patrick Lortie. The threats include Amazon and its locker boxes for self-service deliveries, Amazon Fresh, Sunday delivery by DPD (Deutscher Paket Dienst) of Germany and USPS and Google same-day delivery.
“Innovation extends beyond E-Commerce such as Uber cargo and freight deliveries said Mr. Lortie, Partner, Manufacturing, Transportation and Energy Practice, Oliver Wyman, a global management consulting firm. “Amazon is partnering with DHL, DPD and Doodle are teaming up on a commute and collect service, while Shyp is a new mobile shipping app.”
The Internet of Things will accelerate six major changes, namely demand forecasting and intelligent pricing, smart purchasing and outsourcing, smart maintenance and equipment performance, planning and dispatching automation, network optimization and next-gen inventory and quality management, noted Mr. Lortie.
Examples of connected devices and data analytics driving process improvements include CN monitoring rail car and track health, predictive maintenance and improving safety through detection systems and analytics and easyJet using handheld devices to improve aircraft inspection and maintenance. Self-driving trucks are just around the corner, according to the American Trucking Association or a convoy of driverless trucks led by a lead truck with a driver.
“3D printing will transform some supply chains with the B to B (business to business) world able to print spare parts. But the speed and degree of implementation of new processes and models will be slowed down by a number of obstacles that need to be overcome such as data security, legal issues, cultural barriers within organizations and insufficient employee technical capabilities.”
There is not a lot of concern in Canada about the Trans-Pacific Partnership compared to the U.S., according to Robert Lewis-Manning, President and CEO, BC Chamber of Shipping, who believes the deal will benefit the Canadian shipping industry “which needs all the help it can get. Low interest rates are keeping some companies afloat that shouldn’t be and some fleets are vulnerable to price increases. As for carbon pricing, there’s a push on the shipping industry to reduce its CO2 footprint and I expect the price of fuel will increase faster than cargo volume increases.” North America is well-positioned to handle increased trade when it happens, Mr. Lewis-Manning added, noting Prince Rupert is only operating at 25 per cent capacity on both the ship and rail sides.
Pointing to the environmental concerns of a potential oil spill, he said every ship in the minds of the general public is referred to as a tanker which results in collateral damage for the entire industry that needs to be addressed.
The Panama Canal enjoyed its best year in 2015, due partly to the congestion at Californian ports, according to Don McKnight, President, DAMF Consultants. With the expansion of the canal, the number of transits will increase from 13,000 to 16,000 a year he said during a session entitled, “Seaway and Canals: Impact of the panama Canal Expansion on North America.” Vessel capacity will also increase from 85,000 DWT to 180,000 DWT with revenue potentially doubling after the expansion’s inauguration on June 26. One of the major ship routing systems via the canal is the Transhipment Markets involving the Caribbean, Mediterranean and South-East Asia which positively impacts Port of Montreal the most, Mr. McKnight noted. Overall, the expansion of the Panama Canal will have a positive impact on North American importers and exporters, with its impact mainly benefitting the U.S. East and Gulf coast regions, primarily those ports with a 50-foot draft, including Halifax. “The impact on Canadian ports (east and west) will be minimal, with Halifax having the most to gain, but gains will be limited due to its small population. Montreal should benefit from the expansion of Caribbean transhipment centres.”
Since no port on the east coast can handle anything above 14,500 TEUs, a new initiative is moving forward at Sydney, NS called Novaporte. A feasibility study is being prepared by China Communication Construction Company of Beijing, which is expected to be an equity partner and be involved in the engineering and construction of the new port with a price tag of $1.2 billion. Other members of the consortium include U.S. construction and engineering firm Bechtel, and Canadian real estate developer Canderel. Almost 2,000 acres have been set aside for the terminal development and an adjacent logistics park which will be called Novazone. A new rail spur is expected to be constructed to connect the port to CN’s main rail line.
“It is designed to be the most efficient, greenest and cheapest port in North America and the nearest distance from Southern China to North America,” according to Hazem Ghonima, President, TAF Consultants, Ottawa. The port will be dredged to 16.5 metres and capable of accommodating 18,000-plus TEU vessels. “The idea is to have smaller feeder vessels serving places like Baltimore, New York and Montreal from Sydney which would act as a transshipment hub.” The project is headed by Harbor Port Development Partners (HPDP) who have enlisted former Prime Minister Jean Chrétien as an international advisor. The dredging has been done and the project is shovel-ready, according to Albert Barbusci, founding partner of HPDP. “We need the first shipper to commit before we proceed further. It’s like having an anchor tenant at a shopping centre before construction can start. If we start construction in 2017, we could be operational by 2020.”