1. The Path to the Crisis of 2008: Beware of Future Expectations Jean-Paul Rodrigue Department of Global Studies & Geography, Hofstra University Theo Notteboom ITMMA - University of Antwerp and Antwerp Maritime Academy Terminal Operators Conference - Europe Valencia (Spain), June 8-10 2010

2. The Crisis is Over: Long Live the Crisis Many unfounded assumptions behind the recovery: -Randomness and uniqueness. -The cause (debt) is the solution (more debt) -The soundness of economic theory (Keynesianism). -“Appropriate” response from central banks and governments. -No unintended consequences of moral hazard. Recession: -Clear the stupidity out of the system. -We have been very stupid (depression?).

3. The First Crisis of Globalization: Reaping the Consequences of Misallocations CAUSES Monetary system (fractional reserve banking, fiat currencies) CAUSES SYMPTOMS Debt, asset inflation SYMPTOMS Production Consumption Distribution CONSEQUENCES Misallocations (bubbles) CONSEQUENCES

4. Business Cycles: The Trend that Time Forgot ExpansionRecession Peak Trough Expansion Credit-Driven Boom Credit-Driven Bust Depression DemandTransfer of future demand into the present. SupplyMisallocations because of distorted expectations about the future. Asset price distortions.

5. Blowing Bubbles and Compounding Distortions: From Technology to Commodities Tech / Stock Bubble Housing Bubble Commodities / Trade Bubble

6. Globalization 2000-2008: A Bubble?

7. Changes in the Value World’s Merchandise Trade, Production and GDP, 1950-2009 (in %)

8. A Paradigm Shift in Neomercantilism?

9. Keeping Doing the Same Thing? Baltic Dry Index, Monthly Value, 2000-2010 -92% Housing Bubble Commodities Bubble Which Bubble?

10. Container Traffic Recovery Around the Corner?

11. Monthly Trade between China and the United States, Billions of USD (1985- 2010)

12. Monthly Container Traffic at the Port of Los Angeles, 1995-2010

13. American Foreign Trade by Maritime Containers, 2008 (in TEUs): The Trade Fundamentals

14. Value Propositions behind the Interest of Equity Firms in Transport Terminals Diversification (Risk mitigation value) Diversification (Risk mitigation value) Source of income (Operational value) Source of income (Operational value) Asset (Intrinsic value) Terminals occupy premium locations (waterfront). Globalization made terminal assets more valuable. Traffic growth linked with valuation. Same amount of land generates a higher income. Terminals as fairly liquid assets. Income (rent) linked with the traffic volume. Constant revenue stream with limited, or predictable, seasonality. Traffic growth expectations result in income growth expectations. Sectorial and geographical asset diversification. Mitigate risks linked with a specific regional or national market.

15. Port and Maritime Industry Finance: Who is Leveraging Whom? Brokers Financial Markets Investors Commercial Banks Mortgage Banks Merchant Banks Finance Houses Leasing Companies Money Markets Capital Markets Equity Markets Private Placement Corporations Private Investors Investments Managers Insurance Companies Pension Funds Banks Trust Funds Finance Houses Shipping Companies Port Operators Earnings

16. Reviewing Assumptions: The Impacts of “Financialization” Disconnection From market knowledge From long-term business cycles From local/ regional dynamics From outcome of actions Loss of embeddedness Lower contestability Rent-seeking strategies Lack of accountability Lack of regional embeddedness Focus on short- term results Asset inflation High amortization Asset inflation High amortization Assets perceived simply from their expected level of return. Expectations of quick capital amortization. Expectations about future growth and the corresponding volumes. Perceived liquidity. Capacity to quickly enter and exit the market. Physical assets seen as financial assets.

17. Dumb Money at Work? DateTransactionPrice compared to EBITD 2005 DP World takes over CSX World Terminals14 times Early 2006 PSA acquires a 20% stake in HPH17 times Mid 2006 DP World acquires P&O Ports19 times Mid 2006 Goldman Sachs Consortium acquires ABP14.5 times End 2006 AIG acquires P&O Ports North America24 times Early 2007 Ontario Teachers’ Pension Fund acquires OOIL Terminals 23.5 times Mid 2007 RREEF acquires Maher Terminals25 times EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization

18. World Container Traffic and Throughput, 1980-2008. Reaching Peak Growth? Adoption Acceleration Peak Growth Maturity New (niche) services Productivity gains Network development Productivity multipliers Massive diffusion Network complexities Niche markets

19. Fallacies of Forecasting: 2020 Throughput Forecast, Selected Large Ports, Linear and CAG Scenario Port / Traffic 2007, M TEU R 2 / CAG (1998-2007)Traffic 2020 (Linear Scenario) / CAG Traffic 2020 (CAG 1998-2007 Scenario) New York / 5.30.996 / +7.9%9.6 M TEU / +4.7%14.2 M TEU Savannah / 2.60.968 / +13.5%4.9 M TEU / +5.1%13.6 M TEU Los Angeles / 8.30.966 / +9.5%16.6 M TEU / +5.4%27.1 M TEU Antwerp / 8.20.974 / +9.6%14.5 M TEU / +4.5%26.9 M TEU Algeciras / 3.40.961 / +6.5%6.0 M TEU / +4.4%7.7 M TEU Busan /13.30.983 / +8.4%24.3 M TEU / +4.8%38.1 M TEU Shanghai / 26.10.948 / +23.9%56.5 M TEU / +6.1%423.8 M TEU From under estimating to over estimating trends Linearity prevalent in growth trends (1998-2007) Compound annual growth common in forecasts Non-contestability assumption If you build it they will come…

20. Terminal Operators; Well Positioned or Overextended? Then: Dynamics oriented towards expansion. Now: Rationalization, performance improvements and the search for niche markets.

21. Container Terminal Portfolio of the four Main Global Terminal Operators, 2009

22. Container Terminal Portfolio of Other Global Terminal Operators, 2009

23. Conclusion: Beware of Future Expectations Intense phase of capital accumulation in the shipping and port sectors. Some of the growth expectations based on unsubstantiated assumptions. “Financialization” transformed the industry and expanded misallocations. What could be some specific consequences on the maritime industry?