1. 2009 Terminal Operators Conference (TOC) Americas, Buenos Aires (Argentina), Nov 9-11 The First Crisis of Globalization: Legacy Scenarios for Maritime Container Trade and Ports Jean-Paul Rodrigue Associate Professor, Dept. of Global Studies & Geography, Hofstra University, New York, USA

2. Turbulent Times for Ports: From a Credit Storm to a Macroeconomic Storm Credit Storm Macroeconomic Storm Transactions and investments. Difficulty of clearing international trade transactions. Undue drop in freight volumes. Decline in aggregate demand. Clearing excess capacity.

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. Impact of Recessions on Consumption, Production and Trade Value of Goods Low High None Significant Decline A – Basic Goods B – Discretionary Goods C – Durable Goods D – Capital Equipment E – Luxury Goods Consumption None Significant Decline 1 – Futures Indexes 2 – Production 3 – Seaborne Freight Volumes 4 – Value of Trade Trade and Production Severity Sequence

7. Globalization 2000-2008: A Bubble?

8. Diffusion Cycles in Containerization: Towards Maturity Adoption Acceleration Peak Growth Maturity New (niche) services Productivity gains Network development Productivity multipliers Massive diffusion Network complexities Niche markets

9. World Container Traffic and Throughput, 1980-2008. Reaching Peak Growth?

10. Paradigm Shift or “V” Shaped Recession?

11. Monthly Container Traffic at the Port of Los Angeles, 1995-2009

12. Reassessing Global Trade and Neomercantilism

14. Monthly Trade between China and the United States, Billions of USD (1985-2009)

15. Factors behind the Interest of Equity Firms in Transport Terminals Asset (Intrinsic value) Terminals occupy premium locations (waterfront) that cannot be substituted. Globalization made terminal assets more valuable. Traffic growth linked with valuation. Same amount of land generates a higher income. Terminals as fairly liquid assets. Source of income (Operational value) Income (rent) linked with the traffic volume they handle. Constant revenue stream with limited, or predictable, seasonality. Traffic growth expectations result in income growth expectations. Diversification (Risk mitigation value) Sectoral and geographical asset diversification. Terminals at different locations help mitigate risks linked with a specific regional or national market.

16. Shipping Equity and Equity-linked Offerings in Public Markets (2000-2007)

17. 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

18. Here Comes the Bankers: The Double Edged Sword of Leveraging and Deleveraging LeveragingDeleveraging Capital intensiveness Intermodal transportation highly capital intensive (modes, terminals and equipment). Amortization over longer periods. Overcapacity (compounded by economies of scale). Redundancy. Financial firms involved in ownership and operations Intermodal transportation as an investment class. Capital scale factor. Disintermediation (dumb money) Lower returns. Renegotiation of contracts? Consolidation of ownership? Financing international transactions Letters of credit. 90% of international trade transactions. Inventory stuck in transit (drop in demand and financing). More stringent conditions. Shipping derivatives Hedge against risk of fluctuations (rates, bunker prices, vessel prices, scrap prices, interest rates, and foreign exchange rates). Unwinding positions in a frozen / deflating market.

19. Reviewing Assumptions: The Impacts of “Financialization” Disconnection Financial sector less aware of the operational and strategic reality. Physical assets are seen and managed strictly as financial assets. Rent seeking strategies Assets are less perceived as they are (port terminals) but simply from their potential (or expected) level of return. Chasing return without understanding well the fundamentals. Low contestability of entry and exit Perceived liquidity. Capacity to enter and exit the terminal market on a short notice. Herd behavior. High amortization Expectations that capital investment will be quickly amortized. Expectations about future growth and the corresponding volumes. Segments of the maritime and terminal operation industries have been subjugated by very smart people lacking wisdom. The financial sector has recently provided ample evidence about the amount of damage very smart people can do when hubris, obfuscation and fraud replace common sense and realistic perspectives.

20. Dumb Money at Work? DateTransactionPrice compared to EBITD 2005 DP World takes over CSX World Terminals 14 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 ABP 14.5 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

21. The Double Squeeze on Ports and Maritime Shipping “Cruel” Overcapacity New terminals coming online New ships coming online (+ cancellations) Lower profitability Less pressures on terminal resources Less financial appeal Contestability for gateways Contestability for hubs Rebalancing

22. 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

23. So, What are the Prospects for Terminal Operators?

24. Liner Shipping Connectivity Index and Container Port Throughput

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

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

27. The Americas: Gateways, Corridors and Transshipment Gateway Port Region Transshipment Port Region

28. Containerization Growth Factors: Which Opportunities are Left? Derived / Organic (A) Economic and income growth. Globalization (outsourcing and global sourcing). Fragmentation of production and consumption. Substitution (B) Functional and geographical diffusion. New niches (commodities and cold chain) Capture of bulk and break-bulk markets. Incidental (C) Trade imbalances. Repositioning of empty containers. Induced (D) Transshipment (hub, relay and interlining). ABCD

29. Anchoring Traffic: The Inland Port / Empty Container Depot Storage Accommodate container storage demand. Storage before reutilization and repositioning. Container exchange market between different supply chains (neutral location). Terminal extension Flexibility in opening hours and gate access. Shuttles between the terminal (port or rail) and the depot. Buffer for the terminal (reduce congestion). Favorable location Closer to main freight distribution activities (periphery). Reduce the frequency and distance of repositioning (cargo rotation). Better response to freight distribution requirements. Port Terminal Exporter Importer AB C Inland Port / Depot Exporter Importer Port Shuttles

30. Continuous Commodity Index and Baltic Dry Index, 2000-2009 (2000=100)

31. Continuous Commodity Index and Average Container Shipping Rates, 1994-2009 (1994=100)

32. The Calm after the Storm: Legacy Scenarios for Maritime Container Trade and Ports Rebalancing of the global economy From growth to rationalization The regionalization of globalization? Anchoring Freight Through Inland Strategies    