10 things not expected in 2014, but could happen
with Walter Kemmsies
Last month’s column laid out a base case outlook for 2014, and so this month the focus is placed on various key factors that are unlikely to happen but should not be totally discounted. As such, it is not that these items are expected to occur, but by the same token they are not completely improbable. It’s recommended that anyone who has to make decisions where the outcome is affected by future business conditions compiles their own list. Peripheral vision can be a lifesaver.
Kemmsies is chief economist at Moffatt & Nichol, a marine infrastructure engineering firm. He can be reached at (212) 768-7454, or by email.
- “The PMSA and ILWU come to an agreement very quickly.” Given that negotiations between dock unions and employers have been lengthening in the United States, it would be surprising to see a quick resolution of the ILWU contract negotiation in 2014. However, with the advent of larger ocean vessels and the widening of the Panama Canal, the need for West Coast ports to become more competitive could be an imperative that brings about a faster resolution.
- “A major bill focused on bringing U.S. inland waterways back to a state of good repair is announced.” If a bill that would fund a significant improvement in highway spending is unlikely, a bill to fund investments in the inland waterway infrastructure is even less likely.
- “A terminal operator issues shares in an initial public offering (IPO) instead of selling itself to a private equity group, pension fund or insurance company.” Such companies would have a small market capitalization which could be a hindrance, particularly if the current owners have a lot of debt that would need to be repaid. However, if this were to happen, it would set a precedent that other terminal operators or owners may wish to follow.
- “Ocean carrier rates increase significantly, despite concerns about new ship deliveries increasing container carrying capacity faster than container volume growth.” It is possible that global economic growth turns out to be strong enough to support a sufficiently large increase in trade that reduces the industry’s excess capacity.
- “An ocean liner announces orders for LNG bunkered vessels that are not dual-fuel.” A few liners have announced orders for dual-fuel vessels. As environmental regulations around ports get tighter and low-sulfur bunker costs remain high relative to LNG, a shift in fuels could accelerate. Clean Energy has recently announced that it will build a marine bunkering facility in Jacksonville, Fla. As long as LNG prices remain low relative to refined petroleum products a financial incentive to shift fuels exists.
- “Oil prices average 10 percent lower in 2014 compared to 2013.” Even though the world economy is likely to grow faster in 2014, and therefore energy and fuel consumption would also increase, production is also increasing. If geopolitical tensions subside and production increases, particularly in the United States, continue to outpace consumption increases, oil prices could fall.
- “Inflation remains very low.” Inflation in many large economies has been declining. However, central banks in many countries have maintained very low interest rates in order to stimulate economies by making durable goods like cars and houses more affordable. The Fed and European Central Bank have pumped a lot of money into their economies. With economic activity picking up, production capacity in many industries could tighten and drive prices higher.
- “The Fed does not raise interest rates in 2014.” If inflation does not rise above 2 percent and the labor market continues its slow recovery, then the Fed will not be under pressure to let short- and long-term interest rates rise. That would help the housing market continue to recover and support growth of imported goods.
- “U.S. dollar appreciates strongly in 2014, but exports still grow strongly.” The reason for the appreciation could be the “least-worst” principle. With the U.S. recovery gaining strength, Europe beginning to recover but still dealing with extremely high unemployment in the peripheral economies, and aging Japan struggling against deflation, the “least-worst” currency could be the U.S. dollar.
- “Oilseed and grain prices rise significantly.” With global weather conditions forecast to be more favorable for agricultural production and an expected global increase in the number of acres to be planted, it is unlikely that grain and oilseed prices will rise. However global demand is also growing. If emerging market economies recover strongly, food demand will also rise. The increase in food demand could push prices higher.
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