1. PastPast TheThe WorstWorst PointPoint
Northeast Trade and Transportation Conference 2011
March 23, 2011
Dr. Walter Kemmsies, Chief Economist
Moffatt & Nichol

2. • ENR Top 100 company, founded in 1945 in Long Beach, California
Moffatt & Nichol BackgroundMoffatt & Nichol Background
• Offices: US, Guam, Canada, Europe, Middle East, Latin America and the Pacific Rim
• More than 500 Employees
• M&N combines the expertise of technical and commercial specialists gained
over 65 years of planning and engineering experience on over 6,000 projects:
• Coastal engineering• Coastal engineering
• Port and waterside construction (marinas)
• Terminal design for all types of freight and passenger movement
• Surface transportation connectivity• Surface transportation connectivity
• Railroads and capacity expansion
• Pay‐go highway improvements
• Strategic development plans• Strategic development plans
• Economic analyses of investment/privatization
• Independent Market Consultant
• Environmental issues/emission modeling
American Society of Civil Engineers
John G. Moffatt – Frank E. NicholEnvironmental issues/emission modeling
Harbor and Coastal Engineering Award

3. Main PointsMain Points
• Past the worst point but not the best point of the cyclePast the worst point but not the best point of the cycle
• Exports help the US but this must become a virtuous cycle
• 4 lost years for healthy segments of the economy, longer for those exposed to real estate
• Japan outlook downgraded near term upgraded medium termJapan outlook downgraded near term, upgraded medium term
• Middle East instability so far prompts modest downgrades to global outlook
• Too early to give the “all clear” signal due to policymaker reactions• Too early to give the all clear signal due to policymaker reactions
• Raw material and transportation cost increases are compressing profit margins
• Quantitative Easing: will too much money chase too few goods?
Need a lot of investment in capacity and infrastructure to offset inflation pressures• Need a lot of investment in capacity and infrastructure to offset inflation pressures
• Not yet clear which industries will lead this cycle
• Structural problems and opportunities will define the next decade
• Twin deficits – more exports
• Food shortages – more agriculture and equipment exports
• Global energy crunch – more forest product and equipment exports
• China needs to normalize - develop a consumer market

4. World Economy StrainsTo Recover Without The USWorld Economy StrainsTo Recover Without The US
US Consumer Spending and Global Real GDP Growthp g
8%
10%
2%
4%
6%
‐2%
0%
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
8%
‐6%
‐4%
• The US accounts for 25% of World GDP
• US consumers account for 70% of US GDP, or 17.5% of World GDP
‐8%
World GDP US Consumer
US consumers account for 70% of US GDP, or 17.5% of World GDP

5. Low Consumer Sentiment Isn’t SurprisingLow Consumer Sentiment Isn’t Surprising
Consumer Sentiment and Unemployment Indexes
250
300
Consumer Sentiment and Unemployment Indexes
150
200
100
0
50
978
979
980
981
982
983
984
985
986
987
988
989
990
991
992
993
994
995
996
997
998
999
000
001
002
003
004
005
006
007
008
009
010
011
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
20
Recession Consumer Confidence Index Unemployed
• Significant rise in employment would improve consumer sentiment
• Companies have been focused on cost control not expansion

6. Private Sector Has Led Employment RecoveryPrivate Sector Has Led Employment Recovery
Changes In Employment Levels in 2010 By Sector
1000
1150
1300
Private
Accumulated Payrolls in thousands
+1 35 million
00
550
700
850
Total
Federal
+1.35 million
+1.12 million
‐50
100
250
400
Federal
State
‐500
‐350
‐200
‐50
Local
‐250 thousand
Jan‐2010
Feb‐2010
Mar‐2010
Apr‐2010
May‐2010
Jun‐2010
Jul‐2010
Aug‐2010
Sep‐2010
Oct‐2010
Nov‐2010
Dec‐2010
Jan‐2011
Feb‐2011
• Private sector efforts were offset by public sector cutting 222K jobs in 2010• Private sector efforts were offset by public sector cutting 222K jobs in 2010

7. USUS Retail Sales RecoveringRetail Sales Recovering -- Inventories LagInventories Lag
Retail Sales, Inventory and Inventory-to-Sales Ratio
1 5
1.75
2
600
700
1
1.25
1.5
400
500
/Sales Ratio
llions
0.5
0.75
200
300
Inventory/
$ Bil
0
0.25
0
100
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
199
199
199
199
199
199
199
199
200
200
200
200
200
200
200
200
200
200
201
201
201
Inventory Retail Sales Inventory/Sales Ratio (right axis)
• Retail sales are recovering – above pre-recession levels around May 2011
C ti i t b ild l h i l d l i• Cautious inventory rebuild – supply chains are longer and less responsive

8. HomeHome PricesPrices Still “Still “CorrectingCorrecting””
US Home Prices and Consumer Price Index
200
250
150
100
0
50
0
2
3
4
5
6
7
8
9
0
1
2
3
4
5
6
7
8
9
0
1
199
199
199
199
199
199
199
199
199
200
200
200
200
200
200
200
200
200
200
201
201
FHFA Home Price Index CPI
• Increases in home sales has been accompanied by falling prices
• Mortgage default rates still at peak levels indicates no recovery yet

9. Industry Is Recovering From A Steep DropIndustry Is Recovering From A Steep Drop
Industrial Production and Capacity Utilization
100
120
85
90
95
60
80
75
80
20
40
60
65
70
0
20
50
55
an‐67
ov‐68
ep‐70
ul‐72
ay‐74
ar‐76
an‐78
ov‐79
ep‐81
ul‐83
ay‐85
ar‐87
an‐89
ov‐90
ep‐92
ul‐94
ay‐96
ar‐98
an‐00
ov‐01
ep‐03
ul‐05
ay‐07
ar‐09
an‐11
• Production rebound since 2009-Q2 not enough to reach pre-recession levels
Ja
No
Se
Ju
Ma
Ma
Ja
No
Se
Ju
Ma
Ma
Ja
No
Se
Ju
Ma
Ma
Ja
No
Se
Ju
Ma
Ma
Ja
Capacity Utilization (left axis) Industrial Production (right axis)
• No surprise that companies are cautious about employment and investment
Source: Federal Reserve, Moffatt & Nichol

10. USUS International Container Trade TrendsInternational Container Trade Trends
Monthly TEU Volumes – 12 Largest US Ports
3,000,000
3,500,000
+14.2%
'10 vs '09
2,000,000
2,500,000
10 vs 09
+10.7%
1,000,000
1,500,000
'10 vs '09
+15.2%
'10 vs '09
5 2%
0
500,000
+5.2%
'10 vs '09
+27.1%
'10 vs '09
0
Dec‐05
Mar‐06
Jun‐06
Sep‐06
Dec‐06
Mar‐07
Jun‐07
Sep‐07
Dec‐07
Mar‐08
Jun‐08
Sep‐08
Dec‐08
Mar‐09
Jun‐09
Sep‐09
Dec‐09
Mar‐10
Jun‐10
Sep‐10
Dec‐10
Mar‐11
Jun‐11
Sep‐11
Dec‐11
Index Total Total Loaded Exports Empties
• Imported and empty containers led growth in 2010
• Exports were surprisingly flat, some likely shifted to bulk

11. USUS NonNon--fuelfuel Export TrendsExport Trends
Non-fuel Exports By Weight By Type Of Vessel
295
317
294
331
300
350
Millions of Metric Tons
235
247 247
263
211
220
207
235
200
250
178
187
182
191
207
150
200
56 60
65
72
84
96
87
97
50
100
0
2003 2004 2005 2006 2007 2008 2009 2010
Total Containerized Not‐Containerized
• Bulk began shifting into containers in 2007, some shifted back in 2010
• Exports grew 12.7% in 2010, containerized 13.4% and other 11.1%

12. Positive Outlook forPositive Outlook for thethe AmericasAmericas ......
Annual Real GDP Growth Rates
7%
8%
9%
5%
6%
7%
WCSA
2%
3%
4%
WCSA
Caribbean
Cent America
ECSA
N America
‐1%
0%
1%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
‐3%
‐2%
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
• Except for Argentina and Venezuela the outlook is for robust growth• Except for Argentina and Venezuela, the outlook is for robust growth
in Latin America

13. ... and Asia... and Asia
Annual Real GDP Growth Rates
7%
9%
5%
S Asia
N Asia
1%
3%
SE Asia
Mediterranean
N America
N Europe
‐3%
‐1%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
‐5%
• Except for developed economies, the outlook is for robust growthp p g
• Forecasts for Japan need to be trimmed in the near term, raised in the
medium term

14. What Are Commodity Prices Telling Us?What Are Commodity Prices Telling Us?
Commodity Prices Indexed To 100 in Dec 2000
500
600
Copper
400
Copper
Oil
200
300
Corn
100 Nat Gas
0
Dec‐00
Jul‐01
Feb‐02
Sep‐02
Apr‐03
Nov‐03
Jun‐04
Jan‐05
Aug‐05
Mar‐06
Oct‐06
May‐07
Dec‐07
Jul‐08
Feb‐09
Sep‐09
Apr‐10
Nov‐10
Jun‐11
• Since the middle of the last decade commodity prices have soaredSince the middle of the last decade commodity prices have soared
• Not speculation but supply-demand balance and infrastructure
Source: UN‐ILO, Business Monitor, Moffatt & Nichol

15. Oil Consumption Trends 1965Oil Consumption Trends 1965 -- 20092009
Crude Oil Consumption
$100
$120
80
90
100
$60
$80
50
60
70
Barrels Per Day
$40
20
30
40
Millions of B
$0
$20
0
10
20
65
68
71
74
77
80
83
86
89
92
95
98
01
04
07
10
• 8 million barrels of crude oil were consumed daily in 2010
Si 2008 E i M k t il th D l d E i
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
Developed Economies Emerging Markets World WTI Annual Average (right axis)
• Since 2008 Emerging Markets consume more oil than Developed Economies
Source: UN‐ILO, Business Monitor, Moffatt & Nichol

16. Unsustainable Trade DeficitUnsustainable Trade Deficit
US Trade Balance Components: 1992 -2010
$0
$20
Billions
p
‐$20
$0
1992
1992
1993
1994
1995
1996
1997
1997
1998
1999
2000
2001
2002
2002
2003
2004
2005
2006
2007
2007
2008
2009
2010
2011
45% of the
trade
deficit is
due to
‐$40
due to
petroleum
imports
‐$60
‐$80
Goods Balance Services Balance
• Including oil, the goods deficit is 4.8x the services surplus, excluding oil it is 2.75x
• Deficit is due to demographics containerization trade policies and• Deficit is due to demographics, containerization, trade policies and
communication/information processing technology
• Increased import dependency is unavoidable – the US needs to export more
Source: US Census Bureau

17. USUS ExportExport CandidatesCandidates
• Relative to faster growing Emerging Markets, the US hasRelative to faster growing Emerging Markets, the US has
• A lower cost of capital, but a higher cost of labor
• Relative abundance of scare resources such as water
• More advanced biotechnology
• More reliable quality control and surveillance of complianceMore reliable quality control and surveillance of compliance
• Bulk commodities and specialized capital goods (project cargo) fit the
profile of US comparative advantages
• Strong Emerging Market demand for bulk is expected to continue as
these economies continue to grow and develop
• Grains and oilseeds
• Meat• Meat
• Coal
• Strong energy demand from Emerging Markets means strong forest
product demand wood pellets in particularproduct demand – wood pellets in particular
• Strong bulk demand also means strong demand for capital equipment
– energy, construction, agricultural

18. Proportion of Population Above 55 Years of Age
The World’s Population Is AgingThe World’s Population Is Aging
50%
60%
Japan
Europe
40%
p
China
Canada
US
20%
30% Brazil
Mexico
India
10%
0%
1990 2000 2010 2020 2030 2040 2050
• What will this booming consumer segment do next?g g

19. China’s Currency Policy Is A Global Economic RiskChina’s Currency Policy Is A Global Economic Risk
8
9
Exchange Rates Between US$, Chinese Yuan and Brazilian Real
6
7
Yuan Per Dollar
4
5
Yuan Per Real
1
2
3
Real Per Dollar
0
1
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

20. Summing Up...
R i di “ l d”Recovery is proceeding “as planned”
Sustained World economic recovery depends on the US
Too early to give the “all clear” signal… risk of policy errorsy g g p y
Fiscal and monetary stimulus help but create new risks
Long term clouded by structural issues that will drive the next cycleLong term clouded by structural issues that will drive the next cycle
Thank you for your attention
Walter Kemmsies
Moffatt & Nichol
New York
+1 212 768 7454
wkemmsies@moffattnichol.com