The last time you took your kids to Orlando, you probably rented a car from one of the 10 car rental companies at Orlando International Airport so you could play chauffeur from Disney World to Universal Studios, Sea World and on to the second star to the right and straight on till morning. With all those resorts, and all those tourists arriving by air, Orlando is the largest rental car market in the world.
But what happens to all those cars when they reach their “sell by” date? Many of them wind up in the Middle East, a region so hot for used cars that many of the big automobile importers there now have offices in Orlando to bid on previously owned vehicles when the rental car companies auction them.
Those auctions are a steady source of used autos for the car carriers calling at Jacksonville, the closest big automotive port to Orlando. The growing Middle Eastern demand for new and used cars is boosting auto exports from Jacksonville and other big East Coast auto ports.
“Clearly, the automobile sector is on fire,” said Paul Anderson, CEO of the Jacksonville Port Authority. “Imports and exports are booming, but the delta of our exports over our imports continues to grow.”
Driving the export growth is demand for used cars in the Middle East and West Africa, fueled by oil production in those two regions. Middle Eastern demand for new cars produced in the U.S. also is picking up, and Baltimore is seeing strong export growth.
“We had a great year last year, but it looks like we’re up even further than we were last year,” said Jim White, executive director of the Maryland Port Administration. But although growth in those smaller markets is surging, the biggest foreign markets have White worried. “One thing that has everybody concerned is the slowing of growth in China and the eurozone,” he said.
One of the stars of Baltimore’s export growth has been Chrysler, which exported more than 100,000 new cars last year, up from 18,000 in 2009. Today, it exports 15 models, including Fiat, Jeep, Dodge, Avenger, Challenger and Chrysler 300. Chrysler told White earlier this year it expects to export 142,000 cars through Baltimore this year. “But that was before all this mess in the eurozone and the dollar gained ground against the euro.”
The cloudy outlook for global economic growth hasn’t stopped foreign automakers from shifting production to North America, especially to the U.S. “North America, in general, and the U.S. and Mexico, in particular, are fast becoming an export hub,” said George Magliano, senior principal economist for IHS Automotive. “We’ve got a lot of new sourcing here. It’s going to get bigger, and the transportation companies are getting on this bandwagon.”
Honda, for example, is building new plants or expanding existing ones in Alabama, Indiana and Ohio, and investing $800 million in a new plant in Mexico. Nissan, which exports its U.S.-made models to 46 countries, expects to triple its U.S.-made auto exports in the next two or three years.
Honda hasn’t exported much through Baltimore recently, but White expects to gain a big share of the automaker’s growing exports. “We expect to get a lot more volume from Honda because we are the closest port to the Middle West, so the rail rates are lower,” he said.
Magliano attributed the shift in foreign auto production to the U.S. to the frustration over currency fluctuations, especially in Japan, Europe and South Korea. The foreign automakers produce cars on common platforms shared among different models manufactured at plants worldwide. “So they are looking to do global car platforms, which enable them to shift production here and export from here,” he said.
Magliano expects exports from North America (excluding the intra-NAFTA trade), which are running at about 1 million units a year, to grow to 2 million units by 2020. “It goes in waves,” he said. “In 2014, we’re close to 1.5 million, and then we’re at 1.9 million by 2016, and then to 2 million by 2020.”
The car carriers handling the U.S. automobile trade are gearing up for the growing volumes they anticipate while cutting carrying costs. “They are all coming out with newer ships that can hold more cars and burn less fuel,” White said. “They get a better bang for the buck with more efficient engines and hull design. A lot of the older ships will be phased out sooner than in the past.”
Wallenius Wilhelmsen Logistics, one of the largest car carriers, is projecting an average 8.5 percent increase in U.S. automobile exports in the next year to various regions, including South America, the Middle East, Asia and Oceania.
While sourcing in the deep-sea markets continues to fractionalize — more sources of production are serving more market destinations — WWL is seeing increased growth in volumes to the Middle East, South America and China. “The reasons vary, but no doubt, sustained high oil prices have driven the growth to the Middle East,” said Rich Heintzelman, executive vice president and head of commercial at Wallenius Wilhelmsen Logistics Americas. “Certainly, the economic development in Brazil has led the increases to South America, while continued income growth in China has paved the way for increased exports of additional models from the U.S.”
U.S. exports of new and used cars, which account for more than half of North American exports, grew 21 percent last year, to 566,305 light vehicles. Mexican auto exports (excluding its NAFTA partners) grew 18 percent to 485,473 vehicles. IHS Automotive forecasts U.S. exports will increase 11.3 percent this year to 630,568 light vehicles, and Mexican exports by 12 percent to 543,964 units.
Of the U.S. total, the biggest share — 33.5 percent — last year was shipped to the Middle East and Africa, followed by western Europe, 26.3 percent; and greater China, 18.8 percent.
From January through May this year, the value of U.S. exports of passenger vehicles increased 15.6 percent to $22.3 billion from $19.3 billion in the same period last year.
The anti-dumping tariffs Beijing imposed on imports of U.S.-made cars and sport utility vehicles last year, coupled with the economic slowdown, is clouding the export outlook. The U.S. filed a trade complaint July 5 with the World Trade Organization challenging Chinese duties placed on the more than $3 billion in sales of U.S.-made vehicles. Under WTO rules, the U.S. and China have 60 days to settle the dispute before a WTO dispute settlement can be called for.
Most of the U.S. auto exports to China move through the West Coast. “Baltimore gets bits and pieces of exports to China,” White said. “China does not affect us that much because most U.S. automakers have plants over there. That’s one way of getting around maritime transport.”
One of the biggest foreign car brands in China, for example, is Buick, which Shanghai GM manufactures at its plant in Shanghai. At some West Coast ports, auto exports to China have been flat or declined. Portland, Ore., and Long Beach, both of which are big import ports, said export growth was negligible last year.
“I can probably count on two hands the number of U.S. cars I see in Asia when I travel there,” said Jaxport Executive Vice President Roy Schleicher, who travels to China several times a year. “You don’t see many U.S. cars in China except for the Shanghai Buick.”
Driving the shift of foreign auto production to the U.S., at least until recently, is the appreciation of the euro and the Japanese yen against the dollar, which has turned the U.S. into a low-cost source for producing cars at home and abroad.
“The European manufacturers have been building more factories in the U.S. because the dollar has been so weak since it started falling against the euro in 2001,” said Walter Kemmsies, chief economist of port engineering firm Moffatt & Nichol. “It didn’t trough until last June, and since then it has appreciated 6 to 7 percent.”
The same is true for the yen, which has appreciated against the dollar since China started diversifying its currency by buying into the yen, euro, U.K. sterling and Swiss franc. “That’s why the yen started appreciating too much,” Kemmsies said.
The appreciation of the yen against the dollar has brought an about-face in the policies of the world’s largest car manufacturer, Toyota. “Since the 1950s, Toyota has always committed to making more Toyotas in Japan than abroad, but its CEO said something last year that stunned me. Basically he said, ‘Sorry, we’re going to have to change,’ ” Kemmsies said. “The yen appreciated so much that they had to turn on the factories in the U.S.”
The Corolla plant in Mississippi that Toyota closed in 2007 and then reopened this year after the yen appreciated so much in value is one example of that. “Producing in the U.S. is a more profitable proposition for shipping them to the Middle East,” Kemmsies said.
But though the year-to-year fluctuations in the value of the dollar against the currencies of its trading partners is a matter of concern to the automobile ports, they have to look beyond it. “We can’t control it, so what we try to do is hang onto our market share, which is 48 percent of the East Coast auto trade,” Baltimore’s White said. “You can’t get discouraged by volumes going down. So we focus on market share rather than volume.”