Congestion threatens trade as global middle class expands, economist warns

Congestion threatens trade as global middle class expands, economist warns

To Walter Kemmsies, the biggest threat to global trade isn’t protectionism, war or terrorism, disease, natural disasters or any of the usual triggers for economic catastrophe. Instead, try mounting congestion at global ports and the crumbling infrastructure surrounding them.

He sees the situation at congested U.S. ports, especially on the West Coast, as just a harbinger of a crisis importers and exporters worldwide will face in years to come.

As the world population and middle class grow rapidly, congestion could cause a global economic crisis. “That’s my big fear for global trade,” Kemmsies, chief economist for engineering firm Moffatt & Nichol, said at the SMC3 2015 JumpStart conference in Atlanta.

He noted the United Nations projects the size of the global middle class will more than double in the next 15 years, rising from about 2 billion people today to 4.9 billion people in 2030.

“If we actually get that many people — almost 5 billion — in the global middle class, our industry is going to completely collapse. The congestion will be that severe,” Kemmsies said in a speech at SMC3. The UN forecasts the world population will reach 8.3 billion by 2030.

“Congestion in many parts of the world, including the United States, has made it very difficult to understand the economic data you look at,” Kemmsies said. As the world population grows and freight demand increases, congestion caused by poor infrastructure will have a more noticeable and directly measurable impact on the world economy and trade, he said.

Kemmsies didn’t have to look far to find an example of how congestion is hurting trade, supply chains and the economy. The congestion and delays at U.S. West Coast ports, where terminal operators are locked in a long-running labor dispute with the longshore union, have clearly snarled U.S. supply chains and cost importers and shippers millions of dollars.

One shipper alone, specialty women’s fashion retailer New York & Co., said it incurred an extra $2 million in freight costs associated with switching from ocean to air freight and diverting cargo to U.S. East Coast ports to avoid long delays on the West Coast.

“On the West Coast, maybe a watered-down version of a strike has been going on for the last six months,” Kemmsies said. He acknowledged, however, that congestion and chassis shortages were a problem for West Coast ports before the labor dispute intensified last fall.

Even if the International Longshore Warehouse Union and Pacific Maritime Association signed a contract tomorrow, congestion and the damage caused by it would remain.

“On the export side, I think there is permanent damage going on right now,” as a result of the West Coast labor dispute, Kemmsies said. “U.S. products are good quality but they’re expensive. If you have to pay a lot of money to get lousy service from the U.S., you’re going to go someplace else” for products such as agricultural goods,” he said.

Congested ports and long truck lines aren’t unique to the U.S., Kemmsies stressed, noting that in Brazil drayage trucks can be backed up for miles. He mentioned the U.S.-Mexican border as another hotspot for congestion that threatens growth in international trade.

Even when ports are well maintained, the roads, bridges and highways that surround them often are not, he said. “Even though ports are dealing with bigger ships and more volumes concentrated in fewer ports, outside of labor we don’t have problems getting goods off ships and onto trains and trucks. But the minute we leave the gate, we have a problem.”

Infrastructure investment outside ports in the U.S. and elsewhere “is not consistent with the investment we need,” Kemmsies said. “We’re just putting bandaids on problems as they come up. Therefore I expect more congestion.”


Contact William B. Cassidy at wcassidy@joc.com and follow him on Twitter: @wbcassidy_joc