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New Orleans-area ports feel impact of U.S. trade battles: ‘It was a tough year’

Tuesday, 04 February 2020 | 20:00

Louisiana’s biggest ports felt the sting of trade wars in 2019, as falling shipments of steel, petrochemicals and some other commodities weighed on their business results and offered a worrying counterpoint to the state’s otherwise accelerating economy.

Bulk cargo volumes fell by 25% at the Port of New Orleans in the last six months of 2019, while the much larger Port of South Louisiana just upriver from New Orleans saw a 15% drop in total cargo volumes for 2019, according to recently released results from the ports’ governing bodies.

“You can’t hide the numbers,” said Paul Aucoin, the Port of South Louisiana’s executive director. “It was a tough year.”

The two ports offer insights into the health of the broader economy because of the shipping industry’s critical role in the region, and a slowdown suggests that even as Louisiana’s economic growth has accelerated in recent months, with the state’s gross domestic product growing faster than the U.S. average, parts of the economy are feeling pressure from President Donald Trump’s tariffs.

The two ports are the primary waypoint for shipments of corn and other agricultural products from the U.S. to foreign markets, and are also critical to the state’s oil and petrochemical sector. Together, they account for an estimated 50,000 direct and indirect jobs in the six parishes where they operate and contribute hundreds of millions of dollars in state taxes, according to economic impact reports.

While the Port of New Orleans saw increases in cruise traffic and a 10% jump in container shipping, a falloff in steel shipments and other tariff-affected business hurt its overall results.

For the Port of South Louisiana, which covers a 54-mile stretch from Destrehan in St. Charles Parish to just past the Sunshine Bridge in St. James Parish, the tariffs have bitten even deeper.

While Louisiana’s ports pale in comparison to the massive container-based ports on the east and west coasts of the U.S., the local shipping industry remains a major player when it comes to bulk shipments — the non-container cargo that includes corn, soybeans, crude oil and other items that have been directly or indirectly most affected by trade spats initiated by the Trump administration.

Both also have multibillion-dollar expansion projects that require public and private backing, which they are trying to push through with the promise of thousands of additional jobs.

The question now, according to Loren Scott, the former LSU economics professor who authored a 2015 Port of South Louisiana economic impact study, is whether recent trade skirmishes will be resolved with relatively little harm done, especially with the administration under pressure in this U.S. election year, or whether they will end up doing long-term damage that threatens the two ports’ expansion plans.

“It’s like a rocket that’s 5 feet off the ground,” Scott said. “We’re hoping it’s going to be OK, but right now we really don’t know which way it’s going to go.”

Last month, the Trump administration expanded tariffs on raw steel and aluminum, which took effect in 2018, to include derivative products made from the metals. The tariff rates, of 25% for steel and 10% for aluminum, will take effect for the new range of products on Feb 8. Canada, Mexico and Australia are exempt from both, while Brazil and Argentina were left out of the steel tariff increases after Trump reversed a threat in December to include them in retaliation for devaluation of their currencies.

Aucoin says he understands the president’s motive for taking a hard line on some trade relationships, but he has been a consistent opponent of using the blunt instrument of tariffs. “It really doesn’t work to put a lot of tariffs on because it causes more harm than good,” he said.

Though the tariffs may be aimed at protecting domestic industry, there is often collateral damage on the home front.

“There’s all kinds of ways that this is impacting the economy aside from the fact that it is creating so much uncertainty about what is going to be the next shoe that drops in the trade wars,” said Scott.

One direct casualty, he noted, was a proposed $1.25 billion petrochemical plant that was to be built near Convent in St. James Parish by Wanhua Chemical, a Chinese state-controlled firm. After years of negotiations, the company abruptly put the project on hold in August, citing “rising capital costs.”

“This was hit two ways,” Scott said. “It was a steel-intensive project and Trump’s steel tariffs were causing costs to go up. Also, the Chinese didn’t want to give a gift like this to the U.S. while it was right in the middle of these trade negotiations.”

With some thawing of U.S.-China trade relations, Wanhua Chemical revived talks for a much smaller version of that plant on the West Bank opposite New Orleans. But local officials shot down the potential facility at a meeting in January.

Steel is just one of hundreds of products affected by the tariffs, but it is a good example of the rippling effect they can have.

The Port of New Orleans, which is the largest port of entry for U.S. steel and iron imports according to S&P Global, said break bulk cargo for the six months through December was down 25%, on top of a 13% drop the previous fiscal year, largely because of lower steel volume.

Robert Landry, the port’s chief commercial officer, said it was lower-profile trade skirmishes, not China, that had the most effect.

“Chinese tariffs was not the biggest issue. It was all the other trade issues with different countries like Brazil, Turkey, South Korea, that really contributed to the decline,” Landry said.

“It changed a lot of supply chains and people looked to source steel from different suppliers, including domestically, which I suppose was the point of the tariffs,” he said. “But then steel prices went up and people said, ‘Let’s push this project off for a couple of months,'” because of uncertainty about what might come next in the trade talks.

This has had a direct impact on port users like the Dupuy Group, a family-owned company that started as a coffee warehouse on Peters Street 84 years ago and has since moved into other areas, including metals.

Allan Colley, Dupuy’s president, said shipments of food products are increasing, but shipments of metals that fall under the tariffs are down big-time.

“We handle a lot of food products, like coffee and tea, which are tariff-free, and we’ve seen that volume increase substantially. But the other side of it is that non-food volumes have fallen off dramatically,” he said. “We were major warehousers of metals up until about 2018, and we’ve seen stocks fall off sharply.”

The biggest issue has been price swings, which make it hard for businesses to plan, according to metals trader Scott Goldin. Benchmark steel prices, for example, zoomed up above $1,000 a ton in the U.S. in late 2018, fell back sharply last year but in the last four months have headed sharply higher again.

“The whole time it’s been happening, we’ve been doing our best to keep our prices as low as possible,” said Goldin, who is chief executive of Goldin Metals, a trading house with distribution warehouses in Harvey. “But with prices fluctuating up and down, we’ve seen some customers’ projects slow down.”

Aucoin said the steel price volatility has stalled the Port of South Louisiana’s expansion plans.

“We have 17 new industries that want to come in and build something for a total investment of $23 billion, but the price of steel went up because of the tariffs and that’s put them off,” he said.

Even the Port of New Orleans’ booming container business has been impacted. The port has been one of the fastest-growing container port handlers in the country, with an annual growth rate of more than 8% in the five years through 2018, according to S&P Global.

In January, it reported that it handled a record number of containers last year, with volume up about 10% over the previous year at nearly 650,000 twenty-foot-equivalent units.

But the drag on break bulk volume meant that revenue from the port’s terminal operations, its largest business segment, was running about 6% below budget in the six months through December, at just above $21 million. That is not helpful when the port’s leaders are pushing hard for investment in new equipment and facilities.

The port has had to lobby hard to get tariff exemptions for two gantry cranes it is importing from China and which port officials say are needed to compete with rival ports like Houston and Savannah.

The port’s CEO, Brandy Christian, said the Chinese cranes would create 1,147 jobs and generate $3.6 million in tax revenue for Louisiana, according to an economic impact study.

Now, even with a new U.S.-Canada-Mexico trade deal finally signed after more than a year of tinkering by Congress, and the initial “Phase I” deal with China signed by Trump in December, there is still considerable uncertainty about global trade.

The Wuhan coronavirus also has the potential to slow trade as China has taken steps to lock down Wuhan, a city of 11 million people, while multinational companies, including iPhone maker Apple Inc., have closed stores and offices throughout the huge Asian country.

Consumer spending has driven U.S. economic expansion for a decade and kept trade volume chugging along, said Derik Andreoli, a principal at trade forecaster Mercator International in Seattle. But the U.S. business confidence index, a generally reliable indicator of economic health, has been falling for more than a year, a worrying sign for trade.

Scott echoed that worry. “We’ve seen investment spending by businesses slowing down to almost nothing because they’re worried about the effect of tariffs on their supply chains,” he said.
Source: Nola

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