August 17, 2015
This week we look at a proxy for the health of U.S. exports to the Asia Pacific region and discuss a municipal credit that would be directly impacted by reduced trade flow.
Despite Strike Settlement Exports from Los Angeles Area Ports are Subdued
In last week’s Commentary we discussed the challenges the strong dollar presents to the Fed in determining monetary policy. Our particular focus was on U.S. exports. Chinese actions last week to weaken their currency makes the Fed’s challenges even more difficult.
The ports of Los Angeles and Long Beach are a key gateway for U.S. imports and exports to the Asia/Pacific region. They are the busiest container ports in the U.S. Monthly statistics on their container volumes provides a high frequency indicator of the U.S. international trade situation. Currently the statistics reflect a weak market for U.S. exports.
During the month of July 2015, the combined loaded outbound volume for POLA/POLB was down -2.5% from July 2014.
We and many others look to the POLA/POLB TEU statistics as a helpful indicator on U.S. trade flows with the Asia/Pacific Region. Unfortunately, even the most helpful datasets can be noisy. In addition to the labor strikes, the port data can be influenced by other distorting factors. While the Chinese port of Tianjin appears to be back on line after last week’s explosion, the impact of trade flows is still somewhat uncertain. The Panama Canal Authority announced last week that it is temporarily reducing the maximum drafts of ships going through because of reduced rainfall.
There is also noisiness in the data that impacts comparisons between the ports. While the two ports face similar market conditions and have a very close, cooperative relationship, they are separate entities that compete with each other for volumes.
Monthly volume trends at the two ports can vary widely.
In the three months since the strike, Port of Los Angeles volume has declined by -10.3% vs. last year, while Port of Long Beach’s volume has increased by +2.5%.
Another interesting way to look at the port data is to track the share of “outbound loaded” containers of the total volume of containers shipped through the ports. Because the U.S. is a net importer, inbound containers almost always arrive full. Outbound containers can either be shipped full or empty.
By tracking the share of outbound containers, we can monitor trends in the demand for exports from our trading partners and potential impacts on the U.S. economy.
For more charts and analysis, sign up for a DIVER Analytics Trial.
The twelve month trend in outbound percentage peaked at 26% in early 2012 and has been declining steadily every since; it is now at 22%.
Port of Los Angeles and Port of Long Beach are both very high quality credits and will be resilient to potential reductions in volumes whether caused by reduced exports to China or increased competition from East Coast ports which have been aggressively enhancing their facilities to accommodate the larger “post Panamax” ships which will be able to travel through the Panama Canal when its expansion is completed.
POLA/POLB Credits are Resilient to Trade Erosion; ACTA Could be Pressured
A municipal bond credit that is directly exposed to POLA/POLB volumes is the Alameda Corridor Transportation Authority (ACTA). ACTA was formed to facilitate rail transport between POLA/POLB and freight redistribution centers near Los Angeles. The Alameda Corridor is about as un-sexy as infrastructure can get: it’s best described as a 10-mile trench and some railroad tracks.
Prior to the building of the Alameda Corridor, trains travelling between the ports and the City Los Angeles travelled along a surface route, which intersected numerous streets and highways. The Alameda Corridor created a passageway that allows trains to travel without disruption by automobile traffic and other impediments, allowing faster, more efficient freight movement out of the ports.
The primary security for ACTA’s bonds is volume-based fees on containers travelling between the ports and Los Angeles. If necessary, additional security is derived from “Shortfall Advances” from POLA and POLB: if ACTA’s revenue falls short of certain targets, POLA and POLB are required to provide payments to cover debt service payments. ACTA needed Shortfall Advances in 2012 and 2013 to cover debt service.
ACTA reported 1.07x debt service coverage of all debt in 2014 (up from .89x in 2013).
While potential support to ACTA from its “rich uncles” via the Shortfall Advances is a credit strength, the Shortfall Advances are capped and ACTA’s principal repayment burden begins to grow in 2019.
If the escalation coincides with declines in POLA/POLB volumes, additional Shortfall Advances would likely be required.
El Nino Raises Flood Risk in California
While most of California is still wrestling with severe drought conditions, a new weather worry has emerged. The National Weather Service’s Climate Prediction Center announced Thursday that a strong Pacific Ocean El Nino is becoming increasingly probable. A likely result of a strong El Nino is flooding in California.
Previous “Very Strong” (’98, ’83) or “Strong” (’58, ’66, ’73) El Nino’s were correlated with heavy rainfall in California.
While we are not ready to retire our Drought Intensity maps, we believe it makes sense to begin thinking about flooding risk.
FEMA Flood Disaster Declarations-1965 to 2014
Source: FEMA, DIVER Analytics
Have a great week,
Michael Craft, CFA
Port of Los Angeles and Port of Long Beach Volumes Reflect Lackluster Exports
August 17, 2015
This week we look at a proxy for the health of U.S. exports to the Asia Pacific region and discuss a municipal credit that would be directly impacted by reduced trade flow.
Despite Strike Settlement Exports from Los Angeles Area Ports are Subdued
In last week’s Commentary we discussed the challenges the strong dollar presents to the Fed in determining monetary policy. Our particular focus was on U.S. exports. Chinese actions last week to weaken their currency makes the Fed’s challenges even more difficult.
The ports of Los Angeles and Long Beach are a key gateway for U.S. imports and exports to the Asia/Pacific region. They are the busiest container ports in the U.S. Monthly statistics on their container volumes provides a high frequency indicator of the U.S. international trade situation. Currently the statistics reflect a weak market for U.S. exports.
During the month of July 2015, the combined loaded outbound volume for POLA/POLB was down -2.5% from July 2014.
We and many others look to the POLA/POLB TEU statistics as a helpful indicator on U.S. trade flows with the Asia/Pacific Region. Unfortunately, even the most helpful datasets can be noisy. In addition to the labor strikes, the port data can be influenced by other distorting factors. While the Chinese port of Tianjin appears to be back on line after last week’s explosion, the impact of trade flows is still somewhat uncertain. The Panama Canal Authority announced last week that it is temporarily reducing the maximum drafts of ships going through because of reduced rainfall.
There is also noisiness in the data that impacts comparisons between the ports. While the two ports face similar market conditions and have a very close, cooperative relationship, they are separate entities that compete with each other for volumes.
Monthly volume trends at the two ports can vary widely.
In the three months since the strike, Port of Los Angeles volume has declined by -10.3% vs. last year, while Port of Long Beach’s volume has increased by +2.5%.
Another interesting way to look at the port data is to track the share of “outbound loaded” containers of the total volume of containers shipped through the ports. Because the U.S. is a net importer, inbound containers almost always arrive full. Outbound containers can either be shipped full or empty.
By tracking the share of outbound containers, we can monitor trends in the demand for exports from our trading partners and potential impacts on the U.S. economy.
For more charts and analysis, sign up for a DIVER Analytics Trial.
The twelve month trend in outbound percentage peaked at 26% in early 2012 and has been declining steadily every since; it is now at 22%.
Port of Los Angeles and Port of Long Beach are both very high quality credits and will be resilient to potential reductions in volumes whether caused by reduced exports to China or increased competition from East Coast ports which have been aggressively enhancing their facilities to accommodate the larger “post Panamax” ships which will be able to travel through the Panama Canal when its expansion is completed.
POLA/POLB Credits are Resilient to Trade Erosion; ACTA Could be Pressured
A municipal bond credit that is directly exposed to POLA/POLB volumes is the Alameda Corridor Transportation Authority (ACTA). ACTA was formed to facilitate rail transport between POLA/POLB and freight redistribution centers near Los Angeles. The Alameda Corridor is about as un-sexy as infrastructure can get: it’s best described as a 10-mile trench and some railroad tracks.
Prior to the building of the Alameda Corridor, trains travelling between the ports and the City Los Angeles travelled along a surface route, which intersected numerous streets and highways. The Alameda Corridor created a passageway that allows trains to travel without disruption by automobile traffic and other impediments, allowing faster, more efficient freight movement out of the ports.
The primary security for ACTA’s bonds is volume-based fees on containers travelling between the ports and Los Angeles. If necessary, additional security is derived from “Shortfall Advances” from POLA and POLB: if ACTA’s revenue falls short of certain targets, POLA and POLB are required to provide payments to cover debt service payments. ACTA needed Shortfall Advances in 2012 and 2013 to cover debt service.
ACTA reported 1.07x debt service coverage of all debt in 2014 (up from .89x in 2013).
While potential support to ACTA from its “rich uncles” via the Shortfall Advances is a credit strength, the Shortfall Advances are capped and ACTA’s principal repayment burden begins to grow in 2019.
If the escalation coincides with declines in POLA/POLB volumes, additional Shortfall Advances would likely be required.
El Nino Raises Flood Risk in California
While most of California is still wrestling with severe drought conditions, a new weather worry has emerged. The National Weather Service’s Climate Prediction Center announced Thursday that a strong Pacific Ocean El Nino is becoming increasingly probable. A likely result of a strong El Nino is flooding in California.
Previous “Very Strong” (’98, ’83) or “Strong” (’58, ’66, ’73) El Nino’s were correlated with heavy rainfall in California.
While we are not ready to retire our Drought Intensity maps, we believe it makes sense to begin thinking about flooding risk.
FEMA Flood Disaster Declarations-1965 to 2014
Source: FEMA, DIVER Analytics
Have a great week,
Michael Craft, CFA