Lack of U.S. Infrastructure Investment Could Impact Global Trade
The advantages that the U.S. has experienced in global trade following the World Wars due to its superior infrastructure and low cost of transportation, particularly along the Mississippi River, are rapidly evaporating, according to Walter Kemmsies, chief economist for Moffatt & Nichol.
However, according to Mr. Kemmsies, who has worked developing ports, export terminals, and shipping companies, reversing the country’s deteriorating infrastructure is still possible, and would provide profitable investment opportunities along the way.
Mr. Kemmsies explains that when the U.S. economy and the dollar were weakened, it created the optimum time for investment in infrastructure, however, now that the dollar has regained its strength, U.S. exports are being overrun by competing countries that now have a currency advantage.
Mike Steerhoek, executive director of the Soybean Transportation Coalition, reinforces this view stating, “There really are some strategic moments in time when you need to make those investments and get more bang for your buck. And if macroeconomic conditions change, then you’ve got that infrastructure in place that can really continue to propel your economy.”
The situation will only worsen once the upgrades to the Panama Canal are completed in 2016. Once operating, the new locks will give Brazil a 15% cost advantage compared to shipping soy from the U.S.
Brazilian commodities are generally shipped from ports in the south of the country, however, new ports are being built in the north which will shorten the distance crops will need to travel – lowering transportation costs and creating new ocean trade routes. Once other countries can match the cost of transportation seen in the U.S, the U.S. will lose its competitive advantage.
There is evident demand and need for investment in U.S. infrastructure, however, the time frame for such investments is quickly narrowing, according to Mr. Kemmsies. Given the infrastructure developments in other countries and the strength of the dollar, he estimates that the remaining ideal time frame for such critical investments is estimated to be between 2016 and 2018.