Outlook on U.S. Exports: Forecasting the “Perfect Storm” or Something Else?
By on May 26, 2016
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Many of us are familiar with the term “perfect storm.” This cliché term implies conditions are ideal for the creation of a pending negative event. Recently, it has been used to describe the outlook for U.S. exports.
Exporters continually hear the rumbles of thunder from the industry and economic press decrying the longstanding trade imbalance for the United States and their trading partners, recounting the fact that imports significantly outweigh the exporting of goods.
This imbalance has been a reality for more than 20 years, as market conditions favored the creation of goods overseas, mainly in China. With the strong dollar, U.S. goods are, and have been for a while now, more expensive than locally-produced goods. Critics suggest this may be the perfect storm for a continued flat or downturn in U.S. export volumes. Daily indicators point to an export forecast that is much less than stormy, but the big picture suggests otherwise.
A Diverse Mix of Goods is Driving U.S. Exports
Consider this: The U.S. export commodity base is a diverse mix of goods and is well balanced across many commodity segments and cargo values. Aside from scrap and recycled products, the remaining two thirds of U.S. exports are diversified over the material goods segment. This includes, but is not limited to, commodities like commercial aircraft, industrial machines, semiconductors, telecommunications, electric apparatus, and medical equipment. The U.S. continues to be a leader in the development and production of these mid-to-high value goods. The final third of U.S. exports consists of industrial supplies and equipment, chemicals, fuel oil, petroleum products, resins, plastics, and non-monetary gold. These are also commodity segments in which the U.S. is a long-standing leader in production.
Partially finished goods or consumer goods, which make up an estimated 23% of the total goods being exported, include automobiles, automotive and vehicle parts, foods, mobile phone components, feeds, beverages, and pharmaceuticals. Other commodities, such as textiles and glass, will remain in demand to Southeast Asia and Middle Eastern countries with heavy construction projects underway. These commodity sectors are anticipated to be the largest contributors to U.S. export growth between now and 2030.
The diversity of commodities and cargo values alone creates a solid foundation for export growth while minimizing volatility when other market factors, such as currency, geopolitical shocks to the market, and fuel prices, can adversely impact the growth of U.S. exports. As economic history dictates, countries that rely significantly on a few large commodity segments face a greater exposure risk to export growth. This can be illustrated by the recent drop in fuel prices, which essentially took a large toll on countries heavily reliant on oil exports, like Russia.
Additional Factors Impacting U.S. Exports
Aside from the commodity mix, there are many other factors that make exporting from the U.S. ideal in the short-term and make the 4% estimated growth attainable.
- Rates in East-West trades from the U.S. are at record lows, allowing cost per unit to remain competitive as part of manufacturing costs.
- Overseas labor and production costs of similar goods exported from the United States are increasing, making exported goods more affordable compared to offshore sourcing streams.
- Decreased bunker charges and mitigated low sulfur fuel charges have been the norm since mid-2015.
- Ocean carriers report ample available vessel space and available container equipment, especially in port areas. As carriers grapple with capacity adjustments, exporters can benefit from the surplus space available on export ships to Asia and Europe.
- Carrier alliance adjustments and ocean carrier consolidation seek to optimize routing options and right-size available capacity. While new alliances and mergers are not expected until late 2016 or early 2017, exporters have the benefit of “jumping on board” before possible capacity tightening appears in the global trades.
- Regulatory matters such as the SOLAS Verified Gross Mass (VGM) are expected to have little or no on the growth of U.S. exports. This is a global requirement.
For export planners, it remains essential to evaluate many factors relating to the costs of labor, regulatory requirements, licensing, production, transportation, or warehousing, in combination with the peripheral conditions or signals, which indicate the relative stability and growth of the export market.
Final Thoughts
Forecasting the “perfect storm” in the economy is not a precise science. In the current market, a realist might view the forecast for U.S. exports as a period of “indefinite serenity,” or period of relative calmness. For exporters evaluating whether or not to export now, they should take advantage of these ideal market conditions and jump on board before that perfect storm appears on the horizon.