Executive Briefings

U.S. Economy Is In For a Good Year, One Expert Says. And Lower Freight Rates, Too.

Look for a strengthening U.S. economy, at least in the first half of this year. That's according to Michael Andrews, chief economist with the Port Import/Export Reporting Service (PIERS) and Back Aviation Solutions. Speaking at the sixth annual Trans-Pacific Maritime Conference in Long Beach, Calif., sponsored by the Journal of Commerce, Andrews presented what he described as a "positive, upbeat" outlook for the U.S. economy in 2006. At the same time, he expects a gradual deceleration of growth, caused by a slowdown in consumer spending, in the second half. Housing prices will cool, interest rates will rise and oil prices will remain high, Andrews said. He estimated economic growth rates of better than 4 percent in the first half of the year, and around 3 percent by the fourth quarter. Inflation, running at approximately 2.1 percent a year, remains "fairly tame," even though the Federal Reserve Board appears determined to keep raising interest rates. Prospects for the global economy are brightening as well, Andrews said, with Japan finally showing signs of coming out of its decade-long "deflationary funk" and the Chinese economy continuing to boom. He projects growth for China of 9.5 percent in 2006 and 9 percent in 2007, a slight falloff from the 9.9 percent figure of 2005. Even Latin America is picking up, with Brazil and Mexico expecting growth of 4.5 percent this year, and 3.5 percent in 2007.

As for the container-transportation industry, freight rates are headed for a sharp falloff, according to Raymond Maguire, managing director and head of transport research with UBS Investment Bank. That trend began late last year, even during the peak season for shipments from Asia, he said at the Long Beach conference. UBS is forecasting a 15-percent drop in freight rates for this year. At the same time, the industry will undergo further consolidation as it moves in the direction of more integrated supply chain services. Whether that's a good thing for the marketplace is an open question, Maguire said. By broadening their logistics service menus, providers offer shippers greater convenience and economies of scale. "Historically," however, "customers have been unwilling to pay for it." In any case, Maguire said, the liner shipping industry is in its best shape in years, with growth expected to continue. But he warned that carriers must end their obsession with gaining market share at the expense of healthy margins.

Visit www.piers.com and www.ubs.com.

Look for a strengthening U.S. economy, at least in the first half of this year. That's according to Michael Andrews, chief economist with the Port Import/Export Reporting Service (PIERS) and Back Aviation Solutions. Speaking at the sixth annual Trans-Pacific Maritime Conference in Long Beach, Calif., sponsored by the Journal of Commerce, Andrews presented what he described as a "positive, upbeat" outlook for the U.S. economy in 2006. At the same time, he expects a gradual deceleration of growth, caused by a slowdown in consumer spending, in the second half. Housing prices will cool, interest rates will rise and oil prices will remain high, Andrews said. He estimated economic growth rates of better than 4 percent in the first half of the year, and around 3 percent by the fourth quarter. Inflation, running at approximately 2.1 percent a year, remains "fairly tame," even though the Federal Reserve Board appears determined to keep raising interest rates. Prospects for the global economy are brightening as well, Andrews said, with Japan finally showing signs of coming out of its decade-long "deflationary funk" and the Chinese economy continuing to boom. He projects growth for China of 9.5 percent in 2006 and 9 percent in 2007, a slight falloff from the 9.9 percent figure of 2005. Even Latin America is picking up, with Brazil and Mexico expecting growth of 4.5 percent this year, and 3.5 percent in 2007.

As for the container-transportation industry, freight rates are headed for a sharp falloff, according to Raymond Maguire, managing director and head of transport research with UBS Investment Bank. That trend began late last year, even during the peak season for shipments from Asia, he said at the Long Beach conference. UBS is forecasting a 15-percent drop in freight rates for this year. At the same time, the industry will undergo further consolidation as it moves in the direction of more integrated supply chain services. Whether that's a good thing for the marketplace is an open question, Maguire said. By broadening their logistics service menus, providers offer shippers greater convenience and economies of scale. "Historically," however, "customers have been unwilling to pay for it." In any case, Maguire said, the liner shipping industry is in its best shape in years, with growth expected to continue. But he warned that carriers must end their obsession with gaining market share at the expense of healthy margins.

Visit www.piers.com and www.ubs.com.