Walter Kemmsies, managing director, economist and chief strategist for JLL’s Ports, Airports and Global Infrastructure Group

Macro Trends in the Economy, Exports and E-commerce

At I.CON: Trends and Forecasts this week, Walter Kemmsies, managing director, economist and chief strategist for JLL’s Ports, Airports and Global Infrastructure Group, discussed three key trends shaping the economy and what these trends mean for the commercial real estate industry.

“Another name for my keynote today could be ‘The Three E’s: Economy, Exports and E-commerce,’” Kemmsies started off by saying.

He began by describing the current macro environment: The U.S. is seeing low growth in a prolonged expansion period, and we’ve just barely recovered from the 2009 fall off the economic cliff. “This has been the longest recovery period in modern economic history,” he pointed out.

In 1980, the U.S. was third-most populated country in the world. It still is, and is expected to remain so through 2021. Meanwhile, countries in the top 10 highest population rankings have shifted, with Germany dropping out of the list and Nigeria moving in. During that same time frame, the U.S. GDP has continued to increase, but the gap is closing between the U.S., China and Japan.

“Ten years from now, I predict the U.S. will not be the largest economy in the world, and you need to adjust your strategy to that,” Kemmsies said.

The developed economies are aging. By 2020, close to 20 percent of the U.S. population will be at retirement age, and, “Frankly, economists have no idea what to do with that. We’ve never had an economy where 1 in 5 people are over 65.”

This demographic shift has affected the nature of global trade. Many consumer goods factories have already moved to countries with lower labor costs (India, Indonesia, Mexico, China and others); now they’re eyeing economies with the highest growth potential. That includes India, Mexico and Brazil, where the young population drives strong consumer demand.

Against this backdrop, Kemmsies sees a major public sector failure in the U.S.’s trade deficit and lack of infrastructure investment. The U.S. imported goods valued at about $1 trillion in 2016, while exporting goods valued at less than half of that. To further illustrate his point, Kemmsies shared monthly container volume trends from 2006 to 2016, which showed that the U.S. exports almost as many empty containers (to be refilled with consumer goods and returned to the U.S.) as it does full ones.

“We need to export a hell of a lot more stuff,” he said. “The value per ton that we export is less than the value per ton that we import.”

Container ship sizes are growing enormously in size to meet this import demand; fully 25 percent of the global container fleet comprises vessels with capacity of 10,000 TEUs or more. However, the congestion caused by these large ships causes the ocean carriers to reevaluate how they move the goods inland. These issues are exacerbated by the fact that infrastructure investment as share of U.S. GDP has fallen.

“We invest little, and where we do invest, it’s to help the imports. We invest in trade agreements but don’t invest in export infrastructure. We need to invest in our own country’s exports,” Kemmsies stated.

As an example, he pointed to the Mississippi River System. Most of the infrastructure on the waterway is at least 75 years old, but has a design life of only 50 years. When this crumbling infrastructure causes shutdowns or congestion, a day without access to the waterways can mean three weeks of catch-up time.

Roadway congestion is also getting worse, and while it may not be obvious, the phenomenon is leading to an increase in e-commerce sales. If you live in a city, would you rather get in your car and fight traffic to buy that book at the mall, or order it on your phone and have it delivered to your doorstep the next day?

Overall, Kemmsies sees the potential for the commercial real estate industry to take advantage of these global trends. “Repurposing is a great place to invest,” he said. He pointed to a parking garage in Chicago with an abundance of parking spaces that was converted to a last mile distribution center. He named Tradepoint Atlantic (formerly Sparrows Point Terminal) outside of the Port of Baltimore a strong example of repurposing a port industrial complex in the e-commerce era.

Indeed, the economy, exports and e-commerce – the “Three E’s” Kemmsies mentioned – are creating fundamental paradigm shifts the commercial real estate industry would be well-served to observe closely.

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