Vehicle exports are climbing, but will they offset slowing imports?

Vehicle exports from the U.S. have come as a pleasant boost for American ports. The question is whether a boost in exports will offset declining auto import volumes?

Last year, the Port of Portland, Oregon notched a double-digit gain in the number of finished vehicles it handled. The real —and unlikely—star for this Pacific Rim port: Exports. “What’s really helped us was the demand from China for high-end American vehicles, Mustangs, Expeditions, Lincoln Navigators,” explained Ken O’Hollaren, the port’s marine marketing manager. “It’s a reflection of China’s economic growth, its rising standard of living, the demand for high-quality, high-end US automobiles.” For the fiscal year ended June 30, 2017, vehicle exports from the port increased 45% to 76,000, while overall vehicle handling was up 13% to 318,000. Portland imports Hyundais, Toyotas and Hondas. O’Hollaren expects this year, export gains will continue. Ford Motor Co. exports its cars to China and other Asian countries through the port, which recently inaugurated a new $7 million, 19-acre storage and staging yard to handle the increased export-related traffic. Portland now boasts it is the biggest port for auto exports on the West Coast, punching well above its weight as North America’s tenth largest port for total vehicle handling, and the fifth largest on the West Coast. “We’ve enjoyed a longstanding reputation for automotive import handling,” said O’Hollaren. “Now, increasingly [that reputation] is being built on exports.” Putting it into Reverse Picture American ports and vehicles. The image that immediately comes to mind are seemingly endless lines of imported cars from Asia and Europe driving off Ro-Ros and into mammoth staging areas, where they wait to be transported by rail or truck across the US. Gradually, however, that view is shifting into reverse. “We expect to see further export increase from the US to markets abroad,” said Brandon Mason, the global automotive practice director at PwC, in a recent presentation at an Automotive Logistics conference. “We’ll still be a net importer of products. But we do expect that gap to close a little bit.” The export boost comes at an opportune time for US-based manufacturers active in exporting their finished goods. Last year, a record 17.5 million vehicles were sold in the US, marking the seventh straight year of growth. This year, sales are expected to decline 2% to 2.5%, according to Mason, despite more than one million vehicles destroyed by Hurricanes Harvey and Irma. For American new car buyers, 2018 and 2019 are also forecast to be down years. Germany’s BMW is the real star in the American vehicle export universe. Last year, BMW exported almost 300,000 SUVs from its Spartanburg, SC plant. Some 86% of these were shipped overseas from the Port of Charleston, representing an export value of more than $9.5 billion. Other ports that gained from this trade included two ports in Georgia – Savannah and Brunswick – and three in Florida – Jacksonville, Miami and Everglades. Both Brunswick and Jacksonville are major terminals for car imports. However, Brunswick has registered two straight years of declined volume, while Jacksonville last year showed a 12% increase in imports, largely on the back of short-sea movements from Veracruz, Mexico (see box on page 14).

For the first eight months of this year, vehicle exports from Charleston are down by almost 9%, according to port statistics. However, a new luxury model, the BMW X7, should boost demand. The X7, which was unveiled at the Frankfurt auto show in September, is scheduled to roll out of the Spartanburg plant soon. BMW spent $1 billion during 2015 and 2016 expanding its South Carolina manufacturing facilities and announced earlier this year it would spend an additional $600 million from 2018 until 2021. This has a huge impact on the ports, not only in terms of finished vehicles, but also in terms of the importation of the components needed in that assembly. Auto parts and tires together comprise about one-fifth of all goods imported through the Port of Charleston, for example. “In the port industry there is no substitute for manufacturing, particularly automotive manufacturing. As such, BMW is an important customer for South Carolina Ports Authority,” wrote the authority’s president and CEO, Jim Newsome, in an email. “We handle imported engines, parts and components for their production process and export finished vehicles, as well as serve the supply chain needs of their vendors and suppliers throughout the region.” As Newsome pointed out, the impact of a carmaker such as BMW is critical both directly and indirectly.

“BMW has been an important economic development tool for the Port and State. It was served as the launch customer of Inland Port Greer, which improves connectivity between the Port of Charleston and the Upstate of South Carolina utilizing an overnight intermodal rail service,” he said. “It has been so successful that [the port authority] is constructing a second facility, Inland Port Dillon, scheduled to open early next year. BMW’s success also helped South Carolina recruit Volvo’s first U.S. production facility, which will begin production in late 2018.” US car exports last year accounted for $56.7 billion. Of course, an immense imbalance between imports and exports remains. In 2016, the US imported 8.2 million vehicles and exported only 2 million. However, about half of these imports came from fellow NAFTA countries of Canada and Mexico. Localization Set aside the Trump administration’s tough talk on imposing import duties on Mexican products and the ongoing NAFTA renegotiation. Analysts expect regional production will increasingly mark the vehicle trade, with shifts from Canada to the US and Mexico taking place over the next few years. Localization is the industry’s watchword. PwC’s Mason talked about localization “particularly from South Korean and Japanese” vehicle manufacturers, with the possibility as well that Chinese manufacturers will begin to localize production in North America as well. The latest indication of this trend came in August, when Toyota and Mazda announced a $1.6 billion joint venture assembly plant to be built somewhere in the US, with cars rolling off the lines beginning 2023. The plant will have a capacity of 300,000 cars a year, the two manufacturers said in their announcement. That plant should further propel America’s car industry. According to Mason, PwC projects more than 90% of vehicle growth will come from emerging markets, with China the dominant leader and India firmly in second place. But the US, which PwC had projected to be the world’s sixth growth market, could vault to the number three position with the new plant, Mason said. The Trump administration’s scrapping of negotiations on the Trans Pacific Partnership (TPP) free trade agreement should put an additional damper on imports coming from Asia, analysts believe, as Japanese and Korean cars will not benefit from any duty-free status in the years ahead. “If [TPP] had taken place, it could have slowed down production in the US,” said Mason, who added that the “assembly outlook for the US is quite strong.” That’s great news as well for ports such as Portland and South Carolina, which are increasingly shipping vehicles out of the country, not in.