Home Economy The expansion of the Port of New Orleans shows optimism about the future of global trade

The expansion of the Port of New Orleans shows optimism about the future of global trade

by SuperiorInvest

NEW ORLEANS – The collapse of supply chains during the pandemic has fueled speculation that globalization is on the wane as companies vow to become less dependent on foreign providers of goods and services. But if New Orleans is any example, the world is moving less away from global trade and more towards re-engineering how it works.

A critical gateway between the Mississippi River and the global oceans, New Orleans was an entry and exit point for the United States even before the Louisiana Purchase. The city is now betting that position will continue — and even deepen — as the world enters a new era of global integration.

The Port of New Orleans is one of the nation’s busiest for exporting agricultural products such as soybeans and corn. But it has difficulty competing for lucrative imports that are carried on huge ships from Asia, in part because those ships cannot fit under the local bridge. As global supply chains realign in the wake of the pandemic, New Orleans’ proximity to Mexico and its location on the Mississippi River could help make it a vital stop in what many expect to be a more resilient supply chain of the future.

The Port of New Orleans is banking on this transformation: They recently unveiled a plan to spend $1.8 billion to expand the port to a new location that can handle more trade and accommodate larger ships.

This optimism about the future of trade diverges from some of the worst fears of the past few years, as pandemic-related supply chain disruptions, China’s Covid lockdown and Russia’s war with Ukraine have shaken confidence in the global trading system. Policy makers and company executives have vowed to become less dependent on China and place supply chains closer to home. This has led to predictions that the world is heading for a period of “deglobalisation”, in which the trade and financial ties that have brought countries closer together in recent decades he would turn back.

So far, economic data shows few signs of such a sharp retreat. Global trade volumes they grow more slowlybut they continue to reach new highs, with significantly more goods and currency crossing international borders than ever before.

Some companies are looking beyond China for production capacity, but this does not necessarily mean that they are retreating from global integration: Many are turning to countries such as Mexico, India and Vietnam. And while pandemic supply chain issues have alerted companies to the risks associated with the existing business system, it appears to be encouraging them to diversify, not dismantle, their global supply chains.

The trends, and the way institutions like the Port of New Orleans are responding, highlight that globalization is evolving rather than completely falling apart. The changes in trade now underway seem likely to rework who works with whom and could reduce the efficiency and cost of international trade. But the profit motive that drove companies to look around the world for parts, workers and new markets is still strong.

“When I hear people say the word ‘globalization,’ I hear ‘cost minimization,'” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said in a Jan. 7 interview. have the other part to it.”

US officials remain concerned about the country’s reliance on foreign sources for key goods. The Biden administration has kept fat tariffs to products from China and set new limits on technology trade with the country. Officials also embraced an idea known as “friendshoring” — moving production to factories in allied countries. And they introduced grants and tax breaks to attract the production of clean energy and technology products to the United States.

U.S. officials say the changes will make the nation more self-sufficient and create more jobs. But economists warn that this new model of global trade poses risks. As countries seek to protect their supply chains from disruption and geopolitical threats, they could become protectionist in ways that dampen and make trade ties more expensive.

“I’m concerned about the slippery slope that comes with these business models,” Gita Gopinath, first deputy managing director of the International Monetary Fund, said in an interview this month.

Ms Gopinath said the new era of globalization could force companies to opt for trade and transport options that prioritize political goals and consistency over cost. That could raise prices for consumers – potentially keeping inflation, which has been elevated for 18 months, faster than it would otherwise be.

Other experts are more optimistic about the ongoing changes.

Edward Gresser, director of trade and global markets at the Progressive Policy Institute and former chief of economic research for the Office of the United States Trade Representative, said the rise of Asia’s middle class, the growing reach of the Internet and e-commerce and the increasing efficiency of shipping networks are pushing the world toward a larger, not small shop.

And even as U.S. officials talk about bringing supply chains back home, they are making big investments in ports, waterways and broadband that will make trade cheaper and easier, Mr. Gresser said.

“Deglobalization is more of a slogan than something that is actually happening,” Mr. Gresser said. “If you’re willing to invest several billion dollars to build a new port, it’s a big guess that globalization isn’t going away.”

Data on global trade in intermediate goods – materials that companies use to make finished goods – suggest that global supply chains have not contracted significantly as a result of the pandemic.

World Trade Organization data shows that after removing fuel, which tends to be more volatile, the share of intermediates in world trade remained stable until the second quarter of 2022 at around 50 percent, the same level as before the pandemic.

While those numbers may change more in the coming years, they indicate that companies are still looking to foreign partners to supply them with the parts they need, providing economic opportunity for places like New Orleans.

The city has been held back from becoming a prime destination for the ever-larger container ships that ply the oceans — often destined for ports like Los Angeles, New York and Savannah — in part because the largest cannot fit under the white metal bridge that spans across. waterway just below the port’s unloading area.

Port officials and local governments have debated a plan to expand the port downriver for years. Now they’re making the leap: Last month, Louisiana Gov he announced that a public-private partnership would deliver a $1.8 billion project to build a new container terminal on the Lower Mississippi River south of the bridge. The partners plan to apply for grants financed from infrastructure law passed in late 2021 to help fund the project.

Port leaders are betting the expansion will help make the city attractive to companies that have realized their supply chains are vulnerable. Persistent traffic congestion in Los Angeles in recent years has forced importers to seek new entry points for their products.

And as more companies shift their production to Mexico and other Latin American countries, New Orleans could benefit from proximity.

“You have to expand your supply chain,” said Brandy Christian, CEO of the Port of New Orleans.

The port is already seeing a shift in how some companies ship products. One example is the coffee that comes to the port from Brazil, Costa Rica and other places.

Coffee has been shipped in large metal containers for decades, the cheapest way to move it. But during the pandemic, these containers were in short supply and their price skyrocketed. So importers began to decide to ship their products in massive rolls called “breakbulk”.

Containers are now more affordable, but port officials expect the change to last despite higher costs as importers maintain their new ties with overwrap carriers.

It’s an allegory for how economists expect trade to evolve in the coming years: Transit routes will be deliberately more diverse, and the final product is potentially more expensive as a result.

It is unclear how long these changes will last. Consumer demand for goods, increased during the peak of the pandemic, is returning to more normal levels. Transportation costs, which had shot up due to supply chain bottlenecks, have fallen back to pre-2020 levels. Inflation for products such as cars and furniture is easing.

For now, companies have been willing to spend more to diversify their supply chains after getting burned by delays and price spikes, but greater savings and profits could tempt them to abandon that approach.

“I’m really curious about how short people’s memories are,” said Dan Swan, a senior partner in McKinsey’s operations practice, which advises companies on their supply chains.

Still, corporate executives appear to have a new understanding of how vulnerable their business models may be to future geopolitical disruptions — such as potential conflict between the United States and China — or supply chain disruptions that could result from climate changesaid Eswar Prasad, professor of trade policy at Cornell University and senior fellow at the Brookings Institution.

Mr Prasad said many companies found it difficult to replicate China’s manufacturing advantages elsewhere. More and more foreign direct investment has begun to flow into countries such as India, Mexico and Brazil, he said, and the trend is likely to become more pronounced in the coming years.

“Corporations still seem to be convinced of the benefits of globalization, but what they are trying to do is mitigate some of the risks,” Prasad said. “What you’re really looking at are changes in the pattern of globalization, rather than total volumes of global trade or financial flows.”

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