Outlook for the Drivers and Rules of Global TradeFabulich Center, TacomaSeptember 4, 2018

Dr. Walter KemmsiesChief Economist, PAGI Group, JLL(Port, Airport & Global Infrastructure)

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Summary

• Darkest before dawn: Global economy is at the right phase of the business cycle to correct structural problems. Top priority is the world’s largest economy, which has the world’s largest trade deficit, which threatens medium to long-term global economic stability and prosperity.

• Emerging trade growth patterns: Eventual outcome is faster US export growth to North Asia and slower US import growth from North Asia. US import growth likely to be fastest from economies on the South Asia trade lane. Timing of the outcome is uncertain due to internal issues at US trading partners.

• Greatest opportunity for the PNW gateway is export growth, to be balanced with import growth. Greatest risk is the US Midwest to Western Canada freight corridor.

Source: Oxford, JLL 3

Best global economic environment in 20 years

ANNUAL REAL GDP GROWTH 2001 – 2018(E) US ANNUAL REAL GDP, PRODUCTIVITY AND EMPLOYMENT GROWTH

The best time to correct structural problems is after a crisis is resolved

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

1948

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2020

Recession RGDP Employment + Productivity-6%

-4%

-2%

0%

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4%

6%

8%

10%

12%

14%

16%

1999

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India

China

World

Brazil

EU

US

Japan

0

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1950

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Volu

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GDP Total Agriculture Fuels & Mining Manufactured

Manufactured goods lead global trade volume growth

WORLD REAL GDP AND TRADE INDEXES 1950-2015E

Source: WTO, JLL

Japan, Brazil

Korea, Taiwan

ChinaRelative to GDP Growth

GDP 3.7% 1.0 Manufactured Goods 7.0% 1.9 Fuels and Mining Products 3.8% 1.0 Agricultural Goods 3.5% 1.0 Total Trade 5.8% 1.6

1950 - 2015 CAGR

Trade is driven by:• Resources – better to worse endowed

countries• Demographics – manufacture in low cost,

high demand growth countries• Trade Agreements – no barriers or burdens• Infrastructure – road, rail, ports, fleets• Technology – information and

communication

• It is not surprising that trade in raw materials has lagged because trade agreements have been focused on manufactured consumer goods

• US has a history of diversifying its import sources if they become too concentrated in one country

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The trade deficit value gap

Goods trade deficit measured in us dollars: 2003 – 2018e Goods trade deficit measured in metric tons: 2003 – 2018e

• US has a trade deficit when measured in dollars and a surplus when measured in tons• US imports high value-per-ton consumer and industrial goods and exports low value-per-ton industrial goods

and raw materials• Trade agreement renegotiations are focused on US Agriculture, Capital goods/manufacturing inputs and

Energy exports 5

$(1.00)

$(0.50)

$-

$0.50

$1.00

$1.50

2003

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US$

Tril

lions

Import Value Export Value Trade Balance

(800)

(600)

(400)

(200)

-

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1,000

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Mill

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of M

etric

Tons

Import Volume Export Volume Trade Balance

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0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.520

05

2006

2006

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TEU

Mill

ions

Import Export Empty Total Loaded Total

Source: American Association of Port Authorities

US containerized trade has recovered to new high levelsContainer Volume Trends – Monthly 2006 to 2016 (12 of largest 14 container ports)

The four largest ports (Los Angeles + Long Beach, New York/New Jersey, Savannah and Seattle - Tacoma) handled 30.5 million TEUs or 65% of the national total

Year Int'l Volumes Change Growth2005 37,912,734 2006 40,291,297 2,378,563 6%2007 40,867,520 576,223 1%2008 38,664,705 (2,202,815) -5%2009 33,597,661 (5,067,044) -13%2010 38,593,130 4,995,469 15%2011 39,244,570 651,440 2%2012 39,919,197 674,627 2%2013 40,816,094 896,897 2%2014 42,622,719 1,806,625 4%2016 44,265,397 1,642,678 4%2017 47,368,071 3,102,674 7%

6

7

Western Canada has gained at NWSA’s expense

PNW Containerized Imports and West Canada US-bound Intermodal Lifts

Canadian ports have benefitted from depreciation of the Canadian dollar and coordinated investments with railroads

7

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

West Canada Import TEUs NWSA Import TEUs

West Canada Intermodal Lifts to US

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The global middle class is a significant opportunity for NWSA

World population and OECD global middle class projections

1.8

3.0

3.8

4.6

5.4

6.97.3

7.68.0

8.3

0

1

2

3

4

5

6

7

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9

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Billi

ons

Global Middle Class World Population

For US GDP growth to be sustained above 3% it will be necessary to sell into this market

US exports are the focus of the current national economic policy

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Source: JLL PAGI9

NWSA international container volume forecasts

NWSA international container volume projections

2.0

2.2

2.4

2.6

2.8

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3.2

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3.6

3.8

2006

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Mill

ions

of C

onta

iner

s Mea

sure

d in

TEU

s

Downside Upside Base

Base case assumes US GDP growth to slow from 3% in 2018 to 2% in 2023-2025 and NWSA benefits from congestion at competing West Coast ports

Downside case assumes some loss of volumes with China in 2018 and a larger permanent loss as of 2019, offset by growth with other North and South Asia trade lanes

Upside case assumes that trade renegotiations are successfully concluded by early 2019 with China imports resuming their previous levels and growth and additional export growth to China

Additional “outside the gates” investment could substantially boost NWSA volume growth. This is not included in the trend forecasts shown here.

Source: Oxford, JLL 10

Summary

• Global economy is at the right phase of the business cycle to correct structural problems. Top priority is the world’s largest economy which has the world’s largest trade deficit, which threatens medium to long term global economic stability and prosperity.

• Eventual outcome is faster export growth from the US to North Asia and slower import growth. US import growth likely to be fastest from economies on the South Asia trade lane. Timing of the outcome is uncertain due to internal issues at US trading partners.

• Greatest opportunity for the PNW gateway is export growth, to be balanced with import growth. Greatest risk is the US Midwest to Western Canada freight corridor.

Source: Oxford, JLL 11

Strategic implications

• Export cargo growth – focus on NWSA’s strengths

• Infrastructure investment – identify and invest in infrastructure needed to support both imports and exports

• Supply chain enhancements – support and stimulate investment in infrastructure outside NWSA’s port-owned property