US politics are now well into the last two years of President George W Bush’s Republican White House,
which has to co-exist with the opposition Democrats, who hold majorities in both houses of Congress.
The economy has caught something of a chill this year. BMI’s newly-released US Freight Transport
Report notes that despite the 2007 slowdown, strong economic growth will continue to ensure the
underlying health of the sector. However, growing worries over foreign ownership in strategic areas are
slowly changing the prevailing climate in a more protectionist direction. The fundamentals for the
industry remain very solid. BMI predicts that freight traffic, measured in million tonne-kilometres, will
rise by an annual average of 2.6% over the 2007-2011 period. In line with the pattern in developed
economies, this is a little slower than overall economic growth, which will average 3.1% per annum over
the period. We expect transport and communications GDP to grow to US$1.113trn by 2011, representing
6.5% of US GDP.
The protectionist trend in US freight transport first hit the headlines early in 2006 when the US Congress
broke ranks with President Bush and successfully opposed the sale of a controlling interest in six key
ports (including New York, Philadelphia, and Miami) to Dubai Ports World (DPW) on security grounds.
Under intense political pressure, DPW, which acquired the ports through its takeover of London-based
Peninsular & Oriental (P&O), then agreed to sell its US interests to a third party, a process that has now
been completed. In December 2006, DPW said it had agreed to sell its US ports to an American
International Group (AIG) unit. New legislation now under discussion in Congress will tighten up
procedures for approving foreign takeovers in a way that, according to some analysts, could discourage
inward investment and job creation. Similar protectionist trends are showing up in the aviation sector,
where Congress and trade unions are lining up against plans to give foreign investors a greater say in the
running of US-based airlines. The exception, which has also gone largely unnoticed, is road transport,
where a series of foreign toll road operators have been buying large stakes in US roads over the past year
or so. New legislation has also been approved to tighten port security, raising concerns about the cost to
the industry.
As the largest economy in the world, it could be argued that there is already enough internally-generated
competitive drive in the US freight business. BMI disagrees, taking the view that even major US
companies could improve their performance by being exposed to greater external competition. Major US
airlines have, despite some exceptions and recent improvements, piled up massive losses and have been in
and out of bankruptcy protection. There has been a notorious lack of new investment in the country’s
pipeline and refinery infrastructure, exposed during Hurricane Katrina. Reflecting our concern, we earlier
lowered our score for the industry competitive environment to 6.0 from 7.0 previously (out of a maximum
of 10). Our overall score for the US freight industry competitive environment now stands at 43 (out of
70)
Should the competitive environment deteriorate further, the danger is that key US companies will lose
some of their competitive edge in the face of new global players, particularly those in emerging Asia. On
the whole, we believe it would be premature to make such a gloomy prediction, but it is a danger to be
noted.
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