I love a fine port after dinner as much as the next guy, but that is beside the point. Today, we are talking about a different fine port, the Port of Houston. I find it slightly ironic that the industry which brought Houston out of the primordial ooze in 1836 is the industry that is now serving as Houston’s primary economic diversification strategy. Oil & gas has been, and continues to be, the primary economic driver of the Houston economy, while many point to the Texas Medical Center or the new Innovation Corridor, as Houston’s economic diversification strategy, which they are, it is trade which kept Houston from diving into a deep recession during the last energy downturn.
For those who were not aware, the Port of Houston is 1st in U.S. import & export tonnage and 2nd in total tonnage. In 2017, 17.3% of Houston’s GDP was due to exports, (including airports) accounting for 330,340 jobs, doubling the amount of jobs from 2003.
There are several factors which have led the Port of Houston to emerge as one of the most important ports in the Country. In 2016, two things happened. One, after 40 years, the U.S. lifted its ban on the exportation of oil. Two, the Panama Canal expansion project was completed, opening greater capacity and access to Asia and the Port’s second highest trading partner, China. Mexico is number 1. In anticipation of the Panama Canal expansion, the Port of Houston strategically invested in expanding and upgrading its container docks and cranes, making it the largest container port in the Gulf Coast. Therefore, more import and export traffic with origins or final destinations to the midwestern United States are now coming through Houston as opposed to the eastern and western seaboard ports. At a recent meeting of the committee of Foreign Direct Investment at the Greater Houston Partnership, it was stated that an increasing percentage of exports are not originating in Houston, but from other U.S. locations. Another significant factor is the expansion and technological upgrades to the petrochemical industry, and the global demand for plastics.
Houston is now deeply intertwined with the global economy. For the first 7 months of 2018, the Port of Houston’s global trade increased 19.6%, from $75.7 billion to $90.6 billion. During the Houston recession, the U.S. and global GDPs inversely increased driving the expansion of imports and exports. This is the reason Houston’s recession was not as bad as it could have been. While there is much upside to the Port’s success, there is risk. For instance, the topic of many concerned today is the imposition of tariffs by the current administration in Washington, D.C., sparking a trade war with some of Houston’s significant trade partners, namely China. At the Foreign Direct Investment committee meeting it is estimated the tariffs will have a $4 billion impact on the $50.6 billion of export value from the Port. Fortunately, this will not do significant harm to the Houston economy. However, an 8% decline in export value is going to sting as a result of a policy decision many deem as unnecessary. It is forecasted these impacts will be felt in the 3rd and 4th quarter of 2018. Within this impact is the retaliatory tariff China placed on liquified natural gas (LNG). There have been recent significant capital investments by local producers to process and transport internationally liquified natural gas with the anticipation of increasing global demand. With the tariffs in place, the Chinese market may seek other global suppliers putting that capital outlay at risk.
The current trade wars aside, the Port of Houston is emerging as a global player. It has 207 global trading partners and increasing foreign direct investment in the Houston area, either with foreign companies looking to use Houston as an entry into the U.S. market, or as means to invest in U.S. based commerce. Gasoline, oil and natural gas are still the predominant export products from the Port of Houston, and with the recovery of oil prices, the Port of Houston for the first time will export more oil than it imports in 2018. When you combine oil industry recovery with the tremendous growth in international trade of other goods, the Port of Houston is not just something you drink with dessert, it is the main course.
Sources: Brookings Institute, Greater Houston Partnership, UStradepartners.com, oilprice.com
