Themes of the Year 2019: Fair trade winds ahead

Firms are showing that capitalising on bad trade news today could lead to valuable dividends in the future.

It’s been a turbulent year for trade forecasts in North America. A dispute between the US and China has thrown into question the growth potential of port assets on the West Coast, while a reconfigured NAFTA – between the US, Canada and Mexico – stalled in the US Congress.

But that sort of uncertainty provides forward-looking investors opportunity to act, and the moves of two fund managers shows there could be potential in improving trade relations.

In April, Macquarie Infrastructure and Real Assets announced it had purchased the Long Beach Container Terminal in California, as well as a 20-year shipping minimum-volume commitment, for $1.78 billion. The volume guarantee secures a projected $9 billion in contracted revenue and 28 million container lifts over the two-decade period.

MIRA’s investment and taking on a long-term port contract shows the firm is thinking long past a trade dispute that could come to an end over the next year.

Mark McComiskey, a founding partner at New York-based AVAIO Capital, underscored the value West Coast port assets are likely to have down the road, after his firm announced it had brought in Tortoise Capital Advisors to invest in a $2.7 billion natural gas export terminal project in Mexico. The two firms are taking an 80 percent equity stake in the first phase of the development of the export facility, which will be built on Mexico’s west coast around 100 miles south of the US border.

“Our strategy is to bring new infrastructure into existence,” McComiskey told Infrastructure Investor in an interview in October. “A West Coast LNG export terminal like Mexico Pacific will provide a cheaper shipping cost to Asia and will avoid the complications and delays of shipping tankers through the Panama Canal.”

DKRW, Mexico Pacific’s developer, and engineering giant AECOM, which AVAIO spun out of earlier this year, also have stakes in the project. Mexico Pacific’s cashflows will be secured through toll contracts and a user fee that shipping companies pay to convert natural gas into LNG for transportation and storage. According to McComiskey, this financing structure will decrease commodity risk.

The Mexico Pacific export terminal began development over a decade ago as an import facility, McComiskey explained. Around six years ago, during the shale gas revolution in North America, plans shifted for Mexico Pacific to instead be an exit point for LNG tankers heading to Asia.

As MIRA and AVAIO showed in 2019, thinking ahead on port assets could be an investment that pays off in 2020 and beyond.