In the two years since the lapse of its charter and reauthorization, the Export-Import Bank of the United States has been unable to operate at full capacity. This forced lending hiatus has thwarted U.S. businesses competing for global projects, and ultimately sent U.S. jobs to other countries with better access to financing.
The powers that be have failed to install a full board, basically scuttling big export deals, including the global projects that comprise the heavy-lift, breakbulk and project cargo industries. When not bogged down by politics, the Export-Import Bank, or Ex-Im Bank, would be able to provide a variety of financing mechanisms, including working capital guarantees and export credit insurance, to promote export sales of U.S. goods and services.
Acting Ex-Im Bank Chairman Charles J. Hall said only two of the five positions on the board of directors are filled, preventing a quorum, and limiting the agency to financing new deals under US$10 million.
To fill Ex-Im board positions, the Trump administration sent names of two former members of Congress to the Senate Banking Committee last May: Scott Garrett as chairman, and Spencer Bachus. The senate committee will eventually schedule a hearing, presumably after a full slate is nominated.
“Personally, I hope the three additional names will be announced very shortly and sent up so the process will move along,” Hall told Breakbulk.
That process may be slowed by timing – September is already a very busy legislative month with only 14 session days available. Hall conceded: “There are a lot of unknowns in all this.”
The process may also be slowed by the choice of nominees. The Washington, D.C.-based National Association of Manufacturers is dead set against the Trump administration’s naming Garrett for Ex-Im chair. “Garrett’s confirmation would be a terrible trade deal for our country. His record of aggressively undermining the Ex-Im Bank is tantamount to a vicious trade war against American manufacturing workers.”
Nevertheless, Trump has endorsed Ex-Im Bank. Who will end up in the catbird’s seat remains to be seen.
Lost and Backlogged Deals
A lack of quorum means that deals above US$10 million needing export financing or guarantees have been delayed or lost, not just to large U.S.-based multinationals, but to the entire U.S. supply chain. Regardless of preference or cost, the big engineering, procurement and contracting companies, or EPCs, have been forced to consider sourcing in other countries, secured by guarantees by export credit agencies, or ECAs, of those countries.
Hall said the backlog of deals needing Ex-Im board approval stands at about US$30 billion. “There is a certain amount of churn in the pipeline. Roughly half of that amount is ready to be dealt with by the board within the first three months or so.”
Trying to calculate the number of deals that aren’t just delayed but lost is much more difficult.
The U.S. manufacturing-led Ex-Im Coalition provided examples of repercussions related to a lack of access to export credit:
• Pennsylvania-produced Mack Trucks – unable to close two multimillion-dollar sales.
• Nuclear Energy Institute – awards for construction of new plants in India, Vietnam and Mexico hinge on the availability of Ex-Im financing.
• Boeing and Orbital ATK – lost satellite sales.
• GE Power – moving 500 jobs from Texas, South Carolina and Maine to France, Hungary and China, to continue offering ECA financing.
• Small Illinois-based fire equipment manufacturer W.S. Darley & Co. – has US$70 million in projects to sub-Saharan Africa and China on hold pending Ex-Im support.
A hobbled American export credit agency, to be sure, is no small matter for U.S.-based business. Almost every one of the roughly 40 deals stuck at Ex-Im represent lost opportunities for countless supply chain companies that support the larger U.S. manufacturers and EPCs.
The Authorization Plunge
Capt. William G. Schubert is former administrator, U.S Maritime Administration, and current president at International Trade & Transportation, a Houston-based ECA finance and maritime transportation consultancy. He said the impact of the lack of quorum on U.S.-led and U.S.-guaranteed global projects is dire: “Essentially, there haven’t been any new deals since 2015.”
Ex-Im Bank doesn’t just finance global capital projects, but that work, which has historically run at close to 25 percent of Ex-Im Bank’s total book of business, has disappeared, according to Schubert.
“There are many cases where the company planned to use U.S. Ex-Im but had to switch sourcing to outside the U.S. This is happening every week. It is critical to have an ECA that is functioning above US$10 million – that amount is a non-starter,” Schubert said. “These projects can’t wait forever. There are offtake purchase agreements for example, for buyers of electricity or petrochemicals. If there is no U.S. Ex-Im Bank available, the EPCs will have to go to European, Asian or other banks. And when that happens, the entire supply chain goes with it,” he said.
Capital projects rely on ECAs because their support is required in the bid package. “As a large EPC with an international presence, you aren’t going to not bid, you are going to bid it through a foreign affiliate. And if you use a European or Asian ECA, then your supply chain has to go to those regions too,” Schubert said.
Bumping Out U.S. Supply Chains
John Masterson is global head of Export Credit Agency finance and financial derivatives for energy EPC Chicago Bridge & Iron Co., or CB&I. He said: “Ex-Im has allowed our company to compete and win large global infrastructure projects. Each foreign competitor has its own export credit agency. Having our own helps level the playing field.”
Because many of the bids that CB&I submits require export credit support at some level, he added that, “right now we are limited in what we can buy in the U.S. We are forced to consider goods and services in Europe and Asia. And they may cost more.”
As an example, in compiling its multibillion-dollar ORPIC Liwa Plastics Project bid, CB&I initially looked at 15 percent to 35 percent U.S. supply chain content. However, “because Ex-Im Bank was down, we couldn’t consider using them in our bid,” Masterson said. “European ECAs were more than willing to pick up the slack.” He indicated a similar constraint with the Anadarko Petroleum Mozambique LNG project.
Steven P. Wilburn is chairman and CEO of renewable energy technology company FirmGreen. The company’s first Ex-Im Bank transaction, approved in 2013, was the export of green technology for a US$49 million Gás Verde facility project that enables processing of landfill gas into methane and CO2. Wilburn said the Ex-Im Bank was critical to his clients in Brazil.
In 2015, FirmGreen received an agreement to finance a US$57-million biogas project in the Philippines. Unfortunately, due to the lack of a quorum at Ex-Im Bank, as Wilburn later testified to Congress, “We lost that project to a company supported by the Korean ex-im bank.”
“We now have US$220 million of projects in the Philippines held up due to a lack of a U.S. quorum. We are a small company on the world stage, but for the Brazil project we created 155 well-paying, highly-skilled jobs in several U.S. states,” Wilburn said. To keep his doors open, “we are looking to source solar materials for the Philippines from countries that have export bank finance. We are negotiating with the Malaysian ex-im bank because we are out of time. We will have to use a Malaysian supply chain. We have been very patient working for well over two years trying to arrange finance through the U.S. Ex-Im Bank, which would be my preference.”
And, working with the Malaysian ECA means FirmGreen has to set up infrastructure and jobs in Malaysia to take care of US$200 million in manufacturing. Wilburn said: “We will continue to use the U.S. Ex-Im, but have opened up relationships with other countries and those jobs may not return.”
Moving ‘at the Speed of Business’
There appears to be light at the end of the tunnel given the current Ex-Im Bank board nominations, and rampant rumors of more pending. And despite all the political gerrymandering, which has severely limited interim decision-making authority, the agency has persevered.
To Ex-Im Bank’s credit, EPCs and exporters continue to be generous in their praise. Masterson said: “In my 10 years of experience working with them, these are super business-oriented people that move government at the speed of business. I have nothing but the utmost respect for their staff and look forward to them getting back to full business.”
Acting Chairman Hall said Ex-Im Bank hasn’t come to a standstill. The agency recognized that being hamstrung created a gap in international export finance, which has opened up incredible opportunity for foreign ECAs. Hall said that Ex-Im Bank will have to be bigger and better when it regains its full power.
That’s good, because global projects continue to get bigger: “ECAs are becoming more important to our business,” Masterson said. “As a direct result of the financial crisis, commercial banks are no longer willing or able to work these larger projects. ECAs are filling the gap to underwrite them, with longer payback periods to be successful.” He said bid requirements often require an ECA guarantee of 50 percent to 60 percent of the financing.
“They don’t care if it is the U.S. Ex-Im Bank, or Italy, Germany, the UK or China … they just want it to be financed through ECAs,” he added.
Hall said that in 2015 there were about 85 ECAs in the world. Now there are 96, and many of those have used the time to develop aggressive programs and policies.
Since 2015, Ex-Im Bank has approved deals within its limited spending authorization and has continued to service approved projects and exports in progress. It has also worked to “line things up” so that new deals and progressive services can be rolled out quickly once the quorum is available. Hall said that processes have been automated and made more user friendly, and a new, highly anticipated medium-term business program is ready for approval.
To Go One Better
Bringing U.S. Ex-Im Bank back up to speed will spur economic and export development. Hall said that it isn’t a question of if, but when. He has been conducting broad outreach to convey that message, and to encourage companies to stick with U.S. supply chains.
Wilburn, acknowledging the importance of Ex-Im Bank’s outreach programs, said the continued rollout of those educational programs, especially as part of what he calls a core triad approach, which involves the Department of Commerce and the Small Business Administration, will be very valuable to emerging U.S. exporters.
For existing exporters, CB&I’s Masterson said Ex-Im Bank’s flexibility will be vital going forward. Many of the other ECAs have introduced flexibility. He said: “They see the benefits that come to them as a direct result of Ex-Im not being open.”
Hall has an additional concern: China. Although the entire ECA world has moved on quite aggressively over the last few years and that is a challenge, for him the bigger issue relates to China having become the world’s largest economy in terms of purchasing power parity. The level to which the U.S. uses export finance to stimulate exports is going to be an important answer to the China challenge. “Our monetary and fiscal policy are very constrained. The one area where we are not constrained is in the area of official export finance … I would argue for the benefit of the U.S. economy and workers we need to focus on U.S. export finance,” he said
Clear the Gangway
Once the U.S. Ex-Im Bank is back running at full speed, the glut of ready but unapproved projects – another US$15 billion worth – will move through quickly, Hall said, followed shortly by another US$15 billion in near-ready projects. This could provide a stimulus effect on the U.S. economy.
“US$15 billion is a lot of orders,” Wilburn pointed up. And while critics take aim at big businesses that benefit, “the reality is that those large companies have supply chains that number in the hundreds or thousands of small manufacturers or service providers that benefit when a U.S. company gets the contract. The small companies have to be there for the big companies to meet the supply. The jobs created by all those companies combined is the real reason a fully functioning Ex-Im Bank is needed.”
U.S. exporters don’t want to see Ex-Im go away. It would pull the rug out from under their competitiveness and send supply chain jobs out of the country. It comes down to a need for stability and an even break. They want to know their ECA will be there this year, next year, and a decade from now. Industry says the quorum can’t come soon enough.
Based in the U.S., Lori Musser is a veteran shipping industry writer.
Photo credit: FirmGreen
Subscribe to Breakbulk Magazine. Published six times a year, the magazine includes insight and analysis on the biggest issues facing the project cargo and breakbulk industry, profiles and commentary from leading shippers, event previews and lots more. Digital is free – just sign up! The print subscription is $48 a year, which includes shipping worldwide. You might also like our weekly Newswire – try it out, it’s always free.