Loss of loans starts to sting
The national Export-Import Bank issue is hitting home in the area
Companies that do business on the Houston Ship Channel are reporting signs of slowing trade nearly three months after the Export-Import Bank lost authorization to issue more loans and loan guarantees supporting U.S. exports.
The impact is particularly strong here, the country’s No. 1 exporting area. While many companies wait to see whether Congress will reinstate the bank’s lending authorization, several are losing opportunities to bid on new projects and cutting back on orders from suppliers.
The biggest news so far has come from General Electric, which announced mid-month that it will cut 100 jobs in Jacintoport, moving the work of packaging its gas turbines to Hungary and China. At least 100 more jobs that would have gone to Americans will be moved to France based on export financing there, GE said.
“The foreign export credit agencies are having a field day with this,” Amegy Bank executive vice president of the international division T.J. Raguso said.
Indeed, GE officials said they are seeking places “where functioning ECAs will support our customers with critical financing.”
They said up to 1,000 jobs could be created in the U.K.,
“They’re going to bid, and these projects are going to go forward. The problem is, they’re going to go forward without U.S. procurement.”
Bill Schubert, Houston consultant
because of financing from its export credit agency, that otherwise could have been created in the United States. With GE projects moving overseas, there could be jobs lost at the companies GE buys equipment and materials from.
“There’s a ripple effect to our suppliers, and our suppliers’ suppliers,” spokeswoman Meghan Thurlow said.
Others among the 12,000-plus companies that export from the Houston area are delaying business or can’t pursue new contracts. But the full effect might not be realized for years, they say.
“At this point, it’s a cloud on the horizon. It’s not right over our head yet,” said Will Gonzalez, director of international sales for Summit Electric Supply
But he said the company already is getting fewer orders from customers whose work largely depends on Export Bank backing.
The Export-Import Bank, an FDR-era program created as the nation coped with the Great Depression, makes and backs loans for large international projects or for businesses that operate in areas with political and economic instability, among other risky projects that private banks are unwilling to fund.
Supporters say that without these loans, business is more expensive and U.S. companies have a harder time competing internationally. A small minority of U.S. exports rely directly on the bank, but they generate business for the companies they hire and buy from.
Politicians, led by representatives from Texas, blocked the bank’s reauthorization in June, calling it a vehicle for crony capitalism and arguing that taxpayers shouldn’t be on the hook if companies default. Supporters counter that the bank had a default rate of less than 0.2 percent last year and is able to cover defaults and expenses with revenue from fees.
Last year, the Export Bank reported it supported $27.5 billion in exports and 1.3 million jobs. It also sent $675 million back to the Treasury.
In Houston, Bill Schubert consults companies working on large international projects like building hospitals or refineries overseas. He said Americans are missing out on some $60 billion in such projects that will be backed by export credit agencies.
“They’re going to bid, and these projects are going to go forward,” Schubert said. “The problem is, they’re going to go forward without U.S. procurement.”
Industrial Terminals, on the Houston Ship Channel, often ships equipment and parts for such large capital projects. In the past few months, several customers the company was in discussions with have put off signing contracts that will depend on Export Bank financing, said Will Terrill, vice president of Intermarine, an affiliate of In- dustrial Terminals.
If the company gets less business, he said, it’s likely to move ships, equipment and jobs to the other ports around the world. With less cargo locally, Industrial Terminals would probably hire fewer stevedores and truck drivers.
At Deugro, a logistics company that also works on shipping for large international projects, regional vice president for the Americas Steve Drugan said the company would probably begin to feel the effects of lost business toward the end of this year.
And Maher Touma, CEO of Ceca Supply & Services, said his com- pany has about a year’s worth of financing before it will have to turn away business. The company sources oil rig equipment from its 11-person office in southwest Houston and relies on the Export Bank for 95 percent of its sales. Touma had planned to open an office in Dubai, which is now on hold, in addition to its two international offices in Algeria and Tunisia.
Without Export Bank financing — their current agreements expire in June 2017 — Touma said he would have to cut his staff in half and shrink the business to survive.
Though politicians argue that private financing would adapt in the absence of federal support, Touma says private credit would be too expensive. He would have to cut back and post all of his profits as collateral for loans, he said.
“For us, it’s not a cheaper source of financing. We’re either in business or we’re not,” Touma said. “For us it’s the only financing option.”
Ceca’s suppliers, he said, could go under if Ceca can’t sign more contracts. Some of its suppliers have fewer than a dozen employees here, and Ceca is their biggest buyer. sarah.scully@gmail.com twitter.com/sarahe_scully