Sunday, November 15, 2015

The clearest possible evidence of our economic woes

One can argue until the cows come home about whether Keynesian or Austrian economics are best;  whether government statistics are to be believed or distrusted;  and whether the US and world economies are in good shape, or bad.  Ultimately, hard numbers tell the tale . . . and the hard numbers about who's shipping what goods to which markets tell a very grim tale indeed.

Earlier this month, Zero Hedge put together figures from a number of different fields of transport.  Here's an excerpt from their article.

Back in March, we reported that "Global Trade Volume Tumbles Most Since 2011; Biggest Value Plunge Since Lehman." ... Fast forward to the latest update from the China Containerized Freight Index which as of October 30 has fallen about as far as it ever has in history: at 744.44 it was the lowest on record which suggests that beyond the headline propaganda of some nascent recovery, global trade has literally fallen of a cliff.

. . .

According to Reuters, "freight carried by major U.S. railroads fell by 7 percent in the second quarter of 2015 compared with the same period in 2014, confirming that large parts of the industrial economy are in recession." ... In its third quarter earnings presentation on Oct. 22, Union Pacific, the largest publicly owned railroad, acknowledged freight had shrink in five of six categories during the quarter compared with 2014.

Union Pacific carried lower volumes of farm products (3 percent), chemicals (3 percent), containers (4 percent), industrial products (12 percent) and coal (15 percent). The only sector to increase was automotive (5 percent).

Other publicly owned railroads all reported falling volumes during the third quarter compared with 2014.

There's more at the link.

A week earlier, Zero Hedge pointed out that the US trucking market was suddenly slowing down.

Trucking had been booming. 2014 had been a banner year. Capacity was squeezed, and rates were rising, so trucking companies went on a buying binge, ordering everything in the book in preparation for red-hot demand in 2015 and more banner years down the road. But then came 2015.

Among businesses, over-ordering and tepid sales caused inventories to rise and the inventory-to-sales ratio to spike to Financial Crisis proportions. And now businesses are trying to bring them down by trimming orders because they’re having trouble selling more to the middle class, the over-indebted modern proletariat whose stagnant incomes are being eaten up by skyrocketing costs of housing, healthcare, college, and the like – and they simply can’t spend that much on shippable items.

And now this is ricocheting through the industry.

. . .

In this scenario of overcapacity and slack demand, the critical load-to-truck ratio has collapsed to the lowest level in years.

Again, more at the link.

Yesterday, the Telegraph analyzed the impact of slowing demand for transport on the world shipping industry, and found its future bleak.

The shipping industry is battening down the hatches for a global economic storm that could last years.

The slowdown in China, Europe’s anaemic recovery and the failure of other emerging markets to live up to growth expectations is having a devastating effect on the global maritime industry, which carries 65pc of the world’s trade.

One of the hardest-hit parts of the industry is container shipping ... The strength of the headwinds faced was underlined recently when Maersk, the world’s biggest shipping line, reported a shocking set of financial results. Profits last quarter crashed 61pc to $264m (£174m) and revenue dropped 15pc to $6bn.

. . .

“It’s as bad as it’s been since the financial crash,” said Jonathan Roach, container market analyst at shipbroker Braemar.

More at the link.

Folks, shipping and transportation are the bellwethers for every kind of economic activity.  To produce goods, manufacturers must order and transport raw materials, then ship their finished products to their customers.  Wholesalers and retailers must move products from major transport hubs such as harbors and airports, to national and regional warehouses and distribution centers, to local facilities that supply stores, supermarkets, etc.  If all these companies are collectively ordering less and less transportation capacity, it can have only one meaning:  they are transporting fewer and fewer goods to markets.  In other words, the demand from consumers for those goods just isn't there.

The numbers tell the inescapable tale.  Neither the US nor the world economy are in good shape at all.  Anyone telling you they are is living in cloud cuckoo land.



Well Seasoned Fool said...

Have an acquaintance who manages a large truck stop along I-80 in Wyoming. She says their business is off 16% from the same time last year. Fuel sales are down nearly 20%. Layoffs are imminent and they are considering closing the restaurant.

Old NFO said...

Yep, it's a spiral that is increasing it's downward velocity...

Paul, Dammit! said...

I don't have enough ass in my economics knowledge base to speak definitively on what's going on in the shipping world. I think most of us in the trade are very aware that the chickens are coming home to roost. In the past 10 years, shipping companies have been changing hands constantly, as bankers, brokerage houses and fund managers snatched up everything but the liner trade. A few old European houses like the Hansa and the Von Trapps (of "The sound of music" fame, although the children are more known for extorting, terrorizing, robbing and kidnapping the families of crew on their boats) are still operating small and midsize ships. EU-based liners like Maersk CMA-CGM and Hapag-Lloyd have been building ships as a way to keep their tax base down and park assets, but now everyone has taken up that practice, and there is massive overcapacity. Ships are being built and immediately laid up, and those sunk costs are killing the companies now.

Shipping companies owned by investment managers can operate at a loss to offset capital gains elsewhere, so that too, saps the big liner owners. Couple that overcapacity with decreased exports from China, and it's a mess. My understanding is that cost of shipping an individual box is down 60% or more from this time last year. Unlike gasoline, bunker prices are in the toilet, too. A liner paid about $3 million to top off for a run to China 3 years ago, and it's closer to a million now.

Well, it makes me glad I'm a tankerman, and not running a car carrier or box boat. Slowdowns there are partially offset by increased fuel trade in the Northeast.

Anonymous said...

True, that.

As a charter member of Glenn Reynolds' famed Retail (and Wholesale) Support Brigade (one of my many hats is procurement and disbursement of small to large quantities of various materials) I have encountered steadily increasing difficulty in procurement over the last 12 months. It has now become quite common to be unable to procure necessary quantities, and in some cases, any quantity at all.

I observe inventory management issues. Now dependent upon Just In Time replenishment, re-order quantities have been reduced; where suppliers maintained 12 widgets on the shelf with a replenishment trigger of 9, now it's five or six and re-order at 2. Just In Time not being instantaneous, that 2 frequently becomes zero and remains so for extended periods, as weekly deliveries have been pushed back to bi-weekly or even monthly. On a personal note, I've not encountered a grocery store in recent months that has had all the items on my shopping list in stock, and just last week resorted to pillaging local big box home centers in an effort to procure a half dozen of an extremely common item to enable finishing a client project; it took visits to 3 of them to find the six I needed.

This has been telling me for the entire length of 2015 that capital is being diverted from the shelf and re-stocking - the basic metrics of satisfying one's customers - to other areas, and the mechanics of that restocking process, from manufacturer to wholesaler to retailer has contracted substantially under financial pressures.

A discussion with front line troops of a large common carrier has confirmed this; they're still making deliveries from the same places to the same places but more than a few have noticed the boxes being handled are smaller and not quite as frequent.

My take? The "system" is becoming increasingly fragile: lead times are longer, quantities available smaller, and significantly, prices are holding steady, the opposite of what one would normally expect in times of scarcity. If that sounds to you as if collapse may be imminent you're not alone.

I now negotiate with clients for proposal changes when I know what they want may be unavailable within their time frame, and (very gingerly) hoard some items I've discovered particularly hard to come by.

In other news, for quite a while now I've not passed up an opportunity to purchase extra nonperishable food items when found on sale nor have I ignored obtaining quantities of non-food items commonly used within the household. My save/use timeline has increased from "a few months" to "potentially, several years". Forewarned is forearmed, as they say.

Firehand said...

Couple of years ago had to fly to Tacoma, WA and drive back(it's a story). As headed south from Tacoma, we passed miles of railcars, largely flatbeds, sitting on sidings. As in 'sitting there long enough that winter had dropped limbs on a lot of them and they were still there in March'.

May not be connected, but I'd wondered then if it was because of the lousy economy.