Ship construction: an economic canary in the coal mine

Canaries were carried into coal mines by miners for many years.  Being far more susceptible to coal gas than humans, the birds would die quickly if the gas seeped into the workings, thereby alerting the miners to get out before they were overcome themselves.  The expression "a canary in a coal mine" has come to mean something that indicates serious problems ahead.

Orders for industrial plant and machinery have long had that status as far as the general economy is concerned.  Shipbuilding is a harbinger of the health of world trade.  Ships wear out, and must be replaced;  and, in times of economic growth, more ships are needed to expand the world's merchant fleet, to carry more goods.  Therefore, the latest news on shipping orders is not good.

Pre-COVID, the bull case for shipping rates was all about plunging newbuild orders. A drop in orders in 2019 pointed to rising freight rates in 2021, given the lag between contract signing and delivery.

Mid-COVID, the bull case for rates is even more about plunging newbuild orders than before. There will be a lot fewer vessels on the water in 2021, 2022 and beyond than previously thought.

New data provided to FreightWaves by U.K.-based VesselsValue confirms that 2020 is shaping up to be an exceptionally weak year for tanker, bulker and container-ship orders.

New data from Alphaliner shows that container-ship newbuild capacity is down to just 9.4% of capacity on the water. “For the first time in more than 20 years, the global newbuilding pipeline fell below the 10% threshold,” reported Alphaliner on Wednesday, calling it a “historic low.”

According to VesselsValue, the tanker orderbook has fallen to 9% of the operating fleet in terms of capacity (measured in deadweight tons or DWT) as of July. This is down sharply from a high of 23% in January 2016.

The dry bulk orderbook is only 7% of the on-the-water fleet. This is down from 24% in January 2015 and an even higher peak — 27% — in January 2010.

There's more at the link.

Shipping is the backbone of trade around the world.  About 90% of it is transported by sea.  Therefore, if those carrying it are not replacing ships as often as they should, and are not expanding their fleets but rather contracting them by idling existing vessels, it's a very serious warning sign that the world's economy is still slowing down.

As for the US economy, John Wilder points out:

“Collapse” is a word that gets overused by the news media ... In this case, however, the use of the term “collapse” is entirely appropriate when 32.9% of the economy disappears.  And that dismal number is after an unprecedented borrowing and spending.  The US had a GDP of about $20 trillion in 2018.  This year, so far, there has been about $5 trillion in extra spending and balance sheet expansion.

So, $10 trillion in half a year, reduced by the 32.9% lowering in GDP takes us to $7 trillion or so.  That’s how big they’re saying the economy is.  That’s bad.  But if you subtract out the $2 trillion in “stimulus” funds that takes you down to $5 trillion.

Borrow a million dollars, and the bank owns you.  Borrow a billion dollars, and you own the bank.  Borrow $26.6 trillion dollars? You are the United States.

Even if NONE of the Federal Reserve’s balance sheet where they sprinkled money into the stock market got added to the GDP figure, we’re talking a 50% reduction in the economy in real terms.

50%.

Half.

The economy isn’t an economy at this point – it’s a smoking crater.  Well, it would be a smoking crater if there was enough money to pay for the smoke.

Again, more at the link.

This is going to translate to a direct impact on what we, as consumers, can expect to see on supermarket shelves.  Many have already noted a smaller selection of goods, compared to what used to be in stock.  I'm hearing that most Christmas shopping season orders, which should by now be in or near this country prior to distribution, have not yet showed up.  That may be due to slowdowns in overseas manufacturing, or a shortage of ships to deliver them . . . but it could also be (and I think it is) due to stores in the USA not ordering as much as they usually do for the festive season, and slowing the pace of deliveries, to conserve their cash flow.  Either way, it's not healthy.

Friends, given the disruptions we expect (thanks to Antifa, BLM, and who knows what other extremist groups) as the November elections draw nearer, and given the warning signs (including rapidly rising food prices) that world trade and the US economy are not in a healthy state, we need to be on our guard.  We spoke yesterday about the need to re-evaluate our emergency preparations.  This news is yet another indicator of how important that's becoming, for anyone who has eyes to see and ears to hear.

The warning signs are flashing orange.  Don't wait until they turn to red to prepare yourselves.  We can't necessarily stockpile enough to insulate ourselves completely from what's coming;  but we can buttress our foundations, to ensure that even in very hard times, we can at least survive, even if we don't thrive.

• Pay off debt if at all possible, and build up what financial reserves you can in cash, even if they're small.
• Stockpile at least 30 days of essential supplies;  food, household consumables, etc.  Longer would be better.  It doesn't have to be luxurious.  Rice and beans may be boring, but you can live on them if you have to - and they're still available, and cheap!  Neither may be the case in future.
• Build up an emergency reserve of critical items such as essential medications.  I'd say plan on at least 90 days' supply.  If necessary, ask your health care provider to give you an extra prescription for them, and pay cash for it if your insurance won't cover it - that's what I did.
• Have your vehicle(s) in good working order, with tires, belts, hoses, etc. in good condition.  Put aside spares of essential parts, and of lubrication oil, transmission and brake fluids, etc.  Try to store at least one tank of fuel per vehicle in approved containers, in case of shortages or other emergency (but don't store it in your residence!  Keep flammable stocks away from people, in a garden shed or something like that.)
• Have alternate means of cooking food, washing clothes, etc.

I've written about such things before.  Follow that link and read the archived articles for yourself.  If guns aren't your thing, ignore those articles, and skip through to those dealing with general preparations.

I believe time is growing short. Let's not waste what we have of it.

Peter