Tag Archives: Global Trade

How the Global Trade Contraction Begins, by MN Gordon

Like almost all financial measures, global trade doesn’t proceed ever upward, a straight line on a graph from lower left to upper right. From MN Gordon at economicprism.com:

The world grows increasingly at odds with itself, with each passing day.  Divided special elections.  Speech censorship by Silicon Valley social media companies.  Increased shrieking from Anderson Cooper.  You name it, a great pileup’s upon us.

From our perch overlooking San Pedro Bay, the main port of entry for Chinese made goods into the USA, facets of the mounting economic catastrophe come into focus.  These elements, even for the most untrained of eyes, are impossible to miss.

To meet the relentless expansion of international trade, berths have been widened, and channels have been deepened to accommodate the definitive absurdity of perpetual credit creation: The CMA CGM Benjamin Franklin.  This mega container ship, if you’re unfamiliar with it, is over 20 stories tall, the width of a 12 lane freeway, and longer than four football fields.  It has enough cargo space to hold 90 million pairs of ‘Made In China’ shoes.

The secondary distortions of this mammoth – next generation – cargo ship will provide historical evidence to future generations of a political economy that went seriously awry.  For example, at the Port of Long Beach the Gerald Desmond Bridge replacement is currently being constructed at a cost of $1.5 billion.  With two towers stretching 515 feet into the sky, this will be the second tallest cable-stayed bridge in the United States.

The purpose of the bridge replacement is to provide greater clearance into the Port’s Inner Harbor for mega container ships.  As the new bridge deck goes up, it dwarfs the prior edifice like some futuristic motorway traversing up to the heavens.  We’re certainly eager to drive it when it’s complete in late-2019.

Episodes of Global Trade Contraction

The general philosophy of the bridge’s proponents appears to be that global trade expands in perpetuity.  Hence, more and more space will be needed for more and more next generation container ships.  There’s even 50-years of data to support this belief.  But that doesn’t mean what is will always be.

To continue reading: How the Global Trade Contraction Begins

World Trade Grinds Lower, Hits 2014 Levels, by Wolf Richter

World trade continues to trend lower. From Wolf Richter at wolfstreet.com:

Volatile and ugly.

World trade in merchandise is a reflection of the global goods-producing economy. And it just can’t catch a break.

The CPB Netherlands Bureau for Economic Policy Analysis, a division of the Ministry of Economic Affairs, just released the preliminary data of its Merchandise World Trade Monitor for July. The index fell 1.1% from June to 113.4, the lowest since May 2015 – a level it had first reached on the way up it in September 2014.

The chart shows that merchandise world trade isn’t falling off a cliff, as it had done during the financial crisis, when global supply chains suddenly froze up. But it’s on a slow volatile grind lower. And compared to the fanciful growth after the Financial Crisis, it looks outright dismal:

This time – after the big adjustment in values months ago – we have another statistical note. In this data release, the CPB shifted the base year of the series from 2005 to 2010, so the values of the entire index shifted down. Hopefully, the change made the series more representative of reality – because getting a good grip on reality these days is really hard, when entire data systems are carefully designed to conceal more than they reveal (such as the official inflation data).

The decline in trade was sharper in the emerging economies than the advanced economies. That makes sense: The US, on whose demand the health of the entire world economy seems to depend, experienced falling imports in July, according to the data.

Data point after data point document that the goods-based economy in the US is in trouble – manufacturing, wholesale, retail… nothing is firing on all or even most cylinders.

But the service-based economy is not doing all that badly. Its biggest sector – and the biggest sector overall in the US – healthcare, is doing quite well, actually.

Among the health-care companies in the S&P 500, revenues rose 5.2% in the second quarter, year over year, when revenues for all S&P 500 companies fell 3.1%. Revenues rose not because people are getting more health care; they rose because health care has been getting more expensive at a breath-taking pace for many years as the industry has been consolidating into oligopolies and as outrageous prices increases on pharmaceutical products regularly grace the headlines. These price increases work their way into higher insurance premiums – to the point where the sector, at nearly 18% of GDP, is now bleeding the rest of the economy.

For many consumers, there is simply not be a whole lot of money left to buy the things – the gadgets, food, apparel, or doodads – that make up demand for the goods producing sector.

In the US, on whose demand the rest of the world depends, the scenario for the goods-based economy is not rosy. And it shows up in freight volume. “Overall shipment volumes (and pricing) are persistently weak, with increased levels of volatility as all levels of the supply chain (manufacturing, wholesale, retail) continue to try and work down inventory levels.” Read… Recession Watch: US Freight Drops to Worst Level since 2010, “Excess of Capacity” Crushes Rates


“Worse than 2008”: World’s Largest Container Carrier on the Slowdown in Global Trade, by Wolf Richter

Not to worry, the global economy is doing just fine. From Wolf Richter at wolfstreet.com:

“Massive Deterioration,” the CEO called the phenomenon.

“Bellwether for global trade,” that’s how the Financial Times described Maersk Lines, the world’s largest container shipping company. It’s owned by Danish conglomerate AP Møller-Maersk, which also owns, among other divisions, Maersk Oil. The conglomerate reported fourth quarter earnings today. And they were a doozie.

Maersk B shares plunged over 9% to 7,395 Danish kroner, before bouncing off and closing at 7,875, down 3.6% for the day and down a breath-taking 52% from their peak on March 30 last year.

Global economic slowdown — or worse? That’s the question. This is what CEO Nils Andersen told the Financial Times in an interview after the earnings release:

“It is worse than in 2008. The oil price is as low as its lowest point in 2008-09 and has stayed there for a long time and doesn’t look like going up soon. Freight rates are lower. The external conditions are much worse, but we are better prepared.”

“Better prepared,” that is, than the Group had been in 2008.

He called global trade conditions “abnormal.” Containerized imports to Europe, Brazil, Russia, and West Africa all fell – in Europe and Brazil due to various economic reasons; in oil exporters Russia and West Africa due to the collapse in the price of oil.

The earnings report reflected it: in terms of seaborne container freight, the year had started out with some room for optimism and hopes for growth, but in the second half, and particularly in the fourth quarter, those hopes got hammered by an increasingly gloomy reality.

“Massive deterioration,” Andersen called this phenomenon in the interview.

“Acceptable full-year result in challenging times,” is what the Group called the phenomenon in its earnings report.

This “massive deterioration” of its business in the fourth quarter turned into “a perfect storm for the Group,” according to the earnings report: container freight rates collapsed as shipping capacity continued to soar, while growth in global shipping volume came to a halt.

Container shipping rates plunged across all trade routes, on average by 25% for Maersk, and hit an “all time low,” lower even than during the Financial Crisis.

To continue reading: “Worse than 2008”: World’s Largest Container Carrier on the Slowdown in Global Trade

Global Trade Dives Most since the Financial Crisis, by Wolf Richter

Was the first quarter’s .2 percent annualized growth, soon to be revised to a negative number but perhaps rerevised to a positive number (see “The US Department Of Commerce Officially Jumps The Shark, Will ‘Double Seasonally Adjust’ GDP Data,” SLL 5/23/15) an indication the economy is headed down the tubes (see “The Recession is Here, Prelude to  Depression,” SLL, 5/15/15) or an aberration from which the economy will accelerate? World trade is not providing support for the optimistic prospect. From Wolf Richter, at wolfstreet.com:

How great was the global economy in the first quarter?

We know the US economy was crummy. The revised GDP estimate will likely sink into red mire. Hence the heated proposals these days, including at the Fed, to apply “a second round of seasonal adjustment” that would “correct” the first-quarter GDP estimate, no matter how bad, into positive territory. An elegant way of covering up an unsightly sore.

So was it just a crummy quarter in the US, or was it a global thing, in which case we might have to apply a “second round of” whatever to adjust the global downturn out of the picture?

Because here is the thing: in the first quarter, one of the crucial measures of the global economy – global trade – slumped the most since the Financial Crisis. But ironically, it wasn’t because of the USA.

The CPB Netherlands Bureau for Economic Policy Analysis, a division of the Ministry of Economic Affairs, just released its latest Merchandise World Trade Monitor, which covers global import volumes as well as global export volumes. The index dropped 0.1% in March to 136.5, after having already dropped 0.7% in February, and 1.7% in January. The index, which was set at 100 in 2005, is now down 2.5% from the peak of 140.0 in December. That 3.5-point decline was the sharpest since the Financial Crisis.

This chart, going back to January 2012, doesn’t exactly inspire confidence in the current state of the global economy:


To continue reading: Global trade Dives Most since the Financial Crisis