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Ports Of LA Face Grim Future, Yearly Cargo Traffic Down Substantially
Call us old fashioned but financial engineering can only take you so far. For actual economic growth one sometimes needs such old-school components as trade, just ask David Ricardo, who had it right 200 years ago. Yet trade flows over the past 6 months have been collapsing, with both imports and exports taking major hits across the globe. However, for the best perspective on the sad state of affairs, one only needs to look at the "portal to the west", the (formerly) great ports of Los Angeles and Long Beach. And if current trends are any indication, a return to normalcy will not occur for at least 3 years, indicating that huge excess capacity will take much longer than expected to be swept out of the system, and the record inventory bounce which everyone is expecting to save future GDP will be much more questionable.
The LA Times provides an in depth view:
As the ports of Los Angeles and Long Beach post another round of dismal monthly import statistics, a new assessment finds that the nation's busiest seaport complex will need at least four more years to fully recover its momentum -- not to mention the jobs, incomes and revenues that went with it -- after the worst global recession in 60 years.
The recovery will be so slow and painful that a return to the pace set during the economic boom year of 2006 -- when the ports handled 15.8 million cargo containers bound for most parts of the U.S. -- won't come before 2013.
That is the grim conclusion of a new report produced for the local ports but not released to the public.
While public release of the report would be useful to figure out just where the primary weaknesses are concentrated, the take home here is that empty containers will likely be strewn around the harbor for years, generating material downward pressure on that all-important index, the Baltic Dry.
The report indicates that unlike prior recessions which culminated in supply disruptions, while consumer demand was relatively flat, this time, as a function of the credit collapse, the consumer will be unable to deliver the economy as easily, an issue discussed extensively here before.
Among the report's many points is that this recession is far more complicated than the economic downturns following the dot-com bust and the 9/11 terrorist attacks, after which pent-up consumer demand rather quickly returned the economy to relatively normal levels.
This time, no such pent-up demand exists. Instead there has been a fundamental lowering of financial capability, according to the report, produced for the ports by consulting firms Tioga Group and IHS Global Insight.
The report tracks with what economists at the Los Angeles County Economic Development Corp. have been predicting and leads experts there to question whether international trade "will be the big engine of growth that it once was" for the region.
The absence of easy credit also will slow the recovery of international trade, said Jack Kyser, an economist at the business group.
The actual statistics for the biggest West Coast numbers are ugly and getting worse:
Imports at Los Angeles, the nation's busiest port, were down 16.9% to 305,226 cargo containers compared with a year earlier. Overall for the year, traffic is down 15.9% to 3.77 million containers, counting imports, exports and the number of empty boxes that leave the port bound for Asia.
Imports at the nation's No. 2 port, Long Beach, were down even more sharply in July compared with a year earlier, by 18.6% to 221,719 containers. Overall cargo traffic at Long Beach is down 26.8% for the year to 2.77 million containers.
And to add insult to injury to the state which is bankrupt in all but name and continuing to pay with IOUs, the future before the port complex is looking bleaker by the day as seaborne traffic may gradually shift completely away from the harbors, which are among the primary economic drivers for this Top 10 global economy.
But sluggish recovery from the recession isn't the only thing that threatens the amount of business at the two ports.
The report said that a larger number of freight shippers will prefer to move more cargo via a wider Panama Canal channel that is expected to open in 2014, bypassing the Southern California ports' rail connection for moving freight to other parts of the U.S.
The conclusion: hope is the best medicine. While facts indicate that the reality is only set to get worse, pundits hope that hundreds of billions of stimulus will prove to be the driver bailing out the ports.
The one bit of good news from the report is that the massive amount of economic stimulus generated in the U.S. and abroad will slowly begin to have an effect.
"A Great Depression or Japan-style lost decade appears unlikely," the report said. "The forecast calls for a modest recovery in 2010, and a stronger rebound in 2011."
The irony of the one-time (for now) nature of the stimulus is not lost: unfortunately the massive governmental cash injection, as has been observed here and elsewhere, will only restore a fraction of the massive household net worth destroyed over the past several years. And collapsing trade is not so much a function of direct fiscal intervention as one of normally and efficiently operating economies - something that the world will likely not see for many years.
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Take away from this - at least 6 more quarters of "we are in the bottoming process" ?
A victory for the bulls?
Wow you guys sure are grasping at straws daily here. Let me tell you a few "economic" FACTS that you clearly have never studied (no, reading a blog does NOT make you educated).
Yes well bottoms DO take years to form. And sometimes in a bottoming things get several derivatives worser.
Yoo hoo, the economy moves in waves. Waves go down too.
wow. no shit Sherlock. everything you said is known. it is natural for the economy to move in waves, what is not natural is the tsunami waves which we have seen. think before you, speak and try no to insult people with supposing things.
Got ya! 'Worser', the extraneous use of quotations...
Sorry I had to do it. I feel like every analyst and tv commentator everyday is trolling me with their "As the recession eases" and "[blank] bottomed even more"!
Carry on ZH'ers.
China and COSCO ship through Long Beach. I used to ship hundreds of containers/year through there. Pretty much you can't beat their prices because they are a government
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Worser?
Sure. It all depends on how you define bottom and recovery.
The report said that a larger number of freight shippers will prefer to move more cargo via a wider Panama Canal channel that is expected to open in 2014
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
40980
Thanks for that great information
I have to wonder whether these ports will ever see a return to "normalcy", when that normalcy was based on a one-time spike (in the long-term sense) in all manners of goods arriving from Asia based on 1) supposedly endless cheap labour and 2) dirt cheap energy.
But there are political limits to labour exploitation in China (those guys sure know how to riot!), and any real, lasting growth in economic activity will be accompanied by higher energy prices. Could be that this China-led globalization is less a "normal" state of affairs and more a flash in the pan. And in the long run that wouldn't hurt the American economy at all- it might force the US to actually manufacture and solidify its industrial base again which, you know, actually does something valuable as opposed to trading electron fantasies.
So in a twisted way, the decline of importance of the Port of LA/Long Beach could be a positive economic indicator in the long-run, an indicator that the ridiculous global economic/trade imbalances are working themselves out.
This is really the meat of the issue, isn't it? Unless we return to a world of really cheap oil and rampant consumer borrowing, the whole of the past 10 years may turn out to have been the anomalous period. It's particular interesting when you consider that the 1920's also saw a big push towards "globalism" that then reversed into the Depression. Guess maybe the world ain't so flat after all, eh, Tom?
So this is why the TRAN went from 3000 to almost 3800 in July/Aug.
Will all the unused containers now become part of the shadow housing inventory?
We've picked up since then, volumes are lower than last year but, looks like a normal year end ramp up. Next year will be another question mark.
I enjoy this site very much but the "down 26.8%" in the headline along with "ports of LA" is inaccurate according to the article. The largest port, LA is down 15.9%. The second largest port, Long Beach is down 26.8%. I don't know the size of the two relative to each other, haven't looked at the data. If they were the same size, YTD traffic for the 2 combined would be down roughly 21.3%. Since LA is larger, the YTD decline is probably 20% or less. Still plenty grim, but not down 26.8%.
fair point. corrected
Thanks Tyler. Take a look at the front page of the Bloomberg website. They have the video of GS consultant Arthur Levitt talking about HFT as a "net positive".
Not to be a nit picker... OK, I'm picking nits, but it's a valid pick.
You really should list the two numbers seperately, e.g. "LA port traffic down 15.9%, Long Beach down 26.8%."
One, we really need unvarnished facts, but also not intentionally tarnished ones. And any coloring of facts gives ZH critics a toehold to bash with.
IMO the straight dope is easily strong enough medicine.
Picky, but I really love ZH and want to see it become an eventual juggernaut of reporting for good.
Love your name...Sharts. I think of Phillip Seymour Hoffman everytime you post.
Thanks. When Merrill and others couldn't unload the worst tranches of the subprime toxic waste and decided to keep them on their books and go on doing more deals, that was a shart. I suspect some of these so-called green shoots will turn out to be sharts.
Your handle is also very appropriate for this ongoing train wreck.
China and COSCO ship through Long Beach. I used to ship hundreds of containers/year through there. Pretty much you cn't beat their prices because they are a government corporation. Long Beach is probably a better indicator of China trade than LA
Now, if they could only tax "hopium".
The traffic they are counting is going to JetBlue at Long Beach airport...lol
By the way, as I'm sure most know it is the same story with railroads. YTD freight traffic is down in the very high teens and the railroads have hundreds of thousands of excess railcars filling up their yards and sections of unused railroad tracks across the country.
I used to run freight trains between vegas and LA. In the boom I worked 100 hour weeks. Now everyone with the same seniority I had is laid off. If you don't have at least a decade on the job, you are laid off.
as they say about time
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
A coincident indicator:
The recovery will be so slow and painful that a return to the pace set during the economic boom year of 2006.........won't come before 2013'
2013?I think it's gonna be a while longer than that.
No need to worry, 10 year TALF loans are just around the corner.
I think recovery will take 25 to 30 years!!
I personally know customs brokers that used to do a ton of work through the Long Beach port. I tried warning them but denial is a bitch...
You can't make people buy things they don't want with money they don't have.
anyone thinking the social spending stimulus plan
will bail us out is smoking imported sea weed.
China and COSCO ship through Long Beach. I used to ship hundreds of containers/year through there. Pretty much you can't beat their prices because they are a government corporation. Long Beach is probably a better indicator of China trade than LA
Two worries, the dollar and this. The trade issue was the nail in the coffin of the 30's. Watch both like a hawk. And, the defense to these are tenuos at best.
Please stop posting real numbers that bear witness to an imploding economy! We are in a jobless recovery and intend to keep it that way no matter what you post.
Thank you for your cooperation,
Obama, Timmy and lord Blankfein
It is jobless, tradeless, inventoryless, creditless recovery. (What is definition of recovery anyway? It could be defined as recovery in bank profits with mark-to-myth accounting)
Consumers can no longer use their home equity as an ATM via HELOCs to fill their unaffordable homes with Asian goods. This is going to be a long term structural change for the Seaports of CA. 2006 will be looked at as the golden age for them in my opinion.
30% of the european trucks are idle. DAF trucks manufactures only a third of the trucks it manufactured July last year.
I was down in San Diego at the symphony and drove around some. There are still cars piled up all over the place.
I went to visit my in-laws last week in Riverside, CA. Over by the airport there are "new" cars that have been sitting for a very long time with layers of dirt and grime on them.
Cars start getting old from the moment they are made. Batteries sulphate, and rubber starts to break down. It will be interesting to see what these "new" cars eventually fetch on the market.
"The report said that a larger number of freight shippers will prefer to move more cargo via a wider Panama Canal channel that is expected to open in 2014, bypassing the Southern California ports' rail connection for moving freight to other parts of the U.S."
NAFTA(Mexican) truckers here we come!
Once the fad
Permeates
It's hip to care
Hip to hate it
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
New cars are selling like crazy, Ford and GM ramping up production...
I started following this number from before the credit crisis broke as its a great number to indicate trade, which is a very important indicator and component of the economy, but mostly because its not manipulated.
You can't believe any of the numbers coming out of the government as they fiddle with seasonal adjustment, utility, birth and death model, etc. But big metal boxes are either there or they're not. Compare it YoY and forget seasonal adjustment and you've got a pretty good idea of real American consumer demand.
Unless I'm totally misreading the situation and Americans are buying as much stuff as ever before but have switched to more expensive domestic producers!
As an economic indicator, I wonder what reduction we are seeing in the rate of our landfill growth?
yeah, about that "US government stimulus" multiplier:
1) Robert Barro, Harvard Economics Dept: "-.01 or statistically zero"
2) Roberto Perotti, Universita Bocconi (Italy) & European Central Bank: "nearly 0"
Also, another wake up call for tax and spenders:
"The estimated maximum impact of a tax increase of one percent of GDP on GDP is -3.1 percent"
-- Dr. Christina Romer, "The Macroeconomic Effects OF Tax Changes", March 2007
Trash collection is obviously down...look at Waste Mngmt try to grab market share as a green company...what a joke.
I walk the dogs by a trash collector and the roll-offs are piled 3-4 high.
For cargo look at TEU's. And even then volume isn't price. they could be filled w/ feathers instead of bricks.
Approx 42% of us imports came thru those two ports last year
http://www.trainorders.com/discussion/read.php?1,1991953
The decline of these two ports are very worrying, especially when the market has rallied on the so called green shots.
I admit that I am still bearish as there is just not enough demand overall to lift company revenues back up. Most companies have missed the mark and only managed to beat expectation on cost cutting measures.
But you also mentioned that freight shippers prefer to use other methods and ports now - are there any data on the declines experienced by the other ports?