Global Trade In Freefall: China Container Freight At Record Low; Rail Traffic Tumbles, Trucking Slows Down

Tyler Durden's picture

Over the past year we have regularly contended that a far greater threat to the global economy than either corporate earnings, currency devaluations, rate cuts (or hikes), reserve outflow, or even the stock market, is the sudden, global trade crunch which has been deteriorating rapidly since late 2014 and has seen an even more dramatic drop off as 2015 is winding down. Actually, that is incorrect: global trade is merely a manifestation of the true state of the above listed items.

First, there was ships.

Back in March, we reported that "Global Trade Volume Tumbles Most Since 2011; Biggest Value Plunge Since Lehman."

Then in August when we first pointed out a dramatic slowdown in the Baltic Dry index which had peaked just a few weeks earlier and we said that "should the dead cat bounce in shipping rates indeed be over, and if the accelerate slide continues at the current pace, not only will shippers mothball key transit lanes, but the biggest concern for global economy, the unprecedented slowdown in world trade volumes, which we flagged a week ago, will be not only confirmed but is likely to unleash yet another global recession."

Three weeks later, we we got confirmation that the BDIY has indeed become a lagging indicator to actual demand, when Reuters reported in its latest weekly update using data from the Shanghai Containerized Freight Index, that key shipping freight rates for transporting containers from ports in Asia to Northern Europe fell by 26.7 percent to $469 per 20-foot container (TEU) in the week ended on Friday.The collapse in rates is nothing short of a bloodbath: "it was the third consecutive week of falling freight rates on the world’s busiest route and rates are now nearly 60 percent lower than three weeks ago.

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.

 

And while one could try the usual excuse and blame an excess supply of ships, while ignoring the fact that a third of all containers shipped out of the ports of LA and Long Beach port are now empty...

 

... apparently a supply which was "not there" earlier this year when the Index was more than 50% higher, that excuse won't hold when looking at what is going on inside the US itself.

Then there was trains.

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."

 

It adds that the major Class 1 railroads carried 431 billion ton-miles of freight in the three months ending June, down from 463 billion ton-miles in 2014, according to the U.S. Surface Transportation Board.

 

Changes in freight volumes reflect broader difficulties in the industrial economy. Rail operators have been struck by a perfect storm which has hit both their traditional and new business lines.

The main drivers for the slowdown are all those commodities that make the backbone f America's industrial economy:

Coal shipments to power plants, the biggest commodity on the network, accounting for about one-third of total tonnage, have been hit by a combination of environmental regulations and low gas prices. Coal shipments were down by 27 million tonnes, around 15 percent, in the second quarter compared with same 2014 period.

 

Petroleum shipments, one of the fastest growing sources of new business during the oil boom, fell more than 650,000 tonnes, 5 percent, as production began to peak and new pipelines diverted crude from the rails.

 

And shipments of sand and gravel, a key ingredient in fracking, plunged by more than 2 million tonnes, nearly 14 percent, as the number of new wells drilled and fracked tumbled.

It's not just these well-known culprits: shipments of a range of other items from chemicals to fertilisers and other industrial supplies were also lower as the industrial economy ran into stiff headwinds from a stronger dollar and sluggish capital spending.

Other sources also confirm that the slowdown in industrial-related freight has continued into the second half of the year. Total traffic on U.S. railroads in the 42 weeks ending on Oct. 24 was down 1.3 percent compared with 2014, according to weekly carload statistics published by the Association of American Railroads (AAR).

Shipments of intermodal shipping containers, which mostly handle manufactured products, were up 2.2 percent but shipments using box cars, tank cars, hoppers and gondolas, which handle farm and industrial products, were down 4.5 percent. Shipments were down in five of the 10 freight categories including coal (10 percent), forest products (3 percent), metallic ores and minerals (10 percent), nonmetallic minerals (2 percent) and petroleum (7 percent).

The downturn has deepened and spread to more sectors as the year has progressed, according to AAR data.

The number of cars carrying coal is down 10 percent so far this year but almost 13 percent in the most recent week. The number of cars carrying petroleum and petroleum products is down 7 percent year-to-date but almost 22 percent in the most recent week.

But the most vocal confirmation comes at the micro level, companies themselves. 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.

Norfolk Southern blamed a "decline in metals and construction traffic due to softer steel production" and reported a 16 percent in coal volumes. Kansas City Southern reported that its volumes were down 2 percent including a 24 percent decline in frac sand. CSX reported volumes fell 3 percent including a 15 percent drop in metals traffic and an 18 percent drop in coal.

* * *

And then there was trucking.

As reported here a week ago, as recently as 2014, trucking had been booming in what many saw as 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.

Unusually “slack demand” in September – the beginning of shipping season – after “a quiet July and even quieter August,” impacted most of the nation, except in the Pacific Northwest, where “fall harvests of apples, potatoes and onions rolled to market in vans as well as reefers,” explained Mark Montague, a statistician at DAT.

September looks terrible compared to September in banner-year 2014. It still “looks anemic even when compared to the more typical freight movement of September 2013,” Montague said. This slack demand whacked load-to-truck ratios. And that matters:

Load-to-truck ratios signal changes in the marketplace that are usually reflected in truckload rates. In the past five years, a change in the load-to-truck ratio has correlated at a rate of 0.8 with an immediate change in spot market rates, and a sustained change in spot market rates is typically followed by a change in contract rates, as well.

Since late last year, DAT’s van load-to-truck ratios have been on a declining trend. Every month this year, the ratios were below the ratios in 2014. In July, August, and September, the ratios hit 1.8, the lowest in years. In September, the ratio was 42% below a year earlier:

US-Load-to-Truck-ratio-2013_2015-09

Trucking is a thermometer for the merchandise economy. It doesn’t track consumer expenses like rent or college. But it tracks exports and imports, manufacturing, distribution, retail, and other sectors. It tracks a big part of the real economy. And the sudden slowdown in the trucking industry is another wildly flashing signal in our recession watch.

* * *

We have in the past joked that the only thing that could possibly save the world from what is a trade recession is if the central banks can somehow find a way to "print trade" the way they artificially boost asset prices higher to give the impression of a status quo normalcy. Unfortunately, as this is not a real option, and with both global and US trade in freefall, many wonder just how will the world's central planners mask this most dangerous aspect of the global economic slowdown?

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knukles's picture

So this means a significant tightening and stock rally in December, or am I still dreaming?

froze25's picture

Nothing to see here, rate hikes are right around the corner.  But seriously we are going to have a major correction soon my guess is that Christmas sales will be in the gutter and 4th quarter reports will be horrible for retail and that may trigger the "great reset".

Deathrips's picture

WTI Going to 20s.

 

Timber!!

 

RIPS

LawsofPhysics's picture

LOL!,  yes, the "official" price will be very low.  Actually taking delivery will be something else altogether.

1033eruth's picture

You still haven't learned.  Bad news is good news because that means more QE which means more money going into asset classes.  Good news, still remains good news as this means the algos will pump things higher.  

China devaluing currency was a short term ABERRATION, because as you know, computers will chase computers until our overlord's proxies can get things under control and pump them up again to promote CONSUMER CONFIDENCE. 

Oldwood's picture

Facebook don't need no stinkin boats, trucks or trains. Our new economy is about buying and selling nothing with fake money. Cool, huh?

Antifaschistische's picture

Christmas sales will be in the toilet....

...nothing will trigger the reset, because Presidential Plunge Protection Counterfeiting Fed Fueled Machine Team is still very alive and well.

NESD's picture

This is actually good news.  Americans are finally reducing the amount of cheap Chinese crap they buy.  The lesser the amount of this junk being transported around the globe the better off we all are. Reducing waste and poorly used resources is actually good for the world economy.

shovel ready's picture

Perfectly apropos!

For those who are not familiar with etymology of this idiom :

Nearly 1000 people suicided by drinking Kool-Aid laced with cyanide in the 1970's (except the children who were murdered by being force-fed the poison) : http://www.history.com/topics/jonestown

doctor10's picture

Amazing what happens when the world's disposable income gets sucked in the derivative maelstrom.

They should never have passed ObamaCare

 

fools

SilverDoctors's picture

Meanwhile gold and silver are getting drop kicked again by the cartel. 
PM Fund Manager warning cartel is about to take out the $1070 stops in gold...which means gold likely headed to $950...

lincolnsteffens's picture

Yah, headline grabbing story. If you look below the surface all, sorts of decorative antiques are way down. I just bought 150 year old Chinese porcelain for 1/2 what it sold for at Sotheby's in 1986! I also bought a late 18th century Boston table for $300 that would have cost me $1500 in 2006. It is only the rarest with the best family history that is bringing top dollar or the latest fashion in the classy decorator magazines.

Foot traffic in my store is down 80% from the 1980s. The phone rarely rings (except for the daily tele-marketer robo calls) and very few e mails.

 

drink or die's picture

iphones are getting smaller and lighter, so less freight volume?  Sounds bullish to me.

ShrNfr's picture

In other words, the ship has hit the fan.

E.F. Mutton's picture

Is it too early to blame the weather? That one never gets old.

Mentaliusanything's picture

No! weather is one thing but dammit man, reduced "Santa Claus" delivery's at this time of year could suck retail into a tornado and the aftermath would be epic. 

Avast me hearty's, Raise the Interest rates flag Capn Yellen or the ship be doomed 

#sarc

RopeADope's picture

Who needs physical trade when you can send binary code back and forth between central banks.

Everything is awesome, just make sure you are not the zero!

NumNutt's picture

Hey don't worry because health insurance premiums are up! Thanks Obamacare! <sarc>

booboo's picture

This gives me an idea, "Doc in the Container"

Besides I have been waiting for these things to go on sale. spray 4" of closed cell foam on the inside, cut in a window shaker a few outlets and you will be living the American Dream along with the rest of us.

lincolnsteffens's picture

Personally, I'd rather put the foam on the exterior and glue something over the top of the foam. Living in a sardine can with plastic foam out gassing could be injurious to your health. Using a shipping container or a freight car is a pretty good idea, stackable too.

Syrran's picture

Rising premiums will increase GDP?  You can't make this stuff up!  But I sort of just did.

BobRocket's picture

AP Moller Maersk report friday 11/06/15
might prove interesting reading

http://investor.maersk.com/financials.cfm

assistedliving's picture

still cant figure out why i'm paying $3k / 20' to the M.E.

Socratic Dog's picture

Aren't those containers falling the wrong way?  Must be in the southern hemisphere.

Dragon HAwk's picture

How little Freight is really for the necessities...

   Guess we will find out one day

arbwhore's picture

What a glorious recovery this has been.

E.F. Mutton's picture

Bloomberg says it's the worst earnings season since 2009 - like earnings mean fuck-all these days...

http://www.bloomberg.com/news/articles/2015-11-04/this-is-the-worst-u-s-...

buzzsaw99's picture

the owebombacare premiums drank your milkshake bitchez

J Jason Djfmam's picture

Nobody could have seen this coming!

dolbiere's picture

bloomberg world equities market valuation has crashed over 19% since may 2015.

Falconsixone's picture

fuck bloomberg world equities market valuation

truthalwayswinsout's picture

Wait until the automation factor hits all the factories. No need for cheap labor as the labor cost will no longer be a factor for most products.

Most of the finished goods freight on the seas will disappear as it will be vastly cheaper to build at the market location. When the factories are relocated back to the US, rail and truck volumes will still stay the same but ocean is going to get clobbered extremely hard.

corporatewhore's picture

Will the automation be like the self checkout lane? /sarc/

Falconsixone's picture

problem solved: send the empty containers to the nearest border until it's filled with i'magrut freeloaders then drop'em on dc until you can no longer see it dc.

Sudden Debt's picture

Trucking isn't slowing down where I live... I was in my daily 2 hour traffic line yet again.

 

css1971's picture

2 hours per workday..

Lets say 250 workdays per year, or 500 hours per year. On the basis that we sleep 8 hours, that's a month every year doing nothing but sitting in traffic.if you do that for your entire life you'd spend 4.5 years of it in traffic.

Government needs you to pay taxes's picture

Surely there is some free shit you could be collecting if you just stopped by your local 'benefits' office.  Claim a disability, go insane, at least get an EBT card.  Worst case, they'll throw you an Obamafone.  Stop working so hard and fighting thru traffic.  Start collecting free shit today!

MrSteve's picture

I suppose I'd have more confidence in a transport report if the author didn't suppose shippers could mothball transit lanes which are really just lines on a nav chart or course vectors in a GPS program. Containerboard prices and scrap copper prices are the closest indicators to real-time production if you don't watch sales tax data.. When YUM and MCD and KO and NVS report stiffled revenues, you know which way the wind is blowing.

tarabel's picture

 

 

I used to commute 50 miles from North Platte to Sutherland, Nebraska every day but that was with zero traffic signals and I was a 19-year-old boilermaker.

If you are doing 2 hours a day of red light roulette, you have to ask yourself if it is really worth it.

Glad I learned to "just say no". 

boodles's picture

I used to drive from Stuart to Miami -- 101 miles -- to teach at a college.  I tried to arrange my schedule for back-to-back classes, but even then, I realized that nothing, not even tenure, was worth 100 miles, twice a day, on I 95.

I quit.

pebblewriter's picture

Yet the "market" keeps going... sigh.

Just finished a pretty thorough look at how USDJPY and CL-fueled algos have driven US stocks higher, with a focus on the past five weeks in particular.  If you'd like to better understand the daily machinations that allow stocks to knife through overhead resistance, have a look.

http://pebblewriter.com/how-they-did-it/

Syrran's picture

What is SPX in your blog?    

RawPawg's picture

no fear,come Jan

rates will pick back up once everybody(stores,etc,etc) has to ship back all that xmas unsolds

there,i fixed it

FreeShitter's picture

good for another 300 on the dow.