In the past several months, it has been virtually impossible to make any sense of the conflicting trends involving US and global trade. On one hand, there is global trade, which as we have covered since the spring, has been in a state of consistent decline. Some example of this:
- World Trade Slumps By Most Since Financial Crisis
- Something Just Snapped: Container Freight Rates From Asia To Europe Crash 23% In One Week
- Global Trade In Freefall: Container Freight Rates From Asia To Europe Crash 60% In Three Weeks
- South Korea Exports Crash Most Since 2009
And of course China's terrible trade data for the past 5 months, which has seen the longest stretch of import declines since the financial crisis.
In short: only an economist, either a tenured one or one employed by CNBC, is unable to see that the world is sinking into a global trade recession, with a economic one soon to follow.
Where things get more complicated, however, is when looking at the US. Here, macro data throughout the summer had suggested more or less smooth sailing in the trade space, and it was only a week ago that the facade started to crack, following the ugly advance trade report, when as we reported there was a "16% Surge In August Trade Deficit; Imports Jump As Exports Drop."
But what really confused us, and others, was the "micro" reports from the ground. Take the following article from Bloomberg in September, in which we read that "Record Long Beach Port Traffic Shows Strength in U.S. Demand." Some more details:
The Port of Long Beach -- which is poised to overtake neighboring Los Angeles next year to become the No. 1 shipping gateway in the country -- had a record month in July, with cargo volume up 18 percent from July 2014. Figures being released later this month will show unprecedented traffic again in August, and early signs in September are “very very encouraging,” Jon Slangerup, the Long Beach port’s chief executive officer, said in an interview at Bloomberg’s offices in New York last week.
Overall, the two ports are handling 4 percent more cargo this year than last, Slangerup said. With consumers showing no letup, he predicted a record year for Long Beach in 2015, taking out pre-recession highs set in 2007. West Coast ports are poised to regain share lost earlier in the year, when backlogs led clients to divert cargo to East Coast destinations like Savannah, Georgia, he said.
The article's punchline:
“When you look at the macros, you look at unemployment, consumer confidence, savings, available discretionary spending, all of those numbers suggest that we have more to spend,” Slangerup said. “The economy here is super strong relative to the rest of the world, and the strongest I’ve seen it in a very long time.”
As it turns out, the economy was neither "super strong", nor was "unemployment, consumer confidence, savings, or available discretionary spending" suggesting that we have more to spend. In fact just the opposite, because thanks to the WSJ we can now reconcile the seeming discrepancy between slowing macro and booming micro, at least as manifested by "record" west coast port traffic.
According to the WSJ, "shipments of empty containers out of the U.S. are surging this year, highlighting the impact the economic slowdown in China is having on U.S. exporters. The U.S. imports more from China than it sends back, but certain American industries—including those that supply scrap metal and wastepaper—feed China’s industrial production."
The magnitude of the shipping container "contagion" is stunning: in September, the Port of Long Beach handled a near record 197,076 outbound empty boxes. "They accounted for nearly a third of all containers that moved through the port last month. September was the eighth straight month in which empty containers leaving Long Beach outnumbered those loaded with exports."
As the chart below shows, the situation at LA and Long Beach is so dire, the amount of empty container has surpassed the 2008 crisis period, and is about to take out the all time highs from the peak of the 2006 credit bubble:
And here is the "record" West Coast port traffic in all its unglory: as noted above, empty containers now amount to a third of all West Coast port traffic in the US.
What is an empty container? The WSJ explains that after under normal conditions, containers filled with consumer goods are delivered to the U.S. and unloaded, they return to export hubs. There, they typically are stuffed with American agricultural products, certain high-end consumer goods and large volumes of the heavy, bulk refuse that is recycled through China’s factories into products or packaging.
Not any more:
Last month, however, Long Beach and the Port of Oakland both reported double-digit gains in exports of empty containers. So far this year, empties at the two ports are up more than 20% from a year earlier.
A big reason for the collapse in trade is the strong dollar: the empties are shipping out at a faster rate at many U.S. ports, particularly those closely tied to trade with China, while shipments of containers loaded with goods are declining as exporters find it tougher to make foreign sales. That’s at least partly because the strong dollar makes American goods more expensive.
The problem is spreading:
Outbound empties have mounted this year at other big gateways, too. In August, the Port of Los Angeles, the country’s largest single container port, handled more than 225,000 empty outbound containers, counted in twenty-foot equivalent units, a standard maritime industry measure. That was 21% more than a year earlier. The Port Authority of New York and New Jersey expanded its empty-container exports nearly 31.5% in the first eight months of this year, and empties outnumbered loaded container exports over that time.
Suddenly the discrepancy between the ugly macro data and the
Dollar-based or not, the end result is the same - global trade channels are rapidly slowing down.
And it is not just empty containers that are being shipped out: overall containerized exports are also tumbling: "Long Beach’s containerized exports were down 8.2% this year through September, while Oakland’s volume of outbound loaded containers fell 12.7% from a year earlier in the January-September period."
This data certainly puts that "record" Long Beach port traffic in a different perspective. Others admit the same:
“This is a thermometer,” said Jock O’Connell, an international-trade economist at Beacon Economics. “The thing to worry about is if the trade imbalance starts to widen.”
It is starting to widen: the U.S. trade gap has expanded sharply in recent months as exports have slipped, growing 15.6% in August to a seasonally adjusted $48.3 billion, according to the Commerce Department. U.S. exports fell 2% in the month to their lowest level since October 2012.
And as a reminder, net trade feeds directly into GDP, so the next time an idiot tells you that there are no direct linkages or contagion choke points between China and the US, feel free to take them to the Long Beach and show them the thousands of empty boxes whose contents one can label simply as "recession".
There is, however, a silver lining: if the containers remain empty, and once the US slides back into depression, they can always be used for housing, just like now in San Francisco's unicorn bubble mania.