Los Angeles Ports Face a Grim Future 21 comments
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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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This article has 21 comments:
One error: container shipping has nothing to do with the Baltic Dry Index. The BDI measures only bulk-commodity shipping. This last year has seen a huge divergence between these two types of traffic, as China has increased commodity purchases even while sales of finished goods (i.e. container traffic) has dwindled.
www.etfdesk.com/fundDe...
Call me crazy, but that sounds like we are in a Depression to me. Sure GDP went up in 1933, but did that mean the Great Depression was over or was it all really one big mess?
David Ricardo also explained in detail the exact credit expansion problem we had about 200 years ago. Something worth reading for the government Keynesian lawyers, lobbyists and leaches running our budget in Congress.
\Plus, I doubt the big rail shippers will simply roll over and ship empty containers. They have survived for over a hundred years because they know when to slash rates and how to play tough...
As for shipping, its relevance is to the supply chain, which is collapsing and that collapse is unnoticed. It is the collapse of the supply chain which causes societies to collapse.
The answer? Not more power in the state--which both left and right want, as long as they control the state. No, we need more individually enforceable rights.
The reason housing is a catastrophe? Simple. Housing enjoys only minimum scrutiny (Lindsey v. Normet).
The reason medical care is corrupt, a mess and contributing to the class war? Medical care enjoys only minimum scrutiny (DeShaney v. Winnebago).
Same is true of liberty, maintenance and education. The level of scrutiny of those facts has to be raised or the country will collapse. We need to evict the West Coast Hotel scrutiny regime and install the maintenance regime, the doctrine of which is that the law maintains important facts.
Just see my book, The Eminent Domain Revolt.
Cheers fools,
John Ryskamp
I remember that everyone was so scared the chinese would take over if they owned that port.
Reminds me back to when the Japanese bought everything and later had to sell at big losses.
Wonder if the chinese are interested in selling the port now?
But everyone thinks that since the equity mkt has spiked up nicely, all consumers have made their money back and will soon unleash that "pent-up demand". As George Bush Sr. (one of my favorite Presidents) would say: "not gonnaaa dooo it."
When gas prices skyrocketed 06-08, all these companies dramatically raised their rates and "service charges." With the collapse of gas prices, we did not get a reprieve in shipping rates.
So when you subtract out the "gas inflation" they have built into their shipping rates, their reduced sales become even more ominous.
Then, just for giggles, kick in the fact that FedEx cut payroll, wages and even independent contractor rates, so their profit margin should be huge.
Funny what sticky things the facts are to this "recovery is around the corner" crap.
On Aug 19 11:31 AM Mark in San Diego wrote:
> In addition to port business, keep and eye on UPS, Fedex, BNSF, etc.
> They have all been reporting no growth, and until they do, the economy
> will be stuck in the MOS (more of the same) mode. Food giant Cargill
> today (see Financial Times) also said business is slow and not growing.
> Bottom line?. . .don't bet on a fast recovery - looks like we are
> stuck with at least 3 years of very slow growth.
Other than our natural resources, exactly what American made products is China buying? Or even allowing in?
They MAKE "our" products, they don't need to ship them in to buy them.
On Aug 20 03:19 AM Ali Mogharabi wrote:
> Agreed. Whether you want to cite the bad state of ports, disappointing
> retail #s, higher savings rates, continuing decline in consumer revolver
> or lower consumer confidence, the consumer is nowhere to be found.
> And we cannot recover without the consumer. China could've helped
> more, but its credit tightening policies will likely limit consumption
> there, which will lower demand for our products, which means our
> recovery is even more dependent on consumption right here at home.
>
>
> But everyone thinks that since the equity mkt has spiked up nicely,
> all consumers have made their money back and will soon unleash that
> "pent-up demand". As George Bush Sr. (one of my favorite Presidents)
> would say: "not gonnaaa dooo it."
China doesnt really import many natural resources from the US, in relative terms. China is the worlds largest coal producer and consumes an amount close to what it produces. Most of the copper, iron ore, oil and other natural resources are imported from countries like Australia, Brazil, Saudi Arabia, Venezuela, etc.
On Aug 20 10:31 AM TeresaE wrote:
> What "which will lower demand for our products" products?
>
> Other than our natural resources, exactly what American made products
> is China buying? Or even allowing in?
>
> They MAKE "our" products, they don't need to ship them in to buy
> them.
Thanks Guys
Alok Swain
Actually, the real source of wealth is not trade, but more fundamentally, what you can dig up from the ground or above it. Look around your office. From the polystyrene in your chair, the gypsum in the drywall, the wood on your desktop. Even most of the electricity powering your lightbulbs come from coal.
If we don't get this stuff from the ground, then pretty soon we will all be living in the ground; caves an such. Stuff from the ground is the source of our wealth, and of course afterwards comes trade. The fact that tree huggers are killing off US ability to mine stuff in the US should be cause for alarm.
You can stick two people in a room, give a dollar bill to one and a banana to the other, and have them trade the banana and money back and forth all you want, as rapidly as you can think of. It does not make the two more richer in the process. Anyone who tells you the economic prosperity is synonymous to circulation of money or goods (i.e. trade) is teaching you a fallacy.
L.A. down 16.9% to 305,226
Long Beach down 18.6% to 221,719 containers.
August
L.A., down 19.3% (2.4% lower or 7,325 less)
Long Beach down 11.7% (6.9% higher or 15,298 more)
Appears LA handles autos:
www.portoflosangeles.o...
While LB handles Christmas Items:
www.polb.com/about/fac...