Global Trade Snapshot - "The Pain Is Getting Worse"
Whether measured in volumes (container throughput via Hong Kong) or in dollars (US Import/Exports), the pain is the same: 16 months of steady collapse in global trade.
The pain is getting worse.
More containers are leaving the US and going back to China empty. From the Port of Long Beach (a major US/China trade port):
- After unloading cargo in the US, over 60% of inbound containers are leaving empty
- The rate is the highest since the recession began in 2007
- More empty containers than export containers: since June 2014, every month with only one exception, there have been more empty outbound containers than loaded export containers
The global trade slowdown was kicked off in late 2013 when the Chinese government took steps to cool the credit markets. The bursting of the credit bubble drove a collapse in commodity prices. Copper, for example, quickly tumbled because 60%~80% of copper imports were used as collateral for loans.
And not just copper. Commodity-backed loans quickly fell out of favor and physical demand began to drop. In 2013 iron ore imports to China surged 20%+. They have fallen -5% since then.
The bubble was popped, taking demand - and global trade - down with it.
Put differently, China was on a super cycle fueled by a combination of (1) a capital-intensive infrastructure build-out, (2) increasing penetration of global manufacturing, (3) a credit bubble, and (4) corporate gambling on real estate, commodities, and other assets. Government measures popped the hot-money and flattened public sector spending. Commodities and other assets have crashed back to earth, with much pain on the way.
Signs of a Bottom. But what comes next?
From China (Hong Kong) to Europe, Taiwan and Korea a bottom has formed.
For the US: No Bottom
- Materials and Agriculture in bad shape
- Other Exports contracting at faster pace ($ and units)
A strong dollar contributes to further US trade deterioration.
Separating the materials pain from other export pain
US export headline figures are bad...
- YTD (-$87B) Y/Y
- For 2015, likely to contract (-$100B) Y/Y
- Cuts GDP by -0.7%
...But concentrates on commodities
Of the (-$87B drop), most is materials and commodity (i.e. price drops are the big issue)
- Food/Petroleum/Steel: 70% or (-$61B)
- Related equipment: 8% or (-$7B).
US Exports (ex Food, Autos & Oil) are shrinking Faster
Strip out Food, Petroleum & even Auto exports. Food & Petroleum because price collapses distort the value of trade. Autos because auto exports are mostly sub-assemblies shipped to Canada and Mexico and re-imported to the US as cars and trucks. What remains is a true view of demand by US trading partners.
Strong dollar dulls trade
While total US exports have steadily contracted Y/Y every month in 2015 (except for January), the pace accelerated beginning in August, when the dollar strengthened against global currencies: o Jan-July (7 months): -$27B o Aug-Oct (3 months): -$23B
Going Forward: Trade Remains Under Pressure
The two engines of growth - China and the US - are stalling again.
Chinese demand is falling back again
The most recent US-China trade data comes out of the Port of Long Beach (November cargo data). Long Beach is a primary port for China/US trade. We've already noted the acceleration in empty containers, indicative of even lower China imports from the US.
Further analysis shows:
- Trend reversal: export growth has shifted from slight growth to contraction
- Nominal export volumes are below last year's levels and the lowest since 2011.
KEY TAKEAWAYS
- Best case: A bottom has formed and current activity reflects bouncing off the bottom
- Worst case: China demand is slowing again, with no change likely until late 1Q 2016
US Private Sector demand: No Longer Just Stalling
- US core goods demand growth has stalled
- Signs of contraction are popping up
In a sign of falling consumer and factory demand, US imports (ex Autos, Oil & Cell Phones) have contracted for the 1st time in 2.5 years. The trend has shifted from stalling to contraction. No wonder the BDI has fallen again
Charting US 'demand' for stuff
From railcar shipments to truck freight, the story is consistent: once we remove the impact of high volume commodities like oil and coal, cargo shipments are heading below last year's levels.
The railcar shipment story reflects the overall global slowdown that began May 2014.
The recent contraction is mostly driven by a collapse in coal shipments, but the general story is no growth in demand.
The slowdown is also echoed in truck shipping activity.
Trucking activity is a critical data point because ~70% of all goods in the US move by truck. It is a window into near-term (30~60 day) demand.
Offered here are two different views of trucking conditions today.
Cass is a company providing logistical support to truckers. Their Freight Index measures cargo shipments.
Note that 2015 shipments have been less than last year's, and have fallen to 2013 levels as of August.
Another view comes from DAT (another trucking support company). They measure demand in terms of a Load-to-Truck ratio (cargo shipment volumes relative to available truck capacity).
Again, evidence of decelerating domestic demand and at 2013 levels.
Taken together, the trucking data is consistent with 4Q 2015 GDP of < 1%.
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