[the48thronin]

first response back to my questions to friends included an article...press teleghram of Long Beach


$this->bbcode_second_pass_quote('', 'P')redictions just weeks ago of a late-summer surge in cargo volumes at the nation's seaports appear to have been overly optimistic, with economists now cautioning the U.S. is poised for its biggest dropoff in international trade in at least a decade.

[the48thronin]

$this->bbcode_second_pass_quote('MrBill', '&')lt;snip>
The water off-loading is going well now. About 10 ships in the past week. Six ships will deliver 160 loads of water this summer to Limassol from Greece. An expensive solution to our water problems here. However, there is still no consensus to build the water desalination plants they need. NIMBY and environmental concerns. So the Orthodoz Church is going to pray for rain instead. I am not kidding. I couldn't make this stuff up! ; - ))

[MrBill]

RE cutback in trade

No time to haul out the data or find a graph at the moment, but roughly world trade has been growing at approximately twice the pace of global GDP growth for the past several years. So when global GDP growth was running at 4-5% annually world trade was expanding by closer to 8-9% per annum.

At some point in time there has to be a regression to the mean where the gap between growth and trade closes. That can be when the global imbalances become too big and the largest importer in the world - the consumer of last resort - simply cannot afford anymore imports and/or exporters have already largely saturated their markets with merchandise so demand is satisfied.

This lack of demand can also be closely tied to disposable income and a drop off in credit and affordability as like trade and growth the US consumer has been consistantly spending more than they earn as increases in real wages has not kept pace with spending. Again there is a natural limit. That limit has been elusive, but we may be there now. How many credit cards can the consumer pull out of their hat?

In this case China's export growth model looks precarious. There is this shared opinion that China's domestic consumption will pick-up to fuel demand in China, but I believe the basket of goods that they produce for export is quite different than the consumptive tastes of mainland Chinese. So they will not be taking up that slack from those idle factories. Not before they are completely re-tooled in anycase.

And besides if I am unemployed and working for myself around the house I may find an endless number of productive tasks to do to keep me busy. But I have no money coming in. My work around the house does not replace my paycheque. The same goes with development in China. Fast growth in China has been paid for by exports. Reduce exports and you reduce domestic growth. The Chinese economy runs on money supply and credit just like any economy. As the domestic economy grows in absolute size then exports become a smaller proportion of GDP, but that does not make exports unimportant for China at this stage in their economic development.

[the48thronin]

China goes from boom to bust.... I agree.

The corruption allowed in a boom economy will be disallowed when growth slows to a more manageable (by the central government and local governments) levels regulation and enforcement are always the first response to the corruption that has accompanied the "wild west" entreprenurs...

The local labor becomes consumers but never can replace the distant customer that fueled the growth, nor will the local economy require the same products, infrastructure will need improvement, not entertainment.

Numbers from the east coast are even more startling than from the west coast here.. I am trying to get something more than man on the scene responses but the haulers of containers are reporting work slowing at an alarming rate. I have decided to go back to Savannah to haul the equipment from the trade show back to Colorado.. I will ask around some more.

[the48thronin]

I make regular appearances on several national audience talk show addressed to the trucking industry via AM networks at night and via XM radio in the day time. I prevailed on the host of one show I have been friends with and appearing on his show for 20 years to put the word out that I was asking for information from port drivers. The producers of the two shows took phone numbers for me to call back to, and I even gave my email address out on one of them. I also visited a few truck driver forums and chat rooms associated with those radio shows.

In the last 3 days I have talked to about 18 drivers I never met before about their port work and I offer one example as typical of all of their comments from north to south on the east and west coasts. I realize this is not hard statistical evidence like the 18 percent drop in diesel sales at T A truck stops, but it is representative of all the conversations I had about the ports.

$this->bbcode_second_pass_quote('', 'H')ello Rusty
I was in chat room and you wanted info on the freight in the ports. I work out of the port of Boston, MA and rail at CSX Boston and also Intransit Container in Worcester, MA. The freight slowed down about 1 year ago and never returned as of today. Actually it slowed down even more in the last two weeks. I hope this helps you.

[Snowrunner]

$this->bbcode_second_pass_quote('MrBill', 'I')n this case China's export growth model looks precarious. There is this shared opinion that China's domestic consumption will pick-up to fuel demand in China, but I believe the basket of goods that they produce for export is quite different than the consumptive tastes of mainland Chinese. So they will not be taking up that slack from those idle factories. Not before they are completely re-tooled in anycase.

And besides if I am unemployed and working for myself around the house I may find an endless number of productive tasks to do to keep me busy. But I have no money coming in. My work around the house does not replace my paycheque. The same goes with development in China. Fast growth in China has been paid for by exports. Reduce exports and you reduce domestic growth. The Chinese economy runs on money supply and credit just like any economy. As the domestic economy grows in absolute size then exports become a smaller proportion of GDP, but that does not make exports unimportant for China at this stage in their economic development.

[Tanada]

$this->bbcode_second_pass_quote('Snowrunner', 'I')f China can pull this off is a question that remains to be seen, but just look at the size of it. There are now what? 1.3 Billion people living in China, they have turned out cheap goods for aorund 800 million people in Europe and North America, if they have really gotten as far as they had hoped to get with their own domestic market they may at least not completely take a nosedive.

The other question is: What is China going to do with all the USD they have in their vaults? There may be some creative uses for it.

[Snowrunner]

$this->bbcode_second_pass_quote('Tanada', 'I') think China is going to continue to spend those excess American dollars in places like Africa to lock in raw materials for future use to the greatest extent they can. Its not exactly a secret that they have been buying up mineral rights and reworking infra-structure in many places in Africa to do this already, and it would be good sense for them to keep doing it, collapsing the dollar is a great way to damage the USA but in the process they also damage themselves. How much better of a strategy to dump US Dollars in Africa where they still buy a lot of favors?

[cube]

$this->bbcode_second_pass_quote('Snowrunner', '.')...
The other question is: What is China going to do with all the USD they have in their vaults? There may be some creative uses for it.

[skeptik]

$this->bbcode_second_pass_quote('Snowrunner', '
')The other question is: What is China going to do with all the USD they have in their vaults? There may be some creative uses for it.

[MrBill]

So many posters do not understand central bank foreign exchange reserves and what they represent that it is worth a quick primer.

As export earnings are repatriated into China this would be a sale of USD or EUR and a corresponding purchase of CNY. That would cause the CNY to appreciate, and therefore make Chinese goods less competitive against the USD and the EUR. As China still depends on exports to create jobs it is worried about the CNY appreciating too quickly and hurting its export competitiveness. It is also worried about hot money flows into the CNY in anticipation of the CNY further appreciating.

In this last respect the answer is to keep capital controls in place that stunt the inflow of foreign capital into the CNY, and to keep domestic interest rates lower than inflation would dictate to make the carry trade for foreign investors and Chinese exporters less attractive.

In response to the first point the answer for the central bank (PBOC) is sterilizing the export driven inflows of USD and EUR. They do this by buying up excess USD and EUR on the open market at prevailing market prices and selling CNY. This increases CNY money supply growth in China that flows into asset prices like real estate and the stock exchange, but it does keep the CNY export competitive. On a trade weighted basis the CNY is still undervalued against the USD and drastically so against the EUR. This is an export subsidy and is the source of those large external foreign exchange reserve growth.

However, the two most important things to remember about those external reserves is that a) they are not sitting around in a vault somewhere, but have already been invested in foreign capital markets - either in stocks, but mainly in bonds - and, b) that for every USD or EUR asset the PBOC has it has a corresponding CNY liability. They cannot collapse one side of the trade - i.e. sell USD - without causing the CNY to appreciate.

As those USD and EUR are invested in mainly foreign government and agency bonds any large divesture would not only affect the market price of those bonds, but would also negatively affect the value of the USD or EUR as foreign currency is repatriated. Not only does the PBOC does not want this at the moment, but they have changed their capital controls to make it easier for Chinese to invest their savings offshore. The more that Chinese invest offshore the less the PBOC has to sterilize.

Switching assets to sovereign wealth funds (SWFs) only shifts the burden from the PBOC to the SWF. Shifting new reserve accumulation to EUR from USD only shifts the burden from one currency to another, but does nothing to change the underlying dependence on investing excess foreign currency reserves abroad as opposed to repatriating them at home. Domestic Chinese capital markets are not yet mature enough to absorb the hundreds of billions in export earnings. Witness the collapsing bubbles in both Chinese stocks and real estate that are down in some cases 40 and 60-percent year to date.

Foreign currency invested abroad in the form of UST or Frannie or even German bunds is money that is NOT available to buy crude, or African assets or anything else for that matter. There is no vault where the Chinese are sitting on some trillion of unused currency available for investment. What investment that is taking place is being paid for out of export earnings and not coming from the foreign exchange reserves.

If the Chinese were to sell all foreign assets and repatriate them home they would see the value of those assets fall as well as a drop in the value of the USD and EUR against the CNY, but then they would have to buy up CNY from the local market. That would tighten money supply in China causing a slowdown in growth as well as a drop in asset prices. This would in turn bring down domestic inflation, but China would still be left with many existing problems that are being masked now by faster than trend growth.

Bad loans from state banks to state controlled entities as well as rampant speculation in projects of questionable economic value and, of course, some of the worst environmental problems anywhere. Then you would see that $1.6 trillion or roughly a little more than $1000 per person would not go very far in addressing these wholly domestic problems, while the slowdown would certainly cause social unrest. China needs headline growth of at least 8-percent per year just to absorb new workers entering the workforce as well as peasants moving from the country to the city in search of work. A dramatically stronger CNY solves one problem while creating another.

So you could say that rapid foreign exchange reserve growth, although a stabilizing influence on a country's external asset and liability management by balancing the currency requirement for import and export needs, can also mask deeper financial problems. And, of course, someone's current account surplus is by definition someone else's current account deficit, so domestic financial imblances become global financial imbalances and all the instability that can represent.

[MrBill]

Thanks for all your comments, Rusty. Good work! Cheers.



$this->bbcode_second_pass_quote('', '
')How companies manage global supply chains

Looking ahead
Supply chains are increasingly global and complex, as companies aspire to support a variety of strategies, such as entering new markets, increasing speed to customers, and lowering costs. In this survey,1 we asked operations and other senior executives from around the world about their companies’ supply chain strategies, the factors that influence those strategies, and the ways their companies act on these factors. We also explored how well executives think their companies are meeting their goals, how they manage their supply chains, and the challenges involved in running a global supply chain.

The results show that supply chain risk is rising sharply. Executives point to the greater complexity of products and services, higher energy prices, and increasing financial volatility as top factors influencing their supply chain strategies. Relatively few respondents, however, say that their companies are translating the importance they place on these factors into corporate action.

Nor do executives express confidence that their companies are meeting the top strategic goals: reducing costs, improving customer service, and getting products to market faster. In addition, for all the public attention paid to environmental concerns, including global warming, executives report that such issues have little influence on supply chain strategies.

What’s more, our results suggest that most companies tend toward centralization, not local management, in running their supply chains and that this tendency has increased in recent years.

[Snowrunner]

$this->bbcode_second_pass_quote('cube', 'M')aybe going against the grain here, but I don't know why so many people out there think China is being governed by a bunch of master strategists. If the rulers had any common sense they would spend less time wasting Billions of $$$ hosting the Olympics and other "showcase projects" and instead concentrate on more important matters.

[Snowrunner]

$this->bbcode_second_pass_quote('skeptik', '')$this->bbcode_second_pass_quote('Snowrunner', '
')The other question is: What is China going to do with all the USD they have in their vaults? There may be some creative uses for it.

[MrBill]

[align=center]First Chinese Shipping Co. Declared Bankrupt Less Than One Week After Beijing Olympics[/align]


source: Taeglicher Hafensbericht, August 25, 2008

UPDATE: Widespread wage suppression, 2 million jobs lost in the U.S.
$this->bbcode_second_pass_quote('', 'T')he growth of U.S. trade with China since China entered the World Trade Organization in 2001 has had a devastating effect on U.S. workers and the domestic economy. Between 2001 and 2007 2.3 million jobs were lost or displaced, including 366,000 in 2007 alone. New demographic research shows that, even when re-employed in non-traded industries, the 2.3 million workers displaced by the increase in China trade deficits in this period have lost an average $8,146 per worker/year. In 2007, these losses totalled $19.4 billion.1

The impacts of the China trade deficit are not limited to its direct effects on the jobs and wages of those displaced. It is also critical to recognize that the indirect impact of trade on other workers is significant as well. Trade with less-developed countries has reduced the bargaining power of all workers in the U.S. economy who resemble the import-displaced in terms of education, credentials, and skills. Annual earnings for all workers without a four-year college degree are roughly $1,400 lower today because of this competition, and this group constitutes a large majority of the entire U.S. workforce (roughly 100 million workers or about 70% of all workers, Bivens (2008a)). China, with nearly 40% of our non-oil imports from less-developed countries, is a chief contributor to this wage pressure.



(continued)

A major cause of the rapidly growing U.S. trade deficit with China is currency manipulation. China has tightly pegged its currency to the dollar at a rate that encourages a large bilateral surplus with the United States. Maintaining this peg required the purchase of about $460 billion in U.S. treasury bills and other securities in 2007 alone.2 This intervention makes the yuan artificially cheap and provides an effective subsidy on Chinese exports. The best estimates place this effective subsidy at roughly 30%, even after recent appreciation in the yuan(Cline and Williamson 2008).3

China also engages in extensive suppression of labor rights. An AFL-CIO study estimated that repression of labor rights by the Chinese government has lowered manufacturing wages by 47% to 86% (AFL-CIO 2006, 138). China has also been accused of massive direct subsidization of export production in many key industries (see, e.g., Haley 2007). Finally, it maintains strict, non-tariff barriers to imports. As a result, China’s exports to the United States of $323 billion in 2007 were more than five times greater than U.S. exports to China, which totaled only $61 billion (Table 1). China’s trade surplus was responsible for 52.3% of the U.S. total non-oil trade deficit in 2007, making the China trade relationship this country’s most imbalanced by far. Unless China raises the real value of the yuan by an additional 30% and eliminates these other trade distortions, the U.S. trade deficit and job losses will continue to grow rapidly in the future.

[vtsnowedin]

As the economy declines and Walmarts JIT rolling warehouse model fails will they not just convert the back half or so of each Walmart to warehouse space?

[IslandCrow]

Just a personal observation:

Last week on sailing from Harwich I had a good view of the Felixstow container port across the estuary [for the non-Brits they are north east of London facing Denmark and Sweden]. The large container ships looked like they would be full up, but as we were sailing out, a smaller container ship (belonging to a Scandinavian company) sailed in with lots of empty space on the deck (I would estimate that about half the deck space was empty, but presume that below deck was full).

I am not sure what this means in the whole scheme of things, but it seems to me that it points out the weak link being connection the major ports to where people actually live. If with the current high level of shipping, smaller more local routes are underused, then it would seem to spell trouble in distribution when volumes drop.

[Snowrunner]

$this->bbcode_second_pass_quote('vtsnowedin', 'A')s the economy declines and Walmarts JIT rolling warehouse model fails will they not just convert the back half or so of each Walmart to warehouse space?

[vtsnowedin]

Snowrunner;
Even though Wallmart saves money with their JIT system I dont see it as requiring great amounts of capital to go back to a ware house system. At the most it just slows down their cash flow. The stock on hand is an asset and most of their stuff is non perisable. A major change may /will certainly come in the types of products they stock. Wide screen TVs out ,hand pushed garden planters in.
There cash registers will have cash in them and plastic will be a memory. Also their will be plenty of empty spaces in the parking lot to park containers. They will call your village when your order comes in and you will go with the neighbors to get a truck full all carefully ordered by cell phone to avoid wasting fuel.

[CarlosFerreira]

[align=center]Bigger and bigger[/align]

$this->bbcode_second_pass_quote('', 'L')ondon Gateway will create 12,000 jobs, according to government estimates. Its chief executive, Simon Moore, said: "In many ways we are going back to our roots as a trading nation. We will get the biggest ships in the world as close as we can to the UK's largest consumer market in combination with significant ware-housing capacity.

"This is precisely how the Port of London used to work and was the foundation stone on which the city prospered. This port-centric opportunity will take 2,000 trucks per day off our national road network."