The ship­ping news says the world econ­omy is toast

The Pak Banker - - OPINION - Mark Gil­bert

IN Oc­to­ber 2008, as the reper­cus­sions of the fi­nan­cial cri­sis were start­ing to rip­ple through the global econ­omy, I no­ticed a press re­lease from Swedish truck­maker Volvo say­ing that its Euro­pean or­der book had fallen by more than 99 per­cent be­tween the third quar­ters of 2007 and 2008 -- to just 155 from 41,970. That prompted me to study var­i­ous other real-world ac­tiv­ity mea­sures rang­ing from ship­ping to air freight, and to con­clude that "the news is all bad and get­ting worse, fast." The same ex­er­cise to­day, I'm afraid to say, leads me to a sim­i­lar con­clu­sion about the growth out­look. Here's a chart show­ing what's hap­pen­ing to the vol­ume of goods be­ing shipped in con­tain­ers from China's ports, one for the coun­try and one for Shang­hai. Both in­dexes are com­piled by the Shang­hai Ship­ping Ex­change, and cover ship­ments to the rest of the world in­clud­ing Europe, the U.S. and Africa; ac­tiv­ity is down more than 40 per­cent from its peak in mid-2012:

The tra­di­tional global ship­ping mea­sure is called the Baltic Dry In­dex. Ship­ping purists (who ri­val gold bugs in their ded­i­ca­tion to minu­tiae) will tell you it mostly re­flects how many ves­sels are afloat on the world's oceans; a glut of ship­build­ing means more boats avail­able, which drives down the cost of ship­ping bulk raw ma­te­ri­als such as iron ore, steel and coal. But given the frag­ile state of the global econ­omy, it's hard to shake the feel­ing that the in­dex has been try­ing to tell us some­thing im­por­tant about global de­mand in re­cent years: There's a sim­i­larly con­trac­tionary pat­tern in the avail­able data on air freight. Here's a chart show­ing tons of goods shipped per mile across U.S. skies since the start of the decade: While nei­ther chart shows the vol­ume of air­borne freight fall­ing off a cliff, both are drift­ing lower -- which is not what you want to see at this point in what is sup­posed to be a nascent global eco­nomic re­cov­ery.

So what about Volvo's or­der book? In the third quar­ter of 2015, the com­pany had or­ders for just 42,648 trucks, a 30 per­cent slump from the end of 2014 and the low­est level in two years: While that's nowhere near as dra­matic as the 2008 de­cline, it does sug­gest that com­pa­nies who are in the busi­ness of mov­ing goods by road from A to B aren't in­vest­ing in any ex­pan­sion of their fleets. There's a scene in the film adap­ta­tion of An­nie Proulx's Pulitzer Prize-win­ning novel "The Ship­ping News": An old new­shound ex­plains to new­bie jour­nal­ist Kevin Spacey how dark clouds on the hori­zon jus­tify the hy­per­bolic head­line "Im­mi­nent Storm Threat­ens Vil­lage." "But what if no storm comes?" Spacey asks. The vet­eran replies with a se­cond-day head­line: "Vil­lage Spared From Deadly Storm." Un­for­tu­nately, hav­ing sur­vived the storm fanned by sub­prime mort­gages and the credit cri­sis, the clouds are gath­er­ing again over the global vil­lage we live in; they are get­ting darker ev­ery day.

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