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Don’t Get Carried Away By Walter Kemmsies, chief economist, Moffatt & Nichol There is good reason to believe that the economy and container volumes at large ports have found the bottom, but like most of the other cyclical sectors of the economy, there is little reason to believe the volume growth recovery seen in the March data will be sustained. In March, volumes at seven of the largest U.S. ports increased 19.4 percent, but in the first quarter of 2009, volumes were 20 percent below the level of the first quarter of 2008. Volumes from April to December for these ports would have to be 58 percent higher than the average over the first three months of the year for 2009 volumes to equal 2008 volumes. Given the outlook for the economy described below, this appears unlikely. Thus, a true recovery in container volumes to 2008 levels, much less peak 2007 levels, is more likely to occur in 2010 than 2009. In short, the good news is that the free-fall in economic activity and container volume trade appears to be over; the not-so-good news is that recovery is likely to be slow. Therefore, although economic data is likely to continue to improve, any celebration of that should be tempered. The chart below shows that containers holding imported goods represent 45 to 50 percent of total container volumes. Therefore, any recovery in container volumes handled at U.S. ports requires strong growth of imports rather than exports or empty containers. However, spending by U.S. consumers of these imported goods is hampered by headwinds: • The wealth of American families plunged nearly 18 percent in 2008, erasing years of sharp gains on housing and stocks and marking the biggest loss since the Federal Reserve began keeping track after World War II. • Many households own houses that are worth less than the principal on their mortgages. • While the rate at which people are losing their jobs is slowing, it is still increasing. • A substantial portion of U.S. households are headed by Baby Boomers. Many Baby Boomers have already retired and their numbers are growing. The U.S. Census Bureau estimated that on average, 7,878 Americans turned 62 years of age on any given day in 2008. At this point, it appears that the thing consumers demand the most is improvement of their retirement income. Thus, the proportion of income that is saved has risen substantially in the last few years and may continue to do so. To some extent, continued outsourcing should provide some support to import container volume growth and offset weak consumer spending trends. Given the difficulties with generating profits that U.S.-based manufacturers are experiencing, it is likely that many of them will resort to outsourcing. The substitution of imports for domestic production, which has been a long-running trend, is one reason international container volumes have grown faster than real GDP. As noted in a previous column, however, there are many industries that do not appear to have fully embraced outsourcing yet; so there exists a potential upside to volume growth. Offsetting the weak outlook for imported container volumes are exports. The outlook for exports remains positive because economies in other parts of the world are also showing signs of recovery; and although the foreign exchange value of the U.S. dollar has recovered from the trough levels of late 2007, it is by no means at a level to render U.S. exports uncompetitive. When looking at all the factors that impact U.S. container volume trends, there are more reasons to expect recovery to continue. However, there are very few reasons to expect robust growth such as seen earlier in this decade. As future economic data shows further evidence that we are past the bottom, it’s still not the time for euphoria.	In This Issue News, Trends & Analysis New Items Don’t Get Carried Away Supply Chain So, how much is this worth, anyway? Compliance Corner: Service Providers and Trade Compliance Freight Forwarders need apply! Five things you should know about auto and logistics software Distorted Web Sites Supply Chain product review Security Software Solutions Features Gateway at a Glance Gulf Coast Supply Security Investments: A Balancing Act Ports & infrastructure Major retailer to Southern Cal ports: Requirements are many, costs are high Port Product Review Security Equipment Commentary Security Issues Impacting the Supply Chain Who, What, Where, When Final Say
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Don’t Get Carried Away