world trade is booming again: two pieces of evidence

container shipping

According to the Financial Times, major container shipping lines are finding that their business is growing much faster than they had anticipated or planned for.  Deliveries from Asia to Europe are a particular sore spot.  They are advancing at a 23% year on year pace, well more than double the rate anyone thought six months ago. 

Combine this with the fact that ships are travelling more slowly than usual to save on fuel costs, and the result is that the shipping lines are running short of containers to put their customers’ wares in.

We’re not at the same point of high demand that we were a few years ago, when the bottleneck was the ability of the departure and destination ports to load and unload shipments.  Still, it’s possible that some customers will be turned away during the runup to the yearend holiday season.

While the current boom is much better than it’s opposite, it may not be an unadulterated positive for the shippers.  They are having to take ships out of mothballs in Europe simply to have them steam back to Asia full of empty containers.  It’s also possible that they’ll have to send some ships half-full to Europe, while Asian warehouses are bulging with merchandise waiting for shipment.  If that proves to be the case, added costs will take some of the sheen away from potential profit gains.


FedEx is in a similar situation.  As I mentioned in an earlier post, the company went out of its way in its latest earnings conference call to sy it thought investors were much too gloomy about global economic prospects–because they didn’t understand how strong the recovery in world trade is proving to be.

The company cited the fast growth in air shipment of small, high-value technology goods from Asia to both the US and Europe as a bright spot for it.  Volumes were up 23% year on year in the May quarter, with prices rising 6% in addition. Bbusiness is so good that FedEx is accelerating its capital expenditure program and incurring additional expense to remove freight planes from storage and get them ready for work again.  Such expenditures, plus added personnel costs–raises reinstated, higher medical costs, larger pension expense–will prevent this strength from dropping down to the bottom line for the next six months or so.  The fact that these expenses are temporary has escaped the notice of TV commentators–implying it has also been missed by the analysts feeding them the information. 

what to make of this?

In both cases, the consensus–and the companies–have not been optimistic enough.    Interestingly enough, in both cases increased revenues may be temporarily overwhelmed by higher costs, although this situation will certainly reverse itself as the firms adjust to the higher revenue inflow.  I think the first point to be made is that there’s no reason not to be optimistic about the cyclical upturn in the global economy.

Thre’s also an important distinction to be made between air transport and sea transport.  The latter services deal with general merchandise, where speed is not of the essence, where items may be bulky–and therefore not suitable for air transport, and where shipping costs are paramount.  I think the fact that sea traffic to Europe is up so much implies that the general EU economies are faring better than investors now think.  There’s no evidence from these reports that the same is happening in the US.  This doesn’t mean that the US isn’t faring at least as well as Europe.  Strictly speaking, we know nothing, but the fact that the optimistic shipping report doesn’t mention the US might tilt me a bit toward thinking the US isn’t enjoying the same sort of uplift as Europe is.  This is not a thought to bet the farm on, but it’s a reason to pay attention more closely to precisely what companies say about the US in the upcoming weeks.

Air transport is for lightweight, high value-added items–meaning IT, smartphones, laptops and components in particular.  This would imply that positive earnings surprises could be coming from companies linked with these devices–industry in general and sellers of IT products in particular, as well as younger and more affluent consumers (who tend to be disproportionately large users of tech gear.

Of all of this, the most important to me is the suggestion that financial woes in Europe and the plunge of the euro have not damaged the region to the extent the consensus believes.

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