
The Shipping News Suggests Economic Weakness - walterbell
http://www.bloombergview.com/articles/2016-01-28/shipping-news-says-world-economy-is-toast
======
paulpauper
The dry index is a poor predictor of future economic health or stock market
returns [http://greyenlightenment.com/economics-myths-part-7-the-
balt...](http://greyenlightenment.com/economics-myths-part-7-the-baltic-dry-
index-is-important/)

The index was flat in the 80' and 90's yet the global economy boomed.

Not sure why stories that are sensationalist hyperbole get voted to the front
page anyway

~~~
floppydisk
The best indicator for anything transportation is utilization and how much
stuff is actually being moved. Not just the price of moving something from A
--> B. Yes, the presence of more movers, as the article points out, suppresses
the price because people are competing to offer the lowest possible price to
get the business. And, shippers did start investing in new builds extensively
when it looked like the economy was set to go boom again which is also having
a negative effect price due to the presence of more hulls on the market.

Unfortunately, the amount of stuff being moved is not public record and stays
locked away on internal books that get summarized for the quarterly financials
if the company is publicly traded. Which means we can infer how much stuff is
being moved by reported dollar value but that's a lagging indicator. This
leaves us with price to move goods as the major inference point to determine
the health of commodities shipping and if the price is crashing, it's usually
an indicator there's not a major uptick in the demand for commodities. When
the price skyrockets it indicates people are trying to move a ton of stuff
quickly and there isn't capacity to do it (causing more hulls to be built) and
indicating the economy is hopping.

~~~
codingdave
You can also infer how much is being moved (on a very broad scale) in the US
by the on-time record of Amtrak. They do not own the rails, and yield to any
freight trains. When less freight is being moved, their on-time records
improve.

~~~
floppydisk
Interesting. Hadn't thought of that angle before. Be interesting to see the
correlations between rail freight company revenues and Amtrak timeliness.

------
rtuins
There are other reasons why Baltic Dry Index is falling - new megaships are
reducing shipping costs.

[http://www.forbes.com/sites/timworstall/2015/11/20/dont-
aban...](http://www.forbes.com/sites/timworstall/2015/11/20/dont-abandon-ship-
what-matters-is-why-the-baltic-dry-index-is-falling/#4704eb4d4cd0)

~~~
bcg1
Of course you should use more than one indicator... like commodities getting
completely crushed across the board:

[http://finviz.com/futures_charts.ashx?t=ENERGY&p=w1](http://finviz.com/futures_charts.ashx?t=ENERGY&p=w1)

[http://finviz.com/futures_charts.ashx?t=SOFTS&p=w1](http://finviz.com/futures_charts.ashx?t=SOFTS&p=w1)

[http://finviz.com/futures_charts.ashx?t=METALS&p=w1](http://finviz.com/futures_charts.ashx?t=METALS&p=w1)

[http://finviz.com/futures_charts.ashx?t=MEATS&p=w1](http://finviz.com/futures_charts.ashx?t=MEATS&p=w1)

[http://finviz.com/futures_charts.ashx?t=GRAINS&p=w1](http://finviz.com/futures_charts.ashx?t=GRAINS&p=w1)

Usually plummeting commodity prices are not a sign of economic activity,
although they are priced in dollars so maybe a stronger dollar has something
to do with it... but a strong dollar itself might suggest a flight to safety
instead of global economic activity:

[http://finviz.com/futures_charts.ashx?t=BONDS&p=w1](http://finviz.com/futures_charts.ashx?t=BONDS&p=w1)

~~~
rdlecler1
China had an outsized affect on comkodity demand, at the same time capacity
has been over built for many years. For oil, obviously the US resurgence has
been a huge factor, and for food crops they had a couple of very very good
years globally (and new land has been brought online).

~~~
ihsw
Several currencies are sliding down against the USD (for a variety of
reasons).

Food crops may be good but food prices are the first thing to spike when
inflation spikes, and many nations have seen food prices climb ~20% across the
board without parallel increases in wages and salaries. This is not good.

------
hellofunk
This reminds me of Ted Cruz's statistical "evidence" that over a 17 year
period, the Earth is not warming. Because he started his 17 year period by
including an unusually warm year, thereby significantly changing the outcome
of the average. Had he looked at a 16-year or 18-year average, his "evidence"
works against him.

Also like the "lesswrong" folks who use statistics to make grand claims.
Statistics is not a looking glass. It is a math that is only as useful as the
wisdom of its practitioner, and can lead to false confidence.

------
ptype
These charts are meaningless with such a short history, at least include 2008
in them.

~~~
foobarian
I also don't appreciate that the Y axes are not 0-based.

~~~
pithon
Why zoom out and lose the fidelity? So people who don't actually pay any
attention to the axes/labels/etc. can walk away with a slightly better
understand of the graph with their casual glance than they otherwise would
have?

~~~
TeMPOraL
They won't walk away with better understanding, they'll walk away with worse.
It's better to not understand a graph at all than to be mislead by it.

~~~
bottled_poe
That's a stupid highbrow attitude. I suppose the same concept applies to any
form of information? If we don't understand the whole story, it's not worth
knowing any part of it?

~~~
snarfy
It's disinformation. It's like when the meteorologist shows a map of
temperatures across the region, not mentioning it is the 'feels like'
temperature, an arguably useless and misleading number made up of the actual
temperature and the wind speed. Just tell me the temperature and wind speed -
let me be the judge of what it 'feels like'. Maybe I wear a windbreaker.

~~~
semi-extrinsic
For sub-freezing temperatures with strong wind there is most definitely a
point in mentioning wind chill factor. It keeps inexperienced people (i.e.
tourists) from flooding the ER with frostbites. Otherwise I agree "the
temperature it feels like" is silly.

------
rrggrr
Is global trade reverting to the mean? Yes. Does that make it "toast"? No. The
media treats every market correction as a crash much to the delight of value
investors and bottom feeders. Hysteria is a great time to buy.

~~~
hacknat
Seriously, I'm grabbing as much VFINX as I can. It's priced at February 2014
levels right now. That's a silly price for two pretty good years of global
economic growth.

~~~
seivan
Is that same as S&P? Not sure I can get Vanguard from here.

~~~
icebraining
Vanguard trades on Euronext, e.g.
[https://www.euronext.com/en/products/etfs/IE00B3XXRP09-XAMS](https://www.euronext.com/en/products/etfs/IE00B3XXRP09-XAMS)

------
morgante
The very charts used in the article seem to disprove the hypothesis.

Ex.
[http://assets.bwbx.io/images/iDUeUG9Br9mI/v1/-1x-1.jpg](http://assets.bwbx.io/images/iDUeUG9Br9mI/v1/-1x-1.jpg)

According to that chart, the beginning of 2012 would have been a _horrible_
time to an invest and the market was about to enter a massive correction.
Except the S&P is actually up >50% from 2012.

------
hownottowrite
Baltic Dry Index 1985-2015
[https://people.hofstra.edu/geotrans/eng/ch7en/conc7en/bdi.ht...](https://people.hofstra.edu/geotrans/eng/ch7en/conc7en/bdi.html)

~~~
minikites
This seems more reassuring.

------
lukasm
Because I don't need that many physical goods as I used to? My phone shows me
temperature, map, music player. I can buy tickets which I don't need to print.
I read book on Kindle. I don't need a car - I have a bike, public transport
and Uber. As a result I need to rent smaller apartment.

~~~
sbardle
Also factor in the trend of millennials living at home and declining family
formation. But the main reason for the drop is the collapse of the emerging
markets and the fact that China has dramatically slowed down.

------
brc
The world economy is dominated by people in governments who believe that
printing money, burying it and paying people to dig it up again will increase
the amount of trucks built and goods shipped. No amount of failure of this
theory will be enough for it to be abandoned, because it has a certain amount
of truthiness to it, and it excuses profligate and wasteful behaviour. Both
these things are fun and buy votes.

The Baltic dry should be studied in conjunction with other indicators such as
yield curves and indications of credit tightness.

~~~
jjoonathan
I don't buy it.

Boom & bust cycles are driven by the fundamental difficulty of quantifying
value. Since there _is_ no true value, people base their opinions on those of
others (+delay), leading to "inertia," leading to oscillation. The government
might exacerbate the oscillations, but the lion's share of responsibility lies
with the market. Complaining that the oscillations happen because the market
"just isn't free enough" represents a delusion about the qualities of free
markets.

As for make-work, it's a compromise that nobody is happy with, but it _is_ a
compromise, and that's its value proposition. Some want to let the market
clear without intervention by any means necessary, regardless of the social
cost, based on (arguably misplaced) faith that this will ultimately make
things better. Others think it's ridiculous that periodically attacking the
foundation-tier Maslow needs of large swaths of the population is "a feature
not a bug," and demand (arguably unsustainable) social policy to fix it. Make-
work lies between the "free-market reckoning" and "re-distributional cash
grant" extremes and so once the dust of democratic process has settled it's
the thing that actually happens even though both sides see it as a poor
alternative to their favored solution.

> The Baltic dry should be studied in conjunction with other indicators such
> as yield curves and indications of credit tightness.

The Baltic dry should be studied in conjunction with the reliable
unreliability of the market in general. Since markets are as inherently
unavoidable as physics or politics, we cannot simply wish them away. Instead,
we should develop social policy to decouple the markets for well-understood
core needs-providing infrastructure from the global economy in order to place
bounds on the social cost of market corrections, which could then be allowed
to happen (otherwise) unimpeded.

~~~
vezzy-fnord
What you're describing might explain fluctuations, but it's inadequate and
incomplete for the business cycle.

Virtually no one, not even Keynesian or other left-economists support make-
work. It's mostly an idea favorable to laymen, or often done for more
nationalistic rather than economic reasons. FDR was inspired by William
Trufant Foster's and Waddill Catchings' policy advice for instance, who had
Keynesian-esque underconsumptionist views but did not derive these from any
economic theory per se.

Even ardent Keynesians will advocate a more sophisticated proposal of what
amounts to government-owned employment agencies that combine private contract
procurement with state investment projects, with the intention of having the
unemployed serve as buffer stocks of labor to meet some form of output target.
But not quite brute make-work.

(Actually the "quantifying value" problem makes no sense. It's not as if there
is some objective essence called "value" that people seek. Value is largely
denominated in units of currency. I suppose what you're getting at is the
importance of monetary policy?)

~~~
ericd
My understanding is that FDR's "make-work" policies weren't only that - they
were involved in massive infrastructure improvements which paid economic
dividends, and building out parks, which provide cheap entertainment for the
public. Perhaps there were others that were less useful, though?

~~~
brc
FDRs policies included the Hoover dam, a massive productivity boost.

The latest round of stimulus spending included cash for clunkers, lots of
money for financial institutions and paybacks to teachers unions and other
supporters. That's not a partisan criticism, an administration of the opposite
party would have given to their supporters in equal measure.

The rules of startups are about : make something that people want, and don't
take money for the sake of it, your better of solving problems out of
necessity.

The truth is that, as a theory, the idea works. In practice, it doesn't
because it relies on the idea that central planning can work at all, and that
lots of productive projects are available but can't get started due to lack of
capital and resources. If a dam or bridge makes sense, then build it the
moment it makes sense.

------
qaq
Obviously oil price has 0 correlation with cost of shipping.

~~~
VLM
A rule of thumb is trucking spends 1/3 on fuel, more efficient rail spends 1/4
on fuel. Shipping is even more efficient, so its likely under 1/4 total costs.

(edited to emphasize that if fuel cost magically dropped to zero, costs could
not drop more than perhaps 20%. And fuel has dropped, but not to magical zero)

Capex and maintenance are expensive.

~~~
TheCowboy
qaq's assertion that shipping costs have zero correlation with oil prices is
not accurate. It's not difficult to demonstrate that some correlation exists,
and one can also do an overlay of shipping cost indexes to oil prices.

Shipping is already highly efficient in general, so it might be the opposite
that fuel prices are a significant percentage of operating expenses. Low
estimates I've seen state that fuel costs are around 40% of operating
expenses. Source:
[https://people.hofstra.edu/geotrans/eng/ch7en/conc7en/bdi.ht...](https://people.hofstra.edu/geotrans/eng/ch7en/conc7en/bdi.html)

I'm not arguing they're the only cost, but there has been a lot of hysteria
about the Baltic Dry Index this month. So much that Snopes and Marine Traffic
responded to it: [http://www.snopes.com/cargo-ships-atlantic-
map/](http://www.snopes.com/cargo-ships-atlantic-map/)

~~~
qaq
There is a thing called sarcasm :)

------
yeldarb
The Volvo chart clearly shows that it's seasonal. Q3 has a big dip each of the
last 4 years.

------
rsp1984
PG actually addressed this in a recent tweet:

[https://twitter.com/paulg/status/663416191344447488](https://twitter.com/paulg/status/663416191344447488)

------
izzle49
correlation does not equal causation, have a look at this
[https://en.wikipedia.org/wiki/Baltic_Dry_Index#/media/File:B...](https://en.wikipedia.org/wiki/Baltic_Dry_Index#/media/File:BDI.png)
no big dip around the dotcom bust, also
[http://www.economist.com/blogs/economist-
explains/2015/03/ec...](http://www.economist.com/blogs/economist-
explains/2015/03/economist-explains-7)

------
Animats
Here are more useful numbers: containers moved in and out of the Port of Los
Angeles.[1] That's where most stuff from China enters the US. Monthly and
annual numbers are available. Here's this decade:

    
    
        2010 	7.8 million TEUs 	
        2011 	7.9 million TEUs 	
        2012 	8.1 million TEUs 	
        2013 	7.9 million TEUs 	
        2014 	8.3 million TEUs 	
        2015 	8.1 million TEUs
    

So 2015 was down 2.5% from the peak.

The discouraging number in this is that half the containers going out of LA
are empty. Only 3% coming in are empty. That's the US export/import imbalance.
And a lot of the ones leaving the US are full of paper and metal scrap.

(One TEU is a "Twenty foot equivalent unit", or a 20' long container. A forty
foot container, the most common size now, is 2 TEU.)

[1]
[https://www.portoflosangeles.org/maritime/stats.asp](https://www.portoflosangeles.org/maritime/stats.asp)

------
bcg1
Rail traffic plummeted in December also, extremely low even though there is
clearly a seasonal dip during that month. 2016 is starting off lower than the
previous 3 years as well.

[https://www.aar.org/data-center/rail-traffic-data](https://www.aar.org/data-
center/rail-traffic-data)

------
MattHeard
The author says "tons of goods shipped per mile" and "tons per kilometer" when
the charts are clearly measuring ton-miles and ton-kilometers.

A disregard for being accurate with units makes me suspicious of any
conclusions this author might reach.

------
JoBrad
I'm no stats major, but it seems like saying that an ~8k drop in orders from
Q42014 to Q42015 is equal in some way to a ~41.7k drop in orders in 2008 is
slight exaggeration.

------
myth_drannon
Sensationalist headline, nowhere is mentioned the oil glut. No point of moving
oil if countries don't need it(why no need is another story, shale & warm
weather).

~~~
maxerickson
Oil is transported on purpose built ships that don't compete with the ships
reflected in the indexes discussed in the article.

------
Zigurd
Last time this happened it was due to letters of credit abruptly being
unavailable because of a worldwide bank crisis, due to a derivatives crash.
Without letters of credit, nothing gets shipped. That's not what's happening
today.

Low demand for commodities, also reflected in low prices, is driving the price
of bulk shipping down. There's lots of slack capacity. But no problem getting
a letter of credit if you are moving things.

------
petke
It took me a while to see that the dramatic looking spikes and falls in the
graphs where only due to the lower range of the y axis being cut out.

------
meeper16
The sky is not falling. This is Bear hype. A group he's connected with is
probably short the market. Wait for the Black Swan to trigger just like the
Bear Stearns trigger of last downturn. Keep an eye on the yield curve, the
most important indicator. It's not bending yet.

I see these bears come out of the woods everytime they beat the "the bull run
has been too long" drums.

~~~
jessaustin
As I understand the term "black swan", it isn't something for which one can
wait. If a particular event occasionally happens at a particular point in a
business cycle, then we can assign a rough likelihood to that event, and it
isn't a black swan.

------
ChuckMcM
There are a number of people who are perplexed. And that leads to a lot of
speculation. There is also seems to be a strong survivor bias in economic
reporting so everyone wants to be on record as both foretelling doom and not-
doom, then depending on what happens they hope you'll remember they were
"right".

Either way, there are interesting questions here which are unanswered. Like
why do companies have so much money in their cash accounts? Generally, if a
company is accumulating cash it isn't re-investing to grow. And while that
might mean a planned acquisition of some other company the phenomena has gone
on long enough that this seems less likely [1]. So why the cash hoard? For
people it might be a 'rainy day' fund but does anyone believe that these
companies will sit there, paying salaries, while selling few goods, waiting
for the demand to return?

Or is it that the rent seeking transactions have become such a burden that it
has been completely damping out new demand? One of the interesting thoughts is
that if you go back and fix copyright and patents such that their terms expire
in a more reasonable amount of time, or in the case of patents they are
carefully scruitinized, then you take away this rent stream from big content
and a number of license funded entities, that forces them to go out and make
new content, or come up with new patented things, rather than just collect
license fees. That creates new economic activity and that boosts GDP. It is a
point of view that is gaining some adherents as a drag on economic growth.

Shipping as a leading indicator though has a couple of problems, both with
isolating improvements in the industry (supermax ships) and shifts in
modalities (air freight being acceptable for high margin goods like iphones)
and generally the way consumption and manufacturing is changing (China's
economic growth has zero impact on shipping if they pulling their bulk goods
in over land and shipping locally).

Mostly though I suspect that there are lots of things that are unprecedented
and so folks who are trying to plan are in a world of hurt in terms of
confidence in their predictions. And like the reference to the movie in the
article, it is always safer to predict doom and then report on "avoiding" it,
than to mis-predict non-doom and to have it land at your feet. Hence more and
more economists are saying "The world economy is toast!" rather than "I wonder
if this is what it looks like at the leading edge of the switch away from a
scarcity economy?" Sure, we could be approaching the singularity/jackpot what
have you, but if you say that and the instead you get the biggest economic
depression ever, well that is a worse outcome for the predictors.

[1] In an related note, having 10s of billions of dollars in cash means a
company can do dozens of "10 - 50M" acquihire type deals, and that is driving
some of the seed investing thinking I believe.

~~~
slv77
A lot of those oversized cash accounts can be explained by corporate tax
structures that hold cash overseas in subsidiaries. Repatriation of that cash
would incur significant penalties.

Pundits also suggest that shareholders who should be the beneficiaries of the
cash through dividends are content to let CEO's and boards invest the cash for
them due to a lack of other compelling investment opportunities.

Cynics might say with the prevalence of index and other funds who hold shares
by proxy and who tend to vote with corporate management there is little
pressure for CEOs or Boards to return funds to shareholders and instead hold
them as a personal insurance policy and to extend their power base.

~~~
ChuckMcM
That is certainly a big part of it. But fundamentally it is idle capital. Why
doesn't Apple build a German development center? I'm sure they could fill it
with solid engineers and they could make it close to the auto centers and put
their self driving electric car project there. Or pretty much anywhere in the
EU. No need to repatriate funds if you can invest them in the area where they
are already sitting and repatriate them as engineering expertise work items.

~~~
slv77
I'd be surprised if there was a large contingent of unemployed machine
learning specialist sitting idle in Germany waiting for Apples investment
dollars to unleash them. A billion dollars or even ten billion won't
materilize the required skills in the requisite time.

An economist suggests this is an example of a skills mismatch.

------
ommunist
This analysis lacks graph for railroad shipping, which is important in Chinese
context.

------
scurvy
Isn't this just a modern application of the Dow theory?

------
fiatmoney
Cheap oil (ie, cheap fuel) presumably also affects this.

------
mycrobe
Perhaps Bloomberg really _is_ going to run for President, even against
Clinton.

