Trump May Shrink Shipping and Air Shipping Capacity Utilization

This article was first published by me on Talkmarkets:

Donald Trump may destroy shipping and air capacity utilization if he decides to initiate a trade war. According to Trumponomics:

Targeted nations in this Trumpian effort to reduce the trade deficit include Canada, China, Germany, Japan, Mexico and South Korea, accounting for 1/2 the trade deficit.
These nations export heavily and are prospering to varying degrees, and yet shipping capacity increases are a function of supply cutbacks, while air capacity utilization is in the depths of despair.

Shipping capacity utilization is high right now not because of more trade or prosperity, but because of massive cutbacks to the supply of shipping: 

High capacity utilization levels on the major east-west trades in the beginning of the third quarter are a result of supply-side adjustments rather than stronger demand for containerized cargo shipping in the peak season, according to Alphaliner.

Air cargo supply is being hurt badly by rate declines:

Although East Midlands airport is bustling, and the global air-cargo business now handles more than a third of world trade by value, the industry has been under pressure since the financial crisis. At the World Cargo Symposium, a meeting of industry bigwigs in Berlin this week, there were grumbles that their business has seen better days. The volume of goods travelling by air has risen marginally over the past year but airlines’ cargo revenues have fallen from a peak of $67 billion in 2011 to around $50 billion a year now. 
Efforts to increase rates should not be seen as an indicator of greater prosperity. Unlike factory utilization, it is easier and quicker to cut shipping utilization. But Donald Trump has indicated that he wants to further restrict trade with these nations.

A Forbes author reported the increase in stock prices for bulk shippers in November, but cautioned that Donald Trump may not be their man to make these increases reflect true fundamentals of the industry. As a result, the Dry Ships (DRYS) stock went from the doldrums to speculative heights in price, and since then has crashed entirely, while the price for shipping, the Baltic Dry Index (FRO), has fallen back some from the highs. But since it appears that this pricing index is under control through supply cutbacks, (FRO) could be a solid investment.

While investors are banking on total increases in US exports, there is simply no guarantee that this increase will be met with no resistance. These nations mentioned above are not going to welcome US goods and those who own ships like South Korea are certainly not going to want to pay for US infrastructure, as Donald Trump is likely to demand.

And China has already threatened to stop selling IPhones if tariffs are imposed. This could be a serious mistake, because, while the US imports more from China than it exports to China, the Chinese market is massive. The Chinese publication said this about IPhones, other products, and tariffs:

China will take a tit-for-tat approach then. A batch of Boeing orders will be replaced by Airbus. US auto and IPhone sales in China will suffer a setback, and US soybean and maize imports will be halted. China can also limit the number of Chinese students studying in the US.
It appears that Donald Trump seemingly wants to socialize trade. Yes, it appears his minions also support socialized trade, where the US controls this and that about trade, through tariffs and other means. This attempt to return to the old days could be fraught with danger. And this policy can't be a legitimate Republican principle.

And yet, the Republicans sided with Obama when he slapped a large tariff on Chinese tires in 2009. Yet these tariffs did nothing to increase employment in tire manufacturing in the USA:

What is also clear is that the tariffs did not turn the tide in employment for the U.S. tire-making industry. Data from the Commerce Department show that domestic tire-manufacturing employment has continued a long and steady decline — to 43,197 in 2012 from 49,715 in 2007 and 63,842 in 2002, reflecting in part productivity gains as well as declines in total output.
And, as we know, the price of tires has soared. While foreign tire manufacturers may come to the US under Trump rules, and a South Korean company has established a tire plant in Macon, Georgia, these nations could be put off by a trade war.

It would be better to encourage the nations who sell to us to create more products in the USA. That seems to be a more sound policy than establishing tariffs. It would be better to talk potential tariffs than to put tariffs on. Better yet, explaining to other nations the need to put factories here should be a strong enough policy with Trump backing it.

Some nations value honor more than money. I am not certain that Donald Trump understands that concept at all. He could miscalculate badly.

Regardless of what happens, trade wars or manufacturing going to the shores of the consumers, none of this appears to be encouraging toward the shipping and air freight companies going forward as to growth.


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