It’s always a bit dangerous to generalize from one data point, even if if it is a big data point, like Long Beach, one of America’s most active commercial ports. Nevertheless, the New York Times uses it to present a vivid image of the economic, and in particular, trade slowdown.
One focus is how imported cars are being warehoused there, indicating that even more competitive automakers have more pain to come. I dimly recall that when Daimler bought Chrysler (admittedly billed as a merger of equals that turned out otherwise) one of the reasons Chrysler decided to give up its independence was that the auto industry, globally, had production capacity vastly in excess of any reasonable demand scenario. And as has been visible for quite some time in the US, automakers have responded by using cheap financing as a means to get consumers to turn their cars in much faster than they ever did historically (when I was a kid, you bought a car and expected to keep it for, say, 6-10 years, depending on how heavily you drove it).
From the New York Times:
Gleaming new Mercedes cars roll one by one out of a huge container ship here and onto a pier. Ordinarily the cars would be loaded on trucks within hours, destined for dealerships around the country. But these are not ordinary times.
For now, the port itself is the destination. Unwelcome by dealers and buyers, thousands of cars worth tens of millions of dollars are being warehoused on increasingly crowded port property….
While shipments for some items have slowed, the cars have kept coming in at their regular pace partly because the auto factories can take months to adjust to changes in demand.
And for the first time, Mercedes-Benz, Toyota, and Nissan have each asked to lease space from the port for these orphan vehicles. They are turning dozens of acres of the nation’s second-largest container port into a parking lot…
But the inventory glut in Long Beach is not limited to imported cars. There has also been a sharp drop in demand for the port’s single largest export: recycled cardboard and paper products.
This material typically goes to China, where it is used to make boxes for new electronics and other products that are sent back to the United States.
Yves here. I recall one analyst who used sales of corrugated cardboard as a early indicator of changes in economic activity and claimed it was very reliable. Back to the Times:
Roughly 20 percent of the nation’s container imports last year came through Long Beach, putting it close behind the largest container port, Los Angeles. This year, shipping volume at Long Beach is down 10 percent from 2007, and nearly all major ports around the country have seen similar declines. Veteran port workers say the slowdown since mid-October is like nothing they have ever seen. And it is having a cascading impact on other businesses and workers….
While shipments for some items have slowed, the cars have kept coming in at their regular pace partly because the auto factories can take months to adjust to changes in demand.
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I’m in the market for a new car. I’ve got cash in hand, or I’d be happy to consider dealer financing. But I know that I’m in the position of power here, and I know what I’m waiting for.
When the automakers start offering fully loaded top-level trim models for 40% or more below invoice (not MSRP, invoice), then I will be motivated to go talk to them. Until then I can just sit here counting my money and waiting.
What does it say about the fundamentals of the US economy that our main export is recycled cardboard?
I’m not sure I entirely buy the auto industry’s explanation that factory output can’t be adjusted quickly. You can close factories for several weeks, or cut shifts, etc. to respond to shifting demand. We’re not talking about retooling a factory to change the model of car it produces, or something like that. And with just-in-time inventory practices, changes in demand can be transmitted across the entire supply chain quite quickly.
I suspect there’s an accounting principle that allows car companies to book a sale as soon as the car leaves the factory (since it’s technically ‘sold’ to a dealer at that time). Any accountants out there care to confirm/deny this suspicion?
In this day and age when reporting bad results can make the markets nearly kill your company and its ability to access credit, I think car companies are desperately trying to maintain sales numbers by any means possible lest they find themselves in a death spiral of cascading bad news. Even if that means leasing extra warehouse space and booking phantom sales while hoping the market turns around.
To Sammy, counting his money:
If the NSA can trace your computer, you will soon get a knock on your door:
“Yes?”
“Hello. We’re from the Treasury Department. Are you Sammy?”
“Yes.”
“We read your post. You know that money you’re counting? It says in bold letters “The United States of America”, doesn’t it?”
“Yes.”
“Do you see anywhere where it says ‘Sammy’?”
“Um, no.”
“Good. So we understand each other. Now, don’t you think you should be going out and spending some of The United States Money right about now?”
“Umm….”
“We hope you enjoy the new car you’re going to buy today, Sammy. Have a nice day.”
To Simpson: Too funny!
It says that we’re now a “value subtracted” economy.
Lots more where that came from. Remember the scene from “Fight Club” where Brad Pitt is scavenging human fat from trash bins outside of plastic surgeons who specialize in liposuction “Because it makes the best soap”? Maybe that will become our second leading export.
Whilst the glib mood is in swing. I can’t find a financial news report or show with the talking heads, looking like someone ran over their dog and are with holding the news from the wife and kids till the right moment.
@Yves, I have asked some friends living on the south side of Palos Verde’s (they look down on the long beach port) to keep an eye on the transport flow. Now they can not give a statistical report but could see a significant change via the many years they have lived there. They did comment, on the slowing of the oil refinery’s in San Pedro, do to slowing of late night burn off.
Skippy
Seems to me that JIT output adjustments merely displace the overproduction of assemblies and parts into greater levels of excess capacity, with continued, possibly greater, downward pressure on rate and mass of profit.
Fifty or sixty years ago someone said, and I paraphrase, the problem with investment is its usefulness, by which was meant the problem with investment is the tendency to overaccumulate means of production.
They are turning dozens of acres of the nation’s second-largest container port into a parking lot…
One man’s parking lot is another man’s sales lot. If they slapped on rims with wide white sidewall tires, and maybe threw in some big subwoofers and hydraulic shocks, and paired all of that with negative interest financing (think of it as like a mortgage modification, only in advance), they could move some of those vehicles — not far away there’s a big market for that sort of thing, and since some of the potential customers aren’t making their mortgage payments anymore, they have money to spend.
Shame on me.
I’m concerned about competitive auto bailouts working like protectionist trade policies in the past. Every country tries to bailout its auto industry, and we all end up worse off. *Somebody* has to close down with the monster overcapacity we have. Since some degree of bailout is politically unavoidable, I’m hoping for international cooperation on the issue.
@Sammy – Usually a good time to buy a car is January or February. And usually the last 4 days of the month when the salespeople and dealers are desperate to make their numbers or bonuses. And I think 2009 will be particularly good. :)
Supply side economics, anyone ? They used to call it dumping but now we have free trade. Like vultures amassing, waiting for the death rattle out of Motown.
Too many cars in the port of Long Beach tells me that just in time has failed. The reason for JIT was to save capital by reducing inventory.
Someone above suggested that the manufacturers were continuing to produce autos to keep sales figures up. Possibly true and if so it shows that JIT lost out to the equities marketing, or perceived company financial strength, of the various auto makers.
Now the various auto producers are in worse financial condition because they have given up on JIT, tying up untold billions in finished autos.
They didn’t see this coming?
Yves ~
That analyst that used sales of corrugated cardboard as a forward indicator was brilliant.
If you have channels that can check on those corrugated cardboard sales periodically, say monthly or qrtly, that will be worth tracking.
I have read somewhere that Greenspan used the corrugated box/packaging stats as a quick predictor for the future growth. I can not find the citation now.
We will need to start keeping most of that carboard at home here as a replacement number for housing starts (i.e. carboard shacks)
The terrorists won over our stupidity.
Casas de carton near San Salvador. Other hand, we have McMansions to fill. Third hand, conditions in El Salvador (and here) might be partially related to our long history of support to ruling elites.
Yves said: “Yves here. I recall one analyst who used sales of corrugated cardboard as a early indicator of changes in economic activity and claimed it was very reliable.”
How very odd! Here is a recent news story about a company closing a facility that makes cardboard shipping boxes.
IdahoSpud
http://www.fresnobee.com/business/story/994898.html
On the subject of corrugated cardboard, over here in the UK we all have to recycle our cardboard, paper, plastics and glass. Only, the market for these items has disappeared, so the municipalities are stockpiling the stuff in warehouses “until they can get a better market price for it”. I reckon in 12 months the UK will be full of the stuff. Doh!