More Bad News in the Shipping Data

A closer look at cargo suggests a recession is ahead.

At anchor. So is global growth.

Photographer: Chris Ratcliffe

Various measurements of goods shipped around the world are flashing warning signals about the outlook for global growth, I argued last week. But it turns out the data are even richer than I realized. Some readers have pointed out, for example, that slumping volume is a more reliable indicator than falling prices, because prices are unduly influenced by supply dynamics (more ships). But the deeper I dig, alas, the more worried I get about growth.

Let's start with goods carried by train in the U.S. Since the middle of last March, carloads of agricultural products, chemicals, coal, metals, autos and other goods have declined every week:

Rail Freight 2
Source: Association of American Railroads

Now, some of that decline is explained by the environmental lobby's success in curtailing coal consumption; less of that bulky stuff needs to crisscross the nation if power stations don't need it. But that's unlikely to be the whole story. Last week, Warren Buffett's BNSF Railway, the biggest player in North American carloads, announced it will cut investment by 26 percent this year, its first reduction in capital expenditures since 2010; that suggests an industry bracing for a further downturn.

What's more, it seems fairly intuitive that if companies are moving fewer carloads on the tracks, the economy is heading for a slowdown. Jason Schenker, president of Prestige Economics in Austin, Texas, has spent the past year parsing the survey numbers compiled by the Materials Handling Industry trade association. Here's what his first publication of survey data shows about shipments in the materials handling business:

Source: Prestige Economics

Industry shipments barely scraped into expansion last month; 48 percent of the survey respondents reported month-on-month decreases in shipments. The same percentage reported a slowdown in new orders for January, while the balance anticipating future new orders has dropped to 67 percent from 84 percent in December. Schenker's thinking is that companies that make the cranes, hoists, racks and rails used to move materials "should prove to be a leading indicator of material handling equipment demand -- and a leading indicator of U.S. economic growth." Given the accompanying contraction in manufacturing, "the U.S. is likely to be in a recession soon -- if it has not already entered a recession," he says.

If the internal U.S. goods market is slowing, what's happening between continents? Here's a chart showing the volume of containers (called "Twenty-Foot Equivalent Units" or TEUs in the jargon of logistics) shipped from North America to Europe. The most recent figures compiled by World Liner Data show 197,400 units shipped in November, a drop of 22 percent from the 2014 peak:

TEU Europe
Source: World Liner Data

Here's the parallel chart for North American shipments to Asia; November's figure of 579,300 units is about 10 percent below the average since 2011:

TEU Asia
Source: World Liner Data

What about China, which is at the forefront of global economic worries for many people? My Bloomberg News colleague Alaric Nightingale collated data from Clarkson Research on the global shipping industry. Clarkson says there was a 4.2 percent decline in 2015 in China's imports of coking coal (used in steelmaking), steam coal (used in power stations) and iron ore from the year before, and is forecasting a further 2.4 percent decline for next year. If Clarkson's projections are correct, China's seaborne imports of steam coal will slide about 40 percent next year compared with 2013, down to their lowest level since the start of the decade:


The most interesting chart I've found on the shipping industry is one that heads relentlessly from the top left corner to the bottom right -- tracking average global shipping speeds. The average daily speed for the world's fleet has declined by about 10 percent since the middle of 2008:

Shipping Speeds
Source: Bloomberg Energy

The simple (and possibly simplistic) explanation for why ships sail more slowly is to cut costs, which would tend to suggest ship owners are concerned about demand for their services. But all kinds of caveats can be attached to the data, not the least of which is the doubling since 2008 of the world's fleet of massive carriers capable of lugging a deadweight tonnage of 150,000 or more:

Capesize Vessels
IHS Global

The world's ports haven't kept up with this fleet expansion, and ships lining up to offload cargoes are a common sight. Earlier this week, for example, 22 vessels were waiting to shed their coal cargoes at Port Waratah in Newcastle, eastern Australia. Why rush across the ocean if you know you'll just have to hang around at your destination until a berth frees up? For oil tankers in particular, there's also the small issue of crude trading at about $30 a barrel -- a disincentive to increase their fuel costs by speeding up.

Even given the difficulties of interpreting shipping data and disentangling supply from demand and volume from cost, it seems clear that the world's transportation indexes paint a less than optimistic picture. The current contraction in rail freight is reminiscent of the drop that started at the end of 2008 and carried on into 2009 -- a period that coincided with the U.S. economy slumping into recession.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.