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This is where more and more of the world’s cargo fleet are headed — the scrapyard, like this one in Bangladesh. (Photo by Christoph Hein)
On Friday, for the first time in recorded history (according to MarineTraffic.com), there may not have been a single cargo ship in transit across the North Atlantic between Europe and North America. If true, this would have roughly the same implications for the industrial world as does a flatline on a heart monitor, for a patient in ICU. Somebody had better call a Code Blue.
Since Friday, the stock market — after the worst beginning of a year since the last Ice Age — has been creeping upward. Guess they didn’t get the memo about the Code Blue.
Make that memos. The Dry Baltic Index — the measure of the volume of industrial raw materials moving around the world by sea — has been tanking since 2010 and on Thursday, as it happens, dropped nearly 5% overnight to an all-time low of 445 (20% lower than the previous low, recorded 30 years ago). For perspective, just before the previous great recession clamped down, the Index was over 10,000. For at least a year now, the companies that own the world’s great cargo ships have been scrapping vessels prematurely, selling them at bargain-basement prices, and/or declaring bankruptcy.
This clogging of the arteries of trade is proceeding nationally as well as globally. The buildup of unsold inventories has slowed truck traffic and dropped rates so much that orders for new heavy trucks in November were down 60% from last year. Rail traffic dropped, most heavily in the second half of the year, with December volume off nine per cent from last December. Air freight volume seems to be a lagging indicator of the same trend, flat in 2015 and very worrisome prospects for 2016.
Of all the people who have for years been predicting the crash of the world’s industrial economy, very few of us (to my knowledge) foresaw that the crash would begin as a failure of demand. I certainly did not. I assumed the end would begin with failures of supply — of oil, electricity, water or food. The world economy is falling to its knees, right now, not because it is running out of products to sell, but because it is running out of people who can buy them.
Right after we yell, “D’oh!” and slap our foreheads, it’s obvious not only that we were wrong, but how. Having moved Hell and Earth to make sure the banks are okay, and General Motors is okay, and the stock market is okay, having stacked up debt that can never be paid off and diluted the money supply until it can never work right again, now we hear the alarm on the monitor and look around and realize: while we’ve been administering medicines and doing surgeries, the patient has been starving to death. We forgot to feed him.
It’s a point that has been stunningly obvious at least since Henry Ford started making cars. Heavily criticized by the then-Masters of the Universe for paying his workers the unheard-of wage of five dollars a day, Ford simply pointed out that if he did not pay his workers well enough that they could afford one of his cars, he wouldn’t be in business long.
How soon we forget. After decades of moving jobs offshore, automating jobs, downsizing, streamlining and otherwise destroying the middle class (even in China, which only created a middle class a few years ago), we can now see what has always been true: everything depends on the middle class.
When there are no consumers left in a consumer economy there is no economy left either. Code Blue has been called, we have a flatline. Is anybody coming?
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[UPDATE: Commenters and others have taken issue with the lede of this piece, that “not a single cargo ship” was in transit across the North Atlantic last Friday. Some of our commenters are amazingly well-informed about the technology used to maintain the information on marinetraffic.com, and make a good case that there may well have been a few cargo ships crossing that day. Others took issue with a claim I did not make — that all shipping had stopped.
The piece and its headline were not based on MarineTraffic.com alone, but on months of accumulating trends such as the Dry Baltic Index and other measures of ship, truck and train freight traffic around the world. (SEE “Chinese Shipyards ‘Vanish’ As Baltic Dry Collapses To New Record Low,” published after this piece.) World trade is, in fact, slowing dramatically and dangerously, and the Code Blue metaphor is appropriate.]
So I am not going to “correct” the piece (the fact in dispute is attributed, and linked, so that anyone interested can pursue it) but I have qualified the lede anecdote, with thanks to the outstanding commenters who have once again expanded our awareness of things we didn’t know we didn’t know. ]
Wow! This fills in part of the picture I wasn’t even looking at. Thanks.
MarrineTraffic.com and other sites that show vessel traffic are being fed data from land-based AIS listening stations, mostly in or near ports. AIS is a system that operates on marine VHF radio frequencies. Vessels equipped with AIS transmitters broadcast their ID, course, speed, GPS coords, and other info in a NMEA format that can be decoded by standard navigation software. It enables ships in close proximity to passively identify nearby vessels automatically and show this data on a combined radar/chartplotter display, much like aviation transponders automatically identify aircraft and put this info on ATC radar displays.
These signals are line-of-sight only. Range is approximately 40 nautical miles. Land-based AIS stations simply won’t receive any signals from ships in transit across an ocean.
If you don’t believe me that the shipping industry is in fact, still shipping stuff, then look at the Panama Canal area. There are thousands of ships transiting the canal. They came from somewhere and are going somewhere. You can use AIS to check where.
The point is not that all shipping everywhere has stopped, but that world trade is seriously and increasingly impaired, to the point that on one day last week no vessels at all were reported transiting the North Atlantic. By Monday that was probably no longer true, but it is still true that global commerce is alarmingly reduced. To allege that MarineTraffic.com really doesn’t know where all the ships are; or that there are ships transiting the Panama Canal, thereby proving that the shipping industry is “still shipping stuff”; is simply artful dodging of the point of the piece.
But there was no day last week when no vessels were transiting the Atlantic. The site ZH linked to, which reported no transiting vessels last week, was simply mistaken. MarineTraffic.com really does not know where all the ships are. Really. AIS does not come close to covering it all.
“Normally, vessels with an AIS receiver connected to an external antenna placed on 15 meters above sea level, will receive AIS information within a range of 15-20 nautical miles. Base stations at a higher elevation, may extend the range up to 40-60 NM, even behind remote mountains, depending on elevation, antenna type, obstacles around antenna and weather conditions. The most important factor for better reception is the elevation of the base station antenna. The higher, the better. We have seen vessels 200 NM away, with a small portable antenna placed on an island mountain on 700 meters altitude! Our base stations cover fully a range of 40 miles and periodically receive information from some more distant vessels. ”
http://www.marinetraffic.com/en/p/faq#faq4
This doesn’t mean I am disputing whether the global economy is in trouble. Nor am I disputing that there is a slowdown in shipping. All I am disputing is the claim that because AIS shows no vessels transiting the Atlantic, there are in fact no vessels transiting the Atlantic. AIS cannot show that. It doesn’t have the range.
Royal Bank of Scotland to its clients: “Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small.”
http://www.msn.com/en-us/money/markets/sell-everything-ahead-of-stock-market-crash-say-rbs-economists/ar-CCqLYI?li=BBnb7Kv
Mike C is right. Click on a cargo ship near the coast pointed seaward, read its destination across the ocean then come back in a few hours, it will likely have disappeared from the system.
That said I too agree that shipping is slowing down drastically. Click around assorted cargo ships and check their speeds. Barring adverse weather most modern cargo ships make at least 15 knots, some container ships are capable of 25. Many seem to be running slow.
But everything is gonna be okay because they’re makin’ em ever larger and faster.
http://losangeles.cbslocal.com/2015/12/14/largest-container-ship-to-ever-dock-in-north-america-to-arrive-at-port-of-la/
It turns out that both websites only measure ships that are near ports. If you check Shanghai for example, you can see a stream of ships heading out to sea. One after another. The Baltic has crashed, but how much that represents for a drop in the number of ships moving… is difficult to say.
I wonder if there are stats on those sites stating the number of moving ships on any given day.
I don’t think the economy is yet in Code Blue–highly sick, yes, but calling it Code Blue is overstating matters. What IS happening it seems is that the wealth reserves built up by middle class families since the end of World War Two are slowly diminishing (the working class already experienced this phenomenon, while the upper middle class is still doing just fine).
As the middle class Silent Generation and now Baby Boomers pass from the scene, the remains of their wealth not already drained during relatively long retirements is passing to debt-strapped children who are using it to pay off student loans, credit card debts, etc. Since many of those kids are working low paying service sector jobs, they have little wealth of their own and are often a few paychecks from destitution.
Once the inherited wealth from their parents and grandparents is finally exhausted, the U.S. will indeed have returned to the economic dark ages before the enlightenment of Henry Ford.
Excuse me, a middle-class no-nothing, for asking – If there are ships moving, where do they land in port? If the ships are leaving from one port, they must surely, barring disaster, arrive at another. Also, saying that there won’t be any Walmarts shutting down soon implies the boats are all coming from China. That, in itself. confirms part of the post, the part that says if we (U.S. working folk) aren’t making anything, we don’t have wages to buy anything. Duh. Well, I’d more likely say we aren’t being paid enough to buy our own stuff.
Sheesh, I’ve been thoroughly convinced for years that the expression “wage slave” is more accurate than most of us would care to admit; our masters pay us only because they have to, not because they value our skills and efforts on their behalf.
And because the workers of the US weren’t producing, the traders and bankers created false markets based on the trade of absolutely nothing. Wall Street has always seemed to me to be gambling made legal by the lobbyists, paying off Congress for favorable laws. I’d almost stand a better chance at the race track.
When I was a kid, I saw pictures of stacks of junked cars, stripped and rusting in huge yards and wondered where they would go. Well, apparently we sold the steel off to the East, not realizing the boon of recycling until much later. Then, when steel was no longer available, we turned to plastics. Toxic as hell plastics. When cars weren’t selling – that is, when people were no longer trading in cars on a 3-year cycle, the manf’s and bankers turned to leasing programs. When was the last time a car ad actually promoted the purchase of a new car, as opposed to its being leased? I suppose this is due, in part, because the American consumer began to want reliability over appearances, but it also served to lessen the need for so many workers to produce the machines.
And then we got the assembly-line robotics. The men who learned to maintain them were the smart ones; instead of grousing because they were put out of a job, they re-trained themselves and made new work.
Which brings me around the long way to my point: while the demand for workers is decreasing, we still manage to produce potential workers at an astounding rate. Our food is no longer as healthy for our consumption, agriculture having been stretched to the utmost by fertilizers, GM seeds that enslave the farmer to the seed provider, extenders added in the processing of our food, cattle being fed in corn lots instead of grassy fields, clothing made of polyester rather than cotton or wool.
I see it downtown everyday – people who have cube farm jobs at the banks and insurance companies, walking amid the uneducated, unskilled and unemployed as they go to work. We forgot to educate the workers then proceeded to be reviled when they asked for help. I ride a thin line between them – retired from a job I hated because my managers sucked at their jobs. I have talents and skills but need to update them to fit the technological world where they would find a place. (I sat down one day to figure that my PC and its publishing software eliminated about 2 dozen jobs, from writing to final, printed product). I will be returning to school later this year because I want to work for the socialization aspect and for the extra income. As for another “boss” that a whole ‘nuther story!
There has been a lot of hysteria about the report that international shipping shut down based on those maps. You would be doing a public service by correcting this post, Tom. Yes, the economy is going to collapse. But for people who care about credibility it’s important to be accurate. Thanks for the explanation Mike C.; that is my understanding as well.
Thanks, Tom. I agree with witsendnj, that accuracy is important, even when the facts don’t directly impinge on the main point. At best, you get digressions and derails. At worst, people think you aren’t very discriminating.
“Of all the people who have for years been predicting the crash of the world’s industrial economy, not one of us (to my knowledge) foresaw that the crash would begin as a failure of demand.”
I’ve been hammering Demand Destruction since 2010 Tom.
As has Gail Tverberg: http://ourfiniteworld.com/
As had Nicole Foss at Automatic Earth.
Hi, I would also suggest a tweak to your text. The Baltic Dry is an index which measures the price of shipping not the volume. Prices tend to be more sensitive to demand weakness than volumes.
Your point that the problem was a demand collapse was a good one. There were a lot of financial market economists (not the optimists from the banks who get on TV) who argued that there has been a general problem of a lack of demand, but the rolling back of demand for commodities has been a lot faster than even they predicted.
Vince, what are the products sold at Amazon made of? The ones at Big Box stores are made from commodities. Commodities are tanking including oil. An almost 70% price drop for 19 consecutive months, but only a 3% increase in demand. Nobody’s got any money. There’s your new economy.
Vince,
Are you for real or just one of those people living in a gated community who haven’t been hit by reality yet?
New economy? To quote Rocky the flying squirrel, “That trick never works.” More people doing well? Obviously you’re not a follower of John Williams at Shadow Stats or others who’ve been following this “robust” economic leviathan.
It’s been said that Germany went mad during the thirties and so the run for the doors by many in the film industry who wound up being those who developed the entire look and feel of film noir came about. Only now there is no where “sane” to run to unless we’re all going to hide out in the attics like the Franks did (and although they almost made to the finish line, almost only counts in horse shoes) and hope we have a Mieps to supply us with food and sundries when possible.
Of course you could believe we’ll be on Mars soon.
You can’t be that Vince Lombardi as you died in 1970, so you must be a zombie or a nameless troll.
“… almost only counts in horse shoes“… as well as hand-grenade and manure fights! :)
I wonder if I should use whatever money I have left now to go on a shopping binge and buy all the nice things I fancy, both online and in the department stores. After all, with world trade now grinding to a halt, I may quite soon be unable to get any of all that nice stuff anymore. (Star Wars merchandise isn’t going to be among the stuff I’d purchase, by the way; I hate Star Wars.)
You may suggest that I should instead be using whatever money I have left to do some serious prepping. That sounds like a good idea until one reflects that in a place like Singapore, where you can never be far away from other people (it can take a few hundred Singapores to cover the smallest state in the US), any food or water supplies you stock up are probably going to be snatched away by others when TSHTF. Having a garden won’t help for similar reasons. Shall I try to explain to my family what’s likely to happen so we can all move quickly to some safe spot, maybe somewhere in the Australian outback? No way. They’d all think I’ve gone mad. Long story short: I’m probably doomed.
Gotta love Western ‘civilization’ for where it’s bringing us all.