On a recent trip to Seattle, I noticed a lack of commercial activity in the port and an absence of containers compared to the bustling business of the recent past. This anecdotal evidence of declining trade activity prompted us to take a closer look at the Los Angeles/Long Beach port, which is one of the most important in the world and is a significant link to Asia. What we found was troubling for the economic outlook in the current quarter.
While commercial activity as measured by the comings and goings of shipping containers at the Los Angeles/Long Beach seaport has been dropping since the onset of the U.S. trade war, it is now threatened by a health crisis as the coronavirus spreads out of Asia.
The number of loaded containers – carrying exports and imports into and out of the ports of Los Angeles and Long Beach – has been in decline since tariffs were imposed on China’s manufacturing sector. The rate of yearly growth of export and import containers was negative throughout 2019 and into January, at an average rate of decline of 5.7% per month.
These Southern California ports are the major artery for goods from Asian trading partners and underlie a substantial portion of total U.S. economic activity. A drop or increase in shipping activity would be expected to presage the direction of the U.S. business cycle.
Also concerning was the lack of empty containers at the ports. While a buildup of empty containers in normal times might suggest a deficit of exports relative to imports, the recent loss of empty containers suggests that while goods might be going out, nothing much is coming in.
In fact, during our visit to Seattle, local clients expressed concern about the economic outlook over the first half of the year. The major question was: How are we going to ship our goods without containers?
The lack of empty containers at the Los Angeles/Long Beach port in 2019 appears to be signaling a drop in consumer demand for Asian goods because of the tariffs, which have been compounded by the recent halt in Asian manufacturing activity during the health crisis. And even if Asian demand for U.S. exports were to suddenly increase, would there be a sufficient number of empty containers to handle that demand, or would that deficit be an indirect drag on U.S. production?
Given the intensification of the global public health crisis, forward-looking policymakers and investors should anticipate trade data reflecting disruption of Asian supply chains that support autos, aerospace, pharmaceuticals, retail and technology.
