Tracking Trump’s trade wars: inventories and intermodal traffic
Tracking Trump’s trade wars: inventories and intermodal traffic
Producers and distributors aren’t simply going to sit back and wait to absorb new tariff expenses: we should expect them to engage in as much “front-running” as possible, importing the goods and commodities likely to be affected by the tariffs early, and building up inventories that can be sold at the lower, pre-tariff prices. Once the tariffs kick in, the front-running would end, leading to a reversal of the pattern.
Two places we would expect that front-running to show up are in manufacturers and wholesalers inventories, and in the intermodal units that are typically used for cross-ocean shipping. Let’s take them in order.
First, as a general rule sales lead inventories. Sales peak first going into recessions, and bottom first coming out. It is likely the very fact that sales turn that is the signal for producers to add or subtract from inventories. Here’s that relationship for wholesalers over the past 25+ years:
Front-running would differ from that, because we would continue to see increased sales, but we would see an even bigger increase in inventories. Here are the monthly percentage changes in sales (red) and inventories (blue) for manufacturers over the past several years:
And here, with the red and blue reversed (sorry!) for wholesalers:
For manufacturers, only the very last month fits the patterns, and could easily represent catching up from the big inventory drawdown the month before. But for wholesalers, the last three months fit the pattern. as sales increase, but inventories increase more.
Secondly, a good way to track intermodal traffic is via the weekly railroad report, which breaks traffic down into intermodal units and non-intermodal carloads. Here’s what intermodal traffic over the last several years looks like:
We have seen big YoY gains in intermodal traffic in the last 6 months, but not particularly more than the YoY gains from 2016 to 2017 – except possibly in the last 2 weeks of September.
And here is the data for the latest week, just out today. We have suddenly gone from 10% YoY gains in both intermodal and carloads to gains of less than 2%:
I’ll continue to keep track of this, to see how Trump’s trade wars impact the economy in as close to real time as realistically possible.
Saw it this week in my town. Trains were running wild……………until this week. Slowest week in 7 years.
IMO, the tariff front running has also created excess growth this year that will be bled off the rest of the year. 2.5% GDP looks reasonable.
Ocean Container shipments should be affected also, There is always a downturn when the economy slows. There should be now also.
This week one of our suppliers called us to warn us and our customer that if they do not ship 5000 units of product they build in China before January 1, 2019 that order will be subjected to a 25% tariff. We called our customer to warn them, they gave us an order for the 5000 units which they do not need until Q2 2019. We will hold it for them and save them roughly 30k in duties because the order will leave China in December. The device is used in VOIP services. We have also seen the same thing in other networking components and products. Most people do not truly grasp how many products are assembled in China and subject to the new tariff.
Wooley:
Smart move. I am sure the wire harness manufacturers will be shifting production to other countries. Yazaki would do this frequently.
Juniper is already considering moving most production to Mexico to avoid these tariffs but there is nothing to keep Trump from imposing new tariffs on Mexican imports in the future. Congress should rewrite the laws giving a President the power to manage trade in emergencies. Trump is doing this under a very broad security umbrella as if this was a war.
The changes which you are observing, are what we would expect from the TrumpTariffs. Those might be interesting if our expectations failed to materialize.
But there will be other changes, changes which I certainly had not thought about. This morning in Bloomberg there is an article titled “China Is the Climate-Change Battleground” by Noah Smith.
A chart in that article shows that in 2000 China’s CO2 emissions were 3.4Metric tons and in 2016 they had grown to 10.2Metric tons.
Smith writes “One idea is to tax products from China based on their carbon content. “
And later he writes “China, due to coal use and its manufacturing-heavy economy, uses more carbon to produce each dollar of gross domestic product than most other countries:”
So perhaps it is time to reassess trade. We were once told that foreign trade would allow each country to produce what they were best at and in the process we would all benefit. But China has kept export prices low by using coal and in the process they have polluted their own air and dumped more CO2 into the global environment.
Perhaps the TrumpTariffs should be seen as one way to address high CO2 emissions.
Expecting Trump to use carbon emissions as a tool in trade negotiations is probably a losing proposition. However, when we rid ourselves of this man your idea has a lot of merit.