Sunday, June 21, 2009

Another look at shipping

A reader recently pointed me to the Harpex index of container shipping rates, with which I was unfamiliar. The first chart here shows the entire history of the index, while the second chart shows the last year. Some observations: 1) the index does not reflect actual charter rates; rather, it reflects charter rates relative to the full cost of operating a vessel, which in turn includes a return on capital—a value of 1.000 indicates that rates are equal to the full cost of operating a ship; 2) the index is extremely volatile, and has been close to today's levels in the past; 3) the index in my view is not a leading indicator of economic activity, but rather a lagging indicator (it didn't turn up until quite a few months after the end of the 2001 recession); and 4) the behavior of the index in the past month or two is suggestive of a bottom.

While this index presents a view of shipping activity that is indeed grim, as compared to the significant bounces in the Baltic Dry Index and the number of outbound containers from the Ports of Los Angeles and Long Beach, it is not necessarily inconsistent with the view that we have seen the worst of the global recession. No single indicator can tell the whole story, in any event, and I would simply note that there are many "green shoots" that suggest that global economic activity is rebounding: e.g., commodity prices of all sorts, and oil prices.

But since I don't pretend to know much about this particular index, I invite comments.


Mark A. Sadowski said...

Scott, My understanding is this is equivalent to about a 20% drop in volume. But despite the naysayers this is not a catastrophe. Only about a third of the GDP is shipped. Of course GDP is down about 4% or so right now.

Public Library said...

Here is an update from Maersk. Shipments not looking good for 2009/10.

Scott Grannis said...

From everything that I have seen to date on shipping, this sums it up best (from Macquarie Research, June 23): "TEU volumes stabilizing, 16.6% YOY." (TEU refers to the number of containers)

Global shipping volumes are down sharply from a year ago, but they are no longer declining on a month to month basis. Some measures (such as the Ports of LA and Long Beach) are actually rising.

I continue to believe that we have seen the worst, and that a global recovery is underway.

Public Library said...

I do not disagree that we have seen the worst for now, however, in terms of global recovery and the fragility of the system, I am much more tepid in my beliefs than you.