There’s simply no respite.
Money is leaving China in myriad ways, chasing after overseas assets in near-panic mode. So Anbang Insurance Group, after having already acquired the Waldorf Astoria in Manhattan a year ago for a record $1.95 billion from Hilton Worldwide Holdings, at the time majority-owned by Blackstone, and after having acquired office buildings in New York and Canada, has struck out again.
It agreed to acquire Strategic Hotels & Resorts from Blackstone for a $6.5 billion. The trick? According to Bloomberg’s “people with knowledge of the matter,” Anbang paid $450 million more than Blackstone had paid for it three months ago!
Other Chinese companies have pursued targets in the US, Canada, Europe, and elsewhere with similar disregard for price, after seven years of central-bank driven asset price inflation [read… Desperate “Dumb Money” from China Arrives in the US].
As exports of money from China is flourishing at a stunning pace, exports of goods are deteriorating at an equally stunning pace. February’s 25% plunge in exports was the 11th month of year-over-year declines in 12 months, as global demand for Chinese goods is waning.
And ocean freight rates – the amount it costs to ship containers from China to ports around the world – have plunged to historic lows.
The China Containerized Freight Index (CCFI), published weekly, tracks contractual and spot-market rates for shipping containers from major ports in China to 14 regions around the world. Unlike most Chinese government data, this index reflects the unvarnished reality of the shipping industry in a languishing global economy. For the latest reporting week, the index dropped 4.1% to 705.6, its lowest level ever.
It has plunged 34.4% from the already low levels in February last year and nearly 30% since its inception in 1998 when it was set at 1,000. This is what the ongoing collapse in shipping rates looks like:
The rates dropped for 12 of the 14 routes in the index. They rose in only one, to the Persian Gulf/Red Sea, perhaps in response to the lifting of the sanctions against Iran, and remained flat to Japan. Rates on all other routes dropped, including to Europe (-7.9%), the US West Coast (-3.5%), the US East Coast (-1.0%), or the worst drop, to the Mediterranean (-13.4%).
The Shanghai Containerized Freight Index (SCFI), which is much more volatile than the CCFI, tracks only spot-market rates (not contractual rates) of shipping containers from Shanghai to 15 destinations around the world. It had surged at the end of last year from record lows, as carriers had hoped that rate increases might stick this time and that the worst was over. But rates plunged again in the weeks since, including 6.8% during the last reporting week to 404.2, a new all-time low. The index is now down 62.3% from a year ago:
Rates were flat for three routes, but dropped for the other 12 routes, including to Europe, where rates plunged nearly 10% to a ludicrously low $211 per TEU (twenty-foot equivalent container unit). Rates to the US West Coast fell 8.4% to $810 per FEU (forty-foot equivalent container unit). Rates to the East Coast fell 5.2% to $1,710 per FEU. Rates to South America plunged 25.4%.
This crash in shipping rates is a result of two by now typical forces: rampant and still growing overcapacity and lackluster demand.
“Typical” because lackluster demand has been the hallmark of the global economy recently, and the problems of overcapacity have also been occurring in other sectors, including oil & gas and the commodities complex. Overcapacity from coal-mining to steel-making, much of it in state-controlled enterprises, has been dogging China for years and will continue to pose mega-problems well into the future. Overcapacity kills prices, then jobs, and then companies.
The ocean freight industry went on a multi-year binge buying the largest container ships the world has ever seen and smaller ones too. It was led by executives who believed in the central-bank dogma that radical monetary policy will actually stimulate the real economy, and they were trying to prepare for it. And it was made possible by central-bank-blinded yield-chasing investors and giddy bankers. As a result, after years of ballooning capacity, carriers added another 8% in 2015, even while demand for transporting containers across the oceans languished near the flat line, the worst performance since 2009.
“Massive Deterioration,” the CEO of Maersk, a bellwether for global trade, called the phenomenon. Read… “Worse than 2008”: World’s Largest Container Carrier on the Slowdown in Global Trade
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Cross-country trucking in the USA is slowing too.
“Keep on Trucking” (showing my age…..)
http://www.afr.com/real-estate/commercial/development/john-tabart-to-lead-australian-education-city-bid-20160310-gnfox6#ixzz42j01IlFp
You can add this Chinese consortium $20 billion bid to build an education city in Melbourne to the list.
With all the talk of an apartment glut and bursting housing bubble in Australia, it must be the dumbest of the dumb money chasing this one.
Unlike most Chinese government data, this index reflects the unvarnished reality of the shipping industry in a languishing global economy.
With all the talk of an apartment glut and bursting housing bubble in Australia, it must be the dumbest of the dumb money chasing this one.
NO
As long as you get the overseas students education citys/subiurbs in the ANZAC states work. There are many successful ones even in expensive zones.
As long as he “Investor” does not do what is done in the US frequently, and charge exorbitant rents. effectively killing the project.
As the investor is chinese the investor is effectively robbing Australia of a large par of the gain to be had from the foreign students that will populate then city.
As the gain will flow to, china.
For some “Cargo Cult” reason, the Chinese seem to love building empty cities, empty malls, empty airports.
I guess they watched the Cantonese version of “Build it and they will come”…………………………………..
Wolf, thanks for posting these, I’ve never looked at them before but I’ve frequently looked at Cass stats. Is there a Chinese metric that tracks actual freight volume or tonnage ?
From the Chinese side? Not that I know of.
However, the Dutch government publishes the World Trade Monitor, which has dollars and volume, but it’s a different measure and not comparable. I occasionally write about it.
If there was it would be useless since the info would be total fabrication
A HUGE container cargo ship was put into service. There are more on line. That alone will depress shipping rates.
In theory, there is almost no limit to the size of a container ship, or even an oil tanker. The limit is the size of the receiving port.
As older (smaller, less efficient ships) are decommissioned and scraped, cost per container should go down.
Fuel Oil has dropped. That feeds into operations. The newer ships require smaller crews as well.,
Yes, but the efficiencies of the largest ships are now being questioned, with the price of fuel being so low. And also, carriers are not scrapping their older ships. That’s part of the problem. They’re not even idling them! It’s one gigantic market share battle. Maersk might have started it to push smaller competitors off the cliff. But Maersk at the time wasn’t thinking that global demand would be so weak. So now, its strategy is backfiring.
This is going to be interesting to watch.
“Unlike most Chinese government data, this index reflects the unvarnished reality of the shipping industry in a languishing global economy.”
At the moment.
How long before the CCP starts manipulating it, the way they manipulate all other data that comes from china.
Further it already needs adjusting, currently, to reflect overvalued imports. however you need to use it.
china has an overvaluation cycle, imports to get money, out exports to get money in, currently chinese money, is trying hard to leave. Which means that the true trade surplus last month, is considerably larger than the declared value.
Trade surplus numbers in china, are always under stated anyway.
Even in a declining global economy china still consistently posts, a trade surplus. Due to its CCP, trade surplus policys.
There’s very little the Chinese government can do. These are the rates companies wanting to ship goods out of the country pay to a variety of shipping companies, many of which (Maersk, Hanjin, CMA-CGM etc) are foreign and outside of Beijing’s control.
The only thing they could conceivably do is cutting subsidies and financing to domestic companies… not very likely as the two largest Chinese shipping companies (COSCO and Chinese Shipping Group) are both State-owned and even that would probably have only limited effect on freight indexes.
Companies such as Maersk have already tried a number of time to unilaterally raise rates, only to be forced to backpedal by their competitors taking business away from them by sticking to market prices. As long as goods are delivered on schedule and at the lowest price possible few care if the shipping company is Danish, Chinese or Korean.
“There’s very little the Chinese government can do.”
There is a lot the chinese can do, and are doing.
This “freight overcapacity/glut” on the European run, will go on. Until the Chinese State subsidized freight companies, and ship builders force the European lines out of business.(or at least off the china run)1 European Major has already fallen to amalgamation.
This is part of WWIII ,as yet there are very few soldiers involved in it. As chinese soldiers are only good for attacking Tibetans, women, children, and other chinese.
Without suffering Huge losses, and effectively defeat in the field, Vietnam and Korea, proved that.
The chinese Communists, have always intended to take over the world, without firing a shot. They are getting along quiet well. Their new found wealth, Is powering their “I have more of everything than you Arrogance” it will possibly be their undoing in SE Asia and the south china sea.
Otherwise as usual china will destroy itself, from within.
The question being, what sort of mess will they leave the world in, this time.
Remember, china is the global poster-child of civil wars. The Black death was a byproduct of one of them.
The entire western world Suffered collateral damage as a result, loosing over a third of its population.
I think you need to take a few deep breaths. we won’t be losing a third of our population this time round, at least
” 1/3 losses.” AS long as everybody keeps their nuclear toys in the cupboard.
1 set of rules on the planet would, help it move forward.
If that set of rules are chinese or Russian mafia state rules. It wont be a very nice environment to try to male a decent living in, for the vast majority of the global population.
With bloated invoice billing, those in CHINA buying imports goods always pay an inflated bill. This gets their money off shore.
Then, there is always the tried and true system of selling to (off shore) shell company thus receiving very little in payment for your domestic company and shifting your profits into your off-shore shell company.
If I could use the F word, I would say that China is F’d.
a 30% drop in the CCFI from 1998 doesn’t sound that bad does it? After all, in 1998 the world economy was already close to boiling over thanks to lots of easy money from the FED. In nearly 20 years time some improvement in efficiency and cost can be expected. Just another bubble that is slowly leaking air…
Would be interesting to see volume or tonnage statistics indeed.
In my country the port of Rotterdam until recently loved to brag about the strong growth, measured in US Dollars. As a large chunk of the shipping there is oil (products), with rising oil prices and plunging euro exchange rate it was easy to show strong gains every year. I guess last year will look less rosy.
Gets even uglier if you consider what happened in Asia in 1997.
Ie the opening point was a low in a regional recession.
And we are now 30% below that point.
Wolf – Is it possible to estimate the approximate level at which the China spot rate would no longer cover cash out of pocket voyage costs?
Yes it’s done all the time.
One of the most important elements is bunker fuel costs. That cost has come down with the price of oil. For example, given the price of bunker last year, it was estimated that the break-even cost from China to Europe was $400/TEU. This might be lower now. But it’s not $210/TEU.
The carriers’ earnings have gotten whacked. Some of them are teetering. A number bulk carriers have already gone bankrupt. Here is my piece on the largest container carrier Maersk, when it reported earnings, and its CEO saying that this is “worse than in 2008”:
http://wolfstreet.com/2016/02/10/worse-than-2008-maersk-global-trade-containers-oil/
I now linked that article at the bottom of the post.
This is funny. 99% of top managers in liner shipping have no idea what this number is or they would never acknowledge it. Nice work Wolf.
Just wonder how long corrupted Chinese government will allow this flight of money across border before smugglers are lined up in front of firing squad. That is the moment which will tip scale and Global depression will start to unfold. Real estate will plummet, stock market will crush, derivatives bomb will explode, commodities will go down even more, gold and ammo will shine bright.
Anger, hunger and desperation of unseen proportions…
Did somebody mention WWIII ?
“Did somebody mention WWIII ?”
There ya go. A good solid war will get your mind off your problems.
Military Keynesianism works.
History repeats itself, what makes you think this time would be any different.
Each war created tragedy for nations involved and great economic opportunity for others.
Markets and wars are based on the same postulates.
Some lose and some win, and BTW Military Keynesianism works.
I love the smell of WW3 in the morning………………
As I have posted before, inventories at the big box stores has been quite low since the beginning of the Xmas season. During Xmas I had to go to 3 stores to find a smart watch I wanted to purchase. This past week they told me I would have to wait until 3/28 to get the tv I was interested in buying. When we asked about others, they said the same thing. Only what was already on the floor was available.
We had a similar experience buying a new washer/dryer in another big box store. We bought what was in stock. Even the floor models had been sold.
Petunia –
I think you’re seeing the end of channel stuffing by the producers, where the warehouse stores don’t want to be stuck with a ton of merch if they suddenly decide to go bankrupt. (Look at the recent shuttering of Sports Authority).
China is not the only one who fakes out numbers – corporate overproduction all over the world has been masked by the channel stuffing.
No more.
Traffic at the local mall here this past weekend was robust based on my observation. WHR took off like a cannon ball out of the recent $130 congestion area.
Food price increases seem to have have joined or lead health care, insurance, housing price increases.
Wouldn’t you be irritated assuming you were one of these guys seemingly underpaid to begin with (in comparison to their employer salaries), yet you go to Home Depot and all the new clothes washers are sold out and the next delivery won’t arrive for 6 months?
“Even the members of Obama’s economic team who have spent most of their lives in public office have managed to make small fortunes on Wall Street. The president’s economic czar, Larry Summers, was paid more than $5.2 million in 2008 alone as a managing director of the hedge fund D.E. Shaw, and pocketed an additional $2.7 million in speaking fees from a smorgasbord of future bailout recipients, including Goldman Sachs and Citigroup. At Treasury, Geithner’s aide Gene Sperling earned a staggering $887,727 from Goldman Sachs last year for performing the punch-line-worthy service of “advice on charitable giving.” Sperling’s fellow Treasury appointee, Mark Patterson, received $637,492 as a full-time lobbyist for Goldman Sachs, and another top Geithner aide, Lee Sachs, made more than $3 million working for a New York hedge fund called Mariner Investment Group. The list goes on and on. Even Obama’s chief of staff, Rahm Emanuel, who has been out of government for only 30 months of his adult life, managed to collect $18 million during his private-sector stint with a Wall Street firm called Wasserstein-Perella.”
http://www.commondreams.org/news/2009/12/13/obamas-big-sellout-president-has-packed-his-economic-team-wall-street-insiders
What’s your point. No one is stopping you from going to work for the Government and hopping on the beltway.
That and marijuana would be another career choice suggestion.
Oh come on GUYS!!! You heard Obama, Anyone who is saying we’re in a recession is just peddling fiction!
Shame on you all!!
-sarcasm
If worldwide trade of all kinds is sliding down the slippery slope, can anyone explain this?
http://www.bloomberg.com/quote/BDIY:IND
I suggest using a ten year time frame.
That chart you linked represents a rotten cat bouncing for the last time before his bones turn to ashes from so much bouncing.
These are some doomsday charts if I’ve ever saw one.
China reduces it’s port rates stay competitive with other Asian countries:
http://www.newsmaritime.com/2015/china-reduce-port-rates/
But….NOL, wholly owned by Singapore govt., is being sold to France’s CMA CCG (third largest operator in the world):
http://www.newsmaritime.com/2016/annual-turnover-of-cma-cgm-grew-by-6-8-yoy-in-2015/
Sounds like the money losses are being shuffled around.
Meanwhile todays spot prices head even lower as listed at the bottom of the page here:
http://www.newsmaritime.com/
I note that in the stats, when Chinese Exports fall by x percnet, their imports also fall but by a larger percentage.
So they are still wining the balance of trade.
But if their exports are falling, where is the rest of the world getting its trinkets from?
The answer might be a mix:
1. from Vietnam, Bangladesh, and other countries with cheaper labor than China.
2. there might be less demand in the world for “trinkets.”
I suspect demand for trinkets may be falling.
Reasons?
1- Aging populations in the West – as we get older, people have less desire to consume stuff, and focus more on family. Plus of course reduced pension incomes, and we already have stuff we purchased when working
2- the Trump/Brexit meme. People are fed-up with the status quo. This may translte to less purchasing of trinkets.