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Tuesday, December 23, 2008

More Holiday Cheer

Long time readers of the blog remember my obsession with freight and port traffic last year. Bloomberg has a pretty good article up on the topic now:
September and October are typically Long Beach’s busiest months as U.S. retailers take deliveries for holiday sales. This year, imports fell 15.8 percent from a year earlier in September, 9.5 percent in October and 13.6 percent in November.
The Baltic Dry Index, a measure of shipping costs for commodities, is down 93 percent from a record in May, a sign that traders expect export volumes to stay depressed.

Slowing trade is both a cause and an effect of the first simultaneous contraction in the world’s largest economies since World War II.

At the adjacent ports of Long Beach and Los Angeles, together the largest in the U.S., trade has slowed about 10 percent this year, a record drop. In 2007, volumes slid for the first time in more than a quarter century.
I don't write much about stuff like this once it's happened, because my focus is far ahead. If it's not old news to me by the time something like this hits Bloomberg, then I screwed up (which happens often enough). Risk analysis is not meant for perfection; it's a tool to come out ahead of the game years down the road. It does work better than charging blithely ahead into disaster. You cannot compensate well for bad loans after they are written, which is why we are seeing so much pain, angst and losses now.

West Coast port traffic slowed earlier and harder than the ports on the eastern seaboard, but now all of it is slowing very obviously.

Several countries are trying to set up trade financing by government bank or quasi-government credit. I found this article on more Chinese reg changes interesting:
China will loosen regulations on the prepayments companies can receive when exporting goods to help their cashflow as the global financial crisis hits overseas sales, the State Administration of Foreign Exchange said today.

Companies will be allowed to collect 25 percent of prepayments on exports in foreign currency, up from 10 percent, starting from today, the regulator said on its Web site.
Same for importers.

The whole Merckle saga still has not been resolved. Is he going to end up being the Donald Trump of Germany?

I know the average individual doesn't deal much with commercial credit. Perhaps this article on Indian companies seeking financing to cover US automaker orders will offer some perspective:
It is estimated that around 50 component makers from India supply directly to the three auto companies or their Tier 1 suppliers and the annual shipments are close to $1 billion. "It is a very difficult situation for exporters to the north American market. Not only banks are reluctant to provide credit, risk insurance companies are also not very forthcoming in supporting such deals," Vishnu Mathur, executive director of Automotive Component Manufacturers Association (ACMA), told TOI.
So these businesses are approaching their government to try to get financing for working capital. This is why cash-strapped companies or companies that have experienced rapid expansion are hit so hard in a credit crunch. They may have orders, but they may not be able to get financing to produce those orders. They then can lose out to a company which is able to provide its own financing.

The US auto companies do business on a JIT basis and control their costs by forcing suppliers to absorb the impact of holding inventory and carrying those intermediate costs.

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