KEY POINTS:
A gauge of global cargo demand is signalling record-breaking economic growth even as US imports slow, suggesting that emerging powerhouses China and India are pulling enough weight to counterbalance a downturn in the world's biggest economy.
The Baltic Exchange's dry sea freight index, popular among economists because it
is considered a good proxy for world growth and excludes volatile oil, has soared nearly 150 per cent this year despite worries about the US economy.
In 2001, the year of the most recent US recession, the index lost nearly half of its value as demand ebbed. Now, China and India appear to be taking up the slack, buying up boatloads of food, coal and other raw materials to fuel their explosive growth, and the demand looks likely to last.
"For some time, the conventional wisdom has been that the global economy has two engines," said Simon Rose, co-founder and chief executive officer of boutique investment bank Dahlman Rose. "Europe is one engine, but the main engine has been the United States. Now, we have a third engine in China and India."
From the seaport in Long Beach, California, to the inland rail terminals in Kansas City and Chicago, shipments appear to be cooling as the US economy trudges through a housing downturn, credit contraction and steep oil prices.
At Long Beach, one of the world's busiest ports, inbound shipments were down 3.7 per cent in October, and year-to-date imports are little changed from last year.
The latest reading on the Freight Transportation Services Index, compiled by the US Department of Transportation, was the lowest since January 2004. The index tracks data from trucking, rail, inland waterways, pipelines and air freight.
But the global picture looks decidedly different. The Baltic Exchange's index, which hit an all-time high this month, reflects huge demand along major trade routes for coal, iron ore, cement and grains.
Exports from Long Beach were up a whopping 32.5 per cent in October and 20 per cent higher for the year to date, evidence of the stellar global demand as well as the weak dollar, which makes US goods more affordable abroad.
Freight rates to ship grains and soybeans from the United States, Europe and South America have doubled and in some cases tripled from a year ago as demand soars.
The question is, can emerging markets withstand a severe US economic downturn?
David Rosenberg, an economist with Merrill Lynch, points to transportation trends as a key sign that the US economy is headed for - or may already be in - a recession. In a recent note to clients, he listed 20 reasons why he thinks a recession has already begun. Five were related to weak US transport.
But transport may also hold the key to avoiding a full-blown US recession if exports remain hot.
"If the US economy is able to avoid a recession next year, it will be due primarily to the declining value of the dollar and strong global growth, which shows up as substantial growth contribution from net exports," said Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI.
As for China, economists expect demand to be firm at least until after the 2008 Olympics.
- REUTERS
