E Trump May Shrink Shipping And Air Shipping Capacity Utilization

Donald Trump may destroy shipping and air capacity utilization if he decides to initiate a trade war. According to Trumponomics:

Targeted nations in this Trumpian effort to reduce the trade deficit include Canada, China, Germany, Japan, Mexico and South Korea, accounting for 1/2 the trade deficit.

These nations export heavily and are prospering to varying degrees, and yet shipping capacity increases are a function of supply cutbacks, while air capacity utilization is in the depths of despair.  

Shipping capacity utilization is high right now not because of more trade or prosperity, but because of massive cutbacks to the supply of shipping: 

High capacity utilization levels on the major east-west trades in the beginning of the third quarter are a result of supply-side adjustments rather than stronger demand for containerized cargo shipping in the peak season, according to Alphaliner.

  Air cargo supply is being hurt badly by rate declines:

Although East Midlands airport is bustling, and the global air-cargo business now handles more than a third of world trade by value, the industry has been under pressure since the financial crisis. At the World Cargo Symposium, a meeting of industry bigwigs in Berlin this week, there were grumbles that their business has seen better days. The volume of goods travelling by air has risen marginally over the past year but airlines’ cargo revenues have fallen from a peak of $67 billion in 2011 to around $50 billion a year now. 

Efforts to increase rates should not be seen as an indicator of greater prosperity. Unlike factory utilization, it is easier and quicker to cut shipping utilization. But Donald Trump has indicated that he wants to further restrict trade with these nations.  

A Forbes author reported the increase in stock prices for bulk shippers in November, but cautioned that Donald Trump may not be their man to make these increases reflect true fundamentals of the industry. As a result, the Dry Ships (DRYS) stock went from the doldrums to speculative heights in price, and since then has crashed entirely, while the price for shipping, the Baltic Dry Index (FRO), has fallen back some from the highs. But since it appears that this pricing index is under control through supply cutbacks, (FRO) could be a solid investment.

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Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.

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Norman Mogil 3 years ago Contributor's comment

#Trump will rue the day he decides to take on the world on trade issues. With over 100 countries individually running a trade surplus with the US, it will be impossible for the Administration to have any meaningful turnaround in the US current account. Lots of bluster with no real impact.

Gary Anderson 2 years ago Author's comment

Here we are a year later, prof., and our POTUS is really attempting to control world trade, not just China trade. He is warring against everyone, and is taking a big risk with the economy.

Norman Mogil 2 years ago Contributor's comment

Gary, there is the whole other side of the international trade issue with China and the US. The international capital account is starting to draw attention. China can devalue the yuan to offset the US tariffs, although that might lead to an outflow of capital from China. But it is a very effective weapon.Or, China can sell US Treasuries, drive up yields and mess with the US financial markets. This is less likely scenario, but one that should not be discounted.