Obscure Economic Indicator: Port of Los Angeles container counts.

Obscure Economic Indicator: Port of Los Angeles container counts.

Obscure Economic Indicator: Port of Los Angeles container counts.

Moneybox
Commentary about business and finance.
Aug. 26 2005 3:06 PM

Hold Everything

Obscure Economic Indicator: Port of Los Angeles container counts.

Question: What arrives in Los Angeles full and leaves empty? The wallets of movie investors? The dreams of starlets and screenwriters? Yes and yes. But increasingly, it's shipping containers, those underappreciated boxes that are crucial cogs in the vast machinery of international trade.

Because they can be hoisted directly from a train or truck onto a gigantic cargo vessel in China and then offloaded directly onto a truck or train at a U.S. port, shipping containers are a huge boon to efficiency. Without these boxes—full of toys and clothes, electronics and auto parts—our big-box stores would remain empty shells. On a less optimistic note, they're the main vehicle through which the U.S. trade deficit grows.

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The numbers that make up the trade deficit are really large and are frequently difficult to fathom. In June, the trade deficit was $58.4 billion. For 2004, the trade deficit was $617 billion. Spurred by a massive increase in (generally one-way) trade in China, the deficit in goods alone was a whopping $665 billion. Despite the efforts of simplifiers like Thomas Friedman, a system as complex as international trade and numbers this large defy easy comprehension and description. After all, many of the biggest importers of components are U.S.-based corporations like Dell or General Motors. But we tend to regard their finished products as American-made. And many of our best exports are invisible. When a French investor hires a New York hedge fund to manage his money, or when a New York publisher sells foreign rights to a German publisher—those are exports, too.

However, shipping containers can tell a simple and compelling story. In fact, as Michael Panzner, head of sales trading at Rabo Securities and author of The New Laws of the Stock Market Jungle, notes, one item in the shipping news creates an excellent graphic illustration of how many are coming and going and what happens to them: the Port of Los Angeles container counts.

The Port of Los Angeles is the nation's busiest container port. Each year, some 2,800 gigantic ships pay calls. Last year, cargo worth $148.5 billion passed through its gates. As this data shows, Los Angeles is the entrepôt for goods coming from Asia. But it's more like the Hotel California. Each year comparatively more guests arrive, and each year comparatively fewer leave.

The port provides statistics that show how many containers come and go every month and how many are empty and how many are full. Panzner assembled the data in a handy chart  that neatly illustrates the trends contained in the container news.

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At first blush, it doesn't seem like the trade situation with Asia has worsened much in recent years. Over the last six years, the ratio of inbound to outbound containers has stayed pretty steady, at about 1.2 to 1. What happens to all those extra shipping containers? Lots of them get stacked up near ports, while others are transformed into cheap, prefab, edgy houses. But most are simply sent back to Asia empty, where they are reloaded with more stuff.

Drill down a little into the data, however, and the picture worsens. The volume of trade with Asia has clearly expanded rapidly. But the lion's share of the growth has been in imports, not exports. In July 1999, 176,444 full containers arrived in Los Angeles. In July 2005, 352,417 full containers arrived—nearly double the 1999 figure. But between July 1999 and July 2005, the number of loaded containers leaving Los Angeles rose by only about 46 percent, from 66,948 to 97,457. Meanwhile, the number of empty containers leaving Los Angeles more than doubled, from 78,280 in July 1999 to 194,116 in July 2005. In every month over the last six years, more containers have left Los Angeles empty than full. But the percentage of empty containers has risen from about 50 percent in 1999 to 66 percent this year. Simply put, we ship out twice as many empty containers to Asia as full containers.

In many ways, this is a simplistic measure. It doesn't tell us anything about the relative value and cost of the contents of the containers. If we're importing only cheap clothes and electronic components and are exporting only expensive finished goods, then the disparities between the number of full containers arriving and leaving wouldn't be so worrisome.

And optimists can detect a slight glimmer of good news in the data for recent months. For the last three months, the number of full containers arriving in Los Angeles has fallen from the comparable month in 2004. And for the last four months, the number of full containers leaving Los Angeles has risen from the comparable month in 2004.

Finally, economic jingoists can take heart. Despite all the disadvantages we face competing with Asia's low costs and trade barriers, we've proved that the United States still has a competitive advantage in exporting empty shipping containers.