STEEL MOUNTAINS 09/01/2008

Steel Mountains 09/01/2008

The growing mountains of giant steel boxes observed while driving past mega ports in the western hemisphere is a reminder that the global economy is faltering. The mountains are made up of neatly stacked steel containers weighing almost two tons each and with dimensions of up to 10 x 40 feet, these steel mountains are experiencing exponential growth. Like giant multi colored lego blocks they some times reach a height of six stories. The increasing metric volume of these mountains of steel are a solid indicator of the failing health of Global trade. Containers flow from east to west hauling millions of tons of cargo between continents. As the economy slows the mountains grow at the final ports. You may have also noticed parking lots with shiny new cars that include economic mini cars to plush elegant gas guzzling sedans, these are not commuter parking lots but unsold autos grazing on valuable real estate near mega ports. Like homeless dogs they await adoption basking leisurely in some harsh environments. The orphan cars have been shipped on collapsable containers that require immediate unloading. The containers are then collapsed to a tenth of their loaded volume and sent back to the original port. A clever instant turnaround cycle that has become self defeating in the present economic climate. Normally the autos would be delivered to distributors within 48 hrs. Now the distributors must lease expensive space port-side to store them. The supply has overrun the demand and what will happen to a shiny new car after baking in the California sun or experiencing the brittle frigid Canadian winters for months or possibly years?

Container companies have struggled for years to develop a workable flow chart for a balance of ingoing and outgoing containers, Without even considering the recent rise in fuel cost, shipping an empty container back to it’s original destination had already exceeded the original cost of the container years ago. This is a classic “catch 22” problem and there is no short term solution. Like other pressing economic problems the common thread in this scenario is a universal lack of long term planning and an unbridled greed for larger profit margins.

The recent proposal and subsequent work on expanding the Panama Canal is probably ill timed but admittedly well thought out. The one factor that may defeat this scheme is the world’s consumers who have decided to cut spending drastically due to a global recession. Panama has stood by mostly untouched while the rest of Central America is feeling the full affect of a worldwide economic crisis. Plans for an expansion of the canal were optimistically based on a real time steadily increasing flow of traffic through the canal. Presently there is still a flow of ships through the canal but one must realize that traffic primarily flows from the East to west, the return traffic east is now fractional in comparison and the flow of goods from east is quickly diminishing, this Global economic crisis is so critical that a quick end to is unlikely. A jolting reduction in canal traffic is predictable.

The canal is a buffer for the Panamanian economy, on a recent trip to Panama City I noted that in less than six months it appears that there are almost twice the number of empty, stored containers. This is not unlike any other western port, it could be Los Angeles, Houston or Port Elizabeth, New Jersey. A drive form San Jose, Costa Rica to Panama City will give evidence to the low cost of buying used containers. Everything from fruit stands to restaurants are using them as an economical “quick build” solution. On the supply and demand side there is an inflow of containers and a diminishing demand for them by shippers.

The “exclusivity” of Panama’s economy in Central America is an accepted but somewhat mysterious fact. Most people have no clear idea of exactly how income from the canal makes it’s way into the infrastructure. Most say that it must, since Panama has one the most developed infrastructures in Central America and Panama City ranks high as an emerging mega city. Exports of agricultural and hard goods going east are fractional and the rumored profits from money laundering is more likely to trickle out of Panama than trickle down into the Panamanian economy. Those who laundry the clothes do not necessarily wear the clothes. It is a private industry.

What lies in the future? When there is a substantial decrease in the flow of canal traffic Panama will suffer a delayed economic hit, The present back up of container ships, cruise ships and tankers has delayed the full affect of the global crisis on Panama. However a substantial slowdown in shipping is a forgone conclusion, traffic will likely decrease drastically in the coming months and Panama will feel it. Combined with the enormous cost of the canal expansion and increases in operating expenses there are some dark clouds on the horizon. Will the Panamanian economy be able to absorb the cost of the Canal improvements when there is far less income from the canal? Will Panama suffer a recession like the one that exploded when the canal was returned in 1999? There is a strong probability that a serious recession will be a reality. The poorly planed pull out of all American troops virtually overnight caused a five year recession in Panama. A rapid and total pullout of the free spending troops left a huge hole in the economy of Panama that took years to recover from.

Will the United States be willing to rescue Panama if there is another economic disaster or will the US be forced by circumstances and self interest to look the other way? The diplomatic gains made by the return of the Panama canal can be lost as quickly as they were gained. All of Central America and most of South America holds the United States culpable for the failure of the global economy. Out of need and desperation it is likely that Panama might follow the trend in Latin America and drift towards the left.

Bush has practically nationalized the banking sector and Obama is working on the auto industry, together they have pushed the nation into a socialistic matrix. There is a danger that a policy of "propping up" the private sector will become long term or a permanent policy. This poses another question, Has the United States also inadvertently made a shift to the left and is gingerly sidestepping into a genuine “socialistic” bail out of the American economy