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For those who have been following the recent ISM reports, one of the recurring concerns of respondents in both the manufacturing and service sector has been the congestion at West Coast Ports - which handled 43.5% of containerized cargo in the U.S and where transiting cargo accounted for 12.5% of US GDP - as a result of reduced work output by the local unions who have been more focused in recent weeks on ongoing wage hike negotiations.
And according to the latest update from the 29 west coast ports that serve as the entry point of the bulk of Asia/Pac trade into and out of the US, things are about to get far worse for America's manufacturing base, because as RILA reported earlier, talks between the Pacific Maritime Association (PMA) representing port management, and the International Longshore and Warehouse Union (ILWU) officially broke down on Wednesday, and without an agreement, experts have suggested that nearly 30 west coast ports could be shut down within a week.
As RILA reports, "a work slowdown during contract negotiations over the past seven months has already created logistic nightmares for American exporters, manufacturers and retailers dependent on an efficient supply chain. A complete shutdown would be catastrophic, with hundreds of thousands of jobs at risk if America’s supply chain grinds to a halt."
"A west coast port shutdown would be an economic disaster," said Kelly Kolb, vice president of government affairs for the Retail Industry Leaders Association. “A shutdown would not only impact the hundreds of thousands of jobs working directly in America’s transportation supply chain, but the reality is the entire economy would be impacted as exports sit on docks and imports sit in the harbor waiting for manufacturers to build products and retailers to stock shelves.
One can see why the US retail association is concerned. So will there be a strike? Here is Bloomberg's take:
Union-led work slowdowns could halt the 29 U.S. West Coast ports in five to 10 days, the head of the shippers’ association said, urging the union to accept a new offer that includes 3 percent raises. James McKenna, the president of the Pacific Maritime Association, said backups and delays at many of the ports are harming farmers, manufacturers and consumers as the flow of goods approaches a “coast-wide meltdown.” He called on the International Longshore and Warehouse Union to accept management’s second formal contract proposal since negotiations began last May.
Here are the port workers' demands:
The association of shipping lines, terminal operators and stevedores made public details of its contract offer, including 3 percent annual raises over five years, retaining employer-paid health care, and raising pensions by 11 percent. The average dockworker now makes $147,000 a year in salary, plus $35,000 a year in employer-paid health care and an annual pension of $80,000, according to an association press release.
And while there hasn't been a formal lock out yet, the reality is that the workers have made their displeasure felt loud and clear:
McKenna blamed the union for work slowdowns that have contributed to congestion at the largest West Coast ports, including Los Angeles, Long Beach, Oakland, Seattle and Tacoma. Twenty-two ships were queued up Wednesday at the harbor shared by the Los Angeles and Long Beach ports, up from as few as four in mid-December, according to the Marine Exchange of Southern California, in one measure of the backups confronting shippers.
Some of the impacts of the already experienced slowdown has included keeping U.S.-raised Christmas trees from reaching consumers in Asia, depriving McDonald’s customers in Japan of french fries, and stranded shipments of Mardi Gras beads bound for New Orleans.
Should talks fall apart, it probably will not be the end of the world: a nearly identical situation developed one decade ago leading to a 10 day lock down and which ended up costing the US economy $10 billion per day:
In the conference call, McKenna said the two sides remain at odds over wages, pensions, the duration of the contract and arbitration for workplace disputes. He said the sides are “far apart” on some issues and nearing agreement on others.
Which incidentally, in an economy that is desperate for any "one-time, non-recurring" item to explain what is now global secular stagnation and economic slowdown, an excuse such as a port strike, or a harsh winter, or a strong dollar, or plunging crude, may be precisely the scapegoat that the central-planning doctor ordered.
About a month ago my wife and I were watching House Hunters International. The episode featured a couple who was seeking to leave their respective jobs to purchase and run a winery in France.
What a wonderful dream, right?
Well, the following day it struck me. Rank amateurs leaving their profession to go into an extremely competitive industry is historically typical of the mental confidence at the top of bull markets and occurs at the beginning of massive deflationary vortexes.
Well, with a little research and some simple charting we show huge deflation in the wine industry
The wine industry is also suffering from a major glut and here too wine producing real estate has peaked in France back in 2007 and is not scheduled to bottom until 2020.
Real Estate sales in the Champagne region of France with its 300 houses and 15,700 vineyard has continued to decline. There was an initial low in 2009 following the 2007 high with the rebound into 2011 correlating with oil. The wine industry has suffered tremendously within this deflationary implosion confirming that what we see in oil is by no means some CIAplot. This dovetails in with the sharp decline in liquidity in the financial markets as well. All of these signs are pointing to a very serious economic decline ahead that may in fact reach Great Depression levels since we are starting from much higher levels of systemic unemployment.
The supply glut unfolding in wine in recent years reflects the decline in consumer demand coupled with the rising taxation and declining economic growth. The further decline in the wine industry appears on target into 2020. This reflects the same divergence during the Great Depression whereas commodities peaked in 1919 and declined also for 13 years into 1932 where they bottomed WITH the stock market.
We can see here reflected in the silver yearly chart of the era that the major high was 1919 and low was 1932. It took the devaluation of the dollar by Roosevelt to turn the tide. The strength in the dollar forced all commodities much lower. This is what we must go through as well today. As economies decline and move into default, the dollar will be driven higher.
Back in 2007, the wine industry in the Champagne region assumed the bull market would never end. They increased their production sharply just as new gold mines open going into the peak. In France. they agreed to increase planting of vineyards starting in 2008. This also coincided with a downturn in the economy that further escalated the glut in supply. When you look at the buyers, 55% of the Champagne region’s shipments are consumed in France with the balance being exported. The UK has been the biggest buyer of French wines accounting for 10% of all production followed by the USA coming in at just 6% with Germany taking third place at 4%. True, China has been a rising buyer. However, China’s demand for French wines does not even make the top ten.
Consequently, looking at the wine industry correlates to the trend emerging in oil. This confirms that what we are seeing in energy is part of a major overall trend. We see this also unfolding in the precious metals as they head into their benchmark targets.
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Livio S. Nespoli has been a broker, registered investment advisor, and financial publisher since 1985.