The last time Maersk delivered its profits it set off a hullaballoo about how global trade was crashing to a halt and that we were all entirely, well, I can’t say what entirely as Forbes is a family magazine. But roughly what the capitalist plutocrats supposedly do to the workers in the Marxist iconography. Ground Zero for this sort of reporting was our old friend Zero Hedge, as it would be when there was a possibility of misunderstanding something in order to predict looming disaster.
I at the time, rather heatedly in fact, pointed out that this was nonsense. It was the price of shipping that was changing, not the volume of it. As I did before that when the same sources were hullaballooing about the decline in the Baltic Index, a measure of the cost of shipping.
Maersk has just told us its latest profits and we might well see the same thing being said. Which would be wrong from the catastrophists and my point would once again be correct.
Maersk has just told us its latest profits and we might well see the same thing being said. Which would be wrong from the catastrophists and my point would once again be correct.
The results themselves:
The shipping part of the group greatly contributed to that:
It is the price of shipping which is falling, not the volume of it:
OK, price down:
Volume up.
We must never forget that it is the interaction of supply and demand which determines price. Here, those who order and build ships expected shipping volumes to continue to increase by the near and over double digit growth rates that recent decades have provided. So, they built lots more ships. Trade growth is still, umm, growing, just not as fast as that increase in supply. Something has to give and it’s the price of shipping something that does.
We do not have a collapse in world trade volumes. We have a fall, a collapse actually, in the price of doing trade. Far from this being a disaster for the world economy this is beneficial. For it means that trade which was previously uneconomic as a result of transport costs is now economic.
Moller-Maersk kept its downbeat 2016 profit forecast on Friday as the Danish shipping and oil giant reported net profit way under expectations as it struggles to cope with a shipping recession and tough oil markets.
The Danish shipping and oil group said net profit fell to $101 million in April-June, lagging a forecast of $196 million. It was also around 90 percent lower than the $1.069 billion reported for the same period last year.
The shipping part of the group greatly contributed to that:
The company lost money in its shipping division, Maersk Line, but said that unit costs per 40-foot container fell to $1,911 in the quarter from $2,246 a year earlier. Signs of greater efficiency show the company is likely to perform better in coming quarters, according to analysts.
It is the price of shipping which is falling, not the volume of it:
The company said average container freight rates were 24% lower year-over-year in the quarter,
OK, price down:
Global container demand grew 2% year-over-year, but the global container fleet grew 6%.
Volume up.
We must never forget that it is the interaction of supply and demand which determines price. Here, those who order and build ships expected shipping volumes to continue to increase by the near and over double digit growth rates that recent decades have provided. So, they built lots more ships. Trade growth is still, umm, growing, just not as fast as that increase in supply. Something has to give and it’s the price of shipping something that does.
We do not have a collapse in world trade volumes. We have a fall, a collapse actually, in the price of doing trade. Far from this being a disaster for the world economy this is beneficial. For it means that trade which was previously uneconomic as a result of transport costs is now economic.
At the margin, of course, but then that’s where all economics takes place. Our lesson from this is twofold. Firstly, don’t believe those who might cry doom and gloom about this. And secondly, that more basic economic point – it is supply and demand which changes prices. A fall in price by no means indicates a fall in demand.
By: Tim Worstall (Forbes).
Photo: The Wall Street Journal.
Review: Emerging Market Formulations & Research Unit, FLAGSHIP RECORDS.
For The #FacebookTeam
By: Tim Worstall (Forbes).
Photo: The Wall Street Journal.
Review: Emerging Market Formulations & Research Unit, FLAGSHIP RECORDS.
For The #FacebookTeam