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Supply Chain by the Numbers

- Jan. 28, 2016 -

  Supply Chain by the Numbers for Week of January 28, 2016

US Inventory Levels Continue Slow but Steady Rise; China's Attractiveness Fading for Some US Companies; Global Steel Industry in Turmoil; New Ships Deliveries Slowing, but Still Rising Much Faster than Container Volumes



That was the overall inventory-to-sales ratio in the US in November, according to just released data from the Census Bureau. In a trend little commented upon as yet, US inventories continue to rise, with the ratio by comparison at 1.32 in November 2014. At that 1.38 level in November 2015, the measure is at its highest mark since mid-2009, when companies were caught flatfooted by the huge drop in demand as a result of the Great Recession. So what's happening? The logical answer is that continued low interest rates are nudging companies to add inventory, since the cost of financing it is so cheap. There is probably some of that, for sure, maybe combined with a lukewarm economy that has many companies looking to juice sales and profits wherever they can. In mid-2008, the ratio fell to just 1.25, rose in late 2008 through early 2009, to a high of 1.47, before falling again to 1.25 in early 2010, where it roughly stayed through Q1 2012. But it has been rising steadily since then. The measure tracks inventory levels versus one month of sales.




That's how many factory jobs India's Tata Steel is cutting in the UK, the company announced last week, as the price of steel continues to fall, partially amidst a flood of cheap Chinese exports into the UK as well as the US and other countries. That's on top of 1200 job cuts Tata announced there in October, and which amidst similar moves by other companies has left some in the UK wondering if there will be any steel industry left there soon. Meanwhile, US Steel just announced this week it lost $1 billion in Q4 and $1.5 billion for the full year. The company's US sheet mills operated at just 57% capacity during the quarter. But things aren't much better in China either, where the government has announced plans to reduce steel manufacturing capacity in the country by as much as 150 million tons annually. The China Metallurgical Industry Planning and Research Institute said that could translate into job losses in the country of as many as 400,000. The carnage in steel as is bad or worse than oil, but not as well publicized since consumers don't buy it at the pump.


That's the percent of US companies operating in China currently that plan to make no additional investments in the country this year. While that compares with 68% which do plan to invest in China, the 32% that won't be investing is the highest level seen since the global financial crisis—and up from 27% in 2014. That according to the annual survey of members of the American Chamber of Commerce in China, in a report issued last week. In addition, most companies there believe that anti-foreign sentiment from the government is growing, with 77% of companies saying they feel less welcome now than they did a year ago, compared with just 47% in the 2015 survey. Chinese leaders are widely seen as strengthening homegrown companies to compete against foreign multinationals, while the government has been more assertive in pressing pricing and antimonopoly investigations and has drafted rules and passed national security legislation that require technology firms to provide proprietary information and share source code.



That's the growth in global containership capacity for 2016 projected by the industry analysts at Alphaliner last week, which if accurate would represent the lowest year-over-year increase since the firm starting tracking such statistics back in 1990. The growth level was a robust 8.5% in 2015, as the megaships keep coming. While that 4.6% growth rate for this year is nearly half the 2015 number, alas for the ocean carriers it would still be well above container traffic growth, which Nils Andersen, CEO of Maersk Lines' parent company A.P. Møller-Mærsk, optimistically expects to come in at 3% in 2016. That would be triple the weak 1% growth that was achieved in 2015, but may be optimistic - an analyst at Braemar ACM Shipbroking said last week he expects container demand to grow at most 1.5% this year, the lowest since 2009. All that means continued rock bottom rates for as far as the eye can see.

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