kiplinger connection
Global Trade • Transport • The Economy

Global Trade: Weak dollar means strong exports.
Transport: Materials shipping going up and up.
The Economy: Retail cooling but inflation to ease in 2008.

Global Trade
Let’s hear it for solid export gains. They're in full bloom just as economic burdens of housing and credit woes plus energy costs are making consumer and business spending wilt.
Exports will buoy the 2008 economy. They’re expanding faster than imports and will generate half of the 1.5% to 2% growth we expect. That’s up from one-quarter of gains in 2007, the first time since 1995 that exports made a positive contribution to annual GDP.
A kinder, gentler trade gap is on tap. It'll amount to about 3.8% of GDP in 2008, the smallest share of GDP in seven years and down substantially from this year’s 5.1%.

Thank global growth and the weak dollar for America’s most recent export surge. The greenback should soon hit its lowest level, on a trade-weighted basis, since the currency began to float freely in the markets in 1973.
The low buck will have a long tail. Even if the dollar were to start rebounding at this point, the lag effect of its six-year swoon would fuel exports for a few years. Why? It takes businesses a long time to adjust to currency changes. Finding new suppliers is easier said than done. That's why the weaker dollar didn't instantly boost sales abroad.

Exports will be a welcome salve to many manufacturing industries, helping to slow the loss of jobs on factory floors. Leading gainers in foreign sales include autos and auto parts, civilian aircraft, chemicals, and Rx drugs, IT gear, and measuring and control equipment.
U.S. companies are latching on to fast growing emerging markets. In the year through September, exports to China were up 16% from the same period in 2006. Timken Co. of Canton, Ohio, is selling oodles of its specialty steel to China. U.S. exports to Brazil are up nearly 30%, and to India ... a whopping 65%. Caterpillar is cleaning up in Brazil, selling to mining and ag businesses. Boeing has $13 billion in orders from India. Cisco sells tons of networking gear there.

Bottom line: U.S. industry is in fighting trim, well able to muscle aside foreign competitors to maintain a top position on the leaderboard.

Transport
Exporters and importers can expect a lot of extra paperwork within a year or so, when the U.S. Dept. of Homeland Security starts its Global Trade Exchange program. It will require shippers to describe their cargo, its manufacturer, value, destination, and end use plus give the names of carriers that handle the goods along the way. Moreover, they’ll have to provide the info before the cargo ships so that any questionable contents can be interdicted more quickly.
Uncle Sam hopes more data will help in the war on terrorism ... adding another layer of protection against chemical and other weapons.
It should also help decrease shipments of counterfeit products.

The export boom has companies scrambling for cargo containers, especially in the Midwest. Ocean carriers figure it’s more profitable to pack and unpack containers as quickly as possible near seaports, sending fewer of them inland, where they often sit idle after unloading. High steel costs preclude fabricators from adding much to the supply.
Some options: Consign shipments to freight forwarders, which often can locate available containers and arrange for them to be shipped to another location. Truck goods to major ports, where more containers are available ... trucking is more costly than rail, but it’s better than missing the boat entirely. And consider pooling with other companies ... larger-quantity orders get priority.

Firms will keep paying through the nose to ship dry bulk cargo.
Ocean carrier rate hikes of 25% a year are likely until 2011, at least. That’s on top of a 150% jump this year. Blame companies in China and India that sewed up long-term dry bulk shipping contracts to feed their demand for chemicals, coal, ore, steel, paper, wood, and agricultural commodities. A shortage of ships also drives up costs.
New cargo ships are on the way, but no time soon. It’ll be 2012 before they start steaming into ports in big numbers. Ship construction is being stretched out by the growing global competition for steel.

On a happier note, truck and rail freight rates won’t budge much next year, though the reason for that isn’t so cheery: The slowdown in the U.S. economy spells less demand for truck and rail shipping.
Truck rates will edge up 2%. Rail ... about 1%. Fuel surcharges will average around 10% in 2008, roughly on a par with this year, even though truckers will pay about 15% more for diesel fuel.
Now’s a good time to negotiate favorable long-term freight deals. Truckers are more willing to bend as freight shipments dwindle.

Don’t rule out a strike by Amtrak workers as early as February 1. Nine of Amtrak’s 14 unions have been unable to reach an agreement
with the passenger railroad after almost eight years of negotiations.
Unions want pay hikes to be retroactive to 2000, but Amtrak says no way.
Note that more than just Amtrak service would be disrupted.
Also in peril: Some freight and commuter rail lines
that travel up and down Amtrak-owned tracks along the Eastern Seaboard.
But any strike would be short-lived, lasting less than a week
or so because Congress would be quick to step in and impose a settlement.
Meanwhile, Amtrak will get more money in fiscal year 2008:
$1.45 billion, up from $1.3 billion in fiscal 2007. Next year,
Congress is likely to authorize up to $1.9 billion in annual spending
for six years as well as $1.3 billion annually in bond authority.

The Economy
That "bah humbug" you hear is coming from retailers this year.
Any hopes for a strong holiday sales season are fading fast.
Blame the tottering economy, which has consumers in a miserly mood.
We expect holiday sales to grow only about 2.5%, vs. 3.5% in 2006, despite markdowns and other come-ons to entice people to spend. In fact, the season is headed for its weakest showing since 2001.

The slump will hit all types of retailers ... from high end to discounters, though luxury merchants will still trump all other stores. Low-price stores ... so-so. Home furnishing outlets will fare the poorest. Online retailers, shopping malls, and all-in-one stores such as Target are helped by high gasoline prices, which have people driving less.
Compounding the economic blahs: The lack of exciting merchandise. Other than some electronics, not much is making shoppers go gaga.
For clues to the season, note the late-day spending on Black Friday, the day after Thanksgiving and the official start of Christmas shopping. Morning blowout sales were packed, of course, but for sales gains to really percolate, consumers will need to shop beyond the promotions.

Look for inflation to cool in 2008, with the Consumer Price Index climbing around 2.5%. That’ll mark a sharp contrast to this year, which will see prices, pumped up by energy products and food costs, rising close to 4% by year end. In 2006, the overall CPI also rose 2.5%.