Handicapping the Odds of Reduced Global Trade in Q4

Throughout the year, I’ve enjoyed checking in on the global trade and supply risk indicators that Panjiva has published on what feels like a monthly basis. Panjiva's installment on August trade data sounded a cautiously optimistic note based on the most recent numbers. However, it's essential to remember that last September was the time when "global trade fell off a cliff," according to Panjiva's Josh Green. Given the latest indicators as well as this historic lesson, where is trade volume -- and the potential for increased global supply risk, especially in Asian supply bases -- likely to fall for the remainder of the year? Panjiva suggests three possibilities.

The first they describe as "cliff diving". Simply put, this would amount to a repeat of the trade volume trends during the same period in 2008. But fortunately, they handicap this as "low probability". The second possibility is a "holiday surge". This would come from retailers anticipating strong holiday spending. But this is also unlikely as "anecdotal evidence suggests that corporate buyers are being cautious (better to be burned by having too little inventory than by having too much)". The last possibility is a situation where trade stays in a holding pattern that is probably the "best bet". Why? Panjiva suggests that "over the last several months, we've seen a slow but steady recovery of global trade activity" and there's "no reason to think we won't see more of the same". Perhaps, but I'm not so sure.

In fact, I'd wager a more likely scenario is a continued gradual decline in export trading volumes from the East to the West, albeit one with the potential for some optimistic blips along the way. They're a few reasons for this. For one, I see a continued weakening of the dollar and an outlier possibility of China inflating its currency to more reasonable levels based on global pressure. This would hurt trading volumes. Moreover, given rising anti-trade sentiment and words on both sides of the Pacific, I suspect we'll see a rise in anti-dumping and related cases (well beyond recent tire and steel examples). But perhaps most important in my call of a gradual decline is the trend I'm seeing in the market of companies getting more active in investing both on-shore and near-shore sourcing options. Even if companies don't retreat en-masse from Asian and China sourcing, I believe we can bet on domestic and nearby options gaining favor throughout the fourth quarter and well into 2010.

- Jason Busch