Wesley Bruce
Gary North a leading Austrian school
economist and historian talked about the Baltic dry index tanking.
Note: the BDI is USD hire paid per day
for the four bulk cargo classes and it's down to $402. It's a very
bad sign. It's not $ per ton. If people stop buying bulk cargo they
have stopped producing at at the scale we have seen in the past.
As I write it looks like the stock
market has caught on and, on pretty obvious Chinese numbers that
everyone should have expected, the stock markets crashed.
It's even worse because the HARPEX
index of containerized freight has virtually sailed off the edge of
the earth.
http://www.harperpetersen.com/harpex/harpexVP.do
It's fallen to 363 TEU 1 TEU is based on the volume of a
20-foot-long (6.1 m) intermodal container going by sea per day. A 45
foot container is 2 TEU. Only 14% of all container shipping is
included in Harpex but it is representative.
While this is bad it may be a little
worse. Neither may fully recover, ever. They may become obsolete
indicators.
Rail heads.
My brother is a rail fan, not a train
spotter but someone that is into studying the technology of the
tracks and someone that is looking where you would or could put new
commuter and freight lines. Over Christmas he showed us a dozen
youtube videos of the latest track laying systems. (yep my family is
that weird) Our grandfather was a railway man. In his day it took 20
- 30 men and several weeks to lay a 100 miles of track. Today it
takes half as many men and a quarter the time. Today it's definitely
skilled labor not unskilled labor. This caught my eye:
All the heavy lifting is machines and
there is a machine for every job.
And this one.
Its a track renewal system that
literally replaces the rails under itself. The train is riding on
rails that it itself is carrying off the ground!
Here are the details of how a new track
is laid.
And this one is the biggest track layer
in the world, at the moment.
But this one is already 5 years old.
There are hundreds of these machines.
All slightly different. There are only a few hundred needed. Lay a
hundred miles of tracks and it's there for decades.
A question occurred to me.
Could the growth of rail impact on
shipping and lead to both the Baltic dry index and the HARPEX being
reduced by rail competition? Could it start giving wrong numbers
eventually over time? There is no equivalent index for global rail
tonnage or rail container tonnage. Or at least not one that shows up
on google. Everyone uses differing calculations making tonnage
comparisons between rail and shipping difficult.
The cold war cut Eurasia in half. With
little or no western cargo going through the Soviet Union. While the
transiberia railway exists it took most of the Soviet Union's 70
years to finish what the Tzar had started. It also dives far to the
north away from China at key locations. Partly to link with river
based traffic in Siberia and partly to avoid being cut in a possible
Chinese invasion of disputed regions. As soon as the iron curtain
fell railway engineers were looking at recycling the steel into
railway tracks across the continent from China to Europe. They are
succeeding.
While the UN is the lead organization
on such projects the people involved are rail fanatics that have
little time for bureaucrats, a hundred Dagny Taggarts (The pretty
railway engineer/ Tycoon in Atlas Shrugged).
The rail trip takes half the time, half
the crew, is considered safer. The tonnage is small but will rise
fast.
Wikipedia has Usage data on it.
From January to November, 2012, a total
of 40 freight trains ran on the Yuxinou Railway, transporting 1747
containers with 21,000 tons cargo, and worth of 1.15billion USD. The
freight included 3.062 million laptops and 564,000 liquid crystal
display screens.
(Note these numbers are from 2012 when
the track was laid but not all the infrastructure finished. 21000
tons on an unfinished line!)
The first direct China to Spain freight
run arrived December 2014.
It's fascinating how the various sites
talking about this project never discuss how its funded. It's a mix
of Public-Private Partnerships (PPPs), western aid money,
international loans and inflated currencies.
[From the UN department for vague
statements.]
The problem of how to fund a large rail
project goes back to well before Ayn Rand's Atlas Shrugged. Ideally
it should be private bonds and shares issued by the railways
companies paid for by per-tonnage mile fees on the rolling stock.
It's likely that the PPPs will be doing this. Technically this makes
it no different to every other railway project since the first in the
17th century. Going bankrupt in the process is also a tradition but
the rails once built roll on.
Shipping may be cheaper in a world
where trade is from one major port to another major port but shipping
has three problems.
Often the cargo must be handled
several times. Mine or factory to port, port loading, then port to
final destination. In many cases once you have it on a truck or train
it's easier to turn around and go direct over land. Forget the bottle
neck at port and it's hassles, red tape and potential pilfering. When
containerization came to Australia our coastal shipping industry just
died. Bottlenecks, particularly unionized bottlenecks are bad for
business. Only island nations absolutely need to send everything
through ports. This is the key behind the Eurasian land bridge idea.
Secondly many see the middle east and
the red sea as a potential choke point. A high risk of trade routes
being cut by war and piracy. The Somali piracy drove many more people
to consider the Eurasian land bridge idea and the trans-Asian railway
as an alternative. Note: In some cases this was less about piracy
than about American fleets checking shipping for cargo's going to
Iran and other dangerous states. An overland route suits some that
are prone to get in the US navies sights. Sometimes I think the US
navies reasons are good so the rail may pose a long term risk. A nuke
on a train is much easier than a nuclear missile or even a nuclear
bomb on a boat. A few more neutron detectors near the track will be
needed. A Nuke on a container truck trumps all.
Lastly as cell phones open up a
million young entrepreneurs in a thousand villages to the wider world
of commerce and capitalism, global trade routes will become less
about big city to big city and much more about point to point trade
in smaller lots. A fish net not a fishing line.
This favor's containers on land routes,
and big ships don't do small lots well. Village A in Tajikistan
trading it's beef to village B in China. Tajikistan and Kazakhstan
has several million head of livestock that never make it to market.
Now that there are railheads and spur lines with stock loading
facilities (built by Australian and US companies) that massive stock
of beef, goat and lamb will reach the world market but very few
ports. The geological resources in some parts of central Asia have
been barely prospected. There are area's that could rival the US
wheat belt undeveloped.
There are however changes in
containerization too. Normally bulk cargo is raw materials and
containerized cargo is finished goods. When modern inter-modal
containerization was first invented by Malcom McLean it was
envisioned as moving bulk cargo as well but loading bulk cargo onto
normal containers was tricky. Special top hatch equipped hopper
containers never filled fully, were hard to clean and were a death
trap to anyone in side if miss handled.
However it can now be done thanks to
two innovations: Container Liner bags from various companies and a
New Zealand company, Ward that came up with several container
loaders.
These load and unload containers by
standing them on end or tipping them carefully up at an angle.
https://a-ward.com/
There machines are a masterpiece of steel and hydrolics. They are
selling very well around the world. Here is the unloader.
https://youtu.be/5X2Jd54oM3w
There are more videos on the site. Check out the horizontal loader.
It works like a giant hypodermic full of junk.
New Zealand is a small country so small
lots matter. Getting a boatload of sugar delivered to their chocolate
factory makes no sense. As the world develops and decentralizes there
will be more small countries.
As this technology rolls out more
widely more bulk raw materials will be moving by container confusing
anyone using the Baltic dry index and the HARPEX. This technology
allows raw materials to go out and finished goods to come in, or vise
verse with the one container. No more shipping empty containers
halfway around the world passing an empty bulk freighter going the
other way. It completes containerization. It also suits the future
village to village decentralization of global trade. It will take
decades to become significant and there is a need to simplify and
automate the installation of container liners.
Equivalent global rail index needed.
The Baltic dry index and the Harpex are
both only shipping. There is no equivalent global rail index yet.
There are national indexes. This is the USA.
The drop after Christmas is normal and
the precipitous drop in the shipping indexes are not matched on the
monthly index of US rail traffic. It's too early to see last years
results but spot the GFC on the Annual table, you can but it's not as
sharp a drop. Rail is cheap, in a crash cheap wins. This will not
diminish the bust Gary North is talking about in the top link. It
does not invalidate his point. I'm talking longer term.
Russia.
Many of these routes run through
Russia. While there are problems political problems between the west
and Russia that should pass. Russia will not close these trade routes
once they are created. It's an income source and a matter of
prestige. There is also a southern route being built through the
stans and Iran, Turkey, to Europe. Even major wars do not stop or
destroy railways for long. After WW2 the railways were rebuilt within
months and at Hiroshima it took only days. The Soviet Union did not
stop rail trade it simply botched the process of building the network
at all and would have confiscated capitalist cargo's. Outside the
Crimea that won't be a problem. Putin is an old cold warrior but not
a communist. Neither he nor his rivals in Washington will be there
long. I'm looking in terms of decades not years.
The global big build.
Down in Africa there are plans for big
networks linking the landlocked countries and crossing the continent
in two places. Mozambique to Namibia via South Africa (already exists
but needs upgrading); Tanzania to Zambia (and via Zimbabwe to South
Africa and Namibia). South Sudan to Cameroon via the Central African
Republic.
https://en.wikipedia.org/wiki/TransAfricaRail
The intention is to match in Eurasia and Africa and South America
the success of the US Transcontinental railroad of a century ago.
Most are nearing completion.
Some might think that differing gauges
might be a problem but that being solved in several ways. Containers
are themselves a solution to that problem and in the earliest case a
product of the different gauge problem.
Regauging. The Belorussians at the
border with Poland jack the carriages up off the bogies. Roll out the
bogies and roll in a new set. The track section has both gauges. This
involved a lot of men undoing bolts but robots are being deployed and
the bolts replaced with container like interlocks. The passenger
never need to leave their carnage and some sleep though the process.
However the Talgo system from Spain
looks like it will superseded most alternatives. The wheels
themselves can be locked into different positions laterally for
different gauges.
Trains using this system now regularly
traverse Europe with with its gauge differences between Spain and
France/ Germany. It's being tested in Russia. The mechanism was
invented when I was 9. 1969 but we had to wait for advances in
metallurgy to make it commonly accepted.
If you know Polish this is a good
review of the current regauging technology and related systems.
However the simplest and cheapest
solution for older smaller lengths of track is to put a track renewal
unit down the track changing it to the commoner gauge. Differing
gauges were not an accident often it was to stop rail based armies
rolling into your country a long your railways. If the had to stop
and change train then you had time and opportunity to set up defenses
or bomb the hell out of the rail border crossing. It worked well for
the Russians and was a reason why the Nazis left Spain alone.
Conclusion
In simple terms China and Europe are
now linked via rail with a capacity exceeding 3 freight trains per
week and rising to 21 soon and at half the cost of shipping and
equivalent volumes. There are more routes with new or renewed tracks
are being laid. The cold wars geography drove shipping but that's
over. There are rail links being forged across Eurasia. North south,
east and west. As well as China, India, mainland southeast Asia, the
middle east are all being inter linked to Europe and even Africa.
This will compete with shipping where
it essentially circumnavigates a continent. As a result when the
world economy recovers or reforms itself after this next depression.
Shipping may lag as an indicator.
I have included a lot of youtube links.
A picture is worth a thousand words, a video much much more but you
don't need to watch them all the way through unless you have time and
find it cool like me. This long but hopefully comprehensive and
covers all the variables and caveats.
