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Feb.22, 2016

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4 THE JOURNAL OF COMMERCE Editor's Letter Chris Brooks IN A MATTER of days, we'll mark the one-year anniversary of the Inter- national Longshore and Warehouse Union and Pacifi c Maritime Association reaching a tentative six-year con- tract agreement, a deal that ended an ugly nine months of negotiations that debilitated West Coast ports and crip- pled import and export supply chains. Memories of the ugliness may have faded, if just a bit, but the impact is no less raw. It was, after all, importers' plan- ning for a potential dispute that helped spark the inventory overhang that, 12 months later, is contributing to weak year-over-year comparisons in cargo volumes, and has some analysts antici- pating a freight recession, or worse. "I remain concerned in the near term about the high level of inven- tories throughout the supply chain," Bob Costello, chief economist for the American Trucking Associations, said last August. "This could have a negative impact on truck freight volumes over the next few months." It's a view he's reiterated regularly since. Apat het ic con s u mer s a nd a warmer-than-usual winter also have dampened sales and prevented retailers from moving goods through their stores in volumes that would help reduce inventories enough to allow restocking. 2015 holiday sales, for example, rose just 3 percent year-over-year, according to the National Retail Federation, which had been expecting a 3.7 percent bump. That's especially disturbing, given the low fuel prices economists have been expecting to jump-start consumer spending for the better part of a year. Most troubling, as this week's Cover Story examines, is that high invento- ries impede GDP growth and depress freight demand, and often are seen as an omen of economic downturn and recession. Inventory-to-sales ratios "are approaching pre-recession levels, with retail, manufacturing and wholesale all trending in the wrong direction," Deutsche Bank Markets Research said in a late-January report. Destocking, it said, likely began in the fourth quarter of 2015. The resulting weak freight vol- umes "have left us cautious about the economic trajectory." Other indicators tell an equally troubling story, according to Deutsche Bank: ● The Cass Freight Shipment Index, which predicted both reces- sions since 2000 (though also had four false indicators), has posted 10 straight year-over-year monthly declines. ● Rail volumes have predicted the last three recessions since 1990 (with one false indicator). Total rail traf- fi c — carloads and intermodal — has declined year-over-year in each of the past nine months and 11 of the past 12. International intermodal has been hit especially hard, evidenced by Union Pacific's 12 percent year-over-year decline in the fourth quarter. ● Truck tonnage has predicted the last six recessions, with two false indicators. In a positive sign, truck ton- nage increased in every month of 2015, year-over-year, though growth slowed signifi cantly after last August. Perhaps by the second quarter, cargo owners will work through the destock- ing Deutsche Bank believes is underway, opening the door for replenishment and a pickup in volumes. The NRF, for one, believes that's the course 2016 will take. "Retailers are carefully managing their inventories but still need to stock up on seasonal goods for spring and summer," Jonathan Gold, the NRF's vice president for supply ch ain and customs policy, wrote in the February "Port Tracker," a monthly report produced along with consulting and research fi rm Hackett Associates. The report expects U.S. containerized imports to grow 4.5 per- cent year-over-year in the fi rst half. But Ben Hackett, founder of Hack- ett Associates, says government action in key nations could play a signifi cant role in how the year plays out. "Govern- ments around the globe need to support economic policy that is pro-growth and avoid actions that get in the way of the business community," he wrote. "This is not the time, for example, for the U.S. Federal Reserve or other central banks to increase interest rates. What all the economies of the world need is stimulus to encourage consumer spending and to increase business expansion." JOC HANGOVER or Overhang? The Journal of Commerce (USPS 279 – 060), ISSN 1530-7557, February 22, 2016, Volume 17, Issue No. 4. The Journal of Commerce is published bi-weekly except the last week in December (printed 26 times per year) by JOC Group Inc. 2 Penn Plaza East, 12th Floor, Newark, N.J. 07105. Subscription price: $344 a year. Periodicals postage paid at Newark, N.J., and additional mailing offi ces. © All rights reserved. No portion of this publication may be copied or reprinted without written permission from the publisher. POSTMASTER: Please send address changes to The Journal of Commerce, Subscription Services Department, 2 Penn Plaza East, Floor 12, Newark, N.J. 07105-2257. FEBRUARY 22.2016 EXECUTIVE EDITOR, THE JOURNAL OF COMMERCE AND JOC EVENTS Chris Brooks 973.776.7818 MANAGING EDITOR Barbara Wyker 973.776.7817 EXECUTIVE EDITOR, JOC.COM Mark Szakonyi 202.872.1234 SENIOR EDITORS Joseph Bonney, Trans-Atlantic, East and Gulf Coast, Latin America 973.776.7809 William B. Cassidy, Trucking and Domestic Transportation 202.872.1228 Bill Mongelluzzo, Trans-Pacifi c 562.428.5999 Greg Knowler, Asia Editor, IHS Maritime & Trade +852 3975 2647 Turloch Mooney, Ports, IHS Maritime & Trade +852 9011 9109 ASSOCIATE EDITOR Reynolds Hutchins, Intermodal Rail and Government/Regulation 202.572.1487 EDITOR-AT-LARGE Peter T. Leach 212.755.0940 RESEARCH EDITOR Marsha Salisbury 973.776.7828 ASSISTANT WEB EDITOR Dustin Braden 973.776.8652 ECONOMIST Mario O. 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