Wednesday, July 23, 2008

The Shipping News

1. High and Dry

Dragged along in the wake, or pushed ahead by the wave, of increased oil prices, that is to say dragged and pushed by the US war/recovery program, the Baltic Dry Index, measuring daily hire costs for ocean going dry bulk cargo vessels, broke away from its historical baseline and began an intractable climb to measure, in 2008, 800% above its 1997-2003 average.

It wasn't a steady climb-- what could be "steady" in capital's world of shaky disequilibrium, of constant tremor? Fear and greed, after all, don't lend themselves well or often to steadfastness. The index quintupled in 2004, dropped 70% in 2005, climbed 600% in 2007 before falling 50% only to double again in the first quarter of 2008, falling again 22% off its peak.

In dollar terms spot market daily rentals for Capesize (the largest) dry bulk carriers are at $156,000 or 500% above the January 2006 mark. Panamax (of a beam, length, and draft not exceeding the capacity of the Panama Canal lock system) rates nearing $71,000 per day, stand 400% above the January 2006 price.

Meanwhile.. and there's always a meanwhile, from 2006 through most of 2007 hire costs for oil tankers declined, 20% for VLCC class ships (200,000 + deadweight tons), 25% for Suezmax (120,000-199,000 dwt), and 35% for Aframax (up to 119,999 dwt) class tankers. Then... and there's always a then, the oil price boosts caught hold, and in 2008 rates began to climb. For the VLCC class, despite the recent climb, these rates are still 33% below their 2004 peak.

Although certainly of benefit to shippers, this wave of petrodollars and petroprices pushing through the channels and locks of capitalism is not exactly the rising tide that lifts all boats. The increased costs of transportation are both product and producer of disruptions in capital's ability to maintain expanded reproduction. Profit apportioned to the transportation systems through price inflation are a deduction from the profitability of capitalist reproduction as a whole. "Circulation sweats money from every pore," wrote Marx, and he was right; but when the costs of the circulation absorbs the money being excreted, capitalism breaks out in a cold sweat.

2. One If By Land...

For the capitalist economy as a whole, or in particular, the movement of commodities to and through the markets for exchange is not qualitatively different from the movement of the materials required for production of the commodity within the production process itself. There can be no expansion of capital, no reproduction of capital; there can be no expansion of production without improving the circulation of the capital within the specific production processes. Volume, distance are not just physical characteristics of production and exchange, but also components of cost and cost is managed through efficiencies in time.

After the end of the war of 1812, US capitalism began its development. The volumes, direction, value and means of commerce, foreign and domestic, were substantially altered. The expansion of production and revenues from merchant-capital/slaveholder alliance of colonial and post-colonial period was threatened and surpassed by the expansion of free-soil agriculture to the west and the "free labor" manufacturing in the east. The development of a reciprocating domestic market established in the exchange of products between free-soil farming, and the manufactured products of "free" wage-labor in the states north of Chesapeake Bay, required, and produced, besides the US Civil, sustained improvement in the means of transportation.

In 1816, a report of the US Senate noted that domestic freight charges measured $9 per ton per 3o miles. The report noted that rate was 100 times the rate charged by European shippers for the transatlantic trade of goods between the two continents. At the US domestic rate, the price of wheat would double every 218 miles of transport; that of corn every 135 miles.

By 1822, with the development of the canal system, river barges, and intra-coastal shipping, haulage rates had declined to 12 cents/ton mile, a decline that was partly product, partly producer of the general price deflation of the time.

Until 1850, it was improvements in waterway borne freight haulage that had the greatest impact on ton-mile costs. However, by 1851 rail freight costs had dropped to 4.05 cents a ton-mile. Domestic production and trade expanded so quickly, however, that the canal, river boat and barge, and rail systems were all required to meet these needs regardless of relative efficiency. This was a rising tide that kept some old boats afloat.

In 1860, canal and rail handled equivalent volumes of freight, but duration in transport ("dwell") times for goods shipped by rail were 1/3 of the times for canal and barge shipments. The average freight costs for rail shipments had dropped to 2.2 cents per ton-mile. Remember that number.

3. Not So Long Ago

In 1980, the US Congress passed the Staggers Act, effectively deregulating the rates that railroads could charge for the shipment of goods. Rate deregulation was no stand alone program for the railroads, but rather the mechanism for sanctioning abandonment of "non-performing" assets, severe reductions in track mileage and employment levels. Economic contraction, rather than the 19th century expansion, inaugurated the new "golden era" of the railroads with bankruptcies and consolidations.

Rates per ton-mile charged by the railroads began a sustained decline. For corn, rates dropped from 3.73 cents per ton-mile in 1981 to 2.53 cents per ton-mile in 1992 to 2.06 cents in 2000. During the same period rates for wheat declined even more dramatically, some 60%, to 2.59 cents per ton-mile. Rates for soy dropped 55% to below that 1860 mark of 2.2 cents per ton-mile.

Clearly, deregulation did not produce the decline in rates, as competition can produce price-efficiencies only to the degree that the components of capitalist production, constant and variable, animate and inanimate, are altered to sustain and expand profit.

And altered those components were. Railroad employment declined approximately 40% between 1990 and 2000, eclipsing the 33% increase in hourly compensation rates. Between 1990 and 1995 annual gross capital expenditures increased 65%, dropping back 10% by 2000 despite an increase of 50% in net railroad operating income. The all-important rate of return on investment declined to 6.5% from 1990's 8.1 percent.

The improved productivity factor of revenue ton-miles per mile of railroad, ton-miles per employee, revenue per employee, sustained the decline in haul rates.

After 2000, all these indexes, rates of return, revenue ton-miles per track mile, total revenue, net revenue from operations, net railroad operating income, gross capital expenditures moved up and down in a narrow band... until 2005. Then in 2005, all began to move markedly upward, as the industry continued its "rationalization." Pushed, pulled by oil prices, railroads like the rest of the US industry increased its rate of expenditure on fixed assets. The assessed value of private fixed assets for the entire transportation industry, which had increased only 3% between 2001 and 2003, grew 8% between 2004 and 2006. Railroads fixed assets increased 6% between 2004 and 2006. Ton-mile rates, however, did not decline. The golden age was over. The black golden age ruled all. Rates increased and have exceed 2.5 cents per ton-mile for grain transport.

If price is the mechanism for apportionment of profit in capitalism, then increasing price indicates an apportionment based on a decline in the ability of capitalism to reproduce profitability as a whole for its entire network. The rising tide lifting the boats, the surge in profits, is in fact an ebb tide, pushing back into an ocean of overproduction.

Next-- Two If By Sea: Ships On The Ocean

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