Author Archive

US Banks Lending Again

Tuesday, August 14th, 2012

US banks are finally opening their purse strings according to The Federal Reserve’s quarterly senior loan officer survey. Who’s getting loans? Large companies, people with decent credit applying for auto loans or credit cards and also people buying homes. There are a number of reasons for why the banks are feeling more confident: less competition from beleaguered European financial institutions; households, whose spending makes up 70 percent of the economy, have cut debt since the 2008-09 credit crisis to 1994 levels; and banks have increased liquidity and bolstered capital buffers.

In fact, we are now at a post-recession high in terms of lending by banks. Borrowing by consumers and businesses rose in the week ended July 25 to $7.1 trillion, (2.9 percent shy of its October 2008 peak) according to Federal Reserve data. New lending for autos jumped to $134.3 billion in the first four months of the year, up 56 percent from the same period in 2009, according to credit bureau Equifax Inc. (EFX)

One sector that’s benefited is the U.S. auto industry which is on pace for its best year since 2007. Light-vehicle deliveries rose 8.9 percent in July to 1.15 million, and first-half sales are up 15 percent, setting a pace for more than 14 million annual sales, according to researcher Autodata Corp. This has a big impact on the overall economy: autos and auto parts comprise 7 percent of U.S. manufacturing, according to the Fed.

China’s New Growth Sector: The Internal Logistics Market

Wednesday, August 8th, 2012

The country’s economy — still powering along at 7.6% GDP growth in the second quarter, even after a much-talked-about slowdown — and especially its gradual shift toward domestic consumption and a burgeoning e-commerce market, is fueling a long boom in the sector.

China’s industrial sector has fallen to an 8-month low.  The Purchasing Managers’ Index (PMI) dropped to 50.1 from 50.2 in June, official data showed. A reading above 50 indicates an expansion in activity, while below 50 means a contraction. Exports also contracted.  While China’s slowdown was inevitable given its reliance on exports to an ailing European and American economy, all of the news need to be placed in context: China’s GDP still grew by an annualized 7.6% in the last quarter (it’s a 3 year low for them but all of us on this side of the Pacific would take those numbers gladly)

Furthermore, while exports have taken a tumble, logistics are still important because domestic retail demand is becoming more important; with sales up over 14% year on year in the first half of 2012 (e-commerce is a key driver). Global Logistic Properties Ltd., one of the market leaders in Chinese logistics space, said it sees significant opportunities in extending supply chain lines from Chinese coastal cities to serve the rapidly growing inland economies.  The transportation market is highly fragmented, with tens of thousands or even hundreds of thousands of small businesses conveying freight in different parts of the country, according to KPMG. As domestic production picks up, we should start to see consolidation with opportunities both for 3PLs and industrial developers.

Peter Zhang, director of industrial consulting in China at Cushman & Wakefield, estimates that 60% to 70% of companies no longer do logistics functions in-house. Still, the real estate stock is uneven.  There remains a long way to go in replacing basic warehouses, designed for manual handling, with state-of-the-art storage space. The China Association of Warehouses and Storage estimates that the country has 7.4 billion square feet of warehouse space, 10% less than the U.S., while 75% of facilities do not meet modern standards.

Long-Time Chicago Steelmaker Buys 13.3 Acres for $1

Thursday, February 11th, 2010

City of Chicago sells 13.3 acres for just $1; prevents steelmaker’s move to Canada.  A long-term steelmaker is not fleeing Chicago for Canada, thanks to a deal in which A. Finkl & Sons Co. purchased six properties adjacent to the Verson Steel site on the southeast side for just $1. Finkl, which has been in business since 1879, will move its headquarters from the western edge of Lincoln Park to 1355 East 93rd Street.  The move will keep 300 factory jobs in Chicago, good news in a city that has seen its industrial base shrink in recent years.

Finkl needs the six vacant properties for storage and to move an existing rail line to buffer the steel plant from nearby residential neighborhoods, according to a report from the Community Development Commission (CDC).  The six parcels for which Finkl paid just $1 encompass 13.3 acres and have been appraised at $934,500.  City officials and Finkl are in discussions over additional financial incentives, including the creation of a tax-increment financing district to sweeten the pot even more.

Founded in 1879 and now owned by German manufacturer Schmolz & Bickenbach A.G., Finkl has outgrown its current plant at 2011 North Southport Avenue.  The Verson property includes 44 acres and eight buildings with approximately 500,000 SF.  Finkl plans to build four new structures totaling 106,000 SF at the adjacent site.

The Chicago City Council still has to approve the sale, a move that is likely to face little opposition.  This is an excellent example of how tax incentives for businesses can save and create jobs.

Wheels of Manufacturing Restarting

Monday, January 11th, 2010

ISM Manufacturing Index shows better-than-expected performance.  Manufacturing is gradually on the upswing, according to the December ISM Manufacturing Index, which rose to 55.9 from November’s 53.6 reading.  A gain to just 54.3 was expected, so the news is encouraging.  In terms of inflation, prices paid climbed to 61.5; an increase to 57.2 was forecast.  This is great news for a sector that saw both the steepest declines in manufacturing and trade inventories since 1949 and the fall of industrial production since 1946.

According to the ISM report, “At 55.9 for December, the index not only surpassed expectations of a rise to 54.3, but also posted its strongest reading since April, 2006.  The gains in the components were broad-based with new orders rising to 65.5 in December from 60.3 in November, marking its strongest reading since December, 2004.  Production rose to 61.8 from November’s 59.9, while the employment component increased to 52.0 from the prior month’s 50.8, marking the third consecutive month in expansionary territory.  We expect the Fed to help both sustain the recovery and heal labor markets by leaving the Fed Funds rate at its current low level until the final quarter of 2010.”

Manufacturing Firing Up the Engines Again

Thursday, December 10th, 2009

Manufacturers are feeling sunnier, according to a new Price Waterhouse Coopers poll. The poll, which queried senior executives at 60 industrial manufacturers between mid-July and mid-October, found that 48 percent sense optimism about the American market compared with last year an improvement over the second quarter.  In light of this cautious optimism, 23 percent expect their businesses to regain strength before June, although another 45 percent believe their businesses will not improve until the second half of 2010.

In the same vein, a report from the Institute for Supply Management (ISM) indicated increases in several of its manufacturing indices, which suggest that industrial property owners might soon see a demand for space.  During the same timeframe, the Department of Commerce reported a one percent increase in bookings for durable goods during September.  This represented the first increase in the GDP since the second quarter of 2008.

A significant finding is that the number of companies anticipating growth in revenue over the next year recorded an even larger increase compared with the second quarter, with 57 percent responding positively in the third quarter.  Only 25 percent plan to hire new employees in the next year, and 37 percent plan to make capital investments.

ISM notes that October is the third consecutive month of manufacturing growth.  The most promising change reported by ISM is a surge in the production index, which rose 7.6 points to 63.3 percent during the third quarter.

Warren Buffett’s Riding the “Atchison, Topeka and Santa Fe”

Wednesday, November 18th, 2009

Warren Buffet hedges his bet on America’s future, buys the BNSF.  Omaha billionaire Warren Buffett’s purchase of the Burlington Northern Santa Fe Railroad (BNSF) is a $34 billion bet on the future of the nation’s economy.  BNSF’s acquisition by Berkshire Hathaway, Inc. is significant because it is the country’s second largest railroad and the primary hauler of food and coal, which makes it a barometer of the nation’s economic health.  Analysts believe that Buffett is staking his claim in an industry that is expected to grow as the economy stabilizes.  If approved by two-thirds of shareholders and antitrust regulators, the transaction will be Berkshire Hathaway’s largest-ever acquisition.  Berkshire already owns large stakes in the Union Pacific and Norfolk Southern railroads.

Buffett currently owns 22 percent of BNSF and will pay $100 a share in cash and stock for the remainder of the company.  “Berkshire’s $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry,” according to Buffett’s statement.  “Most important of all, however, it’s an all-in wager on the economic future of the United States.  I love these bets.”

According to Art Hatfield, an analyst with the investment firm Morgan Keegan, “Buffett is buying at the trough – things aren’t going to get much worse.  He’s getting in at a good time.”  Hatfield believes that BNSF has been more progressive than its competitors in developing new technologies to enhance profitability.  Railroads have cut costs during the recession by slashing jobs, idling railcars, improving train speeds and other efforts to make their operations more efficient.

Recession Coming to an End: The Fed

Wednesday, September 16th, 2009

Eleven of the 12 regional Federal Reserve banks showed signs of a stabilizing or improving economy during July and August, according to the Fed’s latest Beige Book report.  The Beige Book’s anecdotal evidence found that the nation’s worst recession in 70 years is coming to an end.  The Fed expects the economy to grow by three or four percent in the fourth quarter of 2009.  That stands in sharp contrast to the one percent decline from April through June, and the 6.4 percent contraction during the first quarter of the year.good-business-growth-2

In the latest survey, the Dallas region reported that economic activity had “firmed”. The Fed regions of Boston, Cleveland, Philadelphia, Richmond and San Francisco reported “signs of improvement.” In Atlanta, Chicago, Kansas City, Minneapolis and New York, the Fed reported activity as “stable or  showing signs of stabilization.  The St. Louis region was the exception, where the contraction’s pace “appeared to be moderating.”

“We are slowly on the road to recovery,” former Fed Governor Robert Heller told Bloomberg Television.  The Beige Book “confirms that we have turned the corner.”

Despite the Beige Book’s declaration that stabilization is occurring, it still found weakness in the commercial real estate market where little new construction is underway.  According to the report, “Several participants noted that banks still faced a sizable risk of additional credit losses and that many small and medium-sized banks were vulnerable to deteriorating performance of commercial real estate loans.”

Container Shipping Riding Choppy Seas

Monday, August 24th, 2009

Container trade is entering rough waters, despite the strength of global supply chains and China’s status as the world’s factory.  According to AXS Alphaliner, a container shipping information service, 15 percent of shipping capacity will be idle by October — thanks primarily to the recession.

Shipping companies that link Asian workshops with American retailers are forecast to lose about $20 billion this year after earning $5 billion in profits last year.  Drewry Shipping Consultants huge-container-shipreports that the reason is a $55 billion shortfall in expected revenues, only partly balanced by savings from lay-ups, slow-steaming to conserve fuel and opting for the longer but less expensive trip around the Cape of Good Hope to avoid using the costly Suez Canal.  The canal is facing a 14 percent decline in revenues this year.

Container rates have fallen from last summer when it cost $1,400 to move a container from China to Europe.  Today, shipping that same container costs just $400.  Chang Yung Fa, head of Taiwan-based Evergreen, the world’s fourth largest container company, says there is over capacity.  In addition to dropping plans to order new ships, he is getting rid of some of his 176-ship fleet.

Container shipping’s grim outlook reflects a deeper concern than the recession.  Containerization encouraged globalization by cutting the cost of shipping goods so deeply that manufacturers could find the lowest-cost factories possible – no matter the location.  In response, the amount of sea transport soared.  The concern with over capacity is overstated, I believe.  Recent economic news, heralded by Alan Greenspan, show that inventory levels have been eroded because of the cut in production.  While the recovery will be slow, the rebound in the equity markets will boost consumer spending which will affect trade.  While we are sure to see more efficient supply chains, distribution is poised for a comeback.

Inland Empire Poised for Industrial Comeback

Wednesday, July 22nd, 2009

Over the past decade, California’s Inland Empire has been transformed from a little-known region with affordable housing and lots of inexpensive land into an industrial hub – thanks to its proximity to the busy Ports of Los Angeles and Long Beach.  With the City of Ontario embarking on The Ontario Plan, sciearmalogo2city fathers are laying the groundwork for increased investment over the next 30 to 40 years.  The plan’s goal is to create an all-inclusive community where people and businesses will want to be.

According to Mary Jane Olhasso, economic development director for the City of Ontario, “Although firms are pulling back, they still realize that the region has competitive advantages over our coastal neighbors.  In Ontario, both industrial and office lease rates are lower than Los Angeles and Orange County.”

The Inland Empire’s industrial market is in a prime position to recover when the economy improves because the region is notable for its relatively low-cost housing, large workforce and vital location relative to international shipping.  With 40 percent of all containerized cargo entering the United States through Southern California ports, the Inland Empire is the logical location for gigantic distribution centers to handle the freight prior to shipping it throughout the United States.

No Port in the Global Fiscal Storm

Wednesday, April 22nd, 2009

Shipping activity has plunged as much as one-third at U.S. ports most heavily invested in the once red-hot but now declining Asia trade. 

Freight rates from South China to Europe have slid as much as 42 percent from some ports since November, leading shipping industry authority Drewry Container Freight Rate Insight Report to speculate that this once-robust market is in freefall.titanic-sinking-7790481

As freight rates fall to record lows shipping companies are playing hardball to remain competitive, even though relatively little product is being shipped these days.  According to Drewry, container lines could see a $68 billion plunge in global revenues this year, compared with 2008 revenues of $220 billion.  Drewry notes that global all-in freight rates fell to $1,681 per 40-foot box, down from $2,098 in November.  That’s a steep $400 drop per feu (forty-foot equivalent unit) or 20 percent in just two months.

The ports of Los Angeles and Long Beach are slashing cargo rates to retain old customers and attract whatever new business they can.  Spanning 10,000 acres, these vast ports typically handle $357 billion in goods every year.  The ripple effect of this year’s overall 18.1 percent downturn is evident in California’s vital Inland Empire logistics market, where higher vacancy rates – now approaching nine percent — are translating to cheaper rents.

Conditions are slightly better at the East Coast ports of New York and New Jersey, because their diverse mix of trading partners include Asia, Europe, Latin America and South America.