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Global Trade Freezes Amid Economic Downturn

January 30, 2009 at 6:25 PM EST
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Economics correspondent Paul Solman returns to the trade hub of Long Beach, Calif., to check on how the import and export business has been impacted by the global economic crisis.
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PAUL SOLMAN, NewsHour economics correspondent: Long Beach, Calif. When we visited last February, its port was booming, imports high and, thanks to a weak dollar, U.S. goods were cheaper abroad, so exports were up, too, some 20 percent.

Just a year later, though, the port is paralyzed, just like the world economy of which it is a morose microcosm.

RICHARD STEINKE, executive director, Port of Long Beach: We have not seen this kind of reduction in cargo in the time that I’ve been here.

PAUL SOLMAN: Executive Director Richard Steinke’s been here watching global trade for 20 years.

RICHARD STEINKE: And when I talk about decreases, we’re not just talking about containerized cargo. We’re talking about dry bulk, and liquid bulk, and automobiles.

PAUL SOLMAN: The drop in imports is a shock. In Southern California, where “public transportation” can mean the carpool lane, Long Beach is now home to fields of unsold Mercedes, tracts of Toyota.

RICHARD STEINKE: They’ve occupied about 15 or 20 additional acres.

PAUL SOLMAN: Fifteen to 20 acres leased to Toyota alone?

RICHARD STEINKE: In addition to the 150 acres that they lease from the port right now, covered with cars, not moving from the port to dealerships here in Southern California.

Waste paper exports plunge

PAUL SOLMAN: It began suddenly last summer -- mid-September, to be precise. Goods began backing up. Would-be imports, like cement, now filling this silo to the gills. Exports stuck off-shore.

The port's top export by volume is scrap paper. Last year, this recycler was aflutter with activity. U.S. demand for Chinese imports had pushed up Chinese demand for cardboard boxes and their raw material, U.S. scrap.

JIMMY YANG, waste paper trader: Most of this material goes to Asia. It gets sorted out as different grades of paper, and it ends up in a paper mill in Asia.

PAUL SOLMAN: So when we're seeing all these containers being loaded on, what percentage of them have waste paper in them?

CLARK HAHNE, waste paper trader: One in three.

PAUL SOLMAN: But the headlines from just a few months ago that still languish suggest how drastically demand dropped here, there and everywhere.

And a global freeze means fewer goods from China means less need for cardboard in which to box them, less need for the raw material in cardboard, all the stuff we've so virtuously been stuffing into our weekly recycle bins, hoping something useful was being done with it.

For years, it was. All at once, however...

CLARK HAHNE: The U.S. isn't buying anything to be manufactured over in China, so therefore the paper mills don't need to buy any recycled paper to make the boxes to bring the material back over to the U.S.

JIMMY YANG: Volumes have dropped tremendously. The economy has slowed down. And the amount of waste paper being exported has dropped and prices have dropped about 60 percent to 70 percent.

Slowdown's ripple effects are wide

PAUL SOLMAN: And it's not just the recycled paper that backs up when prices are down. The same goes for recycled plastic, recycled aluminum, recycled metal of all shapes and sizes. It's bad enough business is in the dumps. But even worse, perhaps, it's all been so sudden, so dislocating.

GEORGE ADAMS, president, SA Recycling: It wasn't a downturn. It was a cliff. OK, we fell off a cliff, in the world.

PAUL SOLMAN: George Adams knows global. He owns 40 scrap metal yards in the southwestern U.S. with an Australian partner, including this one, leased here in the port.

A year ago, it was loading cars for Asia as fast as Americans could total them. Today, its $500,000 magnet looks like it's searching for loose change.

GEORGE ADAMS: We're a micro-example of what I feel happened in the world. We were working 60 hours a week and sometimes 80 hours a week. I mean, we were loading ships; we were loading containers; we were loading scrap as much as possible.

PAUL SOLMAN: Then came the collapse of Lehman Brothers, the credit crunch, or "crush," and...

GEORGE ADAMS: In a period of a couple of weeks, people reneged on the orders, canceled the contracts, refused to negotiate LCs, I mean, everything...

PAUL SOLMAN: LCs?

GEORGE ADAMS: Letter of credits. Everything imaginable and possible happened, and literally the business fell off.

PAUL SOLMAN: This yard did no business at all in November, could fill only half a ship the entire month of December.

GEORGE ADAMS: At our peak, we were doing 300,000 tons a month. I mean, right now, you know, we've got room, we could play a couple of games of football here, right? But, I mean, this was completely full of scrap. You don't see the trucks, you know, rolling in. I mean, we've got two trucks dumping. We should have 25 trucks dumping right now.

Truckers, longshoremen suffering

PAUL SOLMAN: What you might call a "scrap-o-saur," devouring old railroad cars, scrapped by law after 30 years in use, crisis or no, hunks of junk that suggest a key positive side to the ups and downs of market economics, creative destruction, the old making way for the new.

But when the economy deteriorates this quickly, hold the "creative." There's no time or money for new projects or technology. Instead, it's pure destruction, as more and more once-productive resources are sidelined.

RICHARD STEINKE: We're sitting there with a lot of capacity that's being unused right now.

PAUL SOLMAN: Yes, sort of the story of the world, right? Idle capacity.

RICHARD STEINKE: Idle capacity, and it affects everything from a pilot who's bringing in a ship, to a marine terminal operator, to a tug operator, to a truck driver, to the railroads.

PAUL SOLMAN: Truck driver Jose Herrera, who hauls to and from the port, has certainly been affected.

You were making $2,000 a week?

TRUCK DRIVER: A week, yes.

PAUL SOLMAN: And now you're making $200?

TRUCK DRIVER: Two hundred, three hundred, five hundred, no more.

PAUL SOLMAN: No more, and Herrera never knows how much. At the union hall, the longshoremen who unload the trucks kept their insecurity to themselves.

What's the experience of the suddenness of the drop?

LONGSHOREMAN: I'm out of here, you guys. I'm not going to do this. I'll see you.

LONGSHOREMAN: No comment right now.

LONGSHOREMAN: No comment.

PAUL SOLMAN: One longshoreman did speak to us, though just for a moment.

Can you predict your income now at all?

LONGSHOREMAN: No.

PAUL SOLMAN: You really just don't know from week to week how much you'll make?

LONGSHOREMAN: Right, week to week, no.

PAUL SOLMAN: Well, how do you deal with that? I mean...

LONGSHOREMAN: You just take what you can get.

This was a complete collapse of everything we've known, and so people are lost.

Chinese textile plants closing

PAUL SOLMAN: We met George Rudes on last year's visit. His business, Not Your Daughter's Jeans, was booming. Its signature product, the Tummy Tuck, a worldwide sensation, thanks in part to the weak dollar.

Actually, it's still thriving, for reasons you can read about on the Business Desk online. But Rudes, too, sees the jolt of the crisis as key in undermining investment by making the future so unpredictable.

GEORGE RUDES, CEO, Not Your Daughter's Jeans: We have to make plans. We have to buy raw materials. We have to plan for a season. We have to calculate what we're going to sell, how we look at our customers. We make projections, and we buy the material.

PAUL SOLMAN: Or don't buy, if we, the consumers of the world, now won't.

We met fabric broker Marvin Jacobs last year when he happened by during our shoot at Not Your Daughter's Jeans in Los Angeles. He interrupted a recent trip to Asia for a quick video chat.

MARVIN JACOBS, fabric distributor: You have hundreds if not thousands of factories that are closing in China. There are small textile mills, weavers, finishers, dyers, weavers are closing all over China, because as the market contracts here and worldwide, there's no demand anymore.

PAUL SOLMAN: How does this compare to the worst that you've seen?

MARVIN JACOBS: This is absolutely the worst times I've seen since I've been in the market 35 years, both from an importing point of view to a manufacturing point of view. The market is horrific.

PAUL SOLMAN: Horrific in the U.S. and China, Europe, Japan. No wonder global trade is at a standstill and the worldwide economy, one could say, has lost its moorings.