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Carrying The Cash: Cargo Movement Can Predict The Economy

The amount of cargo brought to Puerto Rico by air and sea is one indicator of the future of our economy. If volumes pick up in the coming months, a recovery may be on the way.


November 15, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

Cargo movement can predict the economy: Puerto Rico’s cargo carriers are hurting due to the slow economy, but some improved cargo levels before Christmas might signal an economic recovery early next year.

If you asked Puerto Rico’s cargo transportation executives before Sept. 11 how they expected to fare this year, most would answer that due to the slow economy, growth would be flat, compared to the year before, and that they had big expectations for 2002.

With a worsening economic scenario following the Sept. 11 terrorist attacks, those expectations for 2002 have been reconsidered.

In Puerto Rico, as in any modern industrialized society, cargo transportation plays a crucial element in every citizen’s life. Here, more so, because we are an island with no natural resources, only 100 miles by 35 miles in size, with a population of some four million.

From the time we wake up to when we go to sleep, most of what we eat, wear, use for transportation, work, and play, arrives by air or sea from points all over the world. Without good sea and air cargo services, life as we know it would be drastically different–and much more difficult.

So it is no surprise that as cargo volumes began to decrease the economy showed signs of a slowdown by the middle of fiscal year (FY) 2001–from July 1 to June 30--and dropped further in December 2000.

During fiscal year 2001 (from July 1,1999 to June 30, 2000) and the most recent period for which complete statistics are available from the Puerto Rico Ports Authority, air and maritime carriers in Puerto Rico transported slightly more than 20 billion pounds of cargo to and from the island, a 2.9% drop from 20.6 billion pounds a year earlier.

Puerto Rico’s five ocean carriers, who collectively handled 96%, or 19.2 billion pounds of goods, moved the majority of that cargo.

The island’s air cargo delivery companies handled the remaining 4% during FY 2001. Carriers such as FedEx Express and UPS, and commercial airlines like American Airlines, Continental Airlines, and Delta Air Lines transported a total of 780 million pounds, compared to 785.5 million pounds in FY 2000, a 0.7 decrease.

When, at the start of FY 2001, company inventories began to pile up in the U.S. mainland, red flags went up among industry analysts, with a parallel effect on the island’s economy. For the period between July 1, 2000 and June 30, 2001, Puerto Rico’s cargo volumes decreased 2.9% compared to the same period a year earlier, reaching in June 2001 its lowest point since 1998, 1.6 billion pounds.

"We were expecting this year’s sales to be flat, but in the past weeks the market has turned soft," said Roberto Lugo, vice president of operations for Crowley Lines Service in Puerto Rico. "If we remain optimistic, sales volumes will equal last year’s. But the way things are going, sales will probably go down."

Still, some cargo transportation executives remain optimistic that volumes may pick up in the coming months, which would signal an economic recovery in 2002.

"The reality is that business is slow. We still have hope for a successful Christmas season and if that happens, things could be looking up. If not, worst scenario could still be flat growth for the end of this year," said Jaime Santiago, vice president of Aqua Gulf Transport.

Judging from the latest cargo data available, the recovery is still not in sight. The Journal of Commerce’s Piers data reported that Puerto Rico maritime cargo volumes (which make up more than 95% of total cargo volumes in the island) for July and August 2001 were 1.1 billion pounds and 1.3 billion pounds, respectively, compared to 1.4 billion pounds and 1.7 billion pounds a year earlier. That is almost 700 million pounds below the same two-month period last year.

Commercial airlines caught a second wind after the Sept. 11 events, when U.S. Postal Service operations were disrupted. In response to losses incurred due to the U.S. Federal Aviation Administration two-day travel ban in September, the U.S. Congress approved $5 billion for airline relief under the Air Transportation Safety and System Stabilization Act on Sept. 22. This has led the way for commercial cargo airlines to recovery in time for the upcoming holiday season.

"After Sept. 11, we stepped up our standard security measures with a minimum of additional expenses. In the past few weeks, we have noticed that the movement of packages has risen and is comparable to past years’ volumes. We are very hopeful about ending this year on a positive note," said Gabriel Emanuelli, UPS’s new country manager for Puerto Rico, the Caribbean and Latin America.

Navieras’ General Sales Manager Geoffrey Thurston is optimistic about the future of the economy, saying, "We need to look at the bigger picture and take into account all the big-ticket cargo that Puerto Rico lost this year. For example, a lot of cargo volume was lost with the Star Kist plant closing, along with several apparel and textile companies that have also left the island and no longer ship their merchandize pieces. Things were tough last year what with the [political] elections, but now that is over, and people are buying again."

Cargo carriers’ expectations for next year are mixed. Some remain hopeful about the economy, predicting an economic upturn within the first six months of 2002. Others believe it may take until FY 2002’s second or third quarters for volumes to return to normal, which in Puerto Rico’s case could mean somewhere between 19 billion pounds and 20 billion pounds.

Hurricane Georges’ pumped billions of dollars into the economy

FY 1998 (ending June 30) was a pivotal year for Puerto Rico’s economy. The island was experiencing an 8.5% real gross domestic product (GDP) growth rate, parallel to the U.S. mainland’s economy, when Hurricane Georges struck Puerto Rico on September 21, 1998.

The hurricane caused widespread damages to the local economy, leaving hundreds of residents homeless and provoking the Clinton administration to declare Puerto Rico a disaster area.

It was this disaster that local industry analysts say opened the doors (some say the floodgates) for the island’s economy to receive more than $4 billion in U.S. federal funds, plus about $1 billion in insurance payouts. The effect on the island was almost immediate.

By the end of FY 1998, 18.3 billion pounds of cargo had entered the island, close to 4% more than a year earlier. Incoming cargo was a combination of goods that had already been ordered by retailers in preparation for the 1998 Christmas season along with disaster relief materials such as wood, clothing, canned provisions, and replacement goods of all types.

Cargo gets a boom in FY 1999

But it was in July 1999 that Hurricane George’s federal and insurance funds truly started to impact Puerto Rico’s economy. With billions in dollars in infrastructure damages, cargo volume increased 10.4% over 1998. An average 1.7 billion pounds of cargo entered the island on a monthly basis, totaling 20.2 billion pounds for the year, an increase from the 18.3 billion pounds registered in FY 1998.

Air cargo carriers’ increase was a formidable 40.7% upsurge from 1998, to 835.1 million pounds in 1999 (or about 79 million pounds monthly in 1999 from an average 50 million pounds monthly in 1998.) Most of the increase may be traced to the emergency influx of construction materials needed to rebuild the thousands of homes and buildings destroyed or damaged by Hurricane Georges along with the replacement of furniture, appliances, autos, and a variety of supplies & goods.

Ocean carriers, the purveyors of approximately 95% of all island-bound cargo, also registered a 4.5% increase to 18.5 billion pounds in FY 1999, versus 17.7 billion pounds in FY 1998. Cargo averaged almost 1.6 billion pounds per month when compared to 1.5 billion pounds a month handled in FY 1998.

Two years later, October 1999’s 2.3 billion pounds of cargo still stand as a record high.

FY 2000 cargo volumes waned

During FY 2000, the island’s economic bonanza continued, registering a 2% increase in total cargo volumes over FY 1999. The end of the decade celebration in at the end of December 2000 probably stimulated to some degree the positive results of that quarter.

Except for July and October, total cargo volumes for every month during FY 2000 surpassed the previous year’s. Still, air cargo decreased 6.3%, or 785.5 million pounds (about 65 million pounds monthly) when compared to the same period a year earlier.

October 2000’s drop, which totaled 20 million pounds, may have been due to companies’ reductions of air carrier transportation budgets as rates rose with the escalating oil prices. As a result, maritime cargo volumes were up 7% during FY 2000 to 19.8 billion pounds (an average of 1.7 billion pounds monthly) from 18.5 billion in FY 1999.

Between January and June 2000, the gap in total cargo volume, when compared to the same period in calendar year 1999, started to close. From approximately 20 million pounds in total cargo volume for January 2000, it went down to less than 10 million pounds by March. This cargo volume spread remained stable to the end of FY 2000.

In the midst of a full blown economic slowdown by FY 2001

By the end of FY 2001, cargo volume had decreased 2.8% to 20 billion pounds, averaging 1.7 billion pounds monthly. The reduction was probably a consequence of various factors coming together in a basically short period of time. Among them was the beginning of an increasingly slowing economy, rising oil prices, and the November 2000 election results that brought about changes in Puerto Rico as well as the U.S.

The economic slowdown contributed to a 0.7% air cargo decrease during FY 2001, registering 780.1 million pounds from 785.5 million pounds in FY 2000. Maritime cargo also decreased 6.8% to 19.2 billion pounds, from 19.8 billion pounds in FY 2000.

Cargo movement patterns every October and between February and March have remained constant from 1998 to 2001, mostly as a result of retailers stocking up for upcoming sales events such as Christmas and Mother’s Day.

But in January 2001, the island’s cargo volume fell 613 million pounds, or 30%, to 1.4 billion pounds, from 2 billion pounds in January 2000. With the exception of March, every month thereafter has been lower in comparison to the same month a year earlier (with the exception of March, most likely as a result of Mother’s and Father’s Day sales and summer vacation cargo stock).

This Caribbean Business article appears courtesy of Casiano Communications.
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