Import News: Recession and Imports

Import News from the Importers Institute:
Recession and Imports

The current global recession started as an old-fashioned bank run in the US. Confidence in the liquidity of the finance sector was quickly restored by the injection of gargantuan sums of taxpayers' money, coupled with government guarantees. The incipient run was stopped in its tracks and, other things being equal, the speculative housing and commodity bubbles that were built during the cheap credit boom would have burst, as all speculative bubbles invariably do.

Unfortunately, left-wing politicians in the US, Australia and the UK saw this as too good an opportunity to miss. Here was an excellent crisis proving that the intellectual bankruptcy of their collectivist worldview was not buried in the rubble of the Berlin Wall in 1989, after all. No, we cannot just allow the markets to do what they do and allow the speculative bubbles to burst. Instead, we will regulate, regulate and regulate even more and then we will borrow a few trillion dollars from our children and grandchildren to 'stimulate' the economy. Those who advocate strangulation by red tape, quickly followed by stimulation with other people's money, do so with a straight face.

In New Zealand, we are fortunate in that the politicians currently in power appear to be marginally saner. Besides, we just do not have trillions to waste. All we can do is to hunker down and wait until it all blows over. There was a glimmer of hope when the Swine Flu briefly replaced the Global Financial Crisis as the panic du jour, but that scare fizzled out. Soon, we may have to go back to global warming alarmism, unless some other apocalyptic certainty takes its place.

Importers are among the first to feel the effects of recessions. This one, however, is a little different from those that we have experienced in the last two or three decades. If you are importing goods that rely on discretionary spending, you are probably taking a big hit right now, but if you import everyday items that people need, you would hardly have felt a ripple.

Because the current recession is largely driven by media sensationalism aggravated by political opportunism, people react in different ways. They defer purchases that are easy to defer, for example instead of changing their cars at the end of three years, they keep them running for another year or two. That is why the car business in New Zealand is in meltdown, along with its support services, like shipping and ports. On the other hand, The Warehouse discount retail chain has just reported an increase of 1% on sales (Red Sheds, same store sales) for the most recent quarter, compared to last year.

Importers of everyday items, like non-luxury clothing, footwear and food are reporting unchanged sales or small drops at the worst. If your washing machine breaks down, you will probably buy a replacement, but that big plasma screen that you have been thinking about will probably have to wait a while longer, especially as you can no longer get a cheap loan on the rising value of your house.

Importers are reacting to the current climate with caution. An increasing number of them are moving their own warehousing and distribution functions to third-party logistics operators, who can usually provide a better level of service at a fraction of the cost, if done properly. They are also attempting to reduce their level of debt, to protect themselves against the outrageous behaviour of our bankers, who have simply failed to pass on interest rate reductions to their business clients while enjoying a government guarantee on their deposits.

ENDS

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