Logistics and Chinese Black Box – Fear Guides Massive Economic Shifts

We’ve written in the past about changing world logistics and the unwinding of globalization/comparative advantage.  This past week, we saw further proof that the US and China’s strained relationship is moving global businesses.  On the same day, the Wall Street Journal highlighted stories about China shutting down the data sources they had previously used to communicate their economic activity to the outside world and about a logistics boom in Laredo, Texas. 

Access to a database called Wind Information was cut off in recent weeks leaving investors and journalists scrambling for information.  President Xi suggests that western forces are trying to undermine the Chinese Communist Party’s hold on power as a reason to cut access.  This move is reminiscent of both the Cold War and China in the years before Nixon.  In light of rumored interest in Taiwan, we see this as just another sign that countries outside of China (and the US in particular) must prepare alternative supplies for domestic consumption and international trade.  

Which brings us back to Laredo, Texas!  Approximately $800M worth of products pass through Laredo every day.  This represents nearly 40% of trade between Mexico and the US.  These numbers have exploded over the last several years as companies have been near-shoring their operations to both capture the cheaper labor and much less onerous logistics than can be had from overseas and in China in particular.  Laredo has grown and continues to grow very rapidly which is causing growing pains with warehouse capacity and worker shortages that continue to get worse.  This is both an opportunity for, and obstacle to Laredo, but it is also indicative of a need to broaden the reshoring/nearshoring activities.  The cities in the US that do the best job of incentivizing businesses to build and operate within their metros have massive upside potential for population and economic growth.  These are very global issues, but they help us as investors to see where the next local opportunity will be. 

Sources: Wall Street Journal, Wall Street Journal