Since the occurrence of the Japanese earthquake on March 11, questions have been raise about our ability to continue to grow economically and the continued recovery of the financial markets. As the world watched in horror and sadness for the Japanese people, they were also watching the stock markets around the globe.
While many indexes gave ground on the news of the disaster, the Nikkei Index fell 1,829.23 points or 17.5 percent from its closing value on the 10th in the days following the event. Our markets also responded by giving ground, but the correction was less than four percent on the S&P 500 index and by the fourth day this index was once again moving up.
Natural disasters can and will have an impact on financial markets as they occur. But in recent decades our world has become a much smaller place. Both good and bad news circles the globe with astonishing speed today. It seems very little occurs today without someone making a phone call about it; sending a comment or photo in an email; posting it on their Facebook page; or Tweeting about it. Only when the tree falls in the woods and no one is around, does it go unnoticed and unreported.
Our world has also become much smaller due to intermodal transportation. This began in the 1920s with the standardization of containers that could be shipped via a variety of transportation methods. But, it was not until the 1980s and beyond that, the impact was felt globally. Before, many products were sent in bulk, meaning they had to be loaded onto pallets and moved by hand at truck, rail and shipyards. All of this handling resulted in shipping costs on many items greater than $100 per ton. Insurance and storage costs were high as well since many of the products had to be stored in warehouses while waiting for the next leg of the trip. Since these items were being shipped in bulk, they were open for all to see and thus subject to theft.
The 40-foot container changed many lives around the world. Products could be loaded at the manufacturer into a container and then sealed. A specialized tractor trailer rig would carry the container to a rail yard and then the entire container would be lifted off and stored outside until the train’s arrival, locked and secure. Later the container would be placed onto a flat rail car and head off to a distribution warehouse or perhaps a shipyard for international export. Specialized container ships were developed to expedite the loading and offloading as well as to maximize the volume each ship could carry. The days of a ship taking a week or longer in port to off loaded and re-load are gone. All of this brought the shipping costs down to incredibly low prices. The result was economic growth around the world. Countries with ports and the cranes to load container ships could now export products far more reasonably.
This is why the French could export Perrier, “water”, all the way to the United States and the price on the supermarket’s shelf was still reasonable.
The impact to manufacturing or shipping by natural events is far less today than ten or fifteen years ago. Whether it was the New Zealand earthquake in February, or the Japanese earthquake and tsunami in March, it seems the world’s economic engine continues run. Due to almost spontaneous knowledge of these events, purchasing agents are quickly at work determining the steps and perhaps new suppliers to minimize the impact on manufacturing and sales.
It is my belief the U.S. market will continue to make improvements throughout 2011, and thus the financial markets may respond positively. As with all forecasts, any number of new events can change this prediction and thus all investors should remain aware of market news.
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