I was stuck by this question last month as I watched the Tour de France bicycle race.  Of course, I was cheering for Lance, hoping for a big comeback.  But, I also wanted to cheer for the “American” team.  It dawned on me that there was no truly American team.  Team Garmin Slipstream had the American sponsor, but most of its riders we foreign.  Team Astana had a Spanish sponsor, but a fair number of American riders.  Even Lance lives a fair amount of the year outside of the US.  In the end, I had to settle for nearly-American teams, but it got me thinking…

Today I read another article about a “Buy America” clause being added to a House spending bill that precluded any of the $33b of appropriated funds from being used to purchase cars other than those made by GM, Ford or Chrysler.  Yes, those three are American registered companies.  However, Mercedes, Toyota and many other have plants located in the US that employ thousand of Americans.  A portion of a dollar spent on a Toyota will work its way back to the American workforce.  BMW does a great job of keeping the South Carolina economy humming with their Greenville plant.  Conversely, many of the Ford vehicles are assembled in Mexico or Canada and employ their nationals.

So, what is the tipping point where a company becomes American?  For cars, I’d assume the profit margin to be in the 6-10% range.  That means that 90-94% goes to someone other than the manufacturer.  I know the dealers take 10-20% of the sales price, and we’ll assume they are “American” whether the car is a Honda, Ford or Fiat.  The remaining percentages goes to the raw goods and labor to assemble the car.  In some cases, that’s Americans and it some cases it’s not.  Conceivably, you could buy an American car and have 70% of the money go outside the US.

In this global, flat economy trade-restrictive “Buy American” clauses don’t make much sense.  They do, however, make politicians feel proud enough to wear their American flag lapel pins… (which was most likely made in China).

Wednesday’s $39 billion auction of 5-year Treasury notes was met with very poor demand and could drive interest rates higher for America’s increasing deficit. Two metric stood out as harbingers of disappointing results. First, the bid-to-cover ratio came in at only 1.92. This represents the lowest value for this metric in over a year and is an indicator of general investor malaise. Second, the yields for the notes came in unexpectedly higher. This would indicate that the buyers were in the position of strength in the pricing negotiations. Never a good sign if you have a vested interest in the seller, which we all do.

“It was just a horrendous result,” said William O’Donnell, head of U.S. Treasury strategy at RBS Securities in Greenwich, Connecticut. – as reported by cnbc.com

It is anticipated that today’s (Thursday) auction of $28 billion of 7-year notes could be met with equally week demand. Overall, the lack of demand and pricing ability for Treasury notes could mean that the cost of borrowing increases significantly for the US. It appears to also be a clear sign from our largest foreign and domestic lenders that we need to throttle back on our levels of debt.

Richmond, Virginia, July 21, 2009 – Moreland Property Group, Inc. (MPG) announces its ABA (“Audit, Benchmark, Act”) Lease Analysis Program as an expansion of its asset management and advisory services. The ABA program is designed to identify and recover lost value in the lease agreement and provide landlords, tenants and banks with a complete picture of how their asset and lease compares to the market and identify future profit opportunities and cost savings… more

Continuing the trend toward larger, more efficient ships, MSC announced that they were changing their Far East-US Golden Gate service to nine ships of 6,700 TEU’s each. These nine vessels will replace the ten 5,000 TEU ships that had previously operated in the service. This also converts the service from a round the world service to one that transits the Suez Canal each way because the new ships are too large for the Panama Canal.

As you are probably aware, the Highway Trust Fund (HTF) will run out funds this August.  The Obama administration has asked for an 18 month extension of the program until it can figure out a new solution.  I suspect that the administration will get the extension and the HTF will continue to be funded for at least 18 more months.  This brings up the bigger question of what is the “right” answer.

Revenues from the gas tax which have traditionally funded the HTF have declined significantly.  There are a number of factors behind this including more fuel efficient vehicles, $4.00/gal gas last summer, and the overall downturn of the economy.  Regardless of the reason, it seems clear that relying on the gas tax is not a long term solution.

There have been a number of solutions tossed out there in the past few weeks including “per mile” taxes to capture revenue from fuel efficient drivers to levying additional taxes on the heavy users (trucks, rail, etc.).  While these solutions, and some of the others that have been proposed, do work at attacking the symptoms, none really address the illness.

What I haven’t heard proposed and talked about is a concerted effort to increase short-sea shipping in the US.  We know from other countries in the world that short-sea shipping works and it certainly would work to move more trucks off the road.  More trucks off the road mean less wear and tear of our highway system and less congestion on the roadways.

One significant hurdle to increasing our use of short-sea shipping is the Merchant Marine Act of 1920, otherwise known as the Jones Act.  This 89 year old law restricts the carriage of goods and personnel between US ports to US built and flagged vessels.  In addition, 75% of the crew must also be US citizens.  In 1920, I am sure this law made good sense.  It protected what was a large US industry and secured our shores from an uncertain political environment.

However, 89 years later, the law is financially punitive to an idea that could have a tremendous positive economic impact for the US.  If we allow foreign operators to run a “shuttle” services between US ports, you could have a low cost method for moving goods up and down the coasts.  Lower transportation costs would mean lower prices on the store shelves and more money in the consumer’s pocket.  In addition, the highways would be safer and would require less maintenance.

It seems like an easy, low cost way to work towards a solution to the HTF.  Certainly, it would be one piece in a complex puzzle, but it’s a start.

Round 1 consisted of the US and China each attaching “Buy Domestic” requirements to their stimulus packages and both screaming that they were unfair.  Today, in Round 2, the International Trade Commission ruled that China had been unfairly dumping tires in the US.  The tidal wave of low cost Chinese tires had disrupted the US tire market and forced tire plant closings by Goodyear, Continental Tire, and Bridgestone/Firestone.  However, none of these companies were the complainant.  The group that was crying foul was the United Steelworker union.

As a consumer, I like having the Chinese tires as an option.  Even if I don’t buy their tires, the low cost option makes the higher quality tires become more price competitive.  That’s a good thing for me.  I can then take the money I saved and buy more groceries, or maybe a movie night for the family.  Either way, my disposable income works its way into the US monetary system.  You’d be hard pressed to make a case that a low cost (as long as it is safe) option is a bad thing for the consumer.

This begs the question of who is harmed then.  Clearly, the Steelworkers feel that they have been harmed.  However, last I checked this was somewhat of a free market economy.  If they can make a tire that performs as well and is cost competitive, then what is the problem?  I guess the problem is that they can’t compete.  That is a problem – on many levels.

I can remember paying $750 for a DVD player.  Not a really nice one, mind you.  This was when they first came out and it was an average player.  Today, thanks to low cost producers, you can get a DVD player for about $35 – maybe less if you look hard enough.  Is that bad for the economy?

What, exactly, did the US expect to happen.  As we all know, an integral part of the American Recovery and Reinvestment Act of 2009 was the “Buy American” provision.  This clause stated that, where doing so did not increase the cost by over 25%, any projects that utilized ARRA funds were to be constructed of American made materials.  While the outrage from China drew the most press, other countries were also voicing their disgust at the protectionist efforts.  Others discounted the Buy American clause as nothing more than a nuisance.  However, we have already seen some very real consequences of this “nuisance”.  There is one example of a project where the sewer pipes were American made, but he joint pieces were Canadian.  Every bit of pipe that had been laid had to be ripped up and redone at the governments expense.

Now, China comes out today and says that all of their projects completed under their $585 billion stimulus plan must utilize Chinese raw goods, where possible.  This has again sparked shouts of anger.  But this time it is the US that’s angry.  Although they have enacted the very same regulations domestically, several US groups are demanding that China remove these isolationist requirements.

Well, I’m not sure exactly what the US groups expected.  When we take the lead and implement it here, we can’t be too upset when it is implemented elsewhere.  I think we are seeing the beginnings of a significant trade war with China.  (Keep in mind we are already fighting the beginning stages of one with Mexico).  We may end up on-shoring our manufacturing not out of choice, but because we have no other options.

If that title doesn’t scare you then you might need to check your pulse…  Reuters ran an article this morning talking about how the US Federal Reserve couldn’t understand why the yield curve reached its steepest level in history last week.  Some of the theories it puts forth include, “the economy is recovering so well so there is less need for secure government backed investments”, “China may be repositioning its portfolio of treasuries”, and “the US economy is worsening and there might be a collapse of the US dollar”.  Some of these theories are in diametric opposition to each other, providing further indication that the Federal Reserve really isn’t sure of much.

I know I only have a college degree in economics, but let me give this a try…  We know the US Government is going to have to issue roughly $2 trillion of Treasuries to fund next year’s deficit.  That will push the Supply curve for treasuries out to the right.  We also know that the US economy continues to struggle, signs of improvement are few and far between and there is a very real prospect of inflation on the horizon.  That will shift the Demand curve in to the left.  What you are left with is reduced quantity demanded for Treasuries and a reduced price for Treasuries.  A general believe that this economic condition won’t last forever, and some change will be coming amplifies the effect the further out the yield curve you go.  A lower price means a higher yield and, voila, your yield curve is steepening.  I know this is a gross oversimplification of the Treasury market, but it at least gets you heading in the right direction.

Over the weekend I watched a very interesting Science Channel program on network theory (yes, I know I need to get out more…).  Basically, a group of mathematicians had been able to write a mathematical equation that represents the game Six Degrees of Kevin Bacon.  For those that aren’t familiar with the game, someone proposes an actor or actress and you trace them back to Kevin Bacon by the movies they have appeared in.  The hypothesis is that every actor/actress can be linked back to Kevin in six or fewer movies.  According to the program I watched, the Kevin Bacon game ends up being a very good proxy for other naturally occurring “networks” including the World Wide Web, intra-cellular communications, pandemics, and the US power grid .  Each node within these networks is linked to each other node in a surprisingly few connections.

One trend that emerged out of their research was that in randomly created networks there emerge major “hubs” that shrink the relationships between nodes and enable fewer degrees of separation.  In any given network, you can remove many of the less influential nodes and the network continues to operate well.  If you remove one of the hubs, the network begins to break down.

What I found especially interesting about this is that the hubs occur in multiple, randomly created networks.  It doesn’t matter if the network is microscopic (cellular), operated by viruses (pandemics), or man made (power grid).  The hub and spoke structure ends up being the absolute most efficient way to distribute information.  Now if we jump to the real estate world, will the same hub and spoke structure emerge in supply chain strategies?  Does the world only need a few key, hub warehousing cities and then a vast network of spokes?  What are the qualities that will help a location emerge as a supply chain hub?  Are their locations we consider hubs today that are evolving out of “hub” status?  

And consider the East Coast port situation.  There are a number of ports trying to emerge as the “hub” of the east coast. What are the qualities that will make a Jacksonville emerge over a Charleston?  How vast is the networked web of nodes and how many hubs are needed?

Science, math and nature have told us that hub and spoke is the most efficient way to set up networks.  How effective has the US been at following their lead when we set up our supply chains?  Thoughts?  Anyone care to share a good example of a hub and spoke supply chain that they think works particularly well?

The Virginia Commonwealth Transportation Board (CTB) recently approved a contract that will move Hampton Boulevard under the rail line that now crosses it.  The $20 million contract is small relative to some others in the state, but is one that the Port Authority has been pushing for for over 15 years.  

Once completed, the improved traffic pattern will allow the port to build longer trains carrying imported cargo containers without disrupting traffic on Hampton Blvd.  The port estimates that this could allow them to utilize rail for an additional 20% of the product that comes through the port.  Currently, that 20% leaves the port via truck and contributes to pollution, congestion and disgruntled neighbors.  The more product that can leave via rail, the better for Hampton Roads.

Now that Hampton Boulevard is being addressed, the State is considering an additional $17.8 million investment to double the on-dock rail capacity at Norfolk International Terminals.  These are all great projects for the port and will further enhance its competitive position over other East Coast ports.