Thursday, November 27, 2014
BUILD ON CAPACITY
Prior to the global financial crisis, U.S. and Canadian businesses were investing at a breakneck pace in order to keep up with frenzied global activity. Consumers everywhere were overspending, housing markets were hot, and business the world over tried to keep up with what became ultimately unsustainable. When the bubble burst, it left companies with a massive surplus of capacity that was going to take a long time to get used up. Investment and building in the boat industry almost completely shut down. The few yachts that did get built were to order ... and not on speculation of selling. Growth in the economy has for the most part been serviced by existing industrial capacity.
This investment growth trend has languished for many years and has become the accepted normal. It’s time to wake up!
For the past four years, modest economic growth has slowly but surely used up excess capacity in the USA and it’s filtering up to Canada. The total capacity utilization rate is just 1% below the all time previous peak and it’s rising. Capacity has almost escalated to pre-recession levels, without the uncontrolled frenzied pace of pre crisis activity. Numerous indicators show that investment needs to rise to build new capacity.
The irony of the situation is very strange. Here we have Crates Keswick going into receivership with a mountain of debt right on the threshold of an economic boom in North America. The US economy is on a full tilt roll now. The stock market has lead out to all time highs and the S&P still looks like a raging bull, housing has bounced back, unemployment is way down and new jobs are being created at an extremely healthy pace. The old saying that when the US sneezes Canada gets a cold also works in reverse. US consumers are spending again, fiscal stimulus has ended, money is cheap, the GDP is on fire and Canada has much to gain from their neighbour to the south.
Quality brand name yacht manufacturers in the US are pretty much selling everything that they can produce, as quickly as they can produce it. It’s time for the Canadian marine industry to catch the wave or we will find others who will fill the void in our own country. For marina operators this is the time to buy - not sell. The fate of the Crates Marine enterprises will create opportunity for some lucky marina operators, who will look back at 2014 as the ultimate play to lock in low interest capital investment that will provide handsome returns where in Canada we will once again see our economy come up to full steam in the next two years. It’s coming sooner than you may think because it’s a tsunami heading north from the US. Our problem in Canada is, we are standing around waiting for others to make a move – sometimes petrified by what hurt us in the past. Some smart operators will make a killing picking up the spoils of Crates from the Receiver. In six or eight years time, few will remember the 84 year history of Crates and life will have moved on to a new normal with the marina full of brand new shiny yachts with happy owners having cocktails on the bridge.