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Asian shipping slows as crisis strangles demand from US, Europe
KUALA LUMPUR: The ports and shipping lanes of Asia, the arteries of world trade through which goods and commodities surged in the boom times, are starting to seize up as the financial crisis strangles demand.
The Baltic Dry Index, a signpost of economic trends which tracks the cost of moving goods across the oceans, has set off alarm bells by plummeting 85 per cent from its peak in May to a six-year low.
Share prices of some major shipping companies, which haul bulk freight such as iron ore, coal and grains destined to be turned into manufactured goods, have fallen 50-70 per cent in the past few months.
“The global economic slowdown will push some shipping lines into bankruptcy,” Marc Faber, a famed investor and editor of the “Gloom Boom & Doom” report, told AFP.
Standard & Poor’s also said this week that the Asian shipping market has suffered double-digit declines on the US-Asia route in June and July, as well as being hit with higher operating costs.
The industry had been expecting an upturn after the Beijing Olympic Games ended and factories chugged back to life, after an enforced holiday to help improve air quality. But instead disaster struck on global markets.
There are reports of idle vessels being put to anchor, and question marks over the many orders for new ships that were placed in brighter times, years ahead of expected completion dates.
“Pain levels could be high for companies that agreed to pay 2007 top-dollar prices for dry bulk ships, or who agreed to pay high long-term charters,” said an article in the Far Eastern Economic Review this month.
Container shipping was hit first earlier this year as demand for Asian-made goods in the US and Europe dropped off, a casualty of the sub-prime mortgage crisis and poor consumer confidence.
In a chain reaction, the countless Asian factories churning out electronics and consumer items for the US and European markets began lowering output, and the need for raw materials declined.
Container shippers, bulk operators and port authorities across the region are reporting slowdowns.
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Investors shun Greek debt as shipping crisis deepens
Freight rates for shipping are crashing at the fastest pace ever recorded as banks shut off credit lines to the industry, precipitating a sudden crunch in world trade.
The Baltic Dry Index measuring rates for coal, iron ore, and grains, and other dry goods plummeted below 1000 yesterday, down 92pc since peaking in June.
The daily rental rates for Capesize big ships have dropped $234,000 to $7,340 in weeks, leaving operators stuck with heavy losses on long leases. Empty ships are now crowding Singapore and other global ports.
“It is extremely serious, ” said Jeremy Penn, president of the Baltic Exchange. “Freight rates have never fallen this steeply before. It is telling us that world trade in raw materials has slowed dramatically. Shippers are having genuine difficulty obtaining letters of credit from banks,” he said.
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Financial crisis taking its toll on Asian shipping
THE Asian shipping industry is feeling the heat of the current financial crisis, with sluggish growth manifesting in every link of the industry chain. Asian shipowners and financing institutions are beginning to reel from the knock-on effects of the global financial crisis.
South Korean shipbuilders reportedly said that all newbuilding negotiations for commercial ships have been halted and shipowners have requested postponement of talks for possible new orders until the unstable global financial markets have found a level. The only exception seems to be offshore newbuilding projects.
Meanwhile the Korea Maritime Institute (KMI) expects an overall contraction in shipping markets and has singled out forward freight agreements (FFAs) as being most affected. KMI’s Lim Jong Kwan told a seminar that the FFA market size at present is about US$100 billion, of which investment banks and financial institutions have a 30 per cent share. Mr Lim expects dry bulk freight rates to fall further with the BDI (Baltic Dry Index) sliding as Chinese demand for iron ore falls away. He expects a recovery on the back of delays in delivering newbuildings due to non-availability of finance and scrapping.
Fairplay also reported that Asian shipowners and financing institutions are beginning to reel from the knock-on effects of the global financial crisis. ‘Overseas banks are issuing letters of credit and cargoes are not even full these days,’ a Perkins Shipping Group executive told the magazine.
Though the effects on his company have been negligible as most of its voyages run the Australasian route, the hardest hit areas, he noted, are vessels plying the US and European runs.
Shipbroking in Singapore is moving gingerly with most banks ’stopping financing’, said a broker. In ship financing, since the dramatic fall of the BDI by more than 60 per cent, some shipcharterers are facing the prospect of bankruptcy, pointed out a DnB NOR official. ‘Freight rates are coming down and other variable costs are rising,’ he said.
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Shipping Firms Gear Down as Slow Economy Takes Toll
Transportation companies are reporting sharply lower freight volumes, a sign that the pipelines of global commerce have begun to slow.
Goods shipped by truck, train and ship have all fallen off in volume, and freight companies are now forecasting a slump as the credit crisis slows manufacturing and puts the brakes on consumer spending. Shipping companies are considered a barometer of economic health, which makes the current downturn particularly worrisome. The autumn months ordinarily bring a surge in preholiday shipping.
Ocean transport is also under pressure. The number of shipping containers entering the U.S. through its top 10 container ports between January and September was 7.2% lower than it was during the year-earlier period, according to Paul Bingham, managing director of HIS Global Insights, which tracks port data. Such containers typically carry consumer goods ranging from apparel to electronics.
The trucking industry, which moves about 70% of the nation’s freight, is in its worse slump “since the Depression,” says Ray Kuntz, chief executive of Watkins & Shepard Trucking Inc. in Missoula, Mont., and former chairman of the American Trucking Association. He says he laid off 40 people in September, usually a month when he hires people to prepare for heavy holiday volume. Freight volumes were flat in September when they should have begun rising, he says.
In part because of high fuel prices, 1,905 trucking companies ceased operations during the first half of the year, according to Donald Broughton, a research analyst at Nashville, Tenn.-based investment bank Avondale Partners. By the end of 2008, as many as an additional 2,000 of the more than 200,000 for-hire trucking concerns in the U.S. are expected to fail, he says. Gainey Corp., a Grand Rapids, Mich., carrier with 2,200 trucks and more than $400 million in annual revenue, sought bankruptcy-court protection last week.
The credit crunch is choking off cash at a difficult time. After the holiday season, shipping volume typically drops off and trucking costs go up because of winter weather.
Some companies are worried they won’t be able to get loans to cover the fees they have to pay every January to renew their state tractor licenses, an expense that can cost a midsize company several hundred thousand dollars. In addition, many customers of trucking companies are also in trouble and are postponing payments, exacerbating the cash crunch.
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Crisis Of Confidence Hits Global Shipping
KUALA LUMPUR, Oct 23 (Bernama) — The intensifying credit crisis has spread to foreign trade as reports emerge of banks refusing to honour letters of credit from one another.
A letter of credit is a formal document guaranteeing payment by an issuing bank on behalf of a buyer (an importer), to a third party (the producer of the goods), for a specific amount of money, provided certain conditions are met.
“It is an I.O.U. between an importer and exporter and the lifeblood of international tradeflows,” said Matt Robinson, an economist at Moody’s Economy.com’s Sydney office.
Some cargo ships have been stranded at ports, as stocks pile up, because exporters have been unable to arrange shipping without being afforded bank finance, he said in an article made available by Moody’s Economy.com.
“If this problem persists, it will be a double-whammy for Asias export-oriented economies, already reeling from falling consumer demand in key export markets,” he added.
“It is most worrisome for Asias export-oriented economies with global shipping being hit as exporters and importers struggle to secure letters of credit,” he said.
Banks have also tightened lending conditions considerably by imposing more onerous requirements on importers and exporters before issuing letters of credit.
“With reports of sellers’ banks deciding they don’t trust the financial institutions named in buyers’ letters of credit, it has become an alarming anecdote of cargo ships being stuck in home ports.
“With ships not moving, stocks have been piling up and exporters have grown desperate for income from idle inventory. Importers of raw materials for production are also feeling the pinch as supplies dwindle.
“This could lead to price distortions as demand, despite being subdued by slowing economic conditions, outstrips supply as shipments are delayed,” he said.
The impact of the credit crisis has been evident throughout financial markets.
“Interbank lending has ground to a halt, wholesale funding markets have been volatile, equities across the globe have nose-dived and several Asian currencies have capitulated as US dollar funds become scarce,” Robinson highlighted.
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