“The Baltic Dry Index (BDI) which measures freight rates for bulk commodities such as iron ore and grains crashed several months ago, falling 96 per cent. The BDI – though a useful early-warning index – is highly volatile and exaggerates apparent ups and downs in trade. However, the latest phase of the shipping crisis is different. It has spread to core trade of finished industrial goods, the lifeblood of the world economy.
Trade data from Asia's export tigers has been disastrous over recent weeks, reflecting the collapse in US, UK and European markets.
Korea's exports fell 30 per cent in January compared to a year earlier. Exports have slumped 42 per cent in Taiwan and 27 per cent in Japan, according to the most recent monthly data. Even China has now started to see an outright contraction in shipments, led by steel, electronics and textiles.
A report by ING yesterday said shipping activity at US ports has suddenly dived. Outbound traffic from Long Beach and Los Angeles, America's two top ports, has fallen by 18 per cent year-on-year, a far more serious decline than anything seen in recent recessions.
"This is no regular cycle slowdown, but a complete collapse in foreign demand," said Lindsay Coburn, ING's trade consultant.
Idle ships are now stretched in rows outside Singapore's harbour, creating an eerie silhouette like a vast naval fleet at anchor. Shipping experts note the number of vessels moving around seem unusually high in the water, indicating low cargoes.
It became difficult for the shippers to obtain routine letters of credit at the height of financial crisis over the autumn, causing goods to pile up at ports even though there was a willing buyer at the other end. Analysts say this problem has been resolved, but the shipping industry has since been swamped by the global trade contraction.
The World Bank caused shockwaves with a warning last month that global trade may decline this year for the first time since the Second World War. This appears increasingly certain with each new batch of data.
[Charles de Trenck, a broker at Transport Trackers in Hong Kong,] predicts Asian trade to the US will fall 7 per cent this year. To Europe he estimates a drop of 9 per cent – possibly 12 per cent. Trade flows grow 8 per cent in an average year.”
Ambrose Evans-Pritchard, “Shipping rates hit zero as trade sinks”, The Telegraph (14 January 2009).
http://www.telegraph.co.uk/finance/4229198/Shipping-rates-hit-zero-as-trade-sinks.html
Ambrose Evans-Pritchard is International Business Editor of The Telegraph of the United Kingdom.
As reported in the January RSG World Economic Brief issued to students earlier this month global trade is expected to decline sharply in 2009. The Brief pointed out that both U.S. exports and imports fell significantly over the course of the past six months, with imports dropping faster than exports and the U.S. trade balance improving. Indeed, for much of the year exports had been a bright spot for the U.S. economy, the source for what slow growth the U.S. recorded in 2008.
This short discussion gives some idea of the magnitude of the decline that now seems to be underway across the world and its unprecedented scope. This is far more than a slacking of trade or even a decline in trade. It is a collapse in world trade that reflects a sharp decline in not just the overall level of production in the world economy but in the level of output produced in each of its main sub-components, primary products and manufactures, and in each of its main regions. Because it is a broad-based and worldwide decline in trade and production, it is going to be very difficult to reverse. Unlike what has occurred at times in the past, the world economy cannot serve as a catalyst for a U.S. revival; if anything, it will be a further drag on the U.S. economy.
The U.S. and world economies now face their worst crisis since the end of the Second World War. It is likely to be a long, deep recession both here and abroad.
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