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Wednesday, January 14, 2009


trade collapse moves from raw inputs to finished goods

the horrifying simultaneous downturn in imports and exports being seen around the globe, long evident in raw materials as commodity prices collapsed, is finally turning up in shipping rates on finished goods. in spite of whole fleets being idled at anchor in global shipping hubs, freight rates have completed their epic collapse by migrating to container ships and running all the way to zero. via the telegraph:

Freight rates for containers shipped from Asia to Europe have fallen to zero for the first time since records began, underscoring the dramatic collapse in trade since the world economy buckled in October.

"They have already hit zero," said Charles de Trenck, a broker at Transport Trackers in Hong Kong. "We have seen trade activity fall off a cliff. Asia-Europe is an unmit­igated disaster."

Shipping journal Lloyd's List said brokers in Singapore are now waiving fees for containers travelling from South China, charging only for the minimal "bunker" costs. Container fees from North Asia have dropped $200, taking them below operating cost.

Industry sources said they have never seen rates fall so low. "This is a whole new ball game," said one trader.

The Baltic Dry Index (BDI) which measures freight rates for bulk commodities such as iron ore and grains crashed several months ago, falling 96pc. 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.

it is important to note that this is new news, not a continuation of earlier reported difficulty in letters of credit.

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.

this is sure sign of a global depression taking hold. it is now no-holds-barred, and america is in the midst of it.

Outbound traffic from Long Beach and Los Angeles, America's two top ports, has fallen by 18pc year-on-year, a far more serious decline than anything seen in recent recessions.

talk of a depression is very well founded, and even speculations on a Great Depression such as that experienced in 1873-79 or 1929-37 are not at all farfetched. indeed, on this view, that's exactly what is happening.

UPDATE: calculated risk with an excellent chart of los angeles port traffic.

really says it all.

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