Tuesday, August 14, 2012

The clearest possible harbinger of economic depression

I've mentioned on previous occasions that the international shipping of containers and bulk cargo is a harbinger of world economic conditions.  According to Ambrose Evans-Pritchard, things look very bleak indeed.

Germany’s shipping industry faces a wave of bankruptcies over coming months as funding dries up and deepening economic woes across the world cause a sharp contraction in container trade.

Over 100 German ship funds have already shut down as the long-simmering crisis in global container shipping finally comes to a head. A further 800 funds are threatened with insolvency, according to consultants TPW in Hamburg.

They are not alone. Britain’s oldest shipowner, Stephenson Clark, dating back to 1730, went into liquidation last week, closing the final chapter of Britain’s coal trade and the industrial revolution.

. . .

Container volumes arriving at European ports plunged in June, dashing expectations of a summer rebound. Imports fell 7.5pc from North America and 9pc from Asia. Flows into the Mediterranean region crashed by 16pc, reflecting the violence of the recession in Greece, Italy, Spain, and Portugal.

Buckling trade is the coup de grace for countless shippers still clinging on by their finger tips. “The market is barely paying above operating cost. If you are loaded with debt, you are in trouble,” said Martin Smith from ship operators Norddeutsche Vermögen in Hamburg.

It is much same story in the Pacific region where Danish shipper Maersk said that it is losing over $200 for every container on the Qingdao-Melbourne route.

. . .

Clarkson’s ClarkSea Index for maritime freight rates has halved since mid-2010, and fallen by 80pc since 2008. This includes the wildly volatile Baltic Dry Index for bulk freight, which has crashed by 90pc to post-Lehman depths. Container rates have held up better but small “feeder” ships are mostly losing money. High oil costs are eating up margins.

“It’s familiar territory,” said Clarkson’s Shipping Intelligence Weekly. “As pressure builds, owners are forced to lay up ships and, with no cash flow, they can’t pay their bankers. As their ships are forced on to the market, prices spiral down. Well-heeled companies snap up the good ones and the rest go for scrap.”

. . .

German shipping experts say that two-thirds of the country’s marine fleet is in financial distress. If the crisis drags on much longer, the Greeks may leapfrog ahead to become world leaders in container shipping. The irony of prudent Greeks cleaning up after a reckless debt spree by the Germans is lost on nobody.

There's more at the link.

Mr. Evans-Pritchard is writing primarily about the state of the shipping industry itself, but the fact that the bottom has fallen out of the international shipping industry now, in the third quarter, is of immense importance as a broader economic indicator.  This is the time of year when massive orders for the Christmas shopping season should be on their way to US and European ports.  If wholesalers, distributors and economic giants like Walmart or Sears (or their European equivalents) aren't ordering their usual shipments, it's because they don't expect consumer demand to be there this year . . . and what does that tell you about the state of the world economy?


1 comment:

Peter said...

There was massive overbuilding in the commercial shipping industry in the last decade or so, that is probably one factor behind the steep drop in rates.