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カテゴリ：商品相場

Shipping costs are sinking as ships sit idle

The Collapse of the
Global Cargo Trade

The Baltic Dry Index sounds like a weather report, but what it really does is track the price of shipping bulk cargo - such as coal, iron ore, cotton and grain. And recently, the Baltic Dry Index has fallen through the floor.

In real dollar terms, at the peak of the market, a 170,000-tonne Capesize bulk carrier cost $234,000 to rent. Recently, it was $5,600 - that's a crash of over 90%.

Why is this happening?

Two reasons ...

The falling demand for products like cars. Auto sales are falling in the U.S., Germany, France, Japan and more. The pace of car sales growth is also slowing down in China.
International shipping works on "letter of credit." These financial guarantees are issued to buyers of bulk cargo by their banks. This system has greased the wheels of global trade for the last 400 years. With the collapse of the credit market - and banks now sitting on their hands, refusing to lend - the wheels of global shipping are grinding to a halt.

How bad is this?

Peter Kerr-Dineen, chairman of Howe Robinson shipbrokers, didn't mince words when he described the crisis to the British press:

"This is a nuclear bomb in the freight market and in world trade. Liquidity has to return because if there is insufficient money to provide standard finance, world trade will be sharply cut back and economic growth will implode."

Or as the London Banker blog put it:

"If cargo trade stops, a whole lot of supply chain disruption starts. If the ore doesn't go to the refinery, there is no plate steel. If the plate steel doesn't get shipped, there is nothing to fabricate into components. If there are no components, there is nothing to assemble in the factory. If the factory closes the assembly line, there are no finished goods. If there are no finished goods, there is nothing to restock the shelves of the shops. If there is nothing in the shops, the consumers don't buy. If the consumers don't buy, there is no Christmas."


*World trade has collapsed because the demand for goods has plummeted and available credit has dried up.*

The cost of insuring against a U.S. government default is soaring. And similar trends exist in the bond markets of Germany and Britain.

I think this is because investors are pricing in the massive bailouts that central banks are throwing at their markets. For instance, the U.S. bailouts will add enormously to our country's already staggering national debt. According to CNBC data, the cost of all the bailouts that have been going on for months has now hit a total of $4.2 TRILLION!

In fact, Morgan Stanley recently estimated that the 2009 fiscal deficit in the U.S. would reach 12.5%. That's more than twice the previous record of 6% set in 1983.

As a percentage of GDP, the U.S. national debt should pass 70% next year. That's lower than the 122% at the end of World War II. Yet we aren't fighting World War II, are we? That ended rather abruptly - this crisis won't. And the odds are our fiscal picture will get worse, not better.

U.S. 10 year cds spread