World Trade Collapsing

[fedsron2us]

A picture is said to be worth a thousand words.

Attached is a graph showing the performance of the Baltic Dry Index which tracks the demands for the bulk carriers that move 'dry' raw materials such as iron, coal, tin, grain etc around the world. It is a volatile but nonetheless powerful real world measure of the state of the global economy. Since the end of the summer 2008 it has declined by 89%. To put it mildly this does not beckon well for the future. The article from the Times confirms the gloom

http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article5141744.ece

[T_i_B]

1. I've made a number of comments about this on other threads

Yes, people are not buying as much stuff and business confidence is at rock bottom, which is why freight rates are being cut, to try and entice businesses to ship more stuff again.

However, on top of the headline freight rates you have Bunker Ajustment Factor (ie fuel surcharge) which is considerably higher then the freight rate itself, and also currency ajustment surcharge, which is needed due to the state of Sterling at the moment. The main freight rate is not the whole story.

Because there is less cargo being shipped we are now talking about container ships being mothballed and all sorts of things being done to save costs. Ships are starting to go a little bit slower for instance to save on fuel costs for instance.

And one very relevent factor for the UK is the plummeting value of Sterling. This makes imports
more expensive, and given that we are no longer a manufacturing economy that is very bad news. Exports might be helped by this but for the fact that people overseas aren't buying either. :scared:

[fedsron2us]

2. I think the recent BDI chart is essentially a reflection of the commodity bust

but I know that other factors such as new vessels entering service and difficulties in obtaining letters of credit has also played its part in suppressing shipping rates. The worry is that the last time the demand for commodities collapsed in this manner was just before the Great Depression of the 1930s. It is a very worrying sign.

[fedsron2us]

3. Shipping rates hit zero as trade sinks

Container rates now appear to have fallen through the floor.

http://www.telegraph.co.uk/finance/4229198/Shipping-rates-hit-zero-as-trade-sinks.html

Originally, it was problems with letters of credit. Now it the collapse of demand in the US and Europe. After years of continuous and systematic abuse by the financial institutions and governments the world economy is now completely broken and no one knows how to fix it.

[T_i_B]

4. I disagree on one important point from the article

which is that Bunker Adjustment Surcharge is anything but minimal!

And yes, collapsing demand has been a major part of this, not to mention overcapacity from the shipping lines, who've built ever bigger vessels and now can't fill them.