From my colleague Nick Strain in Singapore last night. Shocking stuff,
and puts the retail sales numbers in some context. We’re witnessing
nothing short of a crash in global economic growth, the ramifications of
which are unknowable, but will surely be extreme. I get the sense that
many market participants are simply incapable of internailizing the
extent of this downturn.
—– Original Message —-
From: NICK STRAIN (ROYAL BANK OF SCOTLA) At: 1/13 19:16:29
* This is quite amazing – see below
* I can attest from my window that the Singapore shipping lanes are
parking lots for ships and that the docks are stacked 2-3 high vs 5-6
high in terms of containers, as they were
* this is clearly extremes and unlikely to remain sustained, ie supply
of ships gets retrenched, but the dislocation in somewhere like
singapore of the shipping and chemical/oil and banking industries
grinding to a stop cannot be underestimated..
* usd/sgd has also stalled for now with the authorities supposedly
camped at 1.4940, but its only a matter of time and timing…
* same goes for HKD and CNY – we still like CDS and being long longer
dated vol in both.
Shipping rates hit zero as trade sinks
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.
By Ambrose Evans-Pritchard, International Business Editor Last Updated:
5:42PM GMT 13 Jan 2009
The cost of shipping goods from Asia to Europe has tumbled “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 unmit-igated 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.
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 30pc in January compared to a year earlier. Exports
have slumped 42pc in Taiwan and 27pc 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 18pc 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.
Mr de Trenck predicts Asian trade to the US will fall 7pc this year. To
Europe he estimates a drop of 9pc – possibly 12pc. Trade flows grow 8pc
in an average year.
He said it was “illogical” for shippers to offer zero rates, but they do
whatever they can to survive in a highly cyclical market.
Offering slots for free is akin to an airline giving away spare seats
for nothing in the hope of making something from meals and fees.
.
