The article Mr. van der Hof linked to (above) is excellent. Extremely informative on every aspect of the whole issue. Very interesting to read. Thanks very much

If wheat, iron ore, etc are not being shipped, are there shortages being reported already somewhere? ISTM that would be a more immediate indicator than looking at the BDIY numbers.

I’ve found mentions of “two to three weeks” or “a month” in tourist-on-freighter discussions, but those may not be the major shipping routes and would not include handling time.

A lot of corn, wheat, and soy must be ‘in the pipeline’ en route or at the ports right now.

I’m sure people who speculate on short term shortages or surpluses in local markets track this volume and time of shipments carefully.

But where to look?

Yves,

do you mean ‘…and yet not attract more notice …

Details came from Khalid Hashim the managing director of Precious shipping out of Thailand who had this to say.

Letters of credit and the credit lines for trade currently are frozen,Nothing is moving because the trader doesn't want to take the risk of putting cargo on the boat and finding that nobody can pay.

According to Klaus Nyborg, Deputy Chief Executive Officer at Pacific Basin. Tighter credit has contributed to this year's 80 percent drop in the Baltic Dry Index.

It is interesting that all these claims seem to be specific to Asia and if you look at somewhere like the tankerworld site there is no mention of it. I am wondering if this is limited to smaller shipping agents and is fairly localized.

The implications for commodity prices and as a side result US treasuries could be extremely significant.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ahkq91XcsKnY&refer=home

And this also explains why 17 of 29 US blast furnaces are idled? Or why scrap steel prices have fallen by 75%? Electric Arc Furnaces are overwhelmingly fed by scrap, not by iron ore.

http://www.independent.co.uk/news/business/comment/jeremy-warner/jeremy-warner-economic-road-crash-spreads-to-the-developing-world-975519.html

For an importer, an L/C shifts the credit risk from the exporter to the bank of the exporter.

As such an L/C is only as good as the credit standing of the exporting bank.

There is however an option for the importer to ask their bank to “confirm” the letter of credit, shifting the credit risk from the exporters bank to the importers bank. I’m sure however that that option has become very expensive.

If you cannot trust the creditworthiness of exporters banks anymore, L/Cs are dead letters and trade will suffer bigtime.

This is a huge issue.

exactly. I find it difficult to make these points in the comments section of a blog. The guarantee part of a L/C is separate from any financing agreement between an importer and his bank. If the guarantee part is breaking down – importer’s bank doesn’t trust exporter’s bank – it represents a determination concerning the counterparty risk incumbent in the transaction not the credit risk. It’s one thing to know credit is less available to importers. It’s another to know that banking relationships are so tenuous that L/C’s once in place can’t be honored.

The letters of credit may or may not actually involve credit or a loan per se.

Letters of credit are a way of a seller knowing in advance of shipment that the funds are available on the other end of the transaction. The letter of credit is the bank verifying that funds are available. This could be cash on hand by the depositor not a loan. What people are afraid of is the buyers bank going under between the time the container leaves port and when it arrives for the buyer to take possession of the goods. Typically the letter of credit funds are not distributed until it is verified that the goods were received in the condition agreed upon. If the bank is out of business though, there is no guarantee you will get paid even though you shipped the goods.