Trade Watch: Further Confirmation of Slowdown in Container Shipments

We’ve taken an interest in shipping as an indicator of international trade. The problem, however, is that the most readily tracked measure, transport costs, is more volatile than the underlying volume of goods shipped.

Nevertheless, the Baltic Dry Index, which measures the cost of bulk shipments of dry goods, has tanked since May, and a slew of other indicators have confirmed a falloff in trade, such as plunging commodity prices, factory closures and even declining electricity use in China. Admittedly, charter rates for one type of bulk carrier, the Capesize, shot up this week, but many brokers urged considerable caution in seeing this as a harbinger of change.

Now there are increasing signs of a reduction in container shipments which carry higher value-added goods. Singapore, the world’s largest port and key trans-shipment center between the US and Asia witnessed its first fall in throughput traffic since 2001 last month. In “Dead Wait,” the Financial Times gives a long-form look at deteriorating conditions in the container shipment market::

Container trade between Asia and Europe, which rose 16.5 per cent last year, is shrinking for the first time in history, according to some estimates. The spot rate for moving a 40-foot container from Hong Kong to Rotterdam plummeted from about $2,700 (£1,750, €1,900) in autumn last year to as low as $200 now.

Such figures represent a severe shock for an industry that has grown used to the double-digit annual volume growth and buoyant freight rates it has enjoyed for nearly all the seven years since China joined the World Trade Organisation…

For retailers, manufacturers and other shippers who are container lines’ customers, the rate slump continues the long-term trend under way since the first container ship set sail in 1956. Many will now be able to send cargo the thousands of miles between Asia and Europe or North America for a fraction of the trucking or rail costs of moving it a few hundred miles on land…

Lines and alliances are now cutting services, merging different strings and slowing ships down to reduce fuel costs and ensure that ships run full. That often requires the use of an extra vessel to maintain a weekly service – Asia-Europe round-trips now typically take 63 days and require nine ships, against 56 days and eight ships before…

In fact, it is possible to argue the problems may be only just beginning. Preliminary figures from Drewry’s annual report on the sector, to be published next week, suggest shipping lines’ rates have still been rising this year by 4.1 per cent. For next year, they predict a fall in average rates of nearly 20 per cent…

As liquidity has dried up and trust evaporated, banks have refused to write the letters of credit vital to the shipping of bulk goods. Some container ships have been forced to carry lighter loads while bulk cargo piles up in ports around the world, particularly in east Asia.

As one of the world’s most important shipping nations, Germany is particularly vulnerable to these problems. German companies own 36 per cent of the world’s container ship capacity, while the country’s banks are responsible for about 40 per cent of global shipping finance. This latter activity has ground to a halt as demand for new vessels slumps and German lenders grapple with the turmoil in financial markets.

HSH Nordbank, the world’s largest shipping lender, was forced to seek up to €30bn ($41bn, £27bn) in loan guarantees from the government’s banking rescue fund and is set to slim its balance sheet as part of a restructuring. Several other Landesbanken – regionally owned public lenders – are also heavily involved in shipping finance.

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  1. Anonymous

    Sounds like Americans renounced the habbit of buying cheap Chinese plastic as a form a psychotherapy. Looks like we’re finally cured!

    Who said psychotherapy doesn’t work!?

    Vinny Goldberg


    This is getting really bad. The BDI has been down for a long time and that means that very little is coming our way. Time to plan for a depression.

  3. RPB

    Again, while this bodes poorly for the future, it is an excellent opportunity for commodities traders.

    The most salient point of this article is that some goods are cheaper moved by ship than by train or truck. Railroads are about to feel major pain as many involved in the physical commodities trade are bringing vessels into the coasts from abroad rather than rail shipping from the interior. Rail rates are about to drop significantly.

    Question: With bulk shipments of everything from grain to clinker to autos to basic chemicals down, what will happen to the railroads when you tax or regulate coal (20-50% of revenues, depending upon the RR Co.) out of existence?

  4. Anonymous

    what will happen to the railroads when you tax or regulate coal (20-50% of revenues, depending upon the RR Co.) out of existence?

    That makes less sense than wondering what happened to individual flower beds when Pompeii was buried by Vesuvius. Not a serious question, except for the tinfoil rotor top hat globowarmers that hallucinate an economic recovery can be based on higher energy prices.

  5. Anonymous

    Drewry and the others who sell their fancy reports are frequently wrong, and I’d bet on a far larger drop for container freight rates on the major trunk routes. It will take several years to for the containership market to soak up the newbuilding capacity, and very painful consolidation is quite close.

    BDI does not reflect containership/liner market.

    RPB is simply ignorant of the shipping biz.

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