Shipping at a standstill

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Tuesday, 11 November 2008

The growing financial crisis is constraining world trade with a jumbled mess of frozen credit that could mean shortages of food and energy supplies for some countries. Shippers of drybulk goods such as grain and coal worry that importers won't be able to pay for the goods they receive. And while some anxious exporters hold on to their goods, rates to ship those goods have plummeted to 10-year lows. Some ship owners are even laying up their ships rather than operate at such low rates.
Jefferies & Co. analyst Douglas Mavrinac said while credit markets in general have stabilized somewhat in recent weeks, credit across the shipping industry still remains extremely tight. Some companies that buy goods transported by drybulk ships - including power plants, steel producers and food makers - are not able to secure letters of credit to facilitate shipments of coal, iron ore and grain they need.
Mavrinac said most markets around the world will work through stockpiles of commodities on hand, including coal and grain. But he said food and energy shortages could be a problem in 2009, especially in developing countries, if lending does not ramp up and shipping activity continues to stagnate.
"It will take a few months. It's definitely the worst-case scenario." Mavrinac said. "Right now there are plenty of ships, but no cargoes."
Rates for the biggest drybulk ships on the seas have plunged to an average of just $5,611 per day, compared with $166,377 a year
ago. Some companies, however, have secured charter deals with customers that locked in higher rates.
"That doesn't imply that global demand is slowing," Mavrinac said. "It implies that global trade is stalling - ships are idling."
Bill Gary, president of Oklahoma City-based Commodity Information Systems noted that with the U.S. harvest season under way, supplies are surging and crops, such as grain, might sit in limbo if tight credit markets continue to prevent the free flow of exports.
As prices for their crops fall, he explained, farmers hold on to more of their crops as they wait for better prices as inventories decline.

 

As adapted from Hellenic News