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Progress to bankruptcy

Progress to bankruptcy
The Baltic Dry Index, a signpost of economic trends that tracks the cost of moving goods across the oceans, has set off alarm bells by plummeting 85 per cent from its peak in May to a six-year low.

The global economic slowdown will push some shipping lines into bankruptcy

The Baltic Dry Index, a signpost of economic trends that tracks the cost of moving goods across the oceans, has set off alarm bells by plummeting 85 per cent from its peak in May to a six-year low.

Share prices of some major shipping companies have fallen 50-70 per cent in the past few months; the firms haul bulk freight (such as iron ore, coal and grains) that is destined to be turned into manufactured goods.

Marc Faber, editor of the Gloom Boom & Doom report, and a famed investor himself, said: ?The global economic slowdown will push some shipping lines into bankruptcy.?

Standard & Poor's also said this week that the Asian shipping market had suffered double-digit declines on the US-Asia route in June and July, and had been hit with higher operating costs.

The industry had been expecting an upturn after the Beijing Olympics ended and factories chugged back to life, following the enforced Chinese holiday that had been called help improve air quality. But, instead, disaster struck on global markets.

There are reports of idle vessels being put to anchor, and question marks over the many orders for new ships that were placed. At times, these new-ship orders had been placed years ahead of expected completion dates.

Container shipping was first hit earlier this year, as US and European demand for Asian-made goods dropped off, as a consequence of both the sub-prime mortgage crisis that originated in America and poor consumer confidence.

In a chain reaction, the countless Asian factories churning out electronics and consumer items for the US and European markets began lowering output, and the need for raw materials declined.

Container shippers, bulk operators and port authorities across the region are reporting slowdowns.

Malaysia's Port Klang Authority said it had been hit by a decline in cargo-handling since the start of this month, and blamed a retail downturn and lower vehicle sales in the US and Europe.

Shanghai International Port said that growth in cargo traffic had dropped sharply to 9.9 per cent in the first half of 2008, on the ?increasingly grave global economy and trade situation?.

?Faced with the severe economic situation (in China) and abroad, the port industry has met with the most complicated operation environment in recent years,? it said.

Hong Kong, which is sensitive to any drop in demand for toys, gadgets and clothes made in the factory-belt of China's southern Guangdong province, said that after an increase of 6.7 per cent in container traffic in August, growth dropped suddenly in September to just 1.2 per cent.

Hong Kong Container Terminal Operators Association chairman Alan Lee said: ?Given the gloomy global economic outlook, Hong Kong is expected to face a much tougher export trade environment.?

In Taiwan's seven harbours, volumes fell 2.23 per cent in the nine months to September, and in southern Kaohsiung city, business was down 1.76 per cent.

An official of the Japanese Shipowners" Association said: ?We are seeing a rapid decline in the volume of exports.?

The Baltic Dry Index, which hit 11,793 in May, is now less than 1300, and is approaching rates that have not been seen since the Asian financial crisis in 1997-1998. The BDI is tipped to slip below 1000 as commodity prices fall.

A so called capesize vessel, most commonly used to carry coal and iron ore, now costs less than US$11,000 ($16,300) a day to hire, about half the charge in May.

The decline in the BDI has alarmed observers, who believe it indicates the damage that the credit crisis has already wreaked on the world economy, even if action to revive financial markets is successful.

Container shipping lines have said they expect cargo demand on the US-Asia route to fall by as much as 8 per cent in 2008.

Said Ron Widdows, chairman of the Transpacific Stabilisation Agreement, a forum of major shipping lines: ?It's a safe statement that no carrier is operating profitably in the eastbound trans-Pacific market today.?

However, the group said vessels were still running at 90 per cent capacity as firms cut costs by consolidating routes and returning chartered vessels, while taking advantage of the downturn to lay up ships for repairs.

Mr Widdows said the industry was confident that government efforts to unclog global finance would be effective, restoring confidence and paving the way for a shipping recovery in late 2009.


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