The global recession has thrown the world's shipping industry into a slow-motion collapse. The cost of shipping has plummeted. As Somali pirates hold captive the Sirius Star, a Saudi ship with almost $100 million (€77.1 million) in oil on board, and Indian, British, Russian, and German ships battle pirates up and down the Gulf of Aden, one might imagine that the battle against piracy is the largest crisis faced by the merchant navy industry. Shipping is caught in a nasty downturn. After all, since January of this year, some 580 crew members have been held hostage, according to data collected by the International Maritime Bureau, and many millions of dollars have been paid in ransom. Insurance rates are up, ships are trying to avoid the Suez Canal (which ships get to via the Gulf of Aden, along the coastlines of Somalia and Yemen), and crews from India to Britain are refusing to board ships that pass through that zone. "This sort of thing can't be shut down immediately," says an aide to Indian President Pratibha Patil, who advises her on naval affairs. India's navy has fought at least three different pirate groups in the last week. "To some extent, the world's navies have to flex their muscles, and that takes time." But what's missing in the news reports about the modern-day pirates and the political repercussions is a simpler fact: The world's shipping industry is already on its knees and has spent the past six months in a slow-motion collapse kicked off by the . And the pirates, it would seem, are the least of the problem. Just six months ago, despite the fact that the economy in the US was already slowing down, the industry was steaming ahead. As ships of every flag, color, and size were crossing oceans, carrying in their often cavernous cargo bays the essentials of trade -- oil, steel, cement, iron ore, and coal -- shipping rates worldwide in June hit their highest peak ever. It cost nearly $234,000 a day to rent one of those large capesize vessels, the ones so big that they don't even fit through the Suez Canal.
The global recession has thrown the world's shipping industry into a slow-motion collapse. The cost of shipping has plummeted.
As Somali pirates hold captive the Sirius Star, a Saudi ship with almost $100 million (€77.1 million) in oil on board, and Indian, British, Russian, and German ships battle pirates up and down the Gulf of Aden, one might imagine that the battle against piracy is the largest crisis faced by the merchant navy industry.
Shipping is caught in a nasty downturn. After all, since January of this year, some 580 crew members have been held hostage, according to data collected by the International Maritime Bureau, and many millions of dollars have been paid in ransom. Insurance rates are up, ships are trying to avoid the Suez Canal (which ships get to via the Gulf of Aden, along the coastlines of Somalia and Yemen), and crews from India to Britain are refusing to board ships that pass through that zone. "This sort of thing can't be shut down immediately," says an aide to Indian President Pratibha Patil, who advises her on naval affairs. India's navy has fought at least three different pirate groups in the last week. "To some extent, the world's navies have to flex their muscles, and that takes time."
But what's missing in the news reports about the modern-day pirates and the political repercussions is a simpler fact: The world's shipping industry is already on its knees and has spent the past six months in a slow-motion collapse kicked off by the . And the pirates, it would seem, are the least of the problem. Just six months ago, despite the fact that the economy in the US was already slowing down, the industry was steaming ahead. As ships of every flag, color, and size were crossing oceans, carrying in their often cavernous cargo bays the essentials of trade -- oil, steel, cement, iron ore, and coal -- shipping rates worldwide in June hit their highest peak ever. It cost nearly $234,000 a day to rent one of those large capesize vessels, the ones so big that they don't even fit through the Suez Canal.
Container Crisis: Shipping Threatened by More than Just Pirates - SPIEGEL ONLINE
Letters of credit are the second part of the equation. Before shippers can put commodities on a boat, they like to get letters of credit from the eventual purchaser -- a bank guarantee that their client is capable of paying when the cargo arrives. But since the credit crisis has tightened, manufacturers are having more and more trouble getting letters of credit. "With the credit crisis causing banks to shy away from lending to one another for much longer than overnight, there have been reports of banks refusing to honor letters of credit from other banks," said Matt Robinson, an Australia-based analyst for Moody's, in a report issued on Oct. 23.Nearly 90 percent of the world's shipments rely on letters of credit, according to the World Trade Organization. While the drop in the availability of letters of credit is still largely anecdotal -- there is no centralized data available -- reports of shipments being stranded are doing the rounds of transportation companies. Galbraith's, the London shipbroker, said in a news release in late October that "stories [are] coming from all parts of the globe referring to early redeliveries, withdrawal by buyers from ship purchase agreements, bankruptcy of numerous steel traders, credit facilities being closed without notice to companies with previously unblemished records."
Nearly 90 percent of the world's shipments rely on letters of credit, according to the World Trade Organization. While the drop in the availability of letters of credit is still largely anecdotal -- there is no centralized data available -- reports of shipments being stranded are doing the rounds of transportation companies. Galbraith's, the London shipbroker, said in a news release in late October that "stories [are] coming from all parts of the globe referring to early redeliveries, withdrawal by buyers from ship purchase agreements, bankruptcy of numerous steel traders, credit facilities being closed without notice to companies with previously unblemished records."
See also this comment on DKos
I'm an exporter located in Portland. We specialize in Ag exports, from Washington state to Asia and the Middle East. Mostly apples and wine to Europe. These past 2 months, I've noticed something dramatic going on. the suppliers suddenly started calling me. This alone was a big change. Normally, I have to call THEM, beg, grovel, work like crazy to secure supplies. It was always a struggle because we had the overseas buyers, but the supply was tough. Now it's a 180 degree switch. They are calling me, asking about my buyers. Prices have started coming down, dramatically. I'm really worried because my suppliers in Washington have lots of expenses; cold storage costs, labour costs and so on. Shipping companies. It's always been same as (1) above. We had to scratch and scrape to get our reefer containers. Just last week, someone called from Maersk (!!!) and asked what was happening (!!). Shipping costs have now dropped to about half of what they were last year. It's becoming impossible for me to give quotes because they are changing every day. (2a) Just as I was writing this post, I got an email from another shipping company. They are wondering can we please sign this shipping contract? I believe the reason for this is the issue of credit. The buyers are still there. They still want to buy (we've got absolutely awesome product). The problem is, the shipping company can't count on the Letter of Credit from the foreign bank in order to pay for the shipping costs. If this continues for another 1 to 2 months, expect major companies in Washington to fold. This is a weird price deflation, not based on lack of demand but of logistics.
These past 2 months, I've noticed something dramatic going on.
(2a) Just as I was writing this post, I got an email from another shipping company. They are wondering can we please sign this shipping contract?
If this continues for another 1 to 2 months, expect major companies in Washington to fold. This is a weird price deflation, not based on lack of demand but of logistics.
and this:
http://www.moonofalabama.org/2008/11/world-trade-col.html#comments
