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Now, the shipping news is bad
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Kai Ryssdal: Here’s a very real representation of what happens when credit stops flowing. In the shipping business, there’s something called the Baltic Dry Index. Today it fell to its lowest level in five years. That means the value of dry goods being shipped around the world it’s dropping and making the world’s major shipping routes look like a highway on Christmas Day. That is to say, empty.
Marketplace’s Jeremy Hobson has the story.
Jeremy Hobson: The Baltic Dry Index measures the price of hauling sea freight. It hit an all-time high in May, and it’s fallen 85 percent since then. Part of the reason is a drop in Chinese demand for raw materials like iron ore and coal, which make up a significant portion of worldwide dry shipping. But, says Douglas Mavrinac, the head of Shipping Research for Jeffries and Company . . .
Douglas Mavrinac: A significant portion of that decline has to do with the credit crisis, and banks aren’t issuing letters of credit to companies to facilitate global trade.
Just like other industries, sea trade relies on a constant flow of money from banks — loans for the producers of commodities, which have seen their value drop dramatically in recent months and loans for the shippers themselves.
Mavrinac: You’re starting to see some of the large owners out there, literally laying up their ships, telling their captains that “Hey, look, when you discharge this next cargo, just weigh at anchor and wait.” Because they won’t operate at a loss.
The problems don’t stop at the docks. Shipping consultant Fred Doll says global economic woes have pushed demand for all kinds of commodities down.
Fred Doll: It really doesn’t boil down to the health of shipping. It boils down to the health of the industries that shipping serves. And if those industries can do business, then they need raw materials to move by sea and the ships are there to carry them.
Plenty of ships thanks to a building boom that took place while commodity prices were soaring. But until demand picks up again and the credit markets unfreeze, many of those ships will lie empty, weighing down global trade at a crucial time.
In New York, I’m Jeremy Hobson for Marketplace.