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Wednesday, December 10, 2008
"...Shipping is the thermometer of global trade. It allows us to take the broadest view of the health of the worldwide economy." So says transportation economist Oliviero Bacelli, quoted in this interesting Time article on the effect of the credit crunch on shipping.
I am reminded of a conversation I had with a good friend of mine as we sat along the Thames watching tugboats push heavy crates of cargo up and down the river. He mentioned that he really enjoyed watching this happen because it reminded him that this is what trade ultimately comes down to: moving boxes from one place to another. Internationl transactions now involve complex derivatives, currency hedges and whatnot, but at the end of the day 77% of global trade is the result of ships moving boxes from one place to another.
This is why it should be particularly worrying that the credit crunch has moved from threatening the jobs of investment bankers to threatening the jobs of shipping and dock workers. The Baltic Dry Index, which measures freight rates for bulk goods, has dropped 96% since May - an incredible display of volatility. Granted, it appears to be a pretty volatile index to begin with and we're currently not far off from pre-2003 levels. But export-oriented economies are hurting badly, particularly the East Asian tigers that are still licking wounds from their own financial crisis a decade ago.
In addition to the costs felt by workers and firms, new ship-building orders are being cancelled regularly. That will dampen the ability of shipping companies to meet demand when it resumes again - clearly an unhappy prospect.
However, some possible good news yesterday coming from the WSJ blog: a recent bump in the Index. FT Alphaville notes that this could be a side-effect of optimism about Obama's expected stimulus package and speculates about some other industries that may benefit as well. But with the medium-term prospects of shipping being what they are, can we expect this uptick to last?
I am reminded of a conversation I had with a good friend of mine as we sat along the Thames watching tugboats push heavy crates of cargo up and down the river. He mentioned that he really enjoyed watching this happen because it reminded him that this is what trade ultimately comes down to: moving boxes from one place to another. Internationl transactions now involve complex derivatives, currency hedges and whatnot, but at the end of the day 77% of global trade is the result of ships moving boxes from one place to another.
This is why it should be particularly worrying that the credit crunch has moved from threatening the jobs of investment bankers to threatening the jobs of shipping and dock workers. The Baltic Dry Index, which measures freight rates for bulk goods, has dropped 96% since May - an incredible display of volatility. Granted, it appears to be a pretty volatile index to begin with and we're currently not far off from pre-2003 levels. But export-oriented economies are hurting badly, particularly the East Asian tigers that are still licking wounds from their own financial crisis a decade ago.
In addition to the costs felt by workers and firms, new ship-building orders are being cancelled regularly. That will dampen the ability of shipping companies to meet demand when it resumes again - clearly an unhappy prospect.
However, some possible good news yesterday coming from the WSJ blog: a recent bump in the Index. FT Alphaville notes that this could be a side-effect of optimism about Obama's expected stimulus package and speculates about some other industries that may benefit as well. But with the medium-term prospects of shipping being what they are, can we expect this uptick to last?
