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The global economic slowdown will push some shipping lines into bankruptcy as demand for commodities cools and trade slows, investor Marc Faber said.

“This is an industry that could be hit harder than what has been expected,” Faber, who predicted the 1987 stock-market crash, said in an interview Monday in Singapore. “We are really at the very beginning of an economic slump, and it could last for quite sometime.”

The Baltic Dry index, a measure of commodities-shipping costs, has plunged 82 percent in the past year as Chinese steelmakers have cut iron-ore imports on slower demand. Container rates have also fallen because US and European consumers are buying less Asian-made furniture, toys and clothes.

“There has been an acute and significant decrease in near-term demand for shipping capacity,” Jon Windham, Winnie Guo and Yumi Park, analysts at Macquarie Group Ltd., wrote in an October 9 report. “The primary cause is a significant fall off in general demand driven largely by companies’ fears to extend cash.”

Svithoid Tankers AB, a Swedish shipping line, said Monday that it intends to file for insolvency liquidation after failing to secure new financing.

Companies worldwide are struggling to secure credit as the collapse of Lehman Brothers Holdings Inc. and the wider economic slowdown have caused banks to cut lending because of increased concerns about getting their money back.

Shipowners will also likely find it more expensive to get funding, according to Faber, managing director of Marc Faber Ltd. and publisher of the “Gloom, Boom & Doom” report. The maritime sector needs about $300 billion over the next three to four years to fund the construction of vessels already on order, according to Nordea Bank Finland Plc., the largest lender to the sector last year.

The credit crunch may also impact shipping by making it harder for traders to secure letters of credit, the financing notes that are to key to many transactions.

“The banks don’t trust each other,” Faber said. “Some shipments may be delayed because of fears the letter of credit won’t be accepted by another bank.” -- Bloomberg

3 comments

supernikita said... @ October 17, 2008 at 12:28 AM

Very interesting, but in line with the expectation of a global recession and the reaction of the stock markets.

The freezing up of international trade has been also blogged about on the Letter of Credit forum, however, evidence as of now, seems anecdotal. We have seen incidents of irrational behaviour in the market, but it is difficult to gauge, whether this is truly an epidemic.

Anonymous said... @ October 21, 2008 at 1:26 PM

Its about a 30 day cycle for container ships to do the Asia-North America route, so stock market collapse plus 30 equals empty ports. And since ports supply factories with parts, it runs into the next set of supply problems. I heard west coast pulp (shipped out in containers to keep it dry) is piling up on the docks instead of going to Asia because you cannot load a ship unless a letter of credit is supplied to prove the funds are there to pay for the goods about to be loaded. A century old procedure. Those letters have stopped coming. Not good. The Baltic Dry is down about 97%. No credit equal no ships on the sea, quiet ports, supply shotages and working both ways. It backs up to cause the shipping companies to have cashflow issues and no credit for the ships already ordered so this in turn is very bad news for companies like Korean shipyards and steel. I think the stock crowd are still don't get it, they have stopped the global commerce wheels for real. If ports close, railways follow etc. Forget Wall street and real estate, the real problem is at sea where it can't be seen yet. The absence of those shipments will be very obvious in another month.

kgaihc said... @ October 21, 2008 at 1:33 PM

thanks for the comments.. is very informative.

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