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Baltic Dry Continues Collapse - Worst Slide Since Financial Crisis

Tyler Durden's picture





 

Despite 'blaming' the drop in the cost of dry bulk shipping on Colombian coal restrictions, it seems increasingly clear that the 40% collapse in the Baltic Dry Index since the start of the year is more than just that. While this is the worst start to a year in over 30 years, the scale of this meltdown is only matched by the total devastation that occurred in Q3 2008. Of course, the mainstream media will continue to ignore this dour index until it decides to rise once again, but for now, 9 days in a row of plunging prices is yet another canary in the global trade coalmine and suggests what inventory stacking that occurred in Q3/4 2013 is anything but sustained.

 

Baltic Dry costs are the lowest in 4 months, down 40% for the start of the year, and the worst start to a year in over 30 years...

 

As we noted yesterday...

Of course, we are sure the 'lead' that the Baltic Dry seems to have over global macro will be quickly ignored...

 

Charts: Bloomberg

 


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Tue, 01/14/2014 - 18:58 | Link to Comment Al Huxley
Al Huxley's picture

Not relevant any more - there's one simple algorithm in force since 2009 - if POMO then buy.

Tue, 01/14/2014 - 19:02 | Link to Comment fijisailor
fijisailor's picture

Money chasing money = economic prosperity.  Screw reality.

Tue, 01/14/2014 - 19:13 | Link to Comment TruthInSunshine
TruthInSunshine's picture

The New Normal. Amazon drone deliveries are killing cargo shipping.

Yellen should monetize some shipyards & ship builders.

Tue, 01/14/2014 - 19:45 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

So how come our LTL (less than containerload, Asian ports to Peru) rates aren't going down...?

Tue, 01/14/2014 - 20:06 | Link to Comment spinone
spinone's picture

No, this is shipping, not overland.

Wed, 01/15/2014 - 02:19 | Link to Comment TruthInSunshine
TruthInSunshine's picture

I was snarking about the Amazon drones.

Shit's gettin' real on the high seas, bitchez.

Tue, 01/14/2014 - 19:07 | Link to Comment LawsofPhysics
LawsofPhysics's picture

"paper chasing paper" - fixed.

Tue, 01/14/2014 - 19:34 | Link to Comment Winston Churchill
Winston Churchill's picture

Pinks slips chasing vanishing bills of lading is the only paper I'm seeing.

Businesses have no choice but to downsize labor with the inventory overhang,add in

Obozocare ,and its an oppotunity to restructure the workforce into 29 hourers at the same time.

An even bigger  death spiral for disposable income.

Tue, 01/14/2014 - 22:18 | Link to Comment Cursive
Cursive's picture

@Winston Churchill

New socio-economic term:  The 29ers.

Wed, 01/15/2014 - 02:15 | Link to Comment HardlyZero
HardlyZero's picture

OC deflationary spiral.   With death panels at the bottom to catch the survivors.

Tue, 01/14/2014 - 19:08 | Link to Comment max2205
max2205's picture

Somebody knows something. ..neg 1 month bills

Tue, 01/14/2014 - 19:23 | Link to Comment SilverIsKing
SilverIsKing's picture

Perhaps the banking system is ready to blow up.

Tue, 01/14/2014 - 19:31 | Link to Comment zaphod
zaphod's picture

Exactly, neg 1 month bills can not be understated, just look at Japan

Tue, 01/14/2014 - 21:36 | Link to Comment TheRideNeverEnds
TheRideNeverEnds's picture

Considering they are all reporting record earnings this week I doubt that.  

Tue, 01/14/2014 - 20:31 | Link to Comment Bunga Bunga
Bunga Bunga's picture

Just some retards, who believe market indications still mean something in central planning.

Tue, 01/14/2014 - 20:59 | Link to Comment ILLILLILLI
ILLILLILLI's picture

Having -any- market indications means that Central Planning has failed.

Tue, 01/14/2014 - 19:06 | Link to Comment mick_richfield
mick_richfield's picture

I think shipment of goods might still be relevant.

 

Tue, 01/14/2014 - 19:42 | Link to Comment Big Corked Boots
Tue, 01/14/2014 - 20:06 | Link to Comment DanDaley
DanDaley's picture

Right -BDIY = major raw materials

HARPEX = finished goods

Takes two to tango.

Tue, 01/14/2014 - 21:58 | Link to Comment kchrisc
kchrisc's picture

HARPEX seems to tell a better and clearer story than the Baltic. I quit paying much attention to the Baltic some time ago, as it "beats" up and down like an EKG.

HAREX also reveals that, as we all knew, there were no "green shoots," etc. Currently it seems to fading to flat-line.

 

"You got 'guillo' on my 'tine'." "You got 'tine' in my 'guillo'." "Two great things that work great together--guillotine!"

Tue, 01/14/2014 - 22:56 | Link to Comment MontgomeryScott
MontgomeryScott's picture

Thanks.

I had been looking at the BDI for about the past 4 years, and have never heard of 'HARPO' (oops, 'HARPEX'). The Baltic Dry Index seems to be far more, um, how do you say it, 'old', as far as the time that it has been in usage to set the freight rates globally. HARPEX seems to have only existed for just over a decade.

I saw a long-term high of 1,839, a long-term low of 275, and a current of 392 (with an average over time of 896). Yeah, it looks pretty shitty over there as well (just not quite as 'volatile', I suppose). How about that 1,404 to 275 slide, during the so-called 'great recession' period? Damned chart FLATLINED for about a year, it looks...

HARPEX looks 'historical' in nature of reporting, while BDI looks 'live-time' in nature.

"Currently it seems to fading to flat-line." No, it has further to drop, I see by the charts. Perhaps it may go lower, or perhaps it will spike (due to the fact that the USD is all but OVER, and is now accelarating it's death-throes of inflation leading to rapid devaluation; and BOTH indexes still seem to be pegging their numbers based on this once-valuable currency. Can you imagine what these numbers would have looked like in 1920's German Marks, or 1990's Zimbabuean currency?).

Valued in the Euro...(oh, never mind. The Euro is the USD lite), or perhaps the Renimbi (Yuan), or perhaps the value of Silver or Gold, these charts might tell a different story.

Waiting for the inevitable 'down-arrows', I sit and watch, and laugh a little. I see, in my mind's eye, SOME people saying, 'HARPEX isn't diving, so BDI MUST be wrong! PROSPERITY IS JUST AROUND THE CORNER! TRUST US, WE'RE FROM THE GOVEERNMENT, AND...'

Tue, 01/14/2014 - 23:05 | Link to Comment MontgomeryScott
MontgomeryScott's picture

@DanDaley,

IF the largest producer in the world is CHINA (which it IS), and the shipping prices FROM this PRODUCER are tanking, why does this comparison between 'finished goods' and 'raw materials' make sense? This BDI is an overall average of BOTH 'raw materials' AND 'finished products' in the COST OF SHIPPING, TOTAL.LOTS of ships now, carrying those pre-fab trailer shipping containers from CHINA, costing the same as the BULK ORE CARRIERS (per TON).

NO, your statement is a non-sequitor. The DIFFERENCE is the method of reporting by two competing 'indexes'.

If the DOW goes UP, and the S and P goes DOWN, WHICH ONE is reflecting the DAX (or the price of shipping tea from China, for that matter?)?

 

Tue, 01/14/2014 - 19:38 | Link to Comment Pareto
Pareto's picture

+1 Al.  TOTALLY AGREE.  Plus, we've seen the BDI take a dump numerous times before only to resurge just minutes after ZH shows the chart.

Tue, 01/14/2014 - 20:31 | Link to Comment CarrierWave
CarrierWave's picture

This article is meaningless. The Index can go up (and did in the past) just as fast as it went down.

Just look at Oct 2013 as evidence.

No crash will happen anytime soon. Not in this Index nor in the Sock Market.

Tue, 01/14/2014 - 23:11 | Link to Comment MontgomeryScott
MontgomeryScott's picture

I agree. (sarc)

I have been authorized to assure you that there is NO REASONABLE CAUSE FOR ALARM.

The most patriotic thing that we can do is to GO SHOPPING.

As far as SOCKS go, I have noticed that the riots and factory burnings have caused a temporary spike in the cost of socks, hose, stockings, and other foot coverings over at Jaque Pinney. Of course, once the government gets these raucous upstarts under control, consumers like myself will once again enjoy the freedom to shop at reasonable prices (and watch more sports and sex acts on television).

It's mental masturbation, you know. First you take a dirty sock, then you wrap it 'round your cock...

Tue, 01/14/2014 - 19:01 | Link to Comment BuddyEffed
BuddyEffed's picture

Was Xmas sales that bad?

Tue, 01/14/2014 - 19:03 | Link to Comment dobermangang
dobermangang's picture

We're waiting for all the 2014 "Going Out of Business" sales.  Coming soon to a mall near you.

Tue, 01/14/2014 - 19:13 | Link to Comment TruthInSunshine
TruthInSunshine's picture

Do a quick search on how many B&M retailers and/or retail locations are closing down; I've not seen so many large store closings so widely spread across the country since the deepest part of the 2008 crash.

Tue, 01/14/2014 - 19:22 | Link to Comment optimator
optimator's picture

Business is doing great in my state, biggest chain of all constantly expanding with new stores everywhere.  I'd like to buy some stock in the company but I can't find the symbol for Now Leasing.

Tue, 01/14/2014 - 19:56 | Link to Comment TruthInSunshine
TruthInSunshine's picture

4SaleOrLease is the hottest chain going.

I see their signs EVERYWHERE.

Wed, 01/15/2014 - 03:06 | Link to Comment AgentScruffy
AgentScruffy's picture

Hadn't seen with my own eyes how many of these "chain stores" have popped up...until I recently moved out of the D.C. area. (True story.)

Tue, 01/14/2014 - 20:07 | Link to Comment spinone
spinone's picture

You are dead on. If this is indicating anything, it is the collapse of american retail orders.

Wed, 01/15/2014 - 04:04 | Link to Comment Theosebes Goodfellow
Theosebes Goodfellow's picture

But wait! Isn't the US economy 70% consumer driven? Hasn't the Fed, the Treasury and the central banks turned us all into consumerists, saving us all from being selfish "hoarders", (savers)? Surely CNN, NBC, ABC, CBS or at the very least PBS would have covered this if there was a problem, wouldn't they? /sarc

Tue, 01/14/2014 - 23:14 | Link to Comment MontgomeryScott
MontgomeryScott's picture

@ BuddyEffed,

"Was Xmas sales that bad?"

Um, compared to what, exactly?

(Another way to respond: WELL, DUH!)

What's the unemployment rate in Greece, by the way?

Tue, 01/14/2014 - 19:02 | Link to Comment EscapeKey
EscapeKey's picture

Remember - BDI going down = overcapacity, up = strong recovery.

Tue, 01/14/2014 - 21:04 | Link to Comment akak
akak's picture

I feel the need to point out that the chart of the Baltic Dry Index is a nominal chart, with the Y-axis in nominal --- NOT real --- US dollars.

Adjust for inflation over the past 30 years, and it is much more revealing --- and much more ugly.

Tue, 01/14/2014 - 23:20 | Link to Comment MontgomeryScott
MontgomeryScott's picture

I missed the 'sarc' tag, EscapeKey.

WHEN goods are IN DEMAND, the costs of shipping RISE, due to the extra PREMIUM that shippers can charge (because people are willing to PAY MOAR for FASTER delivery). For example, if the girl in your avatar needed a COMB for her hair (instead of her fingers), and she said that if you got her one RIGHT NOW, you could have your way with her as long as her mood lasted (and she wanted it NOW), would you be willing to pay someone a little more to bring a comb RIGHT FUCKING NOW?

Tue, 01/14/2014 - 19:03 | Link to Comment kaiserhoff
kaiserhoff's picture

This dovetails nicely with what's happening in commodities and short rates going negative.

Serious question for the bond Dudes.  Don't negative rates have the potential to seriously fuck up the fixed income markets?

There is no theoretical problem, and that scares the shit out of me.

Tue, 01/14/2014 - 19:10 | Link to Comment LawsofPhysics
LawsofPhysics's picture

All rates are not created equally.  Go ahead, flatline every single (old) person's account with a fixed-rate investment fund and watch how fast these political puppets get executed.  I know several people over 50 and 60 in this boat.  They are survivors for a reason, they are tough motherfuckers.

Tue, 01/14/2014 - 19:15 | Link to Comment TruthInSunshine
TruthInSunshine's picture

I expected to see the blue hairs far angrier than they are by now.

Maybe they're just constipated.

Tue, 01/14/2014 - 19:19 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Me too.  Of course I may have a different perspective.  My mother did well, is now retired, still lives on a lake in the great white north, grows her own food, makes her own ammo, and still sleeps with a loaded .38 under her pillow.  She is always "packing" as it were.

Tue, 01/14/2014 - 19:21 | Link to Comment kaiserhoff
kaiserhoff's picture

Not only that.  There must be regulatory limits. 

How can a fund manager buy into a loss?  How can local banks survive?  The whole thing makes my head hurt.

Wed, 01/15/2014 - 04:18 | Link to Comment Theosebes Goodfellow
Theosebes Goodfellow's picture

~"How can local banks survive?"~

1.) They didn't make a bunch of sub-prime loans to start with.

 

My local bank is a CU. I'm proud to be a member. Our "biggest member" is an indian casino. Cash flow doesn't seem to be a problem. Everything should be hunky-dorey until Uncle Sam's scrip ain't no good any more. Then it'll be every last brave for himself, though I'm hoping the said "biggest member" decides to create a safe deposit vault within said CU. It hasn't happened yet though. Then our CU can mint Native American Nation money made from yellow and silver blocks. Ho-hum.

Tue, 01/14/2014 - 19:22 | Link to Comment GubbermintWorker
GubbermintWorker's picture

Nope, just been stocking up on supplies. You know, gold, silver, food, no debt, lead and lead delivery systems.

Tue, 01/14/2014 - 22:06 | Link to Comment roadhazard
roadhazard's picture

Most don't understand what is happening to them because the media is bought off.

Tue, 01/14/2014 - 23:55 | Link to Comment MontgomeryScott
MontgomeryScott's picture

@ kaiserhoff,

I'm not in the Bond market, but I see your question as one that deserves attention. (I would add the 'sarc' tag here, but this is a dual issue, so bear with me for a minute.)

If those who invest in 'bond markets' are on 'fixed incomes' (I assume you are referring to mostly RETIREMENT ACCOUNTS), and their 'investor dudes' are relying on skimmimg a living from shifting their assets in to accounts that 'earn interest' (as well as 'growing' money for the investors); AND, all of a sudden, the interest rates across the board turn 'negative', then, YES, I see an issue. I see a REALLY LARGE issue.

CYPRUS. Do you remember this BETA TEST? How about GREECE?

The issues will really hit home when those on fixed incomes go to the market. A loaf of bread, or pay the electric bill? Some cheese, or make payments for Obamacare?

YES, negative rates will SERIOUSLY fuck up the 'fixed income' market, across the entire spectrum (including those who skim the cream).

NO, of course, you are not referring to those on 'fixed incomes'. You are talking about those who 'fixed' their incomes, instead of 'gambling' on the rises and falls ('guaranteed returns' in 'safer investments').

The DEFLATION in shipping costs indicates that the VELOCITY has stalled; therefore the VALUATION in REAL TERMS of demand is LOWER (or the people who are in the 'workforce' have 'LESS' to 'EXPEND' on 'BULLSHIT' ['expendable incomes' are dropping dramatically]).

The 'CENTRAL BANKS' will term this as 'deflation', and are; even now; ramping up the injections of 'LIQUIDITY'. Even MOAR fiat currency, chasing ever-more expensive goods (as termed by the 'average wage-earner'), shall next lead (and IS leading) to a rampant, uncontrollable DEVALUATION of the CURRENCY (AND, the so-called 'FUCK UP OF THE FIXED-INCOME MARKETS', as you so eloquently describe).

Do you mean to tell us that you DIDN'T SEE THIS SHIT COMING, after all this time over on ZEROHEDGE?

 

 

 

 

Tue, 01/14/2014 - 19:03 | Link to Comment IridiumRebel
IridiumRebel's picture

Baltic Schmaltic.....everything will get Amazon Droned for the supply chain....

Tue, 01/14/2014 - 19:25 | Link to Comment GubbermintWorker
GubbermintWorker's picture

Amazon is in no position to develop that since their profit margins are goin to shit having to charge sales taxes now.

Tue, 01/14/2014 - 19:30 | Link to Comment kaiserhoff
kaiserhoff's picture

Good point.

I guess Bezo's Mars colony will have to wait.

Tue, 01/14/2014 - 19:15 | Link to Comment buzlightening
buzlightening's picture

Say it ain't so.  Trouble in the fiat bubble!

Tue, 01/14/2014 - 19:23 | Link to Comment buzlightening
buzlightening's picture

Thought I'd just mention we've never had so many reverse repos since our last '08 trouble in the fiat bubble.  As of today there's been 801 billion sucked out in liquidity since 12/16/13.  http://www.newyorkfed.org/markets/omo/dmm/temp.cfm

In 08 the reverse repos began 9/24/08 at the rate of 25 billion every other day. To the tune of over 3 trillion by the end of '08.  I don't know about you but there's more than trouble in the fiat bubble.  Gavel exchange the next fomc and it's always at market tops.  Wonder how long we wait for the ole fellen yellens crisis.  dead head fed fud reserve to step up and save us all again.  LOLOLOL  We won't be waiting long with reverse repos coming out in chunks of 50-120 billion with a total of 801 billion in less than 30 days.  Hold onto your arses folks.  The red flags flying and they ain't lying!

Tue, 01/14/2014 - 19:51 | Link to Comment LawsofPhysics
LawsofPhysics's picture

This is why I scan ZH comments, something I might have missed.  This also begins to explain why rates on T-bills are going negative.  Look folks, if TPTB know something will end badly, then it simply won't end.

Capiche motherfucker?

Tue, 01/14/2014 - 20:38 | Link to Comment caShOnlY
caShOnlY's picture

 if TPTB know something will end badly, then it simply won't end.

2008 was the end.  This is the part where they tried to keep it going.  Now when it ends..... christ, is it going to bad.  Fucking bad!!

 

 

 

Tue, 01/14/2014 - 20:49 | Link to Comment willwork4food
willwork4food's picture

How can I get a good buzz on when you guys keep scarring the shit out of me?

Wed, 01/15/2014 - 00:01 | Link to Comment MontgomeryScott
MontgomeryScott's picture

I hear the State of Colarado would look kindly on you. The cops now smile as well, knowing that all the Marijuana busts don't need to be made, as they sit in the local Dunkin' Donuts shops. (stock tip: Dunkin' Donuts looks like a local winner here!)

A 'buzz' is when the D.I. tells you to get a frigging HAIRCUT. Do I have to tell him that you are being a wussy?

Wed, 01/15/2014 - 05:30 | Link to Comment andrewp111
andrewp111's picture

Take a bigger hit. You'll be fine.

Wed, 01/15/2014 - 07:35 | Link to Comment caShOnlY
caShOnlY's picture

How can I get a good buzz on when you guys keep scarring the shit out of me?

The best fix for fear from us at Zero Hedge is to set your TV to CNBC and break the remote.   Listen to Jim Cramer, Joe Liesman, Bob Pissonme and certainly buy Stawks.  Take a break from it when "CRAZY SANTELLI" appears.  When a guest appears that don't agree with the mantra watch how the knowedgable staff prove them wrong. 

The Stawk Mawket is the best place for you.  GO ALL IN!!!  It will bring you wealth as you lie on your couch doing nothing!

ps  put a great big framed picture of "MAESTRO" over your couch.  It will warm the place up!! 

Tue, 01/14/2014 - 21:45 | Link to Comment infinity8
infinity8's picture

Everything's been smelling like rotten eggs for 4-6 months for me. Very reminiscent of '06-'07. I could go on  for a long time but the most recent "FLAG": A very good friend got a "good job" @6 mos ago. About 2 weeks ago, he had to go in early one day to prepare for a visit from the bank. Last week, many heads rolled (and he got promoted, for now).

Wed, 01/15/2014 - 03:18 | Link to Comment AgentScruffy
AgentScruffy's picture

I count over 1 TRILLION since 12/24. http://www.newyorkfed.org/markets/omo/dmm/temp.cfm

Tue, 01/14/2014 - 19:26 | Link to Comment 22winmag
22winmag's picture

I seem to remember last February being the valley of death for WalMarrt... maybe it will be again?

Tue, 01/14/2014 - 19:39 | Link to Comment I Write Code
I Write Code's picture

Maybe if they create a website lots of young people will sign up and subsidize it.

Tue, 01/14/2014 - 19:49 | Link to Comment logicalman
logicalman's picture

Had my beady eye on this for a while!!!

Sorry, couldn't resist the pun, but I have.

Tue, 01/14/2014 - 20:01 | Link to Comment The Reich
The Reich's picture

Overcapacity strikes back.

Chinese New Year is ahead, too.

Tue, 01/14/2014 - 20:13 | Link to Comment HaroldWang
HaroldWang's picture

Jim Cramer talked about BDI being his favorite tell of the "stong economy" and quoted it every day on twitter. Hasn't mentioned it once since it's fallen. Hard to sell books that way, huh Jim?

Tue, 01/14/2014 - 21:40 | Link to Comment SeattleBruce
SeattleBruce's picture

Gotta love the one sided stories.  At least be consistent, right?  But as you say, doesn't sell books.  He's being a twit on twitter.

Tue, 01/14/2014 - 22:10 | Link to Comment roadhazard
roadhazard's picture

How many more days until housing comes back, Jim.

Tue, 01/14/2014 - 21:06 | Link to Comment mobydick
mobydick's picture

Cargo ships, especially container ships, were serious cash machines for long-term money. Buy the ship with some leverage, put it to work, and watch the cash roll in. The Greeks were especially good at this, but the Germans and Scandinavians caught on quick. The Germans went everyone one better and allowed small high-net-worth investors to put their money into funds that financed these ships. At one point, I am told, German banks might have been financing 50% of the world's cargo ships. (They control at least 40% of the world's container ship market today.) Anyone familiar with limited partnerships in the US in the late '70s and early '80s knows how this story ends for the investors.

I came across this story from the inside, as a business partner of mine is in the shipping business; but he owns and operates a special type of ship: massive tugboats that move ocean drilling-rig platforms, and those are still in healthy demand. But his original financing many years ago was from Germany.

It turns out that if a little leverage makes a deal look good, then a lot makes it look even better. In 2007, ships were financed at 75% leverage (on average). It looks like 2008 vintages were financed in the 90% range! (Data is from a presentation I was sent, done by Dr. Klaus Stoltenberg of NordLB.)

And why not? Baltic Dry shipping rates were going sky-high! Shipping rates were up over five times from their lows only a few years earlier. Think of buying a commercial building, and suddenly the rents you're getting are five times higher. In the low-yield world of 2007, would you want some more of that?

Baltic Dry Index Shipping Rates Since 1985:

Then the bottom fell out in the credit crisis as international trade financial banking collapsed, shipping came almost to a standstill, and ships were barely able to cover their operating costs, there was so little cargo. Remember the pictures of hundreds if not thousands of ships moored in the South Pacific islands, unable to find cargo? Story here. I wrote a few paragraphs about them at the time.

New shipbuilding quickly fell as well, with stories in the press of no new ship orders in 2009. But governments wanted to make sure workers had jobs, so subsidies and new ship designs soon came into play. Making a long and fascinating dinner story short, it turns out that you can now buy a container ship that sold for $40 million in 2008 for $23 million today. That, of course, is a significant operating-cost advantage for new ships. But new designs also make new ships 25-30% more fuel-efficient! A ship is leased for a certain amount per day to cover operating expenses. Fuel costs are extra. Depending on the size of the ship, the savings can be up to $7,000 a day, money that goes directly to the shipper.  A ship that is 60% of the price and costs significantly less to operate can make money at far lower shipping prices, and not surprisingly gets more of the shipping market share.

The result is that many container ships that were built pre-2009 are now simply uneconomical to operate. Depending on the ship, some cannot even generate enough income to cover their operating costs. (Please note that not all pre-2009 ships have issues; but a lot, if not most, of them do.) So those ships are clearly upside down on their loans. I was telling this story last week, and one trader said, "So the investors had to put in more money?" Good question.

As it turns out, the German banks, for the most part, actually make the capital guarantee part of their loan commitment. The investors lose 100% of their money but are able to walk away, kind of like defaulting US homeowners can in most states. The banks take the loss. Sure, they own the ships, but most are basically so much scrap metal, destined for dismantling in India, Pakistan, or Bangladesh.

(Sidebar: so many ships are being scrapped because they are uneconomical that the scrapping business has exploded. One source suggests there are less than three years worth of ships that are likely to be scrapped. But the number of new, larger ships being built is impressive, which suggests that the supply destined for scrapping will keep growing, at least for the time being.)

At the top of the market, Europe financed 75% of the ships being built, and German banks financed 75% of those, or maybe as much as 50% of the world’s total. Moody's gave us an estimate this week that German banks will face credit losses of $22 billion in 2014. "Germany's eight major ship financiers have lent a total of 105 billion euros to the sector, a fifth of which are categorized as non-performing," Moody's said in the report. "We expect the extended downward shipping cycle to cause rising problem loans in the shipping sector during 2013-14, requiring German banks to increase their loan-loss provisions. This will challenge their earnings power."

Whether the losses can be "contained" (to borrow a word from Chairman Bernanke) depends on what new rules are implemented by the new European banking authority next year. Only 30% of the losses have been accounted for with loan-loss provisions. That is bad enough; but if what I am being told is true, the losses could soar much higher. German banks are still financing ships that are not making debt payments, rolling over principal and more in an effort to avoid having to write down losses. Further credit is being extended to shipping companies in the hope that they can work out the problems, as the banks do not want to go into the ship-operating business. Over 100 German ship funds have already shut down as the long-simmering crisis in global container shipping finally comes to a rolling boil. A further 800 funds are threatened with insolvency, according to consultants TPW in Hamburg.

How bad is it? Banks are taking control of ships, marking them down to a fraction of their cost, and then financing 100% of the cost of selling them to Greek shipping companies. Can we say irony? Greek shipping families basically operate tax-free (a point I wrote about some four years ago) and take a very long-term and conservative view. They sold ships to the Germans at the top of the market for very nice premiums and are now buying them back at significant discounts.

The critical point is that a "European bank health check may trigger additional provisioning as loans benefiting from remediation measures – such as covenant waivers or an extension of repayment schedules – may be re-classified as problem loans under the new standard of the European Banking Authority...." (Reuters)

As Evans Ambrose-Pritchards wrote in The Telegraph last year:

"Most of the 20 top banks for the shipping industry have stopped all funding…. Shipping is the biggest casualty of the new regulations. All the banks are reducing their portfolios, using any breach of covenant to get out of contracts. The second-hand ship market has broken down," said Mr Smith…. Both bulk ships and tankers are trading at lower levels today than during the worst moments of the 2008-09 crisis. The odd twist is that Greek shippers are the ones quietly snapping up bargains from distressed German companies. "The Greeks are sitting on a pile of cash. They are in their own special cocoon completely removed from Greece's political troubles," said Dimitris Morochartzis from Lloyd's List Intelligence.

"They played their cards really well during the boom, selling ships for a profit at the top of cycle. They are now buying them back for a fraction of the price," he said.... Giorgos Xiradakis from consultants XRTC said Greek firms are teaming up with Chinese banks. Chinese premier Wen Jiabao pledged $5bn in loans to the Greek shipping industry two years ago, part of a twin-headed plan to gain a stronger foothold in the EU market and to provide vendor financing for the Yangtze shipbuilding industry – currently in dire straits…. German shipping experts say that two-thirds of the country's marine fleet is in financial distress. If the crisis drags on much longer, the Greeks may leapfrog ahead to become world leaders in container shipping. The irony of prudent Greeks cleaning up after a reckless debt spree by the Germans is lost on nobody.

Tue, 01/14/2014 - 21:24 | Link to Comment Captain Kink
Captain Kink's picture

Thx Moby.

Tue, 01/14/2014 - 22:00 | Link to Comment spinone
spinone's picture

So now is the time to buy.

Wed, 01/15/2014 - 01:53 | Link to Comment AgentScruffy
AgentScruffy's picture

Very interesting.

Wed, 01/15/2014 - 04:28 | Link to Comment disabledvet
disabledvet's picture

say what again? this is the biggest piece of propagandist conclusion full retard i've ever read here. $60,000 day rates and the BDI is "collapsing"? ummm, no. "the day rate is collapsing." if i'm at the ISS (International Space Station) in a matter of minutes (250 miles in space) "from there i can go anywhere in the Solar System in a matter of weeks." as far as any of us know we have a dozen new supply lines already opened and "moving space processed metal." natural gas still looks good...and oil obviously since it can be bought for a buck a barrel in West Africa "in unlimited quantities"...but so far "the weather reports have been off by a country mile" (much warmer than forecast on this site.) dead giveaway of a massive trading error coming even from Tylers Durden.

Wed, 01/15/2014 - 05:39 | Link to Comment andrewp111
andrewp111's picture

I've seen this story before. Good for reminding us. The BDI is a convolution of supply and demand for shipping goods, and the supply and demand for ships. Large movements in the index don't necessarily mean anything with regard to the broader economy.

Tue, 01/14/2014 - 21:18 | Link to Comment spinone
spinone's picture

Whatever the consumer demand, retail supply, BDI balance, we all know its like a western forest in a drought where fires have been suppressed for years.  At some point a cigarette butt or a dry lightning strike are going to ignight a firestorm.

http://www.youtube.com/watch?v=4sd7yyHKl84

Tue, 01/14/2014 - 21:31 | Link to Comment Fix It Again Timmy
Fix It Again Timmy's picture

Have the ships transport HOPIUM - they'll be running at 100% capacity, 100% of the time, hell-we may have to double or triple the ships to keep UP!......

Tue, 01/14/2014 - 22:48 | Link to Comment kw2012
kw2012's picture

Kenyan Hopium is the best, turns normal people in to unthinking Zombies.

Tue, 01/14/2014 - 23:36 | Link to Comment ceilidh_trail
ceilidh_trail's picture

Between Buzlightning and Mobydick, I think I picked a bad time to have to start taking BP meds... Seems like just a month ago, Barrons said stocks et al are a buy...

Wed, 01/15/2014 - 00:46 | Link to Comment Son of Loki
Son of Loki's picture

"If you want to keep your Baltic Index, you can keep your Baltic Index."

Wed, 01/15/2014 - 04:01 | Link to Comment Blue Horshoe Lo...
Blue Horshoe Loves Annacott Steel's picture

Nothing to see here.  The government says the chart to watch is the Baltic Wet Index!

Wed, 01/15/2014 - 11:22 | Link to Comment Dollar Bill Hiccup
Dollar Bill Hiccup's picture

You don't need ships to move bitcoins, facebook likes, CDOs, leveraged loans, NSA surveillance, phony scandals, the FED's balance sheet etc.

Welcome to the new new economy.

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