Global Trade Grinds To A Crawl

Tyler Durden's picture

At the start of this month, those who contend that depression-level readings on the Baltic Dry are no longer very meaningful because at this juncture, the index simply shows the extent to which the industry is oversupplied got a rude awakening when the CEO of the company (Maersk) that handles nearly a fifth of global seaborne freight decided to ruin everyone’s day by daring to suggest that in fact, global growth is rather abysmal and will likely continue to depress demand the world over. Worse, Skou went as far as saying that the days of 10% container growth for his industry are probably gone forever and yet despite it all, he’s buying more ships in what FT says is an effort to “help the company maintain its market leadership position,” which is of course just a nice way of saying that now many be a good time to eliminate the competition. As an aside, Skou also didn’t seem to share Richard Fisher’s assessment of the US as an “epicenter” of growth, saying America was “good but not great,” suggesting that as Rick Santelli told Fisher, it’s easy to score at the upper end of the range on a scale of 1-10 when a “1” basically equates to a deflationary death spiral and “10” just means something akin to not-collapsing. 

Here’s how we summed up the situation at the time: 

And yet the biggest paradox, or perhaps most logical outcome, of all this is that just as margins are about to be squeezed across the entire global supply chain, the healthier companies are now rushing to do what the oil driller are doing, and overproduce, in the process pushing prices even lower in hopes of putting marginal companies, and those which don't have access to cheap and easy funds, out of business. Call it the Amazon effect, only here one is dealing with net debt leverage of 3x, 4x or higher.

 

So with global demand lower as a result of slowing trade, and with Maersk about to boost ship supply even more, the result will be an even more aggressive drop in cargo and haulage prices as the deflationary wave hits yet another industry, in the process forcing seaborne transportation to be the latest to succumb to deflation, which for the highly levered sector means even more defaults are imminent now that China no longer is pumping nearly $4 trilion in total new credit every year. 

Today, we got still more evidence from the world of seaborne freight that in fact, global trade may be grinding to a halt. As Reuters notes, freight rates declined for a seventh straight week plunging double-digits to the lowest levels in nearly 2 years: 

Shipping freight rates for transporting containers from ports in Asia to Northern Europe fell 12.4 percent to $620 per 20-foot container (TEU) in the week ended on Friday, a source with access to data from the Shanghai Containerized Freight Index told Reuters.

 

It was the seventh consecutive week with falling freight rates on the world's busiest trade route and the current level is the lowest seen since June 2013.

 

In the week to Friday, container freight rates dropped 15.5 percent from Asia to ports in the Mediterranean, and fell 4.7 percent to ports on the U.S. West Coast and were down 4.7 percent to ports on the U.S. East Coast.

And while there are still plenty of commentators who will suggest that oversupply is the controlling factor here, the evidence just seems to be mounting that it could be the other way around or as we put it: “...yes supply isn't helping, but it is the lack of global demand that is pushing equilibrium levels lower, aka global deflation.”

Meanwhile, shippers seem to suffer from the same disposition which Chinese regulators warned today may end up generating huge losses for investors, for, as The Economist puts it, “owners are habitually more worried about missing out on an upturn than they are about getting caught by a downturn.”

On that note, we’ll leave you with the following bit of advice from the China Securities Regulatory Commission which seems applicable here: 

“We shouldn’t be thinking if we don’t buy now, we will miss it.”

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Chuck Knoblauch's picture

How do you stimulate demand in a commie world?

 

stinkhammer's picture

“I keep saying, ‘This is not communism. You’ve got to perform. You go in there and don’t perform, I’m not playing you’” -  coach John Calipari

Chuck Knoblauch's picture

Go in there and charge something for the good of the state team America?

I don't think so.

Handful of Dust's picture

"If you don't buy now, you'll be priced out of the market."

 

"There's never been a better time then now to buy a ...."

 

"House [or stawk] prices never drop."

 

The Greater Fool Theory has certainly been proven the last decade.

 

GetZeeGold's picture

 

 

Yes We Can........dammit!!!

 

Where did everyone go?

Bay Area Guy's picture

stinkhammer.....In Calipari's case, I think he would have probably said, "I'm not paying you".  One of, if not the, biggest cheater in collegiate sports.....and that says a lot.

ajax's picture

 

 

Oh please stop it with all the 'commie' and 'socialist' idiotic comments. You can't stand to admit you'd rather die playing useless lottery numbers pretending to be rich as Cresus than to stand up for people who work for a living producing what we all appreciate in our sweet short lives be it purely practical, outrageously technical or even sublimely artistic.

The question never posed enough is: Why all the over production? The too many products? The too many products never purchased or once purchased thrown away within weeks/months...

Who the fuck in this world needs a battery operated plastic cookie jar which pretends to be a fucking talking policeman? Which once broken can never ever be repaired.

 

 

Chuck Knoblauch's picture

I feel sad for people like you.

You're busy working hard to notice the chains.

Expect more hands in your pockets soon.

Keep working hard.

What can you do?

GetZeeGold's picture

 

 

Please send more koolaid.....I want to believe.

db51's picture

"Who the fuck in this world needs a battery operated plastic cookie jar which pretends to be a fucking talking policeman? Which once broken can never ever be repaired"

uh....are you speaking from experience?

Kprime's picture

ooooh,  I am going to patent the battery operated plastic dildo which pretends to be a fucking talkin policeman.  I'll call it the O'mama Dildo

OldPhart's picture

Funny you mention that, went to a yard sale and there was one for sale...ten cents.  Wife bought it, she'll have a yard sale for some charity and sell it for fifty cents to a dollar.

MontgomeryScott's picture

FREEZE, TURKEY! Keep your hands in the air, where I can see them! How much did you pay for that antique memorabilia sold 'second-hand'? SHUT UP, or I'll have to TAZE you! What was it, Plebe? 10 cents, or something? Empty your pockets RIGHT NOW, or I'll sic the K-9 on you! What is it? Is your wife trying to make a PROFIT or something?

(Ensuing obligatory chokehold applied gratuitously)

early riser's picture

If ordinary working people had a living wage they could spend more money on stupid things without getting into debt.

winchester's picture
winchester (not verified) ajax Mar 21, 2015 6:31 AM

young padawan, you have to understand one fundamental of the buziness, you do not have to sell or make someone use what you produce to earn money....

 

from this statment, it's like astroboy with speedlight booster on boots discovering universe., infinite possibilities...

Michigander's picture

Who the fuck in this world needs a battery operated plastic cookie jar which pretends to be a fucking talking policeman?

Oo-Oo-Ooooo. How did I miss that? Where can I buy one??

logicalman's picture

Why would you want to stimulate 'demand'?

 

Chuck Knoblauch's picture

It would reduce consumer debt.

It would return purchasing power to cash in your pocket.

It would help the middle class.

I really don't care about helping the investor class anymore.

They've had a good run already.

popeye's picture

No, what will reduce consumer debt is a realisation amongst consumers that a barnd new super OLED TV or shiny new F150 wont make an appreciable difference to their quality of life and that committing future income to current consumption is a road to surfdom.

Osmium's picture

Whoa, hold on there a minute.  It is every Amerikuns right to drive a 50k pick up truck.

</sarc>

lakecity55's picture

Who wants a 50K PU? I paid 10G cash for a used one.

Kprime's picture

I'm holding out for the Obama Pickup.  I hear it comes with a free cell phone.

Kprime's picture

On the road again
Just can't wait to get on the road again
The life I love is goin broke with my friends
And I can't wait to learn new ways to spend

On the road again
Knowing I just don’t give a damn
Signed enrollment papers, livin off of Uncle Sam
And I can't wait to ck face book once again

On the road again
Spending money I will never see
On my overpriced worthless college degree
And I can't wait to txt on the road again

On the road again
Takin selfies on my IPad
Livin in the basement with Mom n Dad
And I can't wait to party on the road again

On the road again
Gave my future away to dot gov
Deeper in debt to buy the things I love
And I can't wait to get on the road again

On the road again
Like a band of gypsies we go down the highway
We're the best of friends
Insisting that the world keep paying our way and our way

Thank you Willie, ur the best

Chuck Knoblauch's picture

Most people don't want much.

Just enough to take care of their families.

But for people like you, it's asking too much.

You sow what you reap.

Content to die an old broken monkey?

MontgomeryScott's picture

It's a psycho-sexual baser thing, actually.

'If you want it, i'll give it to you (because I want you to ask for it).'

If you delve deeper, it becomes more of a sado-masochist type of relationship, though. The term 'give it to me, bitch' applies (in relevance to the question posed).

Your question is excellent.

One Eyed Jack's picture

Spread hatred for other people's, start war time production, start a world wide war, feed the global population into a meat grinder, hilarity ensues.

Full employment for: factory workers, dock workers, farm workers, soldiers, sailors, airmen and marines, morticians, grave diggers, prosthetics manufacturers casket makers, drug companies, psychiatrists, etc.

JustObserving's picture

Maybe Obama can bomb a few more countries.  He has already bombed 7 Muslim countries, destabilized Ukraine and tried a coup in Venezuela.

Obviously, the Nobel Prize Winner is not trying hard enough. 

If Godzilla could wreck some havoc in Tokyo, maybe global trade can pick up.

lakecity55's picture

I thought Godzilla was in Tokyo right now, I saw a picture of him hugging the Empress. In an awful costume. Bring back the original costume, the one he had on greeting the Emperor was all gay.

Terminus C's picture

No no, that was Chewbacca...

Godzilla is also destroying Japan, though we call it Fukushima.

Rebranding.

lexluthor19's picture

kudos to anyone who read this drivel in its entirety

serotonindumptruck's picture

The title was more interesting than the content.

Bunga Bunga's picture

Calm down, it's just too many containers.

barry2001's picture
barry2001 (not verified) Mar 20, 2015 5:27 PM

If you are into drones check out this site www.pickyourdrone.com

wwxx's picture

With discounted freight rates somewhere between 10-15%, and there is no mention, absolutely none that blame the 'new normal' pricing has anything to do with the cost of labor.

 

So next time you read some bullshit story about how the management can't seem to cope with the high price of labor, or the latest union contract negotiation is stalled, remember simple stories like this, there is ALWAYS at least 20% or more that the management is out to skin either their customers or their hired help.

 

wwxx

davidalan1's picture

Well lets see. We;ve gone from a creditor nation to a creditor nation. We've totally trashed our manufacturing sector.. that sucking sound (Ross Perot). We have increased our debt to surreal levels. We have increased our MIC to keep the petro dollar and good faith. We've fucked other countries, taken out sovereign leader. (We came, we saw he died i.e. Hillary) We have thrown the Creator to the sde...what could possibly be the problem?

logicalman's picture

I was with you, up to the 'Creator' bit.

Please explain.

I may be with you on that, depending what you mean. Not that that's particularly important to either of us ;-)

lakecity55's picture

Or, if you do not put faith in a Higher Power, morality and good virtues.

davidalan1's picture

I meant debtor to creditor

logicalman's picture

Could the fact that almost everyone is maxed out in terms of credit have something to do with this.

It's just another symptom of a very sick - likely terminal, system.

 

wwxx's picture

Of course, this 'maxed out in terms of credit' is a terrible problem, but this was intentionally caused by the FED RES BOARD & OTHERS, that insisted on crashing the base FED lending rate to ZIRP & even NIRP. 

 

I cannot blame any citizen that refinanced a mortgage, at the lower rates during the last 8 years, and would suggest a new refinance again asap.  This got 'everyone on board the credit train', and as we all know, a bunch of those people with 'new money' probably received more than they can handle, considering that the general state of production in the USA (& elsewhere) has been & is now, generally very low.

 

It is sick, it is terminal, it could easily be repaired with some decent leadership.

 

wwxx

davidalan1's picture

I meant creditor to debtor...wait, Im confused lol

logicalman's picture

If you live on planet earth and you are not confused, the meds are working!

 

davidalan1's picture

Very perceptive.. Wine. Normally im too shy to post unless ive had a few glasses of chardonney...

twh99's picture

I don't see it yet.  We import all the time.  Some containers, mostly consodlidated.  Our rates have done nothing but go up.

Maybe the freight companies are lowering them, but the harbors are adding all sorts of extra fees and expenses.

Westcoastliberal's picture

The numbers have been fudged to the point of being meaningless.  Hard to fake the Baltic dry. 5.5% unemployment?  C'mon.  If that were true interest rates would be at least 4-5% and we'd have a rip-roaring economy, instead of.....crickets.

Al Tinfoil's picture

Is this another case of a CEO over-reaching to gain or maintain market dominance?  There are far too many cases of corporations going all-in on expansion, mergers, buy-outs, etc., and then finding that the new corporate colossus cannot handle its new debt load, or achieve the "synergies" forecast to justify the expansion, or finding that the market has not expanded as forecast.  

Elsewhere, there is a piece about the rush of the container fleets into ever-bigger ships that will overwhelm currently-available port facilities, requiring vast investments to deepen harbors, extend wharfs, and install more and more cranes to load and unload the new monsters in reasonable times.   The new behemoths may not be such a good idea.

Lanka's picture

Many CEOs are only concerned about their $20 million bonus for consummating the deal.  The actual owners, the shareholders, are left holding the bag of shit.