China Freight Index Collapses To Fresh Record Low

Tyler Durden's picture

The Baltic Dry Index has risen for the last few weeks, buoyed by hopes (a la Iron Ore) of a National People's Congress stimulus surge from China. While the scale of the 'bounce' is negligible in real terms compared to the total collapse, it has caused such momentum-muppets as Jim Cramer to proclaim China 'fixed' and investible. So we have one quick question - if everything is awesome, why did the China Containerized Freight Index just crash to new record lows?

It appears BDIY gets over-excited relative to CCFI...

Chart: Bloomberg

Only to rapidly crash back to CCFI reality shortly afterwards. Given the complete collapse back of Iron Ore, the hopes placated on the dead-cat-bounce in BDIY appear a little misplaced.

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BandGap's picture

I like fresh lows, so much better than those stale, worn out lows.

MarkD's picture

Turn the container ships into prisons....... float them out into shark infested waters.

max2205's picture

Has everyone forgotten how to fake econ reports....

 

GEZZZZZZZ

Paveway IV's picture

TEU = 20 ft. shipping container

To understand how bad things are, consider the spot rates from Shanghai in USD for the week of March 11th:

To Europe (base port): $211

To Mediterranean (base port): $203

Is that low? Well, Shanghai to Japan East is $143, Japan West is $153, so demand has tanked so much for Europe/Med that it only costs about $50 more to ship a 20 ft. container to Italy (~8000nm, 34 days) than Japan (~1000nm, 4 days). 

Compare with U.S. West Coast $810, East Coast $1710 (We're still #1 - yay!)

Do Chen sould be enjoying low spot rates as well: Santos, Brazil $472, which dropped by about 25% since the week before. But Do Chen ships through the west coast of South American (Peru?), so rates are probably lower still. Are you still out there, Do Chen? What up with rates?

38BWD22's picture

 

 

"Rumor has it" that 20' and less-than-containerload shipment freight rates are indeed down in Peru.  It is not down enough to change anything though, as normally ocean freight is only 1% - 2% of total costs, so (for example) a 25% drop in shipping rates means little.

Peru sales matter moar, as well as product availability (able to get the right pieces) that matter.

Paveway IV's picture

If the bearing manufacturers in China go down because of scams/bad loans/food riots, we are all fucked. That goes for about a hundred thousand other critical industrial items. 'Overseas demand' is irrelevant if a major electronic chip fabricator, refrigeration compressor, hydraulic pump or electric motor manufacturer either goes out of business, can't pay it's employees or can't get some critical raw material because it's local suppliers went belly-up. Even something like disrupting Chinese diesel supplies for two weeks for ANY reason would shut down most of south China.

People cannot imagine how incredibly dependent we are on China's fake economy. Anything can be made somewhere else, but that's not going to happen overnight. Kind of hard to tool up a small manufacturing plant to make something previously made in China if you can't get the tooling and machines because those are also made in China. 

38BWD22's picture

 

 

"Anything can be made somewhere else, but that's not going to happen overnight. Kind of hard to tool up a small manufacturing plant to make something previously made in China if you can't get the tooling and machines because those are also made in China."

Great observations.  Yes, we could do almost anything here (USA), but it would be less efficient and a very rocky transition.  Building the iPhone here in the USA, for example, would take a lot of time to set making the components.

 

EDIT: I read at SeekingAlpha that Timken (the USA's bearing company) is going to be screwed, more like screwing itself.  

Disclosure: we do not buy Timken bearings nor do I own any TKR.  Ah, no gracias!

Element's picture

You're saying PW, is that manufacturing jobs will flood out of China, pronto. It is a house of cards, and it will come tumbling down, hopefully gradually.

The Neuromancer's picture

The main reason for the decrease in rates is that the large container ships that we're ordered with easy credit back in 2006/2007 are coming online.

They entered the Asia - Europe trade as Rotterdam and Shanghai Ports have large enough equipment to handle those ships efficiently. They flooded that market and now over the past year, rates have simply fallen.

Asia to West Coast rates are now bottoming out because the carriers have said they are planning on switching the new large ships to the Asia to West Coast routes as a way to grab volume and choke out other carriers.

Asia to US East Coast will not drop as fast because of the choke point known as the Panama Canal.

The Baltic Dry Index is very overrated because it is relating to chartered ships (ships for hire) which leads to raw resources and agricultural products rather than consistent economic activity.

The Shanghai Containerized Index and Shanghai - Rotterdam TEU benchmarks are better for tracking overall economic trade.

The BIG TAKEAWAY HERE is that all of the carriers bought massive ships when credit was easy to win marketshare. Now all of the carriers are underwater holding their noses waiting to see who can hold out the longest. Right now all of the shipping on the planet has overcapacity but it is mainly due to overpurchasing of ships.

http://qz.com/587534/the-largest-ship-in-us-history-is-bigger-than-the-e...

Mr. BaGoggles's picture

When they come in above expectations, you say they're faked.  

When they come in below expectations, you say "See, I told you so!"

In other words, the only data you'll believe are those that confirm your pre-conceived biases.  

I too believe things are bad in China and elsewhere, but I'm not interested in partaking in these BS fallacies.

Element's picture

Sentiment indexes are kewl tho.

Infield_Fly's picture

Turn the container ships into prisons.......fill them up with muslims......float them out into shark infested waters.

 

There, fixed it for you.

10mm's picture

Fake Fake Fake.

BlackChicken's picture

if everything is awesome, why did the China Containerized Freight Index just crash to new record lows?

Why..? Because it's a lagging indicator.

Do I get a cookie?

PTR's picture

Yes, but it's made in China now.

Element's picture

Plastic cookies too!?

autofixer's picture

So nothing for Trumpet to get all worked up about?  

Triple A's picture

there is nothing to ship, because not many people have disposable income. sum ting wong.

Osmium's picture

YOU are a fiction peddler.  You best knock it off.

Triple A's picture

there is nothing to ship, because not many people have disposable income. sum ting wong.

Triple A's picture

there is nothing to ship, because not many people have disposable income. sum ting wong.

No Half Measure's picture

Nice work, you got the triple version posted.

Triple A's picture

that gave me a good laugh, i could have sworn i hit save once. must have been a glitch. 

abyssinian's picture

all economic data can go fresh lows, but long as the stock markets are up, no one really cares! so keep printing, keep pumping. 

Pa Kettle's picture

"Placated?"

I do not think it means what you think it means.

Theonewhoknows's picture

This is the time you should think about commodities - as the negative sentiment towards it will change soon. They are cheapest since 1974 http://independenttrader.org/commodities-cheapest-since-1974.html and China will not drive a global economy out of the gutter this time. So read http://independenttrader.org/commodities-assets-for-the-next-decade.html

Shed Boy's picture

"Building the iPhone here in the USA, for example, would take a lot of time to set making the components."

Yup....and it would cost $14,000. Not to mention the years it would take to train people even if the raw materials were available. Ya see...Mericans won't work for $2 a day like the slaves that presently make iPhones.

" one quick question - if everything is awesome, why did the China Containerized Freight Index just crash to new record lows?"

And I have one quick answer: because Americans are tapped out, broke, one late payment away from the poorhouse. Duh. Really? It doesn't take a rocket scientist or a two bit economist to figure out that nobody has any money....so no shipping. It just so happens everything is made in China now. Remember...NAFTA...and soon TPP? It used to be Mexico, then Japan, then Indonesia, etc. Now China is holding the ball and isn't shipping stuff because the whole freakin world is flat broke.

lucky and good's picture

China is far from "fixed" and its problems are massive. Time and time again history has shown that when an economy has overbuilt, over leveraged, and overreaches a reset occurs. China is in a situation similar to what America faced in 1929 following a period of rapid growth and credit expansion.

 China is attempting to remake their economy rely less on investment and exports and more on their own consumers. This is a major shift for China's economy and we should not be surprised if China's leaders are unable to make the transition  in an orderly fashion. The article below delves into this issue.

 http://brucewilds.blogspot.com/2016/02/chinas-economy-policy-akin-to-pushing.html

redd_green's picture

If it went to ZERO I'd be happy.   Let them eat their own garbage.

Infield_Fly's picture

Baltic Dry index on chart above shows near 950.

 

Baltic Dry index, yesterday, closed at 393, off from its all time lows of 290.

 

Tylers??