This chart describes the collapse of the global shipping industry over the past couple of months. There’s nothing that local port officials can do about it. But for a city and province that are betting their futures on port business, shouldn’t politicians, business people and reporters be talking about this?
Put simply, the cost of shipping has dropped through the floor. Sending a tonne of iron ore from Brazil to China in early June would have set you back more than $100 (£62) per tonne, or around $15m per voyage. But freight rates have now dropped to only slightly over $10 per tonne, or just $1.5m for the 70-90 day journey.
As if that wasn’t dramatic enough, the drop in daily charter rates is even sharper. At the peak of the market, a 170,000-tonne Capesize bulk carrier was hired out at the eye-watering daily rate of $234,000. At the beginning of this week, it was $5,611 – a fall of nearly 98 per cent.
Peter Kerr-Dineen, chairman of Howe Robinson shipbrokers, said: “The scale of change in rate is utterly staggering – the market has come down from super-boom territory to pretty close to bust, effectively in two months.”
Contracting demand for imports inrecession-wary economies across the world is a factor, as are steadily falling commodity prices and the mechanics of supply and demand in the shipping industry itself. But the real trouble is less obvious, largely unprecedented, and potentially devastating.
The wheels of international shipping are greased with “letters of credit”issued to buyers of bulk cargo by their banks. These guarantee the value of the shipment once it is in transit but before it is delivered. The problem is that the credit crunch, with the resulting liquidity problems in the international banking sector, is taking its toll on the availability of these entirelyroutine instruments. “We have the hugely worrying and unprecedented development where there are perfectly creditworthy shippers and receivers unable to open perfectly standardletters of credit,” Mr Kerr-Dineen said.
Cargos are sitting on docksidesbecause the finance is not available to ship them, with the gravest implications for the future. “This is a nuclear bomb in the freight market, and in world trade,” Mr Kerr-Dineen said.
As the article explains, bulk goods are more affected than are manufactured goods, which make up the majority shipments into Halifax, so things aren’t entirely bad. But expect big, big drops in port business. The first six months of the year saw a 20 percent decline in port traffic; we can expect that number to be considerably higher for the last six months of the year, and higher still into next year.
This article appears in Nov 13-19, 2008.
Trade has existed since the dawn of civilization, and it will continue as long as people’s need to exchange and consume products. As long as trade exists and continues to grow between nations, shipping and other means of moving goods will continue to exist and grow.What we see today is a blip in the curve caused by exceptional circumstances (a global economic and credit crisis). I wouldn’t doom an entire industry that is essential to our very way of life just because a temporary ‘market adjustment’ cycle is taking place. The credit crisis has a domino effect on a number of related industries. Yet, just like the burst of the dot-coms in 2000 and all the hysteria that followed, this too will pass. The market will emerge stronger because of it, with new regulations to avoid a similar recurrence in the future.
Fuel costs dropped from $750 ton to $350 ton from July to Mid October. The dramatic drop in charter rates should cause NSP to consider the arrangements it has for delivery of offshore coal.Did the URB have any knowledge of the mid summer crash in charter rates for bulk carriers ?
Colin– the rate increase was applied for in the spring, well before the recent spike and (relative) collapse in fuel prices; the increase revenues don’t cover the increase in coal prices projected, now, for next year.
Tim, the rates for dry bulk have no relation to the container trade – apples and oranges. Crude imports may drop but the IOL refinery is small and serves a large area. What is more interesting is the layoff offs in the financial services sector, it is predicted that 23,000 jobs in London will be wiped out. So who are the firms wanting to locate in Halifax ?
I misunderstood you, Colin. Thought you were talking about NSP’s increase…I have a call out to the port to see what percentage of the port’s business is bulk goods, and if there’s been any decrease lately. I’m guessing that it’s mostly on the export side, not the import side.