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Another day, another plunge in The Baltic Dry Index, which just dropped a further 3.1% to 402 today – a new record low. While the index is driving headlines, under the surface, reality in the shipping (and shipbuilding) industry is a disaster. Total orders at Chinese shipyards tumbled 59% in the first 11 months of 2015, and as Bloomberg reports, with bulk ships accounting for 41.6% of Chinese shipyards’ $26.6 billion orderbook as of December, there is notably more pain to come, as one analyst warns “Chinese shipbuilders won’t be able to revive even if you try breathing some life into them.”

Baltic Dry Bloodbath…

About 140 yards in the world’s second-biggest shipbuilding nation have gone out of business since 2010, and more are expected to close in the next two years after only 69 won orders for vessels last year, JPMorgan Chase & Co. analysts Sokje Lee and Minsung Lee wrote in a Jan. 6 report. That compares with 126 shipyards that fielded orders in 2014 and 147 in 2013.

As Bloomberg reports, the weakening yuan and China’s waning appetite for raw materials have come around to bite the country’s shipbuilders, raising the odds that more shipyards will soon be shuttered.

“The chance of orders being canceled at Chinese yards is becoming greater and greater,” said Park Moo Hyun, an analyst at Hana Daetoo Securities Co. in Seoul.

“While a weaker yuan could mean cheaper ship prices for customers, it still won’t be enough to lure back any buyers. Chinese shipbuilders won’t be able to revive even if you try breathing some life into them.”

And it is not going to get better anytime soon…

Bulk ships accounted for 41.6 percent of Chinese shipyards’ $26.6 billion orderbook as of Dec. 1, according to Clarkson Plc, the world’s largest shipbroker.

…click on the above link to read the rest of the article…

“Nowhere To Hide” As Baltic ‘Fried’ Index Careens To Fresh Record Low

January 7, 2016

“Nowhere To Hide” As Baltic ‘Fried’ Index Careens To Fresh Record Low

Another day, another fresh all-time record low in The Baltic Dry Index as Deutsche Bank’s “perfect storm” appears ever closer on the horizon. Plunging 4.7% overnight to 445 points, this is 20% lower than the previous record low in 1986 and as one strategist warns, “It’s a brutal start of the year, there’s just nowhere to hide on the market.”

“This looks like a ripple effect from what happened back in August,” adds Alexandre Baradez, chief market analyst at IG France, hopefully looking forward, “it might continue for a few weeks, but given China’s central bank fire power, it shouldn’t last for more than that.”

But Deutsche’s “perfect storm” looms…

The improvement in dry bulk rates we expected into year-end has not materialized. And based on conversations we’ve had with several industry contacts, we believe a number of dry bulk companies are contemplating asset sales to raise liquidity, lower daily cash burn, and reduce capital commitments. The glut of “for sale” tonnage has negative implications for asset and equity values. More critically, it can easily lead to breaches in loan-to-value covenants at many dry bulk companies, shortening the cash runway and likely necessitating additional dilutive actions.

Dry bulk companies generally have enough cash for the next 1yr or so, but most are not well positioned for another leg down in asset values

The majority of publically listed dry bulk companies have already taken painful measures to adapt to the market- some have filed Chapter 11, others have issued equity at deep discounts, and most have tried to delay/defer/cancel newbuilding deliveries.

The additional cushion, however, is likely not enough if asset values take another leg down; especially given the majority of publically listed dry bulk companies are already near max allowable LTV levels.

…click on the above link to read the rest of the article…

A “Perfect Storm Is Coming” Deutsche Warns As Baltic Dry Falls To New Record Low

January 5, 2016

A “Perfect Storm Is Coming” Deutsche Warns As Baltic Dry Falls To New Record Low

Following disappointing China PMI data and a collapse in US ISM Manufacturing imports data, the fact that TheBaltic Dry Index has collapsed to fresh record lows will hardly be a surprise to many. However,as Deutsche Bank warns, a “perfect storm” is brewing in the dry bulk industry, as year-end improvements in rates failed to materialize, which indicates a looming surge in bankruptcies.

At 468, The Baltic Dry Index is now at a new record low…

And US Manufacturing imports suggest things are getting worse, not better…

Which leads Deutsche Bank to warn of…A Perfect Storm Brewing

The improvement in dry bulk rates we expected into year-end has not materialized. And based on conversations we’ve had with several industry contacts, we believe a number of dry bulk companies are contemplating asset sales to raise liquidity, lower daily cash burn, and reduce capital commitments. The glut of “for sale” tonnage has negative implications for asset and equity values. More critically, it can easily lead to breaches in loan-to-value covenants at many dry bulk companies, shortening the cash runway and likely necessitating additional dilutive actions.

Dry bulk companies generally have enough cash for the next 1yr or so, but most are not well positioned for another leg down in asset values

The majority of publically listed dry bulk companies have already taken painful measures to adapt to the market- some have filed Chapter 11, others have issued equity at deep discounts, and most have tried to delay/defer/cancel newbuilding deliveries.

The additional cushion, however, is likely not enough if asset values take another leg down; especially given the majority of publically listed dry bulk companies are already near max allowable LTV levels.

The move to sell assets in unison can lead to a downward spiral, where the decline in values leads to an immediate need for additional equity to cure LTV breaches.

Source: Deustche Bank

Baltic Dry Crashes To New Record Low As China “Demand Is Collapsing”

December 16, 2015

Baltic Dry Crashes To New Record Low As China “Demand Is Collapsing”

Worst. Ever.

As Bloomberg adds, China, which makes about half the world’s steel, is on track for the biggest drop in output for more than two decades, according to data compiled by Bloomberg Intelligence…

Owners are reeling as China’s combined seaborne imports of iron ore and coal — commodities that helped fuel a manufacturing boom — record the first annual declines in at least a decade. While demand next year may be a little better, slower-than-anticipated growth in 2015 has led to almost perpetual disappointment for rates, after analysts’ predictions at the end of 2014 for a rebound proved wrong.

“It doesn’t help that Chinese steel production is about to see the most dramatic decline to the lowest in 20 years,” said Herman Hildan, a shipping-equity analyst at Clarksons Platou Securities in Oslo. “Demand growth is collapsing.”

* * *

Sounds like a perfect time to hike rates and exaggerate the deflationary tsunami and monetary outflows from the world’s potentially growing economies.

Despite a brief dead-cat-bounce late November, which Jim Cramer heralded as evidence of stabilization in China, the world’s best known freight index has collapsed to new all-time record lows this morning. Amid a persistent glut of ships and ongoing concerns about Chinese steel imports, The Baltic Dry has tumbled to 471 – the lowest level in at least 30 years.

“One Big Shock Away from a Global Downturn…”

November 24, 2015

“One Big Shock Away from a Global Downturn…”

Zombies vs. Cronies

DUBLIN – Most elections these days are contests between cronies and zombies. The left favors the zombies. The right favors the cronies.

In yesterday’s presidential elections in Argentina the zombies lost. It’s time for the cronies to take over.

New Argentine president Mauricio Macri – the era of the Kirchner dynasty is over.
Photo via diarioz.com.ar

The U.S. Dollar Has Already Caused A Global Recession And Now The Fed Is Going To Make It Worse

November 23, 2015

The U.S. Dollar Has Already Caused A Global Recession And Now The Fed Is Going To Make It Worse

The 7th largest economy on the entire planet, Brazil, has been gripped by a horrifying recession, as has much of the rest of South America. But it isn’t just South America that is experiencing a very serious economic downturn. We have just learned that Japan (the third largest economy in the world) has lapsed into recession. So has Canada. So has Russia. The dominoes are starting to fall, and it looks like the global economic crisis that has already started is going to accelerate as we head into the end of the year. At this point, global trade is already down about 8.4 percent for the year, and last week the Baltic Dry Shipping Index plummeted to a brand new all-time record low. Unfortunately for all of us, the Federal Reserve is about to do something that will make this global economic slowdown even worse.

Throughout 2015, the U.S. dollar has been getting stronger. That sounds like good news, but the truth is that it is not. When the last financial crisis ended, emerging markets went on a debt binge unlike anything we have ever seen before. But much of that debt was denominated in U.S. dollars, and now this is creating a massive problem. As the U.S. dollar has risen, the prices that many of these emerging markets are getting for the commodities that they export have been declining. Meanwhile, it is taking much more of their own local currencies to pay back and service all of the debts that they have accumulated. Similar conditions contributed to the Latin American debt crisis of the 1980s, the Asian currency crisis of the 1990s and the global financial crisis of 2008 and 2009.

…click on the above link to read the rest of the article…

Global Trade Just Snapped: Container Freight Rates Plummet 70% In 3 Weeks

November 21, 2015

Global Trade Just Snapped: Container Freight Rates Plummet 70% In 3 Weeks

“This market is looking like a disaster and the rates are a reflection of that,” warns one of the world’s largest shipbrokers, but while The Baltic Dry Freight Index gets all the headlines – having collapsed to all-time record lows this week – it is the spefics below that headline that are truly terrifying. At a time of typical seasonal strength for freight and thus global trade around the world, Reuters reports that spot rates for transporting containers from Asia to Northern Europe have crashed a stunning 70% in the last 3 weeks alone. This almost unprecedented divergence from seasonality has only occurred at this scale once before… 2008! “It is looking scary for the market and it doesn’t look like there is going to be any life in the market in the near term.”

Baltic Dry at record lows…

And Shanghai Containerized Freight collapsing…

As Reuters reports,

Shipping freight rates for transporting containers from ports in Asia to Northern Europe plunged by 27.9 percent to $295 per 20-foot container (TEU) in the week ending on Friday, one source with access to data from the Shanghai Containerized Freight Index told Reuters.

The drop came after spot freight rates on the world’s busiest route dropped 39.3 percent last week, and the current rates are widely seen as loss-making levels for container shipping companies.

The spot freight rates for transporting containers, carrying anything from flat-screen TVs to sportswear from Asia to Northern Europe, has fallen 70 percent in three weeks.

In the week to Friday, container freight rates fell 22.5 percent from Asia to ports in the Mediterranean, dropped 8.6 percent to ports on the U.S. West Coast and were down 8.0 percent to ports on the U.S. East Coast.

But even more concerning is this collapse is occurring just as the containerized freight industry enters its golden seasonal period…

…click on the above link to read the rest of the article…

The Baltic Dry Shipping Index Just Collapsed To An All-Time Record Low

November 20, 2015

The Baltic Dry Shipping Index Just Collapsed To An All-Time Record Low

I was absolutely stunned to learn that the Baltic Dry Shipping Index had plummeted to a new all-time record low of 504 at one point on Thursday. I have written a number of articles lately about the dramatic slowdown in global trade, but I didn’t realize that things had gotten quite this bad already. Not even during the darkest moments of the last financial crisis did the Baltic Dry Shipping Index drop this low. Something doesn’t seem to be adding up, because the mainstream media keeps telling us that the global economy is doing just fine. In fact, the Federal Reserve is so confident in our “economic recovery” that they are getting ready to raise interest rates. Of course the truth is that there is no “economic recovery” on the horizon. In fact, as I wrote about yesterday, there are signs all around us that are indicating that we are heading directly into another major economic crisis. This staggering decline of the Baltic Dry Shipping Index is just another confirmation of what is directly ahead of us.

Overall, the Baltic Dry Index is down more than 60 percent over the past 12 months. Global demand for shipping is absolutely collapsing, and yet very few “experts” seem alarmed by this. If you are not familiar with the Baltic Dry Shipping Index, the following is a pretty good definition from Investopedia…

A shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea. The Baltic Exchange directly contacts shipping brokers to assess price levels for a given route, product to transport and time to delivery (speed).

…click on the above link to read the rest of the article…

We Have Never Seen Global Trade Collapse This Dramatically Outside Of A Major Recession

November 10, 2015

We Have Never Seen Global Trade Collapse This Dramatically Outside Of A Major Recession

If you have been watching for the next major global economic downturn, you can now stop waiting, because it has officially arrived. Never before in history has global trade collapsed this dramatically outside of a major worldwide recession. And this makes perfect sense – when global economic activity is increasing there is more demand for goods and services around the world, and when global economic activity is decreasing there is less demand for goods and services around the world. So far this year, global trade is down about 8.4 percent, and over the past 30 days the Baltic Dry Index has been absolutely plummeting. A month ago it was sitting at a reading of 809, but now it has fallen all the way to 628. However, it is when you look at the trade numbers for specific countries that the numbers become particularly startling.

Just within the last few days, new trade numbers have come out of China. China accounts for approximately one-fifth of all global factory exports, and for many years Chinese export growth has helped fuel the overall global economy.

But now Chinese exports are falling. In October, Chinese exports were down 6.9 percent compared to a year ago. That follows a decline of 3.7 percent in September.

The numbers for Chinese imports are even worse. Chinese imports in October were down 18.8 percent compared to a year ago after falling 20.4 percent in September. China’s growing middle class was supposed to help lead a global economic recovery, but that simply is not happening.

The following chart from Zero Hedge shows just how dramatic these latest numbers are compared to what we are accustomed to witnessing. As you can see, the only time Chinese trade numbers have been this bad for this long was during the major global recession of 2008 and 2009…

…click on the above link to read the rest of the article…

Global Trade In Freefall: China Container Freight At Record Low; Rail Traffic Tumbles, Trucking Slows Down

November 4, 2015

Global Trade In Freefall: China Container Freight At Record Low; Rail Traffic Tumbles, Trucking Slows Down

Over the past year we have regularly contended that a far greater threat to the global economy than either corporate earnings, currency devaluations, rate cuts (or hikes), reserve outflow, or even the stock market, is the sudden, global trade crunch which has been deteriorating rapidly since late 2014 and has seen an even more dramatic drop off as 2015 is winding down. Actually, that is incorrect: global trade is merely a manifestation of the true state of the above listed items.

First, there was ships.

Back in March, we reported that “Global Trade Volume Tumbles Most Since 2011; Biggest Value Plunge Since Lehman.”

Then in August when we first pointed out a dramatic slowdown in the Baltic Dry index which had peaked just a few weeks earlier and we said that “should the dead cat bounce in shipping rates indeed be over, and if the accelerate slide continues at the current pace, not only will shippers mothball key transit lanes, but the biggest concern for global economy, the unprecedented slowdown in world trade volumes, which we flagged a week ago, will be not only confirmed but is likely to unleash yet another global recession.”

Three weeks later, we we got confirmation that the BDIY has indeed become a lagging indicator to actual demand, when Reuters reported in its latest weekly update using data from the Shanghai Containerized Freight Index, that key shipping freight rates for transporting containers from ports in Asia to Northern Europe fell by 26.7 percent to $469 per 20-foot container (TEU) in the week ended on Friday.The collapse in rates is nothing short of a bloodbath: “it was the third consecutive week of falling freight rates on the world’s busiest route and rates are now nearly 60 percent lower than three weeks ago.

…click on the above link to read the rest of the article…

What’s up with the global economy, and where do we go from here?

October 27, 2015

What’s up with the global economy, and where do we go from here?

A deflationary spiral, such as is now becoming evident globally, acts as a natural poison.

It now appears that the grand yearly addition to total human wealth, the global GNP, is no longer growing. If so, this means the world is headed toward a global deflationary spiral, a contraction in the global economy similar in nature to the trade slump that spread globally during the era of the Great Depression.

There really is no other explanation but a global trade slump that can account for the steep decline in the prices of basic essential commodities like oil and copper, and also the decreased demand for shipping capacity reflected in the Baltic Dry Index.

The troubled Chinese economy, its reduced demand for commodities, the devaluation of its currency to try to capture more trade, and the Chinese support for a new trade alliance in competition with the new U.S./Japanese TPP alliance — all these are symptoms that indicate that aggregate global buying power has stalled out. That means that investment capital is unable to find new profitable investments in the global marketplace, which is very bad news for finance capitalism as a global system.

At this point let me refer readers to Gail Tverberg and her blog, Our Finite World, which focuses on the key interactions between energy and economics. In fact we now see just the sort of troubled global economy that we might anticipate from a world that peaked in production of historically cheap conventional oil almost a decade ago in 2006. Tverberg is able to explain the global economic situation so clearly, so convincingly, and so persistently that she has attracted a huge popular economic following. One of her recent posts drew over a thousand reader responses; “Low Oil Prices – Why Worry?.”

…click on the above link to read the rest of the article…

Global Trade In Freefall: Container Freight Rates From Asia To Europe Crash 60% In Three Weeks

August 23, 2015

Global Trade In Freefall: Container Freight Rates From Asia To Europe Crash 60% In Three Weeks

Three weeks ago, when we last looked at the collapse in trade along what may be the most trafficked route involving China, i.e., from Asia to Northern Europe, we noted that while that particular shipping freight rate Europe had crashed some 23% on just one week, there was some good news: at least the Baltic Dry index was still inexplicably rising, and at last check it was hovering just above 1,100.

That is no longer the case, and just as with everything else in recent months, the Baltic Dry dead cat bounce is now over, with the BDIY topping out just above 1200 on August 4, and now back in triple digit territory, rapidly sliding back to the reality of recent record lows which a few months ago we suggested hinted that much more is wrong with global trade, and the global economy, than artificially manipulated stock markets would admit.

More importantly, a major source of confusion appears to have been resolved. Recall that as we noted on August 3, “many were wondering how it was possible that with accelerating deterioration across all Chinese asset classes, not to mention the bursting of various asset bubbles, could global shippers demand increasingly higher freight rates, an indication of either a tight transportation market or a jump in commodity demand, neither of which seemed credible. We may have the answer.”

We did. To wit:

“Should the dead cat bounce in shipping rates indeed be over, and if the accelerate slide continues at the current pace, not only will shippers mothball key transit lanes, but the biggest concern for global economy, the unprecedented slowdown in world trade volumes, which we flagged a week ago, will be not only confirmed but is likely to unleash yet another global recession.“

…click on the above link to read the rest of the article…

Something Just Snapped: Container Freight Rates From Asia To Europe Crash 23% In One Week

August 2, 2015

Something Just Snapped: Container Freight Rates From Asia To Europe Crash 23% In One Week

One of the few silver linings surrounding the hard-landing Chinese economy in recent weeks has been the surprising resilience and strength of the Baltic Dry Index: even as Chinese commodity demand has cratered in 2015, this “index” has more than doubled in the past few months from all time lows, and at last check was hovering just over 1,100.

Many were wondering how it was possible that with accelerating deterioration across all Chinese asset classes, not to mention the bursting of various asset bubbles, could global shippers demand increasingly higher freight rates, an indication of either a tight transportation market or a jump in commodity demand, neither of which seemed credible.

We may have the answer.

It appears that the recent spike in shipping rates was analogous to the dead cat bounce in crude oil prices: a speculator-driven anticipation for a sustainable rebound that never took place. And now, just like with crude prices, it is all crashing down…. again.

According to Reuters, shipping freight rates for transporting containers from ports in Asia to Northern Europe dropped 22.8 per cent to $400 per 20-foot container (TEU) in the week ended last Friday, data from the Shanghai Containerized Freight Index showed.

Freight rates on the world’s busiest shipping route have tanked this year due to overcapacity in available vessels and sluggish demand for transported goods. Rates generally deemed profitable for shipping companies on the route are at about US$800-US$1,000 per TEU. In other words, at current prices shippers are losing half a dollar on every booked contractual dollar at current rates.

According to Shanghai data, it was the third consecutive week of falling freight rates on the world’s busiest route. Container freight rates have so far increased in 5 weeks this year but fallen in 23 weeks.

…click on the above link to read the rest of the article…

Shanghai Containerized Freight Index Collapses: China-US Rates Hit Hard, China-Europe Rates Plunge to All-Time Low

April 21, 2015

Shanghai Containerized Freight Index Collapses: China-US Rates Hit Hard, China-Europe Rates Plunge to All-Time Low

First was the Baltic Dry Index, which tracks rates for transporting the major raw materials in bulk by sea. Reflecting the totally battered global commodities market, it crashed to an all-time low in February, though it has since edged up a tiny bit.

Now, containerized shipping rates are taking a majestic drubbing, and those from China to Europe have collapsed to all-time lows.

The Shanghai Containerized Freight Index (SCFI) that tracks shipping rates from Shanghai to Northern European ports plunged 14% from last week to $399 per twenty-foot container equivalent unit (TEU), down a vertigo-inducing 67% from the glory days just a year ago. It was the 11th week in a row of declines, and it set a new all-time low.

The index is now half of the key rate of $800 per TEU that a report by Drewry Maritime Research, released on April 19, considers the break-even rate for these routes even at the currently lower fuel costs. This leaves carriers deeply in the red.

The Asia-Mediterranean routes have experienced a similar collapse in shipping rates. The SCFI for these routes plunged 11% from a week ago to $540 per TEU, down 60% year over year, also setting a new all-time low.

The link between the global economy, external trade, and the shipping industry is clearly felt in the freight market, explained Peter Sand, chief shipping analyst at the Baltic and International Maritime Council (BIMCO), the world’s largest international shipping association.

He blamed an oversupply of ships, including “the continued inflow of new ultra-large container ships on the Far East to Europe trades,” and the deteriorating exports from China so far this year.

…click on the above link to read the rest of the article…

Global Trade Grinds To A Crawl

March 21, 2015

Global Trade Grinds To A Crawl

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.

…click on the above link to read the rest of the article…

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