Shipping rates hit zero as trade collapses

We appear to be looking at a systemic failure of the export economic model.

Freight rates for containers shipped from Asia to Europe have fallen to zero for the first time since records began, underscoring the dramatic collapse in trade since the world economy buckled in October.

"They have already hit zero," said Charles de Trenck, a broker at Transport Trackers in Hong Kong. "We have seen trade activity fall off a cliff. Asia-Europe is an unmit­igated disaster."

Shipping journal Lloyd's List said brokers in Singapore are now waiving fees for containers travelling from South China, charging only for the minimal "bunker" costs. Container fees from North Asia have dropped $200, taking them below operating cost.

Industry sources said they have never seen rates fall so low. "This is a whole new ball game," said one trader.

The Baltic Dry Index (BDI) which measures freight rates for bulk commodities such as iron ore and grains crashed several months ago, falling 96pc. The BDI – though a useful early-warning index – is highly volatile and exaggerates apparent ups and downs in trade. However, the latest phase of the shipping crisis is different. It has spread to core trade of finished industrial goods, the lifeblood of the world economy.

Korea's exports fell 30pc in January compared to a year earlier. Exports have slumped 42pc in Taiwan and 27pc in Japan, according to the most recent monthly data. Even China has now started to see an outright contraction in shipments, led by steel, electronics and textiles.

A report by ING yesterday said shipping activity at US ports has suddenly dived. Outbound traffic from Long Beach and Los Angeles, America's two top ports, has fallen by 18pc year-on-year, a far more serious decline than anything seen in recent recessions.

"This is no regular cycle slowdown, but a complete collapse in foreign demand," said Lindsay Coburn, ING's trade consultant.

Too many exporters with too much production.

It's all a symptom of the dysfunctional monetary system. Those nations need to exports in order to gain the hard currency to get the credit. Most of them have no serious domestic demand because they've been repressing labor unions and wages in order to gain the export market share.

Now the consumer of last-resort is maxed out and the world monetary system is under extreme stress. We're in a brave new world.

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wow

that is amazing, so what happens after this, global supply chain plain goes out of business?

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And the world's famine cushion

Goes completely bust. It's going to be a hungry summer. I'm going to plant lots of zuchini....

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Maximum jobs, not maximum profits.

Interdependence

I don't think there is any problem for anyone who has cash. The assembly plants in America will still get the parts from China if they can pay for it up front.

My concern is the monetary aspects. The world's debt-based currencies requires every growing economies to service the rising debt. At least that is the theory anyway.
If the American consumer (the consumer of last resort) has to retrench then this system starts to break down. How will Asian countries get the hard currency if they aren't selling export goods to get our dollars? How will they create credit without a foundation of hard currency? If they don't have credit how will they continue to expand their economies?

This is sort of on the shaky edge of my understanding of how the world money flows work. But then I'm not sure many people do understand it.

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