Sense on Cents

I have great recollections of my youth. Growing up in the ’60s and ’70s as one of eight children, seven boys, we had to figure out how to entertain ourselves. Street hockey was great fun. Double features at the cinema were always a hit. Sneaking into Boston College sporting events provided a real thrill. We would not miss “Wide World of Sports” on Saturday afternoons. I can still hear the opening, “Spanning the globe …..” The world back then seemed very large, especially in the eyes of a 12 year old.

Fast forward to today and the world has gotten very small and intricately connected. Information moves rapidly. Cable provides instant access. The internet is amazing. While the advancements in technology are unbelievable, at times I yearn for the simple values and relationships of my youth. Time marches on and change is constant.

Let’s take a break from the focus on our domestic banking crisis and our own struggling economy and “span the globe” ourselves. The issues we face here in the United States are very much impacting the global economy and global politics.

The United States consumer has become the driving force in world trade. As we tighten our belts, it is not difficult to understand that economies around the world will also be impacted. If I can steal a phrase from the ABC Wide World of Sports lexicon, “Let’s get up close and personal.” A friend of mine shared a piece from the U.K. Telegraph that provides a close look at shipping activity in the Far East. Let’s go there:

By Ambrose Evans-Pritchard
International Business Editor
Last Updated: 5:42PM GMT 13 Jan 2009

The cost of shipping goods from Asia to Europe has tumbled. “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.

Trade data from Asia’s export tigers has been disastrous over recent weeks, reflecting the collapse in US, UK and European markets.

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.

Idle ships are now stretched in rows outside Singapore’s harbour, creating an eerie silhouette like a vast naval fleet at anchor. Shipping experts note the number of vessels moving around seem unusually high in the water, indicating low cargoes.

It became difficult for the shippers to obtain routine letters of credit at the height of financial crisis over the autumn, causing goods to pile up at ports even though there was a willing buyer at the other end. Analysts say this problem has been resolved, but the shipping industry has since been swamped by the global trade contraction.

The World Bank caused shockwaves with a warning last month that global trade may decline this year for the first time since the Second World War. This appears increasingly certain with each new batch of data.

Mr de Trenck predicts Asian trade to the US will fall 7pc this year. To Europe he estimates a drop of 9pc – possibly 12pc. Trade flows grow 8pc in an average year.

He said it was “illogical” for shippers to offer zero rates, but they do whatever they can to survive in a highly cyclical market.

Offering slots for free is akin to an airline giving away spare seats for nothing in the hope of making something from meals and fees.

There is a lot to digest in that piece, but for me it provides a real insight into the magnitude of our global economic slowdown. Is this the type of situation that global economic stimuli will quickly address and turn around? I think not.

Will certain countries make aggressive political postures to address this crisis? It would be naive to think they would not. Obama, Biden, Hillary, et al have got their hands full. Do I have the answers? I am not that brazen. Do I think the American populace should be more aware of the global nature of this crisis? This is why we are writing.

An individual politically charged scenario is playing out in Russia and Eastern Europe. We had referenced a few months back that we thought it likely that the global economic turmoil would ultimately have political implications.

We are seeing some of that play out in the midst of a gasoline embargo implemented by Russia against Eastern European countries. People are truly hurting as they go without heat in the dead of winter. In the United Kingdom, they know that “Putin has given us a wake-up call . . .”

Make no mistake that Mr. Putin is using the challenging economic conditions to make a strategic and calculated political move at this time. While a few media outlets have provided insight into this situation, in the midst of our domestic turmoil, it is largely buried. We’ll be watching.

“The thrill of victory, the agony of defeat….”

Trying to stay ahead of the curve for you here at NQ.

LD

P.S. Only because I think it is important for new readers to have a frame of reference of my thoughts and outlooks, I am providing links to my posts from October 14th, November 12th, and December 29th. We’re all about sharing, so feel free. Thanks…LD

The Economy – What lies Ahead (October 14, 2008)

The Wall St. Model is Broken . . . and Won’t Soon Be Fixed!! (November 12, 2008)

Where’s the Money?? . . . !! (December 29, 2008)

This entry was posted on Thursday, January 15th, 2009 at 4:50 PM and is filed under Economy, General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.