Friday, January 16, 2009

UK Telegraph: Shipping Rates Hit Zero

Get your fresh hot dry bulk shipper! Baltic Dry Index up 3% signaling its time to daytrade dry bulk shippers - send 'em up 30%! Global growth is back!

With that said, and before I get to the heart of the story I want to post some charts - ironically the charts and the fundamentals are saying two completely different things. Many dry bulk charts held support through this 8 day correction and bounce smartly off their 50 day moving average yesterday afternoon during our reversal. I *almost* bought TBSI (TBSI) yesterday just north of $9 yesterday - but then I made the mistake of putting facts over thesis. Instead I bought a little more coal and fertilizer since they all trade together as a horde. These 2 names appear to be the most levered to actual shipping rates and interestingly have the best charts...

Despite what HAL9000 and the retail daytrader groups are doing in "stock market world", it is ugly out there in "reality" land - we described this in the past [Nov 3: UK Telegraph - Investors Shun Greek Debt as Shipping Crisis Deepens] [Oct 31: Credit Tsunami Swamps Trade] as the combination of pulled letters of credit and a complete implosion of world trade has collapsed shipping rates... but when daytraders are busy you cannot bother them with facts. A reader sent along an eye opening article - some rates are now down to... $0. (which means when they get up $5 the daytraders - and Mr. Cramer - will be back, talking up the "improvement in rates" and how it "signals China is back") Yep - just like when I stick my finger in the air I can tell if a hurricane is coming 3000 miles away. Clearly one data point (BDI or my finger) moving +/- 3% can tell us all about 200+ countries economies. 1st grade logic at its best.

Everyone now.... let's say it together (a) "The economy will be fine.... in 6 months" (b) "2nd half recovery... coming" (c) "Look through the valley... Obama is here" (d) "Stop looking backwards - this is old data... look forward to the time of unicorns, butterflies, and faires - 2nd half 2009"
  • 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.
  • Trade data from Asia's export tigers has been disastrous over recent weeks, reflecting the collapse in US, UK and European markets. (HAL9000 and daytrader disagree with your silly facts) 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. (enough with the facts, after falling 96% the BDI is now up 6% signaling growth is coming down the pike! Look around the corner! It's there. Squint harder! Thesis!)
But never fear, we are USA! USA! USA! We are immune (and even if we were not immune, we're #1 and will recover first - why? USA USA USA! That's why!)
  • 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. (blasphemy - that doesn't fit with the thesis)
  • Idle ships are now stretched in rows outside Singapore's harbour, creating an eerie silhouette like a vast naval fleet at anchor.
  • He said it was "illogical" for shippers to offer zero rates, but they do whatever they can to survive in a highly cyclical market.
Well, anytime there is a problem the punditry now claim it's lack of credit. It has NOTHING to do with lack of demand. Nope. Why aren't Americans buying homes? Lack of credit. Cars? Lack of credit. Everything is explained away by lack of credit. Let me fill you in why the stock market is not recovering as "credit measures" improve (all supported by the nanny state - not a real recovery) LACK OF CONSUMER DEMAND.
  • 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.
So we cannot blame letters of credit anymore. This is what the punditry does not get... it's not "credit" that's going to be the issue going forward - people don't want more junk they have to borrow to buy. "They'll" (the punditry) figure this out sometime in 2010. Money is going to savings and self preservation by a threatened consumer - not to buy more idle junk. So Uncle Ben, you can go and destroy the lifestyle of all seniors in America with your 0% interest rates - denying them any safe savings rate. But you will only get the fools back out there consuming well over their heads - like the drunk party goers of the go go era.

Maybe if you get desperate enough you'll start charging people 5% for saving - you know, if one of those unAmerican senior savers puts money into a bank you'll charge them 5% a year - we'll call it the anti-savings account - that will make 'em spend and get America back on the "right track"! I'm sick of these non-patriots trying to save money and be responsible. Don't they know we have an economy to save?


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