Three weeks ago, when
we last lookedat 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."
As expected, on Friday, we got confirmation that the BDIY has
indeed become a lagging indicator to actual demand, when
Reuters reported in its latest weekly
updateusing 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.
Freight rates on the world’s busiest shipping route have tanked
this year due to overcapacity in available vessels and sluggish
demand in goods to be transported.
Rates generally deemed profitable for shipping companies on
the route are at about $800-$1,000 per TEU.
Other Europe-focused freight rates did even worse, with
container freight rates from Asia to ports in the Mediterranean
plunging 32.1%, while those to the US West and East coast slid by
7.9% and 9.9%, respectively.
This should not come as a surprise: it was back in March when we
first reported that "
Global Trade Volume Tumbles Most Since 2011;
Biggest Value Plunge Since Lehman."
It took the no longer discounting "market" about 6 months to
figure this out. As for the culprit, no question who is at
fault.
HK cargo container throughput July -9.5%
yoy, recorded 13 consecutive months decline, worst in modern
history.
— Simon Ting (@simonting)
August 22, 2015
What happens next?
Well, some, such as the world’s largest container shipping
company, Maersk Line, will desperately try to no longer lose money
on every transit, with a plan to raise spot freight rates by $1,000
from ports in Asia to ports in northern Europe, with effect from
Sep 1. Other major container shipping companies have similar
plans.
The virtually guaranteed outcome of this "strategy", as there is
simply not enough demand as the world careens off the global
recession cliff to offset a surge in freight costs,
will be an even greater collapse in trade
volumes.
The alternative, is just as bad: as we sarcastically hinted
first in March:
... none of the above should alarm anyone: remember -
central banks can just print trade with just the flick of a
CTRL-P switch.
And then again
three weeks agowhen we said no need to worry
because it is just a matter of time before "
central planners learn how to print trade."
For now, however, printing money no longer equates to boosting
global trade. In fact, easy monetary policy now appears to be
backfiring, as even the "market" has figured out.
So, sarcasm aside, what really happens next, to both shipping,
trade, the global economy and markets? Sadly, unless central
planning finally
worksafter 7 years of failing ever upward... this.