No port in a storm

Wednesday, January 14, 2009

No port in a storm

Forget anything the politicians tell you about the duration of this recession. The same goes for the financial pundits. Look at the evidence.

A piece by the gifted Ambrose "Armageddon" Evans-Pritchard in The Daily Telegraph is a good place to start. He has a romp round the shipping scene, telling us that "freight rates for containers shipped from Asia to Europe have fallen to zero for the first time since records began." This, he writes, underscores "the dramatic collapse in trade since the world economy buckled in October."

Ambrose cites the shipping journalLloyd's List, which says that 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. An "industry source" says they have never seen rates fall so low. "This is a whole new ball game," adds one trader. 

We also get a reminder of trade data from Asia's "export tigers", which is dire, reflecting the collapse in US, UK and European markets. Korea's exports fell 30 percent in January compared with a year earlier. Exports have slumped 42 percent in Taiwan and 27 percent 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. 

Lindsay Coburn, an ING trade consultant, says: "This is no regular cycle slowdown, but a complete collapse in foreign demand." 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. 

Ambrose thus tells a great deal, but there is even more to the picture. The online trade magazine Purchasing.com points to the "dramatic decline in ocean container shipments from Asia", but it also notes that year-over-year cargo volume in major UK container ports fell 7.1 percent in 2008. By December last, it had seen 17 straight months of decline.

That confirms what many already knew – that this recession has been going on a lot longer than the headlines (and the pols) would have it. "Longer" and "deeper" are now the watchwords, and very much slower to recover.

Denmark's AP Moller-Maersk, the world's largest container line, is of like mind. According to Reuters, Maersk chief executive Nils S Andersen (speaking in Singapore rather than here) thinks the shipping industry is unlikely to recover before the end of next year. The outlook for the industry is "very tough". Shipping lines have cut staff and mothballed ships to cope with over-capacity and falling trade volumes as more economies fall into recession, depressing demand for goods.

From the sublime to the … local. The Grimsby Telegraph is telling is that the Immingham "shipping giant" DFDS could be poised to shed 10 percent of its 700-strong workforce. A total of 71 jobs are at risk in Grimsby, "following a rapid fall-off in cargoes, particularly in the automotive, steel and construction materials sector."

That is a sign of the times. Added to the rest – considering that so-called "globalisation" has been driving the global economy for more than a decade - and the situation looks more than a little bit unhappy. Worse still, taking the cue from the trader whom Ambrose cites, we seem to be in unerforschtes gebiet.

COMMENT THREAD

Worth reading

Winnie-the-Pooh used to describe himself as a bear of very little brain and this expression tends to stay in my mind whenever I hear British and European politicians produce idiotic solutions for the Middle Eastern problems. Except that Pooh knew the truth and, therefore, in Socratic fashion was cleverer than all these politicians put together. (Hey, you have to keep up when you read this blog.)

Thanks to Powerline, I was directed to a very good and very balanced article by Khaled Abu Toameh, an Israeli Arab journalist who writes for the Jerusalem Post. He does not think Hamas has been destroyed but neither does he think the prospects its leadership faces are particularly good, largely because of its own behaviour.

Moreover, the IDF operation has sent the entire Hamas leadership in the Gaza Strip into hiding. When and if Prime Minister Ismail Haniyeh and senior leader Mahmoud Zahar emerge from their hiding places, they are likely to face criticism for abandoning their people during war.

The fact that Haniyeh and Zahar chose to hide out of concern for their personal safety has severely undermined their prestige.

Only days before the operation began, the two appeared in public to mock Israel's failure to respond to the rocket attacks. They also warned Israel against attacking the Gaza Strip, saying Hamas had prepared "surprises" for the IDF.

The military offensive has not only sent Haniyeh and Zahar into hiding, but has also succeeded in driving a wedge between them and their Hamas colleagues in Syria.

Read the whole piece. I don't suppose our Foreign Secretary will, though it will not take long.

COMMENT THREAD

Something very odd …

… is going on here. A little while ago, things seemed on the mendbetween Russia and the EU, with a deal stitched up that would have EU monitors on station on the gas pipelines to ensure everyone was playing by the book.

No sooner was the deal on, then it was off again, and then it was back on. Then, when the monitors were in place, the gas was supposed to flow, which it did – only it didn't. Actually, it did flow, but didn't arrive where it was supposed to. 

Hmmmm ... Russian engineering may be inefficient, but it is not that inefficient.

Reuters is doing its best to explainwhat is going on politically, noting that, as "Russia and Ukraine faced another day of sparring over gas supplies" two EU member states - Bulgaria and Slovakia - have broken ranks and are attempting to make their own deals.

The Russian state-controlled gas monopoly Gazprom has now declared force majeure on gas exports to Europe, to insulate it from its contractural agreements, claiming there are "circumstances beyond its control" which are preventing it from meeting its obligations to clients. But Ukraine, straddling the route to European countries, has said that these "circumstances" are simply that the pressure of gas from Russia is "too low."

Now, these fun and games are all very entertaining, but they don't explain anything. The EU member states desperately need the gas, and they are paying top dollar for it. Russia, on the other hand, very much needs the money. And, with the EU monitors in place, there should be no barrier to delivery. 

Ukraine is, of course, a "joker" in the pack, but it is somehow not credible that Russia would go to all these lengths to sabotage its neighbour, when the cost to itself is so high. Somehow, the idea that Russia simply does not have the gas to sell is beginning to look more credible, an idea which we looked athere.

If that is the reason for this situation, or even part of the reason, then it will have interesting implications for the EU. Energy shortages will continue to build up and, with Bulgaria and Slovakia already breaking ranks, we can expect to see even more member states seeking to do their own deals. That puts the EU in deep schtuck.

That may explain another thing. Although the Middle East is a preoccupation of the "colleagues", by comparison with 2006, their voice on this current crisis has been muted and there is by no means the same degree of frenetic activity. On the other hand, by far the bulk of EU diplomatic activity – and press statements – has related to the gas crisis.

Gut feeling it may be, but the signs are there that this "gas crisis" is far more serious than it appears – serious though it has appeared – and that the "colleagues" are very worried indeed. That may be good, but it could be bad. Worried "colleagues" might be dangerous.