Interesting post on Zerohedge:
Following the endless collapse in the Baltic Dry, it was only a matter of time before the shipping industry one-upped the Chairsatan, and was the first to introduce, dum dum dum, negative rates. That’s right: you are now paid to hire a ship. Via Bloomberg:
- GLENCORE HIRES SHIP AT MINUS $2,000 A DAY, GMI SAYS
- GMI TO CONTRIBUTE $2,000 A DAY TO GLENCORE’S FUEL COSTS
- GLOBAL MARITIME’S U.K. MD STEVE RODLEY CONFIRMS DEAL BY PHONE
Why is this happening? Perhaps because ships have to be kept seaworthy and in motion or else they become scrappage in as little time as 3 months. Think sharks. Needless to say, this will play havoc with shipping company (and affiliated entities’) liquidity, as the biggest default wave in the history of the industry is about to be unleashed and tens if not hundreds of billions of European secured loans are about to be “impaired.
Comments to the post point out that container charges may be moving the other way. Also that it can make economic sense to run a trip at a loss if you would otherwise have to bear the full cost of relocating the ship for its next cargo. The Baltic Dry Index (BDI) bounces around a bit. It is affected by supply as well as demand factors. The lag between commissioning a ship and it entering service means the price gyrations can be extreme. But it’s hard to interpret this as indicating anything other than a global slowdown, one of particular interest to Australia:
Since bulk dry cargo ships carry commodities used in semifinished products and industrial goods like cement and (coal-generated) power, the BDI is a forecasting tool of future economic activity. Presently, because most primary industrial production is centred in Asia, especially China, so most bulk dry cargo shipping criss-crosses the Pacific. Thus, the current low BDI indicates a major and sudden drop in industrial production in Asia, chiefly in China, down to one of its lowest point, about a tenth of what it was in 2008.
As with all indicators, the raw numbers bounce around a bit. But the magnitude of the decline and the levels it has reached are not good news for the economy, shipping lines or those invested in them.
“With rates near or below cash break-even for every vessel class we’re starting to see more ships anchoring and refusing to trade,” Boydon wrote. “We wouldn’t be surprised to see earnings find some sort of bottom at these levels, which of course doesn’t necessarily imply things will rebound any time soon.” The index declined as much as 63 percent this year and 66 percent since Dec. 12 amid a downturn in demand for the fleet of more than 8,900 dry bulk vessels, which has expanded by a record for two consecutive years. Its close of 647 points on Feb. 3 was the lowest since August 1986, exchange data show. The index peaked at 11,793 on May 20, 2008. The number of vessels hired in January and December declined to 749, 18 percent lower than the corresponding period 12 months earlier, according to Boyden, citing figures from Clarkson Plc, the world’s largest shipbroker.
It is really not a good time for Bernanke to be forcing older Americans into risky assets.
The decline also suggest the next move of the Reserve Bank of Australia’s Commodity index will be down rather than up:
International developments will have a greater than normal influence on domestic politics in Australia and elsewhere. Although in many ways it always has had more influence than is generally accepted. Australia’s left has long tried to repeat the mistakes of post-war Western Europe, something it shares with much of the American left. But thanks to the Howard government Australia’s left are forced to do so at a time when the disastrous effects of their pet policies on Europe are manifestly obvious.
Voters are unhappy at losing money and services so the dollars can be given to “green” corporate bludgers and vested interests. Nor are they happy to accept large numbers of faux refugees who drain welfare services and strain tight budgets. It would have all been so much easier 15 years ago. If only Howard had not been elected. I suspect this explains much of their antipathy toward him.