Falling World Wide Trade

by on January 26, 2009 at 7:15 am in Economics | Permalink

One of the things that I do find very disturbing about this recession is that it is worldwide.  World trade may fall this year for the first time since 1982. As I argued earlier, the problem goes beyond any credit crunch, which according to the story below has been solved for trade.  The problem is a lack of demand.  Here is more frightening news on the trade front. 

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.

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.

1 Ironman January 26, 2009 at 8:03 am

I’ll have more on this later this morning, but the trade data strongly suggests that China’s economy is entering into recession, assuming it isn’t there already (as of December 2008.) Their current rate of descent is pretty stunning – they’ve been decelerating since January 2006, but their downward slide has been continually getting steeper.

2 Robert Olson January 26, 2009 at 11:27 am

I’d be interested in seeing how trade data compares between China and other nations. An article in Businessweek a couple weeks ago suggested that the Chinese have been playing unfairly all of ’08 (evidence being that US steel companies were operating at 50% capacity while steel imports from China were surging).

It’d be pretty interesting to see how Chinese imports are stacking up against other nations.

Also, does this mean that shipping companies would be a good proxy for the stock market? I guess seeing companies trade at a P/E of 1 isn’t such a good sign. 😉

3 Allan January 26, 2009 at 12:09 pm

wrong thread, sorry.

4 Michael January 26, 2009 at 4:11 pm

The genesis of our economic disaster is the one-way trade deals that export jobs of champion consumers – N. American middle class – to Asian and Latin slave wage economies whose workers cannot afford to feed and house themselves much less replace the economic demand and consumption of those N. American workers they have replaced. The neocons would have us believe that there is such a thing as a ‘jobless recovery’, which of course would produce a ‘jobless economy’ which is a contradiction in terms and an impossibility. No jobs means no economy. The world demand and consumption loss from the export of N. American jobs can never be replaced by import demand from the slave-wage replacement workers incapable of purchasing anything imported from developed economies. The neocons are consciously reducing world demand and consumption while talking about an 18 month recovery!? Deceit and deception followed by Lies!!
Neocons would also have us believe that recovery is a matter of ‘confidence’; they should know that the most confident unemployed worker has no money to spend and cannot consume anything. If well paid jobs are continually exported to slave-wage workers no financial aid package nor any thing else will recover our economy!!

5 kurt9 January 26, 2009 at 5:17 pm

“Is it possible that demand over the past decade was artificially high due to excessive and unsustainable leverage?”

This has been (f**king) obvious to me since the late 90’s. The U.S. had a credit bubble from 1995-2007 that is virtually identical to the one Japan had in the 1980’s. How anyone can think that the 1995-2007 period was anything other than an unsustainable bubble is completely incomprehensible to me.

The reason why the rest of the world is being slammed so hard is because 1) their financial institution also invested in the funny-money mortgage bonds, like Europe or 2) their economies are partially dependent upon export sales to the U.S. consumer market, like the East Asian countries.

“Is it possible that current demand will appear to be “low” while the global economy restructures to better serve the updated demands of the post-credit-bubble world?”

This is the logical and causal result of the 1995-2007 unsustainable credit bubble.

China is likely to recover first, because only 8% of their GDP is based on exports to the U.S. (unlike 25% or so for both Japan and South Korea). The Europeans should be OK once they fix their banks (e.g. write off the mortgage backed securities that they bought like crazy). The U.S. will take a good 5 years or so (as consumers pay off their accumulated debt and get out from their upside down home mortgages).

The result will be a return to pre-1995 credit, saving, and purchasing patterns in the U.S.

“Is it possible that current demand is partially depressed because of uncertainty about the extent to which governments around the world will take extreme, potentially confiscatory, measures?”

Another term for this is “sovereign risk”. Despite the rhetoric of the liberal-dems in congress, it is very unlikely in the U.S. I actually think it unlikely in Europe, which is way more socialist than us. This is possible in other parts of the world (e.g. Latin America).

6 jonm January 26, 2009 at 9:55 pm

Wow, that’s amazing for container rates, since the out-of-Asia leg is where capacity is normally constrained ; usually it’s bulk shipping where you’d expect to see having that kind of swing. The port data for the US-Asia trade have looked horrible as well for the last few months.

On the other hand … this is probably a quote for around Chinese New Year, always by far the slackest time of year, and there’s really no reason for rates to be above fuel costs when there is obvious slack. Indeed they could easily be below it at the margin, since carriers will have pre-existing contracts with shippers and have to maintain service.

But still, it’s pretty scary.

7 Patrick January 26, 2009 at 11:49 pm

“This has been (f**king) obvious to me since the late 90’s. The U.S. had a credit bubble from 1995-2007 that is virtually identical to the one Japan had in the 1980’s. How anyone can think that the 1995-2007 period was anything other than an unsustainable bubble is completely incomprehensible to me.”

What stuck out to me a couple of weeks ago was I remembered back in 1994 when I went to go pay cash for a car. I always understood that if you offered cash, you got a better deal. I saw this repeatedly growing up. What amazed me was that I couldn’t get any discount (on a 4000 mile loaner car no less!!). The sales guy said that with credit availability, they had no incentive to lower prices. I don’t know what cash does now, but that example struck me as anecdotal evidence that something had changed in the way money worked.

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9 louis vuitton neverfull September 10, 2010 at 10:16 pm

This has been (f**king) obvious to me since the late 90’s. The U.S. had a credit bubble from 1995-2007 that is virtually identical to the one Japan had in the 1980’s. How anyone can think that the 1995-2007 period was anything other than an unsustainable bubble is completely incomprehensible to me.

10 erotic shop December 2, 2010 at 3:58 am

of course demand’s falling. everyone already used their credit to buy whatever they wanted, while no one except Apple invested in anything new or created anything new (except for wall st creating new financial products that now no one wants, and extra houses). there’s been no innovation. when there is, then demand will return. that means waiting until the flotsam from wall st, the people, to enter new sectors and act productively again. after a few years of college grads joining fields other than finance, and maybe we’ll have productivity in new sectors again.

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