Trade finance volumes weathering global shipping rates slump
(25 January 2019 – Europe) Freight rates for raw materials and finished goods plunged in H2 2018 in the latest warning sign the global economy is slowing significantly.
The Baltic Dry Index, a measure of ship transport costs for materials including iron ore and coal, has fallen by 47 percent since H1 2018 when the US-China ‘trade war’ resulted in the world’s two biggest economies placing import tariffs on each other’s goods. The Baltic index has lost a quarter of its value since the start of the year, and dry-bulk is not the only shipping market under pressure. The Harpex Shipping Index, which tracks container rates, has dropped by 30 percent since H1 2018. As a measure of the demand for shipping manufactured goods from producers to consumers, container rates are also seen as a leading economic indicator. Their slump underscores weakening manufacturing data from Asia, Europe and North America. Dry-bulk commodities are taken as a leading economic indicator because they are used in core industrial sectors like steelmaking and power generation. Recent declines in activity point to a serious economic slowdown.
In the Euro zone, a survey showed that business growth nearly stalled at the start of 2019 as trade tensions and political impasses meant incoming new work fell for the first time since 2015. Japan posted similarly weak manufacturing data in its own purchasing managers' index (PMI) survey. In China, the National Development and Reform Commission (NDRC) warned downward pressure on the economy would impact its job market as falling factory orders point to a drop in activity in coming months. The US has so far outperformed other major economies, but even there manufacturing indices have been reflecting weakness since late 2018.
”Signs that the US and China remain well apart in trade talks continued to weigh on sentiment in commodity markets,” ANZ bank said in a note on Friday. This was after US Commerce Secretary Wilbur Ross said on Thursday the United States and China were “miles and miles” from resolving their issues. “The global economy and dry-bulk shipping market are showing us very real signs of distress,” said Jeffrey Landsberg, managing director of commodity consultancy Commodore Research. “While dry-bulk rates often face at least some pressure during the early stages of a year, the magnitude of the declines being seen lately have been very rare”
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