This summer will be ugly

World Trade, Baltic Dry And Green Shoots - By Financial Ninja (27/6/09)
Financial Ninja
Saturday, 27 June 2009 09:37

25 June, 2009

[FF Editorial: Anyone who still entertain the stupid idea that there are green shoots and that they will sprout and grow, ought to visit a psychiatric ward. There was never a recovery but that spun by Wall Street. This summer will be ugly.]

World trade has collapsed and shows little signs of recovery. Japan posted a 41% yoy drop in exports. The Baltic Dry Index (BDI) bounced quite a bit off the lows, but has now started to stall.

As more shipping capacity comes online (yeah they're still building like crazy) and demand continues to slide (yeah demand is still cliff diving) expect the BDI to curl over and plunge.

Box lines staring at $50bn revenue collapse: "TOP container lines could see $50bn or more wiped off their combined revenues this year as conditions continue to deteriorate, industry experts predict.

A new forecast from shipping analyst Alphaliner puts the anticipated drop in revenue from 2008 levels at $40bn-50bn.

This is broadly in line with Drewry Shipping’s projection of a $55bn collapse in revenue from last year’s income of $220bn, which will catapult the entire industry deep into the red.

Drewry said container lines would only be able to find savings of around $30bn, leaving a gap of $25bn, which will push the industry from a modest collective profit in 2008 to a massive deficit of around $20bn in 2009.

This is down from a very early projection Drewry prepared before first quarter results were published.

Alphaliner’s latest forecasts are also based on the performance of top lines in the first three months of the year, when income of those monitored plunged 35% as volumes collapsed by 20% and average freight rates declined 15%.

A survey of 11 of the top 20 lines that report a breakdown of their liner shipping results found that revenue in the January-March period shrank to $14.5bn from $22.4bn a year earlier.

The 11 lines surveyed account for 45% of total fleet capacity.

Of those 11, the two big Chinese lines, China Shipping and CoscoContainer Lines saw the biggest percentage decline, each suffering a drop in revenue of more than 50%.

World number one Maersk Line posted a 28% drop, the smallest reported. Other global carriers saw their revenue contract by about 33%-40%. Figures for Mediterranean Shipping Co, Evergreen and CMA CGM were not included.

Alphaliner noted that no region had been spared in the latest slump. Volumes were down in all parts of the world, leaving carriers unable to shift capacity from a weak trade lane to one faring better.

Furthermore, NOL’s latest results “suggest that there is still some way to go before any recovery is seen,” Alphaliner said.

Trade conditions continue to deteriorate. Drewry reported that average spot rates from Hong Kong to Los Angeles slid over the past week to $914 per loaded 40 ft container from $921 a week earlier and $2,043 in June 2008."

Value of Japan exports falls 41% year on year: "Japan's tentative export rebound faltered in May as shipments fell 41 per cent by value year on year amid a rising yen and continuing weakness in sales in key markets for the nation's electronics and cars.

While most economists believe the world's second largest economy is bottoming out after suffering its sharpest postwar slump, yesterday's trade statistics highlight the shallow roots of a recovery likely to remain highly reliant on external demand and debt-funded fiscal stimulus.

May's year-on-year decline outpaced the 39 per cent drop recorded in April. On a seasonally adjusted month-on-month basis, exports slid 0.3 per cent in May, after having risen in both March and April."