The critical downturn in the transport industry . . .

. . . looks like it’s getting worse by the day.  People, if you ever needed one single sign that would point out an impending economic recession, this is it.  The Telegraph reports:

The shipping industry is facing its worst crisis in living memory as years of rapid expansion fuelled by cheap debt have coincided with an economic slowdown in China.

“We are now at the stage where people are struggling to remember an era when it was this difficult, we’ve gone through what it was like in the 90s, the 80s and the 70s, so expressions like ‘living memory’ start to apply,” said Jeremy Penn, the chief executive of the Baltic Exchange in London.

The Baltic Exchange has set shipping rates for more than two-and-a-half centuries and the situation its members now face is grim.

“Ship owners are facing the tough decision of whether to just drop anchor and hope it gets better,” added Mr Penn.

Fears about the global economy have seen the Baltic Dry Index fall by more than 20pc this year, to 369 – its lowest level since records began in 1985. The Baltic Dry, which is compiled by the exchange, gives an indicator of the cost of shipping dry bulk goods such as coal, iron ore, grains, and finished goods such as steel, but it is feted for its apparent ability to predict the world’s financial fortunes.

The immediate problem has been the slowing of the Chinese economy; the world’s largest consumer of commodities has been the driving force behind the shipping trade for the past two decades.

. . .

In a normal market the rational decision would be to remove loss-making ships from the fleet, but this is anything but a normal market. The world shipping fleet is drowning in debt.

Mr Kidwell describes how ship owners who have financed their fleets with 60pc debt and 40pc equity have seen that equity become worthless.

Meanwhile, the banks that provided the debt won’t pull the plug as they would be forced to recognise the losses. Instead, they accept that they won’t have debt service, and are forced to wait and see if the ship owner can survive until the market recovers. At some point in the future they might be able to sell the vessel at a better price.

. . .

Mr Kidwell said that a five-year old Capesize vessel was sold for $19m in recent weeks, 40pc below the normal listing price for a vessel that age of around $33m, and less than half the $48m cost of a new ship. The scrap value of ships has also plummeted as China pumps new steel onto world markets.

The collapse in prices for secondhand vessels will blow a hole in the balance sheet of any bank or individual that is sitting on those loans.

There’s more at the link.

Compared to even a year ago, the volume of raw materials being transported to factories, and the volume of goods moving from factories to distributors to retailers to consumers, has plummeted.  There’s no better bellwether of economic activity than such movements . . . and they just aren’t happening in anything like the volume necessary to sustain normal business and commerce.

We’re on the threshold of another economic recession, people – perhaps a full-blown depression.  These numbers aren’t a lie, and they didn’t happen overnight.  This has been building for a long time, as we’ve said in these pages before.  I think it’s almost here.



  1. It IS getting ugly on the world market, and the US no longer has a 'fleet' per se, so they must rely on other countries to ship for them… NOT good!

  2. As it says in the article, there are too many ships. China is still expanding at 6% or more – a figure for which most Western economies would kill. What it doesn't go into is the gross tonnage actually shipped: has that gone up or down? It's that figure that's important.

    And with the reduction in the cost of oil, land transport becomes more economic.

  3. @Quentin: I'll be very surprised if China is "still expanding at 6% or more". Economic statistics out of China have jumped the shark in terms of believability or accuracy. I suspect things are a lot worse in that country, economically speaking, than its rulers would like us to believe.

  4. I maintain that it's not another recession, but a resumption of the same one. We're still in it, but the central banks have been pumping up the headline statistics to make it look like there's been a recovery.
    Sooner or later, stimulus stops working and the fall resumes – only much worse, as the stimulus has created vast amounts of extra debt while failing to solve the underlying problems (and postponing the highly disruptive realignment).

  5. Isn't this good news from a certain perspective? Why ship iron ore around if you have infrastructure to collect and recycle steel scrap? Why ship coal if natural gas is flowing thru pipelines? Why ship grain if seed and fertilizer and modern land management (Borlaug techniques) have caught on in formerly starving regions? Seems like sailors lamenting how berths are fewer as rock oil drives down the profits in whaling markets…

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