Tag Archives: shipping

No End In Site For Bulk Shipping’s Perfect Economic Storm

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Off the coast of a nearly deserted island below the southern tip of Hong Kong, at least 10 massive ships that normally carry hundreds of thousands of tons of coal or iron ore lie idle near one of the world’s busiest sea routes.

These empty vessels paint a grim picture for the dry bulk shipping business that veterans of the industry say is grappling with an unprecedented crisis of too many ships and not enough cargoes. The hollow boats underscore the global economic doldrums that policymakers are struggling to overcome.

“This is the worst we have seen in recent times. We have been hit by a perfect storm – huge order books, China slowdown, the end of quantitative easing, lurking European monetary crisis, glut in oil and commodity prices,” said Kaushik Neogy, a commercial manager at Wallem Commercial Services in Hong Kong.

Shipping is a cyclical business that is often at the mercy of the ebbs and flows of the global economy. However, the dry bulk sector has been dashed upon the rocks of vessel oversupply and slowing economic growth.

The industry has suffered from large capital inflows from private equity players who invested in ships in a bet on sustained demand from emerging markets, particularly China. Instead, the world’s second-largest economy is growing at its slowest pace in 25 years, reducing the need for the coal and iron ore that fuels its manufacturing sector.

The Baltic Exchange’s main sea freight index, which tracks rates for ships carrying dry bulk commodities, has lost about 98 percent of its value from a peak of 11,793 points in May 2008, marking the lowest level since records began in 1985.

“This is pretty much the worst I have seen in my career,” said Tim Huxley, chief executive officer of Hong Kong-based Wah Kwong Maritime Transport Holdings, who has been in the business for over 30 years. “For the bulk carrier industry, this is going to be a grim year and next year is not going to be any better.”

At the height of the market, dry bulk vessels could command daily fees of about $185,000 but that has dropped to about $4,000 to $6,000 a day now.

With operating costs for dry bulk ships at about $5,500 to $7,500 per day, depending on the size of the vessel, the global commodities meltdown has made it hard for many operators to cover costs.

CHINA IMPORTS DROPPING

Vessel rates are unlikely to recover soon especially as China’s voracious appetite for coal and iron ore slows.

Coal imports to China may drop eight percent this year to 152.1 million tons, according a forecast from shipping services firm Clarkson. Shipments of coal, both for power generation and steel making, have plunged since 2013 when they reached 264.9 million tons.

China’s monthly iron ore imports peaked at a record 96.27 million tons last December but then dropped 14.6 percent to 82.19 million tons in January this year, data from the General Administration of Customs showed.

The decline suggests annual imports may have peaked in 2015 at 952 million tons as production at China’s steel mills has slowed. In contrast, India imported just 15 million tons in 2015.

There are no signs of an economic pick-up any time soon. Last month, the International Monetary Fund cut its global growth forecasts for the third time in less than a year to 3.4 percent, while money managers in a Bank of America Merrill Lynch survey this week said a U.S. recession is the biggest unlikely risk they are worried about.

While demand for bulk shipping has slumped, supply has scarcely blinked. Clarkson calculate the total global fleet capacity at 1.81 billion deadweight tons with a further 300 million tons of capacity coming on line over the next three to four years, the result of a hangover of the boom years when shipping was profitable.

Wah Kwong’s Huxley believes the industry is losing up to $20 billion a year in operating costs. The losses are pushing smaller companies such as Oslo-headquartered Western Bulk to sell parts of their business while others take the merger route to create giants to grab market share.

China’s government drove the merger of former rivals China Ocean Shipping (Group) Company and China Shipping Group to create China Cosco Shipping Corporation (COSCOCS). At an event in Shanghai on Thursday, Xu Lirong, the chairman of the newly formed company, acknowledged this is the most difficult period the shipping industry is experiencing since the financial crisis.

“The merger is crucial to the development of both companies,” said Xu.

by Reuters in The Maritime Executive

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“Nothing Is Moving,” Baltic Dry Crashes As Insiders Warn “Commerce Has Come To A Halt”

The continued collapse of The Baltic Dry Index remains ignored by most – besides we still have Netflix, right? But, as Dollar Vigilante’s Jeff Berwick details, it appears the worldwide ‘real’ economy has ground to a halt!!

Last week, I received news from a contact who is friends with one of the biggest billionaire shipping families in the world.  He told me they had no ships at sea right now, because operating them meant running at a loss.

This weekend, reports are circulating saying much the same thing: The North Atlantic has little or no cargo ships traveling in its waters. Instead, they are anchored. Un-moving. Empty.

You can see one such report here.  According to it,

Commerce between Europe and North America has literally come to a halt. For the first time in known history, not one cargo ship is in-transit in the North Atlantic between Europe and North America. All of them (hundreds) are either anchored offshore or in-port. NOTHING is moving.

This has never happened before. It is a horrific economic sign; proof that commerce is literally stopped.

We checked VesselFinder.com and it appears to show no ships in transit anywhere in the world.  We aren’t experts on shipping, however, so if you have a better site or source to track this apparent phenomenon, please let us know.

We also checked MarineTraffic.com, and it seemed to show the same thing.  Not a ship in transit…

If true, this would be catastrophic for world trade. Even if it’s not true, shipping is still nearly dead in the water according to other indices.  The Baltic Dry Index, an assessment of the price of moving major raw materials by sea, was already at record all-time lows a month ago… and in the last month it has dropped even more, especially in the last week. Today BDIY hit 415…

Factories aren’t buying and retailers aren’t stocking.  The ratio of inventory to sales in the US is an indicator of this. The last time that ratio was this high was during the “great recession” in 2008.

Hey, Ms. Yellen, what recovery? The economy is taking on water at a rapid rate.

The storm has been building for some time, actually. Not so long ago, there was a spate of reports that the world’s automobile manufacturers were in trouble because cars were not selling and shipments were backing up around the world.

ZeroHedge reported on it this way:

In the past several years, one of the topics covered in detail on these pages has been the surge in such gimmicks designed to disguise lack of demand and end customer sales, used extensively by US automotive manufacturers, better known as “channel stuffing”, of which General Motors is particularly guilty and whose inventory at dealer lots just hit a new record high.  

Here is a photo of unsold cars in the United Kingdom from that article.

The world’s economy seems in serious trouble. You can’t print your way to prosperity. All you are doing is hollowing out your economy. Draining it. And sooner or later it’s empty and you have to start over after a good deal of crisis and chaos.

It’s no coincidence that China is struggling desperately to contain a stock implosion.  Reportedly, banks have been told they are forbidden to buy US dollars and numerous Chinese billionaires have gone missing.  And the markets have just opened on Monday and are again deeply in the red.

Here at The Dollar Vigilante we’ve specialized in explaining the reality of the global faux-economy and why it’s important that you not believe mainstream media lies.

In the meantime, keep your eye on this shipping story!  If it is true and worldwide shipping is disastrously foundering, it’ll only be a matter of days before grocery store shelves will reflect that with increasingly bare shelves.

Are people upset now? Just wait. Interruptions in goods and services, most critically food, almost happened in 2008 during the Great Financial Crisis.  For three days worldwide shipping was stranded due to shipping companies not knowing whether or not the receiver’s bank credit was good.

That crisis was staved off due to a massive amount of money printing.  It was a temporary stay of execution, like bailing out the Titanic with coffee cups, however, and one that may reach much larger proportions in 2016.

Sailors watch the weather to see if it is safe to set sail.  Investors should be watching the economic climate with the same intensity.

We are already sailing through very stormy waters.

By Jeff Berwick

Epic Oil Glut Sparks Super Tanker ‘Traffic Jams’ at Sea

Graphic for News Item: Epic Oil Glut Sparks Super Tanker 'Traffic Jams' at Sea

It’s no secret that a massive supply glut has caused global oil prices to crash this year. Ferocious production from OPEC and near-record U.S. output is adding to sky-high oil inventories around the world.

But what’s less widely known is that the oversupply problem has gotten so bad that oil tankers waiting to be offloaded are piling up off the U.S. Gulf Coast because there’s nowhere to put the crude.

So-called “floating storage” of crude oil soared to nearly triple the normal level last week, according to ClipperData, which tracks global shipments of crude.

It’s a “super tanker traffic jam,” said Matt Smith, director of commodity research at ClipperData.

Not Enough Buyers

Smith first noticed the maritime congestion popping up a month ago off the coast of Singapore. That was alarming because Asia accounts for one-third of global oil demand.

“It was kind of strange to see. The ships didn’t have any buyers,” he said.

And then ClipperData discovered a similar phenomenon off China and even the Arabian Gulf.

“There just appears to be more oil than can be dealt with. They haven’t got anywhere to put it,” said Smith.

$2 Gas Coming Soon

That, of course, is great news for American drivers. National average gasoline prices have dropped to $2.10 a barrel, down by 75 cents from a year ago, according to AAA. U.S. prices could slip below $2 by Christmas nationwide for the first time since 2009, AAA said.

Oil prices are also heading south. The latest evidence of the lingering glut helped cause oil prices last week to briefly tumble below $40 a barrel for the first time since late August. Over the past year and a half, oil has lost more than 60% of its value, an epic crash that has thrown the energy industry into disarray.

The problem is OPEC producers, led by Saudi Arabia and Iraq, are pumping oil aggressively despite depressed prices. U.S. output is also near record highs, though it has slowed a bit.

Inventories As High As They’ve Ever Been

There is a “massive cushion” of crude oil around the world, with global stockpiles sitting at a record 3 billion barrels, according to the International Energy Agency.

A stunning 487 million barrels of crude is sitting in U.S. inventories, levels unseen at this time of the year in the last 80 years, according to the U.S. Energy Information Administration.

“We’ve been through a low-price environment all year — yet the world is still awash with crude here,” said Smith.

Source: Oil & Gas People

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