World not ending – except maybe for shipping

February 6, 2012

By Ian Campbell

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

According to a popular, although probably erroneous, reading of an ancient Mayan calendar, the end of the world is scheduled for Dec. 21, 2012. A look at the Baltic Dry Index, which reflects commodity shipping rates, might suggest the Mayan doomsday is indeed at hand. The measure of bulk shipping costs plunged in 2008, warning of the 2009 global recession. On Feb. 3 it closed below its 2008 low.

But it probably isn’t the end, at least not for global trade. The Dutch Centraal Planbureau keeps an eye on global trade volumes. Its world trade index plunged by 20 percent from April 2008 to May 2009. In November 2011, however, world trade volume was up by 28.3 percent from May 2009 and was 2.6 percent higher than the pre-crisis peaks in 2008. These figures don’t bear out Baltic or Mayan gloom.

But the minimal growth in trade from 2008 to 2011 helps explain the plunging BDI. The 2008-2009 stalling in global trade caught shippers by surprise. They expected – and were ordering capacity to keep up with – the remarkable 60 percent annual increase in trade from 2000 to 2008.

The result in what a Nov. 2011 report by PwC called a “distorted” world shipping market. The world’s fleet of 1,200 Capesize ships, the largest, is set to grow by a further 450 in the next three years. The BDI is responding to the over-supply of ships in an environment of positive, though not spectacular trade growth. The likely result is cheaper freight costs, which is good for commodity sellers, but not for shipping firms – nor for the banks which have lent to them.

Worries about global trade should not be entirely dismissed, however. Growth has been relatively weak since mid-2011. The euro zone crisis is no doubt a negative factor. Chinese demand may also be a little softer – though not soft enough to prevent Australia enjoying a record year for exports in 2011. It’s not yet time, thankfully, to see the Balts as modern messengers from the Mayans.

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