A Look At What’s Happening In Shipping

One of the best ways to keep track of the state of world trade is to look at what is happening in shipping. Most of the world’s manufactured goods now move across the oceans on container ships (except for raw materials, which are best tracked by the Baltic Dry Index, and high value items which move by air).

There was a disturbing item in the Journal of Commerce (http://www.joc.com/node/409860) showing just how fast things are deteriorating. Container ships are expensive, and their owners do not like them sitting around idle.

In late October, as the financial markets were starting to fall apart, there were a total of 70 idle ships, and 150,000 unused containers worldwide. Two weeks ago, that figure had jumped to 392 idle ships and 1.1 million containers.

Things continue to get worse, with 453 ships currently floating around harbors with nothing to do along with 1.35 million idle containers. This represents 10.2% of the world’s container ship fleet. How bad is that? Well, at the worst point of the 2001-02 downturn, only 3.5% of the world’s container ship fleet was idle.

While this is obviously bad news for a company like Textainer Group (TGH), which is directly tied to the container business, the implications for the world economy are far more important.

On the other hand, the picture has improved somewhat for raw material shipping.  From a high of 11,793 in May, the Baltic Dry index collapsed to just 663 in early December. It has since staged a dramatic rebound in percentage terms, and now stands at 2,034. This is far from a healthy level, but at least the trend has been in the right direction.

This could be signaling a potential (weak) rebound in the demand for non-oil commodities. Among the beneficiaries of that, would be some of the mining companies like Freeport McMoRan (FCX) and Vale do Rio Doce (RIO). On the other hand, I could just be grasping at straws here. But they are pretty well beaten down.

With all the economic woes here in the U.S., keep in mind that this is a worldwide downturn. That fact will make it much harder to climb out of the mess. When Japan had its ‘lost decade’, it could still export to healthier economies, which helped prevent things from getting far worse there. After all, we were not reading about riots or hunger in Japan in the 1990’s, just flat, lackluster economic performance.

Right now there is no obvious economic locomotive to get the world economy moving again. Globalization has, for the time being at least, gone into reverse. Yet the world remains as interconnected as ever, particularly financially. The next shoe to drop could come from Wall Street, but it could also come from abroad.

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