Pass the port

It might sound trivial, but the implications for world trade seem ominous: a glut of recycled cardboard and paper for export clogging up sea ports in America that are already heaving with German and Japanese-made cars with no home to go to.

Why is it ominous? Because it proves that recession is here, that it is seriously affecting trade and reflects the truly global nature of the economic downturn. The cardboard and paper, until a few months ago, was destined for China where it would have been used to package and cosset all the shiny consumer electronics and other products that China makes so well.

If there is no demand for the cardboard, that means that demand has dropped for Chinese manufactures; not just in the US, but around the world.

Furthermore, it demonstrates that ‘decoupling’ – the theory that the more prudently run economies of the world, such as China’s, would simply break away from Europe and America – has proved to be a crock. The saying ‘When America sneezes, the rest of the world catches a cold’ still holds true.

Ports around the world are registering almost unprecedented drops in traffic and importers caught unawares are renting space to store goods that they cannot sell (warehousing, perhaps, is a good business to be in regardless of the economic outlook).

In some quarters, it has been suggested that this reflects deepseated problems in the global financial system, with banks refusing to issue the letters of credit that would get these goods moving.

But it should also be considered in perspective. It would be easy to look at, say, the recent 90% plunge in the Baltic Dry Index and to panic. But taking a longer view, it has ‘only’ fallen back to 2002 levels after peaking at a somewhat unrealistically high level in the middle of the year and, besides, shipping is a notoriously cyclical business.

Once the current turbulence works through and uncertainty is reduced, more realistic levels will be resumed, although it will almost certainly be a long time before this year’s peaks are revisited. That should also provide a firmer foundation for the growth in international trade to rebound – hopefully based on more robust economic fundamentals than in 2006 and 2007.

There will, however, be much pain before that point is reached, and not just in the US and Europe, but around the world.

Graeme Burton
Managing editor

Features

News analysis: US trade policy Free
Jon E. Huenemann of Miller & Chevalier Chartered examines the likely direction of US trade policy under President-elect Barack Obama.

Natixis Metals Review This article is for subscribers only
At the end of June, some commodity prices were at all-time highs. Today, the picture couldn’t be more different and Natixis Commodity Markets predicts that prices will remain under pressure until the second half of 2009 – at the earliest.

Inside opinion: Changing times This article is for subscribers only
Peter Sargent looks forward to the end to volatility in the financial markets – in 2010 – and the new banking model that will emerge.

Feature: Debt recovery This article is for subscribers only
Heleen Rijkens of Omni Bridgeway discusses the main remedies in recovery of distressed assets in countries rated a high political risk.

South American oil and gas This article is for subscribers only
Oil and gas are at the heart of politics and trade in Latin America – whether a country is awash with hydrocarbons or not. By Ivan Castano.

Country profile: Nigeria This article is for subscribers only
Nigeria is potentially the richest economy in Africa, yet has often been let down by corruption among its ruling classes – until now. By Graeme Burton.

Country profile: Nigeria Free
After decades of false starts, Nigeria is starting to deliver on its promise with reforms helping to galvanise business and foreign investment starting to flood in. By Chief Emeka Anyaoku CFR, GCVO.

Regulars

Omni Bridgeway: Rising risks Free
The credit crisis is continuing to wreak havoc, increasing the risk of sovereign defaults in the emerging markets.

Market view: That sinking feeling This article is for subscribers only
The credit crunch has started to affect shipbuilders, just after they felt the squeeze from record commodity prices, says Adrian Lewers and Andrew Perry.