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

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