I know I sometimes go for hyperbole in headlines, but the statement above is accurate. Your humble blogger had expected China (and presumably the rest of Asian) trade to fall in January and February from already depressed levels. While the drop in Chinese exports for December was less than experts expected (imports fell more sharply than anticipated, however), the trajectory down appears to be steepening, as we had feared.
From the Telegraph (hat tip reader John O):
“They have already hit zero,” said Charles de Trenck, a broker at Transport Trackers in Hong Kong. “We have seen trade activity fall off a cliff. Asia-Europe is an unmit igated disaster.”
Shipping journal Lloyd’s List said brokers in Singapore are now waiving fees for containers travelling from South China, charging only for the minimal “bunker” costs. Container fees from North Asia have dropped $200, taking them below operating cost.
Industry sources said they have never seen rates fall so low. “This is a whole new ball game,” said one trader.
The Baltic Dry Index (BDI) which measures freight rates for bulk commodities such as iron ore and grains crashed several months ago, falling 96pc. The BDI – though a useful early-warning index – is highly volatile and exaggerates apparent ups and downs in trade. However, the latest phase of the shipping crisis is different. It has spread to core trade of finished industrial goods, the lifeblood of the world economy.
Trade data from Asia’s export tigers has been disastrous over recent weeks, reflecting the collapse in US, UK and European markets…
A report by ING yesterday said shipping activity at US ports has suddenly dived. Outbound traffic from Long Beach and Los Angeles, America’s two top ports, has fallen by 18pc year-on-year, a far more serious decline than anything seen in recent recessions.
“This is no regular cycle slowdown, but a complete collapse in foreign demand,” said Lindsay Coburn, ING’s trade consultant….
The World Bank caused shockwaves with a warning last month that global trade may decline this year for the first time since the Second World War. This appears increasingly certain with each new batch of data.
Mr de Trenck predicts Asian trade to the US will fall 7pc this year. To Europe he estimates a drop of 9pc – possibly 12pc. Trade flows grow 8pc in an average year.
He said it was “illogical” for shippers to offer zero rates, but they do whatever they can to survive in a highly cyclical market.
Offering slots for free is akin to an airline giving away spare seats for nothing in the hope of making something from meals and fees.
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Offering slots for free is akin to an airline giving away spare seats for nothing in the hope of making something from meals and fees.
Or, perhaps to curry favor from customers in hopes of persistent loyalty for better times.
Besides the obviously bad effects on the exporters themselves, and the indication of the economic health of the importers, I’d advise people to remain particularly considerate of the second-order effects resulting from a drop in trade of this magnitude.
It should have particularly profound upward impacts on real interest rates as vendor financing continues its march downhill, with a concomitant increase in funding costs in importing countries. Real interest rates become very difficult to affect with policy when a zero bound in the nominal rate is hit, so those increases in interest rates are likely to stick.
I am working for a fabless chipmaker in the silicon valley and it looks like we have been fully hit by the Taiwan/China problems. (Where the chips are produced and computers are assembled.) – I forgot, what was the procedure for obtaining a millitarp again?
“On Tuesday, Nvidia (nasdaq: NVDA – news – people ) guided for a 40.0% to 50.0% sequential decline in fourth-quarter sales, which implies sales guidance in the range of $448.8 million to $538.0 million. On Nov. 6, the company reported third-quarter sales of $897.7 million and guided for a 5.0% decrease in the fourth quarter.”
http://www.forbes.com/markets/2009/01/13/nvidia-outlook-semiconductors-markets-equity-cx_mp_0113markets31.html
“On Tuesday, Nvidia (nasdaq: NVDA – news – people ) guided for a 40.0% to 50.0% sequential decline in fourth-quarter sales, which implies sales guidance in the range of $448.8 million to $538.0 million. On Nov. 6, the company reported third-quarter sales of $897.7 million and guided for a 5.0% decrease in the fourth quarter.”
Is a 50% decrease in sequential revenue during a quarter containing the holiday season significant? … oy.
I am working for a fabless chipmaker in the silicon valley and it looks like we have been fully hit by the Taiwan/China problems.
You ascribe the issues to Taiwan/China problems, but I wonder whether the issues lie there or in your end markets. I would have strongly suspected the latter.
Intel’s warning is for sales to be down in all geographies, all regions.
D
ndk,
I am close to Taiwan semi manufacturers, and the drops have been stunning. I only have informal data, which is why I have not come forward with it, but I would venture you could put semiconductors up there with CDS and BDI under your oy category.
Semiconductors are driven increasing by specific markets: cell phones, computers, telecommunications and auto’s. which of those would you consider deferable expenses?
My real fear is the high tech has a unique problem with interdependencies between companies and technologies in a Just-in-time and capital intensive world. I think a minor breakdown could cause point shortages which could cascade. I have seen breakdowns first hand in the past, but there was transparency and urgency to fix problems quickly. I have only speculation to offer here, but it is a real fear for me.
ndk,
I don’t have any details on what really happened. All I can say is, that we had our share of problems last spring, but our line of products for Xmas would have been competitive in normal years. And Xmas should have been our strongest quarter, much better than fall, not 40..50 percent off. Combine this with recent polls (and general experience) for a tendency to cut back on high priced tech toys during bad times…
Intel’s quarter is shifted a few weeks before ours. One guess is that theirs was half bad while ours was fully bad. I don’t know. Just guesses. I found the announcement rather shocking. Had a bit of hope that people would need entertainment in bad times.
Zero rates make sense as a short-term measure to preserve long-standing customer relations – especially if some costs (wages, rents) have to be paid whether idle or not.
It certainly can’t continue like this. Soon it will be survival of the fittest shippers moving just essential (food) goods.
Export oriented countries are going to be hammered when this is all said and done. A world economy based on US deficit spending, those days are over.
The great, and predictable, deflationary spiral has begun. The Asian and European export ecomomies will be unable to resist viscious price (read employment) competition.
Another feature of the lopsided “free trade” seems to be about to erupt. I have always feared this one. Mercantilism hollows out incomes in the demand target, a debt bubble is installed to prop flagging demand, construction of parallel supply chain completed, debt bubble collapse, consumer collapse, non-profiable competition between competing supply chains instigates deflation, third world standard of living for all, Check Mate ?
NVDA the last three years grew revenue better than 5% between September and January. Now (as previously posted) guiding down 40% to 50%!!!
The holidays in Asia are near. In this bad year, the workers leave for their hometowns earlier than normal years. The production stops earlier tham before. I would assume that this factor at least plays an important role in the 0 transportation activity.
I want to know what kind of subsideies shippers are receiving, Bunker charges arent enough to support the shipping facilities and large office these shippers have built. How long till we find out that some of these cash reserves, have been buying time
Agree with Mate’s comment and can only hope it is not “Check Mate”.