Frozen ports sign of gloomy months

Bloomberg

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Chris Lytle, chief operating officer of the port of Long Beach, California, took in a panorama of the slumping world economy from his rooftop observation deck one day this month.

Shipping cranes stood still, truck traffic trickled and a cargo vessel sat idle, moored to a pier. "You never see that," Lytle said. "It’s quiet. Too quiet."

Port traffic has slowed from North America to Europe and Asia as a recession erodes consumer demand and the credit crisis chokes off loans to export-dependent companies. International trade is set to fall by more than 2 percent next year, the most since the World Bank began measuring it in 1971. Idle ports around the globe are showing how quickly a collapse in trade can spread, undermining growth in each country it reaches.

"Everybody expects 2009 to be a bleak year," said Jim McKenna, chief executive officer of the Pacific Maritime Association, a San Francisco-based group representing dock employers at U.S. West Coast ports. "Now, it looks like 2010 is going to be just as bleak."

Coal is piling up at the Mozambique port of Maputo. Brazil’s exports of cars, household appliances, machinery and furniture fell in November from a year earlier. The port in Singapore posted its first month-over-month decline in seven years in November, at 1.5 percent.

Shipping rates fall
The Baltic Dry Index, a measure of shipping costs for commodities, is down 93 percent from a record in May, a sign that traders expect export volumes to stay depressed.

Slowing trade is both a cause and an effect of the first simultaneous contraction in the world’s largest economies since World War II. Throughout this decade, trade grew by 12 percent a year to $13.6 trillion in 2007, propelling growth in nations from Germany to China and Chile. Now the evaporation of financing and fall in demand threaten an activity that accounts for a quarter of the $54 trillion global economy.

"We are having this dramatic reversal," said Michael Finger, a trade economist in Geneva since the early 1970s. "I’m a long time in this business, but this is unique."

Governments and international lenders are stepping in to fill the gap. China and the U.S. pledged $20 billion to aid their exporters. The World Bank tripled funding for banks helping emerging-market companies to sell abroad, to $3 billion. South Korea pledged $16 billion for its exporters after banks there couldn’t secure international credit lines for them.



Stepped-up credit

"We are going to step up and provide credit to exporters," said Jeff Abramson, the U.S. Export-Import Bank’s executive vice president, in an interview. Without export finance, "the crisis can impact the real economy."

In Germany, the world’s top exporter, trade abroad slipped 0.5 percent in October, the fourth drop in six months. In China, exports fell 2.2 percent in November, which was the first monthly decline in seven years. They decreased a record 26.7 percent in Japan last month from a year earlier. U.S. shipments fell 2.2 percent in October to the lowest level in seven months.

The banking crisis means access to trade credit is becoming scarce. In recent months trade financing costs soared to more than six times pre-crisis levels, according to a report by HSBC.

"You take it for granted until it blows up," said Bernard Hoekman, trade economist at the World Bank. "Now it’s blowing up."

Exporters worldwide are short $25 billion in trade financing that either isn’t available or costs too much, according to Pascal Lamy, the head of the World Trade Organization.

"The market for trade finance has deteriorated ... particularly since September," he said last month.

Trade credit insurance, which protects sellers against losses and typically covers as much as 40 percent of trade in Europe and 5 percent in the U.S., is also harder to get.

Atradius, an Amsterdam-based insurer that covers a third of global trade receivables, is raising prices by as much as 50 percent and reducing coverage on thousands of companies. That includes 12,000 in the U.K. and all the suppliers to the biggest U.S. automakers.

"We’ve taken a hard look at 50 percent of our coverage and changed our action on about half of it," said Brett Halsey, the Baltimore-based director for Atradius’s contracts with U.S. companies.At the adjacent ports of Long Beach and Los Angeles, together the largest in the U.S., trade has slowed about 10 percent this year, a record drop. In 2007, volumes slid for the first time in more than a quarter century.