Jackson Jambalaya

The Bailout still hasn't thawed the credit markets as international shipping continues to slow down because letters of credit from banks are not being honored by sellers. Livemint.com reported:
"Dry bulk shipping has been on a roll and what we are seeing is completely unprecedented,” said Anjali Kumar, spokesperson for Great Eastern Shipping Co. Ltd, the country’s biggest private shipping firm. “Fortunately, the tanker sector is doing well and is helping us cope with the situation.”
The Baltic Dry Index, a benchmark for shipping bulk commodities, on 17 October tumbled nearly 7% from 1,615 points to 1,506, its lowest since November 2002. The index has plunged 53.2% since the end of September, and 86% since 20 May, when it had hit a high of 11,893 points....
“Traders who hire ships on spot basis are facing difficulties to secure letters of credit from banks,” said an executive at Chowgule Steamships Ltd, who did not want to be named. Letters of credit assure a shipper of payment for a cargo after it is loaded on a ship, but before the buyer receives it.
The squeeze on trade credit is also restricting commodities shipments. Around 90% of the world’s $14 trillion (Rs683 trillion) trade is handled via trade credit, the SCI official said.
“You don’t know the credit worthiness of the guy hiring the ship... The best and the biggest of names are defaulting,” said an executive at Apeejay Shipping Ltd, who too did not want to be named......" http://www.livemint.com/2008/10/21005334/Shipowners-see-business-slowin.html

Meanwhile, The Economist picks up the story as it gains more steam in the mainstream media:
"Since the early summer the prices of various kinds of steel have fallen by 20-70%, iron ore is down by a third and the key rate for bulk shipping of commodities such as iron ore, coal and grain is down by more than four-fifths. There is even talk of grain cargoes piling up in ports in the Americas. Their buyers’ letters of credit have not been honoured, because of a lack of confidence in the banks that underwrite them. At least one Australian producer has had the same problem with iron-ore shipments. And shipowners are struggling to finance new vessels they have ordered....." The Economist

Steel Guru reported the same as well:
"The Baltic Dry Index stood at 1506 as the week ended a massive fall from the 11,893 points at which it stood as recently as May 2008. The problem is not just the market's view on forward demand for commodities, although that is a large part of it. Rather, it's the global credit crunch. Reports from London indicate that ship owners are having trouble getting banks to sign off on letters of credit for the cargoes..." Steelguru.com

It is clear the global credit crunch is affecting international trade as there are more reports every day on shipping falling off due to sellers not honoring trade credit and letters of credit. This is the real economy. While the money honey gets mad about the Dow, this might be where the real story is as it affects the everyday lives of Americans much more quickly and directly than does a thousand point drop in the Dow.

Earlier posts:
http://kingfish1935.blogspot.com/2008/10/bloomberg-letters-of-credit-frozen.html
http://kingfish1935.blogspot.com/2008/10/time-to-wake-up.html
http://kingfish1935.blogspot.com/2008/10/more-news-about-grain-piling-up-in.html
http://kingfish1935.blogspot.com/2008/10/international-trade-shutting-down.html