Jackson Jambalaya

International shipping continues to freeze up:
"The wheels of international shipping are greased with "letters of credit"issued to buyers of bulk cargo by their banks. These guarantee the value of the shipment once it is in transit but before it is delivered. The problem is that the credit crunch, with the resulting liquidity problems in the international banking sector, is taking its toll on the availability of these entirely routine instruments. "We have the hugely worrying and unprecedented development where there are perfectly creditworthy shippers and receivers unable to open perfectly standard letters of credit," Mr Kerr-Dineen said.
Cargos are sitting on docksides because the finance is not available to ship them, with the gravest implications for the future. "This is a nuclear bomb in the freight market, and in world trade," Mr Kerr-Dineen said. "Liquidity has to return because if there is insufficient money to provide standard finance, world trade will be sharply cut back and economic growth will implode....
Against such a background, more recent concerns over the economic slowdown in both the East and the West have pushed users of commodities to run down their existing stocks, rather than buy in new supplies at what are still relatively inflated prices. (Does this little item need to be spelled out for you?)
These are all to some extent predictable economic adjustments, but a more sinister effect has been that de-stocking is masking the shortages caused by the dearth of credit. Mr Kerr-Dineen says there are around three months left before stocks run out.
"If the problem is not resolved, there will be no way in which even the sharply revised economic growth forecasts for 2009 will be met, because without normal trade economies cannot function. Ultimately, flour mills will run out of wheat and power stations will run out of coal," he said.
So far, the most significant problems have been confined to the bulk commodities trade. Manufactured goods have been are less affected because there is less reliance on letters of credit, said a source in a large container shipping company. Large shippers like Walmart or Nike do not need the letters because they are, in effect, sending to themselves. And even where trade is between companies, long-standing commercial relationships leave a lot more to trust than in the more volatile commodities market.
But firms using containers to ship bulk products such as bananas, meat or fish are feeling the pinch. "We are certainly seeing unusual delays in issuance of letters of credit for commodity trades," the source said.
Banks are charging more to issue the letters, and nervous traders are requiring guarantees, where historically trust might have been enough....."
http://www.independent.co.uk/news/business/analysis-and-features/shipping-holed-beneath-the-waterline-995066.html

Earlier posts on International Trade Crisis:
TED Spread Improve, Shipping Slows
Update on International Shipping Slowdown
No Letter of Credit, No Shippin
Trade Slowdown
Letters of Credit Frozen: Bloomberg
Grain Piling Up In Ports
Economic Seizure?
International Trade Shutting Down?