World trade stopped

Remember how Barack Obama inherited a bad economy from George Walker Bush?

Obama may turn over an even worse one to his successor.

From Hellenic Shipping News:

A fresh low of 402 levels on the Baltic Dry Index (BDI) today (Jan12) may bring trade across the Indian Ocean-Asia Pacific market virtually to a standstill on the back of postponement of trade contracts and strong aversion to get into long-term deals

“The trade climate is extremely gloomy and full of insecurity as charterers are not sure if the price at which they have negotiated is the right low price,” Captain Kiran Kamat owner of Link Shipping & Management System, a leading chartering and shipping company, told Business Standard. “Charterers are unable to take a call and are fearing commitment towards deals which is leading to last minute back out (from deals) even if ship-owners are being flexible,” he added.

In the current far index representing dry bulk segment started falling from early last August when China initiated process of devaluing its currency. From the high of 1222, in five months it has lost two third. The lever prevailing now just above 400 points is a fresh three decade low. Baltic Dry had hit an all-time high of 11,793 on May 20, 2008. Since then, the index has been very volatile and infact has been in trough for a longer-than-stipulated period.

A charterer may own cargo and employ a ship-broker to find a ship to deliver the cargo for a certain price, called freight rate. A charterer may also be a party without a cargo, taking the vessel for a specified period from the ship-owner and then trading the ship to carry cargoes above the hire rate.

“There have been very few inquiries and even out of those most were not firm. Out of five inquiries, three have failed,” said a ship-owner on condition of anonymity. “The charterers are fixing rates and then trying to trade the cargo. Freight is low enough but still charterers are not able to sell the cargo,” he added.

The Baltic Dry Index measures change in transportation costs of raw materials such as metals, ore, coal, grain and fertilisers by sea. The index has been on a continuous fall since August following China’s economic data which actually set the strong bearish tone for the bulk trade market not just in the Asia Pacific region but across the globe. China being the world’s largest importer and exporter of several commodities, a slowdown in its economy indicates grim trade climate across world.

But hey, gasoline is below $2 a gallon for the first time since 2009, right?

What should the government do?

Nothing. Do absolutely nothing. Let the market finally repair itself after 15 years of meddling by Bush and Obama.