Daily Management Review

Signs Of Economic Slowdown Signals Revealed In Slump Of Global Shipping Rates


Signs Of Economic Slowdown Signals Revealed In Slump Of Global Shipping Rates
In what can be considered to be the latest signals of a slowdown of the global economy, over the last six months, there has been a plunge in the freight rates for dry-bulk and container ships which are the vehicles that carry most of the raw materials and finished goods of the world.
Since the mid 2018, there has been a 47 per cent drop in the Baltic Dry Index which is the measure of ship transport costs for materials such as iron ore and coal. It was during June and July last year that the trade war between the United States and China had started in which both the countries imposed additional tariffs on each others’ goods worth billions of dollars. 
One of the leading economic indicators is dry-bulk commodities since those commodities are needed for some of the core industrial sectors such as steel manufacturing and power generation. A serious economic slowdown is reflected in the recent declines in activity, say analysts.
"Signs that the U.S. and China remain well apart in trade talks continued to weigh on sentiment in commodity markets," ANZ bank said in a note on Friday.
This development took place after the comment that the United States and China were "miles and miles" from resolving their issues by the U.S. Commerce Secretary Wilbur Ross on Thursday.
"The global economy and dry-bulk shipping market are showing us very real signs of distress," said Jeffrey Landsberg, managing director of commodity consultancy Commodore Research.
"While dry-bulk rates often face at least some pressure during the early stages of a year, the magnitude of the declines being seen lately have been very rare," he said.
While there has been a quarter of the value of the Baltic index lost since the start of the year, there are other shipping markets under pressure apart from dry-bulk.
There has been a 30 per cent drop since June 2018 in the Harpex Shipping Index which measures the rates of containers.
Container rates are also viewed to be an important economic indicator because this indicator is a measure of the demand for shipping of the manufactured goods from producers to the end consumers. Weakening manufacturing data from Asia, Europe and North America is reflected in the slump.
"Slowing global economic growth, the unresolved U.S.-China trade conflict, the U.S. government shutdown, and Brexit drama are all sources of uncertainty dragging at sentiment," said Hussein Sayed, chief market strategist at futures brokerage FXTM.
At the beginning of 2019, there has been an almost flat growth in business in the euro zone according to a survey published on Thursday. This was because of increasing tensions over trade which meant a drop in incoming new work for the first time in over four years. This week, weak manufacturing data in its own survey was posted by the Asian industrial powerhouse Japan.
There could be an impact in the job market in China because of downward pressure on the economy as it would lead to a drop in factory activities and orders in the coming months, warned the National Development and Reform Commission (NDRC) in China this week.