AuthorTopic: Official Shipping Collapse Thread  (Read 13852 times)

Online RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 33750
    • View Profile
Retailers scramble as shipper bankruptcy puts goods in limbo
« Reply #45 on: September 04, 2016, 12:07:38 AM »
http://www.yourwestvalley.com/business/article_75b26c32-71a3-11e6-a578-2ff05613dffa.html

Retailers scramble as shipper bankruptcy puts goods in limbo

Korean Shipper Bankruptcy

Damian Dovarganes
Korean Shipper Bankruptcy


South Korea's Hanjin Shipping Co. containers are seen in the Port of Long Beach, Calif., on Thursday, Sep 1, 2016. The bankruptcy of the Hanjin shipping line has thrown ports and retailers around the world into confusion, with giant container ships marooned and merchants worrying whether tons of goods will reach their shelves. The South Korean giant filed for bankruptcy protection on Wednesday and stopped accepting new cargo. With its assets being frozen, ships from China to Canada found themselves refused permission to offload or take aboard containers because there were no guarantees that tugboat pilots or stevedores would be paid. (AP Photo/Damian Dovarganes)

Posted: Saturday, September 3, 2016 4:45 pm

Associated Press |

NEW YORK (AP) — Some major retailers are scrambling to work out contingency plans to get their merchandise to stores as the bankruptcy of the Hanjin shipping line has thrown ports and retailers around the world into confusion.

They don't have a lot of time. Giant container ships from the South Korean-based Hanjin shipping line are marooned with their cargo of what experts say are lots of TVs and printers, but also loads of home furnishings and clothing.

Hanjin, the world's seventh-largest container shipper, filed for bankruptcy protection Wednesday and stopped accepting new cargo. With its assets being frozen, ships from China to Canada were refused permission to offload or take aboard containers because there were no guarantees that tugboat pilots or stevedores would be paid. It's also been a factor in shipping rates rising and could hurt some trucking firms with contracts to pick up goods from Hanjin ships.

The South Korean giant represents nearly 8 percent of the trans-Pacific trade volume for the U.S. market. While some retailers may already have merchandise for the holiday season affected, experts say what's most important is that the issue be resolved before the critical shipping month of October.

"Retailers always have robust contingency plans, but this degree of uncertainty is making it challenging to put those plans in place," said Jessica Dankert, senior director of retail operations for the Retail Industry Leaders Association, a trade alliance with members including companies like Best Buy, Wal-Mart and Target.

J.C. Penney said Hanjin is one of several ocean freight carriers that it uses and when it learned there might be an issue it began to divert and reroute its containers. It said it uses "a variety of transportation methods and ports" and right now does not expect a significant effect on the flow of merchandise.

Target Corp. said it is watching the situation closely and Wal-Mart said it is waiting for details about Hanjin's bankruptcy proceedings and the implications to its merchandise before it could assess the effect.

As of Friday, 27 ships had been refused entry to ports or terminals, said Hanjin Shipping spokesman Park Min. The Seoul-based company said one ship in Singapore had been seized by the ship's owner.

At the ports of Los Angeles and Long Beach, the nation's busiest port complex, three Hanjin container ships ranging from about 700 feet to 1,100 feet (213 meters to 304 meters) long were either drifting offshore or anchored away from terminals on Thursday. A fourth vessel that was supposed to leave Long Beach on Thursday morning remained anchored inside the breakwater.

"Hanjin called us and said: 'We're going bankrupt and we can't pay any bills — so don't bother asking,' " said J. Kip Louttit, executive director of the Marine Exchange of Southern California, which provides traffic control for the ports of Los Angeles and Long Beach.

That's meant cargo headed to and from Asia is in limbo, much to the distress of merchants looking to stock shelves with fall fashions or Christmas toys. "Someone from the garment industry called earlier today asking: 'How long is this going to go on, because I've got clothing out there,'" Louttit said.

Chris Rogers, a research analyst at Panjiva, which tracks international imports to the United States, said the situation isn't yet dire but could become so. October is the busiest month for cargo from South Korea to the U.S., accounting for about 11.5 percent of the annual total.

But South Korea's maritime ministry said Hanjin's troubles would affect cargo exports for two to three months, given that August-October is a high-demand season for deep-sea routes.

The Retail Industry Leaders Association wrote to U.S. Secretary of Commerce Penny Pritzker and Federal Maritime Commission Chairman Mario Cordero on Thursday, urging them to work with the South Korean government, ports and others to prevent disruptions. It said the bankruptcy is rippling through the global supply chain and could cause significant harm to consumers and the U.S. economy.

"There (are) millions of dollars' worth of merchandise that needs to be on store shelves that could be impacted by this," said Jonathan Gold, the National Retail Federation's vice president for supply chain and customs policy.

The confusion might also sink some trucking firms that contract with Hanjin to deliver cargo containers from ports to company loading bays. "They've got bills to pay — they could literally close their doors over this," said Peter Schneider, Fresno-based vice president of T.G.S. Transportation Inc.

Other shipping lines may take on some of Hanjin's traffic — but at a price. Since many vessels already are operating at high capacity, shippers may wind up paying a premium to squeeze their containers on board, said Jock O'Connell, international trade adviser to Los Angeles-based Beacon Economics.

The price of shipping a 40-foot container from China to the U.S. jumped up to 50 percent in a single day, said Nerijus Poskus, director of pricing and procurement for Flexport, a licensed freight forwarder and customs broker based in San Francisco.

The price from China to West Coast ports rose from $1,100 per container to as much as $1,700 on Thursday, while the cost from China to the East Coast jumped from $1,700 to $2,400, he said. Hanjin's bankruptcy was a major factor, he said.

Global demand and trade have suffered since the 2008 recession, but steamship lines continued to build more and larger vessels. That weaker trade and overcapacity have sent ocean shipping rates plunging in recent years. A few months ago, Poskus said, prices hit historic lows globally — down to as much as $600 per container from Shanghai to Los Angeles. That wouldn't even cover fuel costs for the huge ships, he said.

Poskus expects the spike in prices to last a month or two. With about 5 percent of ships in the global trading fleet sitting idle, he believes there is room to take over Hanjin's capacity and carriers already are discussing the possibility of adding ships. But he said prices would have to rise in order to be sustainable.

___

Jablon reported from Los Angeles. AP Business Writer Youkyung Lee in Seoul contributed to this report.
SAVE AS MANY AS YOU CAN

Offline Surly1

  • Administrator
  • Master Chef
  • *****
  • Posts: 14154
    • View Profile
    • Doomstead Diner
Re: Retailers scramble as shipper bankruptcy puts goods in limbo
« Reply #46 on: September 04, 2016, 04:56:03 AM »
http://www.yourwestvalley.com/business/article_75b26c32-71a3-11e6-a578-2ff05613dffa.html

Retailers scramble as shipper bankruptcy puts goods in limbo

This being a port city, Hanjin is a big player with one of its 258 worldwide offices here. Even our local fishwrap, "Yesterday's News Tomorrow," which continues to shrink itself to irrelevancy in an effort to amputate expenses, roused itself from its sickbed to notice:

Port announces new restrictions in wake of Hanjin bankruptcy filing
http://pilotonline.com/business/port-announces-new-restrictions-in-wake-of-hanjin-bankruptcy-filing/article_e5a31a98-c176-5166-b4b2-a070b8af4018.html

By Robert McCabe
The Virginian-Pilot
Sep 2, 2016

NORFOLK

The impact of the bankruptcy filing this week by South Korea-based Hanjin Shipping Co. continues to be felt in Hampton Roads.

The Port of Virginia on Friday updated some policies announced Wednesday, reflecting Hanjin’s connections with other big ocean carriers that together make up the “CKYHE” alliance, by which they share space on one another’s ships.

The port said that effective Thursday, it would not load any cargo from Cosco Container Lines, “K” Line, Yang Ming Line and Evergreen Line – the other alliance members – onto a Hanjin vessel.

Also, no Hanjin cargo will be loaded onto any of the other members’ vessels.

The restrictions were requested by the other members, according to a port statement issued Friday:

“After careful consideration, the port agreed today to comply with the request.”

The new restrictions follow others that took effect Wednesday, banning inbound cargo from Hanjin, as well as Hanjin containers for export, at any of the port’s marine or intermodal terminals.

Only empty Hanjin containers are being accepted at the port’s Pinners Point Container Yard.

The port also said that Hanjin containers currently in transit by rail to the port would be accepted until Labor Day.

After that , any of the company’s arriving containers will be rejected.

Hanjin’s ships and containers are fixtures on Hampton Roads’ waterfront. It’s one of the largest ocean carriers in the world.

Midweek, it filed for bankruptcy protection and faced the possibility of the detention and seizure of its ships by creditors, according to The Wall Street Journal.
"It is difficult to write a paradiso when all the superficial indications are that you ought to write an apocalypse." -Ezra Pound

Online RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 33750
    • View Profile
U.S. workers unload first of Hanjin ships stalled by bankruptcy
« Reply #47 on: September 10, 2016, 08:28:12 PM »
4 down, 80 to go.

My guess here is Da Fed is guaranteeing payment to the Port of Long Beach for unloading these ships.

RE

http://www.reuters.com/article/us-hanjinshipping-debt-usa-ports-idUSKCN11G0X5

Business News | Sat Sep 10, 2016 6:49pm EDT
U.S. workers unload first of Hanjin ships stalled by bankruptcy


A Hanjin Shipping Co ship is seen stranded outside the Port of Long Beach, California, September 8, 2016. REUTERS/Lucy Nicholson

By Lisa Richwine | LOS ANGELES

Dock workers began unloading furniture, clothing and other cargo on Saturday from a container ship owned by bankrupt Hanjin Shipping Co Ltd (117930.KS), breaking a logjam that has stranded goods on a dozen vessels bound for the U.S. West Coast.

The Hanjin Greece docked at the Port of Long Beach in California early Saturday morning and workers were hauling off containers of products destined for U.S. retailers, labor union officials said.

But ending the Hanjin shipping crisis could be a protracted affair. Port operators, cargo owners, longshoremen, shippers and others all must reach financial agreements with Hanjin before each ship can be docked, officials said.

Two other ships owned by the South Korean shipper were anchored close to the Long Beach port but as of mid-day Saturday did not have orders to dock, according to the Marine Exchange of Southern California, a group that tracks cargo ship traffic. Union officials said nine others were floating in the Pacific.

Around $14 billion of cargo has been tied up globally as ports, tugboat operators and cargo handling firms refused to work for Hanjin, the world's seventh-largest container carrier, which filed for receivership in a Seoul court Sept. 4.

On Friday, courts in South Korea and the United States cleared the way for Hanjin to spend $10 million to unload cargo from four ships headed to the U.S. West Coast. And on Saturday, shareholder Korean Air approved a plan to provide 60 billion won ($54.16 million) to the troubled shipper.

While the unloading of the Hanjin Greece was underway, truck drivers had not yet been called in to transport the goods from the port for distribution to retailers, many of which are awaiting products for the busy holiday shopping season.
Also In Business News

    Bank rally on shaky legs as traders assess rate hike odds
    Fed's Kaplan says next U.S. president must grow workforce
    Samsung urges Note 7 users to switch off phones and turn them in
    British businesses 'lazy and fat', pro-Brexit trade minister says

"At this moment, the drivers are still idle," Patrick Kelly, secretary-treasurer for Teamsters Local 952, said at a news conference on Saturday morning.

Once its unloaded, the Hanjin Greece will be reloaded with empty containers or with containers filled with goods for export, said Barbara Maynard, a spokeswoman for Justice for Port Drivers, a union organizing effort by the Teamsters' Port Division.

Union officials have voiced concern about the welfare of crew members on Hanjin ships stuck at sea. Initial checks with Hanjin Greece workers found they were in good condition, Maynard said. "The crew on that ship at least is doing OK," she said.

(Reporting by Lisa Richwine; Editing by Sue Horton and Mary Milliken)
SAVE AS MANY AS YOU CAN

Online RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 33750
    • View Profile
Rail Freight Gets Clocked from all Sides in this Economy
« Reply #48 on: October 15, 2016, 03:37:41 PM »
Choo-choo trains in trouble.  The Little Engine that Couldn't.



RE

http://wolfstreet.com/2016/10/12/freight-railroad-shipment-decline-coal-oil-intermodal-soon-autos/

Rail Freight Gets Clocked from all Sides in this Economy
by Wolf Richter • October 12, 2016 • 44 Comments   

This hasn’t happened since the Financial Crisis.

Total US freight rail traffic, as measured in carloads and intermodal units, fell 6.1% in the week ended October 8, from the same week last year, the Association of American Railroads reported today. It was down 10% from the same week two years ago!

Both of its components were down: Carloads – transporting oil, coal, grains, chemicals, and the like – fell 5.9% in the week, to 264,165 loads. Intermodal (containers and trailers), which accounts for about 46% of total traffic, fell 6.4% from a year ago, and 6.5% from two years ago.

This comes after an already dreary September, when total freight traffic was down 4.8% from September last year, with carloads down 5.4% , and intermodal down 4.2%.

“Rail traffic in September was more of what we have come to expect this year: big declines in energy related products, continued weakness in intermodal and most other export markets, but with some strength in grain,” the AAR report said. “The fact is, in many of their markets, railroads are facing significant market uncertainties.”

These “significant market uncertainties” – actually “certainties” would be a better word – come in several packages:

The decline in car loads is mostly due to two big factors:

    The ongoing collapse of coal shipments. Power generators have been switching to natural gas and renewables, at the expense of coal. This trend started years ago when the price of natural gas collapsed and when power generators began building large utility-scale renewables facilities, particularly wind, in Texas, California, and other states.
    The total collapse of crude oil shipments. This started two years ago, when the oil bust began to bite. In the latest week, shipments of petroleum and petroleum products were down nearly 70% from the same week two years ago!

A more recent addition to the freight rail problem is the decline in intermodal traffic.

Intermodal had been the big hope for railroads. As oil and coal shipments were collapsing, intermodal was growing, and the hope was that it would be able to compensate for the decline in coal and oil shipments. But that hope fell apart in Q4 2015, when intermodal booked its first year-over-year decline (-9%) since the Financial Crisis.

This was followed by an uptick (+1%) in Q1 and by two back-to-back year-over-year declines in Q2 and Q3 (about 5% each).

It’s not just a blip. Year-to-date, US railroads reported a total volume decline of 6.9% from the same period last year, with car loads down 10.4% and intermodal units down 3.3%. Coal shipments, by far the largest category, accounting for about 30% of total carloads, plunged 25%. Petroleum and petroleum products shipments fell 22%, forest products 7.8%….

global-banking_300x250

The only bright spots in terms of carloads, year-to-date: grains (+5.6%), motor vehicles (+2.7%), chemicals (+1.7%), and “other,” the smallest category (+16.7%).

But one of these bright spots, motor vehicles, which accounts for over 7% of total carloads, is turning into the next brake shoe to drop.

Auto sales hit a record in 2015, after cheap-debt-fueled increases year after year. But in September, unit sales fell from a year ago. Year-to-date, sales are up merely 0.5%, on strength earlier this year. Inventories at dealer lots are growing. Manufacturers are piling on incentives to move the iron. Ford will close its Mustang plant for a week to deal with oversupply. The industry has been talking about a looming “car recession” for months. And unless a miracle happens, auto shipments are going to follow auto sales.

So the decline in intermodal traffic is very unwelcome. Intermodal faces a combination of different challenges: Shippers seeing less than stellar demand in the US and overseas; and fierce competition from the trucking industry.

Diesel prices have fallen over the past two years. Spot rates that trucking companies charge have dropped too. And shippers have come to see a price advantage in shipping their merchandise by truck rather than by rail. In that vein, the AAR estimates that truck freight has increased 3.5% this year through August.

To deal with these “significant market uncertainties,” as the AAR put it, railroads have been cutting costs. They’re laying off people. They’re slashing investments. They’re working on efficiencies, such as increasing train speeds, given the reduced traffic (particularly of slower-moving oil trains).

And they’re idling engines on various tracks around the country. Sightings of these long lines of hundreds of engines have become more common. In May, I reported on the majestic sight of 292 Union Pacific engines parked in the Arizona desert [Freight Rail Traffic Plunges: Haunting Pictures of Transportation Recession].

Investors, however, have piled into railroad stocks since the February low – along with just about everything else out there – hoping the glory days are back, or hoping that QE4 will commence soon, or hoping at least for a nudge from the Fed, or whatever. For example, Union Pacific shares have jumped 42% since February, but they’re still down nearly 20% from the February 2015 high.

As an industry, North American Class 1 railroads – which the AAR defines as line haul freight railroads with revenues of over $476 million – are much smaller than trucking. According to the AAR, these railroads employed about 169,000 well-paid people in 2015, compared to about 1.8 million long-haul truckers (not counting other employees at trucking companies). And for those who want to know, there are over 26,000 locomotives in service at Class 1 railroads, including a couple of thousand or so parked on sidings around the US.

But even trucking companies are cutting costs and slashing investments as the transportation recession exacts its pound of flesh. Read…  Heavy Truck Orders Plunge, Worst September since 2009
SAVE AS MANY AS YOU CAN

Offline Golden Oxen

  • Golden Oxen
  • Contrarian
  • Master Chef
  • *
  • Posts: 12062
    • View Profile
Re: Official Shipping Collapse Thread - Baltic BS Index
« Reply #49 on: October 28, 2016, 04:42:20 AM »
I had warned here of my doubts about this indicator as more a Bull Shit index rather than one of merit and of course was ridiculed by the Dim. Having noticed the Dim becoming totally silent about it of late, decided to take a peek as to why. Sure enough the BS Index made a bottom around the mid 200 area as the Dim were shrieking the loudest and pasting it's chart on every web page imaginable. It has advanced to the 800 area as total silence engulfs me about this totally accurate indicator of the world scene. :laugh:

May Yours Truly suggest that this is what GO calls a "Goldman Suchs" indicator. One used to pork the Dim up their gaping beckoning ass holes when Lloyd and the boys are engaging in one of their frequent fuck fests of the Dim.

What it measures is unknown by me, but I would be hesitant to use it as and indicator of the health of the world economy at any particular point in time.  :icon_scratch:

A one year chart of BS index below.

                                 https://www.bloomberg.com/quote/BDIY:IND :icon_study: :WTF:

                                                         

 
« Last Edit: October 28, 2016, 04:57:52 AM by Golden Oxen »

Offline Palloy

  • Sous Chef
  • ****
  • Posts: 3754
    • View Profile
    • https://palloy.wordpress.com
Re: Official Shipping Collapse Thread
« Reply #50 on: October 28, 2016, 08:04:38 AM »
It's called the Baltic Dry Index, and since you say you don't know what it is, (but you are prepared to called the people who do know what it is "dim") I'll tell you.

https://en.wikipedia.org/wiki/Baltic_Dry_Index
The Baltic Dry Index (BDI) is an economic indicator issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides "an assessment" of the price of moving the major raw materials by sea.[1] Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain."[2]

Here is the 5 year history.



As you can see, it is a pretty volatile series, but when it was being discussed here in January, it was in the longest period of steady decline on record.  Then in the second week of February, it turned around and has had the longest period of steady increase on record.  It is currently at 798, which is off its recent 941 peak of last month, and massively off its 2013 peak. 

It would not be surprising if the series of lower and lower peaks since 2013, and the series of lower and lower troughs, is starting on another cycle.  But if we, or anyone, could actually predict that sort of thing, we could make big money on it.  AZ knows a bloke who is right 50% of the time, maybe we should ask him.

But February 2016 is in the past, so with hindsight it is theoretically possible to diagnose why BDI did such a dramatic turn around.  Perhaps the all-knowing GO would give us the answer - oh no, that's right, he doesn't even know what it measures.  My guess is that the low prices forced lots of ships to be laid up, or retired altogether, and then the modest and patchy increase in demand for shipping goods drove prices up to their current weak level.
The State is a body of armed men

Offline Golden Oxen

  • Golden Oxen
  • Contrarian
  • Master Chef
  • *
  • Posts: 12062
    • View Profile
Re: Official Shipping Collapse Thread
« Reply #51 on: October 28, 2016, 09:10:15 AM »
It's called the Baltic Dry Index, and since you say you don't know what it is, (but you are prepared to called the people who do know what it is "dim") I'll tell you.

https://en.wikipedia.org/wiki/Baltic_Dry_Index
The Baltic Dry Index (BDI) is an economic indicator issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides "an assessment" of the price of moving the major raw materials by sea.[1] Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain."[2]

Here is the 5 year history.



As you can see, it is a pretty volatile series, but when it was being discussed here in January, it was in the longest period of steady decline on record.  Then in the second week of February, it turned around and has had the longest period of steady increase on record.  It is currently at 798, which is off its recent 941 peak of last month, and massively off its 2013 peak. 

It would not be surprising if the series of lower and lower peaks since 2013, and the series of lower and lower troughs, is starting on another cycle.  But if we, or anyone, could actually predict that sort of thing, we could make big money on it.  AZ knows a bloke who is right 50% of the time, maybe we should ask him.

But February 2016 is in the past, so with hindsight it is theoretically possible to diagnose why BDI did such a dramatic turn around.  Perhaps the all-knowing GO would give us the answer - oh no, that's right, he doesn't even know what it measures.  My guess is that the low prices forced lots of ships to be laid up, or retired altogether, and then the modest and patchy increase in demand for shipping goods drove prices up to their current weak level.

Lucky for you Bright Boy, I'm not allowed to deal with your kind here in the manner I deem appropriate.

You shouldn't be so testy about being a member of the Dim Palloy, It's a group numbering in the billions, your hardly alone.

Accept your lot in life son, and stop trying to be something your not. You are a very bad actor Palloy, a real ham.

Your Man From Uncle Act is as ridiculous as Mr Vaughn, hopefully, unlike your Man from Uncle namesake. you won't run for President. Your Dim but definitely not retarded.  ::)

                                                         

                                                          Super Bright Boy  Man from UNCLE

                                                 

Online Eddie

  • Administrator
  • Master Chef
  • *****
  • Posts: 15861
    • View Profile
Re: Official Shipping Collapse Thread
« Reply #52 on: October 28, 2016, 09:58:17 AM »


Palloy is more of a George Smiley than a Napoleon Solo.
What makes the desert beautiful is that somewhere it hides a well.

Offline Palloy

  • Sous Chef
  • ****
  • Posts: 3754
    • View Profile
    • https://palloy.wordpress.com
Re: Official Shipping Collapse Thread
« Reply #53 on: October 28, 2016, 03:08:41 PM »
Could somebody please explain what Lloyd Blankfein, and those other two I've never heard of, have got to do with this?

I note that GO hasn't commented in this thread at all, since it started in 2013.  So his appearance now, with all the benefit of hindsight, is rather opportunist.

This was published here at the BDI's all-time low in February 2016.  Can you see the cue for the big recovery about to take place? - no?, neither can I.

Quote
http://www.zerohedge.com/news/2016-02-04/worlds-biggest-containership-hard-aground-baltic-dry-crashes-below-300-first-time-ev
World's Biggest Containership "Hard Aground" As Baltic Dry Crashes Below 300 For First Time Ever
Tyler Durden
02/04/2016

Before this year the lowest level The Baltic Dry Index had reached was 556 in August of 1986 and the highest was in June 2008 at a stunning 11,612. Today saw the freight index hit a new milestone however, crashing through the 300 barrier for the first time ever - at 298, this is almost 50% below the previous record low.





The State is a body of armed men

Online Eddie

  • Administrator
  • Master Chef
  • *****
  • Posts: 15861
    • View Profile
Re: Official Shipping Collapse Thread
« Reply #54 on: October 28, 2016, 04:12:05 PM »
The permabear crowd at Zero Hedge and elsewhere has been holding up the Baltic Dry Index as evidence of impending economic doom for more than five years, and it just hasn't quite panned out. Somewhere (I think right before the BDI bottomed) GO made a post that questioned the validity of the BDI as a harbinger of economic recession. He isn't alone.

Now in regards to the BDI as an economic indicator, and there are tons of similar views out there, I have just pasted an example below, where economist Susan Lee says the following.

I suggest you watch an index that will tell you when the world economies are starting to perk up and when trade conditions are really starting to ease. It’s called the Baltic Dry Index. Essentially the Baltic Dry tracks the average daily price for shipping dry bulk like coal, iron ore, wheat and soybeans. There are three things that make it such a good leading indicator. One, the index looks at raw materials, so it captures activity at the very beginning of the production process. Two, it looks at ocean shipping, so it reveals what’s happening to international trade — the critical driver of global growth. And, three, the shipping business depends heavily on credit, so the Baltic Dry indicates whether credit is tight or loose. Back in 2005, when the world’s economies were just fine and credit was abundant, the Baltic Dry looked like a powerhouse. But it peaked in May of 2008. And it’s been heading almost straight down ever since — losing about 90 percent of its value.

I don't mean to pick on the quote above alone, a lot of people are making the same argument, the quote above was just the most convenient at hand.

But essentially one problem with using the BDI for economic forecasting is that the BDI could feasibly go up in an environment where commodities demand was shrinking, if the supply of ships was shrinking even faster. These would be negative economic factors. This is because the BDI's value is not solely driven from the demand side. To me, it makes far more sense to just look at nominal demand for commodities rather than the BDI since the BDI has the complicating factor of vessel supply growth one needs to consider. The other thing is that the BDI is a measure of spot rates for dry bulk commodities consumers who, generally, are in the near term forced to pay whatever it takes to get their raw materials shipped (A steel plant needs to keep operating despite some higher ore transportation cost). On the flipside, vessel owners are in a similar boat (no pun intended), and in the near term are generally forced to take whatever rate they can get to fill their ships. (A ship sitting around is just a cost, ie. fixed costs are high, thus using a ship at a loss is usually better than not using it at all)

Because of these inelastic characteristics of supply and demand, and since the BDI is a measure of spot rates, the BDI is thus absurdly volatile. I can explain why via the following simplified example, which I used to use frequently at Citi.

Imagine you have 10 loads of iron ore and 9 ships, and that every load of iron ore must be sent no matter what while every ship must be filled no matter what. Imagine the bidding war between those 10 iron ore consumers fighting over just 9 ships. Shipping cost would skyrocket since they all need to ship regardless of cost. Now imagine if a week later two more ships enter the market. Now imagine the bidding process. Suddenly the tables have completely changed. You have 11 ships, that all need to be filled no matter what, and only 10 loads of ore. Shipping rates would plunge, despite a period of just a week passing by. This is, in a simplified nutshell why the BDI is so volatile.

Now, add to this the fact that predicting ship supply and commodities demand has a pretty high margin of error, at the same time remembering how sensitive the BDI is to small mismatches due to the inelastic nature of its underlying supply and demand, and you quickly realize that predicting the BDI is a fool's game and also that it is not a reliable forward indicator given that it is a spot rate index in a market where both sides are basically forced to close a deal due to high fixed costs. The BDI is measure of supply/demand mismatch at the moment, and can change drastically on a dime. Its little else beyond this. It hit its peak not when the global economy was in its healthiest state, but in early 2008 when things were already starting to come apart, but Chinese commodities demand growth still had some steam and just kept outstripping stagnant vessel supply growth. For a moment. And then it all collapsed. And BDI correlators got annihilated in popular stocks such as DryShips (DRYS). Thus, let's hope that we put to rest any talk of the BDI as a reliable leading indicator, even if in six months someone datamines some new, latest correlation.

http://www.businessinsider.com/the-cost-of-global-shipping-is-a-lousy-economic-indicator-2009-5



I'm not surprised you aren't familiar with Napoleon Solo, who was a character ( an American James Bond type, more or less) played by Robert Vaughn on American TV when I was a kid....but I did expect you might have known about George Smiley, who was another spy character (a Brit)  from the bestselling novels of John le Carre, which have been made into many movies, over the last fifty or more years. George Smiley was played in movies and on TV by many great actors, all the way from Rupert Davies, to James Mason, to Alec Guinness, to (more recently) Gary Oldman.

I think the Lloyd Blankfein evil grin was to represent the idea of how GS and the Wall Street wolves manipulate the poor retail muppets using hocus pocus like the BDI or whatever convenient line of BS they can use to mislead the public.



« Last Edit: October 28, 2016, 04:35:43 PM by Eddie »
What makes the desert beautiful is that somewhere it hides a well.

Offline Palloy

  • Sous Chef
  • ****
  • Posts: 3754
    • View Profile
    • https://palloy.wordpress.com
Re: Official Shipping Collapse Thread
« Reply #55 on: October 28, 2016, 05:52:08 PM »
Thanks for the low-down on fictitious characters in spy novels/TV when you were a kid.  I have a memory filter that stops cluttering my brain up with stuff like that.

Yes, the BDI varies with different supplies of ships and different amounts of goods to be shipped, making the index volatile.  I think I covered that before.  This volatility is an outcome of "free markets", where everything goes to the highest bidder at auction, and nothing to the poorest bidder, regardless of need.  This is yet another curse of Capitalism and a strong reason for centralised control of prices in the public interest. 

I don't see how GS can manipulate the BDI though - maybe in a derivative market used by shippers/exporters trying to hedge their risk caused by volatility caused by Capitalism.
The State is a body of armed men

Online Eddie

  • Administrator
  • Master Chef
  • *****
  • Posts: 15861
    • View Profile
Re: Official Shipping Collapse Thread
« Reply #56 on: October 29, 2016, 09:59:53 AM »
Thanks for the low-down on fictitious characters in spy novels/TV when you were a kid.  I have a memory filter that stops cluttering my brain up with stuff like that.

Was that sarcasm?

Funny how we filter the past. I can remember characters from novels I read when I was 9 or 10, but I've completely blocked the names of all the faculty where I attended dental college. I can't remember a single name, even though I knew them all on sight, their grading preferences, and which ones to really avoid.

I don't think GS can manipulate the BDI. It just isn't always well correlated to a coming recession. It is a useful thing to look at, but it's not always a leading indicator of anything. The deception comes in claiming that the BDI is extremely predictive.
What makes the desert beautiful is that somewhere it hides a well.

Offline Palloy

  • Sous Chef
  • ****
  • Posts: 3754
    • View Profile
    • https://palloy.wordpress.com
Re: Official Shipping Collapse Thread
« Reply #57 on: November 24, 2016, 12:48:29 PM »
As goes the shipping industry, so goes the shipping-lending industry.  And the biggest of these is ... Deutsche Bank, who is looking to sell off some of its shipping loans portfolio - toxic debt anybody?  The danger, of course, is that the sale price of these loans will be low, so the value of DB's remaining loan book will be lower, ... spirals down toilet.

http://www.zerohedge.com/news/2016-11-24/germanys-second-largest-shipping-lender-40-our-shipping-loan-book-non-performing
Germany's NordLB Bank: "40% Of Our Shipping Loan Book Is Non-Performing"
Tyler Durden
Nov 24, 2016

The challenges facing Germany's second-largest shipping lender, German Landersbank NordLB first emerged this summer, when we reported that the bank was considering taking full control of its smaller, distressed peer, Bremer Landesbank (BLB), which was struggling under the weight of a portfolio of bad shipping loans in what effectively constituted a state-backed bailout. BLB, of which NordLB already owns 54.8%, had warned that it would have to take a €400m writedown on its shipping portfolio, and that as a result it was facing a “mid-triple-digit million loss” this year. As Germany's Handelsblatt wrote back in July, "shipping loans have brought Bremer LB into distress and the bank can not survive without government help, but a direct capital injection from Lower Saxony now looks unlikey."

The situation was ultimately "resolved", when NordLB said in September that it would take full control of Bremer Landesbank (the transaction is expected to close in January 1 2017), with BLB's balance sheet being absorbed by that of its bigger Landesbank peer, however it also meant that NordLB would wind up holding even more impaired shipping loans.

Then, the full extent of NordLB's problem shipping exposure was revealed today, when during a call with reporters, designated CEO Thomas Buerkle said that a whopping €8 billion, or 40%, of its shipping loan book was non-performing and that NordLB wants provisions to cover 50% of NPLs by year-end, vs 44% now, to limit balance sheet risks.

The revelation came amidst a broader warning that NordLB was facing a loss of “more than €1bn” this year, as a result of the latest shoring up of reserves against losses on its portfolio of shipping loans.

NordLB also said it had increased its loan loss provisions by €648m in Q3, having set aside €568m in the second quarter and €435m in the first, and that this had pushed it to a net loss of €330m in the three months to September. The CEO tried to calm the market, saying that the bank's “capital ratios remain at a high level, and have a sufficient buffer to meet all regulatory requirements. That also applies after taking into account the negative result for 2016, and the complete takeover of Bremer Landesbank.”

Total NordLB Loan loss provisions – predominantly in ship financing – surged to €1.65 billion in the first nine months, from €367 million in the same period last year. More than half of that (about €1 billion) falls upon its affiliate Bremer Landesbank which warned in a separate announcement on Thursday that its write-downs on shipping loans would reach €1 billion this year.

In total, Nord LB expects loan loss provisions for the whole group to exceed €2 billion by the end of the year, resulting in a net loss of more than €1 billion. The Q3 loss brought NordLB’s net loss for the first nine months of the year to €736m, down from a net profit of €539m in the same period a year earlier.

NordLB said in April that it intended to cut its portfolio of shipping loans, which stood at €19bn at the beginning of the year, to between €12bn and €14bn by the end of 2018.

The huge write-downs it takes this year pave the way for the planned reduction of its shipping loan book, the bank said. It means that loan accelerations, foreclosures and portfolio sales will not have to cause the bank any more losses, so its restructuring and workout teams can act more flexibly.

The portfolio stands at close to €17bn, however by the end of this year, it is expected to drop to €16 billion if a major portfolio securitisation with PE investor KKR and an unnamed sovereign state fund can be closed.

Meanwhile, as IHS notes, the financial situation at the acquired Bremer Landesbank has become so dramatic that it will have to be fully integrated into Nord LB through signing of a controlling agreement probably at the end of next week.

As explained previously, while in previous years when commodity prices were surging, German bank lending to the shipping industry was a major profit center for many German banks, ever since the financial crisis, and especially following the recent commodity bust, German banks suffered huge losses, as the global shipping industry buckled under the weight of chronic overcapacity, mistimed investments and cooling growth in China.

And, as the FT adds, while there have recently been tentative signs that the brutal market conditions are belatedly spurring consolidation — Japan’s big three shipping conglomerates said last month that they would launch a joint venture for their container shipping businesses — maritime lenders are still suffering. Case in point, the recent unprecedented bankruptcy of South Korean logistics and container transport company Hanjin, whose bankruptcy in the late summer shocked the peace within global supply logistics.

And now that we have a benchmark for just how severe shipping loan deterioration currently is, we wonder just how impaired the loan book at that "other" German lender, Deutsche Bank is. Recall that as also reported in early July, Deutsche Bank was looking to sell at least $1 billion of shipping loans to lighten its exposure to the sector. As Reuters noted then, "banking and finance sources familiar with the matter said Germany's biggest lender was initially looking to offload at least $1 billion.

"They are looking to lighten their portfolio and this includes toxic debt. It makes commercial sense to try and sell off some of their book," one finance source said. "They are not looking to exit shipping."

Assuming DB concluded the sale successfully, it means the largest German bank still has roughly $5 billion in shipping loans on its books: as of July, Deutsche Bank, had between $5 billion and $6 billion worth of total exposure to the shipping sector. Assuming the NordLB's 40% bad debt ratio, it means that Deutsche Bank may have over $2 billion in nonperforming loans on its books. One wonders at what "Mark to Model" value the Frankfurt-based bank is keeping these loans on its books?
The State is a body of armed men

Offline MKing

  • Contrarian
  • Sous Chef
  • *
  • Posts: 3354
    • View Profile
Re: Official Shipping Collapse Thread
« Reply #58 on: November 24, 2016, 01:49:01 PM »
One wonders at what "Mark to Model" value the Frankfurt-based bank is keeping these loans on its books?

I have explained my personal experience with these types of banker shenanigans once before, but I am not certain such direct knowledge is permitted under the rules. But I will try again.

Banks won't do writeoffs in one chunk unless A) they have to or B) there is an ulterior motive, for example, the 2008 market crash is going on, everyone is losing, so you take out the trash because no matter what your stock price is going to take a huge hit regardless. Might as well do some house cleaning.

Prior to a regulatory agency requiring option A) to take effect, this is how it is done. If you have $100 in non-performing assets that must be flushed, you do it a little at a time. You flush $10/qtr out the door for 10 quarters. You offset larger gains with larger writeoffs in any given quarter, perhaps getting rid of $20/qtr when you have a larger than expected gain you can use to mask the write off.

This isn't even a clever big bank technique, the exercise I watched related to oil field equipment and purchasing, using the equipment (as opposed to the commodity revenue) as collateral was a smaller multi-state but not national bank. They washed out tens of millions over the course of just over a year, and by about the 6th quarter announced that their oil field equipment loan business hadn't performed up to expectations, so they were decreasing their exposure and were moving on to loaning to X. They take a modest, short term hit to their value (if any, the bank in question took no hit that I could see in terms of stock value) and move right along to the next adventure.

Tens of millions of dollars in losses in a bank that wasn't all that large, and nobody even blinked. Harder to do when everyone is watching your quarterlys, but when I've worked with CFO's, they have all appeared to be geniuses in hiding these kinds of problems. It nearly requires a CIB problem before the lies are exposed and the place just implodes one afternoon.
Sometimes one creates a dynamic impression by saying something, and sometimes one creates as significant an impression by remaining silent.
-Dalai Lama

Online RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 33750
    • View Profile
Shipbuilding in Japan, Korea, China Collapses in Death Spiral of Orders
« Reply #59 on: November 27, 2016, 01:44:18 AM »
http://wolfstreet.com/2016/11/24/shipbuilding-in-japan-korea-china-collapses-in-death-spiral-of-orders/

Shipbuilding in Japan, Korea, China Collapses in Death Spiral of Orders
by Wolf Richter • November 24, 2016 • 50 Comments   

“Worse than the one following the Global Financial Crisis.”

New orders received by Chinese shipyards – now infamous for undercutting competitors and sinking into bankruptcy – have plunged 58.5% so far this year through October, compared to last year, according to shipping industry data provider BIMCO, cited by the Nikkei. At South Korean shipyards, which include the three largest in the world, orders have plunged 84.2%; at Japanese shipyards, 90%.

They all focused on large dry-bulk vessels, tankers, and containerships. But this year, orders for tankers globally plunged 80% and for container ships 84%.

Global trade, which collapsed during the Financial Crisis but then recovered in a V-shaped manner, was expected to continue soaring. Instead, it has languished over the past few years. Carriers that transport these goods in dry-bulk vessels, tankers, and container ships, face rampant overcapacity and crushed shipping rates. Smaller ones have sunk. In August, Hanjin, the sixth largest carrier and a formerly too-big-to-fail company in South Korea, was allowed to fail. And they all stopped ordering ships.

However, orders at European shipyards have jumped 45% through the first eight months this year. On the global scale, they’re small players, accounting for only 9.3% of the order book. But they focus on the smaller thriving market for cruise ships, ferries, and tugs.

Globally, orders for ships plunged 77% so far this year through October. But 2015 had already been down 13% from 2014. And 2014 had been down 26% from 2013, the first good year since before the Financial Crisis. In 2007, orders had peaked at 92 million compensated gross tons (CGT). So far this year, orders are down to 10 million CGT.

At this rate, 2016 will be the worst year in BIMCO’s data series going back to 1996. Even back then, orders amounted to 18 million CGT.

No industry can survive for long when orders collapse at these rates. But next year might be worse, according to Peter Sand, BIMCO’s chief shipping analyst. For the Asian shipbuilders concentrated in the container, dry-bulk or offshore segments, “there is a possibility for postponements and cancellations.” Outright cancellations are bad enough. But “postponements can add a further headache to the shipyards’ liquidity, as the final payments in these cases may be delayed.”




Among the collapsed shipbuilders is South Korea’s STX Offshore & Shipbuilding, which filed for court protection in May. No country is more dependent on shipbuilding than South Korea: it accounted for 7.1% of manufacturing jobs in 2015.

Korea’s Big Three – Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering, and Samsung Heavy Industries – have been dumping noncore assets and shedding employees as part of prior creditor-led restructuring plans. Even that wasn’t enough. At the end of October, the government announced a bailout plan: it would order 250 vessels through 2020, valued at $9.6 billion, but they’ll be smaller ships and boats, not the big, former money-makers that these shipyards really need.

That may not be enough either. On November 15, Hyundai Heavy announced it would sell its non-shipbuilding businesses, including utilities, construction equipment manufacturing, and robotics, to get out from under its suffocating load of debt. Samsung Heavy said it would lay off 30% to 40% of its 14,000 employees by 2018. Daewoo Shipbuilding said it would lay off 20% of its employees by 2020.

In China, bankruptcies are piling up. In April and May:  Zhong Chuan Heavy Industry, Zhong Chuan Heavy Industry Equipment, Zhoushan Xuhua Metal Material, Zhenjiang Shipbuilding (subsidiary of Sinopacific Shipbuilding Group), and Yangzhou Dayang Shipbuilding. Plus, in February, state-owned Sainty Marine; in December 2015, state-owned Wuzhou Shipyard; and earlier in 2015, privately owned Mingde Heavy Industries.

But many of these failed shipbuilders, propped up by state-owned lenders, continue to exist and get orders by undercutting prices and producing below production costs. They’re called zombies.

In October, Guo Dacheng, chairman of the China Association of the National Shipbuilding Industry, said that these zombies should be quickly weeded out, according to the Nikkei; they were damaging the entire industry.

To say alive, other shipbuilders are diversifying away from dry-bulk carriers and container ships; they’re now trying to muscle in on European shipyards by building ferries and cruise ships. If they do this successfully, they’ll create the next glut and collapse.

It won’t be easy. Japan’s big shipbuilders are already trying to diversify into cruise ships, but that hasn’t worked out very well yet. The Nikkei:

    After a pause of around a decade, Mitsubishi Heavy Industries restarted building large passenger ships in 2013, a more lucrative segment than container ships. However, the company indicated in October that its Nagasaki Shipyard & Machinery Works unit had lost more than 250 billion yen ($2.25 billion) on an order from a U.S. cruise line for two vessels amid repeated design changes and costs from importing European equipment.

    As a consequence, Mitsubishi said in October that it will only accept orders from hereon for smaller passenger vessels while seeking more orders for LNG carriers.

So now, the big Japanese shipbuilders are trying to stay alive by consolidating. Imabari Shipbuilding (5th largest in the world), Oshima Shipbuilding, and Namura Shipbuilding all specialize in dry-bulk carriers. Now they’re in discussions with Mitsubishi Heavy about putting their resources together and get into cruise ships. Combined, they’d make the second largest shipbuilder in the world, if they all survive long enough to get out of this slump.

It could take a while. “The industry won’t recover until 2021,” explained Yoshikazu Nakaya, a shipping analyst with Mizuho Bank. He called the fiasco “worse than the one following the Global Financial Crisis.”

The US is the largest destination for global goods. But the next brake shoe is about to drop. The “Car Recession” is now expected to spread to 2017. Read…  Strongest Pillar of Shaky US Economy has Cracked
SAVE AS MANY AS YOU CAN

 

Related Topics

  Subject / Started by Replies Last post
3 Replies
2801 Views
Last post May 02, 2014, 07:47:34 AM
by Surly1
2 Replies
866 Views
Last post May 29, 2015, 12:42:48 PM
by MKing
5 Replies
1099 Views
Last post April 21, 2016, 01:58:06 PM
by Eddie