Consumer electronic and PC technology companies could be facing a shortage of stock running into the peak Xmas buying period because global shipping is grinding to a halt because of the refusal of banks to issue letters of credit.
Australian distributors and vendors who are expecting their biggest shipments of the year over the next two months have told ChannelNews that they are aware of the problem but are still waiting on shipping advice from their parent Companies or overseas vendors.
Alan Kohler of the ABC and a writer for Business Spectator said that he was alerted to this by TJ Marta, of RBC Capital Market’s New York-based fixed income strategist on the weekend, during an interview for the ABC’s Inside Business program.
He said that the Baltic Dry Index of bulk shipping rates has collapsed by 89 per cent – from 12,000 in May to 1355 last night. In October alone it has fallen 61 per cent.
In his column in the London Telegraph last night, Ambrose Evans-Pritchard wrote that he believed shipping was now slowing as fast as it did in late 1931.
The Business Spectator went on to say that Khalid Hashim, managing director of Precious Shipping, Thailand’s second-largest shipping company, was quoted in the Taiwan News yesterday as saying: “Letters of credit and the credit lines for trade currently are frozen. Nothing is moving because the trader doesn’t want to take the risk of putting cargo on the boat and finding that nobody can pay.”
Here’s another quote, from Steve Rodley, director of a London based shipping hedge fund called Global Maritime Investments: “The whole shipping market has crashed. But the biggest ships are suffering particularly.”
Letters of credit are issued by banks to guarantee payment at the other end of a shipping transaction. In effect, the bank substitutes its own credit for that of the customer, so the shipper doesn’t have to hunt around in a foreign land trying to track down payment.
Exporters are getting caught up in the problem because their customers are saying “we can’t pay you until our customers pay us”, so there is a knock-on effect that is affecting manufacturers and bulk goods suppliers everywhere.
See Business Spectator for more on this story see www.businessspectator.com.au