Global Traders Ask: Why Ship Goods If We Won't Get Paid?

Last week we started watching signs that the credit freeze was hampering global trade, causing cargo to sit unused on the docks. A week later, it looks like things are only getting worse:

Bloomberg: Pacific Basin Shipping Ltd., Hong Kong’s biggest dry-bulk carrier, and Precious Shipping Pcl. said demand for moving coal, iron ore and other commodities will fall because banks are guaranteeing fewer loads.

“Letters of credit and the credit lines for trade currently are frozen,” Khalid Hashim, managing director of Precious Shipping, Thailand’s second-largest shipping company, said in Singapore yesterday. “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.”

The lack of letters of credit, in which banks guarantee payment for merchandise, could become a “big issue” for world trade, according to Klaus Nyborg, Deputy Chief Executive Officer at Pacific Basin.

And it sounds like things are getting worse by the day for the shippers. The Baltic Dry Index, which measures the cost of shipping cargo, fell yet another 8.5 per cent just yesterday, causing major hits to companies like Sasol and DryShips.

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