Global Economic Depression

“A ship is safe in harbor, but that's not what ships are for” - William
Shedd

The article Shipping rates hit zero as trade sinks from http://www.telegraph.co.uk/ reports that,

Freight rates for containers shipped from Asia to Europe have fallen to zero for the first time since records began, underscoring the dramatic collapse in trade since the world economy buckled in October. …"This is a whole new ball game," said one trader.

Why is this significant you ask? This is a contra-indicator for one of my favorite books, The World Is Flat by Thomas L. Friedman. While the world looks small and everybody is your neighbor or BFF via the internet, in order to exchange more than just ideas and pictures, we still need ships to carry goods between countries.

The shipping problem began last fall with the banking and credit crisis. Shippers were unable to obtain routine letters of credit “causing goods to pile up at ports even though there was a willing buyer at the other end.” The credit problem has been resolved, but the shipping industry is now plagued by global trade contraction:

Trade data from Asia's export tigers has been disastrous over recent weeks … “This is no regular cycle slowdown, but a complete collapse in foreign [US, UK and European] demand."

To keep ships sailing, shippers have cut their fees to zero and will ship containers at “bunker” (i.e. cost) rates so as to earn some money to cover crew salaries, insurance, docking fees and other fixed expenses.

Offering slots for free is akin to an airline giving away spare seats for nothing.

Bottom Line

The shipping crisis is further proof that we are experiencing a global economic depression. Do not expect a quick turnaround or a quick fix. The US “bailouts” are keeping companies alive but will do little to stimulate the US or world economy.

What should you do? Cut expenses and build up your savings now. We will be facing many rainy days ahead.