Chris Lytle, chief operating officer of the port of Long Beach, California, took in a panorama of the slumping world economy from his rooftop observation deck one day this month.
Shipping cranes stood still, truck traffic trickled and a cargo vessel sat idle, moored to a pier.
“You never see that,” Lytle said. “It’s quiet. Too quiet.”
Port traffic has slowed from North America to Europe and Asia as a recession erodes consumer demand and the credit crisis chokes off loans to export-dependent companies. International trade is set to fall by more than 2 per cent next year, the most since the World Bank began measuring it in 1971. Idle ports around the globe are showing how quickly a collapse in trade can spread, undermining growth in each country it reaches.
“Everybody expects 2009 to be a bleak year,” said Jim McKenna, chief executive officer of the Pacific Maritime Association, a San Francisco-based group representing dock employers at US West Coast ports. “Now, it looks like 2010 is going to be just as bleak.”
Coal is piling up at the Mozambique port of Maputo. Brazil’s exports of cars, household appliances, machinery and furniture fell in November from a year earlier. The port in Singapore, the world’s busiest for containers, posted its first month-over-month decline in seven years in November, at 1.5 per cent.
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The Baltic Dry Index, a measure of shipping costs for commodities, is down 93 per cent from a record in May, a sign that traders expect export volumes to stay depressed.
Slowing trade is both a cause and an effect of the first simultaneous contraction in the world’s largest economies since World War II. Throughout this decade, trade grew by 12 per cent a year to $13.6 trillion in 2007, propelling growth in nations from Germany to China and Chile. Now the evaporation of financing and collapse in demand threaten an activity that accounts for a quarter of the $54 trillion global economy.
“We are having this dramatic reversal,” said Michael Finger, a trade economist in Geneva since the early 1970s. “I’m a long time in this business, but this is unique.”
Governments and international lenders are stepping in to fill the gap. China and the US pledged $20 billion to aid their exporters. The World Bank tripled funding for banks helping emerging-market companies to sell abroad, to $3 billion. South Korea pledged $16 billion for its exporters after banks there couldn’t secure international credit lines for them.
“We are going to step up and provide credit to our exporters,” said Jeff Abramson, the US Export-Import Bank’s executive vice president, in an interview. Without export finance, “the credit crisis can impact the real economy.”
In Germany, the world’s top exporter, trade abroad slipped 0.5 per cent in October, the fourth drop in six months. In China, exports fell 2.2 per cent in November, which was the first monthly decline in seven years. They decreased a record 26.7 per cent in Japan last month from a year earlier. US shipments fell 2.2 per cent in October to the lowest level in seven months.
The banking crisis means access to trade credit is becoming scarce too. In recent months trade financing costs soared to more than six times pre-crisis levels, according to a November 18 report by HSBC Holdings Plc.
“You take it for granted until it blows up,” said Bernard Hoekman, trade economist at the World Bank, in an interview. “Now it’s blowing up.”
Exporters worldwide are short $25 billion in trade financing that either isn’t available or costs too much, according to Pascal Lamy, the head of the World Trade Organisation.
“The market for trade finance has severely deteriorated over the last six months, and particularly since September,” he said at a conference last month in Geneva.
Trade credit insurance, which protects sellers against losses and typically covers as much as 40 per cent of trade in Europe and 5 per cent in the US, is also harder to get.
Atradius NV, an Amsterdam-based insurer that covers about a third of global trade receivables, is raising prices by as much as 50 per cent and reducing coverage on thousands of companies. That includes 12,000 in the UK and all the suppliers to the biggest US automakers, General Motors Corp, Ford Motor Co and Chrysler LLC, owned by Cerberus Capital Management LP.
“We’ve taken a hard look at 50 per cent of our coverage and changed our action on about half of it,” said Brett Halsey, the Baltimore-based director for Atradius’s contracts with US companies.
At the adjacent ports of Long Beach and Los Angeles, together the largest in the US, trade has slowed about 10 per cent this year, a record drop. In 2007, volumes slid for the first time in more than a quarter century.
One 140-acre tract at Long Beach is filled with more than 25,000 new Toyotas that dealers can’t sell. Toyota Motor Corp, the world’s second-largest automaker, on Monday forecast its first operating loss in 71 years on weak demand.
Nearby, scrap metal meant for export to Asia piles up behind a fence.
From the observation deck, Lytle pointed to piles of empty containers stacked four high and numbering in the thousands.
September and October are typically the port’s busiest months as US retailers take deliveries for holiday sales.