Sea trade seizing up as growth, credit fears mount

By Stefano Ambrogi - Analysis

LONDON (Reuters) - A deepening financial crisis, sinking commodity prices, has hammered sea freight costs and now the usual fourth quarter seasonal upturn in demand for shipping looks in doubt, giving still more evidence of global slowdown.

Shipping costs for raw materials usually peak during winter, re-energized by rising utility demand for coal and the start of the American grains export season. But key freight indices are in reverse with fading prospects of a bounce.

The Baltic Exchange's chief sea freight index, a price gauge of major export routes for resources excluding oil, has dived to a more than a two-year low from a record high struck in May.

The drop has got steeper in the last week as the worst financial storm since the 1930s, which has toppled banks, hammered stock markets and hit oil prices, saps confidence.

Container shipping, another industry sector, which ferries finished goods from electronics to toys has also taken a battering, especially on key routes from Asia to consumers in the West.

"There's a considerable slowdown in container trades for manufactured goods to Europe and the United States from Asia," said Philip Damas, director of research at Drewry's ship consultancy in London.

"As a result of the financial crisis we are seeing consumers buying less clothes and furniture and we've even got the start of bankruptcies for furniture importers," he said. Furniture trade from Asia is a key export marker.

Damas said container trade growth had fallen to its lowest level ever from Asia to the United States this year, and was at a 15-year low from Asia to Europe.

"What you've got is a collective loss of confidence, not only in shipping, but across a whole range of sectors which is a barrier to activity," said John Kearsey, executive director at Simpson, Spence & Young ship consultancy.

"So a lot of importers, trading firms and charterers seem to be standing aside with this wait-and-see attitude that may have exaggerated the speed of decline," he said.

The Baltic index, which is heavily exposed to emerging economies in Asia, particularly China, suffered its biggest percentage fall in its 23-year history last Friday.

Three more of its biggest one-day drops have occurred in little more than a week.

The index's fall has spooked investors, hammering shipping stocks, especially in Asia.

Shares in Singapore's Neptune Orient Lines, Japan's Mitsui OSK Lines, and China Cosco have fallen at least 50 percent since the freight record in May.

BOOM TO BUST?