Red flag warnings: Global shipping freight rates slump as trade slows
* Container & bulk rates are falling:
* Container market dragged down by U.S./China trade war
* Emerging market woes weigh on dry bulk rates
By Henning Gloystein
SINGAPORE, Oct 25 (Reuters) - The cost of hiring containerships has plunged 24 percent from a multi-year peak while rawmaterial vessel rates have slumped 10 percent from a five-yearhigh, adding to signs of slowing global trade with dangerousimplications for the economy.
While much of world is focused on the stock market lossesthis week, the drop in shipping rates as trade declines becauseof the trade dispute between the United States and China,emerging market currency weakness and tighter credit conditionsis an omen of slowing global economic growth.
At the start of supply chains, dry-bulk carriers move rawmaterials like coal and iron ore from mines to smelters whilecontainer ships complete the cycle by carrying the vast majorityof global manufactured goods from factories to consumers.
Dry-bulk and container rates climbed to multi-year highsearlier this year, but have plunged since then as the trade warbetween the United States and China, in which both sides haveslapped steep import tariffs hundreds of goods, has picked uppace.
"The flattening out of the Baltic dry index, corroborated bythe container index as well, points to a slowing down of theglobal economy for sure," said Ashok Sharma, managing directorof shipbroker BRS Baxi in Singapore.
Frederic Neumann, co-head of Asian Economic Research at HSBCin Hong Kong, said "global trade is cooling off after a strongrun over the last couple of years.
He said cooling demand in Europe and China, emerging marketwoes, as well as the Sino-American trade tensions werecontributing to the slowdown, and added that "their full effecthasn't kicked in yet."
The Harpex Container Index , which tracksweekly container shipping rate changes, has fallen by almost aquarter from June when it was at a seven-year high to 516points.
The Freightos Baltic Index, a globalcontainer index launched in Singapore in 2017, climbed to arecord in August but has fallen 5.4 percent since then to 1,583points.
Movements in the container market tend to reflect changes indeveloped economies while bulk shipping markets are moreinfluenced by emerging countries, said shipping analysts.
"Now that the trade war is escalating... I have no doubtthat this does have a negative impact on containerised trades,"said Ralph Leszczynski, head of research at ship broker BancheroCosta in Singapore.
The Baltic Dry Index , which measures freight costsfor ships carrying iron ore, coal and metal ores, has dropped 13percent after reaching its highest since January 2014 to 1,546points.
Leszczynski said that the downturn in dry-bulk rates waslargely due to trends in emerging markets, where currenciesincluding in India, Pakistan and Indonesia have plunged againstthe U.S. dollar this year, reducing their ability to pay forimports.
Given the number of concerns, HSBC's Neumann said he wassurprised how well shipping markets had held up so far.
NOT ALL DOOM & GLOOM
Neumann pointed to Japanese export data for October thatshowed its fastest growth since March as a positive development.
Global oil tanker rates have also held up as companies tryto buy as much crude as possible before U.S. sanctions arere-imposed on Iranian oil exports on Nov. 4.
Rates for supertankers carrying crude from theMiddle East to Singapore, Asia's oil trading hub, have soared by50 percent since September.
Healthy oil demand has so far also supported tanker rates atthe same time that the supply of ships has declined as Iraniantankers are being used to store crude.
Here too, however, the threat of an economic slowdown looms."The oil freight index typically lags the dry index by a fewquarters," said BRS Baxi's Sharma.
(Reporting by Henning Gloystein; additional reporting by RoslanKhasawneh; editing by Christian Schmollinger)
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