Daily Kos: Two signs that something is seriously wrong

Current Affairs

There’s a really interesting article over on the Daily Kos pointing out the recent precipitous drop on the Baltic Dry Index.

And while that’s interesting enough in itself, what caught my eye was this comment posted in the discussion that followed:

“I’m an exporter located in Portland.  We specialize in Ag exports, from Washington state to Asia and the Middle East.
Mostly apples and wine to Europe.

These past 2 months, I’ve noticed something dramatic going on.  

  1. the suppliers suddenly started calling me.  This alone was a big change.  Normally, I have to call THEM, beg, grovel, work like crazy to secure supplies.  It was always a struggle because we had the overseas buyers, but the supply was tough.  Now it’s a 180 degree switch.  They are calling me, asking about my buyers.  Prices have started coming down, dramatically.  I’m really worried because my suppliers in Washington have lots of expenses; cold storage costs, labour costs and so on.  
  2. Shipping companies.  It’s always been same as (1) above.  We had to scratch and scrape to get our reefer containers.  Just last week, someone called from Maersk (!!!) and asked what was happening (!!).  Shipping costs have now dropped to about half of what they were last year.  It’s becoming impossible for me to give quotes because they are changing every day.
    • (2a) Just as I was writing this post, I got an email from another shipping company.  They are wondering can we please sign this shipping contract?
  3. I believe the reason for this is the issue of credit.  The buyers are still there.  They still want to buy (we’ve got absolutely awesome product).  The problem is, the shipping company can’t count on the Letter of Credit from the foreign bank in order to pay for the shipping costs.

If this continues for another 1 to 2 months, expect major companies in Washington to fold. This is a weird price deflation, not based on lack of demand but of logistics.”

Read the full article here.

Not good news – and it’s particularly interesting to me because it highlights the challenges that are presented when the credit market seizes up.

The Author

Episcopal bishop, dad, astronomer, erstwhile dancer...

1 Comment

  1. We finally come to realize that the previous years have been a bubble based on cheap Fed money.
    The most obvious adjustments we are seeing are:
    1) consumer buy less (no more taking a line of equity on your home to buy a new truck)
    2) production drops
    3) Shipping prices fall
    4) Banks are tightening lending standard
    The last point is sometimes confused with the notion that banks are no longer willing to issue letters of credit. This is not entirely correct. LCs are just one of many financing options (take eg. factoring, forfaiting, PO financing and several others).
    However, banks now request up to 50 % collateral or even 100 % cash in a separate account.
    As far as banks go, the hope is that they once again become reasonable. Before any poodle could get a loan; now you have to bring all the collateral (and more) and even then it is laborious (noone wants to make a mistake, senior management is vague, better to lose a little than take on any risk).

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