Several of my sources around the world are predicting disruptions in global markets later this year based on something most people take for granted – shipping. It appears that there is a great mismatch between the number of ships, the price of fuel, and the amount of goods being trafficked around the world. And while the reaction to this imbalance is not immediate, the piper must be paid eventually. Or not paid. Sort of like the shipping companies that are not paying their bills, leaving many banks worried about their exposure to bad debt.
Shipping is in the middle of the worst downturn since the 1980s, said Martin Stopford, president of the research division of Clarkson Plc, the world’s biggest shipbroker.
Ten German banks have 98 billion euros ($129 billion) in shipping loans between them, according to Moody’s Investors Service. German banks’ exposure to Greece, Ireland, Italy, Portugal and Spain totals about $360 billion, including bonds and lending to governments, banks and the private sector, figures compiled by Bloomberg Industries show.
HSH Nordbank has outstanding loans of 29 billion euros on about 2,800 vessels, said Nieswandt. The closely held company said on a December conference call shipping accounted for “the lion’s share” of 458 million euros in net loan-loss provisions, or money set aside for nonperforming loans, in the third quarter.
Wait, if there’s a global recovery, why aren’t people shipping more goods, or at least much as before? Isn’t GDP growing again? Why would this most fundamental industry find itself with too many ships competing for too few cargoes if GDP is growing slowly?
Quartz has part of the story, with this fascinating tidbit about how Asia is reacting to softness in its trade with Europe by simply trading with its neighbors:
Consider this in the context of the sickening of the American retail market, detailed compellingly in the Atlantic. Just have a look at the number of jobs that have been stripped out of America’s overblown retail sector since 2001:
Something is clear – the pattern of consumption is changing in a very significant way, and the infrastructure of business may not be able to absorb the shock gracefully. It is in the interest of bankers, ad-seeking media and government tax collectors to keep your “consumer confidence” as high as possible, so that you keep consuming these (Asian-produced, cargo ship-dependant) goods in the way you have in recent years – but one gets the sense that this isn’t really possible. The Transition is simply bigger than all that, and denying its existence is like sweeping back the ocean with a broom.
Keep an eye out in the coming months for news about banks being rocked by shipping companies unable to pay their bills – but don’t forget to ask why this is happening in the first place.