The disruptions in the credit markets have begun to affect international trade. It’s where I’ve learned about something called “trade credit” which finances ships traveling across oceans. Increases in lending rates have hurt Asian economies:
Instead of relying on broad capital markets as is common in American and Europe, they seek credit in more traditional ways: bank loans, the sale of discounted receivables, and letters of credit. One trading company based in China says the collateral required for a letter of credit—typically a safe kind of loan because it involves merely delivering something to a customer—has jumped from 25% to 50% of the stated amount. An odd beneficiary of this squeeze has been the dollar, since orders are increasingly being settled in cash.
In recent weeks, talk has grown of container-loads of goods unable to travel to America and Europe because they cannot be financed. More recently, there have been reports that traffic is stalled the other way. Several ship brokers refer to a vast order of scrap metal stuck on America’s West Coast that was bound for China. Some of the disruption is an inevitable consequence of faltering demand as the world economy slows; some traffic will be liberated as a result of the thaw in interbank-lending markets. A good measure of the environment is the spot rate for carriage on container ships; it has crashed. These same rates in the forward market suggest only the most modest recovery in years to come. There is little reason to hope confidence in Asia will rebound soon.