THE busyness of world shipping lanes is often taken as an indicator of the health of the global economy, which is why recent reports that on one day last week, there were no cargo ships sighted in the North Atlantic should be some cause for worry.
The inference is instant: that trade between the world’s two advanced economic regions is at best flagging, and at worst, non-existent.
The mill went into overdrive.
“For the first time in known history, not one cargo ship is in-transit in the North Atlantic between Europe and North America,” one radio station with a New York address said. “All of them (hundreds) are either anchored offshore or in-port. NOTHING is moving.”
Bloggers went on to paint a doomsday scenario: the inactivity meant people were not buying things. Retailers could thus not replenish their stocks, meaning manufacturers would be unable to produce, and therefore were not ordering raw materials.
All this means layoffs and defaults on banks, setting off a run on banks and wiping out stock market indices, in effect heralding another global crisis. To shore up the argument, many called up global online maps that track world shipping, showing clear seas between the two regions.
The claims have been well debated, but the story widely remained low-level, some fact checkers even calling them out as one of the many global hoaxes that do their internet rounds, until bigger media begun picking up on it this week.
The Baltic Dry Index
In a morning newscast, the BBC Wednesday ran a report on it, additionally pointing out that a key shipping index has in recent months all but collapsed.
The Baltic Dry Index measures the cost of moving major raw materials, such as metals, coal, iron ore and grain by major sea routes on four types of carriers, graded by capacity. Published daily since 1985, in August it begun its precipitous decline after Chinese economic data spooked world markets. It has been plummeting: in May 2008 it reached its highest ever level at 11,793 points, on January 13, 2016 it came in at a record low of 394 points, a near-97% drop.
Shipping industry officials say the number of vessels available is outstripping demand to move cargo, and while the doomsday scenarios could be a bit inflated, it is information that coincides uncomfortably with economic forecasts that global trade will this year be gloomy.
Africa’s boom over?
Sub-Saharan Africa will do well to be wary. The continent’s economy fell to just 3.4% growth last year, from 4.6% in 2014, as the prices of commodities from oil to metals plunged, the former coinciding with reduced Chinese demand for the resource exports that fuelled Africa’s boom in the last 15 years.
In a new flagship study (pdf) of the continent’s subdued prospects, the World Bank says China’s slowdown may have had a lot to do with it, and given the Asian economy is expected to continue to struggle this year, the development lender is not too optimistic on a strong recovery for Africa.
A grab from www.vesselfinder.com showing vessel positions as at 1430GMT January 13, 2016
This is why the continued fall of the index, a reliable barometer of Indian Ocean-Asia Pacific trade, might be a big concern for a continent whose exporters have been battered by reduced revenues, throwing optimistic and carefully crafted economic plans in disarray, and threatening political careers including for many countries facing elections this year.
Africa’s mood would not have improved when the real scale of China’s slowdown became evident this week. Imports by the Asian country from Africa last year fell 38% compared to 2014, as China looks to move towards a consumption and services fuelled economy.*
It has thus reduced its appetite for the continent’s resources (to be fair it is cutting down on imports from everyone); commodities that have helped fuel its own boom in the last two decades. In this period, bilateral trade with Africa surged, vaulting it past the US to position it as the continent’s main trading partner.
Most of that trade was however in exports of commodities, which form the mainstay of Africa’s commerce with the rest of the world. But this trade has also been heavily in China’s favour—the country’s exports to Africa rose 4% last year even as it started its imports diet.
Because it is pegged on raw materials that later end up in finished goods, the Baltic Dry Index is a leading indicator of economic activity, and a particularly attractive one because unlike markets, it has no speculative activity—you will just not book a vessel if you have no cargo to ship.
This is why its plunge may herald real pain for Africa this year—growth on the continent is expected to recover only to 4.2%, with the downside that the BRICS—as the large emerging markets of Brazil, Russia, India, China and South Africa are known—are all (with the exception of India) expected to struggle, a sort of “perfect storm” that will spill to developing markets.
But it is not all doom and gloom. The Baltic Exchange also oversees other indices that track the movement of crude oil and petroleum products. Because of the fall in oil prices, the single biggest cost for ships, there has been constant activity on these, as producers ramp up production in a desperate attempt to keep revenue levels constant, while importers order up more of the cheap oil as they seek to take advantage.
Clearly the only African countries with reason to be optimistic in 2016 are non-resource exporters, suddenly making agriculture very attractive this year, especially with continuing adverse weather expected to drive up prices of cash-crop exports.
But it is also a wake-up call for more intra-African trade to provide a buffer from external market contagion.