Ship Rates Plunge as Credit Freeze Strands Cargo, Demand Slumps

By Alaric Nightingale and Chan Sue Ling

(excerpt)
Oct. 15 (Bloomberg) -- Commodity shipping rates plunged to the lowest in more than five years as a lack of trade finance left cargoes stranded and the global economic slowdown limited raw material demand.

Traders are finding it harder to get letters of credit that guarantee payments for goods, shipping executives said. Together with a slowdown in trade, that has contributed to this year's 82 percent drop in shipping costs for grain, coal and other commodities. Rates are so low that Zodiac Maritime Agencies Ltd., the line managed by Israel's billionaire Ofer family, announced today it may idle 20 of its largest ships.

"Letters of credit and the credit lines for trade currently are frozen,'' Khalid Hashim, managing director of Precious Shipping Pcl, Thailand's second-largest shipping company, said in Singapore yesterday. "Nothing is moving because the trader doesn't want to take the risk of putting cargo on the boat and finding that nobody can pay.''

Banks are leery of financing commodities and shipping transactions.

"Our customers are facing hard challenges,'' Isabella Loh, chief executive officer of Shell Marine Products, a unit of Royal Dutch Shell Plc, said at a conference in Singapore today. ``The credit crunch has affected liquidity and is having an impact on shipyards with cancellations and postponed orders, and expansion may be on hold.''

Zodiac will instruct the captains of its cape-size vessels, which typically carry iron ore and coal, to deliver their current cargoes and then weigh anchor, said two hedge fund managers who saw an e-mail from the company outlining the plan.

"There's been a lot of credit problems with traders,'' said Mikael Skov, interim chief executive officer at Danish shipping line D/S Torm A/S, said by mobile today, without being able to give a figure for how many cargoes had been delayed or canceled. ``It's one more thing in a big negative melting pot for dry at the moment,'' he said.

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