This year's sharp fall in sea freight costs is a mixed blessing for developing countries, making it cheaper to ship their exports but signalling waning demand for their goods, a United Nations agency said on Tuesday.
And the fall in demand for shipping from recent record levels spells trouble to countries like China, South Korea and Vietnam that have built up shipbuilding industries, the UN Conference on Trade and Development (UNCTAD) said. Demand for shipping hit a record high earlier this year in a global boom which saw prices of food and fuel soar. The financial crisis has punctured that boom and demand is down.
The Baltic Exchange Dry Index, which measures the cost of moving raw materials by sea, has plummeted more than 11-fold to an eight-year low since peaking in May this year at 11,793, UNCTAD said in its 2008 Review of Maritime Transport. The index, a composite of shipping prices for various dry bulk products such as iron ore, grain, and coal, closed on Monday at 827, a level last seen in February 1999.
"This shows that the unfolding financial crisis has spread to international trade with negative implications for developing countries, especially those dependent on commodities," UNCTAD said. Economists point out that freight charges can be a more significant barrier to trade than tariffs are, so a fall in shipping costs should be good news for exporters, especially as bulk commodities are more sensitive to transport costs.