Wednesday, November 05, 2008

And speaking of relocalization...

...(we were, sort of), have you been paying attention to the global transportation situation?

Financial Times
Concern over shipping derivatives losses
By Robert Wright in London
Last updated: November 3 2008 23:31

Fears are growing in the shipping industry over the potentially big losses that could emerge this week on derivatives triggered by the October collapse in rates to charter dry bulk ships.

Since short-term dry bulk charter rates fell 71.9 per cent in October, traders and shipowners have worried that traders might be caught out by the speed and severity of the fall.

Traders in forward freight agreements – derivatives based on short-term charter rates – could owe significant sums if they were betting on a rise in charter rates for ships carrying coal, iron ore and other commodities...

...Market participants’ concerns have been heightened by the possibility of knock-on effects from failures of investors affected by FFA market losses.

If investors facing FFA market losses hand back ships they had chartered early to owners, the ships’ owners will earn considerably less than they expected. They could face problems servicing debt related to the ships.

...Michael Bodouroglou, chief executive of Paragon Shipping, a Nasdaq-listed dry bulk shipowner, said that, even if a company had not participated in FFA trading itself, counterparties such as ship charterers might have done so. He said: “Company failures may cause a domino effect,” .

The market uncertainty stems partly from the complex chains of transactions in the market and the lack of clarity about different companies’ FFA trading.

It is widely expected that hedge funds could be particularly badly hit.

However, Philippe van den Abeele, managing director of Castalia Fund Management, a hedge fund specialising in FFA trading, said he expected hedge funds to experience bigger problems over speculative charters of actual ships...

What this means, in plain English, is that the flaky investments and flakier loans that have devastated the mortgage market and other sectors of the economy also has it's ugly hands in the global shipping companies. Since we no longer have self-sufficiency of food or manufactured goods, these are the companies that keep you fed and supplied with your household goods - and they are in serious danger of being bankrupted by their flaky loans and investments. Those communities that have failed to relocalize themselves and become reasonably self-sufficient (which is pretty much all American communities) are going to be in serious trouble, to say the least.

Food rationing, anyone? It can happen here.

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