Grain piles up in ports Canada next in inability to finance shipments
Dry Bulk Bulker rates fall amid trade credit fearsThe credit crisis is spilling over into the grain industry as international buyers find themselves unable to come up with payment, forcing sellers to shoulder often substantial losses.
Before cargoes can be loaded at port, buyers typically must produce proof they are good for the money. But more deals are falling through as sellers decide they don't trust the financial institution named in the buyer's letter of credit, analysts said.
"There's all kinds of stuff stacked up on docks right now that can't be shipped because people can't get letters of credit," said Bill Gary, president of Commodity Information Systems in Oklahoma City. "The problem is not demand, and it's not supply because we have plenty of supply. It's finding anyone who can come up with the credit to buy."
So far the problem is mostly being felt in U. S. and South American ports, but observers say it is only a matter of time before it hits Canada.
Shipping Lines Say Tight Credit Cutting World Trade“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,” he said.
Difficulties securing letters of credit, in which banks guarantee payment for merchandise, could become a “big issue’’ for world trade, Klaus Nyborg, deputy chief executive officer at Pacific Basin also said.
The London-based Grains and Feed Trade Assocation, which represents grain traders worldwide, said problems accessing trade credit had seen isolated cargoes temporarily stranded in Canada and South America.
“Getting members to comment on this issue is very difficult,” a spokeswoman said.
“I just don’t think anybody out there is willing to discuss anything about this financial turmoil.”
GAFTA’s president, Pedro Palomo, did not return calls seeking further comment.
``Letters of credit and the credit lines for trade currently are frozen,'' Khalid Hashim, managing director of Precious Shipping, 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.''
The lack of letters of credit, in which banks guarantee payment for merchandise, could become a ``big issue'' for world trade, according to Klaus Nyborg, Deputy Chief Executive Officer at Pacific Basin. Tighter credit has contributed to this year's 80 percent drop in the Baltic Dry Index, a measure of commodity-shipping costs. About 90 percent of world trade moves by sea.
``This can have a significant effect on demand because you won't see the same volume of cargo moved,'' Harold L. Malone III, senior vice president at Jefferies & Co., said at a Marine Money conference in Singapore. ``You have to figure out other ways to get trade done.''