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The usual way to test the economic pulse in a downturn is to go for a stroll down Main Street. Perhaps we should take to the high seas instead. There may be no better measure of the reach, depth and potential duration of the global economic slowdown than the fast-sinking fortunes of the shipping industry. From the historic docks of Rotterdam to China's booming trading hub of Ningbo, troubling symptoms abound. The Baltic Dry Index, which tracks the cost of shipping raw materials, has plummeted from an all-time high of 11,793 last May to below 800, a 22-year low. The daily rental rate for the largest bulk carriers plunged from $234,000 last summer to less than $3,000 in early December, a staggering 99% reduction. "The violence of the drop is more extreme than anything we've ever seen before," says Jeremy Penn, chief executive of the London-based Baltic Exchange.

As global demand for Chinese toys, German cars and Japanese electronics has dived, container trade has been hit hard as well, with some 200 vessels now lying idle and many more likely to join them when their current contracts are complete. Container traffic between Asia and Europe is shrinking for the first time on record, according to some estimates. Shipping a container from Hong Kong to Rotterdam now costs just a few hundred dollars, down from more than $2,500 in late 2007.

Shipping companies have been hit by a double whammy: falling global demand and, even more importantly, paralysis in the financial markets. The latter is crucial because the letters of credit that international trade relies on have all but dried up. Khalid Hashim, managing director of Precious Shipping in Bangkok, says government banking bailouts have overlooked the shipping industry's needs. "Trade finance is not getting enough attention within the banking system," Hashim says. "Governments don't recognize the danger signals coming up. It will take time to resolve."

Even more worrying for the long-term outlook is the rush to cancel orders for new ships. Clarksons of London, the world's largest shipbroker, announced that new orders had dropped from 378 vessels in October 2007 to just 37 last October. In November, New York–based Genco Shipping and Trading wrote off a $53 million deposit in order to get out of a $530 million deal to buy six new vessels, freeing up liquidity and strengthening the firm's "ability to act opportunistically," a Genco spokesman said. As companies pull back to protect their bottom lines, many are simply taking ships out of service, says Kriton Lendoudis, managing director of Athens-based Evalend Shipping. Hundreds of vessels have been laid up off Britain, Germany, Greece and Singapore over the past several months. In the River Fal estuary, near the old port city of Truro on Britain's southwest tip, harbor master Andy Brigden runs a service for companies looking for long-term berth space. Since early November, he says, the number of inquiries has skyrocketed. "It had been quiet here for many years, just a few seasonal moorings," says Brigden. "In my experience, this is the largest number of requests we've had in such a short time." Adds Lendoudis: "The next 24 months do not look very optimistic."

Still, there are hints of good news. Rates charged by large coal and iron-ore carriers recently jumped by more than 50%, mostly because demand for Australian coal is rising again. The huge port of Newcastle on Australia's east coast is busier than it was even a few weeks ago. Could shipping have bottomed out already?

The answer will depend on how demand in China holds up over the next few months. But even if growth slows further, most of the biggest players in shipping are likely to survive. According to Oliviero Baccelli, a transportation economist at Bocconi University in Milan, that's because shippers have cut costs far faster and deeper than many of their counterparts in other industries. Shipping also enjoys a certain stability during tough times thanks to the enduring presence of family-run companies, and gradual consolidation over the past couple of decades has winnowed out the weak. "You have families who have hundreds of years of experience, who have lived through these situations and equipped themselves, and are resistant to speculation," says Baccelli.

Maybe so. But with some three-quarters of worldwide trade moving by sea, volatility in the shipping industry remains a good indicator of the state of global commerce. "Shipping is the thermometer of globalization," says Baccelli. "It allows us to take the broadest view of the health of the worldwide economy." Global trade is expected to fall 2.1% in 2009, according to the World Bank. The coming months will show whether shippers, and the world, will be able to bail fast enough to stay afloat.

With reporting by Emmanouil Karatarakis / Athens and Michael Schuman / Hong Kong

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• Falling trade and lack of credit are driving the world's shipping industry into desperate straits