Letters of Credit: Global Loss of Trust

Is global trade at risk now due to the credit crisis: In a word, yes, as there seems to be diminished trust in the shipping community. Reports that the Baltic Dry Index — the most reliable source of ocean carrier rate trends — is at its lowest level in nearly a decade, signals how dire the situations may be. And even though shippers were ramping up their demand for letters of credit, they soon found it increasingly difficult to find lending institutions willing to take the chance. The conssequence: a run down of inventories and an abandonement of trade finance until the storm passes. Industry analysts are saying that only a unified effort by the World Bank can restore confidence, and quiet the incipient panic.