WTO unlocks high seas finance
To ease the price banks charge for letters of credit, the World Bank doubled the amount of guaranteed shipments. Jennifer Collins explains what a letter of credit is and why this move helps cargo shipments.
A cargo ship passes through the Panama Canal (Elmer Martinez/AFP/Getty Images)
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Steve Chiotakis: There's a emergency meeting today of the World Trade Organization. It wants to ease the credit crunch that's damaging global trade flows. Marketplace's Jennifer Collins reports on the WTO's plans to unlock financing on the high seas.
Jennifer Collins: They're called letters of credit, and they guarantee what's promised. If you're a buyer, it's cargo. For sellers, it's cash. But the price banks charge for these letters has tripled recently, and it's made shipping incredibly expensive.
So, yesterday the World Bank stepped in and doubled the amount of shipments it will guarantee -- from $1.5 billion to $3 billion.
Shipping lawyer Steve Dickinson says it's because old-fashioned sources of finance are hard to find.
Steve Dickinson: Not many banks do trade finance any more. And they tend to be large international banks that have been really hit by the subprime and derivatives problem. And so they?re the ones that are the most reluctant to do anything that?s expensive and risky.
The head of the WTO says it's time to free up idle cargo ships, so commodities like coal and grains can flow around the globe.
I'm Jennifer Collins for Marketplace.
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