SouthEast Asia’s largest container transport company announced heavy cuts to its global workforce yesterday as the shipping industry confronts a crisis in trade finance.

The 1,000 job cuts at Neptune Orient Lines, the biggest shipping firm in Singapore, come amid conditions described by its chief executive as “unprecedented in our industry’s history”.

In only a few months, freight rates have plunged because of dwindling consumer demand in the United States and Europe, and as the letters of credit (LOCs) that formed the lifeblood of trade financing throughout Asia have lost their power to deliver the goods.

The severity of the credit problem and its dire effect on freight rates, now near a record low, prompted emergency talks among 400 representatives from the shipping industry in London yesterday. Organisers said that the talks were aimed at restoring confidence throughout the complex global chain of freight trading.

In China, company bosses in Guang-dong province told The Times that the biggest unexpected threat to their businesses came from the problems with LOCs and the sudden evaporation of trust. Even where there is still overseas demand for the goods themselves, the president of one Dongguan maker of sports shoes said, they might not be leaving the dockside. In some cases, banks have refused to honour LOCs issued by other banks, while trade finance specialists at HSBC say that the cost of guaranteeing an LOC has doubled recently.

With the great ports of the world unwillingly transformed into storage yards by the gumming-up of trade, analysts are saying that a prolonged economic downturn and persistent problems with credit will expose how far the industry was overextended in the boom times.

According to industry sources quoted in a JPMorgan report, the funding burden borne by global shipping because of the new vessels ordered between now and December 2011 amounts to $504 billion (£335 billion), which could have damaging knock-on effects for those banks – particularly in Germany – most heavily exposed to shipping finance.

Many believe that a long, painful shakeout has already begun. Transport companies, such as Genco Shipping & Trading of New York, are beginning to cancel orders, even though that means forfeiting tens of millions in deposits.

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