The intensifying credit crunch is spreading to international trade finance, with L/Cs becoming harder to come by as banks increasingly refuse credit to customers accustomed to borrowing to finance foreign transactions.

Now reports are emerging that some banks are refusing to deal with (L/Cs) from one another while even the shipping industry is unable to obtain the L/Cs it needs.

Port congestion

In Malaysia, several cargo ships are reportedly stranded at ports, as stocks pile up, because exporters have been unable to arrange shipping without being afforded bank finance, according to Matt Robinson, an economist at Moody's Economy.com's Sydney office.

Some sellers' banks are deciding they do not trust the financial institutions named in buyers' L/Cs, he says.

Double whammy

This he says is a "double-whammy" for Asia's export-oriented economies, already struggling with falling consumer demand in key US and European export markets.

Banks have also tightened lending conditions considerably by imposing more onerous requirements on importers and exporters before issuing L/Cs, Robinson points out.

Shipping woes

Reports are emerging from London, meanwhile, that even the shipping industry is struggling to find finance, with charterers and owners reporting that they are unable to obtain L/Cs.

"No one can get credit lines, which is almost entirely the problem now," a London ship broker told a leading insurance industry publication.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.