In November 2008, Richard Elman spoke with McKinsey’s Clay Chandler about the economic downturn’s implications on global trade.

There’s been this amazing integration of the world over the last 20 years. Is that going to continue at the same pace, or have we reached the limits of it?

In 1997 we had a crisis, but it didn’t really affect Europe that much. It didn’t particularly affect Africa or the United States either. This time we have a crisis that seems to have started in New York—and it is creating a recession globally.

So I think the interdependence of everything and everybody in the world is getting deeper. The US consumer can’t buy electronic goods unless they’re made first in China. And the Chinese factory cannot employ workers unless it has somewhere to export its goods.

And, in fact, what we’re seeing today is a large number of factories in southern China closing down. One, they don’t have enough business. And, two, they also became very expensive. But somebody else will fill that slot; whether it goes to Romania or Bulgaria or some other country.

What about moving materials around the world? For commodities that have a high level of efficiency in terms of energy expenditure per ton moved, the sorts of commodities that you handle, do carbon emissions and energy costs still pinch?

Ships do emit carbon. And probably in a rather unfriendly way because they tend to burn the worst type of fuel—heavy fuel oil. But people are looking for the cheapest raw materials; nobody’s willing to spend money on that sort of thing, mainly, I think, because you don’t actually see cargo ships. They’re in the middle of the ocean somewhere. But slowly, people are getting around to trying to monitor emissions in ships. We, in fact, have just completed a carbon neutral exercise. And we have bought carbon emissions rights equal to the amount of emissions that we produce.

Aren’t there other issues such as increasing drought conditions that force some regions to import even more items?

Global warming has created long-lasting drought conditions in certain areas. So there are a few producing areas of the world that are immune to drought—particularly South America and the United States. I don’t think we’re going to get rid of coal or oil for many, many years—maybe 30, 40, or 50 years.

You don’t see the reliance on coal vanishing or decreasing?

No. It’s too important to the world. And it’s still the cheapest energy source. Can we burn it cleaner? Of course.

People are now suddenly acutely aware of their dependence on other markets in a way that they weren’t, probably, a year ago. Do you think that awareness of their exposure to other volatile markets translates into a retreat from interdependence and integration?

You can’t avoid interdependence. There’s a global economy. The sterling dollar rate is the sterling dollar rate. It doesn’t matter where you are in the world. And it has some relationship to the Australian dollar, to the US dollar, and so on.

Where have you seen, in your business, the greatest impact from the financial crisis?

It’s not necessarily that commodity prices are fluctuating. We’ve learned how to manage ourselves. We’ve learned how to manage a lot of volatility. But it’s very, very difficult when there’s a breakdown of the financial system of the world.

The charter rates for ships has gone from a peak, for a short period, of $250,000 a day. But let’s take the top-end average; let’s say it’s $150,000 a day, down to $10,000 a day. So people who have made commitments at $150,000 have an asset that’s $10,000 today. That is major. You’ve lost 90 percent of your asset value. Sixty percent, 70 percent, 80 percent, 90 percent—these are major, major impacts. And anybody who had any leverage, had any debt, can’t refinance it. What do they do?

There’s nowhere to go for cover. That’s the worst thing. There are no umbrellas out there, so you’re on your own.

How long do you think it takes to digest a shock of this magnitude?

I think it gets deeper as each week goes by. A couple of months ago I thought this could be an 18-month experience. And then the national growth of the world would kick in again. I think it could be many years now. But when it does kick in again, I think you’re going to see just enormous inflation.

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