When the economy was buoyant, the seller would collect payment directly from the buyer’s open account when goods were delivered. But recently even buyers and sellers with longstanding relationships have begun to question their counterparties’ health. Traders now want their banks to guarantee each transaction.

Vocabulary:
commerce - the activity of buying and selling things
the wheels of commerce - the image of commerce as being a mechanical machine (certain problems can make this machine cease to function properly)
grinding to a halt - stopping suddenly and completely
a counterparty, one party to a contract - one of the several people, companies or organizations involved in a contract or business deal (See Wikipedia)
counterparty risk - the risk that one party to a contract does not do what they promised to do in the contract (See Wikipedia)
not an issue - not something people were worried, complained, or argued about
bouyant - can float on water, not sink, is functioning properly

A year ago, importers might have paid only one percentage point above the London interbank offered rate, known as Libor, to finance trade. Today it’s likely to be around three percentage points over Libor...

Demand for letters of credit — the simplest form of trade finance — has skyrocketed. Under these agreements, an importer’s bank extends to an exporter’s bank a credit line that is released once the conditions of the trade are met. This assures the seller — who may not know his counterparty — that he will be paid.

...banks are struggling to fulfill their age-old function of financing trade because they no longer trust one another. While interbank lending shows some signs of thawing because governments have stepped into the breach, banks are still wary of taking on counterparty risk from other banks outside of mainstream money markets. Add to this their constrained balance sheets, global currency volatility and more rigorous risk assessment, and it’s not surprising that the cost of trade finance has shot through the roof.

Vocabulary:
dropped precipitously - decreased by a large amount suddenly
shipping - the transport of goods especially on ships
shipping goods in bulk - shipping large amounts of goods
dry bulk shipping - carrying large amounts of dry goods or material  
Baltic Dry Index - an index that measures dry bulk shipping rates and managed by the Baltic Exchange in London (See Wikipedia) 
London interbank offered rate (LIBOR) - the rate of interest at which London banks lend money to each other, used as a standard to set interest rates on other more risky loans
a letter of credit - a common means of payment in international trade, a written guarantee by a bank to make payment to an exporter on behalf of an importer under specified conditions, a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount (See Wikipedia)
skyrocketed - increased by a very large amount suddenly
interbank lending - banks lending money to each other
frozen - when water turns to ice, when something stops moving
thawing - when ice melts, when something starts moving again
governments have stepped into the breach - governments have provided help where no one else could
wary of Y - cautious about Y because you believe Y to be dangerous or do not know much about Y
taking on risk - entering into a situation where you may lose (or gain) money
wary of taking on counterparty risk - cautious about entering into contracts with companies that may fail to do as they are promised
mainstream - commonly used, activities and ideas that are the most typical, normal, and conventional
money markets - buying and selling short-term loans between banks and other parties, includes commercial paper, certificates of deposit, repurchase agreements (repos), and treasury bills (See Wikipedia)
a balance sheet - a written statement showing the financial state of a company at one point in time, listing company's assets and all money owed (liabilities) (See Wikipedia)
constrained balance sheets - their balance sheet limits the amount of business they can do
currency volatility - when a currency moves up and down by large amounts unexpectedly
rigorous - very strict and thorough
assessment - checking and analyzing the details of something (evaluation) and then making a judgement
rigorous risk assessment - a very strict and through estimate of risk
shot through the roof - increased by huge amounts

Demand for trade credit insurance is expected to rise, as growing concerns over a world economic recession prompt exporters to seek coverage to protect against payment default risks...

Trade credit insurance can serve as a strategic management tool by protecting the insured from commercial accounts receivable losses following a customer's bankruptcy or payment default, or events in overseas markets such as political and turmoil or import and trade restrictions and financial crises.

Currently, trade credit insurance in Thailand is worth only about one billion baht a year in premiums compared with more than 60 billion for the entire general insurance business.

Premiums for trade credit insurance also have almost doubled. For petrochemical businesses with turnover above 50 billion baht a year, the premium is now 0.11% of turnover, up from 0.05%. Customers with turnover of about one billion baht would face premiums of 0.2% to 0.5% of their turnover.

Vocabulary:
running down their inventories - instead of ordering more goods so they don't run out, as they normally do, they lets the goods run out
trade credit insurance - an insurance policy for businesses from loss due to credit risks such as protracted default, insolvency, or bankruptcy, can include a component of political risk insurance which is offered by the same insurers to insure the risk of non-payment by foreign buyers due to currency issues, political unrest, expropriation, plays a major role in facilitating international trade:

"Trade credit is offered by vendors to their customers as an alternative to prepayment or cash on delivery terms, providing time for the customer to generate income from sales to pay for the product or service. This requires the vendor to assume non-payment risk. In a local or domestic situation as well as in an export transaction, the risk increases when laws, customs communications and customer's reputation are not fully understood. In addition to increased risk of non-payment, international trade presents the problem of the time between product shipment and its availability for sale. The account receivable is like a loan and represents capital invested, and often borrowed, by the vendor." (See Wikipedia)

Aon Corporation - a world leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting (See Wikipedia and website)
prompt - cause to act
coverage, insurance coverage - protection from bad events that might cause injury to you, for a monthly fee a payout if this event happens is guaranteed
coverage to protect against payment default risks - if someone fails to pay money owed to you, the insurer will make these payments
accounts receivables - money owed to company, if these payments are late the company must make a special effort to collect these payments
accounts receivable losses - when money owed to a company is not paid to the company
premiums, insurance premiums - monthly payments made for insurance coverage
turnover - total sales made in a given period of time