The Baltic Dry Index, which measures international shipping rates, is seen as a rough proxy for global growth. But like a negative yield curve, falls in the Baltic Dry Index have as often as not proven to be false positives.
However, the BDI has taken a dramatic turn south, and in combination with weakening economic readings in major economies, it is likely sending a true signal this time.
From the Financial Times’ Lex column (subscription required):
Yet more reason to panic? The Baltic Dry index, which measures dry bulk shipping costs, plunged by nearly a quarter last week – 10 per cent on Friday alone – as rates plummeted for the biggest ocean carriers of raw materials. Shipping groups’ shares, notably in Asia, have followed suit. Given the index’s reputation as a leading indicator, that looks scary. In fact, the index’s predictive value has weakened as it has become far more volatile than the commodities markets underlying it, gyrating around on factors such as shipping supply bottlenecks. It has twice doubled and fallen back within 15 months; its latest slide leaves it 70 per cent below its May peak….
But while its movements may be exaggerated, the Baltic Dry’s drop does reflect a weakening of Chinese raw material demand. Meanwhile, Drewry, the London-based shipping consultants, forecasts growth in container ship imports from Asia to Europe will fall from 15 per cent in recent years to 4-5 per cent this year while container imports from Asia to the US will decline 2 per cent. Just as money is no longer rocketing round the financial system, so goods flowing round the world’s seaways are slowing too.
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Yves,
Here is a great article about shipping from Asia, which confirms the fall of the Baltic Index and gives detailed percentages of exports and imports into Long beach Harbor:
http://www.latimes.com/business/la-fi-ports2-2008sep02,0,2483346.story
I’m no meteorologist but it is raining signs of global recession.
Since there is obviously a strong correlation between commodities and BDI, especially crude oil, I would be interested if someone could do some cost accounting and break down transport cost for the average barrel of crude coming from the middle east to the final destination.
The LA Times article cited above says:
From January to July, exports jumped about 23% compared with the same period of 2007 at the nation’s two busiest container ports, Los Angeles and Long Beach.
A sensible economic policy would as a medium-term if not near-term goal be designed to increase the ratio of exports to imports in order to reduce foreign debt levels and fund the new trillions of expenditures. Exports have been the one bright spot in the overall US economic situation, and that should be capitalised upon.
Fat chance, of course. The apparatchiks are looking no farther than immediate fire-fighting, ongoing nest-feathering and the upcoming elections.
The LA Times article cited above is 4 weeks old, but more curiously, does not say if the percentage-changes cited in exports and imports are in # of containers, tonnage, or dollar-value.
Nada on any of that…just another reporter cited numbers like a trained parrot.
Equally bad, it does not say WHAT exactly was being exported by the US out of the LA & Long Beach ports. Are the increases in exports GM SUVs & Hummers? music CDs? Caterpillar & Deere heavy equipment? Boeing jets shipped in pieces? Replacement parts for military jets and other military items sold in previous years? Fertilizer and ag products from Monsanto & ADM?
The export mix makes a huge difference cuz some of the examples cited by me have notorious economic & political cycles (like commercial aircraft and military sales) that place a glass ceiling on their ability to be a part of a stable export policy.
What is the left hand column measuring? Is that dollars/ton/day, or dollars /container/day or /week or mile?
I understand it is an average of rates for different size ships.
Thanks in advance.