Summary: The Baltic Dry Index plunges below 400 for the first time ever!
You’re probably asking yourself about now why would anyone care about the Baltic Dry Index?
The reason? Anyone who formulates a strategic plan for their business needs to consider the anecdotal evidence concerning the current strength and potential future direction of the economy and so, an indicator such as the BDI is critical and needs to be monitored!
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What is the Baltic Dry Index and why should anyone care about its historic decline?
This is a brief definition of the Baltic Dry Index (BDI) and the potential global economic growth implications of its continued decline…
Baltic Dry Index: A shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea. The Baltic Exchange directly contacts shipping brokers to assess price levels for a given route, product to transport and time to delivery (speed)…
…Changes in the Baltic Dry Index can give investors insight into global supply and demand trends. This change is often considered a leading indicator of future economic growth (if the index is rising) or contraction (index is falling) because the goods shipped are raw, pre-production material, which is typically an area with very low levels of speculation. (Source)
So given that the BDI can provide insight into the direction that the global economy is heading, what is it telling us now?
(Note: While the subject matter of these articles can be negative (i.e. ‘
A Stock Market Bear ROARS!‘), projecting negativity concerning the global economy is not my intent. After all a strong and growing economy is as critical to my business as it is for everyone elses! The purpose of these articles is to try and provide information that may not always be on readers radar and, unfortunately, at this particular point in time economic negativity appears to be ruling the day!)
From the article ‘Baltic Dry Index Falls Under 400 For First Time Ever, Demand Recovery Could Now Be As Far Out as 2018’ at Ship & Bunker…
The Baltic Dry Index Wednesday fell under 400 points for the first time ever, and some analysts are now suggesting a demand recovery may be as far out as 2018.
The dry bulk sector’s key barometer, first published in 1985, fell 8 points to end the day at 394 and make it seven consecutive trading days of record lows.
If there was any good news from today, it was that the decline was significantly less than the 13 to 22 point drops seen over the last four sessions…
“Dry bulk shipping is in the throws of a generational recession,” Stifel’s Ben Nolan was quoted as saying.
“The recovery in demand no longer appears to be a 2016 event and even 2017 is in question.”
Consultants MSI, meanwhile, declared dry bulk to be in a “critical state.”
“More gloom is forecast for the bulker market over the short-term. Concerns over the state of China’s economy are key,” they said.
Drewry notes that the continuing woes are particularly bad for those gambling on a recovery this year.
“Dry bulk companies had taken huge debt to finance vessel acquisitions with some hope for revival in the sector,” the consultants said.
“However, this has backfired as shipowners are unable to meet even their operating expenses at the prevailing freight rates, forget about servicing debt.”
Many players are expecting a number of bankruptcies this year, with Symeon Pariaros, chief administrative officer at Greece-based Euroseas last month saying “only companies with very strong balance sheets will get through this storm.”
Michael Haltman is President of Hallmark Abstract Service in New York. He can be reached at mhaltman@hallmarkabstractllc.com.
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