Another Negative Century Milestone, 300, Pierced By The Baltic Dry Index (BDI)!

By | February 11, 2016

Before you ask yourself the question’ What is the Baltic Dry Index and why should I care if it drops?’, consider…

Consider that the article titled ‘The Baltic Dry Index Falls To Historic Lows! One Question Though….‘ was written only ONE MONTH AGO when the BDI broke 400 for the first time ever (Note: The peak of the BDI was May 20, 2008 when the index hit 11,793)!

What is the Baltic Dry Index and why should anyone care about its historic fall?

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?

To reiterate and emphasize, that was written on January 16, 2016 when the century milestone of 400 had been broken to the downside for the first time in history!

And, once again, you may still be asking yourself why you and your business along with me and my real estate related title insurance business should give a damn about global shipping? Because regardless of industry the BDI is an important economic indicator of the direction that economic activity is heading!

Whether you sell apartments or widgets, if consumer confidence and global economies are weak and trade is not occurring, we will all suffer!

That said, today in an article at the publication Ship and Bunker titled ‘Dry Bulk Bankruptcy Wave Approaching, Warns Precious Shipping CEO, as BDI Falls to 290‘, it’s reported that the century milestone of 300 has been pierced with the BDI at a level of 290!

As the Baltic Dry Index (BDI) continues to slip to new record lows, falling to 290 on Wednesday, Khalid Hashim, CEO of Precious Shipping Public Company Limited (PSL) says that there could be wave of bankruptcies in the dry bulk sector as owners find themselves unable to secure financial backing due to banks pulling back on uncertain loans.

“Do not be surprised to see more bankruptcies and action brought on by the lending banks on borrowers who have failed to show performance in terms of raising additional funds to bolster their liquidity to at least partially service their debt since their shipping revenues are probably not going to be able to do that this year,” said Hashim

Banks are examining their lending policies, meaning that they will likely consider “pulling the plug” on their doubtful loans, explains Hashim, noting that dry bulk companies will be left struggling to find access to cash.

With global economic angst and central banks seemingly at a loss in terms of policy, will there be another article in March concerning the BDI with a 100 handle?

I certainly hope that is not the case!

Michael Haltman is President of Hallmark Abstract Service in New York. He can be reached at mhaltman@hallmarkabstractllc.com.

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