Over the last couple of decades a key economic canary has been the Baltic Dry Index (BDI), one of the key markets representing the prices set for ship rentals. While there are a number of these measures (Capesize….ships that have to go round the Cape’s, Panamax…..ships that can fit through the Panama canal etc.) the BDI covers large dry cargo carriers that move goods as diverse as coal to grains, thus representing the passage of core raw materials around the world.
And now this index is crashing and, worse, it’s crashing off a low base!
Click/Tap to enlarge
This index held a close correlation to raw commodities and, like them began it’s sharp rally during the first phase of the post Tech Bubble Greenspan fiscal excess, reaching its peak in 2008. Then it crashed, as did global trade before picking up. However from 2011 on it lagged even as global trade picked up (a bit) and commodity prices remained robust (either on the back of QE2 and Chinese money printing, or strong global growth…errrr….no the former, the former).
No this odd dichotomy did have reasons, largely that ships being delivered that had been ordered during the good times, hence an oversupply of vessels and prices get crushed.
However with the commodity complex busy falling out of bed (oddly as QE3 ended and the Chinese try to reign in their debt madness……funny that!) the question is does the BDI reaching new lows pressage a global recession.
Well it might. Medium term the omens are less than stellar and the last few years of limited growth have been bought with a tremendously wasteful extension of the debt boom (more on that soon) but frankly in the short term I’m not going to suggest worrying too much as UK government statistics on global shipping production indicate that despite the oversupply, they’ve just kept building ships:
Basically 30% more ships out and about than back in 2009, with most of the additional tonnage in the Far East, and over production apparently continuing.
Put simply, while this is a worrying indicator, that’s all it is at the moment.