Bespoke Investment Group - Think BIG - Baltic Dry Index Continues to Drop

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Feb032010

Baltic Dry Index Continues to Drop

Wednesday, February 3, 2010 at 02:50PM

The Baltic Dry Index, which measures changes in the cost to ship goods by sea, is about as volatile as an option contract. As shown in the chart below, the index has had a number of major swings over the past few years and months. We can't imagine what it must be like in the shipping industry to have to deal with these kinds of price changes all the time. Since December 2008, the index has risen by 547%, fallen by 50%, risen by 115%, and is currently down 42% since November 19th. Going back farther, from 2005 to mid-2008, the Baltic Dry rose 575%, and then it fell 94% from its peak to its trough on December 5th, 2008.

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Reader Comments (6)

Does the BDI take into account and adjust for the massive number of new ships entering the fleet? If it doesn't, what good is this index?

February 3, 2010 |

Charlie Lefaux

The recent run up of the BDI appears to have been the result of China stockpiling. Considering the tense relations between the US and China along with China trying to reign in lending expect things to deteriorated shortly. China knows full well about the "Art of War" by SunSzu.

February 3, 2010 |

MJJP

Spot freight rates do indeed take into account the ever increasing supply of ships - it is a simple result of supply and demand at any point in time, Accordingly, it is generally useless as an economic indicator as the shipping markets will have their own "internal" cycles due to the unsycronised supply growth. Most mainstream media and analysts don't get this rather cruicial point.

February 4, 2010 |

Roaaad

Roaaad is exactly right. It is entirely possible to have rising amounts of shipping activity and yet lower prices for the activity itself because supply is tending upwards in the extreme right now.

However, the index is still interesting because the rate of supply coming online seems to be slow, but the spot price is volatile and gives a short-term, real-time reading of how much activity is happening.

It's mostly valuable if you're invested in the shipping stocks. They tend to move in close correlation with the BDI.

February 4, 2010 |

tollsforthee

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