My it’s easy to get depressed with all the doom and gloom over the world economy. While it’s concerning, there’s still room to be optimistically realistic. The state of Baltic Dry Index I hope proves my point.
The Baltic Exchange evolved from a humble coffee house in the City of London in the late 1700’s – the traditional meeting place of merchants and sea captains. They claim it’s “now the world’s only independent source of maritime market information for the trading and settlement of physical and derivative contracts.”
Good news to begin with, in that the Baltic Exchange is based in the City of London. No matter whether it’s a shipping boom or bust, the trading floor remains in London. This week BBC Newsnight focussed on the Baltic Dry Index,
“BBC Newsnight featured the Baltic Exchange, BDI and Baltic chief executive Jeremy Penn yesterday evening (Tuesday 20 January) as the programme examined the malaise that has beset the dry bulk sector, asking whether it is a potential warning sign of a new global recession.”
The Dry Index records the daily shipping charter rates. As the word economy grew dramatically at the start of the century, especially in China, the need for ships to move raw materials, such as iron ore, grew dramatically. The daily rate peaked [as can be seen in the graph – click to expand] to reach $250,000 in 2008 for the largest bulk carriers (called capsize). The daily rate today is under $2,500, which is below operating cost. The volume of dry bulk carriers more than doubled a few years ago.
Presently we have to many ships chasing to few cargo charters. Result is that ship owners are nursing losses, potentially bankrupting some.
Tim Worstall paints the optimistic realism position in his article in Forbes – Explaining The Baltic Dry Index Plunge: It’s Supply, Not Demand, in which he concludes,
Thus we don’t need to take this as an indication to batten down the hatches (unless we’re unfortunate enough to be ship owners) nor that the global economy is about to fall over. We don’t even need a public policy to deal with it. Low freight rates are great for the rest of us and the problem itself within the industry will be self solving. Some people will go bust, older ships will be scrapped and demand and supply will move closer together and the price will change again. This is precisely the sort of problem that the market unadorned deals with perfectly well.
Thought you might like to know about this.