Said Bloomberg at the time, “The cost of shipping commodities fell to a record [low], amid signs that Chinese demand growth for iron ore and coal is slowing, hurting the industry’s biggest source of cargoes.”
FIGURE 1: COMMODITY SHIPPING INDEX FALLS TO RECORD LOW (BALTIC DRY INDEX)
Flash forward to the present day and the global shipping metric has improved considerably compared to its bottom in February 2016 (more than doubling from lows just under 300 to Sept. 9’s 804). But it is well below the stratospheric highs of 2007–8 (above the 11,000 level just before the global financial crisis), and about 80% below 2010’s 4,000-plus mark.
FIGURE 2: BALTIC DRY INDEX (10-YEAR TREND)
Recently, as The Wall Street Journal observed, one of the world’s largest container-shipping companies, Hanjin Shipping Co., will likely be liquidated by the Korean government. According to the Journal, this may offer some short-term relief for shipping prices, but it “won’t likely solve the shipping industry’s biggest problem: 30% more space on ships than cargo to fill it amid a world-wide trading slump.”
According to a recent Goldman Sachs research note, as reported by Splash, “Dry bulk freight rates are set to remain low for the rest of this decade as overcapacity will haunt the sector.”
Why do economists pay close attention to the Baltic Dry Index? Not only does it provide insights on the health of world economies, many observers believe it is an early warning signal that has preceded almost all major global financial market meltdowns since the 1980s.
Says Business Insider of the BDI, “Analysts keen to predict … the health and future of the global economy like to pay close attention to it. It is frequently used as a so-called canary in the coal mine for the state of the world economy and how well international trade is doing. … This matters because BDI drops have historically predicted economic crashes. It did in 2008 and it did again last November when commodity and oil prices jumped off a cliff.”
Added The New Yorker in June 2016: