EagleSpeak: Shipping - Economic Indicator

Saturday, June 20, 2009

Shipping - Economic Indicator

In a post from December 2008, here, I noted an expert reporting the decline in shipping as an economic predictor that boded ill for 2009, which, as we all know now, was pretty accurate.

Now, trends in shipping may be signaling a shift toward an end to the current economic mess.

First, a headline from Lloydslist - China ore demand ties up one fifth of capesize fleet. China is spending money and boosting shipping. That's a good thing.

Then, some thoughts from Time:

. . . Never before have so many experts and ordinary folk been so busy trying to gauge the timing and strength of the eventual worldwide economic rebound. One of the best indicators is found in the shipping industry. It's global in scope and ever more indispensable in an economy so reliant on international commerce. Not surprisingly, perhaps, there is new evidence out on the open seas that both the bears and bulls can flag to help make their respective cases.
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The Baltic Dry Index is the worldwide benchmark for shipping rates of raw materials, and it has registered some eye-popping gains over the past month. The London-based index registered its 23rd straight daily gain on Wednesday, closing at 4,291, its highest mark since September and the longest streak of gains since July 2006. Daily rates for the largest Capesize ships, which typically carry iron ore, rose 6.8% on Wednesday to $93,197. Just five months ago, daily ship-rental rates were hovering just above $2,000 . . .

As to why the Baltic Dry Index (BDI) works as an indicator, see here:

The BDI is one of the purest leading indicators of economic activity. It measures the demand to move raw materials and precursors to production, as well as the supply of ships available to move this cargo. Consumer spending and other economic indicators are backward looking, meaning they examine what has already occurred. The BDI offers a real time glimpse at global raw material and infrastructure demand. Unlike stock and commodities markets, the Baltic Dry Index is totally devoid of speculative players. The trading is limited only to the member companies, and the only relevant parties securing contracts are those who have actual cargo to move and those who have the ships to move it.