Letter Re: What Does the Drop in the Baltic Dry Index Really Mean?

Monday, Feb 9, 2009

Dear Jim:
I just read a TEOTWAWKI warning article [at Rense.com] stating that since the Baltic Dry Index (BDI) was down 95%, [and that therefore] all shop shelves would be empty in short order. The writer said that the BDI referred to the number of ships in transit. I thought it only referred to the price charged for the transport of those ships and that while the cost was indeed 95% lower, there were still a lot of ships in transport. Can you clarify? - SF in Hawaii

JWR Replies:
I see plenty of scare pieces like that, mostly written by people that aren't looking at the whole picture. Here is a videoblog clip, on the same topic.

You are correct that it is not the international shipping volume that has dropped by 95%. It is just the rates (shipping costs) that have plummeted by 95%. Key agricultural commodities like wheat and rice are still being transported in quantity. But the balance sheets of the shipping companies are suffering because orders for imported consumer items like cars and plasma HDTVs have dropped to nearly nil. Shipping companies proactively raise or lower rates, as needed. During boom years, shipping rates (bids) are high, but when orders decline, the BDI figure drops rapidly. This is because the last thing that any shipper wants is to set sail with a hold that is not nearly full.

The BDI is a useful indicator of global trade and global economic health. It is indeed presently signaling economic depression. But it is not indicative of imminent starvation in the US!


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