The Economist explains: Why the Baltic Dry Index is at an all-time low

Posted: March 11, 2015 in economy
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THE Baltic Dry Index (BDI), which measure the rates for chartering the giant ships that transport iron ore, coal and grain, has long attracted the attention of commentators hoping to take the pulse of world trade. The cost of shifting the basic raw materials that are the ingredients of steel, energy and food supposedly provides a leading indicator of the state of the world economy. If so the forecast would suggest that a storm at sea will shortly make landfall. The index, a composite of rates charged on a variety of important trade routes, has hit an all-time low, after sinking by 65% in the past 13 weeks alone. Even in the depths of the financial crisis shipping rates kept their heads further above water (see chart). Why are they so remarkably low now?

There is no doubt that world trade is slowing down. China’s&nbsp;rip-roaring economy, the destination for well over half the world’s&nbsp;ship-borne iron ore and 25% of coal, has cooled. It grew by 7.4% last&nbsp;year compared to well over 10% when running at full tilt. But although&nbsp;the world economy is quite weak it is far away from the apocalypse&nbsp;that the index apparently foretells. The reason that the BDI has taken such a precipitous dive is that it is a measure both of&nbsp;demand for shipping and of the supply of vessels. Sliding charter&nbsp;rates are more …<div class="og_rss_groups"></div>

via Economic Crisis


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