Transportation Indicators

Armada of new ships sinks accuracy of the index as measure of global health

LONDON -- Uncertainty over how many new ships will be built this year is expected to marginalize a popular measure of the global economy's health -- the Baltic Dry Index.

The index, a measure of shipping costs, gained importance over the last decade as a key gauge not just for the shipping industry but the global economy. Due to the shipping industry's stable supply structure, the index was touted as a good proxy for overall demand for raw materials, the basic building blocks of an economy.

But with an unusually large number of ships scheduled to come into operation in 2010, the index no longer presents such a straightforward view of raw-material demand, and hence economic growth.

The Baltic Dry Index "will be less responsive to shifts in demand as the oversupply of vessels becomes more pronounced," said Plamen Natzkoff, dry bulk and freight strategist at Citigroup in London. While the index "will still reflect the supply-demand balance in the freight market," its worthiness as a wider-ranging indicator will be limited, he said.

The index's publisher defends it. "There are two elements to the BDI: demand and supply. When the supply of shipping is fairly stable, demand represents a good pointer to activity in primary industry," said Jeremy Penn, CEO of the Baltic Exchange. "[The BDI] is a good indicator of dry bulk rates in the market -- we have never made great claims for it to be more than that."

The Baltic index assesses the cost for moving bulk cargoes on major shipping routes via the four largest dry-vessel classes. It is released five days a week, and gives a comparable level of the cost of moving bulk cargoes -- mostly iron ore, coal and grains.

Historically, dry-bulk shipping costs have been able to serve as a proxy for demand because ship supply has been roughly constant.

WASHINGTON, D.C. – Feb. 10, 2010 – The Association of American Railroads (AAR) today reported U.S. carloads for the month of January 2010 were down 0.7 percent at 1,056,684 carloads, compared with the same month last year, and down 17.7 percent compared with 2008. The Rail Time Indicators report, available at www.aar.org, comprises monthly rail traffic data framed with other key economic indicators to show how freight rail is tied to the broader U.S. economy.

Last month’s intermodal traffic, which includes movement of truck trailers and shipping containers, was up slightly at 2.5 percent to 803,275 units compared with January 2009, but down 11.2 percent compared with the same month in 2008.

U.S. railroads originated 285,160 carloads during the week, up 3.7 percent from the comparable week in 2009, but down 11.5 percent from 2008. In order to offer a complete picture of the progress in rail traffic, AAR now reports 2010 weekly rail traffic with comparison weeks in both 2009 and 2008.

Baltic dry index fell 7.2% last week; The hardest hit, again, were Capesizes with 13.3% loss; Supramaxes and Handysizes lost 4.9% and 5.2%; Panamaxes gained 2.2% .

It looks the baltic dry index is bottoming. The action was in the capesize sector, so Chinese iron ore demand is the game as a consequence of reduced steel margins . Panamax rates are at premium versus Capesizes, so we will probably see balancing by Capsize rates rising.

For those who haven't followed the situation closely, many container ships right now have practiced 'slow steaming' due to a glut of ships being built worldwide.
Essentially, they are sailing at speeds well below their potential in order to reduce the supply of ships in the market, and thus support shipping rates.

ianadds wrote:The Shipping Glut Is So Bad Globally That Ships Are Now Sailing Slower Than 19th Century Clippers Just To Keep Busy

ukraine wrote:

ianadds wrote:The Shipping Glut Is So Bad Globally That Ships Are Now Sailing Slower Than 19th Century Clippers Just To Keep Busy

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