Tag Archives: Baltic Dry Index

The Baltic Dry Index

The Baltic Dry Index

In case you are wondering what this chart is, it is the Baltic Dry Index.  Why does it matter?  It is a chart of what it costs to ship your goods across the ocean.  The supply of cargo ships is generally both tight and inelastic — it takes two years to build a new ship, and ships are too expensive to take out of circulation the way airlines park unneeded jets in the California desert. So marginal increases in demand can push the index higher quickly, and marginal demand decreases can cause the index to fall rapidly.  In other words it means that exporting nations who ship overseas (China, Taiwan, Saudi Arabia) are having a hard time finding buyers which means that the world is consuming a lot less.

According to Bloomberg, prices are so low that a significant amount of shippers are expected to fail in the next couple of years.  To make it even simpler, this is going to be a long and miserable recession.