The most widely discussed now, though expected, is the news of BDI falling down. BDIY is the cost index of all overseas transport, not only Baltic Sea, but everywhere in the world. It’s called Baltic after the Baltic Exchange that is based in London. Every day a group of international vessel brokers provides with their prices for 23 main vessel routes all around the world as a computing base for the indicator. Baltic Exchange adds rates of vessel charges to these numbers and gives BDI away.
BDI is one the key indirect indicators of economic situation in the modern world. Though falling, it has not reached its previous record-breaking point yet (504 in November 2015).
As for now, BDI continues to fall (369 at the moment) and is very near to the level of December 2008 collapse which was 363. Compared to the start of 2016, the index has lowered by 98 points.
Baltic Dry Index, the freight indicator, reflects the costs of overseas transportation (for 23 main routes) of dry goods, such as:
- Iron ore;
BDIY has been lowering since 2013, but gained speed in august 2015 and is swiftly approaching its historical minimum. Such a trend affirms the demand drop among the leading economies of the world. If it persists this way, soon the world trade will be declared to have stopped, and the global economy to have started a recession process.
Why BDI is falling
The freights slowing down is closely linked to the situation around leading Asian economies, including China of course. Production in these countries grew very high. But now, when they no longer need resources in the same quantities as before, they have started to reduce import, refusing cargos for building purposes as well (like cement or steel). At the same time, the US Dollar gained ground.
As a result, the world shipping industry is now challenged with mega-vessels oversupply. Those vessels were built for Chinese and of other countries of Asia-Pacific Region (APR) growing needs for resources. For example, Vale company put 35 massive cargo vessels together to transport metal to China from Brazil.
Forecasts in Regards to Baltic Dry
In his last report, Ben Nolan, financial company Stifel Nicolaus, warns investors of the long-term nature of the tonnage oversupply observed on the overseas shipment market. According to his forecasts, the bulk sector suffered the most insomuch that the demand will start to restore no sooner than in 1.5 years. The panic on the market, that started this year in connection to the world economic drop down, situation with China and oil low prices, doesn’t have any benefit for resources trade. According to CNBC, this year, the world assets market has lost 3.2 trillion in USD already.
Does Baltic Dry indicate that the crisis has started sooner than expected?