Friday, 22 January 2016

Baltic Dry Index causing excitement

Economic pundits are always on the lookout for the next crystal ball, and they think they have found it in the form of the Baltic Dry Index, which measures the cost of shipping dry goods (ie, not oil) around the world. Currently the BDI is sitting on an "all time" low (where "all time" means since 1985 when the index started.)


And yes, it is looking a little cheap to buying shipping space ATM, the index is around 300 compared with over 4,000 in 2010.

But what is the major cost ingredient of shipping? Cheapo Asian sailors? No. Ship building? No, ships last forever. The major cost is the fuel - oil. Unlike cars and planes and things, cargo ships have not gotten more efficient or cleaner over the years. No laws control their emissions. They fill the tanks tax free and pollute as they like. And what has happened to the oil price recently?


Yes, fallen off a cliff. So not surprisingly the cost of shipping tat from China has also fallen.

Which is not to say the economy is not on the turn; it is. Trade volumes have also fallen. But the BDI is a cracked crystal ball.

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