The visible hand in economics

Baltic Dry Index collapses

Posted on: October 18, 2008

So the Baltic Dry Index (an index that implies what the cost of shipping for exporters will be – in as far as it represents the fees of the people running ships) has collapsed by about 79% so far this year.

As the supply of ships is incredibly inelastic in the short term, this is probably the result of collapsing world commodity demand (although it could be that a whole lot of new ships came online at the same time – unlikely though).

What does this imply for NZ?  Well the index mainly represents shipping of “hard commodities” – so it tells us that demand for those has invariably fallen.  This implies:

  1. Soft commodities may have fallen further,
  2. Growth in Australia will slow – harming our exports,
  3. Shipping costs (especially for our logs and aluminium) have fallen markedly.

The first two factors are a concern – but the third factor is a bonus.  One of the reasons forestry has struggled is that prices have been depressed (no construction in the US!) while shipping costs have been high/shipping has been impossible to get.  Now ships will come here – and cheaply, making it possible for forestry to get back on the game.

As log prices are not likely to fall further – forestry will benefit from this.  Other commodity sellers may have some trouble (depending on what happens to soft commodity prices).

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3 Responses to "Baltic Dry Index collapses"

Apparently the BDI is based on 26 routes only. You need to subscribe to find out what exactly. Does anyone know?

Hi Dismal,

I am not sure what the routes are exactly. The best article I have seen on it is the wiki invest article:

http://www.wikinvest.com/stock/Baltic_Dry_Index_-_BDI_(BALDRY)

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