While there are exchange traded funds (ETFs) that represent the shipping sector, none track the Baltic Dry Index. But that doesn’t mean one should ignore this index – it can tell us a lot of things about the global economy and the shipping sector.
David Walker at the Charleston Voice explains the inner workings of the index. There are five types of ships transporting goods around the world:
- Container ships, which carry finished products
- Bulkers carry dry cargo such as iron ore and grains, finished steel, coal, etc.
- Tankers carry liquid bulk, oil, chemicals, molasses and so on
- Ro Ro carries “roll on, roll off” goods, such as cars
- Reefers ship bananas, oranges and similar items
The BDI covers the second type of ship, bulkers.
In short, demand for raw goods is way down and this speaks loudly of future industrial activity. As you will note in housing starts, it was the a leading indicator of what was to come. The crash in the BDI does not speak well for our future economic prospects, like housing starts indicated a problem was upon us, so to does the drop in the freight rates. An additional fact that should not be overlooked is that the price of bunker fuel is way down, so this would impact freight rates in addition to demand for vessels, Walker says.
Ship bookings in the busy ports of Los Angeles and Long Beach are down 30% for the first half of 2009 compared to 2008. It’s not pretty out there right now.
- Claymore/Delta Global Shipping Index (SEA): down 52.4% since Sept. 8 inception