The Baltic Dry Index — an index that tracks global shipping rates for bulk commodities — fell to a six-month-low reading of 6,462 Friday, Jan. 18, down nearly 30 percent since the start of the year and 42 percent from an all-time high reached Nov. 13, according to the Baltic Exchange in London.
The gauge, which tracks freight rates on the mammoth vessels that carry tons of soybeans, corn, coal and metals across the globe, is used by economists to get an early read on global trade and growth trends. When demand for those basic materials shrinks, freight rates drop and the index tumbles. The trend provides an early snapshot of trade volumes before governments compute reports.
“It’s fallen quite significantly,” Bernard Baumohl, managing director at The Economic Outlook Group in Princeton, N.J., told the San Francisco Chronicle today, Jan. 21. “It points to a slowing in the global economy.”
The recent, sharp decline in the Baltic Dry Index comes after a steep run-up in the past two years. These gains corresponded with continued strong demand from fast-growing economies like China and India for the basic materials used to build infrastructure and manufacture goods for exports.
Though the decline is “probably consistent with some slowing in global growth, the dire economic scenario that some are suggesting is signaled by the BDI correction overstates the case,” wrote Bank of America analyst Robert Sinche.
The index, which is compiled by the Baltic Exchange, does not include liquid commodities like oil or manufactured goods like TV sets. About half of the major shipping routes whose rates are tracked in the index have a component in China, said a spokesman for the Exchange, set up 264 years ago as a marketplace for merchants and ship owners.
“Freight has been in a recession since late 2006,” said Bear Stearns analyst Edward Wolfe in a report Friday. Demand has yet to improve. Still, he predicted the sector, which often leads the bottom of the economy by six to eight quarters, would rebound this year. “Most transport stocks will outperform the broader market this year.”