Monday, 20 October 2008

Baltic Dry Index

Look out for the unemployed pirates…
An economic indicator few have heard of (I hadn’t heard of it until Saturday) is the Baltic Dry Index (BDI). Wikipedia describes the BDI as:

The Baltic Dry Index is an index covering dry bulk shipping rates and managed by the Baltic Exchange in London.
Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. However, since the demand for shipping varies with the amount of cargo that is being traded in the market (supply and demand) and the supply of ships is much less elastic than the demand for them, the index indirectly measures global supply and demand for the commodities shipped aboard dry bulk carriers, such as cement, coal, iron ore, and grain.

Because dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, such as concrete, electricity, steel, and food, the index is also seen as a good economic indicator of future economic growth and production, termed a leading economic indicator because it predicts future economic activity.

Currently, the BDI stands at just over 1,600 coming down from a high just shy of 12,000 in June of this year. That is a drop more then 85%, meaning that shipping has come to an almost complete standstill and with it the entire global economy.

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