Is the Global Shipping Industry Collapsing?

The Shipping News
The best economic indicator you've never heard of.
By Daniel Gross Oct. 24, 2003
www.slate.com...
Since 1744, the Baltic Dry Index (BDI) has been providing a window into the the shipping market and has served as an accurate barometer of the volume of global trade. The BDI deals with the precursors to production: bulk carriers carrying building materials, cement, grain, coal, and iron. Unlike stock and bond markets, the BDI "is totally devoid of speculative content.
The BDI is a very good leading indicator. Movements in the Baltic Index tend to precede movements in global stock markets. But the index also tends to presage higher interest rates. When more stuff is being shipped around the world, it needs to be financed. And that creates a greater demand for credit.

en.wikipedia.org...

On 20 May 2008 the index reached its record high level since its introduction in 1985, reaching 11,793 points. Half a year later, on 5 December 2008, the index had dropped by 94%, to 663 points, the lowest since 1986, though by 4 February 2009 it had recovered a little lost ground, back to 1,316. These low rates moved dangerously close to the combined operating costs of vessels, fuel, and crews.
By the end of 2008, shipping times had been already increased by reduced speeds to save fuel consumption, but lack of credit meant the reduction of letters of credit historically required to load cargoes for departure at ports. Debt load of future ship construction was also a problem for shipping companies, with several major bankruptcies and implications for shipyards. This combined with the collapsing price of raw commodities created a perfect storm for the world's marine commerce.
By October of 2009 the index had recovered to around 2,900, a level that is more historically normal.
Insiders look at the Baltic Dry Index to see where the economy is at any time. Right now there are basically no goods coming in and we're using up our reserves that we have in warehouses. However, nothing is coming in to take the place of the once warehoused items. The necessities that Americans are so accustomed to seeing in the store are disappearing.

MUST SEE Video of the Global Shipping Situation
Shipping Slows Down – World
video.godlikeproductions.com...

“No other industry has benefited more from globalization than the shipping industry. Yet in the wake of the recession, ship owners, shipyards and crews are all finding themselves struggling to survive. We have been stuck here with no food and no gasoline. We cannot send money to our families."

Francis is a sailor from Ghana. For months, he has been stranded on a rusty tanker in the port of Las Palmas. When the owners went bankrupt, the crew was left hanging with no means of getting home. Situations like these are common in ports all over the world. A ship usually has several owners; banks, pension funds and private individuals, and everyone washes their hands of it.

Are the “Somali pirates” the MSM reports on really out of work commercial shipping hands who in order to feed their families have to congregate and commandeer cargo vessels that are still sailing as they exit the Strait of Hormuz to get to the open ocean?

Has the world’s shipping industry been in a slow collapse since September of 2008?

What will happen to the availability of food and other necessary consumer goods such as fuel in the U.S. if the domestic railroad industry and the global shipping industry both collapse?

reply to post by nuffsaid747


Interesting thread, good thought, I was hoping you would bring the BDI into play.

Although, IMO this is more of a lagging indicator and it only continues to climb/steady from here.

Originally posted by GreenBicMan
reply to post by nuffsaid747

 

Interesting thread, good thought, I was hoping you would bring the BDI into play.

Although, IMO this is more of a lagging indicator and it only continues to climb/steady from here.

I agree with you, it is a lagging indicator. But it will continue to get worse, this was written back in Sept. of 09, its pretty revealing.

www.dailymail.co.uk...

How would we know if this is even affecting certain countries? I would suppose it depends on who is guarding the ports to know what is coming in and going out.

In a labyrinthine transaction, the United States Department of Homeland Security (DHS) paid the President of China’s son, Hu Haifeng, to provide port security for Los Angeles.

www.judicialwatch.org...

What's up with Nuctech?

Link to latest bdi chart:




Baltic Dry Index (BDI) -2 2911, as of today

reply to post by GreenBicMan


Your good at market analysis. Not at fundamental economics. The reason it's considered a leading indicator is that it shows "real time" the amount of goods being shipped to different locations. When it shows slower moving of goods, it means less is being consumed on one end, and less needs to be produced on the other.. this means lost revenue on both sides. The only point in time this particular barometer is considered "lagging" is when one "side" over produces, creating a back up of goods.. this is typically the case with companies that produce long term material goods like cars, tv's, computers etc. The usual economic cycle says there will be a natural cycle of increased and decreased in manufactured goods. But the barometer usually cuts out those slight volitilities. When the barometer shows a massive decline, and it's not gaining back at the pace of expected economic growth it means one thing: Something is pushing markets higher without the actual production, or trade, of material goods.

What does that mean? It means banks are still driving the markets.. which is why the Stock Market, among economist, is a lagging indicator, or a faux indicator at the very best.. or as some would even say an immaterial measurement unless your trying to calculate inflation.

Simple fact of the matter is.. the Global Shipping industry CANNOT collapse.. without complete economic collapse. How else will goods get from point A to point B? .. Corporations have NOT shown an increase in manufacturing, or sales.. the profits are originating from cuts in operating costs (laying off people, reducing inventories etc) while sales and creation have stagnated. Their stocks rise because of a massive influx of capital .... from the Government, laundered through banks.

Economically speaking (nothing to do with stock markets) .. this is highly concerning news.

reply to post by Rockpuck


Dude, its lagging.

If you remember back when the market tanked, this came up A LONG TIME AFTER THE RECOVERY STARTED IN THE MARKET.

The stock market is a true leading indicator, and this LAGS the market.

Go back and take a look mang', I remember discussing this in the market thread as well back last April.

If you can find a chart of that and the SP500 please post or direct me to it.

Ill do the work.. thanks

investmenttools.com...

Go a quarter of the way down the page it has the BDI vs SP500

Makes a very convincing case in my favor, but you may be right it is considered a leading indicator. This at least confirms on a short term basis that is does lag and it is VERY VOLATILE.

I am not saying this has been the case historically, I would need to do more investigation.

EDIT:: There are more charts that go longer term if you look more down.. actually if it gets about "equal" that may be the case. Although MUCH MORE volatile. If you take a look now it looks like "support".

[edit on 12-4-2010 by GreenBicMan]

Even more interesting is BDI vs copper.

Big time divergence lately and has been almost in lockstep in past.

There are some good ones on that page, but I am going to do some more investigating on what kind of indicator this is.

reply to post by Rockpuck


Damn you RP, your economic terms are top notch.

You are correct again.

www.wikinvest.com...

In bold letters it says:

"Purest Leading Economic Indicator"

LOL

reply to post by GreenBicMan


You'll find it lags on the onset of a crisis, as anything will .. the entire point of a crash is it's sudden .. you go from peak numbers to abysmal numbers. The indicator as soon as the economy fell through, tanked. It was reliant on Credit, when the Crash occurred both Credit and general spending collapsed with it, bringing about a collapse in exchange of goods, thus the shipping industry tanks.

If you're looking at recovery .. you are looking at the manufacturing of goods. Not banks throwing trillions of Dollars into the air and singing hallelujah. That's not recovery. Neither is an over inflated Capital market.

reply to post by Rockpuck


Yeah, they are basically hand in hand it looks like, although it does look like equities do start the trend and if BDI follows higher than equities also follow that.

So maybe they are 1/2 of a combo or something.. I am pretty sure this is just a futures contract anyway, so if you can make a study graphing the differences between SP500 FUTURES AND BDI FUTURES REAL TIME it might show some interesting things.. need a lot of cpu power though that I am lacking

EDIT : Either way you were def correct about a leading indicator, I haven't really seen BDI thrown around like that from memory, but I did find an interesting website dated FEB 2009 stating that from the BDI this guy predicted the market going higher.. so you are 99.99% correct, but I can't give you 100% because I am never fully wrong, just misunderstood!

[edit on 13-4-2010 by GreenBicMan]

reply to post by nuffsaid747
What will happen to the availability of food and other necessary consumer goods such as fuel in the U.S. if the domestic railroad industry and the global shipping industry both collapse?

Just hang on long enough, and you'll get your chance to find out first hand. The available stocks of replacement raw materials from many different categories, are at record lows. Our growing climates needed for a good crop season have been shattered by a horrible a growing season. Crop reserves by the federal government are basically gone. it doesn't take a rocket scientist to see that there is some serious shortages coming. it just takes time to get all the surplus out of the system.

keep watching, you'll get to se what a shortage really is soon enough.

This volcanic stuff should give it a big boost