Baltic Dry Index falls 93% as shipping rates plunge, signalling global economic collapse

In 2007 Q3, Volvo booked 41,970 European orders for new trucks. In 2008 Q3, Volvo's order book got destroyed to the tune of 99.63%, with customers signing up for just 155 vehicles. After months of money-market madness, slumping stock markets, collapsing currencies and bank bailouts, the headlines from the broader economy are starting to roll in - and the news is all bad and getting worse, fast.

If nobody is buying your trucks, you don't need to rent a vessel to ship them. Hence the Baltic Dry Index, which tracks the cost of shipping goods and commodities, collapsed from 11,793 to 815 - it is now 90% cheaper to ship goods over the oceans. With operating costs of about $6,000 per day, these ships have slowed down to economize on fuel and save money, to about 8.68 knots from 10.33 knots in July. It isn't just the oceans that are emptying - air freight traffic dropped 7.7% in Sep 2008, according to IATA.

- The history and financial textbooks of the future are likely to include this chart above, or some variant thereof. The Baltic Dry Shipping Index is a composite index of bulk shipping rates for various types of cargo, mostly commodity-type cargo such as iron ore, crude oil and grains. It is considered a reliable leading economic indicator without speculative elements involved, since nobody books space on a large cargo ship if they don't have anything to ship.

Hence, the over 90% drop in this index means that the demand for shipping bulk cargo has fallen off the cliff. And the sudden drop in demand for shipping these raw materials like iron, copper and so on is signalling that the global economy is heading for collapse. It's a horrendous scenario depicted in this chart. You can imagine what the GDP figures for 2009 are going to look like.

(2008-11-20 14:51:30 SGT) [Biz] Permalink

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