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Baltic Dry Index Nosedive

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Baltic Dry Index Nosedive

Unread postby billg » Thu 30 Oct 2008, 17:46:13

So what does this mean to us common folk???

LINK
Last edited by billg on Mon 08 Dec 2008, 20:45:46, edited 1 time in total.
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Re: BDI Nosedive

Unread postby copious.abundance » Thu 30 Oct 2008, 17:50:44

It means you can ship some coal to China for a helluva lot less than you could earlier in the year.
Stuff for doomers to contemplate:
http://peakoil.com/forums/post1190117.html#p1190117
http://peakoil.com/forums/post1193930.html#p1193930
http://peakoil.com/forums/post1206767.html#p1206767
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Re: BDI Nosedive

Unread postby billg » Thu 30 Oct 2008, 18:14:40


The Shipping News Suggests World Economy Is Toast: Mark Gilbert

Oct. 30 (Bloomberg) -- In the third quarter of 2007, Volvo AB booked 41,970 European orders for new trucks. Guess how many prospective purchases Volvo, the world's second-biggest maker of heavy rigs, received in the third quarter of this year?

Here's a clue. Picture a highway gridlocked by 41,815 abandoned trucks -- because Volvo's order book got destroyed to the tune of 99.63 percent, with customers signing up for just 155 vehicles in the three-month period, the Gothenburg, Sweden-based company said last week.

The pathogen that has fatally infected swathes of the banking industry is now contaminating non-financial companies. ``We're heading toward the sharpest downturn I've ever seen in Europe,'' said Chief Executive Officer Leif Johansson.

Volvo has company. Daimler AG, the world's biggest truckmaker, said earlier this month that its U.S. deliveries slumped by a third in the first half of the year.

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.

Let's begin with the shipping news. If nobody is buying your trucks, you don't need to rent a vessel to carry that shiny new 18-wheeler to its new owner. Hence the Baltic Dry Index, which tracks the cost of shipping goods and commodities, fell below 1,000 this week for the first time in six years.

Slow Boats From China

Put another way, it is now almost 90 percent cheaper to ship goods over the oceans than it was at the beginning of the year. And because the huge vessels known as capesize ships can't currently charge much more than their daily operating cost of about $6,000 per day, their captains have slowed down to economize on fuel and save money, to about 8.68 knots from 10.33 knots in July, according to data compiled by Bloomberg.

It isn't just the oceans that are emptying. Air freight traffic dropped 7.7 percent in September, according to the latest figures from the International Air Transport Association. That's the steepest decline since the trade group began compiling the data in January 2003.

Figures this week showed U.S. consumer confidence collapsed to a record low in October; retail therapy probably isn't the cure. With Christmas looking like it might be canceled, why bother fighting with your bankers for the letters of credit you need to export the stocking-stuffers you make in the factory?


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Re: BDI Nosedive

Unread postby billg » Thu 30 Oct 2008, 18:21:23

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Re: Baltic Dry Index Nosedive

Unread postby billg » Mon 08 Dec 2008, 20:56:59

The latest:

As the World Economy Sinks, So Does Global Shipping

By Jeff Israely Monday, Dec. 08, 2008

Take a stroll along your proverbial Main Street, and you may see signs of the global financial crisis moving into the real economy. You can also head straight to the nearest major port. There may be no more serious warning of the potential reach and depth — and duration — of the worldwide economic slowdown than the sinking fortunes of the shipping industry.

From reduction of traffic on key trade routes to the cancellation of new ship orders to plummeting cargo rates, transport-by-sea is a very real gauge of declining demand across the globe for raw materials and consumer products. With some 77 percent of worldwide trade arriving by sea, "shipping is the thermometer of globalization,"notes Professor Oliviero Baccelli, a transportation economist at Bocconi University in Milan. "It allows us to take the broadest view of the health of the worldwide economy."

And from the docks of Rotterdam to Seattle to Shanghai, the troubling symptoms abound. The Baltic Dry Index, which measures world shipping charges for raw materials, has plummeted from a high of 11,793 in May to 672, dipping to its lowest levels since soon after the index was established in 1985. Daily rental rates for the largest Capesize category of carriers have plunged from $234,000 just two months ago to $2,320, a fall of a staggering 99 percent. Jeremy Penn, president of the London-based Baltic Exchange, cautions that bulk rates are prone to fluctuation, and have been hit particularly hard this time by the skittishness in financial markets as the necessary letters of credit for commodity purchases have grown harder to come by. Still, Penn says the recent drop in bulk cargo fees is unprecedented, citing declining worldwide demand, particularly as the economic slowdown reaches China. "The violence of the drop (in rates),"he says, "is more extreme than anything we've ever seen before."

Despite the fluctuations in spot purchase prices, Baccelli says the industry enjoys a certain stability through tough times thanks to the enduring presence of family-run behemoths and an ever higher concentration of control. "You have families who have hundreds of years of experience, who have lived through these situations and equipped themselves, and are resistant to speculation."

Even seasoned ship owners, however, are facing a storm unlike any they've seen before. Right now, the tangible signs of a lasting retrenchment are popping up in ports and along sea routes across the globe. The CKYH consortium of two of the largest Chinese and two South Korean shipping firms has just announced that six routes will see either a suspension of service or reduction in capacity. Service will be halted on the Mediterranean-Asia-America pendulum service early next year, while CKYH has already reduced its capacity from Asia to the U.S. East Coast by some 18 percent. (See pictures of the global financial crisis.)

Perhaps even more worrisome for the long-term outlook is the rush to cancel orders of new ships. In November, New York-based Genco Shipping and Trading was willing to kiss goodbye to a $53 million deposit in order to get out of a half-billion dollar deal to buy six new vessels. Clarkson Plc, the world's largest shipbroker, announced that while 378 ships were ordered in Oct. 2007, only 37 were ordered in Oct. 2008. Big cancellations could set the stage a shortage of ships once the world economy recovers. But the market today is telling ship owners but one thing: glut.

Kriton Lendoudis, managing director of Athens-based Evalend Shipping company, says that in Greece there are some 100 applications by ship-owners to lay-up their vessels. Evalend, which specializes in medium-sized ships, has thus far avoided the worst, and still expects 200 million dollar profits for 2008, but Lendoudis concludes: "The next 24 months do not look very optimistic."

The free fall of shipping-charge prices and the mothballing of new vessels are not the only measures of the perfect storm of extra-tight credit and worldwide economic retrenchment that is now hitting land. Like oil industry investors who are said to count passing tankers to get early estimates of worldwide supply and demand, the shipping industry also looks for pieces of pure anecdotal evidence in places like the southwest tip of England. Just upstream on the River Faul from the port of Truro, harbor master Andy Brigden runs a service of mooring ships when they are put temporarily out of service. Over the past month, Brigden has had a sudden uptick of inquiries from shipping companies looking for long-term berth space. "It had been quiet here for many years, just a few seasonal moorings,"said Brigden, reached by telephone in his harbor office. "In my experience, this is the largest number of requests we've had in such a short time." Economists will continue to chart wild swings of stock markets and prices of raw materials. Folks on Main Street will be calculated in retail sales figures and unemployment rates. But as long as business is booming for harbor master Brigden, there will be little hope for recovery on the horizon.
— With reporting by Emmanouil Karatarakis / Athens and Michael Schuman / Hong Kong

Time.com
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BDI drops 93%- wow

Unread postby Armageddon » Mon 15 Dec 2008, 19:39:50

BDI drops 93%- wow

How long until the shelves are empty in the US ?
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Re: Baltic Dry Index Nosedive

Unread postby MonteQuest » Mon 15 Dec 2008, 20:01:14

I am rather surprised that this thread has not received more attention and discussion. What is this index and why is it important? It is the best economic indicator you've never heard of. Most of the indicators that the market relies on to forecast the future are worthless in this type of environment. If you want to know when the global recession will turn around, pay attention to the obscure Baltic Dry Index.

The index provides an assessment of the cost of moving the world’s major raw materials by sea. In other words, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. 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 an efficient economic indicator of future economic growth and production. The index is not tradable, like stock and bond markets. Therefore, the BDI is totally devoid of speculative content. It’s the real deal.

On May 21, 2008 the index reached its record high level since its introduction in 1998, reaching 11,793 points. On December 4, 2008, the index had dropped by 94%, to 666 points. Now, it is somewhere north of 700.

The plunge you see in the chart below is the result of the collapse of trade credit based on the venerable “letter of credit” coupled with commodity deflation. The shipping industry relies heavily on “letters of credit” which are guarantees issued by a bank that the buyer’s funds will be transferred to the seller at the completion of the transaction. As liquidity tightened around the world so has the issuance of these instruments. The deflation in commodity prices has also caused many companies to begin using up raw material inventories rather than importing new stocks.

Image

This means that worldwide, the demand for cargo ships and more importantly raw materials that go into producing the everyday items that consumers buy — pardon the pun —is dead in the water.
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Re: BDI drops 93%- wow

Unread postby yesplease » Mon 15 Dec 2008, 20:55:42

Probably a while, outside of trivial examples like stores vacating. The reason why the BDI fell on it's face is that people aren't buying nearly as much as they used to and stuff outside of consumables (food/etc) is just sitting on shelves.
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Re: BDI drops 93%- wow

Unread postby dohboi » Mon 15 Dec 2008, 21:50:22

Just eyeballing it, it looks like we're back to levels from 2002. That doesn't sound quite so end of the world to me.

The really stunning thing is how fast it ramped up from 2005 to 2008, from about 1400 to 11000. It is notable that the BDI tracked pretty closely with oil and other commodities that had similar wild run ups followed by crashes.

I have a feeling we are in for more volatility on all fronts.
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Re: BDI drops 93%- wow

Unread postby Sixstrings » Mon 15 Dec 2008, 21:54:43

Hm.. so when do shortages show up?

I don't know about this. We supposedly have "just in time delivery" on everything, and I've been hearing shipping is down for a while now.. and yet there's an ABUNDANCE of everything in the stores.

So what gives?
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Re: BDI drops 93%- wow

Unread postby Revi » Mon 15 Dec 2008, 22:52:42

I think we're having a big sale on inventory before the whole world shop goes out of business.

It's cheap to buy things now, but they aren't ordering anything to replace what's out there on the shelves now.

By next summer a lot of the inventory will be gone.

Then they'll close up shop.
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Re: BDI drops 93%- wow

Unread postby smallpoxgirl » Mon 15 Dec 2008, 23:07:04

The author of the video seems to be a bit confused about what BDI is. It's NOT container ships. It's bulk dry goods that are stored in big holds. Things like wheat, iron ore, etc. The BDI clearly ran up in concert with the commodity boom, and it seems to have fallen back down to the 2003 level. Not saying it's not important, but I'm not sure it's as important an indication as he seems to think it is.
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Re: BDI drops 93%- wow

Unread postby MonteQuest » Tue 16 Dec 2008, 00:24:46

smallpoxgirl wrote:The author of the video seems to be a bit confused about what BDI is. It's NOT container ships. It's bulk dry goods that are stored in big holds. Things like wheat, iron ore, etc. The BDI clearly ran up in concert with the commodity boom, and it seems to have fallen back down to the 2003 level. Not saying it's not important, but I'm not sure it's as important an indication as he seems to think it is.

It is the best economic indicator you never heard of. I explain it in the this thread: http://www.peakoil.com/fortopic47459.html
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Re: BDI drops 93%- wow

Unread postby smallpoxgirl » Tue 16 Dec 2008, 00:44:47

MonteQuest wrote:It is the best economic indicator you never heard of.

Wow. Thanks Monte. Of course you're right. I frequently enjoy pulling opinions out of my a$$ about things I've never heard of before. I actually have no idea what a Baltic Dry Index is all about, but I'm pretty sure it's something about not spilling beer on your Monopoly board. Course it's nice that you're always around to set me straight. Poor dumb hick girl like me. Don't know what I'd do otherwise.
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Re: BDI drops 93%- wow

Unread postby MonteQuest » Tue 16 Dec 2008, 01:03:22

smallpoxgirl wrote:
MonteQuest wrote:It is the best economic indicator you never heard of.
Wow. Thanks Monte. Of course you're right. I frequently enjoy pulling opinions out of my a$$ about things I've never heard of before. I actually have no idea what a Baltic Dry Index is all about, but I'm pretty sure it's something about not spilling beer on your Monopoly board. Course it's nice that you're always around to set me straight. Poor dumb hick girl like me. Don't know what I'd do otherwise.

I do. Get away with statements like this:

"Not saying it's not important, but I'm not sure it's as important an indication as he seems to think it is."
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Re: BDI drops 93%- wow

Unread postby Ferretlover » Tue 16 Dec 2008, 01:07:28

dohboi wrote:Just eyeballing it, it looks like we're back to levels from 2002. That doesn't sound quite so end of the world to me.

Then again, there are a lot more people than there was in 2002.
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Re: BDI drops 93%- wow

Unread postby eastbay » Tue 16 Dec 2008, 01:08:42

Ferretlover wrote:
dohboi wrote:Just eyeballing it, it looks like we're back to levels from 2002. That doesn't sound quite so end of the world to me.

Then again, there are a lot more people than there was in 2002.



... and a lot more now than in 1933 too! 8O
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Re: BDI drops 93%- wow

Unread postby manu » Tue 16 Dec 2008, 01:37:04

Expect rioting in almost every city in the U.S. and Euro by March.
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Re: BDI drops 93%- wow

Unread postby yesplease » Tue 16 Dec 2008, 02:12:55

manu wrote:Expect rioting in almost every city in the U.S. and Euro by March.
Remember you can't eat nuts and bolts or computor chips.
By March of what year?
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Re: BDI drops 93%- wow

Unread postby Snowrunner » Tue 16 Dec 2008, 04:49:01

manu wrote:Expect rioting in almost every city in the U.S. and Euro by March.
Remember you can't eat nuts and bolts or computor chips.


In order for the food supply lines to completely break down something much more dramatic would need to happen.

Sure, you may not get your Strawberries anymore in the middle of winter, but seriously who buys them anyway?

And nuts, bolts and computer chips? Most of those aren't made in NA or Europe, they come out of Asia.
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