What If The Imploding Baltic Dry Index Does Reflect Global Trade After All

Tyler Durden's picture

Earlier today, the Baltic Dry Index hit a new all time low.

 

This is not new: we have been tracking the collapse of the Baltic Dry - aside for the occasional dead cat bounce - to all time lows, a proxy of global shipping and thus trade, for the past 7 years.

To be sure, for staunch goalseeking Keynesian the collapse in Baltic Dry rates had little to do with actual demand for this services, and everything to do with the alleged supply of drybulk shipping, which was the stated reason for the collapse in costs.

In other words, "trade was fine."

Well, maybe not as the following chart from Capital Economics shows:

Correlation may not be causation, but it sure is troubling. Which begs the question: as the baltic dry index continues to plumb new record lows, how long until central banks realize that for all their omnipotence and all their attempts to restore growth, inflation and the "wealth effect" they never mastered the only thing worth printing in a globalized world: printing trade?

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Chuckster's picture

This just don't fit in with their game plan....skip a rope.....

Soul Glow's picture

I think Nancy Reagan is on the phone with them as we speak.

Theosebes Goodfellow's picture

~"What If The Imploding Baltic Dry Index Does Reflect Global Trade After All?"~

I think the question should rather be "How can the Imploding Baltic Dry Index NOT Reflect the Global Trade Collapse?"

And the answer is "It does."

Squid-puppets a-go-go's picture

economic soup nazi says: No Deus ex machina for you!

Dr. Spin's picture

Crocks are stashing and the fy is skalling!!!

;-)  

MrNosey's picture

The die is cast, there will be no real recovery what so ever!

The elite will soon run and hide in the bunkers paid for with citizens taxes, after engineering a full economic collapse as well as starting WW3, plus they will make sure that there are enough Jihadi's in the West to start a race war.

That should be enough to cover up the failed fiat ponzi scheme and take care of the 'excessive' population......

http://beforeitsnews.com/global-unrest/2016/01/the-lion-is-it-time-to-fi...

Doña K's picture

Are you ready for some air intake plug-ins? The only weak spot of bunkers.

Need to use some noxious gasses that are lighter than air,

BarkingCat's picture

A can of expending foam insulation from you favorite home improvement center works great too.

Urban Roman's picture

Can it go negative?

WTFRLY's picture

LOLOLOLOLOLOLOLOL LET'S FIND OUT ROMAN

Leopold B. Scotch's picture

Cue the 2008 photos of the freight / shipping ghost fleet idle off the coasts of Asia parked, for the night (months) with lights on. 

WTFRLY's picture

dananananana *the lights are on, but you're not home... your mind, is not your own*

seek's picture

Yes, since it's a proxy for how much it costs to ship something, if the shippers paid the people with goods for the priveledge, it could go negative.

Normally I'd say that could never happen, but now that we have parts of the oil industry seeing reversed payments in order to cope with inventory... I suppose it could. Probably only if the cost of mooring the ships is higher than the cost of shipping goods, though.

carbonmutant's picture

BDI and Oil both setting new lows... Sounds Global to me.

Hyper Entropy's picture

Somalli pirates must has this chart. 

seek's picture

At this point, if they took a ship hostage they might get paid to keep it, rather than release it.

_ConanTheLibertarian_'s picture

LOL it sure brings out the best comments here.

BarnacleBill's picture

That's far and away the best comment I've read all day!

gatorengineer's picture

what so far doesnt hang is that there should be massive layoffs of union longshoreman here in Merika, that generally makes news.  Havent seen it.

I woke up's picture

Maybe the Dallas Fed is involved

skipjack's picture

Nah you'll never see that. They just sit in the union hall and play poker all day.

mtndds's picture

Well shit, it must all be TRANSITORY.

Bullwinkle Moose's picture

At this point, what difference does it make.  Right Hillary?

Exit through the gift store's picture

Thinking about buying that shipping company?? How about an oil well?? Huge discounts soon!

 

azusgm's picture

The last time things blew up, one of the big problems with shipping on the high seas was the lack of availability for letters of credit. It would be great to have some insight into the letter of credit situation this time around. There were ships that would pull into port and not be able to unload because they could not get paid.

Truth Eater's picture

The problem with those charts is that they don't show helicopter deliveries.  The Bernank Helicopter Drop Service does not even report deliveries.

besnook's picture

activity during the recent spike was at the same level as late 2014 with much higher prices for bdi and the trend from 2012 has just now broken downward. the inventory of ships added to the fleet inrecent years has increased supply at the same time as lower demand, therefore the price for bdi is much lower than it might have been. i see possible ship owner failures and cheap ships coming online. i bet you can make money with a repoed ship loaded with repoed cat equipment. the chinese would love that deal.

azusgm's picture

Has anyone here heard of supply chain disruptions?

How about spoilage in perishable goods?

BlindMonkey's picture

I am on your wavelength.   I was thinking about what the most fragile supply chain is to credit and I thought of sushi shops.   I would guess they are the most vulnerable to credit disruptions.

herkomilchen's picture

Baltic Dry is a proxy for malinvested long term capital of all types.  Container ships are just one type.  The over-supply of shipping parallels the oversupply of factories, heavy equipment, buildings and facilities, and workers all geared up to make as much stuff as would have kept those ships filled at profitable prices.

So even if trade volumes were not falling, the excess capacity in ships is itself the red alert signal.  It reflects excess capacity across all capital investments.  That is, a large disparity between the 0% interest borrowing induced overbuilding hysteria vs. the reality of actual meager consumer demand with the paltry savings consumers are maintaining getting paid 0% interest.  The revelation of that disparity between the fiction and the reality is what pushes economies into recessions, not any particular level of trade.

Nobody For President's picture

THE most rational and erudite comment of the day. You should give several economic lectures to the FED.

Kudos!

Parrotile's picture

There may be other factors  leading to the decline in cost per TEU. Consider that the average Container Vessel has a lifespan of about 30 years, and we've seen a doubling in "per-vessel" container capacity in the past decade alone, so the older vessels (which are still entirely seaworthy) have to compete with the newer, less cost per container shipped, vessels. Also, the lead times to completion (years, not months) mean that some degree of future demand guesstimate had to be made, which may have resulted in the current "overcapacity" we now see.

With the decline in fuel costs, how much capacity has been switched to airfreight? When fuel costs are high, the tendency is to use surface transport as a cheaper alterantive; once the cost of Let-A drops, so the cost of airfreight drops too, especialy for low - volume, high value products (Consumer Electronics come to mind here).

There is also the case that the consumer products coming out of China are certainly becoming more durable / "better quality", so useful lifespan is increasing. We saw exactly the same happen with Japanese electronics, didn't we - originally "Made in Japan" was a byword for poor quality, now? Made in Japan justifiably commands a premium price tag. To assume China will forever be a byword for consumerist junk is to ignore the progression in product quality from their neighbour.

bagehot99's picture

It costs about $900 to ship a full container from China to the United States.

Even with very low fuel costs, it's about 30 times that for air freight. 

That's not it. In this case, the appearance of plummeting demand for shipping is because of plummeting demand for goods.

Ray Dalio said something today that nobidy seemed to notice - you cant increase borrowing faster than income for long. This basic financial fact of life will shortly become very clear to these socialist asshats we call our elite.

katchum's picture

If world trade is collapsing, it is the opposite of globalization. Where is the inflation that goes with it?

undertow1141's picture

The inflation is right in front of your eyes, just not in the numbers the .gov reports. Food, health cost, housing, fuel etc. If you take those into account we have been seeing 10-15% inflation for the past 6 years.

Dre4dwolf's picture

Well if trade is conducted by ships, and you have less ships, it stands to reason you have less trade.

Unless o/c the ships are getting bigger and you need less ships.

 

So, are we at the point yet where 1 new ship = 2 old ships+?

 

skipjack's picture

Way past that point. http://www.ericstone.com/uploaded_images/ChinaShipping2-772536.jpg Enough China junk on that ship to supply the entirety of NYCfor a while.

Parrotile's picture

If the overcapacity claims are even partially true, maybe it is the time to view this vessel as "shipping the homes of the future" - e.g. http://rubixmodular.com.au/residential/

Notice the key phrase "Shipping container homes are a fraction of the cost of a regular home", and notice too the proliferation of Global sites dedicated to this housing concept.

Mr. Cynic's picture

Well, I like this graph.  It answers all those Pollyanna ninnies who are always spouting off about how there are just a whole lot MORE ships out there now, that's why the index is going down.

Head planting morons.

Emunoz's picture

Stop pedding fiction lmao

 

The sheelple who like to be reassured by their masters that everything is well cannot abide these graphs or this website.  

Zidane1998's picture

This significance of this index is grossly misrepresented by the likes of ZeroHedge, other economists and "collapsists". 

 

 

Villageidiot777's picture

The recession is coming? I hope I can prepare for it.

V for ...'s picture

BDI was the real canary in the coal mine, imo. Don't get angry. Get ready.

MASTER OF UNIVERSE's picture

Baltic Dry Index is an exact correlation to Market Destruction, imploding profit margins, Junk Bond Destruction, Ratings Agency Fraud, Investment Bank Hoarding, and...

S U P E R   H Y P E R I N F L A T I O N.

 

Ergo, Goldman Sachs has been warehousing commodities since they came to the conclusion in September of 2008 that they were going to crash the global economy gradually throughout the cycle between 09 and 2016 but hoard commodities whilst they were doing that in a strategic manner. Now they will let they economy crash because they have to, but the end game is to allow super hyperinflation to take hold and then cash in on all the commodities they presently have warehoused throughout the World. After 08 manifested Goldman Sachs immediately snapped up all the metals n alloys to warehouse and control the spot price de jour.

 

Goldman Sachs plans on literally turning us all into begging serfs with no jobs, no homes, and an extreme form of existence if we are able to eek out any existence at all. Bottom line is that GS is prepared to choke us all out of existence on commodities when the crash lets loose both barrels. All EM is going to crash at the behest of USA Reserve Currency status. This will result in the United States of America sitting back and watching all economies in the World around them sinking into oblivion whilst Americans watch it all on tv. This is the architecture at work with anal sadistic money hoarders at the helm of a Military Industrial Complex that was literally designed to genocide everything in existence due to a lack of common sense, and a lack of understanding of the Law of Large Numbers. America was designed to implode in on itself via Wall Street and the Ponzification of money.