February kick-off with the lowest BDI recorded from 1986

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2012 Feb 02

February kick-off with the lowest BDI recorded from 1986

The Baltic Exchange Dry Index rate fell to 662 on February 1st. Shipping is experiencing the new low-record since 1986. The talk that is going on these days about the BDI rates is understandable; the low 663 from December 2008 marked the beginning of the economic recession. Many shipping economists are in fear; are we heading for yet another loop of economic crisis, this time, with a possibly amplified effect?

Due to the volatility of the index, many economists are denying BDI as the indicator of economic activity. However, statistics show that BDI, if its trends are observed in a longer period of time, such as the quarterly level, are pretty good indicators on the state of economy. This is reasonable since the BDI does include the demand for the shipping of raw materials as a variable, and the exchange of goods, especially those used in production. And it is needles to say that if the exchange of low materials is low, this points to low production rates that are directly linked to the global health of the economy.

The BDI showed a similar trend as the current on just before the Black Monday – the stock market crash in 1987. The same applies to the stock market crash in 2008, with little exception; the BDI was, as of yesterday, slightly higher. The BDI fall can not be attributed solely to the increase in the supply, since, the increase in the number of dry cargo ships in January was not as high to justify this crash.

Due to the complexity and a variety of factors that influence BDI, nobody can guarantee that it actually points to a possible record low economic activity. However, most if the shipping economists agree, the fact that February 1st 2012 will enter history as the lowest recorded BDI since 1986, should not be ignored. Neither should the fact that stock market crashes and economic crises went hand to hand with the BDI long-term downfall.

Source: maritime-connector.com; Ivona Milinović

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