The Baltic Dry Index has had a steep, continuous fall during January 2012. Can we interpret it simply as an indicator of an excess of dry- cargo ships or as an indicator of the global economy heading for a major depression, potentially worse than the one of the 1930s?

The Baltic Dry Index, most commonly known among economists and ship financing professionals as BDI, has dropped by 60% during January. BDI amounted 680 on January 31st, getting close to its lowest level in the recent history;  663 recorded on December 5th, 2008.  And it suffices to say that many remember the last quarter of 2008 as the start of the economic recession.

Some  argue that this decline in BDI is mainly caused by the delivery of new dry-cargo ships during January leading to an disproportional increase in supply.  Although the BDI is directly calculated on the basis of demand for shipping services versus the supply of shipping services, the BDI  indicates much more than simply the ratio of these two elements.

In normal conditions, deliveries of the new ships cause the BDI to fall if the demand for shipping services does not follow the increase proportionally. The slight fall of the Baltic Dry Index was predicted for 2012  due to the capacity of  dry cargo ships deliveries scheduled for this year  surpassing the predicted growth of the world's economy, and accordingly, the increase in shipping services demand.

Still, such a steep fall of BDI in January 2012 was not expected. Can we interpret the BDI changes during January as simply being a reflection of new ships deliveries during January?  Hardly.
It's hard to believe that this continuous and dramatic fall of the BDI in January of 2012 is merely an indicator of  over-capacity of the world dry-cargo fleet. The more realistic interpretation of this trend is that the world is knocking on the doors of a new recession period. In simple words; the decrease in demand for shipping services is decreasing simultaneously with the supply increase.

LESS DEMAND FOR INTERNATIONAL SHIPING SERVICES = LESS DEMAND FOR RAW MATERIALS = LOWER PRODUCTION = NEGATIVE ECONOMIC TREND

The situation is serious. It is not to argue that BDI does directly show that the  overcapacity of world's dry-cargo ships fleet exists. But the main question remains: is the overcapacity caused solely by irrational ship orders, or rather by a very serious fall in demand for shipping services, in other words, by the downfall of the economy? If the latter is true, the BDI downfall trend and current levels predict the world's economy may experience economic turmoils worse than those of 2008 and close to those of  the Great Depression of the1930s.
 

Source: maritime-connector.com; Ivona Milinović