On the 4th September last year, the Baltic Dry Index that measures the cost of shipping – and by extension is a good proxy for the demand supply imbalance in global trade – stood at 2518. As of Friday, it stood at 415, not quite as low as it hit briefly in early 2016 in the midst of a glut of shipping and a commodity bear market, but below the crash level after the financial crisis in 2008/9. The Baltic Dirty Index, which is essentially tanker rates has also dropped sharply, but has ‘only’ halved since the start of the year. Undoutedly this is down to the Crona Virus threat and historically, the Baltic dry has appeared to have a correlation, with something of a lead, with the Chinese Purchasing managers’ index – something we previously acknowledged will be relatively meaningless for a while now but will undoubtedly look very bad on the next print. As previously noted, the market response following the corona virus scare is to sell cyclical and trading related business based on the economic reality that by halting activity, heavily operationally geared businesses with high fixed costs run into trouble, even if the halt is only temporary.
The Baltic Dry is telling us how bad trade is
As a help to understand when things are actually moving again therefore, the Baltic dry may be a helpful leading economic indicator, not least because it takes out speculation – it is the price of actual ships contracted to move ‘stuff’. As of today however, the index remains in ‘stay on the sidelines’ territory.