Baltic Dry Index, Measure of Shipping Costs for Dry Bulk Goods plunged to 647 Points

The Baltic Dry Index, a measure of shipping costs for dry bulk goods plunged to its lowest level after it touched 647 points on 3 February 2012. The lowest level was nearly 20 points lower than the previous low of 663 points recorded during the 2008 global financial meltdown. In the past 26 years since the Baltic index came into being, the index had never slipped below 650 points.

The current fall recorded on 3 February 2012 in the Baltic raised serious concerns among shipping companies.
The Baltic dry index was noticed to have fallen even in January 2012 though shipping analysts had predicted a recovery for the shipping sector in 2012. Sea-borne traffic was expected to rise 20-25% in 2012 from the 1500 level in 2011. However,  the sea borne traffic that plunged by more than 62% in 2012 left analysts clueless about the much-expected recovery.

Reasons

China had declared a week-long holiday for the lunar new year celebrations starting from 23 to 28 January 2012 and the surplus iron ore inventory in the country further reduced the demand for iron ore, affecting the struggling global shipping sector.

In addition, the adverse weather conditions in Brazil and two tropical cyclones in Australia also affected iron ore shipments and port operations.

Baltic Dry Index

The Baltic Dry Index which has been in existence since 1744 is issued daily by the UK-based Baltic Exchange. It tracks the worldwide international shipping prices of major raw materials and dry bulk cargoes by sea, including grain, iron ore, coal and other fossil fuels.

The BDI measures the shipping costs of these raw materials for four different sizes of merchant vessels on 26 different geographic routes and averages them into one index.

The index’s movements are closely tracked because they reflect the demand for dry commodities from industries and consumers around the world. A higher demand for ships to transport dry cargo will obviously reflect in a strong index and vice versa.

The index had dropped below 700 points in 2009, at the peak of global economic slowdown, but had since picked up and never dropped below the 1,000-mark in the past three years. In 2009,when the Baltic had slipped to record lows, western economies slipped into recession and growth slowed down in emerging countries like China and India.