Australian (ASX) Stock Market Forum

Baltic Dry Index

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sam76 said:
Economists still view the index as a barometer of global productivity trends, but "it appears there are some growing concerns about its usefulness today versus its usefulness, say, two years ago. And it's all down to shipping supply," Izabella Kaminska at FT Alphaville wrote on Wednesday.
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Aarbee wrote some really good stuff in post number 27 regarding the peculiarities of the BDI (especially as relates to new ship supply entering the market ... sort of like an increase in open interest!).

Anyone done any investigation of the HARPEX index? Looks at container-ship rates. Link: http://www.harperpetersen.com/harpex/harpexVP.do

Attached is a description of the HARPEX, pdf format.
https://www.aussiestockforums.com/forums/attachment.php?attachmentid=37834&stc=1&d=1278643096

Would put up a chart but the link not working for me at the moment.
 

Attachments

  • HARPEX_Konzept_EN.pdf
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Timmy said:
Link now working, chart of the HARPEX index, measures a different aspect of global shipping to the BDI and obviously looking very different.

Source: http://www.harperpetersen.com/harpex/harpexVP.do
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The differences between the two make sense though - given the massive stockpiling that China has undertaken over the last 6-12 months in IO (don't know about coal?) and the uncertainty about whether that volume of intake can continue VS the rebound in container freight from the massive low of the GFC which was due to credit issues.

I guess it's a matter of which one bears the more weight in determining the overall flow of economies - raw materials or finished goods?
 
Have spent a bit of time having a look at this index, basically came to the conclusion that it's way too complicated for me to follow closely.The only conclusion I've been able to come up with in regards to this thing is that if you aren't an expert at analysing the shipbuilding industry and forecasting future trends in both it and the demand side for commodities, then the index basically has no use:2twocents

Found this commentary written last year that explains most of the problems I've found in my limited research:

http://researchreloaded.com/content/baltic-dry-index-reliable-forward-indicator-nonsense

But essentially one problem with using the BDI for economic forecasting is that the BDI could feasibly go up in an environment where commodities demand was shrinking, if the supply of ships was shrinking even faster. These would be negative economic factors. This is because the BDI's value is not solely driven from the demand side. To me, it makes far more sense to just look at nominal demand for commodities rather than the BDI since the BDI has the complicating factor of vessel supply growth one needs to consider. The other thing is that the BDI is a measure of spot rates for dry bulk commodities consumers who, generally, are in the near term forced to pay whatever it takes to get their raw materials shipped (A steel plant needs to keep operating despite some higher ore transportation cost). On the flipside, vessel owners are in a similar boat (no pun intended), and in the near term are generally forced to take whatever rate they can get to fill their ships. (A ship sitting around is just a cost, ie. fixed costs are high, thus using a ship at a loss is usually better than not using it at all)

Because of these inelastic characteristics of supply and demand, and since the BDI is a measure of spot rates, the BDI is thus absurdly volatile. I can explain why via the following simplified example, which I used to use frequently at Citi.

Imagine you have 10 loads of iron ore and 9 ships, and that every load of iron ore must be sent no matter what while every ship must be filled no matter what. Imagine the bidding war between those 10 iron ore consumers fighting over just 9 ships. Shipping cost would skyrocket since they all need to ship regardless of cost. Now imagine if a week later two more ships enter the market. Now imagine the bidding process. Suddenly the tables have completely changed. You have 11 ships, that all need to be filled no matter what, and only 10 loads of ore. Shipping rates would plunge, despite a period of just a week passing by. This is, in a simplified nutshell why the BDI is so volatile.
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And just on the supply side of things, and reason for my post today:

http://www.bloomberg.com/news/2010-...longest-slump-in-15-years-on-vessel-glut.html

Commodity Shipping Index Extends Longest Slump in 15 Years on Vessel Glut
...............
Fleet capacity of vessels able to carry commodities shipped in bulk, such as iron ore and coal, will grow 16 percent this year, according to Clarkson Plc, the world’s biggest shipbroker. Imports of iron ore by China, the world’s biggest user of the commodity, will decline this year for the first time since 1998, Mysteel Research Institute forecasts.

“We’re faced with oversupply,” Nigel Prentis, director of research and consultancy at HSBC Shipping Services Ltd., said by phone today. The fleet of capesize vessels, three times the size of the Statue of Liberty, expands by about one every two days, he said.
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Add in addition to the supply side problem, throw in a few port bottlenecks like we have been seeing at Newcastle over the past few years that can further skew any supply side analysis and all of a sudden you have to be a dry bulk shipping expert just to be able to keep up with one side of the index. Thanks, but no thanks:)
 
A fair and reasonable point Prof.

I keep harping back to aarbee’s post (#27) where he introduced to this thread some of the challenges with using the BDI to gain clues about the strength or otherwise of the global economy. Sam76 reiterated in post #40. Essential reading.

On aarbee’s and Sam76’s points:
in the first half of this year the global fleet increased by 23% as new vessels came into service at the rate of 16 a month. There are now 23 such vessels arriving each month, adding to oversupply.
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From The Economist of July 14, 2010:
http://www.economist.com/blogs/newsbook/2010/07/shipping_rates_slump


On a back-of-the-envelope calculation from this info:
  • If 16 bulk-carrier vessels were added per month in the first half of 2010:
  • 16*6 = 96 new vessels.
  • So, if this was a 23% increase in the global fleet size then the global fleet must be around 500 or so vessels now, & with 23 new ships being added per month, that’s about a 5% increase per month. Yikes.

Probably the best thing about learning about the BDI is discovering its weaknesses and then searching for alternative sources of info to improve understanding. Hence, looking at:
And there are more sources of info re global shipping/freight.

These are all inputs (to my head, anyway), all data points to consider, independent of the more widely read (and, usually, much slower to be released official government data on growth).
 
BDIY is like a lot of other data in that you need to look beyond the 'headline' figure to gain any real value out of it.

Similar to GDP figures, but to my mind, far more complicated.

And then once you fully analyse those components and sub-components, you end up making forecasts based on those specific pieces of data rather than the BDIY it's self.
 
Thanks Dumdumdumdum, must say your post leaves me wanting more.

Where you say:
once you fully analyse those components and sub-components, you end up making forecasts based on those specific pieces of data rather than the BDIY it's self
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Can you show us an example of how you have fully analysed the components and subcomponents to make your forecasts?
 
7/7/10 (DJ) Depressed iron ore demand from Chinese steel mills has been pressuring shipping rates over the last month, with iron ore a key ingredient in steel production and the main product in dry bulk shipping. Chinese spot iron ore prices are near $US125 per tonne, a steep discount to the all-in cost of having it shipped from Australia, which is at $US155 per tonne.

7/14/10 (Economist) FOR most of the past two decades the main measure of shipping costs has been used as a guide to what is happening to world trade. So the fact that the Baltic Dry Index””which measures the rates charged for chartering the giant ships that carry coal, iron ore and grain””has fallen by almost 60% in its longest streak of consecutive declines for nine years (34 days running as of July 14th) has won attention.
 
Hi all,

While trying to make sense of the BDI please factor in the following relating to the supply side of dry bulk carriers:

Current fleet of vessels is 7,502 (501 million MT Deadweight). The Current Orderbook is 3,006 vessels (260million MT Deadweight), i.e. a full 52% of the existing drybulk carrying capacity is on order.
In the first half of the current year around 430 vessels (35.3 mil MT Dwt) have been delivered while around 830 vessels are expected to deliver in the rest of 2010 amounting to about 61.8mil MT Dwt carrying capacity.

At the onset of the GFC and after the BDI crashed, there were a lot of orders cancelled as the sentiment was really low and the financing became very tight. A lot other newbuildings delivery was delayed. It would take a similar crash for further slowdown, otherwise these new vessels will merrily keep rolling down the assembly line.

Cheers
 
aarbee - interested in the source of that info please, wouldn't mind doing some further reading.

Here are 3 other alternative transportation measures:

Note, these are all from the same blog, the source of the info is in the blog posts for those wanting to investigate further.

1. International Air Travel Shows Continuing Strength in June; Volumes are Above Pre-Recession Levels
aaaa.jpg
1. Passenger volumes are now 1-2% above the pre-recession peak in the first quarter of 2008.

2. Freight volumes remain 6% above the pre-recession peak in early 2008.
It's also interesting that the strongest improvements in both passenger and freight growth have been in Africa, Asia, the Middle East and Latin America, while growth in North America and Europe have lagged behind.
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http://mjperry.blogspot.com/2010/07/international-air-travel-shows.html

2.Shipping Rates for Hong Kong to LA Reach Five-Year Highs
bbbb.jpg
The cost of shipping a 40-foot container from Hong Kong to Los Angeles without a contract, or the spot rate, was about $871 in July 2009, a five-year low. This month, that spot rate reached $2,624, a five-year high. That exceeded even the cost before the recession, which was about $2,000."
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http://mjperry.blogspot.com/2010/07/shipping-rates-reach-5-year-high.html

3. And some bear food too: Trucking Tonnage Falls in June But Remains 7.6% Above June Last Year
cccc.jpg
"The American Trucking Associations' advance seasonally adjusted (SA) For-Hire Truck Tonnage Index decreased 1.4 percent in June, although May's reduction was revised from 0.6 percent to just 0.1 percent. May and June marked the first back-to-back contractions since March and April 2009. The latest reduction lowered the SA index from 110.1 (2000=100) in May to 108.5 in June (see chart above)."
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http://mjperry.blogspot.com/2010/07/trucking-tonnage-falls-in-june-but.html
 
Timmy said:
aarbee - interested in the source of that info please, wouldn't mind doing some further reading.
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I work for a drybulk ship chartering business and the figures are part of the shipping intelligence reports we regularly get.

Cheers
 
aarbee said:
I work for a drybulk ship chartering business and the figures are part of the shipping intelligence reports we regularly get.

Cheers
Click to expand...

Thanks aarbee, appreciate the info.
 
professor_frink said:
Have spent a bit of time having a look at this index, basically came to the conclusion that it's way too complicated for me to follow closely.
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Prof - I am having a look at the most recent moves in the BDI and I reckon your comments pretty much sum up how I am thinking about the BDI too.

Check this out:
Baltic Dry Index Jumps 36% in Two Weeks ...
http://www.businessweek.com/news/20...-36-in-two-weeks-as-china-lifts-iron-ore.html

:confused:

I think we have done a pretty reasonable job on this thread trying to make sense of the BDI and its usefulness (or not) as some sort of indicator of global growth. The collapse in its value throughout June and early July was massive and I thought we may have nailed this outsized move as being largely in response to the huge increase in dry bulk shipping supply (thanks to aarbee for the figures), and therefore not necessarily due solely to falling demand.

But now how to account for this 36%-odd jump in two weeks?

A lot of the blogs and market commentators, having readily attributed the plunge in the BDI to plummeting global demand (not mentioning the enormous increase in supply as being a factor) are now silent, no mention of the 36% jump at all. This commentary attributes the lack of attention being paid to the jump in the BDI as an example of confirmation bias.
Confirmation bias and what the transports are telling us about sentiment and the US economy.
http://www.chart.ly/qx64427

It is a conundrum. At the very least, though, this thread has now sharpened my awareness of measures of freight/shipping apart from the BDI, things such as the Harpex, air freight figures, railroad figures, port figures ... viewing these all together gives a much better picture than any single index can (of course).

Would really like to figure out the BDI, though :confused:
 
Not sure if this latest (rather pronounced fall) figure is correct, but if so, maybe more of a sign of a glut in new ship production. Also reports that waiting times at Chinese ports have dropped substantially ie less trade?

Experts said orders for new vessels that were placed around the time (2008) when liquidity crisis struck have just been or are being delivered globally. This has created overcapacity leading to this fall, they said. Cargo off-take from Europe, US and South America has been muted and a severe winter has only made matters worse, they added. The only bright spot in volumes has been in the far-east but operators there don't get good freight rates, said an expert. This leaves China as the only big mover of dry bulk cargo. Engineering goods were the only items that saw significant cargo movement, said the expert.
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bdi_221210.jpg

Some mob called Nordea report??

Cargo stagnation

We have understood that Chinese cargo ships have been told to proceed at 'wind speed', because of a collapse in US import demand - this is partly visible in the activity amongst Long Beaches shoremen - hence, is this the final proof that the inventory rebuild that drove the recovery in the autumn is OVER? Figure 1 shows the average speed amongst bulk carriers! Bulls - Watch Out!
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Nordea.jpg
 

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