Baltic Dry Index

“The historic message is that as go transports, so goes the economy.” ? Barry Ritholtz. This measure of dry bulk shipping

rates which is viewed as a proxy for global demand of raw materials, hit 11,793 points on Tuesday, and is up more than 80%

from its recent low in mid-January. Barry Ritholtz, chief executive and director of equity research at Fusion IQ, believes that the

rise in the index lends some weight to the argument that “the rest of the world is insulated from the U.S. economy woes”. The

fact is, there are simply not enough new ships to enter the market to meet this soaring demand for raw commodities. Another

reason for the shortage was the credit crunch that has occurred over the past eight months, causing a rash of cancellations in

shipbuilding orders. However, the BDI’s role is complicated by the fact that it measures not only demand for raw materials, but

also that it reflects fluctuations in the supply and demand of ships themselves. Port congestion, among other things, has limited

the number of big ships available in countries like China. In an effort to meet its roaring demand for commodities like coking

coal, steam coal, and iron ore, China has been left to play “catch-up” while the need for supplies for rebuilding efforts in the

wake of the Sichuan earthquake just further exacerbates the situation. Although, the relentless climb in a key indicator that

tracks shipping rates is a stark sign that China and other Asian economies are booming. What’s more, China is attempting to

gather supplies in an effort to front load industrial production ahead of the Olympics in August, which helped China’s iron ore

imports hit a monthly record of 42.85 million tonnes last month. The clear beneficiaries from surging freight rates and a short

supply of vessels are shippers such as Neptune Orient Lines (NOL) and STX Pan Ocean. In short, ?measures like the BDI are

better viewed as an indicator of strength in the commodity sector rather than as a gauge of the overall economy,” according to

Barry Ritholtz.