So there's this thing called the Baltic Dry Index…

Yeah, I know, you’re thinking this is going to be pretty dry.

In some ways, it is. In other ways it’s quite disturbing, and be ready for a sinking feeling, or that neat feeling you get in the pit of your stomach when you know something really bad is coming your way..

So…Baltic Dry Index. BDI. Whattheheck izzat?

It’s a number. Issued by a commodities exchange in London, the Baltic Exchange. So what’s the number mean, why is it done, and why is it important?

Well sit down right here kids, and let Greg edumacate you on it.

A long time ago (mid-1700’s or so), some traders got the idea that a great way to assess where the markets were actually moving, was to look into exactly what the quantity of commodities out there, that were in transit. Or planned to be in transit, i.e. shipped. You get the idea. Say you’re a trader and you’re trying to figure out what the coal market is doing. You can either talk to your trading buddies, and have them “massage” the data to get an advantage over you (hey, it’s business), or you can go to the source of the matter. If you can get the actual numbers, numbers don’t lie, unlike people..

So – fast forward to today. The Baltic Exchange contacts shippers, worldwide, and gets their actual shipping figures (costs to ship) for multiple trade routes. These figures (the BDI) link directly to the availability of commodities, and what the future is bringing. In other words, it lets folks know how many goods are being shipped for manufacturing needs. Of course, that will let one know where manufacturing is going – up, flat, or down. One of the nice things about it is that it’s a hard number to fake, and the assessment will stand for a while. Ships aren’t easy to build, and they take a while to build- so when the BDI is figured, it’s not something that’s going to change in the next day, due to a flood of new carriers appearing, and the cost of shipping plummeting. Nope, it’s a pretty accurate number, and that’s why folks trust it.

So that brings us to this article:

Baltic Dry Index hits zero

For the first time since 1744 – 265 years – the Baltic Dry Index has hit 0

“zero” as in “it doesn’t cost anything to ship”. “Zero” as in “commodities requirements for manufacturing are slumping, therefore companies don’t need commodities, therefore suppliers can’t sell commodities, therefore shipping companies are scrambling for loads, and dropping their rates to….zero”.

So…how can a company survive on zero income? Everyone knows the answer to that one, the only question is….how long will the effects take to hit the consumer? Actually, there’s another question too: Once the effects hit the consumer (you and me), how long will it take to get out of that hole? A year? Two? A decade? or……..

Get your ducks in a row folks. It’s going to be a wild ride. At least we’ll have plenty of stories to tell our grandkids…for some of us, at least.

-Greg

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