4. Maritime Shipping and Ports in a Flux
4.1. Future Indexes, Shipping and Trade: Falling Off a Cliff
The Baltic Dry Index (BDI) is an assessment of the average price to ship raw materials (such as coal, iron ore, cement and grains) on a number of shipping routes and by ship size. It is thus an indicator of the cost paid to ship raw materials on global markets and an important
looking) of economic activity since it involves events taking place at the earlier stages of global commodity chains. A high BDI is an indication of a tight shipping supply and is likely to create inflationary pressures along supply chains. A sudden and sharp decline of the BDI is likely to foretell a recession since producers have substantially curtailed their demand leaving shippers to substantially reduce their rates as maritime capacity cannot by rapidly reduced.
Between mid 2005 and mid 2008 the BDI grew by a factor of about 5.5 times, reflecting an almost surreal surge in global trade and expectations of additional growth, mainly fuelled by a Chinese economy hungry for raw materials and energy. The shipping industry was increasingly facing limited extra capacity and port congestion or the expectation of congestion. The existing capacity shortages in vessels and terminals pushed rates up to unparalleled heights. The index peaked in the spring of 2008 as China was stockpiling large quantities of commodities in preparation for the Olympics. Afterwards, the BDI reflected the full fledge of the unfolding recession and collapsed by 94% between July and December 2008 (Figure 5). Never before was such a sharp correction observed, an indication that maritime shipping and global trade was brought to a full recession. Then, the BDI corrected to attain a level reflecting pre-bubble valuations.