The Baltic Dry Index (BDI) is really simple to understand. It’s an aggregate indicator of shipping costs along 26 key dry bulk routes, and a proxy for how much bulk goods are moving around the world. The higher the BDI, the more stuff is shifting; the more stuff is shifting, the more economic activity is going on.
The BDI is also really obscure, which is why you don’t see it mentioned in many news reports. This is a great shame, because it’s a preview of what the world’s economy is going to be doing in 2-6 months time. This is because the amount of goods being shipped now defines how much economic activity is going to be happening when those goods finally reach their destination.
It’s therefore extremely worrying to see a graph like this:
The BDI is at the lowest that it’s been for a loooooooong time (at least a decade) – down from an all-time high a mere 6 months ago – which means that the global economy is dropping like a stone. Note that this drop is so precipitous largely because of previously high levels, and that high was most likely due to China’s increased demand for bulk imports. The woes of the BDI might be largely due to China facing a significant drop in growth – but for some reason I don’t find that much consolation.
Of course, shipping companies are going to be the first to feel the pressure, as Der Spiegel reports, but if I had any doubts about the rough ride that 2009 is going to present, those doubts are now gone.