By John Galt
November 9, 2011 – 06:50 ET
As the Baltic Dry Index turns lower again, the world ignores the glaring warning signals the shipping industry has been sending for months about the global economy.
The three year chart of the BDI indicates that whatever recovery was witnessed in the summer has begun to decline sharply in the last month. The fears of a European contraction and excess capacity is starting to impact shipping around the world and that photo above of the “ghost fleet” off Singapore might return again. According to the Journal of Commerce, shipping capacity will be reduced greatly in 2012 as steep losses will force the industry to idle ships around the world. Per this article:
(click on link above to read in full)
Freight rates have fallen too much this fall, he said, for carriers to maintain existing services, and shippers face the prospect of a new round of ship idling reminiscent of the idling that laid up hundreds of vessels during the 2009 economic and trade downturn.
Now the conflict between those economies who have not become stifled by over capacity and will continue to slug through the slow period will be impacted by the possible anchoring of ships could cause a backlog or cancellation of shipments causing those manufacturers to begin reducing capacity or idling workers in response. The BDI decline above does not look impressive until it is overlaid with the SEA ETF which validates the statements in the article above of spot shipping rates collapsing:
If this is indeed the case, the sharp declines in inbound U.S. Pacific ports primarily designed primarily for intermodal operations is perfectly logical. The severity of this downturn could be exacerbated by the European crisis and that is going to be reflected by the earnings of the European based container corporations in Q1 2012 and should merit close analysis. In 2008 it was these indicators that provided the alert that world economies were about to contract severely. We shall see if this is indeed the case once again.