Worldwide Shipping Grinding to a Halt

Cargo vessel construction is highly cyclical. So the Baltic Dry
Index responds in leveraged fashion to changes in world trade ... plus
additional supply coming on at the worst possible time (vessels ordered
during the late Bubble II). Vessel construction is like a housing
market where the houses are as big as skyscrapers, with multi-year lead
times. Oof!

The macro question is whether the 60-year secular
trend toward freer trade has reversed. Self-sufficiency can be
tactically valuable, within limits. But economies which wall out
more-efficient foreign suppliers end up looking like Cuba and North
Korea -- backward, destitute, and poverty-stricken.

Be a bit cautious of the BDI. It's had quite a bit of press over the past few months but it is a very volatile index and when looked at reveals itself best over a longer time. It lost around half of its value early last year then recovered to its new peak before plummeting to present low levels in Oct, Nov. Not to say that it isn't significant just that its also volatile. It has been suggested that local stocks of at least three months and price oportunities (importers waiting for prices to fall) may partly explain the recent volatility. Only more time will tell.

Don

http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm