Hi Jnana,
I think what you're saying is exactly what the others are saying, that the index, although treating the price of moving goods, also gives an indication as to how much goods are being transported. Lots of goods on the ships, higher the price, fewer goods, lower price - supply and demand, nothing too complicated.
I think what wasn't made clear was the reason why the goods are not being shipped. One could be forgiven in thinking that it is because of a problem in the shipping lines.
Not at all.
The problem is that letters of credit are not being released.
When a company sends cargos abroad they ask for a letter of credit which is issued from the purchasers' bank. That way the exporter can be garanteed payment when the goods arrive.
A letter of credit is only issued by a bank if the buyer is financially sound or if the cargo is worth 'the risk'. When the goods arrive, the purchaser confirms to their bank that they have received the goods and the bank pays the sum.
As the banks are not willing to supply credit the trade stops. Here in Brazil the price of meat has dropped by 50% because the suppliers of meat can't export their products and have to sell them on the internal market (good for us consumers). However, countries like Russia and the US, which depend heavily on imported products, this can and probably will aggravate the already current economical crisis, as they will deplete their stocks which in turn will raise the prices - supply and demand - and then we know what comes next...
Soon I see a sort of migration of people, the more able ones will move to countries where their money will buy more (George Green in Ecuador, for example) and the less able will move to other region in their country to move back home with families etc. to make ends meet.
Then it's a case of buckling down and riding out the storm.
Best regards,
Steve
Quote:
Originally Posted by Jnana
That's probably a bit of an understatement. The Baltic Dry Index provides "an assessment of the price of moving major raw materials by sea."
The price of shipping is down because demand is down, and because the cost of fuel is down - making it possible for shippers to offer lower prices in a highly competitive market. Demand doesn't have to drop much below capacity for a "buyer's market" to result - resulting in a dramatic drop in shipping prices from the situation not long ago when there were not enough ships available to move the goods companies wanted to ship.
If you want to know the actual volume of goods shipped, the BDI isn't particularly useful.
From Wikipedia (link above)
Some of the articles quoted in earlier posts in this thread do not provide a valid analysis of the meaning of the BDI. This could be either due to honest misunderstanding or deliberate misrepresentation. Which is the case? I have no idea. |