The answer isn’t quite that simple. For one thing, the BDI can be very volatile – much more so than the economy overall. Previous massive drops in the index haven’t always resulted in a re-run of the Great Depression.
That’s because the BDI isn’t just about transport demand. It’s also about transport supply. Remember, the BDI measures the cost of hiring space on a ship. So if you double the number of ships, then demand for raw materials could remain static and perfectly healthy. But shipping rates, and therefore the BDI, would (in theory) fall in half.
And the fact is that right now, there are far too many ships in the world.
Prior to 2008, when the global economy seemed to be booming, dry bulk ship owners got rather over-excited. They convinced themselves that the good times would last for several more years. So – pretty much all at the same time – they placed lots of orders for ships.
Many of those vessels have now been completed and are becoming available for hire. Extra shipping space equivalent to 23% of the existing fleet is due to be delivered this year, according to Macquarie Research. That’s “too much capacity in the face of more modest growth of trade volumes”.
In other words, it’s no great surprise the BDI has fallen back. What’s more, says Credit Suisse, there’ll be no respite from the oversupply of dry bulk ships until next year at the very earliest. Even then, the existing fleet will still grow by 9% as new ships are delivered. That could still be tough for the market to absorb.
