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Baltic Dry Index Slowing Dramatically

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http://blogs.telegraph.co.uk/ambrose_evans...ing_drastically

Mr Saadé, who has just ruled out a bid for Hapag-Lloyd, said the oil spike was a scam. "This boom is artificial. Only speculation can explain the run up in price. One way or another, governments must put a stop to this."

He said fuel now made up 60pc of his shipping costs. "We're cutting the average speed of our container ships from 22 to 19 knots. It's our only possibility," he said.

Global GDP will soon be measured by ship speeds.

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Would appear to be a good indicator for the shape of things to come. The US import records will probably be an earlier indicator than the UK ones though.

Edited by Boomer

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Guest Bart of Darkness

Y'know, before coming to this site I would have had Baltic Dry pegged as some kind of wine.

Yer lives and learns.

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This is the meat of the article:

"We're seeing ships leaving Asia that are not full. We are living through a real economic slowdown."

That's not good..... particularly for Asia. The economic miracle experienced by China, and to a lesser extent India, is dependent on people wanting to buy their stuff (which we taught them how to make). Yes, they may have their own internal markets.... but once the factories start shedding workers..... what then?

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This is the meat of the article:

"We're seeing ships leaving Asia that are not full. We are living through a real economic slowdown."

That's not good..... particularly for Asia. The economic miracle experienced by China, and to a lesser extent India, is dependent on people wanting to buy their stuff (which we taught them how to make). Yes, they may have their own internal markets.... but once the factories start shedding workers..... what then?

Yep, and this means oil demand will soon fall off a cliff as global recession hits. You'd think this would be priced in, but since we are in a bubble market (albeit with fundamentals which necessitate increasing prices over the long term), its price mania until the bubble ends up bursting.

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Yep, and this means oil demand will soon fall off a cliff as global recession hits. You'd think this would be priced in, but since we are in a bubble market (albeit with fundamentals which necessitate increasing prices over the long term), its price mania until the bubble ends up bursting.

Yup, the collapse of oil prices, followed by the collapse of commodity prices, then goes gold, and finally the great bear run in shares that started in 2007 grinds down to a bottom in 2014.

And once there is nothing else to speculate on, a real economy can re-emerge and the cycle can start all over again.

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BTW, this is a fascinating piece of insight. Thanks.

Very much in-line with deflation coming up on the blind-side.

You have to beware of the BDI, it is not a be all and all in itself. It is mostly a speculative futures market that does not necessarily reflect reality (if ever). Sharp BDI swings occured before and were wrong. The futures market only tells us the punters are expecting a slowdown.

A majority of ship leases are long term lease contracts that may be impacted by the BDI at the time of contract inception but are unrelated after that for the duration of the contracts (it can be years). The rest of the leases are based on spot market rates, again not affected by what futures contracts may do (futures contract prices move towards spot rates as they approach expiration, not the other way around).

Another thing to bear in mind is that the BDI is not the only shipping index. The crude tanker indices are still going up from what I can read.

<Edit to add: if anything, shps moving more slowly should increase spot prices as it decreases available supply.>

Edited by williamdb

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If all ships reduce their speeds from 21 to 19, surely the things they're delivering will only be late once.

It's a bit like using canals rather than roads. The first shipment of coal will be 2 weeks late but the second shipment will be 10 minutes after the first..

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If all ships reduce their speeds from 21 to 19, surely the things they're delivering will only be late once.

It's a bit like using canals rather than roads. The first shipment of coal will be 2 weeks late but the second shipment will be 10 minutes after the first..

Depends on the number of ships. If there are sufficient spare ships, then you can construct a 'train' of ships at any speed to carry the same amount of goods. However, if the number of ships is limited, then speed is important, the extreme case being having only one ship..

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He said fuel now made up 60pc of his shipping costs. "We're cutting the average speed of our container ships from 22 to 19 knots. It's our only possibility," he said.

I've heard that some hauliers are starting to reduce their speeds to cut fuel costs. One in particular is now restricted to 52mph instead of the 56-60mph that most are. Obviously this increases their wage bill as it takes longer, so the driver earns more, but it easily offsets the mpg savings

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He said fuel now made up 60pc of his shipping costs. "We're cutting the average speed of our container ships from 22 to 19 knots. It's our only possibility," he said.

And it could get worse. He has the concern that maritime fuel may be hit by inclusion in new CO2 regulations. The ~4.5% it generates is peculiarly overlooked, with the attention being placed on all those unnecessary cheap flights to the beach.

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If all ships reduce their speeds from 21 to 19, surely the things they're delivering will only be late once.

It's a bit like using canals rather than roads. The first shipment of coal will be 2 weeks late but the second shipment will be 10 minutes after the first..

My analysis is that if a ship speed is reduced by 10% then it is 10% late on the first trip, 20% late on it's next trip, etc. Considering the whole fleet it reduces overall deliveries by 10% (assuming they move all the time which is over simplistic but that's as far as I'm prepared to go)

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My analysis is that if a ship speed is reduced by 10% then it is 10% late on the first trip, 20% late on it's next trip, etc. Considering the whole fleet it reduces overall deliveries by 10% (assuming they move all the time which is over simplistic but that's as far as I'm prepared to go)

On the other hand with falling demand keeping the ship at sea for as long as possible serves at least 2 purposes:

It saves significant amounts of fuel by travelling more slowly.

Dead time in port costs a lot of money - harbour fees - plus you have to pay the crews anyway.

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Depends on the number of ships. If there are sufficient spare ships, then you can construct a 'train' of ships at any speed to carry the same amount of goods. However, if the number of ships is limited, then speed is important, the extreme case being having only one ship..

The high speeds of ships in recent years has been the quick response to expanding trade. Easier to drive a ship faster than build another.

Ships are now returning to a more sensible sedate speed on the oceans.

Look on the bright side - the Whales will be happier - collisions with lower speed ships less likely and when they do occur less damaging

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Fuel saving is a function of the speed cubed ( I think ) so dropping speed from 21 to 19 knots would save about 30% fuel. I would imagine over 20 knots is an unusually high speed due to the current high cargo rates and the lack of spare capacity. Now cargo rates are dropping and spare shipping capacity is becoming available then shipping speeds will obviously fall.

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http://www.guardian.co.uk/business/feedarticle/7847367

LONDON, Oct 9 (Reuters) - Ocean freight rates for shipping natural resources except oil fell to their lowest in 28 months on Thursday on growing fears that recession would slow trade.

The London Baltic Exchange's dry sea freight index, used by economists to predict global growth cycles, suffered one of its biggest one-day falls in its 23-year history.

The price slide has intensified over the last fortnight as the worst financial storm since the 1930s that has toppled banks, hammered stock markets and hit oil prices, saps confidence.

Transport costs to haul key resources, the building blocks of the world economy, have fallen 78 percent since a record hit in May on booming demand for raw materials resources in China and India.

The London-based index, which tracks prices to ship resources including coal, iron ore, grains and cement on top export routes, fell 261 points to 2,503, its lowest level since June 2006.

It is heavily exposed to emerging economies in Asia, particularly China, in the past has been closely correlated to key commodity indices.

"There is no confidence anywhere, everything has taken a knock. It's affecting sentiment," William Lyth, a senior freight reporter at the Baltic, said about the financial crisis.

He said signs of slowing Chinese demand for iron ore, a major freight price driver over the last four years, had also hit prices hard.

"Demand is certainly a lot weaker than it was and there has been a massive inventory build up in China, particularly for iron ore and coal and that has dampened trade," said Helen Henton, head of commodity research at Standard Chartered.

"Everyone is downgrading their global growth forecasts, but that doesn't mean that demand for global commodities is collapsing -- it's going down that's the point," she said.

Steel mills in China on Thursday asked a major Australian iron ore producer to delay shipments amid bulging stockpiles of the mineral at Chinese ports.

News of the delays comes after four big Chinese steel makers, representing a fifth of Chinese output, agreed to cut production by up to 20 percent in a bid to support prices.

Analysts generally attribute the slide on the Baltic to lower steel demand from China, slow global coal demand, easing port congestion and growing fleet supply amid low scrapping as owners sought to cash in on the boom.

Despite the rout and the lean economic picture some analysts believe the sell-off has been overstated, expecting prices will rebound into the fourth quarter.

"I think it's over shot. There are some seasonal things that have pushed demand for shipping down in the last few months," Henton said.

"I think once we see some kind of resolution to the iron negotiations in China and (U.S.) grains starting to be shipped around, then I think we will find prices finding support," she said, referring to negotiations with the world's top iron ore supplier Vale of Brazil.

Sea freight prices usually rebound in the fourth quarter on northern hemisphere winter demand for coal and the start of the American export season for grains.

How much over-capacity is there in China ?

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FT had a good take on it, the index is volatile but the problem isn't just the fall in demand for goods.

How can you trust the buyer will pay for your goods at all.

Pristine credit rating, rock solid balance sheet. He says if he takes his BNP Paribas letter of credit to Citi today for short term funding for his vessels, they won't give it to him. That means he can't ship goods, which means that within the next 2 weeks, physical shortages of commodities begins to show up.
This sounds like precisely what is behind the collapse of the Baltic Dry. Peston has it the wrong way around. It's not that demand for goods is falling (though one assumes with the eventual slowdown it will) but rather that the supply of goods is being constricted.

http://ftalphaville.ft.com/blog/2008/10/10...to-world-trade/

Edited by Nicholas Cage

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