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There are other reasons why Baltic Dry Index is falling - new megaships are reducing shipping costs. http://www.forbes.com/sites/timworstall/2015/11/20/dont-ab

by rtuins 11y ago

There are other reasons why Baltic Dry Index is falling - new megaships are reducing shipping costs. http://www.forbes.com/sites/timworstall/2015/11/20/dont-abandon-ship-what-matters-is-why-the-baltic-dry-index-is-falling/#4704eb4d4cd0 http://www.forbes.com/sites/timworstall/2015/11/20/dont-aban...

tosseraccount 11y ago
Indeed. You can measure boat and rail traffic, but what about the digital economy? http://www.aei.org/publication/its-official-a-lost-decade-for-the-us-economy/ http://www.aei.org/publication/its-official-a-lost-decade-fo... : "One potential explanation that reconciles these observations is that structural changes in the US economy may have resulted in a statistical understatement of real GDP growth. There are several possible areas of concern, but the rapid growth of software and digital content—where quality-adjusted prices and real output are much harder to measure than in most other sectors—seems particularly important."
- ThomPete 11y ago
  Which is all the more reason to treat technology not as an externality as it's being done now but as an integral part of GDP.
  - themartorana 11y ago
    At least now, yes. It was certainly an odd market before, somewhat segregated from other industries, but now technology is the driver behind all sorts of market moves - from lower prices to lower costs and higher profit margins to being part of almost every advantage one competitor gains over another. I think people imagine "technology" is only Uber et al and can still be segregated into its own market, but some of the most interesting tech developments and software engineering are happening far from the Silicon Valley app-culture.
    - ThomPete 11y ago
      Hmm. I would buy that it wasn't easy to include it into economic models but it wasn't impossible and for a long time it's been an important factor to understand economy. Right now it's practically impossible to say anything relevant about the economy without because we don't have a model that includes technology.
bcg1 11y ago
Of course you should use more than one indicator... like commodities getting completely crushed across the board: http://finviz.com/futures_charts.ashx?t=ENERGY&p=w1 http://finviz.com/futures_charts.ashx?t=ENERGY&p=w1 http://finviz.com/futures_charts.ashx?t=SOFTS&p=w1 http://finviz.com/futures_charts.ashx?t=SOFTS&p=w1 http://finviz.com/futures_charts.ashx?t=METALS&p=w1 http://finviz.com/futures_charts.ashx?t=METALS&p=w1 http://finviz.com/futures_charts.ashx?t=MEATS&p=w1 http://finviz.com/futures_charts.ashx?t=MEATS&p=w1 http://finviz.com/futures_charts.ashx?t=GRAINS&p=w1 http://finviz.com/futures_charts.ashx?t=GRAINS&p=w1 Usually plummeting commodity prices are not a sign of economic activity, although they are priced in dollars so maybe a stronger dollar has something to do with it... but a strong dollar itself might suggest a flight to safety instead of global economic activity: http://finviz.com/futures_charts.ashx?t=BONDS&p=w1 http://finviz.com/futures_charts.ashx?t=BONDS&p=w1
- horsecaptin 11y ago
  A stronger dollar combined with a lack of a middle-class that can actually use the dollar's strength to consume more stuff means trouble.
  - pessimizer 11y ago
    A stronger dollar is what destroys the middle class by crushing exports: http://www.tradingeconomics.com/united-states/balance-of-trade http://www.tradingeconomics.com/united-states/balance-of-tra... (click MAX) http://www.usatoday.com/story/money/business/2015/05/05/trade-deficit-march/26883119/ http://www.usatoday.com/story/money/business/2015/05/05/trad...
    - bcg1 11y ago
      Perhaps worse for people in the US than a potential drop in exports (we've had a negative balance of trade for a while, irrespective of dollar strength) is the effect on corporate earnings for US companies that make money abroad. A strong dollar wreaks havoc on their balance sheets (since they need to report their earnings in dollars) and can absolutely lead to falling share prices as well as domestic job cuts.
floppydisk 11y ago
The BDI is a summation of a lot of information into a single price point. Megaships, and the general push for more fuel efficiency in new ship builds do impact it to some extent, but not to the degree necessary to account for a major push down. Megaships, in general, don't work for the general shipping case. They work well for oil and containers where clients are either purchasing a small segment of the ship and their goods fit in 40' containers or they're buying millions of barrels of oil and need to move it halfway around the world. These ships are also port/canal limited. Most of the megaships cannot traverse the Suez or Panama canals and get forced to take the long way around, which can increase shipping time, and many of them cannot use most ports in the world. The new megacontainer ships are extremely limited because existing ports need to spend a significant chunk of capital to increase their capacity. Oil tankers, on the other hand, can lighter off the coast and either use offshore booms to transfer to shore via undersea pipelines or offload onto smaller tankers who take it into port. The biggest driver in shipping costs is fuel. Yes, shipping is efficient in a tonnes/gallon ratio sense, but it still ain't cheap to fill up the tank. As oil prices plummet, it reduces the costs of operating tankers which increases the profit margin for the operating company and allows them to reduce prices in order to gain business. The second biggest driver is business. Companies position their assets where business is and if a lot of people have put their ships near the business, the business can negotiate a lower rate which will push the BDI down in price. Source: I've built systems designed to track the maritime shipping market and the impact on commodities.
hacknat 11y ago
I invested a little in Dry Bulk right after the recession. The reason it's out for the count is a lot of players entered the market on expensive debt at the height of the Recession, taking the long bet that shipping would recover, which it did. There was a brief glimmer of hope a few years ago when most of these companies refinanced their debt. The P/E ratios for most of these companies are incredibly low, but even still they are a bad investment. The structure of a lot of these companies is odd as well. They are often structured as shell companies wrapped around a private entity that actually employs everyone and does all the work. I'm guessing some companies have some pretty nice, debt financed, salaries for upper management. Given the glut of shipping supply, and our current, modest recovery, I find BDI's tulmult to be less surprising than the sun rise this morning.

by rtuins 11y ago

tosseraccount 11y ago

Indeed. You can measure boat and rail traffic, but what about the digital economy? http://www.aei.org/publication/its-official-a-lost-decade-for-the-us-economy/ http://www.aei.org/publication/its-official-a-lost-decade-fo... : "One potential explanation that reconciles these observations is that structural changes in the US economy may have resulted in a statistical understatement of real GDP growth. There are several possible areas of concern, but the rapid growth of software and digital content—where quality-adjusted prices and real output are much harder to measure than in most other sectors—seems particularly important."

ThomPete 11y ago
Which is all the more reason to treat technology not as an externality as it's being done now but as an integral part of GDP.
- themartorana 11y ago
  At least now, yes. It was certainly an odd market before, somewhat segregated from other industries, but now technology is the driver behind all sorts of market moves - from lower prices to lower costs and higher profit margins to being part of almost every advantage one competitor gains over another. I think people imagine "technology" is only Uber et al and can still be segregated into its own market, but some of the most interesting tech developments and software engineering are happening far from the Silicon Valley app-culture.
  - ThomPete 11y ago
    Hmm. I would buy that it wasn't easy to include it into economic models but it wasn't impossible and for a long time it's been an important factor to understand economy. Right now it's practically impossible to say anything relevant about the economy without because we don't have a model that includes technology.

bcg1 11y ago

Of course you should use more than one indicator... like commodities getting completely crushed across the board: http://finviz.com/futures_charts.ashx?t=ENERGY&p=w1 http://finviz.com/futures_charts.ashx?t=ENERGY&p=w1 http://finviz.com/futures_charts.ashx?t=SOFTS&p=w1 http://finviz.com/futures_charts.ashx?t=SOFTS&p=w1 http://finviz.com/futures_charts.ashx?t=METALS&p=w1 http://finviz.com/futures_charts.ashx?t=METALS&p=w1 http://finviz.com/futures_charts.ashx?t=MEATS&p=w1 http://finviz.com/futures_charts.ashx?t=MEATS&p=w1 http://finviz.com/futures_charts.ashx?t=GRAINS&p=w1 http://finviz.com/futures_charts.ashx?t=GRAINS&p=w1 Usually plummeting commodity prices are not a sign of economic activity, although they are priced in dollars so maybe a stronger dollar has something to do with it... but a strong dollar itself might suggest a flight to safety instead of global economic activity: http://finviz.com/futures_charts.ashx?t=BONDS&p=w1 http://finviz.com/futures_charts.ashx?t=BONDS&p=w1

horsecaptin 11y ago
A stronger dollar combined with a lack of a middle-class that can actually use the dollar's strength to consume more stuff means trouble.
- pessimizer 11y ago
  A stronger dollar is what destroys the middle class by crushing exports: http://www.tradingeconomics.com/united-states/balance-of-trade http://www.tradingeconomics.com/united-states/balance-of-tra... (click MAX) http://www.usatoday.com/story/money/business/2015/05/05/trade-deficit-march/26883119/ http://www.usatoday.com/story/money/business/2015/05/05/trad...
  - bcg1 11y ago
    Perhaps worse for people in the US than a potential drop in exports (we've had a negative balance of trade for a while, irrespective of dollar strength) is the effect on corporate earnings for US companies that make money abroad. A strong dollar wreaks havoc on their balance sheets (since they need to report their earnings in dollars) and can absolutely lead to falling share prices as well as domestic job cuts.

floppydisk 11y ago

The BDI is a summation of a lot of information into a single price point. Megaships, and the general push for more fuel efficiency in new ship builds do impact it to some extent, but not to the degree necessary to account for a major push down. Megaships, in general, don't work for the general shipping case. They work well for oil and containers where clients are either purchasing a small segment of the ship and their goods fit in 40' containers or they're buying millions of barrels of oil and need to move it halfway around the world. These ships are also port/canal limited. Most of the megaships cannot traverse the Suez or Panama canals and get forced to take the long way around, which can increase shipping time, and many of them cannot use most ports in the world. The new megacontainer ships are extremely limited because existing ports need to spend a significant chunk of capital to increase their capacity. Oil tankers, on the other hand, can lighter off the coast and either use offshore booms to transfer to shore via undersea pipelines or offload onto smaller tankers who take it into port. The biggest driver in shipping costs is fuel. Yes, shipping is efficient in a tonnes/gallon ratio sense, but it still ain't cheap to fill up the tank. As oil prices plummet, it reduces the costs of operating tankers which increases the profit margin for the operating company and allows them to reduce prices in order to gain business. The second biggest driver is business. Companies position their assets where business is and if a lot of people have put their ships near the business, the business can negotiate a lower rate which will push the BDI down in price. Source: I've built systems designed to track the maritime shipping market and the impact on commodities.

hacknat 11y ago

I invested a little in Dry Bulk right after the recession. The reason it's out for the count is a lot of players entered the market on expensive debt at the height of the Recession, taking the long bet that shipping would recover, which it did. There was a brief glimmer of hope a few years ago when most of these companies refinanced their debt. The P/E ratios for most of these companies are incredibly low, but even still they are a bad investment. The structure of a lot of these companies is odd as well. They are often structured as shell companies wrapped around a private entity that actually employs everyone and does all the work. I'm guessing some companies have some pretty nice, debt financed, salaries for upper management. Given the glut of shipping supply, and our current, modest recovery, I find BDI's tulmult to be less surprising than the sun rise this morning.