NEW YORK (TheStreet) -- Commodity shipping has been unable to hold on to late 2011 gains so far this year as the industry's continuing struggle with a glut of container ships sent the Baltic Dry Index to its second-worst month on record in January.
The Baltic Dry Index (BDI), a measure of shipping costs for commodities, sank 61% in January, marking the second-biggest monthly decline since the Baltic Exchange started keeping records in 1985. The last time the index took such a hit in a single-month was as the U.S. financial crisis was heating up in October 2008.
However, BDI's January tumble is not a sign for investors to panic. While the BDI is often seen as a leading economic indicator as a measure of overall demand for raw materials, the BDI's use as an indicator "really doesn't make much sense at all," dry-bulk expert Jeffrey Landsberg said.
"It's a common mistake to use the BDI as an economic indicator," said Landsberg, who runs the dry-bulk analytics shop Commodore Research & Consultancy in New York. "But it should not be used because it has little to do with demand."A decrease in Chinese demand for iron ore contributed to January's slump, but global demand is not yet a real concern. The real weight behind last month's tumble to crisis-level lows is an abundance of shipping capacity that continues to grow at an accelerating pace as a delayed consequence of strong optimism seen in 2007 and 2008. 2012 will be the third year of robust delivery of new ships, Landsberg said, as ships ordered in 2008 and 2009 when shippers were flush with cash just now reach buyers. For Capesize vessels -- a class of some of the world's largest ships -- delivery usually takes 2.5 to 3 years after a new order is placed. Before the shipping boom years of 2007 and 2008 when shipping rents jumped to record levels, new Capesize deliveries averaged 45 ships a year. In 2009, that number jumped to 115 and then to 214 in 2010. Last year the number of new ships delivered continued to soar to 260, and Landsberg said he expected to see an even larger amount delivered this year.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV