This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Baltic Dry Index Swamped by Excess Capacity

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.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
TEU $0.00 0.00%
DRYS $4.01 0.00%
DCIX $1.00 0.00%
EGLE $0.82 0.00%
PRGN $2.64 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs