Sinking Shippers Signal Global Goods Troubles

It infects every boardroom across the world. Big business requires decent forecasting, yet time and again it seems they are deprived of what they desperately need. Instead, even after this last decade, the world’s largest companies continue to be surprised by weakness that is far more prevalent than strength.

It has been the one constant. Central bankers declare their policies successful, ignoring mountains of market-based contradictory evidence in doing so, and then adjust their economic baselines based on this subjective, highly contentious assumption. The worst of it actually takes place when the global economy manages a mild upswing, reflation when policymakers simply go nuts extrapolating small improvement into momentous acceleration.

One of the most difficult industries to have been in since 2007 was shipping. Economists never saw 2008 coming, and then when it hit failed to adjust to what amounted to a paradigm shift. Transit rates plummeted because there were too many ships. At least that’s what they said.

Why were there too many? When making new orders for them, it was commonly believed global trade would continue to grow as it had for decades. Global growth was taken as a given because central bankers, everyone knew, would never allow a change in course. Even after 2008, everyone kept believing the recovery story.

Therefore, had global trade not been permanently interrupted by that first eurodollar problem, what’s called the Great “Recession”, there wouldn’t have been too many ships. The problem, therefore, isn’t necessarily the number of vessels it was and is following the mainstream forecasts. That there is still a supply imbalance, and shipping prices reflect this fact, this is actually confirmation of the negative interpretation of something like BDIY.

The Baltic Dry Index is a broad measure of shipping rates for raw commodities like iron or coal. It is a useful proxy for gauging the margins of global trade, therefore, global growth overall. The common excuse for its long-term decline has been overbuilding. But, again, if global trade had turned out the way it was predicted the number of ships would’ve been appropriate.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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