The Most Overrated Economic Indicator In The World Is At A 3-Year High


If you hear anyone pointing out that the Baltic Dry Index (BDI) is at a three-year high, ignore them.

As an economic indicator, the BDI — the daily survey of spot shipping rates — is highly problematic, as it doesn’t tell us anything about the broader global economy, other than that what it costs to ship. We’ve written about this multiple times.

The main problem is that it reflects the relationship between the spot supply of available ocean freighters and the spot demand for commodities. And the smallest misalignments can cause the index to fluctuate wildly. Too few ships, for instance, can cause it to skyrocket — and it only takes a couple ships to have too few. Ocean freighters may be able to hold a lot, but they’re pretty expensive to build. As Vincent Fernando explained several years ago:

“…predicting ship supply and commodities demand has a pretty high margin of error… remembering how sensitive the BDI is to small mismatches due to the inelastic nature of its underlying supply and demand, and you quickly realise that predicting the BDI is a fool’s game and also that it is not a reliable forward indicator.”

A better measure is simply to look at an individual country’s export and import volumes. For the U.S., the former are up more than the latter.

Still, if you must know, the Baltic Dry Index now stands at a three-year high of 2,330 points, and has averaged 1,815 in Q4 according to Bloomberg, the strongest quarter since 2011.

But again, all this could mean is a near-term shortage of ships that could be readily remedied. If you want a newsworthy indicator, keep looking.

Baltic dry index
The Baltic Dry Index Bloomberg