{"id":43290,"date":"2018-05-02T03:00:56","date_gmt":"2018-05-02T07:00:56","guid":{"rendered":"http:\/\/quotulatiousness.ca\/blog\/?p=43290"},"modified":"2018-05-01T12:33:35","modified_gmt":"2018-05-01T16:33:35","slug":"uses-and-misuses-of-the-baltic-dry-index","status":"publish","type":"post","link":"https:\/\/quotulatiousness.ca\/blog\/2018\/05\/02\/uses-and-misuses-of-the-baltic-dry-index\/","title":{"rendered":"Uses and misuses of the Baltic Dry Index"},"content":{"rendered":"

At the Continental Telegraph<\/em>, Tim Worstall<\/a> explains why, for example, Zero Hedge<\/em>‘s witterings about the changes in the Baltic Dry Index are not actually predictive of boom or bust in the global economy:<\/p>\n

As background, the volume of such shipping \u2013 dry is referring to dry bulk cargoes, wheat, grains, cement, that is, not container stuff and not oils \u2013 is an important indicator of global growth. Trade tends to, tends to note, increase faster than growth itself. If the volume of trade falls off a cliff then we would indeed think that there\u2019s going to be a kablooie in our global GDP figures.<\/p>\n

The Baltic Dry is an index of the prices of shipping these cargoes. It\u2019s thus the interaction of the supply of shipping as against the demand for it. That\u2019s rather more than subtly different to the volume of world trade.<\/p>\n

The basic background here is that there are reasonably long lead times to get more shipping afloat. And once it is afloat then it tends to stick around for a decade or two. Building the boat is a sunk cost (sorry<\/em>) so you keep trying to use it as long as income from doing so is above marginal costs, of maintenance and fuel (and maintenance will be skipped in some circumstances) and bugger the mortgage. The supply of shipping is near entirely inelastic on an annual basis, near entirely elastic on a two decade basis.<\/p>\n

Demand for shipping is much more elastic in that shorter term. As is usual when we\u2019ve an inelastic supply meeting an elastic demand in a marketplace we get wild price swings. They being what causes that longer term elasticity \u2013 as with, say, oil from conventional reservoirs.<\/p>\n

The Baltic Dry can drop because more ships are being launched, it can rise because more are scrapped. Not because \u2013 note the can here \u2013 the volume of trade has changed at all.<\/p>\n

What has actually been happening in shipping in general is that the ship owners all looked at how trade was growing before 2008. So, they thought, aha! 5% volume growth! (Numbers here are made up but indicative of the major points) Let\u2019s order more spanking new ships! Which then start arriving in 2010, 2011. Flooding the market with new supply. And shipping volume didn\u2019t grow at 5%. It grew at 2% instead. (Again, these numbers are made up, reflecting memory and thus not accurate, but the relationships between them are about right) So, prices plunge.<\/p>\n

But it\u2019s those prices which plunge, not the volume of world trade.<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

At the Continental Telegraph, Tim Worstall explains why, for example, Zero Hedge‘s witterings about the changes in the Baltic Dry Index are not actually predictive of boom or bust in the global economy: As background, the volume of such shipping \u2013 dry is referring to dry bulk cargoes, wheat, grains, cement, that is, not container […]<\/p>\n","protected":false},"author":1,"featured_media":35193,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[25],"tags":[1094,61,290],"class_list":["post-43290","post","type-post","status-publish","format-standard","hentry","category-economics","tag-gdp","tag-ships","tag-statistics"],"jetpack_featured_media_url":"https:\/\/quotulatiousness.ca\/blog\/wp-content\/uploads\/2016\/06\/favicon.png","jetpack_shortlink":"https:\/\/wp.me\/p2hpV6-bge","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/43290","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/comments?post=43290"}],"version-history":[{"count":1,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/43290\/revisions"}],"predecessor-version":[{"id":43291,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/43290\/revisions\/43291"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/media\/35193"}],"wp:attachment":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/media?parent=43290"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/categories?post=43290"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/tags?post=43290"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}