With May here, surprisingly the Baltic Dry Bulk Index (BDI) breached 3,000 points. It’s the highest the BDI has reached in over a decade. It’s no surprise that the underpinnings of the BDI surge are the demand in China. Still, the surge has many contributing, and potentially volatile, components. And the question is how long will the upside of the super cycle last?
Going Up.
In May, the Baltic Dry Bulk Index (BDI) compiled by the London-based Baltic Exchange, eclipsed the 3,000 point mark barrier – a threshold that has seemed well out of reach for over a decade.
Optimism, like budding spring flowers, now pervades an industry that until recently exuded a dour pragmatism borne from the hard lessons learned on the slides of the wrong side of the business cycle.
Dry bulk freight rates are driven by the global demand for commodities like iron, coal and bulk agricultural products like grains. Added to these bulk commodity mainstays are minor bulks like salt, bauxite or even breakbulk items such as forestry products and wind power parts. It feels like every commodity is in high demand as the global economy begins to emerge from the chill of the pandemic’s touch.
Jan Dieleman, president of Cargill’s ocean transportation division, said in a Reuters interview, “We are seeing demand continuing to be strong, especially on the main commodities.” This might be an understatement. Some economists are already labeling this run as the upside of an economic “super cycle” like the one experienced in 2006/7.
In most years, the availability of dry bulk ships is sufficient to keep rates low. Adding ships to the existing fleet through newbuilding programs tends to cap any long term runs.
After all, with the exception of two notable runs, July of 2003 and June of 2005 and a spectacular run in May of 2006 to crash in the autumn of 2008 with [the onset of the Great Recession], the BDI has rarely sniffed 3,000 points. That Great Recession plunge in 2008 is legendary, going from an all-time high of 11,793 points in May 2008 to a low of 663 in December of the same year.
Yes, there were a number of good months in 2009 and 2010 during the recovery period when the BDI managed to get over the 3,000 mark but by June 2010 those recovery spikes had ended. And like the decades prior to the remarkable 2006-2008 surge, the BDI has struggled to post much above 2400 points – until now.
So, what’s different?
Super Cycle: Chinese Demand
In a nutshell, China is the big difference.
BIMCO’s Peter Sand commenting on the surge wrote, “The impact of…
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Super cycle: Dry bulk shipping making historic run - American Journal of Transportation
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