What an exciting feeling it is to stand on the quayside and watch the gigantic ships in the harbour. The thrill of hearing a ship blow it sworn as it leaves Cape Town docks. Tugs towing a huge container ship into harbour to its moorings.
The raw materials, dry bulk commodities such as iron ore, cement, grain, coal and fertilisers that are shipped on the sea routes around the world give a good indication of the level of global economic activity.
The main sea freight index, the Baltic Dry Index (BDI), tracks freight costs on 23 shipping routes (not just the Baltic Sea countries), covering carriers including Handysize, Supramax, Panamax and Capesize dry bulk (for the ship classifications and sizes see Wikipedia (“Dry Baltic Index”). The index indirectly measures global supply and demand for commodities shipped aboard dry bulk carriers.
In May 2008 the index reached its record high level (11,793 points) then collapsed. By December that year the world economies were either in recession or heading that way. For five years the BDI has remained flat with minor blips (deltas) up and down. In January this year the index was 699 points. It reached the 1,000-point mark in June and has been creeping up slowly.
This September the BDI has shot up to 1,860 points (20 September 2013). A more than two-and-a-half fold jump is nothing to sniff at but the index is still only 15,8% of its peak in May 2008. Bloomberg reports that increasing steel output in China is raising demand for vessels delivering iron ore. Global agricultural exports including soya beans and grains are expected to rise to a near-record this year, according to the US Department of Agriculture.
A rise in a global index such as the BDI is encouraging, especially for exporters but any indicator on its own is not enough. Business owners have to look at a number of indicators as each has its flaws and shortcomings.
For business owners local leading economic indicators can give a better sense of where the economy is headed. While we have national indices such as property sales, the stock market, the manufacturing index, vehicle sales, bankruptcies and the consumer confidence index, local business people can look to leading indicators in the communities they serve. Property sales may be an indicator as could rental property rates. Even a look at shopping centre parking use may provide an indication of rising or waning local economic activity.
Leading indicators, whether the Big Mac Index, Hemline Index or the Lipstick Effect, can be useful for foresight into supply and demand. But be careful to place big bets on any such information. That’s a game only played by high-stakes rollers with deep pockets.