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The Rupp Report

The Rupp Report: A Light At The End Of The Tunnel?

Jürg Rupp, Executive Editor

In times of economic crisis, when the whole globe is paying the bill for the financial industry's failure and greed, everybody is searching for hope. And there is a little bit of hope: A few days ago, the Baltic Dry Index (BDI) reported that shipping over the seven seas has grown. This is quite remarkable. In the focus of this information was China: According to the head of maritime operating giant China Shipping Group, broad industry indicators suggest the ocean container market will improve in the second half of 2009.

Li Shaode, president of Shanghai-based China Shipping Group, mentioned that measures such as the BDI for dry bulk prices suggest improvement at the basic commodity level that will feed more shipping in the coming months. The BDI has grown haltingly this year after a steep falloff of more than 80 percent in the last three months of 2008. Mr. Li said that "this indicates that the market is turning up."

Why This?
The BDI is regarded around the globe to be a very precise indicator reflecting the economic climate of the world. In modern times, almost every piece in the market is shipped from somewhere to somewhere else. And shipping statistics are a very good indicator of the actual situation. The indices are of crucial importance to the freight derivatives industry. They also are closely followed by charterers and ship owners.

Baltic Dry Index
The BDI is owned by the Baltic Exchange, a London-based company formed some 225 years ago. The Baltic indices are an assessment of the price of moving the major raw materials by sea. The indices are based on assessments of the cost of transporting various bulk cargoes, including both wet - like crude oil and oil products - and dry goods - such as coal and iron. The assessments made by leading ship brokerage houses located around the world on a per metric-ton and daily-hire basis. The information is collated and published by the Baltic Exchange.

It is said that the Baltic is the only source of independent and quality freight market data and information. The principal indices are: the Baltic Capesize Index (BCI); Baltic Panamax Index (BPI); the Baltic Supramax Index (BSI); and the Baltic Handysize Index (BHSI). All this information is combined in the BDI. The Baltic International Tanker Routes (BITR) reports on 19 international oil routes and comprises the Baltic Dirty Tanker Index (BDTI) and the Baltic Clean Tanker Index (BCTI). The exchange also publishes a daily fixture list, a liquified petroleum gas route assessment, the Baltic Sale & Purchase Assessment (BSPA), forward curves (Baltic Forward Assessment) and Forward Freight Agreement (FFA) settlement prices.

Going Up 228 Percent
But for the textile industry, the BDI can be one of the relevant sources of information. Some days ago, the BDI was riding an 11-day winning streak during which the index has gained 43 percent. Year to date, the index is now up 228 percent. Given that it is a measure of shipping rates, the increase in the BDI is regarded by many as an important indicator of an improving global economy.

Let's wish the best for it. Hopefully this is not only wishful thinking. If you want to have a closer look at the BDI go to www.thebaltic.com

May 26, 2009

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