Tuesday, October 2, 2012

What is the Dry Bulk Shipping Industry BDI Index Saying?


During the past decade or so nearly every sector of the transporation industry has run into serious Secular cycle problems. First it was the Airlines, then Trucking, then the Autos, and now Shipping. While the first three sectors appear to be in some early stages of recovery. The Shipping sector has yet to find the bottom. During the 2000′s demand-driven commodity boom, shipping rates skyrocketed and new ships were coming online every month. After the 2008 collapse in demand and commodity prices, the shipping industry found itself dealing with much lower rates and huge excess shipping capacity. During the past four years some shipping companies have been forced into bankruptcy, some are facing bankruptcy, and others a struggling along with high long term debt. To reverse this downward cycle, demand has to rise along with shipping rates while industry consolidation continues.

Since the middle of the last decade we have been tracking the Baltic Dry Index (BDI). This is a weighted index of international shipping rates. Its three components are the Capesize, Panamax, and Super Panamax (Handy) dry bulk cargo ships. For the past few months we have been examining this index, looking for signs of a potential upcoming bottom in this industry. We have concluded that is likely to occur this year.
When reviewing the BDI from 1985, and using written reports on the shipping industry as far back as the early 1970′s, we believe we have uncovered a regular 13 year cycle. It appears every 13 years shipping rates make a cyclical low: 1973-1986-1999-2012. After the low is in place rates generally rise for the next 9 years, then decline 4 years into the next cyclical low. During the 9 year bull market, rates rise for 5 years, decline for 1 year, and then rise for another 3 years into the cyclical peak. In addition, in the early stages after the cyclical low, rates typically triple during the first 2-3 years. This is the recovery stage for the shipping industry.
That downtrend should end the bear market is dry bulk shipping rates. With three months left in the year, it appears the 4 year down Cycle should bottom before year end. When it does we would expect shipping rates to triple over the next two to three years.


Courtesy: http://www.marketoracle.co.uk/Article36761.html

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