The Baltic Dry Index, a measurement of ocean freight costs, has been rising since the beginning of October.
That indicates demand for raw commodities might be reviving, holding out hope that the international economy is on the mend.
The index gauges the cost of shipping raw resources such as iron ore, cement, grain, coal and fertilizer. It is seen as a rough guide to the demand for these products.
If demand is rising that means more steel will be produced, buildings will be constructed and factories will turn out more finished goods such as cars.
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The BDI crashed in the second half of 2008. It peaked at 11,793 in May 2008 just before the market crashed, then plummeted to a low of 663 in December.
By June of this year it had recovered to about 4,500 but then retreated again to less than 2,200 in late September before its October rally, when it rose 36 percent.
As of Nov. 2, it stood at 3,185 and there is hope it will climb more as growing Asian economies, particularly China, lead the world out of recession.
It is worthwhile to watch the index because it gives a rough indication of how quickly the world will return to the sort of prosperity that increased food demand and lifted grain and oilseed prices.
However, we are unlikely to see the BDI return to the heights seen in the spring of 2008 because new ships, ordered when ocean freight costs were rising, will be launched in 2010 and capacity will likely keep up with demand.
Ocean freight costs are also watched for their effect on grain buyer demand. Back during the commodity frenzy of 2007 and early 2008, buyers faced a double hit of rising grain and shipping costs.
The cost of a tonne of grain landed on a foreign shore could be a burden for the buyer, not because of the cost of the grain but because of the cost to get it there.
The BDI reflects the demand for all types of ships, from small to gigantic. The recent rise has been led by capesize ships, those of more than 100,000 tonnes that are too large to fit through the Panama Canal and must go around the Cape of Good Hope.
Grain tends to move on smaller ships.
The International Grains Council maintains a grain freight index that doesn’t include capesize vessels. Its experience in the last year was similar to the BDI in that it plunged in late 2008 and rallied this year until June. However, it has been steadier since then and rallied only two percent in October.
The grains council also posts representative shipping costs on common routes. The Atlantic run from the St. Lawrence to Europe this fall has cost about $29 US per tonne, up from $16 last December but still well below the high of about $82 in the early spring of 2008.
This indicates grain shipping costs are not now an impediment to exports.
So the measure of ocean freight costs is positive for the grain sector: rising demand for ships generally, indicating a recovering global economy, but stable costs for grain shipping.
