BDI Weakens; Other Shipping Measures Are Strong

I have had some repeated requests from some loyal CD readers to get an update on the Baltic Dry Index (you can always go here on your own any time you need your "BDI fix"), which has been in decline for the last month after reaching a YTD high in late May (see chart above).  Dennis Gartman addressed this recent decline in the BDI in his newsletter on July 8, where he quoted Julian Jessop, Chief Economist of Capital Economics:

"The BDI is a composite measure of the cost of hiring a ship to transport dry bulk commodities such as grains, coal and metal ores. It is therefore understandable that the near -50% fall in the index since late May is attracting plenty of attention. However, there are two reasons to be wary of making big calls on commodities (or anything else) on the basis of the BDI. For a start, fluctuations in the index could be driven by changes in the supply of shipping as well as in the underlying demand for commodities transported by sea. For example, a fall in the BDI could reflect an increase in the number of ships available to carry dry commodities (either new-builds or conversions from other uses, such as tankers. Similarly, the BDI might be distorted by temporary port closures, changes in the cost of fuel and insurance, and many other factors."

Dennis Gartman then added, "We shall accept it for perhaps half of the decline. We might even willingly accept it for two thirds of the decline, but there is more at work here than a mere increase in supply. Demand too must be weak, and it is this weakness that has our attention."

Other shipping statistics that measure physical volumes (TEUs) rather than shipping rates have been showing positive increases in recent months, see CD posts here for the port of Los Angeles and here for the port of Seattle. Also Scott Grannis has reported recently on the ongoing strength in the HARPEX Shipping Index.  As Dennis Gartman suggests, we should definitely pay attention to the BDI if it continues to weaken, but we should also pay attention to the other indicators of shipping activity, many of which continue to show signs of strength, including the HARPEX, rail traffic, LA Port shipping volume, Seattle Port shipping, and U.S. trucking tonnage.