Chart Points To Massive Slow Down: “This Is The Biggest Collapse In The ‘Trade’ Indicator Since Records Began”

Prior to the crash of 2008 global trade was rocking. It was a boon for shipping companies around the world who are responsible for moving raw materials, commodities and consumer products from one country to another. Wall Street, of course, had devised a way to track all of this movement and often pointed to the Baltic Dry Index (BDI) as the primary indicator for health in the global trade business.

The index itself tracks the cost of transporting one metric ton of raw materials from one place to another.The numbers behind the BDI can essentially be translated into the cost of moving that cargo.

During the collapse in late 2008 we saw the Baltic Dry Index drop from over 9,000 points to under 1,000 in a matter of months. So, in essence, when the world economy was supposedly booming the cost for moving raw materials was around $9,000 per metric ton. After credit markets locked up and companies stopped ordering inventory the price dropped below $1,000 for moving the exact same raw materials to the exact same place.

What happened to the cost of transporting raw materials and cargo is exactly what you might expect with respect to the economics of it all. When businesses around the world are ordering inventory you’d expect shippers to raise the price of transporting that cargo as demand for their services increases. Likewise, if businesses don’t sell their products they will order less in raw materials, forcing shipping companies to lower their costs as demand for their services drops.

It is for this reason that the Baltic Dry Index has become such a key indicator of economic health and stability.

More