Baltic Dry Index Case Study

Baltic Dry Index

The following Baltic dry index is not restricted to the Baltic Sea it is a global economic indicator. It provides information on the price range of moving major raw materials like coal, iron ore and grain transported by sea per day. The line graph is divided into one x-axis which shows the given period in years starting in 2007 and ending in 2012. On the other hand, the y-axis illustrates the price index rate ranging from 0 to 12000 units. The initial value is around 4200 units the final is 800 units, so the index lost an amount of 3400 units over the total time of 5 years. In the first quarter of the diagram, a trough stage is presented by 4200 units. At the end of 2007, an upward movement (recovery) could be seen. The graph
The reason for this behavior: Operator earning so much money per day that they are ready to pay enormous prices for secondhand ships or new vessels. After reaching the peak, the golden times for ship-owners are over. As supply overtakes demand at the end of 2008, freight rates collapse and plummeted to a low of 6000 units. The collapse result of the greed from ship-owners they ordered so many ships and generated an overcapacity of supply this mistake is always made from humans being. In a collapse, ship-owners reduce operating speed and the least attractive vessels take out of the market. Also, the second-hand market collapse. Ship-owners are unwilling to sell their vessels at a discount to recent peak because at the peak they earn so much money, so they have enough capital to keep their older vessels. In addition, we have as well as no demand for second-hand vessels nobody needs more vessels in a collapse. The collapse is followed by a recovery in the same year. As supply and demand move towards balance, the freight rates leap to 8000 units. Now some operators are optimistic for further increase of the freight rates but the sentiment remains uncertain. After a drop by 500 units, freight rates rocketed to the second peak of registering a value
After reaching the peak at the beginning of 2009, the rates were collapsing again for the same reasons as the first collapse. There is followed by a trough in the middle of 2009. In this regard, freight rates fall to the operating cost of the least efficient ships, therefore, shipowners reduce operating speed (slow steaming) and remove the least attractive vessels out their fleet. Also, the second-hand market stagnates and nobody is willing to add more ships in this dramatic situation. The only way out of the doldrums is the demolition market as it can restrict the vessels on the market. Many operators have not the finical capacity for a long lull to keep all their vessels, therefore they have to sell some uneconomical older ships to survive in the market. Another characteristic of a trough is the stagnation of the line graph a state of quiescence sets in. This diagram ends in fluctuations from 2009 until 2012. The whole development of the Baltic Dry Index can be described as typical shipping cycle. Ship. Shipowners always take the same mistakes at the peak they all buy ships over ships and generated an overcapacity of supply and destroy these phase of the shipping cycle so someone can say that no escape from the boom and bust the cycle is