The Baltic Dry Freight Index is considered by some to be a decent indicator as to the future direction of the economy. The logic goes along the lines that if shippers are busy and therefore raising prices, it must be a sign that the economy is strong. On the flip side, falling prices for shipping services indicates that business for shippers, and ultimately the economy, is weak.
Without getting into the debate over the reliability of this tool, we recently saw that y/y shipping rates are up over 100%, which seems to counter some of the fears out there that our economy is getting too soft. While moves of this magnitude are not rare, it certainly does not indicate that business is slow for shipping companies involved in moving freight.
The chart below graphs the y/y price change in the Baltic Dry Freight Index with recessions marked in red. Note that neither recession of the last twenty years occurred when the price change of the Baltic Dry Index was at similar levels. Conversely, while both of the recessions of the last twenty years were preceded by declines in this index, like economists, this indicator has predicted seven of the last two recessions (i.e. not every downturn in shipping rates is a sign of impending recession).
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