Freight rates for dry-bulk and container ships, carriers of most of the world’s raw materials and finished goods, have plunged over the last six months in the latest sign the global economy is slowing significantly.
The Baltic Dry Index, measure of ship transport costs for materials like iron ore and coal, has fallen by 47% since mid-2018, when a trade dispute between the United States and China resulted in the world’s two biggest economies slapping import tariffs on each other’s goods.
Dry-bulk commodities are taken as a leading economic indicator, because they are used in core industrial sectors like steelmaking and power generation, and analysts say the recent declines in activity point to a serious economic slowdown.
“Signs that the U.S. and China remain well apart in trade talks continued to weigh on sentiment in commodity markets,” ANZ bank said in a note on Friday.
This was after U.S. Commerce Secretary Wilbur Ross said on Thursday the United States and China were “miles and miles” from resolving their issues.
“The global economy and dry-bulk shipping market are showing us very real signs of distress,” said Jeffrey Landsberg, managing director of commodity consultancy Commodore Research.
“While dry-bulk rates often face at least some pressure during the early stages of a year, the magnitude of the declines being seen lately have been very rare,” he said.
The Baltic index has lost a quarter of its value since the start of the year, and dry-bulk is not the only shipping market under pressure.
Container rates slump
The Harpex Shipping Index, which tracks container rates, has dropped by 30% since June 2018.
As a measure of the demand for shipping manufactured goods from producers to consumers, container rates are also seen as a leading economic indicator.
Their slump underscores weakening manufacturing data from Asia, Europe and North America. “Slowing global economic growth, the unresolved U.S.-China trade conflict, the U.S. government shutdown, and Brexit drama are all sources of uncertainty dragging at sentiment,” said Hussein Sayed, chief market strategist at futures brokerage FXTM.
