How The Stock Market Will Crash | Baltic Dry Index (BDI) - YouTube

Ok. Now everyone is talking  about the stock market crash.. 

How The Stock Market Will Crash? Nobody knows for sure the details,  

but recently I’ve been researching  stock market crash topic and faced an  

indicator which is called Baltic Dry Index. 

This index could be very much one  of the reasons to dry our pocket,  

wallet, brokerage account, whatever you choose.  Let’s break down how the stock market will crash.

Hey there, my name is Ken, if you are new here  I talk about personal finance and investments. 

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So let’s start with what Is  the Baltic Dry Index (BDI)? 

The Baltic Dry Index (BDI) is a shipping and trade  index created by the London-based Baltic Exchange.  

It measures changes in the cost of transporting  various raw materials, such as coal and steel. 

Members of the exchange directly contact  shipping brokers to assess price levels for  

given shipping paths, a product to transport,  and time to delivery or speed. The Baltic Dry  

Index is a composite of three sub-indices that  measure different sizes of dry bulk carriers or  

merchant ships: Capesize, Panamax, and Supramax. • The Baltic Dry Index (BDI) is an index of  

average prices paid for the transport of dry  bulk materials across more than 20 routes. 

• The BDI is often viewed as a leading  indicator of economic activity because  

changes in the index reflect supply and demand  for important materials used in manufacturing. 

• The index can experience high levels  of volatility because the supply of large  

carriers tends to be small with long  lead times and high production costs. 

But how does it affect stock market  now? How the stock market will crash? 

Okay, okay, here is a hypothesis on this matter. First, let’s review a Real-World Example 

The index can fall when the goods shipped are raw,  pre-production material, which is typically an  

area with minimal levels of speculation. The index  can experience high levels of volatility if global  

demand increases or suddenly drops off because  the supply of large carriers tends to be small  

with long lead times and high production costs. Stock prices increase when the global market  

is healthy and growing, and they tend to  decrease when it's stalled or dropping.  

The index is reasonably consistent because  it depends on black-and-white factors of  

supply and demand without much in the way of  influences such as unemployment and inflation. 

The BDI predicted the 2008 recession in some  measure when prices experienced a sharp drop.  

In one striking example of the insight  that can come from the index, analysts  

could observe that between September 2019 and  January 2020, the Baltic Dry Index (BDI) fell by  

more than 70%, a strong indication of economic  contraction. This occurred directly ahead of the  

outbreak of the COVID-19 pandemic. What is happening on these days? 

Well, besides the situation in  Afghanistan, there is a chaos in shipping. 

The closure of the terminal at the planet's  third-largest container port is the latest  

sign that the chaos in shipping could smoothly  transition into 2022. It threatens the growth of  

the global economy with chronic delivery delays  and skyrocketing transport costs. As a result,  

demand may remain unsatisfied and prices may rise. The outbreak of the pandemic led to the partial  

closure of the Chinese port of Ningbo Zhoushan  in Zhejiang province last week, which reduced its  

capacity by a fifth, with all the ensuing negative  consequences. This is not the first such closure  

of a major port in China - in May due to the  outbreak of the pandemic, the Yantian terminal was  

closed for three weeks, which led to very serious  disruptions in global sea transport of goods. 

Constant rise in tariffs and regular congestion  in major ports add to the problems that have  

plagued the supply chain over the past year  and a half. Other problems are, of course,  

first of all, the crisis in the semiconductor  sector and the rise in prices for raw materials. 

Importers and exporters are trying to cover  the losses caused by the increase in tariffs  

for sea freight. Now, for example, transporting  a standard 12-meter container from China to the  

west coast of the United States costs almost  $15.8 thousand. This, according to Freightos,  

is 10 times more than before the pandemic,  and 50% more than in July this year. 

The disruptions began in the second half of  last year after the collapse in demand for  

goods caused by the pandemic. Transport companies,  of course, tried to solve the problems, but their  

attempts nullified the incident with the ship that  blocked the Suez Canal in March and the closure of  

the Yantian terminal, as well as restrictions  at the borders and a shortage of port workers. 

The partial closure of the Ningbo-Zhoushan port  for an indefinite period is the latest issue  

that is likely to deepen the global logistics  crisis even further. According to VesselsValue,  

about 350 container ships with a capacity  of approx. 2.4 million 6-meter containers. 

This global congestion is exacerbating the  idle capacity of the global cargo fleet,  

which reached 4.6% in August. The situation  worsened further, because in July,  

according to Clarksons Platou  Securities, the idle rate was 3.5%. 

Lars Mikael Jensen, head of the Maersk sea freight  leader, agrees that after the appearance of the  

Delta strain, the situation is not improving,  but only getting worse. According to him,  

the maritime transport networks are now  under such stress that the slightest problem  

and failure can result in major troubles. The explosive rise in container tariffs,  

coupled with delivery delays, will  have far-reaching consequences. 

Most of the supplies have been satisfactory  so far, but large problems have arisen with  

the supply of bulky, inexpensive materials. “Now is the defining moment for shipments to  

Europe for Christmas,” Glen explains the problem. The projected shortage of seasonal goods will  

increase inflation. The German carrier Hapag-Lloyd  believes that the current difficult situation  

will last until the first quarter of next year,  but according to its head Rolf Hubben Jansen,  

this period may be delayed due to high demand. In Europe, supply chain disruptions have already  

caused industrial production to decline in  the summer. Large manufacturers and retailers  

are forced to bolster their supply chains by  stocking up on large quantities of materials  

and goods, frantically looking for replacement  suppliers, and even shutting down operations. 

All this is expensive. Not surprisingly, many  small companies are now on the brink of survival. 

“I think this is the main threat to the economy  in this period of time,” says Philip Edge,  

director of Edge Worldwide Logistics. “Moreover,  it is just beginning to make itself felt.  

What is happening now can be very roughly  compared to a situation where a barrel of  

oil would rise in price from $20 to $200. Global Shippers' Forum Secretary General  

James Hookham believes that the current situation  is hitting the developing countries, which supply  

Western markets with raw materials and goods. "Companies in these countries are practically  

"killed" by the time lag between paying  for transportation at very high prices  

and the ability to change contracts with  customers, which can reach 9-12 months."

All of this chaos in shipping and  logistics world can definitely affect  

the stock market and we might see  the effect in the nearest weeks.

Let me know in the comments what do you think  about this. I’d love to discuss it with you. 

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