I had never heard of this index either, so I used my google-fu powers to see if there were any studies on its accuracy. Found this...

http://ac.els-cdn.com/S2092521209800023/...

The BDI mainly hovers in the 750-2500 zone, even for most of the decade prior to the 2004 climb in commodity demand. Thats because moving goods has a floor price beyond which any efficiency improvements are too expensive.

The period of 2004-2008 was the anomaly high price, so it is not a good idea to compare to that peak. The anomaly high price was caused by a shortage of ships compared to demand. In most years there is enough/surplus capacity, hence the narrower range for the BDI.

The fact that it is low with that range shows the "recovery" is false (which we know anyway), but it is not a reliable indicator when used in isolation.

I built the first fixturing for a number of GE Tier 1 engine components around 10 years ago. I'd have to check my business records to be exact. I was speaking of fuel consumption reduction only. To talk about overall efficiency would require a lot more data.

Be careful about efficiency improvement numbers. 7-12% is available as an improvement, but not in total change in conversion. For example, large diesel engines approach 40% Carnot efficiency (90 RPM), while smaller, higher speed engines (600-1,200 RPM) for generator applications are much less efficient, ~30%. Small improvements in these smaller machines is possible, for example, 30% going to 33% is a 10% improvement. 30% going to 43% is not possible in the engine.

Counter-rotating propellers are an improvement in propeller efficiency (perhaps <10%) in converting rotating water to thrust. However, they come with tremendous complexity (twice the shaft seals, rotating-on rotating seals, complex shaft steadying bearings and epicyclic gears). This is not tolerated in the extremely conservative marine propulsion market. Similar improvements in propulsive coefficient are available by using a second set of either inlet or exit stationary blades, without the significant complexity, but this conservative market doesn't pursue these either.

I have no doubt that advanced diesel, propeller, and to a lesser degree hullforms can provide 7-12% improvement in fuel consumption. However, there is no recent or emerging trend to do so.

The most significant recent trend in marine fuel savings is in hybrid electric propulsion for more efficient low-speed operation in ships with an operation tempo with a lot of time at low speed, particularly those with gas turbine main propulsion, which is horribly inefficient at part load.

Rail has been diesel electric for a very long time. This is not a new trend. In fact, the most prevalent induction motor in oil and gas drilling, is a converted GE locomotive traction motor, the GE 752.

The new trend in locomotive prime movers is in Tier 4 engines, that do not require urea injection. This is to resolve issues with the locomotive emissions at idle, or low speed through cities. There is some very recent interest in large batteries, but it is very unclear if this will mature or die out.

I tried to relocate an article regarding large diesel modular engines from some 5 years past. Fuel pressure delivery and fuel atomization were substantively changed. This was coupled with a single shaft, twin counter-rotating propeller system...purportedly reducing fuel consumption 7 to 12 percent on "conversion". American rail freight is under a similar conversion to diesel / traction motor drive, 30% fuel consumption reduction. Fuel is the largest expense in both industries...any indicator of cost of transit should be assessed against other indicators

Bulk cargo ships have been overwhelmingly direct drive diesel propulsion for 30-40 years, and still are dominant in new builds. These are very efficient, relatively cheap and reliable. Electric propulsion in used in cruise ships where there is considerable hotel load, and in other ships with broader operating speed ranges.

The main advances have been in emissions, not in efficiency. The main efficiency improvement has been the bulbous bow, which is an improvement at a narrow range of operating speed, being the cruise speed.

I worked in the dry bulk maritime industry for about 15 years. As stated earlier there are many variables that play into the dry bulk index. If demand were the only variable then it would be a harbinger of very bad things to come. As it is, it is a harbinger of kind of bad times to come, especially in China. Probably the biggest drivers of the drop are the drop in China's demand for raw materials and the drop in oil. The drop in oil is positive. So it tempers the drop in China's demand. Also, with the specter of higher interest rates you should look to invest in indusrtries that will benefit from higher rates like banks, or mortgage lenders.

Look to the future. Low commodity prices now could lead to booming economic activity due to more disposable income and lower manufacturing costs. Watch out for inflation and higher interest rates. The economy is on a roll. It is usually better to go with the trend.

This may be caused by the massive socialist regulatory reduction of the so called Green House Gasses, most of which are byproducts of industrial activity. The resultant reduction of the demand for raw materials has slowed the BDI. The massive spike in 2013 is the return of US Equipment, nearly a billion metric tons, from Iraq and Afghanistan.

I have tendency to agree with your analogy SSL. I hope to be wrong but I'm afraid that is wishful thinking. Logic says you are right.

ditto?

Not to mention that cargo ships are increasingly huge and now are superships nearly as large as a small city. Efficiency has dramatically reduced the cost per ton of moving things.

You make an excellent case.

Jan

Even after the recent decline, the index appears to be about the same level that it maintained from early 2012 to early 2013. By itself, this chart doesn't signal a crash to me.

All I had in the stock market is now in my savings account. I fully expect the bubble to burst.
Fortunately for small time trader me, my primary stock jumped up several thousand bucks before I collected it all.
Now I'm wondering if the IRS may send a letter to advise that they confiscated my savings because they suspect this or that.

you have added fuel to the fire so to speak about how bad the economy is. as for a recession or depression I think it has already started and will be seen probably by Feb.

thank you for publishing this index. I too had no knowledge of it, however I do have friends that fly for both fed xp and ups and they told me months ago that planes were reduced coming to the US from asia. it is refreshing to read the unfortunate truth of what is happening to the economy. if the US economy were doing as the "government" likes to portray it would oil prices be dropping as they are. it just may be time to fill your shelves with non-perishable food stuffs.

The BDI is one indicator, and like all indicators it is never perfect all the time. However, it did do a good job of signalling the last financial crisis. Right now, the BDI is telling the same tale as the collapsing price of iron ore (72 percent the last few months), oil (roughly 50 percent in the same span), and other commodities, including copper, expanding high yield bond spreads to government bond benchmarks around the globe, spreading deflation in Europe, falling housing prices in China and the slow-motion implosion of its shadow banking system, recession in Japan and the failure of massive quantitative easing there, the end of quantitative easing in the US, falling home sales, the declining labor force participation rate, stagnant real incomes, declining bond yields and the flattening yield curve, and stock markets indexes and sentiment indicators at all time highs (in the past, a reliable contrary indicator). By itself, the BDI is a good, but not perfect indicator, but taken with the other indicators cited, I would say a recession next year is a good possibility, and in fact I'm surprised it has not already arrived. Given that world debt has expanded by over 40 percent since the last financial crisis, I would say it will be severe, probably a depression. For more, see my website, http://straightlinelogic.com.

It would seem to me that the drop in oil prices needs to be considered as well. This underlying cost should control what the limits are that the shipping companies 'can' charge and still make a profit. When the transportation costs drop, the companies have the latitude to become more competitive, resulting in a drop in prices. (When everyone is up against the wire and on margins, the prices should be more similar than they are when costs are lower.)

Jan

I do not know if this should be an indicator or not but since you don't consider it an indicator, what things do you consider indicators? Just curious. :)

Honestly, I don't see this as a prime indicator.

Wikipedia gives a good baseline explanation for your inquiry. There is a lot of development in engine / propulsion systems globally, to reduce vessel total cost of transit. Diesel and diesel / electrics are predominant.