Blog
Shipping freight and derived demand
5th July 2008
Freight ships are one of the best examples I know of a service whose demand is derived from the simple need among exporters and importers to transport their products around the world. So when the global economy changes gear and the chill-winds created by record high oil prices and a slowdown in consumer spending start to bite, it is more or less inevitable that the major shipping businesses will feel the pinch.
The Telegraph carries a report on this today. Ships are leaving Asian ports not full to to capacity a sign perhaps that the increased costs of shipping products is starting to limit demand for freight services.
Apparently the index to watch out for is the Baltic Dry Bulk Index - a measure of commodity-shipping costs - and this bell-weather measure has fallen sharply in recent days hinting of a shift in the balance between supply capacity and demand for ships to move the major raw materials by sea.
Too much freight capacity in the industry? Or a really important lead indicator that 2009 will be a really tough year for the global economy?
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.