Scrutiny on the Bounty: Shipping Rates Turn Bullish

Ocean shipping rates don’t get much scrutiny by the financial media. The ratings-hungry cable news producers consider such topics as too “wonkish” for the average viewer. They’d rather subject you to glitzy feature stories about celebrity CEOs, or the latest cryptocurrency fad.

Here’s some hard news you can use: Shipping rates for seagoing vessels are soaring.

Boring topic? I beg to differ. The shipping industry is a bellwether of global economic growth. As I explain below, the rapid rise of shipping rates year-to-date is a leading indicator that the economic recovery has long-term momentum. I also pinpoint a way to profitably leverage this trend. First, let’s look at the latest batch of positive economic data that’s driving those shipping rates higher.

Payroll processor ADP reported May 5 that businesses created 742,000 new jobs in April, the most in seven months. It’s another indication that the U.S. recovery is expanding as COVID-19 cases fall and massive government stimulus works its way through the economy.

The U.S. economy grew by a robust 6.4% in the first quarter. Meanwhile, the blended year-over-year corporate earnings growth rate for Q1 is a whopping 45.8%. Companies are rushing to hire ahead of the summer, when they expect demand to accelerate. Some are even reporting difficulty in finding workers.

The quickening economic recovery has been a tonic for stocks. On Wednesday, the Dow Jones Industrial Average rose 97.34 points (+0.29%), to close at a record high. The S&P 500 rose 2.93 points (+0.07%) and the tech-heavy NASDAQ slipped 51.08 points (-0.37%). In pre-market futures contracts Thursday, all three indices were trading in the green.

High demand on the high seas…

Shipping is a cyclical industry; it slumps during contractions and thrives during expansions. Freight rates for shipping have been rapidly rising this year, amid recovery-fueled demand for commodities.

Watch This Video: What Uncle Sam Got Right About The Economy

The Baltic Dry Index (BDI) is a key barometer of global seagoing freight activity. Created by the London-based Baltic Exchange, the index is formed of weighted averages of the Baltic Capesize, Panamax, Handysize, and Supramax indices, named after ship types.

The BDI provides a benchmark for the price of transporting major raw materials by sea. The BDI is not restricted to Baltic Sea countries or to just a few commodities. It encompasses 23 different shipping routes and a wide range of dry bulk materials.

The BDI rose 3.5% to a near 11-year high of 3,266 on May 5, extending its winning streak to 15 sessions. The index’s ascendancy this year has been largely propelled by voracious demand for crucial commodities such as iron ore, coal, agricultural products, and copper (see chart).

The Capesize index, which tracks iron ore and coal cargoes of 150,000 tonnes, rose 4.3% to an 11-year high of 5,404. The Panamax index, which tracks cargoes of about 60,000 to 70,000 tonnes of coal and iron ore, jumped 4.6% to a one-month high of 2,848. Among smaller vessels, the Supramax index went up 5 points to 2,135.

Ahoy, inflation…

The rise in shipping rates is bullish for the economy and stock market, but it comes with a caveat: it’s also a sign that higher inflation lies ahead.

I don’t expect inflation to get out of control over the long haul, but I do expect temporary spikes as commodities prices and shipping costs rise.

An effective inflation hedge is gold. At least 15% of your portfolio should be devoted to hedges. As part of your hedges sleeve, about 5% – 10% should be in precious metals, notably gold.

I prefer gold mining stocks to physical bullion or funds. We’ve found a small-cap gold miner that’s poised to provide substantial stock price appreciation as well as inflation protection. For details, click here for our special report.

John Persinos is the editorial director of Investing Daily. You can reach him at: To subscribe to his video channel, follow this link.