Baltic Dry Index Has Record Drop as Credit Freeze Cuts Demand

By Alistair Holloway

Oct. 10 (Bloomberg) -- The Baltic Dry Index, a measure of shipping costs for commodities, had its biggest drop on record as a credit freeze weakened demand for commodities.

The index tracking transport costs on international trade routes retreated 282 points, or 11 percent, to 2,221 points, according to the Baltic Exchange in London. Bloomberg data on the index go back to January 1985. The index had dropped 55 percent over the last three weeks.

``There has been an acute and significant decrease in near- term demand for shipping capacity,'' Jon Windham, a Macquarie Bank Ltd. analyst in Hong Kong, said in a report dated yesterday. ``The primary cause is a significant fall off in general demand driven largely by companies' fears to extend cash.'' Further rate drops are possible, he said.

The cost of borrowing in dollars in London for three months rose after cash injections and rate cuts by 10 central banks including the U.S. Federal Reserve failed to thaw credit markets. The turmoil was sparked by a U.S. housing slump last year that uncovered bad debt and led to the collapse or bailout of banks including Lehman Brothers Holdings Inc.

To contact the reporter on this story: Alistair Holloway in London at aholloway1@bloomberg.net