Shipping Index Plunges To Six-month Low; Global Cooling On Cusp?

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SAN FRANCISCO (Dow Jones) -- Worries that the global economy is following the U.S. into a slowdown have increased after an early warning indicator -- an index that tracks global shipping rates for bulk commodities -- plunged to a six-month low.

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The gauge, which tracks freight rates on the mammoth vessels that carry tons of soybeans, corn, coal and metals across the globe, is used by economists to get an early read on global trade and growth trends. When demand for those basic materials shrinks, freight rates drop and the index tumbles. The trend provides an early snapshot of trade volumes before governments compute reports.

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As Wall Street waits for more trade data to confirm or refute the Baltic Dry Index's signals, analysts have plenty of evidence that U.S. shipping activity already has dropped off.

U.S. truck tonnage and rail volumes fell last year, hitting profits at trucking companies Ryder System, Inc. (R) and YRC Worldwide Inc. (YRCW), as well as railcar suppliers American Railcar Industries Inc. (ARII) and FreightCar America Inc. (RAIL). Freight rail operator Union Pacific Corp. (UNP) said the " ongoing economic uncertainty" made it difficult to forecast volumes when it cut its fourth-quarter profit estimates last month on bad weather and high fuel prices.

Fearing the worse from a U.S. downturn, investors unloaded shares of industrial bellwethers FedEx Corp. (FDX), down 24% in the last year, and UPS ( UPS), off 10%, as well as the shares of most major trucking firms.

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A wider global slowdown, particularly one that clips demand for U.S. raw materials like wood or metals, could cloud the export outlook.

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"The global economy is still expanding at a pretty good rate," said BMO economist Benjamin Reitzes in Toronto. Still, he said, cooling in Europe and the U.K., combined with a U.S. slowdown, points to more sluggish growth worldwide this year. Even China, which his firm expects will register at least a 11% increase in gross domestic product for the fourth quarter, may slow as the country tries to rein in inflation.

This year, "global growth looks like it will definitely be lower," he said.

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