The Economist reports that the Baltic Capesize index, which measures the cost of chartering huge ocean-going vessels used to transport iron ore and coal, has hit record highs, driven by surging demand for raw materials.
Let’s guess what happens next – construction of these vessels will surge, so new capacity becomes available just in time to overtake a fall in the very demand they hope to exploit, resulting in an equally dramatic collapse in prices. This is a well-known phenomenon in a surprising variety of industries with long capacity-expansion lead times – from office-space to insurance to petrochemicals. Hopefully, firms in these sectors are employing those ‘Chief Strategy Officers’ [see earlier post] and checking what the future might hold.