A harbinger of global economic slowdown or simply an oversupply of big ships? That’s the debate surrounding the big drop in the Baltic Dry Index, a closely-watched gauge of global shipping costs, since the beginning of the year.

The index is down around 68% since the start of the year. It stood at 727 on Thursday after hitting an 18-month low of 723 on Tuesday. Much like copper prices or freight-car loadings, economists and traders have long looked at the index as an indicator of the health of the global economy. But savvy observers know that the index, like those other indicators, isn’t an infallible guide, either.

So what’s going on? The Baltic Dry Index is a daily measure of freight costs for grains, metals, coal and other commodities. It’s compiled by London’s Baltic Exchange,which directly contacts shipping brokers to find price levels for particular routes, products and delivery times. It’s easy to see why the index would be viewed as a potential bellwether given its inherent sensitivity to demand for raw commodities.

That role, however, has come into dispute thanks to a surge in the supply of shipping vessels, notes Caroline Bain, senior commodities economist at Capital Economics. Bain,in a note, argues that the fall in the index has been overdone and that underlying commodity trade volumes remain pretty healthy:

While the shipping market remains in oversupply, the gap between supply and demand has narrowed. The latest data show that the volume of dry bulk commodity trade rose by 7% in H1, while growth in shipping capacity grew by just 5%. The volume of China’s imports of iron ore and soybeans grew by 17% y/y and 34% y/y respectively in 3-month average terms in H1. The growth in trade occurred despite the negative impact on volumes of Indonesia’s ore export ban since mid-January and regulations in Colombia that delayed coal exports for much of Q1.

Bain sees dry bulk trade growing strongly in the second half, with a sharp, first-half fall in iron ore, coal and grains likely spurring fresh demand. Meanwhile, Australia is ramping up production of iron ore and coal and the U.S. is on track for a bumper grain harvest, she notes, while China could significantly boost its own exports of steel and aluminum — all factors that are likely to boost shipping demand in the months ahead.

She also sees a strong medium-term outlook for bulk commodity trade thanks to expected growth in Chinese demand for imported iron ore and refined metal. Policy changes by the Chinese government could also lead to increased global trade in soybeans and grains, she says. All of that leads Bain to forecast a possible recovery in the index from the 727 level scored Thursday toward the 2,000 level.

A less sanguine outlook comes from the reliably un-rosy Zero Hedge, which ties the drop in with a “collapsing” world GDP growth expectations and slowing trade volumes. The IMF on Thursday lowered it forecast for 2014 world growth to 3.4% from a previous projection of 3.7% but maintained its outlook for growth of 4% in 2015.