Understanding the Baltic Dry Index

In addition to dry bulk cargo, the Baltic Exchange is also active in a wide range of other types of cargo, including tankers, container ships, and even air freight. First, the growth in global demand alpari review over time for fossil fuels has been more steady than for various dry bulk commodities. Second, OPEC (for the most part) has worked to keep oil supply growth roughly in line with growth in demand.

Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. The demand for shipping varies with the amount of cargo that is being traded or moved in various markets (supply and demand). Today the Baltic Exchange is a key player in the global freight shipping market, compiling and disseminating information about the industry and freight derivatives.

1. The BDI continues the established time series of the BFI, however, the voyages and vessels covered by the index have changed over time so caution should be exercised in assuming long term constancy of the data.
2. It is reported around the world as a proxy for dry bulk shipping stocks as well as a general shipping market bellwether.
3. The Baltic Exchange also developed freight derivatives, in particular the freight forward agreement (FFA) that allows shippers and merchants to hedge and lock in the cost of shipping commodities.
4. For example, the BDI may be rising because of higher oil prices – but profitability may fall if shippers can’t pass on that higher cost.
5. The Baltic Exchange compiles the daily hire rate in USD from international shipbrokers for three types of bulk freight ships.

For much of its history, the BDI has traded in a range between 1000 and 2000 (see the Baltic Dry Index chart below, Chart 2). It typically falls as recessions approach and leads the recovery out of recession. The Baltic Dry Index was established in 1985 by the London-based Baltic Exchange, an organization that provides data on maritime transportation and facilitates the trading and settlement of ship charter contracts. This shipping and trade index is considered to be a leading indicator of the future trend of the global economy. It is possible to trade the Baltic Dry Index using forward freight agreements, which cover various shipping routes. The Baltic exchange publishes a variety of spot freight rates, which are the basis for settling these contracts monthly.

Why Investors Watch the Baltic Dry Index

The BDI is a composite index that measures the cost of shipping bulk raw materials such as coal, iron ore, and grains across various shipping routes. Dry bulk cargo is commodities that are shipped in loose unpackaged form. The primary bulk commodities are iron ore, coal, grains, bauxite/alumina, and phosphate rock. Other types include cement, forest blackbull markets review products, some steel products, copper, and other base metals such as lead and nickel. The Baltic Exchange calculates the index by assessing multiple shipping rates across more than 20 routes for each of the BDI component vessels. Analyzing multiple geographic shipping paths for each index gives depth to the index’s composite measurement.

Why Do Central Banks Care About Wage Growth?

Bulk cargo is distinct from general cargo, which refers to cargo shipped in some packaged form, whether in sacks or palettes or some other organized or grouped manner. By using this site or/and our services, you consent to the Processing of your Personal Data as described in our Privacy Policy. If you don’t agree with our Privacy Policy then you shouldn’t use our services. This article is aimed at investors for whom the BDI is mostly off their radar screen and then are left wondering what to make of it when it pops up in the financial press headlines. Investors can use the BDI to help trade or invest in related financial instruments.

How to Use the Baltic Dry Index (BDI)?

That means investors need to do more digging to figure out what it means and how to position themselves accordingly. The BDI jumped six-fold last year as the global economy recovered from the Covid slowdown, spurring a sudden demand for raw materials. Meanwhile, congested ports meant that bulk carriers had easymarkets review to wait weeks or more to load and unload cargo, effectively curtailing the supply of available ships. This category can also include some massive vessels with capacities of 400,000 DWT. Capesize ships primarily transport coal and iron ore on long-haul routes and are occasionally used to transport grains.

These weights are based on the volume of cargo (in dwt) shipped on each type. The BDI predicted the 2008 recession in some measure when prices experienced a sharp drop. Then, into 2021, the BDI rose dramatically as the pandemic led to snarls and delays in global shipping.

The BDI continues the established time series of the BFI, however, the voyages and vessels covered by the index have changed over time so caution should be exercised in assuming long term constancy of the data. It is a large bulk carrier that usually has five cargo holds and deck cranes. A Panamax ship is a vessel that is designed to travel through the Panama Canal.

Many consider a rising or contracting index to be a leading indicator of future economic growth. It’s based on raw materials because the demand for them portends the future. These materials are bought to construct and sustain buildings and infrastructure, not at times when buyers have either an excess of materials or are no longer constructing buildings or manufacturing products.