The Baltic Dry Index, 1985-2022

Other types include cement, forest 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.

  1. Rather it is, by construction, an index of average dry bulk shipping quotes over some 20 ocean routes obtained from a global network of shipping agents and brokers.
  2. The index is reasonably consistent because it depends on black-and-white factors of supply and demand without much in the way of influences such as unemployment and inflation.
  3. While the initial effect of the pandemic was a decline in shipping rates because of a drop in demand, by the second half of 2021, the BDI surged.
  4. It is possible to trade the Baltic Dry Index using forward freight agreements, which cover various shipping routes.
  5. This analysis was based on the fleet composition, vessel utilisation including ballasting and total cargo moved – based on import/export reports and AIS data, the BDI weightings will be reviewed on an annual basis.

While it shouldn’t be the only sign investors look for, it can be combined with other indicators to signal that the worst is finally over. In 1985, the Baltic Exchange started compiling the Baltic Freight Index for dry bulk cargo on defined ocean routes. It polled shipbrokers daily on the cost to ship cargo and compiled them into an index.

The BDI Is About Dry Bulk Shipping Rates, not Commodity Prices

There is a fourth smaller class of ships, Handysize, but the BDI index does not include them. There are also various sub-classes of ships within these broad categories designed to be compatible with the Suez Canal and various ports worldwide. 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. The BDI is the successor to the Baltic Freight Index (BFI) and came into operation on 1 November 1999. 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.

Chart 3b shows the period that the Capesize has been published and rebased to match the BDI at inception to better illustrate relative volatility. When demand for commodities is high, there is a strong bid for Capesize ships; freight prices rise both because there a fewer of them and because they are the most efficient way to ship large volumes. Likewise, when commodity demand softens, people do not need the volume that Capesize offers. There have been brief periods when the Capesize index dropped below zero, implying that shippers were losing money to keep their ships busy. 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 to wait weeks or more to load and unload cargo, effectively curtailing the supply of available ships.

This index focuses on long-distance voyages between major Industrialized countries such as China, Japan, and South Korea. The Baltic Dry Index is also a compelling indicator because it is a simple, real-time indicator that is difficult to manipulate. Some economic indicators—like unemployment rates, inflation indexes and oil prices—can be difficult to interpret because they can be manipulated or influenced by governments, speculators and other key players.

Dry bulk cargo does not include tankers that ship oil, refined products, or chemicals; container ships; or roll-on ships, which carry vehicles that can be driven or rolled on board. Panamax ships have a 60,000 interactive brokers to 80,000 DWT capacity, and they’re used mostly to transport coal, grains, and minor bulk products such as sugar and cement. Panamax cargo ships require specialized equipment for loading and unloading.

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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.

Why Do Central Banks Care About Wage Growth?

The Baltic Dry Index is a composite index created by the London-based Baltic Exchange that assesses the cost of transacting dry bulk cargo around the world. It offers insight into global economic activity and trade flow dynamics as it provides an indication of demand for ships to transport goods across oceans and therefore, demand for these goods themselves. Why we should care about the Baltic Dry Index Despite its shortcomings, the Baltic Dry Index is still a useful measure.

As such, the index is said to forecast economic storms that are brewing out at sea. However, like most weather forecasts, it’s not always accurate as a range of factors can cause the index to forecast sunny economic times when a storm is actually about to make landfall. So, marginal increases in demand can push the index higher quickly, and marginal demand decreases can cause the index to fall rapidly.

→ How to trade the Baltic Dry Index?

Members contact dry bulk shippers worldwide to gather their prices and they then calculate an average. Coal, along with iron ore, is one of the most traded dry bulk commodities by volume in the world. Countries most involved in the importation of coal for their primary energy and electricity needs are India, China, and Japan. Grain is another major cargo in terms of seaborne dry bulk trade and accounts for a chunk of the total dry bulk trade worldwide. The movements of the The Baltic Dry Index can have important implications for financial markets worldwide, because they reveal information about global supply and demand levels, which then affects commodity prices. Thus, monitoring changes in the BDI can help traders anticipate shifts in price fluctuations in various commodities.

If “Baltic Dry Index” sounds a bit like something from a bygone era, you wouldn’t be too far off. As global commerce grew with the emerging industrial revolution in the 19th century, the Baltic became a more formal organization. It started compiling pricing information on various commodities and disseminating them in an early version of indices. By the second half of the 19th century, it was becoming more international, and its scope expanded to include agricultural commodities. External research concluded that the contribution of the various dry bulk vessel types to the dry bulk market was 40% Capesize, 25% Panamax, 25% Supramax and 10% Handysize. This analysis was based on the fleet composition, vessel utilisation including ballasting and total cargo moved – based on import/export reports and AIS data, the BDI weightings will be reviewed on an annual basis.

Baltic Dry Index Streaming Chart

The decision to not include Handysize contributions makes no statistical difference to the calculation of the BDI, based on the above weightings. The Baltic Exchange’s dry bulk sea freight index BBDI gained for a third straight session on Monday, buoyed by a rise in capesize and panamax vessels rates. Weak signal Because of these outside factors, the Baltic Dry Index can sometimes send the wrong signals to economists. The most obvious example of where it failed to be a leading economic indicator was in May 2008. At that time, the Baltic Dry Index was surging and reached an all-time record high of 11,793 points, suggesting robust global growth and smooth sailing ahead. However, the cracks in the global economy were already beginning to form elsewhere that simply weren’t indicated by looking at the index.

What is dry shipping?

Today, the Index is based on a daily panel of shipbrokers that submit their view of the current freight cost for various routes to the Baltic Exchange. The routes are representative, cover four different sizes of dry bulk ships, and are weighted together. The result is an assessment measuring the demand for shipping capacity against the supply of ships. Because it measures shipping capacity demand, it is considered a leading economic indicator because demand for capacity increases as the global economy expands and contracts along with a recession. You should interpret the Baltic Dry Index as a reliable indicator of average shipping costs of dry bulk cargo over 20 standard ocean routes. Baltic Dry Index is a shipping and trade index issued daily by the London-based Baltic Exchange.

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