The Baltic Dry Index (BDI) is an economic indicator issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides “an assessment” of the price of moving the major raw materials by sea.
Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain.”
The Baltic Dry Index (BDI), a key indicator of freight rates which gauges the cost of shipping dry cargo — mainly commodities such as iron ore, cement, grain, coal and fertiliser — has been falling for eight consecutive days sinking under the 1,000-point mark to 956 points on Friday, May 19. This could have an adverse impact on Indian shipping companies.
The BDI index is a composite of four sub-indices that measure different sizes of ships (dry bulk carriers) classified on the basis of their total cargo capacity, namely Capesize, Panamax, Handysize and Supramax. Compiled by the London-based Baltic Exchange, the index is based on a daily survey of agents all over the world.
Analysts suggest that the falling index might indicate lack of demand for commodities like iron ore and coal from the main consumer – China, coupled with celebrations of the Chinese New Year. Oversupply of vessels in the shipping industry could be another reason.
The BDI as an Economic Indicator:
A change in the Baltic Dry Index can give investors insight into global supply and demand trends, and is often considered a leading indicator of future economic growth if the index is rising or contraction if the index is falling because the goods shipped are raw, pre-production material, which is typically an area with very low levels of speculation.
Because the supply of large carriers tends to remain very tight, with long lead times and high production costs, the index can experience high levels of volatility if global demand increases or drops off suddenly.
The Baltic Exchange also operates as a maker of markets in freight derivatives, a type of forward contract known as forward freight agreements (FFAs) traded over the counter.