What is the Baltic Dry Index?

The Baltic Dry Index, also known as the ‘Dry Bulk Index’ is a way of measuring the cost of transporting raw materials such as metals, grains and fossil fuels by sea. The Baltic Exchange looks at twenty different worldwide shipping routes for various materials every working day and averages them into one index. This Index is made up from three separate sub-indexes which apply to different sized merchant ships, or ‘dry bulk containers’, Capesize, Panamax and Supramax. 

The Baltic Exchange is the official London-based shipping global marketplace used for brokering shipping contracts which was created back in 1744. The Exchange contacts shipping brokers on a daily basis in order to assess the cost of transportation for any specified route, product to transport and the time (speed) to delivery. The index is quoted every working day at 1300 London time. 

These indexes are useful to traders, who use them to settle forward freight agreements, and they are used by investors and economists to find out about the current demand for shipping services contrasted with total shipping capacity.

When the BDI increases, the increase directly increases their margins and revenues, but when it decreases, producers see increased margins, and consumers get lower prices for their goods.The Baltic Dry Index is generally thought to be a good indicator of global trends in supply and demand, and a trustworthy indicator of future economic growth and contraction, because it looks at the value of the type of cargo that isn’t usually speculated on; raw, pre-production materials.Although the BDI has been a reliable way of predicting performance for centuries, the supply of large carriers tends to remain very tight and sometimes long lead times and high production costs can lead to volatility when the global demand for a particular route or cargo increases – or even unexpectedly drops. An example of this was back in 2008, when on June 5th(Capesize) bulk carrier was fixed at a record daily hire rate of $280,000 per day, but within the space of five months, the value of the same ship had plummeted to just $2,800 per day.

Overall, the BDI is considered to be one of the most useful indicators of global raw material and infrastructure demand, as it’s unaffected by consumer spending trends, or speculative players. The trading activity on the BDI is limited to member companies, so it only applies to parties who actually have ships or cargo.