Baltic Dry Index, BDI

The Baltic Dry Index or BDI is an international index to measure the cost of shipping raw materials, such as iron ore, coal, steel and cement, through the sea route. It is also known as BALDRY. The London-based Baltic Exchange compiles data from all major shipping routes to chart the Baltic Dry Index.

Baltic Dry Index: Composition

In order to estimate the Baltic Dry Index, the Baltic Exchange contacts dry bulk transporters from around the world and asks for shipment quotes for 22 major shipping sea routes. The data from the different shippers is complied and its average is taken to get the day’s index number. The Baltic Exchange considers shipping expenses according to four sizes of transporter ships:

Capemax – with loading capacity of 100,000+ tons of cargo

Panamax – with 60,000 to 80,000 tons of cargo capacity

• Handymax – the largest fleet of transportation ships in the world, with a loading capacity of 45,000 to 59,000 tons
• Handysize – these are ships with small carrying capacity, ranging between 15,000 and 35,000 tons of cargo weight.

Understanding the Baltic Dry Index

The Baltic Dry Index is a forward looking economic indicator in the sense that it helps in the prediction and analysis of economic activities based on the data of what is going on at the present time. It is not based on data collected over a period of time to analyze the economic situation in the past.

Since the Baltic Dry Index considers the supply of raw materials, it gives an insight into the production activity across the world as well. This in turn gives exact information about the global demand for goods and commodities. The demand for commodities is directly proportional to the state of the global economy. Hence, investors can benefit from interpreting the Baltic Dry Index for the day. If the Baltic Dry Index is going up, it means that:

• The global economy is on the rise
• Stock prices might shoot up
• Commodity prices may face a hike
• The value of commodity-based currencies will decrease

The Baltic Dry Index is largely immune to manipulations. It is purely driven by global demand and supply forces. Hence, it is considered to be one of the most strategic economic indicators.