Baltic Dry Index (BDI) or also known as the “Dry Bulk Index” is a shipping and trade index created by the Baltic Exchange which is based in London. BDI is a daily average of prices to transport raw materials such as cements, fuels, grains and metals across the sea.
The Baltic Exchange, global marketplace for brokering shipping contracts, will directly contacts the shipping brokers to assess the price levels for a given route, product to transport and time to delivery (speed). The index is quoted every working day at 1300hr London time.
BDI is one of the purest indicators in global economic activity. It measures the demand to move raw materials and precursors to production, as well as the supply of ships available to move this cargo. Changes in the BDI will give us an insight into the global supply and demand trends.
Because of BDI is they totally devoid the speculative players, it is a good indicator of future economic growth (if the index is rising) or contraction (index is falling). In order to avoid speculative player, trading is limited only to the member companies. They are those who have actual cargo to move and those who have the ships to move it.
BDI is a composite of four sub-indexes that measure different sizes of dry bulk transport vessels – Capesize, Handysize, Supramax and Panamax. Multiple geographic routes are evaluated for each index to give depth to the index’s composite measurement.
BDI largely influence by the following factors.
- Commodity demand
- Number of transport vessel available
- Weather and seasonal change
- Bunker prices
- Shipping at geographic Choke Points such as the straights of Hormuz and Malacca, the Bosporus and the Suez and Panama canals.
- Market Sentiment
- Port Congestion
- Labor Relations
- Piracy area
- New Arctic Shipping Routes
Below are the up to date BDI chart.
From the above chart, we can see that BDI can be quite volatile. The rally from 2005 to the end of 2007 (200% gain) was primarily due to Chinese demand and peak global economy activity. There was also a shortage of supply for dry bulk cargo ships and a large backlog at shipyards. From June through October 2008, the index lost 85% of its value as demand for shipping plummeted. This is due to a rapid slowdown in the “global growth” and tight credit for the purchase of goods.