Baltic Dry Index
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."
In 1744, the Virginia and Maryland coffee house in Threadneedle Street, London, changed its name to Virginia and Baltick, to more accurately describe the business interests of the merchants who gathered there. Today's Baltic Exchange has its roots in a committee of merchants formed in 1823 to regulate trading and formalize the exchange of securities on the premises, which by then had moved to the Antwerp Tavern. The first daily freight index was published by the Baltic Exchange in January 1985.
How it works
Every working day, a panel of international shipbrokers submits their view of current freight cost on various routes to the Baltic Exchange. The routes are meant to be representative, i.e. large enough in volume to matter for the overall market.
These rate assessments are then weighted together to create both the overall BDI and the size specific Supramax, Panamax, and Capesize indices. The BDI factors in the four different sizes of oceangoing dry bulk transport vessels:
|Ship Classification||Dead Weight Tons||% of World Fleet||% of Dry Bulk Traffic|
The BDI contains route assessments based only on time-charter hire rates "USD hire paid per day". Fuel (="Bunkers") is the largest voyage dependent cost and moves with the crude oil price. In periods where bunker costs fluctuate significantly, the BDI will move more than the shipowners' realised earnings(?). The formula implemented for calculating the Baltic Dry Index includes ((CapesizeTCavg + PanamaxTCavg+ SupramaxTCavg + HandysizeTCavg)/ 4) * 0.110345333 TCavg = Time charter average.
The index can be accessed on a subscription basis directly from the Baltic Exchange as well as from major financial information and news services such as Thomson Reuters, Bloomberg L.P., Macrobond Financial and Factset.
Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. The demand for shipping varies with the amount of cargo that is being traded or moved in various markets (supply and demand).
The supply of cargo ships is generally both tight and inelastic—it takes two years to build a new ship, and the cost of laying up a ship is too high to take out of trade for short intervals, the way you might park a car safely over the winter. So, marginal increases in demand can push the index higher quickly, and marginal demand decreases can cause the index to fall rapidly. e.g. "if you have 100 ships competing for 99 cargoes, rates go down, whereas if you've 99 ships competing for 100 cargoes, rates go up. In other words, small fleet changes and logistical matters can crash rates..." The index indirectly measures global supply and demand for the commodities shipped aboard dry bulk carriers, such as building materials, coal, metallic ores, and grains.
Because dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, such as concrete, electricity, steel, and food; the index is also seen as an efficient economic indicator of future economic growth and production. The BDI is considered by some people as a leading economic indicator because it predicts future economic activity.
Another index, the HARPEX, focuses on containers freight. It provides an insight on the transport of a much wider base of commercial goods than commodities alone. HARPEX is regarded as a Current-Activity Indicator, because it measures and charts the changes in freight rates for 'container ships.' Container ships typically carry a wide variety of finished goods from a multitude of sellers. These are factory output goods headed for retail markets, at the other end of the supply chain.
Other leading economic indicators—which serve as the foundation of important political and economic decisions—are often measured to serve narrow interests, and subjected to adjustments or revisions. Payroll or employment numbers are often estimates; consumer confidence appears to measure nothing more than sentiment, often with no link to actual consumer behavior; gross national product figures are consistently revised, and so forth. Unlike stock and bond markets, the BDI "is totally devoid of speculative content," says Howard Simons, an economist and columnist at TheStreet.com. "People don't book freighters unless they have cargo to move."
On 20 May 2008, the index reached its record high level since its introduction in 1985, reaching 11,793 points. Half a year later, on 5 December 2008, the index had dropped by 94%, to 663 points, the lowest since 1986; though by 4 February 2009 it had recovered a little lost ground, back to 1,316. These low rates moved dangerously close to the combined operating costs of vessels, fuel, and crews.
By the end of 2008, shipping times had been already increased by reduced speeds to save fuel consumption, but lack of credit meant the reduction of letters of credit, historically required to load cargoes for departure at ports. Debt load of future ship construction was also a problem for shipping companies, with several major bankruptcies and implications for shipyards. This, combined with the collapsing price of raw commodities created a perfect storm for the world's marine commerce.
On 10 February 2016 the Baltic Dry Index reached the historic low of 290.
By November 15 2016 it rebounded to over 1000 sending entire shipping industry to massive gains. Some companies reached 2000%+ in share price gains in as little as 5 days.
- Orestis Schinas; Carsten Grau; Max Johns (19 November 2014). HSBA Handbook on Ship Finance. Springer. pp. 318–. ISBN 978-3-662-43410-9.
- Baltic Exchange
- Baltic Exchange History
- Odom, Payton (2010). "Shipping Indexes Signal Global Economic Trends - Globalization and Monetary Policy Institute 2010 Annual Report" (PDF). www.dallasfed.org. Federal Reserve Bank of Dallas. p. 28. Retrieved 19 December 2015.
The BDI began in 1985 as the Baltic Freight Index
- Data from Wikinvest, "Composition of the Baltic Dry Index"
- This is measured in terms of the tonnage of cargo carried multiplied by the distance traveled
- Lamb, Thomas. Ship Design and Construction. Jersey City: Society of Naval Architects and Marine Engineers. ISBN 0-939773-40-6 and CIA World Factbook 2005. Data slightly dated as there has been increased construction in the Capemax size the past three years
- "Index is an Important Indicator of Global Economic health and its doing Badly Index". Business Insider.
- How are ships laid up today?
- "Hurting the real economy". The Economist. Retrieved 22 April 2015.
- Rothfeder, Jefrey (26 June 2016). "The surprising relevance of the Baltic dry index". The New Yorker. Retrieved 1 September 2016.
- Commodity indicators Show Strain On Bull (market)
- HARPEX, Harper Petersen website
- 'The Most Alarming Chart I’ve Seen All Week'
- Why you should care about The Baltic Dry Index
- Collapse in dry bulk shipping rates unprecedented in its severity
- Commodity Shipping Index Advances the Most Since at Least 1985
- Marine Shippers Scuttled As Baltic Measure Hits Low
- Baltic Dry Index Drops Below 1,000 for First Time in Six Years
- Asian shipyards face prospect of bankruptcy
- Shipper Industrial Carriers Files for Bankruptcy
- Bloomberg Dry-Bulk Shipping Extends 2011 Drop to 20% on Australia Floods
- "Baltic Dry Index Is At 2000 - But Nobody Is Watching".
- "Dry Bulk Freight Index Drops and Container Shipping Line Forecasts and Profits Slump".
- "Baltic Dry Index falls to 290, down 1 points".