Baltic Dry Index - BDI

What is the 'Baltic Dry Index - BDI'

The Baltic Dry Index (BDI) is a shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport various raw materials. The exchange directly contacts shipping brokers to assess price levels for a given route, product to transport and time to delivery, or speed. The Baltic Dry Index is a composite of three subindices that measure different sizes of dry bulk carriers, or merchant ships: Capesize, Panamax and Supramax.

BREAKING DOWN 'Baltic Dry Index - BDI'

The BDI is issued daily by the Baltic Exchange, which calculates the index by assessing multiple shipping rates across multiple routes for each of the BDI component ships. Analyzing multiple geographic routes for each index gives depth to the index's composite measurement.

Component Ships

The BDI includes three component ships: Capesizes, Panamaxes and Supramaxes. Capesize ships are the largest of the ships included in the BDI with 100,000 deadweight tonnage (DWT) or greater. The average size of a Capesize ship is 156,000 DWT; this category can also include some very large ships with a capacity of 400,000 DWT. Capesize ships primarily transport coal and iron ore on long-haul routes and are occasionally used to transport grains. Taking a step down in size, Panamax ships have a capacity of 60,000 to 80,000 DWT, and are used mostly to transport coal, grains and minor bulks such as sugar and cement. Panamax ships require specialized equipment for loading and unloading. The smallest ships included in the BDI are the Supramaxes with a carrying capacity below 59,999 DWT. While they are not much smaller than Panamaxes, Supramaxes normally have specialized equipment for loading and unloading so they can be used at ports where Panamaxes cannot.

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.