Baltic Dry Index (BDI)

Baltic dry index, or BDI for short, is a number issued daily by the London-based Baltic Exchange to measure the rates charged for chartering the giant ships that carry major raw materials, i.e. coal, iron ore, crude oil, and grain.

Despite of its name’s suggestion, the index is not restricted to Baltic Sea countries. It tracks worldwide international shipping prices of various dry bulk cargoes.

This index is updated five days a week and is readily available for your reference. How to find it? From direct Baltic Exchange's website, or from some other online resources like Bloomberg

History

BDI traces its history back to 4 January 1985, when The Baltic Exchange commenced publication of a daily freight index - the Baltic Freight Index (BFI), the predecessor of BDI.

The BFI, which initially consisted of 13 voyage routes covering cargoes from 14,000 mt of fertiliser up to 120,000 mt of coal, and no timecharter routes, was developed as a settlement mechanism for the newly-established Baltic International Freight Futures Exchange (BIFFEX) futures contract. It quickly won worldwide acceptance as the most reliable general measure of the dry cargo freight market.

On 1 November 1999 - the BPI replaced the BFI as the instrument of settlement for BIFFEX.

Since then, there’ve been many changes to the component and calculation method of the Baltic Dry Index

. Changes occurred in route selection, size and type of selected vessels, add time charter rates, etc. Listing details of all those changes is a long story.

Usage

The index provides investors and others with an idea of how much it will cost to move major raw materials by sea (in bulk, hence the name).

Changes in the Baltic Dry Index can give investors insight into global supply and demand trends. This change is often considered a leading indicator of future economic growth (if the index is rising) or contraction (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 FFAs (forward freight agreements) that are traded over-the-counter.

BDI Composition

Along the index’s history, the number of component routes changes according to the assessment a judging panel. BDI is calculated on 20 individual shipping routes, which may be changed over time.

Besides, Baltic Dry Index includes 3 separate sector indices that measure different sizes of dry bulk vessels:

• BCI: Baltic Capesize Index
• BPI: Baltic Panamax Index
• BSI: Baltic Supramax Index

BDI Calculation

Calculation formular

BDI = ​(BCI+BPI+BSI) / 3

Note:

• BCI (Baltic Capesize Index): Reflects the freight rates of Capesize vessels (large ships over 150,000 DWT).
• BPI (Baltic Panamax Index): Reflects the freight rates of Panamax vessels (65,000 – 85,000 DWT).
• BSI (Baltic Supramax Index): Reflects the freight rates of Supramax vessels (50,000 – 60,000 DWT).

Chart of the Baltic Dry Index

Look at the chart below and see how the index has fluctuated over years. If you want to see a complete chart of the BDI since its replacement to BFI in Nov 1999, click here.

It got a peak several times, remarkably in the duration from 2003-2004 and 2007-2008. Also, it plummeted in the end of 2008, signifying a crisis in dry cargo market.

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