Baltic Dry Index (BDI)

What is Baltic Dry Index (BDI) in Finance? 

Definition

The Baltic Dry Index is a measure of the cost of shipping out raw materials such as steel, iron ore, coal, cement, etc. It is a shipping and trade index created by Baltic-Exchange and deals with measuring changes in the cost of exporting raw materials.

Understanding Baltic Dry Index

To assess price levels for shipping paths, produce to be transported, and delivery time it is required of the members of the Baltic Exchange to contact shipping brokers directly. The exchange is responsible for the daily compilation of the Baltic Dry Index, and to effectively do this they would have to contact dry bulk shippers from all around the world to compare the shipping costs of all 22 shipping routes. Once the numbers have been collected and compiled, the exchange then puts them together and finds an average.

To get a comprehensive view of the overall shipping costs the exchange considers costs four each size of ship. The sizes are;

• Capemax: this makes up 10% of the overall global fleet. It includes ships that can carry 100,000+ deadweight tons of cargo. The ships are usually too big to pass through the Panama Canal.

• Panamax: this makes up 19% of the overall global fleet. It includes ships that can carry 60,000 – 80,000 deadweight tons of cargo. The ships can barely pass through the Panama Capital.

• Handymax or Supramax: this makes up 37% of the overall global fleet, and can carry 45,000 – 59, 000 deadweight tons of cargo.

• Handysize: this makes up 34% of the overall global fleet, and can carry 15,000 – 35,000 deadweight tons of cargo.

The Baltic Dry Index is very useful in providing investors and speculators with an insight into the global commodities and raw materials market alongside their demands