Baltic Exchange is a limited company owned by its shareholders that comprise Member Companies, their Principals and Representatives on the Exchange and Individual Members. The members of the Exchange, both corporations and individuals are engaged in numerous trading spheres.
The largest activity conducted by members of the Baltic Exchange is in the International Freight Market, with chartering of vessels of all flags by charterers of all trading nations. Other activities carried out by member companies include the sale and purchase of ships, and the chartering and sale and purchase of aircraft. All these activities are international in scope.
The majority of members of the Baltic Exchange are brokers acting in the various Markets as intermediaries between the principals. All the international trading activities concerned produce foreign exchange and members of the Baltic are major invisible export earners for the UK.
Formerly, commodity training of various types was carried out on the Baltic Exchange , including Futures Markets trading in agricultural commodities, specifically wheat, barley, potatoes, soya and meat, and the first freight futures market conducted through BIFFEX which was launched in 1985.
Baltic Exchange traces its origins to a club established in 1823 representing the users of The Baltic Coffee House which, in turn, started as a coffee house called The Virginia and Maryland until 1744, when it became The Virginia and Baltic.
Baltic Exchange merged in 1900 with The London Shipping Exchange and the main Exchange building was subsequently purpose-built, being completed in 1903. The site of 14/20 St. Mary Axe was acquired in 1947 and the building linked to the Exchange was built there in 1955/56. Sir Winston Churchill laid the foundation stone on 2nd March 1955, and H.M. The Queen opened the building on 21st November 1956.
Membership of the Baltic Exchange is open to corporations registered in the UK who have to be represented by principals resident in the UK for 3 years prior to election. It is also open to individuals in their own name or operating in partnerships.
Baltic Exchange is governed by a Board of fifteen Directors, twelve of whom are elected by shareholders and three by members. It has disciplinary powers of censure, suspension and expulsion over members and is responsible for sustaining proper ethical standards in trading.
Baltic Exchange derives its income from membership subscriptions and from rents of the offices, which it owns. Members of the Baltic who carry on business as “brokers only” will have signed the Brokers Letter by which they undertake not to trade as principals. Members are required to operate separate bank accounts for clients and must effect appropriate insurance cover against errors and omissions, and Breach of Warranty of Authority. Information is posted on the Official Notice Board for the guidance of Members who are expected to conform with directions made from time to time in the interests of the market as a whole.
The Secretary of the Baltic Exchange acts as Chief Executive of the organization, carrying out policy determined by the Directors and being responsible for the administration and organization of the Baltic Exchange and its staff.
The motto of the Baltic Exchange is Our Word Our Bond which symbolizes the importance of ethics in trading. Members need to rely on each other and, in turn, on their principals for many contracts verbally expressed and only subsequently confirmed in writing. The broad basis for ethical trading has long been regarded by The Baltic Exchange trading community as the principle of treating others as one would wish to be treated oneself.
Baltic Exchange’s Directors have highlighted, from time to time, practices, which they consider do not accord with Baltic ethics:
1. Organizations operating as Freight Contractors/Freight Speculators offering named tonnage against tenders without the authority of Owners/Disponent Owners.
2. Withholding payment of commissions when due in respect of hire/freight earned and paid.
3. Using information obtained through Members in order to effect business direct with overseas principals or their local brokers and thus bypassing the Baltic Exchange.
A number of freight indices are generated by the Baltic Exchange, and these, plus real- time market information and access to a substantial database of shipping information can be accessed by members through the Baltic Exchange’s internet portal.
In spite of the Baltic Exchange building having been destroyed by a terrorist bomb in 1992, which effectively put paid to the daily trading activity of the organization, the spirit and character of the Baltic Exchange lives on.
In its new home, a short distance along St Mary Axe from its former site, trading on the floor is now restricted to a token session weekly. Baltic Exchange is nonetheless still a powerful force in shipping circles and in the City of London. Full detail of the Baltic Code and much more on the Baltic Exchange’s site at www.balticexchange.com
What does the Baltic Exchange do?
The Baltic Exchange is a London-based marketplace for buyers and sellers in the shipping industry, operating as a source of maritime market information for the trading and settlement of physical and derivative contracts. It provides a range of indices benchmarking the cost of moving bulk commodities, oils, and other materials by sea.
These indices are used globally by shipbrokers, owners, operators, traders, and others to determine freight prices and settle freight derivative contracts. They serve as a key barometer of the shipping market and are relied upon by various stakeholders in the maritime industry for decision making.
The Exchange also maintains a professional community of over 600 member companies across the world. These members follow a code of conduct, providing a framework for negotiating contracts, and Baltic Exchange staff oversee the resolution of disputes.
So in essence, the Baltic Exchange facilitates trade in the maritime industry, provides critical pricing benchmarks, and also acts as a professional community and mediator. It’s important to note that while the Baltic Exchange provides the platform, it does not participate in the actual trade or charter of ships, which is left to its members.
The Baltic Exchange also operates a Sale and Purchase (S&P) vessel assessment for the second-hand ship market. It’s a vital part of the maritime industry as it provides a reliable standard of pricing for second-hand vessels, much like how a real estate appraisal would work. These assessments are done by gathering a broad range of market information, coupled with professional judgement and analysis.
Furthermore, the Baltic Exchange offers a suite of educational courses, seminars, and workshops for the maritime community. These courses are geared towards professionals in the industry who want to increase their knowledge, learn about current trends, and keep their skills up-to-date.
Moreover, it promotes networking events and activities for its members around the globe, including the annual Baltic Exchange Golf Society tournament. These events help to create a sense of community among the various companies and individuals who are part of the shipping industry.
Finally, it’s worth noting that the Baltic Exchange has a long history. It was founded in 1744 and has since developed a reputation as a trusted hub for the maritime industry. Its name comes from a 19th century coffee house in London where merchants met to conduct business. The ‘Baltic’ part of the name is derived from the trade routes that these merchants used to take to the Baltic Sea.
In summary, the Baltic Exchange is a central hub of the shipping industry. Through its various services and activities, it supports the maritime industry by providing a trusted marketplace, valuable price assessments, dispute resolution services, education, and networking events.
Why is it called Baltic Exchange?
The Baltic Exchange is a London-based organization that provides information on maritime transportation markets. It was named after the Baltic Sea because of its historical connection to the region.
In the early 18th century, ships frequently navigated through the Baltic Sea for trade, primarily dealing in commodities like timber, pitch, hemp, and flax from countries such as Sweden, Russia, and the Baltic states. These ships would then return to England loaded with goods for the British market.
In 1744, the Virginia and Maryland coffee house in Threadneedle Street, London, became a popular meeting place for merchants involved in this trade. They exchanged information and transacted business, leading to the creation of a ‘marketplace’. The coffee house was later renamed the Baltic Coffee House in recognition of the trade with the Baltic region.
In 1823, the organization officially became known as the Baltic Mercantile and Shipping Exchange, reflecting its broadened scope beyond just the Baltic trade. The name was later shortened to the Baltic Exchange.
So, the name “Baltic Exchange” can be seen as a homage to the origins of the organization in the trade routes of the Baltic Sea. It’s important to note, though, that today the Baltic Exchange covers global shipping routes and deals with a wide range of maritime commodities, not just those from the Baltic region.
When was Baltic Exchange founded?
The Baltic Exchange, based in London, was formally established in 1900. However, its roots trace back to much earlier times. The origins of the Baltic Exchange date back to 1744, when a coffee house in Threadneedle Street, where John Bland’s Virginia and Maryland coffee house used to organize maritime meetings, was recognized as a central hub for those wishing to charter ships. Over time, this meeting place evolved into a marketplace for the maritime industry, eventually becoming the Baltic Exchange.
What is Baltic Dry Index (BDI)?
The Baltic Dry Index (BDI) is an esteemed shipping and trade index established by the reputable Baltic Exchange, situated in London. This index gauges fluctuations in the expenses associated with the transportation of diverse unprocessed resources, including coal and steel.
Participants of this esteemed institution directly engage with shipping brokers to evaluate price dynamics concerning specific shipping routes, cargo to be transported, and the expected time of delivery or velocity. The Baltic Dry Index encompasses a comprehensive amalgamation of four distinct sub-indices, meticulously measuring varying dimensions of dry bulk carriers or merchant vessels: Capesize, Panamax, Supramax, and Handysize.
The Baltic Dry Index (BDI) is an economic indicator issued daily by the London-based Baltic Exchange. It provides an assessment of the price of moving major raw materials by sea. This involves taking in 23 shipping routes measured on a time charter and voyage basis and covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain.
The index is considered a good leading economic indicator because it measures the cost of shipping raw materials, and this cost is typically factored into product prices, often before the products reach the market. It is also “pure” in that it explicitly reflects the world’s supply and demand for commodity shipments. Unlike stock and commodities markets, the Baltic Dry Index is totally devoid of speculative players. The trading is limited only to the member companies, and the only speculative element are the ships themselves.
It’s important to note that the BDI is more useful as a leading indicator for economic activity because it measures raw material shipping cost and this cost is typically factored into product prices quickly. Thus, if the demand for shipping decreases (as reflected in falling BDI), it may suggest that demand for raw materials is falling, which in turn might suggest a future economic slowdown.
In a nutshell, the BDI gives us a sense of what is happening with global trade at the most basic level—the transportation of raw materials. This is why it can be useful in predicting future economic activity.
How is the Baltic Dry Index (BDI) calculated?
The Baltic Dry Index (BDI) is a composite of the dry bulk time charter averages of the Capesize (40%), Panamax (30%) and Supramax (30%) indices.
The Baltic Exchange computes the index by evaluating numerous shipping rates across over 20 routes for each of the BDI component vessels. Examining multiple geographical shipping paths for each index imparts profundity to the composite measurement of the index. Members communicate with dry bulk carriers worldwide to gather their prices, which are then used to calculate an average. The BDI is issued by the Baltic Exchange on a daily basis.
A modification in the Baltic Dry Index can provide investors with insights into global supply and demand patterns. Many regard an ascending or descending index as a predictive indicator of future economic expansion. It is based on fundamental resources, as their demand foreshadows what lies ahead. These resources are procured for the purpose of constructing and sustaining edifices and infrastructure, not during periods when buyers possess an excess of materials or are no longer engaged in construction or manufacturing endeavors.
Furthermore, the Baltic Exchange functions as a market maker for freight derivatives, encompassing various types of financial forward contracts referred to as forward freight agreements.
What is the Baltic Dry Index (BDI) today?
We kindly suggest that you visit the web page of Baltic Exchange to learn more about Baltic Dry Index. www.balticexchange.com
Sizes of Baltic Dry Index (BDI) Ships
The Baltic Dry Index (BDI) gauges the consignments aboard an array of cargo vessels of varying sizes. Capesize vessels, the largest ships in the Baltic Dry Index (BDI), possess a deadweight tonnage (DWT) of 100,000 or more. A typical Capesize ship boasts a DWT of 156,000.
This category may also encompass select mammoth vessels with capacities reaching 400,000 DWT. Capesize ships primarily ply long-distance routes, transporting coal and iron ore, with occasional forays into grain transportation. Their immense proportions preclude passage through the Panama Canal.
Panamax ships, on the other hand, possess a capacity of 60,000 to 80,000 DWT. They are predominantly employed in the transportation of coal, grains, and various minor bulk products like sugar and cement. Loading and unloading Panamax cargo ships necessitate specialized equipment. Their size allows them to navigate the Panama Canal with a tight fit.
Supramax bulk carriers have a carrying capacity ranging from 50,000 to 59,999 DWT. Although they share a close resemblance in size to Panamax bulk carriers, Supramax bulk carriers typically possess specialized equipment for cargo handling. They serve ports where Panamax vessels encounter operational constraints.
Handysize bulk carriers constitute the smallest ships included in the Baltic Dry Index (BDI). Handysize bulk carriers that have a carrying capacity of 38,000 DWT is included in the calculation of Baltic Handysize Index (BHSI).
What are the Type of Dry Bulk Commodities in Baltic Dry Index (BDI)?
Dry bulk commodities are commonly categorized into two distinct groups: major bulks and minor bulks. Noteworthy instances of major dry bulk commodities encompass iron ore, coal, and grain. These substantial bulks contribute to approximately two-thirds of the global dry bulk trade. Conversely, minor bulks encompass steel products, sugars, cement, and account for the remaining one-third of the global dry bulk trade.
Coal, alongside iron ore, stands as one of the most extensively traded dry bulk commodities in terms of volume on a worldwide scale. The countries most deeply involved in importing coal to fulfill their primary energy and electricity requirements are India, China, and Japan. Grain, being yet another influential cargo in terms of seaborne dry bulk trade, constitutes a significant portion of the overall dry bulk trade across the globe.
What is Baltic Capesize Index (BCI)?
The Baltic Capesize Index (BCI) is part of the Baltic Exchange Dry Index (BDI), which is an economic indicator issued daily by the London-based Baltic Exchange. The BDI includes the Baltic Capesize Index (BCI), Baltic Panamax Index (BPI), Baltic Supramax Index (BSI), and Baltic Handysize Index (BHI), each reflecting the shipping rates for different types of dry bulk carriers. Capesize vessels are the largest ships that cannot pass through the Panama Canal, hence the name, and are typically used to transport commodities such as iron ore, coal, and other bulk materials.
The exact methodology for calculating the Baltic Capesize Index is proprietary to the Baltic Exchange, but in general, the process involves the following steps:
- Data Collection: The Baltic Exchange collects data on shipping rates from a panel of international shipbroking companies. These companies provide daily freight market prices based on actual fixtures and market assessments. The data covers specific shipping routes that are significant for Capesize vessels.
- Standardization: The shipping rates provided by the panel are for specific routes, and they are based on a standardized Capesize vessel specification determined by the Baltic Exchange.
- Averaging: The index is calculated as an average of the received rates, typically a time-weighted average, for each of the selected routes. Before averaging, the rates might be adjusted to account for route-specific factors, such as the distance of the route and the cargo quantity.
- Normalization: To ensure that the index reflects changes in shipping rates and not other factors, it may be normalized. The normalization process involves dividing the calculated average by a base value set at a particular point in time.
- Publication: The index value is published daily. Changes in the index reflect changes in shipping rates for Capesize vessels.
Please note that this is a general overview of the process and the actual methodology may contain additional specific steps and adjustments to ensure the accuracy and relevance of the index. For the most accurate information, refer to the Baltic Exchange’s own documents and resources.
How is the Baltic Capesize Index (BCI) calculated?
C2 – Tubarao to Rotterdam
C3 – Tubarao to Qingdao
C5 – West Australia to Qingdao
C7 – Bolivar to Rotterdam
C8_14 – Gibraltar/Hamburg transatlantic round voyage
C9_14 – Continent/Mediterranean trip China-Japan
C10_14 – China-Japan transpacific round voyage
C14 – China-Brazil round voyage
C16 – Revised backhaul
C17 – Saldanha Bay to Qingdao
5TC Weighted Timecharter Average: Sum(C8_14*0.25, C9_14*0.125, C10_14*0.25, C14*0.25, C16*0.125)
Baltic Capesize Index (BCI): Sum(C8_14*0.030145, C9_14*0.0150725, C10_14*0.030145, C14*0.030145, C16*0.0150725)
Baltic Capesize vessel for Timecharter routes is a non scrubber fitted vessel based on the following description:
180,000mt dwt on 18.2m SSW draft
Max age 10 yrs
LOA 290m, beam 45m, TPC 121
14 knots laden / 15 knots ballast on 62mt fuel oil (380cst), no diesel at sea
12 knots laden / 13 knots ballast on 43mt fuel oil (380cst), no diesel at sea
What is Baltic Panamax Index (BPI)?
The Baltic Panamax Index (BPI) is a key benchmark index that provides an assessment of the price of moving various types of commodities, primarily coal, grain, and other dry bulk, on Panamax-sized vessels. The Panamax class of vessels got its name from the maximum size of ship that can pass through the Panama Canal.
The BPI is published by the Baltic Exchange in London. The Baltic Exchange is a market where shipbrokers, owners, and charterers negotiate freight rates. The Exchange maintains a set of standard vessel descriptions to facilitate these trades, and the BPI is part of these assessments.
The BPI is calculated daily based on professional assessments made by a panel of major shipbrokers. These brokers submit their view of current freight cost on various routes for the type of ship specified. The data is then used to derive an average that forms the daily index.
While the BPI refers specifically to the Panamax segment, it is part of a wider suite of indices provided by the Baltic Exchange that cover different vessel types, including Capesize, Supramax and Handysize, all of which have different size and cargo characteristics.
As of my knowledge cutoff in September 2021, it’s important to note that the shipping industry and the related freight indexes can be significantly affected by numerous factors including supply and demand dynamics, global economic conditions, weather events, and geopolitics, among other things. It’s always a good idea to check the most recent data and analysis when using indices like the BPI.
How is the Baltic Panamax Index (BPI) calculated?
P1A_82 – Skaw-Gib transatlantic round voyage
P2A_82 – Skaw-Gib trip HK-S Korea incl Taiwan
P3A_82 – HK-S Korea incl Taiwan, one Pacific RV
P4_82 – HK-S Korea incl Taiwan trip to Skaw-Gib
P5_82 – South China, one Indonesian round voyage
P6_82 – Dely Singapore for one round voyage via Atlantic
5TC Weighted Timecharter Average: Sum(P1A_82*0.25, P2A_82*0.1, P3A_82*0.25, P4_82*0.10, P6_82*0.30)
Baltic Panamax Index (BPI): Sum(P1A_82*0.027777775, P2A_82*0.01111111, P3A_82*0.027777775, P4_82*0.01111111, P6_82*0.03333333)
Baltic Panamax vessel for Timecharter routes is a non-scrubber fitted vessel based on the following description:
82,500mt dwt on 14.43m SSW draft
Max age 12 yrs
LOA 229m, beam 32.25m, TPC 70.5
97,000 cbm grain
13.5 knots laden on 33mt fuel oil (380cs t) / 14 knots ballast on 31mt fuel oil (380cs t) + 0.1 MGO at sea
11.5 knots laden on 22mt fuel oil (380cs t) / 12.5 knots ballast on 23mt fuel oil (380cs t) + 0.1 MGO at sea
What is Baltic Supramax Index (BSI)?
The Baltic Supramax Index (BSI) is one of the many specialized indices maintained by the Baltic Exchange, a London-based organization that provides information on maritime transportation markets. These indices are closely followed by shipbrokers, owners, and others involved in the shipping industry to understand the prevailing market conditions and freight rates.
The Supramax Index specifically covers a type of mid-sized bulk carrier known as “Supramax” vessels. Supramax vessels typically have a capacity between 50,000 to 60,000 deadweight tonnage (DWT) and are larger than Handysize vessels but smaller than Panamax and Capesize ships. They are versatile, equipped with onboard cranes allowing them to load and unload cargo at ports that may not have extensive cargo-handling facilities.
The BSI, like other Baltic Exchange indices, is derived from a panel of international shipbrokers who provide daily assessments of what they believe to be representative freight rates for a range of standard routes and vessel types. These assessments are then weighted and averaged to create the daily index value. The index provides a measure of the cost to transport dry bulk commodities like coal, grain, and iron ore on Supramax vessels.
It’s important to note that the BSI, like all freight indices, can be influenced by a wide range of factors including supply and demand dynamics for both shipping capacity and the commodities being transported, fuel costs, port charges, and broader economic conditions. Thus, it is a complex indicator that reflects multiple facets of global trade and economics.
How is the Baltic Supramax Index (BPI) calculated?
S1B_58 – Canakkale trip via Med or Bl Sea to China-South Korea
S1C_58 – US Gulf trip to China-south Japan
S2_58 – North China one Australian or Pacific round voyage
S3_58 – North China trip to West Africa
S4A_58 – US Gulf trip to Skaw-Passero
S4B_58 – Skaw-Passero trip to US Gulf
S5_58 – West Africa trip via east coast South America to north China
S8_58 – South China trip via Indonesia to east coast India
S9_58 – West Africa trip via east coast South America to Skaw-Passero
S10_58 – South China trip via Indonesia to south China
10TC Weighted Timecharter Average: Sum(S1B_58*0.05, S1C_58*0.05, S2_58*0.20, S3_58*0.15, S4A_58*0.075, S4B_58*0.10, S5_58*0.05, S8_58*0.15, S9_58*0.075, S10_58*0.10)
Baltic Supramax Index (BSI): Sum(S1B_58*0.004545455, S1C_58*0.004545455, S2_58*0.018181818, S3_58*0.013636364, S4A_58*0.006818182, S4B_58*0.009090909, S5_58*0.004545455, S8_58*0.013636364, S9_58*0.006818182, S10_58*0.009090909)
Baltic Supramax vesssel for Time charter routes is based on a non-scrubber fitted standard “Tess58 ” type vessel of the following description:
58,328mt dwt on 12.80 m ssw
Max age 15 yrs
LOA 189.99m, beam 32.26m, TPC 57.5
72,360 cbm grain / 70,557 cbm bale
4 x 30t Cr + 12 cbm grabs
14 knots laden on 33mt fuel oil (380cst) / 14 knots ballast on 32mt fuel oil (380cst), no diesel at sea
12 knots laden on 24mt fuel oil (380cst) / 12.5 knots ballast on 23mt fuel oil (380cst), no diesel at sea
What is Baltic Handysize Index (BHSI)?
The Baltic Handysize Index (BHSI) is a part of the Baltic Exchange and it provides an assessment of the price of moving various raw materials by sea, particularly in Handysize vessels. Handysize is a naval architecture term for smaller bulk carriers or oil tanker with a capacity between 15,000 and 35,000 DWT (deadweight tonnage). These ships are versatile as their size allows them to enter smaller ports to pick up and discharge cargoes.
The index itself is calculated based on a number of routes carrying commodities like grains, steels, minerals, and fertilizers. The rates that are assessed for these routes are then used to calculate the overall index number. As such, the BHSI is often used as a global benchmark for freight prices for Handysize vessels. The higher the index, the more it costs to ship materials, which may affect the price of commodities. Conversely, a lower index means shipping is less expensive.
Keep in mind that just like the Baltic Dry Index (BDI), the BHSI is highly sensitive to global economic conditions. During periods of robust global trade, the index tends to rise; during periods of economic downturn, the index usually falls.
How is the Baltic Handysize Index (BHSI) calculated?
HS1_38 – Skaw-Passero trip to Rio de Janeiro-Recalada
HS2_38 – Skaw-Passero trip to Boston-Galveston
HS3_38 – Rio de Janeiro-Recalada trip to Skaw-Passero
HS4_38 – US Gulf trip via US Gulf or north coast South America to Skaw-Passero
HS5_38 – South East Asia trip to Singapore-Japan
HS6_38 – North China-South Korea-Japan trip to North China-South Korea-Japan
HS7_38 – North China-South Korea-Japan trip to south east Asia
7TC Weighted Time Charter Average: Sum(HS1_38*0.125, HS2_38*0.125, HS3_38*0.125, HS4_38*0.125, HS5_38*0.20, HS6_38*0.20, HS7_38*0.20)
Baltic Handysize Index (BHSI): Sum(HS1_38*0.006944444, HS2_38*0.006944444, HS3_38*0.006944444, HS4_38*0.006944444, HS5_38*0.011111111, HS6_38*0.011111111, HS7_38*0.005555556)
Baltic Handysize 38 vessel for Timecharter routes is a non-scrubber fitted vessel based on the following description:
Singledeck self trimming geared bulk carrier
38,200mt dwt on 10.538m SSW
Max Age 15 Years
LOA 180m / Beam 29.8m / TPC 49
47,125 cbm grain / 45,300 cbm bale
5 holds / 5 hatches
4 x 30 ton cranes
Speed & consumptions including main engine & auxibrary engines:
14 knots on 26mt IFO (380 CST) laden/24mt IFO (380 CST) ballast + 0.1 MDO at sea
12 knots on 18mt IFO (380 CST) laden/17mt IFO (380 CST) ballast + 0.1 MDO at sea
What affects Baltic Dry Index (BDI)?
The Baltic Dry Index (BDI) may decline when the goods transported consist of unprocessed, preliminary materials, typically within a domain characterized by minimal levels of speculation. The BDI may exhibit substantial volatility when there is a surge or abrupt decline in global demand, given the limited availability of sizeable carriers, lengthy lead times, and elevated production costs.
Equity prices ascend during periods of robust and expanding global market conditions, whereas they tend to decline when growth stagnates or falters. The index remains relatively consistent, relying on straightforward determinants of supply and demand, with minimal impact from factors such as unemployment and inflation.
The Baltic Dry Index (BDI) partially anticipated the recession of 2008, as evidenced by a sharp price decline. In a notable instance showcasing the insights offered by the index, analysts discerned a significant drop of over 70% between September 2019 and January 2020, serving as a strong indicator of economic contraction.
This transpired just prior to the outbreak of the COVID-19 pandemic. Subsequently, throughout 2021, the Baltic Dry Index (BDI) experienced a remarkable surge, attributed to disruptions and delays in global shipping caused by the pandemic.
The Baltic Dry Index (BDI) is a good economic indicator as it predicts future economic activity because it tracks the delivery of raw materials that are used in the early stages of production.
Several factors can influence the Baltic Dry Index (BDI):
- Global Economic Conditions: One of the primary factors affecting the BDI is the overall state of the global economy. If there’s a surge in economic activity and growth, the demand for raw materials usually rises, and therefore, so does the cost to transport these materials. Conversely, during economic downturns, there is usually a decrease in demand, leading to a drop in the BDI.
- Supply and Demand for Ships: Just like any market, the supply and demand for shipping heavily influences the BDI. If there is a surplus of ships but a low demand for commodities, the BDI will fall. Conversely, if there’s a shortage of ships but high demand for commodities, the BDI will rise.
- Fuel Costs: The cost of fuel can significantly affect the BDI. Higher fuel prices increase the cost of operating ships, which in turn increases the cost of shipping goods, thereby increasing the BDI. Lower fuel prices, on the other hand, can reduce the BDI.
- Seasonal Factors: Seasonality can influence the BDI. For example, during periods of the year when the demand for certain commodities like grain or coal is typically higher, the BDI tends to rise. Also, severe weather conditions can disrupt shipping routes and temporarily increase shipping rates.
- Trade Policies: Changes in international trade policies, such as the imposition of tariffs or sanctions, can also affect the BDI. These policies can influence the volume of goods traded between countries, which can, in turn, influence the demand for shipping and the BDI.
- Geopolitical Events: Major geopolitical events can have an impact on the BDI. Wars, political instability, and natural disasters can disrupt trade routes, leading to a change in the BDI.
It’s important to note that the Baltic Dry Index (BDI) is a “leading economic indicator” as it measures the cost of shipping materials that will be used in future production. So changes in the Baltic Dry Index (BDI) can potentially signal future increases or decreases in economic activity.