Baltic Dry Index

Published Sep 23, 2023

Definition of Baltic Dry Index

The Baltic Dry Index (BDI) is an index that tracks the cost of shipping dry bulk commodities such as coal, iron ore, and grain around the world. It is compiled by the London-based Baltic Exchange and is considered to be a leading indicator of global economic activity. That means it is used to measure the demand for shipping capacity and the supply of dry bulk commodities.

Example

To illustrate the Baltic Dry Index, let’s look at the market for iron ore. The BDI is calculated by taking the average of the daily spot rates for a variety of different shipping routes. For example, the spot rate for a route from Australia to China is determined by the cost of chartering a ship, the cost of fuel, and the cost of port fees. The BDI is then calculated by taking the average of all these spot rates.

Now, if the demand for iron ore increases, the spot rates for shipping routes to China will also increase. That means the BDI will also increase, indicating an increase in global economic activity. On the other hand, if the demand for iron ore decreases, the spot rates for shipping routes to China will decrease, and the BDI will also decrease, indicating a decrease in global economic activity.

Why the Baltic Dry Index Matters

The Baltic Dry Index is an important indicator of global economic activity. It is closely watched by economists, investors, and policy-makers alike. That is because it provides an indication of the demand for shipping capacity and the supply of dry bulk commodities.

This information can be used to make informed decisions about investments, economic policies, and other matters. In addition to that, the BDI is also used to measure the performance of the shipping industry and to assess the health of the global economy.