Financial Glossary: Baltic Dry Index


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Baltic Dry Index - BDI

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Baltic Dry Index - BDI

Baltic Dry Index - BDI

It is a shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea.

The Baltic Exchange directly contacts shipping brokers to assess price levels for a given route, product to transport and time to Delivery (speed). The Baltic Dry Index consists of three sub-indexes that measure different sizes of dry bulk carriers (merchant ships) - Capsize, Supramax and Panamax. Multiple geographic routes are evaluated for each index to give depth to the index's composite measurement.

Also known as the "Dry Bulk Index", the changes in it can give investors insight into global supply and demand trends. The change often indicates 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.

A 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.

Posted by Institute for International Research

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