baltic dry index - wikipedia, the free encyclopedia

Baltic Dry Index

Baltic Dry Index 1985–2013

From Wikipedia, the free encyclopedia

The Baltic Dry Index (BDI) is a number issued daily by the London-based BalticExchange. Not restricted to Baltic Sea countries, the index provides "an assessmentof the price of moving the major raw materials by sea. Taking in 23 shipping routesmeasured on a timecharter basis, the index covers Handysize, Supramax, Panamax,and Capesize dry bulk carriers carrying a range of commodities including coal, ironore and grain."[1]

Contents1 Historical origin2 How it works3 Why economists and stock market investors read it4 Significant levels5 References6 External links

Historical originIn 1744, the Virginia and Maryland coffee house in Threadneedle Street, London, changed its name to Virginia and Baltick, tomore accurately describe the business interests of the merchants who gathered there. Today's Baltic Exchange has its roots in acommittee of merchants formed in 1823 to regulate trading and formalize the exchange of securities on the premises, which bythen had moved to the Antwerp Tavern.[2]

How it worksEvery working day, a panel of international shipbrokers submits their view of current freight cost on various routes to the BalticExchange. The routes are meant to be representative, i.e. large enough in volume to matter for the overall market.

These rate assessments are then weighted together to create both the overall BDI and the size specific Supramax, Panamax,and Capesize indices. The BDI factors in the four different sizes of oceangoing dry bulk transport vessels:[3]

Ship Classification Dead Weight Tons % of World Fleet % of Dry Bulk Traffic[4]

Capesize 100,000+ 10% 62%

Panamax 60,000-80,000 19% 20%

Supramax 45,000-59,000 37% 18% w/ Handysize

Handysize 15,000-35,000 34% 18% w/ Supramax[5]

The BDI contains route assessments based only on time-charter hire rates "USD paid per day". Fuel (="Bunkers") is the largestvoyage dependent cost and moves with the crude oil price. In periods where bunker costs fluctuate significantly, there BDI willtherefore move more than the shipowners' realised earnings.

The index can be accessed on a subscription basis directly from the Baltic Exchange as well as from major financial informationand news services such as Macrobond Financial, Thomson Reuters and Bloomberg L.P..

Why economists and stock market investors read itMost directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. The demand forshipping varies with the amount of cargo that is being traded or moved in various markets (supply and demand).

The supply of cargo ships is generally both tight and inelastic—it takes two years to build a new ship, and ships are too expensive

Baltic Dry Index - Wikipedia, the free encyclopedia http://en.wikipedia.org/wiki/Baltic_Dry_Index

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to take out of circulation the way airlines park unneeded jets in deserts. So, marginal increases in demand can push the indexhigher quickly, and marginal demand decreases can cause the index to fall rapidly. e.g. "if you have 100 ships competing for 99cargoes, rates go down, whereas if you've 99 ships competing for 100 cargoes, rates go up. In other words, small fleet changesand logistical matters can crash rates..."[6] The index indirectly measures global supply and demand for the commodities shippedaboard dry bulk carriers, such as building materials, coal, metallic ores, and grains.

Because dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finishedgoods, such as concrete, electricity, steel, and food; the index is also seen as an efficient economic indicator of future economicgrowth and production. The BDI is termed a leading economic indicator because it predicts future economic activity.[7]

Another index, the HARPEX,[8] focuses on containers freight. It provides an insight on the transport of a much wider base ofcommercial goods than commodities alone. HARPEX is regarded as a Current-Activity Indicator, because it measures and chartsthe changes in freight rates for 'container ships.' Container ships typically carry a wide variety of finished goods from a multitudeof sellers. These are factory output goods headed for retail markets, at the other end of the supply chain.[9]

Other leading economic indicators—which serve as the foundation of important political and economic decisions—are oftenmeasured to serve narrow interests, and subjected to adjustments or revisions. Payroll or employment numbers are oftenestimates; consumer confidence appears to measure nothing more than sentiment, often with no link to actual consumerbehavior; gross national product figures are consistently revised, and so forth. Unlike stock and bond markets, the BDI "is totallydevoid of speculative content," says Howard Simons, an economist and columnist at TheStreet.com. "People don't bookfreighters unless they have cargo to move."[10]

Significant levelsOn 20 May 2008, the index reached its record high level since its introduction in 1985, reaching 11,793 points. Half a year later,on 5 December 2008, the index had dropped by 94%, to 663 points, the lowest since 1986;[11] though by 4 February 2009 it hadrecovered a little lost ground, back to 1,316.[12] These low rates moved dangerously close to the combined operating costs ofvessels, fuel, and crews.[13][14]

By the end of 2008, shipping times had been already increased by reduced speeds to save fuel consumption, but lack of creditmeant the reduction of letters of credit, historically required to load cargoes for departure at ports. Debt load of future shipconstruction was also a problem for shipping companies, with several major bankruptcies and implications for shipyards.[15][16]

This, combined with the collapsing price of raw commodities created a perfect storm for the world's marine commerce.

During 2009, the index recovered as high as 4661, but then bottomed out at 1043 in February, 2011, after continued deliveries ofnew ships and flooding in Australia.[17]

Though rebounding to 2000 on 7 October,[18] by 3 February 2012, the index made a new multi-decade low of 647 on a continuedglut of dry bulk carriers and decreases in orders of iron and coal.[19]

References^ Baltic Exchange (http://www.balticexchange.com/)1.

^ Baltic Exchange (http://www.balticexchange.com/default.asp?action=article&ID=19) History2.

^ Data from Wikinvest, "Composition of the Baltic Dry Index"3.

^ This is measured in terms of the tonnage of cargo carried multiplied by the distance traveled4.

^ Lamb, Thomas. Ship Design and Construction. Jersey City: Society of Naval Architects and Marine Engineers. ISBN 0-939773-40-6 and

CIA World Factbook 2005. Data slightly dated as there has been increased construction in the Capemax size the past three years

5.

^ http://www.economist.com/business/displayStory.cfm?story_id=12414753&source=features_box1&mode=comment&intent=readBottom6.

^ Commodity indicators Show Strain On Bull (market) (http://www.financialsense.com/fsu/editorials/willie/2008/0731.html)7.

^ HARPEX (http://www.harperpetersen.com/harpex/harpexVP.do), Harper Petersen website8.

^ 'The Most Alarming Chart I’ve Seen All Week' (http://www.wallstreetdaily.com/2012/01/27/revisiting-â`œthe-most-alarming-chart-iâ`™ve-

seen-all-weekâ`/)

9.

^ Why you should care about The Baltic Dry Index (http://www.slate.com/id/2090303/)10.

^ Collapse in dry bulk shipping rates unprecedented in its severity (http://www.gulfnews.com/business/Shipping/10263782.html)11.

^ Commodity Shipping Index Advances the Most Since at Least 1985 (http://www.bloomberg.com/apps/news?pid=20601085&

sid=ah6n4sxikADs&refer=news)

12.


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^ Marine Shippers Scuttled As Baltic Measure Hits Low (http://blogs.barrons.com/stockstowatchtoday/2008/10/28/marine-shippers-scuttled-

as-baltic-measure-hits-low/?mod=yahoobarrons)

13.

^ Baltic Dry Index Drops Below 1,000 for First Time in Six Years (http://www.bloomberg.com/apps/news?pid=20601085&sid=ad8JhQ4fitVY&

refer=europe)

14.

^ Asian shipyards face prospect of bankruptcy (http://www.yourshipbuildingnews.com/news_item.php?newsID=12150)15.

^ Shipper Industrial Carriers Files for Bankruptcy (http://www.bloomberg.com/apps/news?pid=20601085&sid=ampw1MzQhaMc&

refer=europe)

16.

^ Bloomberg Dry-Bulk Shipping Extends 2011 Drop to 20% on Australia Floods (http://www.businessweek.com/news/2011-01-19/dry-bulk-

shipping-extends-2011-drop-to-20-on-australia-floods.html)

17.

^ Baltic Dry Index Is At 2000 - But Nobody Is Watching (http://seekingalpha.com/article/298669-baltic-dry-index-is-at-2000-but-nobody-

is-watching)

18.

^ Dry Bulk Freight Index Drops and Container Shipping Line Forecasts and Profits Slump (http://www.handyshippingguide.com/shipping-

news/dry-bulk-freight-index-drops-and-container-shipping-line-forecasts-and-profits-slump_3438)

19.

External linksBaltic Exchange Daily Indices (http://navigatemag.ru/indices/)DryShips Inc. daily market report (http://www.dryships.com/pages/report.asp)The best economic indicator you've never heard of (http://www.slate.com/id/2090303/) - Article at Slate.comstockcharts.com BDI chart (http://stockcharts.com/charts/gallery.html?$BDI)

Retrieved from "http://en.wikipedia.org/w/index.php?title=Baltic_Dry_Index&oldid=559050112"Categories: Ship chartering Shipping management Index numbers


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