Baltic Dry Index (BDI)

What the BDI is

The Baltic Dry Index (BDI) is a daily shipping and trade index published by the Baltic Exchange that tracks the cost of transporting dry bulk raw materials—such as iron ore, coal, and grain—across major seaborne trade routes. Because it measures the demand for shipping capacity against available vessel supply, the BDI is widely watched as a leading indicator of global trade and economic activity.

How the BDI is calculated

• The Baltic Exchange collects freight rates from charterers, shipbrokers, and owners across more than 20 shipping routes.
• Rates for four vessel categories are aggregated into sub-indices and combined into the overall BDI.
• The index is issued daily and is also used as the basis for freight derivatives, such as forward freight agreements.

BDI vessel categories and typical capacities

The BDI aggregates spot freight rates for four classes of dry bulk carriers. Typical capacities and roles:

• Capesize: Generally >100,000 deadweight tonnes (DWT), average around 150,000–160,000 DWT; used for long-haul cargos like iron ore and coal. Too large for the Panama Canal.
• Panamax: Roughly 60,000–80,000 DWT; designed to transit the original Panama Canal locks. Commonly carry coal, grain, and similar bulks.
• Supramax / Handymax: About 40,000–60,000 DWT; versatile vessels often fitted with their own loading gear and able to serve a wide range of ports.
• Handysize: Smaller vessels (typically below the Supramax range) that can access shallower or smaller ports and carry minor bulks and regional cargos.

Types of commodities covered

Dry bulk commodities are typically split into:
* Major bulks: iron ore, coal, and grain—these account for a large share of seaborne dry bulk trade.
* Minor bulks: cement, steel products, sugar and other smaller cargoes.

Real-world significance and examples

• Leading economic indicator: Because raw materials are inputs for construction and manufacturing, rising freight rates can signal increasing industrial activity; falling rates can presage contraction.
• Volatility: The index can swing sharply. Large vessels are costly and slow to build, so fleet supply adjusts slowly; sudden demand shifts therefore produce pronounced rate moves.
• Historical signals: The BDI fell sharply ahead of the 2008 global recession. It also dropped substantially between late 2019 and early 2020 before the COVID-19 pandemic and then surged in 2021 amid pandemic-driven shipping disruptions.

Limitations and cautions

• High volatility makes the BDI an imperfect stand-alone predictor of economic trends.
• It reflects shipping market dynamics specifically—other macro factors (consumer demand, fiscal and monetary policy, services sector activity) are not captured.
• Investors should combine BDI signals with broader economic data and professional analysis before making decisions.

Bottom line

The Baltic Dry Index is a practical, timely gauge of global demand for dry bulk shipping and, by extension, demand for raw materials used in construction and industry. Its daily movements offer useful signals about trade and growth trends, but its volatility and narrow focus mean it should be used alongside other indicators and analyses.

Sources

Baltic Exchange; Bulk carrier references; Trading Economics