The Baltic Dry Index is an economic indicator issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides "an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain."
The Baltic Dry Index or the BDI is a shipping and trade index which is created and used by the Baltic Exchange, and which allows them to measure the cost changes that may be made while shipping raw material like fossil fuels, metals, grains etc.
The London based Baltic Exchange came up with the BDI which is actually a composite of three other sub-indexes that are used for measuring the goods that are carried by dry bulk carriers like Capesize, Panamax and Supramax. The evaluation of multiple geographic routes is done to lend more depth to the composite measurement of the index.
The BDI holds great importance in the trading world because it helps the concerned people understand the exact capacity of a cargo ship and how readily these cargo ships are available. Cargo ships are specifically designed to carry a specific amount of load and it takes anywhere between two years to build one cargo ship. Not to mention the amount of money that goes in into building a dry bulk carrier (another name for cargo ship). So, if you do not know the Baltic Dry Index, you will never be able to exactly know just how many cargo ships should you be investing in and what should be their capacity.
This Baltic Dry Index can change very quickly. If there is even a slight increase in the demand of cargo ships the index will also increase. On the contrary, even a slight decrease in the demand of these ships can cause the index to rapidly fall down. For example, if you have 80 ships carrying 79 cargoes the rates will go down; but if you have 79 ships carrying 8 cargoes, the index will rise.
So basically, any small changes either in the fleet of the ships or the logistics can either crash the rates or take them higher. Since, BDI is used to calculate what it would cost to transport raw material via sea, several financial and economical experts also consider this index to be a good representative of the economic standing of a country.
Financial education is so important, but barely taught at all in our schools. Having resources online is great, but not if they are inaccessible to so many. Thanks 508!