The Baltic Dry Index is used by ship owners and companies transporting dry goods by sea, but it is also increasingly popular among profit-driven investors as the basis for constructing trades involving maritime freight.
The Baltic Exchange Capesize Index is calculated for Capesize ships, which weigh about 172,000 dead weight tonnes, and get their name from their ability to navigate the Cape of Good Hope (South Africa).
Baltic Exchange Panamax Index is calculated for Panamax ships, smaller vessels weighing about 80,000 dead weight tonnes, which derive their name from their ability to navigate the Panama Canal.
Baltic Exchange Supramax Index is for Supramax vessels, which weigh about 56,000 dead weight tonnes.
The final Baltic Exchange Handysize index is calculated for Handysize vessels, which weigh about 30,000 dead weight tonnes.
(There are also indices for costs of transporting wet goods, primarily oil. The International Tanker Routes reports on 19 international oil routes, and lies behind the Baltic Exchange Dirty Tanker and Baltic Exchange Clean Tanker indices.)
Over the years for both the dry transport routes and wet transport various routes have been added, eliminated and modified.
Purely by way of example, some are for barley from Antwerp to the Red Sea, coal from Australian state Queensland to Rotterdam, sugar from Brazil (Recife) to the US east coast, and potash from Hamburg to India’s west coast.
The level of each BDI is equivalent to hiring the relevant size of ship, for the various journeys, on a time-basis. (Ships can also be chartered by weight of goods carried, but this is not the charter basis used for the BDI.)
A number of different ship routes are included in calculating each vessel-size BDI. For Capesize, for example, about 10 routes are included.
The indices, originally called the Baltic Freight Index, are calculated in the following way.
An independent panel of ship brokers around the world submit anonymously their best estimates, expressed in US dollars, for hiring pre-defined vessels on pre-defined routes. Submissions go to the Baltic Exchange each day at 13:00 London time.
Neither ship owners nor companies with goods to ship are on these panels, and brokers as intermediaries have no interest in submitting high, or low, numbers as they have no money at stake in the maritime markets themselves.
Examples of groups taking part in the panels are Clarksons, and Braemar, but niche players are also active on panels.
In making their submissions, the brokers may consider what kinds of prices they have seen recently, what kinds of cargoes are involved, and the conditions on the route. All these will play a role.