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.
In working out their submissions, panellists are cautioned specifically to take into account if some rates they have experienced are particularly high or low: “Panellists will be aware of market norms at any time. Where fixtures have been concluded at rates which may appear to be particularly high (or low) because exceptional flexibility has been given to charters (or exceptions restrictions imposed on them), panellists will use their judgement to make appropriate adjustments.”
To ensure a diversity of views is expressed to arrive at each index’s final value for each day, at least five or six brokers must be reporting on each individual route. Overall, about 50 companies are involved in giving submissions behind the BDI.
A sub-committee at the exchange, called the Freight Indices and Futures Committee, made up of five board directors, makes a regular internal review of returns and submissions. The whole system is then independently audited by Moore Stephens.
When looking at the various BDI levels, it is important to understand they are not only indicators of economic activity – of shipping dry commodities goods around the world, for example – but also reflect supply and demand of vessels.
As there is a relative glut of dry transport ships on the sea now, and global trade is not as healthy as it was before 2008, there have been stories of BDI levels recently at multi-year lows.
The increasing importance of Asian trade was reflected in the exchange’s decision in September 2010 to start reporting some of the BDI in the Asian time zone, at 15:00 Singapore time.
For much information in the exchange and its indices, visit www.balticexchange.com.