The Baltic Dry Index and its Importance in International Trade
- Author Phillip Vales
- Published September 25, 2010
- Word count 516
The Index is a commercial statistical set of numerical factors describing various shipping
criteria. It was first officially codified in 1985, however, the history of the earlier
rudimentary basis of the Index dates back over two hundred years to the Virginia and
Maryland coffee house on Threadneedle Street, London. Various individuals having
commercial interests met at the coffee house to discuss the various opportunities in the
Baltic trade as early as 1744.
Within seventy years the meetings were transferred to the Antwerp Tavern where the
spirit of greed fiercely gripped the participants. If it were not for the formation of a group
of local leaders the frenzy that captured the Tavern group would have sunk the entire
assembly. These chiefs acted to standardize the group by organized regulation of the
market house including membership rules. As time went on, the system evolved so that
the by the year 1900 the Baltic Exchange would receive the London Shipping Exchange
into its membership.
In its long life the Baltic Exchange would create several cargo statistics, suffer terrorist
bombings and change locations several times to its present location of 38 St. Mary Axe.
The Exchange’s current Baltic Dry Index (BDI) dates to the year 1985 as cited
previously. It tracks the route and time as well as materials and shipping for various
commodities. In particular, the statistics cover several different types of freight container
ships. Amongst the types of vessels indexed are the Handymax, Panamax, Capesize dry
bulk and Supramax ships.
All of these factors are correlated together into a system that daily tracks costs from the
various routes folded into index. Brokers are contacted so as to aggregate the raw
information into a uniform whole providing market participants a concise and easy to use
data stream. In this manner the supply demand economic fundamentals between goods,
shipping rates and demand for the same can be assessed accurately and efficiently. All of
this is effective at rapidly determining the rise and fall of raw materials good as a result
of increased demand. As an example, when a particular ore or raw material has an
increase in demand the index will increase and the reverse is true a drop in material prices
has a concomitant drop in the index.
It should be understood that ships are static commodities since it takes a long time frame
to produce one. Thus, any increase or decrease in demand will directly relate to the rise
and fall of the index as described previously. Since the BDI closely tracks demand across
a variety of commodities, the index is viewed as a leading indicator of global economic
performance. The recent economic crisis beginning in 2007 saw a high watermark for
the BDI above 11,000. However, this peak only signaled the beginning of the end as it
fell in a crash diving to less then 10% of its highs. As a result, ships world wide began to
be parked by owners highlighting the global economic meltdown still underway.
Whatever happens to the world economy, the historical Baltic Dry Index will provide a
broad and early indicator to be watched by those in the know.
Phillip Vales is an engineer and patent agent. To contact the author visit: patent attorney or patent
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