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Understanding the Baltic Dry Index |
by S. Wade Hansen
A Practical Economic Indicator for Investors
Investors are always looking for practical economic indicators they can use to help them make informed investing decisions. Peter Lynch, the famous manager of the Fidelity Magellan Fund, talked about looking for practical indicators in the world around you—like looking at what products your friends are buying or what stores always seem to be crowded. The Baltic Dry Index (BDI) is a practical economic indicator on a global scale.
The Baltic Dry Index (BDI)
The Baltic Dry Index (BDI) is a measure of what it costs to ship raw materials—like iron ore, steel, cement, coal and so on—around the world. The Baltic Dry Index is compiled daily by The Baltic Exchange. To compile the index, members of the Baltic Exchange call dry bulk shippers around the world to see what their prices are for 22 different shipping routes around the globe. Once they have obtained these numbers, they compile them and find an average. To ensure they are getting a comprehensive view of the entire shipping industry when looking at various shipping costs, the Baltic Exchange looks at costs for each of the following four sizes of ships:
- Capemax (10 percent of the global fleet): ships that can carry 100,000+ dead weight tons of cargo and are too big to pass through the Panama Canal
- Panamax (19 percent of the global fleet): ships that can carry 60,000-80,000 dead weight tons of cargo and can barely fit through the Panama Canal
- Handymax, or Supramax (37 percent of the global fleet): ships that can carry 45,000-59,000 dead weight tons of cargo
- Handysize (34 percent of the global fleet): ships that can carry 15,000-35,000 dead weight tons of cargo
Continue to Page 2 of Understanding The Baltic Dry Index
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