Baltic Dry Index
The Baltic Dry Index (BDI), tracks the worldwide value of international shipping prices (in US$) of various dry bulk cargoes. The index measures the demand for shipping capacity versus the supply of dry bulk carriers. Since the demand for shipping is correlated with the amount of cargo that is being traded, the BDI provides a direct measure of world trade through this supply and demand. Hence the Baltic Dry is a leading economic indicator because it predicts future economic activity.
Unlike stock and bond markets, the BDI is a reflection of the real value of trade and not speculative anticipation of price, since the index is a real measure of raw materials which represent future economic activity and growth. So it is not surprising that economists look at the BDI as a leading indicator for the major share markets.
The chart shows the BDI and the CRB index.… Continue reading
When considering indices which give have a high correlation with the health of the world economy it is worth looking at the Baltic Dry index or BDI. The BDI measures dry shipping freight costs, priced in dollars, as reported daily by brokers to London’s Baltic Exchange.
Prices for shipping coal, rice, wheat and other commodities are a proxy for the strength of world trade and, by extension, of activity in the global economy. A falling Baltic Dry index shows that ship owners are cutting prices in the face of falling demand.
In 2008 at the start of the GFC, the Baltic Dry index was an early warning sign of trouble ahead for the global economy. In January of this year the BDI fell to a 25-year-low giving cause for concern that history is about to repeat itself.
The figure below shows the BDI over the past 10 years with the… Continue reading