The Baltic Dry Index is a key barometer of global freight activity – measuring the cost of ferrying raw materials around the planet. Despite its name, it isn’t just about Scandinavia. It’s published by London’s Baltic Exchange, the global marketplace for buying and selling shipping contracts.
The BDI measures the demand for space on so-called ‘dry bulk carriers’, which carry cargoes such as coal, grain, timber, steel and iron ore. That makes it a ‘leading’ economic indicator. Manufacturers need to buy supplies of raw materials before they can churn out finished products. So a pick-up in industrial activity will show up in the BDI – as producers stock up on raw materials – before it appears in the official production statistics.
And as the supply of shipping capacity tends to stay relatively unchanged over the short-term – it takes up to two years to build a new ship, and most carrier operators are reluctant to scrap their vessels unless they have to – it doesn’t take a big increase in demand for transport space to push the BDI higher. Simliarly, a downturn will tend to show up in the BDI first.