This allows refiners and shippers to increase the supply of dirty and clean tankers as volumes grow. Third, tankers have some ability to switch from dirty to clean cargos and vice versa, as supply/demand dynamics shift within the dirty and clean sectors. Tankers can be loaded or unloaded within a day or so and prepared for a new voyage within days. Dry bulk ships require a week or more to load or unload cargo, and it can take weeks to clean and prepare a ship for new cargo. The BDI is a summary indication of the cost to ship bulk cargo over 20 standard ocean routes (the Appendix has a list of routes).[1] In other words, it indicates dry bulk shipping rates. The Baltic Exchange compiles the daily hire rate in USD from international shipbrokers for three types of bulk freight ships.

But other causes point to gloomier trends that are also having a large impact, such as China’s declining industrial base and continuing tepid growth in many European countries, which eats into imports. The Baltic Dry Index typically increases in value as demand for commodities and raw goods increases and decreases in value as demand for commodities and raw goods decreases. Dry bulk ships account for about 22% of the global merchant fleet (Chart 1). And they account for 30% of the total value of $14 trillion of cargo shipped annually. The Baltic Dry Index (BDI) is one of those more obscure financial indicators that turn up in the financial press when freight shipping rates break out of comfortable well-established ranges. Unfortunately, there is often little accompanying analysis to help investors decode what is driving these changes and how to capitalize on them.

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