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.
[VIDEO] Understanding the Baltic Dry Index
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
Why Investors Watch the Baltic Dry Index
The Baltic Dry Index is a leading indicator that provides a clear view into the global demand for commodities and raw materials. The fact that the Baltic Dry Index focuses on raw materials is important because demand for raw materials provides a glimpse into the future. Producers buy raw materials when they want to start building more finished goods and infrastructure—like automobiles, heavy machinery, roads, buildings and so on. Producers stop buying raw materials when they have excess inventory and when they stop infrastructure projects.
Typically, demand for commodities and raw goods increases when global economies are growing. For investors, knowing when the global economy is growing is helpful because that means stock prices, commodity prices and the value of commodity-based currencies should be increasing. Conversely, demand for commodities and raw goods decreases when global economies are stalling or contracting. For investors, knowing when the global economy is contracting is helpful because that means stock prices, commodity prices and the value of commodity-based currencies should be decreasing.
The Baltic Dry Index is also a compelling indicator because it is a simple, real-time indicator that is difficult to manipulate. Some economic indicators—like unemployment rates, inflation indexes and oil prices—can be difficult to interpret because they can be manipulated or influenced by governments, speculators and other key players. The Baltic Dry Index, on the other hand, is difficult to manipulate because it is driven by clear forces of supply and demand.
The supply that affects the Baltic Dry Index is the supply of ships available to move materials around the globe. It is difficult to manipulate or distort this supply because it takes years to build a new ship that could be put into service to increase supply, and it would cost far too much to leave ships empty in an attempt to decrease supply. The demand that affects the Baltic Dry Index is the demand of commodity buyers who need the raw goods for production. It is difficult to manipulate or distort demand because it is calculated solely by those who have placed orders to have raw goods shipped. Nobody is going to pay to book a Capemax cargo ship who isn’t actually going to use it.
Interpreting the Baltic Dry Index
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.
Here’s what it typically means when the Baltic Dry Index turns around and starts moving UP:
– Global economies are starting to, or continuing to, grow
– Companies are starting to, or continuing to, grow
– Stock prices should start to, or continue to, increase in value
– Commodity prices should start to, or continue to, increase in value
– The value of commodity currencies—like the Canadian dollar (CAD), the Australian dollar (AUD) and the New Zealand dollar (NZD)—should start to, or continue to, increase in value
Here’s what it typically means when the Baltic Dry Index turns around and starts moving DOWN:
– Global economies are starting to, or continuing to, contract
– Companies are starting to, or continuing to, contract
– Stock prices should start to, or continue to, decrease in value
– Commodity prices should start to, or continue to, decrease in value
– The value of commodity currencies—like the Canadian dollar (CAD), the Australian dollar (AUD) and the New Zealand dollar (NZD)—should start to, or continue to, decrease in value
FAQs
The Baltic Dry Index (BDI) is an index of average prices paid for the transport of dry bulk materials across more than 20 routes. The BDI is often viewed as a leading indicator of economic activity because changes in the index reflect supply and demand for important materials used in manufacturing.
Why is Baltic Dry Index falling? ›
The Baltic Exchange's main sea freight index, tracking rates for ships carrying dry bulk commodities, fell for the sixth straight week as demand for the panamax segment remained weak.
What is the Baltic Dry Index BDI and why is it an important leading economic indicator? ›
Baltic Dry Index (BDI) is the composite index based on daily freight rates quoted for major sea routes for dry bulk commodities and is an important barometer of the volume of worldwide trade, manufacturing activity as well as global demand for industrial commodities and finished manufactured products.
Why is Baltic Dry Index rising? ›
Interpreting the Baltic Dry Index
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.
What does a high BDI and low CDI indicate? ›
For example, if we consider Soaps category under that Lux or Dove both will have a high BDI. This indicates that the company should build more on the brand and should be in extension mode. 2. High CDI Low BDI - In this case the category is doing well but the brand is not able to capture the desired market share.
What does high CDI and low BDI mean? ›
High CDI High BDI. High Market share and good market potential. The market usually represents good sales potential for both the product and the brand. Low CDI Low BDI. Low market share and poor market potential.
Can the Baltic Dry Index predict foreign exchange rates? ›
The Baltic Dry Index (BDI) as a leading indicator of economic activities is a useful predictor for exchange rates. Results of panel regression demonstrate that the BDI provides statistically significant long-run predictability of currency returns. An increase in the BDI is associated with a depreciation of currency.
Why are dry bulk stocks down? ›
The ongoing geopolitical crisis, heightened inflation and restrictive monetary policies have forced investors to reassess the prospects of broad-based equity markets, with dry bulk stocks being no exception.
What is the Baltic index for 2022? ›
As of November 30, 2022, the Baltic Dry Index amounted to 1,091 points.
What does the BDI test measure? ›
Description of Measure: The Beck Depression Inventory (BDI) is a 21-item, self-report rating inventory that measures characteristic attitudes and symptoms of depression (Beck, et al., 1961).
Baltic Exchange Dry Index is expected to trade at 1071.58 points by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate it to trade at 913.83 in 12 months time.
What does BDI indicate? ›
The brand development index or BDI quantifies how well a brand performs in a market, compared with its average performance among all markets. That is, it measures the relative sales strength of a brand within a specific market (e.g., the Pepsi brand among 10–50-year-olds).
What is the dry bulk market outlook for 2022? ›
Annual dry bulk fleet growth will slow to 2.8% in 2022, 2.5% in 2023, and 1.8% in 2024, compared with 3.4% in 2021 with limited orderbook.
WHO publishes the Baltic Dry Index? ›
The Baltic Dry Index (BDI) is a shipping freight-cost index issued daily by the London-based Baltic Exchange. The BDI is a composite of the Capesize, Panamax and Supramax Timecharter Averages.
What is the outlook for dry bulk shipping? ›
Dry bulk demand is expected to decline by 1.9% in 2022, with weakness in iron ore and grain shipments, before growing again at 2.5% in 2023 and settling at 3.1% in 2024.
How do you interpret CDI scores? ›
Children's depression inventory (CDI)
The item scores are combined into a total depression score, which ranges from 0 to 54. A higher CDI score means a higher depressive state. We used a Korean version of the CDI12 which demonstrated good reliability and validity for assessing depressive symptoms.
Should BDI be greater than CDI? ›
Understanding BDI and CDI
Markets that have a higher BDI than CDI may show the marketer that the market is oversaturated, the marketer can then consider campaigns that push reach and awareness to bring more consumers into the category.
What does a BDI of 50 mean? ›
BDI in city A = (100/1000) x 100 / (10000/50000) = 50. Therefore, the brand development index of Samsung laptops in city A is 50. Brand development index is an essential measure that can demonstrate your company's performance in different segments of customers.
How accurate is the BDI? ›
The BDI has good reliability and validity. 12 The test-retest reliability of the BDI-II ranged from 0.73 to 0.92, which means that the scores are consistent over time. The internal consistency of the BDI-II was 0.9, which means that the items on the questionnaire relate to each other and measure the same construct.
How is BDI calculated example? ›
BDI = (% Market Brand Sales/ % Market Population) x 100
So, in this case, the BDI of Brand A for Market X is 20.
The Beck Depression Inventory (BDI) is widely used to screen for depression and to measure behavioral manifestations and severity of depression. The BDI can be used for ages 13 to 80. The inventory contains 21 self-report items which individuals complete using multiple choice response formats.
What are the 8 factors that affect foreign exchange rate? ›
Here, we have listed 7 factors that influence the constantly changing exchange rates.
- Interest and inflation rates. Inflation is the rate at which the cost of goods and services rises over time. ...
- Current account deficits. ...
- Government debt. ...
- Terms of trade. ...
- Economic performance. ...
- Recession. ...
- Speculation.
Purchasing power parity looks at the prices of goods in different countries and is one of the more widely used methods for forecasting exchange rates due to its indoctrination in textbooks. The relative economic strength approach compares levels of economic growth across countries to forecast exchange rates.
Can you devalue a floating exchange rate? ›
Devaluing a free-floating currency is much more complex than devaluing a pegged one. There are several ways that a central bank in charge of a free-floating currency can try to depreciate its value: Quantitative easing (QE) Lowering interest rates.
What are the five 5 major dry bulk trades? ›
Major dry bulk trades include iron ore, coal, grain, bauxite, sand and gravel, and scrap metal.
What is the largest traded dry bulk shipping commodity? ›
The year-over-year drop in 2022 Dry Bulk quantities was distributed almost universally across all major commodities. Iron Ore, the most common single Dry Bulk cargo carried by vessels worldwide, totalled 1.57bn MT in 2022 for a 1.3% year-over-year decrease.
Why buy the dip doesn't work? ›
The only way to be successful as an investor who buys the dip is to have confidence that the stock will gain value in the future. But there's a higher level risk in this strategy since the stock might continue to lose value or may never recoup its value. In those cases, you might not make back the money you invested.
Who is the main threat to the 3 Baltic States? ›
Russia has maintained a constant threat to the Baltic region through the full spectrum of gray zone operations, including economic coercion, disinformation and propaganda, cyber disruption, and covert military incursions.
What is the most powerful Baltic state? ›
“Baltic Tiger” is a term used to refer to Estonia in particular, as the richest and best developed country among the three Baltic States.
What is Baltic Dry Index ticker symbol? ›
Baltic Dry Index (BADI)
The Baltic Dry Index (BDI) is a shipping freight-cost index issued daily by the London-based Baltic Exchange. The BDI is a composite of the Capesize, Panamax and Supramax Timecharter Averages. It is reported around the world as a proxy for dry bulk shipping stocks as well as a general shipping market bellwether.
What is BDI CDI analysis? ›
BDI and CDI compare the relative strength of a market segment to overall sales within the population. The BDI measures the brand compared to overall brand sales while the CDI measures the category compared to overall category sales. The formulas are: BDI = (Brand Sales / Market Population) x 100.
How many points is the Baltic Dry Index? ›
Baltic Exchange Dry Index is expected to trade at 589.14 points by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate it to trade at 503.07 in 12 months time. The Baltic Dry Index is reported daily by the Baltic Exchange in London.
What is the current Baltic Dry Index? ›
The BDI or Baltic Dry Index - measures the cost of shipping goods worldwide. For 2022 - the BDI is down -34.14%.
What is the purpose of the Baltic Exchange? ›
The Baltic Exchange is a London-based exchange that provides real-time maritime shipping information to traders for settling physical and derivative shipping contracts. The exchange has regional offices in Singapore, Shanghai, and Athens.
Why is it called Baltic Exchange? ›
The company, as per historical records, is known to be founded around the midway of the 18th century. The name of the company, Baltic Exchange, was first officially used at the Virginia and Baltic Coffee House located in the Threadneedle Street in 1744.
How do you calculate CDI? ›
CDI = Your sales to the Group / Total number of customers in the group divided by the total sales in the category divided by the total number of customers. By tracking the CDI for each category and/or segment you can calculate your relative performance within specific customer groups and make decisions accordingly.
What is the formula for BDI? ›
BDI Formula
To calculate a brand development index, divide the percentage of brand sales in the market by the percentage of population in the market.
Which Baltic state is the richest? ›
