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The surprising history of the Baltic Dry Freight Index: Why does it date back to 1744?
The Baltic Dry Index (BDI) is a freight index published daily by the Baltic Exchange in London. The BDI is a comprehensive index covering three types of ships: Capesize, Panamax and Supramax. It is often regarded as an indicator of dry cargo shipping stocks and the overall shipping market.
The predecessor of the Baltic Dry Freight Index is the Baltic Freight Index (BFI). It has been operating since November 1, 1999 and continues the historical data of the BFI. However, the voyage range and ship type of the index have changed over time. change.
Historical origins
The roots of the Baltic Exchange date back to 1744, when the Virginia and Maryland Coffee House in Threadneedle Street, London, announced that it would be renamed the Virginia and Baltic to more accurately describe the merchants who gathered there. business interests. Over time, the exchange's operations gradually became more standardized, and in 1823 a merchants' committee was formed to oversee trading and formalize the exchange of securities.
In 1985, the Baltic Exchange released the Daily Freight Index for the first time, which ushered in a new era in the shipping market. The value and importance of BDI gradually became highlighted.
Operating mode
Every working day, a panel of international shipbrokers submit their assessment of current freight rates on various routes to the Baltic Exchange. These route choices are representative, that is, the freight volume is large enough to affect the overall market. Freight data from these assessments are weighted to form the overall BDI and indices for specific ship sizes (e.g. Capesize, Panamax, Supramax).
The BDI is based on daily assessments of 20 routes and only takes into account the daily rent paid for time charters.
Weighted review of BDI
After consulting with members, the Baltic Exchange announced in January 2018 that it would adjust the Baltic Dry Freight Index. From March 1, 2018, the weighted proportion of the BDI will be changed to: Capesize 40%, Panamax 30% and Supramax 30%, no longer include Handysize type ships.
The change reflects the extent to which different ship types contribute to the dry cargo market, with Capesize accounting for 40%, Panamax and Supramax each accounting for 25%, and Handysize accounting for 10%, according to external research. The BDI's weightings are reviewed annually.
Importance of BDI
BDI directly reflects the demand and supply of shipping capacity. As the volume of cargo trade in each market changes, transportation demand will naturally change. Because the supply of cargo ships is typically tight and inflexible, small changes in demand can quickly impact the index. For example, "If there are 100 ships competing for 99 goods, the freight will naturally fall; and if 99 ships are competing for 100 goods, the freight will rise."
BDI is also regarded as a leading economic indicator of global economic activity because it predicts the growth and production of future economic activities. Compared with other economic indicators, BDI is considered to more truly reflect economic conditions.
Significant freight rates
On May 20, 2008, the BDI reached its highest point since 1985 at 11,793 points. However, just six months later, the index plummeted 94% to 663 points, its lowest level since 1986. Thereafter, the BDI rebounded to 4,661 points in 2009, but eventually fell to 1,043 points in February 2011 as new ships continued to be delivered.
On February 10, 2016, the BDI hit a historical low of 290 points. On November 15, 2016, the BDI exceeded 1,000 points, and the shipping industry ushered in substantial gains.
Looking back at the history of BDI, we can’t help but ask, how will future shipping trends affect the development of the global economy?
