The Baltic has been undertaking a review of all its dry indices and assessments in terms of route description, individual weightings and the balance between the Atlantic and Pacific basins. This review and the subsequent changes has resulted in a set of indices that better reflect the trading patterns and vessel utilisation in today’s market.
Baltic Exchange CEO, Mark Jackson, comments:
“Amendments to the Baltic Exchange indices are part of an ongoing process that is necessary to be able a report and represent dry bulk markets. As part of that assessment we have also reviewed the composition of the BDI and our proposal to adjust the BDI is based on an in-depth analysis of trade flows and vessel utilisation.”
Established in 1985, the Baltic Dry Index (BDI) – originally called the Baltic Freight Index (BFI) – was the Baltic Exchange’s first market benchmark. Today, the index is internationally recognised as a barometer of the dry cargo market. Since July 2009, the BDI has been a composite of the Capesize, Panamax, Supramax and Handysize timecharter averages – equally weighted at 25% (with a multiplier applied to maintain the data series).
New BDI Proposal
Following an analysis of trade flows and vessel utilisation, it is clear that the current composition of the BDI is not a true representation of the volumes of cargo being carried by each vessel sector. A recent study showed that deadweight utilisation between vessel types has the following approximate ratios: Cape 40% Panamax 25% Supramax 25% Handy 10%.
When we look at the liquidity of the different sectors, the Handy sector is the least liquid. Accordingly we are recommending removing the contribution of the Handysize time charter average from the BDI and increasing the weightings of the Panamax and Supramax by 5%. The contributing timecharter averages to the BDI would therefore be: 40% Capesize, 30% Panamax and 30% Supramax.
Mark Jackson added: “This does not mean that the Baltic is proposing to stop reporting on the handysize market – there are no plans to cease publication of the BHSI.”
From our own analysis, based on the above weighting, the new BDI has an R² correlation of 0.99 to the old BDI.
Feedback from the market is welcomed – particularly in terms of your opinion as to whether the new weightings better reflect the underlying trading patterns of the three sectors, please send any comments to email@example.com.
Following this market consultation, and based on positive feedback the intention is to apply the above change on 2 January 2018.