13.11.

2016

TheBalticDryIndex,19852015

THEGEOGRAPHYOFTRANSPORTSYSTEMS
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Source:Bloomberg;BDIY:IND.Valueasofrstbusinessdayofthemonth.

TheBalcDryIndex,19852015
TheBalcDryIndex(BDI)isanassessmentoftheaveragepricetoshiprawmaterials(suchascoal,ironore,cementandgrains)
onanumberofshippingroutes(about50)andbyshipsize.Itisthusanindicatorofthecostpaidtoshiprawmaterialson
globalmarketsandanimportantcomponentofinputcosts.Assuch,theindexisconsideredasaleadingindicator(forward
looking)ofeconomicacvitysinceitinvolveseventstakingplaceattheearlierstagesofglobalcommoditychains.AhighBDI
indexisanindicaonofaghtshippingsupplyduetohighdemandandislikelytocreateinaonarypressuresalongthe
supplychain.AsuddenandsharpdeclineoftheBDIislikelytoforetellarecessionsinceproducershavesubstanallycurtailed
theirdemandleavingshipperstosubstanallyreducetheirratesinanaempttoaractcargo.Likeallmarketindexes,theBDI
isconstantlychanging,reecngitspricediscoverymechanism.ThemajorfactorsimpacngtheBDIare:
CommodityDemand.Thisismainlyavolumeimpactwhichcouldbeirrespecveofcommodityprices.Anincreaseinthe
demand,parcularlyifsudden,willlikelyresultinasurgeinshippingratessinceaddionalcapacitytakesmetobe
broughtonline(eitherasnewshipsorreassignmentofexisngones).Ifexpectaonsaboutfuturedemandchangeand
thatproducersreducetheirrawmaterialsdemandaccordingly,thentheBDIwilldrop.
ShipSupply.Representstheavailabilityofshipsintermsoftheircapacityandtheirfuncon.Manybulkcarriers,suchas
tankers,cannotbereadilyconvertedtootherusessothebulkmarketisquitesegmentedandfairlyinexible.Theaverage
shipagecanalsoplaysincetheusefullifeofashipisabout25years.Iftheaverageagebecomestoohigh,thereare
expectaonsthatsignicantcapacitymaybereducedandthatthiswouldimplyariseoftheBDI.Inversely,theaddionof
newcapacityintermsofshipordersmaytriggeradeclineoftheBDI,parcularlyifdemandisnotexpectedtochange
signicantlyinlightofthisnewsupply.
Seasonality.Thedemandforrawmaterials,suchasgrainandcoal,hasasignicantseasonalitywhichwillcreate
uctuaonsintheBDIwhenthetransportofthesecommodiesisinhighorlowdemand.
BunkerOilPrices.Bunkerfuelaccountsforabout40%ofvesseloperangcostswithlimitedopportuniestomigate
them.Thus,asurgeinoilpricesisdirectlyreectedinshippingrates.Theoppositealsoholdsasifenergypricesdrop,the
BDIcanalsodropaccordingly.
PortCongesonandCanalCapacity.Someports,parcularlyinthecontextofseasonality,canbecomecongestedandcan
eupshipsforlongerperiodsthanusual.Thisresultsinhighershippingratesasportsupplyisreconciledwithshipping
demand.Addionally,thePanamaandtheSuezcanals,importantbolenecksinglobalfreightcirculaon,haveaxed
capacityandcanimposeaddionaldelays.
Geopolics.Dependingonthegeopolicalcontext,theremaybealevelofriskatcallingsomelocaons,whichisreected
ininsuranceratesandconsequentlyinshippingrates.Somechokepoints,suchasthestraitsofHormuz,AdenandMalacca
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TheBalticDryIndex,19852015

mayinvolvetherisksofpolicalinstability,aswellaspiracy,andcapacityconstraintstomarimecirculaon.
TheabovegraphunderlinesthattheBDIhasbeenveryvolaleinrecentyears,parcularlybetween2005and2009whenit
behavedasabubble.Themaindriverofthissurgewaslinkedtocommodityprices,parcularlyoil.Theindexthenplummeted
backtohistoricallevelsandhasremainedweakinspiteofarecoveryinglobaltrade.Afactoristhatmanyshipswereordered
duringthe"bubbleyears"andhaveenteredthemarket,providingcapacitygrowthabovedemandgrowth.Inrecentyearsthe
BDIremainslow,underliningasituaonofexcesscapacityintheshippingindustry.
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Copyright19982016,Dr.JeanPaulRodrigue,Dept.ofGlobalStudies&Geography,HofstraUniversity,NewYork,USA.
Thismaterial(includinggraphics)cannotbecopiedorredistributed,inwholeorinpart,inANYFORM(printedorelectronic)andonANYMEDIA.ForspecicusespermissionMUSTbe
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