Baltic Dry Index (BDI)
What It Is:
The Baltic Dry Index (BDI) is a leading economic indicator that measures demand for dry bulk shipping services worldwide relative to supply.
How It Works/Example:
Every business day, researchers for the London-based Baltic Exchange survey prices of booking cargo around the world and compile the Baltic Dry Index. Since the BDI consists primarily of raw material inputs to intermediate or finished goods, it is said to accurately indicate future economic growth. Additionally, since the supply of shipping is highly inelastic, i.e., it takes a significant amount of time to produce more ships, small fluctuations in prices are easily observed in the index.
Why It Matters:
The BDI is seen as highly objective, due to the fact that the prices it tracks are not subject to speculative behavior by investors. In the aftermath of the most recent recession starting in 2008, many analysts are paying more attention to this index, as it foretold a sharp drop in economic activity.