Ok - here is a disclaimer. I am not a shipping derivatives expert. Having said that I know enuf to make me dangerous.
Anyone feel free to chip in
Ok - one for all you lazy sods - have a shot at answering!
Thanks for the post Tom!
To all who may know the answers...
Excellent - a thread on the BDI. I am currently trying to get into the Shipbroking industry and have a million questions about... well... just about everything! This seems like the ideal time to get a few away about the BDI... I hope they aren't too stupid:
1 - Is there a Baltic Wet Index or a Baltic Container Index? If so, why don't I hear about them?
There are dry and wet indexes. If you were active in the tanker market you would refer to these all the time.
Not sure about containers.
The world loves the BDI - some traders even call it the 'bady'. It has a ring that gets people excited.
2 - BDI is often referred to as a "leading indicator of economic activity". How can it really be that if the index is depressed by the supply of ships, rather than the implied reduction of global demand for raw materials?
Yes you are right. Having said that the supply of ships is also refelcted in the global demand for raw materials. Its a delayed reaction but there is a correlation.
There is no perfect indicator of future economic conditions. The BDI is seen as being excellent because it represents what is actually being shipped at any given period of time. For it to be shipped it must have been bought and sold and for it to be bought and sold it must have been produced.
3 - Why aren't commodity prices themselves not considered a better 'leading indicator of economic activity'? Presumably FFAs influence the BDI in just the same way as futures obscure commodity indices (see next question)?
Commodity prices are based on FOB prices and do not take into account shipping. The difference is that shipping is one further step along the process.
4 - Does the BDI factor in FFA prices?
Yes the BDI is the index.
5 - If so much of Dry Shipping is dependent on China, is the BDI really more of a measure of Chinese economic strength relative to other leading economies?
Yes - China is pulling the strings for the entire world economy.
6 - Are all FFAs priced against the BDI? What about FFA specifically related to Tankers and Containers (I realise the latter are very new)?
Have you checked out the Baltic Exchange website? That will tell you how it all works!
Few points - THE BDI is not a perfect indicator for a few reasons...
1. Doesnt take into account huge supply issues such as port congestion.
2. Can be manipulated through stockpiling and better storage.
3. Is subject to manipulation through trading techniques.
4. Currently heavily dependant on the supply of ships which has nothing to do with current demand (time lag).
I look forward to some kind soul putting me out of my misery.
Thank you VS - Inside Shipbroking was indeed a fantastic start and I regularly visit this site to read your posts and use your news links. Please keep up the good work.
April 28, 2010 5:58 AM
- The Virtual Shipbroker
- Hi. I am a shipping company director, transport academic, author, family man and all round nice guy. I have worked as shipbroker, shipowner, freight trader and bulk charterer, in senior positions, with some of the largest and most disrespected (joke) companies in the world. Ask my advice on all things shipping and you will receive my blunt and always honest answer. Hang around to learn more about chartering and ship broker salaries, chartering and ship broker jobs, chartering and shipbroker recruitment agencies, cheap freight, maritime education, chartering and ship broker qualifications, become a ship broker, tips on how to be a successful bulk shipping executive, philosophy, Zen and the art of shipbroking, and much more. Yours The Virtual Shipbroker (recently proclaimed the guru of shipbroking) Copyright © 2009-17 by Virtualshipbroker