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What Do Fundamental Bulk Shipping Indicators Say?

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Dec. 4 2020, Updated 10:52 a.m. ET

Baltic Dry Index

The BDI (Baltic Dry Index) is a leading indicator for the bulk shipping industry. It’s a measure of the cost of shipping major bulk commodities on a number of shipping routes. It’s calculated daily by the Baltic Exchange based on current freight rates. A rising BDI is positive for the dry bulk shipping industry and vice versa.

Index sinks

After showing signs of recovery in July and crossing the 1,200 mark in early August, BDI started heading lower once again, dropping below 900 early this month. Weakening coal and iron ore imports from China have been major drivers behind the index’s decline for most of this year. The recent decline seems to be the result of fears of further slowdown in China, weakening commodity prices, and decline in global manufacturing activity.

It appears that vessel overcapacity and continued weakness in demand for the aforementioned commodities is likely to weigh down the performance of dry bulkers in the near to medium term.

A retreating index affects dry bulk shipping companies. But spot rates impact companies differently. While DryShips (DRYS), Scorpio Bulkers (SALT), and Star Bulk Carriers (SBLK) are significantly affected, Navios Maritime Partners (NMM) and Diana Shipping (DSX) aren’t affected to the same degree. The majority of spot exposure at Navios Maritime Partners and Diana Shipping is covered through fixed-time charter contracts. Having said that, rolling contracts over in a weak market does present a risk to these companies.

The SPDR S&P Metals and Mining ETF (XME) is also affected by the BDI. It invests in industries including steel, coal and consumable fuels, gold, precious metals and minerals, aluminum, and diversified metals and mining. The Guggenheim Shipping ETF (SEA) invests in major shipping companies around the world. Navios Maritime Partners forms 2.6% of SEA’s holdings.

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