The Baltic Dry Index – A Pure Global Supply v. Demand Barometer? Part 1

What if you could use the Baltic Dry Index as a barometer of your global competitors capital deployment plans? If this barometer were data points that you could plot on a graph for analysis, would that aid in your decision making process and strategy planning? Further, what if those trends were unpolluted by deflections based on speculation or high frequency trading influences? If that data point were added as an additional validation input in your SWOT analysis, do you anticipate you would be better able to ascertain the margin pressures you might face? Do you think you could make better decisions as to where to source your materials acquisition, manufacturing, support facilities and manpower?

Strategic Business and Market Trends with RD Watkins

Baltic Exchange Dry Index (BDI) & Freight Rates

This article exposes that the Baltic Dry Index (BDI) is just such an indicator, amongst many little known and obscure trend analysis tools, that an enterprise investor or entrepreneur should consult when planning the entry timing and geographical locations in which his venture should be set. This precursor to production is often times labeled as the purest of the data points available in regards to contract futures and business trends in general. It exposes the committed capital in both shipping spending and indirectly the tonnage of raw material delivery contracts as they happen over time. Because it is tracked and calculated daily, it can be read similar to a stock chart to expose trends and project reversals of the same when compared with other data.

What is the Baltic Dry Index?
The Baltic Dry Index (NASDAQ: BDIY) is a measure of the average price per metric ton to ship dry bulk materials by sea (i.e. cargo ships). It is based on 20 different routes and ship capacities and is calculated daily as an average of those aggregate costs. The BDI uses the US dollar as the standard currency and numerator of measure when calculating and posting its daily reading. The Baltic Dry Index can Expose Trends relative to…
  • Shipping costs of Raw Materials
  • Global Margin Pressures
  • Commodity Demand Trends
  • Capital Deployment Commitments and General Business Confidence
  • Decoupling the US Dollar Value within the BDI and Global Commerce


Shipping costs of Raw Materials

The commodities shipped and tracked by the BDI are raw material commodities such as coal, steel, cement, and iron ore. It does not include nor concern itself with finished goods shipment or container shipping data and remains, other than raw material futures contracts themselves, the measure farthest away from production and consumption data points.
Other Related Resources:
– In Part 2 we present how the BDI indicates trends in global margin pressures and commodity demand.
– In Part 3 our discussion turns toward assessing how aggregate competitors planning for capital deployment is exposed and how to remove fiat currency distortion from the BDI indicator for a more normalized, tangible asset based reading.

This article was first published at http://thenationalnetworker.blogspot.com/2011/02/strategic-business-and-market-trends.html

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