How to Invest in the Baltic Dry Index
by Todd Shriber, Demand Media
The Baltic Dry Index is a widely followed global measure of the daily charter rates commodities producers pay shipping companies to move various commodities by sea. In the case of the Baltic Dry Index, it measures the prices paid to ship dry commodities such as coal, corn, iron and wheat. Indexes are not investable securities, but investors have some choices that offer exposure to the Baltic Dry Index.
Dry Bulk Shippers
Perhaps the most obvious way to get exposure to the Baltic Dry Index is through the shares of dry bulk shipping companies. These are the companies contracted by commodities producers to move goods by sea. As such, profit and revenue at these companies is largely a function of how the Baltic Dry Index is performing. That is not a bad thing when the index is soaring, but the primary risk to investors is that if the global economy is sluggish, the index will fall dragging down dry bulk shipping shares in the process.
Commodities Producers
Rather than investing in the middle man, the dry bulk shippers, investors can straight to the source and opt for commodities producers. Here, investors can use the Baltic Dry Index to their advantage because sharp increases in the index could be a sign that commodities demand is increasing. With that increased demand should come higher share prices for companies that make the goods moved by dry bulk shippers, such as coal, copper and fertilizer.
Oil
While dry bulk shippers do not transport oil, the commodity is another potentially compelling indirect way of profiting from the Baltic Dry Index. Dry bulk shippers power their ships with oil. In addition, big moves in the Baltic Dry Index could be a sign that oil demand is increasing or decreasing throughout the world. A dramatic drop in oil prices could also be a sign that risk appetite in global financial markets is falling, a scenario that would probably weigh on dry bulk shippers.
Country Funds
Some countries are viewed by investors as having more of a commodities tilt than others. Those nations can function as another way of profiting from global shipping trends as commodities demand rises. Good examples include Australia and New Zealand, which are both commodities exporters and have excellent proximity to China. Investors can access those countries through mutual funds or exchange traded funds (ETFs).
The index is maintained by the Baltic Exchange. The cargoes being moved are raw material commodities such as coal, steel, cement, and iron ore. The prices of underlying contracts are determined by the buyers and sellers, and then the exchange takes 20 different routes throughout the world for various materials and averages them into one index. The index does not concern itself with finished goods or container ships, only raw materials and dry bulk specific ships are factored into the calculation. It also factors in all four sizes of oceangoing dry bulk transport vessels:
| Ship Classification | Dead Weight Tons | % of World Fleet | % of Dry Bulk Traffic |
|---|---|---|---|
| Capesize | 172,000 | 10% | 25% |
| Panamax | 74,000 | 19% | 25% |
| Supramax | 52,454 | 37% | 25% w/ Handysize |
| Handysize | 28,000 | 34% | 25% w/ Supramax |
Winners/Losers
When the BDI increases, dry bulk shipowners win. The increase in the index directly increases their margins and revenues.
When the BDI decreases, every other consumer/producer in the global value chain wins. Since the BDI measures procurement costs, when these costs go down, producers benefit from increased margins, and consumers benefit from lower prices for finished products.
Dry Bulk Shipping Stocks
When an investor buys a dry bulk shipping stock, they are effectively buying into the Baltic Dry Index. The amount of exposure depends on the individual stock. Some companies, such as DryShips (DRYS), have most of their ships contracted out at the spot Time Charter Equivalent. This means that the contracts are directly correlated to the daily price of the BDI. Thus, their revenues are directly tied to the index. In times of increasing prices, this set up will yield greater profits for the shipper. Other companies, such as Diana Shipping (DSX), have contracts set at the period Time Charter Equivalent. This means that they enter into a contract, usually 2-5 years in length, which pays a fixed daily rate. This set up provides less volatility, hedges risk against falling BDI rates, and guarantees cash flows.
Because dry bulk ships are expensive, fungible assets, shipping companies often have high asset values, and their stocks tend to show up on value screens. Some argue for comparing the relative values of shipping companies based on their Net Asset Value.
U.S. Listed Dry Bulk Shippers:
| Market Cap in $Millions (11/12/10) | |
|---|---|
| DryShips (DRYS) | 1,590 |
| Diana Shipping (DSX) | 1,100 |
| Genco Shipping (GNK) | 559 |
| Excel Maritime Carriers (EXM) | 509 |
| Eagle Bulk Shipping (EGLE) | 342 |
| TBS International (TBSI) | 137 |
| Navios Maritime Holdings (NM) | 605 |
| Safe Bulkers (SB) | 528 |
| Seanergy Maritime Holdings (SHIP) | 103 |
| Star Bulk Carriers Corp. (SBLK) | 189 |
| Paragon Shipping (PRGN) | 196 |
| Euroseas (ESEA) | 124 |
| OceanFreight (OCNF) | 80 |
| Navios Maritime Partners (NMM) | 929 |
| FreeSeas (FREE) | 29 |
| Frontline (FRO) | 2,200 |
| Omega Navigation Enterprises (ONAV) | 23 |
DRY BULK SHIPPING COMPANIES — The List
| Sort by: Name | Sort by: Last Trade | Sort by: Change | Sort by: 52 Wk Range | PE | EPS | Mkt Cap | Div/Shr | Div Yld | |||
| Aegean Marine Petroleum Network | 07/28 | 9.58 | UNCH | 0.0% | 8.40 | 12.72 | 16.24 | 0.59 | 452.87M | 0.01 | 0.42% |
| Algoma Central 6 DB | 0:00 a.m. | 110.00 | UNCH | 0.0% | 105.26 | 118.25 | NA | NA | 7.59B | 0.00 | NA% |
| Algoma Central Corporation | 07/28 | 16.15 | UNCH | 0.0% | 13.70 | 17.18 | 12.82 | 1.2600 | 628.43M | 0.07 | 1.74% |
| Ardmore Shipping Corporation | 07/28 | 13.00 | UNCH | 0.0% | 11.32 | 15.84 | NA | -0.41 | 339.30M | 0.10 | 3.08% |
| Baltic Trading Ltd | 07/28 | 5.29 | UNCH | 0.0% | 3.70 | 7.94 | NA | -0.39 | 270.87M | 0.01 | 0.76% |
| Box Ships Incorporated | 07/28 | 1.42 | UNCH | 0.0% | 1.40 | 4.66 | 4.74 | 0.30 | 35.91M | 0.06 | 16.91% |
| Cai International Incorporated | 07/28 | 20.68 | UNCH | 0.0% | 19.32 | 25.30 | 7.55 | 2.74 | 459.96M | 0.00 | NA% |
| Costamare Incorporated | 07/28 | 24.20 | UNCH | 0.0% | 15.90 | 24.94 | 24.45 | 0.99 | 1.81B | 0.28 | 4.63% |
| Danaos Corporation | 07/28 | 5.84 | UNCH | 0.0% | 3.67 | 7.75 | 19.47 | 0.30 | 640.47M | 0.00 | NA% |
| Diana Containerships Incorporated | 07/28 | 2.47 | UNCH | 0.0% | 2.38 | 4.56 | NA | -0.76 | 90.17M | 0.05 | 8.10% |
| Diana Shipping Incorporated | 07/28 | 9.69 | UNCH | 0.0% | 9.65 | 13.93 | NA | -0.27 | 802.73M | 0.00 | NA% |
| Dorian Lpg Ltd | 07/28 | 21.56 | UNCH | 0.0% | 17.95 | 24.93 | NA | NA | 1.23B | 0.00 | NA% |
| Dryships Incorporated | 07/28 | 3.00 | UNCH | 0.0% | 1.87 | 5.00 | NA | -0.15 | 1.36B | 0.00 | NA% |
| Eagle Bulk Shipping Incorporated | 07/28 | 1.76 | UNCH | 0.0% | 1.66 | 8.75 | NA | -5.55 | 29.75M | 0.00 | NA% |
| Euroseas Ltd Marshall Islands | 07/28 | 1.13 | UNCH | 0.0% | 1.02 | 1.80 | NA | -2.23 | 64.28M | 0.015 | 5.31% |
| Freeseas Incorporated | 07/28 | 0.46 | UNCH | 0.0% | 0.42 | 4.64 | NA | -184.48 | 11.81M | 0.00 | NA% |
| Frontline Ltd | 07/28 | 2.44 | UNCH | 0.0% | 2.03 | 5.18 | NA | -1.06 | 232.63M | 0.00 | NA% |
| Gaslog Partners LP | 07/28 | 33.62 | UNCH | 0.0% | 25.50 | 37.39 | NA | NA | 660.46M | 0.00 | NA% |
| Global Ship Lease Incorporated | 07/28 | 3.63 | UNCH | 0.0% | 3.50 | 6.41 | 6.37 | 0.57 | 172.57M | 0.00 | NA% |
| Globus Maritime Ltd | 07/28 | 3.05 | UNCH | 0.0% | 1.93 | 4.58 | 5.76 | 0.53 | 31.20M | 0.085 | 11.15% |
| Golar Lng Partners LP Common Rep | 07/28 | 33.9675 | UNCH | 0.0% | 27.55 | 38.50 | 9.71 | 3.50 | 1.55B | 0.5475 | 6.45% |
| International Shipholding Corporation | 07/28 | 22.01 | UNCH | 0.0% | 20.75 | 32.91 | 17.90 | 1.23 | 159.64M | 0.25 | 4.55% |
| Kirby Corporation | 07/28 | 119.01 | UNCH | 0.0% | 79.33 | 121.48 | 25.99 | 4.58 | 6.78B | 0.00 | NA% |
| Knightsbridge Tankers Ltd | 07/28 | 11.72 | UNCH | 0.0% | 7.21 | 16.32 | 23.45 | 0.50 | 357.13M | 0.20 | 6.83% |
| Knot Offshore Partners LP | 07/28 | 28.18 | UNCH | 0.0% | 22.21 | 29.89 | 18.67 | 1.51 | 371.05M | 0.435 | 6.18% |
| Logistec Corporation Class B | 05/07 | 36.05 | UNCH | 0.0% | 15.76 | 37.00 | 14.72 | 2.4500 | 185.41M | 0.115 | 1.28% |
| Logistec Corporation Class B | 07/28 | 33.6959 | UNCH | 0.0% | 16.85 | 33.7329 | NA | NA | 173.30M | 0.115 | 1.37% |
| Matsons Incorporated | 07/28 | 27.56 | UNCH | 0.0% | 22.48 | 29.54 | 24.61 | 1.12 | 1.18B | 0.17 | 2.47% |
| Navios Maritime Holdings Incmars | 07/28 | 8.14 | UNCH | 0.0% | 5.51 | 12.12 | NA | -0.96 | 849.82M | 0.06 | 2.95% |
| Navios Maritime Partners LP | 07/28 | 18.95 | UNCH | 0.0% | 13.80 | 19.89 | 21.54 | 0.88 | 1.47B | 0.4425 | 9.35% |
| Paragon Shipping Class A | 07/28 | 5.08 | UNCH | 0.0% | 3.90 | 9.40 | NA | -1.61 | 125.08M | 0.00 | NA% |
| Pingtan Marine Enterprise Ltd | 07/28 | 2.5799 | UNCH | 0.0% | 1.31 | 4.59 | 2.56 | 1.01 | 203.95M | 0.00 | NA% |
| Radiant Logistics Incorporated | 07/28 | 3.10 | UNCH | 0.0% | 1.81 | 3.50 | 22.15 | 0.14 | 105.82M | 0.00 | NA% |
| Rand Logistics Incorporated | 07/28 | 5.99 | UNCH | 0.0% | 4.66 | 7.49 | NA | -0.44 | 107.42M | 0.00 | NA% |
| Safe Bulkers Incorporated | 07/28 | 7.83 | UNCH | 0.0% | 4.78 | 11.48 | 9.44 | 0.83 | 653.36M | 0.06 | 3.07% |
| Scorpio Tankers Incorporated | 07/28 | 9.70 | UNCH | 0.0% | 8.57 | 12.48 | 28.53 | 0.34 | 1.94B | 0.09 | 3.72% |
| Seanergy Maritime Holdings Corporation | 07/28 | 1.47 | UNCH | 0.0% | 0.80 | 2.60 | 0.19 | 7.81 | 17.58M | 0.00 | NA% |
| Seaspan Corporation | 07/28 | 23.84 | UNCH | 0.0% | 19.45 | 25.10 | 9.10 | 2.62 | 2.23B | 0.345 | 5.79% |
| Sino Global Shipping American Ltd | 07/28 | 1.78 | UNCH | 0.0% | 1.55 | 3.52 | 25.43 | 0.07 | 8.37M | 0.00 | NA% |
| Star Bulk Carriers Corporation | 07/28 | 10.83 | UNCH | 0.0% | 5.98 | 15.88 | 83.31 | 0.13 | 314.96M | 0.015 | 0.56% |
| Stealthgas Incorporated | 07/28 | 10.71 | UNCH | 0.0% | 5.34 | 13.00 | 14.29 | 0.75 | 428.42M | 0.00 | NA% |
| Textainer Group Holdings Ltd | 07/28 | 37.54 | UNCH | 0.0% | 33.53 | 41.07 | 11.01 | 3.41 | 2.11B | 0.47 | 5.01% |
| Ultrapetrol Bahamas Ltd | 07/28 | 3.34 | UNCH | 0.0% | 2.61 | 3.98 | NA | -0.09 | 469.00M | 0.00 | NA% |
| Westshore Terminals | 07/28 | 31.55 | UNCH | 0.0% | 26.58 | 34.25 | NA | NA | 2.34B | 0.33 | 1.05% |
| Westshore Terminals Investment C | 07/28 | 33.90 | UNCH | 0.0% | 28.02 | 38.02 | 19.60 | 1.7300 | 2.52B | 0.33 | 3.90% |
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