Freight Indices and Chartering: Why the BDI Matters More Than You Think

My name is Davide Ramponi, I am 20 years old and currently training as a shipping agent in Hamburg. In my blog, I take you with me on my journey into the exciting world of shipping. I share my knowledge, my experiences, and my progress on the way to becoming an expert in the field of Sale and Purchase – the trade with ships.

Every day, chartering professionals around the world make decisions that move billions of dollars in cargo. But how do we know what a “good” rate looks like? How do we track trends, benchmark deals, or forecast market shifts? The answer often lies in one key tool: freight indices.

One of the most talked-about indicators in the shipping world is the Baltic Dry Index (BDI). You’ll find it mentioned in market reports, rate discussions, and strategy meetings. But what does the BDI really measure? How is it calculated? And more importantly: how can we use it effectively in charter negotiations?

In this post, I’ll unpack:

• What the BDI and other freight indices are, and how they’re built

• How they influence real-world charter rates

• The key differences between indices for various vessel types

• Tactical tips for using indices in rate negotiations

• And real-world examples of how data-driven insights improve chartering outcomes

Let’s dive into the numbers that shape our daily decisions in the charter market.

What Is the Baltic Dry Index (BDI)?

Let’s start with the basics. The Baltic Dry Index (BDI) is a composite index published by the Baltic Exchange, headquartered in London. It tracks the cost of shipping bulk commodities—like iron ore, coal, and grain—across multiple routes and vessel sizes.

But unlike a single rate or fixed benchmark, the BDI is a weighted average of four key sub-indices:

1. Capesize

2. Panamax

3. Supramax

4. Handysize

Each sub-index reflects the time charter and voyage rates for a specific vessel class on representative global routes. These are gathered from a panel of shipbrokers and averaged daily.

In short: The BDI is a daily pulse-check on how much it costs to move dry bulk cargo worldwide.

How Is the BDI Calculated?

• Data is collected from brokers on multiple key routes

• Average rates are determined for each vessel class

• Sub-indices are calculated (e.g., the Baltic Capesize Index)

• The BDI is then published as a weighted average of all sub-indices

It’s published every working day, and it's used by analysts, charterers, shipowners, and investors to assess current market conditions.

How Freight Indices Influence Charter Rates

While freight indices aren’t binding rate sheets, they do something equally important: they shape expectations.

1. Benchmarking the Market

Let’s say the BDI rises by 15% in a week. That signals increased demand (or reduced supply) for dry bulk shipping, pushing up time charter and voyage rates.

Owners will use this to:

• Justify higher rates

• Push back on discounted offers

• Plan vessel positioning for better earnings

Charterers, on the other hand, may delay fixtures or lock in short-term contracts if they anticipate a drop.

2. Spot vs. Forward Thinking

Freight indices also help charterers and owners anticipate where the market might go. If the forward freight agreement (FFA) market trades above current index levels, many expect rates to rise—triggering early fixing or fleet expansion.

3. Asset Valuation

Beyond daily chartering, freight indices also impact vessel valuations. Higher charter rates (reflected in indices) often lead to increased resale prices, especially for modern and fuel-efficient vessels.

Example: In mid-2021, when the BDI topped 5,000 points, Capesize charter rates soared above $50,000/day—more than double from earlier in the year. Shipowners cashed in with strong time charters and record-high second-hand prices.

Understanding the Differences Between Vessel-Specific Indices

Not all indices are created equal. Understanding the differences between them is essential for using freight indices effectively in negotiations and decision-making.

1. Baltic Capesize Index (BCI)

• Focused on large vessels (180,000+ DWT)

• Key trades: Brazil/China, Australia/China (iron ore, coal)

• Highly volatile—moves quickly with changes in global industrial activity

2. Baltic Panamax Index (BPI)

• Covers mid-sized vessels (70,000–82,000 DWT)

• Common routes: US Gulf/Europe, East Coast South America/China

• Sensitive to grain and coal flows, especially seasonal harvests

3. Baltic Supramax Index (BSI)

• Tracks vessels of around 50,000–60,000 DWT

• More flexible trade routes (including intra-Asia)

• Responsive to minor bulk movements (fertilizer, cement, steel)

4. Baltic Handysize Index (BHSI)

• For small vessels (28,000–35,000 DWT)

• Ideal for niche trades and regional ports

• Less volatile but more fragmented—important in developing markets

Each index gives insight into a specific market segment. Using the right one helps you set fair rates and avoid overgeneralization.

Tips for Using Freight Indices in Charter Negotiations

Freight indices are a powerful tool—but only when used strategically. Here’s how to get the most out of them during rate talks.

1. Know the Daily Index—but Understand the Trend

Don’t just look at today’s figure. Compare:

• This week vs. last week

• This month vs. last month

• This year vs. last year

That context gives you strength in negotiations—whether you're defending a rate or challenging one.

2. Use Route-Specific Indices

If you're negotiating a Panamax voyage from East Coast South America to China, reference the relevant Panamax route index—not just the general BDI. Specificity builds credibility.

3. Combine Index Data with FFAs

Freight Forward Agreements reflect future expectations. If FFAs trade above current indices, owners may demand higher rates. If they trade lower, charterers have stronger bargaining power.

4. Know How Your Vessel Compares

Fuel efficiency, speed, and eco-rating matter. Even in strong markets, a charterer may prefer a modern eco-ship if the bunker savings are substantial.

Tip: Supplement index data with operating cost breakdowns and fuel comparisons to highlight the value of your offer.

Real-World Example: How Market Analysis Boosted a Charter Deal

Here’s a quick story from my recent experience during my training.

A broker was negotiating a time charter for a Supramax bulk carrier on a 6-month fixture in Southeast Asia. The charterer opened with an offer based on the previous week’s Baltic Supramax Index, quoting $13,000/day.

But in the last three days, the index had climbed steadily, showing signs of tightening tonnage and rising rates.

Using:

• The latest BSI figures

• Regional sub-indices from the Baltic Exchange

• FFA data for the same period

…the broker built a strong case that the current market justified $15,000/day—a 15% increase.

After reviewing the numbers, the charterer agreed. The deal was closed at $14,800/day—nearly $1,800/day more than the original offer. Multiply that over 180 days, and you’re looking at an extra *$324,00 in earnings—thanks to smart data usage.

Conclusion: The Power of Indices in a Complex Market

The chartering world is fast, competitive, and full of variables. But freight indices—especially the BDI and its sub-indices—give us something solid to work with.

Let’s recap:

• The BDI is a global benchmark that reflects dry bulk freight rates across key vessel types

• Freight indices influence real-world rates by shaping expectations and negotiations

• Each vessel class (Capesize, Panamax, Supramax, Handysize) has its own unique index

• Using up-to-date, route-specific indices can significantly strengthen your position in charter talks

• Combining index data with market insight and vessel performance leads to better outcomes

In today’s volatile and data-driven market, freight indices are more than just numbers on a screen—they’re a vital part of the toolkit for anyone working in chartering.

Do you use freight indices in your daily work? Have you ever closed a deal that depended on market data?

Share your thoughts and experiences in the comments—I look forward to the exchange!

---

---