The Baltic Dry Index: a leading economic indicator and its use in a South African context

Zuccollo, Dino Roberto
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This paper investigates the Baltic Dry Index; an often misunderstood index, which tracks the cost of shipping dry bulk cargo globally. The research is based on the hypothesis that movements in the Baltic Dry Index price are driven largely by changes in the underlying demand for goods which are consumed globally. Accordingly, this paper aims to investigate whether changes in the Baltic Dry Index price may be used to predict future economic movements in a South African context. In this regard, the paper first conducts a thorough synthesis of the available literature, in order to formulate the conclusion that the Baltic Dry Index price is driven by a multitude of variables, including the global demand for goods, the global supply of ships, the laycan period, bunker prices, global piracy, global winter severity, as well as the inclusion of a cyclical component. The global demand for goods is concluded to be chief among these. Based on these findings, the paper then conducts empirical testing on the usefulness of the BDI in a South African context, and concludes that the Baltic Dry Index is useful when used as a leading economic indicator in South African, especially when used in order to predict long-term economic movements, across a period of 3 – 4.5 years. Finally, strong evidence is found to support the existence of a relationship between the BDI and the Johannesburg Stock Exchange Mining Index, although further investigation is required in order to form a definitive conclusion in this regard.
Shipping, Dry bulk cargo, Economic forecasting