Benchmarks

Freight markets and the Baltic indices

Published 28 August 2026 · updated 22 September 2026

The Baltic Dry Index is quoted in the financial press as though it were a freight rate. It is not a rate, it is not a price anybody paid, and no ship has ever been fixed at it. It is a number rebuilt every working day out of the professional judgement of a panel of broking firms. Knowing how it is built is what tells you when it is useful and when it will mislead you.

An assessment is not a transaction

A share price is the record of a trade. A Baltic index level is not. Each route carries a panel of shipbroking firms, and every business day each panellist submits what it believes a ship of a defined description would fix at, on that defined route, on defined terms, at that moment. The Baltic averages the submissions and publishes the result. The submission is an opinion: informed by the fixtures the panellist saw, and by the ones it did not.

That is not a criticism, it is the only workable design. Dry cargo does not produce enough identical, publicly reported trades on any single route to support a continuous transaction price, and a benchmark that printed only when a fixture happened to be done would be worthless for settling a contract. Disciplined judgement, governed by a published methodology and an oversight function, is the honest answer. The consequence is worth stating plainly: the index tells you what a panel of experienced brokers thinks the market is, not what the market did.

What sits inside the composite

The Baltic publishes an index per dry bulk size class, each of them a timecharter average across a basket of routes for a defined standard ship. The headline composite is assembled from three of them.

Those weights have applied since 1 March 2018. Two things follow immediately. The first is that the Handysize market can move hard without touching the headline anybody quotes. The second is that the composite is Capesize-heavy, so an iron ore story out of Brazil or Western Australia moves the BDI more than anything happening on the ships most dry cargo desks actually work. A broker who reads the headline as a report on the Supramax market is reading somebody else's market.

The component indices are quoted in dollars per day, which is a real unit you can hold against a hire rate. The composite is a scaled index number with no unit at all. It can be compared with itself over time and with nothing else. See dry bulk vessel sizes for where the class boundaries sit and why they are conventions.

Tankers are quoted on a different scale

The Baltic also publishes dirty and clean tanker indices, built the same way from panellist submissions on named routes. The difference is the unit: tanker routes are assessed in Worldscale points rather than dollars per tonne, and the Baltic publishes them on both a Worldscale basis and a time charter equivalent basis. If the points convention is unfamiliar, read Worldscale explained before trying to compare two tanker quotes, because two routes at the same number can pay very different money.

The trap: the index ship is not your ship

Every route assessment names a standard vessel, a delivery position or a load range, a cargo, and a set of terms. Your ship is a particular hull, of a particular age, with particular gear, in a particular place, offered to a particular charterer with a particular set of exclusions. The gap between the two is basis risk, and it is not small.

Age and specification move a rate. So does an owner's or charterer's approvals record, and so does where the ship actually is against where the index assumes she is. A desk that quotes an owner "the index is up, so we should be getting more" without saying which index, on which route, for which ship, has made an argument that cannot be tested. The index is a reference point in a negotiation, never the conclusion of one.

What the index is genuinely for

• Settling derivatives. Freight futures need a number that both sides trust and neither can influence. This is the load-bearing use, and it is why the methodology and the panel governance matter so much.
• Index-linked charters. A period fixture can be written at a percentage of a published timecharter average rather than at a fixed daily rate, which moves the market risk between owner and charterer without either of them guessing where the cycle turns.
• Measuring a fleet against the market. An owner who earned less than the relevant timecharter average over a year has a question to answer that a raw earnings figure hides.
• A shared vocabulary. Two people arguing about the level of the market at least argue about the same series.

Forward freight agreements

A forward freight agreement is a cash-settled contract on a route or a basket, traded over the counter between principals through a broker and then given up for clearing at an exchange. Settlement is Asian style: the contract pays against the average of the underlying index over the settlement month, not against a single day's print.

That averaging is deliberate and it is the reason the index has to be robust rather than merely plausible. It also explains a mismatch that catches out first-time hedgers. An owner hedges a specific voyage that loads on specific days; the paper settles on a whole month of index. The hedge and the physical fixture are related, not identical, and the difference will show up as money one way or the other. The same point applies to fuel, and is set out in bunker pricing and hedging.

The Baltic also publishes forward assessments, which give a curve rather than a spot level. The curve is where the market's collective view of the next few quarters is visible, and it is a better guide to sentiment than any single day's index move.

Reading a move without being fooled

Three habits keep the index honest as an input. Name the series before quoting a level, because "freight is up" is not a statement about anything. Look at the component before the composite, since the weights mean the headline can move on a market you do not trade. And separate the demand story from the supply story: the same index level can be produced by cargo arriving or by ships leaving, and only one of those tells you what to do next. Shipping cycles is about the second half of that.

References

• Baltic Exchange, Indices. balticexchange.com
• Baltic Exchange, Guide to Market Benchmarks, 2026. PDF
• Baltic Exchange, Forward Freight Agreements. balticexchange.com
• FONASBA, Industry Briefing: Introduction to Freight Derivatives. PDF
• Martin Stopford, Maritime Economics, 3rd edition, 2009. Routledge

Related