Benchmarks

Freight markets and the Baltic indices

Published 28 August 2026 · updated 17 October 2026

The financial press quotes the Baltic Dry Index as if it were a freight rate. It is not a rate, it is not a price anyone paid, and no ship has ever been fixed at it. It is a number built again every working day from the professional judgement of a panel of broking firms. Understanding how it is built tells you when it is useful and when it will mislead you.

An assessment is not a transaction

A share price records a real trade, but a Baltic index level does not. Each route has a panel of shipbroking firms. Every business day, each panel member submits what it believes a ship of a set description would be fixed at, on that set route and on set terms, at that moment. The Baltic Exchange averages the submissions and publishes the result. Each submission is an opinion, shaped by the fixtures the panel member saw and by the ones it did not see.

This is not a criticism. It is the only design that works. Dry cargo does not produce enough identical, publicly reported trades on any one route to support a continuous price based on real trades. A benchmark that only appeared when a fixture happened to be done would be useless for settling contracts. Careful judgement, under a published method and with independent oversight, is the honest answer. The consequence should be stated clearly: 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 one index for each dry bulk size class. Each one is a time charter average across a basket of routes for a set standard ship. The headline index, the composite, is built from three of them.

These weights have applied since 1 March 2018, and two things follow. First, the Handysize market can move sharply without changing the headline number everyone quotes. Second, the composite leans heavily on Capesize, so news about iron ore from Brazil or Western Australia moves the BDI more than anything happening to the ships most dry cargo desks actually work with. A broker who reads the headline as a report on the Supramax market is reading about a different market.

The separate indices are quoted in dollars per day, a real unit you can compare with a hire rate. The composite is a scaled index number with no unit. You can compare it with its own past values, but with nothing else. See dry bulk vessel sizes for where the size class boundaries sit and why they are conventions.

Tankers are quoted on a different scale

The Baltic also publishes indices for dirty and clean tankers (carrying crude oil and refined products), built the same way from panel 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 both in Worldscale and as a time charter equivalent. If the points system is new to you, read Worldscale explained before you compare two tanker quotes, because two routes at the same number can pay very different amounts.

The trap: the index ship is not your ship

Every route assessment names a standard ship, a delivery position or loading area, a cargo and a set of terms. Your ship is a particular ship, with its own age and gear, in its own position, offered to a particular charterer with its own list of exclusions. The gap between the two is called basis risk, and it is not small.

Age and specification change a rate. So does the approval record of the owner or charterer, and so does where the ship really is compared with where the index assumes it is. Suppose a desk tells an owner "the index is up, so we should be getting more" without saying which index, on which route, for which ship. That argument cannot be tested. The index is a reference point in a negotiation, never its conclusion.

What the index is genuinely for

• Settling derivatives. Freight futures need a number that both sides trust and neither side can influence. This is the most important use, and it is why the method and the panel rules matter so much.
• Index-linked charters. A period charter can be agreed at a percentage of a published time charter average instead of a fixed daily rate. This shares the market risk between owner and charterer without either one having to guess when the market will change direction.
• Measuring a fleet against the market. If an owner earned less than the relevant time charter average over a year, that raises a question that a simple earnings figure would hide.
• A shared vocabulary. Two people arguing about the level of the market are at least arguing about the same series.

Forward freight agreements

A forward freight agreement (FFA) is a contract on a route or a basket of routes that is settled in cash. It is traded privately between two parties through a broker and then passed to an exchange for clearing. Settlement is "Asian style": the contract pays against the average of the index over the settlement month, not against the figure on a single day.

This averaging is deliberate, and it is why the index must be hard to influence, not just believable. It also explains a mismatch that surprises people hedging for the first time. An owner hedges a particular voyage that loads on particular days, but the paper contract settles on a whole month of the index. The hedge and the real fixture are related but not identical, and the difference will show up as money gained or lost. The same point applies to fuel, as bunker pricing and hedging explains.

The Baltic also publishes forward assessments, which show a curve of expected levels rather than a single current level. The curve shows the market's shared view of the next few quarters, and it is a better guide to what the market expects than any one day's move in the index.

Reading a move without being fooled

Three habits help you use the index correctly. Name the series before you quote a level, because "freight is up" says nothing on its own. Look at the separate index for your size before the composite, because the weights mean the headline can move because of a market you do not trade. And separate demand from supply: the same index level can come from more cargo appearing or from ships leaving the market, and only one of these tells you what to do next. Shipping cycles covers the supply side.

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

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