Reporter Li Xiaochuan

On January 13, 2016, the Baltic Dry Index(BDI) closed at 394 points, falling below 400 points for the first time. Continued decline of BDI is mostly directly related to the shipping company's operating conditions. For a long time, the operating situation of bulk shipping industry has been closely related to the global economy and the price of raw materials, as a result, BDI index is regarded as an important index to reflect the commodity market and even the degree of global economic boom. With the industry's attention on the BDI index, some opposite opinions began to emerge. Does the current BDI index also correctly re fl ect the market situation?

Han Jun, market analyst of Shanghai International Shipping Research Center said that an important prerequisite to design BDI index is the international dry bulk shipping market, which is corresponding of BDI index, is a fully competitive market, and there are defects in the algorithm at the beginning of its design.First of all, the weight of the proportion of all kinds of ships in the index is 25%, but technical parameters of various types, cargo carried and the market are not the same, so the rental level of various ships is verydifferent. In general, big-size ships correspond to high rent, and that is the important reason why index sharply surge and crash. But after financial crisis,the supply and demand pattern of various ship types changed, the technical parameter of each type has also changed. So, the post-financial crisis phenomenon of freight appeared, and the rent for small-size ships may be higher than big-size ships in a certain time.Many shipping companies’ freight agreement is linked to index. With the evolution of the Capesize market structure, if the above problem is not solved and the index is falling continuously, shipping companies would not sign the lease linking with the index. Thus, the socalled pricing system of BDI index will be affected, its reference value will also be greatly reduced. "

Liu Xun Liang, The Secretary General of Shanghai shipping agent Club pointed out in his paper on the Story of BDI index: "the BDI index is just a freight index reflecting dry bulk comprehensive rate under special definition. As to the calculation of the BDI index, besides ship type, the route and cargo kinds would also be selected, and the volume is the main factor to determine the route and cargo kinds. Price index is only an indicator of transaction 'price', it can fully re fl ect the market information only when marched with the 'volume' of the index turnover. However, since the tramp shipping market is an open market of private agreements and is different from the stock market and other closed-end securities market, it is technically unlikely to have real-time access to the comprehensive“volume” data of spot market. For this purpose, it is worthy for industry and academia to study on how to fl exibly add the concept of "quantity" to the composite index, which makes BDI better re fl ect the spot market that BDI represents.

Over the time, the support from maritime industry for China's economic development is self-evident. Being the world's factory, China has inevitably become a country to import large number of raw materials and export manufactured goods. An important part of China's marine structure is the structure of China's dry bulk transportation import. Data from Clarkson shows that the trade volume of Chinese dry bulk cargo import by sea transport only accounted for 8.1% of the world's dry bulk shipping trade volume in 2001. With the rapid development of the domestic economy, as of 2013 this proportion has risen to 34.8%.

With the opening of China's economic structure adjustment and China's macroeconomic regulation and control entering the "new normal", China has entered the period of late industrialization, and it is not possible to have strong growth momentum again like the growing period. Currently, the consumption of iron& steel, coal and others in China has entered the arc top area and started to go down, and the development of BDI index will be more dependent on the process of industrialization in other developing countries or regions.

The current BDI index re fl ects the dilemma that shipping industry is in. However, this predicament is not a national one, but a global one. How to break the dilemma?In November 2015, China put forward the reform of the supply side, and took it as an important means to promote China's economic adjustment. The supply side innovation” will have a signi fi cant impact on the trend,judgment and analysis of shipping industry.