China Unlimited

[tothe]

Baltic Exchange Dry Index (BDI) & Freight Rates
http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm#bdi

Part of text below from this link. Lots of other good info here.
http://www.wikinvest.com/index/Baltic_Dry_Index_-_BDI_(BALDRY)

$BDI What the Index Means To Investors
Economic Implications
This index is one of the purest leading indicators of economic activity. It measures the demand to move raw materials and precursors to production. Consumer spending and other economic indicators are backward looking, meaning they examine what has already occurred. The BDI offers a real time glimpse at global raw material and infrastructure demand. This could also be gleaned from looking at commodity prices, but there are substitution effects and futures contracts that make it difficult to interpret the impact of commodity price fluctuations. Additionally, nearly all commodities are seeing severe increases in prices in 2008 regardless of supply situations as investors seek to hedge their inflation exposure with hard assets.
Unlike stock and commodities markets, the Baltic Dry Index is totally devoid of speculative players. The trading is limited only to the member companies, and the only relevant parties securing contracts are those who have actual cargo to move and those who have the ships to move it. The BDI will show how much a company or country is willing to pay to import raw materials immediately. For example, if a Chinese company has contracted out coal prices for the next year from Rio Tinto (RTP), then the spot price of coal increasing after a mine accident will not impact that established contract. However, when this company is willing to pay more per ton to ship the coal than to actually purchase it, an investor can see that price growth is accelerating.
Price Increases Passed To Businesses/Consumers

As the BDI increases, so effectively does the cost of raw materials. This cost associated with procuring the materials must be passed along the value chain by producers and refiners. In the end, consumers will see higher dry bulk rates in the higher prices they pay for goods derived from these raw materials. For example, when Folgers pays an extra $10/ton to import coffee beans, they will pass along this increased procurement cost to consumers to maintain margins.

Additionally, imported goods may often carry a BDI factor in the prices. An example of this would be the average Chinese imported good. As China transformed from coal exporter to importer, they began buying coal from nations such as Russia, Brazil, and Australia. The coal from the latter two must be shipped using dry bulk carriers. As the rates for the BDI went up in 07, so did the cost of coal to China. Since coal is used for 70-80% of China's energy generation, [6] overhead costs for factories increased with the price of coal. As the overhead costs increase, so must the price of the end good to maintain the margin of profit. As this end price increased, an American paid more for a t-shirt or toy at Wal-Mart.