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What Is a Dry Bulk Commodity?
A dry bulk commodity is a raw material that is shipped in large unpackaged parcels. Dry bulk consists of mostly unprocessed materials that are destined to be used in the global manufacturing and production process. The commodities, which can include grain, metal, and energy materials, are transported long distances in bulk by sea in large cargo vessels by companies that specialize in dry bulk delivery.
Key Takeaways
- Dry bulk materials are unpackaged goods shipped in large parcels by sea and destined for manufacturers and producers.
- Coal, grains, and metals are examples of dry bulk commodities.
- The Baltic Dry Index (BDI) is a handy measure of prices paid for the transport of dry bulk materials.
- BDI is often viewed as a leading indicator of economic activity because changes in the index reflect the supply and demand for important materials used in manufacturing.
- Dry bulk spillage is difficult to clean up as the items are usually in the millions and are either very small or the bulk item is a liquid.
Understanding Dry Bulk Commodities
The weight for dry bulk is measured in an industry convention known as tons of deadweight (dwt). Some of the industry's larger transportation vessels can carry megatonnes (MT) of deadweight. This industry weight measurement convention developed over time because of the unpackaged nature of the commodities being transported.
The transport of dry bulk commodities is highly regulated due to the effects that an in-transport accident can have on the environment. Since these commodities are unpackaged, a spill puts them right into the environment and renders them extremely difficult to clean up, leading to the destruction of the environment and possible endangerment of people and wildlife.
The Baltic Dry Index (BDI) is probably the most common index used to measure changes in the cost to transport various dry bulk commodities around the world. Calculated by the London-based Baltic Exchange, it is a composite of the Capesize, Panamax, and Supramax averages. BDI is derived by contacting various shipping brokers to assess price levels for various routes, products to transport, and times to delivery.
A change in the Baltic Dry Index can give investors insight into global supply and demand trends. A rise in the index might suggest that demand for dry bulk materials is improving.
A change in BDI is also considered a leading indicator of future economic growth because dry bulk goods are raw, pre-production materials and not typically an area of speculation. In other words, changes in the index reflect true supply and demand for dry bulk commodities from producers and not the day-to-day buying and selling on the part of speculators.
Types of Dry Bulk Commodities
Dry bulk commodities are usually divided into two categories: major bulks and minor bulks. Some examples of major dry bulk commodities include iron ore, coal, and grain. These major bulks account for nearly two-thirds of global dry bulk trade. Minor bulks include steel products, sugars, cement, and cover the remaining one-third of global dry bulk trade.
Coal, along with iron ore, is one of the most traded dry bulk commodities by volume in the world. Countries most involved in the import of coal for their primary energy and electricity needs are India, China, and Japan. Grain is another major cargo in terms of seaborne dry bulk trade and accounts for a chunk of the total dry bulk trade worldwide.
What Are Examples of Bulk Goods?
Most bulk goods share the characteristics of being rather small and having an irregular shape. Because they are difficult to pack in an orderly way, they are arranged loosely, usually in large bags or open containers. Some common examples are livestock feed, grains for human consumption such as wheat and rice, peanuts, cocoa, and even cementing materials such as sand and gravel.
What Is the Difference Between Bulk and Container?
Containers are the large metal shipping containers used to store products during transport. What is inside of them may be some bulk goods, or it can be non-bulk items such as cars, boxes of electronics, and others. Shipping and transporting containers is much easier than moving bulk goods not in containers, and there are additional considerations such as if bulk goods need to be refrigerated and the fact that since most bulk shipments aren't heavily locked like containers, there is an issue of breakage or theft.
What Is the Dry Bulk Market?
The dry bulk market encompasses everyone from the producer of the item shipped in bulk to the end purchaser. This includes the packing and shipping companies, as well as those who make investments on either the bulk item itself or by trading futures on a commodity exchange such as the Chicago Mercantile Exchange (CME).
The Bottom Line
Dry bulk goods are shipped in large amounts and are not package or transported the same way container transport is. Because of this, they are highly regulated to avoid spillage or contamination, and because dry bulk is more susceptible to factors such as temperature variance and other damages.