The Baltic Dry Index (BDI) is an important economic indicator that measures the average transportation cost of dry bulk cargo worldwide. It was developed by the London-based Baltic Exchange in 1985 as a way to track sea freight global market. The index comprises of prices for 20+ shipping routes for different cargo, allowing for pricing comparisons across different areas and routes.

Though the BDI initially only tracked the cost of moving raw materials such as coal, iron ore and grain, it has since evolved to become a global indicator of economic development. This is because changes in the index often reflect changes in the demand and supply of materials used in the manufacturing process, as well as the availability of freight services. Consequently, the BDI has significant influence over international shipping and transportation costs as well as investment decisions and capital flows.

Due to the nature of cargo ships and long lead times, the BDI is highly volatile and can quickly fluctuate. This is exacerbated by limited number of large carriers which often have high production costs. To mitigate this effect, the Baltic Exchange has introduced the Baltic Panamax Index and Baltic Capesize Index, which track shipping prices of assets for particular trips

Overall, the Baltic Dry Index can be considered a good leading indicator of economic activity, as it offers insights into changes in the supply and demand for essential materials. However, due to its high levels of volatility, investors should be mindful of any sudden and unexpected price movements when it comes to making decisions.