What happened

Shares of DryShips (NASDAQ:DRYS) jumped again today, rising more than 13% by 10:45 a.m. EDT. The stock is up more than 60% over the past month. One of the factors driving the buying spree is the continued rise in the Baltic Dry Index (BDI).

So what

The BDI assesses nearly two dozen major shipping routes each day, gauging the rates vessel owners charge to ship dry bulk goods like coal, iron ore, and grain. A rise in the BDI suggests strong demand for commodities, which often leads to higher spot market rates for ships. That enables companies like DryShips to make more money when chartering vessels.

A grain ship loading at a port.

Image source: Getty Images.

The BDI has been red-hot over the past year, soaring more than 87%. It has also risen sharply in recent weeks, rebounding from a low of nearly 1,300 earlier this month to more than 1,550 in the last week, according to data from Bloomberg. This rebound suggests that DryShips should be able to secure higher charter rates for its ships, which could boost profitability in the coming quarter.

The rise in the BDI over the past year has already driven a notable improvement in DryShips' charter rates. Last quarter, for example, DryShips reported that its dry bulk ships collected a time charter equivalent of $6,985 per day, more than double the rate earned in the year-ago quarter. As a result, these ships operated in the black last quarter, reversing the deep red from the year-ago quarter. And the rising BDI implies that the profitability of these vessels should keep going higher.

Now what

The continued rise in the BDI is excellent news for dry bulk shippers like DryShips. That said, DryShips remains a high-risk stock because of the volatility of charter rates, and management's history of incinerating shareholder capital. Investors need to carefully consider the risks before climbing aboard as DryShips will likely take them on a wild ride.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.