Where Greek Mythology Meets Modern Investing

Upon Ulysses' epic return to Ithaca from the Trojan War, he found that the journey had meant more to him than the destination. The modern Ulysses -- a new dry bulk cargo vessel -- appears similarly destined to remain at sea.

In fact, following a substantial restructuring to weather stormy market conditions, Ulysses' owner, Navios Maritime Holdings (NYSE: NM  ) , is positioned to keep a substantial portion of its fleet operating at favorable charter rates for some time to come. The Greek shipper released passable third-quarter earnings of $30.7 million yesterday, while substantial cost savings and an impressive portfolio of charter contracts were the sweetest siren songs to this Fool's ears.

Unlike competitors like DryShips (Nasdaq: DRYS  ) and Excel Maritime Carriers (NYSE: EXM  ) , with pesky levels of exposure to spot market pricing, Navios retains contracts that cover 82% of the fleet through 2009 at an average daily rate of $28,515. While that fleet coverage drops to 59% for 2010, the average lease rate for those contracts increases to $35,917. Even the newly commissioned Navios Ulysses begins her career with a five-year contract priced at five times the present spot market rate of $6,156.

Incredibly, spot market daily rates for the larger Capesize vessels have broken to below $4,000, after fetching as much as $233,000 just six months ago. That's no typo … but rather a stark indication of how violent this reversal from boom to bust has become for the dry bulk shippers. The Chairman of China's Cosco Holdings believes the storm "came fast and will be gone quickly." If that forecast proves correct, then a company like Navios may actually experience little impact as long-term charter contracts provide a bridge over troubled water.

Still, this is no time to be cavalier about the future. Taking a cue from Diana Shipping (NYSE: DSX  ) , Navios will reduce its dividend by one-third. After canceling orders for three new Capesize vessels, Navios now has long-term contracts in place for six of the remaining seven ships on order. Along with nine additional cancellations, the company will trim $326 million from previously projected expenditures.

If China's stimulus program rekindles demand for raw materials from miners like BHP Billiton (NYSE: BHP  ) and Rio Tinto (NYSE: RTP  ) , then seaborne freight rates could snap back sharply. On the strength of its defensive restructuring and long-term contract portfolio, I continue to view Navios Maritime Holdings as one particularly seaworthy shipper.

Further Foolishness:

The "dry bulk shipping" tag within Motley Fool CAPS lists 16 companies, 15 of which have been rated by our members. Join our online community today and share your views on the offerings in this sector or any other. CAPS is free and fun!

Fool contributor Christopher Barker has been aboard these massive dry bulk carriers, and felt like a kid in a candy store. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of BHP Billiton and Diana Shipping. The Motley Fool has a bone-dry disclosure policy.


Read/Post Comments (4) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 19, 2008, at 10:00 AM, BOSINVMTSOLUTION wrote:

    I don't entirely agree with your opinion on EXM. Excel has 59% charter coverage in 2009 and only 7 capesize vessels in deployment, which have time charters(28k-105kperday). The portion of the fleet open to the spot market is Handymax through Panamax, and their rates have seen a recent turn around. I think DSX is a better buy than Navios and Excel is one of the most undervalued in the entire sector. I think it would be a great value opportunity to buy a basket of companies in this sector as shipping rates rebound.

  • Report this Comment On November 19, 2008, at 11:30 AM, XMFSinchiruna wrote:

    I am mostly concerned about the scale of EXM's debt relative to some of its peers. Debt is the gravest danger in this environment.

    EXM has $1.3 Billion in debt, which is why I personally wouldn't touch it here.

    I think the conditions are such that buying a basket of shippers carriers an unacceptable level of risk... and believe there is something to be said for taking the time to indentify a best-of-breed company and sticking with it.

    Several shippers could go bankrupt before this is all over, so I don't recommend a basket in this case.

    Fool on!

    TMFSinchiruna

  • Report this Comment On November 20, 2008, at 9:10 AM, XMFSinchiruna wrote:

    Well, someone doesn't agree with me:

    http://www.reuters.com/article/marketsNews/idINBNG4041032008...

    Perhaps I should have stuck with just Diana. :) I generally ignire analysts completely, but he is probably better equipped than I to scrutinize the details of these debt covenants. Fools be cautious... I do think a spate of bankruptcies could be in the works.

  • Report this Comment On November 20, 2008, at 5:48 PM, bluedome wrote:

    A long term contract in shipping isn't worth a hill of beans. If someone has a contract for $233,000 a month there is a hell of an incentive to reneg on that contract and sign another one for $4000 a month. And how can NM in greece expect to enforce these contracts - go to court in Timbuktu? As if there is even a court that would side with a foreign company over their own local company?

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