Have These Dry Shipping Companies Hit Rock Bottom?

Experts say to look for these signs in the weeks to come.

Feb 14, 2014 at 5:33PM

Header
Source:  DryShips,

Various dry shipping stocks such as DryShips (NASDAQ:DRYS), Navios Maritime Partners (NYSE:NMM), Safe Bulkers (NYSE:SB), Baltic Trading Limited (NYSE:BALT), and Star Bulk Carriers (NASDAQ:SBLK) are well off their highs. This begs the question... is it time to buy? For 2014, many analysts and experts expect something particularly exciting for the industry that will bring much relief to ship owners.

The last mini-cycle rally
The industry has been plagued by overcapacity for nearly six years. With the daily spot rates at breakeven or worse levels, it would seem that rates can't get any lower. Perhaps we're at a bottom, and the next rally will soon begin.

Back in September, I wrote my first article on dry shipping for the Fool, wondering if the dry shipping industry was in a new bull market. At that time in mid-September, dry shipping rates were having the biggest rally they'd seen in years. China was shipping iron ore in large quantity even ahead of its normal October to December seasonally strongest period. Soy and grain exports were expected to be robust, as well.

The rally continued strong, and 2013 ended with rates near levels not seen in years. As you probably know, 2014 saw another collapse in rates and dry shipping stocks due to the seasonal nature of the slower economic activity of the Chinese New Year, as well as bad weather halting some shipments. Now that it's ending, and the clouds are clearing, some believe the next big rally will be upon us soon.

What is particularly exciting about 2014
For 2014, many expect worldwide demand this year for the first time in seven years to outgrow supply. Increased shipments of coal, iron ore, and grains are all expected to rise at a faster clip than new ships will come on board after accounting for the scrapping of old ships.

This change should improve the rates for the industry, according to many analysts, experts, and executives. For example, Ong Choo Kiat, President of U-Ming Marine Transport stated, "While there will be potholes, here and there, as always, the worst is over based on the market fundamentals."

Barclays Research expects a 5.8% rise in demand by tonnage coupled with only a 5.3% rise in supply by tonnage. If proven to be true, it will mark the first year that the shipping industry "finally shakes off" the supply build boom that occurred at the same time as the housing bubble.

It's all about China
These same experts and analysts will be laser-focused watching China -- and you should be, too. For 2013, 83% of the worldwide demand growth was attributed to China alone. This single country accounted for 35% of the world's volume of dry bulk shipments and 40% of the dry bulk industry's transportation in terms of miles. In other words, at any given moment, 40% of the dry shipping capacity on the seas was headed either to or from China.

Needless to say, any unexpected shift in volume shipments with China would affect worldwide dry shipping rates in a substantial way and could make or break the fortunes of many dry shippers.

Foolish final thoughts
Note that many dry shippers operate under long-term contracts at fixed rates rather than based on the daily spot rate. However, DryShips and Baltic Trading Limited both have significant exposure to the spot rates, and the trading of the stock prices of the group, as a whole, are affected by the daily spot swings even though its more true of DryShips and Baltic Trading Limited. While that may not sound like it has any long-term implications, these companies raise money often through equity offerings. The dilution from these equity offerings will depend on where the stock prices are; thus, there are actually long-term effects from short-term trading of these names. With this in mind, investors of any dry shipping company should follow the daily spot rates closely.

Speaking of the easy credit days...
Many investors are terrified about investing in big banking stocks after the crash, but the sector has one notable standout. In a sea of mismanaged and dangerous peers, it rises above as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.

Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers