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

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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information