Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of dry bulk shipper DryShips (NASDAQ:DRYS) were up as much as 8.3% following bullish commentary from several dry shipping companies and a rise in the Baltic Dry Index, or BDI.
So what: The BDI, which is a basket of various shipping sizes and routes around the world, rose by 7% over the last week. Within that index, the Capesize ships are the largest both in terms of physical size and in terms of average daily revenue generation. The Capesize rates rose by 22.5%, staging the biggest one-week rally in 2014.
Back on Feb. 18, CEO George Economou stated, "Currently Dryships has ... about 9,000 spot days in 2014 and 11,900 spot days in 2015 for its drybulk fleet. Given this immediate spot exposure, Dryships is uniquely positioned to take full advantage of the imminent market recovery."
Based on the sudden spike in rates since then, it appears like this may be the start of the "imminent market recovery" that Economou forecasted. This bodes very well for DryShips as those available days are days that DryShips is not locked into fixed rate contracts. This means that as the rates quickly rise, DryShips can directly and immediately benefit. All other things being equal, each and every dollar of revenue in increased rates tends to fall straight to the bottom line as net income.
Now what: This is of course conditioned on the premise that rates continue to recover. Other companies' executives, such those from Navios Maritime Partners and Safe Bulkers, share a similar, optimistic sentiment about the state of the dry shipping industry going forward. However, Diana Shipping and a number of analysts have warned that certain factors could put an end to the recovery, or even throw it in reverse. They believe that China's demand for iron ore is the primary driver of rates, and some are concerned that there is a debt bubble brewing in China that may soon cause the country's increasing demand for iron ore to come to a halt. Foolish investors of DryShips should keep a close watch on rates and look for economic news from China, given DryShips' decision to keep itself exposed to the daily spot rates.
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