Is This Crack in DryShips Inc.'s Hull Also a Danger for Other Dry Bulk Shippers?

Watch this indicator closely -- it affects Navios Martime Partners and Diana Shipping, too.

Mar 3, 2014 at 7:11PM

It seems like everybody these days universally agrees that the dry bulk shipping market will get better at least in the short term. Executives from DryShips (NASDAQ:DRYS), Navios Maritime Partners (NYSE:NMM), Diana Shipping (NYSE:DSX), and other carriers have voiced optimism about increased demand for 2014. Even if that optimism is realized, there is another very important factor to watch that could ruin the whole thing.

The supply side
Everybody seems confident that the global supply of dry ships won't keep up with demand, which would result in shipping rates shooting up. For example, DryShips CEO George Economou stated, "Following a period of oversupply the recent volatility in the tanker and drybulk sectors is a clear sign of a balanced supply demand picture."

Meanwhile, DryShips CFO Ziad Nakleh concurred. He said, "The supply demand balance is tighter than anticipated." Nakleh points out that the order book for new ships has been in steady decline over the last five to six years.

Nakleh went on to say in more detail, "To sum up we believe that the fears over severe oversupply may have been overstated. And the depressed freight environment we've experienced during the past several years was more a result of lackluster demand rather than an oversupply issue, a situation we see reversing in the coming years."

Game, set, match, right? Not so fast.
Nakleh went on to say, "While the order book has been expanding recently on the back of the improved market outlook and freight environment, we believe that it still remains at manageable levels as we expect demand growth to mitigate the fact of further addition to the fleet." It sounds like he's trying to play down the sudden increase in orders, justified or not, while remaining quite confident about rates for the industry and DryShips for 2014.

Could it simply be a situation where the expected jump in demand and expected low supply actually cause higher supply instead? What dry shipper wouldn't want to expand its fleet, if it can afford it, if it knows that rates are going to jump to highly profitable levels?

Perhaps Diana Shipping gives us a more balanced, implied warning. Diana Shipping mentioned, "If newbuilding orders do not flood the markets with vessels this will certainly be a positive factor for Capesize earnings going forward." The key word being "if" which leaves the possibility, and rightful concern, that new orders could come and flood the market, killing the whole supply-side theory.

The positive flip side
If Navios Maritime Partners is correct, an increased order book isn't as big of a concern as you might think. Navios Maritime Partners sees around 30% "non-deliveries," (which is delayed, postponed, or cancelled orders) for 2014. Probably the biggest reason many executives see supply coming down is the vast number of ships in the global supply that have aged and are overdue to be scrapped.

According to Navios, scrapping levels continue to be well below expectations, meaning that very old ships are being used beyond their expected lifespan until the last possible minute. CEO Angeliki Frangou of Navios Maritime Partners is simply amazed that there hasn't been more scrapping, but she went out on a limb and said, "Definitely you will have more scrapping in 2014 that will be the way forward."

Foolish final thoughts
The Korean Shipping Messenger put it best: "Unless demolition activity picks up significantly from the low levels seen thus far this year all estimates of a healthier market going forward could be at risk in spite of the slowing down of newbuilding deliveries." Watch like a hawk for new scrapping information as this single indicator can potentially make or break the entire dry shipping industry this year and beyond.

Investing in DryShips and other dry shippers requires tons of careful research
Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

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

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, 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