The Partial Debulking of Dry Bulk

Whatever you make of the prospects for recovery within the heavily battered dry bulk sector, one thing is for certain: dry bulk stocks are not what they used to be.

Bulkers have employed an array of strategies to cope with the challenging business conditions that still confront the sector, but from among those strategies a peculiar theme has emerged. Increasingly, former pure-play operators are delving into diverse segments of the merchant vessel market. DryShips (Nasdaq: DRYS  ) took a costly plunge into oil drilling ships, Diana Shipping (NYSE: DSX  ) formed a venture to purchase containerships. More recently, Navios Maritime Holdings (NYSE: NM  ) , through its offshoot Navios Maritime Acquisition (NYSE: NNA  ) , has motored into the tanker space with the addition of at least 11 product tankers and 2 chemical tankers.

With a price tag of more than $450 million, this is no small testing of the tankering waters by the Navios group. By contrast, Diana Shipping's $50 million investment in containerships remains characteristically conservative. Like Diana, Navios is keen to time the bottom of this woeful business cycle with opportunistic purchases. Navios Chairman and CEO Angeliki Frangou touted the purchase as a timely bargain:

[... O]ur review of the industry led us to believe that Navios Acquisition is purchasing the fleet toward the low end of the cycle in a recovering and growing industry. [ ...] Navios Holdings ownership interest has a value well in excess of its aggregate cost.

Speaking of timely bargains, Navios Maritime Holdings is looking like one to this Fool. The company crushed analyst estimates this week with first quarter earnings of $31.3 million, and Navios converted its counter-cyclical growth spurt into a 5% increase in revenue ... even as my top pick Diana Shipping managed only to keep revenue flat with prior-year levels. Although aided by a $24.4 million pre-tax gain on the sale of three dry bulk carriers to Navios Maritime Partners (NYSE: NMM  ) , I believe that these first quarter results are indicative of the beginning stages of normalization in a sector that has vastly underperformed the broader equity markets for quite some time.

Whether it's in Diana's miserly order for two ultra-massive ore carriers, or Genco Shipping and Trading's (NYSE: GNK  ) coldly received IPO of dry bulk spot-market operator Baltic Trading (NYSE: BALT  ) , this Fool observes signals that dry bulk executives are beginning to perceive a bottom in this difficult business cycle. What's more, I submit that this trend toward increased diversification into alternate segments of the marine transport and services industry conveys an underlying bullishness for industry-fueled maritime activity at large.

The Dry Bulk Shipping tag in Motley Fool CAPS lists 17 companies. Join our online community today and share your views on this bellwether sector. CAPS is free and fun!

Fool contributor Christopher Barker has sailed through the Bermuda Triangle, but he's never encountered a sight as scary as DryShips. He can be found blogging actively and acting Foolishly in the CAPS community under the user name TMFSinchiruna. He tweets, and he owns shares of Diana Shipping. The Motley Fool's disclosure policy can hold its breath underwater while a cargo ship passes overhead.


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  • Report this Comment On May 28, 2010, at 4:19 PM, psl8er wrote:

    While you are right to say that Dry Ships is becoming an oil rig play, that sector looks to be heading for a serious fall. With Obama cancelling all drilling except on rigs already producing there will be an exit of rigs from the GoM to Brazil, W.Africa etc which will drive rates sharply down and the expensive new ones will be in serious trouble.

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