Rogue Wave Swamps Dry Bulk Shippershttp://www.fool.com/investing/international/2009/02/23/rogue-wave-swamps-dry-bulk-shippers.aspx Christopher Barker
February 23, 2009
Rogue waves come out of nowhere, and have been known to swallow massive ships in the blink of an eye. For mariners and investors alike, it pays to keep a vigilant watch even when conditions appear favorable.
In the wake of a perfect storm, that vigilance must intensify further; and the recent bear-market rally among the dry bulk shippers provides the ultimate cautionary tale. Understandably eager to climb aboard the first available life raft within a sea of uncertainty, buying interest returned to the shipping sector in December when a sudden reversal in the Baltic Dry Index (BDI) set the blogosphere ablaze with bullish sentiment.
Now that a series of dramatic developments have bashed the group like a rogue wave, and fourth-quarter results are beginning to emerge, let's step back and take a comprehensive look at the sector.
Credit running dry
How rogue waves are formed
This development has far-reaching implications for the industry. The failure was precipitated by the cancellation of charter contracts by shippers that themselves became insolvent. Like an airborne virus, the malaise travels through Samsun Logix to the publicly traded shippers. As an integrated ship owner and operator, Samsun Logix inked charter contracts with vessel owners like DryShips and Navios Maritime (NYSE: NM ) to maintain a more elastic fleet. DryShips was in the process of selling a vessel to Samsun Logix, while Genco Shipping & Trading (NYSE: GNK ) had only one vessel chartered to Samsun Logix.
Mounting bankruptcies within the sector give charter clients additional bargaining power when it comes to renegotiating long-term charter contracts … many of which were priced at rates substantially higher than present charter rates.
First to report a rogue wave
That chilling statement, I believe, speaks