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The Great Vessel Glut Sails On

Christopher Barker
August 6, 2010

Construction workers don't just wear hard hats while debris is falling. They wear them until they leave the danger zone.

For investors inclined to remove their protective gear and build positions in the battered dry bulk sector, Diana Shipping (NYSE: DSX  ) wishes to remind you that 1,000-foot-long cargo vessels may still be falling from the sky.

Don't let Diana's seemingly impervious second-quarter profitability give you a false sense of security: This industry is still in the throes of an epic oversupply crisis. Only by means of a high-quality portfolio of long-term charter contracts with heavy hitters like BHP Billiton (NYSE: BHP  ) and Cargill International -- plus a modest, fully booked fleet expansion that grew revenues by 15% -- was Diana able to achieve a year-over-year improvement in net earnings to $33.9 million. Sweet-talking DryShips (Nasdaq: DRYS  ) was not so fortunate.

Meanwhile, the world's fleet of Capesize carriers, in particular, has grown bloated to the point that some July contracts were reported below the level of daily operating costs, an unwelcome phenomenon not seen since the initial paralysis of the global financial crisis. According to Lloyd's List, one Capesize vessel was even hired at a mind-boggling rate of $0 per day. The prevailing charter rate dipped well below $15,000 per day during the month, and it actually became cheaper to charter a massive 175,000-deadweight ton Cape