Global ports are backing up with traffic, and shipping containers are in short supply. The carriers of the commodities and goods that supply the world are the beneficiaries of the current supply/demand imbalance.
- Eagle Bulk, 11.5%
- Diana, 9.2%
- Eneti (formerly Scorpio Bulkers), 14%
As vaccine rollouts continue to ramp up and economies begin to reopen across the globe, this backbone of global commerce is beginning to attract investor attention. Shares in these typically under-the-radar companies are getting noticed today after a double-digit single-day move. But the underlying business strength has had some investors in the sector buying all year. Some may consider them sleepy stocks, but Eagle Bulk, Diana, and Eneti are up 108%, 65%, and 38%, respectively, year to date.
These dry bulk shipowners carry cargo as diverse as coal, grain, and iron ore, as well as fertilizer, steel, and forest products. An example of how far and fast demand has come for these carriers can be seen in the Baltic Supramax Index (BSI). The index represents the charter value of a vessel for a specified period of time or to carry a cargo for a fixed fee from a loading port to a discharging port. In its recently reported fourth-quarter 2020 earnings conference call, Eagle Bulk said the year-to-date BSI average is $13,800, but current spot pricing is now over $20,000. The highest level it had previously reached since 2016 was $15,000.
And it's not just bulk shippers that are in demand. Container routes were disrupted by lockdowns and the need to shuffle pandemic-related medical supplies around the world. These are now in high demand at the busiest ports, and many are being shipped empty to get where goods are piling up. Lars Mikael Jensen, head of global ocean network at the world's largest shipping company, A.P. Moller-Maersk (AMKBY 0.75%), told The New York Times: "I've never seen anything like this, all the links in the supply chain are stretched. The ships, the trucks, the warehouses."
Shipping container company Textainer Group Holdings (TGH 3.53%) recently reported its fourth quarter 2020 earnings, saying that demand for containers continues to grow. CEO Olivier Ghesquiere noted the "sharp rebound in cargo volumes that started last July." He added, "As we look into the new year, we continue to see high demand for cargo and containers."
This is a capital-intensive industry as ships and containers must be constantly maintained and fleets updated. But a current peak in the cycle likely will take months, if not longer, to wind down, making shareholders of these stocks happy until the next downturn.