What happened
Shares of shipping company Castor Maritime (CTRM 0.27%) are popping this week, and there are two logical reasons for it. At its peak the stock was up more than 33% during the week, and shares remained 18% above last week's closing price as of late Thursday afternoon.
So what
Castor Maritime operates a fleet of ocean-going vessels, most of which are dry bulk carriers. Once all recently acquired ships are delivered, Castor's fleet will consist of 27 vessels including 19 dry bulk carriers. The company sets charter rates based on the Baltic Dry Index (BDI), which itself has jumped 17% over the past week.
Image source: Getty Images.
While the company's fortunes are largely tied to the BDI, it has also been taking delivery of new ships and obtaining new charters at a time when the BDI continues to rise. This week's move in the shares comes as Castor announced three new charter agreements at the higher rates.
Now what
The three dry bulk carriers have been contracted at gross daily charter rates of between $30,250 and $32,000. As a comparison, one of those same ships had a daily charter rate of only $11,500 in October 2020.
Castor Maritime raised more than $260 million in equity in the first six months of 2021, and the company has added to its fleet using cash on hand. Robust shipping rates now also bring the company strong cash flow from its operations. Upon reporting second-quarter financial results in early August, Castor CEO Petros Panagiotidis said strong demand for dry bulk services that has led to the high freight rates is "expected to be sustained by the tight vessel supply and historically low newbuilding orderbook."
Investors in the shipping sector should realize these investments can be cyclical, and largely based on the BDI, which is out of their control. But as long as the supply/demand balance remains in their favor, these companies should continue to enjoy strong cash flows.
