Like seemingly every other commodity market, the market for bulk shipping spiked in the fourth quarter of 2004 -- and trailed off in the first quarter of 2005. All the same, strong absolute rates and good management led Norwegian shipper Frontline (NYSE:FRO) to post a solid first quarter.

Operating revenue climbed about 4% in the quarter, and the operating margin improved by 6.5 percentage points. This in turn fueled 15% operating income growth and more than 30% net income growth. Looking at EPS from continuing operations, Frontline posted $3.58 per share -- 25% higher than the year-ago level.

With considerable free cash flow coming in from the business, Frontline declared a dividend of $3.10 per share. While this is below the prior quarter and year-ago levels, it still brings the trailing 12-month dividend payout to $10.70 per share.

It's not all smooth sailing for Frontline, though. After spiking in the fourth quarter, daily rates have come down significantly. Average rates in the first quarter for "very large crude carriers" (VLCC) were $77,500; for Suezmaxes (ships with dimensions suitable for passage through the Suez Canal), the figure was $55,200. Both are considerably below the rates of $111,200 and $85,000, respectively, seen in the fourth quarter, but more or less in line with year-ago levels.

Since the end of the first quarter, though, rates have continued to slide. Looking at average spot rates in mid-May, VLCC rates were $40,570 per day and Suezmax rates were $51,178. While this admittedly looks bad, it's not entirely unusual. In the past, rates have skidded in the first half of the year, only to recover strongly by year-end. Interestingly, rates long- and mid-range product tankers have stayed relatively stronger -- good news for rival shippers like TsakosEnergy (NYSE:TNP), OMI (NYSE:OMM), and Overseas Shipholding (NYSE:OSG).

Longer term, the outlook for Frontline should still be pretty positive. While I believe annual average rates will continue to ease off as a result of new vessel construction, the demand for international oil shipment isn't going to go away. What's more, Frontline has positioned itself in such a way that it should continue to produce positive cash flow even if rates slide by another 30% or so from here.

Investors in the shipping space should remember that rates can be incredibly volatile from quarter to quarter and from year to year. What's more, there is definitely a cycle of new ship building going on around the world. Nevertheless, with strong international demand for crude and related products likely to stay in place, Frontline should be able to continue to generate good cash flow and pass that through to shareholders with strong dividends.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).