12/13/2013
By David Urani

Have a look at the Baltic Dry Index, it’s a measure of dry bulk shipping rates and it’s been coming on strong in the back half of this year. Just in the last three weeks, the index is up more than 50% to a reading of 2,337. It’s a typically volatile data set but does illustrate an industry that was left crippled by the global economic crisis in 2008 that is now showing signs of reawakening after a long dry spell. Shippers had placed large amounts of ship orders during the boom years in what was a flourishing global economy, and then were left with way too much capacity when it all fell apart, leading to a plunge in shipping rates and shipper profits.

Thanks to a revival in global trade that’s taking place now (and helped in large part to iron ore demand in China), that excess capacity is being filled. That combination of recovering demand and increased capacity utilization is a dual-positive for the industry that can lead to big upside should it continue. Back in 2008 the Baltic Dry Index sat as high as 11,000+, which in hindsight was probably too high. But it goes to show there’s a large amount of pricing power to be regained, and at 2,337 currently, we may still be in the early stages of this recovery.

A good 2014 for the global economy (fingers crossed) would mean big upside for dry bulk and shippers such as Diana (DSX), Navios (NM), Dry Ships (DRYS) and more. But keep in mind that it's still tough to turn a profit in this industry, so look out for shippers that are continuing to struggle financially like Genco (GNK) and Eagle (EGLE) who are reportedly consulting with debt advisors and respectively took big hits this week.

David Urani
Wall Street Strategies

Add a Comment!