Diary of a Financier

Shipping Names Sinking

In Idiosyncrasy on Tue 12 Jul 2011 at 17:19
  • BALDRY has stabilized so far in 2011.
  • Global shipping stocks have crashed in contrast.

The Baltic Dry Index (BALDRY) has at least stabilized through the first half of 2011:

BALDRY (2007-present)- at least it's stabilized in 1h2011.

Recall my entries on the matter back in 4q2010, wherein I discussed with a reader:

Most likely, a shipping company/companies overinvested in ships back in 2006 with the expectation that China’s appetite would indeed be voracious. Instead, China pulled forward a lot of demand in stockpiling hard assets throughout 2008-09. When those ships came online in 2009-10, they forced the BALDRY plummet. But, my point is that someone on the microeconomic level pays for that overinvestment. The shipping companies get their margins squeezed and they miss guidance…

The bankruptcy of Korea Lines on January 27 was the first vindication of my argument.

Checking in on some shipping names today, I can’t help but notice the second vindication. The entire global shipping sector is finding new lows day after day. For example:

DSX DRYS EGLE FRO GMR GNK TNK

These stocks have gone from top left to bottom right on the charts since April 2010. I didn’t cherry-pick any of those names to prove a point either, they just popped up as shipping peers on my terminal. (VLCCF is an example of one stock that isn’t cratering relative to mid-2010.)

The aforementioned BALDRY tracks the price of shipping cargo. Perhaps my point about “shipping companies” is better illustrated by the PHLX Marine Shipping Index (SHX), which tracks the performance of actual shipping stocks:

SHX daily

I don’t claim any intimate familiarity with any of the businesses mentioned herein. Therefore, it’s only appropriate that I offer no commentary; just a simple observation.

–Romeo

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