3 Shippers Buoyed by Positive Movement from the Baltic

The Baltic Dry Index (BDI) is up over 10% to 711 in the past few weeks. It doesn’t mean much, considering it’s down over 93% for the year. In fact, if you consider this move in terms of this summer’s price high of 11,793 - it’s moved barely half a percent.

But that doesn’t mean you shouldn’t be keeping an eye on the BDI.

The BDI is the price used to determine global shipping rates and prices. Like blood pressure does for humans, BDI measures the flow of goods for the economies of the world. And just like us, excessively low or high readings are bad.

Because it isn’t traded, the BDI cannot be moved artificially. It’s one of the best ways to judge the true health of global trade and our economy. It’s why Louis Basenese has been instructing readers to keep an eye on the Baltic Dry Index for weeks.

And looking at the major shippers of the water transportation sector, it appears that the market is paying attention as well. Frontline (FRO), Kirby (KEX) and Nordic American Tanker Shipping (NAT) have all moved up over 15% in the past few weeks. Positive movement from the Baltic will continue to float these shippers.

And it’s not just domestic lines; Asian shippers have been on the move as well. Time will tell if these movements are the start of a new trend or just a bounce. But the water transportation sector could use some good news - it’s down over 37% since October 1st. By comparison, the S&P is only down 25%.

Comments

[Henryck K:]

The companies mentioned haven't much to do with Dry Bulk Shipping or the BDI, except that they aer in the water transport sector. So take care and do yr. homework before following the BDI for tanker ships or other more specialized ships.

2008 Dec 16 08:48 AM

[Tim Plaehn:]

DItto. NAT and FRO are tanker companies. Nothing to do with dry freight rates. Tanker rates have been strong in December as producers are using tankers as storage rather than sell oil at less that $50. It cost less than $1.50 per barrel to store oil in a tanker for a month even as you pay $90k per day for the tanker. That's a lot of oil!

2008 Dec 16 09:10 AM

[secmaven:]

DRYS has nearly tripled in price in a week! Bear markets create opportunity for stocks that go to out of business prices but retain their sponsorship.

2008 Dec 16 01:33 PM

[Urbane Gori...:]

Agree with the posters that these are not dry-bulk, except possibly KEX, which is an inland waterway shipper of just about everything.. Operating mainly on the Mississippi.

However, if you consider the Baltic as the 'pulse' of the world's economy, then it could indicate the beginnings of commerce. In that case, FRO and NAT would also benefit as oil is needed for commerce to start the engines. Oil is necessary for fuel and chemicals such as fertilizers and plastics etc.

However, I'd be more inclined to keep an eye on iron ore and copper.

jegan

2008 Dec 16 04:07 PM

[coprophagous:]

The three stocks you mentioned are not in the dry bulk trades, two are tanker companies and one is a US domestic shipping company.
Also the BDI is totally unrepresentative of the overall dry market as it was represented by a very few actual fixtures.
The majority of dry bulk ships in the medium and large sizes are losing their shirts as rates if available are barely covering running costs and making no contribution to debt.
The Chinese outlook continues to worsen with manufacturing in Southern China off 50% from last and projected to drop another 50% in 2009.
Demand for steel is down dramatically and China is reducing its steel exports as the world steel markets have collapsed.
Expect all the dry cargo companies to struggle to stay solvent with many going bankrupt in the first quarter of 2009.
Tanker stocks will take a severe hit in Q1 2009 as rates decline sharply in response to reduced production and lower demand and delivery of new ships.

2008 Dec 16 10:25 PM

[poor&unempl...:]

Because it isn’t traded, the BDI cannot be moved artificially.
======================...
Do you even know how they calculate BDI?
Do you know which old men decide what the index would be on any given day?
Do you know anything about this business or any other business?

I am surprised they actually allowed you to post here.

2008 Dec 16 11:59 PM

[stuurman:]

"The BDI is the price used to determine global shipping rates and prices."

This is confusing, because the BDI is just an index of prevailing freight rates and only for dry bulk. The tanker freight market has held up well.

In a few weeks you may see a drop in ws rates, because the new 2009 ws flat rates will come into effect. They have been calculated on fuel oil costing $554/ton; way above current actual cost. On the other hand, when it gets cold in the Northern hemisphere, tanker rates often go up.

2008 Dec 18 09:58 AM

[jimka:]

I like one of the above-mentioned shipping stocks, NAT(NORDIC AMERICAN TANKER SHIPPING) , in particular.

I write blogs for "Navellier International Blogs" and have been following NAT closely. It's a good buy! We also blog to follow global events influencing markets.

We do investment reports for select global stocks, and this (NAT) is a favorite.

Jan 02 07:49 PM