As has been noted in a variety of places, the Baltic Dry Index has been lagging badly, leading some to question the strength of economic expansion. It should be noted, however, that both dry/bulk shippers, as well as tankers, have been suffering under a glut of new tonnage, which is likely to be the underlying cause for the abysmal spot rates currently in effect.
According to Natasha Boyden of Cantor-Fitzgerald, who appeared on Bloomberg TV’s “Taking Stock” program, the bulk shippers have on the order of a 50% increase in tonnage that has, or will be, very shortly, coming on line. The situation in the tanker segment is somewhat better, although nothing to write home about, with approximately a 28% increase in capacity.
Many thought that the global financial crisis might cut into the glut of tonnage coming off of the ways of the shipyards, as shippers canceled orders, and to an extent, there has been some of that, but many shippers chose to merely push back delivery dates for tonnage ordered during the boom period of 2006/07. I’d guess that the stretching out of delivery dates probably didn’t cause the ship-builders undue angst, as the majority were running heavy backlogs, stretching out to 2 or 3 years, in some cases.
Still, there’s almost always a silver lining in every cloud, and the current environment may well offer the better capitalized shippers that have focused on the charter market, to pick up some additional assets “on the cheap”. One firm that Ms. Boyden specifically mentioned was DHT Holdings (DHT).
A smallish firm with only 9 tankers, back on December 14, 2010, DHT announced the acquisition of a VLCC for $55 million dollars, with delivery scheduled for 1Q, 2011. The purchase was made with a combination of cash on hand and bank debt. The stock took a big hit back in May, 2010, when they cut their dividend from $.25 down to $.10, to conserve cash, according to management. Since then, they’ve maintained that dividend, and the stock has slowly rebounded from the shellacking it took when the cut was announced.
According to DHT’s Q4-10 report, the company had a net income of $.14 per diluted share, as opposed to $.08 per diluted share in Q4, 2009. Free cash flow from operations was $.025/share. With an additional vessel, and the current fleet under charter for periods running from 2012 to 2018, it would come as no surprise if the dividend received a nudge upwards.
Disclosure: I am long DHT.