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Shipping has undergone significant volume reductions and increases since the financial crisis began. Many shippers expanded their fleets prior to the crisis. Shipping volumes have since declined and then stabilized.

The industry is now left with significant overcapacity and concern over future demand increases, and even potential decreases. Moreover, much of this overcapacity development was leveraged, leaving several competitors with problematic levels of debt and an aging, relatively unused fleet. Now, several competitors within the sector are trading below book value, and also some below liquidated valuations, with fear of bankruptcy and/or selling off ships.

Selling of fleets may occur after bankruptcies. The shipping business is fragmented and the overcapacity could keep margins low. Many issues could affect shipping, including potential European failures, Asian recessions and further Middle East instability, as well as US domestic economic issues and other risks.

Shipping demand can also eventually grow to where present capacity cannot satisfy it. Nonetheless, most investors now seem to think these shippers are due to further contraction. Below are seven shippers that the short sellers are betting against. Each of these shipping companies has a short position of at least 10% of their float. I have also provided their 1-month and 2011-to-date performance.

Ticker

Company

Price

1-month

2011-to-date

Short % of float

FRO

Frontline Ltd.

6.86

-27.87%

-72.95%

19.70%

GMR

General Maritime Corp.

0.38

-63.37%

-88.26%

15.70%

GNK

Genco Shipping & Trading Ltd.

6.64

22.73%

-53.89%

28.70%

HRZ

Horizon Lines, Inc.

0.55

-46.07%

-87.40%

15.60%

OSG

Overseas Shipholding Group Inc.

16.29

-17.30%

-54.00%

44.60%

TDW

Tidewater Inc.

51.69

-4.29%

-3.99%

12.00%

VLCCF

Knightsbridge Tankers Limited

17.06

-11.69%

-23.39%

10.00%

The market appears to continue to anticipate that at least some of these shippers have a high probability of exiting the market or further diluting shareholder value to sustain their businesses. A very likely occurrence continues to be that one or several shipping competitors exit the market. The short sellers are making their bets.

These companies offer significant risk and potential returns. Their ownership should be limited in most fiduciary accounts, though some exposure to shipping and transportation is generally considered appropriate.

Source: 7 Shippers That Shorters Love To Hate