bdp1ConsultingLtd

The Gurus and the Little-Known Shipping Metric

Charters are done at whatever rates the market is at, when concluded. The spot rates swing wildly- were $5K per day (for big vessels) earlier this year- now building at base at $50K per day. There is also a term structure to rates- long term charter rates, say 1 or 2 years charter length, tends to be lower than spot (30 - 45 days voyage length typically) when the market gets overheated. So all that could explain the variances that you've seen. The related company thing is a whole Greek drama in many acts- too long for posting here and not directly relevant to discussion of the BDI.

My point was that the BDI is not a good indicator for most of the companies mentioned because they are not in the drybulk business. Even DSX, which is in that business, has ships mainly (all?) on term charters so they are not impacted by the daily ups and downs of the BDI. Companies often do "layering", ie charter at different times, sort of like retail stock buyers are urged to dollar cost average, keeps you from making bad decisions for ALL of your assets. Result would charters for similar boats at widely divergent rates.

But the BDI is a great indicator for shipping activiity in a few industrial sectors. It may correlate with macro indicators, but it's a correlation only- no causality of any type. So, it's runup says to me, yes the world economy is still breathing, it has a pulse, which economists have been starting to come around on since March. But dry shipping is vastly oversupplied right now, and it would take a sustained recovery in demand, and some pleasant surprises on the supply side (possible, but by no means not a sure thing) to lead to a real recovery in drybulk rates.

And, there are some tanker indices which may be better indicators for some of the stocks mentioned. OSG for example does have some spot tanker exposure so maybe Baltic Dirty Tanker Index (BDTI) might yield some good results. Seacor has nothing to do with either index, nor does Kirby but both obviously do better when energy activity is up, so there may be a correlation with the BTDI. I have not run the numbers but maybe someone has.

The Gurus and the Little-Known Shipping Metric

DSX has ties to the Baltic Dry Index, but its ships are mainly hedged out on timecharters now so the relationship is not day to day. TBSI may have ever so slight relationship if its multipurpose ships find their way into the spot market. But the others are not impacted by the Baltic Dry Index.

There are also a group of tanker indices published by the Baltic Exchange which you might investigate.

Barry Parker

Dryshippers: A Buy or a Sell?

Absolutely these indices and the underlying rates are very volatile. The shipping market has lost a lot of confidence- as evidenced by forward rates, in swap prices, have also come down.

But, I am bullish since I don't see any change in the fundamental demand picture. And, as pointed out, seasonality would suggest a pickup in Q4. Short term- various dislocations, yes, but China has not stopped producing steel. For stock traders, the shipping stocks present great zigs and zags because of the underlying volatility even in the context of a longer term trend (whether that be up, or down).