skipper54

Four Shippers Emerging from the Mire

Firstly, Shippers are those who load cargo on ships (generally exporters). All the companies you mention should be referred to as 'shipowners'.
Secondly, the dry cargo bulk sector has in the past been the object of speculation (particularly DRYS) which has borne little reference to reality (which is basically the law of supply and demand). You mention the ''listless behavior of the shipper stocks in the past few months" but that listlessness precisely reflects our market and also the lack of interest from the speculators. You are trying to pump the shares up again in order to get back some of that old volatility so beloved of the speculator but I can tell you that the fundamentals suck. Quite simply, there will be millions of tons of new ships coming into the market over the next 2 years without the corresponding increase in cargo volumes. And the balance sheets of today include vessels that are vastly over-valued. And we have seen that the banks are finally beginning to get tougher - don't expect any more covenant waivers: it will be 'pay up or go bust'. Or am I just a pessimist ....?!

5 Things You Need to Know When Analyzing Corporate Debt

Thankyou for talking at a level I can understand as a relative newcomer to the equity market. I shall now attempt to read the balance sheet of a drybulk shipping company bearing the above in mind. One thing though is the relationship between debt and asset value (in this case ships). Presumably if the value of assets is much higher than the debt then the company is in good shape. But who is to say that those assets are properly valued ? My gut feeling is that ALL shipping companies have their assets overvalued due in part to the volatility of the market but also to the relative lack of sale and purchase deals which might serve to establish realistic ship values. So where does that leave the investor ?!

The Gurus and the Little-Known Shipping Metric

The BDI does not reflect the earning capacity of the companies mentioned in this posting - it gives a very rosy picture of the freight market but in fact only owners in the Panamax and Capesize are being benefited - and that is solely due to the pressure on space for iron ore into China. I would suggest that the movement of steel across the oceans is a much better guide to the healthiness of the quoted companies - and the situation with steel is pretty dire and still not looking any better. Unless of course the Chinese start moving huge volumes (they must be doing something with all that iron ore, after all)........I am bearish on drybulk at least until October.

Still Avoiding DryShips

David White mentions the difficulties of EXM resulting from their charterer(s) unilaterally reducing the charter hire by half. Regrettably this practice is becoming universally applied as if it is now OK to breach a contract because the market got tough all of a sudden. Dire times ahead for shipping and certainly for shipping stocks..............Th... old Baltic Exchange motto of 'Our Word, Our Bond' has gone out of the window.

Staying Afloat: A Primer on the Shipping Industry

I personally have no objection to the teaser given the fact that Zachary opens his article with some helpful guidelines which are relevant whichever way you feel about individual companies.
The temptation to purchase dry bulk shares is huge given their low low price (and just look at the massive increases seen today) however as Zach says 'there is a reason these shares are so low'. Dividends may well be scrapped and/or the companies could go out of business. Bear in mind that a fleet of bulkcarriers worth US$2 billiion six months ago may be worth around $500 million today; and that a ship today (and for the foreseeable future) is unable to generate sufficient income to pay its own running costs yet alone service management overhead and debt (in some companies, very considerable debt). So any shipping company that has first class (define first class!!) forward contracts and relatively low debt is probably a safe bet. For the rest I go along with Elliot - you need nerves of steel.

Will All Shipping Companies Suffer Equally?

Forget dividends for a long while.....we are seeing only the tip of the iceberg (and just look what happened to the 'unsinkable' Titanic). The debt being carried by most Dry Bulk Shipowners is simply unserviceable on this market. It is impossible to cover daily running costs yet alone financing costs on ships bought for up to 10 times their current value (if there is such a concept as 'current value' in today's market). The only reason the Banks are not taking some of these companies to the wall is - what the hell are the Banks going to do with a fleet of ships? Sorry for the doom and gloom but this is no longer a case of Optimism versus Pessimism. It is quite simply Realism.

Looking Good: Genco in Particular, Shipping in General

Levin 70 has hit the nail on the head.....what is the real debt of these companies in the light of the real value of their assets? The rest is wishful thinking in the case of those who are poised to buy into dry shipping because 'surely it can't get any worse'. As I have mentioned before, an old vessel purchased for $33 million 6 months ago is today worth maybe $4 million. A well managed company that has set it upself with forward contracts for their ships are only as good as the charterer's ability (or willingness) to continue paying what are now seen as hugely inflated rates for those ships. We refer in the business to 'First Class Charterers' but the million dollar question today is who is a first class charterer? For how long will companies such as Bunge and Cargill and Mitsui continue to pay say $100,000 per day for a cape size vessel that is sitting at anchor and which today is worth maybe $7000 per day if you can find the business (there is a fixture rumored today at $1000 per day for a 160,000t cape size vessel). Furthermore it is said today that there are 350 applications for lay-up facilities at Piraeus.......lay-up is not a short term option for shipowners (that would be simply leaving the ships at anchor, fully crewed, for a period of time). Lay-up reflects a medium to long term view amongst shipowners that things aint going to get better overnight.

Looking Good: Genco in Particular, Shipping in General

no need for offensive remarks fellow posters - at least the article promotes debate. I am in the wait-and-see league because the asset values of all shipping companies have plummeted. One of them recently paid $33 million for a second hand ship that is today worth maybe $4 million as scrap - however that little fact is not YET reflected in their numbers. And you can be sure the bankers are knocking on the portholes requesting new valuations on the fleets which will inevitably lead to calling in loans big time. On the other hand I have seen another company which has at least 5 ships out on timecharter to first class charterers (i.e. little risk of default) until 2011/2012 at big numbers. This forward revenue will enable them to take on the bankers. So whilst shipping shares are apparently very cheap, the trick is to choose those that will die and those that will survive. The survivors will turn out to be excellent investments but I'll come back on that once my hindsight is finely tuned...........

Should We Really Bail Out the Big Three Automakers with $73.20 Per Hour Labor?

Nationalising the car industry is a recipe for disaster. If at the moment we have Unions blaming management and management blaming unions just imagine the scene when management (the government) has to face up to unions (their voters)........unless Obama has the balls of Ronald Reagan and the umbrella of Margaret Thatcher.

Should We Really Bail Out the Big Three Automakers with $73.20 Per Hour Labor?

Nationalising the car industry is a recipe for disaster. If at the moment we have Unions blaming management and management blaming unions just imagine the scene when management (the government) has to face up to unions (their voters)........unless Obama has the balls of Ronald Reagan and the umbrella of Margaret Thatcher.

Why I'm Worried About China

Dead right Josh about the Baltic Exchange index. Spot rates have hit the floor (actually we still don't know where the floor is) but this simply reflects the fact that the trading world is frozen, holding its breath, and waiting for letters of credit. It is inconceivable that the combined ingenuity of worldwide bankers/governments cannot ease the credit issue. And when that happens, the cork will blow out of the bottle, commodities and agricultural products will start moving across the oceans, and freight rates will pick up. They will never reach the insane levels of the last 2 years but the running costs of a Panamax ship are only about $5/6,000 per day so we don't need to see rates of $30/40/50,000 daily in order to have a healthy market for shipowners. As a side comment, the author refers to Diana Shipping's fleet employment with alarm. It is in fact superb in that they have 5 of their capesize ships fixed at stratospheric rates for at least 2 years to first class charterers (i.e. the risk of reneging on the contract is minimal). The returns on these ships would allow DSX to lay up the rest of the ships and still be profitable (although obviously at a much lower level than investors have been used to).
With regard to the Chinese, we should have learnt by now not to underestimate them. Brazil, where I live, has a very active steel industry (and of course is fortunate enough to sit on billions of ton of high FE content Iron ore). The annual production of steel in Brazil is equivalent to one month's production in China.
Another important consideration is that China is not a democratic country which makes the business of implementing economic policies an absolute doddle compared to the West. Just look at the dilemma facing Obama with Detroit - one of his core electoral bases. He can't afford not to bail out the automobile industry there. The Chinese would have no such qualms. I'm not saying that is good but it is the reality.
Brazil's big mining company Vale tried to strongarm the Chinese into increasing the price of iron ore as recently as 3 weeks ago. Now the Chinese have Vale eating out their hand and delivering the stuff to China free of freight.
The Chinese alone could probably kickstart world trade back into action but I believe they are sitting back taking advantage of the drastic 'realignment' of prices in order to make their move.


On Nov 17 09:36 AM Josh Stern wrote:

>
>
> In earnings reported over the last two months, results from domestic
> focused Chinese companies are holding up a lot better than the overall
> market while the stocks are doing a lot worse than the overall market
> - a good percentage are posting huge year on year gains while the
> stocks are down 50-90% and trading at outrageouly low valuation levels
> relative to trailing earnings/sales/cash flow/liquid assets. At the
> same time, many domestic facing Chinese companies reported blowout
> earnings, though many also cautioned about a sudden demand drop in
> October that clouded near term forecasts. From everything I've read,
> the lack of bank lines of credit for importers continues to be a
> huge problem for international trade and hurts Chinese exporters
> and manufacturers. At the same time, this factor is presumably temporary
> and causes indices like the Baltic Dry to severely underestimate
> even current low cyclical end demand for dry bulk shipping.
>
> Taking all of the above together, I see the category of being a domestic
> facing Chinese company as currently a big investment plus when looked
> at purely from a macro POV. Bears counter that they think fraud is
> much more widespread. I don't see fraud as being plausibly common
> enough to come anywhere close to making up the huge discount in valuations
> these companies are getting now. I'd suggest instead that they deserve
> some discount because the immature investment culture tends to result
> in mgmt. that sees investors as more of a source of potential/past
> funding and less like actual owners of the company. As a result,
> I don't see valuations getting to par until dividend paying, share
> buybacks, and corporate buyouts become much more common than they
> are at present. But valuations are so compressed that Chinese companies
> still represent excellent opportunity for investors with longer time
> horizons.
>

Is Negative Dividend News Positive for the Stock Price?

I would say that a shipping company cutting dividends, within the present market, is indeed sending up a red flare. You won't see any red flares yet from companies which have stated that their priority is growth as opposed to yield but that doesnt mean to say they are not in the same boat as the erstwhile payers of dividends. But when the growth companies are forced to revalue their assets (the ships) that is when the Mayday signal will be heard loud and clear........(with apologies for the all the maritime metaphors).

Should We Really Bail Out the Big Three Automakers with $73.20 Per Hour Labor?

Couple of thoughts from a Brit living in Brazil

1) Do you remember Bedford, Austin, Morris, Triumph, Rover,Hillman,Consul ? Probably not. They were all British car companies that were unable to compete on quality and price. The government tried to keep them alive (through British Leyland) but in the end 'let them go'. The root of the problem lay in short-sighted incompetent management and short-sighted arrogant unions. At the time it was almost tragic but the country soon recovered and opened its eyes to the world beyond the shores of not-so-Great Britain

2) Up until 1990 Ford, GM, VW + Fiat had a monopoly on car production in Brazil. They would import 20 year old machine-stamps from Europe or the USA of a faded-out model and then launch it in Brazil as a new model. When the Government said 'enough' and opened the market to allcomers, the big four and the unions screamed and kicked alleging mass unemployment and shutdowns. The opposite has happened. In spite of a big influx of new players building plants in Brazil (Renault, Honda, Toyota, Peugeot, Nissan), the previous big four are now producing first class cars in greater numbers than ever and employment in the industry has more than doubled. Car parts produced in Brazil are exported to assembly plants world wide.

My conclusions (you may reach your own). A country cannot afford to be insular. The world is globalised whether you like it or not so instead of fighting it, take advantage of it. You cannot look at your market as being the good old US of A. Your market is the world market. You have to get over and beyond the traditional antagonism of labour versus management otherwise you will and should sink. The Brazilian car industry has strong unions but they work together with management. The President of this country organised the Metalworkers union during the dictatorship - and far from being the left wing demon we expected has turned out to be a terrific mediator between all the myriad interests involved in keeping a huge economy on the move.

At times like this a country needs a leader and a statesman. Bush clearly failed on both counts so let's now be optimistic about the 'change' that has been promised. If the price to pay is to let Detroit sink then so be it but with a lot of 'give' from all parties that shouldnt be necessary.

Don't Let Bulk Shippers Sink Your Portfolio... For Now

Some good comments above to offset my doom and gloom mind set. Collinjogger says 'you have to be Greek to understand' and there is some truth there. It is said the Greeks make their money on the buying and selling of ships and not on the trading of them - the fact is that they have been in the business for over 2 thousand years and are great survivors. Shipbroker gives a useful overview of the market (so no more 'shippers' please) but the underlying advice is to wait for the 4th quarter results which, under my scenario, might be too late for some companies. Cape size ships are being used as storage facilities - that is not a good sign.
Henari suggests that if I think the world economy is going to totally crash I might as well retire to my bunker......and that a true investor doesnt allow his vision to be fogged by such considerations. Well I am referring only to Dry Bulk shipping stocks because certain companies have sailed up s**t creek without a paddle (steamer). And that it would seem wise to consider other investment opportunities and not be blinded by the expectation that shipping stocks, having been the darling of the market, must surely bounce back. Some will and some wont - the trick is in the pick and shibroker seems to be on the right track.

Don't Let Bulk Shippers Sink Your Portfolio... For Now

I am reader 295273 (previous posting) - just getting the hang of this site. Now I have a pseudonym to hide behind instead of a number. Without wanting to be a prophet of doom, but being one, I reckon that at least 15 Nasdaq-quoted shipping companies wont make it past Christmas. The whole dry cargo shipping boom started with China joining the WTO around 2002 but as we have seen from the feeble consequences of China's announced injection of half a trillion dollars, not even they can save this one.