For the first time in months (or all year?) Capesize, the largest vessel size, saw its rates plunge below the year ago period on Oct. 30, 2013. Rates fell another $1,863 to $16,005 compared to $16,492 in 2012. At the time of this writing and so far this week, DryShips (NASDAQ:DRYS) is down 3.9%, Star Bulk Carriers (NASDAQ:SBLK) is down 0.4%, Genco Shipping & Trading Limited (NYSE:GNK) is down 0.9%, Diana Shipping (NYSE:DSX) is down 2.5%, and Eagle Bulk Shipping (NASDAQ:EGLE) is down 1.7%. Safe Bulkers (NYSE:SB) is actually up 1.1%.
Rates for other ships tend to be correlated. When Capesize ship rates are high, customers tend to start splitting their shipments among two Panamax ships to take advantage of the lower prices. This in turn tends to raise Panamax ship rates. Now with Panamax ship rates just $2,293 lower, the financial incentive is removed. Panamax ship rates are likely next to fall. With that, the incentive to use even smaller ships such as the Supramax gets removed. We will likely see a fall in rates across the board.
There is no safe haven. All of these shippers are in trouble if the situation continues.
DryShips has a number of Capesize ships in long-term fixed rate contracts, but most of its Panamax ships are based on the spot rate. Also when DryShips' contracts expire, any new contracts would be at the now much lower rate.
Genco operates all of its ships based on the spot rates. Genco Shipping & Trading is watching its revenue stream evaporate almost daily. It has huge debt payments due March 31, 2014 and is currently trying to negotiate with its lenders for waivers or new terms. Having an imploding rate environment won't help.
Diana Shipping, Eagle Bulk Shipping, and Safe Bulkers all have many fixed-rate contracts but that only helps them as long as the contracts hold up. Then, of course, all of the dry shippers are vulnerable to the headline risk of a crashing environment. Additionally, the seasonal nature of dry shipping is such that the last two months of the year tend to get worse and worse.
Investors would be doing themselves a favor by staying on the sidelines and see what develops. Most of the dry shippers, including all of the companies in this article, have yet to report their earnings results, which are coming up. At the very least, wait for their reports and commentary before considering investing in this highly speculative, very risky industry.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.