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The future of BDI and the fate of dry bulkers

|Includes: DRYS, DSX, Excel Maritime Carriers Ltd. (EXM)

First of all, I'd like to say that I haven't the faintest clue where the BDI is headed today, this week, or even this year. A couple large orders from China could drive it to the moon, and an usually slow quarter could crash it to the ground, but while BDI changes on any given day or week may impact dry bulkers in the short term (creating an excellent, but risky trading opportunity), long term profitability and BDI is much less subject to manipulations.

The perception right now is that the BDI has a long way to drop, even if economic activities do pick up. The problem with shippers this year is that ships are coming online all the time, putting pressure on the BDI. However, there are a few things that should be kept in mind when playing shipping (I have owned EXM and DRYS in the last week, currently hold only EXM), and it is that regardless of how quickly the ships are coming online, a sudden jump (especially a huge jump) in BDI means a surge in volume, and that means a surge in economic activities.

An even more important factor to consider is, more ships doesn't mean there are crews to man them. While ships are certainly coming online everyday, which creates a glut of supply, the availability of captains and crews will have a bottleneck effect on the new ships. Simply put many ships won't be put into operations, and as a result we may see older, less efficient ships retired (which reduces costs for the shippers), but to believe that every ship that comes online will increase ship count is a silly notion. The dry bulks sector is competing with other sectors such as private yachts, which is still growing. The growing sectors will be better able to lure crews to their ships, while a relatively poor environment means fewer will go into shipping. A few years down the road when economic activities increase again, and with the way China's economy is performing, it will, and we are going to see a bottleneck on supply yet again, sooner than the market may think.

Disclosure: I own EXM long position (Reduced some today)