Saturday, October 17, 2009

Shippers leaving port?

A notable lagging group in the stock market’s recovery has been marine shippers. While the rest of the transport sector shows the wheels of commerce once again turning, the shares of shippers have been stuck at port, victims of excess capacity and uncertainty about global shipping demand. The Baltic Dry Index, a measure of international shipping prices for dry bulk cargoes, has recovered from its 2008 low, but still remains 78% shy of its high in the summer of 2008. Although this price weakness reveals that marine transporters are still in a difficult position, investors seem to be awakening to a hope that the demand part of the equation is improving for the shippers. After months under water, some of these shipping stocks are floating again.

The Claymore/Delta Global Shipping Index (SEA-N) exchange traded fund tracks the performance of marine shippers, both dry bulk, container ships, and tankers. Although lacking the trading volume and price momentum that fuelled a rally in the second quarter, the ETF is Stock Trends Bullish. Of particular interest, though, is the dry bulk shipping stocks. The share prices of carriers of crude oil and liquefied natural gas have been comparatively buoyed – the stock of Teekay Corp (TK-N), for example, is up 37% in the last three months and is hitting new 52-week highs. A resurgence of the depressed dry bulk shippers (transporters of raw materials like iron ore, coal, and grain) and container ships (generally carrying consumer and industrial finished goods) - is a signal that the global economic recovery is real, and not an illusion of economic wishful thinking. Judging by a nascent recovery of some of these stocks, investors are gradually betting that reality will be catching up with our prayers.

Although it is too early to declare a solid shift in trend for the group, the appearance of certain dry bulk and container shippers in the Stock Trends filters for Weak Bearish stocks, as well as strong recent price moves suggests that investors should keep an eye on the progress of their developing trends. Among stocks currently alerting of trend changes are Seaspan Corp. (SSW-N), TBS International Ltd. (TBSI-Q), Paragon Shipping Inc. (PRGN-Q), and DryShips, Inc. (DRYS-Q). Recent price moves by Diana Shipping Inc. (DSX-N), Danos Corp (DAC-N), and diversified shipper Frontline Ltd. (FRO-N) reflect a sign of hope, too. International Shipholding Corp. (ISH-N), Overseas Shipbuilding Group (OSG-N), Navios Maritime Holdings Inc. (NM-N), and Safe Bulkers, Inc. (SB-N) have been trending bullish since mid-summer – all adding to the encouraging signal coming from the shippers.

Most of these names may be unfamiliar to the average investor. However, they represent an important bellwether of the vitality of the global economy. Although the precariously fragile U.S. economy factors heavily in a clean bill of health, the global economy and international trade to emerging markets will be a key indicator of demand factors that will continue to drive the materials and industrial sectors. The same factors that drive up the price of raw materials will eventually make its way to filling the shipping capacity that has dragged on maritime haulers since the 2008 global collapse. When the Baltic Dry Index and the stocks of dry bulk shippers start to trend bullish investors can begin to rest more comfortably.

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