Perhaps there is no industry more sensitive to global economic activity than the international shipping industry. The financial crisis became a category 5 hurricane last September and blew the entire global shipping industry off course. All sectors of the shipping industry were affected – from oil tankers to dry bulk shippers to container ships.
The sudden drying-up of credit, including trade finance, and collapsing trade volumes have changed the industry’s concerns completely. Only a year or so ago the concern in the shipping industry was whether the infrastructure of many countries, especially port facilities, was expanding rapidly enough to handle break-neck growth in shipping traffic volumes.
As shipping rates have plunged, the concern now is whether the bottom in the shipping industry has been reached or whether there is further to go on the downside. The good news is that “green shoots” are appearing – again ships are waiting in lines at Chinese and Australian ports.
Each sector in the shipping industry – container, dry bulk, oil tankers – has different fundamentals currently. The shipping sector with the poorest fundamentals is the container shipping business. Demand is still very weak and there is a huge supply of new ships coming onto the market over the next few years.
The next sector of the shipping market is the dry bulk sector. Demand for these ships has picked up as China’s demand for commodities has picked up. Hence the waiting lines in Chinese and Australian ports. The pickup in demand for dry bulk ships is evidenced by the rise of the Baltic Dry Bulk Index from its December low of 663 to well over 3000. This figure is still well below the high in the index reached in 2008 of 11,793.
Perhaps the sector in the shipping industry with the best fundamentals is the oil tanker market. The demand for the product is still relatively high and there is not a glut of ships expected to come onto the market anytime soon.
There are a good number of shipping stocks to choose from including:
Diana Shipping (DSX), DryShips (DRYS), Frontline (FRO), Genco Shipping (GNK), Nordic American Tanker (NAT), Tsakos Energy Navigation (TNP).
There is also one broad-based exchange-traded fund (ETF) which contains a large number of global shipping companies in the portfolio – Claymore/Delta Global Shipping Index (SEA).
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