Beige Book Details Sustain Shippers

The Baltic Exchange's Baltic Dry Index remained steady this morning and is presently realizing a weekly gain of 3.2%. Despite what was a generally soft beige book yesterday, the shipping sector as measured by my dry bulk shipping index (DBSI) experienced significant gains in trading, climbing 5.1%.

This was on the back of strong earnings from Safe Bulkers (SB - commentary - Trade Now) and general improvements in sentiment. While the headline for the beige book indicated continued softness in the U.S. economy, the details hinted at continued stabilization and sustained second derivative improvements to manufacturing, with most districts positioned to start growing again by year's end. Once digested, this data helped to sustain what was already a strong rally for the shippers.

Baltic Exchange Indices Index 1D% 1W% 1M% 1Y% Avg. $/day BDI 0.0% 3.2% -7.2% -49.1% BCI -0.4% -4.1% -21.1% -46.0% $34,234 BPI -1.5% 9.4% 11.5% -46.2% $20,905 BSI 1.6% 9.9% 11.9% -39.5% $19,807 BHI $ - Dry Bulk Shipping Index 1D% 1W% 1M% 1Y% Weighting DBSI 5.1% 11.2% 1.9% -47.2% DSX 3.3% 7.9% 2.6% -40.0% 19% DRYS 7.2% 11.0% 1.3% -88.2% 31% EGLE 3.4% 7.1% 1.2% -75.4% 6% EXM 4.5% 12.0% 1.5% -68.6% 6% GNK 6.6% 14.8% 0.0% -49.7% 13% NM 1.9% 12.0% 6.5% -37.8% 9% PRGN 4.0% 7.0% -5.1% -66.0% 3% SB 3.9% 14.5% -2.4% -50.1% 8% SBLK 1.2% 2.9% 2.3% -57.8% 4% Mining Index 1D% 1W% 1M% 1Y% Last Price BHP -0.4% 6.7% 2.8% 13.4% $64.94 RTP 0.0% 11.0% 7.5% -43.8% $167.52 VALE -0.5% 8.2% 2.8% -5.7% $20.83 Source: Bloomberg; Capital Link; McDonough calculations (data as of 9/9 close)

Looking at this morning's details, the Baltic Capesize Index lost 0.4% as the average daily rate for the vessels fell to US$34,234 from US$34,323 yesterday, still well below US$40,000. The Baltic Panamax Index (BPI) fell by 1.5%, but is still realizing a monthly increment of 11.5% compared to the BCI's 21.1% decline during the same period. The average daily rate for panamax vessels presently stands at US$20,905, still well off 2009's high of US$28,209. The smaller Baltic Supramax Index (BSI) is currently realizing a monthly gain of 11.9%.

I spent most of yesterday attending Dahlman Rose & Co.'s annual transport conference and wanted to share with you some quick key findings. For a more in-depth view please, see my real-time notes for the conference.

Yesterday's session focused on the U.S. railroad industry. Most of the companies remain cautiously optimistic about the future; none of the railways are anticipating a quick turnaround. In line with this view, BNSF CFO Thomas Hund indicated that the company doesn't expect to see its intermodal segment reach 2006 highs until sometime during 2012 or 2013. Overall, I found the subdued and uncertain outlooks from the railroad executives to be telling for the shipping sector.

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At the time of publication, McDonough had no positions in the stocks mentioned.

Michael McDonough is an independent research consultant in North America and Asia. Over the past two years, he has advised hedge funds, central banks, broker-dealers and corporations on a range of economic and financial issues. He is also the creator of Fiat Economics, a global financial/economics blog. McDonough has worked on Wall Street as an economist, specializing in the U.S. and Latin America.