Tide Changing for Global Shipping ETF

The Claymore/Delta Global Shipping (SEA Quote) exchange-traded fund tracks the Delta Global Shipping index, which is made up of global shipping companies. As a global economic recession weighed down markets in late 2008, the ETF's value was cut to $9 in early December from $22 in early September.

But the tide for SEA in 2009 has been changing. For the three months ended May 27, the ETF's market return topped 42%, besting the MSCI EAFE index by more than 9%. While shipping rates were crushed by a drop in demand in late 2008, the tremendous demand for raw materials in emerging economies, coupled with the scrapping of an aging fleet, are compelling reasons to get on board SEA this year.

Shipping rates are reflective of the global economic trends and the changing desires of the consumer. For the most part, the international fleet is composed of a fixed number of ships, or "bottoms," so rates are dictated by supply and demand. When the demand for shipping is high, and there is more product than bottoms, shipping rates can go astronomically high. On the downside, when there are more bottoms than cargo, rates will drop to operating expenses.

Merchant ships are expensive to build and maintain, so many companies try to get as many years out of a single ship as possible. Not unlike the airlines, cheap fuel deals help to keep slow times from being a complete financial disaster for shipping companies.

While spot prices for wheat and raw materials dramatically impact the demand for contracts at large shipping companies, the demand for finished goods also is important to the profits of shipping companies. Many shipping companies will have both bulkers, which can take wheat from New Orleans to Mombasa, Kenya, and container ships that bring Nike(NKE Quote) sneakers from China to Wal-Mart Stores (WMT Quote) in America. As American consumers regain a sense of market stability, stores such as Wal-Mart, Target(TGT Quote) and Best Buy (BBY Quote), will stock their shelves in anticipation of a rising tide of discretionary spending.