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Dry Bulk Shipping Rates Surge

Stocks in this article: DRYS DSX GNK BALT

NEW YORK ( TheStreet) -- The going rate for some of the biggest cargo ships in the world -- the so-called Capesize vessels charged for the most part with hauling iron ore to China -- spent most of 2010 in a muted, depressed range, a situation that most industry players attributed to a revolution in the way iron ore is bought, with dry-bulk shippers caught in the middle.

And then suddenly, over the last several days, Capesize rates have surged.

According to the Baltic Exchange, a London ship broker that tracks the nautical freight business, the day rate on the spot market for these giant vessels went from about $26,000 at the start of last week to more than $38,000 on Wednesday -- a jump of almost 50%.

Dry-bulk stocks, meanwhile, have for the most part fluctuated along with the broader market. Shares of DryShips (DRYS), for example, which has had its own issues with equity dilution, are basically flat with where they were last week, trading on Wednesday midday at $6. DryShips also has no exposure to the spot market, having locked 100% of its fleet into long-term charter contracts. Genko Shipping & Trading (GNK), on the other hand, with 30% of its fleet on the spot market -- rather high for the publicly traded segment of the industry -- has seen its share price gain nearly 4% on Wednesday.

For Capesize ships, such volatile rate gyrations aren't unheard of, since the bigger the ship, the more prone their spot rates are to such swings. The same holds true for Very Large Crude Carriers, which have also experience a significant rally of late.

And, yet, it appears as though fundamentals of supply-demand have at least momentarily swung in favor of ship owners, who each day enter into a kind of battle with the other side: the commodities traders or industrial raw materials consumers who need to put the cargo on a boat and bring it home. The battle is refereed by ship brokers, the middlemen inside offices in London or Hong Kong. With phones shouldered to their ears eight hours a day, the brokers talk with owners on one line and the ship hirers on the other, dickering and haggling, playing it cool or going aggressive, as the situation warrants.

On Monday alone, the Capesize rate on the spot market jumped 20%.

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