This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Which Dry Bulk Shipping Stock Will Sail in 2011?

Stocks in this article: DRYS DSX EXM GNK

NEW YORK ( TheStreet) -- For the merchant shipping business, 2011 couldn't have started worse.

A glut of new ships and an Australian deluge have crushed the rates shipping companies charge to transport dry-bulk goods such iron ore and coal.

The latest reading from the Baltic Exchange, the London ship brokerage that tracks freight rates on the spot market globally, demonstrates the pain. On Wednesday, the going daily fee for a Capesize ship, the largest dry-bulk freighters in the world, once again ticked lower, slipping to $10,285 per day.

That's down nearly 50% from the spot-market rate just before Christmas, and down about 75% from early November, when Capesizes were averaging more than $40,000 a day on the spot market, again according to the Baltic Exchange.

The damage to shares of dry-bulk shippers hasn't been commensurate with the decline, for a variety of reasons. First, the glut that has sparked much of the rate's collapse has been widely understood for more than a year. Second, shippers generally have long-term contracts covering a majority of the ships in their fleets. Thus, they're insulated to some degree from short-term volatility in spot-market rates.

Still, according to the futures market that has grown up around merchant shipping -- derivatives used by seaborne carriers to hedge against drops in rates -- the dry bulk market is likely to rebound within a month or so. The average Capesize fee per day in the second quarter is expected to be more than $20,000, according to the market for these derivatives, called Forward Freight Assessments, or FFAs.

Of course, forecasts based on FFAs have been wrong before. Back in November, trading in the derivatives suggested that the smart money in the shipping industry was expecting Capes to average close to $30,000 a day in the first quarter. That's not going to happen.

So what's in store for dry-bulk stocks in 2011? The shares trade together, for the most part, but enough differences between companies exist to make them diverge a bit from time to time.

DryShips (DRYS), for example, which boasts the largest market cap in the sector, has morphed into an operator of energy-exploration rigs. It also recently acquired a dozen oil-tanker newbuildings -- or ships on order and still being constructed at shipyards. The company plans to sell these fleets off in IPOs.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs