It’s Grain Season, Stupid

Dry Bulk day rates are racing higher, most likely due to a robust Brazilian grain harvest, and of course the much lauded iron ore demand from china, which is now being sent seaworthy. It was only a matter of time before shipping rates exploded to the upside. After all, end user demand is still strong. The problem was over-capacity; but that’s been getting rectified by massive insolvency striking the shippers, forcing banks to seize assets (ships) and scrap them for their metal.

Economics 101 dictates that whoever is left standing will benefit from a new supply/demand paradigm. Also, since 2007, major innovations in fuel consumption have been made, giving the companies who own new ships a distinct advantage over those with old gas guzzlers. On average, fuel is 60% of a shippers expense.

To that end, enter BALT. They just did a capital raise and do not have any debt maturities due until 2015. They have a fleet of 9 ships, 2 of which are Capesizes. The Capes are the biggest ships and their rates are +300% over the past few months. Since BALT’s fleet is so young (3.5 years), they are fuel efficient and able to make money at a much lower rate than its peers. In other words, this is a company that will benefit from its peers going by the wayside, profiting best from a rising day rate environment most because of their capital structure and superior fleet.

If rates continue to break necks to the upside, look for material upside guidance and profits to be reported at some of your favorite dry bulkers, something that hasn’t been reported in years.