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Tastylunch (99.54)

Are Shippers a Value trap?

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23

September 14, 2009 – Comments (48) | RELATED TICKERS: PRGN , DRYS , EGLE

I don't know the industry well enough to say  with any great certainty (and  I've been wrong before about a certain company's demise)

 But the stories I read about the state of the business suggest to me that it is.

The latest story today is blowing up everywhere on the internet of  a giant ghost fleet of unused ships near Singapore.

http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession.html#ixzz0R3GXkYUy

 

"...Here, on a sleepy stretch of shoreline at the far end of Asia, is surely the biggest and most secretive gathering of ships in maritime history. Their numbers are equivalent to the entire British and American navies combined; their tonnage is far greater. Container ships, bulk carriers, oil tankers - all should be steaming fully laden between China, Britain, Europe and the US, stocking camera shops, PC Worlds and Argos depots ahead of the retail pandemonium of 2009. But their water has been stolen.

They are a powerful and tangible representation of the hurricanes that have been wrought by the global economic crisis; an iron curtain drawn along the coastline of the southern edge of Malaysia's rural Johor state, 50 miles east of Singapore harbour...

Some experts believe the ratio of container ships sitting idle could rise to 25 per cent within two years in an extraordinary downturn that shipping giant Maersk has called a 'crisis of historic dimensions'. Last month the company reported its first half-year loss in its 105-year history.

Martin Stopford, managing director of Clarksons, London's biggest ship broker, says container shipping has been hit particularly hard: 'In 2006 and 2007 trade was growing at 11 per cent. In 2008 it slowed down by 4.7 per cent. This year we think it might go down by as much as eight per cent. If it costs £7,000 a day to put the ship to sea and if you only get £6,000 a day, than you have got a decision to make.

'Yet at the same time, the supply of container ships is growing. This year, supply could be up by around 12 per cent and demand is down by eight per cent. Twenty per cent spare is a lot of spare of anything - and it's come out of nowhere.'  "

 An even more interesing story from Spiegel online

http://www.spiegel.de/international/business/0,1518,641513,00.html

"...The new giant ships are now much too big for the cargos they transport by sea, and often they sail half-empty -- if at all. Billions are being spent to expand ports to handle a boom that no longer exists. Leading shipping line operators are on the verge of bankruptcy, as are shipping banks and charter shipping companies. The industry, once one of the biggest beneficiaries of globalization, now threatens to turn into one of its chief casualties...

The invention of the container made such prices possible in the first place. Nothing has advanced globalization more since the mid-1980s than the boom in these steel boxes. China's rise to global economic power would be inconceivable without containers. The more shipping costs declined, the more it made sense for Western companies to outsource production to faraway parts of the world. "Chinese factories rarely have warehouse capacity," says Kühne + Nagel executive Lange. "They often produce directly in the container."....

In the current financial crisis, financially strong shipping companies are fueling the price war even further to gain market share...

None of the world's major shipping companies is currently turning a profit...

A fatal domino effect now threatens to strike the industry. The shipping line operators can no longer pay for their chartered ships, while the owners of the chartered ships and shipping funds can no longer afford to service their debts to the banks. Many of the banks, in turn, are also in trouble...

But the real problems are still ahead for German shipping companies. The 1,550 new ships that were on order in mid-2008 are to be delivered in the next few years. The major Asian shipyards are unwilling to accept cancellations...."

 

The headline is all you need from this one

 

Bloomberg: Shipping Rates Seen Falling 50% on China, Fleet Size

but you can read more about it here

 http://www.fundmymutualfund.com/2009/08/bloomberg-shipping-rates-seen-falling.html

 

Here's some other thoughts I have on the subject.

1) Shipping tends to boom/bust business. The highs and lows tend to be very extreme. To date there have been very few bankruptcies in shipping. That is abnormal  for a bust of this size to my understanding. There's  good chance they are coming.

2) demand is extremely slack in real world usage of commodities & consumer goods. Furthermore supply is growing in key commodities such as Copper. It's my view most buying in commodities is driven by a two fold process of hedging against the dollar and pure old speculation. Neither one helps shippers

3) in order for shippers to realize their value some of them must go bankrupt (or conversely demand must rise a lot) and that could lead some of the smarter ones to make aggressive mistakes buying weak competitors.

4) many shippers are heavily levered and it's not uncommon for many to use questionable accounting practices

5) Unlike commodities, shipping is tied to actual  the consumer's economic well being as such they are as hurt by the downturn as much any other consumer play.

6) according to the speigel article numerous more ships are in the pipeline and are unable to be canceled. This isn't good at all for shipping prices/capacity.

7) the Baltic Dry Index is trending heavily downward again after the Chinese dialed back their lending. So far in 2008-2009 what the BDI does the stock market has mimicked a month or so later.

 

To me shippers look like they have a very good reason to be this cheap and perhaps ought to get even cheaper unlike some other industries (say like raw commodity producers).

Again I'm no expert, Perhaps they aren't good shorts anymore but I don't think I'd be buyer here. Not yet.

48 Comments – Post Your Own

#1) On September 14, 2009 at 9:54 PM, BigFatBEAR (99.11) wrote:

Good warning, Tasty.

I agree with Kaskoosek and Jakila (among others) who think that bulk may be much more risky than say, oil tankers.

I think debt-free NAT is a pretty good play from here, and I like the more-leveraged TNP quite a bit as well.

DAC is the only bulk shipper I'd consider buying soon, and it'd have to dip closer to $3.25ish for me to put real money into it.

While oversupply is rough in the short-term, shouldn't it help global trade in the medium-to-long term? I'm thinking uber-competition will keep costs of imports/exports very low.

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#2) On September 14, 2009 at 10:06 PM, Tastylunch (99.54) wrote:

BigFatBEAR

while oversupply is rough in the short-term, shouldn't it help global trade in the medium-to-long term? I'm thinking uber-competition will keep costs of imports/exports very low

Normally I would think it would in less drastic situation.

I think this is a question of degree of oversupply here though. And everything I've read suggest that oversupply is very very large, while demand at best is flat-ish.

I personally haven't see much renewed demand from end user consumers even at lower rates yet. Perhaps it's coming but it might be years away before it grows enough to be meaningful. If the US consumer continues to delever and the chinese/euro/japanese consumer continues refuses to lever than this could take quite some time. And that would likely be  too late for many of the more heavily levered dry bulkers

Low shpping rates don't help heavily levered shippers survive the next couple years.

NAT may be a good play long term but I guess you have to ask yourself will it not still be a good play in a year? can you say for certain that NAT's management won't get too aggressive and buy out one of their weaker competitors before the bottom?

I don't think I can bullish until I see some of the players knocked out (Same as my opinion on Solar stocks where oversupply is huge issue there as well). I may pay a  little more but I'll have a better idea who the survivors will be and and what shape they will be in.

I could be wrong but it looks like a classic value trap to me.

but as I've said  I've been wrong on this before.

FWIW I really like Jaikila's call on CEP (in fact I ended up buying some), but I don't personally think the shipppers off good risk/reward. I don't think their assets are worth as much as they claim right now in the event of bankruptcy when ships are so plentiful. Hopefully he or Kaskooksek or both will have a comment on the issue. Report this comment
#3) On September 14, 2009 at 10:37 PM, Tastylunch (99.54) wrote:

bah looks like alstry beat me to the punch on this one.

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#4) On September 14, 2009 at 11:05 PM, binve (24.36) wrote:

Tasty, excellent post man!

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#5) On September 14, 2009 at 11:23 PM, streetflame (99.81) wrote:

NAT is pretty safe but their upside appears pretty limited.  Compare that with a shipper like OCNF or TBSI, which could quickly be 3-5 baggers after hitting bottom (if they don't need to raise equity).

I own a few shares of ESEA, tied with DSX for the least debt.  From the last discussion, ESEA is surprisingly widely owned among CAPS allstars. DSX could turn out to be a great choice since they have the best ability to buy bankrupt competitors.

 

Also, this is pretty cool: "Chinese factories rarely have warehouse capacity," says Kühne + Nagel executive Lange. "They often produce directly in the container."

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#6) On September 14, 2009 at 11:43 PM, rofgile (86.83) wrote:

Container shippers = dangerous.

Companies with enormous debt, low cash and decreasing revenues are dangerous (example = FREE)

Dry shippers with new fleets, contracts for shipping (instead of whatever is the current day's buyer), ok levels of debt compared to their assets, non-decreasing margins, high fleet utilization --- these shippers could be good values right now.  Examples are Diana and Eagle.. (I own shares of EGLE).

---

 That's my breakdown.  I am assuming two major things in my investment, that not everyone would agree with:

 A) We are in a period of recovery - lasting from Q3 of 2009 to Q4 of 2010.

 B) Shipping rates will eventually rise in 2009 and 2010 as utilization recovers lead by a necessity of iron, coal, grain, etc shipping to india/china.

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#7) On September 14, 2009 at 11:44 PM, rofgile (86.83) wrote:

DRYS would be a company with low cash and huge debt as well...

 

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#8) On September 14, 2009 at 11:50 PM, anticitrade (99.46) wrote:

I got a bunch of money in this industry.  I agree with you, something is going to have to happen to break the current status in this industry.  However, I think as long as you arent holding the "old maid" when someone finally goes under, you may be in for some excellent gains. 

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#9) On September 15, 2009 at 12:15 AM, Tastylunch (99.54) wrote:

binve

thanks man

streetflame

I have no doubt TBSI could really jump in the right circumstances (OCNF is run by the same family as that DRYS scum so I wouldn't want to touch that one). In fact I longed it (in CAPS only) on the belief that"green shoots" mania would carry it. So far that hasn't happened.

I guess what I'm seeing is that there isn't a fundamentalreason for it to do so. Their revenues are drastically down since 2008 and so far shows little sign of increasing.

Their business hasn't seemd to improve and shipping rates are going down. There's an overabundance of ships so I doubt there assets in a liquidaton would fetch full price either if things get really bad.

Since the market seems oddly rational about shippers I guess we're stuck for the time being.

If a 57.5% rally in the S&P can't move shippers upwards I think there's little that can in the short term.

I do agree DSX is the class of the sector, but the overcapacity is so bad I hope they don't buy any bankrupt companies unlessthey gte one really really cheap. But they in away seem like  bigger gamble becasue you have  no idea what they will buy or what price they could get.

Also, this is pretty cool: "Chinese factories rarely have warehouse capacity," says Kühne + Nagel executive Lange. "They often produce directly in the container."

agreed it's is very efficient.

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#10) On September 15, 2009 at 12:22 AM, Tastylunch (99.54) wrote:

rofgile

I agree in theory, but my concern is not with DSX and EGLE's  current fleet but rather I'm afraid they will be tempted to buy out some of their less reputable competition and may not do it well.

Perhaps that fear is overblown but it's also why I'm not buying any until I see some bankrupticies ( at least one) and thus have a  better idea how it's going to play out.

I will say I think your two assumptions are likely wrong based on what I perceive to be a period of stagnant to no growth. You may get positive GDP prints from low hurdles/easy comps but until the US consumer's situation improves I see little real growth prospects.

If anything I think shipping rates have further to fall, now that china is dialing down their demand.I don't see Chinese and Indian demand continuing to grow without markets for their goods improving.

My timeline is bit longer. I'm expecting shipping rates to normalize in 2011-2013.

I guess we'll see who ends up being right.

I agree about FREE and DRYS

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#11) On September 15, 2009 at 12:28 AM, Tastylunch (99.54) wrote:

anticitrade

However, I think as long as you arent holding the "old maid" when someone finally goes under, you may be in for some excellent gains

right that's exactly the issue mostly.

I wish I still had the source, but I was looking at the last time this happened and the resuls were pretty devastating. Sonething like 80% of the public shippers equty became worthless if memory serves.

There's a ot of variables at play and even strong shippers can get sucked down if they get too aggressive.

So I Guess for me I want to see the game progress a bit further before trying to guess who is going to survive.

you probably have a point buying now. Say you pick three shippers equally and you end up being completely wrong on two of them (100% losses) but get a 4-5 bagger on the third (which is possible given some shippers valuations) you are still in the black.

I suspect there's good chance you'll end doing very well. For me personally I just don't have enough confidence in abilityt ot discern that just yet.

to each their own , that's why there are markets. :)    

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#12) On September 15, 2009 at 12:30 AM, Tastylunch (99.54) wrote:

Thanks for all the comments btw. It's helpful to me to discuss these things  :)

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#13) On September 15, 2009 at 12:48 AM, TSIF (98.76) wrote:

Tasty, good blog and thoughtful comments.

The majority of the articles you linked are regarding container shipping. There aren't too many of those that trade on the open market. The articles do indicte that the bulk shippers, which is what we mostly 'trade" here on caps do see some pickup in business as resources are needed. I agree that some of these will be in serous trouble to and some may get greedy as you also suggest. Some will go BK. I don't know how one in particular is surviving.  In general, however, unlike the article that contends that no major shippers are making money, the smaller drybulk are still somewhat profitable. They have long term contracts, which I agree some companies may try to break, so far this has been rare. The shippers of raw materials need good partners.  Ship orders are being cancelled when the ship hasn't started being built. Some ship builders are accepting unusual payment plans, such as subleasing the ship to the bulk shipper or accepting partial payment in stock.

I certainly agree that it is an industry to be watched. Reporting can be difficult to ensure truthfulness. The BDI in regard to materials, (not containers) does fluctuate and sometimes lag.

Personally, I'm happy to invest in the dry bulk industry. I agree with anticitrade that there will be some casualties, but at least in dry bulk there will be winners.  I'm not so confident about the oil plays. I've always been concerned that they spend too much of their resources paying out dividends, sometimes borrowing to do so. There are some good profitable oil shippers as well, but I think the shake down will thin them out also.

thanks for the discussion. IF scrap metal goes back up, maybe they can scrap the new ships and rebuild them into another ship and still break even!!  :)

If not, empty ships make great natural reefs!

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#14) On September 15, 2009 at 6:40 AM, memoandstitch (32.95) wrote:

In the next several years, China will be consuming half of the world's resources.  So demand for drybulk will surely go up.  That doesn't mean every company will be profitable though.  In such a competitive market, only the most well-managed companies will survive.  I think ESEA is one but I'm looking to diversify into a few more companies.  I still see no light for the containerships.  They will have to be laid up until U.S. consumers start spending again.  Good point about the bankruptcy.  It will certainly help the shipping industry.

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#15) On September 15, 2009 at 7:02 AM, rofgile (86.83) wrote:

Its pretty exciting, the dry shipping market. 

Here's a question for you all- do you know what each companies shipping routes are?  Do they really have defined routes, or do they change all the time based on what is available?

I.e., is there a shipper that only goes Australia-China, or South America-Europe, etc?

Thanks,

 Rof

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#16) On September 15, 2009 at 8:02 AM, TSIF (98.76) wrote:

Almost all shippers, especially the drybulks have their fixed routes.  They go from the the heavy mining countries such as Australia, Brazil, and Canada directly to the foreign markets.  TBSI has a nice map on their website. They are kind of a hybrid between bulk/container/special loads.

Bulk shippers typically have steady customers and stay booked on most of their ships with long term leases. Most keep some at open market rate. Those who kept almost all of thier ships at open market rate are the ones in serious trouble. Those with fixed rates and customers have had to drop their daily rates with each lease renewal.  Some have leases before the ship even leaves the ship builder. Being booked a year out at $15k per day when you need $8 is good.  Far from what it was last year. They could have the inverse problem if rates go up they are locked out of raising the rates and the increased profits. A long term lease is insurance that may limit your profit, but helps to ensure you stay out of bankruptcy if rates stay down.

If you are looking for a pure play between two particular countries, then I doublt that exists completely. Most of the bulk shippers have multiple "regular" customers with regular routes. Maybe someone else has broken down their routes closer, but I would be more concerned about who their long term customers are, what percent of their ships are on committments out and how far. 

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#17) On September 15, 2009 at 1:17 PM, lemoneater (76.64) wrote:

I read an article in Forbes on piracy a few months back. I wonder how prevalent a problem this is for shippers and whether some routes are less prone to attack. Is this risk already figured in?

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#18) On September 15, 2009 at 1:36 PM, Tastylunch (99.54) wrote:

TSIF

The majority of the articles you linked are regarding container shipping

That's true. But I've noticed that virtually all transports are down double digits from trucks to trains to ships. The difference was there wasn't a truck or train boom but there was a mjaor shipping boom across all types.

The articles do indicte that the bulk shippers, which is what we mostly 'trade" here on caps do see some pickup in business as resources are needed.

And if what I'm reading is correct the demand is about to stop/slow. The stuff they are shipping is being stockpiled and not being used. Now that China is worried about overheating they've taken the foot off the gas.

Copper has already shown some wekaness I think we have a another pulse down in most commodities. Even sugar is selling off.

Long term the trend is likley still up in commodities for price I'm not seeing any evidence for increasing volume though. Shippers to my knowledge really only care about volume.

I have no doubt the shippers of raw materials need good partners, I just am seeing conditions that suggest upcoming slackening in demand. 

perhaps I'm wrong.

Anyway this article is more relevant to the plays we are discussing

http://www.fundmymutualfund.com/2009/08/bloomberg-shipping-rates-seen-falling.html

some highlights

"Just as global trade starts to recover, the shipping market is crashing for the second time in a year as China reduces raw-material imports and record numbers of new vessels set sail... 

The rate for leasing capesize ships, boats three times the size of the Statue of Liberty, will drop about 50 percent from the current price of $37,865 a day...

A record 146 capesizes will be added this year, equal to 28 percent of the fleet..."

and 

" (Chinese) Imports of refined copper fell 23 percent in July from the previous month. Coal shipments shrank 13 percent, customs data show. Iron-ore purchases will likely average about 16 percent less in the remainder of the year than in the first seven months, according to Will Fray, an analyst at Maritime Strategies International Ltd. in London "


Reporting can be difficult to ensure truthfulness.

No doubt. Most times I just chalk that up to a reporter's inability understand rather than maliciousness. If you think about it reporting is a pretty tough job. You are tasked with knowing a ton about numerous things/industries you probbaly have no life experience with.

I agree with anticitrade that there will be some casualties, but at least in dry bulk there will be winners

I don't think anyone is saying there won't be some winners. At least for me looking at the history of this industry I just happen to think it's a lot harder to predict who is going to be the winners than you might expect given their abnormally (comparatively to other sectors) high casualty rate in the past. 

Certainly if you know the industry well you could do very well here. I still think they have further to fall though before bottoming. We'll see I  guess.

IF scrap metal goes back up,

Then I will go heavy into recyclers like MEA as they are beat to crap. :)

If not, empty ships make great natural reefs!

HAHA actually that could be pretty good since we do have a major coral reef problem. :)

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#19) On September 15, 2009 at 1:40 PM, Tastylunch (99.54) wrote:

memoandstitch

true which is why I think the commodities themselves are still a better way to play this. Even if China's usage soars (which I think it won't in the near term) a shipper only cares about volume on it's route.

rofgile 

Offhand the only one I can remember is Golar (GLNG) which primarily  takes Liquid Natural Gas to and from Mediterranean to the Americas I think.

I'm sure there are other shippers with heavy/primary exposure to those routes you mention. The thing to do is probbaly read some seekingalpha articles and their sec filings to find out.

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#20) On September 15, 2009 at 1:44 PM, Tastylunch (99.54) wrote:

lemoneater

I would say it's growing exponentially given that there are so many ghost ships and high unemployment world wide. Not too many mention the growth in shipping in 2006-2007 attracted them anyway. Ancedotally you hear a lot more about it than say you did in 2005 ish.

I personally don't think it's priced in completely as the extent is of the problem is really unknown and often kept very quite by shipping companies. But it's really hard to know.

The good news is that pirates will likely be attracted to the ghost ships over the actually manned ships since it's easy picking (eventhough the haul is likely slim), so they may be preoccupied for awhile.

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#21) On September 15, 2009 at 5:25 PM, TSIF (98.76) wrote:

#10:  Tasty, by reporting, I mean the books. Corporate Govenance on some of these companies is subject.

Besides Reefs, there might be a business in converting these to private yachts. Some of the rich people who don't want the tight spaces of bomb shelters when the sky falls may enjoy the space and privacy.

I seriously doubt the pirates are going to want the empty ships. They rarely want the cargo specifically, but want the humans and the cargo to ransom back. Idle ships are probably safe. Unless of course owners hire the pirates to steal and sink them so they can collect the insurance. Now there's another idea!

Seriously, again, good points. The dry bulk shippers have already been priced to the brink of bankruptcy. If you can keep an eye on them, then I still think some of them are a good play with the worse case in an improving ecomomy already priced in. The smaller ones are making some money. Overall, it's a long term project absorbing the glut of new ships and the competition. So for an investor, I agree, be warned, don't expect much in the short run. Mr. Market will do as he will do and seems to be fascinated with anything that is 1/10th it's highest price from a few years ago. Even if the company is worth 1/20th of what it was then. So some spikes can be expected.  Overall, I'm an investor in the smaller plays.  If nothing else, I'll collect my dividends before they go bankrupt!  Good collective blog.  I'm a sucker for the sea and while I may not put them in a substantial part of my portfolio, I will be watching them for any moves a year or two down the road. 

It's a case of macro factors playing on the fundamentals that can't be properly valued. Bets trying to guess what the market will do based on technicals alone!

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#22) On September 15, 2009 at 11:44 PM, Tastylunch (99.54) wrote:

TSIF

hah my bad that's what I gte for trying to commnet at work.

You are right of course the internal reporting is suspect in mnay of the Greek shippers especially.

as for pirates, the assumption you are making is that Pirates are smart/well infomred. No doubt many are but there are also many who are not. :)

In any event  I still think the empty ships are actually a small positive for piracy deflection. :)

 The dry bulk shippers have already been priced to the brink of bankruptcy

I dunno they don't seem that cheap to me it's not like they are nuclear winer coldlike those accursed casinos were n March. No doubt they are cheap, but bankruptcy cheap? I'm personally not seeing that.You have to keep in mind in 2007-8 they were insanely overvalued so they aren't as chapeas they seem imho.

I will say there are very few sectors left that are cheaper so ou may see sector rotation into them.

For me I'da rethr try my luck with natural gas or coal. At least those I know have real value in bankruptcy.

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#23) On September 15, 2009 at 11:52 PM, automaticaev (80.23) wrote:

Rofl this world relies on shipping thing across the world.  Dont be stupid.

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#24) On September 15, 2009 at 11:55 PM, Tastylunch (99.54) wrote:

automaticaev

no one is saying shipping is going away,

just that there are many more shipping companies than what is currently needed or will be needed in the near future.

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#25) On September 16, 2009 at 12:02 AM, automaticaev (80.23) wrote:

ROFL ROFL thats not how it works.  They need to ship A LOT constantly and they will need to ship more and more as the progression of time goes on.  People always have to be running around doing things.  Hitting things with hammers and ripping out carpeting and useing boats. 

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#26) On September 16, 2009 at 12:05 AM, topsecret09 (20.42) wrote:

http://www.fool.com/investing/general/2009/08/13/5-star-stocks-poised-to-pop-star-bulk-carriers.aspx?source=itxsitmot0000002

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#27) On September 16, 2009 at 12:07 AM, automaticaev (80.23) wrote:

now ill tell ya what not to buy.  GMO they pay themselves all the money that you invest and then they use the money to build worthless museams.  Molybendum museams... 

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#28) On September 16, 2009 at 12:26 AM, streetflame (99.81) wrote:

ISH is a small Gulf of Mexico based shipping company with good fundamentals making new all-time highs(!).  They specialize in moving cars, sulphur, Navy contracting, trains, and coal.  Anyone have an opinion on them?

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#29) On September 16, 2009 at 9:14 AM, TSIF (98.76) wrote:

ISH has had increasing revenues during the Kuwait mobilization. They are doing a unit haul now out of Hawaii.  They indicate that they can't be certain of maintaining the revenue at current levels, but their ability to grow revenue the last few years has been impressive.

The $0.50 / qtr dividend is also nice and looks sustainable. They are going to have to replace a ship for an Indonisa company. They are VERY low into their revolver and seem to have good cash flow. They don't have a lot of ships and sublease some, so would be vulnerable in a steeper down turn, but so far, especially with the governement "extra" work and their long term customers they look about as solid as you can get in this industry. The Jones Act mandated that some govenrment business has to go to US company's. US shippers are a little scarcer and typically don't have the special ships needed for this type of work. The mobilization to Afganistan should last at least a year with the ramp up and then moving things back and forth for who knows how long.  They are down revenue in the rail cars, but that was a small percent anyway.

 Besides the dividend, I guess my question would be the upside. As you noted, they are hitting new highs, but seem to be up against a wall at the current price.  Any pullback in the market would probably hit them 10% or so.  If they can't generate any further growth then you might be riding a small incline and a decent dividend while others with more risk might do better (or worse).  An increase in the dividend from the "extra" work would probably get Mr. Market's attention and some more upside, but it might be temporary. Looks like a good play for someone who wants some stability in this sector. A break down from a correction might be a good entry point, or a break up through resistance might be a good point if you trade technicals.  Good example of a small shipper under the radar!!!

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#30) On September 16, 2009 at 5:41 PM, streetflame (99.81) wrote:

Great points TSIF, posts that drop knowledge like that are what I love about CAPS.  The thing that made me notice ISH is that unlike every other shipper they are generating large amounts of free cash flow.

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#31) On September 16, 2009 at 6:47 PM, Tastylunch (99.54) wrote:

TSIF

that was a pretty awesome analysis and thanks streetflame for mentioing it I hadn't heard of ISH before.  

I think they may be more upside left here, but how much is a real question. I agree with TSIF on how to play it if so inclined.

topsecret09 

That argument makes sense, it however hinges on one crucial assumption though that the economy is actually recovering.

I personally think it isn't recovering enough to save some shippers. Although many prominent economists such as Ben Bernanke disagree.

SBLK has caught my attention a couple times. It is a pretty good one to play if inclined.

thanks and congrats on getting written up!

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#32) On September 16, 2009 at 7:55 PM, Tastylunch (99.54) wrote:

MAJOR UPDATE from Zero Hedge

you really want to look at this in particular Bosporous, Putuo and Qinhungdao snapshots if you own shipping stocks.

http://www.zerohedge.com/article/thousands-rusting-ship-hulls-are-fitting-tribute-speculative-market-bubble

WOW now I'm definitely bearish on shippers

This is a disaster in the making if Zero hedge's data is accurate.

Caveat Emptor indeed

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#33) On September 16, 2009 at 8:06 PM, automaticaev (80.23) wrote:

http://www.ghostcaptainandfleettakehauntedcovedryshippersindexsuffersfromghostfleetflagshipthebackpearghostcannonsstrikedryshippersharbor@bitteroverbaiouts.com

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#34) On September 16, 2009 at 8:08 PM, automaticaev (80.23) wrote:

http://www.ghostcaptainvideoreeasedbyciaghostcaptaintouseghostfeettodestroydryshippersmainharbor

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#35) On September 16, 2009 at 8:10 PM, automaticaev (80.23) wrote:

The ghost captain wi make sure shippers drown in the high waters of the sea thus signaing a sell for dry shippers across the board. 

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#36) On September 16, 2009 at 8:14 PM, automaticaev (80.23) wrote:

his fleet upgraded to ghost hulls at the sunken shipyard  the ghost pitate captain said in his video released. 

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#37) On September 19, 2009 at 7:36 PM, JakilaTheHun (99.93) wrote:

Tasty,

Not that I am necessarily disagreeing with your analysis on the shippers, but trusting Zero Hedge for investment decisions would be like asking David Lareah for real estate advice.  You might be right about the shippers, but Zero Hedge is essentially a political publication with an agenda.  It goes out of its way to portray things in the worst light possible. 

Those who have followed Zero Hedge's advice on REITs over the past half year have been completely and utterly destroyed.  While Zero Hedge churned out absurdly bearish spin on everything, they kind of ignored the fact that some of these REITs that they were telling everyone would go to $0 actually have a very sustainable debt -load, high cash flows, and a lot of valuable properties.  Somehow, Zero Hedge always forgets to mention things like that. 

 

But back to the shippers ... you might be right.  Admittedly, my investing approach often ignores larger changes in an industry, because I'm willing to buy in based on value metrics that prove successful 70%+ of the time.  Sometimes, I understand the underlying dynamics enough to realize something is a "value trap" --- sometimes not. 

I actually recommended against going long on natural gas since January, while most others were talking about the oil/gas ratio and how natural gas prices couldn't stay this low --- well, they have and I knew oversupply issues were dramatic enough so that prices could stay suppressed for awhile.  It's only been in the past month, that I've turned cautiously bullish on natural gas.  

I haven't gotten burned on any sector calls this year, but I might be wrong on shippers.  I don't understand the industry well enough to feel confident making macro predictions.  Still, even if I'm "wrong", I might still be right.  If one were to buy a portfolio of SBLK, ESEA, PRGN, and DAC, it's possible that they could break even in the event that 3 of them went bankrupt.  That's the benefit of deep value investing :)

 

Either way, great post, as always, Tasty :)

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#38) On September 19, 2009 at 9:44 PM, Tastylunch (99.54) wrote:

JakilaTheHun

but trusting Zero Hedge for investment decisions would be like asking David Lareah for real estate advice. 

Don't worry I don't sole source decisions off Zero hedge no matter how persuasive I may find the blog.ZH certainly is questionable given their obvious anti-wall street agenda and lack of accountability as to who comprises Tyler Durden. (I have no problem with psuedonyms, I have a real problem with multiple people using the same one).

I looked at least 6 independent sources and read several quarters worth of affected shippers earnings before posting the question. :)

Those who have followed Zero Hedge's advice on REITs over the past half year have been completely and utterly destroyed

Actually I interpreted their posts as a warning to cover shorts because the IB's were pushing REITS and mostly did so. I know betting against GS & Merril that you usually lose.

I still think the CRE space is horribly dangerous and due for massive problem(full disclosure I'm part owner of a small commerical RE company). But until I see a removal of IB support I'm not going to get heavily short it like I was last fall (i still have CAPS picks open due to accufarming gone bad :). It could be next year it could be never if the FASB keeps tem on life support with accounting changes. For now the water is safe but I do think REITS are over valued given the risk from Main street conditions.

My opinions on CRE are mostly based on what I'm seeing on the ground.

While the properties may have value those valuations are based upon old assumptions regarding retail and office growth that I'm not seeing validated in the real world. Every developer and building owner I've talked to from Cleveland , Columbus and Austin has never seen demand so slack. I've had a couple friends lose it all in the last two years. I do not trust the property valuations REITS are claiming for their properties. GGP was the only one I've been long in the last year since it was so so far below what it's properties were worth (and Ackman was involved)

This is alos why I do not like Sears (SHLD) as the primary rationale for it's valaution is it's real estate imo.

But like always RE is heavily local and there remain good markets in the US. There are just a lot less of them than we've been accustomed to.

I admittedly may be too bearishly emotionally influenced by what I'm experiecing in my own market.

I just there were a farmland REIT. I would be very interested in those. 

But back to the shippers ... you might be right.

And you might be too. :)  I think it's very probable that we both end up being right on shippers. In that there is coming prolific bankrupticies like I expect and yet the survivors become huge multibaggers like you anticipate.

That's actually whatI expect to happen, where I differ from CAPS shipping bulls is that I'm not confident that I can surmise who will survive so I'm abstaining for now.  My point in bringing up the blog is to point that there are unsual problmes in shipping as opposed to raw commodities where I believe the underlying value is not truly impaireddespite oversupply issues in both.

If one were to buy a portfolio of SBLK, ESEA, PRGN, and DAC, it's possible that they could break even in the event that 3 of them went bankrupt.  That's the benefit of deep value investing :)

And Sadly that's the real tragedy of CAPS that it makes such good strategies with possible low accuracy not worth pursuing here. CAPS does a lot of things well but that isn't one of them, A lot of decent investors are right less than 50% of the time but they will never be ranked well here.

It's only been in the past month, that I've turned cautiously bullish on natural gas.  

Same here man. Seasonality trends plus the valuation convinced me that reward favors the long side for now. I still think there may be more deep downside risk but it's not as dangeorus as it was several months ago now that heatig season is approaching. I liked your call on CEP btw I ended buying some in the low 3s after doing my own DD. :)

Thanks for the thoughtful comments Jakila.

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#39) On September 29, 2009 at 11:29 PM, automaticaev (80.23) wrote:

Kong Fanhua told Bloomberg that government-encouraged factory output in China could send the Baltic Dry Index up by 80% by the end of 2009.  Dont be stupid fool community already has a bad rep for buy high sell low idiocy.  Buy IRE for 60$ a share its a good buy.  One year later oh its .66cents dont buy that.  Seriously...

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#40) On September 29, 2009 at 11:34 PM, automaticaev (80.23) wrote:

seriously you write 75 paragraphs but dont even understand buy low sell high?  w8 till it goes up a lot then buy it then ok

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#41) On September 29, 2009 at 11:42 PM, Tastylunch (99.54) wrote:

automaticaev

I assume you are refrerring to this?

http://www.bloomberg.com/apps/news?pid=20601080&sid=aI_g0ZTJYcm8

The guy runs a shipping company he's hardly a disinterested party. Although he has a point that china may not be able to slam on the brakes. A fact that could be really dangerous considering how muhc overcapacity they already have on the mainland.

and even if it does recover to 4000 ish (which is all he's claiming) that doesn't mean it recovers to the point that shippers can raise rates. They weren't able to raise rates last time it hit 4000 a couple months ago.

4000 isn't enough to get me excited about shippers.  Commodties perhaps but not shippers given how many empty ships there are.

I never said anything about IRE, frankly I know very little about Irish banks. I'm assuming you are making some comment about the newsletters?

 

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#42) On September 29, 2009 at 11:43 PM, portefeuille (99.96) wrote:

an article on zerohedge

The Dow Zero Insurgency

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#43) On September 29, 2009 at 11:55 PM, Tastylunch (99.54) wrote:

automaticaev

chill out dude. There's no need to get combative.

We have different opinions. Not sure why that upsets you so much.

don't worry I understand buy low sell high. I also understand falling knives,value trap  and cigar butt investing concepts as well. I think I'll be alright. :)

well good luck to you.

portefeuille

yeah I read that article already, thanks man. The ZH author definitely has an agenda. I have a feeling that fame is getting to him and it will end badly for him. He's too wedded to his various "theories" emotionally. That doesnt mean he's wrong, just extremely biased . :)

You ahve to wonder where he is going to take his blog. if he ever plays down the conspiracy thing his traffic will die off.

but I didn't sole source my opinion on what he/they said so I'm not concerned.

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#44) On October 07, 2009 at 3:48 PM, automaticaev (80.23) wrote:

aha

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#45) On October 07, 2009 at 3:59 PM, automaticaev (80.23) wrote:

the baltic dry rally comenzar

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#46) On October 07, 2009 at 4:05 PM, automaticaev (80.23) wrote:

you think this is bad how many years will it archive your post for??

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#47) On October 07, 2009 at 10:56 PM, Tastylunch (99.54) wrote:

automaticaev

not sure what I did to you or why you keep coming back to talk trash to this post.

Nonethless I'm not sure if we are looking at the same BDI. It looks like it's still in the same downward channel to me that it's been in since june.

So nothing to really get excited about unlike Gold e.g.

 

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#48) On October 07, 2009 at 11:20 PM, QwertyHero (38.43) wrote:

Fellas, fellas, fellas, relax!

I have 4 letters for you:

SBLK.

As far as the shipping sector goes - I consider it to be low risk amongst its peers.  More importantly, there is a lot of potential upside.  I'm already in at $3.50.  One of my favorite plays.  Pays a tiny dividend which is fun too.

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