Ghosts of Christmas Future
With only 101 shopping days left until December 25th, I just got a very unpleasant visit from the ghosts of Christmas future. Why ghosts plural? Because in this case there is a whole fleet of them.
I cover the dry bulk shippers and I’m aware of the challenges the entire shipping industry faces. The Baltic Dry Index (BDI) has drifted lazily down the past several months to 2468, certainly a recovery from its bottom of around 660, but still some 80% below the 2008 peak. To compound the matter new builds (ordered during the shipping boom) are still coming on to the market
So when it comes to this depressed sector I’m not easily startled, however an article published Sunday by the Daily Mail’s website entitled Revealed: The Ghost Fleet of the Recession, did just that. It details and photographs an eerie gathering of empty shipping vessels in the South Pacific. Maintained by skeleton crews, the “ghost fleet” is greater in number than the American and British navies put together. The photos are shocking in scope.
Even with depressed rates, this vast a number of idle ships as we rapidly approach the holiday buying season is a terrible sign for the global economy. Right now, these transports should be traversing the globe full speed ahead, not worrying about pirates and drifting in to one another off the Malaysian Coast.
Colleague Chris Barker (TMFSinchiruna) has written on decoupling in regards to China vs. the Western world. I think we are seeing a bit of that here between container vessels that transport things like Sony (NYSE: SNE) Playstations versus dry bulk carriers that primarily transport raw materials like iron ore and phosphate. Dry bulk companies like Diana Shipping (NYSE: DSX) and Eagle Bulk Shipping (Nasdaq: EGLE) both have over a 99% utilization rate. Excess capacity is disconcerting; but I think excess debt in the face of that is the real threat to certain companies in the dry bulk space.
For retailers who count on container ships to deliver their merchandise from abroad, this speaks to one of two realities, neither good. Either they are keeping inventories at historically low levels in anticipation of a tepid holiday season or they don’t have the money/credit to get stock levels where they need them to be. Not a good omen. But I would love to hear your thoughts on this ghostly appearence in the comment section below.