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TMFEditorsDesk (< 20)

Ghosts of Christmas Future

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September 14, 2009 – Comments (7) | RELATED TICKERS: DSX , EGLE , SNE

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.

-Dave (TMFGreenwave)

7 Comments – Post Your Own

#1) On September 14, 2009 at 2:30 PM, brickcityman (< 20) wrote:

Isn't this sort of an extension of Dow Theory?  E.g. that unless an uptick in "producers/consumers" is equally met by an uptick in "transporters" then you can't trust a given move?

 

Personally I think watching the dry-bulks can be very telling in this regard...  You can hype numbers and projections on CNBC all you want, but until you see people plunking down capital and chartering vessels nothing REAL will happen. 

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#2) On September 14, 2009 at 2:30 PM, jason2713 (< 20) wrote:

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.

I just bought a washer/dryer set and some new blinds for my home in hopes to sell it (short sale) and Home Depot provided free delivery and installation.

I talked to the guys who installed my blinds and my washer/dryer to gauge how business was doing.  The washer/dryer guys said Home Depot hadn't been selling many big ticket appliances and thus their installation team has dwindled.  I had fox business news channel on, and they just so happened reported big ticket items rose unexpectly and that inventories were being reupped.  The installation guys laughed and responded, "Yea, that's what happens when you don't order new inventory for 6-7 months as a company, you eventually do have to buy some to replenish what you sold, but they ordered much less."

The blinds guys came to install the blinds, I asked the same.  they said their business has really been haulted to a snail pace.   They also said that home depot hadn't really re-upped their orders to more blinds, simply because nothing was really selling.

I think its going to come down to big businesses who do have capital to spend on new inventory won't buy because of the much lower demand.   Combine that with the smaller businesses not having the liquidity to purchase new inventory because banks are cutting off credit lines.

I've already told family members to forgo buying xmas gifts for me, I just want to have a good meal at home, and spend time with the family.  Many that I know are doing that same thing.  Times are tight for everyone, and xmas will show this.

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#3) On September 14, 2009 at 3:17 PM, catoismymotor (< 20) wrote:

"I've already told family members to forgo buying xmas gifts for me..."

Same here. I am not wealthy, yet, but I do not want for anything. Just the company of friends and family are what I need. I would rather someone use their money for something else than spending it on me for birthdays or Christmas presents. This is an alien concept to my wife.

Thank you for the link to the Ghost Fleet article. I'll have to re-read it once I get home. I share your gloomy conclusions about the holiday shopping season. I am in the process of setting some cash aside in case we have a burp/hiccup/crash as a result of post holiday economic bad news. To have some money at hand to buy in near a low point will be good, should it happen. I was not so prepared last March and have regretted it.

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#4) On September 14, 2009 at 3:51 PM, rofgile (99.35) wrote:

It would be interesting to know which company's ships are in the ghost fleet... I would down thumb them.  Most likely they are largely container ships.

The story above was posted earlier today by Alstry, and when I read it I found one really neat link:   www.vesseltracker.com - you can find the position of a ship based upon its Automatic Identification System.  Unfortunately, you'll only see ships if they are near a port then - not the ones in motion across the ocean...

Curiously, I put in all the ships of Eagle Shipping (EGLE) - of which I am a shareholder.  Only 3 ships showed up, stationary in a port.  That would mean, I would assume, that all the others are chartered/moving across the ocean - a good sign.  The three that were docked were all docked at US ports.  I'm going to follow this site for a while and see if the docked ships move/etc.  

Anyways - it seems like a very neat resource if you are investing in shippers... 

 -Rof

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#5) On September 14, 2009 at 4:04 PM, Judochop172 (< 20) wrote:

Looking at Singapore on vessel tracker. That is a lot of ships.

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#6) On September 14, 2009 at 4:17 PM, stockcommander (96.52) wrote:

If I remember correctly the American economy as a whole was destroyed by a little war for “fun and profit”. The Bush administration bought oil to “build up the strategic reserves” at exorbitant prices steadily pushing the price per barrel towards $140. The money had to come from somewhere, so they lent the money from the Arabs and the Chinese. Currently America finds that it has a problem serving that debt while at the same time spending more money on imported goods. That shouldn’t come as a surprise.

From various postings here on fool.com I gather that some of you are unable to grasp the fact that America has to get its act together and establish an export oriented industry base with a will to succeed. It’s either that or fall further behind on the national debt. Pointing fingers, or worse, at your current President and blaming him for not “fixing” the economy with a wave of his hand seems extremely childish.

The previous administration screwed you over – royally – and those who really are to blame will get bigger and better Christmas presents this year than ever before.

The “Ghost Fleet” will start moving again when the American economy shifts gear.

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#7) On September 15, 2009 at 2:01 AM, Ecomike (< 20) wrote:

Actually we have a fine export industry. We export soon to be worth less dollars. And business is up!

On the BDI, if you look back to 2000 charts you will see that we have been at the current BDI levels many times, for extended periods as recently as 2005. I don't see what all the fuss is about. I own 7 DBI shipping stocks, all that I bought since the March lows, and I won't be selling any of them any time soon. Oh, and I was all in cash went the roof caved in.  

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