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Bulk ocean shippers carrying improved profit potential

Ron Walter writes about four investment possibilities
BizWorld_withRonWalter
Bizworld by Ron Walter

The maritime bulk shipping industry is often overlooked as an investment vehicle, even though it generates $183 billion U.S. annually.

The risky industry generally is highly leveraged with debt and experiences frequent up and down cycles with little advance warning.

The benchmark barometer for shipping industry health is the Baltic Dry Index — a composite reading of current shipping rates. The index started falling in December and kept on until June when it took a sharp jump, dipping slightly in July.

The upturn came as the outlook for commodities demand from China improved. Once the index got ahead of itself the decline set in.

Three factors making bulk shippers attractive are lower fuel costs, a higher rate of scrapping old ships and a lower new build rate — all pointing to higher future profits.

This Bizworld will look at four maritime investment possibilities.

Atlas Corp. of London England, currently $7.09 US, operates with less risk than most competitors, leasing vessels only to major companies like COSCO, Maersk and so on.

In the last year Atlas Corp, formerly Seaspan, has become a hybrid with a new division based on developing renewable energy. A significant investment by Canada's Warren Buffet, Prem Watsa, allowed fleet expansion two years ago.

The shares sell at 54 per cent of book value with a dividend yielding seven per cent.

Eagle Bulk Shipping of Stamford Conn., currently $2.15 US., with no dividend sells at 34 per cent of book value. 

Iron ore and coal make up almost half of the freight carried by 50 vessels.

The fleet averages nine years age, thus requiring less maintenance and having better fuel economy.

Stockholders equity is about one-quarter of assets, showing less leverage than some shippers.

Genco Shipping and Trading of New York, currently trading at $6.11 US, has a 1.9 per cent dividend yield and sells at 30 per cent of book value.

The 53 relatively young vessels carry a range of dry bulk commodities from iron ore to grain and coal.

Shareholder equity after subtracting cash amounts to one-third of assets.

Global Ship Lease of London, England, currently $4.31 US a share; trades at 30 per cent of book value with no dividend.

A smaller shipper than the above, Global specializes in the grocery transport business with a number of reefer ships that carry refrigerated products.

This niche market generates premium rates and should face less new build competitive pressure from competitors. 

The fleet doubled to eighteen container ships in 2018 with an acquisition. Twelve have reefer storage capability.

Debt is about one-quarter of assets.

These four carriers are worth close watching. Investment in any diversifies one's portfolio. Remember dry bulk shipping rates are the “canary in the coal mine” for global economic health.

CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.

Ron Walter can be reached at ronjoy@sasktel.net

The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.  




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