All of this has wreaked havoc on shipping prices. During the week of Chinese New Year, spot rates for the monstrously large Capesize vessel class troughed at around $5,000 a day - a level that is below the daily operating costs of even the most efficient operators and dramatically lower than the average of approximately $33,000 seen in 2010. And it is not just the Capesize vessels seeing tough times - Capesize is down the most, but every category is down from fourth quarter levels (with Handysize faring the best). (For more, see Is Dry Bulk Shipping All Dried Up?)
What Is An Investor To Do?
Investors should probably invest with an eye towards safety. It is all well and good to own riskier operators when rates are climbing (in fact, lower-quality companies tend to seriously outperform then), but this troubled environment could last for a few years and the halcyon days of $100,000+ spot rates for Capesize vessels is a long time ago (2007, to be exact). If daily spot rates are low, it makes sense to gravitate towards companies with more of their vessels under contract and/or those who can profit even in low-rate environments. By the same token, debt can become a lethal deadweight during market troughs, so investors should keep an eye on the balance sheet.
Genco (NYSE:GNK) is fairly efficient as an operator, with relatively low operating costs. It does have more than 60% exposure to spot rates, but less than 10% of that in the Capesize category. This could be an interesting play for aggressive investors wanting a company with strong earnings leverage to an eventual recovery.
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