Commodities ranging from coal and steel to grain and fertilizers are shipped all over the world on large dry-bulk shipping vessels. The ongoing expansion of the Panama Canal, one of the largest engineering projects in the world, raises the investment idea around future growth prospects for shipping services providers. Let’s take a look at a couple of dry-bulk carriers and determine if they have a place in your investment portfolio.
Scaling up to Capesize
Greece-based DryShips (NASDAQ:DRYS) focuses its four-million-dwt capacity on transporting coal and iron ore. Along with its fleet of Panamax vessels, designed to fit between the locks of the Panama Canal, DryShips also has several Capesize vessels that will be able to pass through the new and wider locks once the expansion is complete. For sake of comparison a Panamax vessel can hold upwards of 76,000 dwt, while the larger Capesize vessels capacity can range between 150,000 dwt and 180,000 dwt.
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DryShips has also expanded into offshore drilling with the acquisition of Ocean Rig during 2008. A three-year contract award from Petrobas (NYSE:PZE) is a positive sign of the potential for additional revenue from its new line of business. The tight economy however caused DryShips to cancel 17 contracts related to vessels in order to limit capital expenditures.
Capesize Addition
Excel Maritime Carriers (NYSE:EXM), who is also based in Greece, uses its nearly 3.9 million dwt to transport the same commodities as DryShips. Panamax vessels represent the largest portion of Excel Maritime's fleet. At the beginning of the year Excel Maritime went ahead with the acquisition of a nelwly built Capesize vessel with a five-year time-charter at a gross rate of $39,000 per day.
Capsize on Order
Genco Shipping & Trading Limited (NYSE:GNK), based in New York, uses its 2.2 million dwt to transport the same commodities of its competitors mentioned above. Although Genco’s fleet is dominated by smaller Handysize vessels it has the most Capesize vessels on order with a total of four expected for delivery in 2009. Even though Genco’s fleet is expanding the economic downturn and the attractive proposition of maintaining liquidity compelled the shipping company to cancel the acquisition of six new buildings including three Capesize vessels at the end of 2008.
Liquid Transportation
Investors interested in cargo carriers with a greater emphasis on the transportation of crude oil may want to consider Nordic American Tanker Shipping Ltd (NYSE:NAT) or Frontline Ltd (NYSE:FRO). The two crude oil carriers have beta ratios near “1” suggesting volatility inline with the broad S&P 500.
Final Thoughts
Commodities by themselves are risky investments for individual investors, but dry-bulk carriers offer investors another angle to increase their exposure in this area and play on the expansion of the Panama Canal. While the dividends offered by some these of carriers are attractive, the better argument for an investment in dry-bulk shipper should be grounded in whether or not you believe the demand and consumption of commodities will return to their bullish ways in the future. (For further reading, see Commodities That Move The Markets)
