Many of the shipping stocks have been recovering in 2012 while the index for the pricing basis (chart at end) has been weak.  Some shipping companies pay out more than they earn and some keep making dividend payments when they are losing money. What we really want to know is if these dividends are sustainable.  There have been some pressures that recently forced one shipper to suspend dividend payments. We have glanced at the following shipping players with recent earnings and/or dividend news: Nordic American Tankers Limited (NYSE: NAT); Alexander & Baldwin, Inc. (NASDAQ: ALEX); Overseas Shipholding Group, Inc. (NYSE: OSG); Euroseas Ltd. (NASDAQ: ESEA); Ship Finance International Limited (NYSE: SFL); DryShips Inc. (NASDAQ: DRYS); and Seanergy Maritime Holdings Corporation (NASDAQ: SHIP).

We also took a look at the Guggenheim Shipping ETF (NYSE: SEA), the shipping ETF, is trying to signal that a turnaround is heading to the shipping sector. This one pays a very sporadic dividend and there is jus not even a two-year history to be able to track how its payments rise and fall through time. Because of uncertainty and pressure, the shipping sector was not a part of the 2012 Model Dividend Portfolio.

Now look at the chart on the ETF.  At $17.99, the 200-day moving average is $18.21 and this has not been anywhere close to the 2300-day moving average since back in April of 2011.  The question is whether this will act as a huge overhang and allow sellers to take profits or if this will be a new bullish mechanism that allows the run from the start of 2012 to continue.

Nordic American Tankers Limited (NYSE: NAT) recently posted a loss and its tax treatment understanding is that the dividend distributions of 2011 should count as a return of capital rather than as income for income tax purposes.  Where the story gets interesting is that earlier this week it posted a wider than expected loss.  It also sold 5.5 million more common shares back in January “to strengthen the Company’s resources, to fund future acquisitions and for general corporate purposes.”  Shares are down close to 10% from when they sold shares to the brokerage firms and the prior payouts have been $0.30 per quarter for a yield of close to 8.6% if it remains static in the quarters ahead.  At $13.93, the 52-week range is $1.58 to $26.18.

Alexander & Baldwin, Inc. (NASDAQ: ALEX) recently lost 7% after reporting lower 2011.  The company saw a weak trans-Pacific ship market after a recent parent split-up announcement in 2011 even forced the company’s Matson unit to shut down its second China-Long Beach service.  Its payout of $0.315 earlier in February at least compares to earnings estimates of $2.06 EPS for all of 2012. At $44.00, this stock only yields 2.8% today and the 52-week range is $33.09 to $55.50.

It was just a week ago that Overseas Shipholding Group, Inc. (NYSE: OSG) in the energy transportation services announced that it had suspended regular quarterly dividends based upon the downturn in international flag markets being deeper and longer than expected.  Unlike other sectors, this company’s management talked about economic uncertainty in the world persisting while banking markets have become more challenging.  The move is to preserve liquidity and the company plans to reassess the dividend as its end markets improve.

A smaller player named Euroseas Ltd. (NASDAQ: ESEA) in drybulk and containerized cargoes had normalized earnings of $0.04 in earnings per share while it declared a quarterly dividend of $0.05 per share as its twenty-sixth consecutive dividend.  It is smaller in market cap at $93 million today, but it listed an average of 16.00 vessels were owned and operated in the fourth quarter with an average day rate of $12,099 per day.

Ship Finance International Limited (NYSE: SFL) is set to report earnings on Friday, Feb. 17 and estimates are $0.38 EPS for the quarter but the estimates are $1.37 EPS in all of 2012 (versus from $1.72 EPS in 2011).  WIth its most recent payout being $0.39 per share per quarter, the company is paying out effectively all or more than all of its income.  Its yield is over 12% if it remains.  At $12.21 today, the 52-week trading range is $8.62 to $21.15.

DryShips Inc. (NASDAQ: DRYS) does not have a dividend, but its shares have skyrocketed and that rally has stepped back up even after petering out a few days ago.  While $3.57 is a far cry from its old highs, this is up over 50% this month alone.  Without a dividend this is merely a sample of how strong the moves can be around any positive news.

A smaller player named Seanergy Maritime Holdings Corporation (NASDAQ: SHIP) in dry bulk cargo is seeing a large gain on tiny volume (with a mere $25 million market cap).  The gain is after positive earnings and a profit, although it said that it expects overall shipping conditions to remain weak in 2012 with new vessel deliveries only contributing to oversupply.

The dividends here are definitely not immune to the woes of the world if they get worse again.  It is worth noting that the stock market has not agreed with the slower economy thesis.  Maybe the rail and trucking sectors are better on a risk-reward metric.  Ultimately, the verdict here remains uncertain and there is still likely to be a lot of volatility around the shipping sector as the globe floats between contraction and a low recovery continuing.

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JON C. OGG

The Baltic Dry Index is not just at a year low.  It is back to lows at the peak of the recession 2007 to 2009.  It is hard to imagine.  One of the major issues may simply be high excess in capacity.  Shipping may have run into the same problems as the worlds manufacturing lines.  There may just be too much supply now versus demand.

Since the recession, boats have continued being built.  The world just may be awash in capacity.  It is surprising but the shipping stocks are actually holding up well with the stock market rather than tanking with tanker day rates.  Here is how some of the more active ship stocks look, even though not all are exactly pertinent or covered under the Baltic Dry Index:

The Guggenheim Shipping ETF (NYSE: SEA) is up 0.7% today while its 52-week trading range is $13.37 to $28.21.  If you tally up the last four dividend payment this one has a yield of about 5.7% but you have to keep in mind that three-quarters of that dividend is from the June quarterly payment last year.

DryShips Inc. (NASDAQ: DRYS) is down 0.5% at $2.18 and its 52-week range is $1.75 to $5.19.

Ship Finance International Limited (NYSE: SFL) is up a penny at $11.56 but its 52-week range is $8.62 to $21.15.  Its dividend is well above 10% now.

Nordic American Tankers Limited (NYSE: NAT) is down five cents at $13.95 against a 52-week range of $11.58 to $26.18.  Its dividend is now over 8%.

Is it possible that not all of the old ships in the world are being sent to India and Sri Lanka for scrapping any longer now that India has slowed down its blistering pace?  There are many reports calling it a dead index as well.  Stay tuned.  Imagine how well shipping stocks might perform when the underlying price index is cooperating.

See the index chart for the last five years below….

JON C. OGG

One type of shipper that could benefit fairly quickly is dry bulk, the massive carriers that haul coal, iron ore, and other raw materials. The carriers include DryShips, Inc. (NASDAQ: DRYS), Diana Shipping Inc. (NYSE: DSX), and Genco Shipping & Trade Ltd. (NYSE: GNK). The Baltic Dry Index, BDI, is recovering slightly from a very low 1,064. As coal is required in Japan to generate electricity no longer available from the damaged nuclear reactors, dry bulk rates from Australia and from the west coast of the US could rise. The rises will be limited by the amount of coal Japan requires and the amount that dry bulk terminals can handle. Terminals and coal shippers on the east coast of the US could also benefit as coal cargoes bound for Europe could be diverted to Japan and additional ships put into service.

Container shippers like A.P. Moeller Maersk (OTC: AMKBF), Danaos Corp.(NYSE: DAC), and Seaspan Corp. (NYSE: SSW) could see a slight slowdown in shipping until Japanese manufacturers get back to work. That process will probably be slower than anticipated.

Crude oil carriers like Frontline Ltd. (NYSE: FRO) and Nordic American Tanker Shipping Ltd. (NYSE: NAT) should see a pick-up as more crude cargoes are sent to Japan to help fuel electricity generation plants. Demand will be a function of how quickly Japan’s refineries can come back on-line, and the length of time the Japanese must depend on crude oil to fuel their generators. Another possibility is that refined products would need to be imported if re-opening the refineries is delayed for long.

Japan’s crude stocks stood at 169 days at the end of December 2010, according to Balkans.com. The country won’t want to run down its stocks and have to replenish them at higher crude prices, but by judiciously calling on its stocks, the country could mitigate some of the expenses from buying and shipping additional supplies of crude.

Liquefied natural gas (LNG) carriers include Teekay Corp. (NYSE: TK), Teekay LNG Partners, L.P. (NYSE: TGP), and Golar LNG Ltd. (NASDAQ: GLNG). Japan is already the world’s largest importer of LNG and it is reasonable to expect the country to receive more in the days ahead. In the longer term, it could be that Japan decides to replace at least some of its nuclear generation with gas-fired generation. But that decision is still months away in all likelihood.

The lightly traded Guggenheim Shipping ETF (NYSE: SEA) is up nearly 2% today, and Teekay LNG Partners and Golar are both up about the same amount. Most of the other shippers are trading slightly up as well, with only Dry Ships down slightly.

Paul Ausick

As shipping rates fall, dry bulk shippers like Dryships Inc. (NASDAQ:  DRYS), Genco Shipping & Trading Ltd. (NYSE: GNK), and Diana Shipping Inc. (NYSE: DSX) follow. All three shippers seem to be setting new 52-week lows every day. Two shippers more active in crude oil and refined products transportation are Frontline Ltd. (NYSE: FRO) and Teekay Corp. (NYSE: TK), both of which have seen share prices appreciate in the past year. The recently re-issued Claymore/Delta Global Shipping ETF (NYSE: SEA) is also trading near its 52-week high.

Daily rates for the largest vessels, called capesize, have fallen from $59,324 on June 2nd to $24,239 on June 30th. Even daily rates for the smaller vessels of panamax size have dropped from about $31,000 to $22,000.

The decline is mainly blamed on falling demand from China for commodities like coal and iron ore. As China tries to cool its economy, the country plans to cut its production of steel which has also been suffering from lower pricing.

A contributing factor to the falling shipping rates is the pace of growth in the supply of ships. One analyst estimates that the dry bulk shipping fleet will increase by 17% in 2010. Filling those ships with goods would not be a problem if the global economy were growing. Because the economy is growing only tepidly, freight rates will not rise, and may even continue falling. The average daily earnings from a capesize ship in 2010 is expected to fall from $41,000 in 2009 to $35,000 this year, and the outlook for 2011 is for more declines.

Another threat to shippers is the continuing piracy off the horn of Africa. Earlier this week, Somali pirates hijacked a Singaporean-flagged ship with a crew of 19 Chinese nationals. The ship, which is owned by a Chinese company, was carrying a chemical used in making anti-freeze and was on its way to India.

The Chinese government has already contributed ships to an international fleet that is patrolling the waters off the Somalia to keep that vital shipping lane open. Yesterday, China sent another flotilla of warships to the Gulf of Aden to relieve the country’s ships that are already there.

The increase in piracy raises the cost of insurance for ships travelling offshore of east Africa, and contributes to the shippers’ shrinking profits. But the big problem is lack of demand for shipping coal and iron ore. And unless demand for finished goods grows, demand for commodities will stay low.

The issues facing the shipping business mirror the issues facing the global economy. Demand is dying as buyers lose confidence in the economy’s ability to grow out of its current doldrums. As a result, unused capacity increases and people lose their jobs. Then the cycle repeats.

Dryships thought it had found a way out of the vicious commodity cycle when it bought a couple of drilling platforms and ordered four more to be newly built. But the disaster in the Gulf of Mexico has put a serious crimp in the company’s ability to lease its rigs. The original two rigs are under contract and manned by experienced Norwegian crews. However the company can’t contract for any of the new build rigs and lacks financing for two of them.

Dryships had originally intended to spin-off its drilling operations by the end of this year, but no one thinks that will happen now. Genco paid more than $500 million last week for 16 new supramax vessels, which is either a very smart move (buying at or near the bottom) or a very dumb one (adding to over-capacity and under-utilization).

Diana Shipping recently purchased two new container ships for about $45.5 million each. One is fully contracted for a year at $16,000/day, and the other, which will be delivered before the end of July, is not yet contracted. Again, a smart move or a dumb one?

Based on the dive these three stocks have taken since late April, investors seem to believe that none of the moves is positive. Until prospects for global economic growth brighten and begin to move steadily upward, commodity shippers are going to remain under intense pressure.

Paul Ausick

A recent industry contact told us just how bad the shipping business has gotten.  A ship leased in May for a China departure was leased at more than 10-times the day rate that the same ship leased for in mid-October.  His comment was that it felt as though China was going to return to farming rather than building infrastructure and manufacturing facilities.

Ship Finance International Limited (NYSE: SFL) is up almost 8% at$15.32 after it canceled plans yesterday to acquire 3 vessels for $150 millionwith 12-year charters.  The company also named a new memberto its board with experience in shipping who is employeed by Frontline.The company’s 52-week trading range is $9.78 to $32.90.

Frontline Ltd. (NYSE: FRO) is also up huge today.  Shares are up 12% at$37.60, and its 52-week trading range is $25.00 to $72.36.

Overseas Shipholding Group Inc. (NYSE: OSG) was just upgraded at Oppenheimer yesterdaymorning.  Shares rose more than 10% yesterday and shares are up another7% at $45.00 this morning.  Its 52-week trading range is $32.54 to$97.79.

Nordic American Tanker Shipping Ltd. (NYSE: NAT) is seeing a 7% rise to$32.89, which is up 50% from its lows and right in the middle of the$22.00 to $42.00 trading range of the last 52-weeks.  This company’sChairman/CEO will be giving a CNBC interview this week on November 7.

Safe Bulkers, Inc. (NYSE: SB) is up big today after posting earnings of$39.2 million, or $0.72 per share, and after it declared a quarterly dividendof $0.475 per share for the quarter.  At that rate on a steady basis,shareholders are clipping more than a 20% yield if you believe that canbe sustained.  Shares are up 14% at $7.65 and the 52-week trading rangeis $4.16 to $19.23.   

An ETF which tracks shipping stocks is the Claymore/Delta Global Shipping (NYSE: SEA), and those ETF shares are up over 4% at $12.89 today.  It has only been public a limited time, but its trading range has been $9.00 to $23.60.

There are many many more shipping companies and many of these are notperforming well today.  But this sector has been battered and tatteredand it really looks like investors are using the recent strength andstability in the market to perform the analysis which they have beenscared to do for anything beyond the next hour.

The rebound in these stocks didn’t come quickly enough for Britannia Bulk, which is now apparently not trading in the US any longer.

According to a chart at Wikinvest, in May 2008 the Baltic Dry Index reached a record high level since its introduction in 1998, reaching 11,793 points.  In October this had fallen by more than 90% to around 851 points.  It is even lower today as letters of credit for shipping are harder and harder to come by.  These rates have never stayed down this  low forever.  That does not give any assurances that shipping stocks themselves will recover handily, but this looks like it is around the worst levels since the index was created.

Jon C. Ogg
November 4, 2008