Wednesday, June 19, 2013

Marine Transport - world economy weak, marine transport weak as well is not going weaker

Months ago I was writing (in Polish) about marine transport. This is quite interesting sector of the global economy. In my opinion if you want to know how performs the world economy - look at the marine transport. If it's weak so is the global economy. Don't seek the answers in the media - just look at marine transport indices, e.g. the Baltic Dry Index (BDI). This indice is constructed on the basis of time charters rates in bulk carriers sector (bulk carriers transport such commodities as iron ore, coal and agro commodities). So, the behaviour of BDI shows the condition of global bulk transport. Let's look at the chart:


Since June 2008 peak BDI went sharply down till its bottom in December 2008. Then quite a big rally took place but again, since the end of 2009 the index went one more time to its December 2008 bottom. And now, since the beginning of 2012 we have a consolidation phase - the time charter rates are still very low but...they are not falling further.
What's more - BDI can be used as the leading indicator for the whole marine transport sector - it means that if something happens to BDI , then, after some time it happens to transport companies as well.  The grey areas above show that; for example, the area "A" shows BDI going up while Marine Index still going down - but after some time Marine Index follows BDI up.
Now BDI is going a little up, or at least it is consolidating at very low time charter prices range - therefore, due to BDI behaviour,  the prices of marine transport companies aren't falling which is quite a pleasant thing for their investors.

Fundamental situation in the sector is very bad - many companies have financial troubles, many went even bankrupt - generally I can say there is a lot of blood in the sector. And if there is a lot of blood so, according to the old rule of investing, it is the proper time to start looking closely at some companies.
The chart below shows the technical situation of some transport companies included in Marine Index.


As one can spot, most of them (apart from Teekay which operates in liquid natural gas transportation sector and has been in a strong up trend for many years) are consolidating at very low price ranges.

I should also add that some companies, despite the catastrophical situation of the sector, still pay dividends; what's more, very fat ones. But about that....later.

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