What is the Deal with Greek Shipping Companies?

Joel Anderson |

What on earth is the deal with Greek shipping companies? For anyone in the habit of watching the biggest moves in stock prices for a given day, double digits shifts, up and down, from dry bulk shipping companies in Greece have become old hat. Monday saw DryShips (DRYS) plunge just over 10 percent. Which would be tragic for its shareholders but for its year-to-date returns of over 90 percent. Volatility, thy name is Greek dry bulk shipping.

But what is going on with this segment? Not only is DryShips constantly making big daily swings seemingly every week, but it’s averaging a daily volume of close to 20 million shares. So the stock’s moving in more ways than one. And it’s not alone. Costamare (CMRE) , the largest shipper in Greece, has been on a roller-coaster ride since early July. It hit a 52-week high on July 15 and closed the day at $18.46 a share. Then it plunged over the next week to land at $16.80 a share on July 23. It bounced back, though, climbing to $18.08 by August 1. Then plunged to $16.87 on August 16. Then back up to $17.72 on August 26. Then back down to $16.73 two days later. Then a choppy climb to peak at $18.32 on September 24. Followed by a fall to $16.65 by October 8, another jump to $18.12 by the 16th, and it’s declining again, back under $17.50 on Monday.

Clearly, “volatility” and “Greece” are two words that aren’t strangers to being used in the same sentence, but this is enough to make your head spin. But why is this one segment, from this one country, getting so much attention?

A Long History

The Greeks have been a maritime nation since the days of Socrates and earlier. In short, the combination of mountainous terrain on the land, limited agricultural capacity, and a strategic positioning in the Mediterranean have pushed the Greeks to the sea for thousands of years.

And, even today, the same geographic realities have led shipping to be among the biggest industries in Greece and puts Greece among the world leaders, particularly after investment from the legendary Onassis and Niarchos led to a doubling of the Greek fleet during the 1960s. Shipping accounts for 6 percent of Greece’s GDP and the 160,000 people employed by the maritime fleet represent 4 percent of the country’s total workforce.

If you count the monetary value of shipping services as an export, Greece has been among the top five countries in the world since 2000. Greek shippers have 22.5 percent of the world’s tankers and 16.8 percent of the world’s bulk carriers with an additional 20.5 percent of tankers and 12.1 percent of bulk carriers on order.

Baltic Dry Shipping Index

While shippers seem to be swinging up and down on any given day, the overall trend has clearly been up, particularly since late summer. Since the start of August, the Guggenheim Shipping ETF ($SEA) is up just under 12 percent. And the reason is the Baltic Dry Shipping Index. The index tracks freight shipping costs for several commodities (including grain, coal, and iron ore) on ships with a capacity of 15,000 tons or greater over the 23 different shipping routes. It’s one of the most visible and reliable indicators of shipping costs, and it spiked in September, climbing 86.7 percent from September 2 to September 25.

The Baltic Dry Shipping Index is prone to jumps like this because of the nature of the shipping industry. Construction of new ships is a time-consuming and expensive process. Building a new ship takes about two years, meaning shipping supply is generally pretty static. As such, shipping companies can’t adjust their fleet size to respond to the market, and even relatively small shifts in shipping demand can result in fairly large swings in shipping prices. Thus, with demand for dry goods on the rise in September, and shipping companies unable to increase their fleet size in a timely manner, the cost of shipping went up. A lot.

Rising Tide

So, since early September most Greek shippers (and most shipping companies in general) have been on the rise. However, a few other factors continue to help make the picture murky enough that the industry is prone to pretty big swings from week to week. On the one hand, investors tend to view Greek shippers as a monolith, with movement in share prices often working in lockstep. Some of this might make sense given that all these companies are dependent on similar factors, like shipping prices. However, the make-up of each fleet could also mean different things.

For instance, rates for shipping via Capesize class ships have been falling since peaking at $42,511 per day on September 25. Capesize class ships are the largest available, with capacity exceeding 100,000 tons, and represent 10 percent of the global fleet and 62 percent of its capacity. And since the September 25 peak, rates are down $28,868 a day. However, the rates for Panamax and Supramax classes (60,000-80,000 tons capacity and 45,000-59,000 tons capacity, respectively) have continued to climb. Historic performance would give one reason to believe Panamax and Supramax rates will follow Capesize down, but in the meantime it means that the precise makeup of different fleets is going to make a difference.  And, in the long term, shipping rates may be on the decline again which, if the trend continues, probably doesn’t mean great things for Greek shipping stocks.

Up for a Wild Ride?

Few things seem to attract investors and traders alike like big swings in value. The idea that a stock’s only a few months from doubling in value makes it easy to rationalize buying in, even if it’s just as easily a few months from losing half its value. And Greek shipping companies, exposed as they are to shipping rates that can make big swings with relatively marginal shifts to demand, appear to fall into the category of stocks that are capable of big swings. And where there’s risk, there’s opportunity. It certainly seems possible that a savvy investor could benefit from digging deeper into the segment and isolating the difference between these companies and exploiting the market’s tendency to treat them as a monolith.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
CMRE Costamare Inc. $0.0001 par value 5.60 -0.09 -1.58 1,240,285
DRYS DryShips Inc. 4.80 -0.45 -8.57 14,528,840
EXSR Exchange Bank (Santa Rosa CA) 117.00 1.50 1.30 350

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