BULK RATES - THEN & NOW

“While dry bulk freight rates and ship values are currently high compared to the past 10 years, they are very far from earnings seen during 2007-2008 and there is little to suggest that they are heading that way,” maintained Peter Sand, chief shipping analyst at shipping association BIMCO, in a report last week. Sand said bulker owners “should acknowledge that this is unlikely to be the start of a super-cycle.”

The Baltic Dry Index (BDI), a rate basket covering the various bulker sizes, recently breached 4,000 points for the first time since 2009. It closed at 4,201 on Tuesday. But the all-time high is 11,793 — nearly triple the current level — recorded on May 20, 2008.

The Baltic Capesize Index, which tracks larger bulkers of about 180,000 deadweight tons (DWT), just topped 6,000 points for the first time since 2009. It closed at 6,206 on Tuesday. But that’s still nowhere near the historic peak of 19,687 on June 5, 2008.

American Shipper has an archive of financial analyst reports on public dry bulk companies dating all the way back to the earlier boom. These historical client notes offer a window on just how extreme the market was; analysts at the time commented nonchalantly on rates that would seem unbelievable today.

On Tuesday, Capesize spot rates were at the equivalent of $51,500 per day, according to Clarksons Platou Securities. For context, in June 2008, rates were reportedly 4.5 times that, briefly hitting $233,000 a day, according to a client note from investment bank Dahlman Rose (the bank was sold to Cowen in 2013). At that time, a 5-year old Capesize sold for $150 million; they go for $44 million today (excerpts from Dahlman Rose Marine Transport Weekly: June 9, 2008 here).

Rates for midsize Panamax bulkers (65,000-90,000 DWT) are now $34,300 per day. In May 2008, they maxed out at $91,700 per day.

Rates for Supramax bulkers (45,000-60,000 DWT) are $36,300 per day, half their May 2008 peak of $70,500 per day. And rates for Handysizes (up to 35,000 DWT) are $33,900 per day, still well below the all-time high of $49,300 in May 2008 reported by Dahlman Rose.

Asked to compare today’s dry bulk market to the 2000s super-spike, Jefferies shipping analyst Randy Giveans told American Shipper, “I’m not saying rates are going back to 2008 levels. What I’m saying is that this decade is going to be better than last decade. For the last decade, the BDI averaged 1,250 and was never above 2,000 for more than very short periods.

“Not many of the current investors were around back in 2000-2010 and realize that the BDI can go to 10,000. No one’s even seen it at over 4,000 for over a decade, so of course when they see it at 4,000, they think it’s going to collapse and there’s no way it can go higher. If you look at a 10-year chart, that makes sense. If you look at a 20-year chart, you realize this isn’t uncharted territory at all.

“I don’t think the BDI will go back to 10,000, but I also don’t think it will go back to an average of 1,250. I think it will be somewhere in the 3,000-6,000 range in the coming years,” said Giveans.

Analysts don’t see booms coming

The idea that COVID-era dry bulk rates could rise back toward stratospheric 2007-2008 levels in 2021-2022 remains a fringe theory. That said, no one predicted the current container shipping bonanza. And archived analyst reports from 13-14 years ago reveal that no one predicted the earlier dry bulk boom either.

Dry bulk stocks experienced a massive run-up, peaking in October 2007 and then again in the May-June 2008, with many shares tripling or more during the period. “Multibaggers” of that era included Excel Maritime, Eagle Bulk (NASDAQ: EGLE), Diana Shipping (NYSE: DSX), Genco Shipping (NYSE: GNK) and Navios Holdings (NYSE: NM), among others.

The biggest stock winner was spot-exposed DryShips. Its share price skyrocketed to $131.34 on Oct. 29, 2007, more than seven times its 2005 IPO price of $18 per share. On that peak day, the shareholding of founder George Economou was valued at $1.7 billion (the equivalent of $2.2 billion today).

Analysts didn’t predict the stock run-up. Dry bulk had already experienced four consecutive exceptionally strong years (2003-2006), and in 2007-2008, analysts reacted after the fact to market moves, recalibrating price targets and rate outlooks accordingly.

As of January 2007, Dahlman Rose had a 52-week price target of $35 on DryShips. Cantor Fitzgerald had a target of $10 per share for Navios Holdings, $19 for Excel Maritime, and $21 for DryShips and Eagle Bulk. By year-end, those targets had proved three to six times too low. By November, Cantor Fitzgerald’s price target for DryShips had been massively upgraded, to $133 per share (Cantor Fitzgerald’s Nov. 16, 2007, DryShips note here).

In early 2007, Cantor Fitzgerald estimated full-year earnings for DryShips of $2.82 per share. By August, it had raised its estimate to $5.57. The same month, Dahlman Rose estimated full-year DryShips earnings of $6.71. DryShips’ actual earnings for 2017 came in at $9.52.

Analysts didn’t foresee dry bulk’s fall from grace amid the accelerating financial crisis, either. At the beginning of 2008, both Cantor Fitzgerald’s and Dahlman Rose’s 52-week price targets on DryShips topped $100. The stock ended 2008 trading at around $10. It never recovered and was whittled lower over the next decade by dilutive offerings before delisting in 2019.

Another example: Price targets at the beginning of 2008 for Eagle Bulk’s stock ranged from $18 (Citigroup) to $25 (Dahlman Rose), $36 (Cantor Fitzgerald) and $38 (Lazard). That stock was trading at $7 by December 2008. Eagle Bulk eventually filed for bankruptcy protection, as did Genco and Excel. Eagle and Genco emerged from Chapter 11, Excel disappeared (its fleet was sold to Star Bulk).

By the end of 2008, rates for Capesizes, Panamaxes, Supramaxes and Handysizes were lower than they are today. Dry bulk stocks and rates would flounder for the next 12 years.

“It certainly caught people by surprise,” said Giveans of dry bulk’s mid-2000s rise and fall. “The BDI almost doubled in a six-month period in 2007. In 2008, it dropped by over 90% between May and December. Rates went just bananas over a short period of time. When they move that quickly, it’s hard to be proactive.”