Dry Bulk Shipping Companies & Baltic Dry Index (BDI) – Comparative Stock Analysis

Dry Bulk Shippers transport both major bulk (iron ore, coal, and grain) and minor bulk (steel products, fertilizers, cement, bauxite, sugar and scrap metal) cargo. Until about five years back, oil tanker companies were chiefs at the helm when it came to investment choices in publicly trading shipping companies in the US stock exchanges. Small Greek shipping companies and/or subsidiaries of global conglomerates controlled the dry-bulk shipping arena. That course altered as the emerging market story developed with China and India importing raw materials at an accelerating pace demonstrating double-digit growth. In the past few years, numerous shippers focused solely in the dry bulk market made their IPO (Initial Public Offering). The Baltic Dry Index (BDI) tracks the daily average prices to ship dry bulk materials. BDI was considered a “sleepy index” till the end of 2002 – during the prior twenty years that ended 2002 its index value stayed within a narrow band of between 800 and 1000. The demand growth resulted in this index showing extreme volatility during the last three years with the index fluctuating sharply between 650 and 12000.


A list of the major Dry Bulk Shipping IPOs follows:


CompanyIPO DateComments
DryShips (DRYS) 2/2005 Founded by Greek shipping tycoon George Economou.
Genco Trading and Shipping (GNK) 7/2005





Eagle Bulk Shipping (EGLE) 6/2005





Paragon Shipping (PRGN) 8/2007





TBS International (TBSI) 6/2005





Navios Maritime (NM) 12/2004 The first to enter the IPO market during the wave of IPOs beginning early 2005.
Diana Shipping (DSX) 03/2005





Excel Maritime Carriers (EXM) 05/1998 The first dry bulk shipping company to tap the US IPO market.
Euroseas Inc. (ESEA) 05/2006





OceanFreight Inc. (OCNF) 04/2007





FreeSeas Inc. (FREE) 12/2005





Safe Bulkers (SB) 05/2008 Safe Bulkers IPO timing was especially bad as the BDI capitulated immediately after their IPO.
Star Bulk Carriers Corp. (SBLK) 03/2006







Those companies early to IPO had a slight advantage – the opportunity to buy vessels required to conduct their business at favorable rates as the price increased at a 20% annual rate over the last three years. That situation has come to pass as the Baltic Dry Index capitulated with the rest of the world economy in the latter half of last year.

The financial structures of these companies are all over the map. Below is a summary:


CompanyMarket CapitalizationEnterprise ValueDebt to Equity RatioPrice Per ShareRevenueNet Income/Share (Trailing 12 months)Dividend YieldInside Ownership
DryShips (DRYS) 635M3.22B1.36014.601.10B846.29M5.1035%
Genco Trading and Shipping (GNK) 487M1.43B1.38615.47369.49M258.82M22.7020%
Eagle Bulk Shipping (EGLE) 300M1.02B1.4596.40161.07M68.80M27.902.74%
Paragon Shipping (PRGN) 154M478M1.2615.67166.08M69.98M29.8025%
TBS International (TBSI) 303M562M0.58410.15588.89M192.32MNone39%
Navios Maritime (NM) 362M999M0.9123.591.37B320.61M9.3029%
Diana Shipping (DSX) 898M1.07B0.21811.96311.94M203.73MNA24%
Excel Maritime Carriers (EXM) 323M1.84B1.1817.38567.82M318.59M194%
Euroseas Inc. (ESEA) 142M128M0.2134.66134.26M61.51M15.933%
OceanFreight Inc. (OCNF) 77M318M1.2284.67131.43M45.66M6621%
FreeSeas Inc. (FREE) 30M197M1.4651.4353.34M11.55M19.6028%
Safe Bulkers (SB) 332M842MNA6.10210.50M142.98M22None
Star Bulk Carriers Corp. (SBLK) 162M460M0.5862.89169.73M85.15M2437%

* Financials as of 01/15/2009 from Yahoo Finance.

The debt to equity ratio gives an indication of how much leverage the company has – lower that number, the less financial leverage thereby reducing the risk the company is taking. The top-3 risky companies by this measure are FreeSeas Inc. (FREE), Eagle Bulk Shipping (EGLE), and DryShips (DRYS). The least risky ones are Euroseas (ESEA), Diana Shipping (DSX), and TBS International (TBSI).

These companies enjoyed very high shipping rates as the Baltic Exchange Dry Index (BDI) accelerated in the beginning of the year and stayed high for the first 2-quarters. The BDI surrendered 90% since then laying bare the especially volatile nature of dry bulk shipping industry. The Revenue, Net Income, and Dividend fields in the spreadsheet reflect numbers that are lofty especially for companies that benefited from the spot market. Currently the BDI index is artificially low but a rapid return to 2008 levels is not expected in the near future, so exercise caution when valuing these companies based on the trailing 12-month earnings. Furthermore, the index driving the financial performance of these companies is very volatile making inaccurate any attempt on valuing these companies based solely on current financials.

The following discussion looks at valuing these companies based on the value of assets. Below is a spreadsheet that summarizes the assets (owned fleet):


CompanyFleet DetailsTotal Capacity in dwtAverage AgeProjected Fleet Value*Comments
DryShips (DRYS) 7 Capesize, 29 Panamax, 2 Supramax~3.1M Tonnes~7 years2.95BAlso have substantial additional assets from Ocean Rig ASA acquisition.
Genco Trading and Shipping (GNK) 5 Capesize, 6 Panamax, 3 Supramax, 6 Handymax, and 8 Handysize~2.02M Tonnes~6 years1.90B





Eagle Bulk Shipping (EGLE) 17 Supramax and 7 Handymax.~1.02M Tonnes~7 years1.20BThe capacity is expected to reach 3M tones by 2012 – Specializes in the Supramax category.
Paragon Shipping (PRGN) 7 Panamax drybulk carriers, 3 Handymax drybulk carriers, and 2 Supramax drybulk carrier~0.75M Tonnes~8 years830M





TBS International (TBSI) 24 multipurpose tweendeckers, 23 handymax1.40M Tonnes~21 years590MAlso offers certain port services & associated logistics as value added services.
Navios Maritime (NM) 11 Ultra Handymax, 6 Panamax, and 1 Product Handysize.1.06M Tonnes~6 years1.24BAlso has a large fleet of long-term chartered-in vessels (some have purchase options), terminal operations, and certain other value added services.
Diana Shipping (DSX) 13 Panamax and 6 Capesize.2.01M Tonnes~5 years1.85B





Excel Maritime Carriers (EXM) 5 Capesize, 14 Kamsarmax, 21 Panamax, 2 Supramax, and 6 Handymax3.9M Tonnes~8 years3.90B





Euroseas Inc. (ESEA) 2 Panamax, 8 Handysize, 3 Intermediate, and 2 feeders0.56M Tonnes~17 years156MRoughly half the fleet is used for Container shipments.
OceanFreight Inc. (OCNF) 8 Panamax and 1 Capesize0.75M Tonnes~12 years630MAlso has a tanker fleet with a total of 0.44M dwt.
FreeSeas Inc. (FREE) 6 Handysize, 3 Handymax0.27M Tonnes~13 years235M





Safe Bulkers (SB) 5 Panamax, 4 Post-Panamax, and 3 Kamsarmax0.98M Tonnes~3 years1.25BThe capacity is expected to double by 2010.
Star Bulk Carriers Corp. (SBLK) 8 Supramax and 4 Capesize1.1M Tonnes~9 years820M






* See fleet valuation details below.

It is hard to place a value on the ships owned by different companies. The selling prices differ depending on the Baltic Dry Index value, the age and type of vessel, tonnage, and other factors. We used the following formula to come up with the projected value in the above spreadsheet:
  • Panamax, Handysize, Handymax, Kamsarmax, etc Vessel Valuation: The going-rate for new Panamax vessels in the mid-2008 timeframe was $1350 per dwt (dead weight tonnes). Also assumed is a depreciation of $30 per year for the first 10 years followed by $60 per year for the following years.
  • Capesize Vessel Valuation: The going-rate for new Capesize vessels in the mid-2008 timeframe was $750 per dwt. Assumed is a depreciation of $20 for the first 10 years followed by $40 for the following years.
Given the formula is based on selling prices realized for ships in the mid-2008 timeframe; it is reasonable to assume that these prices are in the high-end of the valuation spectrum. Even so, the combination of Market Cap, Enterprise Value, and Projected Fleet Value should give a good indication of the valuation of these companies. Below is a look at that combination and the “Enterprise Value as a percentage of fleet value”:


CompanyMarket CapEnterprise ValueProjected Fleet ValueEnterprise Value as a Percentage of Fleet Value
DryShips (DRYS) 635M3.22B2.95B68*
Genco Trading and Shipping (GNK) 487M1.43B1.90B75
Eagle Bulk Shipping (EGLE) 300M1.02B1.20B85
Paragon Shipping (PRGN) 154M478M830M58
TBS International (TBSI) 303M562M590M95
Navios Maritime (NM) 362M999M1.24B81
Diana Shipping (DSX) 898M1.07B1.85B58
Excel Maritime Carriers (EXM) 323M1.84B3.90B47
Euroseas Inc. (ESEA) 142M128M156M82
OceanFreight Inc. (OCNF) 77M318M630M50
FreeSeas Inc. (FREE) 30M197M235M84
Safe Bulkers (SB) 332M842M1.25B67
Star Bulk Carriers Corp. (SBLK) 162M460M820M56

*The percentage figure is after taking out the $1.2B DryShips paid for the Ocean Rig ASA acquisition.

The “Enterprise Value as a percentage of Fleet Value” measure is well below 100 for all the companies. Though this provides a good cushion it has to be tallied against the fact that in a depressed rate environment, disposing off assets at anywhere close to the fleet values above is not a trouble-free task. The best three companies by this measure are Excel Maritime (EXM), Ocean Freight (OCNF), and Star Bulk Carriers Corporation (SBLK). This measure however ignores several risk factors that affect company valuation and investment decision:
  1. Average charter duration – the more the duration lesser the risk.
  2. “Management cartels” with conflicts of interests is a general problem with this industry. Shareholders should be agile over the percentage management ownership stake – as this percentage increases, the associated risk goes lower.
  3. Counter-party contract risk: Diversification level of charter portfolio reduces the risk. Customer’s credit-worthiness and contract details are other associated risk factors that are intricated to gauge.
  4. Rate fluctuations across vessel categories: Based on tonnage, Panamax-Capesize rates should roughly be 1:2. But, because of supply-demand factors, now it is at 1:4. The type of vessels a company owns is a risk factor and diversifying across the categories may be the only way to reduce this risk.
Overall, the best defensive options to invest in the group are Diana Shipping (DSX) and Ocean Freight (OCNF). Diana Shipping has an appealing combination of very low debt, newer ships, and long-term customer contracts. OceanFreight (OCNF) has higher debt but the tanker fleet offers some protection against the vagaries of the BDI index. For an aggressive position, Excel Maritime (EXM) and DryShips (DRYS) are both excellent options. Excel Maritime is the biggest player and has the longest operating history. But, they have sizeable debt and roughly 25% exposure to the spot market. DryShips deftly managed to take advantage of the spot-market early on and still managed to shift focus to long-term charter contracts just as the rates came down. DryShips has high debt level and 40% exposure to the spot market.

On a parting note, the shipping industry has several other categories that may also be worthwhile investments. Some investment options to consider are:
  • Frontline & Nordic American Tanker Ship (oil tankers),
  • Seaspan & Danaos (Containers), and
  • Ship Finance Limited (SFL) – Leasing.
Disclosure and comments on DryShips:

We purchased DryShips (DRYS) on 10/09/2008 at $19.25 and doubled down on 11/20/2008 at $4.08. Further, we wrote Feb 15 covered calls against half our position on 01/16/2009.

DryShips just scuttled huge expansion plans by canceling an agreement to purchase newer capesize ships in exchange for shares worth close to $700M. Also, they were not able to purchase $400M worth of newer Panamax vessels because of financing difficulty. Even so, the latter agreement has a silver lining - DryShips has an option to purchase them before the end of 2009 for $160M. Any expansion should allow positioning themselves as the biggest players in the space. Also, they plan to divest the Ocean Rig ASA assets to shareholders of DryShips through an IPO. These can turn out to be immense positives if and when the market turns around. On the other hand, in an extended downturn one can see the company having trouble making debt payments. This can result in them having to dispose off assets at fire sale prices – a tough scenario for shareholders…

Related Posts:

1. Quick Take on Frontline Limited (FRO).

Last Updated: 10/2011.

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