Dry Bulk shipping industry

During the past decade or so nearly every sector of the transportation industry has run into serious Secular cycle problems. First it was the Airlines, then Trucking, then the Autos, and now Shipping. While the first three sectors appear to be in some early stages of recovery. The Shipping sector has yet to find the bottom. During the 2000’s demand-driven commodity boom, shipping rates skyrocketed and new ships were coming online every month. After the 2008 collapse in demand and commodity prices, the shipping industry found itself dealing with much lower rates and huge excess shipping capacity. During the past four years some shipping companies have been forced into bankruptcy, some are facing bankruptcy, and others a struggling along with high long term debt. To reverse this downward cycle, demand has to rise along with shipping rates while industry consolidation continues.

Since the middle of the last decade we have been tracking the Baltic Dry Index (BDI). This is a weighted index of international shipping rates. Its three components are the Capesize, Panamax, and Super Panamax (Handy) dry bulk cargo ships. For the past few months we have been examining this index, looking for signs of a potential upcoming bottom in this industry. We have concluded that is likely to occur this year.

When reviewing the BDI from 1985, and using written reports on the shipping industry as far back as the early 1970’s, we believe we have uncovered a regular 13 year cycle. It appears every 13 years shipping rates make a cyclical low: 1973-1986-1999-2012. After the low is in place rates generally rise for the next 9 years, then decline 4 years into the next cyclical low. During the 9 year bull market, rates rise for 5 years, decline for 1 year, and then rise for another 3 years into the cyclical peak. In addition, in the early stages after the cyclical low, rates typically triple during the first 2-3 years. This is the recovery stage for the shipping industry.

From an OEW perspective. We count the 9 year rising Cycle as an Primary ABC wave advance. With each of the rising Primary waves dividing into three Major waves. The four year declining Cycle is a simple Primary ABC wave decline.

When we examine Primary wave C of this declining Cycle we observe a nearly completed pattern. Primary B topped in late 2009 at BDI 4661. Over the next several months there was an abc Major wave A decline into mid-2010 at BDI 1700. Then after a quick Major B wave advance to BDI 2995, a complex Major wave C was underway. Intermediate wave A, of Major C, bottomed in early 2011 at BDI 1043. Then Intermediate wave B topped in late 2011 at BDI 2173. After that, the only subdividing Intermediate wave decline of this down Cycle began. At the Feb12 BDI 647 low Minor waves 1, 2 and 3 had completed. Then after a Minor wave 4 rally into May12 at BDI 1165, a subdividing Minor wave 5 began. Currently, we can count three Minute waves into the recent BDI 661 low, with possibly Minute wave iv underway now. We will know for sure once we get an OEW uptrend confirmation.

Should this occur, all that will be required is one more downtrend to complete the entire 4 year down Cycle from 2008. That downtrend should end the bear market is dry bulk shipping rates. With three months left in the year, it appears the 4 year down Cycle should bottom before year end. When it does we would expect shipping rates to triple over the next two to three years. To track the BDI, on a daily basis, just scroll down page 9 using the following link: http://stockcharts.com/public/1269446/tenpp/9.

About tony caldaro

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21 Responses to Dry Bulk shipping industry

  1. One problem however is the BDI changed what it measured half way through your specified period.


  2. H D says:

    Kudos Tony. bot DSX +6% since this post. Once these get going…..


  3. tony caldaro says:

    Minute wave iv currently underway.


  4. Anyone know about any Dry Bulk Shipping Mutual Funds out there…. my employer 401(k) doesn’t allow ETFs or stocks, only Mutual Funds (unfortunate)


  5. CB says:

    thanks Tony. Interesting stuff. Lots of Greek flags there – surely they’d love to see their rates tripple ; )
    maybe in 10-15 years we’ll measure everything in a Gigabyte Index, huh?


  6. kvilia says:

    Very nice report, thank you! One question: How will the upward movement in rates and therefore shipping companies shares will correlate with the next bear market you expecting middle-end 2013? I think you said market will give up close to half of it gains since 2008 low if I’m not mistaken. So does it mean shipping stocks will bounce back to their lows along with US markets sometimes in 2013? Thanks!


    • tony caldaro says:

      Hi That depends on a couple of factors.1. the length of the US bull market, i.e. 2013 or longer2. the strength of the recovery in shipping rates, i.e. the emerging growth economic recoveryShipping stocks are notoriously good dividend payers, when profitable.The companies with little debt are likely to pay dividends creating yield support.The heavily indebted companies are likely to hit their lows again during the next bear market.Overall, shipping companies are not immune to equity bear markets even with rates rising.As a whole most will likely hit their lows again. cheers!


  7. cruda Lee says:

    Thanks Tony
    good news LT


  8. Fran Finch says:

    So what is the stock correlation to the index? And what does is say about what they are shipping? And what is the economic effect of on what sectors/companies for the rising rates? And what is the correlation to inflation cycles? Group? Anybody have any thoughts?


  9. pugsma says:

    Very well done write-up Tony. Thanks.


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