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DryShips Inc. is a marine transportation company operating about 30 vessels. Thecompany reported in November 2007 for the 3rd quarter net income of $103.5 million or $2.92 per share which included a one time capital gain of $19.2 million or .54cents on the sale of 2 ships. Excluding the 1 time capital of .54 cents,they still netted $2.48 a share. At $73 dollars that gives them a current p/e of about 7.
Shipping rates are dictated by the Baltic Dry Index or BDI as set by the Baltic Exchange in London. The BDI spiked from about 4300 in January 2007 to about 10,800 in October 2008.
If you examine the costs of operating an ocean vessel,you have labor and fuel costs. Labor should be fairly stable and that leaves fuel costs. Fuel costs have sky rocketed,but companies such as DryShips have a built in fuel surcharge rate which increases as fuel costs rise. The trucking industry in the U.S. operates in the same fashion,as fuels cost go up,the shipper pays a higher surcharge and absorbs the higher cost,not the transportation company. So,as BDI more than doubled,DryShips and the other ships company's costs hardly moved and thus they had a great 2007. Drys and others are buying ships and consolidating because the industry is booming. The BDI has dropped off to about about 5500 and now is starting to increase again.
A lot of these ships are hauling coal and agriculture products from the U.S. to China. As the dollar weakens,shipments from the U.S will continue to grow. I have seen estimates as high as a full 1% of the U.S. GDP is now coming from exports. As we open new export markets and we have a weak dollar,these marine transport companies should continue to grow.
Based on current BDI rates and comparing those current rates to past rates,the marine shipping industry is doing very well. This is one major factor in my predicting this is a slow down and will not be anything near the 2000-2003 recession.
Drys and these other transporters are in a great position and I think are a great buy at current price levels.
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