Ship orders reflect managers’ assessments of the industry’s future demand and supply balance. Dry bulk shipping companies will often place new orders when future demand is expected to increase more than supply, on the condition that they expect to generate profits with new vessels. Since dry bulk ships usually take one to two years to construct, ship orders are most applicable to long-term investment horizons.
For the week ending June 7th, the number of dry bulk ships on order as a percentage of existing number of ships rose from 9.26% the prior week to 9.28% this week, a sign that managers are still optimistic regarding the long-term prospects of the industry and supports the view that the industry is in the process of turning around.
Dry bulk orderbook as a percentage of existing capacity measured in deadweight, however, fell from 16.78% to 16.68%. As the orderbook figure includes dry bulk vessels that are under construction, a lower figure suggests a weak construction activity and that managers are in no rush to have ships delivered for service.
Maintained cautious outlook
Although it is encouraging to see ship orders returning to normality, investors still want to be cautious. Year-over-year capacity growth remains elevated, which has a negative impact on companies revenues, earnings and free cash flows (see our Fleet Utilization driver for most up to date information and analysis on capacity growth). Such companies include DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Navios Maritime Partners LP (NMM), Eagle Bulk Shipping Inc. (EGLE) and Safe Bulkers Inc. (SB).
Shipping rates are expected to remain depressed at least in the short-term (see Shipping Indexes for more information) and several valuable contracts will roll over through the next couple of months. DryShips Inc. (DRYS) and Safe Bulkers Inc. (SB) will most negatively be affected by those maturing contracts, while Diana Shipping Inc. (DSX) is least subject to them. While the Guggenheim Shipping ETF (SEA), which invests in several large shipping companies, will also be negatively affected, the effect is minimized through diversification.
For the week ending June 7th, the number of dry bulk ships on order as a percentage of existing number of ships rose from 9.26% the prior week to 9.28% this week, a sign that managers are still optimistic regarding the long-term prospects of the industry and supports the view that the industry is in the process of turning around.
Dry bulk orderbook as a percentage of existing capacity measured in deadweight, however, fell from 16.78% to 16.68%. As the orderbook figure includes dry bulk vessels that are under construction, a lower figure suggests a weak construction activity and that managers are in no rush to have ships delivered for service.
Maintained cautious outlook
Although it is encouraging to see ship orders returning to normality, investors still want to be cautious. Year-over-year capacity growth remains elevated, which has a negative impact on companies revenues, earnings and free cash flows (see our Fleet Utilization driver for most up to date information and analysis on capacity growth). Such companies include DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Navios Maritime Partners LP (NMM), Eagle Bulk Shipping Inc. (EGLE) and Safe Bulkers Inc. (SB).
Shipping rates are expected to remain depressed at least in the short-term (see Shipping Indexes for more information) and several valuable contracts will roll over through the next couple of months. DryShips Inc. (DRYS) and Safe Bulkers Inc. (SB) will most negatively be affected by those maturing contracts, while Diana Shipping Inc. (DSX) is least subject to them. While the Guggenheim Shipping ETF (SEA), which invests in several large shipping companies, will also be negatively affected, the effect is minimized through diversification.