What happened
Shares of shipping stocks took a nosedive on Monday as the market weighed the future demand for shipping vessels. Investors appeared to be worried about shipping from China, higher rates, and even the oil spill in California.
Shares of Safe Bulkers (SB 2.61%) were down by as much as 10.2% early Monday, ZIM Integrated Shipping Services (ZIM -7.87%) was off by as much as 12%, and Danaos (DAC -1.92%) was down as much as 17%. The three closed the session down 8.5%, 11.4%, and 13.4% respectively.
Image source: Getty Images.
So what
First, there was speculation Monday morning that the oil spill off the coast of southern California could have been caused by one of the many ships anchoring there. That speculation has not been reported by official sources and seems to have been debunked, based on where the spill is visible and where ships are anchored. But speculation can affect the stock market nonetheless.
More important may be the potential for a slowdown in Chinese manufacturing to impact the volume of material that nation exports. China has implemented energy restrictions that have resulted in a drop in its industrial output. If that limits the supply of goods available to be shipped around the world, dry bulk vessel companies will feel it.
Despite the fact that output is down, the Baltic Dry Index, which gauges the prices that shipping companies can charge on the spot market, climbed steadily in September to highs not seen in over a decade. This could be partly because of the port traffic jams that have ships sitting idle around the world, but for now, it doesn't appear that China's manufacturing slowdown is hurting shipping.
Now what
In the case of Monday's move, it seems that the market's sentiment shifted against shipping companies all at once. That could have been triggered by any of the factors highlighted above, or even fears that higher interest rates will slow the global economy.
If we take a little wider view on the industry, we know that demand currently exceeds supply for ships, and that has led to high rates for vessels. We also know that the global economy is still on the road to recovery, so it's likely that demand will increase further. On the supply side, new ships aren't being built rapidly enough to meet demand, so we could see high shipping prices for years. This is what makes me bullish about the industry's profitability over the next few years.
I think Monday's move looks like a speculative sell-off by some investors, so if you think shipping profits will be strong for the next few years, this is a great buying opportunity. But volatility is common in shipping stocks, so don't be surprised if we see more wild moves.
