BALT, DRYS, SBLK: Why Low Baltic Charter Rates no Threat to Dry Bulk Carriers?

In what may be the latest disappointment for shipping companies such as Baltic Trading Ltd (NYSE: BALT), DryShips Inc (NASDAQ: DRYS), and Star Bulk Carriers Corp (NASDAQ: SBLK), Baltic charter rates are set to go further down this year. This is because tankers are likely to come across the smallest amount of ice in the Baltic Sea in almost three centuries this year. Tankers reduce their speed while navigating through the ice but less ice mean short turn around times and quicker deliveries adversely affecting the charter rates. 

However, dig a little deeper and one gets to see why it is not such a big negative for dry bulk carriers. While there may be some spill over effect on the entire shipping industry, lower charter rates in Baltic Sea are largely related to oil carriers and are likely to have no or very low correlation with dry bulk charter rates. This means that Baltic Trading Ltd (NYSE: BALT), which relies heavily on the Baltic route for revenues, may be affected. The stock extended its losing streak, dropping 3.5 per cent yesterday. It has lost nearly 18 per cent in the last month. Lower rates may just aggravate the capacity glut that has almost halved rates in eth last year. At $4.08, the stock has a price earnings ratio of 58 indicating further room for a reduction in price.

However, DryShips Inc (NASDAQ: DRYS) may be largely unaffected by less ice in the sea. On the contrary, the acquisition of OceanFreight at rock bottom prices may turn out to be the black horse for DRYS when the industry recovers from overcapacity. In addition, the company reported encouraging progress for the drilling segment during the third quarter results published in November. The exposure to shipping industry in net revenue terms is roughly half now. The stock trades at $2.2, while has a 52 week range of $1.75 - $5.19.   

Star Bulk Carriers Corp (NASDAQ: SBLK) is probably the most attractive stock in terms of market price, asset valuation and earnings viability. At $1.09, the stock trades at a price earnings multiple of just 3 and has less gearing than DRYS. The stock appears to have bottomed out and has given a breakout that pulled it from $0.88 to current levels in the last month.  

Even though DRYS and SBLK may not have a direct impact of Baltic ice, it would be wrong to assume that shipping industry is out of woods yet. We need to see some stabilizing indicators before assuming a recovery.