The Baltic Dry Index (BDI) hit another new 12-year high yesterday and is up almost 1,000% since March 2020…
It’s not surprising, considering it’s the most followed international measure of the price of shipping goods around the world.
And it looks like there’s no sign that it’ll slow down…
This is mostly due to the pandemic wreaking havoc at shipping companies and ports all over the world.
Ports have had to shut down and ships have been particularly vulnerable to the rapid spread of the coronavirus. That’s reduced both the capacity of ports and the number of ships available to run.
At the same time, the global pandemic has created outsized demand for everything from furniture to appliances, homes, and vehicles.
There is less supply and more demand at exactly the same time, which has created the perfect storm…
However, the strict new emissions laws that went into effect in early 2020 added even more fuel to the fire… The International Maritime Organization (IMO) 2020 rules had taken decades to negotiate and ultimately banned the use of bunker fuel in most countries.
The cost of retrofitting ships to scrub their emissions to meet these new standards often exceeded the value of the vessel.
So, 2020 was already going to be a difficult year for the shipping industry because lots of ships were due to be junked… then the pandemic hit.
Suddenly, there was massive new demand and fewer ships to handle it. Naturally, shipping prices skyrocketed, and shipping companies that had been on the verge of bankruptcy were thrown a lifeline.
There are only two ways the price of shipping goods can fall: either demand will evaporate or more ships are brought online.
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However, it takes years to build a new fleet of ships. That’s true during normal times, but especially so in a pandemic environment rife with supply shortages.
On top of that, pressure is building on companies to sail in an even more environmentally friendly manner. So, there’s a real chance that much tighter regulations will be imposed even though new IMO 2020 rules only went into effect last year. That kind of policy uncertainty deters companies from making big investments in new ships.
The outlook for the shipping sector was already bearish before the pandemic…
For example, the Invesco Shipping ETF was liquidated in early 2020. That’s a measure of just how bearish the shipping sector was.
Since then, companies like Diana Shipping (DSX), Eagle Bulk Shipping (EGLE), Star Bulk Carriers (SBLK), and Safe Bulkers (SB) have risen well in excess of 100%.
I like it when well-known sectors struggle to attract investor interest and fail to sustain ETFs… To me, it’s a great sign that very few people are involved in the sector.
When a new catalyst evolves to spur interest, traders come flooding back in. That’s when new products are created to make it easier for people to participate. That needs to happen to allow more money to flow back into the sector.
The money has been trickling back in, however, thanks to ETFs like the SonicShares Global Shipping ETF (BOAT). BOAT was launched in early August and tracks the Solactive Global Shipping Index.
It’s very small currently, but it’s the only ETF investing directly in shipping companies I know of. And it’s likely to become a popular venue for traders who want a piece of this evolving bull market.
All the best,
Co-editor, Market Minute
P.S. While the shipping industry is facing a perfect storm, there’s another even lesser-known volatility surge that’s quickly heading towards the markets.
It’s what legendary $800 million hedge fund manager Larry Benedict calls the “7-day blitz,” and it’s fast approaching. This rare event happens just four times a year, and most investors never see it coming… That’s why Larry will be hosting a free online summit on Wednesday, September 8, at 8 p.m. ET, to help you prepare for the upcoming event.
This is a strange phenomenon that rarely happens in the markets, so click here to reserve your spot and even receive Larry’s #1 ticker to trade it during the presentation.
In today’s mailbag, Market Minute subscriber Daniel shares his thoughts on Eric’s recent educational essay on roll yields…
Eric, I really appreciated the lesson on roll yields in commodities. I hope you and Jeff Clark will make recommendations in the commodities that’ll benefit most from this reality so your subscribers can beat the popular ETF’s.
And, Delta Report member Gelene shares her appreciation for Jeff’s trading approach…
I appreciate you. Unlike the other advisory services I’m subscribed to, you freely give advice on how to interpret what’s going on in the markets and make recommendations as to what to do or not do.
You also provide education. The others get you hooked, then all they do is push other products and the one you’ve paid good money for just falls by the wayside with no trade recommendations ever or advice on how to gauge the market. So, thank you.
Let us know your thoughts – and any questions you have – at [email protected].