Shipping Rates Come Roaring Back: How About Japanese Shipping Stocks?

As pointed out in FT Alphaville (The Little and Large of Soaring Shipping Costs), the January plunge in large dry bulk carrier rates was temporary, as shipping rates are now back to record levels. The rise in Capesize rates is sharper, ostensibly due to continued strong demand for coal/iron ore shipping on resurgent demand from steel makers.

While many ships are on order, they are still some time away from being delivered, and thus current supply of ships remains tight, with the dry bulk fleet capacity totalling 132.5 million dead weight tons as of April 1, 2008.

Japan's shipping stocks appear to be lagging this rebound, ostensibly because of fears that soaring energy costs and a stronger yen will squeeze profits. However, we believe that management forecasts may be too conservative, and that continued high shipping rates will continue to support earnings growth.