Dry bulk shippers

Dear Mr. Berko:
I’m 70, and so is my husband, who retired in 2005. We had too much debt and were forced to sell our 2,800-square-foot home in Houston. I also lost my job in 2009. We downsized to a 1,450-square-foot home with a low-interest mortgage in Iowa, where our daughter and grandchildren live. We had $106,000 in cash from the home sale, so we paid off $68,000 of credit card debt (we have $23,300 left with Visa) and bought a new SUV to replace our 5-year-old car. We still owe about $122,000 on a time share, a boat, Jet Skis, an RV and two ATVs. But we have $11,000 left in checking, and my husband wants to speculate with three cheap stocks. A stockbroker we know recommended against it and said to speculate with 100 shares of Apple. But my husband, a retired container crane operator, wants to buy dry bulk shipping stocks — namely, Diana Shipping, Eagle Bulk Shipping and Navios Maritime Partners. His friends think those stocks could quadruple in price by this time next year. What is your opinion?
— GS, Waterloo, Iowa
Dear GS:
It must be a cultural shock for y’all, moving from Houston, a 627-square-mile Texas city with 2.2 million people and where anything goes, to Waterloo, where 68,000 folks live in 63 square miles and have little reason to lock their doors at night.
Financial boneheads, such as you, shouldn’t risk their cash in Diana Shipping (DSX-$6.72), Eagle Bulk Shipping (EGLE-$10.82), Navios Maritime Partners (NMM-$12.27) or issues like them. Like most of disappearing middle-class America, you have little buying power remaining in your purse. And like most Americans who’ve shot their wads, you’re up to your chin in debt; your incomes have crashed; and future income has to repay yesterday’s spending. Consumers in Europe and Asia are in trouble, too, but few are dumb enough to wallow in debt like you two dorks.
Freight rates for the busiest trade routes, from Asia to Europe, continue to fall. European growth has hit a wall, while Japan is falling back into a recession. And the world’s largest international dry bulk carriers — Maersk, China Ocean Shipping Co. and Hapag-Lloyd — are hurting badly. Freight rates in a single month dropped from $1,200 for a 20-foot container (large enough to hold the contents of an average three-bedroom home) to $935. In the beginning of 2014, those rates were as high as $1,800 per 20-foot container. It appears that shipping lines have lost control over their rate structures because of a triple whammy: 1) That serious economic slowdown in Europe and Japan. 2) Too many cargo carriers and not enough cargo to fill those ships. 3) The sharp rise of the dollar.
The busiest months of the year are August through October, when exporters from Europe and Asia ship laptops, tablets, TVs, cellphones and other electronics, plus clothing and toys, for the holidays. Those months were hugely disappointing for Maersk, Hapag-Lloyd and China Ocean Shipping Co., which had to take big hits to their income statements and balance sheets.
Since 2003, container shipping, which carries about 93 percent of the world’s manufactured goods, has suffered from overcapacity, exceeding 36 percent today. There’s limited growth in the eurozone, and there’s anemic growth in Asia and the Pacific Rim. So bulk shippers continue to reduce rates (below cost) to keep their ships moving. And while the big boys are cutting rates, smaller shipping companies, with less overhead, are undercutting the big boys’ lower rates, trying to stay in business till pricing recovers. There’s always some encouragement for the future.
I’d like to disagree with your husband, but the consensus on Wall Street is that revenues and earnings for DSX, EGLE and NMM will improve this year. Though I doubt the improvement will be worth a sixpence, those three issues could have a 50 percent upside move by this fall, and I doubt Apple stock can do that. Meanwhile, you’ll probably never pay off those debts, but that’s become the American way today. I hope your daughter and grandkids are smarter with their earnings than you two.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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