2011's Best and Worst Shippers

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What a crazy year it's been for investors. The S&P 500 jumped up over 8% by May, only to turn around and find itself down over 10% in August, mainly as a result of the European debt crisis and Washington's inability to agree on a solution to our debt dilemma. Now, at the end of December, the S&P has fought back and is poised to end the year essentially flat.

But while the markets as a whole didn't change much over the past 52 weeks, the shipping industry wasn't nearly as lucky.

Take a look at how shippers performed in 2011:

Company

% Return in 2011

Safe Bulkers (NYS: SB) (32.4)
Diana Shipping (NYS: DSX) (37.0)
Navios Maritime (NYS: NM) (37.6)
DryShips (NAS: DRYS) (61.3)
Star Bulk Carriers (NAS: SBLK) (67.5)
Eagle Bulk Shipping (NAS: EGLE) (82.2)
Paragon Shipping (NYS: PRGN) (82.8)

Source: S&P Capital IQ. Only includes companies listed on U.S. exchanges. Returns as of Dec. 28, 2011.

Yikes. Clearly, dry bulk shippers have had a horrific year. So much so that Safe Bulkers, down 32%, looks like a stellar performer. Dry bulk shipping is all about supply and demand, and right now there is just too high of a supply of ships and not enough demand to ship commodities. The result is lower prices that the dry bulkers can charge.

The Baltic Dry Index (BDI) is a rationalization of the supply of dry bulk carriers and the demand for leasing of the vessels. The higher the BDI, the more shippers that use spot contracts get paid to transport cargo. The lower the BDI, the less they earn. The BDI is essentially flat for the year, but it has declined more than 85% since May 2008. Shippers simply aren't getting paid nearly what they once were to transport their cargoes, and their stock prices reflect that.

DryShips made news this summer when it acquired smaller shipper OceanFreight for $118 million. The company wanted to increase the amount of large vessels in its fleet while asset prices were low. The deal will provide DryShips with more Capesize and Panamax vessels, which are ideal for transporting coal and iron ore. Demand for these ships is higher than others due to raw material demand from China and India.  

Navios Maritime may be less volatile than some of its peers because most of its contracts are long-term contracts. That means that much of the company's cash flows are locked in for the future; 62% of the company's vessels have contracts with a remaining duration of six to 10 years. The company is also growing its logistics business, making it more diversified than many of its peers. Recently, shares of Navios popped after JPMorgan initiated coverage of the company and gave it an overweight rating. But Navios has since given back most of that gain and is poised to end the year down more than 35%.

Of course, shippers are notoriously linked to the state of the macroeconomy. That wasn't such a good thing in 2011, as the European debt crisis helped drag down the global economy. That's bad news for these shippers, especially since six out of these seven companies are based in Greece. If the global economy can pick up in 2012, we should see increased demand for dry bulk shippers. If that happens, it'll help ease the oversupply problem and should begin pushing prices back up for these shippers.

While shippers are in many ways at the mercy of the global economy, our chief investment officer has discovered a company that should thrive no matter what the macroeconomic environment. We detail this company in our brand-new free report called "The Motley Fool's Top Stock for 2012." It highlights a retailer that we've dubbed "the Costco of Latin America" due to its tremendous future growth prospects. You can get instant access to the name of this company by clicking here -- it's free.

At the time this article was published Brendan Byrnes owns no shares of any company mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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