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Talkin' Ships

Globalization has put the shipping stocks in bull market mode, Cramer said on Wednesday’s Mad Money, and it isn’t just oil tankers and container ships.

Dry bulk shippers – those that haul commodities like grain, coal and iron ore – are in the sweet spot largely because of the huge building boom in China, Peter Georgiopoulos, CEO of Genco Shipping , told Cramer.

Cramer notes that there are two “classes” within the dry bulk shippers. Some of them have contracted their fleet of ships for the year. In this case, rates are locked in at a given price so any changes in the key indicator of the rates – the Baltic Dry Index – are unlikely to affect profits. These names are the conservative way to play this trend.

Then there are the shippers who have their fleets only partially contracted. These companies are exposed to the Baltic Dry Index and the rates that they charge are more likely to fluctuate. These stocks are riskier, but have more potential upside if the rates go higher. (The rates are by the day, so the longer these ships are out on the water, the more money the companies make.)

Georgiopoulos’ Genco has its fleet contracted out for the year. The company made that strategic decision earlier in the year when the market seemed to have peaked, Georgiopoulos said. He expects rates will be “sustainable” but have “room to improve.”

Because the run up in dry bulk demand was quick, there is a shortage of actual ships on the market, Georgiopoulos said. If a client orders a ship now, they can expect it around 2011 or 2012, and there’s no reason to think the demand will dry up by then.

After World War II, the boom in dry shipping, as commodities were moved to rebuild Europe and Japan, lasted thirty years. Georgiopoulos sees parallels between the post-WWII rebuilding efforts and the current building up of China, which is in need of the same commodities that are delivered in the same way.

“Pay attention,” Cramer said. “The money being made here is gigantic.”


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