FREIGHT RATES AS STOCK PICKERS

With so many shipowning companies going public, it was certainly inevitable that someone would ask "is there a maritime index that correlates with shipping company stock prices?".  Or more to the point, "how about an index that predicts shipping company stock prices?".  The answers to those two questions are, first, "yes and no" and, second, "not yet and maybe never".

To the first question, indices of freight rates should correlate very well with earnings and then prices of pure tanker or pure dry bulker companies.  Because the costs of such companies are fixed in the short run, only revenue (as reflected in freight rates) is variable; when the rates move, earnings should move as well.   For other types of shipping companies like container companies or operations with several types of ships, the picture becomes much less determined and freight rates do not tell an unambiguous story.

As far as predicting share prices, the correlation mentioned above is a kind of leading indicator that points to changes in earnings but is not sufficiently sensitive as to time to be of much help in a plan of investment or disinvestment.  As for the "not yet", I have an idea, and if it works out you'll be among the first to know, but don't give up your day job just yet.