Netflix and Dry Bulk

If creating content were easy, Netflix would be spending less than $9.0 billion annually on new shows and movies.  They have all the viewer data at their fingertips and seemingly unlimited budgets.  Yet this system has created numerous failures, with nothing to come close to the success of “Friends” or the “Office.”  It is also why someone who has reliably produced hits in the past and continues to do so, such as Steven Spielberg, is paid billions, because it is so difficult.

Dry bulk shipping is much the same.  No one knowingly spends millions on Capesize vessels with the idea of losing money daily. Demand data is available, and the key drivers, iron ore and coal consumption and inventories, are visible.  Millions have been spent on scrubbers to create a competitive advantage. Yet during recent earnings calls, there were significant losses announced by the public companies.  Unfortunately, there are few individuals who can consistently time the dry bulk shipping market.  Those who can, like the best Hollywood directors and producers, become very wealthy.

I would argue that Covid-19 circumstances have created an interesting risk/reward balance, with significant upside if commodity demand increases and supply is available.  In the case of iron ore, it is clear that there is Chinese demand for Brazilian product. If Vale is able to meet their iron ore production and shipment goals for 2H 2020, capesize rates should rise significantly. As Covid-19 quarantines are lifted in Asia, you will get scrapping of older vessels. If bunker prices go higher into the economic recovery, increased oil prices will contribute to slower steaming on ballast legs.  Capacity should contract further tightening the market.   It is an interesting time to own various dry bulk shipping names.  Is it guaranteed? Certainly not!  As they also say in Hollywood, “If you want a guarantee, go buy a muffler.”