Shipping frenzy may end on rocks

Near-bankrupt shipping companies around the world are seeing their shares mysteriously rally this week, forcing Nasdaq on Wednesday to halt a number of stocks and request more information.

an Athens, Greece-based company that hauls freight around the world on massive ocean-going tankers, has been at the centre of the shipping frenzy. The company, which defaulted on three bank facilities earlier this year and faced the prospect of bankruptcy, has seen its shares rise by more than 1,500 per cent in the past week.

Other ocean shipping companies with similar balance sheet struggles — such as and

— have also seen their shares spike, triggering circuit breakers and leading exchanges to halt their stocks. Analysts have pointed out that trading volumes are far beyond anything that could be considered normal.

The main theory about what’s behind the rally is the election of Donald Trump. Shipping stocks started going haywire on Nov. 9 after his election, with some analysts saying that investors believe Trump’s stimulus policies will revive what for a long time now has been a moribund industry.

But some have also questioned whether something more sinister is at play.

“It’s going on for days,” Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, N.J. “If there is something illegal going on here, where are the regulators?”

Saluzzi said some of the extreme trading was probably exacerbated by the fact that many of these companies do not have a big supply of shares.

Global shipping companies, particularly the dry bulk shippers that move raw materials, have struggled in recent years as commodity prices have crashed and recent demand from China, the world’s largest consumer of commodities, has waned.

Many shipping companies have as a result decreased their fleet sizes in an effort to adjust to the new environment. In September, Hanjin Shipping Co. Ltd., the world’s seventh-largest container shipping company, declared bankruptcy. The South Korean company’s surprise announcement led a number of ports to deny their ships entry for fear of not being paid.

The struggling industry needs a new bull market in commodity prices to become profitable again. That’s where Trump comes into play. The president-elect’s policies focus on ramping up fiscal spending, including on infrastructure, to grow the American economy. Building that infrastructure will require a lot of raw materials, which means that shipping companies like DryShips could stand to benefit from the jump in global traffic.

But there are a lot of questions about whether investors are just looking for short-term profits instead of actually believing in an industry revival. DryShips, for instance, sold off most of its fleet this year, in addition to defaulting or suspending payment on several loans.

“DryShips’ financial condition has been weakening, with little hope of a full recovery, so this is not a value play,” said Elizabeth Van Every, an analyst at S3 Partners, in a note to clients.

She warned that investors who got in hoping to profit could find that once the euphoria wears off, no one will be left to buy their shares.

“DryShips has turned into a game of musical chairs, except for the last traders who will be sitting and holding onto their shares as the bubble eventually bursts and they lose,” she said.