Industrial profit in China often reflects economic activity. When economic activity picks up, import volume tends to go up as well. Since China accounts for the bulk of global trade volume, rising industrial profit is often supportive for the shipping industry.
Growth in Industrial Profit Bottoms in August
On January 28th, 2013, the National Bureau of Statistics of China reported a growth of 5.3% for industrial companies in 2012 compared to the same period in 2011. While the data may not be that encouraging when compared to the 8.9% forecast for S&P 500 companies in 2012, it is a significant change since August; earnings from January to August of 2012 fell ~3.0% compared to 2011. The recent increase in earnings growth follows several economic stimulus that were implemented over the summer, including China’s ~$134 billion worth of investment projects and Brazil’s $66 billion package.
Rising Earnings Supports Shipping Overall
Rising earnings are often driven by rising revenues, which points to higher global economic activity. Higher global economic activity accommodates higher trade volumes. This is positive for dry bulk shipping companies such as DryShips, Inc. (DRYS) and Diana Shipping, Inc. (DSX). These companies engage in the transportation of dry raw materials such as iron ore, thermal coal, coking coal and grains over water. Tanker companies such as Teekay Corp. (TK) and Frontline, Ltd. (FRO), and other businesses that engage in the transportation of oil across oceans, will also benefit. Investors who may want to diversify into some of the solid companies but do not know which can participate in this rising trend by investing in the Guggenheim Shipping ETF (SEA), an ETF that invests in several leading high dividend paying shipping companies worldwide.