Listed in the US on NYSE Arca (BDRY), the ETF is poised to benefit from a strong upcycle in the commodities market. While we spend a lot of time at The Armchair Trader looking at bulk commodities, we spend less time examining how you ship them around the planet.
Breakwave Dry Bulk Shipping is a pure exposure play on the dry bulk market – namely near-dated freight futures contracts on dry bulk indices.
As an ETF this one trades like a share and there is no need to own a futures account to hold the ETF.
The largest shipping market in the world
Dry bulk shipping is the largest shipping market in the world. It accounts for a wide range of products, including iron ore, coal, grain and bauxite, timber, containers and general cargo. It accounts for over 70% of seaborn cargo trade.
Several seasoned players in this market are calling this an approaching super cycle, with comparisons being made with the 2003-2008 super cycle in the dry bulk market. Tor Olav Troim (described by some as the right hand of Norwegian shipping billionaire John Fredriksen) said this week he is creating a dry bulk ownership vehicle called Himalaya to back the construction of 12 new vessels. We have definitely shifted away from the bad old days of 2009 when there was massive spare shipping capacity. Troim is very bullish on the market and has raised $800m for Himalaya.
Cape futures contracts trading at premium
We are also seeing bullish activity in specialist shipping contracts – e.g. cape futures (covering larger dry bulk shippers that don’t fit in the Suez or Panama canals). These are now trading at a premium with many analysts now saying the spot price is close to a floor. Brazilian iron ore exports are picking up fast and demand for ships over the next six months is soaring.
In the first half of the year, we saw about 10m tons of Brazilian iron ore hitting the market. Breakwave Advisors reckons that more than 25m tons, perhaps even 30m tons of iron ore will be looking to leave Brazil in 2H.
“As the global economies reopen, demand for commodities has increased considerably, from iron ore to grains to lumber. Most of the major commodities are transported by ships, and thus demand for transportation services has also increased,” says John Kartsonas, Founding and Managing Partner at Breakwave Advisors LLC. “The cyclical nature of such trends means that the outlook for the global shipping industry remains promising. Finally, the secular trend of decarbonization is also having an impact on shipping by limiting new ship ordering as the industry is waiting for new engine technologies to develop, thus further supporting the shipping upcycle for the years to come.”
As the world starts to re-open after the pandemic, the need for goods is running at al all time high. The fund itself has seen some spectacular growth so far, and we suspect has more to give as the commodities demand cycle pushes further.