Excel Maritime to Underperform


We maintain our Underperform recommendation on Excel Maritime Carriers Ltd. (EXM). Although the company’s fourth quarter of 2011 financial beat the Zacks Consensus Estimates, we believe the drybulk shipping industry has a gloomy prospect, at least in the near-term. This sector is facing serious challenges since the spot vessel rates collapsed significantly.

The sole reason for this dismal condition is the sheer increase of newbuild ships under operation that resulted in intense price competition. The spot rates of drybulk vessels have fallen to such a low level that even surging commodity prices in the Asian markets failed to offset the loss of the vessel owners.

We believe continuation of this pricing trend will certainly jeopardize the company’s future financials. In the last year, Excel Maritime took a severe hit on its time charter equivalent rate. Further, we do not expect the company to achieve profitability any time soon.

Excel Maritime operates under highly competitive drybulk shipping industry. Its main competitors are Diana Shipping Inc. (DSX), Genco Shipping & Trading Ltd. (GNK) and DryShips Inc. (DRYS). In a research report, the shipping consulting firm Moore Stephens LLP predicted that the vessel operating cost will increase 3.7% in 2012 due to higher crew and maintenance expenses.

The global shipping industry is currently reeling under a depressive condition where overcapacity resulted in declining freight rate. The situation becomes further worse with the increase in cost of regulatory compliances and environmental concerns. Moore Stephens warned that vessel operating costs may significantly aggravate the situation.

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