The global shipping industry has been witnessing extreme volatility over the last six years. Despite an improving U.S. macroeconomic scenario, the drybulk shipping industry is still not out of the woods.

This can be solely attributed to non-economic decisions taken by ship owners in 2008, just ahead of the onset of worldwide recession. The sheer increase of vessels under operation resulted in severe cut-throat price competition.

Fluctuations in Drybulk Shipping Segment

The drybulk segment of the shipping industry was hit by recession the most. This segment was affected by several factors like global economic downturn, volatility in various commodity demand and supply.

Capesize vessels, which are primarily used for drybulk goods, faced the major brunt of the recession along with severe intra-industry competition. In the spot market, capesize vessel rates fell below operating costs.

The Silver Lining

Since the beginning of 2014, the drybulk segment has been witnessing a turnaround albeit at a slow pace. The momentum is expected gather speed in the second half of 2014. Drybulk vessels including capsize, panamax and supramax/handysize are experiencing rate hike.

This is primarily owing to higher coal shipping demand from the emerging markets of China and India as well as from Europe. Also the substantial rise in coal and iron ore supply in the global commodities markets is generating significant cargo opportunity for marine transporters.

In Jun 2014, Chinese fixed asset investment grew 17% year-over-year on the back of increasing investment in the railway, infrastructure, housing and construction sectors. Growing Chinese demand for imported iron ore is also a positive for drybulk shippers. The Baltic Dry Index (BDI) also increased more than 52% in the last one month.

Our Top Picks

The shipping industry transports majority of world trade and is considered the life line of the global economy. The global drybulk shipping industry is highly fragmented, distributed among approximately 1,500 independent drybulk carrier owners.

At this stage, we believe investors should choose stocks which carry a favorable Zacks Rank to cash on future growth opportunities. Taking into account these factors, we present three such Zacks Rank #1 (Strong Buy) stocks for investors to consider:

Star Bulk Carriers Corp. (SBLK – Snapshot Report): Headquartered in Athens, Greece, Star Bulk is the largest U.S. listed drybulk shipping company providing worldwide seaborne transportation of major bulks, which include iron ore, coal and grain and minor bulks such as bauxite, fertilizers and steel products.

After the completion of the proposed vessels acquisition from Excel Maritime, the company will have a fleet of 103 vessels with a cargo-carrying capacity of approximately 11.85 million deadweight tons (dwt).

For fiscal 2014, the Zacks Consensus Estimate for earnings stands at 76 cents, indicating year-over-year growth of 31.03%. Meanwhile, estimated total revenue of $201 million is reflecting a substantial 191.30% rise.

For fiscal 2015, the Zacks Consensus Estimate for earnings is $2.07, highlighting a year-over-year improvement of 172.37%. The Zacks Consensus Estimate for total revenue stands at $620 million, up a whopping 208.46%.

Ship Finance International Ltd. (SFL – Snapshot Report): Ship Finance is a major shipowning company with a fleet comprising crude oil tankers (VLCC and Suezmax), oil/bulk/ore vessels, container vessels, dry bulk carriers, jack-up drilling rigs and seismic vessels. The company is also involved in the charter, purchase, and sale of assets.

For fiscal 2014, the Zacks Consensus Estimate for earnings is pegged at $1.10, indicating a year-over-year growth of 27.91% while that of total revenue stands at $322 million, up 18.82% year over year.

For fiscal 2015, the Zacks Consensus Estimate for earnings is $1.45, implying a year-over-year growth of 31.36%. The Zacks Consensus Estimate of total revenue is $418 million, up 29.81%. Additionally, Ship Finance has an impressive current dividend yield of 8.90%.

Rand Logistics Inc. (RLOG – Snapshot Report): Rand Logistics is a leading provider of bulk freight shipping services throughout the Great Lakes region. The company is the only carrier which offers significant domestic port-to-port services in both Canada and the U.S. on the Great Lakes. Its fleet transports construction aggregates, coal, iron ore, salt, grain, and other dry bulk commodities.

For fiscal 2014, the Zacks Consensus Estimate for earnings stands at a negative 10 cents, indicating a year-over year growth of 72.97%. On the other hand, the estimate for total revenue is $158 million, remaining same year over year.

For fiscal 2015, the Zacks Consensus Estimate for earnings is a break-even, reflecting a whopping year-over year improvement of 100.00%.