I did an interview for Capital Link earlier this week with Doug Mavrinac, a top securities analyst- who heads up the research team at Jefferies & Company, one of the leading investment banks in the maritime realm. Our subject was DryShips (DRYS) - in the instant case, its acquisition of OceanRig (a Norwegian drilling company). Doug is a walking and talking encyclopedia of shipping and energy market fundamentals, and presents his facts clearly and crisply (unlike the interviewer who cruises around from topic to topic). He maintains a “Buy” rating on DRYS due to optimism about the marketplace, but also because he sees huge value (not recognized by the market) in the ultra deepwater drilling business. DRYS is likely to spin its drilling business off, maybe as early as 2Q 2009 (although I think that’s a bit optimistic).

Upon reflection, sitting back and listening to the interview afterwards, the story that Doug was describing to me is really one of a company in transformation mode. The transformation reflects the ability of George Economou, the CEO, to anticipate the shifts in the freight market, and in the preferences of investors. When you meet Mr. Economou (as an interviewer, I get around), you cannot help be struck by how much he knows about raw materials businesses- coal, iron ore, those type of commodities.

Those day traders and stock bloggers cannot get enough of DRYS (although I saw that one prominent finance blog is now talking up Genco Shipping and Diana Shipping- both fine companies). Yet I sense that Dryships is rapidly moving over to the “industrial shipping” camp, with long term charters recently announced on more than a dozen vessels. Some of these charters extend out ten years. I have not run all the numbers, but a 10 year charter at maybe $45,000/day on a to-be- constructed Capesize vessel (delivering in 2010) would almost certainly pay off the vessel, and then some.

Some of these new charterers, like steelmaker Shagang that has been active in the Capesize sector, take some getting used to. There is talk of Fortescue, the upstart new kid on the Australian mining scene, coming in for 10 year charters, maybe even with backing from Chinese partners. There are rumblings that, Mittal Steel, not a name seen around the bulk freight markets but clearly a big behemoth, will also be coming in for long term charters.

So, that’s where shipping is at. The commodity super-cycle, or whatever we are in, is taking on real legs. Listed shipowners such as DRYS, but also Genco, Diana, and I would add names like Eagle Bulk to the list, are going to benefit big time. The shipping banks love the long term charters and will be able to fund sensible industrial deals at these listed companies. Look, for example at ultra-conservative HSH Nordbank and Deutsche Bank getting together on a $750 Million credit for E.R. Schiffahrt’s 10 new Capesizes ordered in Korea. The bankers at these institutions are friends of mine- good guys, but very “belt and suspenders.”

The charterers (by definition net short freight) love the long term deals also, well maybe defensively- because they’ve been clobbered by the freight market over the past five years. Big charterers like BHP and Rio Tinto have in-house logistics departments with hundreds of people on staff. Yet, shipping being shipping, there are opportunities to help charterers fine-tune their freighting. Professionals such as Economou, Georgiopoulos/ Buchanan, Palios, and Zoullas will be able to fine-tune what all the mineral magnates’ minions can’t.

And investors should love them too. Long term stability, topped off with profit shares or with a portion of the fleet deployed on a spot basis, is the way to keep everyone happy. And maybe, in this brave new world, performance bonuses (looking at shadow costs in the networks of the BHPs and Rio Tinto’s of the world) are in order for the shipowners- just a thought. Doug Mavrinac pointed to the ongoing re-balance at DRYS- longer term rates are often lower than spot rates, but far less volatile, and worth more investors put higher multiples on them.

What does all this mean to readers of the blog who are looking for insights into the various shipping companies? I invest in some of them based on a belief in the market, but also because I know the people- that’s my job as an analyst. A key determinant of “who’s good?” and “who’s not” is how close they are to the businesses of their customers. You can get a feel from the roadshows and press releases of the companies mentioned (and others who are not mentioned) that they understand what makes their markets tick. After all, shipping is a driven by a mélange of raw material markets, the occasional “Act of God” in the form of floods and hurricanes, plus a little something else. The last item, and that’s the secret sauce, is what makes for great shipping companies.

So, as you research the various companies, perform your normal and necessary due diligence, read the well done reports of Doug Mavrinac and the other handful, or two, of top analysts with Wall Street firms. But then, if you can meet some of the company principals, talk to them about their customers’ businesses. Their responses may help you answer that big question about where to place your investment dollars.