(FRO) - (OMM) - Paul Tracy, StreetAuthority Market Advisor newsletter - direct play on burgeoning global trade is the transportation industry

Paul Tracy, editor of the StreetAuthority Market Advisor newsletter, explains that the most direct play on burgeoning global trade is the transportation industry. More specifically, this featured expert notes that the shipping industry has been doing quite well in recent years. Take a look at two of the plays Tracy details, Frontline and OMI Corporation. FEATURE ARTICLE from October 2 Los Angeles is best known as the center of the global entertainment industry. And certainly, Hollywood's film industry is a global behemoth. But the Southern California city is also host to a lower-profile industry that carries arguably even more importance for the U.S. economy. Specifically, look out over the Pacific Ocean on any given day, and you're likely to see a line of gigantic ships stretching toward the horizon. Most hail from Asia and are headed to the ports of Los Angeles and Long Beach. On an average day last summer, these ports received nearly 24,000 shipping containers -- known as twenty- foot equivalent units -- or TEUs -- loaded with goods ranging from televisions to auto parts to toys. That's about +10% more containers than these two ports handled just one year earlier. You see, the Los Angeles area is a key center of the U.S. container port industry, accounting for as much as 15% of all containers shipped into the U.S. on a given day. And container ship traffic has been growing exponentially since the early 1990s in both Southern California and other key U.S. ports. Of course, consumer goods and container shipping are just one part of global trade -- trade in commodities is every bit as important. For example, U.S. imports of oil total more than 13 million barrels per day, and Chinese crude imports have grown from zero to more than 3.3 million barrels per day since 1992. Furthermore, agricultural products from Brazil and the U.S. feed countries in Asia, Europe, and the Middle East. There are literally thousands of globally traded metals, agricultural products, and energy commodities. Growth in trade should come as little surprise -- just consider the products you use every day. If you're like most Americans, many of the goods you consume are made or produced outside the U.S. Whether you own a Japanese car, an Italian suit, or simply enjoy Chilean avocados in the winter months, you're a participant in global trade. In fact, you may be importing goods without even knowing it. For example, most American cars actually contain significant amounts of foreign- made parts. Plus, the fuel you use to power your car is sourced from all over the globe. And it's not just manufactured products -- that jar of mayonnaise in your refrigerator quite possibly contains palm oil from Indonesia, sugar from Brazil, and eggs from the U.S. And just as you enjoy foreign goods, foreign countries are big consumers of U.S. products. In fact, while America is the world's largest importer, it's also the globe's second largest exporter. American agricultural products, movies, advanced technologies, and a host of other items are exported to countries all over the world. Of course, this isn't just a U.S. centric phenomenon. Consumers around the world are increasingly buying goods sourced from distant corners of the globe. For instance, while most pundits focus on China's growing exports, the nation is also among the world's largest importers. In China, rapid economic growth spells rapidly rising disposable income. This jump in available income has been a factor in Chinese imports, which have increased at an annualized pace of more than +27% over the past four years. And global trade is likely to continue growing. Over the past three decades, most countries in the developed and developing world alike have gradually been reducing barriers to trade. Countries have reduced tariffs on imported goods and eliminated limits on certain exports. Protectionist policies once designed to favor domestic companies over foreign competitors have been softened or dismantled in many cases. While global free trade is still a work in progress, there have been meaningful steps taken to encourage trade and open up markets to outsiders. Moreover, it's cheaper to move goods now than at any time in the past. Before the advent of container shipping in the 1950s and 1960s, shipping goods meant loading individual irregular-shaped items onto a ship. This proved inefficient, as there was no way to move many individual items at once, and securing odd-shaped goods for an ocean voyage took a great deal of time and labor. Nowadays, items are packed into standard 20 or 40-foot long containers that can be stacked neatly on the decks of giant ships. Standardizing containers makes it easier to handle loading, unloading, and bundling cargo from multiple shippers. And the development of ever- larger and more energy-efficient container ships has made it even cheaper to transport items. Rapid growth in global trade and increased efficiency certainly impacts a myriad of industries. Manufacturers can now source parts from all over the world, looking for the best price and quality. And producers of goods and commodities no longer have to sell their wares locally -- it's easy and cheap to load products onto a ship and transport them almost anywhere in the world. But the most direct play on burgeoning global trade is the transportation industry -- companies that physically move goods and commodities from producers to consumers. And when it comes to international trade, most goods and commodities are carried the same way they were two or three centuries ago -- by ship. Companies that own fleets of container ships charge a fee to move all those goods to wherever in the world they are needed. Plus, the big energy companies rent tankers to move oil from the Middle East to the U.S. for refining. Add in the growth of Chinese imports, and you can see why the shipping industry has been doing quite well in recent years. Even better, the global transportation industry offers an attractive one-two punch for investors --solid growth powered by rising trade, coupled with dividend yields that hover close to 10%. Here are two of Paul Tracy and his team's favorite plays on the burgeoning business of trade . . . Frontline (FRO): Major oil companies don't generally own their own fleet of tanker ships. Instead, these firms lease their ships from third-party tanker companies like Frontline. FRO owns a fleet of about 60 tanker ships divided roughly equally between mid-sized Suezmax carriers, which are designed for shorter journeys, and Very Large Crude Carriers (VLCC), which are used to transport crude over long distances. Like most tanker firms, FRO leases its ships under a combination of spot and time charter contracts. Time charter contracts are longer-term contracts at a fixed day-rate -- often charters can be one to five years in duration. Spot rates are short-term agreements cut at the prevailing market day-rate at the time of contracting. Spot contracts offer more upside potential. Meanwhile, time charters offer more stable, predictable rates. The advantage of FRO's balanced contract portfolio is that its spot rate contracts allow it to benefit handsomely during strong tanker markets, while its time charters offer a measure of stability during weak periods. Tanker rates are determined by two main factors: the supply of tankers and demand for crude oil shipping. Demand for crude oil shipping has been growing rapidly in recent years as countries like China import greater quantities of crude oil. China's crude oil demand is set to grow by roughly +6% over the next two years, and that means more demand for oil transport. On the supply front, there are new tankers being built, but that new supply is partly offset by the phase-out of older, single- hull tankers. Single-hull tankers are more prone to spills, and international agreements schedule all single-hull ships to be phased out over the next five years. Many major energy producers have already decided to lease only double-hull ships -- well ahead of international deadlines. While tanker rates are volatile and seasonal, strong demand and weak supply growth has spelled a gradual rise in rates since the beginning of the decade. With rates at current levels, FRO is a highly cash flow positive business. This strong cash flow generation allows FRO to pay impressive dividends. Specifically, management has targeted a goal of paying out at least $2.50 per share in dividends, equivalent to a 6.7% yield. But with day-rates running above average, FRO has actually been exceeding that target handily, paying an annualized yield closer to 16% this year. With this in mind, FRO remains a core member of our Income Portfolio. OMI Corporation (OMM) operates a fleet of 46 tanker ships. The company operates 13 mid-sized Suezmax tankers and another 33 so-called product carriers. Product carriers generally do not carry crude oil -- instead these ships are designed to carry refined products like jet fuel, gasoline, or diesel. The product carrier business is a compelling growth market. No new refineries have been built in the U.S. since 1976. Meanwhile, over the past 30 years, demand for refined products has grown significantly. Environmental regulations and local opposition make it extremely difficult to site new refineries. That spells a major shortage of refining capacity in the U.S., particularly for gasoline. Thus, the U.S. has to import significant quantities of gasoline from regions that have excess gasoline refining capacity -- mainly Caribbean nations and Europe. Imports of gasoline and other refined products are growing even faster than crude oil imports. That should lead to solid growth for OMM. The stock is a current member of our Income Portfolio. This article highlights the commentary of Paul Tracy for the Zacks.com audience. Paul Tracy provides insightful analysis, market commentary, and favorite recommendations on a timely basis in "StreetAuthority Market Advisor" newsletter. 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