Why a balanced chartering strategy is a positive for DryShips

Market Realist

A must-read overview of DryShips' 2nd quarter 2014 earnings (Part 4 of 8)

(Continued from Part 3)

Chartering strategy

DryShips (DRYS) remains committed to its chartering strategy, which is to operate all vessels, both dry and wet, on the spot market in order to take advantage of a sustainable recovery in these markets in 2014 and beyond.

On the dry bulk front, DRYS’ average daily TCE levels were unchanged from previous quarters. This result was mainly due to the time charter coverage on the majority of its Capesize fleet and the spot rates on its Panamax fleet, which remained more or less at historic lows.

DRYS has 34% fixed rate coverage at an average daily PCE rate of 34,000. Its fixed coverage is predicted to fall to 21% for 2015 and then to 15% for 2016. But both these years have a locked-in average daily franchised equivalences rate of between 30,000 and 34,000 per day.

Outlook

In 2014 and 2015, DRYS recorded 6,651 and 15,821 spot fleet capacity days, respectively. DRYS’ Panamax fleet represents approximately 60% of the spot days. A 20,000-per-day increase in average charter rates will add another $133 million and $316 million of additional EBITDA for the shipping segment in 2014 and 2015, respectively.

Panamax is a very fragmented market, with a lot of operators appearing from South Asia and excluding traditional operators from Japan and Korea. When it comes to prices, there’s a lot of competition.

DRYS has significant leverage in the dry bulk and tanker spot markets. Positive developments in these sectors will result in substantial cash flow to its bottom line and also to its peers, like Navios Maritime Holdings Inc. (NM), Safe Bulkers (SB),  Navios Maritime Partners (NMM), and Star Bulk Carriers Corp. (SBLK).

The Guggenheim Shipping ETF (SEA) tracks these shipping companies.

Continue to Part 5

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