U.S. Markets closed

Edited Transcript of GNK earnings conference call or presentation 9-May-17 12:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 Genco Shipping & Trading Ltd Earnings Call

NEW YORK Jun 9, 2017 (Thomson StreetEvents) -- Edited Transcript of Genco Shipping & Trading Ltd earnings conference call or presentation Tuesday, May 9, 2017 at 12:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Apostolos Zafolias

Genco Shipping & Trading Limited - CFO

* John C. Wobensmith

Genco Shipping & Trading Limited - CEO, President and Secretary

================================================================================

Conference Call Participants

================================================================================

* Douglas John Mavrinac

Jefferies LLC, Research Division - Senior Equity Research Analyst

* Fotis Giannakoulis

Morgan Stanley, Research Division - VP, Research

* Magnus Sven Fyhr

Seaport Global Securities LLC, Research Division - MD of Marine Transportation and Senior Shipping Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited First Quarter 2017 earnings conference call and presentation. Before we begin please note that there will be a slide presentation accompanying today's conference call. That presentation can be obtained from Genco's website at www.gencoshipping.com. To inform everyone, today's conference is being recorded and is now being webcast at the company's website www.gencoshipping.com. (Operator Instructions) A replay of the conference will be accessible any time during the next 2 weeks by dialing (888) 203-1112 or (719) 457-0820 and entering the passcode 6277973. At this time I will turn the conference over to the company. Please go ahead.

--------------------------------------------------------------------------------

Unidentified Company Representative [2]

--------------------------------------------------------------------------------

Good morning. Before we begin our presentation I note that in this conference call we will be making certain forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe and other words and terms of similar meaning in connection with the discussion of potential future events, circumstances or future operating or financial performance.

These forward-looking statements are based on management's current expectations and observations. For a discussion of factors that could cause results to differ, please see the company's press release that was issued yesterday, the materials relating to this call posted on the company's website and the company's filings with the Securities and Exchange Commission, including without limitation, the company's annual report on Form 10-K for the year ended December 31, 2016, and the company's report subsequently filed with the SEC. At this time I would like to introduce John Wobensmith, Chief Executive Officer of Genco Shipping & Trading Limited.

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [3]

--------------------------------------------------------------------------------

Good morning. Welcome to Genco's first quarter 2017 conference call. I'll begin today's call by reviewing our first quarter 2017 and year-to-date highlights. We will then discuss our financial results for the quarter and the industry's current fundamentals and then open up the call for questions.

Beginning with Slide 5 we review Genco's first quarter highlights. During the first quarter we continued to take steps to position Genco for a potential market recovery. While we recorded a net loss of $15.6 million or $0.47 basic and diluted loss per share for the quarter, reflecting a challenging rate environment relative to historical averages, it is important to note that rates for the first quarter strengthened considerably on a year-over-year basis as supply and demand fundamentals continue to come into balance.

Following various seasonal events in the first 2 months of the year, which pressured rates, the market found support. This was driven by a number of factors including the following. Heightened Chinese demand for iron ore particularly from Brazil; augmented Chinese steel production; increased coal shipments to China; and the onset of the South American grain season. We capitalized on these improved market conditions by signing time charters for a number our vessels at above current index levels.

Based on the important steps Genco took to strengthen its balance sheet in 2016, combined with its low breakeven levels and year-over-year improvements during the first quarter, the company increased its liquidity position to $173.9 million as of March 31, 2017. During the quarter we also made significant progress implementing our plan to sell 10 older vessels and are pleased to be nearing the completion of this initiative which will further improve our fleet profile. We delivered 4 vessels to buyers during the first quarter and expect to sell the Genco Prosperity, the last of the 10 vessels indentified for sale. That vessel is expected to be delivered to buyers later in the second quarter.

On Slide 6, we've outlined Genco's leading market position. Following our success transforming the company's balance sheet and strengthening our capital structure at the end of 2016 our focus during the first quarter was on further enhancing Genco's commercial and technical platform to capitalize on a potential market recovery.

On Slide 7 we summarize specific steps that we've taken in the first quarter as part of our strategic planning. During the quarter we continue to enhance the company's leading and sizable operating platform by taking steps to optimize the profile and strategic deployment of our diversified fleet servicing the major bulk and minor bulk commodities. We continue focusing on short-term charters with staggered expirations, which provide us with optionality in a rising freight rate market.

Recently, we agreed to enter into longer-term -- on a longer-term contract on the Baltic Wolf, a 2010 built Capesize vessel at a rate of $15,350 per day, which is above today's spot index. We continue to lock in vessels on favorable fixed rate charters while maintaining the ability to benefit from potential further improvements in the drybulk market. Of note, we maintain a portion of our Capesize fleet on contracts expiring within the next several months, which we believe possesses the most upside potential of any vessel class throughout the course of the year given their direct exposure to the improving demand fundamentals of the iron ore and coal trades.

As we mentioned on our previous calls, during the first quarter we also took advantage of a seasonally softer rate environment to reposition select vessels to the Atlantic Basin. We currently have a balanced split between Atlantic and Pacific exposure for Ultramaxes and in-house managed Supermax and Handysize vessels. As a result we were able to benefit from these positions by concluding fixtures on the Baltic Wasp, a 2015 built Ultramax vessel at $11,000 per day; and a number of Supermax vessels, including the Genco Rhone at $15,000 a day, the Genco Aquitaine at $16,000 a day, as well as the Genco Predator at $13,500 per day; and Handysize vessels, including the Genco Spirit at $9,250 a day, the Baltic Wind at $9,000 a day, the Genco Ocean at $8,600 a day, and the Baltic Breeze and the Genco Bay at $8,000 per day; again, all above current index levels.

Consistent with our focus on building out our full in-house commercial platform, we strengthened our chartering team with the addition of a commercial director of the minor bulk fleet and have given notice to withdraw certain Supermax and Handysize vessels from their respective pools. Going forward, we plan to continue expanding our chartering base, getting closer to cargo providers and incorporating voyage charters and direct cargo liftings into our fleet deployment mix. We have also expanded our customer base in the year-to-date period by contracting with 10 new blue chip charters including Trafigura, Uniper, and Koch.

Genco also continues to advance its position as a leading low-cost operator, consistently reducing operating expenses since 2014. We expect further cost saving measures to be taken throughout the course of 2017 as well. Our ongoing focus on cost management, combined with our improved capital structure has enabled us to significantly reduce our cash breakeven level to under $7,200 per vessel per day, among the lowest in the industry.

As we have focused on cost reduction over the last several years, we have remained committed to achieving high safety and maintenance standards. To that point all of Genco's vessels currently have a 4-star RightShip rating, which enables us to do business with high quality customers, allowing them the flexibility to carry a wide variety of cargos. Finally, Genco has the financial flexibility to capitalize on compelling growth opportunities as we seek to further enhance our leadership in the industry. In pursuing this important objective, our focus will remain on maintaining a disciplined approach, ensuring a commitment to best-in-class transparent operations and creating long-term shareholder value.

Moving to Slide 8, we provide a brief overview of our fleet. Having delivered 9 of 10 vessels indentified for sale to buyers to date and entered into an agreement to sell the last vessel in Q2, Genco's fleet now consists of 61 drybulk vessels, made up of 13 Capesize, 6 Panamax, 4 Ultramax, 21 Supermax, 2 Handymax and 15 Handysize vessels, with a total carrying capacity of approximately of 4.7 million deadweight tons.

Apostolos Zafolias, our Chief Financial Officer, will now discuss our financials.

--------------------------------------------------------------------------------

Apostolos Zafolias, Genco Shipping & Trading Limited - CFO [4]

--------------------------------------------------------------------------------

Thank you, John. Turing to Slide 10, our financial results are presented. For the 3 months ended March 31, 2017, the company generated revenues of $38.2 million as compared to $20.9 million for the same period in 2016. The increase was primarily due to higher spot market rates achieved by the majority of the vessels in our fleet during the first quarter of 2017 versus the same period last year, partially offset by the operation of fewer vessels during the first quarter of 2017 as compared to the first quarter of 2016.

Of note, we took advantage of seasonal factors in the first quarter to reposition a number of the vessels in the Atlantic Basin in order to better position the fleet to take advantage of a potentially improving drybulk market. For the first quarter of 2017 the company recorded a net loss of $15.6 million or $0.47 basic and diluted loss per share. This compares to a net loss of $54.5 million or $7.55 basic and diluted loss per share for the first quarter of 2016. Basic and diluted net loss per share for the 3 months ended March 31, 2016, has been adjusted for the 1-for-10 reverse stock split of Genco's common stock effected on July 07, 2016.

Turning to Slide 11, we present key balance sheet items as of March 31, 2017. Our cash position including restricted cash was $173.9 million. Our total assets were $1.6 billion and consisted primarily of the vessels in our fleet and cash. Our total debt outstanding gross of $10.8 million of unamortized debt issuance cost was $525.1 million as of March 31, 2017.

Moving to Slide 12, our utilization rate was 99.1% for the first quarter of 2017. Our TCE for the first quarter was $6,498 per vessel per day, which compares to $2,629 per vessel per day recorded in the first quarter of 2016. The increase in TCE was primarily due to higher spot rates achieved by the vessels in our fleet during the first quarter of this year versus the first quarter of 2016. Daily vessel operating expenses decreased to $4,395 per vessel per day for the first quarter of 2017 as compared to $4,573 per vessel per day for the same quarter of 2016, predominantly due to lower expenses related to crewing and insurance, as well as the timing of purchases of stores and spares, partially offset by higher drydocking related expenses during the first quarter of 2017.

We believe daily vessel operating expenses are best measured for comparative purposes over a 12 month period in order to take into account all of the expenses that each vessel in our fleet will incur over a full year of operation. Based on estimates provided by the technical managers and management's view, our daily vessel operating expense budget for 2017 is $4,440 per vessel per day on a weighted average basis for the entire year for our core fleet of 60 vessels.

Turning now to Slide 13 we outline our cash breakeven rates. As John mentioned earlier on the call, Genco has undertaken a number of vessel OpEx optimization initiatives over the last several years, substantially reducing operating costs without sacrificing the company's high safety and maintenance standards. Our daily vessel operating expenses have decreased by 13% from $5,035 in 2014 to $4,395 per vessel per day in Q1 2017 with further savings expected over the course of this year.

In addition to the savings we have achieved in operating expenses with the closing of our $400 million credit facility in November of 2016, we have also significantly reduced our fixed debt repayment schedule through 2019. Our fixed debt amortization is $3.8 million for quarters 2 through 4 in 2017 and $13.2 million for 2018. Based on our success entering into the $400 million credit facility in November 2016, combined with our cost saving initiatives, we anticipate Genco's cash breakeven rate to be $7,153 per vessel per day from April till the end of the year and $7,559 per vessel per day for the second quarter of 2017. The primary difference between the two breakeven rates is due to the timing of estimated drydocking costs, as we have strategically frontloaded our drydocking schedule towards the first half of the year, a seasonally softer market.

We have already seen this strategy pay off and we drydocked three Capesize vessels during January and February as the freight rate environment was on a downward trajectory. We've also provided further detail on these breakeven rates in the appendix of our presentation for your reference. In addition, on the bottom of the slide, we have provided our drydocking schedule through the rest of the year. We expect our vessels to be off-hire due to drydocking for a total of 120 days for the second quarter of 2017 and 60 days for the second half of the year. The estimated drydocking costs for the second quarter and second half of 2017 are anticipated to be $5.1 million and $2.4 million, respectively.

Lastly, we mentioned that the Genco Tiger and the Baltic Lion will be off-hire from the beginning of the quarter until mid-June and mid-May, respectively, to complete repairs to their main engines. The Genco Tiger's main engine experienced a breakdown associated with the vessel's lube filtration system during the first quarter and were undergoing repairs to rectify the issue. The Baltic Lion, which is a sister vessel to the Genco Tiger, is also undergoing main engine repairs associated with the lube filtration system. We expect that our loss of hire insurance will cover the revenue days loss for the two vessels at a rate of $20,000 per day per vessel after a deductible of 14 days. The timing of the revenue recognition may be pushed into the third quarter of 2017. I will now turn the call back to John to discuss industry fundamentals.

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [5]

--------------------------------------------------------------------------------

Thank you Apostolos, I will begin with Slide 15, which represents the Baltic Dry Index. The BDI began 2017 on a mostly downward trajectory after posting a solid performance in the fourth quarter. The BDI began the year at $953 before falling to a first quarter low of $685 on February 14. From that point to the end of the first quarter the BDI increased in all but 5 trading days including reaching $1,338 on March 29th, which is the highest mark reached since November of 2014.

Turning to Slide 16, we outlined some of the market developments influencing the freight rate environment so far during 2017. At the start of the year various seasonal factors negatively affected the drybulk market including increased newbuilding deliveries in January, weather related disruptions impacting cargo availability and the Chinese New Year holiday. As these factors subsided freight rates were able to find support, particularly during March. This was led primarily by heightened Chinese demand for seaborne iron ore cargoes predominantly from Brazil, increased coal shipments to China as well as the onset of the South American grain season.

With regard to iron ore, strong fixture volume towards the end of February and into March, highlighted by augmented volumes originating in Brazil, propelled Capesize rates to over $20,000 a day towards the end of the first quarter. China's iron ore imports during the first three months of 2017 rose by 12% year-on-year. This includes a near record iron ore import total in March of 95.6 million tons. Chinese iron ore imports surpassed the 90 million ton threshold in 2 of the 3 months during the quarter, which is noteworthy given that this market is only been exceeded during 3 other months on record.

While imports to China have been running at high levels, China's iron ore port stockpiles have also been built up and currently stand at 136.1 million tons or 34% greater year-on-year. We note that historically there has not been any correlation between high iron ore stockpiles and Chinese iron ore import levels. Chinese buying patterns aboard do tend to fluctuate however and usually affect iron ore prices as we are currently witnessing with prices down below $70 per ton as compared to a high of over $90 per ton early in the year. We believe China is currently taking a breath with regard to iron ore purchasing after a strong March.

Turning to Slide 17, we further discuss the global iron ore trade as well as additional developments with regard to the major bulks. Brazil and Australia continue to be the primary sources of iron ore into China. Specifically, Brazil has raised total iron ore shipments by 7% through the first quarter year-on-year as Vale's new S11D mine has began its ramp up. Of note, the 36.4 million tons of Brazilian exports during March was the highest total ever recorded during their first half of any year, which is significant given that historically iron ore exports from Brazil in the second half of the year have been meaningfully higher than those from the January to June period.

This increase in volumes from Brazil is forecasted to add further ton miles to the iron ore trade in 2017. As such Clarkson's currently estimates that the global iron ore trade will grow by approximately 6% in 2017, while Capsize fleet growth is estimated to be under 2%. If this materializes, this supply and demand spread would be the largest we've seen since 2004. Iron ore demand continues to be driven by strong steel production in the year-to-date. After increasing by 1.2% in 2016 China's steel output grew by 4.6% through the first quarter of 2017 including record output seen in March.

A government mandated shutdown of induction furnaces in China that melt scrap instead of iron ore could continue to propel demand for low cost, high quality seaborne ore going forward. Furthermore, ex-China steel production continues to rise growing by nearly 7% through March year-on-year, primarily led by firm output from India. In addition to rising steel production another key factor impacting the drybulk market has been the relative strength of the Chinese coal trade. After increasing by 25% in 2016 year-on-year that strength continued into Q1 as imports grew by 34%. Reduced coal availability domestically through lower production as well as declining stockpiles has helped to lead to rising imports.

China's coal power plant stockpiles have fallen to 50.3 million tons, 23% lower than the start of the year and just above the record low seen since last August. Additionally, several mining accidents have occurred recently at the Chinese domestic coalmines, which could lead to more mine inspections and possible mine closures going forward if these problems persist.

With regard to India, domestic coal output has certainly taken a portion of the market share away from imports, particularly of thermal coal. Additionally, coal power plant stockpiles, although below record levels, remain high from a historical perspective. For coking coal, however, strong growth rates in India's steel production remain encouraging particularly for India's seaborne coking coal imports, which have steadily increased over the last several years.

At the end of March there was a disruption in the global coal supply as Eastern Australia was hit by cyclone conditions. This caused several rail lines to halt transportation of cargo and certain miners to declare force majeure. This temporary shutdown resulted in a spike in the price of coking coal as global supply was not able to react quickly enough due to capacity cuts enacted over the last several years. It is estimated that approximately 15 million to 20 million tons of coal was impacted by the cyclone. All four rail lines affected have since reopened and it is expected that the second half coal export volumes would be higher than first half volumes.

In addition to the global coal and iron ore trades, we highlight the global grain and certain minor bulk trends on Slide 18. The South American grain season has been a driver for the smaller vessel classes in the year-to-date and there are expectations for a strong, North American grain season to materialize towards the end of the year. To that point, the USDA has again revised its forecast upwards for global grain trade and now expects an increase of 10% from last year's level. The USDA expects significant increases in wheat, coarse grain and soybean exports from the United States, which could help propel freight rates for the minor bulk fleet as 2017 progresses. Additionally, Malaysia has extended its ban on bauxite mining through the end of June, which could lead to sourcing the commodity from longer ton mile origins.

On Slide 19, we outline current supply side fundamentals. The drybulk fleet grew by 1.7% in Q1 2017, after taking into account the scrapping of older tonnage. As is seasonally the case, newbuilding vessel deliveries surged at the start of 2017, but were still marginally lower on a year-on-year basis. However, scrapping has slowed in the year-to-date, primarily due to the increased freight rate environment, which has led to more positive sentiment within the space.

While demolition volumes have been low, several key trends have developed in the scrap market, particularly on Capesizes in the year-to-date. For example, last done capsize demolitions include three that were built between 1999 and 2001, and three were able to obtain prices between $390 and $400 per lightweight ton. Furthermore, larger Capesize vessels being sent to scrap has been an early trend in 2017 as 4 of the 17 Capesize vessel scrapped have been greater than 250,000 deadweight ton.

This is noteworthy particularly in the aftermath of the tragic sinking of the Stellar Daisy in 1993 built 266,000 deadweight ton BLOC earlier in the year. We note that there are currently 49 vessels trading in the drybulk fleet, greater than 250,000 deadweight ton built in 1997 or earlier with an average age of 24 years old, 14 of which were built in the same year as the Stellar Daisy. An earlier than expected demolition of these vessels could be a positive driver for Capesize prospects particularly as additional Brazilian iron ore volumes enter the market.

On the newbuilding front with the lack of ordering, the order book as a percentage of the fleet has fallen to under 8%, the lowest point since 2002. Although rumors of newbuilding orders and letters of intent have circulated the market, Clarkson's has reported 23 orders to-date totaling only 1.5 million deadweight ton, with scheduled delivery between 2018 and 2020. However, cancellations have been able to offset these new orders as we estimate that approximately 50 newbuilding contracts have been cancelled alone in 2017, with most of these occurring in March and April.

The total order book currently stands at 62.5 million deadweight ton while vessels greater than or equal to 20-years old total 57.1 million deadweight ton. The order book remains heavily front loaded towards 2017 as approximately 50% is currently scheduled to deliver by the end of this year. Of this amount it still remains to be seen how much we'll actually deliver as slippage is running at approximately 40% to-date.

In conclusion with regard to the industry's current supply side fundamentals we believe scrapping, slippage and cancellations are all central components of reducing supply growth, which could lead to a more balanced supply and demand equation going forward. This concludes our presentation and we would now be happy to take your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions). And we will take the first question from Doug Mavrinac from Jefferies.

--------------------------------------------------------------------------------

Douglas John Mavrinac, Jefferies LLC, Research Division - Senior Equity Research Analyst [2]

--------------------------------------------------------------------------------

I just had a few follow ups for you all this morning, with the first being trying to understand the current charter rate environment. And what I mean by that is trying to, not just kind of separate the impact of marginal demand growth versus marginal supply growth on day rates, but trying to parse out kind of the individual demand drivers themselves, because, John, as you mentioned, you have the South American grain trade, you had some coal outages and whatnot that restricted exports during the quarter.

And so I am trying to figure out kind of the way that you highlighted how important the iron ore trade is going to be to the outlook for 2017 with S11D coming online. How consistent were those volumes as that thing was ramping up, so again you have a lot of noise from other factors, but in terms of the importance of the iron ore trade to the outlook for 2017, could you tell how consistent those volumes coming out of Brazil were for that particular commodity?

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [3]

--------------------------------------------------------------------------------

Yes. So I think the first thing to note is that the S11D is still in the nascent stages of getting up and going, it is projected by Vale to really ramp up mid to end of this year into next year, and if you look at Slide 16 you can see it very clearly. It's got 10 million tons coming on this year, but next year you are talking about 35, 40 million tons of longhaul trade. So that's going to continue to ramp up, end of this year into next year. And as I said earlier on the call, you typically see second half volumes of iron ore higher than first half volumes due to weather-related issues as well as a lot of the iron ore miners do maintenance in the first quarter of the year.

--------------------------------------------------------------------------------

Douglas John Mavrinac, Jefferies LLC, Research Division - Senior Equity Research Analyst [4]

--------------------------------------------------------------------------------

Got you. Because that's kind of what I was wondering, because when you look at the Cape market where it is right now with that thing not -- still not having ramped up fully and you haven't had the benefit of some of the Australian coal exports and whatnot, it seems like there is an underpinning of demand that's keeping rates elevated even if not as high as they were just a handful of weeks ago?

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [5]

--------------------------------------------------------------------------------

I think that's right. And I think it is -- look, I think it is important to keep in mind, while we have seen the price of iron ore drop and we have seen the fixture activity slow down to some degree, this is very normal, we have seen this many, many times. The Chinese do not buy iron ore in a steady pattern, they typically go in and they buy large quantities and then they take a step back on the short-term and then continue their buying. So I think what we are seeing right now is nothing unusual and the volumes that are slated to come on over the next 2, 2.5 years already on the table and they are coming.

--------------------------------------------------------------------------------

Douglas John Mavrinac, Jefferies LLC, Research Division - Senior Equity Research Analyst [6]

--------------------------------------------------------------------------------

Got you. That's helpful. And then just kind of, maybe even as a follow up to that, in terms of kind of what the market expectations are. You mentioned that you have signed some time charters during the quarter, is that the result of an increase in demand from charterers or is it just reflective of the fact that rates have gotten better for time charter activity? So what is the appetite on the part of the charterers to secure tonnage on time charters rather than being reliant upon really cheap spot rates has been the case for the last couple of years?

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [7]

--------------------------------------------------------------------------------

I would say things have normalized. And what I mean by that is rates have obviously improved. Though again we think this is early days in a recovery. But there is liquidity back in the market, across all vessel classes and charterers -- we are definitely seeing, particularly in the Capesize, are willing to go longer, quite a bit longer than they were even 6 months ago.

--------------------------------------------------------------------------------

Douglas John Mavrinac, Jefferies LLC, Research Division - Senior Equity Research Analyst [8]

--------------------------------------------------------------------------------

Got you. Got you. And do you have an indication as far as kind of, at what levels are we talking like, mid-teens or something like that for Capes or is that too aggressive?

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [9]

--------------------------------------------------------------------------------

No. I mean look at what we just -- the Baltic Wolf was just done I think last week and that was done at $15,350, I would say that's about where the market is right now.

--------------------------------------------------------------------------------

Douglas John Mavrinac, Jefferies LLC, Research Division - Senior Equity Research Analyst [10]

--------------------------------------------------------------------------------

Right.

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [11]

--------------------------------------------------------------------------------

Depending -- whether you are going short in sort of the 4 to 6 month or even the 9 to 12, it's somewhere around that number, which is very easy to see is well above the index today.

--------------------------------------------------------------------------------

Douglas John Mavrinac, Jefferies LLC, Research Division - Senior Equity Research Analyst [12]

--------------------------------------------------------------------------------

Got you. Thank you. And then just two final questions, one on the supply side of the store and then one for you guys in particular. On the supply side, you mentioned that there has been a little bit of newbuilding order activity, but my question is, it hasn't been a lot. So was capital availability still an issue for a lot of would-be orderers, and is maybe the ordering itself kind of reflective of guys that either don't need a ton of capital to order new, so they are in a better position or basically just who is kind of maybe doing the ordering and is the capital availability situation still restrictive for most in the industry?

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [13]

--------------------------------------------------------------------------------

Well, so far the ordering that we've seen with the exception of maybe some of the JPMorgan rumors have been what I would call more traditional ship owners, not large private equity orders, which obviously we would not be happy to see as an industry. I think financing still remains a major concern, both in terms of financing and newbuilding. I don't think there are really any commercial banks out there that are willing to do newbuilding financing. But I also think it is still a real challenge for a lot of these yards to have refund guarantees put in place for orders.

So I think just structurally it's an issue. We've also seen even with inquiry on newbuildings we are still seeing yards close down. Even COSCO I think has consolidated five of their yards down to two. We've seen yards in Korea close. We've seen some smaller yards even in Japan scale back. So it remains to be seen, but we're not seeing anything on the newbuilding side that concerns us at this point. And to be honest with you, as the market recovers you do expect to see some newbuildings, right, that is part of a healthy market. What we would not want to see is very large scale ordering like we saw back in 2013.

--------------------------------------------------------------------------------

Douglas John Mavrinac, Jefferies LLC, Research Division - Senior Equity Research Analyst [14]

--------------------------------------------------------------------------------

Right, exactly, got you. And then final question, you guys put together a slide that talked about some of the actions that you all have taken as a management team, everything from kind of rebalancing the fleet to also reducing your daily vessel OpEx, which I personally think is important given the cyclicality of -- and the volatility in the drybulk market. So my question pertains to that is, how have you guys achieved to reduce your operating costs so significantly? What sort of things have you cut out? And then also you comment that you think you could even lower it further, and so what levels do you think that that could actually kind of get to?

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [15]

--------------------------------------------------------------------------------

Look, it's not that we've cut anything out, so just to be very clear on that because the safety and the maintenance side are paramount for us. We have a very good reputation amongst our charterers in terms of the condition of our vessels, and we don't want to jeopardize that. And that's --

--------------------------------------------------------------------------------

Douglas John Mavrinac, Jefferies LLC, Research Division - Senior Equity Research Analyst [16]

--------------------------------------------------------------------------------

Right.

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [17]

--------------------------------------------------------------------------------

You look at our RightShip ratings, that's very key to us on a commercial standpoint. What we have been doing is what I'll call crew optimization on the cost saving side. We have had a long history of using full Chinese crew complements, officers down to lower ratings, which has worked out very well for us. And so we are -- there were several ships that we've now got, that we've also moved over into a full Chinese complement because of how we are set up here. We have an operations team that again has a lot of experience on the Chinese crew side. The Chinese crew quality has come up significantly over the last 10 years. And so we've been able to save on the OpEx side in mostly on dealing with that.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

(Operator Instructions) We'll go next to the line of Magnus Fyhr with Seaport Global.

--------------------------------------------------------------------------------

Magnus Sven Fyhr, Seaport Global Securities LLC, Research Division - MD of Marine Transportation and Senior Shipping Analyst [19]

--------------------------------------------------------------------------------

Most of my questions have been answered but just you guys have been playing defense here for the last year and market is recovering, your asset value is moving up, you've sold some assets, do you feel like you have the right sized fleet here positioned for the recovery or do you see, maybe you start playing offense here down the road?

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [20]

--------------------------------------------------------------------------------

Yes actually, I actually think we switched over to offense after we did the capital raise. And we did a real look at the company from a strategic standpoint at the end of the year and put a strategic plan in place with the board, which at this point we are almost fully implemented. So now our major focus is on M&A and how we grow this company going forward. I think in general you'll see us focus in the major bulks on the Capesize sector because we see a lot of growth on the iron ore and coal side and then you'll also see us focus in the minor bulk most likely in the Ultramax, Supramax sector because of what we've seen going on growth on the grain side. So I think we are very much in the offensive seat at this point.

--------------------------------------------------------------------------------

Magnus Sven Fyhr, Seaport Global Securities LLC, Research Division - MD of Marine Transportation and Senior Shipping Analyst [21]

--------------------------------------------------------------------------------

And any more potential divestitures. I mean, it looks like the Panamaxes -- some little older vessels there, I mean they're coming up for their 20-year service here pretty soon, and what are your thoughts there?

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [22]

--------------------------------------------------------------------------------

Yes, look, I think it's a fair point. From a strategic standpoint I would say Panamaxes for us are not necessarily ideal because of just not having the scale from a commercial standpoint and wanting to focus more on the bigger ships and then the midsized ships. But as you pointed out also the age. So it comes down to a timing standpoint with the market. And we obviously want to get the best price. So somewhere down the road I think you'll see us exit those older ships but it's more based on market timing.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

(Operator Instructions) And we'll go next on the line is Fotis Giannakoulis from Morgan Stanley.

--------------------------------------------------------------------------------

Fotis Giannakoulis, Morgan Stanley, Research Division - VP, Research [24]

--------------------------------------------------------------------------------

I want to follow up on a tax question about the trade and what you see in terms of trade flows. And if you can compare how was the trade flow versus a year ago, how were the -- what was the waiting time of your vessels from between charter to charter? And also what has happened the last month? We have seen the steel and iron ore prices are significantly lower. We have seen then $120,000 that they were earning in late March. And also if you see any differences in the flows of coal. I have heard that the last few days, the last few weeks actually there are fewer coal cargos. If this is something that you see in your daily trading or you see that the number of charters in the market are sufficient?

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [25]

--------------------------------------------------------------------------------

Okay, Fotis. A lot of questions; they're good questions. If I don't answer them all please come back to me. But let's just talk about trade volumes for the first quarter in general. Overall, clearly an improvement over what we saw in 2016, not even close. January and February were a little softer than the fourth quarter of 2016, but again that was more from a seasonal standpoint as long as -- as well as some weather issues, and we saw that market start to really pick back up again in early to mid March in a pretty significant way. And I would also point out that you look at freight rates in the first quarter of '17 versus the first quarter of '16, and there was absolute significant improvement and a real floor was set in.

And I think most importantly in this industry, as you see increased cargo flows, you see an immediate reaction on the freight rate side, which is the beginnings of a healthy market. In terms of prices, we clearly have seen the prices of iron ore come down, the price of steel come down along with that. Again, I think that's a combination of a few things. I think that it is increased supply on the iron ore side from the iron ore majors, and I also think it's the fact that, as I said before, the Chinese do not buy in a straight line pattern if you will, they tend to come into the market, they buy their iron ore in -- over a period of time in large quantities and then they take a step back short term. And then we see the cycle repeat itself.

And so I think the combination of greater supply in the market and the Chinese taking a short-term breather has pushed iron ore prices down, and along that with steel prices. Having said that, on the steel price side you've definitely seen a stabilization. And what's encouraging is the inventory levels on the steel side continue to move down. So the steel is definitely being used, it does not seem to be a demand issue on the steel front.

--------------------------------------------------------------------------------

Fotis Giannakoulis, Morgan Stanley, Research Division - VP, Research [26]

--------------------------------------------------------------------------------

I want to follow to ask about the new regulations in the ballast water treatment system, and the new rules that they are going to be implemented in September. How do you manage these new regulations? Have you started getting a IOPP certificate and how many of your vessels are you planning to go through the new system?

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [27]

--------------------------------------------------------------------------------

Yes. So look we have -- we have done two things, because there are two angles, if you will, to this. There is the IMO standard. And, yes, we are -- we have positioned the fleet to separate the IOPP certificates from the physical drydockings. So we have a longer period of time to implement the ballast water treatment systems, and we have also gotten extension on our ships from the U.S. Coast Guard. So looking out today the first ship that we have planned to install a ballast water treatment system does not come until 2019.

--------------------------------------------------------------------------------

Fotis Giannakoulis, Morgan Stanley, Research Division - VP, Research [28]

--------------------------------------------------------------------------------

And can you give us an estimate of the total cost for your entire fleet and how is it going to be spreaded about? Is it going to be between 2019 and 2020, '21, or it's going to be across a longer period of time?

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [29]

--------------------------------------------------------------------------------

Yes. So on the cost side, just to give you a sense and these are estimated costs today and I actually think they are eventually going to come down. But for Handysize vessels it is probably somewhere around $400,000 to install a ballast water treatment system and probably somewhere around $750,000 to give you a sense on the Capesize side. Having said that, I think it's early days, these companies, one on the US Coast Guard side there is only a couple of systems that are actually approved. So you do not have the benefit of a full ramp up in manufacturing and competition on these systems, which I think will come over the next 12 to 24 months. And two, having 60 vessels and we expect to be bigger than that by the time we have to implement ballast water treatment systems, we will have significant buying power with the size of that fleet. So I expect those costs to come down quite a bit.

--------------------------------------------------------------------------------

Fotis Giannakoulis, Morgan Stanley, Research Division - VP, Research [30]

--------------------------------------------------------------------------------

One last question and it has to do more with the competitive landscape. We have seen in the tanker sector a few efforts for consolidation, whether they will be successful or not, it seems that there is an appetite. How is the situation in the drybulk sector given the fact that the number of companies are held by financial investors and also that debt is not an issue any longer all the companies seems that they have already fixed their balance sheet. Do you see efforts for consolidation? Are you in discussion with any of your peers, potentially of creating a larger entity?

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [31]

--------------------------------------------------------------------------------

Look, Fotis you've hit on a very good topic. I do think that consolidation should occur not just in the industry, but drilling down a little bit in the public arena. I think there are too many of publicly traded drybulk vehicles that have market caps that are not interesting for large institutional investors. So I do think two or three of these coming together to create a larger entity would be good for its investor base. And you also hit on the fact that there are private equity sponsors in quite a few of these companies. And I think as we have seen in other industries that can be the genesis for consolidation in an industry.

--------------------------------------------------------------------------------

Fotis Giannakoulis, Morgan Stanley, Research Division - VP, Research [32]

--------------------------------------------------------------------------------

So do you think --?

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [33]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Fotis Giannakoulis, Morgan Stanley, Research Division - VP, Research [34]

--------------------------------------------------------------------------------

Sorry, John, please go ahead.

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [35]

--------------------------------------------------------------------------------

No, I was just going to say, I think just on paper I think the timing is right, but as you know what looks good on paper is not always reality. But I do think if there has ever been a time period where we have had publicly traded drybulk equities we are entering a period where consolidation could occur.

--------------------------------------------------------------------------------

Fotis Giannakoulis, Morgan Stanley, Research Division - VP, Research [36]

--------------------------------------------------------------------------------

And are there any visible advantages apart from the larger market cap and consolidation will make it easier for institutional investors to trade the stocks? Are there any synergies, operational synergies, both on the revenue side and on the expense side? And then how low can operating expenses go they -- we have seen them being reduced significantly the last couple of years across most of the companies, yours is a prime example. Do you see that this is sustainable and can a consolidation exercise improve these efficiencies even further?

--------------------------------------------------------------------------------

John C. Wobensmith, Genco Shipping & Trading Limited - CEO, President and Secretary [37]

--------------------------------------------------------------------------------

Look, I don't -- on consolidation, I don't think in shipping you have great synergies. Yes, you may save a little bit on the G&A side and maybe there is some on the OpEx side. But keep in mind, particularly with Genco, we already have the benefit of that by having third party management that are managing 500, 600 ships. So we already have the cost savings on the purchasing side. I think the real positive news, if you will, on consolidation again is just going back to creating a larger market cap, a more liquid stock that institutional investors can invest in and those institutional investors being hopefully mutual funds eventually which we saw back in 2006, 2007, 2008 are lower cost equity providers. And so these stocks should start to trade better as you create a larger market cap, but also take competitive supply out of the market in terms of investable companies.

--------------------------------------------------------------------------------

Operator [38]

--------------------------------------------------------------------------------

And at this time we have no further questions. So I would like to take the time and thank you all for joining today's conference. We do appreciate everyone's participation. And you may disconnect your line at any time. Have a wonderful day.