Genco Shipping & Trading Limited
Q1 2017 Earnings Call Transcript

Published: 9 May 2017

[Operator:]

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. We will conduct a question-and-answer session after the opening remarks. Instructions will follow at that time. A replay of the conference will be accessible anytime during the next two weeks by dialing 888-203-1112 or 719-457-0820 and entering the passcode 6277973. At this time, I’ll turn the conference over to the Company. Please go ahead.

[Peter Georgiopoulos:]

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, expects, projects, intend, plan, believe and other words in terms of similar meaning in connection with a 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 reports subsequently filed with the SEC. At this time, I’d like to introduce John Wobensmith, Chief Executive Officer of Genco Shipping & Trading Limited.

[John Wobensmith:]

Good morning welcome to Genco’s first quarter 2017 conference call. I will 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 industries 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 continue 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 the rates for the first quarter strengthened considerably on a year-over-year basis that supply and demand fundamentals continue to come into balance. Following various seasonal events in the first two 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 charter for a number of 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 ten older vessels and are pleased to be nearing the completion of this initiative, which will further improve our fleet profile. We delivered four vessels to buyers during the first quarter and expect to sell the Genco Prosperity, the last of the ten vessels identified for sale. That vessel is expected to be delivered to buyers later in the second quarter. On Slide 6, we have 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 continued 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 provided us with optionality in a rising freight rate market. Recently we agreed to enter into 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 dry bulk 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 vessel class throughout the course of the year given their direct exposure to the improving demand fundamentals of the iron ore and coal trade. As we mentioned at 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 Ultramax’s and in house managed Supramax and Handysize vessels. As a result we were able to benefit from these positions by concluding fixtures on the Baltic Wasp, the 2015 built Ultramax vessel and a $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 $13,000 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. And the Baltic Breeze and 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 over the Minor Bulk Fleet and given notice to withdrawal of 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 lifting into our fleet deployment mix. We have also expanded our customer base in the year to-date period by contracting with ten new blue-chip charterers 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 levels 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 four star right ship 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 nine of ten vessels identified for sale to buyers to date and entered into an agreement to sell the last vessel in Q2, Genco’s suite now consists of 61 dry bulk vessels made up of 13 Capesize, six Panamax, four Ultramax, 21 Supramax, two Handymax and 15 Handysize vessels with a total carrying capacity of approximately 4.7 million deadweight tons. Apostolos Zafolias our Chief Financial Officer will now discuss our financials.

[Apostolos Zafolias:]

Thank you John. Turning to Slide 10, our final results were presented. For the three 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 us vessels in the Atlantic basin in order to better position the fleet to take advantage of potentially improving dry bulk 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 three months ended March 31, 2016 has been adjusted for the one-for-ten reverse stock split of Genco’s common stock effected on July 7, 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 growth of $10.8 million of unamortized debt issuance costs 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. 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 our technical managers and management’s views, 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 the core fleet of 60 vessels. Turning now to Slide 13, we outlined our cash breakeven rates. As John mentioned earlier in the call Genco has undertaken a number of vessel OpEx optimization initiatives over the last several years, substantially reducing our operating costs without sacrificing the Company’s high safety and maintenance standards. Our daily vessel operating expenses have decrease 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 achieve 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 for 2019. Our fixed debt amortization is $3.8 million dollars for quarters two through four 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 to 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 front loaded our drydocking schedule towards the first half of the year, a seasonally softer market. We have already seen this strategy pay-off and we dry docked three Capesized vessels during January and February, as the freight rate environment was on a downward trajectory. We've also provide 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 for the rest of the year. We expect our vessel to be off higher 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 cost 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 Genco Tiger and the Baltic Lion will be offhire 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 vessels lube filtration system (0

[John Wobensmith:]

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 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 five trading days including reaching 1,338 on March 29, 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 dry bulk market including increased new building deliveries in January weather related disruptions in part 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 predominately 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 two of the three months during the quarter which is noteworthy given that this mark has only been exceeded during three other months on record. While imports to China have been running in 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 of ore 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 discussed the global iron ore trade as well as additional developments with regard to the major bulk. 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 begun its ramp up. Of note, 36.4 million tons of Brazilian exports during March was the highest total ever recorded during the first half of any year, which is significant given that historically iron ore exports from Brazil in the second half of the year had been meaningfully higher than those from the January to June period. This increase in volume 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% percent in 2017. While Capesize 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 steel outfit 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 the melt scrap instead of iron ore could continue to propel demand for the 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 and other 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 that helped 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 coal mine, 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 historic 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 supplies 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 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 their 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 forecasts upwards for global grain trade and now expects an increase of 10% from last year's level. The USDA expects significant increases in wheat, course 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 outlined current supply side fundamentals. The dry bulk fleet grew by 1.7% in Q1 2017 after taking into account the scrapping of older tonnage. As is seasonally the case, new building vessel delivery surges the start of 2017 but we're 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 a more positive sentiment within this space. While demolition volumes have been low, several key trends have developed in the scrap market particularly on Capesize’s in the year-to-date. For example last on Capesize demolitions includes three that were built between 1999 and 2001 and three we were able to obtain prices between $390 and $400 per lightweight ton. Furthermore a larger Capesize vessels being sent to scrap has been an early trend in 2017 as four of the 17 Capesize vessels scrap have been greater than 250 deadweight tons. This is noteworthy particularly in the aftermath of the tragic sinking of the Stellar Daisy a 1993 built 266,000 deadweight on BLOC earlier in the year. We note that there are currently 49 vessels trading in the dry bulk 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. And 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 new building front, with the lack of ordering, new order book as a percentage of the fleet has fallen to under 8% the lowest point since 2002. Although rumors of new building 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 fifty new building 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 that is greater than or equal to 20 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 will 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 essential 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.

[Operator:]

Thank you. [Operator Instructions] And we will take the first question from Douglas Mavrinac from Jefferies. Please go ahead.

[Douglas Mavrinac:]

Thank you operator, good morning guys. 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 South American grain trade, you had some coal outages, were not that restricted exports during the quarter and so I am trying to figure out kind of the way that you’ve highlighted how important the iron ore trade is going to be till the outlook for 2017 with S11D coming online. How consistent were those volumes as that thing was ramping up, so 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 Wobensmith:]

Yeah so, I think the first thing to note is that S11D is still in the nascent stages of getting up going. It is projected by Vale to really ramp-up mid to end of this year and to next year and if you look at Slide 16, you can see it very clearly. There is ten million coming on this year but next year you're talking about 35 million to 40 million tons of long haul trade. So that's going to continue to ramp up end of this year and into next 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 Mavrinac:]

Got you, 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 haven't ramp up fully and you haven't had the benefit of some of the Australian co-exports and what not. It seems like there is an underpinning of demand that's keeping rates elevated even if not as high as they were just say handful of weeks ago.

[John Wobensmith:]

I think that’s right and I think it's – look, I think it's important to keep in mind. While we've seen the price of iron ore drop. And we've seen the fixture activity slowdown to some degree. This is very normal. We've 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're 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're coming.

[Douglas Mavrinac:]

Got you. It'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? Have you – you mentioned that you’ve signed some time charters during the quarter. Is that the result of an increase in demand from charters? Or is it just reflective of the fact that, that rates have gotten better for time charter activity? So kind of what is the appetite on the part of the charters to secure tonnage on time charters rather than being relying upon really huge spot rates as been the case for last couple of years.

[John Wobensmith:]

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

[Douglas Mavrinac:]

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 Wobensmith:]

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

[Douglas Mavrinac:]

All right.

[John Wobensmith:]

Even whether you're going short in sort of four to six-month or even the 9 to 12, it somewhere around that, that number which is very easy to see is well above the index today.

[Douglas Mavrinac:]

Got you, got you. Thank you. And then just two final questions, one on the supply side of the story, and then one for you guys in particular. In the supply side, you mentioned that there has been a little bit of new building order activity, but my question is it hasn't been a lot, so is capital availability, still an issue for a lot of would be orders and there is may be the ordering itself kind of reflective of guys that either don't need the kind of capital to order new. So they're in a better position. Or basically just who's kind of maybe doing the ordering and is the capital availability situation still restricted for most in the industry.

[John Wobensmith:]

So far the ordering that we've seen with the exception of maybe some of the JPMorgan rumors has been what I would call more traditional ship owners, not large private equity orders, which obviously we would not be happy to see is an industry. I think financing still remains a major concern. Both in terms of financing a new building, I don't think there are really any commercial banks out there that are willing to do new building financing. I'd 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 enquiry in new buildings we're still seeing yards close down. Even Costco I think has consolidated five of the yards down to two. You've seen yards in Korea close we're seeing some smaller yards even in Japan scale back. So it remains to be seen, but we're not seeing anything on the new building side that concerns us at this point. To be honest with you as the market recovers, you do expect to see some new buildings, 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 Mavrinac:]

Right, exactly, got you. And then final question you guys put together slide that talked about some of the actions do 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 it's important given the cyclicality of – and volatility in the drybulk markets, and my question pertains to that. Is how do you guys achieve 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 could actually kind of get to.

[John Wobensmith:]

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 charters in terms of the condition of our vessels. And we don't want to jeopardize that and that’s why you look at our right ship 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've had a long history of using full Chinese crew compliments, officers down the lower rating, which has worked out very well for us. And so we are – there were several ships that, that we've now gone. That we've also moved over into for a full Chinese complement. Because how we're set up here, we have an operations team that again have 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.

[Douglas Mavrinac:]

Got you, got you. That's all, very helpful. Thanks for the time John.

[John Wobensmith:]

Great. Thanks, Doug.

[Operator:]

[Operator Instructions] We'll go next to the line of Magnus Fyhr with Seaport Global. Please go ahead.

[Magnus Fyhr:]

Yes. Good morning.

[John Wobensmith:]

Hey, Magnus.

[Magnus Fyhr:]

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 values moving up. You've sold some assets. Do you feel like you have the right sized fleet here in position for the recovery? Or you see – maybe you start playing offence here down the road.

[John Wobensmith:]

Yes. I actually think we switched over to offence 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 in – on the iron ore and coal side. And then you also see us focused on in the minor bulk most likely in the Ultramax, Supramax sector, because of what we've seen going on in – on the grain – growth on the grain side. So I think we're very much in the offensive seat at this point.

[Magnus Fyhr:]

And any more potential divestitures I mean looks like the Panamax is some of the older vessels there. I mean they're coming up for their 20 years service here pretty soon. What are your thoughts there?

[John Wobensmith:]

Yes. Look I think it's a fair point. From a strategic standpoint I would say Panamax is 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 than the mid-size ships. But as you point 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 these older ships, but its more based on market timing.

[Magnus Fyhr:]

Okay, I hear you. Thank you.

[John Wobensmith:]

Thanks, Magnus.

[Operator:]

[Operator Instructions] And we'll go next to the line of Fotis Giannakoulis from Morgan Stanley. Please go ahead.

[Fotis Giannakoulis:]

Yes. Thank you for taking my question. I want to follow-up on Doug's question about the trade and what do you see in terms of trade flows. And if you can compare how was the trade flow versus a year ago, 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 spill over and I don’t know prices are significantly lower, we have seen than what – than the $120,000 earnings in late March and also if you just see any differences in the flows of the coal, I have heard that the last few days, the last few weeks actually there are fewer coal cargoes, 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 Wobensmith:]

Okay, a lot of questions are good questions and if I don't answer them all please – 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 trade rates in the first quarter of 2017 versus the first quarter of 2016 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 price 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 set down, in 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 for us.

[Fotis Giannakoulis:]

Thank you, John. I’m going to follow to ask about new regulations in ballast water treatment systems that – and the new rules that they are going to be inclement in September. How do you manage this new regulation, have you started getting IOPP certificates and how many of your vessels are you planning to go through the new system.

[John Wobensmith:]

Yes, so look we have we've done two things because they're there to two angles if you want to this, there is the IMO standard and yes we are we've 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've also gotten extensions on our ships from the U.S. Coast Guard. So looking out today the first ship that we have planned to install ballast treatment system does not come until 2019.

[Fotis Giannakoulis:]

But then can you give us a estimate total cost for you entire fleet and how it's going to be spread out, is it going to be between 2019 and 2020, 2021 or it’s going to be across a longer period of time.

[John Wobensmith:]

Yes, so on the cost side just to give you a sense and these are estimated cost today and I actually think their eventually going to the come down but for Handysize vessels it's probably somewhere around $400,000 to install ballast water treatment system and probably somewhere around $750,000 to give you a sense on the Capeside side. Having said that I think it's early days, these companies one on the U.S. Coast Guard side there there's only a couple 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 a 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:]

Thank you, John one last question and it’s has to do more with a competitive landscape. We have seen in the tanker sector at [indiscernible] for a consolidation whether they will be successful or not it seems that there is an appetite. How is the situation in the dry bulk sector given the fact that the number of companies are held by financial investors and also that debt is an issue any longer. All the compromise seems to have a [indiscernible] of fixed balance sheet. Do you see efforts for consolidation? Are you in discussion with any of your peers potential of creating a larger entity.

[JohnWobensmith:]

Look as far as 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 you do as we've seen in other industries that can be the genesis for consolidation in an industry.

[Fotis Giannakoulis:]

Okay Thank you

[JohnWobensmith:]

Yes.

[Fotis Giannakoulis:]

Sorry, John please go a head

[JohnWobensmith:]

No I was just going to say I think just on paper I think the timing is right but always what looks good on paper is not always reality but I do think if we, if there's ever been a time period where we've had a publicly traded drybulk equities we’re entering a period where consolidation could occur.

[Fotis Giannakoulis:]

And I'm there any visible advantages apart from the larger market cap and consolidation will make it easier for institutional investors to trade these stocks are there any synergies, operational synergies both on the revenue side and on the expense side. And how low can operating expenses go, they would 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 this efficiency given further.

[John Wobensmith:]

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 to 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 it's 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 like a larger market capital, also take competitive supply out of the market in terms of investable companies.

[Fotis Giannakoulis:]

Thank you very much John

[John Wobensmith:]

Okay, Thanks Fortis.

[Operator:]

And at this time we have no further questions. So I'd 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.

[John Wobensmith:]

Thank you.