Genco Shipping & Trading Ltd (GNK) 2010 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading, Limited, First Quarter 2010 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 be given at that time. A replay of the conference will be accessible at any time during the next two weeks by dialing 888-203-1112 or 719-457-0820 and entering the passcode 3803427. At this time, I will turn the conference over to the Company. Please go ahead.

Good morning. Before we begin our presentation, I note that in this conference call we will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. 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, 2000, and the Company's subsequent reports filed with the SEC.

At this time I would like to introduce Mr. Gerry Buchanan, the President of Genco Shipping & Trading.

Good morning and welcome to Genco's first quarter of 2010 conference call. With me today is John Wobensmith, our Chief Financial Officer.

I will begin today's call by discussing our first quarter and year-to-date highlights as outlined on slide 5 of the presentation. I will then turn the call over to John to review our financial results for the first three-month period ended March 31, 2010. Following this, I will discuss the industry's current fundamentals. John and I will then be happy to take your questions.

During the first quarter, Genco delivered strong results for shareholders as management continued to execute the Company's time start charter strategy. Consistent with our approach to capitalize on a rising freight rate environment, we continue to add opportunistically for shareholders entering into a tract of time charters with high credit quality counterparties as rates strengthened.

Continuing on slide 5, for the first quarter, net income attributable to Genco was $33 million, or $1.07 basic and $1.06 diluted earnings per share. Genco's cash position, excluding Baltic Trading Limited, was $173.8 million, which reflects the strong cash flows generated by our high-quality fleet.

On a consolidated basis, Genco's cash position was $423 million, which includes Baltic Trading cash position of $249.2 million.

During the first quarter, Genco made a $75 million capital contribution to Baltic Trading. Baltic Trading completed its IPO in March of 2010, raising net proceeds of $210.3 million.

During the quarter and year-to-date, we secured a total of eight vessels on long-term contracts with leading charters such as Cargill International, Swiss Marine Services, Pacific Basin Chartering and Global Maritime Investments. The one-year time charters were signed as rates ranging from $17,750 for a 2001 build Handymax to $39,000 for a 2007 built Capesize. Specifically, the eight one-year charters were signed at the following rates -- $39,000 for the Genco Augustus, a 2007 built Capesize vessel; and $36,000 for the Genco Claudius, a 2010 built Capesize vessel; $25,000 for the Genco 1999 built Panamax; and $24,000 for the Genco Vigour, a 1990 built Panamax; $22,500 for the Genco Predator, a 2005 built Supramax; and $21,750 for the Genco Hunter, a 2007 built Supramax; $20,000 for the Genco Marine, a 1996 built Handymax with STX Panocean; and $17,500 for the Genco Muse, a 2001 built Handymax.

It is important to note that these rates represent a marked improvement compared to time charter rates of one year ago. Indicatively, the Baltic Dry Index represented an average increase of approximately 96% for the first three months of 2010 versus the same last year.

Moving to slide 6, I will now discuss our time charter coverage in more detail. The execution of management's time charter strategy continues to serve the Company and its shareholders well. Including the eight contracts I have just reviewed, we have approximately 67% of our fleet's available base secured in contracts for the remainder of 2010. Complementing our considerable time charter coverage, three of our Capesize vessels have profit-sharing arrangements, enabling Genco to earn a rate above and beyond the base rate during strong freight market environments.

Going forward, we will continue to actively seek opportunities to increase our significant time charter coverage and further take advantage of an improving rate environment for the benefit of our shareholders. In accomplishing this important objective, we will maintain our focus on signing contracts with high-quality counterparties as we have in the past. The Company's ongoing success in partnering with a diverse group of top multinational charterers continues to serve as a core differentiator for our Company.

Currently, excluding Baltic Trading Limited's fleet, Genco owns 35 dry bulk vessels consisting of nine Capesize, eight Panamax, four Supramax, six Handymax, and eight Handysize vessels with an industry average of approximately 7.2 years, well below the industry average of 15 years.

We have more than a diverse fleet comprised of first-in-class vessels, we remain well positioned to take advantage of the positive long-term demands for the global transportation of essential dry bulk commodities in China and India as well as other growth areas around the world.

I'll now turn the call over to John.

Thank you, Gerry. Turning to slide 9, I will begin by providing an overview of our financial results for the three months ended March 31, 2010. Please note that, beginning with this quarter, we will be reporting our financials on a consolidated basis as a result of Baltic Trading's IPO and our class B equity ownership in the Company.

For the three-month period ended March 31, 2010, we recorded revenues of $94.7 million, which compares to $96.7 million for the first quarter of 2009. The year-over-year decrease was due to lower charter rates for some of our vessels offset by the increase in the size of our fleet.

Operating income for the first quarter ended March 31, 2010, was $48.4 million. This compares with operating income for the three-month period ended March 31, 2009, of $55.1 million. The decrease in operating income is attributable to increased vessel operating expenses, general and administrative and of management fees and depreciation and amortization associated with the operation of a larger fleet.

Interest expense for the first quarter of 2010 was $15.4 million versus $13.9 million for the comparable period in 2009.

I will now discuss net income attributable to Genco shareholders, which reflects the net income generated from the operations of Genco's fleet of 35 vessels as well as 25.36% of the related loss for Baltic Trading, Limited. The Company recorded net income attributable to Genco shareholders for the first quarter of 2010, up $33.5 million, or $1.07 and $1.06 per basic and diluted per share, respectively. This compares to net income of $41.2 million, or $1.32 per basic and diluted share for the first quarter of 2009.

Next, on slide 10, you will see the income statement effects of Baltic Trading's consolidation with Genco's Shipping & Trading, Limited. This will provide you with a more detailed breakdown of the financial performance of the two separate companies.

Key consolidated balance sheet and other items as presented in slide 11 include the following -- our cash position was $423 million as of March 31, 2010. As I mentioned, Genco's cash position, excluding the consolidation of Baltic Trading, was $173.8 million. Our total assets as of March 31, 2010, were $2.6 billion consisting primarily of our current fleet, cash and cash equivalents, as well as our investment engine, [Hui] Shipping & Trading.

Our EBITDA for the three months ended March 31, 2010, was $73.6 million, which represents an EBITDA margin of 78% of revenues.

Moving to slide 12, our utilization rate was 99.6% for the first quarter of 2010 compared to 98.4% in the year-earlier period. Our time charter equivalent rate for the first quarter of 2010 was $30,248. This compares to $33,203 recorded in the first quarter of 2009. The decrease in time charter equivalent rates resulted from lower charter rates in the first quarter of 2010 versus the previous-year period for 19 of the vessels in our fleet. This was offset by higher charter rates for 13 of our vessels.

For the first quarter of 2010, our daily vessel operating expenses were $4,726 per day versus $4,931 per day for the first quarter of 2009 due to lower costs associated with insurance and stores and supplies offset by higher maintenance costs. The only vessel operating expenses year-to-date have been below budget due to the timing of purchases of spare parts as well as lower-than-anticipated crew and insurance costs.

As we have stated in the past, 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 expectations, our 2010 daily vessel operating expense budget is $5,350 per vessel per day on a weighted average basis.

On slide 13 we present our pro forma balance sheet, which shows our pro-form cash position of $161.3 million, which includes $17.5 million of restricted cash under the terms of our revolving credit facility and takes into effect the repayment of $12.5 million under our revolving credit facility.

Pro forma cash also excludes Baltic Trading Limited's cash balance of $249.2 million. Our pro forma net debt to total capital ratio was 58% as of March 31, 2010.

On slide 14 we present our anticipated expense levels for the second quarter. We expect our second quarter 2010 daily vessel operating expense budget to be $5,350 per vessel per day on a weighted basis of an average number of 38.26 vessels. We expect our daily free cash flow expense rate to be $16,530 per day and our daily net income expense rate for Genco Consolidated to be $20,213.

Genco intends to draw upon its trial liquidity position and continue to consolidate the dry bulk industry, as we have consistently done in the past. In pursuing future growth opportunities to further strengthen our industry leadership, we will remain disciplined in our approach by adhering to a strict set of return criteria related to earnings and cash flow accretion as well as return on capital hurdles.

I will now turn the call back to Gerry.

Thank you, John. I will now take this opportunity to spend a few moments discussing the industry fundamentals. I'll start with slide 16, which points to Dry Bulk Indices.

Represented on this slide are the overall Baltic Dry Index and the Baltic Cape Index. As can be seen when looking at the graphs, the Baltic Dry Index has been trading at the 2,000 to 4,000 point range since January 2010 showing stability reflective of better prospects in the world's economic environments since the beginning of the year.

As I will explain later in the call, we believe that a possible conclusion in the iron ore price negotiations is a positive catalyst for the dry bulk rates, going forward.

Moving on to slide 17, we summarize the current demand side fundamentals. As indicated on the graph at the bottom right, Chinese steel production reached 158 million tons for the first three months of 2010, showing a 23% increase over last year's production figures and represent a higher, ever quarterly production figure. Over 155 million tons of iron ore were imported into China for the same period showing a 17% increase on a year-over-year basis.

Strong iron ore imports resulted from continued demand for steel but do not represent a proportionate increase to that of steel production. The main reasons behind that are twofold. First, we believe that steel producers are not replenishing inventories to full capacity as evidenced by the fact that iron ore inventories at their current levels to satisfy less than (inaudible) of steel production. The lowest level of (inaudible) is 2008.

Second, lower export availability from Brazil and Australia due to infrastructure constraints at the ports as well as miners managing their exports due to the ongoing negotiations. As can be seen on the graph at the bottom left of the slide, China's economy on country's demand for iron ore was the driving force behind a relatively strong rate environment through the end of 2009, while demand from Europe and Japan has been lagging significantly.

However, since the beginning of 2010, we have seen significant increases in iron ore imports into both Japan and South Korea and believe that this trend will continue as the rest of the world enters a recovery stage.

Indicatively, the global economy is expected to expand by 4.2%, and Japan's GDP growth expectations were recently revised to 1.9%. Furthermore, we believe that in the long run, China will play a significant role in the dry bulk trade with a similar growth profile to that of China mainly driven by the demand for coal to fuel domestic electricity consumption and steel demand.

And, lastly, we know that the weather-related issues in China have caused decreases in the country's local production of grains, which bode well for the dry bulk market, as the country will have to satisfy domestic demand by increasing imports from countries like Argentina and the US. China's import of corn from the US reached record levels to make the country a net importer of corn for the first time in 14 years.

Moving to slide 18, we reiterate China's continued support to the dry bulk markets through March of 2010 by outlining the iron ore imports sent to China increased 18% year-over-year. At the same time, Japan's imports increased for the first time since the financial crisis by approximately 43% signaling the end of a recessionary period and the possibility of increased iron ore cargoes from Brazil into Japan.

Coal, the second most important commodity in dry bulk shipping has been a increasingly important factor in 2010. While imports of coal into Japan have not yet recovered to the same degree as iron ore, China's coal imports increased by over 200%. China has been a net importer since the beginning of 2009 with imports of amounts of the commodity increasing steadily for 2010, while the main factor for the increased imports has been the increase in power consumption and steel production. Pressures from the Chinese government to shut down domestic coal mines due to environmental and safety reasons have also contributed.

Adding to the aforementioned long-term fundamentals, a severe drought in the southwest of China has restricted hydropower output. As the country switches to coal-generated electricity, we have seen a further increase of thermal coal imports and expect this trend to continue in the short term due to the need to replenish coal inventories of the ports.

To illustrate the magnitude of this effect, I know that China was a net importer of 38.7 million tons for the first quarter of this year, as opposed to only 6.2 million tons in the first three months of 2009.

At the bottom right-hand slide, above the slide, we outlined 2010 forecast for apparent steel usage. As mentioned on earlier calls, we expect our potential recovery in apparent steel usage in the world, excluding China, could provide additional support to freight rates.

Coming to slide 19, we present estimated iron ore expansion plans for the five major iron ore producers. As displayed in the graph, we anticipate that approximately 66 million tons of additional capacity will be added through the end of 2010 while an additional 135 million tons will be added in 2011. This is becoming increasingly important due to the following reasons.

First, while iron ore imports from China increased during the first quarter of 2010, we believe that this is only a temporary occurrence and expected to reverse over the long run as India's domestic demand for the commodity increases, and the government will be forced to raise export taxes.

Second, we believe that increases in iron ore production will be the mitigating factor against the increasing number of Capesize vessels coming into the market.

Furthermore, we believe that recently revised forecasts for 2010 apparent steel usage give an indication the excess demand of iron ore will come not only from increased steel production in China but also from [revending] steel production in the rest of the world. Mainly, forecasts for overall steel demand were revised upwards to 11% from 9%, while growth in China steel usage was also increased to 7% from the previous forecast of 5%.

On slide 20, we present our view for the supply side of the equation. Looking at the graph on the bottom slide, we can see the dry bulk order book for 2013. Although the project dry bulk order book still represents approximately 60% of the existing fleet, it is questionable whether it will be delivered in its entirety.

As presented below, over 25% of the newbuilding orders scheduled to deliver in 2010 are contracted at newly established expansion or greenfield yards. While some of the vessels contracted in expansion are newly established yards might be delivered assuming the presence of funding for working capital and other purposes, we believe that most greenfield yards, let along vessels contracted in the same, will not make it into the supply picture.

Slippage continues to be a major factor on the supply side. It is estimated that slippage continues at approximately 40% of the first quarter in 2010. We believe that similar levels of cancellations and delays will continue throughout the year.

Approximately 25% of the world's fleet is 20 years or older. As we have indicated on past calls, bulk carrier scrapping is not mandated. It is more of an economical equation. Amid a higher spot rate environment during 2010, scrapping has leveled off, as illustrated in the graph at the bottom of page 37. Vessels of -- I'm sorry -- 37 vessels have been scrapped, to date, in 2010 while 260 vessels were scrapped in 2009.

This concludes our presentation. I will now be happy to take your questions.

(Operator Instructions) Doug Mavrinac; Jefferies & Company.

A great quarter. I just had a few follow-up questions. First, you guys have been very active in securing new time charter contracts for your fleet in recent weeks. How would you describe the overall level of demand for time charter contracts -- for time charter contracts from charters relative to, say, the fourth quarter of last year or even earlier this year?

Yes, Doug, clearly liquidity has come back in the time charter market, particularly on the one- and two-year charters. We haven't seen that many charters done greater than two years, but it's been a pretty good sign, and I would say it's been pretty active, which is why we've been signing up ships lately.

Okay, great, thank you, John. And then my second question is somewhat related, and you kind of just touched on it. But just to maybe get a little bit more granular -- as it relates to the -- and it has to do with time charter contract duration demand. Since the change in the pricing system for iron ore from annual to quarterly contracts, have you guys noticed any changes in demand patterns from charter, say, as it relates to time charter contracts that less than one year or greater than one year? So, in essence, are people more reluctant to sign shorter-term contracts that you can tell and maybe more preferring longer-term deals?

No, we haven't seen any of that. And, you know, the quarterly pricing, while it looks like may be happening in China, there has been nothing official done yet. It looks like there have been a few mills that have agreed to it but not everyone yet. But we haven't seen any change in the charter activity.

Okay, great, thank you. And then just, finally, you guys continue to generate a significant amount of cash with little in the way of cash commitments. Can you share with us where you stand relative to any collateral maintenance covenants related to your ability to pay out dividends and your view towards reinstituting your dividend policy at some point?

I mean, you know, I think we still have a ways to go on getting that collateral maintenance clause back into place. And I think it's going to happen from, as I've said before, two different ways. One, I think values will continue to move up, though I don't think it's going to be at a roaring pace. I think it will be a little slower. And then, obviously, cash flow from operations, and our goal is to put the dividend back into place, but I do think it's a little way out at this point.

Got you, got you. And I just thought of this -- does the consolidation of Baltic's assets and lack of liabilities affect that covenant any?

No, because that's a collateral maintenance. So it's only measuring the steel value of Genco's fleet, 35 ships versus the debt outstanding at Genco.

Jon Chappell; JP Morgan.

Thank you, good morning. John, you talked about growth opportunities both in the press release and in your comments. With your 58% debt-to-cap ratio, with financing, as you stated in your presentation, still pretty tight for the industry -- what's your liquidity and what's your ability to grow as far as new assets are concerned? What would your target leverage be for any new acquisition? Would you try to over-equatize, you know, any new ships that you had in the near term?

I don't think we would over-equatize. I think we'd probably stay right around the same leverage ratio and, yes, you're absolutely correct. The commercial bank market is still very tight. We obviously got a facility down at Baltic, which we were happy with, and I still think there are a few banks that are open and looking at transactions.

So while it may be more expensive than what we saw a couple of years ago, there is still bank debt available for a few companies that have been doing business for a while. Obviously, we have other capital market tools at our disposal, but we prefer the bank markets first.

Do you think the bank markets would give you 50%, 60% of any potential acquisitions? Would it depend on if there are charters involved?

I think it depends on if there are charters involved, but I think 50% to 60% is probably the right number, the right range.

Okay. On your cost side, you're well below -- and you mentioned the reasons why -- timing and whatnot. But is it realistic that you're going to get to that 53.50 level? You've already done three drydockings in the first quarter of the year, which is the most out of any quarter per your schedule. Crew costs probably won't change significantly over the next couple of quarters, so is the timing of purchases and and [lubes and stores] really going to get you back up $600 a day for the rest of the year? Or do you think it will probably be somewhere in between the guidance range and the first quarter level?

We are pretty confident that we are going to maintain these numbers for the year. I mean, yes, it's early days, and we don't know what's going to come down as the rest of the year unfolds, but looking at things the way they are now, I'm pretty sure that we're going to continue with these numbers.

Okay. And then, finally, one more for you, Gerry. On the scrapping front, everyone's been talking about the potential to scrap with the age of the fleet. And as you mentioned, there's no regulations, it's an economic situation. With the positive demand outlook that you laid out on the coal and the iron ore side, is it really realistic that rates will get to a level where it's going to cause a significant amount of scrapping regardless of the age of the fleet?

Well, you've got to look at previous years. When the rates were high, scrapping went down. Rates are beginning to come up, and we're beginning to see scrapping falling off. There's a lot of old ships out there and even at higher rates, I don't think -- we won't have a tough time for any charters to take them on, to be honest with you.

So I think we're still going to see scrapping, not at the same rate as we have done in recent months, but it's still going to go forward.

Yes, keep in mind, Jon, there's a big disconnect between a five-year-old ship and a 20-year-old ship as far as fuel, maintenance, and utilization rate. So while you may see a five-year-old Capesize ship earning $40,000 a day, a 20-year-old ship is not going to be making anywhere near that.

When these ships come up for their [first special] or whatever, you know, unless they have been very, very well looked after, they are going to have to spend a lot of money putting them through that special. So put pressure on a ship that needs to go to scrap.

Natasha Boyden;Cantor Fitzgerald.

I just wanted to follow up on Jon's question about acquisitions. Just really looking at, in terms of the liquidity of the S&P market and what you're seeing there. Are you actually seeing potential fleets coming up for sale or is there still just one vessel here, one vessel there?

We haven't seen any large fleets. I think it's more in the two to five-vessel range is what we're seeing right now.

And what is really your preference? Would you prefer to hold out for a fleet or would something on the two to five range be attractive to you if the deal was structured correctly?

If the deal was structured correctly, we would definitely look at that size of a transaction.

Okay, all right, great. And then just jumping back to your chartering strategy for your open vessels that you have in 2010, I mean, you obviously fixed a significant number of vessels over the quarter, but you do still have some open days. Do you have a percentage number where you want to be? Is it 70%, 80% that you think time chartering the fleet out at would be good level for you? Or was it just the environment?

No, look, traditionally, we've had a goal of about 75% fixed. And I think that goal hasn't changed. As you know, we moved around that a little bit at the end of 2008, early 2009. But we're now back to fixing for one, two years in the market. So I think you'll see that number continue to move up.

Okay, great. And then just a much more sort of micro question. Did you have any amortization of fair value above market time charters included in your resume during the quarter?

Yes.

Do you know roughly how much?

Yes, one second. $1.3 million.

Chris Wetherbee; FBR Capital Markets.

I guess on the acquisition front, just to kind of wrap up here just from a capacity standpoint -- do you guys have a sense of what you -- maybe you think, or a target you may think about as far as what you'd be willing to spend or what you're looking to spend when you think about acquisitions, going forward?

No, I wouldn't say there's a specific number. Like I said, I think we have a lot of tools at our disposal for -- to do transactions right now. But there's no definitive number.

Okay. And then just -- I don't know if the question has been asked but just kind of your view on where you see the market right now from a price perspective. How do you view values relative to what the charter market is giving you right now?

I think they're pretty good. One of the things -- and, you know, again, one of the reasons why we started Baltic Trading was because we thought values were in a pretty good position right now. Basically, they're back to 2004 levels, and we don't think -- because of a lack of bank financing in the market, we don't think you're going to see values move up in lockstep as freight rates recover this time around just because there isn't enough capital. And bank capital made up probably around 70% of the overall capital in the industry up until about two years ago. And, clearly, that's a big hole right now.

Okay, that's helpful. And, John, if you could just remind us what the relationship is relative to Baltic as far as pursuing acquisitions from a Genco perspective?

Look, Genco is a time charter operator, so vessels that we would buy with time charters attached or larger fleets that we put away on time charter would go to Genco. Baltic is a spot operator and, obviously, we'd be looking for those types of ships. Having said that, Genco has right of first refusal on any vessel transactions.

Okay, that's helpful. And then just one final more macro question -- just from the pace of deliveries, of newbuild delveries, clearly, we're seeing slippage. But the absolute numbers have been creeping up. Do you guys have a sense of what the shipyard capacity is to produce vessels at this point? Obviously, there's a lot of murky area with expansion yards and greenfield yards. But do you have a sense of where we are from a capacity utilization standpoint from the shipyard side?

It's very difficult to tell. Look, the whole -- you know, we've been saying this for a while -- the supply side is just a big question mark. It's very difficult to figure out. Obviously, we can look back and see the large slippage numbers, and we think the slippage numbers are going to continue for this year. But that's as far as we can really go.

Gregory Lewis;Credit Suisse.

John, you mentioned -- and it's been talked about earlier on the call about time charters and it's sort of the market and the duration. I guess I want to approach it a little differently. It looks like you have around five vessels in Q2 -- you know, two Capes and then three smaller vessels. When you look at rates where they are today for the Capes and the smaller vessels, I mean, the market is what the market is. But as your vessels come up, and these are the rates that are offered to you, are you interested in taking these types of levels?

Well, first of all, keep in mind that when we report vessels that are rolling off, we are giving you the earliest re-delivery date. In a lot of cases, there may be another 30 to 60 days at the charter's option. So I'm not sure exactly what's going to be rolling off this quarter. But, look, we just fixed a Supramax at $22,500 for a year. We thought that was a pretty good rate. We did a Handymax fixture at $20,000. I think we're getting comfortable with the Panamaxes on down. I think the Cape rates are still a little light from a time charter standpoint.

Okay, great. And then, Gerry, you mentioned the Chinese thirst for grain and US being an area. Have we started to see cargoes from the US Gulf leave for China? And given that oil spill in the Gulf overlays, because has that impacted the grain trade down in the Gulf of Mexico at all to this point?

Well, let me start with the oil spill. It hasn't impacted any trade at this point. What it's going to do in the coming days or weeks, is anybody's guess. So navigation is still open in the Southwest pass, so the Mississippi is still in full swing.

Grain to China -- haven't seen a lot in our ships, at least coming out of the Mississippi but most of the grain we are seeing is coming out of Argentina and Brazil going across to China at the present time.

(Operator Instructions) Justin Yagerman; Deutsche Bank.

I wanted to get just some clarification, Gerry. When Jon was asking about opex, you had said that the levels that you were anticipating were okay. But I couldn't tell from your answer whether or not you were indicating that your expectation was for that 53 or the 53.50 that you guys are guiding for the year, or if you think that, actually, you may have a shot of keeping the current opex levels in the quarter, because it looks like there's at least about a $2 million delta in terms of a quarterly basis impact.

As John indicated in the call, we measure it by just over a 12-month period. So we are pretty confident that the budget figure that we have will be the figure that we come through with at the end of the year.

So it's about 53.50, right?

Yes, I would continue to use that number for the time being. As we get through the second quarter, we may give some different guidance for the third and fourth quarter, but, for the time being, I would use that budget number.

Okay, thanks for the clarification on that. And then this week there was an Australian tax that was announced on the mining industry. Now it's just a proposal, but it's kind of interesting, especially in light of your comments about increased production offsetting the Cape supply. What are you guys' thoughts, just initially, on this? Obviously, it feels like maybe a double-edged sword in that it could push more emphasis onto Brazil for the iron ore trade but also if you do see decreased production or an impact to what's going on at BHP and Rio Tinto, that could be a negative, as well. Any initial thoughts on how to perceive this as it goes through legislation in Australia?

Look, I think you're right. It could force more into Brazil. The large expansion projects in Brazil are slated to come on in 2012, 2013, and I think the tax is supposed to start in 2013, if I'm correct.

Look, I think it's an earnings issue for BHP and Rio. I don't see them slowing down volume because of an increased tax at this point. So I don't think it's going to have much effect for the shipping industry.

Okay. I was just curious on that. And then I guess you talked a little bit about the time charter market -- that you're seeing some two-year deals out there emerging. Can you talk a little bit about the discount that you'd have to take or where you see the one-year versus the two-year on Capes and Panamaxes and maybe Supermaxes right now? Well, that, and then I've got one other question.

Well, look, the Panamaxes, I think, are the most liquid as far as two-year charters right now, and we're seeing two years at around 24 versus the one-years probably around 25.5 and 26. Haven't seen too many two-year deals done in the Cape market lately, but the Panamax, I think, is a good benchmark.

That's good color, I appreciate it. And I guess on the back of that, have you been surprised that you haven't seen rates move up more than they have? I mean, we've gotten a lot of good demand indicators in Q1. You guys went through a litany of the different drivers. Is it really the supply that continues to keep us off [dealing] on where rates can go, in your opinion? And if we kind of found a balance in terms of where we are from a rate standpoint in the market right now?

Clearly, there are vessels that are being delivered. So there is new supply, obviously, and that has the opposite effect as rising demand does on rates. What I think has been happening is we've seen a real lag in the Capesize sector because the Chinese, up until very recently, have not been in the market buying. And you can see it in the inventory numbers that around 70 million tons right now. What's really interesting is that if you look at -- just forgetting the absolute inventory numbers, if you compare that to the steel production, it's really low. And that, I think, has had a little bit of a drag effect on, at least, the Capes and probably the Panamaxes as well.

Urs Dur; Lazard Capital Markets.

Everything has really been asked. One question, I guess, a year ago at this time, one of the biggest fears was this collapse of charterers' capability to pay. Now charter rates have come down significantly, and everybody's credit quality has improved. Are there any other charterers out there that you would consider still unworthy or any regions at this point in time where you wouldn't want to get involved on a credit quality perspective? Or is the overall underlying market as superiorly sound, as we all think it is today compared to a year ago?

I think it's in much better shape than a year ago, but that doesn't mean we would deal with everybody. I mean, we're still focused on the blue-chip charterers and the guys that we've been doing business with for the last five years. But I think most charterers are in a much stronger position than they were a year ago.

Ladies and gentlemen, with that as our final question, that does conclude today's conference. We thank you for your participation.