Genco Shipping & Trading Ltd (GNK) 2012 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Genco Shipping & Trading Limited fourth quarter 2012 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 at 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 at any time during the next two weeks by dialing 888-203-1112 or 719-457-0820, and entering the passcode 260-3843. 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 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 and 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, 2011, and the Company's subsequent reports filed with the SEC. At this time, I would like to introduce Gerry Buchanan, the President of Genco Shipping & Trading.

Good morning and welcome to Genco's fourth quarter 2012 conference call. With me today is John Wobensmith, our Chief Financial Officer. I will begin today's call by discussing our fourth-quarter highlights, as outlined on slide 3 of the presentation. I will then turn the call over to John to review our financial results for the three-month period ended December 31, 2012. Following this, I will discuss the industry's current fundamentals. John and I will then be happy to take your questions.

During the fourth quarter, Genco continued to operate a large modern drybulk fleet in a cost-effective manner, continuing to meet the needs of multinational charterers while preserving the ability to take advantage of the positive long-term industry fundamentals.

Turning to slide 5, Genco recorded a net loss of $45.7 million, or $1.06 basic and diluted loss per share, for the three months ended December 12, 2012. Genco's cash position, excluding Baltic Trading Limited, was $79.5 million. During the fourth quarter, we continued to employ the majority of our vessels with short-term or spot market-related contracts with credit-worthy counterparties, such as Cargill International, Pacific Basin Chartering, Lauritzen Bulkers A/S, and others. This opportunistic time charter approach positions Genco to capitalize on future rate increases by combined with our efficient cost structure, expand the Company's future earnings potential when market conditions improve.

Moving to slide 6, we provide a summary of our fleet. Genco's more than diverse fleet bodes well for Genco to continue to provide its leading customers with service that adheres to the highest operational standards and take advantage of the positive long-term demand for the global transportation of iron ore, steel, and other core commodities. Excluding Baltic Trading's fleet, we currently own a fleet of 53 drybulk vessels consisting of nine Capesize, eight Panamax, 17 Supramax, and six Handymax and 13 Handysize vessels with a total carrying capacity of approximately 3,810,000 deadweight. Importantly, the average age of our fleet is 7.5 years, below the industry average of approximately 10. I'll now turn the call over to John.

Thank you, Gerry. Turning to slide 8, I will begin by providing an overview of our financial results for the fourth quarter and year ended December 31, 2012. Please note that we are reporting our financials on a consolidated basis as a result of our 25% equity ownership in Baltic Trading. For the three months and year ended December 31, 2012, we recorded total revenues of $49.2 million and $226.5 million, respectively. This compares with revenues for the fourth quarter 2011 and year ended December 31, 2011, of $97.1 million and $392.2 million, respectively. The decrease in total revenues for the fourth quarter of 2012 compared to the prior-year period is primarily due to lower charter rates achieved by the majority of our vessels.

The operating loss for the fourth quarter and year ended December 31, 2012, was $26.2 million, and $69.3 million, respectively. This compares with operating income for the fourth quarter and year ended December 31, 2011, of $24 million and $112.6 million, respectively. Interest expense for the fourth quarter of 2012 was $22.4 million and $87.6 million for the year ended December 31, 2012. This compares to interest expense of $22.1 million for the fourth quarter of 2011, and $86.7 million for the year ended December 31, 2011. The Company recorded a net loss for the fourth quarter of 2012 of $45.7 million, or $1.06 basic and diluted loss per share. The net loss attributable to Genco for the year ended December 31, 2012, was $144.9 million, or $3.47 basic and diluted loss per share. This compares to net income attributable to Genco of $0.3 million, or $0.01 basic and diluted earnings per share for the fourth quarter of 2011, and net income attributable to Genco of $25.4 million, or $0.72 basic and diluted earnings per share, for the year ended December 31, 2011.

For the three months and year ended December 31, 2012, Genco also recorded income tax expense of $305,000 and $1.2 million, respectively. This compares to income tax expense for the fourth quarter and year ended December 31, 2011, of $344,000 and $1.4 million, respectively. This income tax expense includes federal, state, and local income taxes on net income earned by Genco Management Limited, one of our wholly-owned subsidiaries and relates to income generated from the technical and commercial management of vessels for Baltic Trading Limited, sale and purchase fees payable to us by Baltic Trading Limited, if any, and service revenue from the technical management of vessels owned by Maritime Equity Partners.

Next on slide 9, you will see that income statement effect of Baltic Trading's consolidation with Genco 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 that's presented in slide 10 include the following -- our sizable cash position, including restricted cash, was $82.8 million as of December 31, 2012, enhancing our ability to operate in this soft rate environment. Excluding the consolidation of Baltic Trading, Genco's cash position was $79.5 million. Our total assets as of December 31, 2012, were $2.8 billion, consisting primarily of our current fleet, cash and cash equivalents. EBITDA for the three months ended December 31, 2012, was $12.1 million.

Moving to slide 11, our utilization rate was 98.7% for the fourth quarter of 2012 compared to 99% in the year earlier period. Our time charter equivalent rate for the fourth quarter of 2012 was $8,206. This compares to $16,805 recorded in the fourth quarter of 2011. The decrease in time charter equivalent rates resulted from lower charter rates achieved in the fourth quarter of 2012 versus the same period last year for the majority of the vessels in our fleet. For the fourth quarter of 2012, our daily vessel operating expenses were $5,031 per vessel per day versus $5,142 per vessel per day for the fourth quarter of 2011. Daily vessel operating expenses for the year ended December 31, 2012, were $5,038 per vessel per day versus $4,819 per vessel per day for the year ended December 31, 2011. The decrease in daily vessel operating expenses for the fourth quarter of 2012 compared to the prior-year period is primarily due to lower maintenance-related expenses partially offset by higher crewing expenses.

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 the expenses that each vessel in our fleet will incur over a full year of operation. Consistent with our objective to maintain a cost-effective operating platform, we are pleased that our daily vessel operating expenses for the three months and year ended December 31, 2012, were well below our budget of $5,200 per vessel per day on a weighted basis. Based on estimates provided by our technical managers and management's expectations, our initial full-year 2013 daily vessel operating expense budget is $5,250 per vessel per day on an average weighted basis for the 53 vessels in our fleet, excluding vessels owned by Baltic Trading Limited.

On slide 12, we present our anticipated expense levels. Genco's status, as one of the lowest cost operators in the industry, is reflected in our low breakeven levels. We expect our daily free cash flow expense rate to be $10,688 for 2013 and daily net income expense rate for Genco consolidated to be $16,840. I will now turn the call back to Gerry to discuss the industry fundamentals.

Thanks, John. I'll start with slide 14, which points to the drybulk indices. Represented on this slide is the overall Baltic Dry Index. The BDI started the quarter off near the previous quarter's lows but rebounded significantly, trading above the 1,000 mark in October and November, primarily due to the restocking of iron ore and a considerable slowdown in vessel deliveries during the second half of 2012. The year ended with the BDI retracting to 699 points as iron ore prices rebounded and the slowdown in anticipation of the Chinese New Year began. While 2012 was a particularly hard year for drybulk freight rates, preliminary data show that seaboard transportation of commodities continued growing at healthy rates, suggesting that the main hindrance to a turnaround lies in the supply side of the equation.

On slide 15, we summarized recent developments in the drybulk freight market beginning with the supply side fundamentals. As a result of prolonged [low] freight rates, scrapping has continued at record pace, increasing by 45% year-on-year for 2012, to reach 33.7 million tons or one-third of the total 2012 deliveries. Of all the majority of vessels scrapped have been Handysize and Supramax vessels due to the older age of those fleets. We also observed younger vessel demolitions, especially in the Capesize sector. The depressed rate environment during the past year also resulted in a 43% decrease of new building orders year-over-year, pushing the order book to its lowest level in eight years, or 19% of the fleet.

Existing order deliveries peaked in June 2012 and have since considerably decelerated, with the second half of 2012 deliveries being the fewest in any half year period since 2009. Moreover, average net additions per month slowed from 76 vessels during the first half of 2012 to 26 for the second half. The same trend is evident so far this year, with January deliveries coming in at 21% lower than the same month last year. Slippage continues at a fairly constant rate, with approximately 30% of the order book not delivering in 2012. It is estimated that slippage was 37% for January of this year.

As previously mentioned, the demand side of the equation continues to grow at healthy levels, as evidenced by Chinese iron ore imports, recording an 8.5% increase from last year although Brazil's share of exports declined through the first half of 2012. The effect of the additional ton miles was evident by significant freight rate increases in the fourth quarter as Brazilian iron ore exports reached a quarterly record of 97.5 million tons.

Going forward, we believe that the pending on the arbitrage of domestic versus imported iron ore prices, iron ore volumes from Brazil and Australia will continue to play a significant role in shaping future freight rates. While temporary weather-related factors have put pressure on iron ore production, and pushed prices of the commodity to trade around $150 per ton, we believe that the need to replenish reduced inventories, along with the onset of additional supply over the long run, could potentially reverse this development through the second half of the year.

On the coal front, Chinese imports of the commodity continued to do reach record levels, with 2012 recording nearly a 30% increase year over year. Strong imports are expected to continue into 2013, as domestic production has been [reduced further] and improve safety within the industry. In an effort to accomplish that goal, China plans to shut down as many as 5,000 small coal mines this year. Furthermore, peak season electricity demand, coupled with low hydro power production continues to lead to robust thermal coal-derived power generation. India's growing electricity needs are also resulting in increased imports of coal into the country, as December imports reached a record high of 140 million tons on an annualized basis.

In terms of grain shipments, the South American grain season is underway and we are already seeing signs of improvement in the Panamax earnings as a result. Although the US grain crop has been negatively impacted by drought conditions, additional grain shipments for Brazil have been able to offset the US cargo shortages as well as lead to greater trade distances.

Turning to slide 16, we believe that a number of short- and long-term catalysts will improve the drybulk market. Construction on China stimulus projects, approved in September of last year, are set to commence, leading to a potentially higher need for steel as 2013 progresses. We note that Chinese steel stockpiles have increased significantly since December. Historically, however, Chinese stockpiles rise at the first quarter of the year due to the lower consumption because of winter weather conditions and the New Year holiday and a decline in the second quarter, as consumption increases and weather improves.

We believe this trend will continue this year, especially as construction on these infrastructure projects escalates. As steel demand firms, iron ore [fixtures] are likely to find support as port inventories at yearly lows, as previously stated. Seaborne trade may also be positively affected by planned volume expansion as iron ore miners plan to increase production and invest into higher capacity port facilities over the next few years. Higher imports of volumes could further induce a price arbitrage between domestic and imported iron ore prices, thereby enhancing ton miles in the long run.

On the supply side, as volatility in charter rates continues and scrap steel prices remain at high levels, we expect to see a large amount of vessels scrapped in 2013, continuing the trend of the prior two years. 2011 and 2012 were record years for vessel deliveries. As the weight of the order book lessens, and more new building vessels either get delayed or canceled, the supply growth experienced over the past few years will likely slow down, allowing demand to catch up. According to Pareto Shipping Research, in 2013, tonnage demand is forecast to grow 8%, exceeding net supply growth of 7%.

On slide 17, we talk more about the demand side fundamentals. Chinese steel production increased approximately 3% in 2012 as compared to 2011, while urban fixed-asset investment rose 20.6%. As China's urban population continues to expand in the years to come, steel consumption is expected to keep increasing as Chinese urban households have a much larger steel intensity than rural households.

In line with the urbanization, the Ministry of Transportation is working towards more than doubling its network of high-speed railways to total over 11,000 miles by 2015. In addition to railways, highway construction has been a focal point of the Chinese government, as highway freight volume continues to set monthly records. In regards to housing, China plans to start construction on seven million social housing units and complete construction of 4.6 million units in 2013.

India's growth potential, going forward, bodes well for the drybulk steel market also. Steel production in India grew 6.3% in 2012, year on year, and is expected to grow an additional 5% in 2015, according to the World Steel Association. Growing steel demand and limited iron ore export availability from India is also forcing Chinese steel mills to source imported ore from longer ton mile origins.

Moving to slide 18, on the left of the page, we show the expansion plans of key iron ore producers, as recently revised by the respective companies. The combined expansion plans for 2016 aggregate to 407 million tons per annum, or approximately 37% of 2012 seaborne ore trades. According to Macquarie Commodities Research, Australian December iron ore exports reached an all-time high of 592 million tons per annum, reflecting strong operational performance and additional capacity coming on-stream from Rio Tinto, Fortescue and BHP Billiton. This is leaving Australia's Bureau of Resources and Energy Economics to forecast an increase in iron ore exports of 13% in 2013.

Due to low grade domestic ore as well as marginal growth in Brazilian exports and limited Indian export availability, China is expected to continue to source a significant portion of its imported ore from Australia. Although the Australia to China route doesn't have as great a ton mile impact as Brazil to China route, the sheer quantity of expected additional volumes can still create transportation demand necessary to absorb excess Capesize vessels. Iron ore supply internationally could also lead to lower ore prices, thus making imported ore more attractive to buyers.

On the coal side, domestic coal supplies continues to fall short of demand in India, leading to coal imports rising 17% in 2012 when compared to the prior year. The domestic coal supply and demand gap is expected to be close to 200 million tons in the year ending March 2013.

On slide 19, we discuss the supply fundamentals which remain uncertain. As conveyed in the graph at the bottom left of the page, the scheduled 2013 order book currently stands approximately 90 million deadweight. With expected slippage and cancellation of vessel orders factored in, deliveries appear set to come off the highs experienced during the prior two years. Scheduled deliveries of new tonnage for 2014 and onward remain much lower as new building orders have decreased. Declining new building activity, along with stronger steel prices, have put pressure on shipyard margins, increasing the potential for bankruptcies by some the less established Chinese yards.

With respect to scrapping, we believe it will continue to play a significant role through 2013, especially if volatility and the freight rate environment persists, as 16% of the world fleet is 20 years or older. As illustrated in the graph at the bottom right of the page, 2011 and 2012 were record years for scrapping, with 23.2 million deadweight and 33.7 million deadweight scrapped respectively.

Lastly, we know that the scrapping of younger tonnage, specifically within the Capesize fleet, became a major theme in 2012. Of the 73 Capesize vessels scrapped year, 34 were built between 1990 and 1995. We believe this to be an important development moving forward to help combat excess tonnage in the drybulk market. This concludes the presentation and we're now happy to take your questions.

Thank you. The question-and-answer session will be conducted electronically.

(Operator Instructions)

We will pause for just a moment. Doug Mavrinac with Jefferies & Company.

I just had a handful of follow-up questions. First, stating the obvious, current charter rates remain weak, but as you guys pointed out, Panamax spot charter rates have started to move in the right direction with those increases in chartering activity. My question is, when we look at Capesize spot charter rates, which haven't moved yet, is the current weakness, relative to where rates were just a few months ago, more of a function of a lack of Chinese drybulk buying in recent weeks? Or is there something else that is to contributing to that incremental recent weakness that would keep Cape rates where they are but yet allow Panamax rates to increase?

I -- on the Capes for a second, Doug, what's happening is the fixture volumes are off for iron ore, and which we see every year. Part of it is our supply issues due to weather in Australia and Brazil, though it's not to the same degree we saw in 2010 and -- or sorry 2011, 2012. The good news on that is, unlike last year, the inventory levels at both the ports are around 69 million tons are low and then you've got somewhere between 10 to 15 days versus the normal 20 to 30 days at the actual steel mills themselves. So that part of the fundamental is positive.

The other thing that's going on is, obviously, there is the coal strike going on in Colombia and that has definitely softened things up at the Capesize sector as well. On the Panamax side, they're starting to benefit from the Latin American grain season. So that's where we see things. We expect Cape rates to firm back up, but you've got a high price of iron ore right now which has to do with, again, the weather issues in China and -- or sorry, in Brazil and Australia. But then you also have cold weather in China so you're not having as much domestic ore being produced which also has an effect of driving things up. So my -- (multiple speakers).

Right. Right.

Anyway, so that's probably a long answer to your question.

No, no. That's perfect, John, because it gets to the crux of it. So it's not this whole perpetually over-supplied deal, but it's simply a decrease in chartering activity because it makes sense, since every time we see an increase in chartering activity, last fall, the previous fall, even at Panamax rates most recently, you do see an increase in charter rates. So that actually gets to the point of the question. My second question is --

Doug, let me just, just to be clear, look, there are obviously still supply issues.

Right, right, of course.

The good news there is that during the month of January, you had 9.5 million deadweight ton delivered but if you go back to January of last year, it was 12.5 million deadweight ton. So we really are starting to see a trail off in deliveries.

Right. Yes, that makes sense too, John. I was just getting to the point that you read sometimes about how chartering activity has picked up but yet rates haven't. I was just trying to clarify that, that is not the case that it's not low -- it's a rate -- activity is picking up and rates aren't. It's just that activity isn't at the level of where we saw late last year.

I agree.

Okay, perfect. And then getting to the second question is, when we look at the current state of the market, rates are one thing. But when we look at utilization levels and idled capacity and whatnot, you guys are still seeing utilization levels at very high levels, obviously. But just as an update, are you seeing any significant numbers of viable drybulk ships out there that would prevent charter rates from going up once chartering activity did improve?

In terms of lay-ups, no. There's really no lay-ups going on in drybulk.

Okay, perfect, perfect. Now, so just big picture. I'm not asking for a forecast and whatnot, just intuitively, when you look at 2011, you look at 2012, Gerry alluded to it, how drybulk shipping trade growth remains strong. We estimate its increase 6% per year during those two years, and that's seven of eight quarters during that period when China's GDP growth was decelerating. So if we grew 6% in 2011 and 2012, when we look at 2013, is there any reason we should grow less than 6%? Or does 6%-plus sound like a decent number if that was the backdrop over the last two years and we know that things are getting better in 2013?

Look I think it's sounds like a fair number. More importantly, you -- iron ore imports into China last year were up 12%, which is, obviously, one of the fundamental drivers to drybulk. And the other thing that I think is interesting this year, you're finally starting to see meaningful numbers of new mining capacity coming on. I think it was 113 million tons, 114 million tons this year. This is the first -- we've been talking about that part of it for a couple of years now, but now all the sudden, we're here now. A lot of that capacity comes on in the second half of the year, but those are projects that are there, funded and moving forward.

Right, right, right. Perfect. And then just finally, switching over to the supply side of the equation, and Gerry alluded to also how we saw a significant drop-off in new shipyard deliveries in the second half of year. We estimate that the average monthly deliveries were about 5 million deadweight tons per month in the second half of the year. So once again, does it just intuitively make sense that even though we know that trajectory of the order book would suggest that shipyard deliveries should continue to slow, 5 million deadweight tons per month, 12 months in 2013? That's about 60 million deadweight tons. Is there any reason why that isn't an unreasonable expectation for '13?

I think most analysts' numbers that I've seen show a gross fleet number of around 7% for this year. I do think deliveries are going to be more loaded on the front end of this year. I think they'll go down even further on the back-end. But if you apply 30 million deadweight tons of scrapping, which is slightly less than what we did in 2012, and even a 20% slippage rate, even though we've been running at 30%, 35%. In fact, I think it was 37% for January, 37%, but even if you applied those numbers, then you get down into 4.5% to 5% fleet growth.

Right.

If that answers your --

It does, it does, because I know what other guys are saying. But what I'm saying is, if we see 5 million deadweight tons per month, simple math will tell you that's going to be less than what people are expecting? 5 times 12 is simply 60, so anyhow, John, that's all the questions I had. Thank you for the time.

Michael Webber with Wells Fargo.

I want to shift gears a little bit and talk a little bit about the lending environment. Obviously, you guys went in and secured a restructuring last year. It seems like that's probably going to need to happen again at some point this year, but sentiment seems to be improving, at least towards the back half of the year and 2014. So John, I'm just curious to how -- are you finding the banks easier or more difficult to deal with right now? I know you can't get into a huge level of details in terms of what you guys are working on right now, but are you noticing a difference in terms of their attitude towards the space?

I don't think it's changed all that much. We've been fortunate in that we've had support from our banks from day one. We obviously got the amortization relief done last year and that goes through all the way through the first quarter of 2014. I agree with you. I think the sentiment overall is at least starting to shift even though we haven't seen it necessarily in the freight rates yet. But I don't -- we talk to our banks quite often and I don't -- I haven't seen any shift.

In terms of what you guys are talking about now, if you just leave that -- the run rate effective Q1 '14, I believe, but from a -- if we don't see a pick-up in rates, you've got a cash burn that brings that deadline up into '13. Are you guys involved in more significant negotiations earlier in the year right now than you say that you were the last go around? Is that something that you guys are actively working on right now?

Michael, obviously, I just can't talk about what we are or not doing. The only thing I can say is, you know us, and we've -- we're proactive on these things. We don't wait for the last minute. But beyond that, I just -- I don't have any comments --

No, that's fair. That's fair. On a bit of an [earlier] note around Baltic, I think, given the current market scenario and its corporate set-up, I think most can agree, it should be valued more -- or higher than it is right now. It should be trading better than it is as an equity proxy for the drybulk market. Are you guys thinking about strategic options to maybe increase the liquidity there? Do you think there's anything you can do to increase that value? It would be a nice positive for you guys. I think you guys would probably agree that it should be trading better than it is right now.

Yes, I would agree. It should be trading better and it's definitely something we're focused on. Genco, from an economic standpoint, is 25% of it. But again, Baltic is a little different structure. It's a separate company, separate Board, but yes, it's -- we're focused on it.

Okay. So again, the 25%, that discounts any of the -- probably precludes some secondary offering or something drastic to increase the liquidity. I would assume that's probably off the table at this point?

Look, if there are transactions to do then you look at the transaction, right, at the time and decide if it makes sense or not for the Company.

All right, okay. One more around the supply and Doug mentioned this a little bit earlier. I think we're covering everything; we've got 6.5% of net supply growth this year. So pretty similar numbers, but from our perspective and I think you guys would probably agree, that on the biggest systemic issue around the space is not necessarily the number of ships but the number of shipyards.

You've got a fair amount of readily available swing capacity that could get ratcheted back up should we see rates return. Are you guys starting to see yards getting shuttered, specifically in China, or are you seeing a reduction in the amount of shipyard capacity that's out there? Or should we start to see an improvement in the environment?

Yes, a couple things. Absolutely, you are seeing shipyards shuttered. Two, you're seeing yards being turned into repair yards and scrap yards; and three, I just don't believe that as the market recovers, that you're going to have this immediate flux of massive ordering. There's just -- the capital just isn't there to do it. During this cycle, this cycle has been unusual for the banks in that not only do you have, obviously, a depressed shipping cycle, and obviously, on the West side as well. But you have an environment where there's been a financial crisis and a banking crisis so their own balance sheets are, in some cases, or in a lot of cases, stressed also.

I just don't -- you're going to have a couple year leg between banks coming back in, in a meaningful way and funding this industry as opposed to a rate recovery. So I just -- I don't and you look at what the Japanese and Korean yards are doing and they are building offshore LNG and chemical. They're not really building drybulk and they are fairly full with those more specialized ships for awhile.

(Operator Instructions)

Chris Wetherbee with Citi.

Maybe just want to make sure we're thinking about all the timeline correctly for 2013. When you come from some of the covenant waivers, is that at end of first quarter '13 and then you have amortization payments waived til the end of '13? I just want to make sure I'm thinking about the timeline correctly.

We have the next measurement of covenants would be March 31, 2014.

Okay.

And our next amortization payments are in that first quarter of 2014.

Okay. So you're clear for the entire year of 2013?

Yes. Based on the restructuring we did.

Okay. That's helpful. And then maybe just switching gears to the rate side. So you have a competitor in the market talking about potential rate recovery in maybe the second half of 2013. It feels like the deliveries are weighted, I think, first half, which is consistent with what you guys have been talking about. How do you think about the second half? Obviously, you have a little bit better seasonality, but is that -- are you thinking that, that's an appropriate benchmark to be looking at as far as timing of, if your potential rate bounced back, if you view that optimistic or is it maybe something that looks a little bit better in '14 when you have a little bit better balance of supply and demand?

I think you're going to have a gradual recovery this year, or I should say the beginning of a gradual recovery this year. I think a more meaningful recovery in 2014. As you said, you have the slowdown in the supply more pronounced in the second half of this year. As I mentioned before, you have the additional mining capacity really weighted more towards the end of this year. I actually think that additional mining capacity is going to drive down the price of iron ore, which is positive, because it opens up that arbitrage with domestic or even wider.

I think Fortescue came out yesterday and gave a number of $120 to $130 a ton for the year, which clearly would allow that arbitrage to take place. You've got over 400 million tons of Chinese domestic ore, if you true it up to 62% ferrous content that can be displaced by imported ore, irrespective of whatever a 6% to 7% demand growth. So I think there are several things that are -- that looked to come together in the second half of the year. I don't expect things to go to the moon or go back to where we were early '08, but I -- but yes, we expect a general firming and moving more into '14. Fleet growth in '14 is 2%, 3% without any scrapping.

Yes. Yes. That certainly makes sense. You guys, obviously, are basically spot at this point. It's a pretty simple question, but you've got to wait to see the rates start to move. And then do you start layering out though early in this process? Either the first move, do you start going out a little bit longer in duration to start once you get better rates and potentially in the back half of this year? Or do you -- how long do you wait before you start to pull in things a little bit longer term?

Without going into absolute numbers, I think you layer it in. But we have to see where rates are going to be and again, we firmly believe, obviously, in this business and we believe in the growth prospects of it and a recovery. So you don't want to jump too early but you also want to be somewhat conservative about it.

Okay. That make sense. Thanks for the time, guys. Appreciate it.

At this time, there are no more questions. This concludes the Genco Shipping & Trading Limited conference call. Thank you and have a nice day.