Genco Shipping & Trading Ltd (GNK) 2017 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited Fourth Quarter 2017 Earnings Conference Call and Presentation. Before we begin, please note that there will be a slide presentation accompanying today's conference call. That presentation can be obtained from Genco's website at www.gencoshipping.com.

To inform everyone, today's conference is being recorded and is now being webcast at the company's website, www.gencoshipping.com. (Operator Instructions) A replay of the conference will be accessible any time during the next 2 weeks by dialing 1 (888) 203-1112 or (719) 457-0820, and entering the passcode 2891933.

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 in connection with the discussion of potential future events, circumstances or future operating or financial performance. These forward-looking statements are based on management's current expectations and observations. For a discussion of factors that could cause results to differ, please see the company's press release that was issued yesterday and 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 would like to introduce John Wobensmith, Chief Executive Officer of Genco Shipping & Trading Limited.

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

Turning to Slide 5, we review Genco's fourth quarter highlights. During the fourth quarter, the drybulk market strengthened considerably due to firm Chinese steel output and steel mill margins as well as improved world GDP growth, which led to heightened demand for seaborne iron ore, coal and minor bulk cargoes. This increase in demand, combined with minimal net fleet growth, drove freight rates higher. The fourth quarter marked a major inflection point for Genco, as we drew upon our success transforming our commercial strategy and optimizing our cost structure to capitalize on these improving market conditions and returned to profitability for the first time in 6 years.

Our fleet performed well during the quarter, as net voyage revenues increased by nearly 50% on a year-over-year basis, underscoring the earnings power of our fleet. For the fourth quarter, we recorded a net income of $2.6 million or $0.07 basic and diluted income per share. Our strong quarterly performance also included generating EBITDA of $27.5 million and increasing our cash position to $204.9 million as of December 31, 2017. We also paid down our $400 million credit facility by $11.3 million in February 2018, from cash flow from operations during the fourth quarter.

We are pleased to have posted strong operating results following the execution of various initiatives to enhance our commercial platform throughout the course of the year. Notably, we increased our time charter equivalent rate in each quarter of 2017, culminating in $11,017 a day in the fourth quarter, a 65% improvement year-over-year.

During the fourth quarter, we made significant progress transitioning from a tonnage provider to an active commercial strategy, with a focus on increasing margins, which I will discuss in more detail later on the call. Specifically, we established a Singapore presence, which further bolsters our major bulk operation, grows our footprint globally and strengthens relationships with leading iron ore producers and charters worldwide for the benefit of shareholders.

Additionally, we completed the withdrawal of 19 vessels from pool agreements and integrated these vessels into our in-house commercial strategy. Furthermore, we reallocated our minor bulk fleet exposure to be overweighed to the Atlantic Basin to seek to capture the earnings premium historically offered by these positions. We undertook several ways of repositioning of our minor bulk fleet during 2017, the last of which was completed in the fourth quarter of 2017. We currently have 80% of our minor bulk fleet with Atlantic redelivery ranges, which we believe will enable Genco to further drive revenue generation in 2018.

We are pleased with the significant progress we've made during the year building out our full-scale logistics platform, enabling us to substantially increase our customer base and establish relationships with over 40 direct-cargo customers over the last year. During the fourth quarter and year, we also remain focused on executing various cost optimization efforts and further reduced our direct operating expenses as we maintained our cost leadership. Highlighting this success, our daily vessel operating expenses were $4,387 per vessel per day during the fourth quarter and $4,417 per vessel per day for the full year of 2017. Both of these figures are below our budget set forth at the beginning of 2017 of $4,440 per vessel per day.

Lastly, we have decided to undergo a fleet optimization and renewal plan aimed at modernizing our current fleet. As part of this plan, we have decided to dispose of a total of 15 vessels, including 8 53,000-deadweight ton Supramax vessels, 1 Handymax vessel, 4 1990s-built Panamaxes and 2 1999-built Handysize vessels. We plan to redeploy the capital to replace these vessels with modern, high-specification vessels that complement our commercial strategy and management's view of the drybulk supply and demand fundamentals. In executing our fleet renewal plan, we look to benefit from a significant rise in values for our older vessels within the last year and improve our fleet to better serve our transfer and commercial platform going forward.

Turning to Slide 6, we have outlined our leading market position. On the chart on the left side of the page, you can see that we've improved our margins and our time charter equivalent rate significantly during 2017, which is a direct result of our commercial, technical and operation initiatives as well as improving market conditions. We believe these initiatives executed in 2017 will continue to drive revenue in 2018. Specifically, for the first quarter of 2018, we have 82% of our fleet-wide available days fixed at a time charter equivalent of approximately $10,556 per day, which is exceeding our internal fleet-wide benchmark by over $800 per vessel per day. We benchmark our fleet on a weighted average basis, based on our fleet composition and the Baltic Capesize 5TC, Panamax, Supramax Tess 58 and Handysize indices, less commission and adjusting for size, age and specification of our vessels. Our internal benchmark for Q1 2018 is based on the actual indices' performance to date and the FFA curve extending with the term of each of our vessels' contract expiration.

Our enhanced commercial platform, together with our low cost structure, have further improved our liquidity position, as our cash balance has risen during each quarter of 2017. Notably, we ended the year with a cash balance of $205 million, representing an increase of over $35 million compared to the end of 2016.

On Slide 7, I will discuss Genco's unique position for capturing the market upside in 2018, which is made up of 3 main components: First, our enhanced commercial strategy positions us well to drive revenue growth, further increased margins and outperform benchmarks, as we continue to incorporate voyage charters and direct cargo liftings into our fleet deployment mix as part of our full-service logistics solution. As a point of reference, we currently have 23 of our 41 minor bulk vessels on voyage business, compared to 0 this time last year. Our direct exposure to the iron ore trade through our Capesize fleet also provides us with strong upside potential, while maintaining a level of stability for -- from our Supramax and Handysize fleet that transports grain and various minor bulk commodities. In an effort to ensure Genco maintains significant exposure and optionality in a rising market, we tend to continue to focus on short-term charters with staggered expirations. Second, leverage of our in-house commercial expertise and relationships as we enter into business directly with cargo customers. Building on this point, we also plan to establish a European presence in Copenhagen to fully round out our commercial platform. Finally, our Singapore office provides us with an active profile in the Far East market, allowing Genco to better focus on the employment of our Capesize vessels and backhaul trades on the minor bulk fleet. This will also enable us to implement real-time management of the Capesize fleet to augment earnings and create a 24-hour operation, while expanding our network of clients, getting the company closer to cargo interests.

I will now turn the call over to Apostolos Zafolias, our Chief Financial Officer, to discuss our financials.

Thank you, John. Turning to Slide 9, our financial results are presented. For the fourth quarter and 12 months ended December 31, 2017, the company generated revenues of $74.9 million and $209.7 million, respectively. This compares with revenues for the fourth quarter of 2016 and the 12 months ended December 31, 2016 of $43.9 million and $135.6 million, respectively.

The increased revenues in both 2017 periods were primarily due to the employment of vessels on spot market voyage charters, as well as the result of higher spot market rates achieved by the majority of the vessels in our fleet versus the same period last year.

These increases were partially offset by the operation of fewer vessels during the comparative periods. For the fourth quarter of 2017, the company recorded a net income of $2.6 million or $0.07 basic and diluted income per share. This compares to a net loss of $25.1 million or $3.43 basic and diluted loss per share for the fourth quarter of 2016.

For the 12 months ended December 31, 2017, the company recorded a net loss of $58.7 million, or $1.71 basic and diluted loss per share. This compares to a net loss of $217.8 million or $30.03 basic and diluted loss per share for the 12 months ended December 31, 2016.

Turning to Slide 10, we present key balance sheet items as of December 31, 2017. As John mentioned previously, our cash position, including restricted cash, grew to $204.9 million for the quarter. Our total assets were $1.5 billion, which consists primarily of the vessels in our fleet and cash. Our total debt outstanding, gross of $9 million of unamortized debt issuance costs, was $524.4 million as of December 31, 2017.

Moving to Slide 11, our utilization rate was 99% for the fourth quarter of 2017. Our TCE for the fourth quarter was $11,017 per vessel per day, which compares to $6,659 per vessel per day recorded in the fourth quarter of 2016. The increase in TCE was primarily due to higher spot rates achieved by the vessels in our fleet during the fourth quarter of this year versus the fourth quarter of last year, as well as the progress we have made in implementing our commercial initiatives.

Daily vessel operating expenses decreased to $4,387 per vessel per day for the fourth quarter of 2017, compared to $4,486 per vessel per day for the comparative 2016 period, predominantly due to lower insurance and crew-related expenses as well as the timing of purchases of spare parts, partially offset by an increase in maintenance-related expenses.

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 of our vessels in our fleet will incur over a full year of operation. For the 12 months ended December 31, 2017, our DVOE decreased to $4,417 per vessel per day, which is below our 2017 budget of $4,440 per vessel per day set forth at the beginning of the year and below DVOE of $4,514 for the 12 months ended December 31, 2016. Based on estimates provided by our technical managers and management's views, our DVOE budget for 2018 is $4,440 per vessel per day on a weighted average basis for the entire year for our fleet of 60 vessels.

Turning to Slide 12, we note that on February 13, we paid down our $400 million credit facility by $11.3 million from cash flow from operations that occurred during the fourth quarter of 2017. As such, we highlight our cash and debt balances out of December 31 pro forma for this debt repayment, which are 130 -- $193.6 million and $513.1 million, respectively.

Additionally, management has decided not to elect the option to PIK, as per the terms of the $400 million credit facility, during Q4 of 2017 and Q1 of 2018. We view both of these measures as positive for the company, as we continue our efforts to further enhance an already-strong balance sheet and liquidity position.

On Slide 13, we highlight our favorable fixed debt repayment schedule. We note that in 2018, quarterly fixed debt repayments amount to $3.3 million or $13.2 million for the full year of 2018. We believe our strong liquidity position, coupled with low fixed debt repayments in 2018, provides Genco with a solid foundation as market conditions continue to improve.

Turning now to Slide 14, we outline our cash breakeven rates. Our breakeven levels remain strong and among the lowest in the industry, which is a direct result of the vessel operating expense optimization initiatives that we implemented over the last several years, reducing operating cost without sacrificing the company's high safety and maintenance standards. We anticipate Genco's cash breakeven rate to be $7,978 per vessel per day for the first quarter of 2018. The increase in our cash flow breakeven is primarily due to the conclusion of our non-amortization period under our $98 million credit facility, as well as management's decision not to elect PIK -- not to elect the option to PIK, as per the terms of our $400 million credit facility as previously mentioned.

We've also provided further detail on these breakeven rates in the appendix of our presentation for your reference.

In addition, on the bottom of the slide, we have provided our drydocking schedule for 2018. We currently expect 5 of our vessels to be drydocked during 2018, of which 2 are expected to be drydocked during the first quarter of the year.

The estimated drydocking costs for the first quarter of 2018 and full year are anticipated to be $1.7 million and $5.5 million, respectively.

I will now turn the call over to Peter Allen, our drybulk market analyst, to discuss industry fundamentals.

Thank you, Apostolos. I'll begin with Slide 16, which represents the Baltic Dry Index. Following steady increases during each quarter of 2017, the BDI found considerable support during the last 3 months of the year, hitting multi-year highs in the process. The BDI averaged 15,000 -- 1,509 during the October to December period, an over 30% rise from the prior quarter. Additionally, during December, the BDI crossed 1,700 for the first time since January 2014, propelled by the Capesize sector, which saw spot rates exceed $30,000 per day at times during the end of the year.

In 2018, to date, we have seen a seasonal decline in the BDI, mostly due to the timing of new building deliveries weighted towards the beginning of the year, weather-related disruptions impacting cargo availability and the occurrence of the Lunar New Year holiday. We do note, however, that these levels are still meaningful -- meaningfully higher on a year-over-year basis.

Turning to Slide 17, we outline some of the key market developments influencing this increase in freight rates. The major trend that drove drybulk demand during 2017 was increased steel production in China by larger steel mills as older, less-efficient capacity was removed. Firm domestic steel demand and tightness of supply led to rising steel prices and margins. These strong margins incentivized further production, thus increasing utilization and resulting in augmented demand for high-quality seaborne iron ore from Brazil and Australia, as mills looked to maximize productivity. The end result was an increase of 5% year-over-year, or 50 million tons, in China's iron ore imports during 2017. This trend has continued so far into 2018, as China imported 103 -- 100.3 million tons of iron ore in January, the second-highest monthly total on record.

As 2018 progresses, we expect Brazilian iron ore shipments to be a primary growth driver, as Vale forecasts it'll produce 390 million tons of the commodity this year compared to 366 million tons in 2017. This represents a long ton mile trade that could be supportive of the Capesize sector.

Last year was a strong year for steel production, not only in China but globally, as displayed in the chart at the top left of Slide 18.

As has been well documented, China's steel output rose by nearly 6% year-over-year in 2017, while real steel demand within the country led to a 30% decline in steel exports and a drawdown of steel stockpiles to historical lows. China's steel stockpiles have increased of late, as is normally the case during this time of year, however remain marginally lower on a year-over-year basis. In 2018, we expect steel demand within China to remain strong, led by continued railway investment of over $100 billion to build approximately 2,500 miles of new railway tracks this year.

In 2017, steel production ex-China was quite strong as well, growing at over 5% year-over-year. This was primarily led by firm growth in India, Europe and South Korea, which saw production increases of 6.2%, 4.1% and 3.6%, respectively, highlighting a strengthening global economy. In addition to the steel industry, another key factor import -- impacting the drybulk market has been the relative strength of the Chinese coal trade. China's coal imports rose by 6% year-over-year in 2017, and in January, continued to increase to the highest monthly total since early 2014. Domestic coal supply has been restrained during the peak winter season, due to mine accidents and subsequent safety inspections, which has been exacerbated by low coal power plant stockpiles. With regard to India, coal power plant stockpiles are also drawing down currently, sitting near 3-year lows. Despite this, Coal India has not been able to ramp up domestic production significantly, which could help support coal shipments in the near term, as supply remains tight.

In addition to the global coal and iron ore trade, we highlight the global grain and certain minor bulk trends on Slide 19. We are currently approaching the South American grain season, which is set to commence towards the end of March. In anticipation of this traditional seasonality, we have positioned select vessels in our fleet in this region to benefit from increased cargo flows. Furthermore, the IMF has revised up its global GDP forecast to 3.9% in both 2018 and 2019. This highlights a strengthening global economic landscape that we expect to drive demand for minor bulk trade worldwide, which we believe will be beneficial to our Supramax and Handysize fleet.

On Slide 20, we outline current supply-side fundamentals. The drybulk fleet grew by approximately 3% in 2017 compared to 2.2% during the prior year. This came despite a drop in new building deliveries year-over-year, as scrapping activity fell by 50% year-over-year as sentiment within the drybulk market improved. So far in 2018, as is seasonally the case, we have seen a spike in new building deliveries during January. However, this figure was down nearly 50% on a year-over-year basis. In 2017, 38.4 million deadweight tons of new building tonnage was delivered after slippage of over 30%. In 2018, deliveries to date, plus the remaining order book scheduled for this year, total only 35.1 million deadweight tons, which does not include any slippage. This implies substantially lower new building deliveries hit the water this year. As such, net fleet growth will be highly dependent on the amount of scrapping that materializes.

On the new building front, 315 orders materialized in 2017 compared to just 61 in 2016. This has pushed the order book as a percentage of the fleet to 9.8% from a low of 7.5% in mid-2017. We do note that the current order book, as a percentage of the fleet, is in line with where the order book was at this time last year. However, a strong 2018 -- if a strong 2018 comes to fruition, increased new building activity is likely, which could further increase this percentage. We also point out that it remains to be seen how much of this order book will actually deliver, considering that the slippage rate is approximately 30%.

In conclusion, drybulk supply and demand fundamentals have improved meaningly over the last year, a trend that we expect will continue in 2018. As such, we have aligned the company's revenue generation strategy with this thesis as a central component.

This concludes our presentation. And we would now be happy to take your questions.

(Operator Instructions) And we'll go first to Randy Giveans with Jefferies.

So first and foremost, congrats on the first quarterly profit in quite some time. I'm sure, hopefully, it's a sign of things to come. Yes, a few quick questions here. So for the 15 vessels disposals, assuming this will be a combination of scraps and sales, do you have some kind of time frame for that, for when you expect to start and kind of conclude these disposals?

Yes, I think the -- I think I would say, it's going to be this year. I don't see us scrapping any vessels, by the way. I see all these ships being sold on for further trading. So there should be quite a -- particularly on the older Panamaxes, there should be quite a premium to the scrap value, based on current -- based on the current market and current values. But it is something that we're anticipating completing this year.

Okay. And then looking at your cash balance of almost $200 million, upcoming proceeds from these disposals or sales and then, obviously, pretty strong free cash flow in upcoming quarters, it looks like you'll be able to acquire at least 10 to 15-plus new vessels without additional equity. Is this a fair assumption?

Look, I think it depends what vessel classes we go into, right? We have, from a commercial standpoint, we've set up strong operations in the Capesize and the Ultramax. I think we've been fairly public that those are the sectors that we want to grow in. So it's really going to come down to what sort of mix we decide to go forward with. I know that didn't precisely answer your question, but I think -- there are quite a few things that we're looking at in terms of vessels. So we need to -- we need to come to a conclusion on that.

Sure. You're still definitely one of the more under-levered companies, so a lot of room on the debt side. And then one more question from me, I guess. For the Copenhagen office you mentioned, what are the costs related to this? And then kind of the benefits of that?

So the benefits are really, to be closer to cargo interest in Europe. We have a, obviously, a heavy presence in New York. We now have a good presence in Singapore. And we think it's very important to have that European presence, to be able to be closer to the grain companies and some of the backhaul cargoes that are coming out of Europe. It's clear that as we've been rounding this out, we've seen some instances where maybe we've missed a direct cargo lifting because it's been done in European time morning. And -- as you know, this is very much a relationship business. So to have a chartering team in Europe is going to be very beneficial to us. And we think it's going to round out the platform. It also allows us to focus also on arbitrage-type trades, particularly with our minor bulk fleet, which we think will be enhancing to revenues. In terms of cost, this is already baked into the G&A budget for 2018. So if you look at the breakeven slide, you can see we're at a little over sort of 14 -- sorry, not 1,400, $840 a day on the G&A side. So that budget includes the European office. It's a minimum spend.

And we'll go next to Jon Chappell with Evercore.

So just a follow-up on the fleet renewal, as it relates to both the capital structure and uses of cash going forward. Should we think about maybe a 1-to-1 and obviously, not in number of ships or deadweight tonnage, but more dollars in, dollars out, of what you can dispose of the 15 vessels for and what you aim to spend? Or will you lever that up 50-50, 40-60? And then part C, I guess, to that question is, the prepayment of the debt in the first quarter was noticeable, with the operating cash flow. If you do have some leverage to the fleet renewal program, would you expect to continue to use operating cash flow for debt repayment, above and beyond the amortization schedule?

Yes, so let me deal with the fleet renewal first. I -- we plan to spend dollar for dollar. So dollar out, dollar in. And the goal is to match EBITDA as well, so that we are -- we're not diluted from an EBITDA or an earnings standpoint. And that will have -- that dollar for dollar has leverage on it now. I don't see us levering that up. So the leverage of the company shouldn't change. But we do plan to redeploy, again, dollar for dollar on the capital side.

Okay. And then on the operating cash flow?

Yes, so on the operating cash flow, as you know, we have a cash flow sweep built into the credit facility. That cash flow sweep produced $11.3 million of excess cash flow in the fourth quarter, which was payable in the first quarter. So based on our forward numbers, certainly, you can do the math, but it's in our breakeven rate around $7,800 per day that we put out for the first quarter. So yes, we expect to continue to repay with cash flow sweeps on that $400 million facility.

Okay, and then on the commercial strategy. I know this is an evolution, if you will, and somewhat in the early innings. Can you kind of give a reassessment of 2017, how that process went? How you think you did relative to the market? Maybe even without numbers, just kind of the premium that you're able to earn as you brought these ships in-house and added new people? And then if we kind of think about going forward, would you say that -- you've had the low-hanging fruit and there's still a lot of opportunity? Or you're just at the very tip of the iceberg and you see a lot more potential into '18? How do you kind of balance what's happened already to progress going forward?

First of all, I see a lot more potential in 2018. One, from a rising market standpoint, but also the foundation that's been laid in 2017. 2017, we took all of our ships back from the pools. That process was anywhere from, really, June through, say October of this year. And obviously, those ships were placed in the Pacific, in most cases, when they were put out of the pools. So we did backhaul cargoes to reposition into the Atlantic, which is where we really think we have strength from a commercial standpoint. So I look at '17 as a building year. I would say if you actually look at our minor bulk fleet, we were, I would say, right there at the benchmark, which I'm very happy about because of all the backhauls that we did from the Pacific. And then on the Capes, we lagged a little bit. But as you can see, in the first quarter, that has really turned the corner. So I look at 2018, we have laid a very good foundation and we're going to start bearing the fruit of that in 2018, which you can see already in the first quarter numbers.

And we'll go next to Magnus Fyhr with Seaport Global.

Just a couple of follow-up questions on the capital allocation. With the -- I know you have the cash sweep, but what's your thoughts there, fleet renewal versus paying down debt and maybe lifting some of these covenants that prevent you from paying a dividend currently?

Okay. So Magnus, first of all, as I've mentioned to Jon, the fleet renewal program itself and those identified 15 vessels, they will, throughout the course of the year as we deem timing opportunistic, we will sell those and dollar for dollar reinvest that into modern fuel-efficient vessels. So that's one bucket, if you will. The credit facilities in general, we certainly have a desire to redo in the sense that we fully understand how important it is to get a stable dividend, predictable dividend, back in place for Genco. So we are definitely going to work with the banks in order to try to redo those credit facilities. With over $200 million in cash, it gives us a lot of flexibility, a lot of levers to pull, as well as the low loan to value that exists today. So again, we all recognize how important it is on the covenant side, some of the restrictions, but particularly, the dividend, so that's something that we're -- well, we're working on it now.

Okay, great. And just on the commercial strategy, I don't know if you -- are you pretty much done now? Or I mean, are there more expenses outside the Copenhagen office? And do you have any targets for 2018, 2019 with the build-out of the commercial platform?

Yes, so Magnus, with the Copenhagen office, which, again, is a minimum spend, which is built in already to the 2018 G&A budget and the breakeven rate that we put forward, that rounds out our commercial team. And as I said to Jon, we really look at 2018 as a year that not only will we benefit from continued recovery in the markets, but also outperforming benchmarks.

All right, and then just one last question. You mentioned CapEx going forward, pretty minimal, I guess, in 2018. But with the new water ballast treatment system regulations coming up, what -- I know you're selling 15 ships, and what are your thoughts there with these ships going into drydocking beyond 2018? And any cost estimates on upgrading these ships?

Well, first of all, you pointed out, those 15 -- a lot of those 15 ships would have had to have ballast water treatment systems installed, so the idea is to not have that CapEx. And the idea is to focus on modern tonnage that most likely we already have ballast water treatment systems installed as we acquire them. We only have one ballast water treatment system that needs to be installed this year and it is at the very end of 2018. We're in the process of identifying through a -- not just a cost benefit, but from a spec standpoint, what ballast water treatment system or systems we want to implement on the fleet going forward. We're still making that assessment. As you know, the U.S. Coast Guard is still approving systems or in the process of approving systems, and clearly, we want to see the outcome of that, particularly with our minor bulk fleet and all the trading that we do to -- in the Atlantic and the U.S. So all of that is being assessed. But those 15 ships, clearly, part of that process is not doing the CapEx on drydocking and ballast water treatment system. This year, we only have 5 drydockings and only one of those, which is the -- one of the, I think it's the Genco Muse, would have a ballast water treatment system, but it's not until the very end of the year. So that gives us a lot of time to either sell it or make sure that we have the right solution on a ballast water treatment system. In terms of cost, I think the cost of these are going to come down. And clearly, that is part of our analysis, whether we want to go with one provider or we want to go with multiple providers. One provider most likely, or even 2 providers, we should be able to get economies of scale on the cost side.

(Operator Instructions) We'll go next to Max Yaras with Morgan Stanley.

So kind of a follow-up on Magnus' question for ballast water, can you kind of apply that to low sulfur 2020 regulations? Kind of how do you think about that in terms of your fleet renewal or maybe even looking at newbuilds and installing it then? Or how do you think about that?

I don't see us going out and doing any newbuild orders at this point. We don't believe in adding to the existing fleet in any potential more -- any more deliveries that -- or that order book that would come at end of '19 or 2020. I think it's very clear that it is a focus of the company to become -- to make sure that we are as fuel-efficient as possible, which is why you're seeing us exiting some of these older ships. And again, going in and buying newer, more fuel-efficient ships with electronic engines. I think that's a very important thing. We are also -- we also have an initiative on the fuel management program, in terms of installing physical fuel flow meters on our vessels, so we can monitor, from a real-time standpoint, fuel burn, speed, et cetera, and optimize that. It's clearly a very important factor in a potentially rising oil market, but also the increased cost and the spread that will come from burning ultra-low sulfur fuel.

That's helpful. And just as the market kind of improves through the year, how are you thinking about fixed-term contracts going forward?

So if you ask me right now, I would -- we are definitely with a short-term bias because we continue to see an improving market in 2018. I think as you get towards the end of 2018, in a seasonally strong period in the third or fourth quarter, we will certainly assess longer-term employment, particularly in the Capesize sector, but we're a ways away from that right now.

And that does conclude today's conference. Thank you for your participation. You may now disconnect.

Thank you.