Genco Shipping & Trading Ltd (GNK) 2018 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited Second Quarter 2018 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 at any time during the next 2 weeks by dialing 1 (888) 203-1112 or 1 (719) 457-0821 and entering the passcode 4282601.

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'll be making certain forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe and other words and terms of similar meaning in connection with the discussion of potential future events, circumstances or future operating or financial performance. These forward-looking statements are based on management's current expectations and observations.

For a discussion of factors that could cause results to differ, please see the company's press release that was issued yesterday, the materials relating to this call posted on the company's website and the company's filings with the Securities and Exchange Commission, including, without limitation, the company's annual report on Form 10-K for the year ended December 31, 2017, 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. Welcome to Genco's Second Quarter 2018 Conference Call. I will begin today's call by reviewing our second quarter highlights. We will then discuss our financial results for the quarter and the industry's current fundamentals and then finally open up the call for questions.

Starting on Slide 5, we review Genco's second quarter highlights. Following our success in transforming Genco's commercial platform, we took important steps during the second quarter to implement our growth strategy and position Genco to more fully capitalize on a robust drybulk market.

In June, we successfully completed a common stock offering for gross proceeds of $115.7 million. We issued 7,015,000 shares, which included the exercise in full of the underwriter's option to purchase up to 915,000 shares of common stock. We're utilizing the proceeds from this successful offering to fund a portion of our fleet growth initiatives.

We are pleased to have entered into agreements to acquire 6 high specification, fuel-efficient Capesize and Ultramax vessels, further enhancing our earnings power and strengthening our position to take advantage of a drybulk market that is exhibiting significantly improved supply and demand fundamentals.

In June, we agreed to acquire two 2015 Chinese-built 180,000 deadweight ton Capesize vessels, one 2016 Japanese-built 60,000 deadweight ton Ultramax vessel, and one 2014 Chinese-built 61,000 deadweight ton Ultramax vessel for an en bloc purchase price of approximately $141 million. We followed up these transactions in July by agreeing to acquire two 2016 South Korean built 180,000 deadweight ton Capesize vessels for an en bloc purchase price of approximately $98 million.

Of note, we have already taken delivery of one of these Ultramax vessels, the Genco Weatherly, and we expect to take delivery of the remaining 5 vessels by the first half of September, ahead of a seasonally stronger fourth quarter. We believe these acquisitions come at an attractive point in the cycle, given the earnings environment for both the Capesize and the Ultramax sectors.

Complementing our success in growing our fleet, we entered into agreements for the sale of 3 1990s-built vessels, including 1 Panamax, the Genco Surprise, which delivered to buyers on August 7; and then 2 Handysize vessels, the Genco Explorer and the Genco Progress, as part of our fleet renewal program. As a result of the sale, Genco will save anticipated drydocking and ballast water treatment system installation costs of approximately $5 million.

During the second quarter, we also accessed commercial bank financing under very favorable terms in support of our growth strategy. In June, we closed on a 5-year $460 million senior secured credit facility. In July, we also received a commitment for a 5-year senior secured credit facility with an estimated aggregate principal amount of approximately $107 million, the proceeds of which are to be applied towards our vessel acquisitions. We expect these 2 facilities in aggregate to reduce our cost of debt by 100 basis points as our weighted average margin is expected to decrease to 311 basis points over LIBOR, equating to savings of approximately $5 million per year.

Moving on to our results for the second quarter. We recorded adjusted net income of $3.6 million or adjusted basic and diluted earnings per share of $0.10, which excludes debt extinguishment cost and noncash impairment charges.

This marks the third consecutive quarter in which we've recorded net income when adjusted for extraordinary items. This strong financial performance has been driven by our ability to drive revenue generation and outperform benchmarks through our revamped commercial platform, together with an improved market environment.

Turning to Slide 6, we have highlighted our success in implementing important financing and growth initiatives since May of 2018. Our ability to identify and acquire the 6 modern high-specification vessels at a highly attractive entry point in the cycle was a direct result of the strong support we received from the capital markets, our established relationships with our lending banking group and the considerable strength of Genco's sizable and leading platform across all aspects of its operations.

On Slide 7, we highlight our success enhancing our fleet profile, earnings power and balance sheet strength. Genco continues to maintain direct exposure to both major and minor bulk commodities. Following the expected delivery of all 6 vessels we agreed to acquire, Genco's major bulk fleet will be comprised of 22 vessels, transporting commodities such as iron ore and coal with its Capesize vessels and Panamax vessels as well as 41 minor bulk vessels transporting materials such as grain, bauxite, fertilizers and various other minor bulk commodities within the Supramax and Handysize segments.

Genco's diverse fleet approach mirrors global trade flows and provides shareholders a level of stability, combined with upside earnings potential. The considerable success we had during the quarter growing and renewing the fleet enabled us to achieve tangible benefits, which included reducing the average age of our fleet by more than 1 year and increasing overall carrying capacity to 5.4 million deadweight ton.

Turning to Slide 8, we have outlined our leading market position. We remain well positioned to drive revenue growth, further increase margins and outperform benchmarks as we continue to incorporate voyage charters and direct cargo liftings into our fleet deployment mix as part of our transformed commercial platform. We expect our active approach to revenue generation and our ability to leverage our in-house relationships and commercial expertise to enable Genco to continue to enter to business directly with leading cargo customers as we continue to provide a full-service logistics solution.

We also continue to provide shareholders upside potential to strong demand for iron ore based on Genco's sizable Capesize fleet, while our fleet deployment strategy, which remains weighted towards short-term fixtures, provides optionality and the ability to react quickly and opportunistically during a rising freight rate environment.

During the second quarter, we continued to improve margins. Our time charter equivalent performance in the second quarter improved by 31% compared to the second quarter of 2017. We are pleased to have outperformed our internal benchmarks in the second quarter by over $650 per vessel per day, highlighting back-to-back quarters of meaningful outperformance. We note that 62% of our Q3 days are fixed at approximately $10,362, which incorporates several backhaul fixtures booked so far this quarter.

During the first part of the third quarter, we made the strategic decision to backhaul select Capesize vessels from the Pacific to the Atlantic Basin as well as reposition a portion of our minor bulk fleet. These backhaul fixtures were concluded to position these vessels to take advantage of anticipated stronger export volumes towards the end of the third quarter and into the fourth quarter in the specific regions.

We expect to have several vessels in our minor bulk fleet favorably positioned between now and the end of the third quarter. And additionally, existing fixtures on several of our Capesize vessels are due to expire in the coming days and weeks and will potentially benefit from the improving drybulk market.

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

Thank you, John. Turning to Slide 10, our financial results are presented. For the second quarter and 6 months ended June 30, 2018, the company generated revenues of $86.2 million and $163.1 million, respectively. This compares with revenues for the second quarter of 2017 and the 6 months ended June 30, 2017, of $45.4 million and $83.6 million, respectively. The increase in revenues was primarily due to the employment of vessels on spot market voyage charter beginning during the first half of 2018 and higher spot market rates achieved by the majority of our vessels.

For the second quarter of 2018, the company recorded a net loss of $1.1 million or a basic and diluted loss per share of $0.03. This compares to a net loss of $14.5 million or $0.42 basic and diluted loss per share for the second quarter of 2017.

Adjusted net income for the second quarter of 2018 was $3.6 million or adjusted basic and diluted earnings per share of $0.10, marking our third consecutive quarter of positive adjusted net income when excluding extraordinary items. The adjusted net income in the second quarter excludes $4.5 million of debt extinguishment losses associated with our recent refinancing and $0.2 million of noncash impairment charges.

For the first half of 2018, the company recorded a net loss of $56.9 million or $1.62 basic and diluted loss per share. This compares to a net loss of $30.1 million or $0.89 basic and diluted loss per share for the first half of 2017. Net loss for the 6 months ended June 30, 2018, and 2017 include noncash vessel impairment charges of $56.6 million and $3.3 million, respectively.

Net loss for the 6 months ended June 30, 2018, also includes a loss in debt extinguishment in the amount of $4.5 million. Net loss for the 6 months ended June 30, 2017, includes a gain on sale of vessels at the time in the amount of $7.7 million due to the sale of 5 vessels.

Turning to Slide 11, we present key balance sheet items as of June 30, 2018. Our cash position, including restricted cash was $270 million. Our total assets were $1.5 billion, which consist primarily of the vessels in our fleet and cash. Our total debt outstanding, gross of $16.1 million of unamortized debt issuance costs and inclusive of the current portion of long-term debt, was $460 million as of June 30, 2018.

Moving on to Slide 12, our utilization rate was at 98.4% for the second quarter of 2018. Our TCE for the second quarter was $10,964 per vessel per day, which compares to $8,351 per vessel per day recorded in the same period last year. The increase in TCE was primarily due to higher rates achieved by the majority of the vessels in our fleet during the second quarter of this year versus the second quarter of 2017.

Daily vessel operating expenses were $4,344 per vessel per day for the second quarter, below our budget of $4,440 per vessel per day. Daily backlog operating expenses for the 6 months ended June 30 were $4,370 per vessel per day compared to $4,364 per vessel per day in the prior year 6-month period.

We believe daily vessel operating expenses are best measured for comparative purposes over a 12-month period in order to take into account all of the expenses that each vessel in our fleet will incur over a full year of operation. Based on estimates provided by our technical managers and management's views, our budget for DVOE for 2018 is $4,440 per vessel per day on a weighted average basis for the entire year for the fleet of our vessels.

Turning to Slide 13. At the start of the quarter, we closed a 5-year $460 million credit -- senior secured credit facility, which lowered the company's interest costs and established an attractive amortization profile. The new consolidated facility also enabled us to simplify our capital structure while providing the company with added flexibility in regards to vessel acquisitions, additional indebtedness and potential dividends, setting the stage for a 6-vessel acquisition.

In July, following the completion of our refinancing, our successful equity offering and our agreed-upon vessel acquisitions, we entered into a commitment for a 5-year senior secured credit facility with an estimated aggregate principal amount of approximately $107 million. As a result of the significant oversubscription of the $460 million credit facility, we were able to utilize this incremental demand to achieve attractive terms, including improved pricing and a favorable amortization profile for this new credit facility.

We intend to draw on this facility, which is expected to close in mid-August, to partially finance or refinance the acquisition of the 6 high-specification, fuel-efficient Capesize and Ultramax vessels that we have agreed to acquire. Importantly, the combination of these 2 facilities has lowered our weighted average cost of debt by approximately 100 basis points.

Turning to Slide 14, we provide select balance sheet items, reflecting the completion of the agreed-upon vessel acquisitions, the closing of the new credit facility and the net profit from the sale of the 3 older vessels. On a pro forma basis, accounting for the aforementioned transactions, our cash and debt balances as of June 30, 2018, are $153 million and $567 million, respectively.

Turning now to Slide 15, we outlined our third quarter estimated breakeven rates, which now reflect the new facility structures. We anticipate Genco's breakeven rate to be approximately $7,000 per vessel per day for the third quarter of 2018. We note that debt amortization under both of our new credit facilities is to commence on December 31, 2018. 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 2 of our vessels to be drydocked during the remainder of 2018.

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

Thank you, Apostolos. I'll begin with Slide 17, which represents daily spot rates for the sub-indices of the Baltic Dry Index. During the second quarter, despite pockets of volatility, the BDI rose by 6% from the seasonally softer first quarter and 10% on a year-over-year basis. This was predominantly led by the Capesize and Supramax sectors while the Panamax sector drifted lower.

Subsequently, in the third quarter, the BDI strengthened further, reaching as high as 1,774 at the end of July, which is the highest point since January 2014. This was primarily driven by Capesizes, but highlights the strength of the entire market. The July average Capesize spot rate was nearly $24,000 per day, the highest average for the month of July since 2009, while in August, the $27,000 threshold was crossed for the first time this year as we approach Q4 2017 levels.

Turning to Slide 18, we outlined some of the key market developments influencing this increase in freight rates. Strong global growth in steel production has propelled demand for key drybulk commodities worldwide, which, together with constrained vessel supply growth, has improved overall drybulk supply and demand fundamentals. Steel output, particularly in China and India, through the first half of 2018, rose by 6% and 5.1%, respectively.

Regarding iron ore shipments from Brazil, have improved by 8% year-over-year during the second quarter of 2018, following an 8% decline during the first quarter. Important to note is that Brazilian miner Vale has reiterated its 2018 production guidance of 390 million tons. After producing just under 180 million tons of iron ore in the first half of 2018, this implies that Vale would have to produce over 30 million tons more in the second half as compared to the first half. This incremental output remains important to the Capesize sector due to the long-haul nature of these exports.

While China's iron ore imports have not yet exhibited the growth seen in the last few years, more high-quality seaborne iron ore available from Brazil could boost China's imports in the second half of the year, particularly as iron ore port stockpiles have been drawn down of late.

Turning to Slide 19. In addition to global steel production, we also highlight the relative strength of the Chinese coal trade. China's coal imports rose by nearly 15% through July year-over-year. Domestic coal production in China was forecast to rise by over 5% in 2018 but is not yet ramped up, having fallen by 1% in the year-to-date, including 4 consecutive months of declines. This has been the result of mine accidents, stoppages and forced mine closures, which has kept supply capped during peak summer demand season.

With regard to India, coal power plant stockpiles remain low while Coal India continues to miss their production targets. With domestically produced coal, there remains a challenge to transport the materials to power plants, given the underdeveloped infrastructure currently in place. We believe these developments, along with strong steel production, could bode well for India's seaborne thermal and coking coal shipments.

In addition to the global coal and iron ore trades, we highlight the global grain and certain minor bulk trends on Slide 20. With the improved global economic landscape, we believe this will be beneficial for overall trade growth and will be a positive catalyst, particularly for our minor bulk vessels.

We are currently in the middle of South American grain season, in which Brazilian soybean exports continue to be strong. China remains the primary destination for Brazilian soybeans, given their high protein content relative to other soybean producers. We note that soybean shipments from the U.S. are in a seasonally slow period right now and traditionally don't gain momentum until the end of the third quarter.

The U.S. exported 33 million tons of soybeans to China in 2017, representing the second greatest source behind Brazil of China's 95 million tons of soybean imports. As part of the trade dispute between the 2 nations, China has imposed tariffs on these shipments in response to U.S. actions. Given that the U.S. and Brazil make up nearly 90% of China's soybean shipments, it will be difficult for China to find another source as Brazil alone can't make up for the difference.

Since we are still not in the peak North American grain season, U.S. soybean shipments to China are minimal at this point of the year. However, in Q4, when these shipments would ordinarily ramp up, trades would be rerouted, including more shipments to Europe and even South America, which could prove beneficial to ton mile demand.

On Slide 21, we continue -- we outline current supply side fundamentals. In terms of vessel supply, net fleet growth in the year-to-date is 1.9%. Newbuilds and deliveries are down by 41% year-over-year through the first 7 months of 2018, while scrapping has been almost nonexistent, given improved market conditions.

Vessel demolitions in the year-to-date have fallen by 74% to just 2.6 million deadweight tons and are on pace for the lowest year of scrapping since 2007. Through the end of this year, newbuilding deliveries are expected to be softer than the first half as vessels slip to the next built year. This is expected to ease fleet growth in the coming months, which could be met with improved trade volumes and leading to a tighter overall market.

The order book as a percentage of the fleet is 9.7%, which compares to 7% of the current on-the-water drybulk fleet that is greater than or equal to 20 years old, which could potentially offset some of the new tonnage sent to enter the world fleet. We also point out that it remains to be seen how much of the order book would actually deliver, considering that the slippage rate this year is running at approximately 25%.

There generally remains good visibility on the supply side over the next 18 months, which could lead to net fleet growth continuing at multi-decade lows and be a positive driver for the drybulk market going forward.

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

(Operator Instructions) Our first question will come from Randy Giveans, Jefferies.

Looking at the 15 vessel disposals in the fleet renewal program, so you announced the sale of 3 vessels so far. 2 questions on that. Were those sales for scrapping or continued trading? And then also, is it fair to assume that the drydocking and the ballast water treatment system for just a standard 20-year-old Panamax or Handysize is about $1.5 million, $1.6 million?

And then lastly, do you still think the remaining vessel sales will all be completed in 2018?

Okay. Yes, Randy. It was a little tough to hear you. But in terms of the fleet renewal program, we still anticipate that being completed by the end of this year. Maybe you can repeat your other 2 questions. You were a little muffled when you were speaking.

Sure. Sorry about that. Is it fair to assume that drydocking and ballast water treatment system for a 20-year-old Panamax or Handysize is about $1.5 million, $1.6 million? You said for the 3 total is about $4.7 million?

Yes, I mean, if you look at the Genco Surprise, for example, is a 1998-built Panamax, and we were estimating just drydocking cost alone on that ship, somewhere around $1.5 million. And then to put a ballast water treatment system on that vessel is at least another $500,000 to $750,000.

Okay. And then were those sales for scrapping or continued trading?

For continued trading.

Got it. All right. And then for the 3Q quarter-to-date rate update, it feels a little weaker than Q2 '18. Now I know much of that is due to either the timing of backhaul or repositioning of the fleet. With that, do you assume that full quarter, third quarter rates will be higher than second quarter rates? Obviously expecting a pretty strong back half for the third quarter.

Look, I think it all depends on rates. And keep in mind, we only have about 55%, 55% to 60% of our book covered for the third quarter, and we have a lot of Capesize vessels that are coming up in the next few weeks that will be rolling off lower rates and most likely going on to higher rates. So -- and I think also making the decision to do some backhauls on not only the Capes but also in the minor bulks to position them favorably in the U.S. Gulf area for late third quarter, going into fourth quarter, overall will -- should continue to show outperformance for definitely the second half.

And that -- those were decisions that were made to take advantage of what we believe will be higher cargo flows. Really, we've just started to see that happen in the minor bulk side. And we think that's going to continue to ramp up as we get into September, and we started to see that in the Capesize sector 3 weeks ago or so.

Okay, makes sense. And then last question for me, any strategy for obviously the IMO 2020 compliance, to add scrubbers for some of your Capesizes?

Yes. No, look, we -- as -- I'll just be very consistent in what we've been saying. This is something that we're close to making a decision on. So before the end of the year, probably more in the middle of fourth quarter, we will make a decision as to what our plan is.

Our next question will come from Jon Chappell, Evercore.

John, first question on strategy. Obviously, you guys have been incredibly aggressive the last couple of months or so. And as we've seen just from your transactions alone, the asset values continue to move up, not surprisingly given the strength of the market and probably very few sellers. But do you think the window is essentially closed at this point? Are you happy what you have, a few more disposals to renew the fleet that way? Or do you think there's still opportunities for purchases before the end of the year?

Look, I think there are opportunities for purchases. It's going to depend on what prices do. I actually still think that towards the end of the year, you could have another easy 10% to 15% rise on Capes in particular because of where earnings are going to go. The vessels that we bought, as you know, are very high-spec, very fuel-efficient with the focus on 2020 and outsized earnings versus the index. Those were not the easiest transactions to shake out. But because of some relationships we have, we were able to get those done.

But -- and then on the minor bulk side, the fleet renewal program, as you said, is in place, and we expect to have that completed by the end of the year. And part of that program is to sell some of the older, less efficient ships and redeploy the capital into newer, more fuel-efficient tonnage.

So good problem to have. Obviously, operating cash flow is accelerating. The outlook for the rest of the year, hopefully, even stronger, still a bunch of disposals yet to come. Balance sheet is already really strong. A lot of others have gone to the dividend model already, maybe just in a small way. Do you view that as mutually exclusive with continued growth? Or do you want to have the fleet squared away and then potential return of capital to shareholders or could they happen simultaneously?

Okay. I think in theory, it can happen simultaneously. We -- the board has not taken a decision on a dividend yet. It clearly is in the tool belt. And I think you'll see us looking at it pretty carefully as we get into the fourth quarter as to what we want to do.

Okay. And then just finally speaking of the tool belt, I mean, your stock's down, what, 25%, maybe even higher from where it was earlier this year. And all you've done since then is had a stronger market, you've improved your fleet, you've improved your capital structure. I mean, I know there's not a ton of shares outstanding and not a ton of liquidity. But would share buybacks be in the tool belt as well just given kind of the disconnect between share price and fundamentals?

Look, I think that it's always something you're going to look at and be mindful of. But I look at what all of these equities are doing right now, and I believe it is short term. I believe we will see strength as we get out of the summer. If you look at the volumes of any of these stocks, there are very low. There's obviously the tariff noise that I think is affecting not only the drybulk but some of the other shipping segments. And I think, specifically to drybulk that is way overdone, way overblown, we don't see any significant downside as it stands right now to tariffs. But I do think that is affecting the equity.

So I think it's short term, Jon. And if it's a longer-term trend, then sure, you have to look at everything. But right now I wouldn't -- that -- not in the cards.

Our next question will come from Amit Mehrotra, Deutsche Bank.

Taylor on for Amit. So first question is on the S&P market. It sounds like you guys see more opportunities there. If you combine the last 2 acquisitions, it seems like the 6 vessels were purchased at about 45% leverage. Is this the target level we should expect on any additional purchases?

Yes. I think again, this is something we've been fairly consistent on for at least the last 18 months, where we were targeting leverage between 40% and 50%. So I would say yes, that's right down the fairway right now.

Okay. And then it sounds like the pace of vessel sales is going to pick up in the back half. Is this a read-through in just increased demand for these ships behind better sentiment? Or is there any particular reason for this?

No, I think it's a timing thing. I think we wanted to sell the Genco Surprise before we got into drydocking, which was coming up very quickly. And I think that we want to maximize sale proceeds on these ships. And selling vessels in August, in the dead of summer, is usually not the right move. So I think as we get into September, October, you'll have a firmer market, more buyers, more liquidity and higher vessel values. So I think it makes sense to wait, and that's what we're doing.

Yes, makes sense. And then just on chartering strategy, I think you said you have a few Cape vessels coming off over the next few weeks. Can you just talk about the chartering strategy there, continue to play them the spot market? Or maybe just kind of with the increase in rates, lock in some more term coverage?

I think for the time being, you're going to see us play them in the spot market. As we get more into the fourth quarter, we will decide, do we want to fix some of these vessels longer term at least through the first quarter. And if there is a significant improvement in the 1- and 2-year rates and liquidity, then clearly, we'll look at locking some ships away as well.

But for the short term, we'll continue to remain spot. We're doing both West Africa, China trades that have been very healthy. And then particularly, these higher-spec eco vessels, you'll see them moving more towards the Atlantic Basin to take advantage of the front-haul cargos coming out of Brazil. Those are the best ships that are suited to do that trade for obvious reasons that it's a long-haul trade, so you get really your bang for your buck on lower fuel consumption.

Okay, makes sense. And then just one quick one on the grain, soybean trade. Just from all market commentary, everyone -- that there should be little impact in the Chinese tariffs, you know it will just be sourced from South America rather than North America. But recently, the forecast for soybean trade for the year has come down. I think now you guys have it at flat year-on-year.

Correct.

So, I mean, is this just a result of weather patterns and the crop output? Or is there something kind of more structural going on?

Look, I think it's -- I think that there is a slightly lower forecast that has been put out. I would tell you though, 2017 was very healthy year for the soybean trade. And what we're basically trying to show is that we're going to be at least at 2017 levels, which were high in itself, and you're coming into the seasonal strong point for that crop. So we really should start to see, particularly Atlantic rates, move upwards as we get into September, October, November. So I think...

Okay. Does it...

You know, there was -- yes, there was a slight revisement down, but I -- again, I don't look at it as material. I'm much more focused on coming into a seasonal high period.

(Operator Instructions) Our next question will come from Magnus Fyhr, Seaport Global.

Just one question. On Slide 15, you gave some guidance on the drydocking days for the remainder of 2018. Do you have any guidance for 2019 with the kind of your water ballast treatment systems getting installed and any kind of cost estimates?

Yes, sure. So as far as cost estimates go, total drydockings would be $34 million for 2019, but that includes some of the sales candidates as part of the fleet renewal program, so -- which would amount to $14 million. So adjusting for that, total expenses that we expect in 2019 would be $20 million -- approximately $20 million. And as far as days go, we are estimating about 20 to 30 days -- for the most part, 20 days per vessel for those -- for every one of these drydocks.

And how many vessels?

It is 9 ships after taking into consideration the fleet renewal program. Sorry, 14 ships after taking into consideration the fleet renewal program. By the way, this information is in the 10-Q as well, so the details could be found there.

Our next question will come from Poe Fratt, NOBLE Capital Markets.

Just a couple ones. One, on the 12 remaining that you have to sell of the older tonnage, would -- do you have an estimated scrap value of those?

Current scrap rates are about $410 per lightweight ton. So I guess, look, the Panamaxes, which are the oldest of these vessels, are about 10,000 tons each. So that will be $4.1 million per Panamax.

And I guess, another way to ask it is, would, as far as post list, what -- the 12 remaining, what's the ballpark number as far as what you think you could raise or what the potential proceeds might be?

Yes, Poe. I think we'll have to punt on that one. Again, I -- as I said earlier, I think these prices are going to go up as we get into September and October. I'd rather not put a benchmark out there since we're going to be selling these.

And can you give us a flavor for where you think the next 5 acquisition targets will be delivered into? Are you -- will there be a little bit of a disruption looking at the end of the third quarter, into the early fourth quarter just because of where these potentially will deliver? Or are you comfortable to deliver into decent markets?

I think the 5 will be coming in, as we said, before mid-September. So I think they'll be perfectly positioned to benefit from a seasonally strong rate environment. We'll backhaul some of these. And so the front-haul, you will pick up a significant bump in the fourth quarter.

Yes, great on the timing. I was just worried about where they're actually going to get delivered into and whether that might just have an impact on the early fourth quarter, John.

Look, I -- it's pretty normal to have them delivered in the Pacific. So some will trade in the Pacific and that West Africa, China trade, which is -- continues to be very strong. It's actually right at the index today. And then there will be a couple that will also be backhauled to Brazil, which we'll pick up the earnings probably mid-fourth quarter thereabouts, that front hauler.

And then looking at IMO 2020, I know you're talking about mid-2000 -- or mid-fourth quarter. Do you have a working estimate on scrubber for the Capes right now?

In terms of installation costs?

Yes, in terms of installation, the cost with the capital -- with equipment cost.

Yes, it's probably somewhere around $3 million a ship.

And then as far as the fuel efficiency, John, you talked about your acquisitions, do you have a -- is it 5% to 7%, what others have talked about for fuel efficiency? Or do you think that -- what's the ballpark number to use for fuel efficiency?

Well, look, I mean, Basis A, benchmark Capesize vessel, you're probably talking 15% to 20% higher in terms of rates.

And can you equate that to fuel efficiency? I guess, I'm just looking for a little more color. And I know the rate premiums there, but...

Yes, it's probably 7 tons to 9 tons less in fuel on a -- say, going 12, 12.5 knots.

At this time, we have no further questions in the queue. Ladies and gentlemen, thank you for joining us today. This conference has now concluded. You may disconnect your phone lines, and have a great rest of the week. Thank you.