Navios Maritime Holdings Inc (NM) 2007 Q3 法說會逐字稿

Good morning. My name is [Shawna] and I will be your conference operator today. At this time, I would like to welcome everyone to the Navios earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS)

It is now my pleasure to turn the floor over to your host, Mr. Tom Rozycki.

Thank you for joining us for this morning's call. With us today from Navios Maritime Holdings are Angeliki Frangou, Chairman and CEO; Mr. Ted Petrone, President of Navios Corporation; Mr. George Achniotis, Chief Financial Officer; and Mr. Michael McClure, Senior Vice President, Corporate Affairs.

As a reminder, this conference call is also been webcast. To access the webcast, please refer to the press release for the web address which will direct you to the registration page.

Before I review the structure of this morning's call, I would like to read the Safe Harbor statement. This conference call could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Maritime Holdings Inc. Forward-looking statements are statements that are not historical fact. Such forward-looking statements are based upon the current belief and expectations of Navios' management team and are subject to risks and uncertainties which could cause actual results to differ from the forward-looking statements.

Such risks are more fully discussed in Navios filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios does not assume any obligation to update information contained in this conference call.

Thank you. At this time I would like to outline the agenda for today's call. First, Ms. Frangou will offer opening remarks. Next, Mr. Petrone will provide an overview of the industry. After Mr. Petrone's remarks, Mr. Achniotis will briefly review Navios' third-quarter 2007 financial results. Finally, Ms. Frangou will offer concluding remarks. At the completion of Ms. Frangou's remarks, the Company will open the call to take your questions.

Please note that on this morning's call members of the management team will only take questions related to the operations and financial results of Navios Maritime Holdings Inc. We refer participants to the registration statement on file with the Securities and Exchange Commission for information relating to Navios Maritime Partners LP.

At this time, I would like to turn the call over to Ms. Angeliki Frangou, Chairman and CEO of Navios Maritime Holdings Inc.

Thank you, Tom, and good morning to all of you. I'm very pleased with our financial performance for the third quarter of 2007. Not only have we achieved very strong financial results, we are also in the process of implementing strategic initiatives that we believe will significantly enhance the Navios group.

In terms of financial performance, you can see on slide five that during the third quarter we grew EBITDA 65%, net income by 160% and revenue by 380% as compared with the same period in 2006. In particular, EBITDA grew to $57.9 million from $30 million and net income grew to $36.5 million from $16.8 million.

Our financial performance is a product of both prudent management and robust industry fundamentals. I would like to stress that we have been able to achieve these financial results despite having fixed 100% of our core fleet for the entire year. This is a testament to our flexible business models, which allows us to take advantage of short-term trends through our risk management team. Of course maintaining industry leadership requires us to carefully monitor risk while continuing to innovate our business model.

We believe that the addition of the Navios Maritime Partners LP to the Navios group will enhance our position in the industry. Slide six provides an overview of the Navios Maritime Partners. These past five days, we filed a registration statement for the offering of 10 million common units of Navios Maritime Partners LP. As you can see from the registration statement, we will retain a significant interest in the entity through ownership of the general partners as well as subordinate units.

I refer you to the registration statement on file with SEC for detailed information. Please note that we will not be able to respond to questions related to the LP or the offering.

Now let's turn to page seven. Last night we announced a significant addition to our long-term fleet both in owned and chartered-in tonnage. We have added five Capesize vessels, three of which will be delivered in 2009 and two will be delivered in 2010. We have also chartered out two of these vessels for an average period of five years at an average charter hire of 51,000 -- $250,000 per day per vessel, net (inaudible) of any commissions.

We believe that our brand-name allows us to take advantage of the current strong rate environment, as these charters are with premium signatures and represent 10 years of employment and approximately $185 million of contracted revenue.

Also Navios recently signed a purchase option on the Navios Orbiter. This is a 2004-built Japanese Panamax, which we expect ownership in the first quarter of 2008. The exercise price was $20.5 million and the current market value is estimated around $90 million.

Continuing on page eight, we have also chartered-in on long-term basis 13 newbuilding vessels, of which seven are Kamsarmaxes, five are Handysize and one is Ultra-Handymax. All of these charters have some form of a purchase option.

Once again, we believe that our brand-name allows us to enter in these block transactions and their owners were willing to enter into this deal by accepting our signature on the charter contracts.

Navios brand continued to be a differentiator in our industry. As we said last quarter, secure cash flow allows comfortably to pursue our strategic initiatives while enjoying protection against downside volatility. In the current environment, we believe that Navios continues to expand the Navios group fleet and businesses.

Turning on page nine, dividends. We've maintained our commitment to provide debt to our shareholders. Based on our results of operations, we declared a dividend of $0.0666 per share for the third quarter of 2007 to holders of record on November 19, 2007 with payment on December 3, 2007.

At this point, I would like to turn the call over to Mr. Ted Petrone, who will take you through the industry update.

Thank you, Angeliki. Turning to slide 11, the Navios Maritime core fleet now stands at 71 vessels, equal to 6.8 million dead weight. Today, it is one of the largest U.S.-listed dry bulk carriers, if not the largest dry bulk carrier.

Navios has 39 vessels currently in the water with an average age of 4.6 years. Our fleet is considerably younger than the industry average of 15 years plus.

The Navios fleet is comprised of 20 Capes, 30 Panamaxes, 15 Ultra-Handymaxes, and six Handys. Of the 71 vessels, 30 are owned, 41 are on long-term charter. Drilling down further on the 41 chartered-in vessel, Navios holds purchase options on 25 of these vessels. These purchase options allow for fleet expansion with zero capital outlay and future ownership options. Navios also controls anywhere from 10 to 13 -- 10 to 30 short-term vessels at anytime via its risk management division.

Turning to slide 12, in the third quarter Navios continue its policy of locking in secure, long-term cash flow by chartering out nine vessels on a long-term basis to first-class counterparties. Navios' average charter-out rate for 2008 is $24,044. For 2009, the average rate increases to $25,780 and for 2010, the rate increases to $28,455.

The percentage of Navios' long and owned fleet -- long-term fleet is now chartered out equals 92% for 2008, 54% for 2009 and 32% for 2010. Contracted revenue is now $224 million in 2007, $254 million for 2008, $171 million for 2009, and 1$39 million for 2010.

Now let's turn to the industry overview section, beginning with slide 14. The third quarter of 2007 has kept pace with the strong previous two quarters with time charter rates hitting record levels almost on a daily basis. The BDI's increased by 115% year-to-date. During the third quarter, the Baltic Dry Index, or BDI increased by 50% from 6304 to 9407.

Demand for Capesize vessels has been, and continues to be, extremely strong because of the continued strong demand for coal and iron ore, the raw materials for steel production. Capesize spot rates at the beginning of the Q3 were just over $100,000. By the end of September, daily Capesize charter hire had gone up to $166,634, a 65% increase. Panamax spot rates increased 76% to approximately $76,000. Handymax spot rates increased 38% to approximately $59,000.

For Q3, the rule was simple -- bigger is better, as larger vessels had a larger increase in earnings. So far in 2007, the average spot rates are $104,079 for Capes, $51,592 for Panamaxes and $43,595 for Handymaxs.

Of the four Cape vessels purchases announced earlier in Q3, two have already been chartered out to blue-chip charterers at an average rate of $51,250, net of commission, for five years, commencing with their deliveries in 2009.

Turning to slide 15, the major driver in the growth of seaborne trade is the increasing demand for natural resources needed for steel, energy and food. The demand is primarily driven by the industrialization and organization of developing nations, led by China.

On the other hand, dry bulk demand for raw materials in the mature G-7 nations continues to be lackluster. To date, the subprime credit woes of the U.S., which has resulted in a slowdown of the Western economies, has had virtually no impact on the dry bulk shipping market. This is due to the fact that emerging economies, which now contribute over 50% of the world GDP on a PPP-adjusted basis, contribute overwhelmingly to dry bulk demand. As an example, the BRIC countries account for 41% of global steel demand in 2006 and are expected to account for 77% of total world growth to steel in 2007.

Turning to slide 16, the market remains dynamic. Fundamentals are excellent and look to continue for the remainder of 2007 and beyond. One particularly strong side is the extraordinarily high contracting activity for Capesize vessels. Howell Robinson reports that during Q3, 72 vessels or Capes were contracted for periods beyond one year. 24 of those vessels were newbuildings which have yet to be delivered from the yards. These fixes alone amounted to 140 years of time charter for a staggering contract revenue $3.875 billion.

Turning to slide 17, the freight market continues to climb in spite of easing congestion in Australia, a 25% reduction in steel and cement imports by the U.S. and a devastating drought in Australia, which will cut exports from the world second-biggest wheat exporter by one-third. Why is the freight market so strong? Simply put, demand continues to exceed supply for seaborne raw materials. The demand for bulk carriage of iron ore is being accentuated by developments in the coal and grain trades. Global commodities shortages are forcing end-users to scramble for available commodities, thereby forcing these end-users to source their requirements for more distant locations. This has a beneficial effect for our industry of increasing ton miles and reducing fleet productivity.

One example of this can be seen in the Capesize segment and is illustrated on slide 18. The increasing amount of iron ore cargo sourced out of the Atlantic to the Pacific combined with the almost unchanged numbers of trips back in the other direction has not only increased ton miles, but has created a major inefficiency in the market.

An example of this effect of the market inefficiency is that previously a single Capesize vessel would start in the Atlantic, load iron ore from Brazil to China and return to the Atlantic with coal. A vessels so used could perform eight loaded legs per year, transport 1.3 million tonnes and reduce ballast time to about 30%. However, today, an ever-increasing portion of these Capesize vessels are performing iron ore cargoes solely between Brazil and China and thus only performing five loaded legs per year, transporting only 800,000 tonnes of cargo. Importantly, ballast time also increases to 47%. Since 2000, this outward cargo imbalance has grown significantly as more capes ballast in the Pacific to load cargoes out of the Atlantic.

Turning to slide 19, let us look at steel prices. As we all know, steel is the backbone of the dry bulk industry. This is because the raw material used in the process of making steel and steel products account for about 45% of all seaborne bulk cargoes. In September, global steel prices increased again after having fallen for the previous two months. The slump in the U.S. construction activity has not prevented further growth in the export of Chinese steel.

Steel has benefited from the strength of import demand from Europe, the Middle East and Africa. Demand in the Far East has supported the highest Japanese steel exports since 1976. The IISI predicts 2008 world steel production consumption will grow about 7%. This is supported particularly by emerging economies, thus another year of strong steel per steel production by the BRIC countries will continue the current shortage of iron ore and yet another round of steep iron ore price increases for the steel industry.

With regard to coal, according to Simpson Spence & Young, after a lackluster period the coal market is experiencing a revival. Despite delays in loading out of Australia, seaborne movements of coking coal are on cost for its largest annual rise in almost 20 years. Tightness in the world steam coal market should continue as prices have returned to the healthy levels of 2004 and 2005. In addition, it is projected that the 2008 expansion for global trade is constrained by 5% by bottlenecks at both port and mine.

China, which now produces about 2.5 billion tonnes of coal annually, continued its quarterly swing between net exporter and net importer. However, it appears Chinese exports will ease -- will cease as domestic demand continues to increase. In addition, Indonesia and domestic requirements may restrict the increase in exports to China, thereby adding tonne miles.

In terms of iron ore, exports surged in Q3 as compared to the same quarter last year. The combined August export of 50 million tonnes for both Australia and Brazil was up 13% for the same month last year and up more than 25% than the average for Q1. China imported 33.2 million tonnes of iron ore in September. Year-to-date, imports are 284 million tonnes, up 15% from the same period last year.

Interestingly, Chinese iron ore reserves registered a clear decline in the last month. As of October 17, these reserves had fallen 4.5% month-on-month to 40.4 million tonnes. In 2007, China will come close to importing 400 million tonnes of iron ore and produce 500 million tonnes of steel. Quite an accomplishment considering the fact that in 2000, one year before China joined the WTO, China imported a mere 70 million tonnes of iron ore and steel production was only 127.2 million tonnes.

Please turn to slide 20. In terms of the supply side, the order book stands at 137.5 million deadweight tonnes through 2010, or 36% of the existing fleet. During the first nine months of 2000, the total number of dry bulk carried deliveries totaled 229 vessels, or approximately 18 million deadweight tonnes.

Scrapping was again minimal at 0.4 million deadweight tonnes. We expect another 139 vessels to be delivered in 2007, totaling 9 million deadweight tonnes. This brings a record-breaking 2007 deliveries to 26 million deadweight tonnes. The total dry bulk order book, excluding the VLCC conversions, has increased by 48 million deadweight tonnes since the end of 2006 and now stands at 166 million deadweight tonnes.

The main focus of the global fleet expansion is on the Cape and Handymax segments. With the tanker market being as low as the dry bulk market is high, the conversion of VLCC's to VLOC's has commenced. Howell Robinson estimates that about 15 of these vessels will be converted in 2008, adding an additional 3.5 million deadweight tonnes, or less than 1% to the dry bulk fleet deadweight carrying capacity.

In conclusion, the fundamentals suggest that the current positive trend will continue. The downside risk seems more likely to come from the political or operational side than commercial or economic. Growing world trade on the back of continued world economic expansion, along with increasing Chinese coastal trade, continuing worldwide congestion and changing trading patterns should be sufficient to match the increase in the dry bulk fleet.

At this time, I would like to turn the call over to George Achniotis to review the third quarter's financial results.

Thank you, Ted. I will briefly review Navios' financial results for the third quarter and the first nine months of '07. The financial statements I'm about to discuss were included in this morning's press release and are summarized in the slide presentation on the Company's web site.

As shown on slide 22, revenue for the three months of operations ended September 30, '07 increased by 318% to $212.9 million as compared to $50.9 million for the comparable period of '06. Revenue from vessel operations for the three months ended September 30 '07 grew by 340% to $210.1 million as compared to $47.7 million for the same period during '06.

The increases in revenue is mainly attributable to the following factors -- first, the increase in the number of operating days by 2568 days; second, the improvement in the market; the average Time Charter Equivalent rate, including interphase, for the quarter was $33,090 per day. This is $11,447 per day higher than the rate achieved in the same period last year. Fourth -- third, an increase in the number of COA's serviced by Navios, which were acquired as part of the acquisition of Kleimar.

EBITDA for the third quarter of '07 increased by 65%, or $22.9 million, to $57.9 as compared to $35 million for the same period of '06. The increase is mainly attributable to the increase in the revenue of $162 million during the third quarter of '07 as compared to the same period of '06. The above increase was mitigated mainly by, first, the increase in time charter and voyage expenses by $132.6 million from $21.8 million in the third quarter of '06 to $154.4 million in the same period of '07. Second, a decrease in FFA gains by $5.8 million from $16 million in the third quarter of '06 to $10.2 million in the same period of '07. Third, an increase in the direct vessel expenses by $1.3 million due to the expansion of the Navios core owned fleet from 16 vessels in the third quarter of '06 to 19 vessels in the same period of '07. Fourth, the increase in general and admin expenses by $0.9 million.

All other categories, other income and expenses, income from investments and finance leases, income from affiliate companies, etc., reflected a positive variance of $1.5 million in the third quarter of '07 compared to the same period in '06.

Our EBITDA for the third quarter was adversely affected by $2.4 million due to the accounting treatment of one of the Kleimar Capesize vessels, the Obeliks, which has been accounted for as a final lease instead of an owned vessel. If the vessel was accounted for as an owned vessel, EBITDA for the quarter would have been $60.3 million.

Net income for the three months ended September 30, '07 increased by 116% to $36.5 million compared to $16.9 million for the same period in '06. The increase is mainly attributable to the $22.9 million increased in EBITDA. This is partially mitigated by a $1 million increase in net interest expense and a $2.2 million increase in deferred income taxes calculated for Kleimar.

As mentioned earlier, time charter and voyage expenses increased by $132.6 million in the third period ended September 30, '07 compared to the same period in '06. This is primarily due to the delivery of three new vessels into the chartered-in fleet, the higher chartering expenses relating to Capesize vessels and servicing the related COA business following the acquisition of Kleimar.

Direct vessel expenses for the operation of the owned fleet increased by $1.3 million for the three-month period ended September 30, '07 as compared to the same period in '06. Direct vessel expenses include crew costs, provisions, deck and engine stores, lubricating oils, insurance premiums and maintenance and repairs. The increases resulted primarily from additional costs related to the increase in the core fleet by three vessels compared to the third quarter of '06.

Turning now to the nine-month results highlighted on slide 23, revenue for the nine months ended September 30 '07 increased by 193% to $449.9 billion as compared to $153.6 billion for the same period in '06. This increase is mainly attributable to the increase in operating days by 5512 days, as well as the improvement in the market resulting in higher charter-out rates and the increase in the number of COAs serviced by Navios acquired as part of the acquisition of Kleimar.

Included in revenue is the port terminal, which contributed $7.7 million compared to $7.2 million in the same period of '06. This is attributable to the increased throughput for the nine months ended September 30 '07 of 1.9 million tonnes as compared to 1.8 million tonnes in the same period of '06.

EBITDA for the first nine months '07 increased by 16.5% to $135.1 million from $84.2 million in the same period of '06. This $50.9 million increase in EBITDA is mainly attributable to the increase in revenue by $296.3 million between the first nine months of '06 compared to the same period of '07 and a gain in FFAs of $20.3 million in the first nine months of '07 versus the $19.4 million gained in the same period last year. The above increase was mitigated by, first, an increase in time charter voyage expenses by $239.8 million from $65.2 million in the first nine months of '06 to $305 million in the same period of '07; second, the increase in direct vessel expenses by $6.6 million due to the expansion of the owned fleet from 16 vessels in the first nine months of '06 to 19 vessels in the same period of '07; and, third, the increase in general and admin expenses by $2.2 million.

Other categories, like other income and expenses, income from investments and finance leases, income from our affiliate companies, reflected a positive variance of $2.3 million in the first nine months of '07 relative to the same period in '06.

As mentioned earlier, EBITDA is adversely affected due to the accounting treatment of one of Kleimar Capesize vessels, which has been accounted for as a finance lease instead of an owned vessel. If the vessel was accounted for as an owned vessel, EBITDA for the first nine months of '07 would have been $141.3 million.

Net income for the nine-month period ended September 30 '07 increased by 178% to $74.5 million compared to $26.8 million in the same period of '06. The increase is primarily due to the $50.9 million increase in EBITDA and a $6.1 million decrease in depreciation and amortization. This was mitigated by a $5 million increase in net interest expense and a $4 million increase in deferred income taxes calculated from Kleimar.

Turning to the next slide, number 24, I will highlight key balance sheet changes between September 30 '07 and December 31 '06. Navios has cash and cash equivalents balance, including restricted cash, on September 30 '07 was $291.6 million versus $115.9 million at the end of December 31 '06. Total assets grew by 92%, $1.8 billion, reflected primarily in the acquisition of Kleimar, the net proceeds of the secondary offering in May, the exercise of warrants, the addition of one vessel into the owned fleet from the long-term chartered-in vessels and the acquisition of the remaining 50% interest in one Panamax vessel, who's remaining 50% is held by Kleimar.

The long-term debt, including the current portion, increased to $307.4 million at quarter ended September 30, '07 versus $270.1 million at the end of December 31, '06 due to the acquisition of Kleimar and the exercise of the option to acquire Navios Hyperion. Despite the increase in the long-term debt, the net debt-to-book capitalization ratio decreased from 53.7% to 26.7% due to the additional equity raised through the secondary offering, the exercise of warrants and cash generated from operations.

This concludes my review of the financials. At this time, I will turn the call back over to Angeliki.

Thank you. This concludes the formal presentation and we would like to open up the call to some questions. Thank you.

(OPERATOR INSTRUCTIONS) Jonathan Chappell, JPMorgan.

My first question has to do with the charter-in strategy. Obviously a big announcement last night of 13 charter-in, which will really help the long-term chartering for next decade. In the meantime, how is your short-term chartering strategy look? Has it been changed at all as you have shifted to a little bit more long-term contracts?

The long-term chartering is our core fleet and this is a part of our flexible business model. We have the long-term fleet together with our owned vessels that provide this core EBITDA, which is for us [afloat]. And then our short-term fleet together with the SFA and the COA provides what we say the spot market upside.

If you're asking from our quarterly results, we performed also in Q2 as well as this quarter. We're beating the numbers purely because we have this spot market exposure. This is purely on the short-term trends and the volatility of the market, which we were able to capture it. So the core fleet EBITDA is really the floor of our EBITDA that we have.

And then an industry question either and Angeliki or Ted. There does not seem to be any seasonality in the business at least over the last couple of quarters. What do you attribute that to and do you see that seasonality the kind of returning to the business next year maybe around the fall after the grain -- I'm sorry, in the spring after the grain harvest season and also after the iron ore pricing increases go into effect in April?

I think that the demand is so great everything is going as fast as it can. The restriction is at the ports and the mines, bringing out natural resources and/or grain. Grain used to bring seasonality, maybe in a market that is not as characteristics as it is today, but all fundamentals in place and everyone wanting everything yesterday, I think it takes a lot of the seasonality out of the market. You would think that the Chinese may want to ratchet up on their iron ore imports before their prices go up, but they cannot. Everything is going full-out to begin with. So a lot of the seasonality has been squeezed out of the market.

Finally, you just mentioned a lot of people trying to get as much tonnage as they possibly can for tomorrow. Are you seeing higher-quality counterparties really looking for five, seven, ten-year contracts now to insure that they have the appropriate amount of tonnage well into the next decade?

If you mean Navios, we are always talking with the highest-quality counterparties, but yes, you are seeing end-receivers out there, very high-quality, looking at long-period charters starting two or three years from now, yes.

This is, I believe, the catalyst of a change in the market. It is a trend that they started in 2004 and now you can see it far more visible the long-term end-users, aggregate trading counterparties really wanting to secure quality tonnes. It is a fundamental [system] in our industry.

Okay. Thanks, Angeliki and Ted.

Omar Nokta, Dahlman Rose.

You guys are obviously flushed with some liquidity. I know you cannot say much on the IPO of your MLP, but it looks like you'll be even more flushed with cash. You have already show your commitment to the Capesizes with those order innings. Is there something else that you guys are looking at and expanding into with that cash? Are you looking at expanding that ports? Is that something on the horizon?

We have shown that we like growth and we have shown that we have grown the Company from 20 vessels to now controlling 71 within the timespan of two years. So we're not afraid of expansion, of course prudently, and this is -- there's opportunities always in the market, which we will be able to capture with available cash existing.

Just with regard to the port, you had mentioned that as a potential spinoff. Is that something that you're still looking at doing next year? Is that a high-priority event for you guys?

This is an area we have identified. We're doing our work and we do not exclude that this will happen at a later stage.

Okay, and just with respect to the end charters that you announced yesterday, those 13, is that building up on your relationship with the Japanese financial houses? Is that related to that or is that a new party that you are arranged with?

We have a Japanese relationship, which we continue and have expanded on that, but we also have added with a Korean yard and a new counterparty. So we're expanding our geographic location to add more parties to this -- to our brand name, and expanding our reach in that area.

Okay, thanks a lot.

Ken Hoexter, Merrill Lynch.

Angeliki, can you talk about -- or Ted, I guess, on the charter-in rates, I think George threw out that it was about $33,000 on average for the quarter. Can you talk about with the number of new vessels, I guess, over the next quarter, next few years where we should see that go? Are you going to provide that on a per-vessel basis?

We cannot provide the vessels because we are prohibited by the counterparty contracts, but we usually give an average for the year and for the quarter. We also give -- which we announce so you model us very easily. This is publicly available information and we will give you that for the vessels we have.

It is also -- we also give our long-term charter-in fleet, which, in essence, is the most important, because this -- it gives you the ability to really model. The short-term fleet is really more of a spot market exposure and is not really very relevant to model.

But it can change.

Yes, so can you -- are you -- should I get this offline or can you give us where it'll be for next quarter and for the year ahead?

We will be off-line and will be announcing it in our website also.

Okay, perfect. Second, I just wanted to clarify did you say you were diversifying the customers even further with these new contracts or are you increasing your penetration with these existing customers that you had on page 12?

We already have -- the question before was about long-term charter-in fleet and our strategy. We're reinforcing our Japanese relationships and we're expanding in different areas. Now, on the top 10 charter partners, as you realize, it is on the parties we have the top-quality that is added there and Ted can talk to the creditworthiness of these counterparties.

Well, it reads like the Who's Who in shipping, so I think it is as first classes as we can get in terms of counterparty risks.

Right, no, my question is that all these new vessels that you've got contracted now, that you're signing contracts for, are you increasing the penetration with these top 10 customers or are you expanding your reach to additional customers?

We're actually doing both and we're increasing the base for our charters, but yes, we have also expanded outside of Japan, if that is part of your question, and we are quite proud of being able to pick up some purchase options on these charters also and this is all being done outside of the Far East, correct.

I am not talking about the vessels who you're getting the vessels from, the counterparties you're chartering to.

The creditworthiness of our counterparties is expanding, because we like to open up to new counterparties, but only we're talking about top-quality creditworthiness on counterparties. We're talking about this is the number-one criteria for the Company. We're very, very careful about expanding our base, but at the same time, having the highest level of creditworthiness because we believe that the number-one risk in shipping will be at one point the creditworthiness of the counterparties, as we are now looking into the future on 2018, 2014, 15, 16. So it is not only that you fix at a good rate, but you also collect during the period.

Angeliki, I guess -- or I guess maybe even Ted -- on the financial side -- or George -- I just want understand a big-picture question here. As you now pay kind of $140 million or such for Capesize vessels and yet you get solid $50,000 per day rates and let's say you get those for four or five years, are you concerned about the return levels on that -- let's say in five years that if we go back to historical average rates that the return levels for the new vessels are going to be a lot thinner than some of the contracts you've gotten in the past? Just want to understand your thought as we look forward on some of these new vessels and day rates are great right now, but what you think they might be in five years when some of these contracts come off? Do think returns get a lot thinner or do you think the Baltic Index -- in other words, the day rates -- can stay as high as we are?

We do not have a crystal ball, but one thing we can tell you is that we are disciplined buyer. One of the issues is that, as you see on the Capes, the four that we announced in August and then five that we announced today, you're looking at nine Capes. Average prices is about $104 million. If you take the average time charter-in rate that we can fix today forward with creditworthy counterparties and you do a five-year employment, you DCF everything and you see residual value at that point, you're looking at about $19 million left there. With cost of money, you're not even looking at $25 million, $30 million, which is a historical low at the five-year-old vessel.

So we are sitting in a very good point. At about $20 million, we are sitting with a five-year-old vessel, you know you will have volatility, but you're sitting in an extremely good spot. So yes, prices may be at $140 million, but we are very disciplined as buyers and we have a very good average on the nine vessels.

Very helpful, thank you.

Urs Dur, Lazard Capital Markets.

A lot of great questions have been asked and the detailed questions, I guess, are done for me, but I think it is really interesting. A lot of investors will call me and ask me look at these charts, they're remarkably high and look at the order book, it seems to be getting fatter. I point out to them, well, you know, there's a record level of multi-year contracts being done right now and you are showing that you can find long-term commitments.

But I was wondering if you could give some insight as to the order book and your view on the order book, especially 2010 and as 2011 becomes fat, and what is your view on the ability of many of the yards that are taking orders that are not even finished themselves to deliver? If you can expand upon that a little bit.

I think that you can see much more visibly today demand you can hit. This is the first time I think in history I can tell you demand is more easily to calculate in essence than to calculate supply. Supply, you have a great risk of -- you can see visibility until 2010. I think from 2011 you have compounded greenfield risk from shipyards that they do not existing even in their drawing plans yet. So you realize the do not know how many of these Capesizes, or special Capesizes, will be actually coming into the market.

I believe that you have to be very -- we watched very carefully the supply side. We go out every quarter and there will be a lot of change. This is the first time that you'll see significant deviations from the actual building of our vessels than what historical you had as the deviation. The basic [activity] is that demand is strong. Of course, supply, you don't know if really will remain where we see it today.

Okay, thank you very much. That is really all I had.

Thank you.

I would now like to turn the call back over to management.

Thank you very much for today and we will have the next quarter to discuss with you. Thank you.

This does conclude today's Navios earnings conference call. You may all disconnect and have a great day.