Question-and-Answer Session
Operator
(Operator instructions). Thank you, our first question is coming from Urs Dur of Lazard Capital Market.
Urs Dur ? Lazard Capital Markets, LLC
Good morning, guys, or good afternoon.
Anastasios Margaronis
Hi. Good morning. Hi.
Urs Dur ? Lazard Capital Markets, LLC
The presentation was extremely detailed, so that is great. I was interested if Stacy, maybe can give a little bit of color on the reduction in congestion of late. It looks like things are getting loaded, and you mentioned this, in Australia. Do you expect this moment to increase, and then with being able to exit Australia of late, demand for ships to get in line for loadings to improve and see some improvement in the spot rates in the nearer term from these very low levels?
Anastasios Margaronis
There are too many unknowns, here. First of all, we are not entirely certain how many ships have been redirected to load the cargos that they couldn?t get from Australia to places like the Unites States and Canada. So there we have one question mark because these ships are going to be tied up for at least another 40 to 60 days, carrying the cargo that they were supposed to be carrying from Australia to the far East.
So, that?s one unknown. But there is no doubt that as far as that is concerned, given time, the ships will return to load from ports in Queensland in Australia, and logically, congestions should gradually increase after dropping a little further for the next few weeks.
So, we expect as far as that part of the world is concerned to see a further drop in congestion, and then a gradual increase.
Now, we have to look to China for the iron-ore discharging ports. The situation there is that the Chinese usually deal with congestion more efficiently than anybody else, and even though we expect increased shipments between now and the middle of the year, we think that there would be no significant change in congestion for the Chinese iron-ore discharging ports, which leaves us basically with the iron-ore loading ports in South America.
Now there, if everything goes smoothly, which it very rarely does in South America, this would be no significant increase in congestion, especially after the work in [inaudible] was completed as I mentioned during the small presentation. So, in total, if you gather South America, Australia and China, we don?t really expect congestion to increase at all the lack of tonnage as regards the basic commodities, leading to a significant support in freight rates.
Urs Dur ? Lazard Capital Markets, LLC
So, you expect it to say relatively weak throughout the remainder of the year in your view?
Anastasios Margaronis
No, as we mentioned earlier, we agree with the analyist?s view that the then you have a gradual maybe improvement between now and middle of the year. Then, if you?ll be expecting it to spiral to weak the freight market, except of course, accepting the effects of major political events in the Middle East or elsewhere in the world, which might of course distort this picture; usually in favor of the freight market though on the bulk side.
Urs Dur ? Lazard Capital Markets, LLC
I hear that, very good, and I generally agree with that. You have a very nice war chest of cash, guys. I expect $4-plus per share, and it does look like you?re trading probably below your net asset value despite weak or asset values as of late. What is your view of asset values and what can we do with this cash? Buy back shares, or buy more ships? I mean, I guess it?s a rhetorical question, but more to highlight what you think maybe you might be able to do with it.
Andreas Michalopoulos
Hi, this is Andreas. I?ll go back to what you said about the net asset value, you know that we never comment on that, but the cash that we have on the side is for buying new vessels and think wait, and you will see Diana Shipping buying vessels for the next year or so.
Urs Dur ? Lazard Capital Markets, LLC
You would think it?s better to be buying assets now with this cash than say buying back stock or giving a dividend.
Andreas Michalopoulos
For certain it is much better than paying a dividend at this part of the cycle, and not only that, for buying back stock, you need a big sound of the net asset value to do so.
Urs Dur ? Lazard Capital Markets, LLC
Yeah, I suppose. Okay, thank you for your time, gentlemen. I appreciate it.
Andreas Michalopoulos
You?re welcome.
Operator
Thank you. Our next question is coming from Gregory Lewis of Credit Suisse.
Gregory Lewis ? Credit Suisse Group
Thank you, and good afternoon.
Anastasios Margaronis
Hi, Greg.
Gregory Lewis ? Credit Suisse Group
Stacy, first, could you touch on the comments you made about the older cape size vessels being less efficient, and you made that comment about using bulker. Roughly speaking, how much less efficient are those older capes?
Anastasios Margaronis
I think that it depends what year you are talking about, and from which building you are talking about?
Now, the capes we built in Japan are lighter in weight, thus they have a better consumption than the rest of the suites built in China or wherever.
Now, the older type I would say is approximately 4-5 times today, the young ships are more efficient than the old ones at about 4-5 times, which of course is a big differential price wise, because the price of oil is very high toady, so you are talking about 2,000-$3,000 daily.
Gregory Lewis ? Credit Suisse Group
Okay, great,. And then I guess thinking about you were successful in spinning out the Diana Containership, Inc., at this point, given many potential opportunities in containership space, is there any thought or discussion about Diana Shipping, Inc. making further investments in Diana Containership, Inc.?
Anastasios margaronis
Greg, this is something that the board of directors of Diana Shipping would decide in the future. The fact that we have still another 11% in Diana containers we?ve seen, it shows that we still have an interest in containers that Diana Shipping, Inc., and it remains to be seen based on the situation of Diana Containership, Inc. and the project that we represent.
Gregory Lewis ? Credit Suisse Group
Okay, great, and then just really quick, one last question.
Clearly, you?re in the markets every day looking at ships to acquire on the dry bulk side, when you think about where new building prices are and you sort of match that up with where modern second-hand vessels are, do you think the opportunities are relatively even at this point, or do you think there is more opportunity in either the new building or the second hand market?
Anastasios Margaronis
I think it is good to be evenly spread. We are looking for re-saves, we are looking for older ships, two or three years old, and we are looking for new buildings also, but not as much as the resaves. We are focusing more on the resaves.
Gregory Lewis-Credit Suisse Group
Okay, great, thank you very much for the time.
Anastasios Margaronis
You?re welcome, thank you.
Operator
Thank you, our next question is coming from Natasha Boyden of Cantor Fitzgerald.
Natasha Boyden-Cantor Fitzgerald
Thank you, operator. Good morning, gentlemen.
Executives
Good morning.
Natasha Boyden-Cantor Fitzgerald
I wanted to ask you what you are seeing in terms of longer-term charges in this market. Are you seeing charters willing or interested to put ships away for longer than a year, and if so what kind of discounts are you seeing to go beyond two or three years?
Anastasios Margaronis
Well, there is quite a range today for the capes. This is about $6,000. For the year, you are talking today between 17 and $19,000 for a good cape, so there is a difference.
Natasha Boyden-Cantor Fitzgerald
Okay, but I mean are you seeing interest charters put ships away longer or are they still looking at just sort of shorter-term charters?
Anastasios Margaronis
There are some charters who would be looking for ten-year periods, which does not attract us. I think the most we will be going is about five years.
Natasha Boyden-Cantor Fitzgerald
Okay. All right, great. Thank you.
Just about rates coming down, asset volumes coming down, there?s also been concern that some companies could be in violation of the loan covenants. Given that banks appear to be healthier than a few years ago, what do you anticipate that banks are going to do in terms of potentially foreclosing your vessels? Do you think we?ll see more of that or do you think that banks will still be willing to negotiate with companies?
Anastasios Margaronis
Well, we had a loan on the containers for approximately two years, and there we have seen no for sales. Now, I think it would be different for the dry cargo and maybe we?re going to have for sales.
Natasha Boyden-Cantor Fitzgerald
What do you think the difference is, then?
Anastasios Margaronis
Well, the difference is that the containers are in the hands of very few people, and the banks have supported them. Plus the fact that the interest rates are very low, so the banks are happy provided that you are paying the interest rate But it?s not the same thing with the dry cargo, so we maybe be having for sales in the dry cargo.
Natasha Boyden-Cantor Fitzgerald
Okay, great. Then just lastly I have a question; can you provide us some guidance on your anticipated dry -docking in 2011 and ?12, and did you have any dry docking in the fourth quarter?
Ioannis Zafirakis
Yes, we had actually three vessels that went in to dry docking the fourth quarter, that?s when we bought the vessel Titan in November with the vessel of Coronis in November and bought a vessel 19th of November as well. In 2011, we have scheduled dry docks for quite a few vessels, actually, for motor vessel, actually Alcyon, Naias and Thetis, Protefs and that?s all. So, that?s what is in 2011.
Natasha Boyden-Cantor Fitzgerald
Okay, thank you very much, that?s very helpful.
Ioannis Zafirakis
You?re welcome.
Operator
Thank you, our next question is coming from Fotis Giannakoulis of Morgan Stanley.
Fotis Giannakoulis-Morgan Stanley
Yes, hello there. The only thing I want to ask is about the big spread that we see right now in the co-prices between the domestic Chinese co-prices and the regional prices. Do you think that this is going to have an impact on the Chinese imports for coal and consequently for the Panamax vessels?
Anastasios Margaronis
Logically, it should, but the picture becomes slightly more complex due to what I mentioned earlier regarding coke and coal exports; that they would find profitable to make to other countries in the Far East. And because of this Australian replacement move that we?re going to be seeing. So generally, we believe that coal is going to be actively traded in China, one way or another regardless of practice credential.
Under the coastal trade moving coal, increasingly so as we have seen in 2010 and they are going to be both imports and exports of different types of coal. So we are very confident that coal over all, coke and coal, is going to be the highlight as far as the growth is concerned in volumes of commodity going in and out of China.
Fotis Giannakoulis-Morgan Stanley
Is it something that you are you?re talking about for 2011, or also for the next couple of months?
Anastasios Margaronis
Well, we can?t pinpoint exactly when. Possibly, the next couple of months all the way through the year. But the next couple of months we?ll see basically the coke and coal moving through Taiwan, Japan and other Far Eastern countries, definitely because the contracts are there for that to happen. And also later on during the year we are going to have movements of coke and coal in and out of China and along the Chinese coast in larger and larger quantities.
Fotis Giannakoulis-Morgan Stanley
Thank you very much, thank you.
Operator
Thank you, our next question is coming from Scott Malat of Golden Sachs.
Scott Malat-Golden Sachs
Thanks. My question on vessel operating expenses, can you just help us think through the puts and the takes here of the next year? I guess I was thinking more of a higher insurance cost, you guys highlighted that insurance cost might have been down year over year, help us think through that, thanks.
Andreas Michalopoulos
Actually, our operating expenses if you compare them to last year in the quarter they were up 6% and during the entire year they were up 7%. The main reason here was definitely not insurance cost, those are actually pretty steady. We don?t have big variations on those. What is making the variations, and especially quarter to quarter is mainly the different works that we do when a vessel goes in to dry docks.
To give you a very simple example, the main increase in the operating expenses in the fourth quarter are due to two things. The first is that the three vessels that went in to dry docks, Triton, Coronis, and Danae, we take the opportunity when a vessel goes in to dry docks to do some extra work in terms of repairs on deck. And the other example here, which made the operating expenses spike was the fact that we had initial supplies for two containership vessels that were for the fourth quarter pretty fully consolidated with Diana Shipping, Inc. results.
Now, going forward, we foresee an average operating expense per day for 2011 at $6,450, that?s what we put in to our models and this is the budget we have made for 2011.
Scott Malett-Golden Sacks
Thanks, that?s very helpful. Within that number, is there a way, just qualitatively to think about insurance cost and crew cost, do they come up from here? You?ve already given us the dry docking schedule but what is the breakup there?
Andreas Michalopoulos
Basically, we give you real figures for the entire year, of 2010, and the breakup of the operating expenses was 54% came from crew costs. So 54% of the operating expense are crew costs, 8 % are insurances, 24.1 % were stores and fares, 11.9 % were repairs and maintenance, 1.4 % were some miscellaneous, and 0.6% were various taxes, and that is 100 % of the OpEx for 2010. So more or less, you have this break down. The major part of the possible breaking expenses are crew costs and yes, insurance. Insurances come out of the operating expenses.
Scott Malett-Golden Sacks
All right, that?s helpful, thanks. Just lastly, you had mentioned a little bit about the Middle East, can you expand on any of that? Have there been any disruptions that you?ve seen in the Middle East? And then what kind of things we should be looking out for and impacts, or risks and essential benefits that you can kind of get from that? Thanks.
Anastasios Margaronis
As long as the Suez Canal remains open, the deductions have been mainly encouraged with the containership vessels calling in Egypt where we have had some delays and cancelations of port calls. And I assume now in Lybia we are going to have similar phenomena?s developing.
We haven?t seen anything else, which is more dramatic in terms of affecting the schedule of bulk carriers call in that part of the world.
So, the key question here is the Suez Canal, which it does not look as if we are going to have any serious distraction in transit through the canal up and down. So with that secure, let?s call it, we don?t see any significant effect because the rest of the countries have relatively low volumes of trade in bulk commodities compared to the world figures as a total.
Scott Malett-Golden Sacks
Thanks.
Anastasios margaronis
You?re welcome.
Operator
Thank you, our next question is coming from Doug Garber of FBR Capital Markets.
Doug Garber-FBR Capital Markets
Good afternoon, guys.
Anastasios Margaronis
Hi, Doug.
Doug Garber-FBR Capital Markets
My first question is, in terms of your due diligence for vessel acquisitions, how many vessels are you currently looking at on the dry bulk, and if you would, the container side too? How many have you visited, and where do you stand on that process?
Anastasios Margaronis
Well, on the dry side, we are looking at approximately 25 ships. We are expecting some of them, we have already inspected some of them, but because most of them are resaves, we know exactly where we are because we have the specification of each one. So some of them we are inspecting physically, and some of them we have them on paper.
Doug Garber-FBR Capital Markets
Okay, that?s helpful. In terms of the amount of ? you have a lot of liquidity, how much further do asset prices need to fall, before you would get very aggressive and start to purchase those 25 ships that you are doing due diligence on?
Anastasios Margaronis
Well, it is not how much the prices fall, as much as the freight rates fall. And we strongly believe that the freight rates are low when they?re exactly the same as the running expenses of the ship. Then of course, the freight rate is at these levels and it will proportionally affect the price of the ships.
Now, at the moment, the freight rates, or the bulk carriers are approximately three times or 2 � times more difficult to realize the expenses. So they have a lot of room to go.
Doug Garber-FBR Capital Markets
Okay, that?s helpful. In terms of the amount of liquidity you have, would you guys consider putting leverage on your unencumbered vessels currently to maximize the amount of cash available per acquisition?
Anastasios Margaronis
In theory, the net up should see it with 50 % literally. That?s in theory. So we have plenty of money aside to grow, of course.
Doug Garber-FBR Capital Markets
All right, I think that?s all my questions. I?ll turn it back. Thank you.
Anastasios Margaronis
You?re welcome.
Operator
Thank you, our next question is coming from Sal Vitale of Sterne, Agee. .
Salvatore Vitale ? Sterne, Agee & Leach, Inc.
Good morning, gentlemen. I just have a quick first question on the expense side. Looking at G&A expense, came in about 7.1 million this quarter, can you just tell me whether there is any impact of the Diana Containerships there, or how do we think about that going forward? Is that a decent run rate to use in our model going forward?
Andreas Michalopoulos
Yes, Sal, actually, there was an impact of Diana Containerships, and the impact for the year was about $3.5 million. And so I would, going forward, think that after the spinoff, Diana Containerships, Inc. would not be consolidated anymore with Diana Shipping, Inc. therefore as for the first quarter, 2011, I would use as a run rate for your G&A around the $21.6 million for the year. So, that is what I would use, and therefore taking out the DCI chunk of it.
Salvatore Vitale ? Sterne, Agee & Leach, Inc.
Okay, that?s helpful. And then I think it was Ioannis, your comments earlier regarding where you would need to see freight rates be before you dive in and make a significant acquisition of second hand vessels, and you said about where the running expenses are. So it seems that you still have a pretty cautious hand on the market, and given that, what should we expect? What are your plans in terms of fixed order coverage for 2011, and for 2012, because I think at 2011, currently you are at about 85 % of your days are fixed?
Ioannis Zafirakis
Ninety.
Salvatore Vitale ? Sterne, Agee & Leach, Inc.
Ninety, right, closer to 90. And for 2012 I have you at about 50 % more or less? Should we think of any significant increase in that 50%?
Ioannis Zafirakis
No, you shouldn?t expect anything different other than [inaudible]. What we will do is start with the vessels they are operating, and try to place them in such a manner that we feed the portfolio the entire portfolio we have will be [inaudible] of the company. We have a very strong feeling about what is going to happen in 2011, however we do not know what is going to happen in 2012. And this is exactly the reason why we are not entitled to commit all of our vessels for a longer period. We will continue our scheduling strategy the way we have said. As our chairman said earlier, the lowest point is where the freights are close to the operating expenses, but never the less, we have to keep buying vessels in the manor, and not wait for that to happen, although we believe that we may see that.
Salvatore Vitale ? Sterne, Agee & Leach, Inc.
Right, so is it your view, and I know it?s really hard to say-there?s no crystal ball-but is it your view that the decline in rate in the BBI that occurs sooner rather than later in the first half, is a 2011 event?
Ioannis Zafirakis
As our president, Mr. Margaronis said, this is more probably the second half of 2011 event to happen.
Salvatore Vitale ? Sterne, Agee & Leach, Inc.
Okay, thanks, that?s really helpful.
Operator
Thank you, at this time I?d like to hand the floor back over to management for any closing comments.
Simeon Palios
Thank you, again for your interest in and support for Diana Shipping. We look forward to speaking with you in the months ahead. Thanks.
Operator
Thank you, this concludes today?s teleconference. You may disconnect your lines at this time. Thank you all for your participation.
Powered By iWebRSS.com
precious metals investing in gold investing in silver bullion investing stocks
