Given the Baltic Dry Index’s (BDI) all-time lows of early 2016 (http://nnw.fm/7xHSF), it is no wonder that many of the key players in the heavily fragmented global dry bulk shipping market have seen some painful quarters, with only the best of breed operations able to weather the storm. Slumping demand in the sector (roughly two-thirds of which is folks transporting iron ore and coal) has been due primarily to falloff of industrial and urbanization activity in China, enhanced by factors such as China’s mounting power overcapacity. China and India are both going greener too, with aggressive emission targets on the table that have cut deeply into an already steel demand-wounded coal transport market.
Everyone has had to tighten their belts in this competitive and capital-intensive industry, including leading operators such as Diana Shipping (NYSE: DSX), DryShips (NASDAQ: DRYS), and Genco (NYSE: GNK). The reality here is that only the strongest can survive such a challenging market, and be poised to thrive when the upswing happens. The operations which are best able to adapt and keep doing lots of business through the hard times (simply surviving if they cannot really thrive at that moment), will be the success stories when the BDI heats back up, like it did in late 2013, and late 2011. The recently published 2016 edition of Koncept Analytics’ report (http://nnw.fm/Bo2i0) on the global dry bulk shipping market explains the underlying phenomenology of the sector as a the result of the industry being in a transitional phase, where the decline of China has caused a need for the primary market drivers to be redefined, and operators to evolve.
One such operator that has managed to shore up its operational footprint and even increase overall utilization during these stormy seasons is Eagle Bulk Shipping (NASDAQ: EGLE), a company which proudly boasts an impressive company-owned fleet comprised chiefly of the versatile 50,000 to 60,000 deadweight tonnage (DWT) ships of the type known as Supramax. The Supramax is an agile freighter capable of operating in regions all over the world that have small ports and length/draught restrictions. This versatility is why The Supramax class makes up the vast majority of the planet’s ocean-going cargo vessels.
Eagle Bulk Shipping has a relatively young fleet of 41 ships (http://nnw.fm/N1azj), pending execution of the memorandum signed in early August to sell the company’s 4 by 30 ton crane, 2002 Supramax, the Kittiwake for $4.2 million in net proceeds. Sale of the Kittiwake follows up nicely on the company’s previous shedding of overcapacity, via the sale of its Falcon ($6.5 million), Harrier ($3.2 million), and Peregrine ($2.7 million) vessels.
The company reported Q2 FY16 financials August 8, showing net revenues up just over 20 percent compared to last quarter, even as net losses declined handsomely, coming in around 43 percent lower than in Q1. At the same time, fleet utilization actually improved slightly, up half a percent to 99.1 percent, evincing the fleet’s higher number of freight voyages and available days due to chartered in vessels, all of which helped drive EGLE’s Q2 net revenue growth. Operating expenses were also down sharply, just over 25 percent compared to Q1’s figures, reflecting the shrewdness of EGLE’s decision to tighten its belt and sell off a few ships.
Similarly, Eagle Bulk Shipping has executed a 1 for 20 reverse stock split (which took effect Aug 4, 5:00 p.m., EST) in order to consolidate its share structure with regard to NASDAQ’s minimum average closing share price requirements, reducing the outstanding number of common shares of EGLE to roughly 18.8 million. This is in line with the company’s move in July which raised nearly $90 million in gross proceeds through a private placement of common stock.
Eagle Bulk Shipping has positioned itself quite nicely to take advantage of a potential rebound in the market, the first fruits of which are perhaps already being seen here in 2016 during June and July, despite lagging pessimism from some ship owners who are skeptical about the short-term outlook. Cargo Business News’ feature editor, William DiBenedetto, recently communicated consensus of a return to sector profitability for the dry bulk shipping industry in 2017 (http://nnw.fm/cU7Tv), if demolition rates on old vessels persist and new orders continue to be slow.
Indeed, with tens of billions already slated to be spent over the next few years in China on coal and thermal project investment, which was up an incredible 20 percent last year amid an increasingly glaring decline in demand for power, the transition to new major demand sources might be easier than many analysts had surmised, even with China’s NDRC (National Development and Reform Commission) banning approvals for new coal-fired projects in regions deemed to be oversupplied. Coming off the bottom is a good spot for investors to pile on.
Looks like EGLE has tightened its belt and readied itself for a possible rebound here, with capital raises aimed at facilitating an ongoing fleet growth and renewal program, as well as extension of the company’s assemblage of a next-gen operations platform consisting of top-tier talent in both chartering and operations. In concert with operational and logistical capacity improvements, EGLE has opened a new European commercial office to support its increasing workload and completed a sweeping initiative to bring all of its fleet under in-house management, which has already led to improved cost, and performance metrics.
As one of the largest owner-operators of Supramax dry bulk vessels in the game today, Eagle Bulk Shipping isn’t about to put its tail between its legs just because of a cyclical slump in the dry bulk shipping sector. The company has weathered this latest storm ably and is now enviably positioned to either sustain further macro-driven market tightness, or capitalize on a sector fumble recovery, running the profits into the end zone for its shareholders.
For more information, visit www.EagleShips.com
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