The Dry Bulk Industry: Q3 2015 Comparison Of Expenses

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Includes: DRYS, GNK, NM, NMM, SB, SBLK
by: MTF Investing

Summary

The Dry Bulk Industry has been suffering under reduced demand for ore transport and an oversupply of vessels, causing rates to suffer.

The first article compared revenue and earnings on a per ship and per DWT basis, while this one will focus on expenses.

The chartering strategy will determine who bears the expenses; higher expenses are not necessarily a bad thing.

This is the second in a series of articles looking at the companies that operate in the Dry Bulk industry and their recent quarterly earnings. The first article looked strictly at Revenue while this article will focus on Expenses. A third will follow comparing balance sheets.

When earnings are released, the numbers can seem arbitrary unless there is a way to compare them to other companies. I have found that breaking the numbers down on a per ship and per DWT basis helps to put those numbers in perspective, but they must be taken with a grain of salt, understanding the strategy the company is using in chartering their ships and what types of ships they are using.

The companies looked at are Genco Shipping & Trading Limited (NYSE:GNK), Navios Maritime Holdings Inc. (NYSE:NM), Navios Maritime Partners L.P. (NYSE:NMM), Safe Bulkers (NYSE:SB), and Star Bulk Carriers (NASDAQ:SBLK). DryShips (NASDAQ:DRYS) is part of the industry, but has been going through a bit of a crisis and has yet to release any results for the 3rd Quarter. DRYS sold its Capesize fleet and four of its Panamax vessels and has put the rest of the ships up for sale.

Operating Expenses

The tightening of the belt is a good measure of efficiencies companies have been able to achieve. While there can be multiple expenses that are registered each quarter, the main expenses investors can expect to see are:

  • Voyage expenses
  • Vessel Operating expenses
  • Depreciation
  • General and Administrative expenses
  • Dry docking

In order to focus on the operating expenses that are directly tied to the actual daily operations of the fleet, this article will focus on Voyage expenses, Vessel Operating Expenses, and General, Administrative, and Technical Management Fees. While depreciation is recorded as an expense, it is typically used to reduce the tax burden of the company and no cash is expended. Dry docking is required in the industry, and each ship will go through it, but the timing will change from quarter to quarter.

The data used to compile the charts comes from the most recent quarter, and only looks at that quarter. While some of the expenses will fluctuate from quarter to quarter, all shippers will be subject to bunker fuel rates, weather delays, and repairs needed that will affect expenses. A look at yearly expenses is also helpful, as is multi-year comparisons.

The fees the companies will log are also tied to how the fleet is managed. The two means most companies use are either Voyage Charter or Time Charter.

Voyage Charter: In a Voyage Charter, a company hires a shipper to move its product from one location to another. The charterer pays the shipper on a per-ton basis and the shipper pays the port costs, fuel costs and crew costs. Most of the voyages are typically one way with a shipper moving a load but having to return empty on their dime.

Time Charter: In a Time Charter, the ship is chartered for a specific period of time and the charterer will decide the ports and routes. The charterer will pay for all fuel, port charges, commissions, and a daily hire to the owner of the vessel.

Voyage expenses: Voyage expenses are all expenses unique to a particular voyage, including bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. When a company operates their ships in the voyage charter spot market, the company is responsible for all voyage expenses as opposed to spot market-related time charters in which a company is not responsible for voyage expenses.

Vessel operating expenses: Vessel operating expenses includes crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs and management fees. Under both types of charters, the company will be responsible for these costs.

General and Administrative Expenses: General and administrative expenses include onshore vessel administration related expenses such as legal and professional expenses and administrative and other expenses including payroll, office rent and expenses, directors' fees, and directors' and officers' insurance. General and administrative expenses also include non-cash compensation expenses.

Comparison

When comparing the expenses on a per unit basis, there are a few things that pop out. First is that NM had expenses that were above average in all categories except General and Admin Expenses. The higher expenses for NM indicate the company took advantage of higher rates with some voyage charges.

On the low end of Voyage Expenses was NMM, followed by GNK and SB. SBLK came in with $300K per ship and just under $3 per DWT.

Vessel Operating Expenses were highest with both GNK and NM on both a per ship basis and DWT basis. SB and SBLK followed closely behind with Vessel Operating expenses at just under $420K per ship each and around $4 per DWT. NMM was on the low end with $41K per ship and $.39 per DWT.

General and Admin Expenses were on the low end with NM, SB, and SBLK all below the peer average. Both GNK and NMM came in above average with each posting over $5 per DWT in expenses.

Again, the expenses the companies will report are directly tied to the chartering strategies the companies are employing.

Conclusion

When comparing expenses, it helps to keep in mind the strategy used and the revenues generated. NM and NMM were on the high end of revenue and earnings, but NM was also on the high end of expenses. SB and SBLK had similar revenues on a per ship and per DWT basis, and had similar results for expenses on both a per ship and per DWT basis. GNK was on the low end of revenue but on the high end of expenses, which resulted in negative earnings for the 3rd quarter. While revenue and expenses help gauge performance over a quarter, the balance sheet helps to gauge the health of the company.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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