Feb 28, 2018
Operator
Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited Fourth Quarter 2017 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.
We will conduct a question-and-answer session after the opening remarks, instructions will follow at that time. A replay of the conference will be accessible anytime during the next two weeks by dialing 1-888-203-1112 or 719-457-0820 and entering the passcode 2891933.
At this time, I will turn the conference over to the Company. Please go ahead.
Unidentified Company Representative
Good morning. Before we begin our presentation, I note that in this conference call, we will 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, expects, projects, 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, 2016, and the Company’s report subsequently filed with the SEC.
At this time, I would like to introduce John Wobensmith, Chief Executive Officer of Genco Shipping & Trading Limited.
John Wobensmith
Good morning everyone. I will begin today’s call by reviewing our fourth quarter 2017 and year-to-date highlights.
We will then discuss our financial results for the quarter and the industry’s current fundamentals, and then open up the call for questions. Turning to Slide 5, we reviewed Genco’s fourth quarter highlights.
During the fourth quarter, the drybulk markets strengthened considerably due to firm Chinese deal output and steel mill margins as well as improved world GDP growth, which led to heightened demand for seaborne iron ore coal and minor bulk cargos. This increase in demand combined with minimal net fleet growth drove freight rates higher.
The fourth quarter marked a major inflection point for Genco as we drew upon our success transforming our commercial strategy and optimizing our cost structure to capitalize on these improving market conditions and return to profitability for the first time in six years. Our fleet performed well during the quarter as net voyage revenues increased by nearly 50% on a year-over-year basis underscoring the earnings power of our fleet.
For the fourth quarter, we recorded a net income of $2.6 million or $0.07 basic and diluted income per share. Our strong quarterly performance also included generating EBITDA of $27.5 million and increasing our cash position to $204.9 million as of December 31, 2017.
We also paid down our $400 million credit facility by $11.3 million in February 2018 from cash flow from operations during the fourth quarter. We are pleased to have posted strong operating results following the execution of various initiatives to enhance our commercial platform throughout the course of the year.
Notably, we increased our time charter equivalent rate in each quarter of 2017 culminating in an $11,017 a day in the fourth quarter, a 65% improvement year-over-year. During the fourth quarter, we made significant progress transitioning from a tonnage provider to an active commercial strategy with a focus on increasing margins, which I will discuss in more detail later on the call.
Specifically, we established a Singapore presence, which further bolsters our major bulk operations, grows our footprint globally and strengthens relationships with leading iron ore producers and charters worldwide for the benefit of shareholders. Additionally, we completed the withdrawal of 19 vessels from pool agreements and integrated these vessels into our in-house commercial strategy.
Furthermore, we reallocated our minor bulk fleet exposure to be overweight the Atlantic Basin to seek to capture the earnings premium historically offered by these positions. We undertook several ways of repositioning of our minor bulk fleets during 2017, the last of which was completed in the fourth quarter of 2017.
We currently have 80% of our minor bulk fleet with Atlantic redelivery ranges, which we believe will enable Genco to further drive revenue generation in 2018. We are pleased with the significant progress we’ve made during the year building out our full-scale logistics platform enabling us to substantially increase our customer base and establish relationships with over 40 direct cargo customers over the last year.
During the fourth quarter, and year, we also remained focused on executing various cost optimization efforts and further reduced our direct operating expenses as we maintained our cost leadership. Highlighting this success our daily vessel operating expenses were $4387 per vessel per day during the fourth quarter and $4417 per vessel per day for the full year of 2017.
Both of these figures are below our budget set forth at the beginning of 2017 of $4440 per vessel per day. Lastly, we have decided to undergo a fleet optimization and renewal plan aimed at modernizing our current fleet.
As part of this plan, we have decided to dispose of a total of 15 vessels including eight 53,000 deadweight ton Supramax vessels, one Handymax vessel, four 1990 built Panamaxes and two 1999 built Handysize vessels. We plan to redeploy the capital to replace these vessels with modern, high-specification vessels that complement our commercial strategy and management’s view of the dry bulk supply and demand fundamentals.
In executing our fleet renewal plan, we look to benefit from a significant rise in values for our older vessels within the last year and improved our fleet to better serve our transfer and commercial platform going forward. Turning to Slide 6, we have outlined our leading market position.
On the chart on the left side of the page, you can see that we’ve improved our margins and our time charter equivalent rate significantly during 2017, which is a direct result of our commercial, technical and operation initiatives, as well as improving market conditions. We believe these initiatives executed in 2017 will continue to drive revenue in 2018.
Specifically, for the first quarter of 2018, we have 82% of our fleet line available days six at a time charter equivalent of approximately $10,500 and $56 per day, which is exceeding our internal fleet-wide benchmarks by over $800 per vessel per day. We benchmark our fleet on a weighted average basis based on our fleet composition and the bulk of the Capesize five TCE Panamax, Supramax 1058 and Handysize indices left commission and adjusting for size, age and specification of our vessels.
Our internal benchmark for Q1 2018 is based on the actual indices performance today and the asset curve extending of term of each of our vessels contract expiration. Our enhanced commercial platform together with our low-cost structure have further improved our liquidity position as our cash balance has risen during each quarter of 2017.
Notably, we ended the year with a cash balance of $205 million representing an increase of over $35 compared to the end of 2016. On Slide 7, I will discuss Genco’s unique position for capturing the market upside in 2018, which is made up of three main components.
First, our enhanced commercial strategy positions us well to drive revenue growth, further increase margins and outperform benchmarks as we continue to incorporate voyage charters and direct cargo listings into our fleet deployment mix as part of our full-service logistics solutions. As a point of reference, we currently have 23 of our 41 minor bulk vessels on voyage business, compared to zero this time last year.
Our direct exposure to the iron ore trade through our Capesize fleet also provides us with strong upside potential, while maintaining a level of stability from our Supramax and Handysize fleet that transports grain and various minor bulk commodities. In an effort to ensure Genco maintains significant exposure and optionality in a rising market.
We tend to continue to focus on short-term charters with staggered expirations. Second, leverage of our in-house commercial expertise and relationships as we enter into business directly with cargo customers.
Building on this point, we also plan to establish a European presence in Copenhagen to fully round out our commercial platform. Finally, our Singapore office provides us with an active profile in the Far East market, allowing Genco to better focus on the employment of our Capesize vessels and backhaul trades on the minor bulk fleet.
This will also enable us to implement real-time management of the Capesize fleet to augment earnings and create a 24 hour operation, while expanding our network of clients getting the company closer to cargo interest. I will now turn the call over to Apostolos Zafolias, our Chief Financial Officer to discuss our financials.
Apostolos Zafolias
Thank you, John. Turning to Slide 9, our financial results are presented.
For the fourth quarter and 12 months ended December 31, 2017, the company generated revenues of $74.9 million and $209.7 million, respectively. This compares with revenues for the fourth quarter of 2016 and the 12 months ended December 31, 2016 of $43.9 million and $135.6 million, respectively.
The increased revenues in both 2017 periods were primarily due to the employment of vessels on spot market voyage charters, as well as the result of higher spot market rates achieved by the majority of the vessels in our fleet versus the same period last year. These increases were partially offset by the operation of fewer vessels during the comparative periods.
For the fourth quarter of 2017, the company recorded a net income of $2.6 million, or $0.07 basic and diluted income per share. This compares to a net loss of $25.1 million or $3.43 basic and diluted loss per share for the fourth quarter of 2016.
For the 12 months ended December 31, 2017, the company recorded a net loss of $58.7 million, or $1.71 basic and diluted loss per share. This compares to a net loss of $217.8 million or $30.03 basic and diluted loss per share for the 12 months ended December 31, 2016.
Turning to Slide 10, we present key balance sheet items as of December 31, 2017. As John mentioned previously, our cash position, including restricted cash includes $204.9 million for the quarter.
Our total assets were $1.5 billion, which consists primarily of the vessels in our fleet and cash. Our total debt outstanding gross of $9 million of unamortized debt issuance costs was $524.4 million as of December 31, 2017.
Moving to Slide 11, our utilization rate was 99% for the fourth quarter of 2017. Our TCE for the fourth quarter was $11,017 per vessel per day, which compares to $6,659 per vessel per day recorded in the fourth quarter of 2016.
The increase in TCE was primarily due to higher spot rates achieved by the vessels in our fleet during the fourth quarter of this year versus the fourth quarter of last year, as well as the progress we have made in implementing our commercial initiatives. Daily vessel operating expenses decreased to $4,387 per vessel per day for the fourth quarter of 2017, compared to $4,486 per vessel per day for the comparative 2016 period, predominantly due to lower insurance-related expenses, as well as the timing of purchases of spare parts, partially offset by an increase in maintenance-related expenses.
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 of our vessels in our fleet will incur over a full-year of operation. For the 12 months ended December 31, 2017, our DVOE, decreased to $4,417 per vessel per day, which is below our 2017 budget of $4,440 per vessel per day set forth at the beginning of the year and the lower DVOE of $4,514 for the 12 months ended December 31, 2016.
Based on estimates provided by our technical managers and management’s views, our DVOE budget for 2018 remains at $4,440 per vessel per day on a weighted average basis for the entire year for our fleet of 60 vessels. Turning to Slide 12, we note that on February 13, we paid down our $400 million credit facility by $11.3 million from cash flow from operations that accrued during the fourth quarter of 2017.
As such, we’ll highlight our cash and debt balances out of December 31, pro forma for this debt repayment, which are $193.6 million and $513.1 million respectively. Additionally, management has decided not to elect the option to pick as per the terms of a $400 million credit facility during Q4 of 2017 and Q1 of 2018.
We view both of these measures as positive for the company as we continue our efforts to further enhance an already strong balance sheet and liquidity position. On Slide 13, we highlight our favorable fixed debt repayment schedule.
We note that in 2018, the quarterly fixed debt repayments amount to $3.3 million, or $13.2 million for the full year of 2018. We believe our strong liquidity position coupled with low fixed debt repayments in 2018 provides Genco with a solid foundation as market conditions continues to improve.
Turning now to Slide 14, we outline our cash break-even rates. Our break-even levels remains strong and amongst the lowest in the industry, which is a direct result of the vessel operating expense optimization initiatives we implemented over the last several years, reducing operating costs without sacrificing the company’s high safety and maintenance standards.
We anticipate Genco’s cash break-even rate to be $7,978 per vessel per day for the first quarter of 2018. The increase in our cash flow break-even is primarily due to the conclusion of our non-amortization period under our $98 million credit facility as well as management decision not to elect to pick – not to elect the option to pick as per the terms of our $400 million credit facility as previously mentioned.
We have also provided further detailed on these break-even rates in the Appendix of our presentation for your reference. In addition, in the bottom of this slide, we have provided our drydocking schedule for 2018.
We currently expect five of our vessels to be drydocked during 2018, of which, two are expected to be drydocked during the first quarter of the year. The estimated drydocking cost for the first quarter of 2018 and full year are anticipated to be $1.7 million and $5.5 million respectively.
I will now turn the call over to Peter Allen, our drybulk market analyst to discuss industry fundamentals.
Peter Allen
Thank you, Apostolos. I’ll begin with Slide 16, which represents the Baltic Dry Index.
Following steady increases during each quarter of 2017, the BTI found considerable support during the last three months of the year hitting multiyear highs in the process. The BTI average 1509 during the October to December period and over 30% rise from the prior quarter.
Additionally, during December, the BTI crossed 1,700 for the first time since January 2014 propelled by the Capesize sector, which saw spot rates exceed $30,000 per day at times during the end of the year. In 2018, to-date we have seen a seasonal decline in BTI mostly due to the timing of newbuilding deliveries weighted towards the beginning of the year, weather-related disruptions impacting cargo availability and the occurrence of the Lunar New Year Holiday.
We do note however that these levels are still meaningfully higher on a year-over-year basis. Turning to Slide 17, we outline some of the key market developments influencing this increase in freight rates.
The major trend that drove drybulk demand during 2017 was increased steel production in China by larger steel mills as older, less efficient capacity was removed. Firm domestic steel demand and tightness of supply led to rising steel prices and margins.
These strong margins incentivized further production, thus increasing utilization and resulting in augmented demand for high-quality, seaborne iron ore from Brazil and Australia as mills look to maximize productivity. The end result was an increase of 5% year-over-year or 50 million tons in China’s iron ore imports during 2017.
This trend has continued so far into 2018 as China imported 100.3 million tons of iron ore in January, the second highest monthly total on record. As 2018 progresses, we expect Brazilian iron ore shipments to be a primary growth driver as Vale forecast will produce 390 million tons of the commodity this year compared to 366 million tons in 2017.
This represents a long ton mile trade that could be supportive of the Capesize sector. Last year was a strong year for steel production not only in China, but globally it’s laid in the chart at the top-left of Slide 18.
As has been well documented, China’s steel output rose by nearly 6% year-over-year in 2017, while real steel demand within the country led to a 30% decline in steel exports and a drawdown of steel stockpiles to historical lows. China steel stockpiles have increased of late as is normally the case during this time of the year, however, remain marginally lower on a year-over-year basis.
In 2018, we expect steel demand within China to remain strong led by continued global investment of over $100 billion to build approximately 2500 miles of new railway tracks this year. In 2017, steel production ex-China was quite strong as well growing over 5% year-over-year.
This was primarily led by firm growth in India, Europe and South Korea, which saw production increases of 6.2%, 4.1% and 3.6% respectively highlighting a strengthening global economy. In addition to the steel industry another key factor impacting the drybulk market has been the relative strength of the Chinese coal trade.
China’s coal imports rose by 6% year-over-year in 2017 and in January continued to increase to the highest monthly total since early 2014. Domestic coal supply has been restrained during the peak winter season due to mine accidents and subsequent safety inspections, which has been exacerbated by low coal power plant stockpiles.
With regard to India, coal power plant stockpiles are drawing down currently sitting near three year lows. Despite this coal, India has not been able to ramp up domestic production significantly which could help support coal shipments in the near-term as supply remains tight.
In addition to the global coal and energy rate, we highlight the global grain and certain minor bulk trends on Slide 19. We are currently approaching the South American grain season, which is set to commence towards the end of March in anticipation of this traditional seasonality.
We have positioned select vessels in our fleet in this region to benefit from increased cargo flows. Furthermore, the IMS has revised up its global GDP forecast to 3.9% in both 2018 and 2019.
This highlights the strengthening global economic landscape that we expect to drive demand for minor bulk trade worldwide, which we believe will be beneficial to our Supramax and Handysize fleets. On Slide 20, we outline current supply side fundamentals.
The drybulk fleet grew by approximately 3% in 2017, compared to 2.2% during the prior year. This came despite a drop in newbuilding deliveries year-over-year as scrapping activity fell by 50% year-over-year a sentiment within the drybulk market improved.
So far in 2018, as seasonally the case, we’ve seen a spike in newbuilding deliveries during January. However, this figure was down nearly 50% on a year-over-year basis.
In 2017, 38.4 million deadweight tons of newbuilding tonnage was delivered at the slippage of over 30%. In 2018, deliveries to-date, plus the remaining order book scheduled for this year totaled only 35.1 million deadweight tons which does not include any slippage.
This implies substantially lower newbuilding deliveries hit the water this year. As such, net fleet growth will be highly dependent on the amount of scrapping that materializes.
On the newbuilding front, 315 orders materialized in 2017, compared to just 61 in 2016. This has pushed the order book as a percentage of the fleet to 9.8% from a low of 7.5% in mid-2017.
We do note that the current order book as a percentage of the fleet is in line with where the order book was at this time last year. However, a strong 2018 – if a strong 2018 comes to fruition, increased newbuilding activity is likely which could further increase as a percentage.
We also point out that there remains to be seen how much of this order book will actually delivered considering that the slippage rate is approximately 30%. In conclusion, drybulk supply and demand fundamentals have improved meaningly over the last year, a trend that we expect will continue in 2018.
As such, we have aligned the company’s revenue generation strategy with this thesis as a central component. This concludes our presentation and we would now be happy to take your questions.
Operator
[Operator Instructions] And we’ll go first to Randy Gibbons with Jefferies.
Randy Gibbons
Good morning. So first and foremost, congrats on the first quarterly profit and quite some time sure.
Hopefully, it’s a sign of things to come. So congrats on that.
John Wobensmith
Thanks, Randy.
Randy Gibbons
Yes. Few quick questions to you.
So for the 15 vessel disposals, assuming this will be a combination of scrap and sales, do you have some kind of timeframe for that for when you expect to start and kind of conclude these disposals?
John Wobensmith
Yes, I think the – I think, I would say it’s going to be this year. I don’t see a scrapping any vessels by the way.
I see all these ships being sold on for further trading. So there should be quite – particularly on the older Panamaxes, there should be quite a premium to the scrap value based on current – based on the current market and current values.
But, it is something that we are anticipating completing this year.
Randy Gibbons
Okay, excellent. And then, looking at your cash balance of, almost $200 million upcoming proceeds from these disposals or sales and then, obviously, pretty strong free cash flow in upcoming quarters.
It looks like you’ll be able to acquire kind of at least 10 to 15 plus new vessels without any additional equities. Is this a fair assumption?
John Wobensmith
Look, I think it depends with vessel classes we go into, right. We have – from a commercial standpoint, we’ve set up strong operations in the Capesize in the Ultramax.
I think we’ve been fairly public that those are the sectors that we want to grow in. So it’s really going to come down to what sort of mix we decide to go forward with.
I know that didn’t precisely answer your question, but I think, there are quite a few things that we are looking at in terms of vessels. So, we need to come to a conclusion on that.
Randy Gibbons
Sure. Still that’s being one of the more underlevered companies, so.
Lot of room on the debt side. And then, one more question for me, I guess, for the Copenhagen office you mentioned, what are the costs related to this and then, kind of the benefits of that.
John Wobensmith
So, the benefits are really to be closer to cargo interest in Europe. We have, obviously a heavy presence in New York.
We now have a good presence in Singapore and we think it’s very important to have that European presence to be able to be close to the grain companies and some of the backhaul cargos that are coming out of Europe. It’s clear that as we’ve been rounding this out, we’ve seen some emphasis where maybe we’ve missed a direct cargo listing because it’s been done in European time morning and as you know this is very much a relationship business.
So there have a chartering team in Europe is going to be very beneficial to us and we think it’s going to round out the platform. It also allows us to focus also on arbitrage type trades, particularly with our minor bulk fleet which we think we’ll be enhancing to revenues.
In terms of cost, this is already baked into the G&A budget for 2018. So if you look at the break-even slide, see we are at a little over sort of 14 – sorry, not 14, $840 a day on the G&A side.
So that budget includes the European office. It’s a minimum spend.
Randy Gibbons
Got it. All right.
Well, thanks again and congrats on being back in black.
John Wobensmith
Thank you.
Operator
And we’ll go next to Jon Chappell with Evercore.
Jon Chappell
Close enough. Hey, good morning guys.
John Wobensmith
Good morning, Jon.
Jon Chappell
So, just to follow-up on the fleet renewal and as it relates to both the capital structure and uses of cash going forward. Should we think about maybe a one-to-one and obviously not in number of ships or deadweight tonnage but more dollars in dollars out, but what you can dispose of the 15 vessels for it?
And what you aim to spend? Or will you lever that up 50-50, 40-60 and then, part C, I guess to that question is, the prepayment of the debt in the first quarter was noticeable at the operating cash flow.
If you do had some leverage to the fleet renewal program, would you expect to continue to use operating cash flow for debt repayment above and beyond the amortization schedule?
John Wobensmith
Yes, so let me deal with the fleet renewal first. We plan to spend dollar-for-dollar.
So, dollar out, dollar in and the goal is to match EBITDA as well. So that we are not dilutive from an EBITDA or an earnings standpoint.
And that will have that dollar-for-dollar has leverage on it now. I don’t see us part of levering that up.
So the leverage to the company shouldn’t change, but we do plan to redeploy again, dollar-for-dollar on the capital side.
Jon Chappell
Okay. And then on the operating cash flow?
John Wobensmith
Yes, so on the operating cash flow as you know, we have a cash flow suite built into the credit facility. That cash flow suite produced $11.3 million of excess cash flow in the fourth quarter, which was payable in the first quarter.
So, based on our forward numbers, certainly, you can do the math, but it’s and our break-even rate around $7800 per day that we put out for the first quarter. So, yes, we expect to continue to repay with cash flow suites from that $400 million facility.
Jon Chappell
Okay. And then, on the commercial strategy, I know this is an evolution if you will in somewhat in the early inning.
Can you kind of give a reassessment of 2017, how that process went? How you think you did relative to the market, maybe even without numbers just, kind of the premium that you are able to earn as you brought these ships in-house and added new people?
And then, if we kind of think about going forward, would you say that, you’ve had the low hanging fruit and there is a lot of opportunity or you are just at the very tip of the iceberg and you see lot more potential into 2018. How do you kind of balance what’s happened already to progress going forward?
John Wobensmith
First of all, I see a lot more potential in 2018, one from a rising market standpoint, but also the foundation has been laid in 2017. 2017, we took all of our ships back from the pool.
That process was anywhere from really, June through say, October of this year and obviously those ships were placed in the Pacific, in most cases when they were put out of the pool. So, we did backhaul cargos to reposition into the Atlantic, which is where we really think we have strength from a commercial standpoint.
So I look at 2017 as a building year. I would say, if you actually look at our minor bulk fleet, we were – I would say, right there at the benchmark, which I am very happy about because of all the backhauls that we did from the Pacific.
And then, on the Capes, we lagged a little bit, but as you can see in the first quarter that has really turned the corner. So, I look at2018, we have laid a very good foundation and we are going to start bearing the fruit of that in 2018, which you can see already in the first quarter numbers.
Jon Chappell
Right, okay, that’s a clearly helpful. Thanks, John.
John Wobensmith
Thanks, Jon.
Operator
We’ll go next to Magnus Fyhr with Seaport Global.
Magnus Fyhr
Thank you and congrats on the quarter. Just a couple of follow-up questions on the capital allocation.
With the – I know you have the cash suite, but what’s your thoughts there fleet renewal versus paying down debt and maybe lifting some of these covenants that prevents you from paying a dividend currently?
John Wobensmith
Okay, so, Magnus, first of all, as I mentioned to Jon, the fleet renewal program itself and those identified 15 vessels. They will, throughout the course of the year, as within timing opportunistic, we will sell those and dollar-for-dollar reinvest that into modern fuel-efficient vessels.
So that’s one bucket if you will. The credit facilities in general, we certainly have a desire to redo in a sense that we fully understand how important it is to get a stable dividend, predictable dividend back in place for Genco.
So we are definitely going to work with the bank in order to try to redo those credit facilities with over $200 million in cash. It gives us a lot of flexibility, a lot of levers to pull as well as the low loan to value that exists today.
So, again, we all recognize how important it is on the covenant side, some of the restrictions, but particularly the dividend. So that’s something that we are working on it now.
Magnus Fyhr
Okay, all right, great. And just on the commercial strategy, I don’t know if you – are you pretty much done now?
Or are there more expenses outside the Copenhagen office? And do you have any targets for 2018, 2019 with the build out of the commercial platform?
John Wobensmith
Yes, so, Magnus, with the Copenhagen office, which again is a minimum spend which is built in already to the 2018 G&A budget and the breakeven that we put forward. That rounds out our commercial team and as I said to Jon, we really look at 2018 as a year that not only will we benefit from continued recovery in the markets, but also outperforming benchmarks.
Magnus Fyhr
All right. And then, just one last question.
You mentioned, CapEx going forward, pretty minimal, I guess, in 2018, but within new ballast water treatment systems regulations coming up, what – I know you are selling 15 ships and what are your thoughts there, I mean, with these ships going into drydocking beyond 2018? And any cost estimates on upgrading these ships?
John Wobensmith
Well, first of all, as you pointed out, those 15 – a lot of those 15 ships would have had ballast water treatment systems themselves. So, the idea is to not have that CapEx and the idea is to focus on modern tonnage that most likely we already had ballast water treatment systems installed as we acquire them.
We only have one ballast water treatment system that needs to be installed this year and it is at the very end of 2018. We are in the process of identifying through a – not just a cost benefit, but from a spec standpoint, what ballast water treatment system or systems we want to implement on the fleet going forward.
We are still making that assessment. As you know, the U.S.
Coastguard is still approving systems or in the process of approving systems and clearly we want to see the outcome of that, particularly with our minor bulk fleet and all the trading that we do to – in the Atlantic and the U.S. So, all of that is being assessed, but those 15 ships, clearly part of that process is not doing the CapEx on drydocking and ballast water treatment system.
And this year, we only have five drydockings and only one of those which is one of the – I think it’s the Genco Muse would have a ballast water treatment system, but it’s not till the very end of the year. So, that gives us a lot of time to either sell it or make sure that we have the right solution on a ballast water treatment system.
In terms of cost, I think the cost of these are going to come down and clearly that is part of our analysis, whether we want to go with one provider or we want to go with multiple providers, one provider most likely or even two providers which should be able to get economies of scale on the cost side.
Magnus Fyhr
All right, great. Well, thanks.
That’s it for me.
John Wobensmith
Thanks, Magnus.
Operator
[Operator Instructions] We’ll go next to Max [indiscernible] with Morgan Stanley.
Unidentified Analyst
Hey guys. Thank you for taking the call and congratulations on the quarter.
John Wobensmith
Thanks, Max good morning.
Unidentified Analyst
Yes, good morning. So, kind of follow-up on Magnus’ question for ballast water, can you kind of apply that to – low sulphur 2020 regulations kind of, how do you think about that in terms of your – or maybe you are looking at newbuilds and installing it then.
How do you think about that?
John Wobensmith
I don’t see us going out and doing any newbuild orders at this point. We don’t believe in adding to the existing fleet in any potential - anymore deliveries that order book that would come end of 2019 or 2020.
I think it’s very clear that it is a focus of the company to become – to make sure that we are as fuel-efficient as possible, which is why you are seeing us exiting some of these older ships. And again, going in and buying newer more fuel-efficient ships with electronic engines.
I think that’s a very important thing. We are also – we also have an initiative on the fuel management program, in terms of installing physical fuel flow meters on our vessels, so we can monitor from a real-time standpoint fuel burn speed, et cetera and optimize that.
It’s clearly, a very important factor in a potentially rising oil market, but also the increased cost and the spread that will come from burning ultra-low sulphur fuel.
Unidentified Analyst
Okay, thank you. That’s helpful.
And just as the market kind of improves through the year, how are we thinking about fixed term contracts going forward?
John Wobensmith
So, if you ask me right now, I would – we are definitely with a short-term bias, because we continue to see an improving market in 2018. I think, as you get towards the end of 2018 in a seasonally strong period in the third and fourth quarter, we will certainly assess longer-term employment, particularly in the Capesize sector.
But, we are a ways away from that right now.
Unidentified Analyst
Okay, all right, thank you for the color.
John Wobensmith
Thank you.
Operator
And that does conclude today’s conference. Thank you for your participation.
You may now disconnect.
John Wobensmith
Thank you.