Feb 25, 2021
Operator
Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited Fourth Quarter 2020 Earnings Conference Call. Before we begin, please note 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 being webcast at the company's website at 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 is accessible any time during the next 2 weeks by dialing 888-203-1112 or 719-457-0820, and entering the passcode 9501899. 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, expect, project, 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, 2020, and the company's reports on Form 10-Q and Form 8-K 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. Welcome to Genco's fourth quarter 2020 conference call.
I will begin today's call by reviewing our 2020 and year-to-date highlights, discuss our financial results for the quarter and the industry's current fundamentals, before opening the call up for questions. For additional information, please also refer to our earnings presentation posted on our website.
During a highly challenging operating environment in 2020, our strong in-house commercial platform and operations team continued to build on its track record of benchmark outperformance, while we took important steps to execute our strategic plan and effectively position Genco for the long term. For the year, we outperformed our internal benchmarks by approximately $800 per day, generating $15 million of incremental EBITDA.
Notably, 2020 marked the third consecutive year of benchmark outperformance for our minor bulk fleet. In addition, our time charter equivalent in Q4 of $13,167, was the highest Genco has achieved in 2 years.
Our strategy of maintaining short-term coverage during trough market conditions earlier in 2020 and repositioning the fleet ahead of an expected market upturn paid off with strong performance in the second half of the year. The unfortunate onset of the COVID-19 in early 2020 resulted in a demand shock that significantly impacted the drybulk earnings environment, particularly during the second quarter of last year.
However, drybulk earnings were able to meaningfully recover beginning in June. The Q2 impact and the subsequent rebound in freight rates is highlighted on Slide 8 of our presentation by the earnings of our Capesize vessels, which realized time charter equivalents of over $16,000 per day in each quarter of 2020, with the exception being the COVID-related lows of Q2.
Apostolos Zafolias
Thank you, John. For the fourth quarter of 2020, the company recorded a net loss of $65.9 million or $1.57 basic and diluted loss per share.
Excluding noncash vessel impairment charges of $74.2 million and a $1 million loss on sale of vessels, adjusted net income for the quarter was $9.3 million or basic and diluted earnings per share of $0.22, while we generated adjusted EBITDA of $29.7 million. During Q4, the company recorded a $67.2 million noncash impairment charge related to 9 Supramax vessels in its fleet as the estimated undiscounted cash flows for each of these vessels did not exceed their net book values.
These vessels are not part of our fleet renewal program, and we do not intend to sell these vessels currently. During the quarter, we continued to further strengthen our balance sheet through operating cash flow from fair market conditions, together with opportunistic vessel sales, bringing our cash position to $179.7 million, including $35.5 million of restricted cash related to vessel sales as of December 31, 2020.
Our debt outstanding gross of deferred financing costs is $449.2 million as of the end of the fourth quarter, which after considering our cash position, results in a net debt of $269.5 million. As part of our fleet renewal program, during the fourth quarter, we delivered 4 vessels to their respective buyers, including 3 Supramaxes and one Handysize.
In Q1 to date, we have taken delivery of the 3 modern Ultramax vessels and delivered the 6 older Handysize vessels, completing the previously announced cash neutral vessel swap transaction. Separately, we delivered 3 more vessels, including 2 Supramaxes and 1 Handysize vessel to their new owners.
Lastly, we have agreed to sell our final 2 53,000 deadweight ton Supramaxes, the Baltic Leopard and the Genco Lorraine, which we anticipate to deliver to the buyers by the second quarter of 2021. These sales will conclude the divestiture portion of our fleet renewal program, representing the sale of older, less fuel efficient, noncore tonnage.
Peter Allen
Thank you, Apostolos. The market improvement seen during the third quarter carried over into Q4 with Capesize rates reaching 2020 high in October at nearly $35,000.
Following the lows during the second quarter of 2020, since June, we have now had a strong drybulk market for 9 consecutive months with the Baltic Capesize index averaging over $18,000 per day and the Baltic Supramax index averaging $10,500 per day over that time. In 2021 to date, the Capesize rate improvement that materialized in mid-December continued through the first half of January with Capesize rates reaching their highest point for the first quarter since 2014.
More recently, Capesize rates have experienced a pullback due to typical seasonal factors that come into play during Q1, including weather-related disruptions impacting cargo availability and the front-loaded nature of the newbuilding order book. Encouragingly, Brazilian iron ore exports are on stronger footing so far this year as compared to last, with January exports having risen by 8% year-over-year.
Continued recovery in growth of Brazilian iron ore exports are expected as Vale is targeting run rates of 350 million tonnes per annum and 400 million tonnes per annum by the end of 2021 and 2022, respectively, as compared to 320 million tonnes seen at the end of 2020. Last year, China's iron ore imports grew by nearly 10% year-over-year to a record 1.2 billion tons, propelled by all-time high steel production.
In 2021, we anticipate continued strong demand by China, while demand for iron ore in the rest of the world is expected to recover, together with steel production following the COVID-related declines of last year.
Operator
. We'll go ahead and take our first question from Omar Nokta from Clarksons Platou Security.
Omar Nokta
I just wanted to check in with you, some interesting commentary on the fleet renewal program, which has obviously been ongoing for several quarters now. You mentioned that the fleet divestiture portion of the program is now complete and I take that as simply now you're just not planning on further sales here for the near term, and I guess also the write-down on the Supras is just more accounting, as opposed to a precursor to some further sales.
John Wobensmith
Yes, Omar. No more vessel sales planned.
The vessels that were originally identified in the fleet renewal program were the -- on the divestiture side were the 53s and then the Handysize. All that is complete.
So at this point, the sales in our divesture program is over and done with. In terms of the impairments, yes, that was noncash accounting and we have no plans to sell any of those vessels.
Omar Nokta
Got it. And then as you obviously think about the fleet, you discussed a much more positive outlook.
We've seen a much strong drybulk market so far this year. How do you feel about acquisitions going forward?
You did the swap with the 3 Ultramaxes. Do you see yourselves becoming much more acquisitive?
And based off of that, a question, when you think about the major versus the minor bulk segment, do you go after one particular vessel segment or do you want to maintain kind of the similar ratios of ownership?
John Wobensmith
So look, in general, there's a lot of levers to capital allocation, right? There's vessel acquisitions, there's what you're doing on the dividend side going forward.
These are all conversations that we actively have with the management team as well as the Board. I still think right now, vessel values have -- they've moved up a little bit, but they still do not match the underlying fundamentals on freight rates.
And what I mean by that is they're below. Freight rates are well ahead of vessel value.
So I still think it's a very good time to be in growth mode, if you will. Vessel values, albeit are in sort of the -- they're still in the lower quartile, if you look at it from average historical period.
So I still think it's a good time. And I don't think we're anywhere near mid-cycle rates.
So again, I can't stress enough, I think asset values have a ways to go. So I think there are good opportunities out there right now.
In terms of what -- we believe very strongly in our barbell approach and focusing on the Capesize segment as well as the Ultramax segment. Look, whenever you're looking at things, you always look at the individual transaction at the time.
We have, I would say, in general, with the vessel sales, where we've switched our weight, if you will, a little more towards the Capesize sector. So you may see us, if I was to look at it today, I would say maybe we would balance out more with Ultramaxes, but we haven't made any decision on what to go after quite yet.
Omar Nokta
Thanks, John. And I agree with you, it does feel very, very early innings still.
And then just a follow-up, maybe, and I'll pass it on. In terms of the shifts, we're obviously at an interesting point in time with regards to the fleet dynamics and fleet characteristics.
When you are thinking of an acquisition, is there -- in terms of age and carbon footprint, do you want to continue to evolve and stick with the modern vessel as similar to, say, the Ultramaxes that you acquired that basically check the right boxes when it comes to the carbon and the green transition? Or do you feel like there are opportunities to kind of be a bit more opportunistic with the older tonnage?
John Wobensmith
No. I think if you look at what we've done, we -- the 53s are a prime example.
So those are somewhat older vessels and they were pretty high in the fuel consumption side, which is why they were identified as sales candidates. Going forward, we believe very much in reducing our carbon footprint.
So I think you're going to see us focus more on ECO-type vessels 2015 and newer, for a couple of reasons. One, we obviously believe very strongly in demand outstripping supply and freight rates and vessel values continuing to move up.
So we think there's some good opportunities in that 2015 and newer vessel class and continuing to have a lot of operating leverage. But then you can still go after fuel-efficient ships and reduce your carbon footprint, which is also a major focal point for us.
Operator
And we'll go ahead and take our next question from Randy Giveans from Jefferies.
Randall Giveans
So congrats obviously on the third consecutive year here of outperforming the benchmark indices. So clearly, the platform is working.
Now as it relates to the $800 a day and $15 million in incremental earnings, what is maybe the driving force of this? You mentioned the indices of scrubber adjusted for the Capesizes, your Ultras don't have scrubbers and aren't necessarily the newer ships out there.
So how is your business model or chartering strategy resulting in these outsized returns?
John Wobensmith
Right. So on the Capes, as you pointed out, we're benchmarking against a Platts Scrubber index.
So we're taking out the benefits of the scrubber and looking purely at what the commercial team can do with the vessel. And I think in the Capesize sector, a few things.
One of which I mentioned is when we had the downturn in the second quarter due to the COVID-19 pandemic, because of the strong balance sheet, we did not have to go into panic mode, if you will, and fix at very low rates. We had a lot of confidence that the second half of the year would recover.
And so we were able to be spot and take advantage of that recovery that happened in the second half. So that from a strategy standpoint, was one of the big things.
But also just in the -- if you go a little more granular, we have relationships with all the iron ore majors. We are going direct to the iron ore majors.
So we're able to capture margins that are higher than if you remember years ago when we were just a tonnage provider. So taking that middleman out has been very helpful and trading directly on a voyage basis with iron ore majors.
That's what's driven the Capes. On the minor bulks, I would say, it's a similar setup in that we're dealing directly with cargo owners.
If you look at, Jesper Christensen and his team have added 150 new customers over the last 3 years, which is pretty incredible. And all of that is, again, direct business.
But what we're also able to do in the minor bulks is a lot more trading, where we're able to book forward cargoes and either use our own ships to move those vessels or charter in someone else's vessel to be more efficient and make money on an arbitrage trade. So a lot more things you certainly can do in the minor bulks because of triangulation and all the different cargoes, but the ability to book forward cargoes and have arbitrage opportunities.
So a long answer, but hopefully, all understandable.
Randall Giveans
Yes. No, there are a lot of reasons behind the outperformance understandably.
All right. And then looking at your kind of vessel acquisition potential, right?
Any appetite for ships for shares transactions like we've seen some of your peers do recently?
John Wobensmith
Yes. I would say, in general, that would be part of the thing that you would look at when we're, again, looking at capital allocation.
And I can't stress enough. I think that's one of the more important things in the shipping industry is the decisions you're making on the capital front.
But we also want to make sure that we're doing NAV transactions. So that would be a pretty big tenet to accomplish that.
Randall Giveans
Yes. That's fair.
And then I guess, briefly, if you can just touch on -- you mentioned you have a lot of vessels coming available in Brazil in mid-March, mid-April. How are you seeing that Capesize market developing here in the coming weeks?
Obviously, it's underperforming Panamaxes currently, and that's kind of in the teeth of Chinese New Year. But what is that market looking like here in the next few weeks and months?
John Wobensmith
Yes. Look, I think over the next couple of weeks, we're still going to be probably right around where we are today in the low teens.
I think you have to look at the fact that Brazil is still in a rainy season. There's still undergoing maintenance on the mining side.
That should all -- from a seasonal standpoint, should all fix itself or get back to normal run rates is probably the better way to put it, by mid-to-late March. So I think things start to move up as we get towards the end of March and early April.
And if you look at what is -- from -- again, from a seasonal standpoint, look at what's going on in China. Construction usually starts to pick up as we get into April.
Maybe I'm answering your question a little too much here, but you still have low iron ore inventories. You've got a very high price of iron ore.
You've got steel production continuing in China and steel inventories below where they normally would be this time of year. So the steel is being consumed.
So I think there's a lot of factors that from a seasonal standpoint and then from just demand outstripping supply growth this year, we should start to get into this as we get into April. That's on the Capes.
But I would also tell you, we have a major piece of our minor bulk fleet also coming open in sort of early April to mid-April. And we think the Atlantic is going to continue to be very strong.
And so we're going to have probably about 75% of our minor bulk fleet positioned in that basin and able to take advantage of it.
Operator
. And we'll go ahead and take our next question from Liam Burke from B.
Riley.
Liam Burke
John, as you look at your debt amortization schedule, you're comfortably doing it in a rising rate environment, your cash flow is strong. Is there any need to accelerate the paydown?
Or is that in your thought process on the capital allocation side?
John Wobensmith
No, I don't -- and I'll turn this back over to Apostolos just for a second. But my view is no.
Look, we are paying off debt as scheduled. And leverage is coming down rather quickly.
It's already at a pretty low level, but it's coming down rather quickly even off of that. And I'll let Apostolos address this.
I actually think there are some opportunities to refinance that debt this year and make it even more attractive. But Apostolos, do you want to address that real quick?
Apostolos Zafolias
Yes, sure. Thanks, John.
I mean, I echo what John said. Look, at our net debt position is at $270 million, clearly, a leading position in the industry and a very strong balance sheet.
That, coupled with our liquidity position, I think, would give us the potential to drive our breakeven levels further down. And we could either do it sort of under the existing facility, but we could also refinance those facilities, which we believe could save upwards of $1,000 per vessel per day going forward.
Liam Burke
And typically, this is a quarter where, with Lunar New Year, things are roughly slow. And it looks like a stronger than normal seasonally slow quarter.
Is there anything in there that's that much unusual? You highlighted the fact that inventories on iron ore inventories are low in China.
But is there anything else in there that would account for that?
John Wobensmith
Yes. I mean, look, I think you're all aware that there was not nearly the amount of shutdowns in travel that took place in China over Lunar New Year.
I think a lot of factories, they may have closed for a very short period of time, but then got up and running quickly again. Looking at steel production, the steel production numbers continue to be higher than what we saw last year.
So I think that's part of it. I also would tell you in the minor bulks and the grain trades, we're obviously seeing the result of thawing in trade tensions, with China buying a lot of soybean and corn from the U.S.
So we haven't seen that over the last couple of years. And I think that has that that's twofold, right?
It's the thawing in trade tensions, but it's also the recovery in China's hog population from coming off the back of swine flu. And we're expecting a very strong southern hemisphere season led by Brazil on the soybean front.
So yes, I mean, we're pretty positive across all vessel classes for 2021. And I think you'll start to see Capes move up pretty significantly as we get into the early part of second quarter.
Operator
And with that, we have no further questions. That does conclude our question-and-answer session for today.
And with that, that also does conclude our conference call. Thank you all for your participation.
You may all disconnect.