Jul 27, 2016
Executives
Hugh Baker - CFO Emanuele Lauro - Chairman and CEO Robert Bugbee - President Cameron Mackey - COO
Analysts
John Chappell - Evercore Gregory Lewis - Credit Suisse Amit Mehrotra - Deutsche Bank Robert Perri - AXIA Capital Market Spiro Dounis - UBS Securities
Operator
Hello and welcome to the Scorpio Bulkers Inc. Second Quarter 2016 Conference Call.
I would like to turn the meeting over to Hugh Baker, Chief Financial Officer. Please go ahead sir.
Hugh Baker
Thank you, operator. Thank you all for joining us today.
On the call with me are Emanuele Lauro, Chairman and Chief Executive Officer; Robert Bugbee, our President; and Cameron Mackey, our Chief Operating Officer. The information discussed on this call is based on information as of today July 27th, 2016 and may contain forward-looking statements that involve risks and uncertainty.
Actual results may differ materially from those set forth in such statements. For discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in the earnings press release that we issued today as well as Scorpio Bulkers' SEC filings, which are available at www.scorpiobulkers.com.
Call participants are advised that the audio of this conference call is being broadcast live on the web and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations' page of our website for approximately 14 days.
Now, I'd like to introduce Emanuele Lauro.
Emanuele Lauro
Thank you, Hugh, and good morning everyone. We appreciate the time you're taking to be with us today and attend our call.
The second quarter of 2016 is arguably being the quarter of change for Scorpio Bulkers. We believe our balance sheet is now sufficiently strong to take us through at least the end of 2018 and eventually with a few non-equity adjustments, if necessary; this can take us beyond that.
As such the company and management focus has transitioned from balance sheet issues, towards operational matters. We're focusing on efficiency in operations and improving our headline revenue to the market.
As can be seen by our lower cost this quarter compared to the past, that focus has actually started to payoff. Present rates are covering our cash OpEx, our cash G&A, and only partially covering interest costs.
Despite that, our cash burn is at present greatly reduced compared to the past. Our relationship with our commercial lenders continues to be very strong.
Throughout the last 20 months, we've worked with them in a spirit of cooperation and I would say also partnership actually to achieve a number of things. First, weather the storm.
Second, provide the ship. And now position Scorpio Bulkers for future calmer waters.
Despite the general improvement in the market and despite our balance sheet and cash flows, we're at present trading at a considerable discount to net asset value. We, as management, need to do better in this regard.
I would like to reiterate that the tough work, let's call it, has been done and at present, we do not foresee either the wish or the need to issue equity in a dilutive transaction. On a separate note, we have recently strengthened our Board of Directors with two financially experienced Independent Directors, namely, Tom Ostrander and Jim Nish.
We have done these to increase our knowledge, our experience, and transparency -- and improve our transparency and governance. Finally, insiders are aligned with the shareholders and committed to achieving equity returns.
Insiders in recent months have significantly increased their shareholding, which in total is now nearly 25% of the company. Our balance sheet is prepared for an extended very weak dry cargo market, whilst our very modern fleet is well-positioned to benefit from any rate recovery.
Thank you once again for our -- for your support and attention today. I will now turn the call to Hugh Baker.
Hugh Baker
Thank you, Emanuele. I'd like to briefly discuss our balance sheet for the listeners.
As of today, we have $229 million in cash. We have $191 million of payments due on our remaining 10 new buildings.
And we have $129 million of available debt. Now, I'd like to discuss that number so that you can understand it.
Basis [ph] of most recent valuations we received, we expect we have to be able to draw this amount. If you take 60% of the valuations that we've been receiving and you'll see that this available amount is very realistic and that we -- that's why we're comfortable with it.
And you can be comfortable with it too. If you want to contact me offline, I can help you calculate the amounts we can draw on for yourselves to confirm these figures, but you'll do a bottom-up analysis basis the valuation of these ships and the amount that we can draw and you'll come to that number.
So, I think you're going to get comfortable there. We have no debt maturing in 2016, 2017, and 2018 and we -- our repayments to the banks are going to be -- are quite small.
You'll see from the press release that it's around $6.9 million for the remainder of 2016, $17 million 2017, and $35 million in 2018. Again, we don't see these numbers as very challenging.
I'd like to point out that SALT is in compliance with all its financial covenants. For that reason, we are actually not in discussions with any banks at the moment and we're not asking our banks for anything.
We're not requiring them; they are not requiring us to do anything. We hopefully are going to enjoy this summer with our families.
In addition, I'd like to point out a very unique situation to our company which is we are in compliance with our loan-to-value covenants, all of them. We've received valuations to the June 30th semi-annual testing and our value-to-loan ratio is varied between 159% and 215%.
This is very respectable in any market and it's particularly respectable now. Again, if you want to do these calculations for yourselves, you can, or you can contact me offline and I'll go through these figures with you.
As -- we've actually published a short presentation of supplemental information, which we've added to the website. And you'll see that actually we breakdown the loan-to-values by individual loans and you can see -- you can identify which ships are actually part of each loan.
And you yourselves can do your own valuations to confirm that we're indeed in compliance with these covenants. In conclusion, we have a current cash of $229 million.
We have available debt of $129 million and less than a $191 million of remaining new builds installments. We have pro forma liquidity of $167 million of runway available for the coming years.
And again I think that’s a position we're very comfortable with and we think you can be too. With that I'd like you -- I think our focus is actually moving away to the actual operating part of our business and managing our business going forward.
And on that note, I'd like you to pass you over to Robert Bugbee.
Robert Bugbee
Thank you, Hugh. Before we open up for questions, I know its reasonably unusual thing, but inside is to taking up stock holding position so significantly in such a short time.
So perhaps, I can just explain why we simply think that SALT is a great investment and is the best expression of our recovery to the dry cargo market. First of all, it has a really high quality fleet.
Second, that fleet is gold spot. It's going to benefit when the recovery, emerges, it's not tide into any time charters.
The balance sheet is secure. It's uncomplicated.
There are no crazy converts or picks in there. And it has on that note, a great shareholder list.
We had the list of very good value-oriented shareholders that are all institution. There are no very little retail and there is very little -- there's no private equity with different agendas, then for the long-term goodwill of the shareholder base.
But that most of all is this stage with the cash funds becoming under control and the adequate liquidity and the fact that these assets are very fungible. It is trading at a very stiff discount in net asset value.
Of course none of us when the dry cargo market will recover, but right now, it is the question of when as oppose to if. There are no new buildings being ordered.
This dry side is starting to be constrained quite heavily and if we roll forward just six months, the outlook for the potential supply growth goes away. The risk in demand at the moment seems to be more on the other side.
We ourselves are being quite surprised in the last four months or so in the strength of iron ore. And I think we’re being very pleasantly surprised seeing the growth in demand in coal.
That demand side from this point is way more elastic than the supply side which is getting more inelastic every day we move through this. With that, we just like to open it up to questions now.
Thank you.
Operator
Thank you. We will now take questions from the telephone lines.
[Operator Instructions] And the first question is from Ben Nolan from Stifel. Please go ahead.
I'm very sorry Mr. Nolan has removed himself from the queue.
The next question will be from John Chappell from Evercore. Please go ahead.
John Chappell
Thank you. Good morning and good afternoon.
Robert and Emanuele its somewhat rare for you to speak about valuation at least in the public settings, but you both mentioned to the perceive this kind of NAV, so just curious as you now as you're kind of shifting gears from survival mode of the balance sheet to operations, what are some of the initiatives that you are thinking about to help narrow that discount and maybe some of the contributions of the new Board members could add to that as well?
Robert Bugbee
I think the first starting point is what you are seeing right now which is showing very transparently what that balance sheet looks like trying to give people like yourself the much information as you can to get comfortable with the balance sheet, with the cash flow. The second aspect is what Emanuele alluded to that we were as a management to know that -- we simply prioritize up until the second quarter the -- as a management the solvency as a company.
We spent literally most of our efforts created round making sure the balance sheet was strong and since the beginning of the second quarter, that we afforded ourselves now the ability to switch and focus really on the operations. So, one of the things that you’ve seen is -- we will always operate at the highest level that we can, but we’re starting to become more efficient.
This is active in terms of going down seeing where we can negotiate cost; create more efficiency on that side of it. And then the second side of it is we hired -- we were able because of the part of the market to hire for example great individuals of the chartering team.
And those individuals are now being formed -- are now started to be formed into a real team. And that combined with stability allowed us to do the normal thing of now getting in there and trying to outperform the indexes and opening up the revenue side.
So second aspect is really let’s say making a greater spread to EBITDA between revenue opportunity and net cash after operating cost. Then the third aspect is very much -- as I say showing what there is there and overtime I think it's important to understand that we are completely aligned with investor position.
We’re the largest inside -- the largest shareholder position and we're looking for a return too. And the assets that we have are fungible.
Now in the past, we have talked in writing the balance sheet saying that all things are open. We try and delay our negotiation with shipyards.
We would be prepared to sell assets which we have done and we would be prepared to sell equity or right now, we are not prepared to sell equity. But the other two are still on the table not for solvency or liquidity reasons, but taken beyond the table simply because for a certain period you can tolerate dislocation for certain period of time, so I don’t think you will see us sell a ship tonight.
But if you are unable to make headway and close the valuation gap, well that’s really easy thing to do.
John Chappell
Yeah, it’s very interesting. And so just a follow-up, we think about the fleet in general if you focus on operations now not so much to finance--
Robert Bugbee
We are also -- sorry, go on…
John Chappell
I was going to say how do you think about kind of the core fleet going forward, you’ve obviously removed [Indiscernible], re-delivered almost all the charter-ins. Are you comfortable with the size of it and your exposure to the market today or…
Robert Bugbee
I think--
John Chappell
You're little bit more optimistic on the market I would say and asset values are still kind of very near low levels. I would imagine charter-in rates are still pretty low.
You kind of play around and ratchet up the leveraging either through ownership or chartering in or do you just kind of stick with what you have today and be opportunistic?
Robert Bugbee
No, we have tremendous operating leverage and huge operating leverage. I mean I think that the one of the interesting things that in coal I have with shareholders, our potential investors is that Scorpio Bulker does not need much of a recovery in the market.
Once you’re covering your OpEx, G&A and your interest. I mean for example if you got 48 ships in the water and the markets moves up just $4,000 a day, so here we are talking about $11,000 or $12,000 a day market.
Now, that’s nearly $1 a share. It’s $1 a share in cash flow in U.S.
to the shareholders. That’s huge and that was 11, 12.
I mean if it goes back to 10-year low excluding last year at 15, that’s $2 a share. You just don’t need any more operating leverage that’s the beauty of it and the other beauty of it is, is that -- does it really matter you -- if you sell two ships to close NAV either, no -- you just -- you just don’t need to go out in charter ships, you don’t need to go out and buy ships and you don’t need to go out and order ships.
You've got -- you've managed to get through this without anything that is operationally on a leverage way diluted. There is no pick convert in there and none of your fleet is out on charter.
John Chappell
Yeah, I understand. All right, well good luck with it.
Operator
Thank you. The next question is from Gregory Lewis from Credit Suisse.
Please go ahead.
Gregory Lewis
Yes, thank you and good morning. Congratulations on I guess expanding the duration with lot of are your moves doing the refinance I guess are going to have a good summer, or at least a good August.
So, enjoy that. But as we try to manage through the next, call it, 12 to 24 months of down cycle, it seems like trying to stay around breakeven is the focus here in this environment.
Is there anything else the company can do to get costs lower or we kind of through that?
Robert Bugbee
Sure. I'd say we're moving as I explained earlier.
We’ve moved -- transitioned our focus to that part of the area, the operations and chartering. I don’t think that we didn’t talked about -- we’re going to maintain high standards, we’ve never -- nowhere through that second quarter, even we now we knew that we have already started measures for the cost to come down.
We guide you or The Street or others that we would have lower cost. And we're not going go into any specific detail on that now either other than directionally.
Gregory Lewis
Okay. And then, just as think about the cash position and liquidity that you’ve laid out in the press release and on the call?
When we think about minimums, what -- how do we view the minimum amount of cash that the company wants to have on its balance sheet as we kind of manage through the next 12 months?
Hugh Baker
I think, firstly Greg, we have a minimum liquidity covenants, but essentially our greater of $25 million or $750,000 a ship and so essentially we have to keep around $35 million of liquidity anyway and that’s obviously a number that is perfectly adequate. We're very comfortable with.
We are going to have considerable more liquidity than that over the next 12 months period anyway even with paying for our new buildings. So, it's really not a -- the question is not so valid for the moment.
The wider question that you are making is how much -- what is the right amount of liquidity to have and clearly we have sufficient runway for decent period of time and again we're very comfortable about that so we continue to monitor.
Robert Bugbee
I think -- we haven’t back-dropped our cautious position. Obviously, we're not modeling for anything different than what we modeled in crisis before which is much low -- which down under $5,000 and $5,500 range.
So, if you look at our asset test related to liquidity for next two years, that’s what we're modeling. Now, obviously everyday those rates are above that, in fact, model itself gets better.
But I think the prudent thing to do is to -- for us to model for that and [Indiscernible] if you can do that which we've done and that gives us a confidence to keep the vessels on stock market and do what we're doing.
Gregory Lewis
And just as you think about modeling obviously with day rates are all -- is that something that you visit on quarterly annually basis? I mean same day rates -- how should we think about how you guys are kind of viewing that?
Robert Bugbee
Well, I think for right now, I think you -- look, I think that we know that the supply side of dry bulk deliveries sort of just falls off the cliff, the growth once we get into the back half of 2017. So, until certainly we get to the end of this year.
We are ignoring all the positives that we are seeing and maintaining our modeling internally which is an active test, it doesn't mean that's what we think the market will be. We that is being cautious in saying we will keep that and keep that as it is intel [ph] at least the end of this year.
And ignore the growth in headline demand which has been quite good. And but certainly obviously as you get into the fourth quarter, if the world continues to function and China's bill shows more positive signs and we continue to have these delays, and we think that the supply growth is overstated we now have supports, I mean we ourselves know that certain ships will deliver much later than expected and there are some ships in the order book that won't even get completed.
And if that starts to play out, obviously you start to move that level up to a more -- more normalized level. Certainly, you move it up into a lead to the FFA [ph] the trading asset time.
Gregory Lewis
Perfect. Okay, guys.
Hey, thank you very much for the time.
Operator
Thank you. The next question is from Steven Tittsworth from Stifel.
Please go ahead.
Unidentified Analyst
Hey, guys. Actually this is Ben [Indiscernible].
Sorry, I had some connectivity issues thereby last time. My -- I guess my first question relates to something that John asked about in terms of the OpEx really early efficiencies, just trying to think through how much of that is you proactive when your part, but also trying to think of how much it might be currency related, clearly falling of other currencies relative to dollar should have a positive impact there and just trying to --?
Robert Bugbee
I don’t think much in the second quarter was related to currency because the currency fall or strengthening dollar happened really at the end of that quarter and would be a beneficiary -- granted [ph] beneficiary to this quarter.
Unidentified Analyst
Okay. So the part some --
Robert Bugbee
In the same sense as you know we obviously related our interest cost to the second quarter in those chart, so yeah you're going to benefit in the third quarter on the margin, the interest rate side.
Unidentified Analyst
Okay.
Cameron Mackey
This is Cam; obviously, most of our operating expenses are dollar denominated. So you might have an indirect impact of ForEx moves overtime.
There is no significant direct impact.
Unidentified Analyst
Okay. I didn't realize that.
Thanks Cam. And well along those lines, I guess with respect to just sort of the OpEx side and maybe also as it relates to G&A, how far into sort of the efficiency gains, you think you are at the moment, I mean?
Robert Bugbee
As we said to the previous time, we're simply not prepared to discuss that other than directionally. And that's it.
Unidentified Analyst
Okay. Okay.
All right. Well that was basically…
Robert Bugbee
It should -- this quarter, is should have been [Indiscernible] we leave at that at this point.
Unidentified Analyst
Okay. No, that's helpful.
I think that thing need to be really outside of market conditions really kind of the only moving part now you fixed all the financing side. So that does it for me, but…
Robert Bugbee
You guys what you can hear what you can hear from the management here is look we are very, very cognizant that you are -- you know you are only a few dollars away here from changing that dynamic from a negative cash burn when you add OpEx, interest and G&A together to neutral or even positive.
Unidentified Analyst
Yeah. I know I think -- I counted the same numbers for sure.
Robert Bugbee
And as I said before, look, we know recorded at last three are doing. I mean other companies may have addressed OpEx and prioritized OpEx as opposed balance sheet or solvency issues.
We just happened to address the solvency and capital side of the balance sheet, because we saw -- you actually didn’t really matter what your OpEx is if you go in chapter 11, right. And that management is [Indiscernible] through August spread out very much to where the camera is going to be on holiday for August.
Put it that way.
Unidentified Analyst
Yeah. I don't know that camps are going to be on holiday in August in a long, long time.
Okay. That's it from me.
Thanks guys.
Robert Bugbee
Thanks.
Operator
Thank you. The next question is from Amit Mehrotra from Deutsche Bank.
Please go ahead.
Amit Mehrotra
Thanks. Good morning everybody.
So, sorry to be a little bit of party-pooper here, but I just kind of don't understand why people are talking about holidays and you guys are appearing to be so bullish. I mean the bottom-line is, is that enterprise is still burning cash on an operating basis and last time I checked having cash to burn is not really a great story for investors to buy the stock.
So, I just want to make sure that Robert, Hugh, everybody is not getting the impression that it's all blue skies from here and what I really want to know -- what the question is what are your expectations, because you guys have a much better read on the market than we do. What are your expectations for earnings and cash flow over the next 12 to 18 months for Scorpio Bulkers, just where on the expectations?
Robert Bugbee
Amit I see what you're saying. I think that Hugh deserves a well-deserved rest and he is the one having the rest, okay.
So -- and even your attempt this morning in your piece, you couldn’t actually find any holes in that balance sheet and you ended up despite the negativity of your current position have actually saying, well I think the stock is going to do well over the next days and weeks. Okay, so, let's have a little bit of balance in this, okay.
The company has got the right to say right now that we don't expect any -- to do anymore dilutive equity offerings. It has got the right to say that our balance sheet is in order.
It has got the right to say that we're in compliance four of the covenants, and it has got the rights to say, yeah, we're now focusing on the operational issues and we expect to see improvements. Also it is reasonable I think for the company because so much of the demand or the actually rates going forward as you're trying to draw to.
And pent upon things are totally outside the company's control, whether its China growth or anything else going on the world to remain appropriately cautious in its own modeling which is what we guided to. Saying look, we're actually comfortable.
We're comfortable with rates lower than where they are now. And it also has a duty to say to the market that there are things that actually have surprised us presently to the upside.
I think the whole world is being pretty well surprised and how coal demand has increased et cetera in the last months and iron ore prices have held steady et cetera, et cetera.
Amit Mehrotra
But scrappage is also slow to basically a trickle.
Robert Bugbee
It generally slows over monsoon season, okay. But the other I could start picking holes in this.
And in the sense I think that generally you're looking at -- you're even looking at scrapping the wrong way. Because what I see every week is something that says something like this.
There's 32 million dead weight delivered and there's 30 million dead weight of scrapping. So, the net supply growth is 1% or 2% -- 1% or whatever.
I actually think that that's rubbish. That's a crazy way of looking at it, because the 32 million that's coming into the market is way more efficient than the 30 million that has gone out to the market.
Yet the rates during that four-month period have continued to move higher. Therefore, I would come to the conclusion that the actual net supply has effectively gone greater.
Therefore, underlying this, the actual demand maybe moving up faster than we're all thinking. So the net result is Scorpio Tank -- Scorpio Bulkers is well-positioned if the recovery takes a longer and it is greatly positioned if it takes shorter.
Amit Mehrotra
Great.
Robert Bugbee
…saying they are completely blue skies out there. The company is focusing now on every dollar count, every day we’re in here gives us another day.
But I think it is our company specific basis I really do think that we have pivoted and turned the corner and setup a company for recovery and what is more management isn’t just -- inside management aren’t just for saying this, they backed it on this big time in actually purchasing the stock significantly.
Amit Mehrotra
Yeah.
Emanuele Lauro
Emanuele here to add to what Robert is saying, I wouldn’t have signed statements -- management statements as bullish as you said, but more factual. I mean in my introductory comments for example I said yes we cover at present rate cash, OpEx and G&A and only partially interest cost.
I don’t know what’s bullish into that statement for example. I mean we are realistic and factual -- after a very, very tough time and we’re saying okay, we can now breather, but we its far when Robert was giving examples of rates, rate environment improvement in good day in the future at 11 or 12 a day, he is not talking about 25 a day, let's go 2007 and all over again counter markets are priced at $90 million a piece.
So it’s not bullish, we are just trying to be factual.
Amit Mehrotra
Yeah. I agree with your view that you guys have enough liquidity for next couple of years, but I also think that there is a potential that enterprise continues to burn cash over that period.
So, what's good for the viability of the company doesn’t necessarily translate to a bit on the stomach, that's my point, which kind of what as implied earlier I felt in your comments. But anyway that's beside the point.
Let me ask a couple more related -- Emanuele to your comment on the breakeven level.
Emanuele Lauro
We have that saying, price target of one, and a price target of two and now your price target is three.
Amit Mehrotra
Okay. Let me just ask one more on the cash breakeven.
So, in the quarter, it looked like the OpEx plus the G&A was like around $7,400 a day and then you lay around sort of a fully loaded interest expense and you get to little over $9,000 a day. And effectively you have no amortizing debt over the next two years.
I know there are some debt amortization, but it's relatively minimal. Is that 995,000 [ph] the bogey essentially on cash breakeven positive-negative, is that how we should think about it for the next couple of years Hugh?
Hugh Baker
I not -- let me sort of help you understand those numbers Amit better.
Amit Mehrotra
Okay.
Hugh Baker
How we get to -- let's just -- we 3,102 operating days for owned ships, which I the right way to look at this. And obviously we reported $15.6 million of operating cost.
Lastly takeover costs for taking on these new assets. So, we have $14.73 million of operating cost excluding takeover costs and then obviously divide that by the operating days, you get to the 47.50 that we're talking about.
Now, on the G&A, and I think this is maybe why you're looking at it differently, we're coming up with cash G&A of 1,272 a day. Now, again, let me talk you through that number.
That is operating days -- that the G&A is by the way not just on the owned vessels, it's actually on the entire fleet. And again, we report 8.6 million of G&A that 4.6 million if restricted stock amortization.
So, you get cash G&A of 3.95 million, which again, gives you if you divide that by the operating days is it gives you 1,272 of cash G&A. And again if you want me to go through that with you offline, I can do so.
Amit Mehrotra
No, that's helpful here. Thank you.
Hugh Baker
So, really you're actually looking at OpEx plus G&A of around just shy of $6,000 a day as opposed to the number you're talking about.
Amit Mehrotra
Right. One last one from me, a quick one hopefully for Hugh.
In the 4Q, I know the biggest of the new building CapEx is in 4Q, are you basically assuming 21 million for each of the new building ships and getting 60% on that? And so I'm just trying to figure out, out of that 1019 [ph], because that's relatively near cash -- near-term cash call, how much of that is equity?
Hugh Baker
That's a terrific question actually Amit. And let me go through that with you and I think probably good that we go through that with everyone on the phone briefly.
Its -- we're receiving valuations of around $22 million for Japanese build Ultramax. We're receiving valuations of around $21 million for Chinese built Ultramax, and again and just over $20 million for the Chinese Ultramaxes.
So, if you look at the 10 ships that are still to deliver, two of them are Japanese Ultramaxes at 22 million each, six of them are Chinese built Kamsarmax at 21 million each, and you got two Ultramaxes at just over 20 million each. And if you actually take that number and you multiply by 60% which is what we control loan agreements, you'll actually see the 163 million available tax.
So, is actually pretty -- is solid and we can definitely draw on that. So, we're very comfortable.
If you do bottom-up calculation of that number, you'll see that you'll get what available [Indiscernible]/
Amit Mehrotra
Okay, great. Thanks for doing that Hugh.
Appreciate it. Thanks everybody.
Take care. Have a good summer.
Hugh Baker
Thanks.
Operator
Thank you. The next question is from Robert Perri from AXIA Capital Market.
Please go ahead.
Robert Perri
Hi, good morning gentlemen. I guess to switch it up a little bit, since no one has actually asked.
I mean you mentioned Robert that -- and you know it has been stunning that you've seen very strong iron ore growth, very strong coal demand out of China. There's just -- I guess my concern is that it’s a bit front-end loaded given where you've seen stimulus spending and what not.
I mean have you guys seen anything? Could you give us a little bit more color on what you guys are expecting in the second half of the year around that?
Robert Bugbee
No, as I said before, I think that we have to remain pretty prudent here. You're going to take the -- it's prepared for the worst and hope for the best.
And it's very -- in the first place I think we were all pleasantly surprised is what happened. I think it's not for us -- and not for us as a management or investors, we're not trying to gain the quarters here.
It is very simply the fundamentals are really improving going forward with the no delivery, the cancelation, delays on the supply side and our ordering. And for whatever reason, it appears that the bid on general commodity is getting stronger and it appears that the risk in the stuff is to the upside in terms of a demand curve that people have basically said is non-existent, but for some reason or another maybe China isn’t bad as the [Indiscernible] the same.
But I don't think it’s the time where we share -- as I said, prepare for the worst, hope for the best and that's what it will be.
Robert Perri
Got you. That's all for me.
I'll let you guys get to it. And have a good summer Hugh like you imagined.
Hugh Baker
Everybody are saying that.
Operator
Thank you. The next question is from Spiro Dounis from UBS Securities.
Please go ahead.
Spiro Dounis
Hey, good morning gentlemen. Thanks for taking the question.
Two quick ones from me. Just first, I want to follow-up once commodity exclusion, I know you talked about iron ore, but I guess with the fleet not really having any capes in it, just wondering in terms of your actual commodity exposure here, what commodities matte more to you right now?
Is it really just coal and grain at this point or can iron ore basically lift the entire sort of bulk of fleet up?
Robert Bugbee
They all work together, ultimately. You obviously have capes to some extent competing on coal.
I think that the actual -- the ships, the choices that we have are let's say particularly good because the diversity is that cargo in this type of market and market that is weak and a market yet to recover because obviously they just got more diversity in that customers and cargo. But you would want really expand the market to keep to have that iron ore trade going well.
Spiro Dounis
Got it. And then in terms of fleet employment, I think probably safe to say time-charters here are not really attractive, but just in terms of maintaining upside.
I'm not sure if COAs are available to you at all, maybe even some of strategic relationship, I know something you've been able to leverage pretty well at Scorpio Tankers, but respect it is bit of different market?
Robert Bugbee
Yeah, it’s a same thing you don’t want -- you can do COAs at market for utilization, but you don’t really want to do kind of locked in rates at this particular point. I would also sort of summarize that -- look the market is still I think this is very Scorpio where it is.
I wouldn’t be having the same type of confidence to the company that time like that. Let's say I was on a conference call for one of the other company, this is situation were Scorpio Bulkers can literally afford to wait, keep its vessels on the spot market, and wait for that recovery.
So, we think we’ve got enough operating leverage, we don’t need to take [Indiscernible] and we think we have enough balance sheet security and liquidity to not have this fixed vessel out at distract levels.
Spiro Dounis
Got it. Makes sense.
Appreciate the color. Thanks guys.
Operator
Thank you. There are no further questions registered at this time gentlemen.
Emanuele Lauro
Thank you operator. I'd like to say thank you to everyone on the call.
That is now the end of the call. Thank you to everyone.
Operator
Thank you. The conference now has ended.
Please disconnect your lines at this time. And thank you for your participation.