Aug 1, 2015
Executives
Angeliki Frangou - Chairman and CEO Stratos Desypris - CFO George Achniotis - EVP, Business Development
Analysts
Amit Mehrotra - Deutsche Bank Ben Nolan - Stifel Nicolaus Shawn Collins - Bank of America-Merrill Lynch
Operator
Thank you for joining us for this morning’s Navios Maritime Partners Second Quarter 2015 Earnings Conference Call. With us today from the Company are Chairman and CEO Ms.
Angeliki Frangou, Chief Financial Officer Mr. Stratos Desypris, and EVP of Business Development Mr.
George Achniotis. As a reminder, this conference call is also being webcast.
To access the webcast, please go to the Investor section of Navios Maritime Partners' Web site, at www.navios-mlp.com. You'll see the webcasting link in the middle of the page, and a copy of the presentation referenced in today's earnings conference call will also be there.
Now let me read the Safe Harbor statement. This conference call can contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Partners.
Forward-looking statements are statements that are not historical fact. Such forward-looking statements are based upon the current beliefs and expectations of Navios Partners' management, and are subject to risk and uncertainties which could cause actual results to differ from the forward-looking statements.
Such risks are more fully discussed in Navios Partners' filings with the Securities and Exchange Commission. The information set forth therein should be understood in light of such risks.
Navios Partners does not assume any obligation to update the information contained in this conference call. The agenda for today's call is as follows.
First, Ms. Frangou will offer opening remarks.
Next, Mr. Desypris will give his overview of Navios Partners' financial results.
Finally, Mr. Achniotis will provide an operational update, and an industry overview.
Lastly, we'll open the call to take questions. Now, I turn the call over to Navios Partners' Chairman and CEO, Mrs.
Angeliki Frangou. Angeliki?
Angeliki Frangou
Thank you, Joy. Good morning to all of you joining us on today's call.
I'm pleased to announce the results for the quarter. We recorded revenue of $56.5 million, EBITDA of $38.7 million, and $11.4 million of net income.
We also announced a quarterly distribution of $0.4425, representing an annual distribution of $1.77 per unit. This annual distribution provides the current rate of about 15.5%, about 2.5 times the yield of the Alerian MLP Index.
Navios Partners remains committed to its existing distribution through 2016. We have maintained the distribution throughout the difficult phases of the dry bulk cycle, and are prepared to include this distribution when the shipping market stabilizes, and the market revolves a fair price for consistent cash distributions.
Navios Partners diversified in the container segment, which today represents about 45% of the 2015 EBITDA. However, Navios Partners continues to have material exposure to drive back through its 23 dry bulk vessels, which would have been actively managing during the recent deep industry recession.
However, the market rates are improving, and we do not believe that this historically low rate environment of the first quarter of 2015 will be repeated soon. Indeed, since July of 2015, the BBI has improved by more than 100%, with take rates improving 5-full base on a recent charter negotiated by Navios Group.
There continues to be positive catalysts for clearing the supply overstock of vessels in the form of aggressive demolition. So far in 2015, almost $21 million deadweight zones have been scrapped, representing almost 3% of the global dry bulk fleet, and demolition is projected to reach as much as 5% for the entire year.
In addition, non-deliveries of new orders scheduled for 2015 are running at about 40% in the placement of orders for future deliveries have been relatively nonexistent. As a result of this part the capital market, easily storing to help within the medium term can provide significant upside to our investors.
As you can tell, now in Slide 2, Navios Holding is the sponsor of Navios Partners, and owns 20% of Navios Partners. To-date, NMM owns 31 vessels and has a market capitalization of about $900 million, and an enterprise value of about $1.5 billion.
Slide 3 provides some of the Company highlights. Navios Partners has diversified its businesses to be container focused after the initial entering into the container sector in December of 2013.
Container vessels today are providing us with stable cash flows, and long-term visibility. Our eight container vessels, which account for 41.5% of our tangible assets, are expected to generate about $1 billion or 66% of our contracted revenue.
Overall, Navios Partners has a secure revenue stream, with 90% of the Company's contracted revenue earned through charters longer than three years. Slide 4 provides insight into the container segment stable cash flows.
Since the end of 2013, we acquired eight container vessels. The vessels are expected to generate around 45% of our expected 2015 EBITDA.
The average remaining contract duration of our container fleet is 7.6 years, and of our entire fleet is 3.3 years. Overall, NMM container sector exposure provides long-term charter, cash flow stability, market risk mitigation, and strong distribution coverage.
We expect the dry bulk sector to provide material upside in an improving market. Slide 5 displays our efforts in positioning ourselves for the eventual dry bulk sector recovery.
Since the first quarter of this year, Capesize and Panamax rates have increased by 300% and 150% respectively. We expect to successfully capture this market improvement, as 15 of our 23 dry bulk vessels have built in profit sharing arrangements.
In fact, every 2,000 of profits sharing earned in 2015 translate into $5.5 million in additional revenue, or about 15% increase in a pro forma common unit coverage. Generating stable cash flows through long-term charters remains our core strategy, and to this effect, Navios Partners minimizes the chartering list by fixing almost 100% of our open days for 2015.
Slide 6 highlights NMM recent developments. We are pleased to announce new charters on two of our Capesize vessels, Navios Fulvia has been chartered out at $13,443 net per day, for 16 to 21 months, with an expected EBITDA contribution of $4.3 million.
And Navios Fantastiks has been chartered out at $12,500 net per day for 10 months, with 50% profit sharing, based on the actual results. After 10 months, it will be chartered out at $12,825 net per day, for an additional six to 10 months.
We have accelerated dry docking of our fleet in this period of low rates, thereby minimizing foregone revenue. This acceleration also has a positive impact of securing compliance for up to five years, without additional CapEx required for the installation of the ballast water treatment plant.
In total, we have accelerated seven of our vessels prior to the scheduled dry docking, and the net impact to revenue was only $2.8 million, dramatically less than it would have been in the better rate environment. These vessels are back into our fleet, and redeployed in an improving market.
We also completed Navios Europe II, a transaction in which we took a small interest in the acquisition of vessels in a structure with an attractive priority return. Earlier this month, we learned that one of our counterparties, Samsun Logix, will be unable to meet scheduled debt obligation.
NMM has only one vessel chartered to Samsun Logix, and we do not expect significant exposures to the charters, based on available information, over an ongoing rehabilitation process, and a $20 million in insurance coverage available from Navios Holdings. We expect the vessel to be delivered to us shortly, which we will be able to redeploy in an improving charter market.
We estimate a net impact to NMM to be less than $5 million, when all is said and done. Slide 7 total liquidity.
At June 30, 2015, we had a total cash of $49 million, and total debt of $608.5 million. We have a low net debt to book capitalization of 40.6%, and our significant debt maturity is until 2018.
Slide 8 shows how we have grown our fleet and distributions, regardless of where we are in the shipping cycle. Since our IPO in late 2007, we grew our fleet capacity as measured by deadweight zones by 420%, with the assistance of our sponsor, and in this sales and purchase market.
We also increased our distribution by about 26%, in a difficult dry bulk market. At this point, I would like to turn this call to Stratos Desypris, Navios Partners' CFO, who will take you over the results of the second quarter of 2015.
Stratos?
Stratos Desypris
Thank you, Angeliki, and good morning, all. I will briefly review around financial results for the second quarter and six months ended June 30, 2015.
The financial information is included in the press release, and summarized on the slide presentation on the Company's Web site. Our strong balance sheet and cash flow has allowed us to reiterate our commitments for a minimum annual distribution of $1.77 per common unit through the end of 2016.
This provides for a yield of approximately 16.6%. This yield is about 2.5 times the Alerian Yield for MLPs.
We would consider increasing Navios Partners' dividend when the market rewards our unit price and the dry bulk market improves. Moving to the financial results, as shown on slide nine.
As Angeliki mentioned earlier, we accelerated the dry docking to the extent we could in this low rate environment, and were able to perform dry docking on seven of our vessels. By accelerating this dry docking, we reduced revenues by only approximately $3 million significantly less than what this would have been in a higher rate environment.
This acceleration also had the quality of securing compliance for the next 5 years without the additional CapEx required for the installation of the Ballast Water Treatment plant. Revenue for Q2 of 2015 increased by 2.3% to $56.6 million compared to $55.2 million for Q2 of 2014.
The increase was mainly due to a 3.2% increase in the time charter equivalent rate at sea in the quarter of $20,679 per day compared to $20,045 per day for the same quarter of 2014, which was partially mitigated by the decrease in available days by 1.3% due to our accelerated dry docking program. EBITDA for the second quarter of 2014 was positively affected by the $17.8 million accounting effect from the insurance settlement.
Excluding this item, adjusted EBITDA for the second quarter of 2015 increased by 6.3% to $58.7 million. The main reason for the increase was an increase in revenue discussed about, as well as the decrease in the time charter and voyage expenses by $2.2 million, due to the delivery of two chartering vessels.
These were mitigated by the $1.9 million increase in management fees, due to our larger fleet. Net income for the second quarter of 2014 has been affected by the same item that affected EBITDA.
Excluding this item, adjusted net income for the second quarter of 2015 decreased by $0.9 million compared to the same period last year. Operating surplus for the second quarter of 2015 amounted to $29.3 million.
Replacement in maintenance CapEx reserve was $3.4 million. Fleet utilization for the second quarter of 2015 was 100%.
Moving to the six months' operations. Time charter revenue for the six months of operations, was almost the same as last year, and amounted to $113.3 million.
Our revenue for the first half has been negatively affected by the approximately $3 million effect of the dry docks discussed above. EBITDA for the first half of 2014 has been positively affected by $14.6 million accounting effect of the insurance setttlement.
Excluding this item, our placid [ph] EBITDA for 2015 increased by $1.1 million to $76.7 million. The increase was mainly due to the $0.6 million increase in revenue, and $3.1 million decrease in time charter and voyage expenses, due to the delivery of two chartering vessels in the previous quarter.
This increase was mitigated mainly by the increase in management fees of $3.3 million due to our larger fleet. So you look at the items that affected EBITDA, discussed about, net income for the first half of 2014 has been negatively affected by the $22 million non-cash write-off of intangible assets relating to the Navios Pollux.
Excluding these items, adjusted net income for the first half of 2015 decreased by $0.6 million, to $22.2 million compared to the same period of last year. Operating surplus for the six month ended June 30, 2015 was $57.1 million.
Turning to slide 10, I will briefly discuss our key balance sheet data as of June 30, 2015. Cash and cash equivalents was $49 million, while we have an available liquidity line for an additional $60 million from our sponsor; long-term debt including the current portion increased by $32.5 million.
This increase is due to the $79.8 million debt incurred for acquisition of the MSC Cristina, and was mitigated by $48.7 million debt repayments made during the first half of 2015. Net debt to book capitalization was 40.6% at the end of the quarter.
As shown on Slide 11, we declared a distribution for the second quarter of $0.4425 per common unit. Our current distribution of $1.77 provides for an effective yield of 16.6% based on yesterday's closing price.
The record date for the distribution is August 13, and the payment date is August 14, 2015. Our common unit coverage for the quarter is 0.8 times.
To provide a more meaningful ratio, we include representative pro forma coverage ratio of 1.04 times. This pro forma calculation gives effect to the full quarter run rate operating surplus of the container vessel delivered in April, the foregone revenue on vessels dry docked in advance, and the normalized revenue of ISO vessels received up front.
The increased exposure to the container segment with a long term charter durations results in healthy pro forma forward coverage ratio. In addition, one should keep in mind that we're positioned to take advantage of a recovering dry bulk market, which would further increase our coverage ratios.
This ability we have built in our cash flow generation and our coverage ratio, allows us to redirect our commitment for a minimum annualized distribution of $1.77 per common unit through the end of 2016. I would like to remind you that for U.S.
taxpayer purposes, a portion of our distribution is stated as a return of capital. Also, we reported a cumulative annual distribution to common unit holders on Form 1099.
Slide 12 shows the details of our fleet. We have a large, modern, diverse fleet, with a total capacity of 3.3 million deadweight tons.
Our fleet is young with an average age of 8.1 years, below the respective industry averages. Our fleet consists of 31 vessels, 8 Capesizes, 12 Panamaxes, 3 Ultra-Handymax, and 8 container vessels.
Slide 13 demonstrates our strong relationships with key participants in our industry. Our charters have an average remaining contract duration of 3.3 years.
About 90% of our contracted revenue is from charters longer than 3 years. Our charters are spread among a diverse group of counterparts.
In Slide 14, you can see the list of our fleet, with the contract rates and respective expiration dates by vessel. We have almost eliminated our exposure to the dry bulk market, keeping the potential upside through our contacts with profit sailing.
Currently, we have fixed 99% of our available days for 2015, and we are 63.3% fixed for 2016. We do not have charter rate exposure to the container sector, as our vessels are fixed for an average period of approximately 8 years.
The expiration dates are five years, and the charter duration is extended to 2027. As shown on Slide 15, we are an increasing low cost operator.
We are benefiting from the economies of scale of our sponsors, and we have fixed our operational costs at low levels. Our OpEx is more than 20% below the industry average.
I now pass the call to George Achniotis, our Executive Vice President of Business Development, to discuss the industry section. George?
George Achniotis
Thank you, Stratos, and good morning. Please turn to Slide 17.
As Angeliki has already mentioned, Navios Partners has shifted its focus on the container segment, where industry fundamentals are improving, providing us with stable, long-term cash flows. As you can see on the chart, there is a strong correlation between annual GDP growth, and the expanded container traffic in both the USA and Europe.
The IMF forecast U.S. GDP growth at 1.7% in 2015, and 3% in '16, and Eurozone GDP growth at 1.5% this year and 2.5% next year.
With increased disposable income from lower oil prices, container demand should grow further. Moving to Slide 18, over the past 18 years, container trade has expanded at a 7.5% CAGR.
The rate of growth has been increasing since 2012, and is expected to continue to increase by over 5% in '15, and by 6% in '16. Turn to Slide 19.
At the end of June, 2015, the container fleet consisted of 5,157 vessels, of just under 19 million TEU capacity. After the end of June, 830,000 TEU had been delivered, versus 890,000 projected, giving a non-delivery rate of 7%.
Scrapping of older vessels has continued, and after the beginning of July, 2015, 48 vessels with a capacity of 90,000 TEU had been demolished. Last year, 201 vessels delivered, and 172 vessels were scrapped, which expanded the TEU capacity by 6.5%.
Estimates are that net fleet growth on a TEU basis will be about 7%. Fundamentals improved further in 2016, where net fleet growth is forecast to be close to 5%, lower than the 6% estimated increase in container demand.
Moving to Slide 20 and the dry bulk market fundamentals. World GDP continues to grow, creating raw material demand for primary industries, particularly steel and energy production.
This is especially important in the merchant market regions, experienced a rapid urbanization and industrialization, such as China, India, and the surrounding East Asia and Pacific countries. The rate of world GDP growth is expected to increase from 3.3% in '15, to 3.8% in '16.
Emerging and developed markets are expected to grow by 4.2% in '15, and 4.7% in '16. Turning to Slide 21.
Dry bulk rates has expanded by 5.6% CAGR since China joined WTO 14 years ago. Focus for 2015 have dry bulk trade growing about 2% with Panamax [ph] growth around 3%.
Most of the growth is expected in the second half of the year, partly due to normal seasonality, but also due to the significant prices actually in most major dry bulk commodities, which encourages additional purchases needed in order to replenish decreasing stockpiles. We're already seeing the effects of this with the BDI more than doubling to 1,104 on July 29th, from its all time low of 509 in February.
Rates for capes continued to increase with pictures on Brazil grounds [ph] recently concluded at over $17,500 per day. Please turn to Slide 22.
Coal is still the least expensive fuel for producing electricity, particularly important in the merchant market region. The coal market in China is the largest worldwide, consuming about 4 billion tons annually.
In 2014 and so far in '15, we are seeing the Chinese authorities protecting their domestic coal mining industry. This has caused a global coal price to fall, giving India the opportunity to increase imports.
So far this year, imports have increased by 39%. In doing so, they have become the world's largest coal importer, taking over from China.
Switching to Indonesia and the Australian coal exports from China to India, provide an increase in ton miles. While China's coal imports have declined, the recent trade paid agreement with Australia should over time mutually increase coal imports.
Moving to Slide 23, India has increased coal imports by over 400% from 2006 to 2014. This trend is likely to continue as the government of India has made it a priority to provide electricity to all, which will drive growth in electricity consumption for many years to come.
Currently, coal provides about 74% of all electricity generation, and estimates show that electricity consumption is expected to more than double by 2030. India's domestic coal mining activities have not been able to keep up with essential growth, giving opportunities to import increasing volumes of coal.
Turning to Slide 24, low cost Australian and Brazilian iron ore continues to displace more expensive lower quality domestic Chinese ore. So far this year, Chinese domestic production has declined by 10%.
Steel production has remained flat, and iron ore imports are expected to grow by 3% by the end of the year. With iron ore prices down 46% since last year, and iron ore stockpiles at Chinese ports down by over 30%, significant restocking is expected in the second half of the year.
Since the Australians are already exporting everything they can dig out of the ground, a significant part of the additional imports are expected to come from Brazil, increasing ton miles. Please turn now to Slide 25.
So far this year, 39% of the expected new vessels did not deliver, continuing the pattern of the last several years. At the same time, scrapping volumes for older less fuel efficient vessels have dramatically increased.
Through July 24th, over 20 million deadweight tons were scrapped compared to 16 million tons in the whole of 2014. This includes 70 Capesize vessels, compared to 24 Capes in the whole of '14.
This has resulted in negative fleet growth in the Capesize sector. Further scrapping of older vessels should continue after the seasonally slow monsoon period in the Asian subcontinent.
Current projections for the year are for scrapping in excess of 37 million tons, which would be a long-time record. Net fleet growth for 2015 is projected at 1% to 2%, the lowest in many years.
This compares with dry bulk demand of about 2% for 2015. With a slow first half of the year, demand is expected to exceed 5% in the second half.
We're seeing the reduced fleet and the increasing demand taking effect in the freight markets as the BDIs has more than doubled since freight price is low. This concludes my presentation.
I would now like to turn the call over to Angeliki for the final comments. Angeliki?
Angeliki Frangou
Thank you, George. This completes our formal presentation, and we will open the call to questions.
Operator
[Operator Instructions] Your first question comes from the line of Amit Mehrotra of Deutsche Bank.
Amit Mehrotra
First question is just on the decision not to exercise the option in June for the 13,100 TEU vessel. Just curious about what the thinking was that led to that decision.
Was it less optimal financing environment, or something else that drove that decision?
Angeliki Frangou
Number one is we had negotiated the free options, so this was free for the Company, and we saw debit and credit market, so we decided that this was not the right environment to take the risk. We can always develop very good and attractive deals, so we thought that the best decision on the kind of conditions that were in June is to be more conservative, as you can always develop other deals.
Amit Mehrotra
One question just to follow up, for Stratos, the pro forma coverage calculation of 1.04 times, I believe that's exactly the same as what was provided in the first quarter, but the first quarter had the assumption of the option being exercised, so I'm just trying to understand why the pro forma coverage didn't change at all, despite basically one vessel coming out of that calculation. A - Stratos Desypris Amit, the fact is that the Company performed better in this quarter, so we have sequentially have improved coverage so despite the fact that we removed the pro forma calculation for the one container vessel still by doing the same calculation and also accounting for the dry dock that happened in this quarter, you see that the coverage ratio remains more or less the same as the previous quarter.
Angeliki Frangou
And just to add something to Stratos, you have to realize and I think we added a page in Page 5 on our presentation, the recovering environment on the dry bulk can provide quite a substantial improvement on our unit coverage. For every 2,000 that we get above on profit sharing which is about $5.6 million for 2015, you can automatically improve by 15% your pro forma coverage.
Amit Mehrotra
So Stratos, the fourth quarter run rate pro forma coverage should be at that 1.04 times, right?
Stratos Desypris
Correct. I mean, even if the market continues to improve, and we see the profit sharing, this might be even higher.
Amit Mehrotra
Okay, one last question, and then I’ll hop off, is just on the net leverage. The 32% just seems maybe less optimal, and I understand you want to be more conservative.
But given the more increased duration of the entire portfolio, and the visibility that you now have on the dry bulk, I would imagine that you may be more comfortable going up to a higher level. So with that being said, I mean if that's true, could we expect one or two maybe smaller acquisitions before year end, that could be funded entirely with debt, as well as optimize the capital structure?
Angeliki Frangou
We always review the debt and the market conditions, because that is also a function of how you perceive the market. The dry bulk market is recovering well, so it gives a good positive -- is recovering at a pace that strongest and I expect, so with that in mind, we will adjust our businesses.
Operator
Your next question comes from the line of Chris Wetherbee of Citi.
Unidentified Analyst
Hi, this is Alex in for Chris. Just question on the dry bulk side, can we get an update on the potential dry bulk recovery upside that you alluded to, and if there's any desire to put more capital in the dry bulk sector?
Thank you.
Angeliki Frangou
It's not a matter of putting more capital, we already have a good substantial -- you have a lot of dry bulk base is about 3,000 profit sharing and open days and you have another 3,000 contracted. So you realize have a good portfolio, 23 vessels to capture this upside.
And in reality, this is a way that you'll get recovering rates which are still about 300% of the Cape rate improving and 150% on the Panamaxes. So we're not saying there will be a straight line, you definitely will have greens [ph] and plateaus, et cetera, but directionally it is improving because you have net fleet growth on the Capes is negative, overall net fleet gross will be 1% or 2% as George said, and you have that second half of the year we'll have more demand for cargo, so that creates a good balance.
Unidentified Analyst
And my last question is about the distribution. You guys mentioned minimum distribution through 2016.
We were wondering what needs to happen for -- it seems like there's a bit of a breathing room for the upside, and if there's -- what needs to happen for that to kind of go up? And for visibility through '17, do you require a better rate environment, or more acquisitions, or?
Angeliki Frangou
We have more than one and a half year visibility on our distribution, and as markets recovers, and when our share price starts improving, I think that will be in the cash for distribution growth.
Operator
Your next question comes from the line of Ben Nolan of Stifel.
Ben Nolan
I have - well I have a couple of questions. First of all, on the Samsung Logistics default, just for clarification, Angeliki give the $5 million of potential maximum exposure that you thought you might have, is that net of the insurance coverage or that is inclusive of the insurance coverage that you have?
A - Angeliki Frangou This was a full mitigation of the insurance and everything that is impact.
Ben Nolan
Okay, so after insurance it would be $5 million, okay. My next question relates to the dry docking, how much more, I should call it, front-end loading the dry docking program should we expect in the back half of this year?
Angeliki Frangou
We have another seven vessels in Q3, I think that was a very good strategy, having the financial flexibility to actually do the dry docking on the lower part of the side of the earning capacity makes it possible to reduce your loss in revenue. And secondly, you've got five years certificate without having the ballast water treatment CapEx.
So I think there is a twofold benefit, and I think and Navios Partners took the opportunity to really fully develop a strategy doing seven vessels in Q2 and seven vessels in Q3.
Ben Nolan
Okay, so any thoughts on Q4, or is it -- that would be a benefit?
Angeliki Frangou
Exactly
Ben Nolan
Okay.
Angeliki Frangou
I told it’s until -- much later in end of '16.
Ben Nolan
And then my last question gets back to Amit's first question on the decision to not execute the option for the container ship. And while I fully appreciate that you guys have ample opportunities as you've shown in the past to do pretty attractive deals that one did seem to be exceptionally accretive potentially.
And in addition to the bank debt market, I'm sure that the cost of capital was probably -- prohibitively high from an equity perspective. When thinking about that, I know that you guys are fully committed to the dividend, but have you ever considered maybe not paying as much of a dividend in order to resource some of that capital to some of these projects that are really accretive?
Angeliki Frangou
First of all, it has to be agreed to all the shareholders, and in no less than -- we are able to do the dividend distribution, and we believe that we can develop and source other accretive deals, and that will execute on them. But we felt uncomfortable was a really volatile credit market, which we didn't want to take a risk, and necessarily when you don't know if the volatility will remain or disappear.
Ben Nolan
Okay, so I guess the answer to that is that, sort of cutting to it, is that you can replicate it at another time, and so not change the strategy for the near term simply for a deal I suppose, right?
Angeliki Frangou
Exactly.
Operator
Your next question comes from the line of Shawn Collins of Bank of America.
Shawn Collins
So on Page 6, you cite the strategic decision to perform dry docks in advance. Can you just touch upon the requirement for the ballast water treatment for your fleet?
For example, when is the requirement due, what's the timing around it, how much does it cost per ship, and how much time would it require for each ship to be treated, to have this system installed?
Angeliki Frangou
This is part of a-- it can be done as part of the next special survey, so it will not be part of any additional situation. And as you know this kind of requirement will come into force, we will also have more exact -- approve that, and cost usually comes down as -- keeping technology develops, and systems develop, the overall cost will be substantially lower.
So instead of having something in front of you, you have the ability to do it on your next schedule special survey, which will absolutely provide a better use of your cash and a better cost overall.
Shawn Collins
Second question, so recently Asian shipyards have been in the news with large financial losses. I know you have strong relationships with the yards, and have been working with them for a long time.
Do you expect any potential consolidation or rationalization or any change to the business models of the large shipyards in the future, or the near term?
Angeliki Frangou
I think what you're having is China is rationalizing, building up TEU capacity and that is a reality. And then you see that there is different focus on different sectors in Japan, especially in Japan now that dry bulk is not the favorite sector.
So you will have -- consolidation will happen because of credit conditions in China, and overall tightness of credit, and in Japan and South Korea, they are focusing on more higher revenue vessels.
Shawn Collins
And just my last question, obviously Greece has been through a volatile, tumultuous time and continues there. And I know we have touched base on this offline before, but any operational impact from the social and political situation in Greece on your Company's operations?
Angeliki Frangou
Actually shipping is a service provider, so you really need telephone, Internet connection in the national airports. So, for Navios there is no really impact.
And we are always -- we have offices as you know, in Antwerp, New York, Monaco, and Singapore, so the Company operates about a third -- the Group operates about a third of the vessels from Antwerp and Singapore so we can very quickly have alternative plans and contingency plans in case of something. But we didn't have any problem, to be honest.
This [closure] [ph] did not affect at all our business or operations.
Operator
Ladies and gentlemen, I apologize, but we have reached the allotted time for questions and answers. I will now return the call to Mrs.
Angeliki Frangou for any additional or closing remarks.
Angeliki Frangou
Thank you very much. This completes our second quarter earnings call.
Thank you.
Operator
Thank you for participating in today's conference call. You may now disconnect.