The recent slide in the Baltic Drybulk index, which measures spot freight rates, does not imply a risk to revenue at Genco Shipping & Trading Ltd as most of its revenue comes from long-term charter contracts whose prices are fixed in advance, a top official said.
'The fall should not affect us in the short- and medium-term because we have 94 per cent of our available days for 2008 locked-in under time-charters,' Genco chief financial officer John Wobensmith said in an interview. Genco has also contracted 60 per cent of available days in 2009. A shipping company can either rent out its fleet on a day-to-day basis, known as a spot-charter, or sign long-term contracts, called time-charters.
Spot-charters boast lucrative rates, but may lead to an uneven revenue stream. On the other hand, a time-charter contract brings steady revenue.
Since striking a record high in May, the London-based Baltic Drybulk index, which tracks spot-charter rates, has lost about 60 per cent as it has been knocked by stormy financial markets, falling commodity prices and worries about global economic growth. Shares of Genco Shipping have lost about 40 per cent since 20 May - the day the Baltic Drybulk index touched a lifetime-high of 11,793 points.
'People are using the Baltic Drybulk index as a measuring tool for stocks, and I think you are seeing traders influence the prices of the stocks when they should be looking at more longer-term fundamentals,' Mr Wobensmith said.
Two analysts said shares of dry-bulk shipping companies that have signed a large number of time-charter contracts should not track the Baltic Drybulk index.
The shares are insulated from the spot market as shippers' average long- term contracts should provide relatively stable earnings, Credit Suisse analyst Gregory Lewis said.
'We believe the sell off in the dry-bulk sector in the back half of the summer presents a compelling entry point for these stocks,' Mr Lewis wrote in a note to clients.
Mike Reardon, who heads the Houston research desk of the International Maritime Exchange, said, 'The Baltic Drybulk index could double tomorrow and cut in half three days from now but those ships are still earning the same amount and nothing changes. You have to separate DryShips Inc from Genco Shipping.'
DryShips is the biggest player in the spot-charter market.
Genco's Mr Wobensmith said, 'We are a time-charter operator and our time-charter strategy has not changed since day one.'