Summary
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Fundamentals in the dry bulk sector driven by the historically low orderbook creating tight supply and demand balance. Shipyard capacity currently booked with other vessel types – any dry bulk vessels ordered today will be delivered in 2025 and beyond.
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75-80% of the current global fleet not compliant with upcoming environmental regulations.
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SB is pursuing an aggressive new building strategy to be executed by 2025.
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Scrubber investments further add to profitability.
Dr. Loukas Barmparis, President and member of the Board of Directors of Safe Bulkers (NYSE:SB). discussed Safe Bulkers’ fleet renewal strategy and the outlook of the dry bulk shipping market with Barry Parker of Capital Link TV.
The full interview can be accessed by clicking on or pasting the following link on your web browser
Dry Bulk Market Expectations
Demand is influenced by the instability of geopolitical events impacting the world economy. War-induced commodity price increases and the broadening price pressures have led to global inflation. The main driver for the dry bulk sector for the next few years is the historically low order book. Fleet growth for 2022-2026 is estimated at 2.0%, while global dry bulk tone-mile demand growth is expected to increase by 0.2% in 2022, and 1.7% for 2023. Shipyard building capacity is currently booked by other sectors’ orders mainly for containerships and LNGs. Delivery for a dry bulk newbuilding ordered today would be scheduled for the second half 2025 and beyond.
Ensuring Long Term Competitiveness
IMO regulations Phase 1, 2, and 3 vessels represent a design CO2 reduction of 10%, 20%, and 30% respectively compared to 2008 levels. Phase 3 vessels have substantially lower CO2 emissions corresponding to lower fuel consumption and thus lower emissions.
Dr. Barmparis stressed that with 75% - 80% of the world’s current fleet not compatible with the new environmental regulations, newbuild vessels scheduled for delivery over the next few years would have an advantage with charterers favoring the new environmentally efficient designs due to their lower fuel consumption and emissions.
SB is one of only a few dry bulk companies pursuing an aggressive newbuild program despite the uncertainty regarding what exactly the new fuel for ships will be by 2030. The company is investing $371 million in 11 IMO GHG EEDI Phase 3 – NOX Tier III Japanese newbuildings, which have substantial operational and commercial advantages.
Out of the 11 Kasmarmax and Post- Panamax vessels, one was delivered in May 2022, the secnd is expected in August 2022, five vessels are scheduled for 2023, three in 2024, and one for 2025. Upon completion in 2025, 85% of Safe Bulkers’ fleet will be Japanese built and 25% of the fleet will be Phase 3 compliant.
Enhancing Intrinsic Value Through Investments in Scrubber Technology
The surge in fuel prices has pushed the low-sulfur fuel oil versus HFO, differential to high levels, which translates to increased revenues for the scrubber-fitted vessels. Safe Bulkers has installed scrubbers on 18 of its 42 vessels and is committed to installing five more scrubbers on five of its Capesize vessels. A fuel spread of $170 per metric ton translates into additional revenue of $20.4 million, while a spread of $230 a year forward can generate $26.8 million.
Capital Allocation Strategy Aimed at Sustainable Long Term Value
Safe Bulkers reviews its dividend policy quarterly but the Board aims to keep a conservative approach with its free cash flow. Rather than distributing all its quarterly free cash flow to shareholders in dividends, the Company prefers to have substantial liquidity to pay for its current new buildings, continue to pay down debt, and use for share buybacks and dividends.
