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What the Results From Navios Maritime Partners L.P. Reveal for Dry Shipping

By Nickey Friedman - Feb 4, 2014 at 3:06PM

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Navios Maritime Partners' conference call is particularly revealing.

Angeliki Frangou, CEO of Navios Maritime Partners(NYSE: NMM), said recently that "[for] almost five years our industry experienced one disappointment after another." For this main reason, when the first of the publicly traded dry shipping companies to report earnings speaks, all investors should listen. On Jan. 29, Navios released its fourth-quarter-earnings results and hosted its conference call which revealed some eye-opening insights into the future for the industry, both for it and competitors such as DryShips (DRYS).

Navios Maritime Partners' results
As expected, Navios' earnings came in close to analyst estimates. There should be little reason for short-term surprise since it operates under fixed-rate, long-term contracts. In fact, 74% of its available days are already contracted out for 2014 and even more than half for 2015 so there tends to be little mystery shrouding its results. CFO Efstratios Desypris pointed out that over 92% of its contracted revenue is for over three years.

Still, not all of its days are contracted out yet, so as rates for dry shipping fluctuate it will certainly affect Navios and its competitors over the long term. Navios Maritime's average charter-out rates for its vessels is $24,233 for 2014. This is well above the current daily spot rates. The company is in a good position for now.

Dividend
Despite a recent severe tumble in the daily spot rates, Frangou is still quite optimistic about the future. With the release of previous results three months ago, Frangou stated that Navios was committed to paying its dividend at least through the end of 2014.

With the latest release, she extended that promise to the end of 2015 while also mentioning that the company "will be positioned to increase distributions in the medium term." While this commitment isn't legally binding, putting herself out there verbally puts her credibility and reputation on the line so it does say something strong about the potential for dry shipping over the next two years.

Conference call
Frangou repeated the statement of last quarter that "the drybulk environment has brightened significantly." Those same words should carry more weight now as visibility should improve as time elapses. She believes "the cycle is turning," which acknowledges the current low rates and implies they are seasonal and temporary, even if unusually low.

Desypris added that although much of its operating days and revenues are contracted out, the "expiration dates are staggered out to 2022." This allows Navios to take advantage of his expected market recovery without taking on the full risk of having an open field of vessels securing or renewing contracts at any single point in time.

Executive Vice President George Achniotis is quite optimistic as well. He points out that experts expect iron ore prices to fall to $100 per ton which makes it more economical for China to import it. China was responsible for much of the demand and higher shipping prices in 2013 so, if true, this will be even more so in 2014 and beyond, according to Achniotis.

During the Q&A session, the issue of scrapping came up. Frangou acknowledged that scrapping of old ships has been below expectations, but she expects that it is the very reason why the market should see an acceleration of scrapping going forward. Of course, more scrapping means less supply of dry ships globally, and higher rates. What's interesting is that critics will often point out that the higher shipping rates have resulted in delayed scrapping and more supply. As Frangou implied, there's only so long you can squeeze extra miles out of a dying mule. Over time from all that delayed scrapping, we should see a much higher amount than would be normally expected.

Foolish final thoughts
Navios seems a lot more confident about the future of the industry than some other experts such as hedge fund manager and shipping expert Jay Goodgal. It will be interesting to hear from other public dry shipping companies as they report their results and host their conference calls during the coming weeks to see whether their outlooks coincide with Navios.

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