Star Bulk Carriers Corp. (NASDAQ:SBLK) has announced robust financial results for the third quarter of 2024, with significant gains in net income and adjusted EBITDA. The company, following its merger with Eagle Bulk, has not only realized $9 million in synergies but is also on track to exceed its initial synergy targets. Operational efficiency is a highlight, with the sale of older vessels and investment in energy-saving technology.
The dry bulk market outlook appears favorable, and the company is actively engaged in environmental initiatives while preparing for new maritime regulations. Despite potential geopolitical uncertainties, Star Bulk's management maintains a cautiously optimistic stance on the market's medium-term prospects.
Key Takeaways
- Star Bulk Carriers reported a net income of $81 million and an adjusted net income of $83 million, or $0.71 per share.
- The company declared a dividend of $0.60 per share and holds a strong liquidity position of $433 million.
- Post-merger synergies with Eagle Bulk have reached $9 million, with expectations to surpass initial targets.
- Star Bulk's fleet consists of 156 vessels, with an average age of 11.9 years, and is progressing in energy-saving initiatives.
- The dry bulk market is expected to grow by 5.2% in 2024, with controlled fleet growth and strong Chinese imports.
- The company is actively reducing greenhouse gas emissions and improving its Carbon Intensity Indicator (CII).
- Management discussed the potential impacts of a new Trump administration on trade and remains cautiously optimistic.
Company Outlook
- Positive growth in global dry bulk trade, with a focus on iron ore, coal, and minor bulk trades.
- Controlled fleet growth anticipated at around 3% per annum.
- Continued leadership in environmental sustainability and preparation for upcoming maritime regulations.
Bearish Highlights
- Potential geopolitical and economic challenges due to a potential Trump administration, including trade disruptions and tariff effects.
Bullish Highlights
- Strong liquidity position and robust financial results.
- Successful integration with Eagle Bulk and expected synergy exceedance.
- Sale of older vessels and reinvestment in fleet efficiency and share buybacks.
Misses
- No specific misses discussed in the earnings call.
Q&A Highlights
- CEO Petros Pappas emphasized the focus on managing the diverse scrubber fleet to capitalize on market opportunities.
- CFO Simos Spyro highlighted the significant reduction in G&A expenses post-merger.
- Co-CFO Christos Bagueres discussed the strategic sale of older vessels and the repurchase of shares below net asset value.
In conclusion, Star Bulk Carriers has delivered a strong performance in the third quarter of 2024, with effective cost management and strategic operational decisions post its merger with Eagle Bulk. The company remains committed to environmental sustainability and is well-prepared to navigate the potential challenges that may arise from changes in the geopolitical landscape. With a cautiously optimistic outlook and a focus on creating shareholder value, Star Bulk Carriers continues to reinforce its position in the dry bulk shipping industry.
Full transcript - Star Bulk Carriers Corp (SBLK) Q3 2024:
Conference Operator: Thank you for standing by, ladies and gentlemen, and welcome to Star Bulk Carriers' Conference Call on the Q3 2024 Financial Results. We have with us Mr. Petros Papaz, Chief Executive Officer Mr. Hamish Norton, President Mr. Simos Spyro and Mr.
Christos Vigueros, Co Chief Financial Officers Mr. Nikos Resco, Chief Operating Officer and Mrs. Paras Palakkadaminski, Chief Executive Officer of the company. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session.
I must advise you that this conference call is being recorded today. We will now pass the floor on to one of your speakers today, Mr. Bagueres. Please go ahead, sir.
Christos Bagueres, Co Chief Financial Officer, Star Bulk Carriers: Thank you, operator. I'm Christos Bagueres, Co Chief Financial Officer at Tarbox Hiers, and I would like to welcome you to our conference call regarding our financial results for the Q3 of 2024. Before we begin, I kindly ask you to take a moment to read the Safe Harbor statement on Slide number 2 of our presentation. In today's presentation, we will go through our Q3 results, Star Bulk's investment proposition, actions taken to create value for our shareholders, cash evolution during the quarter, an update on the Eagle Bulk integration, vessel operations, fleet update, the latest on the ESG front and our views on industry fundamentals before opening up for questions. Let us now turn to Slide 3 of the presentation for a summary of our Q3 2024 highlights.
For the Q3 2024, the company reported the following: net income amounted to $81,000,000 with adjusted net income of $83,000,000 or $0.71 adjusted earnings per share Adjusted EBITDA was $143,400,000 for the quarter. For the 3rd quarter, as per our existing dividend policy, we declared a dividend per share of $0.60 payable on or about December 18, 2024. Our total liquidity today stands strong at $433,000,000 Meanwhile, our total debt stands at 1,300,000,000 dollars On the top right of the page, you will see our daily figures per vessel for the quarter. Our time charter equivalent rate was $18,843 per vessel per day. Our combined daily OpEx and net cash G and A expenses per vessel per day amounted to $6,376 Therefore, our TCE U.
S. OpEx and cash G and A is $12,647 Since the Eagle Dot transaction was completed on April 9 this year, until the Q3 of 2024, the synergies achieved from integration resulted to more than $9,000,000 Integration process is advancing smoothly across all departments, significant potential for further savings in OpEx and drydock costs in 2025 and the remaining of 2024. Continuing to our fleet update for the quarter. During the Q3, we have sold 4 vessels. 3 of these vessels, namely StarHydrus, Imperial Eagle and Diva are expected to be delivered during the Q4 to the new owners for total gross proceeds of $50,000,000 Please turn to Slide 4 for a summary of Star Bulk's compelling value proposition.
Hamish Norton, President, Star Bulk Carriers: Why Star Bulk?
Christos Bagueres, Co Chief Financial Officer, Star Bulk Carriers: Star Bulk is the largest U. S.-listed public company and 2nd worldwide in terms of daybreak tons, specializing dry bulk shipping with the highest trading liquidity. We operate a fleet of 156 vessels across all segments with an average age of 11.9 years. We operate a fleet of 80 eco vessels and have 98% of our fleet scrubber fitted, which provides a significant competitive advantage. Star Bulk has proven to be a consolidator in the dry bulk industry.
Starting in 2018 through 9 mergers, we have grown our fleet by 75% in number of vessels. Furthermore, we operate a fully integrated management platform that makes us the most efficient and consistently amongst the lowest OpEx and G and A operators while maintaining the highest rightship ranking. Since 2020, we have reduced our net debt per vessel by more than 50%, having reached a level where the scrap value of our fleet comfortably covers our current net debt. Since 2021, through 15 consecutive dividend payments, we have declared quarterly dividends of over US1 $330,000,000 We are taking advantage of historically elevated S and P values to sell some of our older and less efficient vessels using the equity proceeds to buy back our shares at prices significantly below net asset value. Since 2021, we have bought back $443,000,000 worth of Starbucks (NASDAQ:SBUX) shares.
Throughout the years, we have built solid corporate governance, which is shareholder friendly by having primarily independent Board members, including financial investors and other ship owners who have merged in their fleet for shares. It is important for our investors that management incentives are aligned with shareholders. Last but not least, Star Bulk is an ESG pioneer in shipping, being a leader in the industry's efforts to decarbonize. There is total transparency with investors, timely and efficient compliance with environmental regulations and commitment to social responsibility. Slide 5 provides an overview of the company's capital allocation policy over the last 3 years and the various levers we have used to strengthen the company, increase the increasing value of our shares and return capital to our shareholders.
Star Bulk has been growing the platform through consecutive fleet buyouts by issuing shares at or above NAV. In total, since 2021, we have taken actions of €2,500,000,000 to create value for our shareholders. On the bottom of the page, we show our net debt evolution. Our average net debt per vessel has decreased from 12,300,000 per vessel to 5,700,000 per vessel, a reduction of more than 50%. As a result of this deleveraging process, our current net debt is covered by the feed scrap value.
Finally, we currently have 6 debt free vessels with an aggregate market value of more than $100,000,000 Slide 6 graphically illustrates the changes in the company's cash balance during the Q3. We started the quarter with $486,000,000 in cash. We generated positive cash flow from operating activities of $138,000,000 after including debt processing and repayments, CapEx payments and energy saving devices and ballast water treatment system installments and the 2nd quarter dividend payment, we arrived at a cash balance to date of 473,000,000 dollars I will now pass the floor to our Chief Operating Officer, Vikos Rescos, for an update on the Eagle Bulk integration and our operational performance. Thank you, Christo. Slide 7 illustrates a summary of Eagle Bulk transaction integration.
The technical and commercial management of the ex Eagle fleet has been established across Starbucks, Cogut in Athens, Singapore and Stanford, leveraging the combined global presence. The commercial teams for the Supamax and Ultramax vessels in the 3 continents have completed their integration successfully, managing the 2nd largest Supamax and Ultramax fleet globally, operating both on voyage and time charter basis. Crane management is gradually taken in house, phasing out third party managers, while technical maintenance and marine safe quality standards, processes and policies have been applied uniformly across the combined fleet. Procurement of solar spare parts, bunkers and lubricants have been centralized for the combined fleet.
Hamish Norton, President, Star Bulk Carriers: These measures are expected
Christos Bagueres, Co Chief Financial Officer, Star Bulk Carriers: to produce significant operating cost efficiencies. On the bottom of the page, you see an illustration of the synergies from Eagle Bulk integration. Through OpEx, G and A and interest expense as well as savings on dry dockings, we have achieved more than $9,000,000 in cost savings. Please turn to Slide 8, where we provide an operational update. OpEx was at $5,114 for Q3 2024.
Net cash G and A expenses were $12.62 per vessel per day for the same period. In addition, we continue to rate at the top amongst our listed peers in terms of rightship safety score. Slide 9 provides a fleet update and some guidance around our future drydock and the relevant total off hire days. On the bottom of the page, we provide our expected drydock expense schedule, which for the remaining of 2024 is estimated $18,300,000 for the drydocking of 15 vessels. In total, we expect to have approximately 420 off hire days for the same period.
In 2025, we expect to dry dock 47 vessels for 1200 off hire days at an expected cost of $53,800,000 On the top right of the page, we have our CapEx schedule illustrating an improving CapEx and vessel energy efficiency upgrade expenses with 100% of our fleet now being balanced quarter equipment fitted. Based on our latest construction schedule, our newbuilding vessels are expected to be delivered in Q4, 2025 and 2026. In line with EXI and CII regulations, we will continue investing and upgrading our fleet with the latest operational technologies, aimed in improving our fuel consumption and reducing our environmental footprint, further enhancing the commercial attractiveness of the Star Bulk fleet. Regarding our energy saving devices retrofit program, we have completed 41 installations, with 3 more remaining for retrofit by the end of 2024. We plan to retrofit another 26 vessels with ESD within next year.
The above numbers are based on current estimates around drydock and retrofit planning, leisure employment and yard capacity. Please turn to Slide 10 for an update on our fleet sales. On vessel sales front, we continue disposing our vessels opportunistically at historically attractive levels. In 2024, we have sold 13 vessels for total gross proceeds of $233,000,000 reducing our average age and improving overall fleet efficiency. Following the low number of Eagle Bulk existing chartering contracts, we now have a total of 10 chartering vessels.
As mentioned earlier, we have 5 firm shipbuilding contracts with Qingdao Shipyard with the construction of 5 Kamsarmax newbuilding vessels and delivered in Q4 and first half twenty twenty six. Considering the aforementioned changes in our fleet mix, we operate 1 of the largest drybulk fleet among U. S. And European listed tiers with 156 vessels on a fully delivered basis and an average age of 11.9 years. I will now pass the floor to our Chief Strategy Officer, Haire Slaganarkey, for an ESG update.
Haris Slaganarkey, Chief Strategy Officer, Star Bulk Carriers: Thank you, Nico. Please turn to slide 10, where we highlight our continued leadership on the ESG front. The 6th annual Star Bulk ESG report has been published in accordance with the latest global reporting initiative requirements. Developed with PWC's guidance, the report has received limited assurance from and has been reviewed by the company's ESG committee. Among its key milestones, the report highlights the impact materiality assessment conducted with input from internal and external stakeholders and includes a comprehensive list of ESG related key performance indicators, benchmarking the company's performance against previous years.
Through the implementation of technical and operational measures to improve heat energy efficiency, the company achieved a 4% reduction in scope 1 greenhouse gas emissions compared to the previous year, a 5.8% improvement in fleet wide CII and a 9.5% reduction in scope 3 emissions. For the 4th consecutive year, Star Bulk has successfully submitted the 2023 Carbon Disclosure Project Questionnaire. This year submission expanded to include data on water management alongside climate change reporting. Preparations are underway for the fueling new maritime regulation coming into effect in January 2025, focusing on compliance strategies such as biofuel adoption and leveraging the pooling and banking mechanisms outlined in the regulation. On the global regulations front, we actively engage with regulators and industry organizations providing input and expertise to support the development of mid term greenhouse gas reduction measures expected to be adopted by the IMO in 2025.
We continue to enhance well-being programs for our people and strengthen our contributions to society, including the sponsoring of athletes who qualified for the Paris 2024 Olympic Games. I will now like the floor to our CEO, Petros Pappas for a market update and his closing remarks.
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: Thank you, Harris. Please turn to slide 11 for a brief update of supply. During the 1st 10 months of 2024, a total of 29,400,000 deadweight was delivered and 2,900,000 deadweight was sent to demolition for a net fleet growth of 26,500,000 deadweight or 2.6% year to date and 3% year over year. Uncertainty on future green propulsion, high shipbuilding costs and limited CPR capacity until late 2026 due to increased competition from other vessel types have helped keep new orders under control. The order book experienced a small increase and presently stands at 10.3%, while vessels above 20 15 years of age stand at 9.5% and 23.5% of the fleet, respectively.
The average steaming speed of the dry bulk fleet has stabilized at low levels of approximately 11 knots during the last 6 months due to inflated bunker costs and environmental regulations, including EXI and CII that increasingly incentivize slow steaming. Moreover, as of 2024, an increasing number of vessels delivered during the 2009, 2013 shipbuilding boom will be going through their 3rd special survey moderating supply growth as a consequence.
Christos Bagueres, Co Chief Financial Officer, Star Bulk Carriers: Global port congestion
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: has fully normalized following a strong reduction that lasted 2 years and gradually inflated available supply by approximately 6%. Congestion is now expected to follow seasonal trends and the negative effect on the supply and demand balance will fade and could gradually reverse as of 2025. Moreover, rising tensions in the Red Sea (NYSE:SE) since late 2023 and the rerouting away from the Suez continue to cause strong inefficiencies for trade, while crossings through the Panama Canal are expected to fully recover by the end of this year. As a result of the above trends, fleet growth is unlikely to exceed 3% per annum over the next couple of years, even under the assumption that demolition activity remains at current low levels. Let us now turn to Slide 12 for a brief update of demand.
According to Clarksons, total drybulk trade during 2024 is projected to expand by 5.2% in ton miles. During the 1st 3 quarters of 2024, total drybulk trade volumes increased by 5.4% year over year due to record iron ore, coal and minor bulk exports, while tonne mile have received extra support from canal inefficiencies and strong long haul Atlantic exports. Despite the weak economic performance and a struggling property sector, Chinese drybulk imports have increased by 6.4% year to date, supported by strength in infrastructure, manufacturing and end product exports. Imports to the rest of the world are experiencing a strong recovery over the last year as lower commodity prices and easing monetary policy is boosting raw materials demand. During 2025, drybulk demand is projected to increase by 1.3% in ton miles, while the IMF forecast for global GDP growth standing at 3.2%, the same as in 2024, while Chinese GDP is projected to slow down to 4.5% from 4.8% this year.
The incoming Trump administration is expected to follow a pro tariff policy that may create headwinds for global trade amid possible retaliation acts that will in our view have a moderate direct impact on drybulk trade. During the last few months, the Chinese authorities have announced a strength of pro growth measures that should help improve the economic outlook. The main goals of the various stimulus packages are to provide support on property prices, to reduce the huge inventory of unsold houses, to address local government debt through the issuance of 10,000,000,000,000,000 special bonds and to boost private consumption. Moreover, should the Trump administration impose heavy tariffs on Chinese products, we expect additional measures to support domestic consumption and alleviate potential weakness in exports. Iron ore trade is expected to expand by 5.8% in ton miles in 2024 and 1% in 2025.
During the 1st three quarters, Chinese steel production declined by 4.1% year over year as the property market continued to face challenges, while strength from manufacturing and steel exports have helped provide partial support. On the other hand, steel production from the rest of the world has experienced a recovery throughout the year and year to date have increased by 3.3%, driven by strong demand from India and a gradual recovery in the Atlantic region. Preference for higher quality iron ore to meet environmental targets is expected to gradually inflate on miles as new mine capacity of higher quality iron ore will come online in the Atlantic over the next years and should gradually substitute Chinese domestic production and imports of a clear quality. Quality. Coal trade is expected to expand by 5% during 2024 and contract by 2% in 2025.
Global focus on energy security during the last years has inflated coal trade volumes. But growth has come primarily from so called Indonesian exports. Chinese coal imports presently stand at record levels and year to date have increased by 13.5% external electricity generation grew at a faster pace than domestic coal production during the 1st 3 quarters and stocks and coal stocks increased ahead of peak winter demand. Moreover, the Indian economy has expanded at a faster pace among G20 members that has led to a strong increase in energy demand and along with inland infrastructure constraints on domestic production is inflating coal import requirements. Grain trade is expected to expand by 6.6% during 2024 and by 2.4% in 2025.
During the 1st 3 quarters, grain trade decreased by 3.5%, but during the Q3, it declined by 0.5%, driven by a correction of Brazilian corn exports, weak black seed volumes and better than expected Chinese production. U. S. Grain sales have experienced a strong increase and is expected to inflate grain volumes during Q4, while increase of grain production worldwide should continue to put pressure on grain prices and support grain trade in the medium term. Minor bulk trade has the highest correlation to global GDP growth and is expected to expand by 4.4% during 2024 and 2.6% in 2025.
The positive regional steel price arbitrage and the potential rush to build up inventories before the implementation of tariffs continues to incentivize Chinese exports and backhaul trades, while bauxite exports out of West Africa continue to expand at a strong pace that generates ton miles for the Capesize sector. As a final comment, we expect a relative Q1 market slowdown, but remain optimistic about the medium term prospects of the drybulk market given the favorable supply picture, stricter environmental regulations and recent steps by the Chinese government to stimulate the economy. In a period of increased geopolitical uncertainties, we remain focused on actively managing our diverse scrubber fleet to take advantages advantage of emerging market opportunities and continue creating value for our shareholders. Over to you, operator.
Haris Slaganarkey, Chief Strategy Officer, Star Bulk Carriers: Thank
Conference Operator: you. Our first question is from Omar Nubka with Jefferies. Please proceed.
Hamish Norton, President, Star Bulk Carriers: Thank you.
Omar Nubka, Analyst, Jefferies: Thanks, operator. Hi, guys. Good afternoon. I have
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: a couple of questions. And maybe
Omar Nubka, Analyst, Jefferies: just first off on the synergies you're realizing following the merger with Eagle. You've got $9,000,000 so far through the Q3.
Christos Bagueres, Co Chief Financial Officer, Star Bulk Carriers: Can you talk a
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: little bit about where you
Omar Nubka, Analyst, Jefferies: think this starts to evolve from here? I know the initial target had been or maybe the existing target continues to be $50,000,000 achievable
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: within 12 to 18 months.
Omar Nubka, Analyst, Jefferies: Do you feel that you're on pace for that? Does it happen sooner? And is there any more that can be extracted, do you think?
Christos Bagueres, Co Chief Financial Officer, Star Bulk Carriers: Thank you, Omar. This is Nikos. Focusing on Q3, where you see the $6,500,000 of synergies just for the quarter, gives a pretty good idea of what should be falling on the consecutive quarters and throughout 2025. Expectation is that this threshold per quarter should improve, especially as we're kicking in with efficiencies on crew changes, which has been an expensive exercise that we need to correct. And drydocks have much more efficient expenses.
So I think we're on target. And hopefully, we'll be reporting better numbers as well on Q4.
Hamish Norton, President, Star Bulk Carriers: Yes. And just to add, the synergies are at $26,000,000 annual run rate already. And we're we've got sort of 4 quarters before we expect it to hit the final run rate. So I think we'll be there and we'll probably beat it.
Omar Nubka, Analyst, Jefferies: Okay. Thanks, Hamish. And just to make sure I hear it correctly, probably like the synergies that are to be realized from here in that sort of a bigger ratio or bigger amounts are on the operating cost like the vessel OpEx and on the dry dockings?
Hamish Norton, President, Star Bulk Carriers: When the dry dockings is, yeah.
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: The $26,000,000 run rate is only OpEx and G and A. On top of
Christos Bagueres, Co Chief Financial Officer, Star Bulk Carriers: this, you should add the dry docks that Nikos made reference during his presentation. We did not have any dry docks on the Eagle Bag fleet during the Q3. So the figure that you see there of $6,500,000 includes only OpEx, G and A and indirect expense savings for this specific quarter.
Omar Nubka, Analyst, Jefferies: Okay. I see. Thank you. And then I guess, what I guess it's still early days. It's just 1 quarter officially post merger.
But what do you think and this is a modeling question, but what should we be modeling for G and A on, say, an ongoing basis?
Christos Bagueres, Co Chief Financial Officer, Star Bulk Carriers: So, Omar, this is Simos. The figure that we have actually the split that we have in the for the Q3 for the Digibulk, ex Digibulk office G and A is $13,700 per day per vessel. So we have managed bring it significantly lower than the figure that Eagle had during the last quarter of operation. We expect that as we move ahead, we will be in a position to further reduce the office expenses and headcount expenses of Stamford and Singapore and bring it closer to the figure that the Athens office had up to last quarter.
Omar Nubka, Analyst, Jefferies: Okay, great. Thanks, Timo. And just a final one on my end, more market color. And Petros, you discussed this a little bit, but just wanted to get maybe a bit more flavor or feel for how you've been seeing this market develop recently. Clearly, Capes have been the outperformer really all year.
And even recently, even though there's been some volatility, Capes have definitely been firmer. But the sub Capes seem to be a
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: bit stuck. And just wanted to see if
Omar Nubka, Analyst, Jefferies: you could maybe get a sense of what's driving that divergence?
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: Hi, Omar. Yes. Well, actually, the Capes have been doing okay for the quarter. They haven't been doing that great because the average for Q4 has been 20,000 800 and it was last week and a couple of days ago that actually last week that it did extremely well. But the average has been 20,800.
It's not that huge. And also it's not just the smaller sizes. The Supramax average has been about 14,500. So it is actually the problem is actually with the Panamaxes. And it's a bit surprising because if you look at the Panamax, the quantities that have been carried during 2024, they have been 9.3% in tons higher than the equivalent last year.
So actually I was wondering and I had a discussion with our analysis department and the reasons of the fall in on the Panamaxes are as follows. First of all, the supply is 3.4%, which is on the relatively high side, 3.4% already. Then a big problem has been the reduction of congestion. On the Panamax side, most of the reduction in congestion has been on those vessels. Then a third problem has been the fact that 42% of the additional tons this year have been Indonesian coal to China.
And this is, as you know, this is very short distance. Thereafter, Brazil decreased their corn exports by 7,000,000 tons compared to last year and that's long distance. Although Argentina actually increased theirs, they do a lot of that on the small on Supra vessels, where Brazil exports mostly on Panamaxes. Therefore, the decrease affected the Panamaxes. Then of course, the opening up of the Panama Canal didn't help a lot.
Russia exported less grains from the Black Sea and there was a number of Panamax tonnage released from the reduction in the Chinese coastal trade. So all that actually conspired in reducing actual demand in ton miles for the Panamax sector.
Omar Nubka, Analyst, Jefferies: Got it. Petros, thank you. Very clear and very helpful. Thanks guys. That's it.
Christos Bagueres, Co Chief Financial Officer, Star Bulk Carriers: Thank you, Omar. Thank you, Omar.
Conference Operator: Our next question is from Ben Nolan with Stifel. Please proceed.
Ben Nolan, Analyst, Stifel: Appreciate it. Thank you. And by the way, that was that was a very comprehensive answer in the picture. So I appreciate that. It's helpful to me.
Omar Nubka, Analyst, Jefferies: The I did have a couple
Ben Nolan, Analyst, Stifel: of questions, though. First, sort of following up with the market trends and so forth, I was curious if you have and appreciating that you talked
Omar Nubka, Analyst, Jefferies: a little bit about sort
Ben Nolan, Analyst, Stifel: of the impact of the election and change in administration in
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: the United States. But have you seen any
Ben Nolan, Analyst, Stifel: change in customer activity yet? Is there any sort of front running of potential tariffs or anything of that sort? And maybe is that something you would expect or probably not?
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: Well, actually hi, Ben. Actually, we have not seen much yet, but we do expect to see some short term boost in trade because of what people are afraid is coming. And we have a view about what's going or what the Trump effect is going to be. If you want, I can talk about that. Sure.
Okay. So U. S. Trade U. S.
Bug trade actually is not huge. It's U. S. Trades about on bug is about 5% on exports and 2% on imports. So there is going to be a relatively small direct effect.
But what is going with the actual effects, let's take tariffs to begin with. So if there are big tariffs on China, what will happen is that China will import less from the U. S. And will import more from South America. So that is going to create longer distances and will probably more important will create more congestion because the South American ports are perhaps less efficient than the U.
S. Ports and also there is going to be more demand from the same ports. So I think that I would consider that that would be a positive effect. Also such tariffs, I believe will stimulate China to boost their economy. And I think as a countermeasure, so I think that may also become a positive result of such tariffs.
A third point of tariffs would be that a negative point would be that it is probable that it will create will have a negative effect on the world economy. We cannot evaluate that right now, but we believe there's going to be less trade overall at the end of the day. Specifically, we believe that tariffs will influence container ships more than anything else, because there's more such trade to the U. S. From China.
And if that happens and there's a reduction in trade on the container ships that will then affect Supramax vessels because when container ships are doing very well there is cannibalization of commodities from container ships to Supramax vessels. Now another effect of the Trump policies could be that the Ukraine war stops. And that had created inefficiencies up to now. But we think here that Europe will not give up their sanctions right away. So that will probably continue.
And hopefully, there is going to be reconstruction in Ukraine, which would be a very positive thing because that would create also major congestion. And we think there is going to be more exports from both from Russia and Ukraine from the Black Sea. So we consider that as a positive as well. Now what could be a big negative would be the fact that, I mean, you saw I think, or at least I saw that Iran is kind of retracting on their nuclear plans as far as creating nuclear weapons is concerned. And I think that this probably has to do with a certain fear of what Mr.
Trump might do. But a side effect of that could be that the Iranians might stop supporting the Houthis. And if that happens, it's a potential that the Red Sea will open. And if the Red Sea opens, that is not going to be a positive for shipping. We all know that a big percentage of vessels actually go through the Cape Good Hope and therefore ton miles increase.
And a final point, I think that the Trump administration would probably affect the dollar, would probably strengthen the dollar, which is not good for commodity trade and might reduce oil prices, which is not good for vessel speeds. So overall, there are positives and negatives. We actually see more positives in it, except if it leads to an opening up of the Red Sea. That could actually balance towards a negative.
Omar Nubka, Analyst, Jefferies: Yeah, that was a lot more than
Ben Nolan, Analyst, Stifel: I was counting on. Very helpful. I appreciate it.
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: I knew you would ask the question, so I was prepared. Yeah, you always are.
Ben Nolan, Analyst, Stifel: So changing gears, just for my second question, you guys have been implementing and spending money on the energy saving devices. I'm curious now that you've had them or there's quite a number of them that are in the fleet and you've been using them. Have you done any postmortem at all in terms of figuring out what your actual return on the investment has been and what your excess cash flow is relative to vessels that don't have that equipment?
Christos Bagueres, Co Chief Financial Officer, Star Bulk Carriers: Hi, Ben. This is Miklos. We are trying to figure out what is the answer to the question before we install them. So it's pretty much doing a model testing before we install anything. And importantly, we do see trials on every ship that is fitted.
So we have actual numbers that we count on, and we make our forecast on that basis. The short answer is repayment period is anything between 2 to 3 years depending on the measure, which ranges from that all the way to change in propellers. And the efficiency we get as tested is anything between 6% to 10%, depending on the combination of technologies you use.
Ben Nolan, Analyst, Stifel: Okay. And there haven't been any
Omar Nubka, Analyst, Jefferies: variance
Ben Nolan, Analyst, Stifel: relative to sort of what you had modeled and tested it to come in as expected?
Christos Bagueres, Co Chief Financial Officer, Star Bulk Carriers: It is coming as expected because we do not install anything unless we run the mathematical calculations behind it. The effect beyond, of course, getting better consumptions and burning less fuel, so we know that the repayment is quite specific, is that the CII rating of the vessel improves once you fit the devices. So we follow a very careful approach of when and what to install. Some ships, we will just leave out. But vessels that require an upgrade to remain competitive until we have much more clear picture on the CII reduction rate post-twenty 26 or fuels or retrofits, we prefer to keep everything upgraded to remain competitive.
It seems to be working. That's why you see us continuing with the plan.
Ben Nolan, Analyst, Stifel: Got it. Okay. Very helpful. I appreciate it. Thank you.
Thank you, Ben.
Conference Operator: Our next question is from Chris Robertson with Deutsche Bank (ETR:DBKGn). Please proceed.
Omar Nubka, Analyst, Jefferies: Hey, good afternoon, everyone. And I shout out to Omar and Ben for taking most of the good questions there. One of the follow-up though on Ben's questions related to the energy saving devices, but I noticed you mentioned in the slide here around the use of biofuels. Wondering if
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: you could speak specifically on
Omar Nubka, Analyst, Jefferies: that, if that's biodiesel, if that's for use in the secondary tanks in certain areas, I guess, just in Europe, kind of the economics around biofuel and
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: the availability in terms of
Omar Nubka, Analyst, Jefferies: where you could pick that up as a bunker?
Haris Slaganarkey, Chief Strategy Officer, Star Bulk Carriers: Hi, Chris. This is Haris. So while we are looking to biofuels within the scope of fuel EU maritime regulation, which basically requires that we reduce the carbon intensity of the fuel that we burn. And it is there is a pulling mechanism in this regulation, which basically enables us to use biofuels on a few vessels and this will generate credit for the remaining of the vessels with trade in and out of Europe. The regulation is relevant only for our trade in and out of European ports.
Now we are currently in discussions with banker suppliers. At the moment, the biofuel we're looking into is B30, which is the most available and the most tested to burn in our engine rooms. There is availability for the quantities that we expect we will need in order to comply with the regulation for 2025. Now what may change the landscape here is the global regulations that are expected to be decided within 2025 to come into effect in 2027, which at that point in time will refer to the entire globe. So once we see relevant measures at the global level, so for us this means that we'll have to reduce carbon intensity if we burn in our global trade.
This will require additional quantities of biofuels. So this is the challenge. The challenge will be from 2027 onwards. For 2025, we do not expect to have difficulty in sourcing the biofuel that we need to comply with the regulation.
Omar Nubka, Analyst, Jefferies: Okay. That's helpful. And just as a follow-up to that, I guess, as it relates to your fleet, but potentially the broader fleet, are there any tweaks or upgrades to your engines or just engines in general across the fleet that would need to be done in order to burn the biofuel?
Haris Slaganarkey, Chief Strategy Officer, Star Bulk Carriers: No, no. Biofuels are already tested and we can burn them in our engine rooms without any further modification.
Hamish Norton, President, Star Bulk Carriers: Yes, the OE-thirty is basically 70% fuel oil, right, and 30% biodiesel, and that makes work.
Omar Nubka, Analyst, Jefferies: Hey, Mitch. Is there any additional maintenance required in burning that type of fuel? Does that create any issues down the road where
Hamish Norton, President, Star Bulk Carriers: it would increase costs anywhere? Well, you have to use the right lubricating oil, and Nikos may be more familiar with that than I am. But I think that is I think, basically, as long as you burn it relatively quickly after you buy it, it works well. I think it can go bad if you leave it a long time.
Christos Bagueres, Co Chief Financial Officer, Star Bulk Carriers: Hi, Chris. This is Nikolas. Hemi is correct. It's a lifetime of the fuel rods. We keep it on board.
However, this is intended for the European trade, as Hijs mentioned. We've done our work in terms of the frequency of calls in Europe, and we'll have a pretty good idea of what tons we will require to comply with surely you, especially after the Eagle merger, where we have Alamo Supras, and these are the ships that are calling heavily into Europe. But we don't expect any difference on operating expense, maintenance or any sort of damages to be done with fuels. It's pretty safe to use it. We've tested it.
So we're good.
Haris Slaganarkey, Chief Strategy Officer, Star Bulk Carriers: And Chris, just a follow-up for your modeling purposes. These are costs that through our charter parties, we are able to pass on to our charterers. So this wouldn't be extra cost for Star Bulk.
Omar Nubka, Analyst, Jefferies: Okay. Good to hear. Okay. Yes, I appreciate the answers. Thank you very much.
Conference Operator: Our next question is from Benedict Fulton Neuez with Clarkson
Ben Nolan, Analyst, Stifel: Securities.
Clement Mullens, Analyst, Value Investors Edge: So at least on our numbers, the level of market seems to be pricing in quite a discount to secondhand values, your stock included. So I would love to hear your thoughts on the current situation in the S and P market.
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: You mean what we think, where we think prices will move? Yes. Well, prices react to chartering rates. So therefore, on the smaller vessels, we will probably see a downside for as long as they are not doing as well, especially on Panamax. On the Supra, as well, probably because they follow Panamaxes to a degree.
On the Capes, the picture is much better in the sense that the order book is like 7.4%, which is very low. And then there is expectation that there is going to be longer routes to trade going forward, more iron ore from Brazil and more bauxite from West Africa and later on more iron ore from West Africa and therefore more ton miles. So I think that on the Capes, the pricing will be more resilient. And let's not forget that there is not too much availability for new buildings. So people will necessarily turn to secondhand and that will probably underpin prices to a degree.
So overall bigger vessels not a huge issue, probably more of a problem with Panamax for as long as they are weak.
Clement Mullens, Analyst, Value Investors Edge: And I guess a slight follow-up on that one. You did mention that the softness in Panamax relative to the other segments. Do you see that as more of a structural thing or do you expect it to be temporary?
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: Yeah. Well, what do Panamaxes carry? Panamaxes carry grains and coal. So it will depend on what happens with these two cargoes. We think that on the grain side there is going to be more trade going forward.
On the coal side, in the long term, it's going to be less coal trade. But I think that in the shorter term, especially with the Trump transition, that might not happen. So and of course, as we said, because of the need to use higher
Christos Bagueres, Co Chief Financial Officer, Star Bulk Carriers: quality
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: ingredients in steelmaking, which is iron ore and coal, and those are mostly situated in the Atlantic, we think that long haul will remain. So long haul is more important than tons themselves. So I think that it will revert to a better market going forward. Of course, let's not forget that the Panamax order book is the highest at around, I think, 14.1%. And that is not going to help a lot.
So overall, on the trade side, we are positive for the medium to longer term on the Panamaxes. But as I said before, we are more positive on the Capes and the Supras, depending on what happens with the Red Sea and with container ships.
Christos Bagueres, Co Chief Financial Officer, Star Bulk Carriers: Perfect. Thank you, guys.
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: Thank you.
Conference Operator: Our next question is from Clement Mullens with Value Investors Edge.
Clement Mullens, Analyst, Value Investors Edge: Most has already been covered, but I wanted to ask a bit about your fleet strategy going forward. You now have 10 vessels time charter deal under long term agreements. Could you talk a bit about how you think on the trade off between time charter during versus buying when you think about renewing the fleet, especially considering the somewhat elevated asset values you were talking about before on the mid sized segment?
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: Even within that time charter versus what?
Hamish Norton, President, Star Bulk Carriers: I'm sorry, I think purchasing vessels.
Christos Bagueres, Co Chief Financial Officer, Star Bulk Carriers: Versus by
Hamish Norton, President, Star Bulk Carriers: Yes, purchasing vessels. I think I'll let Petros take care of the size differences and so on. But I think one thing to be clear about is that with our share trading below net liquidation value of hard assets, we're not intending to buy big fleets of vessels for cash or to place large newbuilding orders for cash. We understand that with the share trading basically below the net liquidation value that shareholders are looking for us if we're going to make an investment in ships, it should be basically buying our shares. So that's for the near term.
I think for the longer term, obviously, we'll have to renew the fleet. And Petros, maybe you want to talk to that subject?
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: Yes, yes. On purchasing of vessels, as Hamid said exactly, on chartering in vessels, it will depend on pricing. I mean, the vessels that we have chartered in, actually we did them in extremely good levels for us. After that, when the market improved, they went up much they were up like $2,000 or $3,000 per day and therefore we stopped chartering in. If the market slows down and ideas fall to previous levels, then we will do more of that.
We have a very good relationship with Japanese owners And I'm sure that they appreciate the strength of our company and are the good cooperation that we always had on chartering deals. And I think that we'll do more of them. But at prices that make sense at charter level. That's very helpful. Thank you.
Conference Operator: We have reached the end of our question and answer session. I would like to turn the conference
Christos Bagueres, Co Chief Financial Officer, Star Bulk Carriers: back over
Petros Pappas, Chief Executive Officer, Star Bulk Carriers: to management for closing remarks. No further remarks, operator. Thank you
Christos Bagueres, Co Chief Financial Officer, Star Bulk Carriers: very much.
Conference Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.
Omar Nubka, Analyst, Jefferies: Thank you. Bye bye.
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