QUOTE AND NEWS
The Hindu Business Line  Sep 23  Comment 
A fitment allowance of 27.5 per cent has been approved and sanctioned by Chief Minister K Chandrashekar Rao to all employees of TS GENCO, TS TRANSCO and two DISCOMS as part of pay revision that ha...
The Hindu Business Line  Aug 15  Comment 
AP Genco and NTPC are set to sign up for memorandum of understanding for development of a 1000 mw solar power park in Andhra Pradesh. This is part of the State Government’s effort to boos...
The Hindu Business Line  Aug 12  Comment 
The Andhra Pradesh Government on Tuesday rejected the Andhra Pradesh Electricity Regulatory Commission order which said power purchase agreements entered into between AP Genco and various...
The Hindu Business Line  Aug 6  Comment 
The Andhra Pradesh Power Generation Corporation Ltd has announced shut down of several of its thermal power plants in the State.With the prospect of increase in hydel power generatio...
The Hindu Business Line  Jul 15  Comment 
The Andhra Pradesh Government has drawn up plans for a 1,000 MW solar park in Guntur district. A detailed review of the power sector is now under way at AP Genco here to work out modalit...
SeekingAlpha  Jul 8  Comment 
By Acacia Capital Management: Company and Capital Structure Overview Eagle Bulk Shipping, Inc. (EGLE) is an owner of 45 dry bulk vessels with a focus on the Handymax (35k-60k dwt) sector in the dry bulk industry, with particular emphasis on...
SeekingAlpha  Jul 7  Comment 
By Verge Of Bankruptcy: On July 2nd, a federal court issued its ruling on the Genco Shipping (OTCPK:GNKOQ) bankruptcy case. As I predicted in a previous SA article, the company was deemed insolvent despite the equity committee's objections. Large...
The Hindu Business Line  Jul 3  Comment 
The power situation in Andhra Pradesh is improving with the recent steps taken by the State Government, according to K Vijayanand, Managing Director of AP Genco (generation corporation) and...
Reuters  Jul 2  Comment 
Genco Shipping & Trading Ltd : * U.S. bankruptcy judge says will confirm Genco Shipping & Trading Ltd




 
TOP CONTRIBUTORS

Genco Shipping (New York Stock Exchange NYSE: GNK) owns 53 dry bulk vessels[1], ships used to transport non-liquid goods such as grain or coal. The company has grown at a breakneck pace.[2][3] Genco's ships, which have a total shipping capacity of approximately 3,812,000 deadweight tons (dwt),[1]move mostly iron ore, coal, grain, and steel products. Genco charters its ships for periods of one to four years, and so only assists other companies in moving those goods. As Genco charters its ships for movement along major international shipping routes, it exposes itself to competition from the 1,300 or so other dry bulk vessel shipping companies and owners operating in the world.[4]

The health of the dry bulk shipping industry, and all companies within it, are tied to the health of China's economy.[5] With China on the rise, shipping rates have been skyrocketing.[6] Unfortunately, a surge in new shipbuilding is raising demand for ship maintenance and repair services, as well as moderating potentially high charter rates. Worse yet, that surge is going to continue for at least the next couple of years. Ironically, while high demand for steel products has pushed up charter rates, it has also made new shipbuilding more expensive.

Company Overview

Genco Shipping buys used but young vessels, and then contracts them out to customers for periods of one to four years for a fixed daily fee.

Unlike many of its competitors, which focus on building up a fleet of just one or two ship types, Genco evaluates a ship on its value in and of itself, not on its type. Each ship is capable of carrying a different amount of cargo, with a Capesize vessel capable of moving six times as much cargo as a Handysize vessel.[7] Being larger is not always better, however. A large ship like the Capesize can only be accommodated by the largest deep water terminals, while a Handysize vessel can access nearly all ports. Therefore, although rates for dry bulk ships tend to move together, they do vary by vessel type. Having a diversified fleet lets Genco minimize volatility in its revenues.

Genco has also made the choice, which it may later change, to make time charters rather than running its ships on the spot market. On the spot market, a company can contract out its ship for a single voyage based on current charter rates on the Baltic Dry Index (BDI). The BDI is a daily average of the prices required by shipping companies on the Baltic Exchange to transport raw materials across the sea. The Baltic Exchange is a global marketplace for brokering dry cargo shipping contracts. Long term contracts avoid the risks, but also the potential profits to be made on the spot market. In a time charter, Genco loans its ships to another company for a fixed daily fee. Genco is responsible for managing the ship and its crew during that time, but has no control over how its ship is used, aside from terms set in the charter contract. Genco does not manage its ships directly, preferring to contract technical managers from companies in the business of taking care of the day to day activities of dry cargo vessels.

Business & Financial Metrics[8]

In 2009, GNK generated a net income of $148.6 million on $379.5 million in total revenues. This represents a 71.7% increase in net income on a 6.4% decrease in total revenues from 2008, when the company earned $86.6 million on total revenues of $405.4 million.

Business Segments

GNK operates through one reportable business segment which transports drybulk cargo with its fleet.[9] The company does not provide geographic breakdown of its revenues because doing so is impractical when shipping through international waters.[10]

Trends & Forces

World Economic Growth Increases Demand for Raw Materials

Strong growth in Asia, mostly in China, has caused demand for raw materials to skyrocket. Unable to extract the necessary resources domestically, China has turned to imports from other countries. Because Genco's fleet is diversified, the company avoided being dragged down by negative growth in the Handysize market, in which it owns 8 ships[7], but also avoided being propelled by strong growth in the Supramax and Panamax markets, in which it has 9 ships.[7]

Rising Steel Prices Make Future Fleet Expansion Less Attractive

Rising Chinese demand for iron ore has pushed up dry bulk shipping rates.This means that shipbuilding costs have been increasing, making future ship expansion more expensive. Some of that rise will be absorbed by shipbuilders, and some of it won’t. The problem is that future fleet expansion is becoming less and less attractive. Within 3 years the size of the worldwide fleet will be at least one and half times what it is now.[11] Even if China continues its rapid rate of expansion, over the past 3 years it grew just 36%,[12] not 50%.

Competition

Competition in the dry bulk shipping industry is based primarily on three things: price, vessel type, and vessel age. Price wise Genco has little control, only being able to choose when and for how long to make a contract. Genco's fleet is young, with an average age of just 6.37 years,[7] and well diversified, with almost every type of ship from the baby Handysize to the gargantuan Capesize.[7] Unlike its competitors that run on the spot market, Genco passes port, canal, and fuel costs onto its customers.[13]

Genco competes with companies like:

References

  1. 1.0 1.1 Genco Website, retreived November 1, 2011
  2. June 30, 2008 GNK, 10-Q, Item 1, Page 4
  3. [2007 GNK, 10-K, Item 1, Page 9
  4. 2007 DSX 20-F, Item 3, Page 25
  5. The People’s Republic of China’s Economic and Commercial Counselor’s Office - China import growth weak; exports remain strong
  6. 7.0 7.1 7.2 7.3 7.4
  7. GNK 2009 10-K pg. 41  
  8. GNK 2009 10-K pg. F-22  
  9. GNK 2009 10-K pg. F-9  
  10. Chinability - China's Gross Domestic Product
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