QUOTE AND NEWS
The Hindu Business Line  Jun 1  Comment 
Bharat Heavy Electricals Limited and Telangana State Power Generation Corporation Limited have signed up to set up a 4,000 MW ultra mega power project at Damarcharla in Nalgonda district of Telang...
The Hindu Business Line  May 31  Comment 
The 600 megawatt Kakatiya Thermal Power Plant of TS Genco coming up at Bhoopalpally in Telangana completed boiler light up on Sunday. The boiler light up is an important s...
Benzinga  Apr 9  Comment 
In a report published Thursday, GMP Securities analyst Magnus Fyhr maintained a Buy rating on Baltic Trading Limited (NASDAQ: BALT), with a price target of $3, following the announcement of the company's merger with Genco Shipping. Genco...
TheStreet.com  Apr 8  Comment 
NEW YORK (TheStreet) -- Shares of Baltic Trading were falling 9.9% to $1.46 on heavy trading volume Wednesday following the announcement that Genco Shipping & Trading will acquire the shipping company. Baltic Trading is currently a...
The Hindu Business Line  Apr 6  Comment 
Emerson Process Management, a global business of Emerson (NYSE: EMR), has completed automating a new 800-MW, supercritical thermal power-generating unit of AP Genco in Krishnapatnam. Sri...
The Hindu Business Line  Mar 21  Comment 
Rural Electrical Corporation (REC) Limited, has come forward to fund to a tune of Rs 24,000 crores to Telangana State GENCO power projects of 6280 MW installed capacity. The proje...
Wall Street Journal  Mar 19  Comment 
FedEx Corp. says the price it paid for third-party logistics provider GENCO Distribution System Inc. in January was $1.4 billion.
The Hindu Business Line  Mar 16  Comment 
In a boost to the Telangana Government’s efforts to augment power generation capacity, Power Finance Corporation (PFC) has come forward to fund two projects in the new State. Representati...
The Hindu Business Line  Feb 9  Comment 
NTPC BHEL Power Projects Pvt. Ltd. (NBPPL) and AP Genco have entered into a memorandum of understanding on Monday for supply of spare parts of Coal Handling Plant, Ash Handling Plant and other bal...
The Hindu Business Line  Jan 26  Comment 
The 2x800-MW Krishnapatnam thermal power station coming up in the Nellore district of Andhra Pradesh will commence commercial operation by March. K Vijayanand, Chairman and Managing Direc...




 
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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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