John Wobensmith, Genco Shipping and Trading president and CEO, joins Yahoo Finance Live to discuss the state of the shipping industry and how it's been impacted by the Russia-Ukraine war.
RACHELLE AKUFFO: Well, we're taking a look at the shipping industry now and logistics as well, as we look at how sanctions on Russia have been rippling through supply chains that were already under pressure. Joining me now is John Wobensmith, Genco's shipping and trading president and CEO. Thank you so much for joining me, John. Now you don't actually have ships in Russia or Ukraine or in the Black Sea region, but what role is your company playing in the fallout from this crisis? And any support that you're lending there? JOHN WOBENSMITH: Yeah, so you're correct. We do not have-- we're fortunate, actually, that we don't have ships in the Black Sea area right now because trade, for the most part, is very tamped down for obvious reasons. We do have several Ukrainian crew members on board our ships. The Ukrainian crew pool in the world makes up about 15% of the total industry. So it's actually pretty significant, and we're doing some things to help our crew members, as well as others, through the crisis. RACHELLE AKUFFO: And as we've seen, even for those who aren't directly exposed, some of these secondary effects, for example, the price of commodities. Talk about some of the secondary impacts that you're seeing. JOHN WOBENSMITH: So what we're really seeing is a lengthening of ton miles or trade routes or a rerouting. So we're seeing quite a bit more grain coming out of inventory out of the US Gulf, going into Europe, going into China. Brazil is in peak grain season right now. So, again, we're seeing more and more volumes go longer distances, which helps push up freight rates. And we're also seeing a similar effect in the coal market. So in terms of Russian coal typically going to Europe, that is obviously not happening now, so Europe is relying more on South Africa and Australia to source their energy needs, which, again, is longer ton miles and pushing up freight rates in the dry bulk industry. RACHELLE AKUFFO: So then with these changes then, how competitive is the shipping industry becoming? JOHN WOBENSMITH: Look, it's overall, I would say it's a very fragmented industry. You know, the top 10 owners only own about 15% of the world fleet. So it's still a very competitive market. However, with the supply and demand fundamentals as they are, meaning there just are not a lot of new IPs that are coming onto the water over the next few years. So it's becoming a very tight market and any incremental move up in demand, it just doesn't take very much to cover the new ships and then some, as that demand growth moves up, which is why we've seen healthy freight rates last year and continuing in 2022. RACHELLE AKUFFO: And I want to talk sanctions because we're seeing the sanctions on Russia affecting trade. How is that affecting your business in the US, South America, Australia, China, and India? JOHN WOBENSMITH: From that standpoint, it's not. You know, we are not lifting Russian cargoes, but having said that, sanctions on grain and coal out of Russia are not in place. We actually don't expect them to go in place. We haven't seen sanctions on agricultural products or coal in any other situations going back sort of 40, 50 years. So I think that is going to-- even though we're not moving those cargoes-- we've elected to make that decision-- others are. So we're concentrating much more on, again, US grain. We're concentrating on Brazilian grain. Our larger ships, our cape sized vessels are moving a lot of iron ore from Brazil and Australia into China for their steel industry. So there's a whole host of commodities that the dry bulk shipping industry moves that we're benefiting from and moving globally. RACHELLE AKUFFO: Now, not everyone is familiar with dry bulk shipping. Talk about how that works in terms of the unique opportunities and challenges that come with that versus, say, the traditional shipping that we're used to seeing. JOHN WOBENSMITH: Well, a dry bulk carrier actually is fairly simple. We have either four or five very large holds that we load commodities into, iron ore being the largest commodity, coal to a lesser degree, grain being a very large commodity. And then it runs the gamut, a lot of cement, steel products, gypsum, wood products. Fertilizer is a big product that obviously helps in the grain industry. And we're transporting these commodities along global trade routes. So our ships are spread out really around the world. What I would say about dry bulk shipping is-- and we're obviously seeing it firsthand with Ukraine-- is, it is involved in geopolitical market trends. And what we're seeing right now, again, are those longer ton miles on the grain and the cold front in particular, which is pushing freight rates up. And also the high oil price and fuel for our vessels has the effect of slowing the fleet down. And so what that does is, again, it takes ships for out of the market for longer periods of time. And freight rates move up as a factor of that. RACHELLE AKUFFO: And we did see that the stock was down for the day, but it is still trading near its 52-week highs. What's your outlook for the company? And what do you see as the biggest potential challenges? JOHN WOBENSMITH: Look, you know, we have spent-- we spent a tremendous amount of time last year delevering. So we paid off 50% of our debt from the beginning of last year through the end of last year. And the whole idea of that was to lower our cash flow breakeven to a very low level so that we could put into place a high yield dividend paying model with the comfort of knowing that low leverage is there so that no matter what volatility is thrown at us from a market standpoint and dry bulk and freight rates, we can continue to pay a quarterly dividend. So we now have that behind us. We'll be paying the first full quarterly payout under that value strategy for the first quarter earnings and cash flows. In terms of challenges, again, I think Ukraine is a challenge. COVID has been a challenge from a crewing standpoint and making sure we can get our crew members on and off of our ships in a timely manner. So it's really over the last two years, it's been an operational challenge, more so than the market. The market is cooperating pretty well. And again, I go back to the reason for that is because there just aren't a lot of new ships coming on. Those bursts have been filled up by other sectors within the maritime industry outside of dry bulk. RACHELLE AKUFFO: We do appreciate getting all your insights today. John Wobensmith there, Ginco's shipping and trading president and CEO. Thank you so much.
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