TWST: Here we are kind of halfway through the year or three quarters of the way through the year rather, what's going on from a business perspective at this point, is it still as bad as it's been?

Ms. Boyden: That depends on which sector you are talking about. With tankers, yes, things are pretty bad. There is really not a lot of promising signs of recovery out there. The OPEC cut is still causing a lot of problems with the decline in supply. In fact, they cut production by about 4.2 million barrels last November. Kuwait recently announced it doesn't expect OPEC to further cut in this month, but at this level things aren't great.

The other problem is, there continues to be high levels of inventory, which is definitely causing a problem. The US clearly stands at about 337 million barrels and the SPR is at about 99% of capacity. Also about 30 to 35 VLCCs are being used as floating storage, which is around 70 million barrels. Finally I think we can look at oil demand growth has been seriously impacted by the global recession. The IEA does expect oil demand to fall about 1.6% to about 84.5 million barrels a day, and that would be about the lowest level it's been in about five years. The last thing would be the order book, which so far year-to-date about 414 vessels have been delivered to the fleet about 35.2 million tons. Over the last eight months, the fleet is growing about 7%. If you combine all those things on the demand side with the supply side, it's really not a big surprise, but we see rates on the majority of subsectors being at breakeven or below. Quite frankly, we would expect that to stay that way for a little while.

TWST: Where do we go from here, is there any signs of relief on horizon?

Ms. Boyden: Not at the moment. We were looking at a recent little upswing in suezmaxes, where that could be due to things calming down in Nigeria politically and then they're able to export more oil from that. But for the most part, I don't really see a tremendous amount of relief coming over the horizon over the next six months. A lot of it will depend on how much tonnage is scrapped, as rates continue to stay down at this level. It really doesn't make economic sense to continue operating these vessels and pay for them when the vessels really aren't earning a decent rate.

TWST: Are we seeing any signs of that yet?

Ms. Boyden: We've seen a little bit, but quite frankly I haven't probably seen any kind of scrapping that we have the dry bulk. I know a lot of people talk about the 2010 IMO regulations, but it's worth noting that a lot of the tanker fleet is already double-hulled, and there aren't that many oil majors single-hulled. I think Exxon (XOM)is the only one that does and so I don't think it's going to have as much impact on the fleet as some people think it will.

TWST: What's going on from a scrappage point of view with all these new ships coming in, is anybody taking old stuff out?

Ms. Boyden: As I said, we really haven't seen the kind of surge in scrapping like we've seen in the dry bulk space. As I mentioned earlier, if rates continue to be at breakeven or below, we may very well start to see that scrapping increase, as owners decide that it simply isn't worth their time to operate these vessels. We haven't seen any kind of real upturn yet in the tanker space.

TWST: What's the outlook for new vessels coming in next year and year after at this point? Have we seen a pullback?

Ms. Boyden: Certainly the number of orders itself. But in terms of the actual vessels that were ordered several years ago and the order book as it currently sounds, I think a lot of that will be delivered. We've definitely seen companies trying to cancel, but I think within the tanker space a lot of it will be delivered.

TWST: Any signs of pricing getting any better on the tanker side?

Ms. Boyden: You mean rate wise?

TWST: Yes.

Ms. Boyden: As I said, I'm not wildly optimistic. I do think there's definitely an oversupply of vessels coming in. Demand isn't fantastic by any stretch of imagination. Even though it might be improving a little bit, as sort of global economies start to pick up a little bit, but to be honest, we do get to levels of supply of crude, as I've mentioned at the beginning, are still 4.2 million barrels below where they were and I don't really see any reason right now for another cut, given that oil is now hovering around $70.

TWST: As you talk to the companies, what are they doing in this environment, just hunkering down?

Ms. Boyden: Yes. I think that one of the differences between the tanker companies and the dry bulk companies is that tanker companies have had a really strong market for quite a long time. This has enabled them to generate a significant amount of cash to really put their balance sheets mostly in order and to have some cash. I think from that perspective they are in better shape than the dry bulkers. But I'm certain that we could see asset values decline another 10% to 20%, especially as this rate environment continues. So whether or not they look to buy vessels, I think the company is always looking, but I don't think that they're going to jump right in now.

TWST: When might things change, in 2011?

Ms. Boyden: Certainly things could change in 2010, if we see a lot of increase in scrapping, but it would not be a very, very high amount. As we're saying, the rebound in global oil demand growth, that could change. I'm certainly not negating the fact that we could see some kind of recovery and I think we will. I don't think rates will stay down there forever. But it's a question of whether or not there will be high enough for owners to really be able to get a decent rate of return. So that's kind of what we're looking at.

TWST: So that's somewhere down the road?

Ms. Boyden: Yes. I think it's very hard to put a figure, put a date on it, to be honest. There's a lot of moving pieces that's around the dry bulk space and at the moment I think things are pretty bad, but you know certainly there will be an improvement, it's just a question of when.

TWST: Do the companies have their balance sheets to get through this tough period even if it stays around for another year or two?

Ms. Boyden: For the the majority of tanker companies do, but there are a couple that certainly have some issues and we'll have to work through that with their lenders and their shipyards. But I think for the most part, many of these companies, as I said, have really worked on their balance sheets, have worked on their debt levels to improve their balance sheets and are still sitting on a fairly hefty amount of cash. I think the tanker companies are certainly in a better position to weather any prolonged downturns than perhaps those in the dry bulk or the container sectors are.

TWST: Are we likely to see consolidation in this tanker space with this kind of an environment?

Ms. Boyden: There may be one or two that are struggling a little bit that might be looked at as a takeout candidate. But I think right now I wouldn't expect a tremendous amount of M&A going on in this space. The companies equity is not as high as it could be. Certainly some of them are issuing equity itself in order to get even more strength on their balance sheets. I'm not convinced with the big rush of M&A activity, but like I said there may be one or two companies that are in a little bit of trouble and maybe attractive to some of the bigger tanker companies that are in a much better financial situation.

TWST: Given this kind of not particularly bright outlook, are you finding investors at all interested in this space?

Ms. Boyden: Yes. We certainly have spoken to people. I think that's a question of picking the right company at the right price and that's really the name of the game, isn't it? I think we see a little more interest in the dry bulk space from our own perspective than in the tanker space - the outlook for the tankers is pretty grim.

TWST: Any names there you like at this point or not?

Ms. Boyden: We like Tsakos Energy Navigation (TNP). We think the stock is pretty cheap down here. They have profit-share arrangements in a lot of their vessels, so they're protected on the downside, they can still take part in any upside should have come. They have a nice amount of cash, and you have a couple of vessels coming in. I think they're in an excellent position right now to certainly weather the storm and we think the value is very good.

TWST: But that will be the name to look at?

Ms. Boyden: Yes. Right now that's probably about the only name that we will buy in this space.

TWST: There are times to be positive and times to be negative.

Ms. Boyden: Exactly. You have to remember that the tanker industry has had such a super cycle. From 2002-2008, this industry had been on a tear and the normal cycle is really only one or two years. I think they've all done very well and I think the good times don't last forever.

TWST: Let's move over to the dry bulk space, what's going on there?

Ms. Boyden: The dry bulkers are certainly moving up a little better. Their rates over the last couple of weeks have been falling dramatically and I think a lot of that is due to the fact that Vale  (VALE) has taken itself out of the market, is no longer putting in orders I think. But in the second half of the year, we're certainly seeing lower iron ore imports into China, as their inventory is holding steady at about 76 million tons and they certainly don't look to be increasing that. Steel prices have fallen pretty dramatically, down about 15% in the last month, which to us does indicate a weakening in demand for the products. I think the last quarter of this year is going to be definitely not as good as the first three quarters, which I think took everybody by surprise. I think the worry here is if they drop another $10,000 it will be at breakeven again or below. It's certainly something we're watching very closely.

The fact that the dry bulk space has been behaving so well is really, in our opinion, much to do with the Chinese stimulus package. It was about $586 billion in 2009 and 2010, about 50% of that is for infrastructure. Very clearly that would stimulate domestic steel demands, etcetera. It's a question of whether or not we're seeing real demand or we're seeing stimulus demand. Scrapping levels were pretty high in the first half of 2009, but they have slowed down since. Deliveries have been much less than anticipated. We expect that to reverse later this year.

TWST: Why have deliveries slowed, just delays getting product out?

Ms. Boyden: It's cancellations, people as they're putting their deposits, etcetera and the shipyards being willing to work with owners on that. That certainly did have an impact in the first nine months of the year, but, you know, that can't go on forever because there still are vessels that need to be built and at some point they're going to be delivered.

TWST: It's a temporary slowdown?

Ms. Boyden: Yes.

TWST: What's the outlook here? Are things likely to get better sooner here than in tankers?

Ms. Boyden: It's a very difficult picture because you've got a demand situation that is being driven by stimulus and also being manipulated somewhat by traders with how much iron ore they import. A lot of it is hard to see, what the actual real demand figure is, so that is that side of equation.

The other side is supply. We used see a fixed number of newbuilds that we could really count on, but it's not fixed anymore. We really don't know how many ships are going to be delayed, how many are going to be canceled and how many are actually going to come into the market. I think the dry bulk space will hold up better at the moment than the tanker sector. But certainly I wouldn't be surprised to see a lot of short-term pain.

TWST: When might we begin to see recovery here? Is that really dependent on the world economy at this point?

Ms. Boyden: I think it's dependent on the world economy. But I think primarily it's dependent on China and how China reacts and what their steel production is, what their iron ore imports are, etcetera. As I said, it certainly doesn't help that Vale has come out of the market and is also ordering their own vessels in order to get more of a handle on the supply chain. Certainly once that starts to happen, we're definitely going to see an impact on take rates because Vale will be using their own vessels.

TWST: How long is that likely to take before that impact shows up?

Ms. Boyden: It's already impacting the market in the sense that Vale simply isn't placing any orders. But in terms of all the vessels they've delivered, we have a couple of years.

TWST: So as the economy recovers, there's going to be some benefit even with that going on?

Ms. Boyden: Right, absolutely.

TWST: You mentioned that rates have slipped rather dramatically here, anything on the horizon to correct that or is it going to just take time?

Ms. Boyden: Not at the moment. I think Vale will have to come back into the market. We'll have to see increased imports into China because they'd really think it's slowed down. We have to see, I think, Chinese steel production and pricing go up again. But the timing on that again is so relatively uncertain given all the uncertainty regarding the drivers in this space.

TWST: Do these companies have the capital to get through this?

Ms. Boyden: Some do, some don't. As I'm sure you know that earlier in the year, a lot of these companies were in breach of their loan-to-asset value covenants and a lot of them have to go back to the bank and renegotiate those things at much tougher rates or much tougher guidelines in the banks. So, yes, there are some companies here who we think are very well positioned.

TWST: With some in difficult shape, are we are going to see M&A activity here?

Ms. Boyden: Some of the companies do. I'm sure you know about these after-market offerings that a lot of these companies have been doing. But it's hard to tell whether or not they were forced to do that by their banks, and certainly some of them had no choice. Do I think there's going to be any particular M&A? No, I don't. Not a huge amount. I think it's going to be more people looking to buy at these companies, the ones that are in good shape, they're going to be looking to buy distressed fleet(s) from the banks and possibly from the shipyards.

TWST: What is going on from a capacity point of view, is it as bad as the tanker market?

Ms. Boyden: Fleet growth is going to be significant, I think, and will likely outweigh demand growth. We had about 7.1 million deadweight of scrapping year-to-date in August where we had 22.2 million deadweight of delivery. As you can see, it's sort of three to one in terms of new deliveries versus scrapping. Only seven cases have been scrapped year-to-date and the most of the scrapping has actually been on the handy side sector. We had 15 new Capesize vessels delivered in July, which is a new record. I think certainly most of the 2009 orders are probably now likely to be delivered because construction has already started. Although I think we'll see postponements and delays, companies are doing what they can. The other thing is, is that China has announced plans to support its shipbuilding industry. The South Korean government has announced something similar. So clearly even if a foreign buyer cancels its lot it could be likely that China will get there and say we're going to build it anyway.

TWST: This could prolong the agony?

Ms. Boyden: Yes, it could do. As I said, I think demand on the iron ore side took everybody by surprise this year, in terms that how high the iron ore imports go into China, but again I think the question is how much of that was speculation and traders, and how much of that is real demand versus stimulus.

TWST: Are investors interested in this segment?

Ms. Boyden: Yes, absolutely. Investors are interested in some of the names. We certainly have a list of names that we would recommend and list of ones we don't, but yes they're certainly interested.

TWST: Is it hope for future recovery at this point?

Ms. Boyden: Yes, I think a lot of investors look at the dry bulk space as being kind of a leading economic indicator globally because all the basic commodities that they transport, iron ore, steel, coal, grain, all of these things I think can be an indicator of future global economic performance. So I think people are definitely interested in that from that perspective. It's interesting not so much so because it's really only one commodity and it's really driven by oil supply, global demand growth and the order book. It's a relatively simple equation versus the bulkers, which have so many more commodities.

TWST: What names do you like in the space at this point?

Ms. Boyden: We like Diana Shipping (DSX) a lot, a company that has mostly long-time charters, has very little debt, virtually no debt, and has about $230 million in cash on the balance sheet. We would expect them to probably start being very interested in acquisitions over the next quarter or two.

The other name that we really like is Navios (NM). We like that because a lot of the fleet is long-time charter, but Angeliki Frangou who is the Chairman and CEO has been particularly proactive in working with the banks. NM is really one of the only names that we've seen that is getting a financing, which is also from several convertibles, stock offering deals, which have not been diluted to current shareholders versus deals that we've seen from other companies that have been highly diluted. Navios certainly has enough financing to really do what they want to do and buy distressed assets.

TWST: In terms of just distressed assets, are they looking for companies or just for ships?

Ms. Boyden: I think they would probably be looking for ships. I think there will be a lot of them out there where they are totally distressed. At this point I don't think so, I think asset values could still decline especially with current rate decline of what's being continued. But I know that they are on the lookout, as well they should be.

TWST: Right time and they've got the balance sheet to do it?

Ms. Boyden: Exactly. Both companies.

TWST: That's a good name. Is there another one or is that really the prime one on the space?

Ms. Boyden: I think those two are really are our top two picks at this point.

TWST: Who should you stay away from in this space?

Ms. Boyden: I still have concerns about Excel (EXM). They have raised cash through the CEO putting in money and then getting shares for it. They recently proposed to change their articles of incorporation to allow them to have up to a billion shares outstanding, which is very, worrying. They have older vessels. Certainly if rates turn, they're going to be suffering pretty substantially from that. They pretty much are diluting their shareholders. I think we don't like them, we have a sell on them. I think they did an offering in the 8th of September. So that's not too good. Our other concern would be, at this point, I'd say they're probably our biggest concern.

TWST: Thank you. (PS)


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