Polys Hajioannou - Chairman and CEO Dr. Loukas Barmparis - President Konstantinos Adamopoulos - CFO Ioannis Foteinos - COO.

Sean Morgan - Evercore ISI Ben Nolan - Stifel Chris Wetherbee - Citi Fotis Giannakoulis - Morgan Stanley Randy Giveans - Jefferies.

Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers Conference Call to discuss the Third Quarter 2018 Financial Results. Today, we have with us from Safe Bulkers, Chairman and Chief Executive Officer, Polys Hajioannou; President, Dr.

Loukas Barmparis; Chief Finance Officer, Konstantinos Adamopoulos; and Chief Operating Officer, Ioannis Foteinos. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session.

[Operator Instructions] Following this conference call, if you need any further information on the conference call or on the presentation, please contact Capital Link at (212) 661-7566. I must advise you that this conference is being recorded today.

Before we begin, please note that this presentation contains forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, concerning future events, the Company's growth strategy and measures to implement such strategy, including expected vessel acquisitions and entering into further time charters.

Words such as expects, intends, plans, believes, anticipates, hopes, estimates and variations of such words and similar expressions are intended to identify forward-looking statements.

Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct.

These statements involve known and unknown risks and are based upon a number of assumptions and estimates, which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the Company. Actual results may differ materially from those expressed or implied by such forward-looking statements.

Factors that could cause actual results to differ materially include, but are not limited to, change in the demand for drybulk vessels, competitive factors in the markets in which the Company operates, risks associated with operations outside the United States and other factors listed from time to time in the Company's filings with the Securities and Exchange Commission.

The Company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based. And I pass the floor over to Dr.

Barmparis. Please go ahead, sir..

Good morning. I'm Loukas Barmparis, President of Safe Bulkers. Welcome to our conference call and webcast to discuss the financial results for the third quarter of 2018. In this quarter, we've worked extensively in the financing a large part of our debt maturing in 2021 and 2022.

Having a comfortable leverage of about 55% for 8.2 years age fleet, which smoothened the debt profile for the following five years until 2023 to maintain one of the most competitive cash breakeven points and to deleverage to fleet scrap value after this period.

Refinancing actions will not prevent us from working at the same time in several sectors, including buying back one more vessel under the sale and leaseback agreement and further reduce our breakeven, expand on our fleet by 1 Capesize vessel, and most important, to implement environmental investments, including scrubbers and ballast water treatment systems.

Our investment in scrubbers for half of our fleet is designed so that we will be aligned timely with the IMO 2020 SOx emissions regulation, being in the forefront of technological developments and offering to our charterers reliable solutions from first class manufacturers ahead of the competition.

Let's now continue with the developments in our industry. Turning to slide five, we present the ageing and orderbook of Panamax to post-Panamax fleet. There is a good 17% of the total Panamax fleet over 16 years old, and we expect the enforcement of new regulations for SOx and ballast water treatment to increase scrapping in the following years.

Orderbook remains at relatively low levels with most of deliveries to take place in 2019. A few points about demand forecast on slide six. Demand remains strong despite the rising trade war concerns.

There is a forecast for about 3.9% growth in dry bulk tonne-mile for 2019 and 3.4% in 2020, despite trade war fears which have been a headwind for the market, a positive catalyst however for controlling new orders.

In the trade forecast by the commodity, we observe that demand is highly dependent on coal which prospects are positive as its trade is expected to grow by 4.2% by 2021. Moving on to slide seven, we are presenting an exercise with market data to assess the effects of trade war in the dry bulk trade.

Apparently, only a small fraction of the total dry bulk trade will be directly affected. In slide eight, we present a technical analysis comparing Panamax charter market and the Baltic sales and purchase assessment for five-year of Panamax vessels in the correlation of Panamax sales trades comparing to the asset values.

Asset values are significantly lagging in comparison to the improved charter market. Restoration of this pattern will push asset values higher but this is related to trade war concerns. As seen in slide nine, our Company has a track record of hands-on management commitment and aligned interest management ownership stands at 50%.

We retain a lean cost structure as observed by our daily operating expenses. Our consolidated leverage of 55% as of the third quarter and by -- and our average margin of about 2% excluding the 2 vessels under sale and leaseback agreements.

Our fleet of 41 high specification vessels built in top-tier yards is scheduled to install a United States Coast Guard approved full flow electrolysis system, Erma First.

In addition, we have agreed a retail schedule with Cosco Shipping Heavy Industry within 2019 for the installation of Alfa Laval PureSOx scrubbers in about half of our fleet, mainly in the medium sized vessels Kamsarmax to post-Panamax class of our diversified mix. At this point, we will attempt to give a fair update on IMO-2020 regulation.

This regulation, which is meant to control one of the most hazardous emissions, SOx, the sulfur oxide and the related sulfuric and the acid rain. Despite the fact the study is designed and implemented with cautiousness over a decade, has now drawn attention.

We'll present in slide 11 graphic diagrams about what happens today and what will happen after IMO-2020 implementation. Today, which is the right vessel, vessels were mainly 3.5% sulfur content heavy fuel oil.

SOx emissions when diluted in the humidity of the atmosphere raise the acid rain which when falls to the sea is neutralized by the natural alkalinity of the sea water. However, when it is transported to the land and falls as acid rain, it has disastrous effect in the human health and the environment, freshwater lakes, rivers, forests.

IMO 2020 SOx cap regulation, the left vessel in our figure, intends to reduce SOx emissions to the atmosphere, which cause acid rain. The regulation reduces SOx emissions when we use compliant fuels because fuel sulfur content is reduced to 1/6th of what it used to be.

Alternatively, the regulation provides for installation of exhaust gas cleaning devices and scrubbers, which almost eliminates SOx emissions. Scrubbers do exactly what nature does today in the lack of scale [ph] with the rain. Let's say a few things now about the fuels. In the past, vessels burnt heavy fuel oil with -- we're now on slide 12.

In the past, vessels burnt heavy fuel oil with substantially higher sulfur content. This maximum sulfur content was reduced from 4.5% to 3.5% after January 1, 2012. In environmentally controlled areas, the so-called ECA areas, it was reduced to 0.1%. And refineries adapted smoothly.

Currently, vessels burn heavy fuel oil 3.5% sulfur content and compliant fuels 0.1% marine gas oil or low sulfur heavy fuel oil. Today, most fuels are products of blending procedure, so appropriate care should be taken when mixing one fuel with the other, and this will continue in the future.

Only after completion of studies about availability of compliant fuels IMO decided to move ahead with the date of implementation of sulfur cap in 2020. In the future, following the IMO 2020 regulation, implementation of vessels will ban those without scrubbers, compliant fuels with maximum sulfur content of 0.5%.

And those with scrubbers, heavy fuel oil, 3.5% sulfur content. In the future, new blends with lower maximum sulfur content will substitute past blends up to 3.5%. We have already discussed all points of slide 13, so let's jump to slide 14.

The regulation options comply with it, the first of which is by using compliant fuels where minor investments are needed and excess costs of using compliant fuels is paid by the charterers.

The second option is by installing scrubbers where major investments are needed and the return is based on the expectation of additional charter revenue back-to-back from charterers savings related to price differential between high sulfur heavy fuel oil and compliant fuels.

Safe Bulkers will comply fully with the regulation by installing in about 50% of its fleet, mainly in heavier fuel consuming vessels, scrubbers; and in the remaining by using compliant fuels.

Safe Bulkers will compete on the basis of competitive fuel consumption for the vessels without scrubbers on one hand, and the price differential between high sulfur heavy fuel oil and low sulfur heavy fuel oil for vessels with scrubbers.

We were one of the first drybulk companies to deliver detailed engineering studies for scrub installation for approval to the classification society. And we have included an update in our press release for the quarterly progress of installation of ballast water treatment systems and scrubbers in our press release.

Now, our Chief Financial Officer will present our quarterly financials..

Thank you, Loukas, and good morning to all. slide 17 represents some financial data on a quarterly basis. Our quarterly revenues and our adjusted EBITDA have been constantly increasing, thus improving our overall financial strength. This fact is also demonstrated in slide 18 where we present our adjusted EBITDA on a per vessel basis.

On slide 19, we present our daily free cash flow waterfall for the nine-month period of 2018. During this period, we continue to be profitable, maintaining one of the most competitive breakeven points in the industry.

We have earned about $12,800 in TC equivalent and burned less than $9,800 per day per vessel for all our daily outflows, including operating G&A, interest, preferred deferred dividend and principal repayments. Our daily free cash flow stood at $3,100 per day per vessel.

Slide 20 will present our quarterly TCE, which stood at $13,265 and will focus on our expenses both OpEx and G&A.

The audited figure for both OpEx and G&A for Q3 2018 was $5,576 as a result of the 6% increase in average number of vessels, to 40.4, and dry docking expense related to two dry dockings, pre-delivery expenses related to the latest Cape acquisition, the Mount Troodos and increased management fees charged by your managers.

And our OpEx numbers include all items, like dry-docking, pre-delivery expenses. Slide 21 presents the breakdown of daily OpEx and daily OpEx excluding dry docking and pre-delivery expenses. Daily OpEx increased by 8% to $4,150 for the third quarter of 2018 compared to $3,830 for the same period in 2017.

Daily OpEx, excluding dry docking pre-delivery expenses were $4,022, and increased by 5% in Q3 2018 compared to $3,830 for the same period in 2017. Our lean cost structure is also represented in our debt average margin of 2%, which we present in slide 22.

Let's now move to slide 23 with our quarterly financial highlights for the third quarter of 2018 compared to the same period of 2017. Net revenues increased by 34% to $50.1 million from $37.3 million, mainly due to an increase in charter rates. Our TC equivalent per vessel increased by 27% to $13,200 per day from $10,400 during the same period in ‘17.

Daily OpEx increased by 8% to $4,151 compared to $3,830 where daily OpEx, excluding dry docking, increased by 5%. Our adjusted EBITDA for the third quarter of 2018 increased by 47% to $27.7 million compared to $18.9 million for the same period last year.

Our adjusted earnings per share for the third quarter of 2018 was $0.05, calculated on a weighted average number of 101.5 million shares, increased as compared to an adjusted loss per share of $0.05 during the same period in 2017.

Closing on slide 24, we present our quarterly and nine-month fleet data and average daily indicators compared to the same periods last year.

We would like to emphasize that we've worked extensively in refinancing a large part of our debt, smoothening our profile for the following five years; investing in scrubbers and ballast water treatment systems ahead of competition. Overall, we believe that we are well-positioned to take advantage of improving market conditions.

Our press release presents in more detail our financial and operational results. And we are now open to take questions..

[Operator Instructions] We'll now take our first question. Please go ahead. Your line is now open..

Hi. This is Sean Morgan on for Jon Chappell. Thanks for taking questions. Just two questions.

The first one, total dry dock cost for 4Q and 2019, could you just give us a little bit more detail on that?.

Look, the dry docking cost, you could assume that it’s between -- based on the age of the vessels between $300,000 and $500,000, excluding installation of ballast water treatment for scrubber. The scrubber, as we have already discussed, we have expectation of about 2 million for installation.

And when we have provided in detail the downtime, so, you’ll be able to have an appropriate assessment on our revenues for the following quarters..

Okay.

And then for total off-hire days for the second half, should we assume that it's sort of flatlined off of off-hire days or will be escalated with the scrubber installations for second half of ‘19?.

Second half of ‘19, yes, we have provided that and we'll continue to do so. So, we're providing ahead one to two quarters. So, basically, you have estimations for the first and second quarter. The other installations will take place the third and the fourth quarter of 2019, and the pace is about three vessels per month..

Three vessels per month? Okay, great..

And there might be delays -- have a vessel going to the next month, et cetera..

Right. But, that's just a good rule of thumb. Okay. And then, the amortizations -- I know you guys did a lot of refinancings during the quarter, opportunistically.

Does that push out any of the amortization through 2020 or is that mostly just pushing out the extended maturities?.

Look, the idea for -- we worked so we will achieve two targets. The first one was to deleverage the company in almost even way, the following five years. The aim is to deleverage it to the value of the scrubber of our fleet. Now, we'll push basically the two -- the balloon payments to 2021 and 2022.

At certain point of time when we conclude everything, we may issue a press release stating our new amortization schedule because this will be useful for you to make all the relevant assessments in the future about our breakeven. Overall, we think that our breakeven point will probably be less than 12,000 per day per vessel.

So, we maintain the same breakeven point throughout five years, which is very important because this gives the flexibility to the Company, is the intention..

We will now take our next question. Please go ahead. Your line is now open..

Hi, guys. This is Ben Nolan from Stifel. I had two questions. The first is a little bit more broader, macro in nature.

Drybulk rates have been slipping a little bit as of late, and I know you talked about the -- at least there's a perception in the market that trade could be somewhat detrimental to drybulk trade, although maybe not as bad as people think.

I'm curious if you can frame in what your conversations are like with your customers? Is there any increased degree of caution about putting longer term business at work or people a lot more focused on only doing near-term business, or is nothing really changed in respect to customer appetite for duration on contracts?.

Yes. You are right. But, there is limited activity in long-term business, despite the increase of rates in 2018, and that was the case also in 2017. Charterers in general, they are very careful before going long. I believe that this will change for scrubber fitted vessels in the months to come.

And on vessels with compliant fuel, I think the same trend will continue. Charterers will cover their immediate needs, either on short period or maximum one year period piece, do not [indiscernible] on compliant fuel burning ships. I think on charters, there is interest for charterers, it’s emerging already.

They are doing checks and they are interested possibly on longer term deals. Regarding the trade war, the trade war that you mentioned, this is as mentioned, the thing -- the story that overhangs over the drybulk market and we’ve seen affecting sentiment, but not rates.

Rates have steadily improved in the last two quarters and in the fourth quarter as well, okay. There is this week, there were some holidays and some problems in the Capesize market with some development of iron ore cargos in Australia on BHP move of cargo. And there is some correction of the market, its’ similar to what happened also last November.

We saw correction of the market, and then we saw market in Capesize moving much higher in the second half of November and early December. So, everything is under the overhang of these trade talks.

We've seen some positive comments recently before the midterm elections by President Trump, but there were some reports that there could be a deal done with Chinese. On the other hand, nothing is confirmed and we don't know if this will materialize.

So, we’ll have people who will not do long-term deals, so long there is this overhang above the markets..

Okay. That's helpful. It sounds like maybe the bigger issue for charterers is scrubbers versus non-scrubbers.

To that end, when you are having those talks with customers, what -- can you maybe roughly frame in what type of premium you expect to be able to get for a scrubber-fitted ship versus a non-scrubber-fitted ship on a day rate basis?.

At the moment, we are not testing the market. So, I’m the least -- they’re least familiar to tell you or update you on what sort of premium charters will be taken. A lot depends on how the tanker [ph] market will develop and what the stretch we'll be looking.

The important thing is to remember is that the 2019 scrubber-fitted vessel will be less than 10% of the Capesize fleet, less than 5% of the Panamax fleet, and less than 3% of the Supramax. So, I mean, 2019 will be the time, the second half of 2019 will be the real time to assess what is the fair differential that owner and charterer should agree.

Of course, some people, they take different approach, they may want to move early. Of course, if you move early, you have to agree lower spreads than one should do. So, at this point of time, we are not looking into any deals. So, we are not in a hurry. I think in the second half of 2019, we have 20 scrubber-fitted vessels.

That will be the time to make our calls and make our checks..

Okay. That's helpful. And then, lastly, now that you're sort of finalizing the refinancing of the debt, and I know you’ve done some level of vessel acquisitions.

But, can you maybe -- I just want to frame how you think of your use of capital going forward, where in this market you think the cash flow that you're generating would be best deployed, whether that's buying more assets? It sounds like you think that they're cheap.

Are you potentially contemplating reinstating a dividend? Would buying back either the common or preferreds be somewhere on that list? Just curious where you think the best use of your cash flow may be..

Look, the idea we discussed was, the basic idea is to deleverage the Company gradually, and this is what we intend to do. Of course, we’ll create a lot of liquidity, which is good for -- and give us this flexibility. The decision exactly how we will use this flexibility is something that we'll gradually consider.

And this is very important because of the several ideas. We have described the -- first of all we want this flexibility for installation of ballast water treatment and scrubbers. So, part of this liquidity will be spent there. The second point is that by having all this five-year period ahead of us, with a very smooth profile, we can be very flexible.

We can maybe check the second hand market, we may buy back one of the vessels that we have under sale and leaseback agreements. We can do several things, but we don't want to comment right now on what we are going to do in the future. I think, we should wait a little bit, and you will see..

Okay. All right. I guess, I’ll just have to wait. Thanks, guys..

The most important thing is that we are working very aggressive in all areas. So, we have not -- we're not lazy..

We will now take our next question. Please go ahead. Your line is now open..

Yes. Hey, guys. It’s Chris Wetherbee from Citi.

I wanted to follow up on the scrubber commentary and just understand what the cost of outfitting 50% of the fleet, what you expect the cost of outfitting the 50% of the fleet to be? And how you’ll account for that, would that -- I'm assuming that's going to be running through from a CapEx perspective or will you be thinking about that as OpEx?.

Okay. I mean, the indication is for -- it's less than $2 million, so in total, about $40 million -- about $40 million. And I'm saying that because this estimation -- we have already submitted detailed engineering studies and we have yet certain price list, and this is our estimation.

Of course, as we move along, we will try to do the best out of time and out of costs. This would be fine. This is a CapEx because it's a clearly a CapEx investment. We have already the financial resources. As you may see, we have -- we have sufficient cash on hand and upgraded our borrowing capacity.

We will come again back to you and tell you more details in the future. But, we have the ability to install all this and do the relevant actions that are required. Anything.

The most important thing to keep in mind for the scrubbers, for the Company to take the maximum benefit of this equipment is the time of the installation and the nature of the scrubber. Our Company, we moved early enough to secure 2019 scrubber fitting for all our ships. We have secured the shipyard space during Q2 to Q4 of 2019.

And we have secured the Alfa Laval scrubbers, which are one of the most reliable and experienced manufacturer of this equipment. So, we have done our part of the equation. We will not have any outfits in 2020.

So, we believe that by moving early and doing the job at the right time, we will have a substantial advantage as far as the return is concerned on this equipment.

Now, how the market will develop, how the market prices will develop, if there will be a substantial return within one year or two years or three years, or if it is only a decent return, this remains to be seen. Nobody can be a prophet and say what will happen in next year.

But we are optimistic, and we believe that we have the best equipment -- the best equipment and the pole position in the grid. So, if we will the race by a big distance, I don't know, but I believe that we have very good chances..

Okay. No, that's very helpful.

When you think about that Q2 to 4Q period, how long does each vessel need to go out for, so as it goes into presumably a dry dock for the installation, should we be thinking two weeks per vessel or something less or more?.

Yes. It should be around the prolongation of dry dock, will be around 10 days in case of normal dry-docking if this coincides with the vessel's dry-docking cycle. The extra off-hire will be 10 days, and this could be up to 30 days for ships that do not coincide with their cycles.

So, of course, when you don't coincide with the cycle, you have other advantages that you can do extra maintenance during that time on the ships and you reduce your operating expenses on those ships. And you have less money spent in their next cycle.

So, it's anything between the extra -- the loss of -- the actual loss of time will be anything between 10 and 30 days. But on average, you should calculate....

In any case, what we're trying to do is we are having an update section in our press release where we’ll tell you what would be the approximate number of scrubbers for each quarter. So, you have this figure and the data also at the same time. So, you will not miss the calculations..

You'll have it covered every -- couple of quarters again..

Okay. That's helpful. But it’s going to be sort 10% plus impact on utilization, as you think about 2019 if you’re running -- I'm sorry, it could be less, a couple of hundred basis points….

No. I think the extra loss could be -- the loss of time would be in a year -- in the year should be 2.5%, the extra loss of time..

It speaks about the extra loss because….

Dry-docking, you have to do it anyway..

Yes. You have dry-docking in any case during this year. So, it's not that we're not having any dry-docks and we’ll do new dry-dockings. We’ll have dry-dockings and this will be extended. But we have provided a base for Q4 of 2018, Q1 and Q2 2019. And in the next period, I mean, for the third and fourth quarter -- the total for dry-docking….

How many ships….

Yes. How many ships will be dry-docking this -- so in the next -- in the second quarter, we will provide -- we’ll have about three vessels per month. So, this is a rough estimation that you can do in order to be able to know what will be the downtime for the third and fourth quarters..

Got it. Very helpful. I appreciate it. Now, my last question is just on vessel OpEx. So, I guess, maybe a two-part question. We saw an increase, I think, in the mid to high single digits on daily OpEx. I wanted to get a sense of sort of what was driving that, number one.

And then, number two, post-scrubber installation, do you expect any meaningful change in the daily OpEx numbers for the vessels with scrubbers?.

The OpEx, we were expecting that to increase as the market was improving, moving into profitable levels. At the same time, we have oil prices moving up and cost of paints and cost of lubricants and the many other items have been moving higher.

You have to remember, we repeatedly said in the past, we managed to achieve the lowest -- the lowest OpEx of the market, ahead of other companies and we achieved the lowest numbers because the Company was performing timely and also managing to receive maximum discounts from suppliers because we were paying on time, we were not asking extended credit and things like that.

Now, the market has normalized, we came back to normal time. And I mean, to have achieved OpEx first nine months of 2018, which is a profitable year, of $4,150 a day with dry-docking and one-off expenses like takeover expenses, I think $4,100 a day is a very good number for any market.

You have to remember that the fleet is no longer two or three years old, it's eight years old. So, there are more needs. And to achieve this number for eight-year old fleet I think is a very good performance, and gives know-how of the Company of how to run drybulk vessels..

Is it that a good number to use going forward? I guess my question is, are there incremental expenses associated with the operating….

Yes. As the market improves and as we are heading to profitable years, and hopefully, the market will improve, we wouldn't mind to see OpEx improving by $100 a day, next few years are profitable. It's quite normal to see an escalation in inflation on the rates.

You have to remember that we are hiring quality crew; we are training our crew over and above the regulations of STCW. We are doing our own schools, training schools on all our officers and crew. We want to have the best clean records in the market in P&I and hull and machinery.

You invest something, you get it back somewhere else, and over the years, you achieve this result in the market.

This is our know-how of the last 60 years and especially in the last 30 years that we have as a company of how to run this type of vessels, how to maintain it to highest standards, and how we ensure that they have long-term life because when these ships will be deleveraged, and our long-term effort would be to be reduced to very low levels in the next four or five years.

After that, we will have a very young fleet, still a young fleet that will be able to run for not only up to 20 years old but longer than that, depending on the market, simply because 80% of our fleet was built in Japan, 95% of our fleet was built for our own account, for our own specifications, and we maintain this fleet from day one.

It's not second hand acquisitions. 90% of our fleet, we maintain it -- we’ve built it, and we maintain from day one. So, we know every little bit, of every little treatment on ships. And we believe that we can achieve longer lifespan on those ships. So, this is how we earn our living is how we can run our ships more efficiently on the broader market..

You've done a great job in terms of manning those expenses. I just wanted to make sure I understand that you anticipated any expenses associated directly to the scrubbers..

On the scrubbers, we don't think this equipment will have much of increase in the OpEx of the ship. I think, mostly will be a small increase on consumption, which is -- will be paid by charterers. And this is because of extra power you need to generate the pumps and the equipment. But, this is minimal.

We're talking about 1% or 2% that will be passed on to charterers. And if charterers are saving 40% on fuel cost, I don't think they will care about the 1% extra electrical consumption you need to operate the scrubber. That's all about it. And there is not much maintenance you're doing on this equipment. Either they work or they don't work.

It's not much of....

Basically it’s just continuous flow with couple of pipes -- with a couple of pumps. So, there's no chemical addition, there's really nothing in addition. The vessel itself has several pumps, I mean, many, many pumps; it has two more. I don't think that this will have something substantial that we will see in terms of OpEx..

The most important is the equipment to be reliable and to be working and to comply with the regulation. This is the most important..

We will now take our next question. Please go ahead. Your line is now open..

Yes. Hi. Fotis Giannakoulis from Morgan Stanley. Polys, you mentioned earlier about the quality of the equipment, about Alfa Laval, and the fact that it's pretty binary if equipment works or not. We've been hearing very different numbers from the different companies about cost, about installation time.

Can you clarify why Alfa Laval cost x, and there are Chinese companies that they offer discounted prices for the scrubbers? And why certain companies, they expect the installation time to be much lower and potentially doing a large part of the work while the vessel is operating at sea?.

I'll let Loukas to answer this question, because he has done extensive research and he is the one that went into great detail. For me, the decision was easy when we decided to install Alfa Laval. We only checked two manufacturers. We knew they were more expensive than others, but we went for reliability. But, I will leave Loukas to give more details..

Yes. In addition to what Polys said, you all need to know that shipping certain like Alfa Laval have substantial experience, and there are so many other companies that are preparing new systems and they are putting new systems to market. I'm not saying that these systems will not work, but we don't know if they're reliable.

I mean, for us as a company, if the solution is to go to unreliable partner, we don't do something because by relation of MARPOL VI, it’s not a good fate. In any case that there is substantial fine if someone violates MARPOL VI -- Annex VI. The second point about scrubbers is that -- I mean, we see several ideas of how you can install a scrubber.

And I will tell you some things that may be -- some facts, and you can make your own assessment. A vessel has about -- designed to transport about 20 -- up to 25 people, at sea, this is a maximum number you have -- rooms for the crew -- 25 rooms for the crew. You have lifesaving equipment for 25 people. And the crew normally is about 21 or 22 people.

So, I don't know how much you can do at sea with three more people. I mean, this is one point that they would like to put in the discussion. The second point is that the temperature in the engine room is about 50, 55 degree Celsius the engine operates, even 60.

And you need to do stuff [ph] from top to the bottom in order to pass piping -- heavy equipment. I don't know how easy it is to do that. And the last point, of course, is that of course, you need to cross the whole engine room, put several pipes, and at the same time, you may also need to install quite often the ballast water treatment.

I don't know how easy is this. So, if someone can find a solution that they can do that at sea, I mean for us it is quite difficult to do even a topside tank at sea when the vessel is moving.

So, I don't think that this is just a kind of wording that is useful for you when you make an analysis of revenues, that there will be no revenue deduction and there will be only revenue increases in the following year.

I think that we would like to admit that there will be a small revenue reduction, and we’ll have good revenue increase the following years..

I mean, you could do certain preparatory work with riding squads that you can place on border ships. But, these squads and these people, they cost a lot of money as well. So, you may say a day or two in the shipyard, but you’ll pay, I mean, the equivalent or even much more to employ these people on board.

So, I don't think this is something that realistically gives a benefit. And on the other hand, you may not do the job properly and you may have other problems. So, it doesn't work. I mean, we don't think that this will work..

Thank you, gentlemen. I want to ask you about how -- about the trading routes that your Panamax vessels take.

And how confident you are that there is going to be availability of the high sulfur fuel at any of these ports, and whether you would have to divert your vessels in an effort to get existing type of fuel? If this will cost any loss of hire for you or if this will cost any reduction in the overall fleet supply that could potentially help the market to get even tighter?.

I think the only thing that we are certain [ph] is about the availability of HFO. And this is -- there are enough ships with scrubbers, burning HFO. And there will be enough ships with scrubbers so bulker suppliers to have HFO available.

Actually, I think will be more HFO available than what will be needed by the scrubber-fitted ships, simply because the refineries are producing this high sulfur fuel oil, and they will want to continue to produce it. It's also a fact that we see that the scrubber-fitted vessels are increasing, also for deliveries in 2020 and 2021.

So, the increase of scrubber-fitted vessels gives reasons to be optimistic. But supply of HFO will be abundant and pricing will be very, very sharp. So, I think the one thing that we are sure is that we will be able to find on all the major ports worldwide. The HFO was [indiscernible] trading pattern.

9 out of 10 bunker ports on Panamax bulk areas is Singapore, Fujairah, Gibraltar, Rotterdam and Panama. So, if you have in these five places, you can have bunkers on port four or five months each time you pass from these ports and you’ll have plenty of fuel for the next four months on both your ships.

So, I don't think -- I don't see a problem whatsoever. Now, if you are in one port and you don't find availability there, you will find in the next convenient port. But, anyway, there will be ways to secure enough supply of HFO..

In addition, Fotis, when we say 2,500, 3,000 [ph] ships, we mean of the most heavy consuming ships. So, it's not the percentage of the ships fitted with scrubbers, it's not the same -- not proportional to the consumption of the vessels.

You may have, let's say, 5%, 6%, 7% of the fleet, and this fleet could burn let’s maybe 15%, 20% of the total consumption. And the second point, when we say HFO, which is heavy fuel oil, this is residual. Residual means is what is left over. And so, there will always be something left over there. And you need to do something with it in order to use it.

So, always, there will be to say that -- using HFO in order to do a cracking procedure to desulfurize it and use it somewhere. So we believe that the price differential between low and high sulfur fuel will always be there for several years. This, of course, in the beginning, will be higher.

But, I mean, there will always be a price differential there because the other is residual fuel oil..

Even after five years, there will be a differential between HFO and compliant fuel, maybe small but even at that time, five years, there should be a good differential..

We will now take our final question. Please go ahead. Your line is now open..

It's Randy Giveans from Jefferies. So, looking at your scrubber -- it’s just additional question here. There's been some concerns about fuel availability, which you touched on, degree, duration of spare, which you kind of touched on, maybe future regulations.

I'm assuming those -- no other issues at least to the larger ships, but why not also install scrubbers on some of your smaller vessels as some of your peers have announced?.

Yes. Look, the smaller vessels will take a little bit longer to pay back the investment. This is the only reason why not everyone puts on the smaller vessels the scrubber. It doesn't mean that you will not make money, you'll make money a bit later, longer.

On the Capesize, you can’t make back the investment in a year, and in the Supramax, you may need a year and half or two years. But, the differential will be there even after five years. I mean, this will be a constant provider of a good advantage on the revenue side for any ship that fits this equipment.

Of course, if you have a super eco -- Handymax or Supramax or Panamax, the consumption there could go down to 15 tonnes on certain ships, and the differential there is becoming very tight.

And because you need big CapEx investment, in our company, we decided that we will go for all our post-Panamaxes, and five of our Kamsarmaxes, we chose Chinese-built ones for obvious reasons..

The beauty of this regulation is that it provides for two ways. So, you don't have to do something. So you have a vessel that will be using compliant fuel, 0.5%, and there, you don’t need investment basically; that also becomes a benefit. And the other option is to install scrubbers where you need to do big investment and have also benefit.

So, I think it's a very fair, let's say, decision by IMO, and we refer to something, which is very important, because quite often, there's a confusion in CO2 emissions and SOx. CO2 is a greenhouse effect and is a greenhouse gas, which will be regulated in the future and by 2030 or 2050, CO2 emissions will be reduced by 40% or 50%, respectively.

SOx is a hazardous pollutant, it pollutes such a great and destroys lakes. That's why, for example, in the states, you are not allowed, not to burn 0.5% HFO. You’re allowed to burn 0.1% sulfur fuel content 200 miles away from the coastal line. And so, this shows the importance of having low sulfur emissions or to scrub what you have.

And scrubbing is very important because the scrubbers will reduce not to 0.5% the emissions of SOx but it will reduce it, designed to 0.1% and below..

Got it. Okay. And then, just an industry question. It appears that the smaller asset classes have relatively outperformed the Capesize sector recently.

What has been the cause of these firm Panamax rates? And alternatively, what has caused the Capesize weakness? Has it been the BHP's production issues or maybe Vale's exports not reaching expectations? So, what's your outlook for the next few months on both of those?.

First of all, we're halfway through the fourth quarter, which traditionally is one of the best quarters in the year. This week is not good for Capesize. We had a holiday on Tuesday in Singapore and a bad day yesterday in the paper market. There was a news of the derailment iron ore in BHP. People believe will affect supply of iron ore.

BHP issued a statement today that this will not affect their annual output. So, it remains to be seen. I believe that the market in the second half of November and beginning December will be much healthier than what it is this week on the Capesize..

The other sectors are not affected, they are performing well. On certain routes, you can still fix ships 15, $16,000 a day. They are very profitable rates, they are very profitable at these levels. So, we don't see that there will be major changes.

Traditionally, we expect a slowdown in the first quarter of the year, as we do every year and as we expect every year. But, we have to bear in mind that coming February, March, Brazilian exports and South America grain exports should start pushing again.

There will be a lot of focus there from Chinese importers, which there’d be normal standstill from this winter from North America because of the trade sanctions they put on the American soya beans. So, I think we have a very, very active Q2 with the exports from Brazil and Argentina towards China.

So, I think we are cautiously optimistic for next year. And we have, in 2020, one of the biggest changes in world shipping of the last 60 years when overnight, 85% or 90% of the world fleet will have to consume fuel oil that is becoming overnight, $250 more expensive than what it would be in December 2019.

So, we all know that this will push freight rates higher. And this is good for the people that they have ships. So, we expect that this factor will lead the market into a very healthy 2020. Now, for companies that they have fitted scrubbers, also you may see the scrubber as a natural catch against a falling market.

If the market is -- for whatever reason, something happens to world economy, the trade war escalates that much that will kill American economy as well as to the other economies, and there's a total collapse of economies because of these enhanced trade war or continued trade war, which I don't expect this to happen, I have to say.

I think, we see this happening, I think the scrubber-fitted ships are naturally hedged because they will be burning the cheaper fuel oil and will be the most competitive vessels in the market. But, I think there was a good result on the -- with the elections on Tuesday. It’s more balanced -- there's more balanced parliament now in Capitol Hill.

And I think that certain policies will be under scrutiny and both parties, Republicans and Democratic in the U.S. will have to cooperate and find ways to solve problems and not be forceful against world trade. So, I think this was a good week overall if you exclude the Capesize drop..

There are no further questions. Please continue..

So, there are no other questions, right?.

There are no further questions. Please continue..

Thank you very much for attending this conference call, and we’re looking forward to seeing you again in next quarter back again. Thank you..

That does conclude our conference call for today. Thank you for participating. You may all now disconnect..