Balancing risk with opportunity
Navios Maritime Acquisition’s strategy is to manage its operations in such a way that it can protect itself from market downsides. The company achieves this with long-term charters and by taking advantage of the upside through the use of spot charters. As well, it protects its balance sheet and stakeholders by balancing credit risk with market opportunities.
Navios takes a four-pronged approach to capturing the market:
- open days
- fixed-floating rate days
- base-rate days
- profit sharing
In this way, it balances spot chartering with long-term employment.
NNA’s available days grew by 37% in 2014 over 2013. Going forward, with the entire fleet on the water, NNA believes it’s well positioned to see strong EBITDA (earnings before interest, taxes, depreciation, and amortization) growth.
Creating stable cash flow with long-term charters remains Navios Acquisition’s core strategy. And the company will re-balance spot charters to include long-term contracts when possible.
In terms of chartering VLCCs (very large crude carriers), Navios Acquisition uses an index-linked or pool-earnings approach. The company has internally secured quality counterparties with 100% fleet utilization and constant rate exposure.
During 4Q 2014, four VLCCs on floating rate earned about $45,000 per day. That’s $1,000 per day more than the market average for this period. Average VLCC earnings year-to-date are about $64,000 per day. That’s 137% higher than the 2014 spot rate and 50% higher than the fourth-quarter spot rate. These rates should allow the company to generate heavy cash flow from the 1,500 VLCC open days.
The PowerShares DB Oil Fund ETF (DBO) tracks the performance of crude oil.
Navios Acquisition’s product tanker chartering strategy focuses on the upside potential by using profit sharing arrangements on the majority of available days. Profit sharing earned the company almost $4.2 million in the fourth quarter.