Executive Summary / Key Takeaways

• Safe Bulkers (NYSE:SB) is strategically positioned for long-term value creation through its aggressive fleet modernization and environmental compliance initiatives, including Phase 3 newbuilds and dual-fuel methanol vessels, which provide a significant competitive edge in a tightening regulatory landscape.
• Despite recent market headwinds, characterized by softer charter rates and geopolitical uncertainties, the company maintains a robust financial foundation with ample liquidity and comfortable leverage, supporting consistent shareholder returns through dividends and opportunistic share repurchases.
• The drybulk shipping market faces a challenging outlook for 2025-2026 with supply growth outpacing demand and tariff impacts, yet Safe Bulkers' Capesize period charters provide crucial cash flow visibility, while its modern, energy-efficient fleet is better equipped to manage operational costs and new environmental penalties.
• The IMO's MEPC 83 decisions, including a global fuel standard and carbon pricing mechanism effective 2028, underscore the urgency for fleet decarbonization, a trend Safe Bulkers is proactively addressing with its advanced newbuild program and zero D/E carbon intensity rating for 2024.
• Trading at a discount to its net asset value and supported by a consistent dividend yield, Safe Bulkers offers a compelling investment thesis for those seeking exposure to a drybulk shipper with a clear strategic roadmap for environmental leadership and resilient operations.

The Drybulk Tide: Safe Bulkers' Strategic Evolution in a Changing Maritime World

Safe Bulkers, Inc. (NYSE:SB), established in 2007, operates as an international provider of marine drybulk transportation services, specializing in the global carriage of essential commodities such as coal, grain, and iron ore. The company's business model revolves around owning and operating a diverse fleet of dry bulk vessels, including Panamax, Kamsarmax, Post-Panamax, and Capesize classes, serving some of the world's largest users of marine drybulk transportation. This sector, inherently cyclical and sensitive to global economic shifts, is currently undergoing a profound transformation driven by environmental regulations and evolving trade dynamics.

The broader drybulk shipping market faces a complex demand-supply equilibrium. Global drybulk demand is forecasted to be flat to slightly positive in 2025, ranging from minus 0.5% to plus 0.5%, before seeing growth of 1.5% to 2.5% in 2026, with grains and minor bulks expected to be the best-performing sectors. However, the drybulk fleet is projected to grow by approximately 2.8% to 3% on average in both 2025 and 2026 due to stable new deliveries, with the order book standing at about 10% to 11% of the current fleet. This supply growth is expected to continue outpacing demand, exerting pressure on freight rates. Geopolitical tensions, trade wars, and China's slower growth, particularly in its property and steel sectors, are anticipated to hinder demand for iron ore and coal, while India's robust economic expansion is a positive counter-driver.

Against this backdrop, Safe Bulkers has embarked on a proactive and comprehensive fleet modernization strategy, a journey that began around 2022. This strategic pivot is not merely about renewing assets but fundamentally transforming the fleet to meet stringent environmental standards and enhance commercial competitiveness. The company's commitment to operational excellence and environmental performance is a cornerstone of its long-term value creation strategy.

Technological Edge: A Greener Fleet for a Decarbonizing Future

Safe Bulkers' core technological differentiation lies in its advanced, environmentally compliant fleet, a critical moat in an industry increasingly shaped by decarbonization mandates. The company has systematically invested in Phase 3 newbuilds and environmentally upgraded existing vessels, positioning itself at the forefront of regulatory preparedness.

Currently, Safe Bulkers' fleet includes 12 Phase 3 vessels, all delivered from 2022 onwards, and 11 eco-vessels with superior design efficiencies delivered from 2014 onwards. Additionally, 24 vessels have undergone environmental upgrades. A significant 80% of the fleet comprises Japanese-built vessels, known for their inherent energy efficiency, which surpasses the global average of 40%. This focus on modern, efficient designs translates into tangible benefits: lower fuel consumption, reduced CO2 taxation, and enhanced operational performance. A testament to this advantage is the company's achievement of zero vessels in the D and E carbon intensity (CII) rating for 2024, indicating a high level of compliance with current environmental metrics.

Looking ahead, Safe Bulkers has an order book of six more Phase 3 vessels, including two dual-fuel methanol newbuilds, with deliveries scheduled by the first quarter of 2027. These vessels were strategically ordered at prices well below prevailing market rates, further enhancing their future economic viability. The stated goal of these new technologies is to position the company favorably to compete within the stringent greenhouse gas (GHG) targets adopted by the International Maritime Organization (IMO).

The recent MEPC 83 meeting in April 2025 approved a draft global measure for GHG emissions, including a binding market-based measure (MBM) for emissions pricing and a fuel standard. This framework, expected to be formally adopted in October 2025 and enter into force in 2027 with penalties commencing in 2028, will apply to ships over 5,000 gross tonnage. It introduces a two-tiered GHG fuel intensity standard, imposing financial penalties of $380 per tonne of CO2 equivalent for non-compliance, with an additional $100 per tonne for exceeding a stricter direct compliance target. This landmark decision, the first to combine mandatory emissions limits and GHG pricing across an entire industry, will "substantially affect the vessel tradability 2028 onwards, promoting the use of alternative fuels and the energy efficient Phase III vessels." Safe Bulkers' proactive investment in dual-fuel methanol vessels directly addresses this regulatory shift, providing a clear competitive advantage and a pathway to sustained profitability in a decarbonizing industry.

Competitive Landscape: Outmaneuvering Rivals with Modernity and Discipline

Safe Bulkers operates in a highly competitive drybulk shipping market, contending with established players such as Star Bulk Carriers Corp. (SBLK), Eagle Bulk Shipping Inc. (EGLE), and Genco Shipping & Trading Limited (GNK). While these competitors also operate substantial fleets, Safe Bulkers distinguishes itself through its relentless focus on fleet modernity and safety protocols.

Safe Bulkers' relatively younger fleet, with an average age of 10.3 years compared to the global average of 12.6 years, translates into lower maintenance requirements and superior operational performance, fostering stronger customer loyalty. This provides a distinct advantage against competitors like SBLK, whose larger scale might be offset by a potentially less optimized or older fleet. Safe Bulkers' emphasis on safety and reliability, a core tenet of its operations, also differentiates it, particularly in risk-sensitive markets, offering a more robust service compared to EGLE's focus on market agility. While GNK is recognized for its financial discipline, Safe Bulkers' proactive investment in green technology positions it to potentially achieve better long-term operational efficiencies and lower regulatory costs.

However, Safe Bulkers faces competitive vulnerabilities. Its mid-sized fleet, while modern, may limit the economies of scale enjoyed by larger rivals like SBLK, potentially leading to higher costs per unit. Furthermore, a degree of reliance on specific trade routes could expose the company to disruptions, a risk mitigated by SBLK's more diversified operations. Despite these challenges, the high capital requirements, complex regulatory compliance, and need for established relationships act as significant barriers to entry in the drybulk shipping industry, reinforcing Safe Bulkers' position against new entrants.

Financial Performance and Strategic Resilience

Safe Bulkers' financial performance in the first half of 2025 reflected a challenging market environment, yet the company demonstrated resilience through strategic asset management and a strong balance sheet. For the second quarter of 2025, net income decreased to $1.7 million from $27.6 million in the same period of 2024, with net revenues declining to $65.7 million from $78.5 million year-over-year. The average time charter equivalent (TCE) rate for Q2 2025 was $14,857, down from $18,650 in Q2 2024. Similarly, the first quarter of 2025 saw net revenues of $64.3 million and net income of $7.2 million, a decline from Q1 2024's $25.3 million, with the TCE rate at $14,655 compared to $18,158 in Q1 2024. These declines were primarily attributed to softer charter markets, geopolitical uncertainties, and increased operating expenses, which rose by 10% to $5,604 per day (excluding dry-docking and pre-delivery expenses) in Q2 2025.

Despite these headwinds, Safe Bulkers maintained a robust financial position. As of July 18, 2025, the company reported a healthy cash position of approximately $104 million and $240 million in available revolving credit facilities, totaling $315 million in combined liquidity and capital resources. This strong liquidity is further bolstered by two new credit facilities: an $84.3 million facility for vessel financing and a $75 million sustainability-linked facility. The company's consolidated leverage stood at a comfortable 38% in Q2 2025, well within management's comfort zone of anything below 40%.

A key element of Safe Bulkers' strategy to mitigate market volatility is its approach to chartering. In Q2 2025, seven of its Capesize vessels were period chartered with an average remaining duration of almost two years at an average daily rate of $24,500, providing over $135 million in contracted revenue backlog from Capes alone. This strategy provides crucial cash flow visibility, acting as a buffer against the softer spot market conditions, particularly for Panamax vessels, which saw rates around $11,500 in Q1 2025.

The company also remains committed to shareholder returns. It declared its 15th consecutive quarterly dividend of $0.05 per common share in Q2 2025, representing a 4.7% dividend yield. Furthermore, Safe Bulkers completed a share repurchase program in Q1 2025, buying back 3 million common shares, representing approximately 2.8% of outstanding shares. Management views the stock as undervalued, often considering it a better investment than acquiring new ships, though they exercise caution with buybacks during soft freight markets to maintain financial flexibility for newbuild deliveries.

Outlook and Growth Trajectory

Safe Bulkers' outlook is firmly anchored in its strategic vision of fleet renewal and environmental leadership, positioning it to capitalize on long-term industry trends despite near-term market challenges. Management anticipates an improving freight rate market in the long run, with an increasing focus on existing fleet decarbonization and energy-efficient newbuilds.

The formal adoption of the IMO's global fuel standard and carbon pricing mechanism in October 2025, with enforcement commencing in 2028, is a significant catalyst for Safe Bulkers' strategy. The company's order book of six Phase 3 vessels, including two dual-fuel methanol vessels, directly addresses these future regulatory requirements, ensuring its fleet remains commercially competitive and compliant. The aggregate capital expenditure for the orderbook is approximately $252.4 million, with $175.9 million remaining outstanding, which the company plans to cover through its strong liquidity and additional borrowing capacity upon vessel deliveries.

While the drybulk market faces a weakening supply-demand balance in 2025 and 2026, with freight rates expected to remain below 2024 levels, Safe Bulkers' Capesize segment is projected to outperform smaller segments due to limited fleet growth. The ongoing rerouting of vessels via the Cape of Good Hope due to Red Sea instability also contributes to effective supply reduction, supporting rates. The company's disciplined capital allocation, focusing free cash flow on its newbuild program while maintaining a consistent dividend, underscores its commitment to sustainable growth and shareholder value.

Risks and Considerations

Investing in Safe Bulkers, while compelling, is not without its risks. The drybulk shipping industry is inherently cyclical and highly sensitive to global economic conditions. Geopolitical tensions, trade wars, and the ongoing property crisis in China pose considerable downside risks to global growth and drybulk demand. Fluctuations in TCE rates, fuel prices, and competitive factors can directly impact profitability.

Furthermore, the implementation of new environmental regulations, while a strategic advantage for Safe Bulkers, also introduces compliance complexities and potential financial penalties for less efficient vessels. Risks associated with vessel construction, including delays and cost overruns, could impact the newbuild program. The "higher for longer" interest rate environment also increases financing costs, although Safe Bulkers' fixed-coupon unsecured bond provides some insulation. While the company maintains a strong balance sheet, a prolonged downturn in freight rates could strain liquidity and impact its ability to fund future growth or maintain shareholder returns.

Conclusion

Safe Bulkers (NYSE:SB) stands at a pivotal juncture, strategically positioned to leverage its modern, environmentally advanced fleet in a drybulk shipping market undergoing significant regulatory and economic shifts. The company's proactive investments in Phase 3 and dual-fuel methanol vessels, coupled with its strong operational focus on energy efficiency and a pristine environmental compliance record, establish a clear competitive advantage as global decarbonization mandates take hold.

Despite facing near-term market headwinds from a softening freight environment and geopolitical uncertainties, Safe Bulkers' robust balance sheet, ample liquidity, and disciplined capital allocation provide a resilient foundation. The strategic period chartering of its Capesize fleet offers crucial cash flow visibility, while its commitment to consistent shareholder returns underscores management's confidence in its long-term prospects. For discerning investors seeking exposure to a drybulk shipper with a clear strategic roadmap, a technological edge, and a commitment to sustainable value creation, Safe Bulkers presents a compelling investment thesis, poised to navigate the evolving maritime landscape with a greener, more efficient fleet.