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Derivative Instruments and Fair Value Measurements
 6 Months Ended
Jun. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives Instruments and Fair Value Measurements DERIVATIVE INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Forward freight agreements

The Company assesses risk associated with fluctuating future freight rates and, when appropriate, hedges identified economic risk with appropriate derivative instruments, specifically forward freight agreements (FFAs). These economic hedges do not usually qualify for hedge accounting under ASC 815 and as such, the usage of such derivatives can lead to fluctuations in the Company’s reported results from operations on a period-to-period basis. The aggregate fair value of FFAs at June 30, 2020 and December 31, 2019 were liabilities of approximately $31,590 and $150,000, respectively, which are included in other current liabilities on the consolidated balance sheets. The change in the aggregate fair value of the FFAs during the three months ended June 30, 2020 and 2019 are gains of approximately $104,000 and $557,000, respectively, which are included in unrealized gain (loss) on derivative instruments in the accompanying consolidated statements of income. The change in the aggregate fair value of the FFAs during the six months ended June 30, 2020 and 2019 are gains of approximately $118,170 and $117,000, respectively, which are included in unrealized gain (loss) on derivative instruments in the accompanying consolidated statements of income.

Fuel Swap Contracts

The Company continuously monitors the market volatility associated with bunker prices and seeks to reduce the risk of such volatility through a bunker hedging program. The Company enters into fuel swap contracts that are not designated for hedge accounting under ASC 815 and as such, the usage of such derivatives can lead to fluctuations in the Company’s reported results from operations on a period-to-period basis. The aggregate fair value of these fuel swaps at June 30, 2020 and December 31, 2019 are liabilities of approximately $1,509,000 and $322,000, respectively, which are included in other current liabilities on the consolidated balance sheets. The change in the aggregate fair value of the fuel swaps during the three months ended June 30, 2020 and 2019 are a gain of approximately $1,364,000 and a loss of approximately $342,000, respectively, which are included in unrealized gain (loss) on derivative instruments in the accompanying consolidated statements of income. The change in the aggregate fair value of the fuel swaps during the six months ended June 30, 2020 and 2019 are a loss of approximately $1,187,000 and a gain of approximately $2,388,000, respectively, which are included in unrealized gain (loss) on derivative instruments in the accompanying consolidated statements of income.

Interest rate cap

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps and interest rate caps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract.

In January 2020, the Company paid $628,000 for interest rate cap contracts to mitigate the risk associated with increases in interest rates on our sale and lease back financing arrangements of the four new-buildings. In the event that the three-month LIBOR rate rises above the applicable strike rate, the Company would receive quarterly payments related to the spread difference.
The following table summarizes these derivative instruments as of June 30, 2020.
Fair ValueNotional Amount
Interest Rate DerivativeEffective DateMaturity DateInterest Rate StrikeJune 30, 2020December 31, 2019June 30, 2020December 31, 2019
Interest rate cap contract - 1November 15, 2020April 30, 20263.25%$38,870$—$5,742,750$—
Interest rate cap contract - 2December 15, 2020May 31, 20263.25%$40,743$—$5,742,750$—
Interest rate cap contract - 3May 15, 2021November 30, 20263.25%$52,278$—$5,654,336$—
Interest rate cap contract - 4May 15, 2021November 30, 20263.25%$52,278$—$5,654,336$—
Total$184,169

These interest rate cap agreements do not qualify for hedge accounting treatment and, accordingly, we record the fair value of the agreements as an asset or liability and the change as income or expense during the period in which the change occurs. For the three and six months ended June 30, 2020, the Company recorded losses of $63,921 and 443,831, respectively, related to changes in the fair value of the interest rate cap contracts.
The three levels of the fair value hierarchy established by ASC 820, Fair Value Measurements and Disclosures, in order of priority are as follows:
 
Level 1 – Quoted prices in active markets for identical assets or liabilities. Our Level 1 fair value measurements include cash, money-market accounts and restricted cash accounts.
 
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable.
 
Level 3 – Inputs that are unobservable (for example cash flow modeling inputs based on assumptions). 

The following table summarizes assets and liabilities measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019:
Balance at
June 30, 2020Level 1Level 2Level 3
 (unaudited)   
Margin accounts$2,023,596  $2,023,596  $—  $—  
Fuel swaps$(1,509,429) $—  $(1,509,429) $—  
Freight forward agreements$(31,590) $—  $(31,590) $—  
Interest Rate Derivative$184,169  $184,169  $—  
 
Balance at
December 31, 2019		Level 1Level 2Level 3
Margin accounts$269,379  $269,379  $—  $—  
Fuel swaps$(322,313) $—  $(322,313) $—  
Freight forward agreements$(149,760) $—  $(149,760) $—  
 
The estimated fair values of the Company’s forward freight agreements and fuel swap contracts are based on market prices obtained from an independent third-party valuation specialist based on published indices. Such quotes represent the estimated amounts the Company would receive or pay to terminate the contracts. The interest rate caps contracts are valued using analysis obtained from independent third party valuation specialists based on market observable inputs, representing Level 2 assets.