Q1 2020 Earnings Call
Welcome to your congrats copies can do you can spend by your conventional begin shortly.
[music].
Ladies and gentlemen, thank you first.
Welcome.
She went 20 to 20.
At this time, because I'm sure you nervous.
After this poster presentation there will be your question.
I got your question during the Q any sessions will need to fresh start and wanting.
I'm not sure.
Range is being recorded today first before it gets me.
Hi, French I read your free speaker today Mr. Martin I agree. Thank you. Please go ahead.
Thank you.
Thank you for dialing in and will come to terms conference call regarding do so for the first quarter 2020.
Name is more in October and I'm head of corporate finance is swept into.
As usual, we'll refer to the slots as we speak and at the end up the presentation, we'll open up for questions.
Slide two.
Before commencing I would like to draw your attention to our safe Harbor statement.
Slide three please.
With me today I have a executive director Young America, and she from a sluggish working Bella I'll now hand, the call whatsoever.
[music].
Okay Slide four piece and thank you more than I could often when all before we turn to the financial results and also the market.
I'd like to take a shot moment here to focus on safety and safety is obviously top priority for <unk>.
It has had an even greater focus here during the call we'd 19 pandemic.
So as an integrated particle all culture.
It has been resident natural and easy for us to execute the precautionary measures such as the work from home policies at early stages drinkers pandemic.
I'm really pleased.
Note that owe a onetime platform.
Has secured the safe operations, although vessels without any major operational issues in dispute.
Please turn to slide five.
So not knowing that we navigated.
Successfully on safety, we also navigated a volatile product tanker market here in the first quarter of Twentytwenty that was especially impacted bye bye.
19, and also the okay.
Decisions.
Source for the quarter for enhanced by the strong operational focus on our focus on maintaining efficient operations. Despite the challenges that has stemmed from Cowen 19.
The product tanker market has experienced the strongest talk to the year in more than decade, and retaining the strength experience that we in the last quarter of 19.
So in the first quarter of 20 to 20.
It has also been very volatile influenced not only by the cool 19 situation.
The cool opaque plus events and the related oil price development, but also by logistical inefficiencies and refinery maintenance.
So for here in the second quarter the market strengthened further it was supported by increased interest for the floating storage both on food and on products due to the contango in the oil price will go into the details on them often shortly.
To me in the first quarter, our parts and graphic realize an average tc rate of $23643 per day and here in the pockets largest segment.
The M. us we realized an ever Tc rate of 22461.
Dollars per day.
Thanks.
In the first quarter of Twentytwenty, we realized a positive EBITDA of 102 million dollar and a profit before tax of 57 million dollar or 76 cents per share. This is a higher figure then our adjusted full year results for 29 team.
The return on invested capital was positive at 15.4% for the first quarter of the year, which I consider really attractive levels.
Also in the first quarter of Twentytwenty, we placed orders for two or two newbuilds that will be delivered in the fourth quarter.
2021.
So far yen twentytwenty, taking delivery of for Newbuilds and delivered one older Handysize vessel to a new owner.
We've been committing ourselves and have been installing scrubbers, where we will have a total of 49 vessels, including newbuilds as of today. We've installed 37 scrubbers remains robust will be installed throughout twentytwenty, except for the previous mentioned true to Newbuilds, which is next year.
Approach has been balanced and with just about half of the feed having scrubbers installed.
Finally in January Twentytwenty.
Significantly when for US was that we refinance debt for a total of $496 million from needing ship lending banks for two separate term loan facilities and a revolving credit facility.
These facilities replace existing facilities and extended the maturity of Tom's debt maturities until 2026.
I can see that our actions have really provided today with a solid foundation to prosper under both continued market pugin market conditions and also under potentially less favorable conditions.
Slide six please.
To set the scene ahead of all through.
The market in the first quarter Twentytwenty I'd like to highlight the fact that the current situation is highly unprecedented and throughout my more than 25 years in shipping Im not experience. So many major drivers affecting the market at the same time.
Slide seven please.
Now, let's turn to some of these drivers of the product tanker market.
As mentioned toss part of tend to feed realized and ADVATE Tc rate of 23604 $3 per day in the last segment, we achieved two rates of $29108 per day, and a lot one rates of $24329 per day.
In the largest segment the M&A.
We achieved rate was $22461 per day and in the hands size segment, we've received achieved rate of $20685 per day.
As already highlighted the park 10 come August so quite some volatility here in the first quarter Twentytwenty with differences in rates per segment and Tokyo graphical area.
While the moderates in the with were supported by weather related delays and the late at the Panama Canal and a one rates in the east were affected by maintenance at several of the export oriented refineries in the middle East.
And the outbreak of the core 19 in China and corresponding decline.
In the countries all demand boasted product exports from China in the second half of the quarter.
In early March.
The collapse of the OPUC class negotiations and the resulting price war boosted crude tanker earnings which spread to the product tanker market at a time when more.
50% of the electronics was trading and duty.
Asked of wire spreads to the rest of the world impact of the code 19, and the measures taken to contain the virus considerably gained momentum in the second quarter.
Basically three drivers have played a significant role here.
Selling the product tanker rates to all time highs.
Firstly, the unprecedented decline in oil demand have resulted in temporary trade boost from several export regions. Most recently from China, sorry from India, and the Middle East region.
And at the local demand has been affected.
Toggle has needed to find home further away, thereby impacting the ton mile positively.
Secondly, as refinery runs have been slower to adjust to changes in the oil demand. This has resulted in unprecedented product inventory buildup, bringing the onshore storage capacity to its limits and increasing the interest for fixed and floating storage.
At the same time the unprecedented decline in all product demand have resulted in college issues at port and terminals, which in turn have resulted in a spate of short term logistical floating storage.
Patients the latter type of floating storage has kind of a large part signatories accounting for around 90% of the total floating stores, which is currently estimated at 14% of the global seat.
Thirdly, the current situation has given rise to increasing inefficiencies in trading partners such as vessels sailing around the cable cotwo in order to take advantage often contango cargo in immerse trying to find new buyers further away.
Just to give an example on the let alone. We've recently deviated the vessel that has loaded on the U.S. West Coast and was initially to discharge on the West Coast of Mexico, and this bezel less TV too as far away as Australia.
Another example, we had a vessel that loaded in the us Gulf weighted to discharge from the east coast of Mexico, but after eight days are waiting in Mexico.
Was sent to the Mediterranean instead.
Im sure we're not the only vis Luna experience in this type of inefficiencies.
At the same time crude tanker market, what's stimulus supported by strong crude inventory appeals as overhead costs Cup agreement. We was reached in April and it came too late to avoid massive crude oversupply.
Finally, it must also be mention that with product tanker rates climbing to a record high. We also really recently seen a number of into two vessels cleaning up our intending to do that at least.
Nevertheless, the number of vessels that have switched back to clean is smaller than the net change to the 30 market that we saw during the fourth quarter 2019, and the beginning of Twentytwenty.
Hence the tonnage supply side has remained favorable.
Obviously, uncertainties around the core 19 impact on the global economy, and the oil demand remain with is basically the timing and speed of all demand recovery being a key factor for the product tanker market.
However, while some of the cooling 19 related effects could peak soon we believe that it will take some time before the inefficiency in the market would be clear.
The Bob mentioned developments are also reflected in our bookings and here.
At the beginning of this week the total coverage for the second quarter of Twentytwenty was 69% at $29188 and in a larger segment DMR segment, our coverage was 65% at 26500 inventory.
Thanks.
Slide eight piece.
In our opinion is clear there is too early to predict the full impact of the cooling 19 on the global economic growth and many uncertainties remain.
As already mentioned before the core 19 pandemic has tightened tons supply considerably and introduced increase inefficiency to trading patterns, which has resulted in the record high product tanker rates.
Correct.
With our aim our Q2 to date rate continue throughout the quarter, we will obtain the highs emirates since the third quarter of 2008.
The main trigger for these developments has been the unprecedented decline in oil demand and the resulting oversupply for us.
While estimates for demand destruction still very widely the consensus points towards peak decline of almost 30% year on year in April.
Refineries have reacted to decline in oil demand by run cuts and short shutdowns, but demand has fallen even faster and more sharpie, then refiners have been able to scale down their production and this has led to record high product oversupply.
Fast inventory buildup and the need for floating storage.
From a ton of supply side. The situation will also have a positive medium and long term impact.
Yes operations at shipyards in China have been interrupted by Lockdowns. This has resulted in delays with respect to newbuilding deliveries scrubber retrofits and scheduled drydockings.
Thanks to capital planning and the fact that most shipyards used by tone have only been affected to a minor degree our scrubber retrofits will only experience minor delays in the longer term the uncertainties due to the cover 19 have generally led to lower interest for newbuilding ordering which ensure.
First a modest fee growth in the coming years at a time when the order book is already low in historical terms.
Slide nine please.
Now, let me come back to the development in product inventories and this slide here illustrates the dynamics of the quoted 19 impact on oil demand refinery runs and changes in product stockpiles.
As I already mentioned, the fact that refiners have not scaled down their production as fast and and sharply as demand has declined has led to unprecedented inventory buildup, which has first filled most of the onshore space and subsequently required stores of parks on board of vessels.
Several countries have started to east these lockdown measures and Weve. Therefore seen some early signs of demand recovery and the pace of the inventory buildup has likely top tier in April.
However demand is expected to remain subdued for some time yet in inventories continue to build although at a slower pace.
At one point demand recovery reaches a point Westrock building stops and product stops we'll start to draw.
Phil too many uncertainties to know when exactly this will happen, but when it happens it will release the vessels in floating storage to the market and structural will lessen the need for transportation of products and this will of course not be a positive factor for the product tanker market, but again, the extent and timing of this.
Will depend also on the speed of demand recovery.
Slide 10 please.
Another way to look at the current oil oversupply situation. It to look at the recent developments in the oil price structure in a historical context.
This slide shows both crude and product structures at the current oversupply is prevailed on both product and food markets.
The OPUC Trust coalition reached an agreement able to cut its crude production by an unprecedented 9.7 million barrels per day in May and June and earlier this week, Saudi Arabia, even announced that they were caught crude output.
More than they had already agreed.
And this together with market driven costs by non OPEC countries, such as you read.
Canada, Norway others has.
Good enough to avoid onshore storage filling up fast and coming close to its limits.
This situation led to contango in the oil price with levels similar to the once last in 2008 and triggered a flurry of tank as being fixed on time charter for floating storage accrued and also for us.
Since then contango has declined with the first signs of improvements in oil demand and subsequently in market balances and also the number of stores fixes has come down significantly.
Nevertheless, if we look at product tankers is actually not the committed stores dealers that are the main factor for keeping toners supply tight in fact, this logistical challenges that have had the strongest impact on the product tanker supply.
Slide 11 please.
So let me elaborate on this a floating storage situation. We estimate that currently 14% uplink trading tonnage is tied up in floating storage, which has built over the past month.
Yes, we're defining flooring stores as vessels with cargo on board and idle for at least seven days.
In terms of capacity the current level of tonnage tied up in joint coating stores is four times higher than what we consider a normal level.
And around 90% to 95% of this of vessels in so-called Jewsikow floating storage, which means vessels not able to discharge because of storage tanks being full at terminals and refineries.
The bulk of these vessels facing difficulties with discharging are actually emphasis and this leaves 5% to 10% of vessels in committed stores to use and nevertheless, we expect this figure to increased somewhat in the near future as it takes time before this is fixed loads the cogs.
And entered into the floating storage statistics, so we estimate that vessels fix for sodium stores and yet in the city fees could add another one to two percentage points to the chef tenants, including stores over the coming weeks.
It is also important to mention that while contango dreaming floating storage is set to unwind once the contango phase the logistical inefficiencies could potentially lot stronger supporting the market.
Slide 12 please.
Along with the strong crude tanker market of toll of 42 vessels have switched from clean to dirty trades in the past six months, leaving less than 50% of the vessels to trade in the key market.
With a clean tanker rates, reaching the record high levels in April we've seen a number of vessels switching back to clean. However, this number is much smaller than the net switch to dirty that we saw in the past six months.
Our current estimates show that around 10 vessels at cleaned up and another 10 also are intending to do that compared to 40 vessels that move to duty during the fourth quarter of last year.
Clearly switching back from 32 clean is not a positive Adam for product fingers, but this year aveda tools in the dirty market is still at around 50% despite the reaching switching.
And the fact that it is more costly to switch from third to clean and you. Other we are sure award that too many of US. This go back to clean.
Slide 13 please.
Yes.
Now, we turn to the longer term supply side market sectors.
The product tanker order book to feed rate you currently stands at 8%, which is very low in historical context.
This reflects the low ordering activity, we've seen most of last year, and which has carried over into this year as covert 19 related uncertainty has kept most on us away from the new building market.
Although we do not expect a quick run of the order book.
Given the uncertainty around new potential regulation on vessel proportion in connection with almost 23 and 2050 Q2 targets.
A lot of talk in the market has been on June fuel vessels, but so far and protect the space Jewel orders have been very limited.
So due to that we estimate that the product tanker fleet growth.
To be on average of 3% for year over the next three years compared to a fee growth of almost 5% in 2019, and an average of 6% during the previous three years.
This slowing peak growth rate is a key point to the fundamental positive developments that we still expect for the product tanker industry.
Slide 14 please.
To conclude my remarks on the product tanker market tome expects to see volatility in the market in a short to medium term related to the covered 19 and its impact on global oil markets and economic activity.
Aside the cover 19 effects, we see a number of key market drivers for the next 352 years five years to remain positive such as the low order book refinery dislocation, which will provide support to product tankers over the longer term.
Slide 15 please.
Looking at Toms commercial performance, we have again in the first quarter of 10 to 20.
Segment, Emma outperform the peer group average in the first quarter of Twentytwenty, we achieved rate of $22461 per day compared to a peer average of $18821 per day.
This as low translate into additional earnings of $90 million in the first quarter alone.
So obviously in general I am really satisfied that our operational platform continue to deliver these very competitive Tc units.
Slide 16 please.
A key deciding factor for delivering above average Tc earnings is driven by our continued focus on positioning our vessels in the patients with the highest earning potential.
We have a balanced strategy, where we generally do not position all of us in one patient, but instead have some overweight in either east or west depending on our expectations to the future market.
You know scenario, where the market is strengthening in the west relatively compared to the east we want to increase our exposure to the west and to illustrate our strategy and choices. We've shown our share of MRV is positioned west of Suez Canal together with a measure of the premium the west market.
Has realized over the.
Over the last quarters, the market West of Suez has been strongest and it's basically so far and twentytwenty that with market has been trading at a premium to the east which method using benchmark moves have been around $8000 per day.
So far in the second quarter, we've had around 70% of our M&A.
West of Suez, providing us with significant advantage compared to owners with a high exposure to the east market.
With that let me hand, it over to you can further elaboration of the cost structure, the operating leverage and obviously the balance sheet.
Thank you Jacob please turn to slide 17.
We lost but pace profile, Tom has significant leverage to increase in the underlying product tanker rates.
As of 30% must Twentytwenty every thousand dollars increase in the average daily Tc rate achieved translate into an increase in EBITDA of around $19 million in twentytwenty.
Corresponding figure increase to $28 million in 2200, 20 and 22.
As Ive 11 may.
Twentytwenty the coverage for the second quarter of Twentytwenty was 69% at switching $9108 per day.
For the individual segments the coverage rate ranges from around $19000 per day for the smaller handysize vessels and up to around $36000 per day for the larger feel obviously.
Slide 18 please.
As Jacob mentioned, Tom achieved a profit before tax of $57 million in the first quarter of Twentytwenty. This is higher than the adjusted full year results in 2019 of $47 million.
The result corresponds to accordingly to quarterly earnings per share of seven six cents, which on an annualized basis is three dollar per share all around 20 dollar thrifty Danish krone.
Similar if the first quarter results would continue throughout Twentytwenty the profit before tax for Twentytwenty would be above $200 million.
We do obviously not know the SEC development of the market at our earnings over the coming quarters, but for Q2 coverage uncertainly limits may twentytwenty.
They provide us with a buffer to that number so far of approximately $25 million.
As illustrated Toms financial results.
Thats very sensitive to changes in freight rates.
Slide 19 please.
Before discussing our cost structure I would like to remind you of Tom's operating model, we have a fully integrated commercial and technical platform, including all support functions, such as and insurance based on purchase team, which we believe this a significant competitive advantage futral.
Importantly, it also provides a transparent cost structure for our shareholders and eliminates related party transactions.
Naturally we are focused on maintaining efficient operations and providing high quality service to our customers. Despite this trade off we have seen gradually decreases of 20% at our Opex per day over the last six years, which translates into a total decrease of around $44 million on an annual basis.
Opaque was below.
$6100 per day in the first quarter, Twentytwenty, which we find competitive in light of our fleet composition.
We believe that EBITDA breakeven rate of $8800 per day achieved in the first product Twentytwenty reflects the efficiency of the once on platform and its highly competitive compared to other owners in the product tanker segment.
Slide 20.
I would now I would like to discuss our financial position in terms of key metrics, such as net asset value and loan to value.
Vessel values have decreased by around 4% during the first product twentytwenty and the value of Tom services, including Newbuildings was just above $1.8 billion Esa 31st of marketing between chief.
Outstanding Crusted amounted to 19 and $23 million Esa.
So first of must Twentytwenty. Finally, we had outstanding committed capex of $112 million relating to our Newbuilding program and cash of $129 million Esa 31st of March 20 switching.
This gives trauma net loan to value of 49% at the end of the first quarter, which we consider a conservative loon.
The net asset value is estimated at $993 million as for sort of customers Twentytwenty.
And this corresponds to 13.3 dollars or 19.5, Danish kroner per share.
Just before commencing this call Tom shares were trading at 54 Danish krone.
In short we have a balance sheet that provider provides us with strategic and financial flexibility.
And on the following slides I will give you some more insights into our liquidity position capex commitments and I'll get profile.
Slide 21 please.
As a sort of first vast twentytwenty, Tom had available liquidity of $273 million cash totaled $129 million and we had undrawn credit facilities of $144 million.
Our total capex commitments relating to.
Through our new buildings were $112 million as our third first of March Twentytwenty. In addition to the Capex related to the electro Newbuildings. We also expect to pay $21 million in Twentytwenty for retrofit scrubber installations on vessels on the water.
With strong strong liquidity profile, the capex commitment of fully funded a very manageable.
Slide 22 please.
After having finalize the refinancing in the beginning of 2025, we have eliminated all major refinancing until 2026.
Which provides them with financial interest strategic flexibility to pursue value enhancing opportunities in the market.
So 31st of March Twentytwenty, our outstanding debt stood at $918 million.
With that I will let the operator for questions.
Thank you, ladies and gentlemen, good Jones, who wants to ask your question that's part one.
Once again those will reach to answer your question needs plan Star Unwind and wait for the operator Gap Corporation. Thank you.
Your first question.
Mr., Jon Chappell from Evercore. Please ask your question.
Thank you.
And then everybody.
Well.
Morning, Hope you're safe.
Thank you.
First question is our current or duration of contract coverage so the 89%.
For the second quarter, obviously makes sense to earn good if we look to the 2021 in your presentation.
2% of yell at seasons or percent costs or us so.
What's your desire to lock in order to some sort of the other needed structure today.
Our medium term inventory stocking.
Rather for strategic decision platforms not.
Thank you Bruce John six months or it's just a function of Theres no liquidity in the markets that.
Yes, absolutely good question, John as usual so.
I think it's fair to say that the liquidity.
As we see it in the longer term deals.
Really in subdued.
I think.
As I see in the economic uncertainty.
Which is a.
We're hitting all of US due to cover 19. It has also hit in my opinion shipping markets in respect of that that most access in these markets have been really reluctant to go long on the curve even at discounted rates to the current elevated so we've seen very few transactions.
That have been meaningful.
For for longer term cover, but we would obviously also engaged in that type of dialogue with the right partners I think one other thing that the that we also acos have to evaluate is that the risk.
On counterparty, we've not had any issues, but we do need to evaluate in the current environment where are you.
Really in the value chain compared to operating ships and.
So as I think that the liquidity, Tom and also our awareness around counterparty risk longer on the curve is of course increased in the situation.
Mhm.
I am occurred.
And then.
Try a couple of things together, when we think about capital allocation.
Given the uncertainty that you just mentioned earlier given carrots presentation about net debt maturities.
Well done.
Decade.
We have you may access to take delivery of analysts prescribers.
But given.
Like I said before the uncertainty how do you think about your dividend policy.
You still maintain the 25% to 50% in the news the excess cash from the Martin that you're probably building in the first half of this year.
To liquid assets or do you maybe scale it back or go to the lower end, just because you're not sure how the market plays out over the next 12 days tumor.
It's a very relevant question, but you are three months.
Ahead of the curve to be honest, John So so we will be evaluating that together with the board.
At the L. meeting in August once we have the full how first half results.
And currently.
I think it's simply.
Too early for us to speculative on how the world will look.
In August so.
So I think the reserve that we will do what is right. Obviously currently.
Our distribution policy is very clear, 25% to 50% off of the net profit.
Obviously would we be in a world that is dramatically different than the one we anticipate we need to evaluate that but I think it's too early.
Well then I'll ask again in August and then meantime, let me just let me ask generating so much cash in the first half of the year so dividends.
ER.
Even buybacks aside.
Do you look to rapidly de lever the balance sheet in this type of environment.
Or do you still think that asset value still appropriately.
Yeah.
The positive medium and long term supply demand our laid out in the presentation.
I think the same.
Cost of that I think we need to get.
Little more clarity and transparency around both the market development and also where asset prices really clearing to give you.
The exact.
The answer to that so I think we're really flexible around this personally I would like to see some of these events that that has been.
Unfolding, which relates to of course to the buildup of.
Floating storage that dent in demand and this slide the that we discussed around.
Economic recovery and therefore also recovery in demand how is that actually going to play out what are the positive factors and what are the negatives ice I've just seen.
A number of report discussing for instance, the gasoline consumption in the us rebounding from the bottom so from the lows in April already now before you have a real reopening of the economy and everything else being equal out of all global consumption of clean petroleum products, 10%, it's gasoline in the U.S.
So that is a key fundamental driver to also understand.
What will happen, let's say over the coming months, you will have an unwinding everything else being equal of the operational.
Inefficiencies hopefully with global economy come back.
And you could say that that would lead to us acute.
Rate environment. However, there are also indicate is off that some of the consumer behavior will actually be to the benefit of us around several rating yourself from other people in society more than what we've been used to I take you own car is that as a viable option for you.
Sure.
All right I think we need to be renewed or more clarity you want to be honest before we make.
Calls and I think were a bit early.
To do that.
Yes, but it will be very interesting.
[music].
Thank you.
Thanks.
And then.
Thank you. Your next question comes from the line measure.
Andrew Smith Barney.
Good question.
Hello, and remember from Capella.
Just want a little bit thoughts.
Level of thing for Q2.
In the low compared to.
Hi.
Right, it's in market I realize there's.
Delay effects.
Also there could be in effect.
The marriage of the ships, maybe signed up the margins have been.
Offload, the yet and running on the.
On the old deals made up in March at lower levels.
Can you elaborate a little bit on the delay versus the spot market and the.
And what you are realizing sort of better understand how this.
Perhaps you them, which kind of timeline.
Thanks.
I think you're pointing exactly.
With that.
There's two elements to we have to say we've really.
Very excited about the rates that we have on average because as you as you can imagine Q2 starts in March for for us for that actually when you start booking the rates. So you will have much.
The booking that will be realized in April and May So thats number one exactly the way you describe it and then there is also the fact that given that about 20% of our fleet.
Is currently in what we would call operational storage.
All of those vessels are engaged in earning as you described a lower than the spot market because they are entering into the to merge.
So so those two components together blended with then bookings in the current rate environment gifts executive.
Sort of the blended rate that the that we have here and I'm truly excited about the steps able to be honest I can understand that if you apply a snapshot of a spot market lets say off of X and you say that is what is.
Attributable to to the full fleet for the full quarter. Then you will be then it will be a lower number that we realize but that is that is effect. These are the numbers and I think we're doing well in Arkansas compared to two peers in our larger segment I've not seen anybody realized higher numbers.
So to turn the argument around it spot market would come down in the third quarter on fourth quarter, there's probably going to be seeing the delay going the other direction.
Some ships being able to offload the cargo on running on.
Okay.
Rates signed up in a premium that are going to high level.
Okay.
That's fair assumption that we can get.
From the.
Thank you for.
Good.
I think it is a bit also say that you could say the economic incentive for the people who would have had your vessel on at low rates to steal utilize you sort of as a floating storage is obviously higher than somebody who is contracted you at a high rate in a low freight environment, because they're they will have an uncertain to substitute you.
For 202 floating storage capacity, so im not sure. It works the way you describe it I can hope, but I'm not sure that that would be the dynamic because this fundamentally different incentive for.
The charterer to actually.
Offload your vessel and take another vessel as an alternative in this scenario describing whereas that that is obviously not the case if the terms of rate is higher.
Okay. The cargo owners have a bit of optionality.
Yes.
You can say that because they can make a ship to ship transfer of the cargo that you have right now sitting let's say that you contracted rate ex already in March and that that rate is lower than the current market you would try to hold onto that if it's the other way around that you contracted in let's say in may at a very high.
A number and you are sitting.
Waiting you would have an incentive is a market falls down to actually do a ship to ship transfer rent another.
Vessel from another ship owner at a lower rate and take the saving.
Okay. Thanks.
Thank you next question comes from the line Richmont.
Okay.
Yes, good afternoon.
So couple of questions from my side, So you state that your fixed 69%.
Two vessel days at just about $29000 per day. So based on the current spot rates do you expect this average rate to increase or decrease as we approach. The end of Q2 and also if you can.
Talk about what the spot rates you were fixing to right now for each segment.
That would be I appreciate it.
Yes, so if we take the bookings that we that we sort of entered into.
The last week, so that would be the latest data points that I have.
I can give you the exact sort of a level that we have the or just one second.
Let me take it out here on my computer so.
We booked.
Maass on average.
Around 40000 last week.
Okay, and quite a lot to allow alone.
We didn't have any bookings.
Okay.
Okay, but obviously filings I think what we're experiencing if you'll also see is that you have a falling tendency in the in the freight rate environment currently.
So I estimate that the current market.
On a mass sort of at a global level is probably sub 30.
Now.
Okay.
Let's say, hi, Hi, 20.
Would be the current market today.
Okay.
And then a follow up question. So thanks, a lot of talk about the oil market dynamics and alluded to it in your presentation as well will be supply and demand being out of sync and why some sources indicate that supply demand balance will be reach.
Over September others indicate that there will be reach as early as a student so what are your expectations and what do you see us a floor for the amount rates once inventories begin to unwind keeping the yes, the tanker dynamics.
As I simply thing is too early to.
To come up with the with precise.
Datapoints on that if I consider how many events that have been.
Taking place over the last two months and have a is it.
Take that out on up until lets say the rest of this year, we will have a lot of volatility.
And I expect more volatility due to oil price still.
Potentially being.
I was a.
Advocates and environment that is on known unchartered for oil traders, where oil price on a day to day basis can move in and out of contango easily I also expect that.
The closure and then reopening of economies will not be just a stable right we've seen.
These tendency, especially in southeast Asia. If you look at South Korea, you look at Singapore as exams of economies, where you stepped up and you strip out of the locked down and into something more normal where you had to reset and go back into.
So I think I think to now expect that this will be just a smooth ride with rates going in one particular direction is not the way I look upon is I think it's too early for that type of environment and we're not planning in accordance that we're playing much more to that is a very unknown environment over the coming.
And we are ready for that.
Okay got it.
And then also a question to this delay effects that.
About previously.
So what what on the average journey for each segment just to get an idea. So how long is this time lag between four voyage. So for the luxury was I suppose.
Which is longer than the M&A. So and also in the current environment, where did you say there are lot of inefficiencies going on.
Ships sailing.
While the route unusual so.
These workers have steadily increased significantly compared to what the usually up.
Yeah, so everybody, which.
Cargo.
That you were that you have currently.
On average is longer whether it's in the larger segment, where you have longer trade routes, let's say on a lot to.
You have.
Generally voyages 40 50.
Days or whether it is an m. us working on the you have shorter let's say 25 to 30 days then in both cases, the average duration of avoids is longer to carry the same amount Chicago because either of the destination being further away as I described also or.
In the case, where you have operational inefficiencies and you arrive as just port and you simply sit and wait for the terminal and the infrastructure to be ready. So yes in general terms on average.
Every car movement is long and that is of course taken out capacity on top of the other inefficiencies.
Okay. Thank you no further questions from my side. Thanks.
Your next question comes from the line.
Thanks, Robert please.
Okay.
Yes, good afternoon.
I was wondering a little bit about the logistical issues that youre such you're facing can you say anything about you know.
Is that increasing now that you see that you know the lineup imports is actually growing or are you seeing signs that it's a easing off.
And it will follow up to that.
What kind of demurrage rates are you seeing in the various segments. These states I guess that's a.
That'll be a reflection of you know.
Waiting time going forward.
Thank you Ed.
I think it is.
He is a little off as of late but not something dramatic as you can also see from the figures that we have 14%.
That is.
Relatively high FICO as we mentioned four times, what we would expect Esa normal trend, obviously some vessels they opt out of this lineup and others come in but in aggregate is about 14%.
Thank you. This is around the level that we currently expect sort of the system to have and that from there you would expect at a certain time when economies they come back.
It will it will ease off from this level, it's probably been the highest that we have observed was 15%.
The dimmers rates I in line with the market. So over the last couple of weeks you would have if you book a cargo where the TC equivalent let's say.
$50000. As an example, then you would have to most rates that are very much in line with that so they they basically they are a bit lower when the market is high and when the market is lower let's say that the market was 15000, then you would probably achieve at the most rate that was slightly higher so that's the dynamic in that but.
The most rates tend to follow closely with the development the freight rates and with freight rates are very high to most rates a slightly lower wind freight rates are in the lower rates simos rates are slightly higher.
Okay. Thank you are you seeing any particular regions, where delays are hires on others. Other regions, where there is absolutely full stop them. Although there is very very you know you have some kind of the.
Movement in the line ups.
Others for where there isn't any at all.
Yes, we do see that you have more.
Of the capacity in the west that is stuck into the statistical issues rather than what has been the case.
In the in the east, but it is within a number of percentage points.
But mostly west where the percentage is three four percentage points higher than the average of feed studies in the east.
Okay. Thank you very assortment worldwide. Thank you.
Thank you. My next question comes from the line up George Berman.
My question.
Good morning, gentlemen, thanks for taking morning, Thanks for taking my call congratulations great quarter.
Thanks, very much or set happy to have you on has got a quick question you mentioned the switching off LR one seller twos.
Tom clean to Dirty.
You mentioned the number of 50%.
Maybe as many as 40 or 50 actual tank cars, how much of a aggravation is it for these once they go to 30 to move back to a clean product tankers.
Yes, so very good question George So as you as you point to when you move from clean to Dirty.
That is actually just the decision and the vessel will be be ready to go into that cargo program with the charterer. When you want to move back then generally the requirement from charters to have a vessel in the clean petroleum trade is that the cargo background. The last three cargoes that you are traded.
Should be clean and obviously by definition. If your last cargo is crude you will have not had a lot three king air cargo. So you need to find a way to come back and have a cargo background, where the charter or that you are engaging with is willing to utilize your third.
Cargo background, even though they are now going to be carrying a clinical and the chatter and normally takes the advantage of that to have a discount for that particular type of business and here.
How that will evolve for the ship owner will of course depend on the negotiation power at that they between the owner and the charter how much of a discount from the general market.
Are you willing to get to the charter or two in Houston to use your vessel as number one and what is the duration of that cargo transfer. So it really depends I think normally the rule of thumb in the marketplace has been 1 million dollar sort of that you can apply.
Switching cost, but obviously in the high rate environment, it could be a higher.
Contribution margin that you've given up potentially but there is around that range in a normalized market.
No. So there is no no actual cleaning off the dirty vessel involved.
Just kind of diluted with three different voyages and hope that everything is clean then.
No you to clean the vessel also the crew and the vessel will clean its tanks and the tanks will be inspected after.
But the copper background on paper, which lost three cargos clean and obviously you have fleet the tanks, but you have not lost cargo background lots recovers.
I see I see.
So.
And with a major or delays in in the in various parts various other things I I also noticed that youre weights are far from what we're reading.
As being spot rates in yellow market for example of over $1000 on $50000.
That is just as the fact that some of yours were on voyages engaged already.
We'll finish over the next few days or weeks and then hopefully get the advantage off of the nor weights.
Yeah, you're going to that we've also engaged in the Charles that are slightly longer let's say up to six months, where we have then engage in the in freight rates.
For longer periods, which is not in the 100000 spot is probably only 50000.
But then we have it on K fourth quarter.
All right and I noticed that you had we purchased some common shares in the open market is is there any way for you to buy additional chunks of stock back maybe from one of your larger shareholders at the current depressed prices.
If you are you asking if it is that's a possibility as such.
Yes.
Right.
Jacob I alluded to earlier or described earlier, we have this the dividend policy, where we decide on the dividend distribution every year.
Six month.
So that that's basically our policy and that is how we how we operate.
So you don't generally buyback shares in the open market that.
No.
Not generally we we did.
After the annual report.
2019, we did buy some back bringing us up to assign distribution of 50, 50% of our net earnings.
So so that was the idea.
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But we're not doing it on a day to day basis assess your question, we do it a when we evaluate out.
Provision policies.
Okay, Okay 'cause.
Basically what I'm alluding to is if the if your stock price, obviously does not reflect the realities of the current market or even alva future market. One might argue here it might be who view or be more advantageous for shareholders.
For you to buy back and.
We retire X amount of shares leaving more for the west of Us and maybe if your largest shareholder as an appetite to sell chairs or whatever as appetite from selling shares the company in my baidoas back rather than paying out the dividend in turn you obviously saves a dividend on the shares that you bought back.
Okay.
Yes, it's absolutely.
Correct.
As as we are evaluating as Kim mentioned on the semi annual basis, our distribution policy and at that time, we will evaluate whether its distribution should be in terms of.
The dividend.
Or share buyback or a combination I think there was a question on the written question also.
Asking about we have previously said that share buybacks.
His second priority.
And of course, there is I just want to a two into of course. There is also free flow to issue I know you addressing some figure for of course liquidity is very important also so that is a consideration also.
Okay, we'll be watching for the future. Thanks, very much and good luck to you all.
Thanks, Josh Thank you.
Thank you.
Question at this time please continue.
This is Robert.
Yes.
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It's over.
One question.
Okay.
Thank you.
Okay. Thank you.
Your next question comes from the line.
Sundance Keybanc. Please ask your question.
Okay.
Yes, Hi, Jackup and Kim just a follow up question on on the question just before about the chemical distribution.
Of course, you're generating a lot of cash at the moment, we can see maybe up to 20% of market cap in the first two quarters this year.
In two days ago isn't all that stuck announcement thing that you're moving 900 million U.S. dollar from.
To your free accounts and directly saying that this could be used for buybacks or dividends.
And maybe you can see had some more light on this announcement.
Yeah.
There was a.
Perhaps an over interpretation in the short run at least for the but it is more of technical reasons to be able to distribute.
Dividends from our our plc. So we are basically a rich.
Reducing the capital.
Okay them through the pre reserves to be able to distribute dividends.
And creating the flexibility we need.
So that's the idea that were there were historically not enough.
It just group distributable dividends that is the case now going forward.
Okay.
I think maybe last question as to when looking at your NPV and this going I was a bit surprised to see ship values decreasing from last year I.
I would have thoughts that in the best market in a decade. So she ship values actually increasing its nothing going on in the second hand market.
I think.
Things are going on the second my but I think the in this instance.
This is valuations at the end of last year, we're a little ahead of the curve anticipating a stronger.
Rate environment and.
In a way sort of you have to the peak of vessels valuations at least in this could towards the valuations end of Q4, and therefore, you've seen this slight decrease in vis evaluations going into the year, even though we obviously have a very strongly freight rate environment.
There are transactions taking place also in the in the secondary market at around the prices.
Which is reflected in our in heavy.
Okay. Thank you very much.
And no further questions that sang.
Okay. So thank you very much for all the input there is one the question on the.
On the web caught which has to do with where the our crews are increasingly stock at sea due to cope with 19.
And whether we foresee that it would be necessary to divert or have out of service to leave our crews and here I.
I think it's an important a question about the having the safety and.
The our crews at the forefront of our operation and what we have experienced so far is obviously that there are delays in having the crew changes that we normally have so a number of our seafarers have been out longer than what we had expected and.
They had anticipated we had been able to relief.
Some of them when we've been in the jurisdictions, where that has been possible. However, not to the same degree as we would normally so we're in a very close dialogue with our crews on a daily basis around this and at the same time, we are pushing in international Forum Evine.
Here's the agenda around that internationally, you have 1.2 million seafarers that more or less need to have crude changes overtime and that the current situation, where you have lockdowns and that you were restricted from doing nonaccrual changes is not sustainable so I think it's fast.
I would say that we're pushing through the organizations and towards politicians and the individual nations to open up and so we have a gradual normality.
For the good of our seafarers, we have had it grew changes and we do not anticipate that it will be necessary to take our vessels out of service to relieve a cruise.
Okay.
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With that I.
I think we'll conclude the earning calls for the first quarter of 2021 2020.
Thank you very much for the timing.
Thank you that does conclude in conference for today, Thanks for participating anyhow.
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