Q2 2023 Eagle Bulk Shipping Inc Earnings Call
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Okay.
Good day and welcome to Eagle Bulks second quarter 2023 earnings call. At this time, all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session and instructions will be given at that time.
As a reminder, this call's being recorded.
I'd now like to turn the call over to Gary Vogel CEO you may begin.
Thank you and good morning, I'd like to welcome everyone to Eagle bulk <unk> second quarter 2023 earnings call to supplement our remarks today I would encourage participants to access a slide presentation that is available on our website.
At Eagle ships Dot com.
Please note that part of our discussion today will include forward looking statements. These statements are not guarantees of future performance and are inherently subject to risks and uncertainties.
Should not place undue reliance on these forward looking statements. Please refer to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties that may have a direct bearing on our operating results our performance and our financial condition.
Our discussion today also includes certain non-GAAP financial measures, including TC TCE revenues adjusted net income EBITDA and adjusted EBITDA. Please refer to the appendix in the presentation and our earnings release filed with the Securities and Exchange Commission for more information.
<unk> non-GAAP financial measures and a reconciliation to the most comparable GAAP financial measures. Please turn to slide six.
Today, we will start with a discussion of operations against the backdrop of a modest recovery in rates relative to the first quarter averages, we generated net income of $18 million or $1 42 per share basic.
Just on this result, and consistent with our stated capital allocation strategy Eagles Board of directors declared a cash dividend of <unk> 58 per share equal to 30% of net income.
I am pleased to report that we successfully concluded the transfer of crew management on 18 of our ships, resulting in a more balanced nationality makeup and improved crude sourcing opportunities, which support our ongoing efforts to offset challenges arising from geopolitical events, such as the Russia, Ukraine War.
This was a significant undertaking and one which we were able to complete with limited impact to operations.
On the vessel S&P front, we closed on the purchase and took delivery of two 2000 training built scrubber fitted ultra Max is during the quarter. We also closed on the sale and deliver two of our mid aged non scrubber fitted supermac says to the new owners. Additionally, and subsequent to quarter end, we closed on the sale and go over to third.
At age non scrubber fitted Super Max as reported previously the purchase and subsequent sale of these three vessels generated a levered IRR of roughly 70% over the past 24 months as of today, we have no pending S&P activity and our fleet totals 52 ships, 96% of which are scrubber fitted.
Lastly from a balance sheet perspective, we executed an upsize and extension to our credit facility as previously disclosed coaster will provide more detail on this later in the call.
Please turn to slide seven.
For Q2, we achieved a net TCE of $14434, representing an outperformance versus the benchmark BSI of roughly 35% or $3748 per ship per day.
Although the BSI at the beginning of April was trading around 13000, it declined significantly during the second quarter falling to roughly $8000 by the end of chair.
The weakness we saw in market freight rates during the quarter can primarily be attributed to lackluster demand growth out of China, and a continued easing congestion, which has effectively increased vessel supply into the market.
As we look to the third quarter spot rates remain weak with the BSI presently hovering around 8000.
As of today, we fixed approximately 67% of our own available days for Q3 had a net TCE of 10900.
Before turning the call to Kosta I want to take a moment and briefly mentioned the transaction, we announced in June whereby we repurchased <unk> three 8 million shares which represented a 28% strategic shareholding position.
Given we were able to conclude the transaction at a discount to NAV and based on our constructive view of the medium term fundamentals. We believe this deal will be highly accretive for our shareholders.
With that I would now like to turn the call over to Kosta, who will discuss our second quarter financials.
Uh huh.
Thank you Gary Please turn to slide nine.
TCE revenues improved 10% on a quarter to total $64 9 million.
This translates to a TCE of 14434 based on $45 two owned available days for the period in line with our previous guidance.
As mentioned earlier, our achieved TCE represents a significant outperformance against the benchmark BSI index and continues to demonstrate the strength of our commercial platform.
That's our operating expenses improved roughly 1% quarter on quarter to total $31 million.
<unk> $64 51 per day in line with our outlook.
It is important to note that opex was impacted by a number of nonrecurring items for the period, including startup and improvement costs on our recently acquired vessels costs related to the previously mentioned crew management transition and discretionary upgrades on some vessels.
Excluding these nonrecurring items adjusted Opex equated to $58 82 per day, which is in line with our previous guidance.
General and administrative expenses increased 300000 in the quarter totaled $11 3 million with cash G&A costs coming in flat at $9 1 million.
We incurred $700000 mark to market adjustment on our right of use assets, which related to one of our charter in ships.
This noncash charge was driven primarily by the weaker freight environment.
During Q2, we closed on the sales of the Manta Gale and Newport Eagle Realizing a total gain on these sales of $11 $6 million.
As indicated earlier subsequent to the quarter end, we sold and delivered sanctity Eagle and expect to realize a gain on sale of $4 9 million in Q3.
Net interest expense inclusive of cash interest expense cash interest income and non cash deferred financing fees came in at $2 6 million for the quarter in line with our prior guidance.
The unrealized net P&L on derivatives for Q2 was positive $2 million.
This was primarily attributed to our outstanding FFA position as of June 30.
Adjusted net income, which is net income adjusted for the unrealized P&L into robotics, and the noncash mark to market adjustment on our right of use asset came in at $16 7 million or $1 31 per share basic and $1 13 per share diluted.
Please note that the convertible bond was deemed to be dilutive this quarter from an EPS perspective that such shares underlying the security or included in the diluted share count.
Adjusted EBITDA amounted to $24 8 million.
Please turn to slide 10.
We ended the quarter with a total cash position of $118 million down 37, five as compared to March 31.
We generated $24 7 million from operations.
Used $23 7 million in investing activities, which was primarily comprised of $54 4 million spent on two vessel purchases.
By $32 3 million received from two vessel sales.
We used $38 6 million in financing, which is comprised of the following.
$184 million net debt proceeds received.
$221 million spent on the share repurchase inclusive of deal fees and $1 $4 million in total dividends paid.
Please turn to slide 11.
After taking into consideration the sale of the sanctity Eagle, which took place in July our pro forma June 30 at liquidity position totals $195 million inclusive of $60 million in Undrawn, our CF availability.
Total debt outstanding as of quarter end was $517 million comprised of the following.
$104 million in a convertible bond face amount to.
$288 million on the term loan and $125 million on the Rcs.
As reported previously during Q2, we executed an upsize and extension of our credit facility, which provided for an increase of $175 million and total borrowing capacity a reduction in margin and an extension of the maturity to September of 2028.
The margin on our credit facility can now range between two 5% to seven 5% based on leverage and certain sustainability criteria.
Presently our margin is at the lowest threshold of two 5%.
Inclusive of interest rate swaps, we have in place the all in weighted average interest rate on our total debt position is approximately $5 two 5% today.
For more information on our debt facilities. Please reference the debt term summary, slide in the appendix.
Please turn to slide 12.
As we look ahead into Q3, we are providing you with the following informational outlook owned.
Owned available days is projected to be 46, after taking into consideration S&P activity <unk> for both scheduled and unscheduled off hire.
As Gary indicated earlier as of today, we have fixed approximately 67% of our owned available days at a TCE of 10900.
Please note that this figure is inclusive of pro rata estimate for realized gains and losses the period on a mark to market basis.
On the expense side, we are projecting the following on a per vessel per day basis.
Vessel operating expenses are expected to improve further and normalize as we anticipate less impact from the nonrecurring items.
We estimate opex to range between 5900 6200.
And excluding non recurring items adjusted Opex is expected to come in between 5800 6100.
Noncash depreciation and amortization expense is projected to come in between 3200 3400.
G&A cash expenses forecasted to come in between <unk> hundred 19 <unk> hundred.
Noncash stock based compensation is estimated to come in between 300 400.
Net interest expense is expected to come in between <unk> hundred 9200.
As of June 30, we had $9 3 million basic shares outstanding and $12 9 million diluted shares outstanding after taking into account the shares underlying the convertible bond Unvested equity awards.
This concludes my remarks, I will now turn the call back to Gary who will discuss industry fundamentals.
Thank you Kosta, please turn to slide 14.
As indicated earlier freight rates remain weak at the moment with BSI, averaging approximately $8142 for July essentially on par with February levels.
Notwithstanding the overhang on the macro environment with rising interest rates and continued concerns of a recession. We believe the weakness we have been experiencing a freight rates has been surprising believes the main drivers of this has been the weak demand growth recovery from China and an increase in what we call effective supply is the normalization of trade routes.
An easing of congestion has continued to evolve.
To illustrate the impact congestion has an effective supply to decrease in a 50 day voyage is say five days import or 10% translates to an equivalent reduction in utilization as such a marginal decrease in utilization can have bounced effect on rates. The opposite is of course true in a rising congestion environment.
The forward curve for the balance of the year is in contango with Q4 trading around $11000, representing about a 40% premium to spot.
The market's continued belief for an improvement in the supply demand dynamics and a recovery in rates. We believe trade activity will recover as we come out of summer and approached the end of the third quarter and with congestion now back to pre COVID-19 levels and essentially fully unwound, we see rates pushing back up above the forward curve.
Please turn to slide 15.
Fuel prices were mixed during the second quarter with <unk> rising by 9% on increased demand from the middle East for use in power generation as well as tighter Hs <unk> supply has the EU is impacted by the ban on Russian crude and refined products.
SFO, which tends to be highly correlated with crude oil weakened by six 5% as a result fuel spreads between HSR filing via our CFO average roughly a $118 per ton for the quarter give.
Given current supply demand dynamics specific to HSA follow the forward curve is indicating flat fuel spreads for the balance of the year.
As mentioned earlier as a result of our recent sale and purchase activity 50 out of 52 of our ships are now fitted with scrubbers solidifying <unk> position as the largest owner of a scrubber fitted ships within the mid sized drybulk segment globally.
Notwithstanding a contraction of your spreads on an illustrative basis based on 2023 year to date and the forward curve, we estimate our scrubbers will generate approximately $30 million in incremental net income on an annualized basis.
This translates to an incremental net TCE of approximately $600 per day, representing a meaningful contribution in todays freight market environment.
Please turn to slide 16.
Even though the freight market has been subdued S&P activity within the <unk> segment has been fairly robust and tracking at similar levels to last year.
<unk> interest has emerged primarily from traditional European based ship owners, who tend to have more of an asset trader approach to investing.
<unk> values have been volatile, but remain elevated and inherently imply that market participants believe freight rates will trend higher going forward.
As indicated earlier, we have been active on both the buying and selling fronts recently will continue to seek opportunities that will provide us with an opportunity to further optimize our fleet, while also attempting to capitalize on market volatility.
I believe we've demonstrated our ability to do this well over the years and since 2016, we've executed a total of 58 sale and purchase transactions turning over 52% of our fleet and generating incremental value for the enterprise and our shareholders. Please turn to slide 17.
Net fleet supply growth slowed in Q2, a total of 119 Drybulk Newbuild vessels were delivered during the period as compared with 127 in the prior quarter New building deliveries in Q2 were partially offset by 24 vessels, which were removed from the market and scrap.
Notably for Eagle 11, mid sized geared vessels were scrapped during the quarter, while still low this represents a significant increase and compares to just nine mid sized vessels scrapped during the entirety of 2022.
As we've mentioned previously despite high scrap prices that averaged around $560 per ton. Thus far in 2023, the low level of vessel demolition is not surprising given the strength in the underlying spot market during 2021, and 'twenty two and the apparent shared sentiment by owners generally that rates will be.
Going forward.
In terms of forward supply growth. The overall Drybulk order book remains at a historically low level of around seven 4% of the on the water fleet.
For 2023 dry bulk net fleet growth is projected at two 9% at the same level as in 2022. The main driver of the slow growth rate is a continuation of muted deliveries and is despite low levels of scrapping across all drybulk segments. We also note that scrapping in 2023 was forecasts.
Has to be as high as $30 million deadweight late last year, but the forecast has been continually revised downward is now forecast suggest 6 million deadweight.
A total of 111 Drybulk ships were ordered during Q2 up 22 ships compared to the prior quarter, it's worth noting that the vast majority of ships being ordered today will not be delivered until the second half of 2025 or 2026.
Please turn to slide 18.
Future supply dynamics continue to look very favorable based on delivery of current order book and expected scrapping levels. The midsized fleet is expected to surpass the record average age of 12 years in 2024 and continuing increasing from there are positive from this trend is that there is an ever increasing number of significant.
Older ships that will need to be recycled in the coming years.
As we noted on the previous slide to forecast for scrapping over the near term has been continually revised downward, which only increases the average age and adds to the pool of potential future scrapping candidates. It's worth noting that ships over 15 years of age need to dry dock every 30 months, which translates to meaningful and ever increasing costs.
For ships as they age.
Given limited yard capacity relative cost advantage of secondhand ships versus new buildings as well as uncertainty around decarbonization future fuel propulsion technology, we believe ordering and the result in order book will remain low for some time, we expect these dynamics combining a near record low order book with near record fleet age to <unk>.
Further improve the supply side in terms of fleet development in the coming years, Please turn to slide 19.
The IMF is currently projecting global GDP growth to reach 3% for 2023 up 20 basis points as compared to their previous forecast.
The outlook for this year has improved modestly due to the resolution of the U S debt ceiling standoff and containment of financial sector turmoil in the U S and Switzerland in the first half of the year at the global level. The outlook appears to be modestly improving as the economic shocks of the pandemic supply chain disruptions and Russia's invasion of Ukraine.
<unk> received.
The IMF also notes that inflation is easing in most countries. Although it remains high and we will continue to be an area of focus.
With central banks being at or close to the end of their tightening stage notwithstanding continuing uncertainty I believe we're seeing an improvement in general confidence in the markets.
Terms of Drybulk total trade demand growth is expected to improve by 560 basis points in 2023 to reach a level of positive two 7% on a core basis and improved further to a positive three 3% once factoring in ton mile effect. Please turn to slide 20.
Looking into the details of Drybulk demand on this slide we note that 2023 forecast for most commodities has improved since our last earnings call iron ore demand growth has been revised upward by 60 basis points to two 4% primarily on an upward revision in Chinese demand of $9 5 million tonnes.
Coal demand has been revised upward by 280 basis points to five 7% growth for 2023 and increased demand from China for both thermal and coking coal the offset somewhat by a reduction in estimated Indian demand for thermal coal.
Demand for minor Bulks is generally holding steady with an upward revision of 50 basis points to one 3% growth on an absolute basis for 2023 led by increases in trade demand for steel forest products fertilizer and bauxite.
In terms of grains trade demand growth has been revised to two 3% in 2023 significant year over year improvement, it's a downward revision of 80 basis points since our last earnings call. This is due in part to an 11% decrease in Ukrainian exports for 2023 compared to the forecast on our last call.
Afflicting the exploration of the UN Black Sea grain deal after Russia withdrew its support.
Overall demand has been challenged in recent quarters due to various reasons. We've discussed it's worth reiterating that drybulk demand has grown on a ton mile basis in 'twenty over the last 22 years and we believe there is considerable upside to current growth forecast, where macroeconomic and geopolitical headwinds abate.
Please turn to slide 21.
Given our exclusive focus on the mid sized segment with an ability to carry all drybulk commodities and a commercial platform with a track record of meaningful outperformance, we continue to be in an optimal position to maximize utilization and capitalize on a rapidly evolving environment.
Looking forward, we remain positive about the medium term prospects for the Drybulk industry, particularly given strong supply side fundamentals fully modern fleet of 52, predominantly scrubber fitted vessels and approximately $195 million in total liquidity Eagle is well positioned to continue to take advantage of accretive opportunities.
Going forward to continue to deliver superior results for all of our stakeholders with that I would like to turn the call over to the operator and answer any questions you may have operator.
If you'd like to ask a question. Please press star one one if your question has been answered and you'd like to remove yourself from the queue. Please press star one again, our first question comes from Omar <unk> with Jefferies. Your line is open.
Thank you Hi, Gary Hi, guys good morning.
Hi, yes.
Alright, thanks for the update you're obviously very detailed.
Usual I did want to ask maybe just about your last point, Gary you were touching on the conclusion just about the liquidity post the the oaktree buyback.
Just big picture, how are you feeling about where eagles liquidity stands today. Following the $220 spent on the repurchase do you feel comfortable where it stands.
Kind of where rates have.
I've gone through here as it moves through the third quarter.
Yes, well the short answer is yes, we're comfortable.
We executed this.
And a half ago and our liquidity is kosta pointed out is almost $200 million at the end of the quarter and also our leverage is in the low thirties, which is quite modest and I think the important thing is we're very constructive on the market we're in.
Dead in the middle of summer here, obviously, we talked about it China has been slow slow out of the gate after the Covid Lockdown and but were seeing were seeing improvements across the board there and the other thing is we wanted to really highlight it and speak a little bit in detail about the the level of congestion because this impact.
It's not just the voyages, but also chips are getting in and out of Drydock much quicker. If you think about it.
Charter ships were dry docked in China during the zero Covid policy. It was really difficult to get technicians in and out for for dry docks shifts were delayed for testing and things like that that's all gone now and so you have much more ships coming back into the market that affect their supply we've talked about that's now back in others.
In other words, we don't see a further of that because we're back to kind of normal levels in terms of days and drydock and things like that so we're very positive and then you overlay our positive constructive view of the market.
As we come out of summer.
Second quarter on top of the fact that with the 200 almost $200 million liquidity, we feel quite good.
Got it. Thanks, Thanks, Kevin Thats helpful and Good reminder, that yes, we are in the summer.
And just maybe to the revolver revolver, you've got $60 million Undrawn.
What is the payback required or how quickly does that 125 have to have to get repaid.
Sure I'll take that so the Rcs basically has a capacity reduction of quarterly capacity reduction, which starts in September roughly $5 4 million a quarter, but that's assuming it's fully drawn so we're not fully drawn so based on what we have John right now, which is 125, we wouldn't need to repay any of.
Of that until.
About a year or so a year and a half actually.
Oh I see okay interesting. So you don't have to actually pay down you don't pay down any of that principle.
Alright, Brian get to that ratio up until the point, it's up until the point, where the Rcs capacity reaches the Rcs drawn amount that's when it will start paying it down.
Understood, Okay, and I know listen.
Clearly the market is Gary just pointed out seasonally we are in a tough spot.
Things will pick up as we get to the fall just trying to think big picture and also you highlighted the $200 million of liquidity. If force gets the worse and we don't get a recovery and things start to go south.
Just wondering about the share buyback itself.
Do you own those shares.
Are those canceled or those held in treasury and I'm, just asking just wondering worst case scenario. If we needed additional liquidity are those shares that could be dribbled out.
Or are those officially cancelled.
Those shares will officially cancelled.
Yes of course.
Can always issue shares.
Have plenty of capacity to do that.
Yes, yes, thanks <unk>.
Out of curiosity wanted to check on that okay.
Got it thank you.
I'll pass it over right.
Thank you. Our next question comes from Greg Lewis with <unk>. Your line is open.
Yes, hi, Thank you and good morning, everybody and thanks for taking my questions.
Good morning, Gary.
I was looking for some high level thoughts realizing that.
Your ongoing negotiation conversations with.
The recent new shareholders.
And you probably can't say that much about that.
But I guess one thing I did want to ask is you mentioned around.
In your prepared remarks about following the recent deliveries that we have no pending.
Transactions either for buying or selling.
Should we expect you to continue to be able to take advantage of opportunities in the market, whether that's buying or selling ships over the next quarter over the next few quarters as those opportunities present themselves.
So the short answer would be yes, I think we've demonstrated.
Focus on continuing to find opportunities in both on the buy and the sell side of S&P. The comment was really just because we've been so active and those deliveries do impact our opex as we've talked about when we take ships were not able to capitalize a lot of those costs. So we just wanted to kind of put a finer point or a point on the fact that it is now.
Now behind Us and so adjusted Opex is going to be much closer to our overall opex number because of that but it in no way should you read it that we're not.
We're going to be looking at opportunities, having said that it's almost point, we did use a considerable amount of cash on the share buyback.
But that in our minds was a discount to NAV.
Therefore accretive on an NAV basis and based on our view of the market, we think will be highly accretive.
On an earnings basis, as well, but in no way does that preclude us from looking at.
Opportunities in the in the physical market as well.
Absolutely and I think sometimes buying your stock back is better than buying new ships. So yes. The other thing the other thing I wanted to mention about is.
Clearly, whether it's the performance from the scrubbers you have continued to outperform the benchmark.
And for somebody like me, where I'm sitting I think some of that over the over the last couple of years since you've really taken over has been taking advantage of creating synthetic time charters I E buying call options I was curious maybe I should already know this but do you also take advantage by selling freight or.
Are we more just using it to create synthetic charters just just trying to understand that.
Nuance to your.
Business.
Yes, so if we talk about the derivatives the FSA market.
We don't go wrong on the FFA market by by buying buying that we will dynamically put hedges on and then buy them back in other words unwind them and then put them back on but we never we never lead with we are expanding our exposure to the market using derivatives and that's that's a hard line.
Having said that we do we do charter in vessels.
And so when we when we're when we want to expand our fleet and not through S&P chartering a ship on for a year or two or one option. One is something that we do on a regular basis, but we don't do that with derivatives.
Okay, and then just I'll ask one more sorry about that but as I say.
Think about the opportunities in the market right now obviously freight rates are.
The press.
Are you seeing as the company has seen opportunities to kind of chartering ships short that take advantage of other opportunities or.
As we think about the chartered in portfolio, how is that looking and do you see an opportunity to expand that ahead of you.
What should arguably be a stronger finish to the year.
Yes, absolutely and in fact.
Literally within the last 24 hours, we just extended one of our long term ships.
Say, it's a slightly not complicated, but it has a share profitability standpoint in terms of the market but for us.
Our high specification Ultra Max and we just extended it for a year with a further optional year and again, we just did that within the last day. So no question. We continue to be constructive you also see if you will.
In the press release and also in the Q that we had a.
Significant hedge position in <unk> for the third quarter, and the fourth quarter, which we bought back almost all of it right. We crystallize the gain on that was there again I think it's points to the fact that it's not just our words that we're constructive on this market. So we saw an opportunity based on the weakness to reverse those hedges on the ships.
And monetize monarch crystallize, if you will walk in the gain on that and then if the market were to go up we might overlay and put those hedges back on.
Okay, great. Thank you for taking my questions have a great great day.
Thank you.
Thank you. Our next question comes from Liam Burke with B Riley financial your line is open.
Thank you good morning, Gary Good morning Kosta.
Good morning.
Gary.
Have you do you consider looking at your older vessels and.
And selling them into the market with asset values high and your stock trading at a discount to NAV.
We think we're constructive on this market right. So we're looking at fleet renewal on the basis of of right sizing and write ageing. If you will the fleet and so we've made it a point of focusing on getting the Ara the oldest ship down.
At the moment is less than 15 years old we have a couple of ships coming up there based on on the market. If the market is good enough, we likely will monetize those and replace some with younger ships, we have been able to keep the fleet age relatively.
It is stable over the last six seven years, we're right at 10 years now and that's an ongoing process. So but the idea of selling a lot of ships because we're trading at a discount doesn't really factor in for us because again because the share price is.
As you know is volatile and so we're looking at the assets more on what they can generate sort of for the benefit of the enterprise.
And then based on their age and what we can replace them with them and where we are in the cycle.
Okay. Thank you Gerry looking at the macro front I mean last year, we had a lot of disruption so year over year numbers are going to be lower anyway, you highlighted China as well as.
Congestion relief, but we're looking at still fairly tight supply and we're looking at.
Steady demand if I look at the chart here.
Is there anything else in there that's keeping rates.
Abnormally low.
So again I think to me. It's the congestion is really important and that's one of the reasons, we spend time trying to highlight it but if we look at if we look at the age of the fleet right. We just have had just a lack of scrapping and it's the average age scrapping for a mid sized ship.
Over my whole career has pretty been pretty stable around 26 years and now we're now we're at 30 ships are just not scrapping and I think the reason is is that people are many people are reading the same tea leaves right that the order book is low.
Regulations are coming on and therefore that this market is going to tighten the negative of that is that the ships hanging around and so we just if you look at the graph we have on on fleet growth.
In the deck, you'll see it's just we haven't had any real scrapping since 2015 and 2016, it's been six plus years of.
Under recycling of ships and I think that is a real big part of it having said that and Ive talked about this before ships over 15 years, they need they need to go to dry dock every 30 months or another way of saying it that part of the fleet, 40% of that part of the fleet.
Doc every year and that's a meaningful decision, especially when youre in a weaker market like we are now and that's why we also highlighted the fact that in the last quarter, although low more ships in the midsize segment more ship scrap last quarter than all of last year and not enough, but but the trend is positive.
Especially given the weakness right now I think we're going to continue to see more of those ships get recycled.
Great. Thank you Gary.
Thank you.
Thank you. Our next question comes from Poe <unk> with Alliance Global Partners. Your line is open.
Good morning, Gary Good morning Kosta.
Hi, good morning, good morning.
Appreciate all the detail on the macro and what's going on with whether it's China and everything else arguably you don't control that so you're still a price taker at the end of the day. What you can control is your operating costs and that's been a topic of discussion, but you're going to make.
Shareholder.
Is there anything you think that you can do over the next 12 to 18 months to lower your costs I know that constitute talked about normalizing costs, but anything on the efficiency front that you think you can do.
So yes. The answer is yes, we are focused and we've been addressing this.
And I'll ask few earnings calls we've talked about it the transition of crew manager on these 18 ships. We think is really meaningful and we finalized the last ship on July eight so the lion's share by far it was basically done in the second quarter with minimal disruption, but still there was a cost to that and also I keep talking about it because I think it's important.
That opex has been affected by the S&P activity when we buy ships.
When we purchased loops that don't get capitalized that hits Opex things like that that inventory on new ships and what have you and thats now behind US having said that we're also focused on.
On other ways to bring down Opex, we were hit.
Pretty hard by.
Freight costs for stores and spares over COVID-19, focusing on frame agreements and freight and things like that so the short answer is yes.
I'm pleased with our guidance on overall opex not even adjusted at that 59% to 62, obviously, we will be pleased if we can bring that number in on the lower part of the range for Q3, and so the trend is really positive there, but there's definitely there's more work to be done and we've acknowledged that so.
It's an area that we continue to see opportunities on and we're putting the resources there and we're seeing results from it.
Great one specific area at Gary was the Digitization.
Of the fleet info.
The feedback loop that you get.
Whether it's real time or not is that an area where youre focused on.
Absolutely.
Our highly focused on.
Optimization across the across the company, particularly across voyage optimization I mean.
Paul one of the first things I did when I got Diego is establish a vessel performance function.
And it's now a department.
And it's led by John <unk>, who is one of the first people to join me when I. When I came here and we've partnered with a number of technology companies and Digitization.
Hansen our models.
On routing and fuel consumption today, we are now partnered with a San Francisco based company called so far ocean. They have a platform called <unk> and it uses machine learning training training. These models to improve on a regular basis. So we're absolutely engaged in this scenario.
Our leading in many of our peers and we will continue to do so because it's good for the environment. It's good for the bottom line and it's something that we're I think from efficiency standpoint.
There's plenty more to come from.
Making the most of the technology.
Great. That's very helpful. Thank you.
Thank you.
Thank you there are no further questions I'd like to turn the call back over to Gary for any closing remarks.
Operator, thanks, very much we have nothing further I would like to thank everyone for taking the time to join US today and wish everyone. A good day and a good weekend.
Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.
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