Q2 2023 Overseas Shipholding Group Inc Earnings Call
Good morning, and welcome to the overseas Shipholding Group second quarter 2023 earnings release Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Sam Norton Chief Executive Officer.
Please go ahead.
Thank you do well.
Welcome and thank you for listening in on this presentation of our financial results second quarter of 2023.
And for allowing us to provide commentary on those results and additional color. So the current state of our business opportunities and challenges that lie ahead as usual I'm joined in this presentation by our CFO <expletive> Trueblood.
To start I would like to direct everyone to the narrative on pages, two and three of the Powerpoint presentation available on our website regarding forward looking statements estimates and other information that may be provided during the course of this call.
The contents of that narrative are an important part of this presentation and I urge everyone to read and consider them carefully.
We will be offering you more than just the historical perspective on knowledge G. Today and our presentation includes forward looking statements, including statements about anticipated future results.
These statements are subject to uncertainties and risks.
Actual results may differ materially from those contemplated by our forward looking statements can be affected by a variety of risk factors, including factors beyond our control.
For a discussion of these factors, we refer you to our SEC filings, particularly our Form 10-Q for the second quarter of 2023, which we anticipate filing later today.
And our previously released forms 10-K, 10-Q, which can be found at the SEC's Internet site Www Dot FCC dot Gov as well as our own website www dot <unk> dot com.
Forward looking statements in this presentation speak only as of today and we do not assume any obligation to update any forward looking statements except as.
It may be legally required.
In addition, our presentation today includes certain non-GAAP financial measures, which we defined and reconciled to the most closely comparable GAAP measure earnings release, which is posted on our website.
Solid and satisfying best characterized as the second quarter results that OSB announced earlier this morning.
Following on from an equally strong performance during the first quarter of the year. We are now comfortably on track to exceed our prior guidance for full year financial results, but first half adjusted EBITDA, having reached $80 million.
Contributing to our second quarter results were incrementally higher average TCE rates for our Jones Act tankers and stable historically consistent returns from our specialized assets.
Positive real cash flow witnessed in the past several quarters has continued to allow a build in liquid assets.
Quarter end cash balances, including investments in Treasury Securities stood at $120 million, an increase when compared with first quarter comparable levels, even after taking into consideration the nearly $10 million of stock repurchased during the period.
Favorable market conditions over the first half of this year have allowed us to achieve our preferred contract profile, which consist predominantly of medium term charters.
As of the end of June the average contract duration for our Jones Act vessels with over 21 months with 100% 2023 available days to 80% of 2024 available days now fully fixed.
This contract duration gives us an unusually high level of forward revenue visibility.
There is none of the next 10 quarters do we expect more than two vessels to be open for fixing at the same time.
Combination of firm charter rates staggered maturity and extended contract durations bodes well for continuing into the future. Our recent run of strong financial results.
During the quarter the much anticipated conclusion of the military Sealift command tender for vessels to be stationed in the Pacific in support of key Department of Defense operations.
I'll always sees overseas mykonos awarded one of the long term contracts for NR tankers, adding to the book of forward cover.
The MSP contract is structured as a firm a one year time charter with options to extend the contract on an annual basis for up to 66 months in total.
We will produce more than $20 million, a time charter equivalent earnings during the first year close to $100 million of total TCE over the life of the contract if all options are exercised.
Our success in securing at least one of these tendered contracts with a major objective for the year.
As with overseas participation in the tanker security program recognition of the key role played by O S T and supporting the maritime logistical requirements the country's defense strategies, there's a welcome vote of confidence in the value of the services that we provide.
You always seem to mechanized Liberty did the MFC contract last week.
And we will as a result be withdrawn from the tanker security program.
Creates an opportunity for <unk> to expand its fleet the internationally trading U S flag tankers through the acquisition of a secondhand tankers to fill the PSP slot vacated by the U S.
[laughter].
We're actively evaluating options to replace the economics that are working to do so in the near future.
As mentioned on previous calls we have been seeking to add to our fleet count opportunities for which our most promising through expansion of activities and U S flag operation outside of Coastwise trades.
Congress is authorization of an increase in the number of shifts participating in the TSB from 10 to 20 ships.
If there is optimism for the chance to further expand in this niche sector.
Moving from two U S flag vessels engaged foreign trade at the beginning of this year to potentially for such vessels by the end of this year is a good start to realizing this growth potential.
[laughter].
Turning to domestic market most indications reflect a market that is continuing to tighten with all Jones Act tankers and nearly all ATB fixed on time charter to primary end users and traders.
Recent fixtures by competitors are reported to have seen in MRI tanker taken for two years at a rate exceeding $80000 per day.
A 270000 barrel ATB fixed debt over $60000 per day also for two years and 180000 barrel ATB committed for two years at an average rate of $43000 per day.
[laughter].
The pricing power for all of US Jones Act vessels has not been this strong for nearly a decade.
During this past quarter, we reached agreements with each of those <unk> to lighter than customers, who extended their respective contracts.
For two years commencing July one of this year.
Im charter equivalent earnings on the terms as extended at the minimum barrels committed.
Increased by roughly 10% over the minimum time charter equivalent amounts implied in the expiring contract terms.
It is worth noting that both of these lighter than customers that exceeded the minimum contract volumes each of the past two years.
<unk> has one conventional tanker one ATB had one Alaskan tanker.
I mean open at the end of this year.
Discussions are advanced to conclude terms for future employment of these vessels.
It is anticipated that all three of these ships will be fully fixed by the end of the current quarter, our position, which if achieved will lead to a forward time charter book for all of 2024 that exceeds 90% of current vessel available days.
Okay. She is actively taking steps intended to incrementally reduce the carbon footprint of our existing fleet.
You've discussed some of these steps in our sustainability report available on our website.
This commitment to imagining and delivering on our future business model with a reduced carbon footprint is an important component of our current plans.
In this context, we have recently entered into several memoranda of understanding to make capital investments on existing vessels intended to reduce fuel consumption and associated <unk> vision.
Of these initiatives. The most significant is an Mou signed with engine maker man BMW upgrade engines on two of our Hec tankers with a goal of achieving as much as a 15% reduction in annual fuel consumption.
These engine upgrades it concluded as planned in 2024.
The total project cost for two vessels of close to $25 million.
The Mou includes options for upgrades on up to two additional Alaska class vessels.
Expected benefits to be achieved by these engine upgrades include reduced annual fuel maintenance and operating costs of approximately two and a half million dollars per vessel and an estimated reduction of 6000 tons a year or two emissions per year for each vessel as.
As important these upgrades will ensure it.
Clients under current rules beyond 2030.
During continued availability for these vessels to operate in Jones Act trades for the foreseeable future.
Other upcoming investments on selected vessels include planned modifications to improve propeller efficiencies installation electronic performance monitoring equipment and use of high performance coatings, all intended to reduce fuel consumption and improve operating efficiencies.
These initiatives will help us move towards our stated goal of reducing overall greenhouse gas emissions across our fleet by 10% at the end of 2024.
Beyond modifications intended to incrementally reduce carbon footprint of our existing fleet.
She continues to develop plans for contributing to a reduction in global greenhouse gas emissions through Seo to capture and sequestration.
In recent months, we have witnessed considerable momentum building towards the development of intermediate storage hubs transport networks.
Let's say industrial scale to capture and sequestration projects.
<unk> established franchise with domestic transport of liquid bulk commodities gives us a significant competitive advantage for participating in this emerging market.
Oh, She has recently partnered with key port operators, along the Gulf coast to submit applications for grants from the U S Department of energy to develop detailed projects for intermodal transport hubs are captured C O two.
Or do you believe that the marine transport are captured.
<unk> is the most attractive means of connecting stranded industrial emitters in the region with sequestration sites.
We are focused on working with our new partners to develop economically viable solutions to achieve this vision.
I expect to be able to share with you more specifics on this topic in the quarters ahead.
I will now turn the call over to <expletive> to provide you with further details on our second quarter results for 2023.
Alright, Thanks, Dan.
If we could turn to slide seven please.
Our board authorized a 10 million share reached $10 million share repurchase program in March 2023, and June increased the authorization by an additional $10 million, bringing the current program to $20 million.
In the second quarter, we repurchased two 1 million shares for $8 million.
Cumulatively in 2023, our purchases through June 32023 were $2 6 million shares for approximately $9 $8 million.
Since then we have repurchased an additional 258000 shares for $1 billion through August 3rd.
Give me a literally since we began to repurchase shares in June 2022, and including the purchases in the third quarter of this year.
Water totaled $12 9 million shares returning 39 $9 million to shareholders.
Please turn to slide eight.
Expanding on Sam's comment and also including revenue days from both our U S Flag Jones Act operations, our contracted book of business for 2023 represents 96% of all available days.
Keep in mind that the international U S flag business is a combination of contracted for the freight business.
Spot voyages.
This high level of contracted business substantially increases the predictability of our future operations.
Looking at this on a revenue basis without considering any business currently under negotiation and not assuming the exercise of any existing contractual options. Our future book of business is approximately $840 million over the remaining lives of our existing contracts.
Factors out estimated off hire days due to future required dry dock periods.
Second quarter operating results were in line with expectations. We continue to see active demand for future time charters as customers ensure their ability to meet their future transportation needs.
Sam addressed in his comments the rate environment remains quite healthy along with demand for longer term contract duration.
The tanker security program commenced during the second quarter.
So all three of our vessels accepted into the program.
Program participation provides 6 million dollar annual stipend paid monthly per vessel.
To reduce effective operating costs.
Permit U S flagged vessels to compete in the international marketing a marketplace.
Subsequently one of these vessels the overseas <unk> entered into a time charter with the military Sealift command and will be removed from the DSP.
As Sam discussed we are actively seeking.
Seeking to acquire another vessel to fill the TSB position, formerly occupied by the median OS.
Please turn to slide nine.
Second quarter, TCE revenues were $101 million.
$4 6 million dollar decline in the first quarter of this year.
77 off hire days due to dry dock schedules with the primary contributor to the change.
We will continue to see the impact of increased survey activity in the third quarter.
We have 136 budgeted drydock days in the second half of which 96 days will occur in the third quarter.
We expect to expand approximately $23 million on dry dock and related capital expenditures over the balance of this year.
Adjusted EBITDA was 39 5 million.
Small decrease from the prior quarter, principally resulting from the discussion.
Decrease in revenues.
Please turn to slide 10.
Our specialized business revenues declined $4 $7 million at ATB revenues declined a million five.
John Zak product tanker revenues increased 1.4 million due to the higher average daily rates.
Looking at slide 11.
During the first quarter lighter ink volumes had exceeded historic levels in the second quarter volumes returned to more typical levels TCE revenues associated with this business reverted to historical means.
Non Jones Act tanker performance was influenced by the scheduled 30 day dry dock period for the overseas, making those fewer military Sealift command voyages during the quarter.
Jones Act shuttle tanker revenues increased $1 $1 million returning too.
Customary quarterly levels following the completion of the overseas Cascade Intermediate survey during the first quarter.
Alaskan tanker revenues were stable between the quarters as those vessels continue to be fully chartered.
Please turn to slide 12.
So operating contribution decreased slightly to $43 5 million from $46 6 million in the first quarter.
The contribution from our specialized businesses decreased to <unk> nine.
9 million.
As the lighter volumes returned to more customary levels, coupled with the survey period for the <unk> and a decrease in MFC cargos reduced the non Jones Act product tanker contribution.
Jones Act candy, saying size tankers contribution increased $1 3 billion.
Due to rate increases on new contracts, providing the impetus for this create a change.
The contribution from our Atvs.
Decreased $1 7 million as both the OSD tool for an O S. G. III 50 experienced off hire for dry dock period during the quarter.
Turning to slide 13 please.
Adjusted EBITDA was.
It's 39 points whatnot, yeah, $39 5 million for the quarter, bringing our first half adjusted EBITDA to $84 million.
The modest 1.4 million dollar decline from the first quarter again reflects off hire days for our survey requirements and a lighter and volume reductions.
Adjusted EBITDA increased from Q2.
By $8 million.
Please turn to slide 14.
We've continued to generate net income and on a trailing 12 month basis, our net income was $47.8 million.
The substantial improvement in our markets.
Including the impact of renewable diesel vessel demand.
As a result of your rate increases and increased contract duration substantially contributing to these positive results.
Please turn to slide 15.
First let me apologize it published slide.
Is it incorrect slide.
I'll discuss the correct information that affects two colleagues at March 31, 2023, we had total cash of $105 million.
$79 million.
During the quarter, we adjust and we generated $39 million of adjusted EBITDA.
Working capital used $11 million, just cash did not contribute $14 million.
We invested $5 million in vessel dry dock and other capital costs.
And we repurchased 282 1 million shares for $8 million.
We paid $14 million for debt service $6 million of which reduced our outstanding debt through scheduled amortization.
We ended the quarter.
With $106 million of cash plus an additional $15 million of liquid.
Estimates, resulting in total liquidity of $121 million.
Please turn to slide 16.
Continuing our discussion of cash and liquidity as mentioned.
Before we had $106 million of cash.
Our total debt was $416 million, representing a decrease of $6 million in outstanding indebtedness since March 2023.
Scheduled loan amortization for the remainder of 2023 is 11 8 million.
With $354 million of equity our net debt to equity ratio is <unk> nine times.
In 2024, our scheduled debt service at $53 $1 million of which $24 9 billion as principal amortization.
Additionally, our loan on the overseas Sun Coast matures in September 24.
And it will have an outstanding balance at that time of $18 million.
This concludes my comments on the financial statements I'd like to turn the call back to Sam Sam.
Thank you <expletive>.
As highlighted by VIX detailed comments the first half of 2023 has proceeded largely according to plan with.
Positive performance in both average T. He is pain and the contribution of some of our specialized assets putting us on track ahead of where we guided at the outset of the year.
With now greater visibility of charter rates and coverage contracted for future quarters.
And if their abilities to expectations for the balance of the year look for solely as a result of changes in lighter volumes and in the right conditions experienced in the international market in which currently only two of our non Jones Act vessels trade.
Our fleet today remains well positioned to respond to the changing patterns of domestic and international transportation fuel shipments.
And as well situated actively engaged and participating in emerging areas of opportunity.
We anticipate continuing strength in all important financial metrics and a sustained build and available cash balances over the next several quarters as profitable time charters at higher utilization rates are realized.
As <expletive> noted, we do anticipate increased dry docking survey out of service days for the second half of this year.
Nevertheless, with our success in securing improved terms on a number of vessel contracts that gives us confidence in improving our guidance for full year 2023 result, and what we have presented last quarter.
We now expect time charter equivalent earnings for the full year of approximately $410 million.
Attaining these topline results should generate adjusted EBITDA of about $160 million, but full calendar year of 2023.
After deducting debt service and planned maintenance capital expenses.
We anticipate that free cash flow for the full year should be close to $70 million.
To deliver on these results our Michigan is firmly focused on execution and operational excellence as well as the pursuit of growth opportunities in some of our specialized businesses.
The extended contract coverage into 2024 also allows us to project with a reasonable degree of certainty result that should be achieved from existing vessels for next year.
Given what we know today, we expect time charter equivalent earnings for 2024 to exceed $430 million and adjusted EBITDA to exceed $175 million for the full calendar year 2024.
Capital allocation in the future use of surplus cash flow was a regular topic of conversation with our board.
We consider allocation of capital decisions to be among the most important that we must make towards achieving a proper balance between investing in the future managing the level of our fixed payment obligations and considering appropriate means for returning cash to our shareholders.
We recognize the need to invest in solutions to ensure the long term sustainability of our business model continue to meet the investment objectives of our shareholders and to be responsive to ambitious goals of achieving our future target of zero emissions for ocean shipping.
As reflected in the comments made during this presentation. We believe that we are making good progress towards meeting all of these goals. We hope that you will agree with our assessment that we can continue to advance these objectives in the months and years ahead.
Drew we can now open up the call for questions.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
Okay.
Okay.
Again it is star then one to ask a question.
Okay.
Okay.
Okay.
Okay. The first question.
Comes from.
Clement Marlins with values investor's edge.
Please go ahead.
Good morning, Thank you for taking my questions.
You provided some very interesting commentary on transport, although this exploratory phase when do you think any potential firm commitment could materialize.
Could this be at 2020 for a band.
Or how should we think about it.
Thanks for the question climate.
This is an area.
Of opportunity that we think is extremely interesting.
But as you noted it's.
It's a project or a series of projects that will likely have a long lead time.
Just to put it in context.
If we were to order some vessel to to comply with Jones Act regulations to be able to service.
Meaningful volumes of C O to transport the likely delivery time for new vessels in the United States. Today is it was probably in the order of magnitude of three to four years.
So even if we were to have a firm project in hand today.
You know revenue generation from that project.
Likely not be visible for a better part of three to five years.
I think our own expectations.
Yeah.
Within the next two years, we're hopeful that we will see a real progress made towards actually seeing projects get off the ground.
I was just getting off the ground wood in my in my.
Understanding of that meaning.
B commit.
Commitments from emitters and sequesters too.
Annual volumes of C. O two transport that would allow the infrastructure to be a to be committed to them to be to be commence construction.
Construction of all of those intermediate.
Pipelines and storage vessel.
Receiving facilities on the other end.
So it's it's it's certainly not something that's gonna be revenue generating in the next.
12 to 20.
But I think longer term.
It's a it's an area of opportunity that could provide significant additive revenue to our portfolio.
That's very helpful. Thank you and following up on that question would there be any appetite to invest in this.
Yeah.
Online infrastructure or would you mostly stick with the best.
I think that's a that's a.
A question that we are still in the early stages of considering but.
I think that.
We will examine this question from the perspective of how best to deploy our capital to ensure.
The most competitive position that we can attain in the full value chain.
Of capture in distribution.
I don't think that would include.
Actual capture carbon capture.
Equipment at our major sites.
But in the transportation changed it.
Linked stranded and mirrors with sequestration sides.
Think there's scope for us to examine.
Each and every part of that.
The value chain in the transportation.
Makes sense that's helpful. You've secured a grand total of course zoom government contracts, but you'll have three international tomorrow.
I was wondering how how do you plan to fulfill this last slot is a bareboat in the most likely option or would you rather acquire the vessel.
I think that I think that we're looking at both options.
My own opinion is life is easier if we own the vessel as opposed to bear both the vessel.
But we really look at it from the point of view of a capital cost perspective.
As to which is which is ultimately the most beneficial structure.
Thank you. Thanks for the color that's all for me. Thank you for taking my questions and congratulations for the quarter there.
My pleasure climate.
The next question comes from Ryan Vaughan with Needham. Please go ahead.
Hey, Doug Hope you guys are doing well.
Great job on the quarter and Sam Thanks for the guidance.
Some big time number so so great job there, especially for 2024, thank you for that.
I'll comment on a few other things I'm going to ask you about but maybe for Sam and for <expletive> If you could just help us out a little bit generating a ton of free cash flow you know looking for 160 <unk> EBITDA. This year 175 next year.
Bridge, that's getting pretty at pretty low here, one and a half on a on a net basis would that being said obviously, we're at a good point. The cycle can you guys just talk about what you're thinking about it it's a bigger balance, but it's from an actual leverage perspective, it's it's quite low how are you thinking about.
What's ideal.
Where would you like to be as we start thinking out you know six to six months, maybe towards the end of the year as far as our debt and cash balances, what's what's ideal for the company.
Yeah.
Wow.
Yeah, I think clearly we have one.
Easyjet maturing next year and then in 2025.
We start to see some additional debt maturities arising.
You know I mean, I think you know.
In some respects I mean, we would like to continue and we are continuing to deleverage our business a bit.
And reduce what our fixed obligations are.
Got it.
As you know Ryan it becomes.
A real mix of what other opportunities are out there.
On how to deploy cash and make capital investments for the future.
We have an opportunity now to look at.
Repaying some debt without refinancing it and I think that.
At least in a very near term would be attractive.
But it's a.
Decision, that's got to be made based on how we see.
Opportunities unfolding for adding a ship to the TSB program for instance, and whether that is again, it's an outright purchase or it's a bareboat charter and what that implies and then.
We continue to have an interest in expanding.
Our fleet that participates in the TSB as it grows from 10 to 20 vessels and so we're going to have to look at those capital commitments as well.
That balance it all out so I think.
B interval all of them.
Okay.
Sure.
So Ryan.
That can happen.
There is there is in in.
Loose bucket terms theres probably.
Three area.
I think we're going to need to expand some of it well, leaving aside share repurchases and debt repayment in terms of sort of investment in the business opportunities in the near term.
It's probably for you.
That we consider we need to to be mindful of when we when we think about our forward cash requirements.
One is as <expletive> mentioned the replacement mechanism he program, whether that's a bareboat or a or an outright purchase.
That would obviously have implications on me Mike asked it would be used.
And then the second is we remain hopeful to be able to find a means of reactivating the Alaskan frontier.
That would involve capital both for likely the acquisition of that vessel, which is currently still owned by BP as well is pretty substantial.
Just went into bringing that vessel back to an operating condition she's been in lay up since 2019.
So theres some theres some hope that we have some clarity on that by the end of the year.
The third area.
I addressed it.
Detail in.
In my prepared comments is.
<unk> and capital expenditures to reduce fuel consumption in our ships.
Again those are those are investments that will be made it likely over that.
The the period of 2024 and 2025. So all these things are out there and how we how we fund those and how we finance them.
So really we will evolve from day to day I would note that pretty attractive all of our debt is currently fixed rate in an environment, where interest rates are rising.
The.
The real benefit of prepayments.
Debt.
It sounds pretty marginalized when you look at particularly some of the specific loans that we have out there.
I think.
All else being equal.
We will.
We will pursue it continuing deleveraging of our business through our acquisition of close or capital deployment.
Projects that I mentioned.
Either with minimum amounts or know about some new debt.
And then look to refinance.
Or put some more debt on those existing projects once they're completed and when some of our other debt is run off and do that in a more consolidated basis, rather than one off.
Financing packages.
And.
I think that as <expletive> mentioned as well.
Some of the maturities that we have coming due in the next 24 months or so if things continue to go as per plan. We may just repay those and not refinance those facilities.
Leaving ourselves with a series of unencumbered assets that we can.
We can use as a financing.
Our collateral for future projects.
These are you know.
Collectively those loans coming off or together with new projects that we that we entered into over the next 12 months to 24 months. So.
I think I think that.
It gives you a little bit of a clearer description of what goes on in our thinking when we look at these opportunities.
It's certainly better.
Today than it was several a couple of years ago in terms of the options that are open to us and.
But we're clearly thinking about how best to use that cash to maximize our opportunities.
Yes.
That's great Sam Thanks for that clarification.
If you don't mind, just a follow up on you gave us the three options I'll make perfect sense approximate timing on number one and then I heard you say for the Alaska Frontier hopefully have some clarity by the end of the year what's the.
Rough timeline to get that back in the water. Thank you.
Yeah, we clearly would like to get a substitute that's what for the making those sooner rather than later so.
As I said in my comments.
Our hope is that we're able to achieve that by the end of the year.
Clarity on the Alaskan project here.
That remains a little bit of a moving target.
But.
Today, we are more hopeful that we will see some movement on that within the next within this year for the next six months.
And then.
We would then need to be able to invest in the best way to get back into service.
Our current timeline right now are the earliest that we would expect the Alaskan frontier to be contributing to the revenue of the company.
Would be late in 2024.
So for now it's not really.
It's not really featuring in our forecasting.
But we should know more about that in the next.
Three to four months.
And finally, we as I said, we we.
We signed an Mou with BMW to invest in two of our ATC ships the upgrade the engines there.
And we have an option to do two additional vessels.
I mentioned that the capital costs, the total project cost there including.
All elements will probably run for the two ships order of magnitude of $25 million.
And that capital will be expanded.
If we sign a firm contracts, which we are working to do within the next 60 days.
That capital will be deployed kind of evenly over the.
The 15 month period starting.
At the end of September .
Okay, Great Alright.
Sounds good thanks for the extra detail salmon and great job to the entire team. Thank you. Thank.
Thank you.
Again, if you have a question. Please press Star then one.
The next question comes from Joshua Keyhole, a private investor. Please go ahead.
Yeah, Hi, Sam Hi, guys. Thank you for taking my call.
Possible could we follow up a little bit on the T. S. P program.
So I know the MFC and government of Israel voyages are done at good rates, but the international.
Mark it's a little bit more volatile.
Your standing is currently only nine of the 10 TSP slots are.
Our field and I just wanted to kind of.
Get your sense of the.
The desire.
Participants to enter into that program, given the more volatile international spot rates for tankers.
Thanks for the question Josh.
A couple of observations I would make I think.
Longer term that participants in the TSP program believe that it is an attractive program.
And that.
As I have.
Commented that well the expansion from 10 to 20 ships is something that is likely over the next three to four years.
I think the cadence of entry into.
An expansion of the TSP, However is something that in the short term.
Is somewhat problematic for or not in alignment with the aspirations of the.
Transportation Department and the Department of Defense.
Two things stand out and contributing to that.
Delta and expectations one is the continued.
High rate of.
The price or the high prices for international tankers. It currently in my opinion don't reflect the existing.
Spot markets are time charter markets for international and more tankers.
Just to give an example.
Uh huh.
There was announced recently a series of new buildings entered into.
With a full methanol capable.
Engine.
Design and specification.
For delivery I believe in 2025.
And those ships were fixed for a long time charters I believe five to seven years in range of about $25000 per day.
That would imply a longer term time charter rates for a more conventional vessels.
Probably in the end the Ah.
GAAP between 20 and $25000 per day.
You know if you have scrubbers or eco or all the rest of that probably there is some variability there, but you know we.
We certainly see.
Quick one time charter.
Rates for international and a lot of tankers.
In the lower twenties 20 lets call. It 'twenty two 'twenty three 'twenty $4000 per day, it's probably being effective rates.
And when you look at those types of rates.
This would be the asking prices for vessels in the market.
It's quite difficult to make any kind of sense out of the returns that can be generated from that weather trading internationally are trading in TSB program.
I've I've spoken about this on calls and in discussing with you in the past there is a there's in my mind. This.
There was an overhang of the opportunities available to <unk>.
Sanction insensitive traders to be able to participate in a moving Russian crude oil.
Potash.
That I believe is getting close to the end of it.
Uh huh.
Development, but that I mean I think.
People that are going to engage in that trade at a probably.
Fulfilled there.
Their appetite for ships to be able to buy to do that.
And therefore that that buying.
Next is that buying appetite.
It is either waning or completed.
And once that once that process finishes I think.
Then price levels for other buyers.
Anchors that participate in the normal non Russian trades.
You'll start to see some sort of declining prices and I think that one of the reasons that.
Maybe you haven't there's only nine.
We have to go out and replace the vessel as well.
We haven't done it yet.
And one of the reasons why you're seeing that kind of lag is the belief that the normalization of prices to align themselves with.
I'm talking about rates and the market will occur over the over the coming months of course, it may not there's no guarantee there, but I think there is a view out there that that that that process may beginning to materialize.
Important factors that I want to emphasize in terms of.
The trajectory of vessels entering into the tanker security program.
Is it continued shortage of maritime labor.
Which manifests itself.
Every day in our formal business and when you start to add the number of new additional U S flag vessels to the pool.
As is and will continue to put tremendous stress.
On the Manning our capabilities of companies participating in that program.
We are actively engaged in Washington, with with Congress and with sponsors for the program too.
To first understand the requirements for banning and second too.
To plan for a ramp up of additional manpower.
In conversations with labor.
I characterize this as a good problem to have.
I'm not sure.
It's a problem and ultimately.
It leads to more jobs and one of the objectives of the tanker security program is to broaden and deepen the pool of U S Mariners available.
For supporting Maritime logistics for the Defense Department. So I think everybody is onboard and understanding that that's a long term goal.
Short term.
The whatever teething pains or the.
The real hurdles.
Hurdles that exist to try to ramp up that manpower very quickly.
That's a concern and I think that probably contributes.
More than that.
The volatility of the international market for M hours long run I think that the.
Availability of labor in the short run is a greater contributor at your hesitancy in terms of putting more vessels into the program.
Hello. Thank you for the thoughtful response that makes a lot of sense and if I may follow up real quickly because I'm always interested in renewable diesel and I know, both vertex and PDF there renewable diesel plants have come online.
The second quarter.
Are you seeing anymore appetite in terms of obtaining.
Charters for renewable diesel runs or you had mentioned before I believe you're about eight to 10 vessels would eventually be involved.
And doing that transportation I'm, just wondering if you've seen anything change there.
The end of my questions and thank you once again.
Great quarter, and I really like that guidance for 2024.
So my take on renewable diesel.
Is it.
If there were more MLR tankers available market today, there would probably be more appetite for.
Movers of renewable diesel to.
Take those vessels.
As I said in my prepared comments.
So our knowledge every MRI accurate is currently fixed in Florida.
No alright availability of vessels.
So its little hard to speculate how no.
Where theres demand and weather supply because it's just simply isn't any supply right now.
We certainly.
Continue to field inquiries from some of the.
Existing customers that we have about availability of tonnage in the future.
So that leads me to believe that there is probably still demand there.
I think.
Yep.
Hedge that a little bit I think.
Hum.
Yes.
I've I've read in some of the comments that you post online no developments in terms of other states with renewable fuel or or its equivalent to the California low carbon fuel credits.
Those sorts of things would have come online that might change some of the transportation the dynamics.
For the law West Coast Gulf Coast West Coast trades.
Anyone reasonably expect that to change in the next year or two but looking beyond that I think that that's an area of some question and.
And probably tempers the appetite of our current customers in terms of looking at longer term contract.
Yeah.
Okay, great. Thank you very much.
This concludes our question and answer session I would like to turn the conference back over to Sam Norton for any closing remarks.
Thank you drew and once again, thanks to everybody for listening in.
We're certainly encouraged with the trajectory of our business and look forward to.
Continuing to give you good news as we roll through the balance of this year and into 2024 wish everybody a good day. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
[music].