Pacific Basin Shipping Limited

Welcome to today's Pacific Basin 2024 Interim Results Announcement conference call. I'm pleased to present Chief Executive Officer, Mr. Martin Froegaard and Chief Financial Officer, Mr. Michael Jorgensen. For the first part of this call, all participants will be in listen only mode and afterwards there will be a question and answer session. Mr. Froegaard, please begin.

Thank you very much. So welcome, ladies and gentlemen, and thank you for attending Pacific Basin's 2024 Interim Result Earnings Call. My name is Martin Forgo, CEO of Pacific Basin, and I'm joined by our CFO, Michael Jorgensen. Assuming you have already reviewed the presentation, we will briefly highlight some of its key points before moving on to the Q&A session. So please turn to slide three. The first half of 2024, we generated an underlying profit of 44 million US dollar and a net profit of 58 million with an EBITDA of 158 million US dollar. This resulted in a 6% analyzed return on equity with basic earnings per share of 8.7 Hong Kong cents. Our large core business generated 77 million U.S. dollar before overheads with our handy size vessels contributing 41 and our supermax vessels contributing 36 million U.S. dollar. During the period, our operating activity, which includes vessels chartered for less than 12 months, experienced significant growth in both vessel numbers and operating days with a contribution of U.S. dollar 550 per day over 14,120 days, which generated an additional $8 million for the business. We have utilized our strong cash generation to reduce debt and enhance our fleet's deadweight carrying capacity, maintaining a healthy financial position with $537 million in committed liquidity and net borrowings of just $32 million. In view of our first half financial results, the board has declared an interim dividend of 4.1 Hong Kong cents per share, amounting to US dollar 28 million, which represents 50% of our net profit for the period, excluding vessels disposal gains. Please turn to slide four. Since 2021, we have generated profits of $1.7 billion and paid out approximately $1.1 billion in dividends to shareholders, representing 65% of net profits, highlighting our ability to deliver attractive long-term returns over the shipping cycle. In addition, we have launched a share buyback program of up to $40 million to be completed by the end of 2024. Since the commencement of the program, we have repurchased and canceled approximately 42.7 million shares for consideration of approximately $14.6 million. We aim to create shareholder value through optimizing our capital structure, investing value-adding and counter-cyclical growth opportunities, and distributing profits to our shareholders in accordance with our distribution policy. Please turn to slide five. In the first half of 2024, average market spot freight rates for the Baltic Exchange Hedgesize Index and the Baltic Exchange Supermax Index were 10,970 and 13,280 NIP per day, respectively. Higher market freight rates were driven by increased demand for commodities, further supported by fleet inefficiencies related to ongoing disruptions in the Suez and Panama canals and manageable new building deliveries. Year-to-date, we have seen a notable reduction in seasonality attributed to the imbalances in tonnage between the Atlantic and Pacific regions. These imbalances are primarily due to the fleet inefficiencies caused by the continuous disruption in the Suez and Panama canals. This disruption led to an unusual large portion of the minor bulk fleet being held up in the Atlantic, resulting in a shortage of vessels available in the Pacific. This scarcity positively impacted the Pacific time charter rates, reminiscent of the peak demand conditions we saw during the height of the COVID pandemic in 2021 and 2022. During July and August, the balance of tonnage between the Atlantic and Pacific has reverted to levels observed in 2023. Please turn to slide six. Our core business generated average handy size and supermax daily TCE earnings of 11,810 and 13,690 per day, respectively the first half of 2024, which is a decrease of 9% and flat compared to first half of 2023. For the third quarter of 2024, we have covered 87% and 98% of our committed vessel days on our handy-sized and supermax vessels at 13,750 and 13,440 per day, respectively. We have covered 60% and 82% of our handy-sized and supermax vessel stays for the second half of 2024 at 12,670 and 12,640 per day, respectively. While our supermax, ultramax cover for the remaining remainder of the year will limit our potential upside if market freight rates continue to strengthen, we anticipate benefiting from an improving market in the fourth quarter of 2024 and into 2025. Nevertheless, we are maintaining sufficient levels of exposure to current spot rates in the head-to-size vessels. Current values of scrubber benefits are approximately $30 and $250 per day across our core head-to-size and supermax fleet, respectively. Current forward freight agreements, commonly referred to as FFAs, for Q3 are at 12,320 and 14,430 per day. And for Q4, 12,490 and 14,550 per day, if I had decided Supermax vessels respectively, indicating stability in the market going forward. Please turn to slide seven. In the first half of 2024, we outperformed the VHSI and VSI on both our Hattie size and Supermax vessels by 840 per day and 410 per day respectively. However, our Supermax outperformance was affected by the increased costs associated with chartering short-term core vessels in the Pacific. This was necessary due to the high year-term cargo cover. We had anticipated this high near term cargo cover would benefit our outperformance provided the market follow historical seasonal trends. Our customer and cargo focus business model require us to take in short term charter vessels to optimize and supplement our own long term chartered fleet. As always, our outperformance is negatively impacted by the upwardly moving freight rates environment due to the lack between fixing and executing voyages. However, an improving market is ultimately beneficial, as we will benefit from higher freight rates as we secure new cargo contracts over time. Our outperformance continues to benefit from the scrubber installed across our core fleet of Hattie-sized and Supermax vessels, which have contributed with 30... $30 and $720 per day respectively to our performance over the first half of 2024. As previously discussed, our operating activities have seen significant growth with the number of operating days increasing by 29% year over year. We are pleased with our ability to scale these activities efficiently, demonstrating the support we enjoy from our customers. To support this growth, we have been investing in our workforce and systems, while recent office openings in Dubai and Singapore have increased our access to customers and cargo. Our strategy continues to focus on increasing profitable operating days on a year-on-year basis and restoring our performance on our Supermax fleet. Please turn to slide eight. Our highly-sized owned vessel costs have decreased, mainly due to lower crew repatriation costs as COVID-related controls have normalized. We continue to improve our cost competitiveness with our indicative owned fleet cash break-even level reducing to $4,620 per day, which is a 6% reduction year-on-year. Please turn to slide nine. Our supermax and handy-sized owned vessels' depreciation costs increased mainly due to higher dry docking costs and investment in fuel efficiency technology, including silicon and anti-fouling things. Our blended supermax costs remain cost-competitive, and we are scheduled to relive a $5 higher cost long-term chartered vessels during 2024, which we chartered in during the higher rate environment of 2022, and we expect the last of these vessels to be re-delivered by September 2024. Our indicative owned fleet cash break-even level is 5,120 per day, which is a 1% increase year-on-year. I will now hand over to Michael, who will present the financials.

Thank you very much, Martin, and good evening, ladies and gentlemen. Please turn to slide 11 for an overview of our P&L statement and financial performance. As you can see from the slide, despite the rise in our daily TT earnings, both our underlying profit and EBITDA have declined. This decline is primarily due to a significant increase in charter vessel costs, along with higher expenses related to bunkers, port disbursements, and other wage costs, all driven by increased business activities. Below underlying profit, our net profit was further improved by gains on vessel disposals, our hedging portfolio, and the right back of a provision related to a settlement in the period. Please turn to slide 12. As you will see, our cash position remains unchanged at $261 million. and we end the period with $537 million in available liquidity. Looking at the details, our operating cash inflow for the period was $103 million, and that is inclusive of all long and short-term charter hire payments. This compares with $150 million in the first half of 23. We had $8 million in proceeds from the sale of one small hand-sized vessel, which we delivered in the period. CAPEX spending remains well controlled, and for the first half of 2024, totaled $48 million, of which we paid approximately $25 million for the remaining balance of one second-hand Ultramax vessel, and around $23 million for dry dockings and investments in fuel efficiency technology, which Martin discussed earlier. We expect CAPEX for 2024 to be approximately $65 million, predominantly relating to dry doggings and investments in fuel efficiency technology and excluding any vessel purchases. We have paid out $38 million in dividends, which relates to the 2023 final basic and special dividend of 5.7 Hong Kong cents per share, which we paid in May 2024. As mentioned earlier, since the commencement of our share buyback program, we have repurchased and canceled approximately 42.7 million shares for consideration of approximately 14.6 million U.S. dollars. However, only 14 million U.S. dollars was concluded by the end period 13th of June. Over the period, repayments following the normal amortization profile of our loans amounted to 32 million U.S. dollars, while our borrowings only decreased by $4 million, as we extended and increased an existing term loan by an additional $29 million. Please turn to slide 13. Despite significant shareholder distribution through our dividend and share buyback program, we continue to maintain a healthy financial position with $537 million of available committed liquidity which includes 261 million US dollars of cash and deposits. Our net borrowings are unchanged at 2% of our own vessel net book value, and we currently have 61 on-mortgage vessels as of 30th June. We continue to maintain optionality in our long-term charter portfolio with purchase and extension options, allowing us to exercise if we see value. Our goal going forward is to ensure that we maintain a robust, safe, and flexible capital structure. Our distribution policy is to pay out dividends of at least 50% of our annual net profit, exclude investment disposal gains, and whereby any additional distributions can be in the form of either special dividends and or share buybacks. I will now hand you back to Martin for his outlook and strategy slides.

Thank you, Michael. Please turn to slide 15. Global dry bulk loading volumes grew approximately 2% year-on-year. Minor bulk loading volumes were up by 2% due to higher loadings of bauxite, forest products, and steel. Bauxite continues to be the main driver of increased minor bulk loading, primarily from Guinea, and which are mainly carried in Cape Sides and Panamax vessels. Grain loadings increased by 4%, driven by significant contributions from Argentina, Ukraine, and Brazil. Argentina experienced a 29% increase in grain loadings compared to the previous year, recovering from crop yields that were previously affected by droughts. Ukraine black sea loadings surged by 53% year-on-year, reflecting the country's enhanced export capabilities since the onset of the conflict. Additionally, China's import of Brazilian grain increased by 21% year-on-year, supporting ton-mile demand, while imports from the United States decreased by 18% year-on-year. On the other hand, coal loadings decreased by 2% year-on-year, primarily due to reduced loadings to Japan and Europe, despite increased coal demand from India, China, and Vietnam. China significantly increased import of Australian coal since the lifting of the coal ban, which continues to support ton-mile demand, while import from Indonesia and Russia decreased. Iron ore loadings decreased 5% year-on-year due to increased loadings. from Brazil and India, as well as record demand in China. Brazilian and Indian iron ore loading increased 15% and 19% year-on-year, respectively, positively impacting ton-mile demand, while China's housing construction remains subdued. The decline in steel demand is being compensated by growth in the infrastructure and manufacturing sectors. Additionally, excess steel production is supporting record level of export out of China. Please turn to slide 17. Water levels in the Panama Canal have progressively improved as we have now entered the rainy season, which extends from May to December. While some restrictions continue to be in place, vessel transits are expected to increase over time. We continue to monitor development in the Red Sea and the Gulf of Aden, which remain complex and a safety concern for shipping. This has added to ton mile demand as vessels have been rerouted around the Cape of Good Hope. These issues will continue to reduce effective supply and provide support for rates going forward. Please turn to slide 18. In the first half of 2024, we observed a nearly 13% decline in new building orders for Hattie size and SuperMAC vessels. This decrease is primarily attributed to rising new building costs and uncertainties surrounding environmental regulations. We interpret limited scrapping over the period as a positive indicator of improving dry bulk freight rates. The positive market outlook will encourage owners to invest in dry dockings for older vessels, ensuring they can continue trading for a little longer. Decarbonization regulations are expected to have significant implications, necessitating vessels to reduce speed progressively and eventually leading to an accelerated scrapping of older, less efficient ships. Currently, around 40% of the anti-size fleet and 11% of the supermax fleet are over 20 years old. Additionally, one-third of the fleet which was built between 2009 and 2012, will reach 20 years of age starting in 2029. Well-balanced fleet growth combined with the timely retirement of outdated vessels will help to maintain a favorable supply-demand balance in the future. Please turn to slide 21. We remain committed to our long-term strategy to expand and renew our fleet. Our focus remained on growing our supermax and ultramax fleet while replacing our handy-sized vessels with younger, larger, and more efficient ships. This approach not only enhances our operational efficiency, but also ensures that we are well-prepared to meet the increasingly stringent environmental regulations. Due to the rise in vessel prices, especially in the second-hand market, we have been selling our older vessels since 2021. This has included 20 handy size, one supermax and one ultramax vessels, all at attractive prices. Over the same period, we have purchased 20 modern second-hand vessels comprising six handy sizes and 14 super ultramax vessels. By staying selective and disciplined in our investment strategy, we have managed to expand our fleet with newer, larger, and more efficient vessels, achieving our highest carrying capacity to date. Based on the estimated market value of our own fleet of $2.2 billion, we retain significant value, well above our net book value of $1.7 billion. During the period, we sold two of our older head-sized vessels. Please turn to slide 22. In addition to acquiring vessels from the second-hand market, we can grow our core fleet through long-term inwards charter of vessels that showcases the latest Japanese design, maximum fuel efficiency, and in some cases are equipped with scrubbers. These long-term chartered vessels offer options to extend the charter agreement period at a fixed rate and or purchase the vessels at a predetermined price. Extension and purchase options provide optionality as market develop, allowing us to exercise if we see value. In the first half of 2024, we received the first of four long-term chartered 40,000 deadweight, head-sized new buildings. And in July, we took delivery of the second, and we have six more being delivered before Q1, 2026. We also declared our intentions to exercise a purchase option of a 58,000 deadweight ton supermax vessel built in 2016 with delivery in the second half of 2024. This option highlight the potential value of retaining purchase options on long-term charters with this particular option priced in Japanese yen, a unique feature not shared by all purchase options. To achieve our goal of complete decarbonization, we will need to invest in dual-fuel low-emission vessels. Collaborating with our Japanese partners, we have made good progress on a design for vessels that can run on both fuel oil and methanol. We will consider in 2024 whether we are ready to contract to build such vessels with delivery well ahead of our original 2030 target. Please turn to slide 23. Over the period, we have seen increased demand for dry-bulk commodities, even amidst concerns about global economic growth, high interest rates, conflict in Ukraine and Palestine, and the negative effect of reduced Chinese housing construction. Despite these challenges, we have seen growth and continue to remain optimistic about the supportive fundamentals of our industry and the overall global economic outlook. Our strategic vessel positioning aligned with our commitment to our customers and cargo focus approach. This will necessitate short-term charter to complement our own long-term charter fleet, which over the period where higher costs are anticipated due to reduced seasonality in rates. While we won't get the market right every time, we are pleased to see a healthy dry bulk market in which we continue to see limited new vessels, vessel ordering, and broad-based demand for the commodities we ship. We are optimistic about the industry's future. This optimism is buoyant by promising future contract rate and volumes, our increased activity level, and our industry low cash break-even level, additionally supported by positive optionality in our core fleet. In the second half of 2024, we anticipate an increase in global drywall loadings, fleet inefficiencies, and ton mile demand due to the limited transit of drywall vessels to the Suez and Panama canals. Ladies and gentlemen, that concludes our 2024 interim results presentation. I will now hand over the call to the operator for Q&A.

We will now begin our question and answer session. If you have a question for today's speaker, please join the Zoom link via the blue Ask a Question button. Press the raised hand button and you will enter a queue. After announced, please unmute yourself, state your name and company and ask your question. If you find that your question has been answered before it is your turn to speak, please press the lower hand button to leave the queue. You may also type your questions in the Q&A box. Our first question comes from Sean Junji.

Thanks. Hi, Martin. Hi, Michael. I have three questions here. The first question, I think earlier you mentioned drive-out loadings, you expect them to increase in second half of 2024. Do you mind if we share which specific commodity types that we actually expect sequential pickup in demand in second half? The second question I have is with respect to the environmental regulations. I think there's two parts to this question. One is on scrapping. I saw your announcement today. You indicated that scrapping is going to progressively pick up from 2030 to 2037. Do you want to share a little bit about any color to why we think scrapping will see a male material pick up during this time frame and not maybe from 2025 onwards? to 2030, given that environmental regulations are more stringent. And then the second part of the question is on dual fuel ships. Earlier you mentioned that methanol is probably the option we're going into, but recently within container shipping, we're seeing a lot of liners, including MERS, pivoting back to LNG as in dual fuel. Do we have plans to do a similar strategy? Thank you.

Yeah, thank you very much for those questions. The first one about the growth we see, it's, you know, we are actually entering into the grain season from the northern hemisphere, starting in the Atlantic. So the US and Europe, Ukraine and other places will have the harvest coming out and normally in October. and the rest of the year you will see increased activity on that part. And that's also how we have positioned ourselves for that. And that's normally how the market works. On the other commodities, we actually see quite stable volumes going forward on those. But for second half here, I think from September, October, it will be the grain season starting up that will drive the market. On the environmental part, on the scrapping part, you know, When we say that scrapping might only sort of start in 2030, that's basically just looking at the age profile of the ships. So assuming that the market stays healthy going forward, then there's no incentive for the owners of the older ships to scrap them as long as they have a positive cash flow that will justify the dry dockings. So as long as you have a very good market, people will try to keep the ships going as long as possible. But when you get too close to the 30 years, it will be very, very difficult to keep them running. And on top of that, you will have the environmental rules which gradually will gradually will come into play. So when you come closer to 2030, I think it'd be very difficult to run the older ships. But I think it's important to say there's nothing negative in that there's not so much scrapping. It's actually just an indicator that we have a very strong market that actually makes sense for everybody to run the ships a little bit longer. But there's, of course, a deadline to these ships, both in respect to the aids, but also in respect to the environmental rules in it. And I think what we have indicated a little bit when we talk about it, we just wanted to show you When you look at the age profile of both Handys and Supers, you can see that one third of the ships were built within four years from 2009 to 12. And of course, by 2030, then they will, 2029, they will start becoming 20 years old. This is a little bit of a date in our market. Not all our customers wants to take ships that's older than 20. And not all these ships are built at quality yards. And the speed consumption efficiency is not very good on these ships either. So we also foresee that something will happen at that time. The last question on dual fuel, I think first of all I would say I think there will be room for all kinds of fuels going forward because that is actually needed. We have, of course, looked at everything in the project we had in Japan. We've been working on this for two years with our Japanese partners. And I think our conclusion is there will be a need for all of these fuels, but when you look at our smaller size ships and you look at the extra capex and the requirements we have, we just see methanol as the best option for us. For sure, LNG actually has some favorable rules. I wouldn't say they're unfair, but I would say they're a little bit favorable in the short term. It probably would make sense for people with big ships to put put LNG on them in it. But in the longer term, that will also be an issue for them in it. But I think the answer is there's a need for all kinds of fuels. And I think that's also what you see some of the big players are doing. They are sort of betting a little bit on all of them in it. But when you look at our smaller size ships and you look at the extra CAPEX, the extra OPEX and so on, we think methanol is the right choice for that kind of ship to begin with.

But I think maybe. Yes, thanks, Martin. Maybe I can just pull out one quick question on scrapping and the timeline 2030. Given, you know, we're seeing a lot more stringent regulation, EU ETS, fuel, EU maritime regulation soon as well. You might share. Is there any potential enforcement penalties in the event of noncompliance? If we don't get to if we don't comply with all this regulation?

Yeah, you can say that the rules you see now are very much EU-based. So that's the EU ETS and the now first of January, the fuel EU coming in. And both of those comes with, you can call it a penalty or a tax. If you don't comply with fuel EU, you will have to pay a penalty, which is quite big, actually. And we are waiting for IMO. They're meeting here in September, October to discuss a more global approach fee or tax or whatever you will call on the CO2. They will be very interested to see what will happen there. I think for IMO, it will take some years before they can enforce it and will enforce it. But EU is happening at the moment. And I think what's happening right now is you probably see the most fuel efficient ships will trade into Europe and older, less fuel efficient ships will have to find somewhere else to go because it will not make sense for them to to go there. So the rules have an impact already, but for describing, I think we probably need IMO to do a global, or we need other countries, other regions as well to put a tax on the CO2 emissions. So that will take a little bit of time, but eventually that will come up. Okay, sure. Thank you. Thank you, Martin. Thank you.

Our next question comes from Andrew Lee. If you could unmute yourself and ask your question.

Hey, hi. Hi, can you hear me?

Yes.

Hello, Andrew. Okay, hi. So I have a few questions, right? My first question is, If I look at the slides you have on supply and demand for the handies, right, it seems as if this year and next year, supply growth could outpace demand growth. Is this what the view is? And if that's the case, does that mean that rates will come down? Second question is on the outlook. You mentioned that you're positive on the long-term outlook. Does that mean in a short-term, near-term, medium-term that you're not as optimistic, or is it just a view that the market will be strong until long-term, right, so in the next few years? Another question I have is on the share buyback. You have up to, I think it's 40 million. I think you mentioned that you've exercised about 14. Given the recent weakness in the share price, will you accelerate the share buyback quickly? And if you want to raise it above the 40 million, right, what's the procedure involved? Maybe I'll just start with those questions first.

Okay. Well, first on the supply, we are in general, there's always some uncertainties, of course, when you look ahead. But when we look at the markets, step back and look at the market, we are in general quite optimistic about the demand outlook and also about the world economy. Of course, there's always, like in Monday, there was always something happening in the market. But fundamentally, when we look at it, we see an upside on demand. in the demand picture, and it's fairly positive about that part of it. And we also do believe that these disruptors you see are not just going to go away quickly, so they will keep on supporting us. And, of course, at the moment, especially on the handy sizes, we see actually maybe a little bit back to the COVID time, also because the container market is so strong at the moment. We see also support from cargoes coming over to the smaller ships, from the container market. Also, we are lifting containers. So fundamentally, if you put it all together, we are actually quite positive about about the outlook going forward. And whether it's long and short, we can discuss, I guess, a long discussion about what's long and what's short. I think we are very well positioned for 2025 and onwards in it. And our model is, of course, to be long on ships, and we will be that in 2025 going forward. And, of course, we maintain a very low cash break even. So we think we are very well positioned for that market. And I also think fundamentally when we look at the age profile of the fleet, even though there is, of course, new buildings coming, and we can see when the yards are able to deliver new buildings in bigger scale. It's only 28, 29 now. And we can see that the yard prices are high. We are actually, in many ways, a little bit positive about the outlook also for the supply side. It looks good at the moment. You want to answer?

You had a question, Andrew, about the share buyback program. As you know, we launched a program this spring after the AGM. It's a program up to $40 million. So far, we are one-third into the program. There are, of course, limitations when we have blackout periods. We cannot really do the trading. But the plan is that we continue this program and we'll complete it before the end of this year. So we still have firepower left. We still have two-thirds left of this program.

Yeah, and we will not accelerate it. I don't see that as an option because we also have to look at the liquidity of the share. So I don't think that's the way. And I think it's also important to say that we are not – Honestly, we're not really speculating in our own share or trading our own share. We have a program that we will run, and we will keep running that part. I think by the end of the year, we will, together with the board, of course, evaluate. I think it's the first time ever we've done share buybacks, and I think we will evaluate with the board the pluses and the minuses of that, and maybe also with our shareholders, and then see if this is something we will do. But we are very pleased, actually, that we now have have that in our toolbox as well. Besides the dividend, we can also do the share buybacks and, of course, very interesting process also for us.

Okay, thanks. Maybe a follow-up question. I'm not sure whether you can answer this question, but I'll ask it anyway. What would you say your current NAV would be, right? Is it around the current share price? Yeah, so I'm just trying to work out in terms of how you see the market, how you see your current NAB, right, compared to the share price.

Yeah, so, of course, we allowed ourselves to put in what we thought was the fair market value of our assets, and we have no debt. So our fair market value of the assets is $2.4 billion, and our book value is $1.7 billion. So it's on $7.4 billion. So that's quite clear. So the difference there is $462 million in it, Andrew. So if we should be priced based on the value of the assets we have, we are $462 million short on that part. And that's, of course, also the driver of the share buyback that we have done. I also have to admit, of course, we have to, of course, improve our earnings over time to justify that part of it. But it just also shows how optimistic and positive the market is about the future, I would say, since they have driving up the asset prices to this level. So there's a lot of positivity in the market and people are willing to buy the ships at these high prices.

And we think there's some strength in our business model showing the value of their own fleet. And that's why we have this disclosure now. We have really benefited from the increase in asset prices.

I think it's fair. We also said that we have declared an option of 58,000 supermax for delivery. One of the time charter ships, we had an option. We have declared it. We pay $18 million for the ship. And if you compare that to what the last done in the market, This is not for Japanese built like ours. It's about, what's it, $28, $25 million. So it also shows a little bit the value in some of these things at the moment.

Okay, thank you. I have a few more questions, but maybe I'll go back in the queue to let other people ask questions first.

Thank you, Andrew.

Our next question comes from Nathan Gee. If you could unmute yourself and ask your question.

Hi, Martin, Michael, can you hear me now? We can hear you, yes. Thanks for the call. Two questions for me. Firstly, I want to drill a little bit more into the short-term charter costs. So it seems relatively elevated. I think you've called out what seasonality patterns as well as the Pacific Atlantic Basin issues. Can you better explain, can you give us a little bit more detail around that? And then also, are they going to continue into second half, just these elevated sort of short-term charter costs? So that firstly. Secondly, in terms of the supermax negative rate premium, just to help me better understand that. So was there an element of overcontracting as well, or is it just related to the charter cost issue? Thank you.

Yeah, I think it's a little bit the same question, actually. So let me explain on how the market has developed. So we come into 2024. And of course, with an expectation or not, of course, but with an expectation that we would have the normal seasonality. So you normally have a dip in the market before Chinese New Year. We had that, but not to the same extent we have seen in the past. And I think that was also due to the Red Sea and the Panama Canal that took a little bit of that seasonality out of it. And then as we move into the summer period, we normally have a reduction in rates as well. And that has also not happened recently. The market has increased a little bit or is staying flat, which is, of course, super positive. But you can say normally our outperformance also comes from these dips that we sort of position ourselves to avoid. On top of that, and as you are actually rightly saying, is that if you look at our super Ultramax fleet, we had too much cover. We should have had less cover. That would have helped us a lot. But reality is it's not bad cover. We had the challenge we got into was that also what happened due to this disruptor that the Red Sea got closed is that we actually this year had in the first half we had historically high number of minor bulk vessels in the Atlantic compared to the Pacific because they had a hard time getting the ship back to the Pacific. So actually what happened, which is quite unusual actually, is that you had a market where actually the Atlantic was lower than the Pacific. So there was a premium in the Pacific. And a big chunk of our cover is actually in the Pacific. And to, of course, deliver to our customers, which we always do, we do take ships from the market to perform some of the cargoes to optimize the program. But reality is those rate in the Pacific, because there was a shortage of ships, were much higher than in the Pacific and also higher than the contract cover rates that we have. And that, of course, that has put pressure on our performance on the Supermax fleet. I hope... I hope that makes sense. But that's the situation. That situation has now changed. So in reality, now we are back to normal where we actually have a higher market in the Atlantic compared to the Pacific. So the ships have moved now and there's a more normal balance in the market. And actually, we think we are well positioned now in the sense that we still have quite a bit of ships in the Atlantic preparing ourselves for for the October grain season. And hopefully we can take advantage of that. And hopefully in the Pacific, we can get ships at a little bit more fair price. But reality is that for Q2 into Q3, our cover on the super is a little bit too high. So that creates a little bit the situation where it's hard to optimize the fleet. It's not easy at the moment on the heavy sizes because our cover is so much less on that part. So I think there's a little bit of learning in that, but it has also been a super different year. You can say the Red Sea and the Panama Canal is quite unusual. And I think for our commercial team, who normally actually outperform quite well over the many last years, it's very hard for them to predict this situation. And, of course, we got a little bit caught in that. But, you know, if we look at our earnings, it's not, you know, the Hanby's are actually doing quite well compared to the indexes, and the Schuberts are trailing a little bit, but hopefully we can improve it over the year.

Really clear. Thank you, Martin.

Thank you.

Our next question is from Frank Yip. If you could unmute yourself and ask your question.

Hi, Martin. Hi, Michael. Can you hear me?

We can hear you, Frank.

Yeah, just follow up for the chartering cost question is that it's just mentioned about the changes or an expectation coming from this angle. So any changes for your covering strategy in the future? And the second question is about the order book for the drive box. It seems that it's quite low compared with the other ship type. So what takes you guys to post the ordering for the drive boat replacement or even for upgrading for our fit?

Yeah. That's a good question. So first on the cover strategy, it's always dangerous when you come from a point where you feel you have a little bit too much cover. And of course, we have to look ahead and we have to look into 2025. Our cover of 2025 is very low. It's very low at the moment. Of course, our job and our commercial colleagues' job is now to position ourselves correct for 2025. And the big question again is, you know, if these disruptors, they persist, will we also next year not have these seasonality changes of the market? So that's very – that's the big question, of course, and that's what we spend a lot of time on doing. Our model will allow us actually not to take too much cover on in the sense that we have a very low cash break even. So we can afford to take a risk on that part. So I could actually foresee that maybe we will take a little bit less cover going forward, but it all depends on how the market develops. And you can say the high cover, what it actually does, it takes a little bit of your flexibility away in it, and we're probably running a little bit after the market. So maybe a little bit less cover will give us a little bit more flexibility to do arbitrage and optimize it. So I think there's a little bit of learning in that part. And then a very good question when you look at the order book and growth. And you can say we have bought quite a bit of ships lately. I think the thing we probably look at this year is that when you look at secondhand values or secondhand prices you pay today, When you buy a ship today secondhand, let's say you want a modern one because you want it to be good in speed and consumption, It's a high price you have to pay. And there is actually some uncertainties on the life of such a ship because this is not a dual fuel. This is just a regular fuel oil ship. And when you come into 2035, 2036, 2037, you know, the rules will actually make it a little bit more difficult to trade this ship. And when you look at the price of a modern secondhand, actually a new building seems to be cheaper than buying a secondhand. Of course, the secondhand has the benefit that you have immediate cash flow when you buy it and a new building you have to wait for. So we, of course, sit and look at that part of it. So I think we're holding back a little bit because we are a little bit worried about these environmental rules. You buy ships now and the lifetime, how long can you, over how long time can you actually depreciate the asset? And you can say, actually, a new building today seems to be cheaper, and you can actually, that's a project we have in Japan. Maybe we can actually do dual fuel and therefore ensure that we are able to extend the life of the ships. And that, I think, is what all ship owners are sitting looking at at the moment. And, of course, that's probably also why the new ordering is a little bit less. Prices are high, uncertainty on the environmental regulation and so on. So I think that's actually very supportive to the market as well that nobody will go crazy at the moment in ordering these ships. Does that answer the question or?

Yes, sure. Just one follow-up is that at what point of time you are expecting such a new shipbuilding ordering will come into place? It means that there will be more and more tribal orderings at what time you are expecting? Like five years later or three years later? Any time frame that you can imagine about it?

Yeah, but it's already happening in some segments and also in our segments. There's actually people ordering dual fuel ships. Not very much, but it is happening. And I think the big question, and so you can say the technology of building these ships, that we know how to do. And I think we also, at least in respect to methanol and LNG, we know how to do that. Ammonia is probably a little bit more difficult also for us. So we know how to do it. The challenge we all probably have is that how do we get the fuel? And that's probably, you know, until the point where it's very transparent that the fuel is available in a scale that makes sense of it, then until that point, I think it will still be some of us, and some of us will probably try out and do it, but the big scale will only happen when everybody's sure they can get the fuel. So I think that's what everybody's sitting looking at, and of course, that the rules, even though EU has good rules and they're enforcing it, we are still waiting for IMO and others to sort of come up clear on the rules and how they're gonna enforce it. That will also help on this transition. But I think basically we at least, and I think many others also know that we have to decarbonize. And we know that when we buy a ship, it will normally be depreciated over 20 or 25 years lifetime. And today that is actually going into 2050 something. And I think we all know that that's probably not realistic, that we would be allowed to run those on normal fuels. So there has to be a transition at a certain time.

Okay, thank you, Martin.

Our next question is from Igor. If you could unmute your microphone and ask your question.

Hi, Martin, Michael. Can you hear me?

Yes, yes.

So I have one question to add here. Would you give us some color about the TCE we cover at next year, first half of next year, especially for Handy? We have covered like 7% of days at around 9,600. So why is that so low? Thanks.

Because more than half of it is backhaul voyages and We do not give the position a value afterwards. So our cover normally, especially on Handis, because it's always a very backhaul heavy, will always be a little bit lower than the actual results when we end up performing the voyages.

Okay, thanks. There's also more questions.

Our next question comes from Andrew Lee. If you could unmute yourself and ask your question.

Hello, hi. Just two more questions, right? If I look at the FFAs in your slide, it's actually at a slight... discount to your COVID rates in the second half. Could you give a little bit of color in terms of how you see the FFAs? Is that really a reflection of the market? The second question I have is, you have a table that has your long-term chartered capacity, right, in terms of revenue days. Does that include all the long-term charters that will be delivered next year? The reason I say that is that I'm trying to model in terms of total revenue days next year versus this year. So I just want to sense that is that a reflection of the total long term childhood? And maybe you give a little bit of guidance in terms of in terms of based on the existing fleet and also the long-term deliveries, new bills, et cetera, how much capacity in terms of supermax and the handies into the revenue days would be higher on a year-on-year basis or lower on a year-on-year basis for next year? Thank you.

Thanks, Andrew.

Wow. First, the FFA, if the FFA really reflects the market, that's a good question. I think the FFA gives you an indication of, of where the, when you look, the FFA looking forward, it gives you a little bit about what's the expectations, what's the trend. Of course, the FFA cannot predict where the market is, and especially for our headtees, the liquidity of the FFA is not sufficient actually to make it a sort of a real indicator of where things are going, but it does give sort of a, you know, a feeling of where are we going, are we going up, going down, in that market. I have not looked at how precise the FFAs have been in the past, but I don't think anybody can predict the market, but the FFA at least gives us a feel for what is our customers and how is the market actually viewing the future in it. On respect to the TC tonnage, I think the information we provide, gives you a good feel for, gives you a correct picture of the days we are having, that we have firm commitment to. And then, of course, there's a lot of optionality and other things into it. I think, I don't know if that confuses a little bit, but we have, we still have five ships, you know, those we took in 2022, that is actually ending now. And the last ship is delivered, re-delivered here in September. Maybe that's confusing it. a little bit, but I'm sure we can clarify that a little bit, Andrew, if you call Peter later. But I'm fairly sure the numbers we have provided provides a good picture of our firm commitment to it, but not the optionality, of course.

Okay, thanks. But are you expecting that next year's total revenue days will be higher than this year? Or is the target to be flat, higher, lower?

Well, I think when you look at the... That's a good question. I think...

I think it's going to be, depends, of course, what happens and, you know, what we're doing and if we buy secondhand. But when we look at the moment at it, I would say it's going to probably be similar as today, because we might do some purchase options, but these purchase options, of course, still call ships that we had in the fleet already. And, of course, the operating part, but you're talking about the core fleet. I think the operating part, we definitely hope that's going to be bigger and also the margins are going to be better on that part, but But for the core fleet, I think we have shown you what new buildings we have coming. And of course, we have some ships that also comes off charter. And especially the five one, if you look at the average cost on the Ultra Supermax, there's five ships coming off there. They will actually reduce the average cost of our Supermax fleet. So we have to get rid of those. And they might be replaced by some purchase options and other things we do.

All right. Thank you. No more questions from me.

I'm sure you're just as confused now as you were before I drew that one.

I'm going to sit down and just think about what you just said. Thank you. Sorry, I'll pass to Peter later. Thank you. Thanks.

Our next question comes from Nathan Gee. If you could unmute yourself and ask your question.

Hey, team, just a follow-up just in terms of shareholder returns. So I just want to understand, is there still room for a special dividend in second half? And the reason I'm asking, the $40 million buyback looks a pretty substantial chunk of potential four-year profits. So just help us understand, is there still scope for a special? Thank you.

Yeah. So, Nathan, as always, my excuse is that it's, of course, decision of the border in that way. But I think what we've done so far, 50% now is actually in line with what we did last year. And I think what we want to see is how, you know, we want to see how the rest of the year is going. We have basically no debt and we are generating quite a good cash because our cash break even is $5,000. So, yeah. So that looks very positive. Let's see what happens the rest of the year. We would actually love to acquire things and grow our business and so on, but it's clear if we can't do that and can't find attractive value-adding investments, then I'm sure we'll have to look at how to distribute in line with our distribution policy. That's at least 50%, but let's see how that ends up. It's clear. Thank you. I don't know if it's clear about that.

Thank you.

As there are no further questions, we will now begin closing remarks. Please go ahead, Mr. Martin Rago.

I'd like to thank you again for joining us today and for your continued support to Pacific Basin. If you have any further questions, please contact Peter Bott from our Investor Relations Department. Thank you and goodbye.

This concludes our conference call. Thank you for all attending.