Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the d'Amico International Shipping second quarter and first half 2019 results conference call. As a reminder, all participants are on listen only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star zero on their telephone. At this time, I would like to turn the conference over to Mr. Paolo d'Amico, CEO. Please go ahead, sir.
Hello to everybody. Good afternoon. Thank you to being with us. Let's go straight to the summary presentation. As you know, last March, we had an extraordinary general meeting which authorized the board to increase the share capital. The operation ended up on April 16 with 97.3% of the total number of rights exercised. On April 24, the unsubscribed few shares remaining have been sold on private placement, resulting in a 100% subscription to a dollar equivalent of EUR 44 million. This posted on the first half of 2019, a loss of EUR 24.3 million. If we exclude non-recurring items and the effect of IFRS 16 from the first half of 2019, the net result would have amounted to EUR 9.2 million loss in the first half, compared with EUR 23.6 million of the previous year.
Talking about liquidity, we had generated cash around EUR 30.3 million in liquidity through a series of sale and leasebacks of various types, including a JOLCO, we have been basically the first one, which is a Japanese tax scheme. Our joint venture that we had with DSL, it's called Eco Tankers, finalized the sale of a 2014 build MR, generating EUR 12.8 in net cash proceeds for the joint venture, of course. In last June, DM Shipping, another joint venture with Mitsubishi, agreed the sale of a remaining vessel, generating approximately EUR 13.2 in net cash proceeds. In August, of course, now here we are on the second half of the year, but another ship has been agreed to be sold, has been basically sold, which is with Glencore, Glenda Megan, and will approximately generate EUR 8.2.
We expect the delivery of this vessel to happen at the end of this month. Talking about the application of the IFRS 16 from January 2019, this had a negative effect of 4.3% on this ratio to net worth to total asset. This based on company's consolidated financial as for the first March 2019. To offset this impact of this new accounting standard, all banks agreed to amend the financial covenants on loans guaranteed by this, with a reduction of a minimum threshold for this ratio to 25% from January 2019, when previously it was 35%. The daily spot rate achieved by this in the first half has been of $13,326, versus a spot rate of $11,536 on the first half of 2018. 47% of the DIS employment days were covered through time charter contracts at a daily average rate at $14,496.
This achieved a total daily average rate of $13,879 on the first half of 2019. This against $12,625 on the first half of 2018. I leave the floor to Carlos Balestra di Mottola, our CFO, for the overview and key financial. I will be back to you with the market. Thank you.
Thank you. Good afternoon to everyone. Okay. Just a quick update on our fleet composition. We are, as you know, mainly focused on the MR segment. We have been growing, however, on the LR1 segment, and we also have a presence on the Handysize segment. Overall, as of 30th June, we were controlling almost 50 vessels, and of which 36 and a half are MRs, five are LR1s and eight Handysize. One LR1 still to be delivered, as we will see on the following page. We have a young fleet, an average age of 6.4 years, and mostly IMO class. It's 84% IMO class. Our vessels, we underwent an important new building program where we ordered 22 vessels. We have a very modern fleet, eco-design in most of our vessels. That allows us to work with the most demanding charters.
We have very good relationship also because of the quality of our technical management with the main oil majors who are important clients, but also the important trading houses. On the following page, we show our CapEx commitments, and also our historical investments since 2012. We have invested, as I mentioned, we had a very important new building program, contract price. The investments were around $750 million. On that, you have to add extras, new building supervision, third supply. The overall investment for the new buildings was significantly higher. Since 2012, we have invested $890 million. There is only now, regarding new buildings, $31 million left to be invested, of which $11 million will have to be funded with our own funds and the rest with committed bank debt. We are really at the end of the new building program.
This last vessel will be delivered at the end of September, or possibly beginning, very beginning of October. As we will see later, the vessel has already been employed through a very profitable contract for us. We are very happy with that. From 2020, we will only have the maintenance CapEx left. It is quite an important year in terms of maintenance CapEx, as you can see also relative to history, the yellow bars. The amount we have to invest for such activities is usually between $1 million and $4 million. The last big year we had was 2015, and it is not a coincidence that 2020 is a big year again because these vessels have to stop every five years for a special survey.
In reality, the actual amount we will be spending will probably be lower than that because in a stronger market that we are seeing already the first signs of, we expect to be able to sell some of the vessels on our fleet which are supposed to stop for dry dock in 2020. I also remind you that in 2020, on a number of these vessels, we are going to have to install ballast water treatment systems if we don't sell them before, and that's why the figure is so important. Going on to the next page, we highlight how our debt repayments are falling next year, and that will have a big impact on our cash break-even. That from next year will be pretty much aligned with our P&L break-even.
We have one facility with Banca Intesa, which is in addition to the traditional vessel financing, which will be fully reimbursed by the end of 2019, and that is why there is this important drop in the reimbursements from 2020 onwards. I would like to highlight the gray bar indicates the balloon repayments, which we assume we are going to be refinancing. There is not too much to refinance in 2020. There are only four vessels that are in JV with Glencore in Glenda International Shipping, for which balloon repayments are due in 2020. 2031 is a more important year in terms of refinancing. We have a very low refinancing risk in 2020. Going on to the following page, we have here a slide just to highlight where we stand relative to the purchase options on the vessels that we have pursued sale and leaseback transactions for.
We have additional purchase options also on some of the vessels we time charter in. We have not included them here in our table. These purchase options are a bit more distant in time. On the vessels we pursued sale and leasebacks for, out of the nine vessels, on eight of these today the first purchase options are theoretically in the money. The way we calculated this is by looking at today's market value of the vessel, amortizing it on a straight line basis and comparing it with the first purchase option price. Just to give a rough indication of whether these options are already exercisable. Also important to highlight that four of these options are exercisable in 2019. Of these four, three are in the money.
As I mentioned, that does not mean that we will be exercising these options at the first opportunity because, in most cases, these are actually very attractive financings we managed to negotiate, long-term financing also. They are in all cases except one the balloon, let's say, the purchase obligation is only 10 years after at the 10th anniversary of the deal. It is very long-term money, much longer than what can usually be obtained from banks today, which is usually 5 to 7 years money. We will monitor the situation closely and if the options are very much in the money and our cash generation permits and we can obtain very attractive bank financing terms, we might repurchase some of these vessels to refinance again with traditional bank debt further down the road. As I mentioned, it's not our number one priority right now.
On the following page, I show the recent fixtures. This is a slide that we had already in Q1, and we haven't updated it. In Q1, we mentioned that the PO rates were moving up, and we can confirm this is still the case. We continue to be fixing vessels at higher and higher rates, which shows that there is a very positive sentiment out there, very strong expectations by market players of a much better market going forward. In particular, I'd like to highlight the one MR2 ECO vessel that we fixed for three years at $16,750, and also three LR1s, which were fixed for one year at $19,000 per day. As I mentioned previously, also the vessel to be delivered with scrubber has been fixed on a TC.
The charterer asked us to keep this information, the details of the deal confidential for now, but we can say that it is at a significant premium to the LR1s that we fixed at $19,000 per day without scrubber. We are very happy with that deal. It's a two-year deal. We have an option for the charter for another year. Going on to the following page, we show the average rates on our TC contracts and also the percentage of the fleet which are covered through such contracts. We show the historical evolution since Q1 2018, and then we show going forward how this coverage rates and percentage coverage changes based on contracts already signed.
The positive aspect we want to highlight here is that whilst from Q1 2018, the average rates have been decreasing gradually from $15,000 to $14,400 in Q2 2019, this quarter that we are presenting right now. From now onwards, from Q3 2019, the average rates are going to be increasing. This will provide a very positive tailwind to our results. Already by Q4 2019, the average rate will be $15,600, which is a profitable average rate. We have 54% of our fleet covered at such rate. This rate reaches $16,600 in Q4 2020 and then $16,700 in 2021. On the bottom chart, we show also how the percentage of our fleet, which is ECO. This is based on all vessels, so also TC-in vessels, is increasing. This of course, also implies that our earnings potential of our vessels are increasing.
Today, ECO vessels are earning, ECO MRs are earning a premium of around $2,000 per day, relative to conventional MRs. On the following page, we show the fleet evolution. The reason the fleet, the average number of vessels controlled over the next few years declines is related to the redelivery of some vessels we have on TC-in. On the right-hand side, we see on the chart that actually our spot exposure increases from H2 2019 to 2021 from an average of 22.5 vessels to 34 vessels. Also does our sensitivity for every $1,000 per day change in the Time Charter Equivalent rate, which is of only $4 million in H2 2019, but rises to almost $10 million in 2020 and $12.5 million in 2021.
On the following page, we show that we have worked not only on our top line, but we have also worked quite hard on our costs, and to manage our vessels as efficiently as possible, both from a technical perspective but also on the onshore structure, which directly affects, of course, our G&A. We have obtained significant savings on our direct operating costs, which have declined from 7,500 in H1 2018 to 6,800 in H1 2019, but also daily G&A has fallen from $810-$662, an 18% decrease. This is to a certain extent also attributable to currency effects. The strong U.S. dollar has helped us, especially regarding the G&A, but also helps us to a certain extent regarding the daily operating costs. In particular, regarding the G&A, 75% of our G&A costs are not U.S. dollar costs. Most of these non-U.S. dollar costs are EUR.
The second most important currency for us is the GBP and the SGD. The very strong dollar helps us in this respect. There were also other cuts that were thanks to a very careful evaluation of potential savings that we could achieve without, of course, compromising the quality of the management and the quality in general of the work we do. On the following page, we show our indebtedness situation. We show the ratio of the net financial position to fleet market value. For the 73% at the end of 2018, this declines to 66% at the 30th of June 2019. 66% is pretty much aligned with the initial advance ratios on our new buildings. Given we have quite a young fleet, an average age of 6.4 years, as I was mentioning, this is a much more acceptable level.
Hopefully, of course, with the positive results that we expect to generate going forward, this ratio should decline further. We have pursued, as I mentioned, a number of sale and leaseback in the past few years, nine vessels. We have now more recently focused mostly on straight sales of vessels, in particular, older vessels which we had in JV with some of our partners. We sold one of the vessels, and delivered to the buyers, one of the vessels which was in the JV with Mitsubishi. Another vessel, we already signed the MOA, and it's going to be delivered by the end of September to its buyers. Also on the joint venture with Glencore, one vessel we signed an MOA for, and we expect to deliver it to its buyers by the end of September.
There is another vessel which we classified as held for sale also in our financials as of June 30, because we intend to sell possibly before the end of the year. Also these straight sales will be further strengthening our balance sheet going forward. On the following page, we show the key line items of our P&L. The bottom line for the first half is not brilliant, of course, $24 million loss. If we analyze the results more carefully, and we exclude non-recurring items, the picture looks quite different. Whilst the bottom line for the first half, as I mentioned, is of -$24 million, negative to a loss of $20 million in the first half 2018, excluding non-recurring items, the loss in the first half 2019 is of $9 million relative to $24 million in the first half 2018.
The main non-recurring item is the asset impairment on the two vessels held for sale that I was just mentioning, which we have in JV with Glencore. There are also some financial items relating to mark to market on interest rate swaps, and also a loss of $0.9 million on disposal of vessels and an IFRS 16 effect of almost $1 million in the first half this year. Going on to the following page, we take a closer look at the results of our vessels operating with a detail of both the results of the vessels operating on the spot market and of the average TC rates, and the evolution since the first quarter of 2018. Comparing the first half of 2019 with the first half of 2018, we see that there was a marked improvement.
The average rate in the first half 2018 was $11,500, and in the first half 2019, it's $13,300, $1,800 more. If we look only at the second quarter 2019, the average rate for our vessels on the spot market was around $13,000 relative to $10,300 in the second quarter 2018. It's an even more pronounced improvement of $2,700 per day in the second quarter 2019. Second quarter 2019 was negatively affected on a relative basis by the lower average rate, as we mentioned previously, on the TC contracts, which was of only $14,200, whilst in the second quarter 2018, the average rate of the TC contracts was $14,900. This is, as I mentioned previously, going to change going forward as the average rate on the TC contracts is going to be rising.
Going on to the following page, we look only at the MRs here, the earnings on the MRs and on the spot market, and we compare it to the Clarksons average. There is an outperformance if we look at all our MRs on the spot market of around 10% relative to the Clarksons average. If we look only at our ECO MRs, we see that the result is $15,500, which is a much more attractive figure relative to $12,500 for the Clarksons average, an outperformance of 24%. If we include also the TC contracts then, our MRs earned both conventional and ECO, blended spot and TC, $14,000 per day. I pass it on to Paolo again for an overview of the market.
Basically, if we look at historical MR TC rates and spot rates, for TC rates, we mean one year time charter, and we look at MR asset values. Looking at the TC rates and spot rates, today we are 52% on the TC rates and 73% on the spot rates below where we were when the market was at the peak. This does not mean that, of course, things will go back where they were. Historically, the market was there. Potentially it can go either where or also very close to it. There is a long way to go, as you can see. Looking at values, we took the new building value and the second-hand. Second-hand normally is a five-year-old.
On new building value, we are 32% under where we were at the peak of the market, and 44% as far as the second-hand one below the last cycle peak. Both in rates and values, we have a lot of space. We are improving asset values. The bottom has been October 2016, and since then, assets for younger vessels have been recovering. A 5-year-old MR recovered 36%, and the time charter rates also improved about 22%. This trend is physically there, you can see it. The growth of demand has been of 3.6% since the year 2000. What is extremely important, and this for me, is the fact that if you take all the oil seaborne trade, in the year 2000, 25% of that oil seaborne trade were products. Today, it's grown up to 35%.
Today, more than one-third of oil moved around the world are products, and this % is growing. I would say there is also a tendency of using more product carriers than crude oil ships. We have a surge in refining volumes. They are all expected on the second half of this year. I would like to remember, it's been one of the reasons for the poor market on the first half of this year is that big part of the refineries around the world went in very heavy maintenance. Historically, I mean, usually refiners, they do two times maintenance period, once in spring and one in fall. This year, due to IMO 2020, and so the need of very big runs on middle distillate, it looks like that they are concentrating on only one maintenance period, but of course, it's getting longer, and it's getting more and more prolonged.
This is the reason why many refineries have not been producing. The volumes in May, which were basically you can see on the chart on the left, were under the volumes of last year. This even if we had a growth of the overall volumes. This is only due to refinery maintenance. Record growth in refining capacity in 2019. It's never been registered a growth as big as is happening this year. We are talking of 2.7 million barrels per day. Most of this expansion is in Middle East and China. This means what? This means that the consuming Western world needs a lot of products out of the Far East and the Middle East, which increase ton-mile and consequently increase demand. Here again, we are talking about basically the landscape driving the demand.
European refining capacity are in a downward trend. We have to say that mostly of the old, let's say, old generation of refineries are in Europe. Some of them did investment, some of them did some upgradings, but most of them did not. Many of them, they're even landlocked. Are refineries which are internal, supplied by pipeline, and the big producer of High Sulfur Fuel Oil, which as you know, is not going to be the maximum product in the future. We probably are going to see also reduction of refinery capacity in Europe coming in. If the oil price stays high, and at this volume, it looks like it's justifying already, we are going to have an increase of exploration production activity.
Even here, we must expect, as everybody knows, because it is written everywhere, that the growth will come not from OPEC countries, but non-OPEC countries, i.e., American shale and Brazilian production. We are going to have a rapid growth of U.S. crude export will continue. Most of the logistic problem that U.S. was suffering, the bottleneck was in the pipeline capacity mostly and some on terminal capacity. They are under, let's say, solution. We are a lot of pipeline capacity entering in service this year. America will be in condition to export more crude, mostly we suppose to Asia. If you consider that American refineries are running at very high rates, whatever is produced as oil on top of it, has to go basically on export. 2020. 2020, I think everybody knows what this all about. What we expect?
Number one, we expect, of course, the major demand of middle distillate. Due to the fact that in many situation, the 0.5 would not be available. Sometime maybe the 0.5 is in the end a supplier of not trust. As you know, shippers are very careful and extremely worried of the compatibility of a product. Marine gas oil is going to be the player in that case. Marine gas oil is nothing else than a diesel for the sea. It's middle distillate increase in demand there. Number two, we have the fact that the 0.5 sulfur fuel, which start existing now, didn't exist yesterday, has to be distributed. You have a totally new product, which is going to substitute most of the 3 million to 4 million barrels per day market, bunker market, which has to be moved around.
I can tell you it's not really moved or it's not been moved around yet. They will do it as soon as they have a storage space prepared, and of course, they are waiting at the last minute to do so.This will demand a lot of tonnage. In the meantime, you still have the High Sulfur Fuel going on. It is still in production, will still be in production. That High Sulfur Fuel not found in space, physical space, in the storage, which will be switched to the Low Sulfur Fuel soon from, this is, of course, a theoretical hypothesis, but I suppose it's logical, will find its space well in floating storage. I think we are going to see a good quantity of ships storing High Sulfur Fuel quite soon.
This is the reason why IMO 2020 for quite a while will be a changer. We have had, okay, the positive view of most important brokers. I leave it to you to read it. Me intervening, I think, is self-explanatory. We have the fleet growth. The fleet growth, we are talking about 2.5% in 2019, and we are assuming 1.6% on 2020. I have also to add, with a good level of satisfaction, that our colleagues, shipowners, they didn't run to the yards, at least for the moment. They did it in the past, for the moment, they are staying quiet. We don't see an oversupply coming in somewhere. There is also one reason for this, it is technological.
To build the ship today, considering that after 2020, we have 2030 and 2050 on CO2 emissions, which are going to make 2020 joke, I can tell you, because they are by far more challenging. Today to order a ship is really a question mark on what sort of propulsion you are going to put on the ship. Certainly not for 2050, but 2030 is basically 10 years down the road. You are at two-third of a commercial life of a ship. You can easily end up with a new building done today, which will be an anachronistic at that point. The growth of the fleet is very limited. We still have delays. We have some scrapping, which will contribute, of course, at the supported of the market. I would say also, we have more and more tonnage getting older than 15 years.
I'm saying that not because a 15-year-old ship is a problem. No way. It's very unlikely that the top charters, the blue chips, are going to pick up ships older than that age. They do it only with operators that they totally trust. The limited new building order is also due to the fact that the value of a 10-year-old ship is by far more interesting than a new building value today, compared with what you can do it on the market outside that. In fact, on the 10-year, on ships built in 2009 and 2010, we see that there is a lot more liquidity. The interest, I would say, of the buyers are more concentrated on that. Now, against this, we see expected demand for cargo. Clarksons is talking about 2.7% in 2019 and even 5% on 2020.
This anyhow is a demand, which let's forget just for another second, but they are by far higher than what we know the supply is. The demand is theoretical, but the supply is concrete. Everybody's looking to the improvement for the second half of 2019. I'm sure I'm not the only one telling you this. We think At the end of the day, it's reflected in what Carlos was saying on the rates that we are achieving on the peers. As you see, more we go ahead and more we are increasing on the time charters our fleet, we are increasing our rates.
In this respect, I also wanted to mention that on the paper market, if you look at the paper market on the time moves, TC2 to TC14, the rates in November, December, January are extremely strong. That is to a certain extent also driving the time charter market, but because a lot of the big trading houses which are taking vessels on time charter, they are then hedging part of their exposure on the paper market, locking in a profit, of course. They are taking some basis risk by doing that, but that is their bread and butter. That is one of the strategies they are using and one of the reasons they are paying up and always more to take vessels on TC. Finally, we just wanted to have a quick look here at the historical NAV evolution for our fleet.
We see that after bottoming in December 2018, the NAV at $218 million, this has increased over the last two quarters. From March to June, it increased from $230 to $285. This is despite the losses we made in the period, and is attributable to the increase in the fleet market value that we have seen over the period, as well as, of course, to the capital increase that we closed in April this year. The capital increased the overall NAV, but of course it had a dilutive effect on the NAV per share, which fell from $0.35 per share to $0.23 per share. The share price today, which is hovering more or less at the same level as it was at the end of June, is at a discount of around 50% or even slightly more to this NAV.
The company shares from a fundamental perspective look very attractive, and also given the prospects for the recovery of the market that we have just mentioned and that we are already starting to see concretely, both in terms of period rates and in terms of asset values. I thank you for your attention, for your time, and please let us know if you have any questions.
Excuse me. This is the Chorus Call Conference Operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone with a question may press star and one at this time. The first question is from Matteo Bonizzoni of Kepler Cheuvreux. Please go ahead.
Good evening. I have three questions. The first one is on slide 17. The outperformance versus the reference market in second quarter was 12%. In the first quarter was much lower than that, 4%. Are there specific reasons for this improvement in the outperformance on the rates versus the market, and do you think it's sustainable? Second question is on slide 12, where we see that the size of your fleet should decline over the next couple of years because, as we are now, the number of chartered in vessel is going to significantly decrease, basically to half from 16, 17 currently to eight in 2021. What is your strategy as regard the time charter in fleet? In other words, is it possible that you're going to sign contracts, at which conditions, and so on? The last question is on the sale and leaseback.
We have continued to see very recently other sale and leaseback of vessel. Should we expect an interruption of that, particularly if the market should, as basically everybody expects, should improve in the next quarters? Thanks.
Okay, starting with the outperformance that you mentioned, I would say that the exception is not this quarter's result, but it's the first quarter result. We usually do outperform the market by more than we did in the first quarter of this year. It was an unfortunate positioning of vessels, which led to a result in the first quarter, which was actually, even compared to our peers, slightly disappointing. Not only the overall market, but the peers that report their results, which are listed, and we did mention that in the call for the first quarter results. As often happens, there was this underperformance in Q1, then there was a catch-up effect in Q2. Maybe we had a few vessels performing long ballast in Q1, and then in the start of Q2, they were positioned in good areas, and they could achieve very attractive rates.
That helped our performance in the second quarter. It is very hard to look at only one quarter. There's a lot of volatility and come to conclusions about our ability also to perform and to outperform the market. It has to be measured over a longer period of time. Regarding the decline in the fleet, as we mentioned, there are a number of vessels which are on TC-in and mostly relatively short-term TC-ins, which are going to be redelivered over the next few years. The good news there is that we are going to be keeping the good vessels, because we're going to be keeping the eco vessels. The percentage of eco vessels in our fleet is going to be rising.
Of course, we might opportunistically later on, not necessarily over the next two years, if there are the right conditions, we would reconsider taking vessels on short-term TCN. We are probably not as keen on doing long-term TCN deals as we were a few years ago. Short-term TCNs, we can and we will look at the right time. We will not do it in a booming market, most likely, because then we are exposing ourselves to a lot of downside. On a booming market, we will be looking more to cover our vessels, and in a depressed market to increase our exposure to the market also through short-term TCNs. On the sale-leasebacks , as we mentioned, we did quite a few. We are satisfied with what we did.
We don't believe we will need to do more, and we will prioritize going forward straight sales rather than sale-leasebacks . That does not rule out completely the fact that we might do one other sale-leasebacks , but it's not really on our radar, in our plans right now.
Thank you.
The next question is from Luigi De Bellis of Equita SIM. Please go ahead.
Yes, good afternoon. Three questions from me. The first one on the IMO 2020. Generally speaking, when do you expect an inflection point also for the spot rates for the IMO effect? Second question, usual question on the current trading. Could you give us some indication about the trend in August and September? What do you expect for Q3 in 2019 for the spot rates? The last question on the financial charges. We have seen a strong decrease in interest rate. Could you elaborate on your cost of debt? How much is fixed or swapped, and your expectation for the financial charges and cost of debt going forward? Thank you.
Going to 2020, let's say it's a consequence of various factors. One of these factors is the distribution of the 0.5 Sulfur fuel. Everybody we have been talking to, because unfortunately, this is in refiners' hands, it's not in shippers' hands. On this subject, they are all very secretive. Don't ask me why, because I don't know, but there is no really big reason. From what we understand, they will start moving in October in way of having everything distributed within December. As I said before, they are cleaning up the storage space, which was used for the High Sulfur before, in way to be prepared to receive the Low Sulfur afterwards.
I think the movement on the market will start there, and will start from the dirty side, but they will be using, most probably, product carriers to do the job because on a dirty ship, either she was on fuel or on crude, you have residuals which can contaminate your cargo. You have a very beautiful cargo of 0.5 sulfur. You put it on a ship which has been trading on fuel oil, but with 3.5% sulfur. The residual of the previous cargo can contaminate your cargo. A way of avoiding that, I'm talking from a theoretical point of view, but every time I put that question to traders, I have the same answer. To avoid that, either you use new buildings which have not been trading at all, or you are taking ships with clean history which are not going to put your cargo at risk.
We expect that on the front end of this process, which I repeat, should in theory happen during October, we expect an increase of demand substantially from that side. The middle distillate will move in, but the middle distillate from my point of view will move in after January, because the middle distillate will move on top of the real demand from shippers.
Shipowners are going to demand Middle East rates mostly after when the law comes in force, basically, which is January 1st. As far as the market today, I can say that it did improve as far as spot rates much more than what it was before. Do not expect from the spot anything new. What we are doing is we are improving our average rate using time charter, more or less long, but anyhow, we are paying by far more than the spot. Today the situation is still there. Of course, as not only us, but the entire industry are saying that the game changer is going to happen on the last quarter. The third question, I leave it to my CFO.
Regarding our financial costs, as we covered in the presentation, we don't have many vessels to refinance in 2020, only four, for a total balloon of around $11 million, which have to be refinanced. We don't expect our financial costs to change significantly over the next two years. The new facilities we will be renegotiating, there are changes ongoing now to the banking landscape, to banking regulations as Basel IV. There is a risk that they could be marginally more expensive than what we have paid historically. In particular, the Glenda International Shipping vessels, they have benefited from very attractive financing terms because they were paying a margin of 1% only on their loans. When these are refinanced, it will most likely be more expensive than that, it will certainly be more expensive.
We believe that by when we need to approach the banks for this refinancing, we will be in an even stronger position than we are now and that also the risk appetite of banks goes through cycles, and so we do expect we are going to achieve attractive terms. We always receive strong support from our banks, even in difficult times, and in the good times that we are going to be facing over the next two years, I don't see that changing. I think that our financing costs should not change significantly over the next two years.
Okay. Thank you. Just a follow-up on the IMO 2020. Do you see the risk of a delay in the implementation as of today?
Delay on the implementation? No. We are doing that through various associations. We are asking to Port State Controls who is going to be our police force, taking care of controlling the ships and the enforcement of the rule. We are asking to have a certain degree of flexibility, at least on the first quarter of the year, because there are going to be problems. It's not because the law is not going to be implemented. We are probably going to face some technical and operational problems. Certainly, somebody is going to be late in the cleanup of a ship. Can be anything. What we are really asking there, and we are asking this to IMO to do it through IMO, which basically is the United Nations agency for this, to give us a certain level of flexibility. This is very, how they say it's very subjective.
It's not ruled. It's not written. You can end up with a very severe port state control as you can come up with a very flexible one. If you have a problem, you can end up in different ways. On the implementation itself, there are no delays.
Thank you very much.
The next question is from Daniela Librandi of Mainfirst. Please go ahead. Mr. Librandi, your line is open. Is your telephone on mute? As a reminder, if you wish to register for a question, please press star and one on your telephone. Once again, if you wish to ask a question, please press star and one on your telephone. The next question is from Daniela Librandi. Please go ahead. Mr. Librandi, your line is open. For any further questions, please press star and one on your telephone. For questions, please press star and one on your telephone. Gentlemen, there are no more questions registered at this time. I'll turn the floor back to you for your closing remarks.
No. We have no already more remarks. If this is the end, we thank everybody for being with us today, and I hope that our answers have been more than satisfactory. Thank you very much, and bye-bye.
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