Good afternoon. This is the Costco Conference operator. Welcome, and thank you for joining the Dannen International Shipping Second Quarter and 5th Half 2019 Results Conference Call. After the presentation, there will be an opportunity to ask questions. At this time, I would like to turn the conference over to Mr.
Paulo Garcia. 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, in March, last March, we had an extraordinary general meeting, which authorized the board to increase the share capital.
The operation ended up in April 16, with 97.3 percent of the total number of rights exercise. And on April 24, We unsubscribed future remaining have been sold on private placements. And resulting in a 100 percent subscription to a dollar equivalent of $44,000,000. But this posted on the first half of twenty nineteen, the last of $24,300,000. If we exclude nonrecurring items, and the effects of IFRS 16 from the first half of twenty nineteen The net result would have amounted to 9,200,000 loss in the first half.
Compared with 23.6 of the previous year. Talking about liquidity, we generated cash around $30,300,000 in liquidity through a series of sale and leasebacks. And we, our value stack, including a Joltko, which is we have been basically the first one, which is a Japanese tax scheme. Also, while a joint venture that we had with ESL, tobacco tanker, finalized the sale of a 2014 built and generating 12.8 in net cash proceeds. For the joint venture, of course.
In June or in June last June, GM Shipping, I never tried that. We've missed Suffishi, agreed the sale of the remaining vessel, generating approximately $13,200,000 in net cash proceeds. And in August, of course, now here we are on the second half of the year, but another ship has been agreed to be sale. It's been basically sold. Which is with Blanco, Blender, and with, a process generate 8.2, and we expect the delivery of Israel to happen at the end of this month.
Talking about the application of the ISRS 16 from January 2019 is at a negative effect of 4.3% on this ratio network to total assets. This is based on the company's consolidated financial as for the 1st March 2019. To what's exactly the impact of this new accounting standard, All banks agreed to amend the financial covenants on loans guaranteed by these is a reduction of a minimum threshold for lease ratio to 25% from January 2019 when previously was 35%. The daily spot rate that's used by this in the first half has been of 13,326 versus a spot rate of 11,536 on the first half of twenty eighteen. 47% of the EIS and subscriber days were covered through their charter contracts, at the daily average rate at 14,496.
This achieved a total daily average rate of $13,879 on the first half of twenty nineteen. This against 12,625 on the first half of twenty eighteen. I leave the the floor to Carlos Balestra, our CFO. For the overview and key financials. I will be back to you with the market.
Thank you.
Thank you. Good afternoon to everyone. So, okay. So just a quick update on our fleet composition. We we are, as you know, mainly focus on the MR segment.
We have been growing, however, on the other one segment, and we also have a presence on the on on the Handysize segment. Overall, we, at the 30th of June, we were controlling, almost 60 vessels. And, have reached 36 and a half miles, 5 allowance and 8 handy. One and a one still to be delivered as we will see on the following page. And, we have a young fleet an average age of six point four years.
And, mostly IMO class. It's 84% IMO class. So, our vessels, we underwent an important new building program where we ordered 22 vessels, So we have a very modern fleet, eco design than most of our vessels And, we we 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, and, and we have invested, as I mentioned, we had a very important in building program contract price, the investments were around SEK 750,000,000. Then on that, you have to add extras, new building supervision for supply.
So the overall investment for the new building was significantly higher, since 2012, have invested $890,000,000. So there's only now, regarding new buildings, $31,000,000 left to be invested. Of which, 11,000,000 will have to be funded with our own, funds and the rest we've committed bank debt. So 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.
And as we will later, the vessel had already been employed through a very, profitable contract for us. So 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. So we have to to invest for such activities is usually between $1,000,000 $4,000,000.
And the last big year we had was 2015, and it's not a coincidence coincidence that 2020 is a big year, again, because it has to have to stop every 5 years for special surveys. So 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, of the other vessels on our fleet which were supposed to, which are supposed to stop for drydock in 2020. I also remind you that in 2020, on a number of these assets, we would we are going to have to install water ballast tanks 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 that repayments are falling next year, and that will have a big impact on our cash breakeven that from next year will be pretty much aligned with our P and L breakeven.
We have one facility with banking fees, 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. Also, I would like to highlight the, the, the, the gray bar, indicates the balloon repayments, which we assume are going to be refinanced seen. There's not too much to refinance in 2020. There are only 4 vessels that are in JV with Glencore in Glenda International Shipping for which, balloon repayments are due in 2020.
So, 2021 is a more important year in terms of financing. So we have a very low refinancing, risk in 2020. Going on to the following page, we, we have here a slide just to, highlight the where we stand relative to the purchase options on the vessels that we have repurchased sale 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.
Purchase options are a bit more disciplined in time. But on the vessels, we pursued sale leasebacks 4 out of the 9 vessels 8, on 8 of this, of these, today, the the per the first purchase options that you're at me in the money. So 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. So just to give a rough indication, of whether these, of are already exercisable. Also important to highlight that 4 of these options are exercisable in 2019.
I know, this 4th year, that's, 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 manage to negotiate long term financing also. They are the, in all cases, except one that the balloon, let's say that the purchase obligation is only 10 years after the, the the the anniversary at the 10th anniversary of the deal. So it is very long term money much lower than what can usually be obtained from banks today, which is usually 5 to 7 years money. So but 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. It's, eventually, it's not our number one priority right now. On the following page, I show, the, the the fixtures, recent fixtures. This is the slide that we had already in Q1, and we have a stated it. We ended in Q1, we mentioned that, the period 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, a very strong expectations by market players of a much better market going forward. In particular, I'd like to highlight the 1 MR2 echo vessel that fixed for 3 years at 16, 7 50. And also, 3 LR1s, which were fixed for 1 year at $19,000 per day. And as I mentioned previously, also the vessel to be delivered with scrubber has been fixed on a TC.
The charter 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. So we are very happy with that deal. It's a 2 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, which show, the historical evolution since Q1 'eighteen And then we show going forward how this, coverage rates and the percentage coverage changes based on contracts already signed. So the positive aspect we want to highlight here is that whilst from Q1 'eighteen, the average rates have been decreasing gradually from $15,000 to $14,400,000 in Q2 twenty nineteen. So this quarter that we are presenting right now, from now onwards, so from Q3 2019, the average rates are going to be increasing. So this will provide a very positive tailwind to our results.
And already by Q4 'nineteen, the average rate will be 15,000 100, which is a profitable average rate. And we have 54% of our fleet cover at, such rate. And this rate reaches 16.6% in Q4 'twenty and then 16.7% in 2021. And, on the bottom chart, we show also how the percentage of our fleet, which is echoed. This is based on all that also PC and vessels is increasing.
This of course also implies that our earnings potential of our are increasing today. Eco vessels are earning echo MRs are earning a premium of around $2000 per day, relative to conventional MRs. So that should also be one of the drivers of our future performance. 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 TCN.
But on the right hand side, we see on the chart that actually the out spot exposure increases from H2 'nineteen to, 2021. An average of 22.5 vessels to 34 vessels. So also does our sensitivity for every $1000 per day change in the TC equivalent rate, which is of only $4,000,000 in H2 2019, but rises to almost 10 in 20.25.5 2021. On the following page, we show that we have worked not only on our top line, but we have also worked by 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 direct effects, of course, our G And A.
So we have obtained significant savings on our direct operating costs. Which have declined from 7500, or in H1 18 to 6800 in H1 19. But also, Baby G And A has a 400 from $810 to $662. So an 18% decrease. And, this is, to a certain extent, also attributable to currency effects.
The strong dollar has helps us, especially regarding the G And A, but also helps us to a certain extent regarding the daily operating costs. But in particular regarding the G And A, 75 percent of our G And A costs are not U. S. Dollar costs. Most of them, of these non U.
S. Dollar costs are euros, then the second most important currency for us is GDP and then the Singapore dollars. So the very strong dollar helped us in this respect, but 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 we do. On the following page, we show, our industrial 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% as the 30th June 2019. 66% is pretty much aligned with the initial advance ratios on our on our new buildings.
So given we have quite a young fleet and average ages of 6.4 years as I was mentioning, this is a much more, acceptable level. And, hopefully, of course, we have the a positive results that we expect to generate going forward. This ratio should decline further. We have pursued, as I mentioned, a number of CLNC and sale leasebacks, sale leasebacks in the past few years, 9 vessels. But, we have now, more recently focused mostly on straight sales of vessels.
In particular vessels, all the vessels, which we have in the we had in JV with some of our partners. So we We sold 1 of the vessels, which was on the and delivered to the buyers, one of the vessels, which was in the interview with the with Mitsubishi, And another vessel, we already signed the MOA and it's going to be delivered by the end of September, to its buyers and also on the joint venture with Glencoe. 1 vessel, we signed an MOA 4, and we expect to deliver it to its buyers by the end of September. And there's another vessel which we classified as held for sale also in our financials as of 30th June because we intend to sell. Possibly before the end of the year.
So, also this straight sales will be further strengthening our balance sheet. Going forward. On the following page, we show our key, the key line items of our P and L, the bottom line for the first half, is not, brilliant, of course, a $24,000,000 loss. But if we analyze the results more carefully and we exclude non recurring items, the picture looks quite different. So whilst the bottom line for the first half, as I mentioned, is minus $24,000,000, relative to a loss of $20,000,000 in the first half twenty eighteen, excluding nonrecurring items, the loss in the first half nineteen is of $9,000,000 relative to $24,000,000 in the first half twenty eighteen.
The main item nonrecurring item is the asset impairment on the two vessels held for sale, that I was just mentioning, on the, which we have in JV with flanker. So Then there are also some financial items relating to mark to market, on the interest rate swaps. And, also, a loss of 0.9000000 on disposal of vessels and a, FIFRS 16 effect of almost 1,000,000 in the first half of this year. Going on to the following page, we, we take a closer look at the results of our vessels operating, with a detail of both the results of devices operating on the spot market and of the average PC rates, and the evolution since the first quarter of 2018. So comparing the the first half of 'nineteen was the first half of 'eighteen.
We see that there was an improvement by marked improvement, the average rate in the first half 'eighteen was 11.5. And in the first half 'nineteen, it's 13.3. So 1800 dollars 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. So it's an even more pronounced improvement of $2700 per day in the second quarter of 2019.
2nd quarter 2019 was negatively affected, on a relative basis, by the lower average rate, as we mentioned, previously on the TC contract, which was of only 14,400 wells in the second quarter 2018. The, the average rate of the fixed contract was 14,900. But this is, as I mentioned previously, going 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 Clarkson's average. So there is an outperformance.
If we look at all our MRs on the spot market, around 10% relative to the Clarkson average. But if we look only at our Eco MRs, then we see that the result is 155, which is a much more attractive figure, relative to 12,500 for the class average on our performance of 24%. If we include also the TC contracts, then, our MRs earned both conventional and anecho blended spot NTC $14,000 per day. I pass it on to Paulo again for an overview of the market.
Well, basically, we are if we look at the historical MRTC rates and spot rates for TC rates, we mean 1 year time charter. And we look at another asset values. Looking at the TCE rates and spot rates, Today, we are 52% on the TC rates and 73% on the spot rates below where they were when the market was at the peak. Now, which does not mean that, of course, things will go back very well, but historical in the market was there. So, potentially, it can go everywhere, but then they're also very close to it.
So There is a long way to go as you can see. Looking at values, we took your new building value and the second hand and normally is a five year old. And 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. So both in rates and charges, we have a lot of space.
We are improving, we are improving asset values. The bottom has been October 2006 see, and fixed van assets for younger vessels have been recovering. A five year old MR recovered 36 percent. And the time charter rates also grew about 22%. So This trend is physically there, you can see it.
The growth of demand has been of 3.6% over the last, 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 a year 2000, 25% of that oilseed or the trade where products today is grown up to 35%. So Today, more than 1 third of oil moves around the world are traumas and is, is growing with a person that is growing So I would say the results are tendency of using more product gutters than to those ships. We have the surge in refining volumes.
As they are all expected on the second half of this year. I would like to remember been one of the reason for the poor market of the first half of this year is that big part of the refineries, around the world, in a very heavy maintenance. Historically, I mean, historically, usually refiners, they do two times, maintenance period, one in, spring and 1 in fall. This year, due to incoming 2020. And so the need of a very big runs or needles distillate it looks like we 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 refiners have not been producing and the volumes the volumes in May, which were basically, and you can see on the top of the left, the volumes in May were under the volumes of last year, this even if we had the growth of the overall volumes. This is only due to refining maintenance. Network growth in refining capacity in 2019. I mean, it's never been registered a growth as big as is happening this year. We are talking about 2,700,000 barrels per day.
Most of his explanation is in Middle East and China. So, This means, well, this means that, the world, the consuming Western world needs a lot of a lot of products out of, out of the Far East and the Middle East and which increased top mile and consequently increase demand. And Here, again, we are talking about basically the landscape driving the demand. European refining capacity, you know, downward trend, we have to say that mostly of you, let's say, old generation of refineries are in Europe, Some of them did investments, some of them did some other ratings, but most of them did not. And the many of them, the even land locked are refiners which are internal supplied by pipeline.
Am the big producer of every fuel oil of every cell for fuel oil, which, as you know, is not going to be the maximum product in the future. So we probably are going to see also reduction of refinery capacity in Europe down here. If the oil price stays And this volume, it looks like it's just defined already. We are going to have an increase of exploration production activity. And, even We'll not expect as everybody knows because it's written everywhere, but the roof will come from all the countries, but non OPEC campus, and, I.
E, American cell and Brazilian production. I'd like to have a rapid growth of U. S. Cruise export will continue. The most of the logistic problem that U.
S. Was suffering. The bottleneck was in the pipeline. Capacity mostly and some on the terminal capacities. We are going to we are under let's say, solution.
I mean, we are a lot of pipeline capacity entering in service this year. And, so America will be in condition to export more crude mostly, we're supposed to, Asia. We should consider that America refiners are running at very high rates. Whatever is produced as oil on top of it, as to go basically on export. 2020, I think everybody knows what what is all about.
What we expect, but number 1, we expect, of course, the major demand of middle distillate. This due to the fact that in many situations, 305 would not be available. Sometime they give us deal 5 is in the end of supplier of not trust. As you know, supporters are very careful and extremely worried of the compatibility of the product. So Marine Gasoil is just to be a player in that case.
But I think as far as nothing else than a diesel for for the city. So it's middle distillate increase in demand Number 2, we have the fact that the 5 sulfur fuel, which start existing now, even exists yesterday, has to be distributed. So you have a totally new product, which is going to substitute most of the 3 to the $4,000,000 birthday market back end 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, storage space, pairs.
And of course, we are waiting at the last minute to do so. But this will demand a lot of dollars. And in the meantime, you still have the high sulfur fuel going on. I mean, still in production, will still be in production. So that high sulfur fuel and not founding space, physical space.
In the storage which will be switched to the low sulfur fuel should from, this is, of course, a theory does hypothesis, but I suppose it's logical. Well, far, this space work, you're floating storage. So I think we are going to see a good quantity of ships storing high sulfur fuel quite soon. So this is the reason why I'm a 2020 for quite a while will be a change. We have had, okay, the positive view of the most important brokers I leave it to you to leave it without meter reading.
I think it was self explanatory. And then we have a fleet growth. Fleet Brooks, which is, we are talking about 2.5% in 2019, and we are assuming 1.6 on 2020. So, I have also to add with a good level of satisfaction that our colleagues ship owners, we didn't arrive to the yards, at least for the moment, we did it in the past, but for a moment, we are staying quiet. So we don't see, an oversupply coming in somewhat.
There is also one reason for this. It is technological because to build the the share today considering that we have after 2020, we have 2030 and 2050 on CO2 emissions. Which are going to make 2020. I can tell you because they are by far more challenging. Today to order shape is really a question mark on what sort of proportion you are going to put on that chair?
Because certainly not for 2050, but 2030 is basically 10 years down a little. So you are at you are at 2 third of a commercial life over here. And you can easily end up with a new building down today, which will go out of, will be an opportunistic at that point. So the growth of the fleet is very limited. We still have delays.
We have some scrapping which will contribute, of course. At the, at the support of the market. I would say also We have more and more tonnage getting older than 15 years. I'm saying that because not because the fifteen year old chef is a problem. No way.
But it's very unlikely that the top charters, the the blue cheese are going to pick up six older than that age. They do it only with, with operators when with total suppliers. The limited newbuilding ore is also due to the fact that the, the value of a ten year old, sir, is by far more interesting than a new building value today compared to what you can do with on the market, I'll say that. So in fact, on the 10 year, shifts built in 2009 and 2010, we see that there are various, a lot more liquidity. And so the, interest, I would say, of the buyers are more concentrated on that.
Now it is the we see, expected demand for product cataract. So we're talking about two point 7% in 2019 and even 5% in 2020. This, anyhow, is a demandless Let's forget just another second, but they are by far higher than what we know the supply is because the supply is mean, this, the demand is theoretical, but the supply is concrete. So everybody's looking to be proven that for the second half of twenty nineteen. I'm sure I'm not the only one telling you this.
And then we think things are going at the end of the day is reflected in what Carlos was saying on the rates that we are achieving on the period. So as you see, more we do ahead and more we are increasing on the time charters, our fleet, we are, we are increasing our rates.
Yes. And this is, like, I also wanted to mention that on the paper Mike, if you look at the paper market on the tools, the C14, the rates in November, the December, January are extremely strong. So that is, for certain extent, also driving the time charter market, but, because a lot of the big trading houses, which are taking buses and time charter, they are done hedged 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. So they, they, the, that is, one of the strategies they are using and one of the reasons they are paying up and always more to take the vessels on PC.
Finally, we just want to, have a a quick look here at the historical NAV evolution, for our fleet. And, we see that the after bottoming in December seen at the NAV at $218,000,000. This has increased over the last two quarters from March to June, it increased from $230,000,000 to $285,000,000. This is despite the the losses we made in the period, and is attributable to the increase increase in the feed 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 increase 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 the discount of around 50% or even slightly more to this NAB. So it is 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.
Thank you for, for your attention for your time and, Please let me know. Please let us know if you have any questions.
We will now begin
you.
The first question is from Mattioboni of Kepler Cheuvreux. Please go ahead.
Good evening. I have, three questions. The first one is on the slide 17. The outperformance versus the reference market, in 2nd quarter was, 12% in the 1st quarter was much lower than that, 4%. Are there specific reasons for this improvement in the outperformance from the rates versus the market?
And, do we think is sustainable? 2nd question is on the slide 12, where we see that, the size of your fleet should decline over the next couple of years because, is going to significantly decrease basically to half from 16, 17 currently to 8 in 2021. What is your strategy as regard the time charter in fleet. So in other words, is it possible that you're going to sign in contracts as which condition is and so on. And then the last question is on the sale and leaseback.
We have continued to see, very recently, other sale and these back of a vessel, should we expect an interruption of that, particularly if the market should as a, basically, everybody expect should improve in the next
quarter. Thanks. Okay. So talking with the outperformance that you mentioned, I would say that the exception is not, this, this quarter's results, but it's the 1st quarter result. And, we usually do outperform the market more 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. So, as often happens, there was this underperformance in the Q1 was then there was a catch up effect in Q2. It's maybe we had a few vessels performing loan balance in Q1. And then in the start of Q2, they were very, they were positioned in good areas and they could, I achieve very attractive rates and that helped our performance in the second quarter.
So it was very hard to look at only 1 quarter. There's a lot of volatility and come to conclusions about our ability also to perform and to outperform the market. So 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 TCN and mostly relatively short on TCN going to be delivered 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 echo vessels So the percentage of echo vessels in our fleet is going to be rising.
And of course, we we might opportunistically, later on, not necessarily over the next 2 years. If there are the right conditions, we would reconsider they're taking vessels on short term TCN. We are probably not a skimmer on doing long term TCN deals as we were a few years ago, but short term TCMs, we can, we can and we would 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 to short term TCNs.
And on the sale leaseback, 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 service bags. That does not rule out to, you know, completely the fact that we might do one one other sale district, but not within our radar in our plans right now.
Thank you.
The next question is from Regide Bailisa of Equita SIM. Please go ahead.
Yes, good afternoon. Three questions for me. The first one on the IMO 2020. Generally speaking, when do you expect an inflation point also for the spot rates for the IMO effect? Second question, a usual question on the current trading.
Could you give us some indication about the trend in August September? What do you expect for Q3 and 2019 for the spot rates? And the last question on the financial charges have seen a strong decrease in interest rate. Could you elaborate on your cost of debt? How much you fixed or swapped and your expectation for, the financial charges and cost of that going forward.
Thank you.
Going to 2020, we let's say, it's consequence of various factors. And one of these factors is the distribution of the 5 sulfur fuel. Now with everybody we have been talking too, because unfortunately, this is in refiners, and it's not in Chipotle's end. And on this subject, they're all very speculative. Don't ask me why because I don't know, but it's not really big reason.
But from what we understand will start moving in October in a way of having everything distributed within December. They are, for the moment, as I said before, they are cleaning up the storage space, which was used for the ice maker before. Way to be prepared to receive and lose all for afterwards. So I think the movement on the market will start well. And we'll start from the dirty side, but we will be using most probably product carried to do a job because on a, on a 30 shift, either she was on fuel or on crude, you have residuals, which can contaminate your card.
So you have a very beautiful card of 5 south. You pull another set, which is being trading on fuel oil, but with 3.5% sulfur. The residual of the previous cargo can contaminate your car. So we are avoiding that. I'm talking from a theoretical point of view, but every time I put that question to traders, I the same answer.
To avoid like either you use new buildings, which are not being trading at all, or you are taking ships with clean history, which are not going to put your cargo at risk. So we expect that on the front end of this process, which I repeat should in theory, happened during October, we expect the increase of demand substantially from left side. Then the middle distillate will move in, but the middle distillate, from my point of view will move in after January because We need a listing that will move on the top, on top of the real demand from ship owners. And ship owners are going to demand middle distillates mostly after when the law comes before, basically, which is January 1st. As far as the the market today, I can't I can't say that it did improve as far as much more than what it was before.
So don't do not expect from the spot or anything new. What we are doing is we are improving our, our average rate using time charter was up more or less long, but anyhow, are paying by far more than the spot. So, today, the situation is, is still there. Of course, as not only asked, but I mean, the entire industry are saying that, The game changer is going to happen on the last quarter. For the third question, I'll leave it to my CFO.
Yeah. No. Regarding our financial costs, as we, covered in the presentation, we don't have and many vessels to refinance in 2020, only 4, and for a total balloon of around $11,000,000, which have to be refinanced. So we don't expect our financial costs to change significantly over the next 2 years. The new facilities, we will be renegotiating There are changes ongoing now to the banking landscape, to banking regulations, let's say, so forth.
So there is a risk paid historically, in particular, the Glenn International Shipping vessels, they have benefited from very attractive financing terms because they were playing and paying a margin of 1%. Only on their loans. So when these are refinanced, it will, will be more expensive than that. I mean, it will certainly be more expensive. And, we believe that by when we we need to approach the banks for this refinancing, we will be in, an even stronger position than we are now.
And, and that also the risk appetite of banks goes through cycles. And so we do expect we're 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 2 years, I don't see that changing. So, I think that our financing costs should not, should not change significantly over the next 2 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?
A delay on the implementation, no. What we are, this is, we are doing that through various association we are asking to postpaid controls who are going to, 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 glue is not going to be implemented. We are probably going to face some technical and operational problems.
We certainly, some of these going to be late in the cleanup of the ship. Can be anything. So, what we are really asking there, we are asking this to IMO to do it. Through IMOs, basically, is the United Nations agency for this to give us a certain level of flexibility. But this is very, I would say it.
I mean, it's very subjective. It's not it's not ruled. It's not written. I mean, it's You can end up with a very CV or forced air control as you can can end up with a very flexible one. And if you have a problem, we can end up in this on waste.
So on the implementation itself, there are no delays.
The next question is from Daniela Liberandia of MainFirst. Please go ahead. Mister Alexander, your line is open. Can you have telephone on mute? The next question is from Daniel Ali Brown.
Please go ahead. Mr. Alivan, your line is open. For questions, please pass Gentlemen, there are no more questions registered this time. I'll turn the floor back to you for your closing remarks.
We have no, no, really more remarks. If this is the end, then we thank everybody for being with us today. And I hope that our answer will be movements at this slide. So thank you very much and bye bye.
Ladies and gentlemen, thank you for joining the conference.