Welcome to today's Pacific Basin 2024 Interim Results Announcement, the conference call. I'm pleased to present Chief Executive Officer Mr. Martin Fruergaard 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. Fruergaard, please begin.
Thank you very much. So welcome, ladies and gentlemen, and thank you for attending Pacific Basin's 2024 Interim Results Earnings Call. My name is Martin Fruergaard, 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 and a net profit of $58 million, with an EBITDA of $158 million. This resulted in a 6% annualized return on equity, with basic earnings per share of HK$0.087. Our large core business generated $77 million before overheads, with our Handysize vessels contributing $41 million and our Supramax vessels contributing $36 million.
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 $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 HK$0.041 per share, amounting to $28 million, which represents 50% of our net profit for the period, excluding vessels' disposal gains. Please turn to slide 4.
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 in value-adding and countercyclical 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 trade rates for the Baltic Exchange Handysize Index and the Baltic Exchange Supramax Index were 10,970 and 13,280 net per day, respectively.
Higher market trade 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 newbuilding 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. These disruptions led to an unusually 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 heights 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 6. Which is a decrease of 9% and flat compared to the first half of 2023. For the third quarter of 2024, we have covered 87% and 98% of our committed vessel days on our Handysize and Supramax vessels at $13,750 and $13,440 net per day, respectively. We have covered 60% and 82% of our Handysize and Supramax vessel days for the second half of 2024 at $12,670 and $12,640 per day, respectively. While our Supramax and Ultramax cover for the remainder of the year, we limit our potential upside if market trade 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 Handysize vessels. Current values of scrubber benefits are approximately $30 and $250 per day across our core Handysize and Supramax 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 for Handysize and Supramax vessels, respectively, indicating stability in the market going forward. Please turn to slide seven. In the first half of 2024, we outperformed the BHSI and BSI on both our Handysize and Supramax vessels by $840 per day and $410 per day, respectively. However, our Supramax outperformance was affected by the increased costs associated with chartering short-term core vessels in the Pacific. This was necessary due to the high near-term cargo cover.
We had anticipated this high near-term cargo cover would benefit our outperformance provided the market followed historical seasonal trends. Our customer and cargo-focused business model requires us to take in short-term chartered 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 lag 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 Handysize and Supramax vessels, which have contributed with $30 and $720 per day, respectively, to our outperformance 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 outperformance on our Supramax fleet. Please turn to slide 8. Our Handysize 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 9.
Our Supermax and Handysize owned vessels' depreciation costs increased mainly due to higher dry docking costs and investment in fuel efficiency technology, including silicon and anti-fouling paints. Our blended Supermax costs remain cost competitive, and we are scheduled to redeliver five 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 redelivered 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 TC earnings, both our underlying profit and EBITDA have declined. This decline is primarily due to a significant increase in chartered vessel costs, along with higher expenses related to bunkers, port disbursements, and other works 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 write-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 chartered hire payments. This compares with $150 million in the first half of 2023. We had $8 million in proceeds from the sale of one smaller Handysize 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 dockings 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 HKD 0.057 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. However, only $14 million 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, 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 of cash and deposits.
Our net borrowings are unchanged at 2% of our own vessel book's net book value, and we currently have 61 on-mortgage vessels as of 30th June. We continue to maintain optionality in our long-term chartered 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, excluding vessel 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-over-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, which are mainly carried in Capesize 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-over-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-over-year, supporting ton-mile demand, while imports from the United States decreased by 18% year-over-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 levels 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 newbuilding orders for Handysize and Supramax vessels. This decrease is primarily attributed to rising newbuilding 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 14% of the Handysize fleet and 11% of the Supramax 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 remains on growing our Supramax and Ultramax fleet while replacing our Handysize 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 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 Handysize, 1 Supramax, and 1 Ultramax vessels, all at attractive prices. Over the same period, we have purchased 20 modern second-hand vessels comprising 6 Handysize and 14 Supramax-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 Handysize 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 showcase 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 markets 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 Handysize newbuildings, 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 Supramax vessel built in 2016, with delivery in the second half of 2024. This option highlights 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-focused approach, will necessitate short-term charter to complement our own long-term charter fleet, which over the period were higher cost than 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 vessel ordering and broad-based demand for the commodities we ship. We are optimistic about the industry's future. This optimism is buoyed by promising future contract rates 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 dry bulk loadings, fleet inefficiencies, and ton-mile demand due to the limited transit of dry bulk vessels through 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 Shawn Jin .
Thanks. Hi, Martin. Hi, Michael. I have three questions here. The first question, I think earlier you mentioned dry bulk loadings. You expect them to increase in the second half of 2024. Do you mind if you share which specific commodity types that we actually expect sequential pickup in demand in the 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 mind if you share a little bit about any color to why we think scrapping will see a more material pickup during this timeframe and not maybe from 2025 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 Maersk, pivoting back to LNG as a 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, we are actually entering into the grain season from the northern hemisphere, starting in the Atlantic. So the U.S. and Europe, Ukraine, and other places will have the harvest coming out. 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 the 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, 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 come into play. So when you come closer to 2030, I think it will be very, 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 age, 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 heavy and supers, you can see that one-third of the ships were built within four years from 2009 to 2012. And of course, by 2030, then they will, 2029, they will start becoming 20 years old, which is a little bit of a date in our market.
Not all our customers want to take ships that are older than 20. Not all these ships are built at quality yards. The speed consumption efficiency is not very good on these ships either. We also foresee that something will happen at that time. The last question on dual fuel, I think first of all, I will 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 2 years with our Japanese partners. I think our conclusion is there will be a need for all these fuels.
But when you look at our smaller-sized 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 it. So in the short term, it probably would make sense for people with big ships to put LNG on them. 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-sized 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.
I think maybe I.
Yes, thanks, Martin. Maybe I can just follow up one quick question on scrapping and the timeline 2030. Given we're seeing a lot more stringent regulation, EU ETS, FuelEU Maritime regulation soon as well. Do you mind if you could share, is there any potential enforcement penalties in the event of non-compliance 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 FuelEU coming in. And both of those come with, you can call it a penalty or a tax. If you don't comply with FuelEU, 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 fee or tax or whatever you will call on the CO2 in it. And it will be very interesting 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 go there. So the rules have an impact already. But for the scrapping, 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.
That will take a little bit of time, but eventually that will come.
Okay, sure. Thank you. Thank you, Martin.
Thank you.
Our next question comes from Nathan Gee. If you can unmute yourself and ask your question.
Hello? Hello?
Hi. Our next question comes from Andrew Lee. If you could unmute yourself and ask your question.
Hey. Hi. Hi. Can you hear me?
Yes.
Yes. Hello, Andrew. Okay. Okay. Hi. Yeah. So I have a few questions, right? My first question is, if I look at the slides you have on supply 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 the 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 exercised about $14 million.
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 demand, 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 last Monday, there's always something happening in the market. But fundamentally, when we look at it, we see an upside in the demand picture. And it's actually 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 the outlook going forward. And whether it's long and short, we can discuss, I guess, a lot of 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 also, I think fundamentally, when we look at the age profile of the fleet, and 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, yeah, 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? Yeah. 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 will 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 shares. So I don't think that's the way. And I think it's also important to say that we are not, obviously, 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.
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 that in our toolbox as well. Besides the dividend, we can also do the share buybacks. Of course, very interesting process also for us.
Yeah. 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 NAV, 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.
Yeah.
$1.74 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, our earnings, 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 these ships at these high prices.
We think there's some strength in our business model showing the value of the own fleet. That's why we have this disclosure. We have really benefited from the increase in asset prices.
Yeah. I think it's fair. We also said that we have declared an option of 58,000 Supermax for delivery. One of the touch-outer ships we had an option. We have declared it. We pay $18 million for the ship. And if you compare that to what the market, what the last done in the market, and this is not for a Japanese build like ours, it's about, what's it, $28-$29 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 so that 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 seemed 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, 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 moved into the summer period, we normally have a reduction in rates as well. And that has also not happened. And the market has increased a little bit or 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're actually rightly saying, is that if you look at our Supramax 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. The challenge we got into was that also what happened due to this disruption that the Red Sea got closed is that we actually this year had, in the first half, we had a 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.
A big chunk of our cover is actually in the Pacific, in it. 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 rates 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 outperformance on the Supermax fleet. I hope that makes sense in it. But that's the situation. That situation has now changed. So 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.
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 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 supers are 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 handy 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.
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 if we look at our earnings, it's not the handies are actually doing quite well compared to the indexes. And the supers 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 for the chartering cost question, is that as you just mentioned about the changes or the 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 dry bulk. It seems that it's quite low compared with the other ship type. So what takes you guys to postpone the ordering for the dry bulk replacement or even for upgrading for our fleet?
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 had a little bit too much cover. And of course, we have to look ahead, and we have to look into 2025. Our cover for 2025 is, sorry, it's 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, if these disruptors persist, will we also next year not have these seasonality changes of the market? So 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 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 you're probably running a little bit after we're probably running a little bit after the market in it. 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 on 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 and speed on consumption, it's a high price you have to pay. 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. When you come into 2025, 2026, sorry, 2035, 2036, 2037, the rules will actually make it a little bit more difficult to trade this ship. When you look at the price of a modern secondhand, actually a newbuilding 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. Of course, 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 environment. 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?
Yeah, yeah, sure. Just one follow-up is that at what point of time you are expecting such a new ship ordering will come into place? It means that there will be more and more dry bulk orderings at what time you are expecting? Like five years later or a few 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, 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 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 until the point where it's very transparent that the fuel is available and available in a scale that makes sense of it. Then until that point, I think it will still be some of us, 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 going to 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 will be allowed to run those on normal fuels.
There has to be a transition at a certain time.
Okay, thank you, Martin.
Our next question is from Eagle. If you could unmute your microphone and ask your question.
Hi, Martin. Michael, can you hear me?
Can you hear me? Yes, yes.
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. 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 handies, 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. That's all for my questions.
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 covered 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 accurate reflection of the total long-term chartered?
Maybe you could give a little bit of guidance in terms of based on the existing fleet and also the long-term deliveries, new builds, etc., 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. Yeah, that's a good question. I think the FFA gives you an indication of where, when you look at 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 handies, the liquidity of the FFAs is not so fixed to make it a sort of a real indicator of where things are going. But it does give sort of 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 our customers are and how the market is actually viewing the future in it. With 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 don't know if that confuses a little bit, but we still have five ships. Those we took in 2022 that is actually ending now. And the last ship is delivered, redelivered 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 provide 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 it, yeah, that's a good question. I think it's going to be depends, of course, what happens and 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 control ships that we had in the fleet already in operation. 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 margin is going to be better on that part. But for the core fleet, as I think we have shown you what new buildings we have coming.
Of course, we have some ships that also come off charter, and especially the $5,100, if you look at the average cost on the Ultramax Supramax, there's 5 ships coming off there. They will actually reduce the average cost of our Supramax fleet. So we have to get rid of those. And they might be replaced by some purchase options and other things we do.
Okay, thank you. No more questions from me.
I'm sure you're just as confused now as you were before, Andrew. 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 if I don't have any more questions. Thank you.
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 full-year profit. 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, a decision of the board 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 the rest of the year is going. We have basically no debt, and we are generating quite good cash because our cash break-even is $5,000. 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.
Clear. Thank you.
I don't know if it's clear, but it's thank you.
As there are no further questions, we will now begin closing remarks. Please go ahead, Mr. Martin Frogaard.
Yeah, 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 Budd from our Investor Relations Department. Thank you and goodbye.