Earnings Call: Q3 2021

Oct 13, 2021

Welcome to today's Pacific Basin 20 21st Third Quarter Trading Update Call. I am pleased to present Chief Executive Officer, Mr. Martin Froegard for the first part of the call. All participants will be in listen only mode and afterwards there will be a question and answer session. Mr. Martin, please begin. Thank you. Yes, welcome ladies and gentlemen and thank you for attending Pacific Basins 2021 Q3 trading update call. As you know, my name is Martin Forgo. I'm CEO of the company and I'm joined by our CFO, Peter Schultz. Please turn to Slide 2. The drybulk freight market continued its strong upwards trend in the Q3. Handysize and Supramax monthly average market freight rates reached 13 years highs in September, driven by robust global demand for commodities and reducing fleet growth and that was aided by fleet inefficiencies. The upwards trend was briefly interrupted by the seasonal reduction in Australian grain export in July and also the impact of Hurricane Ida on the U. S. Grain export in September. Margin rates have continued to rise in October, although Supermax rates stabilized somewhat early in the month due to marginally increased tonnage availability in the Pacific and the recent National Day holiday in China. However, Supermax rates are again improving on increased Chinese demand for coal. Please see Slide 3. Our core business generated average Handysize and Supramax daily TC earnings of $24,350 $36,270 net per day in the Q3, representing our strongest quarterly TCE performance since 2,008. Our TCE improved with each month and the progressively stronger fixtures in the Q3 will obviously benefit our Q4 earnings. If you apply our September TCEs and other already published data to our model on Slide 18, you will see the model showing an underlying profit in the range of $90,000,000 to $92,000,000 for September. We have already covered most of October at $29,070 $40,200 net per day for Handysize and Supramax, respectively. And with over 30% of our core vessel stays still uncovered in the Q4 overall, mainly in December, we have significant opportunity to add cargo fixtures to our book at what we expect will be strong market spot rates. Please turn to Slide 4. Due to the sharp market rise and the 1 to 3 month lag between fixing and executing voyages, our relative performance has lagged the spot market for most of 2021. Our Supermaxes have now caught up and are again outperforming the BSI index supported partly by a current scrubber benefit of around $800 per day. Our heavy size will need more time to catch up and that's for a couple of reasons. First, the BHSI rose more sharply than the BSI during the period and also we have a higher proportion of lower paying backhaul cover in our heavy sized cargo book secured in earlier weaker markets. Our operating activity margin was has increased significantly partly due to our decision to take in tonnage early in the market recovery, especially for the Supamaxes. Please turn to Slide 5. Global miner bulk loadings in the quarter grew about 13% compared to the same period last year, which is consistent with the increased level of trade and inquiries we have observed in the recent months. Demand for construction material was the main driver, in particular demand for cement and clinker, steel aggregates and forest products. After a strong first half year for the global grain trade, grain loading reduced in the Q3 due to hurricane Ida, delaying the start of the U. S. Grain export season. What the graph does not show is that U. S. Grain exports are now picking up, which we expect will support drybulk demand in the Q4. Coal volumes in 2021 are significantly increased compared to last year when coal exports were hard hit by lockdowns and coal demand is now additionally supported by power shortage in key countries including China and India and a short supply of gas ahead of the northern hemisphere heating season. Growth in iron ore trade was limited by cargo availability in Brazil and Australia. Curves on Chinese steel production have caused iron ore prices to fall, but the Kaesai's freight market has not been impacted and has instead increased and instead strengthened to levels last seen in 2,009, supported by renewed strong Chinese demand for iron ore at today's significantly lower oil prices. Please turn to Slide 6. Our segments are also benefiting marginally from exceptionally strong container rates, which are driving some commodities and even containers to be shipped in geared bulkers and also driving multipurpose vessels away from bulk cargoes in favor of containers. In addition, the strain of increased cargo throughput combined with COVID related protocols in ports is resulting in congestions in many ports around the world, particularly in China. This has further constrained the availability of tonnage to meet global demand for drybulk shipping. Looking ahead, we expect demand, especially from minorboils, grains and heating coal in the Q4 and going into 2022 to be broad based and supported by healthy economic growth and continued stimulus in many countries. The recent uncertainty over China's real estate market, steel production curves and energy curves have caused jitters in the financial market, but we have not yet observed any connected impact on drybulk demand other than reduced iron ore prices. Nevertheless, we will of course monitor development in China very closely. With a historical low order book and IMO rules forcing slower operating speed from 2023, the long term outlook for drybulk shipping remains positive. Please turn to Slide 7. Dryboil net fleet growth has moderated further and is forecasted to grow 3.4% year on year in 2021 and actually less than 2% in 2022 because of the slower pace of newbuilding deliveries and despite minimal scrappings. Please turn to Slide 8. The total dry bulk order book has reduced has further reduced to 6.5% of the existing fleet, which is the smallest it has been in decades and significantly more favorable than other shipping segments. The Henry Size and Supermax order book is even lower at only 5.1%. We are optimistic that drybulk supply will remain under control. Despite some new ordering in the very strong markets, we believe the drybulk order book will remain at historical low levels until 0 emission ready ships becomes commercially viable. We do expect this to take several years still, although we strongly support initiatives that seek to accelerate the transition to 0 emission shipping and make 0 emission ready vessels the default choice by 2,030. See Slide 9. Plagman's benchmark 5 year old handysize vessels have increased around 70% since start of the year and actually over 80% for the Supramaxes and are supported by the firmer freight rates and of course the increased vessel sales activity. Newbuilding prices increased around 30% and are still well above secondhand prices and shipyards are filling up with orders for non dry bulk ship types, which limits scope for new ship ordering in the sector before 2024. We continue our strategy to grow our own fleet of Supermax ships by acquiring high quality, modern secondhand vessels and to sell our older and less efficient heavy sized ships and replace them with younger and larger vessels. This is resulting in an even more efficient fleet with greater longevity and we are now benefiting from the larger earning upside that these bigger ships enjoy in a strong market. We have taken delivery of 5 modern sorry, we are taking delivery of 5 modern secondhand Ultramax ships and 5 Handysize ships in the year to date and one further Ultramax is expected to join our fleet in the Q4. We are likely to slow our vessel purchasing as asset prices approach historical high levels. We will continue to look to sell some of our smaller older heavy sized ships, thereby crystallizing value and further optimizing our fleet to more easily meet tightening environmental regulations. Please turn to Slide 10. We have a program of carbon intensity reduction initiatives designed to ensure our existing ships can continue to trade for the foreseeable future and be in compliance with IMO's new EEXI and CII carbon deficiency rules coming in 2023 beyond. If the carbon intensity indicator were now in force, the vast majority of our vessels would have a C rating or higher. A few ships would rate lower than C and that's actually mainly for operational reasons. That could be dry docks, port congestion, or short voyages with long loading and discharging time off. It is not actually because of any significant technical inefficiencies. In 2021, the global FEED's carbon deficiency has reduced somewhat as ships have accelerated to particular to practically full speed to meet cargo demand despite higher fuel prices. That will actually be reversed in 2023, where the global fleet slows down to comply with IMO's new CII rules. However, we at Pacific Basin remain largely on course to meet our current IMO aligned target of a 40% improvement in carbon intensity by 2,030 and our existing fleet will meet IMO requirements through continuously fleet renewal, energy efficient operation measures and investment in fuel saving technologies. We have a dedicated optimization team that will increasingly rely on digitization for better efficiency decisions by always looking for collaborative solutions with stakeholders such as just in time arrivals, etcetera. With an eye on the longer term goal of complete decarbonization, entirely new ship designs with 0 emission propulsion systems are required. The Seabee Basin supports the alignment of the shipping with the Paris agreement temperature goal and is committed to owning and operating only 0 emission vessels by 2,050. So we will not order old technology newbuildings, we will only order newbuildings vessels when 0 emission ready vessels are available and commercially viable in our segment and appropriate global refueling infrastructure is being built out globally. Please turn to Slide 11. Our strategic priorities remain unchanged. We want to stay specialized in minor bulk and the ship types that we know so well and stick to our cargo focused integrated owner and operator business model. We currently own 120 Handysize and Supermax ships and including charter ships, we have over 260 ships overall. We continue our fleet growth and renewal strategy and we'll continue to look to sell some of our smaller older handysize ships as secondhand prices are strong, thereby crystallizing value and further optimizing our fleet to more easily meet tightening environmental regulations. We are also making good progress on other special focus areas. We are supporting our team to ensure we continue to deliver a quality service to our customers, while maximizing our earnings in the current strong market. We're doing our utmost to ensure our crews' well-being and that our vessel continue to operate safely and efficiently despite restrictions that continue to make crew changes and repatriation very challenging during the ongoing pandemic. We are enhancing our focus on the environmental performance optimization and we are also finding ways to further leverage the increasing amount of in house data to improve our operational efficiency, cost and environmental performance and ultimately to deliver additional value to our customers. Please turn to Slide 12. So to recap, the drybulk demand outlook is positive for the rest of this year and also for 2022 and beyond, and we are optimistic that supply will remain under control with the order book remaining at historical low levels. With drybulk ships now largely operating at full speed, supply cannot be further increased through speed and IMO and EU fuel efficiency rules will force slower speed from 2023, which will reduce supply giving further support to the drybulk freight market in the longer term. Potential threats to the drybulk market include excessive new ship ordering and electricity curves and housing construction slowdown in China, both of which we will continue to monitor very closely. Please bear in mind that in minor bulk, China is not the dominant market with only 11% of global head size discharge activity being in China. And all that you can see on Slide 30 in the appendix. Thanks to a much larger core fleet with substantially fixed costs and increasing supermax proportion, we have significant operational leverage with which to benefit from the current strong freight market. We have an excellent fleet and team with which to meet the capitalization rules, while continuing to provide a seamless and world class service to our customers and we are committed to operate to owning and operating only 0 emission vessels by 2,050. And finally, our current attractive earnings, high return on equity and strong cash accumulation will enable us to return capital to our shareholders. And then finally, before we move on to the Q and A, I also just want to acknowledge our Pacific basin colleagues at sea. The safety and well-being of our ship crew is our key concern, especially during the pandemic, when restrictions around the world continue to complicate crew change and repatriation, often keeping our seafarers at sea for longer than usual. Despite the hardship they face, our Seagull and colleagues continue to demonstrate great loyalty, professionalism and attention to safety operating practices, resulting in extremely good performance of our ships on the voyages and our best ever safety KPIs in the year to date. We are actually very grateful for their remarkable support and it's important to remind everyone how vital their contribution is to keeping the global economy going. Yes. So ladies and gentlemen, that concludes our trading update presentations. Lines will now be open for any questions you may have. And operator, over to you. We will now begin our question and answer session. You. For the first question, we have Mr. Andrew Lee from Jefferies. Your question please. Yes. Hi. Thank you very much for your time. I'd like to say that in the presentation Slides 18 and 19 is actually very useful, right? So that's very good. So my first question is on the fleet replacement, right? You give a little bit of sense in terms of what is the strategy? Is it a buy and then sell? Is it a sell and then buy? Or is it like if I sell but I can't buy a new vessel, would I sell back? So would I do a sale and leaseback on those vessels, right? And sticking with the same point is how many vessels have you identified which are smaller and over 20 years that have hit that level where you're looking to sell? Second question is on the forward coverage ratio forward coverage, right, on the Q4. Could you give me a little bit of that in terms of why is the supermax rate for the Q4 lower than the Q3? And also, do you have any guidance you can give us in terms of what is the forward coverage ratio and the rates for next year as well? And then the final question I have is on long term contracts, right? I think last time we spoke, there was a little bit of the last time we spoke, I think there wasn't that many customers who were trying to lock in long term contracts. They were adopting a let's wait and see approach. Have you seen a shift from these customers who are now willing to lock in more of these long term contracts? Thank you. Yes. Thank you very much, Andrew, for all these questions. Let's see if I can remember them all. But let's start with the first one, which I guess was the sale versus leaseback part of our older ships. And it's not our intentions to do the leaseback. But the people that we have working on this, they will of course look at the different options. But I think what we'll do is that we'll probably do an outright sale of the ships. But I'm sure we'll look at different options as we go along. But our aim is probably to sell them outright. You also asked how many ships we are talking about. I think we usually have a sort of a rule saying that when the ships become 20, we have an interest in selling them. And I think that's still the case. We probably delayed that a little bit due to the good market. And now we sort of just starting off again doing the same. As I remember, I think we have 6, 7 vessels who are I think we have 2 ships that's over 20 and I think we have 5 or 6 ships nearing 20 years age, all on the heavy sized market. I would also probably say that it's not necessarily of course, the older ships are probably on the list, but we also have some ships that maybe on the IMO compliant part are difficult ships and they might also be ships that we are considering selling. They might not be as old, but beyond the list for that part as well. Then you had a question about Yes. And what was the question again? It was your coverage for the Q4. Yes. So we have about 68% coverage on both the Handys and on the Supamaxes. And majority of the cover is, of course, in October. And then I think we have we did nearly fully covered in October. We have about half the days covered in November and about 30% in December, as I remember it. So that's I hope that reprise your question. You spoke a little bit you asked about next year coverage. We do have coverage for next year. I think we have around 30 something percent in the Q1 on both of them. I think actually we have more coverage on the Supermaxes on the anti sizes, but it's around 30% in Q3 and then it's falling quarter by quarter. And I think we end up just below 20% in Q4 next year on the 2 segment. And then the last question we had was about the contract renewal. I think we said last time we had a call that before the customers probably were a little bit hesitant Also, the cost market is changing all the time. But reality is now that we are in the contract extension period here in the Pacific, mainly in the Pacific, actually less in the Atlantic. And we actually do see the pipeline of opportunities for contracts increasing. And according to our chartering team, it's a little bit like last year. So it seems like the customers are actually coming now and asking for an extension of some of the contracts. That doesn't mean that we can agree on the rates, so that has to be seen. But at least when we look at it right now, the pipeline is increasing and the negotiations are ongoing and then we have to see where we end up. I hope that Can I just add something, Andrew? I think you're also asking why the Q4 was lower than sort of what we're earning in September. And of course, as always, forward cover does contain a portion of sort of legacy contracts, COAs, etcetera. But I do think we see that new fixtures being put into the book. We're quite hopeful that the Q4 could be stronger than the Q3. So don't read too much into the current 4th quarter coverage rate because we are putting very, very good fixtures into the books today. So that cover rate, we do expect to move upwards. But I think it's a good question, Andrew. And I think next time we will have to look a little bit at how we describe it. We could probably do a little bit better for you at that point. Yes. Just give us more information, monthly information. Thank you, Jose. Thank you, Mr. Andrew. Next we have Mr. James from Bloomberg. Your question please. Hi, good evening. I'd like to ask about the China energy curves. I think you touched on it a little bit in your presentation, but could you elaborate more on like what are the possible impacts or concerns that you have? You touched on iron ore in Capesize, but yours are mainly Handysize and Supramax, right? So is there a risk that that might get affected or can you help to put it into context into how it might affect Pacific Basin, please? Yes. Yes. Of course, we can. I think of course, we follow China quite closely also what's happening. And it's not only China who has an issue on the energy side, also other places has it. I think actually the short term consequence of that is actually an increased demand for coal going into India sorry, China and also to India actually. We already see that on the Supermaxes in the Pacific. We'll see more inquiries for ships to transport coal into both China and India. So in reality, it actually has a positive short term impact on our fleet. If it has a longer term impact, I think it's a little bit too early for us to conclude on it. We'll just have to see what happens and how big the issue is. So I think it's a little bit too early to start concluding on that. But the short term impact is more activity actually on the Supermax, especially in the Pacific. Probably also something we'll see in the Atlantic where I think there's also other countries who probably needs more coal with the high gas prices and so on. I hope that replies. Thank you. Thank you. Yes. Thank you. Thank you, James. Next we have Mr. Steven from BlackRock. Your question please. Hello, can you hear me? We can hear you. Yes. Thank you. I got two questions. One is the demand going into next quarter. So we have talked about the iron ore has the price has fallen, but you are saying the demand or the demand of the shipping has not been impacted. I'm curious because basically China is reducing the utilization of the steel mills at the moment. So why do you think the demand of iron ore on the shipping side has not been impacted? Or is it too early to tell? Or actually the iron ore are actually being shipped to somewhere else. So actually, it's not too much an issue. And secondly, regarding the grain and soybeans, you mentioned about the hurricanes. Is it fair to say that after the weather issue going into Q4, it should be normalizing? Yes. Thank you, Steven, for both these questions. The first one about the iron ore to China, This is mainly for the Capesizes. We do not do much iron ore, but the way we see it is that market for the Capesizes have gone up quite a bit and that is mainly driven by increased iron ore import into China. And I think China is taking a little bit advantage of the lower iron ore prices that actually sort of halved within the last month or so. I think it's about half the price. And I think China is using that to restock on the iron ore in China. How long that will last and so that I can't say. But at least at the moment, we see the Capesize is getting very healthy rates, driven mainly by the iron ore oil to China. Also, I agree your statement about the grain and the soybean in the U. S. Gulf. As we see right now, September, of course, with the hurricane, a lot of things had to be dealt with in the U. S. But the grain, the soybeans and all that is still there and now they're starting moving it out. So season has just been a little bit delayed. So you are correct that as we see it right now with the orders and the lineup in the U. S. Gulf and the requirements, we are a little bit back to normal, just a little bit delayed due to the hurricane. Yes, understand. Maybe if I can ask one more follow-up question regarding cement. Can you describe like between what countries are the cement moving that is driving the minor bulk growth? Yes. I think the good thing about the minor bulk is that it's quite broadly it's all over the world. So and I think if you look at Slide 20, you can see a little bit about where we actually see these charts. And it's we sort of compared to the Capesizes who are 58% China, then the heavy size is only 11%. But reality is they are transporting around the world. I think what's driving the market a little bit at the moment is actually construction material into the U. S. For instance. And it's also, of course, now the coal into China and India. And then, of course, finally the grain season, a little bit delayed, but has started off in the U. S. So when you look at minor bulk and you look at us, we sort of are 2 third is agricultural. 1 third is agricultural products, 1 third is construction material, metal 16% and energy is actually only 13% of what we do. So we are quite broad on the different commodities we move and also quite broad in where we sail around the world compared to the other dry carbon segments. And if I may add, I mean, cement is one of our sort of classic backhaul trade. So it's actually a trade that goes from Northeast Asia, sort of places like China and Japan into Southeast Asia, Australia, South America, North America. So for us, it's a backhaul trade. So it's very good to see that, that trade is strong and vital because it underpins the sort of global and diverse basis of our business. And maybe I could just add that I think it's 90% of our trading is actually done laden. So we have a very good ratio between the ballasting and the laden, which sometimes when you talk about the environmental impact, actually the minor bulk, at least we're utilizing the assets quite well compared to many of the other shipping segments, which is probably more fifty-fifty on latent and ballasting. Understand. If I can ask one more question regarding the on the supply side. So on Slide 8, we talk about the very low order book for dry bulk. It has been the case for a while. Do we have enough visibility about the carbon emission standard already? Because it always has been an issue that people do not quite understand what do they need to do. So therefore, they are not willing to order the ships. And I'm curious about the divergence versus container shipping where the order book has been increasing quite rapidly. There's a theory that some people are saying that because the shipyard are actually getting filled by the orders from the container shipping, therefore, the dry bulk people cannot really make orders. So I'm not sure if it is really a bottleneck in the shipyard or actually people are still unwilling to put in orders? Yes. I think it's a little bit of both, Stephen. I think first of all, we usually say who in your who in their right minds will buy a ship with the old propulsion technology that they get delivered in 2024 and that they have to trade depreciate over 25 years than you are in 2,040 9. Who would actually do that? That seems to not really make sense when you think about the decarbonization efforts around the world. When I didn't say that, then some people have ordered ships, But I also think many of those have ordered either dual fuel or they have ordered these ships as ready for some sort of different propulsion systems in the future. And I think there's a huge difference between ordering 100 and $60,000,000 $70,000,000 container ship and then maybe over time you have to replace something on it compared to ordering a handy Supermax at $30,000,000 $32,000,000 And also just also space wise, physical space on the ship. So I think the challenge we have on the smaller little bit cheaper ships is a little bit different than the bigger ones in it. So and then of course, I agree today when you look at it now with all the other segments, especially containers, maybe also the PCTCs and so on, they have all lots of ships. It's actually hard to get space at the yards. And finally, I think now with the energy prices and also with the COVID and also with the steel prices and so on, it's not going to be cheaper and easier to build ships for the shipyard. So, yes, but what came first, maybe I can't even remember that, but I think it's a combination of those things, Stephen. And I hope that applies your question. Yes. Because the IMO thing or the decarbonization thing, we previously have seen some additional details about what is actually required. So I'm not sure from an industry expert point of view, Do we still expect more details going forward or basically we are still waiting for something in terms of the information? If you think about IMO, actually, well, there's a meeting now here in November also with IMO. But I think we pretty much know what it is we have to comply with by 2023. I think we in Pacific basin, we probably have preferred that the route were a little bit different that it was more based on the cargo and less on the deadweight of the ship. So it was more the EEOI instead of the EEXI. But on the other hand, I think it's just important that we get some rules that we know we have to comply with and then we have to deal with that. And I'm sure over time that these rules will change and be improved and so on. But I think we actually do know what we have to do in 2023. Then EU has come as well with some levy on tax on the CO2. Those rules are a little bit more uncertain because I think they have to be rectified still within the EU. But it's we think it's fairly sure there will be a tax on the CO2 in the EU. And I personally also believe that will spread to the U. S. And China over time. But right now, it's the IMO 2023 rules that we are focusing on for the existing ships that we have, we have to comply with that. Yes. Understand. Thank you very much. Thank you, Steve. Next, we have Ms. Lisa from Huatay Securities. Your question, please. Yes. Thank you. Thank you, management. This is Lisa. I have one question on the cost. So do you you mentioned on the announcement, we are seeing rising operating costs due to registration. So, I want to ask, do we expect the cost to continue increase quarter on quarter if the market is rising? And how about the P and L breakeven level? So, do we expect a higher breakeven level for the company? Thank you. Yes. Thank you. Yes, we did mention that's true. We mentioned that costs are coming up a little bit. It's actually quite it's not much. If you look at the OpEx, I think OpEx compared to what we stated in July and what we expect now, I think OpEx per day will go up around $125 per day. That's what we're talking about on the OpEx side. Then our G and A will also go up a little bit. We have had a very good we will have a very good year and we have also had a very, very busy year. So of course, we have sort of expanded a little bit on the organization. We have also invested in different things in respect to digitalization and so on. And of course, we also have to sort of we also have to look at the bonus structure for the end of the year in such a good year. On the opening side, the cost increases are actually in respect to the crew and that's of course a COVID related cost. It's just with the quarantines and with the order differences in changing the crew and also with the flight cost and so on, it's quite costly. And also this year, I think our focus has been probably more on optimizing, making sure we have as many days available and we have a good operation and maybe a little bit less on managing the cost all the time because where it is, do you save a day on each ship? That's a lot more money because of the daily rate than actually sort of looking at every little cost thing. So, we're probably a little bit more easy on the cost and maybe a little bit more focused on the time. Okay. Thank you. Understood. Thank you. Overall, it's very little cost. I don't know, Peter, anything on the No. Yes, I mean, I would say a lot of the cost increases, we have kind of taken because we've had these repatriation issues accrue for some time now. So I don't think there should be an expectation that costs will continue to sort of escalate. But rather, as the world sort of moves beyond COVID, borders opens up, some of the costs will start to come down. So I don't think we should expect costs to continue to climb inexorably, but I think there will be some moderation in cost increases and maybe some reduction in costs as we move through 2022, specifically when it comes to crude repatriation, etcetera. Okay. Sure. Thank you. Unisa, next we have Jim from HSBC. Your question please. Thank you. Hi, Martin. Hi, Peter. I just have two questions. I mean, everything is going great. So I don't want to play devil's advocate, but can you help us understand what percentage of dry bulk fleet is being impacted because of ongoing congestion? And when shall we expect that to ease going into 2022? And secondly, with the slowdown in the China property sector, I mean, time will tell how much impact it will have on 2022, but not only the iron ore, but probably will it impact the construction material sector as well? And in that case, going into 2022, how do you see the effective demand and supply shaping up? Thank you. And then probably another question for Peter. With a happy problem, how should we think about capital structure? Like shall we see some sort of special dividend? Or you will take an opportunity to perhaps increase the regular dividend for the upcoming year? How should we think about it? Yes. Thank you, Raj. If I just start with the congestion situation, according to Clarksons, it's about 3% of the drybulk market. And we've been discussing this a few times with different people. And we don't maybe not on the minor part, we don't we see, of course, congestion in China. But I think as we said earlier, only what is it 17% of our ships are actually discharging in China. But of course, for those ships, we do see the congestion situation. But overall, when you look at it, we do not see congestion all over the world. I'm sure if you have a Capesize and you are 58% in discharging in China, you probably feel it a lot more than what we do. So, when that will be over, that's hard to say. I think as long as we have COVID and all the restrictions in the ports and these things, then I think we'll probably have a COVID situation. And a little bit here the discussion is probably also what came first, the congestion or the high utilization of the assets. And I think actually demand came first and usually that actually also brings these inefficiencies along because there's not enough ships to do with them. So I think that was the start of it and then it ends up in congestion and then the congestion very much in China also because of the COVID restrictions in China that's probably added to that part as well. But if you look at the rest of the supply of our fleet, we're going full speed. There's actually not much runway left. We can't do more to create more supply than we do this. The only thing is, of course, the congestion, which I think is probably more on the larger sizes, a little bit less on the smaller sizes. But of course, we also see the congestion. With respect to China and the construction part, as you also said, we have to see what happens, right? It's a little bit early days. We haven't really seen any consequences in the minor bulk or in the bulk market yet. We do see maybe if I should be honest about this, we do see maybe a little bit expectation that there will be less locks into China. And you're right when you say that that's for the construction part. The feedback I get is that we'll probably see a little bit less locks end of the year. On the other hand, we probably see less export of steel because the steel production will go down. But then we have to see price in steel production and exports out of other countries in Southeast Asia. So you can say just because China doesn't produce the number of steel, maybe other countries still need the steel out there. So it will just come from other places. And so our trade is just changing again. And that might actually not be a negative thing all in all. But I think I agree with you if you're hinting Paresh that if China goes down in activity all in all because this escalates then of course it will indirectly also hit us a little bit on that side. But at the moment I must admit actually we see more coal going into China, we see steel moving from other places and yes we might see locks reduce a little bit into China in the Q4. But let's see. Yes. No, I think that's very helpful. Yes. But of course, these kind of sort of demand long term demand risk, we look at that and we're very, very pleased that the order book is at a 3 decade low. That kind of provides our segment and our industry with quite a lot of insulation against demand volatility, I would say. Yes. I think, Peter, if we Peresha, if we step back and look at the order book in 2,008, I think it was 68%, wasn't it? Yes. I think that around 18%. Or even 70% or above 70%. I mean that's a big difference between the market we have today and what we had at that time. That yes, as Peter is saying that the supply side of it is under control. It sort of has it hangs under the market to a certain extent. So Peter, do you want to reply on the Yes. Yes. No, so just on the dividend, Paresh, obviously, it's a nice problem to have. We are deleveraging quickly. We obviously are building up cash balances. We, of course, always want to maintain a minimum cash, significant amount of cash in the business as we always have. But if we have capital on top of that, obviously, we will think about what to do with it. We have a distribution policy. It's at least 50% of profit, so it gives the board some flexibility. But how exactly to do and what we will do and what decisions we take around it. Let's wait for the year to finish, and then I'm sure the board will discuss around these issues. Okay. Thank you. Thanks, everyone, and have a lovely day. Thank you. Thank you. Next we have Mr. Yang from Pin Point. Your question please. Hi, good evening management. I have a couple of questions. Number 1, regarding your Q4 cover, forward cover. You mentioned around 68% of your capacity in Q4 has been parked. May I know, is there any backhaul cargoes contracts that is included in this 68% fulfillment of your capacity? That's number 1. Number 2, regarding your Panamax, which is a small part of the business, but is there any sign of a re strike of this Panamax contract for next year or so? Then number 3, regarding the crew situation, we have recently read a lot of articles about the crew members cannot not your company, but other shipping companies, crew members cannot go back and they got stuck on the risk for so long time, etcetera, etcetera. My question is, is there any risk and the crew shortage at some stage becomes a new bottleneck for the industry? And what Pacific Basin is doing at the moment to ensure that you have enough recruiting place in a compliant way? So, three questions. The Q4 cargo cover is in backhaul Panamax and about the coal situation? Thank you. Yes. Thank you very much, Yang. Three questions. Firstly, the backhaul. Yes, you're actually very right that we have actually quite a bit of crackhaul. In our contract, our legacy contract portfolio, there's actually quite a bit of backhaul business. And that's actually also one of the reasons where the Hepitizers maybe also struggle a little bit with the benchmark to the index. They have actually in their contract coverage a little bit more backhaul. And hopefully that will actually benefit them a little bit going forward. But we'll have to see. But historically, yes, Pacific Basin has always been very focused on the backhaul business as well And that's still in the contract mainly more on handpiece than actually on the supermaxents. Sorry, Martin. My question is, I understand you do have the backhaul, but my question is for your did you count the backhaul cargoes into your 68% cover in Q4 capacity? Did you already count the backhaul into that cover ratio or not? Yes, that we did. That's a yes. So may I know approximately what kind of a portion of your covered cargoes or covered capacities are backhaul, 1 third, half, just approximate number? I can't tell you. I don't think I know what it is, how much it is. Specifically, the backhaul thing, we'll have to come back to you on that one. I do not have that number. I don't know, Peter, you don't have it either. No. I mean, normally I can't speak exactly for the Q4, but normally we would have a COA cover, say, for the next sort of 12 months of sort of 20%. It's probably a bit lower at the moment because we have more spot exposure. But the mix between backhaul and fronthaul historically, I think, maybe has been a little bit more backhaul, say 60% of that. But that's more sort of historical averages, I would say. So I don't have that's sort of a rough guide, right? Okay. That means your exposure to the your front haul capacity is actually bigger than this 30 ish percentage 30% of the uncovered capacity you specified in your presentation, am I right? Yes. So if you're saying that there is a potential upside in the 30% uncovered because we actually ended up in loading areas, then you are correct in that assumption. But exactly how much it is, I have to come back to you on that part. But I agree with you. That's actually one of the drivers for why our earnings actually are also on looks better when we actually do the voyages because our contract that we put in here actually some of them actually ends up in the loading areas with an upside on the rates. Okay. Okay. Yes, then the Panamax. The Panamax contract, the 1 ship we have there, that continues unchanged. It will continue for additional 5 years is the contract. There will be no changes for that for next year. Okay. About the And the last thing is the crew repatriation. And I have to be careful not to get too emotional about it. I think we have more than 4,000 crew members. We have everything in house basically. So we do all the ship management in house. So this is actually our colleagues we have at sea and they do a very good job. And in reality, they are the key actually to be able for us to be able to sort of benefit from the good market and keep servicing our customers and they do a really, really good job at the moment. The thing that we have a problem delivering is actually getting them home in time and we also struggle with that and some of them are there for extended periods which of course is not very nice in it. But we must say that we still have a very engaged and loyal crew who helps us on what we do. Looking ahead, I think one of the things about Pacific basin is that we actually have been able to buy living ships this year and we can buy them with short delivery because we have our own crew and our ship manager in house ship manager are actually able to sort of deliver qualified crew at short notice. And I think that has been a commercial advantage for us in this market. Going ahead, it is one of the concerns we have is, of course, to a certain extent the way the crew are treated at the moment. I'm sometimes in doubt if they go home and promote a life at sea to their family and friends because they go out for 5 months, but it takes 10 months before they come back. And when they go back, they have to be 2, 3, 4 weeks in quarantine before they get home. That is a tough life. But we will, of course, keep on pushing for the education and training and getting people into our pipeline. And we source the crew from China and from Hong Kong and from Philippines and from India. And we will of course keep doing that. Okay. So it sounds like crew will not be potential bottleneck risk for the industry? Not well, no, I don't think so. Definitely not the Pacific basin also because we have it all in house and we do it right. But as we also said, of course, cost is going up for some of them, partly also partly the infrastructure costs, but of course also salaries are going up for some of them. And we just have to remember many of the crew members, they have a long education and been with us for many, many years. So we have a both onshore and offshore, we actually have a loyal group of employees. So at the moment, we don't see it as a big issue. But if you go ahead 5 years and also if the fleet is growing and also with new technology being implemented on the ships and so on, we need to invest in our crew continuously to ensure we have crew who can run these things in a safe manner. And that is don't forget that the requirements to the crew is not becoming less in future with decarbonization and so on. It's actually only becoming more. Okay. Thank you. Thank you. Next we have Mr. Cie Chai from Auckland Park. Your question please. Hi. Hello. Can you hear me? Yes, we can hear you. All right. Regarding the IMO speed limit that you mentioned just now, is it possible that you frequently fight for us like how much would that impact on the total shipping capacity? Yes. Yes, I think the first question. Yes. I will have a little bit of a we are doing some calculations on that to see what it is. So, I would be a little bit hesitant to put a number on it, what it is. But I think it's fair to say that in 2020 compared to 2021, we have sort of increased our speed with, I guess, a little bit more than 10%, maybe a little bit more than 1 lot. And you saw the slide where we had sort of the ranking, the AES part. And if we go back and have to slow steam like we did last year, then we are taking out again a lot about a lot on each of the ships. So I think we have to carry a little bit on that. It's that we do not sail all the time. We probably only sail half of 60% of the time. So, we have to do some calculations on that. So, it's very hard to say exactly what it will be. But of course, that's something we're also looking at. What impact will that have on the supply side? What is the limit the impulse and are you currently at above or below the limit? Sorry, can you repeat the question? What is the speed limit that IMO imposed from 2023? And currently, are you above or below that speed limit? Yes, that depends on the vessel. They're not sort of saying they're not coming out saying an exact speed. It's depending on what ship it is and how it's designed and so on. So that's we have to look at it ship by ship to assess that part. Some ships actually don't have to reduce and some ships actually have to reduce quite a bit. And usually when we talk about it's actually power we reduce of the ships and not the speed. But of course, as you reduce power, you also reduce speed. But it's actually ships also ground fleet that doesn't have to do anything to begin with because they are already in compliance. In Pacific Basin, we own 120 ships and most of them are actually built in Japan and they're actually good quality ship, well designed and is already doing quite well when you go in and look at the ranking or rating IMO is requiring. So we are in a good position compared to many already from the beginning. But we also have to reduce power, thereby speed on some of our ships. All right. And on the IMO 2030, 40% reduction in emissions, right? May I know what kind of chips or new builds, what kind of technology are you looking at in order for you to be able to meet that 2,030 kind of requirements? Do you feel anything? Yes. There's multiple things we do. So, first, you can look at the technical side of it. And of course, there's things we can do in respect to propeller and antifouling and many other things. And I think we actually looked at that for years also because of fuel prices and so on. So our another advantage of having all our technicians in house in the same building as us. So they've been looking at that and keep looking at what are the technical solutions you can implement on the existing ships in order to make them more efficient. We have done quite a bit of things and we have a number of things in the pipeline. You can say secondly, then it's the power reduction and the speed reduction. I think over time up to 2,030 depending on the year on year requirements after 2023 that I'm over the post, I think most ships over that period will actually have to reduce the power or the speed over time. So one thing is to comply with 2023, but every year you actually have to improve up to 2,030. And we only know the requirements from 2023 to 2026. And after that, we actually don't know exactly what the requirements will be, but we don't believe it's going to be less than it was the earlier year, it's probably more. So speed reduction is of course also a major part of it. And then finally, what I would call the big thing is that we also have to look at the trades we do and that's where we actually have to engage with our customers because reality is these rules are actually quite dependent for each ship on what kind and how you trade the ship. So if you trade the ships in trades where you have to be a lot import, a lot of congestion and maybe you have the seagoing part of the voyages in rough seas and difficult waters. Then actually your rating will actually be quite poor even though your ship could be quite good. So actually a big part of this has actually to do how we are trading these ships. So it's partly technical, partly speed reduction, but partly actually also what kind of voyages we do. And therefore we need to engage with our customers in that respect because they also need to understand that the different voices they have, they will have a different impact on the ships. And therefore, we have to work around that to make sure we do the right thing for the ships. So it's the rules are actually not that complicated to understand, but how to do it is actually quite complicated. There's actually many things that we have to work on at the same time. I don't know, Peter, if you have anything to add. No, nothing to add, Moshe. So one last question for me is, how many of your long term charters is going to go over next year and the following year? And if you plan to renew it, it will be at a way higher rate than the old one, right? Yes. Could you just show the long term charters? We have a slide From Page 19. Page 19, yes. So here you can see how actually what we have of short term and longer term charters. So reality is all our short term charters, they will go off within a year. And the longer term charters, they are in excess of 1 year. All right. Thank you. Thank you. We will be taking one last question from Mr. Melvin from Bank of America. Your question please. Hey, Martin. Maybe just two quick questions from me. Firstly, just in terms of these incredible second half rates that we're seeing, Do you have any conviction around whether they could sustain into 2022? So that's the first question. And then second question, do you have any estimate around how much of a demand boost drybulk has seen from shifts from container? So just two questions. Thank you. Yes. So it's 2 of the difficult questions I have. What will the market do? It's always hard to sort of predict. But I think all in all, our conclusion, we're quite positive about it. Of course, we have to follow what's happening in China and other places. But when we look at the supply side, what ships are coming, we know that. And when we look at sort of the demand side of it, we are actually on the minor part, we are quite positive about the developments. And here we can also see Clarksons is also the estimates on the demand growth is also quite positive. So it looks really good for 2022. And I think we all have to remember that likely when we enter 2022 compared to when we enter 2021, actually the market is quite good and we will have good earnings in the beginning of the year as well. That was actually not the case this year. I think we all tend to forget a little bit that this upturn has actually not been there that long. But it's been positive all along, but it only started early this year and now we are in October. But so we do see a little bit more runway on this upturn as long as we have transparency on the supply side. What happens in China and other places is a little bit hard to predict, but maybe you also know a little bit more about these things. But we are quite positive actually about the market for next year. The container into drybulk, we have had a lot of discussions on that. We do also actually move containers in our dry cargo ships. We actually done that for years. I know people come out and say that's something new, but we have actually done it for quite a bit of time. This year we have moved 2,200 containers, I think it is, from China to the U. S. On 12 different liftings. Actually, it's 53 feet foot containers that we are lifting. So, a little odd size that I don't think the container ships will move and we'll move them to the U. S. Where they are used. I don't think the big container lines are worried about us and our 2,000 containers. But that being said, I think actually it's more the multipurpose vessels. I think there's maybe a little bit more argument on that side that the smaller multipurpose ships who usually also carry dry cargo commodities, they have probably gone as we see it probably gone more into the container business and container cargoes. How much it is? I actually don't we actually don't know how, but I think there's a lot of logic into it that they have caused because they are built to move containers as well that they have entered into that market and taken advantage of that market. So, of course, the day the containers comes down and to normal, they will probably migrate back again. And of course, that will have a little bit of impact on the supply side all in all for dry cargo. That's something we have to follow and see as things get more transparent as we go along. Great. Thank you, Martin. Thank you. Next question? As there are no further questions, we will now begin the closing comments. Please go ahead, Mr. Martin. Yes. So, yes, I'd like to thank you again for joining us today and for your continued support to Pacific Basin. I do urge you to look at Page 18, how to model Pacific Basin. It gives you a good feel for how we're doing at the moment and maybe also an ability to calculate the future earnings. So, I think that's a quite important slide to look at. Thank you very much.