Welcome to today's Pacific Basin 2021 Interim Results Announcement Call. I am pleased to present Chief Executive Officer, Mr. Mats Berglund, 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. Berglund, please begin.
Thank you. Welcome, ladies and gentlemen, thank you for attending Pacific Basin's 2021 Interim Results earnings call. My name is Mats Berglund, CEO of the company for the last nine years. I am joined by my successor, Martin Fruergaard, who has already been with us for a one-month handover. He takes over from me as CEO at the end of this week. We're also joined by our CFO, Peter Schulz. Please turn to slide two. During the first half of 2021, we made an underlying profit of $150.4 million U.S., a net profit of $160.1 million. EBITDA tripled compared to last year to $244.6 million. Earnings per share was HKD 0.264. Return on equity was 28%. Total shareholder return, 114%.
The board has decided to pay an interim dividend of HKD 0.14 per share, in line with our dividend policy of paying out at least 50% of our net profits. While this is our strongest half year result in 13 years, it's important to note that our profitability improved progressively over the period. Our underlying result for June alone was HKD 53 million, the company's highest monthly underlying result ever. Our cover rates for July and August are even higher, while the costs of our core fleet remain substantially fixed, clearly indicating that our monthly results continue to go up. Slide 3 shows how positively spot Handysize and Supramax rates have developed. As you can see, market rates are continuing to increase, with the market now driven by the northern hemisphere grain season, as is typical in the third quarter.
To give you a longer historical perspective, slide four shows average market rates for the last 15 years. We will make a few comparisons with 2010 in this report, as that is the last year with healthy freight rates. You have heard us say before that in 2010, we made about $100 million profit. If we got back to the same market rates now, we would make about $400 million per year, and that is due to our now much larger owned fleet and our competitive cost structure. As you can see from this graph, we are now at monthly levels well above 2010 average rate levels. Please turn to slide five. This shows our monthly actual achieved TCEs for our Handysize and Supramax ships.
Our underlying results are getting progressively better every month, primarily due to continuously increasing market freight rates, the one to three-month lag between fixing and execution of voyages, and this means that it takes a few months before the progressively higher rates show in our P&L, the gradual expiry of lower paying cargo contracts, our larger core fleet with substantially fixed costs, the enlarged proportion of Supramax vessels in our fleet, which benefit from larger upside in strong markets, and our stronger operating activity performance from the second quarter onwards. On average, our operating activity generated a margin of $1,320 net per day over 9,080 operating days in the first half. Our large core business with substantially fixed costs is, of course, now the main driver of our profitability.
You can estimate our current profitability by following appendix slide 39, the one called How to Model PB, and inserting our July and August cover rates of about $22,000 per day for Handysize and $33,190 for Supramax. Our core fleet's substantially fixed costs of about $8,600 for Handysize and $10,200 per day for Supramax, as represented by the dotted lines on these graphs. When you do this, remember that we have about 90 Handysize ships enjoying this very wide margin and about 45 Supras. You cannot use all our 270 ships when you do this calculation. The margin on our operating activity is lower, as I just mentioned. Alternatively, you can just take the incremental daily increase in July and August versus the June rates. Multiply that dollar per day increase by the about 90 core Handysize ships and about 45 core Supras.
Assume 30 days per month, add that incremental profit margin to the $53 million we made in June to get a feel for our forward underlying monthly results, assuming all other factors are unchanged. Our Handysize rates should also come up a bit further, as we are fixing the remaining 9% open days for July and August at today's higher rates. Please turn to slide six. It is primarily strong demand for our two most important commodity groups, minor bulk and grain, that is driving up freight rates in our markets. Indicative global minor bulk loadings in the period were up 13%, and grain was up 9% year-on-year. Strong Chinese import growth in the first quarter was followed by increased minor bulk loadings to non-Chinese destinations in the second quarter, including strong U.S. demand for steel, cement, and other construction materials.
We see it as an advantage that minor bulk demand is broad-based and diverse, both geographically and in terms of commodities and customers. Growth in grain loadings was supported by strong soybean trade and an encouraging new trend towards significant corn imports into China. The Northern Hemisphere grain season is just starting, with Black Sea, European, and North American exports gradually requiring tonnage. This often makes the third quarter the strongest quarter of the year for our dry bulk segment. With world GDP improving and continued stimulus in many countries, the demand forecast for the rest of the year is positive. Slide seven lists demand factors in more detail, and I won't go through all of it here, other than to mention that our segments are also benefiting marginally from a few developments.
One is exceptionally strong container rates, which are driving some commodities to be shipped in geared bulkers. Another is fleet inefficiencies caused by congestion, the pandemic, and by China not importing coal from Australia, but from further afield. Also, Australia has shifted more of its coal exports to smaller vessel types. However, these factors are not substantial, and it is the overall underlying, fundamentally stronger demand and supply balance that drives our markets higher. Moving on to the supply side, please turn to slide eight. This shows that the net fleet growth continues to reduce, and we are expecting slow growth also in the second half this year and well below 2% growth for next year. This means that our markets can remain healthy even if there is a slowdown in economic growth and demand.
The dry bulk newbuilding order book as a percentage of the existing fleet is at an all-time low, and slide nine shows how significant this advantage is relative to other shipping segments. This bodes well for the future demand and supply balance and means that the probability for sustained healthy freight rates is higher for dry bulk relative to other shipping segments, especially for the smaller geared segments that we are in. Please turn to slide 10. While strong freight rates have historically led to increased new ordering, we believe that dry bulk supply growth this time can remain at moderate levels. This is because new decarbonization rules result in uncertainty and shorter expected economic lives for newbuildings with conventional fuel oil engines, making it more attractive to instead buy secondhand ships with prompt delivery, shorter payback time, and lower residue value risk.
Also, it will be several more years before real new technology ships become commercially viable and the requisite fueling infrastructure is built out globally. This means that other than a few prototypes operating on fixed lines, it will still be many years before such ships are ordered for the tramp shipping sectors. Another positive for the supply side are the new IMO carbon intensity reduction rules adopted in June and described on slide 11. EEXI technical rules will cap maximum engine power limits, and CII operational rules will require gradually improving carbon efficiency ratings based on actual fuel consumption and distance traveled, leading to gradually lower speeds from 2023 and 2024 onwards.
The EU has also announced its intention to include shipping in the EU Emissions Trading System effective 2023, which, subject to further development of these rules, will mean higher costs for emissions, also incentivizing lower speeds. Slide 12 shows how the stronger market freight rates have led to increases in both secondhand and newbuilding prices. Note that secondhand values remain well below newbuilding prices and also well below 2010 secondhand values, in spite of freight rates now being well above the 2010 freight levels. In Slide 13 and 14, we illustrate how strong the returns currently are, especially for secondhand ships, and how significant the remaining upside is for such ships just to return to the equivalent ship values of 2010. Note that as is typical in strong markets, both the returns and asset value upside are larger for 10–15-year-old ships than for younger vessels.
For example, a 10-year-old Handysize and Supramax vessel values still have 30%-50% upside remaining before getting to the 2010 levels, and they are paid down to scrap value in less than two years based on current one-year time charter rates. Hence, we see significant additional remaining upside, both in the earnings and market value of our fleet of 119 owned quality secondhand ships with an average age of 10.9 years. For this reason, and as we show on slide 15, we have continued to buy quality secondhand Ultramaxes and large Handysize ships that are highly suitable for our customers and trades. All the eight ships listed on this slide, including two previously unannounced acquisitions, were committed at very attractive prices between $13 million-$17 million each.
The graph on slide 16 shows how we have grown our own fleet significantly over the years of historically low rates and asset values. This means that we are now really well-positioned to take advantage of the good market. We have worked hard to streamline our company, focusing on our core segments and making our cost structure even more competitive while maintaining our ships in excellent condition. The market outlook is positive, and this is what our teams both ashore and on board have worked so hard to set ourselves up for. It is really satisfying to now see the results come through. We have strategically grown our own Supra and Ultramax proportion of our fleet, and now benefit from the larger earnings upside that these ships enjoy in strong markets.
In addition to our much larger core fleet, we have developed a significant and complementary operating activity business that matches our customers' spot cargoes with short-term chartered-in ships, even when our core ships are unavailable, thereby providing a service to our customers and making a margin and positive contribution to our results, both in weak and strong markets. We currently have about 270 ships on the water overall, which is the biggest fleet we have ever controlled. I would be remiss not to emphasize how grateful we are to our seagoing staff, who, throughout the pandemic, have demonstrated continued professionalism in maintaining safe operating practices while COVID restrictions sometimes keep them at sea for longer than expected.
I thank my Pacific Basin colleagues ashore and at sea, as well as our shareholders and all stakeholders for your excellent support over the years, and I ask that you extend the same great support and friendship to my successor, Martin Fruergaard. Martin comes with impressive lifelong maritime experience and proven leadership credentials. The board and I are excited about Martin joining the company and are confident that Pacific Basin's leading position in the minor bulk segment will continue to develop and prosper under his leadership. Martin will make some remarks shortly, but before that, I hand you over to our CFO, Peter Schulz, for some comments on our financials. Peter.
Thank you very much, Mats. Before going through my slides, I would just like to say, as this is Mats' last earnings call with Pacific Basin, what a privilege it has been to work with him these last four years, in my case. He has been a great CEO, a fun colleague, and a very good friend. We will all miss him very much. However, if I am sad today, I do cheer up when I look at our results for the first six months of 2021. Without further ado, let's look at the results. If you go to page number 18.
The group posted an EBITDA of $244.6 million and a net profit of $160.1 million in the first half of 2021. This is as a result of very strong market conditions. This is equivalent to a 28% return on equity, this, as Mats mentioned before, is our strongest half-year result in 13 years. We achieved an operating cash flow of $203.9 million, which has further strengthened our balance sheet. Net borrowings to net book value is down six percentage points since the end of 2020, at 31%. Available liquidity is $417.1 million. The board recommends an interim dividend of HKD 0.14 per share, which is in line with our dividend policy of paying out at least 50% of our net profits. On slide 19, we set out our interim P&L in a little bit more detail.
I won't go through this, other than to point out that the comparison with the first half of 2020 is impacted by the impairment we took in June last year. Please turn to slide number 20. Our core Handysize TC earnings per day were over $6,700 higher than our core blended costs per day, which yielded a contribution of $105.2 million in the first half of 2021. Our core Supramax TC, boosted by the scrubbers on 32 of our vessels, was almost $9,100 per day higher than the core blended cost, which yielded an overall Supramax contribution of $65.9 million. Our operating activity contribution was a strong $11.5 million or 1,320 per day. Please turn to slide 21. Our Handysize-owned vessel cost reduced to $7,270 per day, mainly due to lower depreciation costs because of the impairment made on 30th of June last year.
This was partially offset by an increase in operating expenses, mainly due to the high cost of repatriating seafarers during the COVID-19 pandemic and resultant travel restrictions. If you go to slide 22, you see the Supramax costs. Our owned vessel cost here increased slightly to $8,960 per day, also due to the same increase in travel-related operating expenses. Please turn to slide 23. Here, we look at the cash inflow and outflow. The operating cash inflow for the first half of 2021 was $203.9 million. This is inclusive of all long and short-term charter hire payments. This was $126.4 million higher than the same period last year. We received $16 million in proceeds from the sale of four Handysize vessels. Our borrowings decreased due to net repayments of $143.9 million, which was partly offset by the drawdown of $45 million on new committed facilities.
CapEx consisted mainly of $96.4 million paid for four secondhand Ultramaxes that we committed to purchase in November last year, one additional secondhand Ultramax, and one secondhand Handysize, as well as $18.2 million in dry dockings and ballast water treatment systems. We docked 12 vessels during the period. If we move on to slide 24. Our available liquidity, I've mentioned, was $417.1 million at the end of the period, a significant number. Strong operating cash flow has driven a reduction in net borrowings to net book value to 31%, which is 6 percentage points lower than at the end of 2020, and well below our KPI of maximum 50%. Our capital allocation priorities are, one, to de-lever the balance sheet in line with our amortization profile, being careful about new leverage following recent increases in vessel values. Two, we will maintain a strong available liquidity position for future investments.
Three, continue to distribute dividends to our shareholders in line with our stated policy. I now hand you over to our incoming CEO, Martin Fruergaard, who I welcome to Pacific Basin. Martin, over to you.
Thank you, Peter. Good afternoon or good morning, ladies and gentlemen. As you know now, my name is Martin Fruergaard, and it's a pleasure to be speaking to you for the first time. Starting with slide 26, I have a few bullets with which I want to introduce myself and to assure you of my intentions as Mats's successor to maintain our commitment to the strategy that has worked very well for Pacific Basin in recent years. I am from Copenhagen in Denmark, where I spent the last six years as CEO of gas tanker owner, Ultra Gas and Energy. And before that, I spent 26 years with A.P. Moller - Maersk, including as senior director of Maersk Bulk Carriers, where I worked for about 10 years, and senior vice president of Maersk Tankers, among other roles in the Maersk group.
Since joining Pacific Basin on July 2nd, my focus has been on getting to know the organization and ensuring a smooth transition between CEOs. I am grateful to the senior management, and Mats in particular, for the excellent preparation and time they have invested in the process to help facilitate a good handover. Please turn to slide 27. In the past earning calls, Mats has explained the company strategy, which still holds true today. I wish to highlight some of the strategic priorities that I will be particularly guided by. We want to stay specialized in minor bulk and the ship types that we know so well, the Handys and the Supramaxes, and stick to our customer and cargo-focused business model.
At our core, we will remain asset heavy, continuing to acquire, still selectively and in a disciplined way, quality secondhand ships by complementing our core fleet with mainly short-term chartered ships for the operating activities. We will continue to gradually sell our smaller older ships when the time is right. As mentioned by Peter, we aim to always keep our balance sheet and liquidity strong. We have a world-class ship management team, and we are committed to keeping this function in-house, which help to constantly improve our safety and environmental performance, as well as our cost competitiveness and our service quality and reliability for our customers.
On slide 28, you will see that I want, in the short term, to ensure our teams are equipped and supported in such a way that they will continue to deliver a quality service to our customers while maximizing our earnings in the current strong market. As before, we want to be the first choice partner for customers contemplating longer term cargo contracts, and that means lending them our support as they consider their coming freight needs. Health and safety is always a priority, especially during the challenging pandemic, when crew change restrictions and related complications take their toll on our seafarers. We embrace IMO's carbon intensity reduction goal for 2030 and greenhouse gas reduction goal for 2050, and will enhance our focus on optimizing our environmental performance and long-term decarbonization efforts.
We will use our expanding in-house data to improve decision-making and our operational cost and environmental performance to the benefit of our customers and other stakeholders. Last but not least, I want to ensure that our team are empowered, trained, and supported for a fulfilled, engaged, and efficient workforce. From what I've seen so far, Pacific Basin is already very much on the right track. Wrapping up on slide 29. Although some uncertainty remains over the path of the pandemic and the longevity of continued policy support, the demand outlook is positive, with vaccines and economic stimulus leading the demand recovery. The dry bulk order book is at an all-time low, and we expect that fleet growth can remain at moderate levels. Thanks to our much larger core fleet, our efficient cost structure, and our strong team, we have tremendous leverage to take advantage of the current strong freight market.
Before we move on to questions, I would like to take the opportunity on behalf of all of us at Pacific Basin to thank Mats for his excellent contribution to the company over the past nine years. He oversaw the streamlining of Pacific Basin and led the significant growth of our core Handysize and Supramax fleet that position us so well for the current market. Tomorrow evening, we will bid Mats and staff farewell with all our best wishes for a safe and happy return to Sweden and hopefully a fulfilling retirement and next chapter in his life. Thank you very much, Mats.
Thank you, Martin, for your kind words. Ladies and gentlemen, I will now hand over to the operator who will open the lines for any questions you may have. Operator, over to you.
Thank you. We will now begin our question-and-answer session. If you have a question for any of today's speaker, please press zero one on your telephone keypad to enter the queue. After you are announced, please asked your question. If you find that your question has been answered before it is your turn to speak, please press zero two to cancel the question, again please press zero one if you have any question. First on the line, we have Veeral Gandhi from Ninety One. Your question please.
Hi there. Yeah, sure. Hi, it's Veeral Gandhi from Ninety One. Question either for Mats or Martin. What are your thoughts, if you ordered a new bulk carrier today, when do you think it would be delivered? Is the first question. The second one is, how easy or difficult would it be for shipyards to increase capacity to process more ship orders, if indeed a large number of ship orders come through? The third one was, how has shipbuilding capacity evolved in recent years? Has there been a big increase in capacity in the last few years? Thank you.
All right, thank you. If you order a new bulk carrier today, to start with, it will be with a diesel engine. Who in his right mind would do that for delivery two, three years from now into a decarbonizing world, so to speak. Much better to buy a secondhand ship for half the price. If you still go ahead and do that, you would have to wait between two and three years to get delivery of that ship. The Japanese yards in particular are quite full. If you want a delivery two years from now, you would need to go to a Chinese yard, and I'm not sure you could even get that today. As regards how easy is it for shipyards to increase capacity, it's kind of a shipping rule of thumb that there will always be shipyard.
We always assume there will be additional shipyard capacity, but it's important to note that shipyard capacity has reduced a lot in recent years. About half of the shipyards that built Handysize and Supramax ships, some five, 10 years ago have closed. Your last question, the shipyard capacity has come down a lot. It's important to note that shipyards are not really making money, even at today's slightly higher prices. Steel prices have gone up a lot. I've never seen, I think, a steel plate price as high as we have seen recently at $1,000 per ton, and labor cost in the low-cost building country, China, have gone up a lot as well. It is really not great times for the shipyards to build small bulk carriers today. We do not really see that as a real risk.
Again, the main reason for why we feel that the order book will not go crazy is the decarbonization rules coming, and better to just wait for real new technology ships to come, but that will take many years. Thank you.
Okay. Sorry, just one follow-up on that. You said around half the shipyards that produce Handysize and Supramax have closed. How easy would it be to revive those shipyards, or are they very difficult to revive?
I think it will be quite difficult. Again, we never see shipyard capacity. Some of them could open up again. It's important to note now that everybody wants to build container ships. Container ships are massively higher priced. The shipyards who can build container ships are all prioritizing that. We don't really see increased shipyard capacity as a major factor or a risk.
Thank you.
Thank you. Next on the line, we have Parash Jain from HSBC. Your question please.
Yeah. Hi, Mats, Martin, and Peter. This is Parash here from HSBC. Mats, I have the questions, and if you can help us visualize, and as you mentioned in your opening remarks that you started on a strong footing when it comes to third quarter, and pretty much in the near term, we have a strong visibility. What we have noticed over the past few years is that because of some sort of restrictions in terms of the Chinese mill's ability to import iron ore or coal towards the later end of the year because either they exhaust their quota or some sort of winter restriction. Do you expect similar sort of pattern occurring this year, or you think that this time around there's sufficient pent-up demand to ensure that fourth quarter may not be as weak as it has been in the recent past?
Secondly, along the same line on regulations. This evening there was a flash that China is increasing the duty on the steel export. Do you see that with steel production rolling over with probably some restrictions on steel export, we may see a greater pressure on iron ore going into the second half, which indirectly will cascade to coal and then eventually the ships that you operate in particular? Any color on that will be very helpful?
Thanks, Parash. We are positive about the second half and very much so about 2022 as well. We have an underlying strong demand-supply balance. If we just lift ourselves a bit to look at next year, the GDP growth is now estimated to be 4.9%, and our net supply growth is estimated to be 1.5%. It's kind of difficult not to be positive with those underlying fundamentals. Iron ore and coal, as you know, is not that important for us. China is important, not at all as important as it is for the larger ships. Minor bulk demand is broad-based. It's very diverse, both geographically, customer, and commodity-wise. Grain looks strong. We don't see any reduction in that pace.
We can withstand a slower economic growth. Steel exports, there's rumors about the tax, but we don't know that for a fact that will come through. Again, these things often mean that it moves to a different producer instead, as we've seen in the past. Chinese steel exports have been moving from country to country. Overall, Parash, we are confident. The sentiment is also very strong. It's important to note that we may have periods of little bit less activity in the market now, but owners are so confident that they don't drop the rates. They wait, and next week shippers have to come out with the cargoes and rates starts to firm up again. Positive outlook and in particular, for the third quarter grain season.
Okay. If I may ask one question, perhaps to Peter. Peter, now you probably will encounter a happy problem with what to do with the operating cash flow. I understand that second-hand vessels still offer value, but with probably a sharp increase that we have seen, and presumably it's hard to come by the kind of vessels at a price that you would look for and what you have done in the past few years. Can you help us visualize what would be the ideal approach in terms of deployment of operating cash flow, hypothetically in a situation of no new second-hand vessels being purchased? What would be the debt level you will be comfortable and beyond that everything will pass it on to the equity shareholder?
Just on the S&P, we are still seeing interesting transactions and we are still inspecting ships and running the numbers, and they are attractive in our mind. There are some pockets in the market where there's a lot of competition, et cetera. You should probably expect us to look opportunistically at a few acquisitions, but perhaps at a slower pace than we have done in recent years.
Yeah.
Looking back in that context, we are clearly in a period of harvesting at the moment, with good and strong operating cash flows. In this type of environment, and as I set out on my slide, the priority number one is to continue to delever the balance sheets in accordance with our amortization profile. We will do that, and you'll see our debt to book value reduce more, I would expect. We will, however, always maintain a strong liquidity position that underpins our credibility, that sets us up for opportunistic investments. Also in the future, we will have to make further investments in decarbonization, et cetera. Of course, following that, we have the opportunity and we will distribute dividends to our shareholders. We have a policy of at least 50% of net profits, I emphasize the at least.
That gives the board discretion, should they feel it's appropriate and should they feel confident about the future to increase. I think, the key thing here, watch this space, and we will make further announcement following discussions later on where we see how the market is going and what the board likes to propose. Watch this space.
Perfect. Thank you. I have one more, I'll get into the queue and will ask next time around. Thank you so much.
Thank you, Jain. Next on the line, we have Andrew from Jefferies. Your question please.
Yeah. Hi. Well, very good results. Congratulations. Follow on from Parash's question. Vessel prices have started to increase. Other players have actually started to buy more of the Supramax, the smaller, the handy vessels. Do you think that that would mean that it would be more difficult to buy these second-hand vessels because more people are basically buying so that could push up the price? That's my first question. Second question is, you mentioned earlier that the $400 million is based on, if you look back to 2010. Is that based on 2010 rates to get to the $400? Third question is on minor bulk. First quarter was driven by China, second quarter was driven by non-China. For the second half, which ships are going to be driven by China or non-China? Final question is, there was a small reversal of impairment on assets held for sale.
What was this related to? Also there was a $17 million bunker swap contracts number there. Can you give us a guidance in terms of is this a one-off, and will this happen in the second half? Thank you.
Wow, that was a lot, Andrew. We'll see if we can remember all the questions. On second-hand acquisitions, we have the benefit of a lot of Japanese direct relationships, and often the ships we buy are ships that we have on charter or have had on charter, and the charter expires and so on. We would typically not participate in kind of auctions and bidding up prices, where there's a lot of people inspecting an open market ship. That's not typically our deal, right? We try to buy the ships where we have an angle, where we have a relationship, where we have the ship on charter. That's how we typically do it. We don't see that stopping in this market. Prices are going up, but we still have access to deals.
It's tougher today than when the market is really bad, obviously, to buy ships, but we still have access to. As Martin mentioned in his slides, his intention is to continue to look at acquisitions, but in a disciplined. We're only buying ships that are really fitting our needs, that really match our specifications, and customers, and trading routes. We made that example of comparing with 2010. We have done that many times. We have said that a few years ago, the 2010 rates looked like, wow, if we only could get back to 2010 rates, and we made the example that we have brought our fleet to a much larger scale, and we have lower break-even levels now. If we were to get back to that 2010 levels, we would make not $100 million, but $400 million.
Yes, that example is based on 2010 rates. That's just an example to show you how much we have changed the company over this period. When you look at our earnings capability now, you're better off simply looking at the $53 million that we made in June, and the incremental additional margin that we're now making at the higher rates that we've shown you for July and August. That is a better estimate for you for where our earnings are now. We used that example to show how much we have grown the company. You asked about second half, what will drive that? Will it be China or non-China? We used the Chinese strong demand in Q1 and the non-China strong demand in Q2 for minor bulks. Again, that's kind of just on the margin.
Minor bulk demand is very broad-based, it's very unusual that minor bulk would grow less than GDP. GDP is not a bad indicator for dry bulk. What's important to note is that our second big commodity group, in addition to minor bulk, is grains. Grains is typically very strong in the third quarter. The Northern Hemisphere grain season typically drives the third quarter and the second half to be stronger than the first half. We don't see any reason for why that will not happen now. We're already seeing lots of requirements for Black Sea grains exports, which is where it typically starts. Peter, if you could comment on the $3.7 million and the mark-to-market on the bunker hedges. Are you there, Peter Schulz? If Peter is not there, the $3.7 million is a reversal of.
Hello? Sorry. Hello?
Yeah, we can hear you now.
I had some technical issues. Sorry about that. Yeah. The reversal of $3.7 million, that refers to two ships that we have held for sale. They are still being marketed, but when we close the books, we have to put them in the books at the fair market value. That's obviously different from the ships that are not held for sale that we impaired last year. There is no reversal on those ships. This is a simple fair market value adjustment on ships that we are in the process of marketing. The question around the bunker hedge, there was a gain on bunker hedges, realized and unrealized, of $17 million. I know in the notes package in the announcement, there is a negative number around it because it's a negative cost, i.e., a gain.
This is simply a result of our normal hedging around contracts of affreightment, where when we lock in the freight rate, we don't have the bunker adjustment to us, we hedge the bunker cost so that we have no bunker risks in the contract. Because oil prices were up this year, we've made big gains on these contracts.
The mark-to-market on the bunker hedges, you should really kind of ignore, right? Because it's non-cash, and there's a perfect offset on the value of the cargo contract that we have. Look at our underlying result, and that is the relevant number. With crude price going up, we typically show a positive mark-to-market. With crude price going down, we show a negative, but it's perfectly offset in our forward cargo contract that we are not allowed to show in the P&L. It's really not relevant.
Okay. Thank you, guys.
Thanks, Andrew.
Thank you, Andrew. Next, we have Tony from Noble Fund Manager. Your question, please. Hi, Tony. You can begin your question. Hi, Tony. Are you able to ask a question?
Hello?
I'll take a question from the online. An online question coming from Thomas Christensen from ShippingWatch. He asks, "What is your expectation for the bulk market going forward? How long will the upturn in experience now persist, and how can PB optimize benefiting from this?
Martin, why don't you give your view of the overall supply-demand situation?
Yeah. I think at least for this year, as we have said, we have a positive view on the market and of course, it's a little bit easier to see in the short term. As Mats said earlier, we see a growth in GDP next year, and we see a historically low order book. That, of course, also shows quite a positive outlook for next year. Of course, that's probably how far we can see at the moment. All in all, we are very positive for the market as it is today.
One more question coming from the online, from Kim Powell, from ROCIM Limited. He asked, "Logically, wouldn't ship owners who build new container ships have to deal with the same regulatory rules regarding decarbonization? Can you help us understand how easy or hard it is to retrofit container ships or bulk carriers with the new technology?
Yeah. The new technology doesn't exist yet, you can't retrofit. You can't build new building today. There will be a few prototype ships maybe for delivery 2025 or so, which has new fuels engines like ammonia or something else. Methanol engines, of course, exist, the fueling infrastructure does not. You have to produce these fuels in a green way. Before this gets widespread and commercially viable, I personally think it will take seven, eight years at least for our segments before Handysize bulkers will be able to run on new engines and new fuels. That is what sets up for this period, which we think will be positive, where the existing technology ships are needed, and where you cannot, even if you want to order real new technology ships for many years, right?
On top of that, the short-term, the medium-term way to reduce emissions is to slow down, and that puts further pressure on the supply situation. We need to make some money, right, after a lot of years of poor earnings. It looks positive for those reasons. The real new technology coming is not yet clear what it will be. We are certainly in the forefront on participating in research, in technology groups, the Getting to Zero Coalition, et cetera, and following and working ourselves very closely on new technology. It's the engine makers, it's the shipyards that need to be able to market something, and they are not in position to do that for many years to come. Secondly, we need a fueling infrastructure for tramp shipping. Our ships go everywhere.
The first ships that will run on these type of prototype new fuels will be either ferries or container ships who operate on fixed lines. I hope that answers your question.
Next, we have Yang Liu from Pinpoint. Your question, please. Hi, Yang . You can ask your question now.
Hi. Sorry. Thank you for taking my question. I have one question for Mats and the other one for Peter. I read an article about a report from the insurance company, Gard P&I, who said they noticed a surge of claims related to COVID-19 breakouts on the vessels back to May, maybe so. I don't have the latest data. Did you see a similar situation on your vessels? At the same time, I also noticed the number of vaccinated crew is very, very low because of the difficulty for them to going back hometown to take the vaccination. Do you think the situation would eventually get resolved or at some stage, this could pose a problem for another kind of a bottleneck in the capacity? That's question for Mats. Another question. Please, ask this one first.
Yeah, thank you. Surging claims, COVID-related claims, not in particular for ourselves, but again, crew repatriation is a major issue still. We're back to more normal levels as regards how long people have been on board. We've been able to get people back, but it costs us more money. Flight tickets are incredibly expensive these days and hard to get. Our costs have gone up a little bit as a result of that. We've been fortunate, touch wood, not to have many COVID cases on our ships directly, but we still have delays and inefficiencies. It doesn't really result in claims. It's one of the marginal factors that help us, right?
The overall fleet, sometimes a ship has to wait 14 days because there's been a case or sometimes there's quarantine rules saying that if you have been to India, you cannot go directly to other countries and stuff like that. There's a little bit of inefficiency built into the fleet, but that's overall for the industry, not in particular for us. As regards vaccination of crews, it's getting better. Today, about 70% of our new crew that joins our ships are vaccinated. Vaccinations are available for our Chinese crew before they go out, and since recently, a few weeks ago, our Filipino crew can also have access to vaccination in the Philippines before they go out to the ships. Some countries are very generously providing vaccinations to our ships and to all ships that are calling in their ports.
We appreciate that very much, and we're taking advantage of that. When our ships are calling in ports where vaccinations are offered, we are encouraging that, and many of our ships have been vaccinated that way. Many of them have been the Johnson & Johnson, which only needs one shot. Even if there's another vaccine, we do gratefully accept that. We do think this is getting better, not worse. It's still not over, and you have flare-ups like we had in India, and that's causing some renewed complications. Overall, with vaccinations, we feel it's moving in the right direction and not the wrong direction. Touch wood, no serious situation on our ships, thankfully.
All right. Thank you. One question for Peter. I noticed the borrowings, the loans decreased, thanks to the strong cash flow. At the same time, when you pay back the loans, I also noticed the pledged asset, the pledged vessels number has also decreased. You still have the majority of your fleets being pledged to the lenders. I believe in the coming quarters, months, you're going to pay down more debts and probably more vessels will be released from the collateral. Do you seriously think of any unsecured borrowings as choice alternatives?
Yes. That's a good question. Actually, last year, we actually put in place, outside of the convertible bond, which is unsecured, we did actually put in place our first, to my knowledge, ever unsecured bilateral bank facility. That was a year-long, 364-day facility that we've now rolled over. I think it's a good question, and we're obviously looking at going forward as our balance sheet strengthens, as we get more assets that are not pledged against the bank facility, that this will over time improve our ability to get unsecured financing. We are looking in the next steps to extend the unsecured facilities for longer than a year, et cetera. This is something we're looking for at the moment. Again, watch this space.
Cool. Thank you.
Thank you, Yang. We will now begin our closing comment from Mr. Mats Berglund. Over to you.
Yes. Nothing to add other than to thank you all for participating and for your interest in our company. Again, welcome to Martin, and goodbye from me. Thank you very much.
This concludes our conference call. Thank you all for attending. You may now disconnect.