Pacific Basin Shipping Limited (HKG:2343)

Analyst Day 2021

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Apr 21, 2021

Welcome to today's Pacific Basin 2020 Analyst Day. I am pleased to present Chief Executive Officer, Mr. Matt Spurlin Chief Financial Officer, Mr. Peter Schultz Asset Management Director, Mr. Morgan Inversen and Pacific's chartering director, Mr. Surinder Brar. All participants will be in listen only mode and afterwards, there will be a question and answer session on every session. First, Mr. Berlin will start the introduction session. Mr. Berlin, please begin. Thank you very much, everyone, for joining us today. Sorry for the slight delayed start. Please turn to Slide 4. And I will start with just 1 or 2 overview slides because I know that there are some of you who do not know us that well. I apologize for those of you who already know this. But just briefly, we, Pacific basin, operate the world's largest handysize fleet. We're the largest owner and operator of handysize ships, and we also have a significant Supramax fleet. We have what we say a cargo system business model. We are not a tonnage provider, I. E, we do not time charter out our ships on 1, 2, 3 years. We deal with the cargoes and the shippers directly, and we have built a very efficient cargo system, which we will talk more about today. We own 117 Handysize and Supermax vessels. And today, we have a total of 271 ships on the water if we include also shorter ships. We are based and headquartered here in Hong Kong. We're listed here, but we do our business all around the globe. We have 10 commercial offices on all the 6 continents. We have about 300, 400 shore flight employees and more than 4,000 seafarers. And we have a strong balance sheet with SEK362,000,000 at end of December this year. Our organization is one that is very experienced, an experienced Board and an experienced management team. You see the 4th chart here. I myself, as most of you know, will retire on July 31, and I will be replaced by Martin Freuagord, who comes here to Hong Kong in June. He starts July 1. We overlap for a month, and we look forward to introduce him to you on our 6 month earnings call on July 29. Again, we're fortunate to have a very experienced management team. I did the math here. The average time with a company is 18 years, and most of us are lifelong shipping career people. People like Morten, who you will hear from later, have probably sold bought and sold more amified ships than anybody else on the planet. He's been with us for 32 years. People like Suresh, Captain Suresh Prabhakar, who runs our commercial operations, has probably seen everything you can see as regards loading and discharge in minor bulk commodities. And again, we're very fortunate to have an extremely experienced management team. Next slide. I use this slide just to describe to you where we fit in and why we only have handysizing supermax ships. It has to do with the versatility of those ships and the ability to build a cargo system with cordless in both directions. The top section of this slide, the very basics, we don't have any container ships. We don't have any tankers. We only have bulk carriers, dry bulk carriers. And we have the types that have trains on deck. So if you see the left column, you see the 4 main vessel types within drive outs. The biggest ships at the bottom are called Capesize and then Panamax, and the upper 2 are called Supramax or now Ultramax, it's the same type of shift, and then Handysize. And you can see the difference that Handys and Supramax have trains on deck. And it makes them very flexible, very versatile. And we do not need shore site facilities to load and discharge, so we use our own cranes to lift on and lift off predominantly our cargo. And we carry minor valves, which is more than 25 different types of commodities. You see some of them listed on the right column of this graph. And the bigger ship you get, the smaller versatility you have. So capesile ships is almost only carrying iron ore and a little bit of coal. And what that means is that you're only laden in one direction and you're going empty back. We don't like these larger segments because we cannot really be different and we cannot really build a more industrial efficient cargo system with cargoes in both directions if we owned these ships. So it's very difficult to be different. You don't really control your own destiny in the Capesize market. You're all at the mercy of Chinese iron ore imports and its lowest cost wins. What we can do with our much more versatile commodity mix is that we can build a much more industrial system of cargo contracts that complement each other, and we can build a very high utilization rate. More than 90% of all the days at sea, we are fully laden. And that's how we are different, and I'll talk more about that in a minute. This is why we're only in Handysize and Supermax. The key components of our business model are listed on this slide, and it's been built up over many years. We make we have a track record of outperforming market rates, and that is primarily because of this higher laden percentage. It's not because customers pay us more than the market rate. The market rate is the market rate. We use our ships more efficiently, and that's why we make more dollars per day because we have fewer empty dates, fewer dates in Dallas, as we say. And to do that, you've got to have all of these components that I have listed here. Number 1 is the versatile ships, the Handys and Souplas with trains on deck and access to all the various minor bulk commodities. The second point is that you need scale so that you can build a worldwide system, and you need interchangeable ships. So you need ships that are very well equipped so that we can freely swap ships in and out. If we have different design ships, for example, if we only have some ships that can carry logs and others could not, it will be very difficult to reach 90% laden. As an example, in Handysize, every ship that we own other than 1 is log fitted, and it means that we can always use the ship that's closest to the load port, and we can build this very efficient system. Predominantly, our ships are built in Japan or Japanese design, and they're very well equipped and very reliable, very high quality ships. Since I came, we have only bought 1 non Chinese ship, and we have bought a lot of all areas of Japanese. As I mentioned, we have experienced staff. And I want to make the point that in this segment, skill and expertise really makes a difference, right? I mentioned to you loading and discharging. To load steel on a ship, you really have to know the ins and outs on how to distribute the weight on deck, how to stack it, how to put damage in between. And the more skilled you are in loading and discharging and cleaning in between, that makes a big difference. That can be the difference between making a voyage profitable or making it loss making. The global office network that we have built is critical. We would not be able to get the cargoes out of South America, out of New Zealand, out of Australia, out of Japan, etcetera, if we didn't have local offices there in that time zone that speaks the language and that is close to our customers. And it takes to it costs money to have this worldwide office network, so you need to scale to distribute the costs. Arguably, most important is, of course, our customers and our cargo contracts, the relationships and the direct interaction that we have with our end users, right? The direct contact that we have with our customers gives us excellent market intelligence. We know what's happening in the market. If you're a tonnage provider, time chartering, leasing out your ships, you're not really talking to the end user. You're time chartering your ship to another operator or owner. So of course, the cargo network to build this high utilization rate is key to us and the cargo contract and the relationships. I would say that maybe half of our repeat business is contractual. The other half is informal relationships where the customer always comes back to us. We say in the last point here that we are both asset heavy and asset light. What we mean with asset heavy, that's our core business. That's the owned ships and the long term shorted ships. And that is really the key in a strong market like we have now. But we also have what we call an asset light business. That's all these short term charter ships. And a piece of that is what we call operating activity. So Uyndur will speak more about that later. But that's a complementary business to provide a service to our customers even if we do not have our own ship or long term charter ship in position. And we can make a margin by combining a cargo and a ship opportunistically, very valuable, especially in a falling market or in a weak market because it's the margin there that is the profitability to us. So it doesn't really matter if the market is strong or weak. Especially in a weak market, when we cannot make money on our own ship, it's very valuable to have both. But I will say that I would not want to run a company that was only asset light because I think it's a very weak customer offering. You're not offering your own and managed ships to your customers. You're shuttering in from mostly the spot market other people's ships each and every time. So you have no control over the quality, over the service, over the reliability, over the crews on board, right, because you're taking a ship that's cheapest from the market every time and you're combining it with a cargo. So our core business is our key, and that's what allows us to get cargo contracts and to build our business. So that's a little bit on our business model. And for those of you who doesn't know us well, hopefully, you do understand kind of the basics of our business model now. And this next slide is just to prove that it works. It does work. You can see that we have a track record of outperforming market rates with $1700 per day over the last 5 years on Handys and $14.90 per day on the Supraps over the last 5 years. Even more on the Supras recently, thanks to our scrubber benefits. But it's not only on TCE that we outperformed and that we are competitive. We also have very competitive cost structure. And you see down below there that compared to our peer group, we also have lower OpEx, G and A and finance costs than our peers. So the combination of higher earnings and lower costs provide a benefit of $1500 per day compared to our peers on the Handys for the calendar year 2020 and more than $3,000 on the Supramax as compared to our peers last year. Again, the wider margin on sucral is due to the scrubber benefits that we have on most of our owned sucral. Turning to the markets, Slide 9. You can see clearly here that the positive trend continues. And for the Q2, we were when we reported here a while back, about 80% covered at $16 a day on Andes and $18,000 per day on Supra. And this is well above our breakeven level, which we remind you of here by where the dotted line that you see on this graph. It's easy to do the math between the breakeven level and what we're now making. I remind you that we have about 90 core Handysize ships, and we have about 45 core Supramax ships. And I'd just like to mention as well that we've had quite a different situation in Q1 versus Q2, and Surinder will mention this later as well. The Atlantic market has been significantly stronger than the Pacific market in Q1, and that is especially beneficial for our Supramax segment because we have more Supras in the Atlantic than we do in the Pacific. And you can see that we caught more of the stronger market in Q1 on the Supras than we did on the Handys. But this has now reversed in the Q2, and now the Pacific market is stronger than the Atlantic. And that is extra beneficial for our Handysize segment because we have more Handys in the Pacific than we do in the Atlantic. And you can see that the difference between Supra and Handy is narrowing and Handy rates are catching up very nicely and especially good for us since we have about twice as many Handys as we do Supra. So very positive market rate development right now. And you can see on the next slide that we're kind of on a different planet than we have been the previous years. And encouragingly, you can see that the market has actually turned up again in the last week. When we reported here a week ago, we did communicate that it felt like the market is finding support at the levels we had, and we are now seeing a rising market again, which is very encouraging. And again, it demonstrates a tight balance between supply and demand and that it's not just a one off situation that we had with the spike earlier about a month ago. I also want to remind you here about the lag between the fixing a ship and earning the money on that voyage because we're fixing forward, right? So there's a 1 to 3 month lag between fixing and earning. So the fixtures, the spot fixtures that we did during the strong spike in late February, early March is not really showing up until in the second quarter earnings, which you saw on the TCE rates as well, right? So it is not meaningful to compare index rates for Q1. Those rates, by the way, that you're seeing here are index rates. We can't really compare the average index rates for Q1 with our earnings of Q1 when rates change as dramatically as they have done now early this year because of this lag. You need a longer period to compare with maybe some ups and downs, and then you can compare again between index rates and our earnings. It's really apples and bananas to compare quarter by quarter when rates change as much as they have done recently. Next slide, why are rates so strong? I'm not going to go through all of the details here, and Morten will speak more about the market factors later. But it is China, it is grain, it is construction materials that's growing strongly, it is coal that's coming back to same levels as before, and there's also some temporary factors that we have benefited from, including a few inefficiencies in the fleet and also from high container rates, very high container rates, more than twice as high as our rates, which is causing some container cargo to move to drive our carriers. And we're now entering the South American grain season, which is kind of what drives the market right now. Next slide, I just want to touch upon the biggest change during the company during my 9 years have been a significant growth of the owned fleet, and we have reduced the long term charter van fleet instead. We much prefer to own ships. So we have gone from owning 34 ships in 2012 to now 117. And again, the benefit of this is in a market like we have now because the costs are substantially fixed. So we have tremendous upside and leverage now that market rates are finally at a rewarding level. And we have specifically grown our Supramax proportion. As you can see, we hardly owned any Supramax ships back in 2012. Now we own 40. And that's been a conscious strategy since Supramax rates have larger upside in strong markets. The larger ships tends to rate tends to grow up more in strong markets, and we are benefiting, as you can see, in Q1 and Q2 with even higher Supra rates than Handy rates. And we have continued to grow the fleet, in particular, with Ultramax ships. And most recently, we bought 4 ships in November from Scorpio, 5 year old ships at 16,700,000 each, a fantastic price for extremely well equipped ships, including brand new scrubber installed on those ships included in the price. And you can see on the graph to the top left how nicely such ships have developed in recent months. So this is the market that we have been waiting for. This is the market that we have worked so hard to build up for and set up for with our now much larger core fleet. And we are back to the levels that we last had 20 10. And just looking back at 2010, our Handysize rates averaged $16,700 per day in 2010. And we are kind of back to those levels now. You saw that we were covered at $16,100 for the Q2. Now back in 2010, when the calendar year averaged $16,700, this company made just above $100,000,000 And I mentioned this before, I'm going to mention it again. If we get the same rates again for a full year, we would not make just over €100,000,000 We would make €400,000,000 And I'm using this just to make the point that there is still upside in our company, in our earnings and in our share price and market cap. Back in 2010, our market cap was about the same as it is now. I repeat, the market cap was about the same as it is now, but our earnings capacity now is 4x as high, and we have the same rate levels or about the same rate levels. Now it's only for a quarter yet, but we think it will last, and I will revert to that. Next slide. I just did some back of the envelope calculations the other day, which I would like to share with you to also show you that there's still plenty of upside in our business. And I'm showing you here the values, the market values of various aged ships, 2010 and in and what the value is now. And the 3rd line on this slide is called upside to 2010 values. I'm comparing how much current values needed to go up to match the market's price that we had at the end of 20 10. Earlier 2010 values were even higher, but I've taken the end 2010 values. And you can see the percentage increase that it still takes to get up to same levels as 2010. I should say just to clarify, right, that this is not a forecast. This is not a projection. We're not making any forecast. We're not forecasting to make CHF 400,000,000 We're just making math. But the rates are at that level. And the point I want to make here while showing these various aged vessels is that the older ships have much more upside left. That's always the case, and that's why we like to work with 2nd hand ships. Our average age is around 10 years. We have some that are older. We have some that are younger. But we like 10 year old ships, 1, because the earnings is much higher. The return is much higher. You can see on the lower section here what tremendous returns we're making at today's level by dividing the EBITDA by the value of the ship, right? So take a 15 year old ship that's worth $6,800,000 now as per Clarkson, it's a 28,000 tonner. At current rate levels of $15,000 per day, I've taken off a little bit since the ship is a bit smaller, right? So at $15,000 a day, the cash contribution to capital is about $3,100,000 a year and the scrap value is $3,300,000 So by adding the scrap value with 1 year of earnings cash flow, you got CHF 6,400,000 and you can buy a ship for CHF 6,800,000 So there's just tremendous earnings capacity left in these ships and a lot of upside on the value. Next slide shows the same thing, but on Supermax, you can see the same trend, right? That the older ships have much more upside left, and the earnings are tremendous on these middle aged ships. Cap value of a Supra is $4,800,000 You're holding in more than $4,000,000 and a 15 year old is worth 10.3 percent. Next slide. Now you may ask, why don't we go out and buy a lot more 10 or 15 year old ships today, well, it's very difficult to do because competition is very stiff today to buy ships and prices are going up. There's a lot of people inspecting ships, etcetera. So we are very fortunate to have so many ships already. We have 117 of them, and we do not have to go out and chase buying more ships if vessel values start to get really high. I'm showing you this slide just to put things in perspective, right, that if there's any segment where these strong rates should have capacity to last, it's in our segment. You can see that the order book in Handysize is 3.5%, and for Supramax, it's about the same as overall drybulk, 5.6%. This is the lowest order book in living memory. And this bodes well for the market in the coming years. So final slide to wrap up. We have a healthy demand outlook. Morten will speak more about it. We have vaccine and stimulus rollouts in the world. We have global growth forecast that's being adjusted up to 6% most recently. Chart on Things, Minerbahce demand will grow 4.8%. It's very unusual to have Minerbahce grow slower than overall GDP. So chances are that line about demand growth will be higher than 4.8%. It's certainly a lot higher than that so far this year. The order book is low, 3.5% for Handysize. The net fleet growth this year is by far from expected to be just below 2% and even lower in 2022. So if you contrast a demand growth of around 5% with a supply growth of 2% or less than 2%. That's why we are reasonably optimistic about the market balance going forward. And we have mentioned before, we'll mention again who in his right mind calls up a shipyard today to order a new ship with a fuel oil engine that you need typically 25 years to depreciate that delivers 2 or 3 years from now when we have this environmental greenhouse gas reduction movement going on. You simply have to be extremely strangely minded to do that in our view. And that is why the so far, touchwood, the order book remains benign, and that is why we believe that we will not shoot ourselves, our industry in the foot again by ordering too many ships. We do think that it continues to make so much more sense to buy secondhand ships because we can see very clearly that we can use those ships for another at least another 10 years. There's no question about that. But to order a new ship that delivers 2 years from now into a market that you're not certain of how it will look, that you then need a very long time. You have a very high capital amount to depreciate by 2nd hand ships instead. And that's why there's also more upside, in our view, in second hand values. And very importantly, starting 'twenty three, the way it looks like, IMO will come in with medium term or short term rules that will force power limitations, And a lot of the core design ships will have to slow down already in those years or soon thereafter. So that's another factor that will moderate supply and keep the supply demand balance tight. This is the time to now harvest and to make money and to save that money in order to order real new technology ships, but that will take many years. We cannot order real new technology ships today because they are not available. And even if they were available, there would be no fuel available for them. So we're watching the new technology developments very, very closely participating in a lot of programs and research, but it will take time before new technology ships will be available. And meanwhile, we intend to make a lot of money. And that's based on our strong leverage, the larger fleet, our competitive costs, and we're in a very good position now to benefit. Again, dollars 1,000 rate if rates go up $1,000 that changes our bottom line with between $35,000,000 $40,000,000 The math is easy to do. We encourage you to do it. And we also encourage you to listen in again on July 29 when we will report our 6 months results that I think will be very exciting to report. So that concludes my introduction and overview, and we, I think, invite for if there's any questions already now. So any questions, please feel free. And after that, we will have more to talk about the markets. Thank you. We will now begin our question and answer Our first question comes from Prajang with HSBC. Please go ahead. Thank you. Yes. Hi, Mats. This is Paras here. Exciting times. I was just wondering, given this forum, I think I should take opportunity to understand from you. Can you talk a bit about what does IMO's 1st Jan 2023 EE, XI, EDI regulation mean? I mean, is it possible to quantify, I. E, ballpark, let's say, vessels older than 20 years may need to speed by slow their speed by half knot or something? Is it any way possible to quantify the impact on the effective supply growth? And is it fair to say that, that could be a driver to drag supply growth into negative? Yes. It is, but it's not decided upon yet. So it's a bit we have elected so far not to show a lot of details on this because the rules are still work in progress. They haven't decided whether IMO is going to go for a 2% per year decrease on emissions or a 1.5% decrease. But it follows this trajectory of reducing CO2 with 40% compared to 2,008. And each ship will also be different, Haraj. But there's no doubt that, I mean, if we were to simplify, we will probably say that a the best design ships will be able to continue at decent speeds, while the worst designed ships will start to have problems already 2024. Maybe, I mean, we haven't done work on the worst design ships, but they will have, they will start to have severe speed restrictions, power limitations already when this kicks in. It will, of course, be up to the charterers also to kind of discriminate, right? But ships will be rated A through E, where A is the lowest emitting ship and E is the most effective, right? And an A ship will be allowed to continue at higher speeds, and an E ship has to come up with a plan how it's going to move up. It's A, B, C, you do not have any restrictions other than speed. But if you're deemed after 3 years, you have to come up. And there may be charters who say that I'm only going to charter A, B, C, etcetera, right? So these poor design ships will not they have to go down below 50%. They have to go down to maximum slow MCR, which is 30%, 35%. And that's only 9 knots or something, right? So a lot of charters will find that's a bit too slow, and they're not going to look good chartering these types of ships. So we think this will be very helpful for our markets. And thankfully, us having predominantly good design fuel efficient Japanese ships, we will be affected. Everybody will be affected, but we our fleet is good, and we will be less affected than others. And a vast majority of our ships, as far as we can see now, will have no problems trading, although at slower speeds for some of them. And Matt, so are we expected to get final outcome or more visibility by mid June when IMO will be meeting later this year? I think close to final, at least. You never know how these meetings go if some countries come in and protest and try to change it. But it looks set to be substantially decided upon in this June IMO meeting. But again, it will not kick in until I think they will start 'twenty three will be used the date of 'twenty three will be used as starting point. And then January 1, 'twenty four, it will start to kick in hard, so to speak. Peter, is that correct? That is correct, yes. So what we're hoping to do, Parekh, is is assuming we feel that the IMO has been clear enough and that there are rules available that we can analyze and look at in a little bit more detail than we've done today. We're planning to have perhaps incorporate in our Investor Day later this year, the autumn, where we do a little bit of teaching on these rules, how it will affect us, but maybe more importantly, how it will affect the market overall because what we're talking about is potentially, mid decade, the substantial part of the fleet will struggle to operate optimally and commercially. And this is before there will be a 0 carbon alternative available, right? And that's the key. I have a question coming online from Andrew Lee from Jefferies. He asked that on Slides 14 and 15. Given the EBITDA returns, do you expect vessel prices to rebound sharply? Yes. Vessel volumes have already gone up, Andrew, right? And whether they will continue to go up or not will most likely depend on how rates develop going forward. I show these slides to indicate that we're nowhere close to the values we had back in 2010. That's 2010. These rates average for the year at those levels, right? And so far, probably people are not 100% sure will they stay there. They're not prepared to pay up, right? And maybe, again, it's the good design shift that people can see, also including these IMO rules coming, right? When we look at we're still looking to buy ships, but we are very particular about ships that we buy. And we will only buy the most fuel efficient ships that we can clearly see can trade through 2,030 with these rules in mind. So if you can buy a ship today that you're confident under these IMO rules you can trade until 2,030, you have at least 10 years of trading, right? So if you're making CHF 4,000,000 through the capital every year, that's a lot of money, right, if you think that you have many years at these levels. So yes, definitely more upside on secondhand values. But again, we're not predicting that a 5 year old handysize will be worth €15,000,000 right? We just have to wait and see. But it's only upside for us, right? It's all upside. And one last question for this Q and A session. Coming from Nathan Gee from Bank of America. Matt, do you see current spot rates as sustainable in the second half this year? Or do you think that current FFA are reasonable pointing towards backwardation? The FSA rates are fairly accurate in the short term, but the long term value is not there in FSA, right? I mean, just look at 2012, FFA rates are very low. Try to show off your physical shift at that level, and good luck to you, right? If you look at the physical 1 year time charter rate now, I think Crocsmann has a 61,000 tonner at 18.5 or something. Marsh has it higher than that 19.5 or something, right? And the FSA rate for Supramax for 'twenty for calendar year 2022 is like 12.5% or 13% of that range. Statistical margin is much higher if you go out 1 year or further. So to answer your question, yes, we do believe that there's a certainly a good potential for these strong rates to continue. And again, it's very encouraging to see rates going up now, right? And it's not one particular reason, and you can quiz Martin on this, who is our most experienced and data intelligence person that we have, right? He looks at all these factors. And it's not one factor, it's many factors. And it's taken a long time to get to this level, right? So we've suffered for many years to finally get into a tight situation. But again, I can only repeat that the demand outlook looks good with 6% GDP and 5% line about. And we know that the fleet will grow much lower than that. So with those fundamentals, we can only say that, yes, of course, there is a chance that these strong rates will continue. Thank you. Thank you. Thank you. Shall we go to Martin? Sure. Now we will move on to supply and demand fundamental session. Mr. Imberson, please begin. Yes. Good morning, good afternoon, everyone. I'm sorry that I'm not able to be in Hong Kong today due to COVID travel restrictions. I'll do my best from this end to take you through the market slides that we have presented for you today. Starting with the overview, I'll go through this relatively quickly. A lot of this is covered by Matt already. As he mentioned, supply and demand balance improved. We have seen a sort of a vast improvement in the Q1 this year. And I think it's fair to say that this that we hit a tipping point evidenced by the increase in earnings. This is obviously not something that has happened overnight. As Max mentioned, it's something that built out over time. And at some point, the market simply just runs out of ships. And that's what we've seen happening in the Q1 when earnings reached 10 year highs. On the supply side, we have the dry bulk fleet growth peaking at the middle of last year, and it has been declining since that time. We do have visibility for this for the next sort of I would say definitely this year and also next year, and we can see that this will decline further as we go forward in time. The dry bulk order book is at a record low. And as Mats mentioned, contracting is held back by the uncertainty of the future vessel designs and what is compliant when you look 25 years ahead to meet emission reduction targets. We'll talk a little bit more about that later on. When looking at last year, the severe COVID lockdowns that we had, I think it's fair to say that the drug off demand was surprisingly resilient. It did drop a little bit. Obviously, rates were lower last year than the year before. And we have had good recovering good growth in the Q1 of this year. Especially, again, as Mats mentioned, grain and miner bogs have supported the market. And we've also had some assistance from a tight container market where cargoes have shifted out of containers and back into drybulk. Looking ahead, we have the normal seasonality applying to drybulk shipping, which means that rates and demand is typically higher in the second half of the year. We also have the stimulus in the background that we think will support demand growth further into 2021. So if we can move to the next slide, please. So this is basically a repeat of what Matt mentioned, but I think it's worth talking a little bit around this. We have rates at a 10 year high and it's tempting to look a little bit at what happened in 2010 and why rates dropped at that point. And that was, of course, when the deliveries of ships that were ordered in 2,007, 2008 started to deliver, which of course today is vastly different. We have instead of adding a high order book, we have a low order book and we got declining deliveries. So that's one key observation of the start when you compare 2010 to 2021. We also worth mentioning is that if you go further back in time before 2010, rates were significantly higher. So I think it's wrong to say that where we are now is sort of a unique year sort of peak that will not be sustainable. And indeed, as Matt said, we have seen at the end of last week and early this week that rates are beginning to come up again, which is very comforting to us. I think also when these things happen, people who have cargo tend to hold back when rates go up. And at some point, they have to show their hands and go up and get transportation for those cargoes. And that is also part of the reason why we see this volatile move forward. I will also mention here that the we've been looking hard at data and there isn't any specific single big reason why this is happening. The growth is spread across a wide range of commodities and that is also helpful and that also explains why Handysize and Supramax earnings have done particularly well this year. So if we can have the next slide, please. On the drybulk order book, we have set out here the order book in percentage of the fleet. And as it stands at the beginning of as of the start of March, we had a 5.6 nominal order for drybulk carriers, and that is the lowest that it's ever been across this period here going back to 1995. Also interesting is that when if we focus on the sort of 4 big major sectors of drybulk, We find Handysize at the bottom of 3.5 percent. Supermax, a little bit more, 5.4%, which is an all time low for that sector. And also Panamax and Capesize at historically low level, 6%. A little bit about the reason why there is a lack of ordering. Normally, in a situation where you have a bullish sentiment like today, you would have a lot more ordering and people going to the yards to book New Thomas. That is not happening. There is a little bit of ordering, but nothing like what you would expect if you had a normal bullish sentiment like what we have today. And it's also worth mentioning that it's not just the risk of having an uncompliant vessel, perhaps halfway through its 25 year lifetime due to stricter environmental regulation and requirements. It's also the fact that these new designs, whatever you choose, whether you go for the sort of intermediate solution, which many people regard as LNG to more sort of carbon neutral forms of propulsion, it's a lot more expensive than what you have today. So it's not just the risk that you're taking by getting the wrong vessel and the wrong design, but it's also paying more for that in the process. And I think this is holding back the appetite for more ordering. If we can have the next slide, please. We have here a I would call this a crude or broad based annual estimate for supply and demand based on the forecast that we have from Clarkson's research. This is, of course, on an annual basis. It doesn't actually explain what's happening on a sort of month to month basis or what is happening today, but it does give you a sort of a broader view that tells you in what direction the market is going. And you can see here from 2020, on the left hand side, where we have minor bulk against the Handysize and Supermax fleet, that we have a positive balance with demand growing higher than supply is expected to develop. Similar for drybulk, the total drybulk, including all ships and all cargoes, We have a positive balance this year, and the spread remains positive also for next year and indeed widening. One thing is demand forecasting demand within itself is difficult, but it's there in front of us. But I would add also that on the supply side, underlying this is not just deliveries, but also scrapping our vessels. Clarksons is forecasting that the scrapping will decline this year. Perhaps it will decline a little bit more than what they have set out sorry, decline a little bit less than what they have set out. And at the moment, we have almost no scrapping due to the strong market. So that's I think scrapping is the variable that will determine the supply demand sorry, the supply side as we move through 2021 and into 2022. Next slide, please. We have here 4 the demand side split into the 4 sort of classic groups: grains, minor bulks on the left hand side and iron ore, coal on the right hand side. This is based on cargo tracking that we get from a company called AXS Marine. It is a tool that didn't exist a few years ago. It basically tries to identify what is on board vessels as they move from load port to discharge port. It is also it's not absolutely perfect. The system is not able to catch absolutely everything that is onboard ships. But for broad categories like these sort of volume, big volume categories, it is reasonably accurate. We have tested this against our own ships, our own fleet and our own trading and we find it surprisingly accurate. I think as you drill down into individual cargoes, it's a little bit more it tends a little bit more error. But at this level, we think it's reasonably representative. So starting with the on the grain side, we can see good growth for this year. Grain obviously is not a cargo that is driven by sort of industrial production, GDP, that sort of thing. It's more about crops. It's about people eating. It's about China having a more meat based diet than before. And all of this is supporting the grain market. We've had this year a particular support out of the U. S. And also the beginning of the South American grain export season, which I'll get back to a little bit later on. Moving down into on to minor bulks. The first observation to make here, I think, is that we had a particularly bad development due to the COVID lockdowns in the second in the first half of the year, particularly around April May, but things were dropping back. And we've had good growth so far this year. This is where the sort of broad based cargo growth is coming in. I'll cover that in a little bit more detail later on. Iron ore is also growing. The feature of the iron ore market is very much about China. China is overwhelming the biggest import through of iron ore. We can see on the iron ore price, we'll get to a little bit later on, that has increased substantially from bottoming in 2016. But there is a problem on the supply side of the cargo. There's plenty of demand, and supply is struggling to keep up with the demand side. We have growth out of Australia, first of all, and also out of South America, which is still struggling to get back to the level they were before they had that disaster with the dam breaking in 2019. We've also seen this year due to shortage out of these traditional iron ore suppliers, increased volume out of India, which is very much a supermax ultramax trade, which has helped the market as well. Lastly, on the coal side, I think this is the only cargo group that we could see sort of a real COVID decline last year. You see the red line well below the year the 2 years before. We've had recovery in this from the in the last quarter of last year and continuing into this year. Coal is a little bit more political as a cargo than many of the other ones. It depends on Chinese policy on importing versus domestic coal output. And it's also, for other countries, driven by the use of electricity, which is the most of the coal volume, thermal coal. So we'll move on to the next slide, which deals more in more detail with the grain trade, which is which has been growing strongly. You can see here on the upper left hand side, we have combined U. S. And Canadian grain soybean and soybean and soybean loadings, with a 57% growth in the Q1 based on these cargo tracking data that we have used for these charts. Very encouraging, we saw the U. S. Coming back. We'll get back to that a little bit later on, but we saw that coming back again strongly in the second half of last year. We have the beginning of the South American grain export season, which started late due to late planting, but coming back very strongly with Brazil exports in March actually exceeding the level of last year, which in itself was very high. Australian grain, which is really just grain, it's not much soybean oil coming out from there. But Australian grain exports have this year been very, very strong. We've had a couple of years with low exports and this has increased substantially. It's not a huge big trade when you compare the volume to the other ones, but it does have a significant impact in the Pacific region. So that has been helpful as well. Black Sea is COVID also, just to show also the seasonality of the fires. It's a little bit down this year. There is some export restriction coming out of Russia, where they prefer to keep more of the grain domestically to lower the domestic price. But we should see a significant pickup in the second half of the year as the seasonality chart indicates. If we move to the next slide, we have here 4 examples of commodity prices just to illustrate the strength of buying, if you like, what has been happening lately. I would start with the iron ore on the upper right hand side. And as it happens, we had a new high actually set yesterday at $188 per tonne, which is the highest. We have to go back to 2011 to see anything similar. And this is really just a this is a sign of the supplier carbon not being able to meet the demand. There is talk in China about the Chinese steel production actually reducing this year. There was a sort of a policy to say that this will happening. Everything that we see on the ground tells us opposite. The steel production in the year to date goes up 16%. China is short of steel. The steel prices in China have gone up significantly. The margins to produce steel is positive. So the steel mills are incentivized to produce more. I would also add that China still has about 8 more than 800,000,000 tons annual domestic supply of low quality, which is due to be replaced at some point. And by doing that, they will also reduce the emissions from steelmaking by using imported ore, which has a higher FE content, which again means that you need less power to convert this into steel. Corn, we have here as an example of the grain price, which that has gone up significantly. A lot of that is due to increased buying out of China, but we'll also get back to a little bit later on. And then lastly, we have copper as as a representation of Industrial Metals. If we move to the next slide, please. So what we set out here is, again, using the cargo tracking data that we get from AXS, And we thought it would be interesting to show you just how the year varies. If you split the trade and hand it combines Handyside and Supramax trade by sort of oceanic basins, you have your inter Pacific, you have your inter Atlantic and then you have trades going from the Atlantic to the Pacific, which is what we refer to as front haul and going in the other direction from the Pacific to the Atlantic, so called backhaul. In general, the biggest the sort of largest group is the inter Pacific trading that you can see here with a 16,000,000 ton increase in the year to date. We've also had strong growth out of the Atlantic. I think part of that is due to the some decline last year due to the COVID restrictions in Europe. That is coming back again. But there's also other things like steel moving into Europe from other places. And also the general recovery story, I think, is behind the interatlantic increase. What is interesting on the last two flights is the fact that the Atlantic to Pacific, the so called front haul trade, is larger than the backhaul trade. The ships are moving with cargo on a net basis from the Atlantic to the Pacific and much less cargo going the other way. And this cements also the it creates an efficiency ton of ways. You have to move ships from the Pacific back to the Atlantic to carry the cargo, but we haven't got the cargo base to do that. So this is all what we do. This is what we what our trucking is all about, getting those backhaul trades, moving ships to where they have to be, where there's loading going on and making use of the differences between the Oceanic Basin. Can we move to the next slide, please? So what we've set out here are grain trades, and we focus specifically on U. S. Grain exports to China. First of all, on the upper part of this slide, we have total sort of worldwide grain loadings for China discharge, I. E, Chinese imports. This is based on loading data, so that's why we don't that's what is the basis behind it. You can see here that we had from the I would say, from April last year, we had significant growth in the Chinese grain imports. Part of this is soybeans with the Chinese pig population coming back again after the African swine fever. And you've also got China branching into other commodities, other grains that they are starting to import that they have not imported before. Corn is perhaps the most prominent example, a lot of corn going into China. But also minor grains, more wheat. We've also seen sorghum. We saw last week a weekly export of 860,000 tonnes of sorghum to China, which is very unusual. It's the highest ever weekly exports of that grain to from the U. S. To China, covering more than 30 year data period. And all of this is telling us that China is needing these grains. The prices are going up, and they are taking opportunity to import this from a variety of places, including most prominently, the U. S. So if we look at what happened in 2020 on the upper right hand side, you can see that China increased its total grain imports, including soybeans, by almost 40,000,000 tonnes, and the vast majority of that came from the U. S. If we move to the lower side, we focus here on U. S. Grain loadings, specifically out of the U. S. For China discharge. And in the year to date, we've had a 2 28% increase. So it's from a low level because it's classically not the period of time when the U. S. Is exporting grains. But if you look on the right hand side, we've had a 43% increase in that trade, 10 11,000,000 tonnes so far and the vast majority in total, and the vast majority of that is coming out of the U. S. Again. So these are very strong grain trade that supports the market. If we can have the next slide, please. We take a little bit step away from the cargo data and look quickly at the Chinese minebulk imports. This is based on customs data. It's not specifically on drybulk tariffs, but what the sort of real imports, if you like, in volumes is covering. So we got here 10 trades or 10 commodities that we are tracking with the China customs data. For the first seven, we have data covering the Q1. And the last three are still waiting. That's another week before we have the data for logs, bauxite and nickel ore. But you can see here, for all of it except coal, we've had good growth on all of these. That is for the first seven. The last three, I would say, I fully expect logs to go up next month. Based on preliminary data, that's certainly the case. Niculor is very much a trade these days that is driven by exports out of the Philippines where you've had a rainy season, for that to come back again. And bauxite is a little bit negative. It's mainly actually a capesized trade bauxite into China. If we can have the next slide, please. I talked earlier about Miner Bulk dropping back in 2020, particularly around the sort of April, May period. Mining Box is a little bit more difficult to cover because they cover a wide range of commodities. But we thought it would be useful to dig a little bit deeper into this to show sort of why we have that growth and why and what has happened this year. The bar charts on top are basically the minor box divided into 7 main categories, 6 more specific and one more general, which we've heard referred to as others. This is a function of the way that the AXS cargo tracking system works. When drilling into the miner box, as I mentioned, it covers a wide variety of minor commodities. So the deeper we dig, the more difficult it is to track. But I think we can make some general observations a little bit behind the category that we've referred to here as others. I think last year, one of the main reasons why we had a big decline here, 41.6 percent 41,600,000 tonnes year on year decline was due to nickel ore. Indonesia introduced at the end of 2019 a ban of export of nickel ore, which was a trade which at the peak in the last quarter of 2019 was running at about 6,000,000 tonnes per month. And that went to an abrupt halt, stopped completely from 2020. And that explains the vast majority of the decline that you see in 2020 for the other category. There was also aggregates dropping back. You also had some positive bauxite actually last year, the driving and limestone as well. But generally speaking, nickel ore was a big feature in that decline. What has happened this year is you can see on the right hand side is that all of these cargoes, except for iron products, very small trade and pellet also very small trade, all of these have come stronger back again. I would mention specifically, Niccolo is starting from a low base actually, obviously, with the Indonesian exports being stopped. That has grown this year in the Q1 23% up based on preliminary numbers. Aggregates also, which stopped last year, has come back again. You've got manganese or you've got crema or all of these are coming back strongly, which are a result of the coming recovery out of the lockdowns last year. We also have breakbulk. That on the right at the right hand side stands out with the high volume growth. And I wanted to cover also quickly the touch a little bit on what also Matt mentioned, the moving of cargo out of containers and into dry bulk. It's very difficult to get data on this, the container life. I'm not talking about it. I don't want people to know what they carry in the containers. So I've been struggling to try and find a way to sort of describe this or put numbers on it. I narrowed down on Chinese steel exports. It's a big trade. It's about it's up to sort of 4,000,000, 5,000,000 tons a month. So what I've done here is to look at the total exports out of from based on customs data and combine, compare that with what the A XS cargo tracking says on steel exports out of China. These are crude measures. We're using 2 different data series that have slightly different definitions. But I think on a sort of overall in an overall way, it is possible to see the effect that the strong container market has had. You see that the portion, the indicative portion share of Italian ethane steel exports that is carried on drybulk was declining from, say, the middle of 2014. And come the end of 2020 and into 2021, when we have seen the container market pick up strongly, that portion has gone up strongly. I think it's wrong to say I think it would be misleading to say that this is exactly 70% as the end of this line here indicates. But I do think it does tell us that there has been a shift of steel to cargoes after containers and into dry bulk. The reason this is happening is not just the cost side of losing things in containers, which has become more expensive, but also the lack of empty containers where they are needed, typically in China and the Far East for moving containerized, whether it's exercise bikes or computers or whatever, back to the Atlantic. In the old days, when there was more slack in the container system, there were more empty boxes moving around that could be sold with dry bulk cargo, typically on container backhaul trade. That is not the case now. The containers are needed immediately in an empty state and therefore means that there is much less ability and willingness from the container line is to carry drybulk cargo and delay the whole sort of empty container coming back again. The other part of this is obviously breakbulk, which is consists primarily of bagged cargoes. I think there has also been a move back to dry bulk out of containers and strangely also logs. We have seen log movements from log exports from Europe into China absolutely exploding in the last few years. And based on data from for the 1st 3 months of the year, we should have March data in a few weeks' time, that has dropped back significantly, which obviously is helpful for our sort of traditional dog trades out of the U. S. West Coast and out of New Zealand, which we have seen strongly here as well. So next slide, please. What we've done here is to try and look a little bit closer at the Australian coal exports, particularly due to the Chinese well, policy is the wrong word, but the Chinese sort of ban in some form or shape of buying Australian coal. The bar chart on the bottom with lots of covers shows you basically that whereas the total Australian coal loadings has held up. It's dropped back a little bit, but it's held up relatively well. But you can see China, the blue bars at the bottom, basically disappearing during 2020. And this has caused a shift in the way that the Australians export coal. They moved more into India. And also Japan has grown as well. And you could see these sort of shifting patterns, which I'll try to illustrate on this chart. If we go on the upper 2, sort of smaller charts, volume 2020 and the year to date 2021, you can see here that China in both cases have dropped back. It dropped 25,000,000 tonnes in 2020. And so far in 2020, one year only has dropped 16,000,000 tonnes. Whereas others have been sort of more scattered in 2020, but in 20 20, it's up. What is interesting about this is that if you try and convert these data into what has been carried on what ships, which is what I tried to do on the left hand on the right hand side, I've got again 2020 on top and then year to date 2021. And instead of measuring volume here, we have measured the days on which these ship types are carrying Australian coal to whatever destination it is. And obviously, if it's more volume, then you have more days, you have more ships. And also, if it's a further that also adds to the number of days that ships are employed carrying Australian coal. We could see in 2020 that both Panamax 65000 to 120 1,000 tonnes and Capesize, 120,000 tonnes plus. Both of those dropped by 4% to 9% indicative based on these cargo tracking data. Whereas Supramax, 43,000 to 65,000 tons actually increased by 41%. It's not a huge trade, but you could see the way that the trade is shifting as a result partly as a result of the Chinese absence as a buyer that has pushed cargo onto SupramaxUltramax ships. The same happening in 2021 year to date, year on year comparison. Here, we have a 9% drop in the number of days that Panamax has carried Australian coal, little bit less drop for the Capesize. But again, SupramaxUltramax cargo days with Australian coal has picked up. So these are sort of this is an example of the way that even though the trade in itself is dropping, you have sort of shifts within the trade that has benefited, in this case, Supramax and Handy Supramax and Mastermax bulk carriers. So I apologize for this being a little bit sort of a busy this chart, but I hope I've been able to explain it reasonably well, what is behind what's the thinking behind it. And then finally, we've got to the end of the last slide, which is about looking ahead. As mentioned, we have a tighter supplydemand balance, and we can see that through greater volatility. This is something that you would expect to see happening when you have a tighter supply and demand balance. So we think that we will have rates moving up. It's not going to always move up. It will move down again. But you will have this happening from a higher base level. And that, I think, is what we've seen just these days when I think many people, particularly on the cargo side, expected rates to crash down again to what they were a couple of months ago at the beginning of the year or perhaps last year. That is not happening. It's starting to move up again. So that is part of the volatility of a higher base level. We will have the net fleet growth will continue to decline. I would mention again, perhaps we're not going to have quite as much scrapping as Boxcar is indicating. But even so, we will see a declining trend for the fleet growth going forward. Dry bulk hydrovalent has a seasonal boost effect later in the year. There's always more cargo moving in the second half of the year when you have higher earnings. That should be happening this year as well. We also have, obviously, widespread stimulus that continue to support travel trade. We saw also, I think, in March, we had a new sort of an 8 month hire for U. S. Steel imports. They're also importing actually lumber from Europe these days. So there are things that are happening on the back of the stimulus that will take us to the next few years and so. And we also obviously have the lockdowns, the COVID recovery happening over here. We are still very much locked down. This will turn back into a more normal economic development later on, and that should be supported as well. And then lastly, just to drive down again the point about high newbuilding prices and risk of getting the wrong design where you find halfway through your newbuilding's life that it's no longer compliant and fit for trade with new emission standards and regulation coming I think the only thing that is fair to say that we're not going to have less environmental pressure on. So I think it's going to be more. And that I think is seen by many in the industry, which is why people are holding back and putting that, that's on the next 25 years based on the old design and the oil based propulsion. With that, ladies and gentlemen, was the end of my presentation. So if there are any questions, I'd be happy to address that. Thank you. We will now begin our question and answer session. We do have a question that comes from James Till with Bloomberg Intelligence in Singapore. Please go ahead. Thank you. Hi. Thank you, Martin. I'd like to find out more about this seasonality that you mentioned. You mentioned that I think going into 2021, especially second half, I believe, there will be stronger seasonal trends. So what are some of the seasonality that we expect? Is it from particular cargoes like grains or something else? Could you elaborate a little bit more on that? Yes. Hi. Thank you, Jim. That's a very good question. I would say generally, it is something that we see in any sort of normal shipping year. You have you always have sort of a higher the peak of the earnings typically is in the 3rd or Q4 around that period. I think iron ore is a prime example of that. There typically is more iron ore moving in the second half of the year. Part of that is due to Chinese stocking, pre winter stocking. Part of it is also due to more rain and weather issues in the 1st part of the year out of Brazil and also out of Australia. So that is definitely a driver. You also have on the cold side, the beginning of the heating season when more coal is needed. You have also stock up, pre winter stock up. On the grain side, you have U. S. Exports kicking off from sort of September, October. Typically, that peaked around sort of November, October, November period. Last year, we had a very strong also December. But typically, that should be more sort of an October, November, November story. And the similar can be said for many of the minor bogs. They just move in greater volume in the latter part of the year. Also just on the seasonality from a market perspective, there is also more ships delivering in the beginning of the year, even sort of disregarding the trend was moving up or down. There is always more ships delivering at the beginning of the year. And this is what we refer to as the sort of new year effect where owners prefer to get the ship delivered in January with a new delivery year rather than in December or even November with the previous year. So all of these are things that play into the seasonality for drybulk cargo. I mean, if you look at the grain side, you can see here also strong growth out of the Black Sea, although it's a smaller volume than the North and South America. But these are also drivers that help to explain the seasonality. Okay, great. I have an online question coming from Nathan Gee from Bank of America. His question relates to U. S. Stimulus. Do you have any thoughts on what materials the U. S. Would need to import via dry bulk ships versus materials where U. S. Has sufficient domestic supply or where materials can be imported via land of Canada or Mexico? I think it's from my point of view, I think it's 2 sort of main groups that I would put that into. 1 is cement. U. S. Has cement industry, but it is polluting, and it's difficult to get permission to make new cement capacity in the U. S. And that is something that I could see is could be a driver once they sort of once they start employing the funds that they have sort of politically put in. And this will take a little bit of time. It doesn't happen overnight. But I can see cement and cement slink being one of those cargoes and also steel. Steel is sort of political in the sense that there has been support in the U. S. For sort of putting trade barriers up so that to support local industry. But I think that, that can only go so far. And at some point, they do need the steel, and that will encourage them to import more steel, particularly from the Far East. There is obviously some trade going, other from Canada, but it's not huge. And I think the once this gets going, we will see steel imports into the U. S. Picking up, perhaps not sort of the advanced expensive steel, but more steel driven towards construction, which is the sort of center stuff you get out of cases like China. As I mentioned also briefly, I saw a headline, I think, last week saying that the steel imports in the U. S. Hit an 8 month high in March. I haven't seen the data yet, but it will be interesting to see where that is coming from. And I expect a lot of that is out of the Far East. Thank you for that. And one last question coming from Andrew Lee from Jefferies. Here's a 2 part question. The first question, from the different commodities, which area will you see strongest growth, whether it be grains, iron ore, coal or minor bulk? And then the second question being, and which are you most concerned of? And sorry, third question, container building new orders has been increasing. How is the logic difference from the line of all sector? I will address the first question, and then come back and ask it. But the second one, I didn't quite get that. But I'll address the first one initially. I think grains will continue to grow. I mean, I think it is not just a sort of a crop issue where you have some good years and some bad years. I think there is genuine driven demand out of China based on the shifting sort of diet towards more meat based and less vegetables. We can see that happening. There is still the swine population is still growing. I think also it's difficult to get a real sense of what is happening in China when it comes to grain. But I think what we're seeing with these sort of huge purchases of corn particularly, but also what I mentioned also, sorghum, which is not a huge trade, but it is very much dominated by China. I can see that happening going forward. I think Minerbogs, a wide variety of cargoes, It is very much a recovery driven. I think that we will have industrial demand for these minor bogs. I think that will continue, not just in China but also outside of China as the recovery moves forward. Many of these sort of big other big importers like Korea and Japan have still not got back to where they were sort of pre COVID, I would say. So there's still a potential for that to increase. Iron ore, I talked a little bit about. I think China will continue to be driving this, not just the not just to produce more steel, but also shift away from the more polluting low FE, or that they still employ in sort of relatively large quantities that is due for replacement. We also see China investing into despite saying that they will they intend to produce less steel this year and less next year. We see that they actually are investing into new mining capacity where they can. It's in Africa, there's also apparently in Morocco, there's a project to try and develop a very expensive iron ore deposits, therefore, by Chinese sort of investment. And all of these are things that tells me at least that there is still plenty of demand for iron ore going forward, not the least. The higher iron ore price is telling us that. On the coal side, a little bit more difficult. As I mentioned, it is sort of a slightly more political cargo. China has China continues to rely overwhelmingly on coal to produce electricity or produce power. Whereas you have alternative sources of electricity, wind, solar, nuclear, that sort of thing, growing at high percentage levels but from a very low base. So even if the percentage levels are high, China continues to be reliant on coal, and we have seen this we have seen that this year, particularly in the March figures, where hydroelectric power disappointed and China has to turn into coal. How much of it how much they prefer to import and how much they prefer to source domestically is difficult to say. Traditionally, they have been this has been a price issue. China imports coal not just because they're needed, but also as a way to control the domestic price. Coal prices have been increasing, and that should mean that they will be opening up the tap a little bit more to make sure that the domestic coal pricing doesn't run away by simply just having more imports. I think coal is on the way down in Europe. I don't see that really coming back, but I can see in the Far East that there is still potential for coal trades to grow. So I would say out of the 2, I would still point to grains and minor bulks as the most promising, which is what we've also seen so far this year. Can you repeat the second question? Yes. And I think Peter will take on the last question for that part, which was pertaining newbuilding orders have been increasing. How is the logic for newbuilding ordering different for us? Yes. Paul, Gordon, obviously, you can add to this. The dynamics of drybulk and manufacturing are quite different. What we see at the moment on the container side, and by no means we're experts on this, so we're looking at it from the outside. But we are seeing all the large vessels, which are not necessarily readily available to container guidance in the secondhand market. In drybulk, we are fortunate. Every type of vessel more or less is available in the secondhand market. If you recall, last time we ordered ships, which is early part of the last decade now, we did that largely because at that time, there weren't large type available in the secondhand market, and we felt we needed that type to meet our customers' demands. Since then, we've not felt that need in drybulk. And that goes for a lot of other drybulk, most other drybulk owners as well. We can't find the vessel types that we need to sell with our clients. In the container market, that's not necessarily the case. They need to order ships to service their customers because they don't have the sizes. Also, container ships are obviously very large, generally speaking. And in many cases, it's easier to retrofit these with more future proof fuels than we can build on bulkheads, especially smaller bulkheads as well. So I think along with container guys, their market is more concentrated. They're fighting for market share in a completely different way from what we're doing. They're not fighting for market share necessarily in dry market, so fragmented. Whereas it's more concentrated there, so they're fighting for market share. So they don't want to wait to find the perfect shift 5 years from now that they can invest in what they want. And so they order a ship today, but they feel they can retrofit or use future fuel a future proof fuel zone down the line. And they feel more comfortable about that for technical reasons as well. So I think those are some of the different aspects between the industries. While the container guide feels they need to add particular the sizes for capacity and the competitive dynamics are slightly different. It doesn't mean that there won't be a slight increase in ordering in drydock. I mean, we make it sound like there won't be any ordering, and that's not correct. I mean, there will be ordering, We are seeing orders coming in, but not similar to what we've seen in recent market spike. I should add, it is much, much more muted than it has been in the past. And as Matt said before, knock on wood, we hope for that to continue, but there will be some orders. Peter or Morton, if you want to add anything on the container segment, please feel free to do so or anything else? Yes. No, I think just to add, the container order book basically was dropping from 2,008 basically until the second mid second half of twenty twenty. And it dropped back to nominally back to 6% of the fleet, which doesn't sound that low. But actually, that is substantially lower than what has been at Lowe's in the past. I mean, if you go back to the last back to the period from 1996, it never dropped below 15%. So container order book historically, was much lower than what the lows have been in the past. And therefore, I think that sort of spurred them on to ordering more, whereas dry bulk has just recently dropped back to the lows that we had in the '90s and early 2000s. Yes. I think we've seen a lot of overhead, yes. Yes. And the other side, I mean, there's also the deliveries. The container deliveries have dropped back to about sort of 3% just over 3%. Whereas on the past, it never sort of really dropped much below I think in the 90s, it dropped back to about 6%. So you've had sort of record low actual deliveries out of the yards, whereas as bulk carriers, we're about sort of looking at the last 12 months, we're about sort of 5%, 4.5% to 5% delivery pace. And we've been lower before. We have been down to sort of 3% in the past. So we still haven't sort of reached the lows in terms of deliveries. And I think lastly also, bulk carriers are less profitable for the shipyard. It's much more difficult for them to make money, particularly on smaller ships. And that makes it more attractive for them to get orders for containers. Yes. There seems to be a stronger strategic rationale to order the potato chips today. There is no strategic rationale to order drybulk ships today. I think that is a difference, but time will tell. Thank you. As time is running short, it is the end of the session of Q and A session. And now we will have a 10 minutes break and the call will start again at 4:25. Thank you. Mr. Thorne, please begin. Thank you very much. As Matt says, this is the market we've been waiting for. So, as you go through the slide overview, I'll be discussing the Brazilian business model again on a bit of chartering sort of overview. A little bit update on the chartering market as well as what's happening in the 2 basins, the Pacific and the Atlantic Basins. We'll talk about cover, explain a little bit about the backhaul and how the backhaul cover actually works and give you a conceptual model on when we need to lock in front haul cover, when is the right time, but it's a conceptual model. We'll go through fleet optimization, what we are doing at the moment, and then wrap up with the PCE outperformance discussion, and we'll have the Q and A discussion Q and A questions after the session. So first, can we again go to the preservation business model. Our business model has been refined over many years. In the longer term, we're able to generate a CCE earnings premium over market rate because of our high latent percentage with minimum dollar figure, which is made possible by combination of fleet scale and interchangeability. With the Handysize fleet, we are trading up in size and getting younger ships as well. With Supramax, we are growing their fleet in number and size as well because the newer ships coming in are larger. So overall, we have a versatile ship in our fleet and the trade that we do as well is diverse in the mine above with the large proportion of owned fleet. And the reason for that is the large proportion owned fleet means there's low fixed cost and that is super important in this market. We also have experienced staff and global office network. We've discussed that over and over already, so I won't spend too much time on this, but we operate globally, we connect with the customer locally, we speak the local language, and we are in the same time doing with our customers. Importantly, we will deploy the backhaul later on. We need to position the fleet where our customers want it. It's obviously going to cargo position with multidimensional requirements, size of ship, location, the type of ship, the time, the duration of the voyage and the values we can get by positioning those ships. Also, we want to make sure that we own our cargo contracts, and this is part of positioning the fleet. So in order to get a maximum of our cargo contracts, we need to position the fleet to where the customer wants it and where the relationships and the direct interactions with end users are. So this allows us to strategize where to position our fleet. As Matt earlier on mentioned that the Handysize fleet is larger in the Pacific and the Supramax fleet is larger in the Atlantic in general. Also, we discussed about ongoing optimization process. In terms of technical, we're doing a lot of speed management and fuel consumption that is so important, especially with the sustainability requirements coming up. Operations in the operations team, we're doing ongoing processes and cargo care. For chartering, we are improving contract clauses. The higher market allows us to discuss the contract clauses that we had to swallow earlier on because the poor markets, we didn't have much leverage. Now we do. We're focusing on improving our cost stay management, trying to reduce and find the areas where we can improve that and simplify our systems and processes. And what's also important that we are doing is the data analysis, including big data and small data, the data that's already in our systems. So I think it's worth mentioning again the sharpening market, the positive TCE trend is continuing. If you read the low the line at the bottom, last year, the core P and L breakeven, including G and A for HendiSight is 8,720 and for Supra, it's 10,120. As you can see, the current market is substantially above that. So the trend is definitely in our favor at the moment and according to our view, with the demand and the supply situation, it may last longer than we originally thought earlier this year. So in terms of the charging market, Martin has spoken about the big picture about demand, but I'd like to spend a bit more about the underlying demand. So firstly, quite important to what we're seeing on a day to day basis in the charging desk globally. Firstly, there is a strong synchronicity in this demand in almost all global markets. I will discuss later on one market came a bit later in the Pacific and when that came in, the whole market got really big food. What we haven't discussed is the decontamination decontineralization from box into pulp. And the NPPs who used to compete with the smaller handysized ships, they are largely out of the drybulk sector because the container market is much more heavier, much more better than. So the decontamination of box into box, I'm getting calls now from people I haven't spoken for 15 years. So they want to come back to box because they can't get containers, they can't get enough containers, they can't get containers, they are right in time for the customers. So the issue is we can't give you we don't have a firm number of how much cargo is actually moving to about, but certainly the anecdotal experience at the DANC globally we're hearing is strong. There's a lot of movement from Bakkt into Bakkt. The volume wise, we don't have a clear handle on it. The third point here is the Pacific Spring Cargo, the Indonesian China coal demand. And initially, I wrote here in this presentation, it may add fuel to the demand story. And you probably remember seeing Morton's presentation where he said the coal was down in the 1st 3 months of the year. We're now seeing a lot of demand coming up. The big demand in this spring cargo which comes in and out, which is almost impossible to predict, it is bad. And you can see also the Chinese coal prices going up. So a lot more demand is coming up from Southeast Asia, from Indonesia into China. The market is strong despite many ships speeding up. So that is very, very positive sign. Also some inefficiencies we're seeing in a trading pattern. Firstly, crew change crisis. Many ships now have to divert to Manila, sometimes some other ports, including Guam as well. We've seen quite a lot of ships diverting just to make sure that the ship can get their crew changed. And the old crew get some rest at home with the families and new crew get some employment to earn enough money to send back to their families. Vessel quarantine requirements, there's a big disparity in different ports. Even in Australia, some ports allow to birth without a quarantine, some ports don't. In China, same thing, some ports have a limit, some ports don't. So those requirements make it more complicated. And of course, the China Australia trade dispute, that's been going on for a long time and there's numerous reports on how many ships are still waiting in China. The last I saw was 36, but we don't really have a firm handle on actually what that number is. But the issue is, the Australian coal going to China is no longer there. Australian logs going to China is also no longer there. That's causing some a lot of inefficiencies in trading patterns and it's really helping demand. And let's start off trade. In the Pacific, we see very strong demand in the Indian Ocean, in Australia, in New Zealand and the Salvation market. North Pacific is a ramp to join this demand story and it really started in the last week, so all the key markets are now in the upswing. In the Atlantic, the market turned positive after just a few weeks of slight weakness, I'll call it, but certainly, it dropped from May was in earlier March caused by the U. S. Gulf grain season concluding despite the highest fleet count of any size of Supramax ever in the basin. So we'll go through the fleet count later on as well. Therefore, trade, our customer requirements really are in the front haul region. We need to make sure that we position the fleet to capture the large frac haul premiums available, especially in strong markets. Also, the cost to position a ship on a backhaul voyage is reducing significantly. In my view, this is a fantastic opportunity to capture strong backhaul rate and then capture the front haul positioning, which is a spring of plus premium. The alternative, of course, is to go empty, to Dallas and empty, and we don't we very rarely do that around 90% utilization rate. In terms of fleet positioning also, we use a dynamic approach in pricing and positioning our fleet in Atlantic and Pacific for both Handy and Supra. The Indian Ocean is becoming a premium trading area as well because it's been pulled by the 2 strong basins, both the Pacific and the Atlantic are pulling it, and that's creating a huge dynamic where ships can go almost anywhere and depending on where the highest return is for that ship at that time. So as a global operator of Pacific Ocean, we can trade anywhere, anytime and any duration. I'd like to go through this next slide now a little bit slowly. If you have a look at the top two graphs, you'll notice the Q1, there is a big Atlantic premium for both Handy and Stratford, the 38 and the 58. And the Atlantic premium dropped dramatically in the last few weeks in April and started in late March and similarly for the Super Ice Vault. And the business is now $6,900 between the Handy Pacific paying more than the Atlantic and similar for the Super Ice Vault. This is a very, very rare occasion. I think it's probably a 12 year high where we've seen. So just to recap again, in quarter 1, Pacific didn't gain as much as Atlantic. We improved, but we were always behind the Atlantic and that's reversed dramatically in the last few weeks. And why is that? So if you look at the top two graphs, you see the record high levels of the Handysize ships in the Atlantic. And you look at the very low levels of Handysize ships in the Pacific. If you look back into the last year, which is 2020, if you look at the red line, you see the Atlantic fleet size growing. And in terms of the Pacific, the fleet size reducing the number of ships in the Pacific reducing and the Atlantic growing. So eventually, that just went up because a lot of owners wanted to position their ships in the Atlantic, which is what's causing the sudden disparity. In terms of Supra, the story is almost the same. So you can see the large amount of Supramaxes in the Atlantic. And in the Pacific, only slightly higher than normal. And despite all this, the market is actually still quite strong. But in terms of travel management, I'd like to spend some time to explain flat haul and backhaul just in case some people some analysts here need to for me to go through it. The best example would be the for example, if you look at Tokyo and Vancouver in the chart, the Vancouver going to Tokyo is actually from the North Pacific going into Asia, that is the front haul. That is where the cargo majority of the cargo is. And from Asia back to Vancouver or North Pacific, that's a backhaul. Not many cargo go back that way. So the direction in fronthaul means there's more cargo going in, coming out of Vancouver and that region into Asia and less cargo going back. So a normal cargo system comprises of 1 developed lake, which is empty and one laden front haul. So we try to combine the backhaul and front haul cargoes in order to achieve high utilization and outperform the market in the long term. So how is it calculated? It's like I put in a calculation here, which I try to make it as easy to understand as possible. So in a $10,000 a day market, the backhaul voyage will be discounted. And assuming this voyage is average of 35 days, the discount of $100,000 on that voyage. So instead of a $10,000 TCE, you'll earn 7,143. Dollars The frac hole on the other hand, similarly because of the position value, you gain $200,000 for similar average duration of 35 days. The TCE for that voyage is $15,714 On a round voyage basis, because you've given up the position value of $100,000 before and gained $200,000 at the front of our place, you're left with $100,000 premium. If you divide that by the total duration of 70 days, you get about $14.29 in that result, that is better than no backhaul, that is better than going empty. We go to the next slide, This is a perennial question, ramp to locking cover. The conceptual model is that in the low market, we do tend to do spot business only. And as we see the market picking up, we start looking at longer term COAs, longer term cover and at the top of the market. If you can find somebody who can say this is a top, of course, we don't know that. But we feel that when the market is quite strong, it's time for us to take longer term contracts, contractual cover. And on the other side of the cycle, when it starts dropping, we can still take medium term COA at decent numbers. But when it starts to come down, we need to start reducing our charter in exposure and just go spot and keep playing on the prompt list. So we watch the cycle very carefully and we take closer customers and we take cover as they come step by step, choosing shorter term cover when the market is low and longer term when the market is higher. And we continue to position our ships to where our customer base requires them. The fleet, customers like the fact that we have the scale, we turn up when we say we will. So overall, Matt also mentioned the total fleet we have is 117, with 16 long term charter dings, 138 short term charter dings and total of 2 XW-1 ships in our fleet. So we've grown the large owned fleet, which of course has lower fixed costs. We are continuing to reduce the long term charter ships. And strategically, we are topping up the short term charter team ships to allow for higher vessel utilization to help to position the ships and make sure we have enough ships if we expect anticipate a larger requirement, larger demand out of a certain region, we can start positioning ships into that region before the market comes up. It also allows us the ability to execute on arbitrage opportunities. And of course, we maximize TCEs by optimizing our vessel position. And part of this discussion also is that we also have some optionality on some long term charters to extend them. It's in our option, well below current market rates. This is a big potential upside. We do operating activity to opportunistically capture value in the market, and customers always look for strong counterparties with large in house and all managed fleet who can meet the obligations in all markets. So we have the low fixed cost, which is really the key part here, low fixed cost, so very good fleet, in house managed to really benefit from the stronger market. In terms of what is our core business and operating activity, so Peter will talk about it as well. But I wanted to clarify what is core business, is contractual cargo and sport towers on own ships, long term charter ships and short term charter ships carrying contract towers. The cost of our business there is largely fixed and we also disclose it. The key thing to measure here is the TCEs per day. We have significant leverage and profits in strong markets as we think as we're seeing it now and maybe there's going to be this market has legs, It might last for longer than just a short period of time that we that's done that we think it is we think it's going to be long. It's a heavy business model. It's predominantly our own crew, quality, safety, cargo care as well. The customer wants his cargo to arrive in the destination in as good a condition when he loaded the cargo. It enables us to sell our reliability, our goal to be a 1st choice partner for our cargo contract partner and also it provides brand equity, brand name value in the industry. Currently, it's about 80% to 85% of our total vessel base. About 15% to 20% of the vessel base comes from operating activity, and that's 4 cargoes carrying short term ships carrying 4 cargoes. The cost, of course, will fluctuate with the market, and key measure there is the margin per day. It can generate profits in weak markets. That's very important for our business, which is why we do it and can be a bit more challenging and risky in higher markets. It's an asset light model with 3rd party crews, quality, safety, it's harder to control quality. And allows us though, we actively participate in this side of our business is because it allows us to enhance and expand the service to our customers because we might not have a shift in place when our customer requires it, but we can take a shift off of the market to execute on that cargo. So in terms of CCV outperformance, wrapping up really, our outperformance has been developed over time to primarily optimize in lower markets. Now it's quickly changing it to readjust to optimize in higher markets and using our low cost low fixed cost base that is a tremendous strength. There will always be a lag in both rising and falling markets because we fixed ahead of time. So it is a rising market we fixed now and 2 weeks later when it's being executed, there is a lag in that. Similarly, when the market comes down, we always get a much better number, much better TC than the market in the falling market. With the rising market days lag. The market dynamics itself necessitates re optimization of routes. Key parties, for example, select Novak was weak for earlier part of this year compared to rest of Asia, still very strong, but compared to the rest of the Pacific, U. S. Is weaker. We dynamically adjusted the fleet and kept more fleet in Asia rather than opening Novak. And now it's up, it's increasing again, we adjusted it. So our fleet interchangeability together with in house management, global office network positions us to capitalize on cargo opportunities. Customer service levels of fleet size also allow us to offer an unprecedented opportunity to lock in solid profitable TCE over the longer term. And the backhaul business for us leads to higher utilization rates, which in turn leads to long term outperformance. As I mentioned before, the alternative is go empty. So we choose to backhaul our cargoes in order to get a better margin. And that's as I can remind you again, that's the market that we've been waiting for. For a chartering, this is a market that every chartering manager in Pacific basin has been waiting for. So we look forward to seeing this market go through the next coming few months. To you, Wang. So any questions for the Q and A session? Thank you. We will now begin our question and answer session. I have a question coming from online from Deepak Lorai from HSBC. He asked, how long will we continue to see container cargoes moving to bulk ships? And if the shift continues, what impact does this have to rates to dry bulk? Of course, we don't know the future. But from what I can see, basically, the container guys are reporting a high market for rest of this year and maybe substantial part of next year as well. So this could continue for much longer than initially thought last year. But of course, we don't know the future. We think that this market has a lot of legs. The container demand is very, very strong. New ships, as Peter mentioned early on, it will take some time 2, 3 years to come. So the longer it comes, it's better for us. I have one more question coming from online from Nathan Gee from Bank of America. He asked, what is your strategy around forward contracting now? And are you prepared to secure medium, long term COAs yet? Thank you, Nathan. Yes, we are ready to fix long term and medium term. But a real change will come when the market feels that this sustained highs will be here for longer term. That's when we see a sustained push by our customers to fix longer. At the moment, the market only risen and our customer base, I think every customer base in the drug out business don't yet have a belief that it's not able to stay. So it will lead some time and we look forward to seeing that time. Usually, the contract season is in Q4, so it could be later this year. The question comes from Andrew Lee from Jefferies. He asked, do you or other do you know any other commodity types that are currently being decontinorized and moving to the bauxite? I've heard of the grains. There used to be a large grain shipments out of Australia in containers and also work of logs. Also, actually third thing is I've heard of steel being moved out of containers into bulk. So that's the 3 towers I personally heard, but I'm sure there's others as well because sorry, silver, that's the demand that I've got from my old friend 15 years ago who contacted me because he can't get containers for putting his timber in anymore. So based on I think there's a big swell of demand that's unmet there, which will come to 2 parts. But volume details is too much to get. I don't think it's my main. If I may add, I don't think we should overemphasize the importance of this in the overall market context. This is a health, but it is not one of the bigger drivers of the current market strength. I mean, things like Chinese continued strong import of corn. The quality and size of the Latin American grain exports will have a far bigger impact on the market. This is a very nice path, don't get me wrong, but it's not a key driver though. Thank you. We do have a question here and that has come from James Tung with Bloomberg Intelligence. Please go ahead. Hi. To follow-up on the question earlier on forward cover management, You mentioned that you are open to medium and longer term contracts now and maybe that's heavily in the Q4. So what kinds of what I say, length of contracts would you be referring to by medium and long term? So could this and would you be aiming to secure, say, 50% or more of 2022 cargoes then? Or could you give us any guidance on what you're looking at in terms of length and percentage that you would want to or target to aim? I know you said that the market is not quite ready yet, but assuming that you can by 4Q, what would be your targets like? Yes, I think it's too early to mention a target because it's driven really by our customers and the market as well at that time. So we can't really share that because it's entirely dependent on many, many factors, customers' competition as well. We haven't mentioned that, but there will be competition, not just preservation will be keen for that. So we're not in a position to say anything at the moment. In terms of the length, what is medium and long term to you? Is it 1 year? Is it 2 years? Is it long term? Or could you elaborate a bit? I just also define definition, right. So we think under 3 years is medium term and longer than that is long term. I see. Okay. Thank you. Thank you. And now we will move on to the forecasting our business session. Mr. Shus, please begin. Okay. Thank you very much. I'll just wait for the camera to come to me. So good afternoon, everyone. I will just have a very short session on 2 topics. 1 is how to forecast our business. You recall that we changed the disclosure last year, and we went through a lot of sort of teaching on how to look at that. So we thought it'd be worthwhile just to repeat the key methodology on how to look and analyze our business. So that if you just take a view on TCE, you can get our underlying profit almost on the dollar. So we think that is very helpful. So we will go through that again and reiterate how this is done. The second area I wanted to cover is a little bit about capital allocation because we get a lot of questions about that. And it's also, of course, very topical as should the market continue to rebalance in our favor, our cash flows will strengthen. And what do we do with that, right? So we'll cover those 2 topics quite quickly and then we'll take a few questions if they're ready. So if you turn to Page, I think, number 15. Sarita went through what the core business is and what the operating activities. I don't need to reiterate that. What I would like to say though is that it sometimes confuses people a little bit is that we have short term ships which are not operating. So the key to understanding these what we call core short term ships that we put them into our core business and we deal with them, we base them into our overall TCE, and that's the key thing to remember. So if you actually turn to the next slide, there's a lot of text on this one. But the core business is, as Sarendra has mentioned, is to optimally combine our old and long term ships with cargo contracts and spot cargoes. And the purpose is to achieve the maximum TCE. But in order to achieve this optimization, sometimes a owned or long term charter ship is not optimally available to carry, say, a contract cargo. And we will then use a market ship, I. E, a short term charter ship to carry that cargo. And we do that so we can optimize our oil trading system. The way we deal with that ship in our disclosures is that the margin on that ship, I mean, the difference between, say, the voyage rate and the time charter rate is simply added on to the TCE of the core fleet, right? So we don't disclose separately the cost or the revenue on those ships. They are baked into the core TCE. So that's important to remember. The operating activity is, in a way, completely separate. These are short term shift to spot cargoes, right? So if we do this, this is sort of an opportunistic business. It's a business we engage in to make sure that we are not complacent, that we are always in the market. And it's also a business where whether the market is going up or is going down, we have the opportunity to make a good return. The core business has the operational leverage. Costs are fixed. Market go up. We make more money. Market come down, we make less money. In the operating, the idea at least is over the cycle, we can always make money on this business. It is worthwhile pointing out, so it's always a bit more difficult to make money when the markets go up a lot like they had recently. And you see that in our disclosures as well that the operating had not had particularly high margins in the last quarter, etcetera. But that is because we I think we always and then we match it with a ship. And if ships are getting progressively more and more expensive, the margins are squeezed. You saw, for instance, last year when the situation was different, the markets were coming down like this. Our operating margins increased a lot because we took cargo and then we got cheaper and cheaper ships that we could use, simply, simply speaking, right? So those two businesses, remember the short term core shift sits in the core business, but only we only bake it in as a margin. So at the bottom of this page, you see the calculation of our core TC, which is the revenue we make on owned and long term charter to ship plus the short term core ships of margin over the number of owned and long term revenue days. So if you want to model our business, you never have to worry about how many short term core ships do we have, what's the margin on those, are you losing money, are you making money. It doesn't matter from a modeling perspective because the TC that we give you includes all of that stuff, right? The operating activity, even simpler, basically the profit on the operating shifts over the number of operating days, very simple, simple margin. So if we move on to the next slide. So this is the very simple way of estimating our underlying results. And the only thing that is highly variable here is the core TC that we earn and the operating margin. The cost, the G and A, the post Panamax contribution, they're all pretty fixed. But if we go through it from top to bottom, so for instance, to calculate our handbag contribution, you take the core TC, which we disclose. You multiply that with the own and long term charter revenue date, which we also disclosed, Then you have your revenue in that business. And then you need to deduct the cost, which is a blended cost times the own and long term charter cost to date. And all of those are also disclosed, right? So the uncertainty here is what's the core TP going to be. And it's important to remember, it's not always as simple as just taking the long term cover because as Lorenzo has explained, often that is backhaul heavy. That is where we invest a lot in these ships. We call it investing. We're taking a cost, the fishing cost to earn the high truck haul going back. So often and we're all in an extreme situation at the moment because the market is so high and many of our long term COAs, which fall part of our backlog cover, are much lower. The difference between the cover and what we will actually achieve later on is quite large. And I think you've seen that when we disclosed sort of covers for forward quarters recently versus what we then actually achieved. I think you'll see a quite big difference. So Amylsys and Supramax both work in exactly the same way. You can add those 2 up. You have the operating activity. You need to make an assumption. Well, we provide you with a margin and the number of days. Historically, you have the information, but you need to make an assumption about what the operating margin is and how many operating dates we will have. This will fluctuate, of course, in the days less than the margin. But what we're trying to achieve is a profit over a period of time is in a way not shorter than a year, right, because you can't measure this business on a quarterly basis because sometimes you have to take decisions and all these kind of things. And it's trying to optimize over a slightly longer period on a quarter by quarter basis. And that's why we show you what the average margin has been in the last 12 months always in addition to what it's been in the last quarter. But here, obviously, there is a certain amount of estimation that has to be made. But fret not, this is also difficult for us, right? I mean, we have no greater visibility than most people even going out of the year what this is going to be. Because they have market dependence painters for the core TCEs actually. It's a notoriously difficult market driver to actually try and forecast. So that's our operating activity we have now. We have one Panamax ship. We used to have 2. 1 will be redelivered at the end of this month. So we have one Panamax ship. I think the annual contribution there is a little over €4,000,000 a year because it's a steady contract, a better contract that just ticks along. So that's also that's very simple. The G and A, I think, is also quite simple. We disclose what it is, and it increases sort of with inflation generally. And then you add that up and you get your underlying result. And the sensitivity, we will go through now how to calculate that. So if you move to the next slide, so Matt mentioned before that for every $1,000 increase or decrease in the core TCE, we our underlying profit moves up or down by between €35,000,000 40 €1,000,000 And the way to calculate that, again, is quite simple. You start, you take the number of owned and long term charter ships, which I think at the moment is around €135,000,000 something like that. You multiply that with a number of cases in a year that they're off hire, dollars 360. Remember, there's always a bit of off hire there where they are dry docking or something breaks down, etcetera. You multiply by $1,000 a day. And then you also multiply by in the next 12 months, not all days are open because we always have some base cover. And we estimate that this base cover is between 20% to 25 percent. So the open base is the inverse 75% to 80%. So you have to adjust for the fact that we always have some base cover in our book. And then you do get the that sensitivity coming out. You can try that at home. This, of course, assumes that there is no change in the margin, number of days in the operating activity. So that can obviously, that will impact the underlying profit, and it can go up and it can go down. I mean last year, we had a phenomenal year in operating activity. It was a strong revenue contributor, likely to be a bit less this year. So don't forget that, but it doesn't play into this particular sensitivity. Also, the G and A changes do not play into this particular sensitivity. But from there, I think the G and A is reasonably stable. We add, at the bottom of this slide, just the cost so that you get a sense for where we are at the moment. So on the left, you have the handysize owned long term costs and then they are blended to the same Supramax on the right hand side. And of course, you can contrast that with the 2nd quarter forward rate, $16,000 for Handysize versus $7,800 cost before G and A and $18,000 Supramax versus $9,200 cost before G and A. Again, you saw the numbers that Max showed before on profits on that is very, very attractive. So that's just a quick recap on how we calculate our sensitivity. Now lastly, I wanted to talk a little bit about capital allocation. On the next slide. We get questions about this quite a lot. And of course, the future is unknowable. But should the market continue to recover and rebalance, we will earn a very healthy operating cash flow. We are doing that today. And for every month that the markets are at these levels, we are continuing to a phenomenal operating cash flow, thanks to the operating leverage predominantly in the core business. Of course, what happens if the market continues to be strong? We showed before that there is still upside in secondhand values. So we might we are still looking to buy a few ships. We are expecting ships. We are looking at that as per our long term strategy, particularly of growing our Supramax fleet, as you all know. But there will be some point where we might feel that values are becoming a little bit toppy or they're not as attractive as they were before, perhaps I should say. And because we're under no obligation to buy ships, we have so many, we can kind of hold off a little bit if we feel we want to focus on making money on the ships we have rather than buying more ships. So you should probably expect the pace of buying ships might reduce a little bit. We've been buying 7, 8, 9 ships a year over the last couple of years, at least as long as I've been here. And the pace of that might go down. And there might be periods if the market is good and value for hybrid vinyl ships because we don't need to. You should also expect, of course, if values come up that we might accelerate some of the divesting of all the tonnage. We've had a strategy of divesting ships when they get to about 20 years or ships that, for whatever reason, don't fit into our trading pattern or, for whatever reason, is not perhaps as good as some of the other ships. So we have been selling ships. I think we've sold 4 in last year. And of course, as values come up, we might sell a little bit more. But all this points to is an increasing cash flow, right? More operating cash, more cash from selling ships and less cash out from buying ships. So what will we do with this cash? One priority, the first priority is to continue to delever the balance sheet in line with our amortization profile. You might recall a year ago when the market uncertainty was very high, we did add on leverage. We did add on liquidity to ensure that we have a maximum possible cash run rate should the world go into a prolonged COVID sort of winter. That didn't happen, of course. I mean, in hindsight, we could say COVID probably one of the best things that could happen for drybulk because it really in a way, it's driving the market, right? But at that point in time, we were uncertain about the future. So we and a lot of other companies took advantage of the liquidity being pushed out into the system, and we did increase our facilities and leverage as much as we can. So now is the time to do the opposite to actually delever. And this also ties in very much with our fleet of getting 1 year older. It's about 10, 11 years on average now. As we go into the mid part of this decade, it's going to be increasingly difficult to finance some of our oldest ships. And that's perfectly okay. They will be fully paid off by then. They will be earned more money than they were worth many times over, hopefully. And they don't need to necessarily be financed. But at that point in time, we want to have a lower leverage in general, which I think is that makes a lot of sense. So deleveraging is something that we will look at. We will always try to optimize, of course. We don't need more cash at the moment. Moment. We don't necessarily we're not necessarily going to go out and squeeze every penny out of the increased fair market value. I don't think that makes a lot of sense. But we can push out tenants if we can. And that's something that we could look at. But again, it's not a do or die kind of thing. But deleveraging is priority number 1. Priority number 2 is to maintain a strong liquidity position. We had about $360,000,000 of cash at the end of last year. We should have probably something around there or about €300,000,000 I think is a good strong liquidity position to have. We do this because it underpins a number of things. Over time, as I mentioned before, as ships get older, we want to focus more on secured financing, which we are working on and we're getting at the moment, more of a corporate risk profile. And having a strong liquidity position enables us to get very better and more attractive terms on that type of financing. And we also always want to keep sufficient dry powder for good opportunity. Even in a strong market, we do come across shifts, which we feel are priced. And we will eventually, of course, as Matt mentioned before, we will have to start making investments in future proof green technology at some point. Even though I would like to say though, at that point in time, all else equal, the ability to finance green chips, I think, will be incredibly good. This is something that every bank in the world, every sustainable bond investor in the world wants to do. So our ability as a big recordable chip owner to finance green chips when they become available to us, I don't think will be a problem. But I think we'll be able to do that even more attractively than what we've done on our older ships actually, but that will help. But we still need to have a good cash buffer because we want to have that kind of flexibility. But as long as we maintain that cash buffer and as long as we delever the balance sheet, we will, of course, then have cash to distribute. And we have a policy today of distributing at least 50% of net profit. I would expect that to be the Board's intention to do that for this calendar year. But longer term, should we have excess cash, then I think the Board will have discussion whether we should distribute more. It's early to say. But if markets continue to be strong and we do not grow the fleet as aggressively as we have in the past, there will be opportunities down the line to have a higher dividend. But I don't think we should expect that in the short term. I think it's more of a medium term ambition. So but even if we look at your consensus forecast for us for calendar 2021 and we assume that we're going to pay half of that as a dividend, interim and a 3 year dividend, the yield today on Pacific Basin dividend yields, I think, is around 7 ish percent. So that, I think, is a good starting point for a company restating dividends. So that's what I wanted to say about capital allocation And our first question comes from James Tiu with Bloomberg Intelligence. Please go ahead. Thank you. Hi, there. Question is on core TCE. There was a mention just now that core TCE includes positive or or negative margins from using short term ships to carry contract cargoes. So I suppose this was the reason for the underperformance versus the market index in the Q1. So could you maybe give us some color on how the margins are for this type of business in the Q2 so far? Yes. No, short answer. No, that was not the reason for the underperformance. The reason is what Matt mentioned before. It's predominantly the lag between when we fix the voyage and when that voyage actually starts to impact our P and L and our earnings. And that lag is between 1 3 months depending on the voyage and the customer and all these kinds of things. So when the market goes up a lot, the indices will run ahead of us and the our P and L will take time to catch up. So that is the main reason. Of course, it is also more difficult on short term core ships if we have cargo contracts and then ships getting more and more expensive. It is, of course, the same dynamic as we have in operating. It's a little bit more difficult sometimes perhaps to make money on that on those ships in a quickly rising market. But again, I think it's important to remember, we optimize the whole portfolio. We don't optimize these short term ships as a part of the portfolio. We use them to optimize the whole core business, right? So in that And we will need time to catch up and that's very, very natural. And it wasn't really purely on the or too much on the short term shifts. But again, it's always more difficult to make money on short term shifts when the market goes up quickly. The other thing is, of course, you didn't ask about this, but like I mentioned also the operating margins are negative in the Q1. So the same dynamic there, right? That we and many other operators thought that the Chinese media was there was going to be a slump in the Chinese media, so we take a lot of cover. That didn't happen. So of course, that we need to find ships to meet that cover. And then you have for a period of time a negative negative margin. But that over time will also turn positive again as the market kind of stabilized this time. So that's the reason for the underperformance. Surin, anything you want to add to that? No. Okay. Thank you. Our next question comes from Andrew Lee with Jefferies. Please go ahead. Thank you. Yes, hi. Thanks for this Analyst Day, it's very useful. I have two questions, right? The first is on the cash side. How much cash would you say did you was it possible is it sorry, let's say again. So is it fair to assume that the cash buffer would be €300,000,000 So as long as you have at least €300,000,000 in cash at the end of the year, that's the target you need and the rest could be paid out as dividend. 2nd question is on divesting ships. What's the criteria you're looking for? Is it the age? Is it must be 20 years? Yes. So how what would you look forward to divest ships? Yes. So on the cash, I was deliberately a little bit vague on that, right, because I don't think the Board wants to tie themselves to a particular number. What I'd like to say is if we have $300,000,000 of cash, no one is going to no one in management or the Board or amongst our shareholders are going to worry about our cash position. And I do think that, that gives us a sufficient flexibility. That doesn't mean that $250,000,000 isn't good enough, right? So I don't think we want to tie ourselves to a particular number, but and I think that's important. But we think the positions we have today are good. We can come down a little bit. We're still very happy. But we can't hire ourselves to a particular position. I think you guys as analysts kind of can take a view of what you think is reasonable and slot that into your model and then you kind of think what you think is the excess cash, right? Okay. Yes. I mean on divesting of ships, Surinder and Wharton will probably have views on this as well. But I mean obviously, age is one factor. And a lot of that has to do with the dry docking schedules, right? I mean when the ship is 20 years, you do a full special survey. And you want to do you don't necessarily want to do a 4th special survey on a ship that, for whatever reason, you feel maybe it's too small for the trades you're having, etcetera. So 20 years, we kind of have if we have said that, we would look at divesting a ship that is getting up to 20 years. There will be exceptions to that rule. So it's not a odd. We have in the past, on occasion, divested ships that were not of good quality for whatever reason, but it's quite unusual because we tend to be quite diligent when we buy ships, but we have done that. But it's a while ago now. So I think age is the most important factor. But it is important to bear in mind at the moment, these sort of older ships that many people frown upon purely because of an issue of age, banks and other people, They are the most profitable ships at the moment. I mean they are making half their value sometimes almost on a single voyage, right? I mean it's just if you do believe in the market strength, I mean, you can kind of say, well, maybe if you hold on to a ship just another year, it pays itself within, right? And then you can still sell it, right? So it is perhaps tempting to keep some of these older ships, right? So I think the key thing is not to have too strict a rule about it. But there is no doubt. There will come a point where we feel the markets are a little bit choppy, at least on asset values, and we will divest a little bit. I think that will come. But we don't pay it. As Matt showed before, the calculation, we don't pay it. Okay. And then my final question is, Matt mentioned earlier about the if you if the rates were at the same level, right, as 2010, net profit would be close to 400,000,000 dollars What's that assuming for the supermax? Because in 2010, the supermax rate was higher than the current levels. What's the assumption there? I think the point is if we have the same average rate as we had in 2020, handing down to us, we'd make $400,000,000 I think it's just an overall point. Okay. No more questions. Thank you. Great. Thank you. Thank you. Thank you. And this concludes our conference call. Thank you all for attending.

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