Welcome to today's Pacific Basin 2020 Third Quarter Trading Update Earnings Call. I'm pleased to present Chief Executive Officer, Mr. Mats Berglund. For the first part of the call, all participants will be on listen-only mode, and afterwards there will be a question and answer session. Mr. Berglund, please begin.
Thank you very much. Welcome, and thanks for joining us today. Again, my name is Mats Berglund, and with me is also our CFO, Peter Schulz. We're going to go straight into the numbers, and I hope you have the presentation that we have sent out, and we are now on slide two. These graphs show a nice and improving trend with our first half 2020 TCE rates for our core business to the left, our third quarter TCE rates in the middle, and our fourth quarter cover rates to the right. We have Handysize segment to the left and the Supramax segment to the right. If you look in the left graph in the middle, you will see that we made $8,000 per day in the third quarter on our Handysize ships.
Our breakeven that Peter will speak to later on our core Handysize ships is $8,600 a day, so slightly loss-making after G&A on the Handysize ships. We look in the graph to the right, in the middle, you will see that we made $11,200 per day on our Supramax ships. Breakeven for our Supramax ships is about $10,200 today after G&A, so about a $1,000 profit on the Supras. We have more Handys than we have Supras, so these two are about offsetting each other for just about breakeven for the third quarter. For the fourth quarter, we have 75% of our Handysize days covered at about $9,600 per day. Again, breakeven after G&A is about $8,600 a day. Profitable levels in the fourth quarter for the Handysizes.
For the Supramaxes to the right, we have 89% of the Supra days covered at about $11,900 a day. Again, break even after G&A about $10,200. Clearly into profitable territory, in the fourth quarter. To simplify a little bit, first half was loss-making rate levels, third quarter was just about breakeven, and in the fourth quarter, we are clearly into profitable territory. For 2021, we have so far covered 12% of our Handysize days at $8,100 per day. This is a low percentage since rates were low, and it was not really attractive for us to put on much cover. $8,100 is also on the low side, but please note that our Handysize cover is backhaul heavy.
It's not very representative of the actual earnings that we will make because we will top these backhaul voyages up with front haul legs, which are better paying, and for an average that will be higher than what this rate indicates. Our Supramax days for 2021, we have 26% of them covered at about $10,900 a day. This Supra contract cover is more balanced between front haul and backhaul. Please turn to slide three, where we compare our rates to the market spot index rates, and we continue to show strong outperformance. For the last 12 months, we have outperformed the Handysize index rates with about $2,000 per day and the Supramax index rates with about $3,500 per day. For the third quarter, we outperformed the Handy index rates with about 330 per day and the Supra rates with about $1,770 per day.
Note that the outperformance in Supramax is particularly strong due to the significant scrubber benefit early in the year. As we have previously guided, as we always guide, our outperformance tends to narrow in a rising market due to the lag between spot market fixtures and execution of voyages. That's why we show the last 12 months always, since it typically includes both a period of falling markets when we outperform more and a period of rising markets when we outperform less. Note the last 12 months is actually above our average for the last five years. We continue to be very happy with our outperformance compared to markets. On slide four, we show our outperformance versus the market index for the last five years, six years, and it shows that this outperformance is sustainable.
This is the two top graphs where we show our TCE rates compared to the market index rates. The average for this period is about $2,000 per day for the Handysize ships and $1,600 per day for the Supramax ships, but significantly more recently, as you saw on the previous slide. On the lower two graphs here, we show our performance compared to our peers, where we outperform the Handysize peers with about $1,900 per day on Handysize in the first half, and about $3,300 per day on Supramax in the first half.
The bulk of this outperformance is due to higher TCE levels achieved, but it's also due to our very efficient cost structure with competitive both OpEx and G&A due to scale and efficiencies, bulk buying, et cetera, sister ships and everything that we benefit from by having large fleets of sister ships, but also due to lower finance costs since we borrow at very competitive terms. On slide five, we show that spot market rates have improved significantly since May. These graphs are spot market index rates, not our earnings, but you can see the significant increase with more than doubled spot market rates since the low point in May, earlier this year. Spot rates are still not as high as we would like them to be, but with our outperformance, we don't need much more before we actually start to generate really significant returns.
We'll come back later to market factors that's been driving this improvement. On slide six, we show that secondhand values have dropped since the year-end, but are now bottoming out at what we consider to be very attractive levels, and much more attractive than new buildings, especially considering that in our view, you won't get the full technical life out of new building that you order today due to new regulations and technology that is coming. Hence, it is much better to consider secondhand vessel acquisitions, which give significantly shorter payback and higher return on equity. We see good value in secondhand values at the moment. Slide seven shows global dry cargo loadings in the last three years. This recent increase in cargo loadings is led by minor bulks, and we believe that we are now back up above last year levels overall for dry bulk shipment volumes.
This is as per our own indicative tracking of the dry bulk fleet activity using both AIS signals and a lot of other inputs. In slide eight, we break these loading volumes down by cargo sector. If we talk about them briefly one by one, starting with the top left, the grain one. Grain has not really shown any COVID-19 effect and has been very strong throughout this year. People continue to eat, both humans and animals, in spite of the pandemic. Grain volumes, as per this indication, is up more than 8% year-on-year. Very strong grain volumes this year. Moving to minor bulks to the top right, you can see the strong recovery in recent months. Year-on-year, minor bulk is down about 2%, but in the last few months, they are up above last year levels, which is very encouraging.
Iron ore at the bottom right is very resilient, driven by China, and is up by 2.7% year-on-year. Coal to the left is the negative commodity due to lower energy consumption and also very cheap oil. Obviously, COVID affected. The coal, though, is showing signs of recovery, and you can see a slight upward trend in the last few months. This is partly driven by India, which is back strong with increasing coal imports again. Turn to slide nine. The driver of this recovery with volumes back up to last year levels is China, primarily China, no question about it. You see the Chinese dry bulk import graph to the top left here, and we believe that they are up at an all-time high level in July at about 180 million tons per month.
If you look at the Chinese imports by commodity, which is the bar graph down below, you will see that iron ore is very strong, but also the grains with soybean and cereal up significantly. Bauxite is up strong. Nickel is the significant down one, much due to the Indonesian ban of unprocessed exports there. The final point on China is the bullet point to the bottom right there, with the steels trade. It's interesting that China has reduced their steel exports, and instead increased their steel imports. This is an indication of how strong the domestic demand for steel in China is. This is interesting because it's causing a larger inefficiency in the fleet utilization. The Chinese steel exports used to be a way to get ships back out of Asia with cargo.
With these steel exports reducing, ships are ballasting more than they used to, and hence the efficiency of the fleet is going down a bit, which is positive for the supply side. The final point on the demand side is the top right graph, and the message we're wanting to convey here is that the U.S. has significantly increased their agri exports sales recently, and especially into China. This is encouraging in view of the China-U.S. trade discussions. It's driven partly by the swine fever receding and the population of pigs in China, and the animal feed needed is going up again recently after the swine fever in recent times. Encouraging volumes. You can see the graph to the top right, where 2019 was really low, also during the typical high season for these soybeans. These are primarily soybean shipments.
The high season is the fourth quarter, and you can see that we are tracking the high year of 2016 so far and keeping our fingers crossed for a normal high fourth quarter again with lots of soybean moving from U.S. to China. On slide 10, we are shifting to the supply side, and it's the supply really that has been the problem for a long time in our segment, and we still have too high fleet growth. We had a net fleet growth in the first half of 2020 of about 4% or 4.4% annualized, and it was unusually high in the first half, higher than most people thought it would be due to higher new building deliveries.
New building deliveries are front-heavy this year due to a regulation change that kicks in July 1 with the CSR, Common Structural Rules, yards can deliver ships before that without this higher demand. Also because the scrapyards were closed, even if rates were very low during the April, May COVID downturn, and even if you wanted to scrap a ship, you couldn't because of the COVID-driven closure of the scrapyards. We do expect slower supply growth in the second half, and definitely so in 2021, as new building deliveries are becoming less and less and scrapyards have again reopened. You should note that the order book and net fleet growth is slightly more benign for our segments to the right, the Handy and Supramax segments.
Slide 11 and 12 really shows the same thing. You see the big hump, the super cycle 2008 peaking ordering of ships and the order book, has been reducing since, is now finally coming down to more benign levels. The order book today, totally for dry bulk, stands at about 6.5%. This is the lowest we've had in 25 years. You can see the split of that order book in the bar graph with significantly lower than 6.5% order book in our segment, Handysize and Supramax. Slide 12, again, showing more or less the same thing, with showing the contracting, i.e., the new build ordering. Contracting is now down to 1.2%, you see the end of this graph annualized. We really want to keep it at that level, right? If new build ordering is at about 1% pace, scrapping will easily offset that.
The current scrapping rate is about 1.7% annualized. If we can keep the ordering at 1%, scrapping will exceed that, and eventually, we will have a reducing supply side, and that's what we need to tighten up this market. We have the banks, we have analysts, we have investors listening to this call. Please help us in this effort of keeping new build ordering low. It doesn't make any sense with the very large gap that we have between new building prices and secondhand prices. It is much more attractive to buy if you want to invest in secondhand ships. The future technology is uncertain. If you order a new ship today, you will still get a ship with an engine that is built to run on heavy fuel oil.
Who in his right mind, orders such a ship today for delivery two years from now, and you need 25 years' life out of that ship. You're not going to get it. Wait with new buildings until new technology, new fuels is available, and that will take time. This is what gives us some hope, or significant hope in the years ahead, that this new build contracting should logically remain low. We believe that we will come into a period of significantly more benign supply growth. There's nothing wrong with demand other than the COVID period. It's been the supply that's been too high. With that, I'm going to ask Peter to do the next three slides. Peter.
Thank you very much, Mats. If you please turn to slide 13. Here, this is a slide you will have recognized from our investor day recently. On the left-hand side, you see our core fleet costs for the first half of 2020, $7,530. This is Handysize we're talking about on this slide. For the owned ships, $10,100 for the long-term chartered ships, giving us a blended core fleet cost of $7,920. That was for the first half. If we now try to estimate what these costs could be for the second half of the year, we have to make a few adjustments. If we go to the right-hand side of the slide, we start with $7,920. We have to reduce the cost by $600 due to lower depreciation. This is an effect from the impairment we took at the mid-year on the Handysize fleet. That's about $600.
We will, however, have higher OpEx. We expect to have higher OpEx in the second half of the year. The first half OpEx, the $3,940, was artificially low predominantly because crew travel was very restricted due to the pandemic. We are seeing more travel by crew in the second half, which will increase the OpEx, we estimate, by about $300. The first half was perhaps artificially low. The second half will be a little bit higher than normal, but for the full year, we expect the cost, if you do your math, about $4,100, in that range for the OpEx. If you then add on our usual G&A per day of $950, you get to the break even that Mats talked about before for the Handysize fleet of $8,600.
For the third quarter, we were at $8,000, so slightly below $400 a day, but the cover for the fourth quarter is about $1,000 above, i.e., profitable all the way down to the bottom line, including G&A. If you turn to the next slide, we have the same information, but for our Supramax fleet. The first half blended cost of $8,960. Again, we have to add the increase in OpEx due to crew travel, and of course, the G&A of $950, giving us a break-even level of $10,200. Here, the third quarter, as well as the cover for the fourth quarter, is in positive territory for $1,000 in the third quarter and, we just want to remind you about the cash flow.
Again, this is a slide we went through in our investor day a few weeks ago, so we thought it'd be good to repeat it in this forum as well. This is our cash flow, broken down in operating, financial, and capital cash flow. The first column is the reported first half. We opened with $200 million at the beginning of the year, and we ended with $316 million. A part of that was because we drew down on existing and new facilities, but also we had about $78 million of cash inflow. We did pay for a few ships in the first half, about $40 million of the capital expenditure of $91 million you see there were payments for new ships. If we move forward to the second half, we start with $316 million. We do expect our operating cash inflow to improve with improving rates.
We did draw down $33.5 million on a facility that we had committed, when we announced the first half results, so that money's now in the bank. We do expect to have regular repayments of borrowings of around $65 million for the second half of the year. We have an unsecured facility of $50 million that comes due in November. We are looking at rolling that over, and if we decide to do that will be announced in due course. Net interest, we expect to be around $15 million for the second half of the year. Capital expenditure, which is exclusively dry docking, since we haven't bought any new ships recently, is around $20 million. That gives you a fairly simple model and understanding of estimating where our cash position will be at the end of the year.
I think if you add it all up, including your own assumptions for operating cash inflow, you will see that our liquidity at the end of the year continues to be very strong. In 2021, we've included a few numbers on our regular borrowing, amortization, that is, as well as the net interest and the capital expenditure for your information. I will finish that and hand it back to Mats.
Thank you, Peter. Slide 17. Our strategic direction and priorities are really unchanged. Just to point out, that with a healthy liquidity, as Peter described, and encouraging demand recovery, we will again consider compelling opportunities to grow our own fleet with larger, high-quality, secondhand acquisitions. It is primarily our Supramax fleet that we target growing, while in Handysize, we're continuing to trade up by selling smaller, older ships and buying larger Handysize ships. We sold one old, small Handysize ship just recently that we'll deliver in the next month or so. Slide 18. We do continue to feel that we are really well-positioned for the future. We have a strong and outperforming business model. We have an efficient cost structure. We have reduced our costs. We have taken G&A from $76 million back in 2014 and are now running at about the $60 million annualized level.
We have reduced our OpEx from about $44 million, 2014 to $39 million and $39.50 million in the first half, but as Peter mentioned, artificially low that period due to the COVID, and lack of crew change, and there will be more in the second half, so expect more like $4,100 or $4,150 for the full year. Still, have been able to compress OpEx due to our scale and efficiency work. We have significantly larger owned fleet. The benefit of that is, of course, that the owned ships have a fixed, more or less, cost structure. When the market comes, which it is doing recently, we have significant leverage. Our core vessel breakeven levels, as we have mentioned, is about $8,600 per day for Handysize and $10,200 for Supramax. We are above those levels now.
Note that these breakeven levels is coming down as we redeliver the long-term charters gradually and replace with more owned ships. We have significant leverage in a stronger market. $1,000 per day means about $35 million-$40 million on our bottom line. In a stronger market, we get the benefit of that, and we do expect a stronger market ahead, as not only China, but also the rest of the world eventually comes back out of the COVID slowdown period. Last point I want to make is also just to mention, you may have seen an announcement from us today, that John Williamson is joining our board as an independent director. We are continuing to rejuvenate our board. John has very strong governance risk and finance background.
He worked many years for Morgan Stanley, and since 2008, he's been a board member at the Hong Kong Exchange and chairman of the Risk Committee, and many other committees at the Hong Kong Exchange. We're very happy to welcome John Williamson to our board. With that, operator, we'd like to invite for questions.
Certainly. We will now begin our question and answer session. If you have a question for any of today's speakers, please press star one on your telephone keypad, and you will enter a queue. After you are announced, please ask your question. If you find that your question has been answered before it's your turn to speak, please press star pound or hash key to cancel the question. Again, please press star one if you have any questions. For those who are listening to this call through the online platform, please enter your questions at the bottom of the control panel in the box named Question. We have our first question from the line of Andrew Lee from Jefferies. Please go ahead.
Hi. Good evening, and thanks so much for your time, for the call. I have a few questions. The first question I have is, the rate outperformance, for Handysize shrunk around 86%, Handysize shrunk around 50%, 60%. Was that in line with your expectations, or was it worse or better than your expectations? Second question is, when you mentioned breakeven, is that for the core business or is that the group, including the operating activities? Third question is, for your secondhand vessel acquisitions, how would this be funded? If it's funded via shares, do you have a mandate, or do you need to, like a GM or AGM, for new shares that would be for vessel acquisitions? Thank you.
Thank you, Andrew. The rate outperformance, for the last 12 months is higher than the five-year average. The effect is caused by the significantly rising index rates. As you know, the lag has this effect, right? In the first half, when rates were falling, our outperformance was massive. Now when rates turn around again, it shrinks. That's just the effect of the one to three-month lag, between when we fix, and when these earnings show up in our P&L. We're very happy with our outperformance, if you correct for that effect. You ask about the breakeven levels and how that is calculated. Is it on our core, or is it on our operating? The breakeven levels that we refer to is on our core business. The operating activity needs to cover its own G&A, so to speak.
As we have guided, the G&A for a chartered ship is about $550 per day. You need to treat it as two separate blocks, the core activity and then the operating activity. How are we gonna fund acquisitions? Well, we have significant cash on our hand and can finance vessel acquisitions by our own cash and by traditional mortgage financing on these ships that we buy. How many ships we will buy totally depends on opportunities that materialize, and we will not jeopardize our balance sheet, but we have capacity to buy ships, as we stand without raising equity. Obviously, depends on how many ships we're looking at. Thank you, Andrew.
Thank you.
Thank you. The next question comes from the line of Parash Jain from HSBC Hong Kong. Please go ahead.
Thank you, and thanks, Mats and Peter, for the rundown. I have two questions. Firstly is more on the recent news around China is putting some sort of ban with respect to import of coal from Australia. You think that it's feasible given perhaps their dependence with respect to coking coal from Australia, and if that's the case, do you see that would have a ripple effect on your Supramax vessels with respect to the freight rate? My second question is now that, on your larger vessels, the fact that we are now a good six months into a post IMO 2020 world with respect to installation of a scrubber, are there visible signs that the vessels with scrubbers secondhand value are faring better than your Handysize fleet, which does not have scrubbers on it?
Any sort of contrast or any sort of observation that you have noticed, if you can share? Thank you.
Thanks, Parash. Yes, the news has this alleged Chinese ban on Australian coal imports from Australia of coal. Again, we don't carry much coal, so it doesn't affect us. It's more the larger ships. We don't really see this having an effect on the actual shipments in the market so far. We do think it's talk so far. It looks very unrealistic, as you indicate there. Australia stands for a very large portion of the coking coal that goes into China, used for steel making. They could, of course, buy from other countries, which many of them are much further away, which could be good for shipping. We think it's rather unlikely that this will happen, at least completely, so to speak, because China would really need to scramble to get that supply from elsewhere.
Your second question on scrubbers, and that we have on 28 of our Supramax ships. Again, we are very happy with our scrubber investment. As we spoke about in the interim, we had the ships ready with the scrubbers installed on time and benefited from the significant premium early in the year. We also hedged part of the then significantly wider spread and took advantage of that by trading out of these spread positions when the oil price collapsed earlier in the year. We have made about 40% of the investment back already now in the first nine months. The benefit is there still, although the oil price is lower and the fuel price spread is lower, the benefit is not at the level where it makes sense to install new scrubbers.
With 40% already paid back and with a likely expanding fuel price spread going forward, we remain happy with the scrubbers we have. They function very well technically, and it's a benefit that we have. It never made sense on the Handysize ships, so we've never had them on the Handysize ships. I hope that answers your question, Parash.
No, that's really helpful. I still just wanted your help to visualize, let's say for one of your Supra, let's say, with or without a scrubber, on a 12-month basis, how has the asset price changed? Of course, including the CapEx with respect to scrubber. Are the ones with scrubber relatively faring well, perhaps because they will be the first one to get to the job, or that understanding is somewhat misleading?
Are you talking about the S&P, the secondhand value, or are you talking about employment?
I'm talking about secondhand value of a vessel which has scrubber now on board compared to the one without, on a like-for-like basis.
Yeah, I guess it depends on the buyer, and if the buyer has the ability to take advantage of the scrubber benefits. It definitely has more value. It doesn't have less, at least in our book, a ship with a scrubber is worth more. How much more is dependent on your outlook for the fuel price spread, et cetera. It has certainly shrunk that value with the fuel price spread narrowing. The benefit I want to highlight is to have both ships with scrubbers and ships without scrubbers. It allows us to use our scrubber ships for the voyages, for the trade routes, where we can make the most of that benefit.
Where we have long-laden voyages at sea, where we can buy heavy fuel oil very cheaply in Russia and other places, we can use our scrubber ships for those voyages, while in other places, shorter voyages that many port calls and more time in port, et cetera, we can use our non-scrubber ships. we have the system and platform to make use of the scrubbers, while another owner may make a different assessment because he's a tonnage provider and he's just going to time charter out his ships, et cetera. he may place less value on the scrubber than we do.
Okay. No, that makes sense. Thank you so much, Mats.
Thank you, Parash. We can maybe take an online question. This is from Brendan: What is your expectation of the profit for the next year? Well, we do not give that kind of forecast. What we do provide is as good guidance as we can on what our breakeven levels is, and we have a very simple model on how to model it for you. You have to assume the rates yourself. Was another question there on top that disappeared. Second question from Brendan: Would you have any change about the dividend policy this year due to the impact of COVID-19? No, our dividend policy is to pay out 50% of the bottom line, but since we had the impairment and a loss in the first half, we won't have a profit this year, but we will not change the policy per se.
That remains to pay out 50% of the bottom line profit. More from Brendan, the expectation of the profit this year. Again, it's the same question. We don't provide that, but we gave you as much guidance as we could at this call by the cover rate levels and our breakeven levels. Final question from Brendan: What is the influence of the ongoing U.S.-China trade tension to our company? Again, we've seen the worst of that, we hope, and all indications is that the impact on dry bulk has been the soybean trade, which has reduced due to the tariffs, and it has shifted Chinese imports. They've taken more from South America instead of from the U.S., and U.S. farmers have suffered as a result, so to speak.
As we indicated on one of the slides, this year, it's very encouraging to see increasing soybean exports again, and also other grains from the U.S. to China in particular, but also to other countries. Another question from Sunny Shawn: Can I ask if seafarers crisis could impact supply? Fortunately, our seafarers have loyally stayed on board the ships, in many cases longer than their contract, and we've been able to keep our service to our customers unaffected. Has it had an impact on supply? Yes, to some degree overall. Because of delays, because of quarantine, because of deviations to either get crew off or get new crew on board. It has had a little bit of an impact on supply, but not massive touch wood, so to speak.
It is getting a little bit better with crew changes, but it's still a significant problem, and we're having to really work extremely hard and be creative to get the crew both on and off our ships, and sometimes with long waiting times and quarantine times in hotels, et cetera. Another question from Sunny Shawn: What is the fourth quarter outlook again, and what are the bookings like? Well, as we stated there in the first or slide two, we have 75% of our Handysize days covered at $9,600 today and 89% of the Supra days covered at $11,900. It looks good for the fourth quarter, and we are well into profitable territory there. Any other questions?
Once again, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press pound or hash key. For those who are listening to the call through online platform, please enter your question at the bottom of the control panel in the box named Question.
If no further question, we thank you so much again for taking the time to take interest and participate in our call. Thank you very much, everybody.
Thank you. This concludes the conference call. Thank you all for attending. Thank you.