Welcome to today's Pacific Basin 2020 Interim Results Announcement call. I am pleased to present Chief Executive Officer, Mr. Mats Berglund. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Mr. Berglund, please begin.
Thank you, and welcome, ladies and gentlemen. Thank you for attending Pacific Basin's 2020 interim results earnings call. My name is Mats Berglund. I'm the CEO of the company, and I'm joined by our CFO, Peter Schulz. Please turn to slide three for a summary slide on our first half highlights. In a challenging half year dominated by the global COVID-19 pandemic and related economic disruption, we delivered a positive EBITDA of $79 million, and outperformed Handysize and Supramax market rates by a significant margin. We are encouraged by the fact that spot rates have more than doubled since the low point in May. Demand is typically stronger in the second half of the year, and we expect newbuilding deliveries to be a bit fewer.
We have good reason to expect a seasonally stronger, albeit volatile second half, and we believe that at least the worst of the market is behind us. Our mid-year committed liquidity amounted to a very strong $350 million, which is valuable in uncertain times like these. Our vessel operating expenses and G&A overheads are both competitive and well controlled and are running slightly below last year's levels. We grew our owned fleet to 117 ships. We continue to reduce our long-term chartered fleet, and thereby reducing our core fleet breakeven levels further. Overall, we had 235 ships on the water at the end of the period. Crew changes remain our and our industry's largest operational problem during the COVID-19 pandemic. This is due to entry, exit, and quarantine restrictions, and also due to extremely few flights in and out of China for our Chinese crew.
We owe significant gratitude to our seafarers and are supporting them vigorously. We continue to work hard with authorities and industry organizations to push for solutions. Please turn to Slide four. Our underlying results were negatively impacted by weaker dry bulk freight rates due to global efforts to contain the pandemic while the dry bulk fleet continued to grow. In spite of our continued TCE outperformance and competitive cost structure, we made an underlying loss of $26.6 million. Including a $198 million non-cash impairment of our Handysize core fleet, primarily our smallest and oldest Handysize vessels, we made a net loss of $222 million. This impairment does not impact our operating cash flows, EBITDA, or available liquidity, will result in lower depreciation costs, higher earnings per share, and higher return on equity going forward, all things being equal. Slide five.
Our core fleet generated average Handysize and Supramax daily TCE earnings of $7,190 and $9,980 net per day. While down 22% and 8% year on year, these TCE earnings are highly respectable given index earnings of only about $4,900 and $5,700 for Handysize and Supramax, respectively. As at late July, we had covered 60% of our currently contracted Handysize days for the second half of 2020 at about $8,400 per day net and 75% of our Supramax days at about $10,800 per day net. Note that these cover rates indicate a positive trend and are at or just above our estimated P&L breakeven levels for the second half of 2020. Slide six. We outperformed Handysize and Supramax index rates by $2,270 and $4,250 per day respectively in the first half. Our Supramax outperformance was particularly strong, partly due to the significant scrubber benefits that we realized early in the period.
So far, we have achieved a net saving of $23.1 million on our scrubbers, representing 38% of our roughly $60 million original scrubber investment. $7.4 million of the saving was achieved by closing out bunker price spread hedges. Our operating activity generated a healthy margin of $1,790 net per day in the first half of the year and $1,400 net per day in the past 12 months. This is on short-term ships that we chartered specifically to carry spot cargoes. Our operating activity complements our core business by matching our customers' spot cargoes with short-term chartered ships even when our core ships are unavailable, thereby providing a service to our customers and making a margin and contributing to our group results, regardless of whether the market is weak or strong.
In fact, we made $12.5 million on this activity in spite of the very poor market in the first half of the year. In slide seven, you can see the development of spot rates so far this year compared with prior years. Seasonal Chinese New Year weakness early in the year was compounded by measures to contain the COVID outbreak in China. Following a partial recovery in March as Chinese activity gradually returned, the market weakened again from late March until early May as the coronavirus spread and severely impacted activity around the world. Despite estimates of a significant reduction in demand in the first half of the year overall, we have observed increasing levels of trade and inquiries in recent months. This has caused index rates to double since the low point in early May, and rates are above previous lows for this time of year.
Turning to slide eight, you will see that indicative cargo loading data points to a 1.7% reduction in overall dry bulk loadings compared to the same period last year. However, note the strong bounce back in June, when global dry cargo loading volumes reach an all-time high. On slide nine, we show indicative cargo loading data separately for each of the main dry bulk cargo sectors. Grain volumes grew strongest during the first half at +12% compared to last year, driven by record exports from East Coast South America and by recovering Chinese soybean demand as swine fever is receding. If you look at the scale of these charts, you will see that the strong volume increase in June was led by, first of all, minor bulks, and second most growth we had in iron ore.
This is primarily driven by strong Chinese economic activity, with domestic steel production in June recording an all-time high. Coal and construction materials were the weakest performers, affected by lower energy consumption and construction slowdowns throughout the world due to the pandemic. A recovery is hopefully underway with coal volumes, as you can see, edging up in June, albeit from low levels. Slide 10. Clarksons Research estimates that the global dry bulk fleet grew 2.2% net during the first half year, mainly due to significant Panamax and Capesize new building deliveries and little scrapping. We expect lower supply growth in the remainder of the year as new building deliveries will be fewer and due to scrapping being allowed again as the Indian subcontinent scrapyards are gradually opening up. Scrapping volumes, though, will depend on what freight rates will do.
Uncertainty over environmental regulations and future vessel designs will result in less new ship ordering and deliveries, leading to tighter supply. Currently scheduled newbuilding deliveries in 2021 are down 34% compared to the 2020 deliveries as forecasted one year ago at this time. The Handysize and Supramax order book is smaller than for the larger ships and the lowest in percentage terms since the 1990s. We do expect the overall dry bulk order book percentage to reach an all-time low later this year. I now hand you over to Peter, who will present the financials. Peter.
Thank you very much, Mats. Good afternoon, ladies and gentlemen. Please turn to slide number 12. The group posted a $79 million positive EBITDA, an underlying loss of $26.6 million in the first half of 2020 as a result of weaker market conditions. The net loss of $222 million was mostly due to the $198 million non-cash impairment on our Handysize fleet. While our whole vessel cost increased during the year as we added more owned vessels to our fleet, the per-day cost reduced due to lower travel costs. G&A also decreased primarily due to less travel and various other cost reductions. Since the group has posted a loss, the board has decided not to declare any interim dividends for the period. Please turn to slide number 13.
As our core Handysize TCE earnings per day were below our core blended costs per day, our Handysize fleet posted a negative contribution of $16 million in the first half of 2020. Our core Supramax TCE, boosted by scrubbers on 28 of our vessels, were over $1,000 per day higher than the core blended cost, which yielded an average positive Supramax contribution of $5 million. Our operating activity contribution was a strong $12.5 million, or $1,790 per day. Now please turn to slide 14. On slide 14, our Handysize own vessel cost reduced to $7,530 per day, mainly due to lower operating expenses related to less travel. We should expect these costs to increase again post-pandemic. Our depreciation costs, on the other hand, increased slightly due to the installation of ballast water treatment system.
Depreciation on our Handysize vessel will reduce by about $600 per day going forward, due to the recent impairment. The cost per day of the long-term charters were above market rates. These are gradually expiring, and we are replacing them with owned ships at lower breakeven levels, and with short and medium-term chartered in ships. We have covered 60% of our second half committed days at $8,420 per day, which is at expected second half blended P&L breakeven levels. On the next slide, we see Supramaxes. Our Supramax owned vessel daily cost reduced to $8,540 per day for the same reason we saw a reduction in our Handysize costs. As is the case in the Handysize segment, our cost of long-term chartered Supramaxes was above market rates in 2020.
75% of our committed days in the second half of 2020 have been covered at above our blended P&L breakeven levels. On the next slide, we reiterate how to model our business. For each segment, the core TCE multiplied by the number of core TCE days provide the revenue, and the core blended cost multiplied by the number of core vessel days provide the cost. Operating activity can be calculated using the daily operating margin multiplied by the number of operating days. Our core owned and long-term chartered-in vessels have largely fixed costs, and an increase or decrease in achieved freight rates will directly impact the underlying profit.
We say that for each $1,000 change in daily TCE, the underlying profit and operating cash flow of the group will change between $35 million and $40 million, taking into account that we typically have 20%-25% long-term forward cargo cover for the next 12 months at any point in time. This, of course, assumes a stable operating activity profit. On slide 17, the operating cash flow for the first half of 2020 was $77.5 million, inclusive of all long and short-term charter hire payments. Despite low TCE rates, this was actually about $5 million higher than the same period last year, due to variations in working capital. Our borrowings increased due to drawing down $230 million on existing and new committed loan facilities, which was offset by regular amortization of $59 million.
The new facility we drew on of a $30 million bilateral seven-year reducing revolver secured against three vessels, which matures in June at a very competitive cost of LIBOR plus 1.6%. CapEx consisted of $38 million paid for three vessels delivered in the first half of 2020 and $52 million in dry docking, scrubbers, and ballast water treatment systems. We docked 20 vessels during the period and fully completed our scrubber investment program. Including the dividend payment in May, our cash position increased to $316 million at the end of the period. Please turn to slide 18. Our committed liquidity was $349.5 million at the end of the period, a significant number. In the second half of 2020, we expect regular maintenance CapEx of around $20 million and about $80 million in scheduled debt service, including interest payments. A $50 million unsecured revolver is maturing in November.
We expect all of these commitments to be comfortably met by existing liquidity and operating cash flow. At the end of June 2020, our net borrowings were 41% of the net book value of our owned vessels, which is a six percentage point increase on the end of 2019, well below our KPI of maximum of 50%. This is driven by the net increase in borrowings and the impairment of our Handysize vessels. I now hand you back to Mats for his wrap-up.
Thank you, Peter. On slide 20, we share with you a summary of our key strategic priorities for the medium to longer term. Unlike many other shipping companies who are increasingly going asset light, we will continue to develop our somewhat unique business model of having both, A, a fully integrated core asset heavy model with owned and in-house managed ships, allowing us to control safety and service quality to our customers. B, an asset light model where we use short-term shortage in ships to provide a service to our customers while making a margin, regardless of whether the market is weak or strong. Our plan is to continue to grow primarily our own Supramax fleet, while in Handysize we trade up by replacing smaller with larger sized vessels.
Over the long term, we see upside in secondhand values, but as a caution during this period of very uncertain market conditions, we have paused our spending on growing our own fleet, preserving our capital, unless we find particularly compelling opportunities. Like most other ship owners, we are not contracting new buildings with what we consider old technology due to their high price relative to secondhand ships, lower returns, and because of the uncertainty over new environmental regulations, and we will wait until low emission ships become technically and commercially viable. We are investing in further optimization systems and process improvement on and across our ships and in our offices. Initiatives include fuel and energy savings, automation, software, and AIS data analysis to improve our competitive edge, both on revenue and on costs.
We have a strong cash position and will continue to keep our balance sheet and liquidity strong, enhancing our ability to take advantage of opportunities to grow our business and attract cargo as a strong partner, even in challenging times. Wrapping up on slide 21. We have worked hard over several years to streamline and focus the company and grow our Handysize and Supramax business. We have reduced both OpEx, G&A, and cost of long-term charters significantly over the last few years. Our healthy balance sheet and strong liquidity position, combined with our outperforming business model, experienced staff, substantially larger owned fleet than before, and competitive cost structure, position us well for the future and for what we believe will be improving trade market conditions in the second half. COVID-19 has been a very unfortunate setback for businesses and people all over the world.
This makes for significant uncertainty and markets will likely remain volatile. We do expect that at least the worst of the market is behind us, and that we will see a seasonally stronger second half assisted by stimulus measures and fewer new building deliveries, which should bode well for our business both in the second half and beyond. Ladies and gentlemen, that concludes our results presentation, and lines will now be opened for any questions you may have. Operator, over to you.
Certainly, sir. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. Note, if you wish to cancel your request, you can press the pound or hash key. Once again, it is star followed by one to ask a question. Kindly note, there might be a slight pause as we collate the questions.
We have a question on the line.
Yes.
Should we do that first?
Okay. Sure.
Okay. There's a question from Parash Jain from HSBC. Can you please help us understand the math behind the Handysize vessel write down? What drive that decision, and do we expect the same for Supramax in the future? It was the uncertain market outlook that prompted us to look at the carrying value of our fleet. However, it wasn't necessarily a more negative rate scenario that prompted the actual impairment. It was predominantly driven by changes in methodology. Let me explain that. We have historically treated all our Handysize vessels as one cash generating unit, as the same as a Supramax. That is one cash generating unit. We've had Handysize and Supramax as two separate cash generating units.
However, a long-term trend in the Handysize market is that smaller and older vessels, and we have quite a few 28,000 deadweight ton ships, as you know, are increasingly trading in different manner, and with different customers and different routes from the larger Handysize. They are becoming less interchangeable with our larger Handysize ships.
A condition to have ships within the same CGU is that they are almost perfectly interchangeable. When we looked at this, we decided that since they are not fully interchangeable, to separate out the smaller Handysize ships in a separate CGU. By doing that, we can no longer have sort of an average rate expectation across all our Handysize, but we have to have a separate rate expectation for the smaller and the larger ships. That crystallizes a need for impairment on the smaller and older ships. It doesn't mean that the average expectation for future rates has changed. It's just that it's crystallized by putting these ships into a separate CGU, and that is the key driver for the impairment. There were a few other changes in assumptions, but that was the most material one, and I hope that answers your question. Oh, sorry.
You also asked whether we should expect any impairment on Supramax in the future. The answer is, unless there's a significant further deterioration in the market, we do not expect any further impairments.
Any question on the phone?
Yes, sir. We have a question from the line of Andrew Lee from Jefferies. Please go ahead.
Yeah. Hi. Hi. Good morning. Thanks for taking time for the call. I have a few questions. The first question is on the impairment. I think you mentioned during the presentation that you were looking to potentially phase out these older and smaller vessels with bigger ships are under chartered, right? How quickly are you looking to phase these vessels out? That's my first question. Second question is on slide 23, where you provide the vessel days and the long-term chartered commitments. Do you have any guidance in terms of, for the second half, how much short-term core days, how many operating days you will have for the second half and into next year as well? Maybe two more questions is any data on how the grain season will look?
Final question is, you're positive on the second half outlook, but as you mentioned, you're not looking to basically increase your owned fleet, right? You're not looking to buy any second-hand vessels. What would make you change your mind? Is it when margins hit a certain level or when rates hit a certain level? I'm just trying to get a sense in what will change your mind. Thanks.
Thank you, Andrew. First question regarding selling or trading up within Handysize there. How quickly will we sell or trade up in Handysize? It depends on opportunities. Mainly history is a decent guide there. When we have sold maybe three ships a year of the smaller ones or something like that. Another guide is to see when our ships kind of get close to the 20-year mark. There's no cutoff at 20 years or anything, but expect us to sell maybe two, three ships a year, but it depends on opportunities and specific vessel situations. You asked about the grain season, how does that look? There are reports of a big crop in the U.S., but these things can change with weather, et cetera. All things looking good so far for the Northern Hemisphere grain season.
Again, we have had extremely strong grain volumes out of the South American East Coast in the first half. They have seasonality. That season has been very good. We're optimistic about that. Again, grain demand is recovering with swine fever receding in China and has been strong throughout the COVID-19 period, right? People need to eat in spite of the COVID-19 situation. What will make us buy second-hand ships? We do say that if we come across extra compelling opportunities, we are prepared to open the wallet now. It depends on what opportunities, and if they're really attractive, we may do it now. We're looking for a bit more indications of continued recovery and stability.
We showed you the slide there on the strong recovery in June, but we like to see a little bit more than that to feel good about a real solid bounce back in volumes longer term. Peter, can you try to answer the question of days forward we have?
Yeah. On the days forward. On page 23, the core dates, if we do not buy many more or take in more long-term charters, the number of core dates in the first half should be fairly similar in the second half and going forward. That depends on if we buy more deep-sell ships or take in or return more long-term charters. You have the number of long-term charter commitment in the table on the side there. It's not a big change for the second half. Operating days, it's always difficult to estimate how many operating days we have, but I would always say that the best estimate for operating days in the next period is how many did we have in this period.
Okay. If you want to model it, assume it's the same, unless there's a particular reason why we would choose to increase or decrease our operating.
Okay, Andrew?
Yeah. Good. Thank you.
Thank you. We have the next question coming from the line of Mike Sell from Alquity . Please go ahead.
Hi. Thank you. Two questions. Given the hog cycle in China, would you expect to be seeing very strong demand for soybeans over an extended period as the hog population is rebuilt? Secondly, I realize that you benefit from trade wherever it may be, but could you talk about what you're seeing in terms of a U.S.-Chinese trade? Are you seeing a pickup, and is that additional to you, or is that just displacing it and Brazil is losing out and America is gaining due to the phase one trade deal? Thank you.
Thank you. Yeah, the animal feed going into China is increasing due to the swine fever. They have come to terms with it. The number of pigs, the population is increasing again. Exactly how much is hard to get accurate data. There's clear evidence that it's coming back. We're not back yet up to the levels where we were before the swine fever hit. There's recovery to be had there. Do we benefit from that? Yes, we do as regards to the impact on the overall market. The way this market works is that it impacts the overall market. Ships are movable and displaceable. If we don't get it in one place with one type of cargo, we employ our ships elsewhere, right? A recovering hog population in China is obviously helpful. Do we see those soybeans coming from the U.S. or South America?
Well, they have bought a lot from South America in the first half. Whether they go buy more from the U.S., the export season for soybeans to U.S. is typically starting its fourth quarter, starting in September or October, something like that. The volumes out of the U.S. doesn't really start big time until then. It's yet to be seen. What we have seen so far is that China has bought unusually so more corn and wheat from the U.S. These are not big quantities because China is basically self-sufficient on these commodities. Maybe that's an indication that they're trying, China, to buy also from the U.S. The big volume going into China so far has been soybeans from South America. Trade. Other effects of the U.S.-China trade situation. The major impact in prior periods have been the lack of soybeans.
Again, that coincided with the swine fever. It was kind of a double hit on the U.S. farmers, right? The tariffs and then swine fever was a double hit on them. We haven't had any other major impact on our business by the U.S.-China trade tariff, trade war stuff.
Thank you.
Other question on the phone?
Once again, it is star followed by one for participants to ask questions.
Maybe while we're waiting, we can have another online question. There's a question, can you give us an illustration of how much incremental benefits will be coming from the runoff of high-cost long-term charted vessels? This is from Amiral Gestion. We have that on slide 23. You can see in the table to the right, the number of days and the rate. You have both the number of days and how the rate changes there year by year. The long-term Supramax days is basically coming to an end here shortly, right, in 2022, we only have one ship left. While in Handysize, it lingers on for a bit longer, but it's coming down significantly from an annualized level of more than 5,000 days this year to three and a half next year and onwards down, right, to three, or what is it like, five ships left in 2024.
Another question online. The strong rebound in minor bulk volumes, is this just a catch up following earlier disruption? I think the situation is unusually uncertain at the moment. Nobody in the world really knows how the virus will develop further. At the same time, the world is kind of coming to terms with it and are taking more targeted actions to deal with the virus and allowing more economic activity to take place. We are cautiously optimistic, if you will. We do say that we expect help from stimulus activities. Longer term, we will definitely have fewer newbuildings. We do think that the worst of the market is behind us. We do think second half will be better than the first, and that we are getting into better times, not worse.
Whether that extremely strong rebound in June is there to stay is very hard to say.
Another question online here, a follow-up question from Parash Jain, HSBC. Parash is asking, how many such Handysize were taken for write down, and what percentage of the value has been taken off? The small Handysize, we have around 20 of these vessels, which are below 30,000 deadweight. Given the lower TC earnings on these compared to the larger Handysize, it could be 20%, 25% less in many cases. When you crystallize that, there is a significant reduction compared to our overall carrying value, probably to the tune of 50% or something.
Question on the phone?
We have a question coming from the line of Yang Liu from Pinpoint. Please go ahead.
Hello?
Hello.
Hi. Thank you for taking my question. Just one simple one. Regarding the crew change problem that the whole industry is facing at the moment. In the first half, especially in Q2, did you already have any problems or any business disruption related to the crew change problems, and do you foresee any challenge in this area in Q3, Q4? Thank you.
Thank you. The crew change problem is really serious both for ourselves and everybody else, and it has to do with getting a visa, getting entry and exit, getting flight tickets. We haven't had a significant impact as regards delays and things like that, and that is with enormous thanks to our crews on board our ships, who are loyally, patiently hanging in there. They understand that we are doing absolutely everything in our power to get the long-term servers off the ships. We have chartered our own planes, and we do absolutely everything we can to help them. It has eased a little bit for our Filipino. We have primarily Filipino and Chinese crews. The Filipinos have become a little bit easier.
There are flights now in and out of Manila, et cetera, but it's still extremely challenging due to restrictions on entry and exit and quarantine, et cetera. The Chinese crews is our biggest problem because there are extremely few flights in and out of China, and extremely few places where we are allowed to take them off and get new Chinese crews on. Touch wood, no major disruptions as a result so far, thanks to our crew. It is really an ongoing problem. It has become a little bit easier on the Filipino, but continues to be very challenging for the Chinese crew. We are hoping that governments will listen and be reasonable. We are all in favor of quarantine testing. We are doing that voluntarily and so on. Being on a ship is an extremely safe place to be.
They are out in the open ocean, 30, 60 days. They are not meeting anyone, not even in port, right? The number of people that are allowed on board is extremely restricted. Governments should not be worried about taking seafarers in if they are tested and quarantined. We are hoping for governments to listen going forward.
I think the problem is not the crew on board. I think it is not the outgoing crew. It is more the problem caused by the incoming crew which kind of expelled from the quarantine for some reasons. Let's say, nowadays, I don't think we are in a rational world where we are really in extreme situations. If things continue to worsen.
It's a good point. It is both ingoing and outgoing. Is there another question that you have?
Hello?
Yes. Hello.
Yeah. My question is, in the extreme situation, is there no solution for this? I know this is an industry-wide problem. Do you think this would potentially reduce the supply for the shipping service at some stage?
It could lead to that, yes.
Okay. Thank you.
Thank you. Another question on the phone.
The next question comes from Nicholas Cunningham from TNG Investment. Please go on.
Yes, hello. Just 2 questions from me. You addressed my 3rd one on the cruise there, thank you for that. With respect to rates. At 4th quarter or full year results, you mentioned that for cover was around, for Handy, around $8,900, Supra $11,390. The 1st half, let's set aside Supra for a moment. Handy was a lot less. It would imply that the incremental business was extremely weak versus what had been locked in. I'm just interested if you can comment around that. Just 2nd question on rates was, you mentioned 60% of Handy at around $8,400 and 75% Of Supra, given we're already near highs for both, does that mean that we can assume the incremental business from here should be better?
Well, I think your question is on the cover rates, right?
Yes.
Yeah. We show them as 60% of the Handy days covered at $8,400 a day, which is around our P&L breakeven level for the second half. Where the remaining 40% open days will come in depends on how the market develops. We are fixing now at around that same level, about $8,000 a day. The index rates are maybe a day. We're generally making a premium of about $2,000 today. Currently, we are fixing around at that cover level, and it will depend on how market develops from here. We're not giving a forecast. Again, we're mentioning that the uncertainty is significant. It's about the same thing for Supramax. We're showing 75% of our days covered at $10,800. That is above our P&L breakeven levels. We are also fixing around these levels right now, $11,000 a day, $10,500 or $11,000 a day.
Index rates slightly below that. Again, where we come in for the full second half depends on how the rest of the year develops, and that's as much guidance as we can give.
Of course, Nick, you are correct, that if you're trying to track the cover rates from previous results announcements, then, of course, we've been through the worst quarter in dry bulk history almost, I would say. Of course, we have put some rates in the books which are lower. You'll see that the cover rates are lower now than it was before. You're right that we have put some lower numbers into the book, looking forward now, as Mats is saying, we're looking at what are we achieving now compared to what our cost is, that is now positive. That's the key.
Again, in spite of this extremely poor period that we have behind us, that we have outperformed those market rates significantly.
Thank you.
Thank you. Question online from Sean at JP Morgan. "Hi, may I kindly ask on if there are potential impacts from re-escalating U.S.-China trade tension on fulfillment on phase one deal?" The first question. Again, I think we spoke about it earlier. It is extremely hard to say. The impact on dry bulk is the soybean trade. That is the significant trade that is impacted by this. China have committed to buy more soybean from U.S. in the trade one deal, but whether they will do it or not remains to be seen. The high season for that only comes in the fourth quarter. Other than that, we are not seeing or do not expect any significant impact on the dry bulk trade from the U.S. and China trade tensions. Secondly, your second question, will the recent resurgence of infection cases impact bulk demand recovery?
Well, again, extremely difficult to forecast what the virus will do. As mentioned, we do believe that the world is gradually coming to terms with living with it and allowing industrial activity to start up again, and they are taking more targeted actions to deal with the virus rather than lock down a whole country. In spite of infections being there, remaining and increasing in certain places, the industrial activity appear to be going on and not closing down completely as it did in the first round cases. Another question online, should we expect the Supramax outperformance to normalize in the second half of 2020? It will depend a bit on the fuel price spreads. We do explain the very high $4,250, I think we're showing right outperformance in the first half, partly with the scrubber benefits, which was significantly higher.
The fuel price benefit was significantly higher early in the period than it is now. Yeah, yes, you should expect it to normalize a bit. Even if the fuel price spread is smaller, there is a continued benefit. Do expect it to maybe normalize a bit. Company from Karen Li at JP Morgan. Three questions. First one, can you give an update view on our scrubber strategy and IMO 2020 in light of the swings in oil price? Yeah, we were early with our scrubber decisions and had all of them operational when the year-end happened, substantially. We were able to take advantage early. As the fuel price spread has narrowed, we are not planning to install any more scrubbers, and neither are many others.
The scrubber opportunity, at least the way it looks now, was to be there early and take advantage. As mentioned, we have 38% of the investment back in the first six months already, right? We do expect the spread maybe to widen a bit again as per the forward curve of crude is going up, right? That should probably mean to a bit of a widening spread again. Don't expect us to install more scrubbers, but we're happy with the ones we have installed. Remember that it's only a relatively small portion of our fleet that has scrubbers, and a majority complies with burning the low sulfur fuel. Second question, you mentioned that worst may be behind us. Is that from volume perspective? For spot freight rates, we noticed very high comparison base going into second half.
When we say the worst is behind us, we're talking about freight rates primarily, and freight rates is obviously partly dependent on volume, I guess both. As mentioned and as shown in our indicative loading data slides there early on in the presentation, it's very encouraging volumes that we've seen in recent periods. Third question, separately, just wondering whether there is any impact on China-U.S. tensions which has resulted in changes in Hong Kong's trade region and hub role. You want to take that, Peter?
Yeah, we have not noticed any particular negative impact on our ability to do business and operate here in Hong Kong. I would say, generally, we have been fortunate to be in Hong Kong during this pandemic because unlike a lot of other parts of the world, there's been much stricter lockdowns, et cetera. Of course, we'll see what happens now, but generally, we've been quite happy. When it comes to trade tension, et cetera, we are still very happy to operate out of Hong Kong. It is still, we think, a very good place to do business. Remember, from our perspective, Hong Kong is our headquarters, but our assets are on the open sea around the world. 80% of our commercial decisions and business is taken outside of Hong Kong. Obviously, all the support functions, et cetera, is here.
Even if the situation were to deteriorate and Hong Kong would become less attractive in the future, we are fairly, as a business, fairly insulated from that given where our assets are and where our key commercial people are located, et cetera. To date, we are very happy to be here and we are very committed here to our base here in Hong Kong.
Any other question on the phone?
Pardon me, sir. We have no questions on the phone line.
Is there one more online? Supramax rates seems to be outperforming Handysize rates in recovery. What is the reason for this? Volatility tends to be higher the bigger the ship is, and this is the case also now when we do see a recovery, we typically see a stronger recovery on Supramax than in Handy, although the Handy comes with a bit delayed effect. As regards our earnings, as we explained, it partly has to do with the scrubbers that we have on the Supramax as well, which is why we are outperforming even more on the Supramaxes than in Handys. They do tend to track each other reasonably well, Handy and Supra.
The scrubber.
Yeah. If no further questions, we would like to thank you very much for attending, and thank you for your support. Thank you very much.
Thank you.