Earnings Call: H2 2019

Feb 27, 2020

Ladies and gentlemen, welcome to today's Pacific Basin twenty nineteen Annual 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. David Turnbull, please begin. Okay. Thank you. Thank you very much. I'm the Chairman of the company. And I'm joined by CEO, Matt Spurglund and our CFO, who is on the line from Italy. In spite of a very difficult time, we made a small profit of $25,100,000 and we continue to perform well. I think the Board is recommending a dividend of HKD 2.12020 has started, well, very, very difficult time. Coronavirus headwinds, and we expect the year to be very difficult. But we've said before that our company, Pacific Basin, actually can manage all these things very carefully and adeptly. I will ask Matt now to present results for the year, and then we will talk about it a bit more, and then we will answer questions for you. Thank you, Mats. Thank you, David, and good afternoon, ladies and gentlemen. Please turn to Slide two for a summary of our report. As David said, 2019 was a volatile and challenging year for drybulk shipping. The market and our own trading were also heavily impacted by preparations for IMO twenty twenty. Cleaning fuel tanks and switching fuel on all our Handysize ships and repositioning a majority of our own Supramaxes to China and installing scrubbers on them is a massive undertaking. But in challenging times, our platform and business model really shows its value, and our TCE earnings outperformed the market indexes even more than in prior years. Our ship operating expenses, G and A overheads and financing costs remain well controlled. And like our TCE are also very competitive compared to most of our peers. In early February twenty twenty, we completed our scrubber retrofit program with scrubbers successfully fitted, certified and fully operational on 28 of our 35 owned Supramaxes, all substantially on time and on budget and all completed before the coronavirus related delays at shipyards that many owners are now facing. Minor bulk continues to drive drybulk demand and is expected to remain resilient once the coronavirus is contained and normal activity returns. 2019 saw higher net fleet growth than expected due to almost no newbuilding delivery shortfall compared to the scheduled order book and as scrapping remained subdued. Subject to the coronavirus effect on shipyard output, we expect drybulk fleet growth to remain high in the 2020, primarily due to newbuilding deliveries of larger ship types. However, the IMO twenty twenty effect is causing the speed of the global drybulk fleet to slow down, effectively reducing supply and scrapping to date is up significantly compared to last year. But these market factors are currently overshadowed by the negative effects on China and the world economy of efforts to contain the coronavirus. While we do not know how long the outbreak will last, we expect to see a rebound driven by catch up demand and stimulus activity once the outbreak is contained. We strengthened our balance sheet last year and are very well placed to navigate the current volatility, and we are well set up for what we believe will be stronger markets in the longer term. Please turn to Slide three. We made a net profit of 25,100,000.0 in 2019, an underlying profit of EUR 20,500,000.0 and an EBITDA of EUR 2 and $30,700,000 Our results benefited from our TCE earnings outperformance and large owned fleet and competitive cost structure, but were adversely affected by weaker drybulk market conditions and more off hire than normal, especially in the second half of the year due to scrubber installations and a record number of dry dockings. We continue to grow our own fleet with larger, high quality secondhand acquisitions, focusing especially on adding Supramax ships and growing our Handysize carrying capacity by opportunistically trading up our smaller, older Handysize ships to younger and larger units, resulting in an even more efficient fleet with greater longevity. Consistent with this strategy, in 2019, we took delivery of eight modern secondhand vessels, two Handysize and six Supramax, and we sold two older smaller Handysize vessels. A few additional transactions will soon increase our own fleet to 117 ships. We tapped diverse sources of external funding during the year, And Peter will soon tell you more about these funding initiatives, which enhanced further our liquidity position to USD $383,000,000 at the year end. Slide four, our Handysize and Supramax net daily TCE earnings of US9630 dollars per day and US11720 dollars outperformed the Baltic Handysize and Supramax spot market indexes by forty one percent and twenty four percent, respectively. Average Handysize and Supramax spot market rates declined 1713% year on year, but in contrast, our own TCE earnings reduced only 4% year on year. As of mid February, we had covered 42% of our handysize days for 2020 at about $8,910 per day and 60% of our supermax days at about $11,390 per day. Slide five. The 2019 was negatively impacted by iron ore supply disruptions in Brazil and Australia, trade war and African swine fever effects on Chinese grain imports and a generally weak U. S. Grain export season. The markets rebounded in the third quarter due to strong South American and Black Sea exports and the return of normal iron ore volumes, which pushed freight rates up to four and five year highs in our respective segments. Towards the end of the year, rates weakened as ship prepared for IMO 2020 implementation, undercutting each other to secure employment necessary to use up their high sulfur fuel before the year end IMO 2020 deadline. Going into 2020, Chinese import activity wound down for the Chinese New Year holidays. The usual rebound following the holidays have not yet really materialized due to the effects of containing the coronavirus outbreak. But the market has stabilized and cargo inquiries are now returning. Note on the graphs, the recent upturn in spot market graphs, albeit from a low level. Please turn to Slide six. We continue to outperform in terms of TCE earnings and the average TCE premium we generated over the market indexes in the last five years is over $3,500 per day in Handysize and Supramax, respectively. The premium we generate over index earnings is driven by harnessing our experienced commercial and technical teams, global office network, strong cargo support and large fleet of high quality interchangeable ships in ways that optimize ship and cargo combinations for maximum utilization. As a result, our ships are laden with cargo over 90% of the time and ballasting only 10% of the time. But it's not only on a TCE level that we are competitive. Our vessel operating expenses is well controlled at $4,080 per day, driven by the same benefits and uniformity of our fleet and our sector leading in house technical management team. Our OpEx is inching up, but note that we are still well below our 2014 level of $4,370 per day. Our G and A overheads averaged $730 per ship per day, spread across our total fleet of owned and chartered in ships. We achieved this competitive G and A mainly through a lot of hard work on our cost structure, scale benefits and efficient systems. Our financing costs are favorable at $770 per day per owned ship. Our access to capital and cost of capital represent a significant advantage as our fleet is financed through long term secured facilities at the most competitive cost in our industry and because we focus on primarily good quality secondhand Japanese built ships rather than more expensive newbuildings. Our earnings and cost outperformance amounts to a basin advantage of over 2,000 per ship per day on average compared to the peers in our segments who publish comparable information. Please turn to Slide eight. Clarksons estimates drybulk demand grew at 0.7% in 2019, mainly due to lower iron ore ton miles. Minor bulk demand grew faster at 2.1%, partly due to strong Chinese imports. 2020 has started with weak rates with the usual Chinese New Year seasonal weakness compounded and prolonged by reduced Chinese demand and disrupted logistics caused by actions to contain the coronavirus. Despite recent downward adjustments to growth estimates for 2020, demand for minor bulk commodities overall remains healthy, and we expect a rebound driven by catch up demand and stimulus activity once the virus outbreak is contained. Clarksons estimates mine and bulk ton mile demand to grow 2.5% in 2020 and three percent in 2021, while the combined Handysize and Supramax fleets is expected to grow slower at around 1.9% net for 2020 and zero point five percent net for 2021. Slide nine. Clarksons Research have corrected upwards their historical newbuild ordering and deliveries records. This is mainly because many shipyards have held contracts and blocks for their own accounts and then resold these contracts much later to avoid the extra construction costs of Tier three engines and other new regulations. Clarksons now estimate that the global Handysize and Supramax fleet grew 3.1% net last year, and the global drybulk fleet overall grew faster than expected at 3.9%. And usually, there were almost no shortfall in newbuilding deliveries compared to the scheduled order book, which combined with minimal scrapping cost net fleet growth to increase. Scrubber installations took many larger ships out of service for several weeks, which helped to moderate fleet supply in the second half of the year and will continue to benefit the markets through the 2020. Clarksons currently estimates overall drybulk supply to grow at 3.4% net in 2020 and one point five percent in 2021. Again, the global Handysize and Supramax fleet is estimated to grow slower at 1.9% net in 2020 and zero point 5% in 2021. Slide 10. New ship ordering activity reduced significantly in 2019 and is expected to remain subdued going forward. The commercial case for ordering new ships is weak as the gap between newbuilding and secondhand prices remain high. This large gap and uncertainty over upcoming environmental regulations and their impact on future vessel designs and propulsion technologies are discouraging owners from ordering new ships with old technology. Slide 11. The IMO twenty '20 global 0.5% sulfur limits took effect on the 01/01/2020, and the majority of the global dry bulk fleet, especially smaller vessels such as our Handy Fell ships, are complying by using low sulfur fuel. The higher price of low sulfur fuel reduces ships' optimal operating speeds, and this trend is very clear since the fourth quarter last year. Many larger ships will continue to be taken out of service in 2020 for scrubber retrofits, which combined with a reduced operating speeds of non scrubber fitted ships will mitigate effective supply growth this year. Having scrubbers on 28 of our own Supramaxes provides us some optionality in how we manage our fuel. And based on the fuel price spreads seen in early twenty twenty, our scrubber fitted ships are making a significant contribution to our Supramax earnings. I now hand you over to Peter, who will present the financials, and I will then be back afterwards with a wrap up. Peter? Thank you very much, Matt. Good afternoon, ladies and gentlemen. Please turn to Slide 13. The group posted a net profit of $25,100,000 in 2019 compared to $72,300,000 in 2018. However, EBITDA increased from 215,800,000.0 to EUR 230,700,000.0 due to the adoption of the new lease accounting standards, HK IFRS 16. Adjusted for these accounting changes, our EBITDA would have been $184,900,000 Owned vessel costs increased during the year mainly because we added more owned vessels to our fleet, but also we had some increases in the per vessel per day costs primarily because of high depreciation on ballast water treatment systems and scrubbers, but also due to crewing, repair and maintenance, ballast water operation in preparation for IMO twenty twenty. G and A increased by EUR 1,400,000.0, mainly due to an increase in our staffing overhead, but it has reduced on a per vessel per day basis. The underlying profit of €20,500,000 was lower than the net profit, mainly because the net profit takes into account mark to market gains from our unrealized bunker swaps due to the increase in bunker prices since the start of the year, which is partly offset by vessel disposal losses. As David mentioned earlier, the Board recommends final dividend of HKD2.1 per share, HKD that is. This represents half of our net profit for the full year, which is consistent with our dividend policy. Now please turn to Slide 14. Compared to 2018, our Handysize revenue base decreased by 4%, and our TCE earnings also fell by 4% to $9,630 per day, resulting in a handysize contribution of $55,400,000 Our Supramax revenue date increased by 12%, mainly due to acquisitions of Supramax vessels, and our TCE earnings dropped by 4% to $11,720 per day, resulting in a Supramax contribution of $23,100,000 Going forward, we should expect the proportion of our Supramax contribution to our earnings to increase as a result of our investment in scrubbers on the majority of our own Supramax ships. The otherwise stable post Panamax contribution has reduced by €1,400,000 mainly because of the adoption of HKFRS 16 accounting standards. Now please turn to Slide 15. On this slide, our handysize owned vessel costs increased by 3.2% to $7,650 per day, mainly due to higher operating expenses related to crewing, repair and maintenance, ballast water treatment system operation and IMO 2020 preparation. Our depreciation cost was slightly increased because of the installation of ballast water treatment system. In relation to charter in costs, we no longer have the benefits of onerous contract life back, and the cost per day of the long term charters were above market rate. 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. Now please turn to Slide 16. Our Supramax owned vessel daily cost increased by 6.1% to $8,580 per day, mainly due to higher operating expenses and depreciation costs owing to the scrubber installation program, partly offset by slightly lower finance costs per day. As is the case in the Handysize segment, our cost of long term chartered Supramaxes was above market rates in 2019. On the next Slide 17, we aim to illustrate our significant operational leverage and how our earnings move in relation to changes in freight rates. The chart sets out our 2019 Handysize and Supermax TCE per day compared to the all in costs per day depending on whether a vessel was owned or chartered in on a short term and long term basis. Our owned and long term charter 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 35,000,000 and $40,000,000 taking into account that we typically have 20% to 25 long term forward cargo cover for the next twelve months at any point in time. In addition to the direct vessel costs, we have G and A, which we divide between owned vessels at $940 per day and chartered in ships at $530 per day. The blended G and A per day across our entire owned and chartered in fleet is $730 per day. It is important to remember that our reported twenty eighteen long term chartered in rates were positively affected by a €16,100,000 release of onerous contract provisions, which were not available in 2019 as these provisions were fully written back at the 2018. We also incurred more off hire and depreciation costs due to the scrubber installation program and higher OpEx costs in general in 2019. Our short term and index vessels are largely used to trade for profits and to optimize the earnings of our core fleet. Both revenue and cost per day largely follow market rate levels. Hence, for the purpose of this analysis, we do not assume any relevant sensitivity for short term and index vessels from overall movements in the freight market. Now please turn to Slide 18. With the new HKFRS 16 lease accounting changes, the operating cash flow for 2019 was EUR $217,000,000. If we adjust this to include all long term and short term charter hire payments, we had operating cash flow of DKK 174,000,000 in 2019 compared to DKK 190,000,000 in 2018. Our net cash flow from investment activities was a negative EUR 144,000,000 in 2019, comprising total CapEx of EUR 184,000,000, which includes cash payments for acquired vessels, regular maintenance CapEx, dry dockings as well as the installation of ballast water treatment systems and scrubbers. These vessels were added to our fleet in 2019 and one more was added in January 2020. And we docked some 50 vessels during the period. This CapEx was offset by disposal proceeds of 15,500,000.0 from the sale of three of our older Handyside vessels as well as interest income and other items. 2019, in general, was a major investment year for Pacific Basin. We chose to do a large number of dry dockings, including investments in ballast water treatment systems and scrubbers, setting up for what we believe will be stronger markets in the future. Consequently, you should expect us to have lower drydocking CapEx in 2020. Our net cash flow from financing activities was a negative $2.00 €2,000,000 in 2019. This mainly comprises the net drawdown on our committed facilities, regular loan amortization, interest costs, including those on our lease liabilities and any dividends paid. In terms of financing, in May 2019, we closed a new 150,000,000 syndicated seven year reducing revolving credit facility against 10 of our vessels at a very competitive interest cost of LIBOR plus 135 basis points. In November, we closed a new $50,000,000 unsecured three sixty four day revolving credit facility at an interest cost of LIBOR plus 75 basis points. And in December, we issued new convertible bonds of $175,000,000 with a coupon of 3% per annum, and they will mature in December 2025. Including the €125,000,000 repayment of the old convertible bonds in July and August, the repayment of our borrowings and the dividend payment of €22,000,000 our cash position reduced to €200,000,000 at the 2019. However, we had undrawn committed facilities of €183,000,000 at the end of the year, which means that we had available liquidity of €383,000,000 which is €41,000,000 more than at the 2018. So our effective cash position has increased. And this is a very strong cash position sufficient to service our debts, meet our capital expenditure requirements and continue to grow our own fleet should opportunities present themselves. Now please turn to Slide 19. At the 2019, we had vessel and other fixed assets of $1,900,000,000 Our vessels were financed by $863,000,000 of interest bearing liabilities. Cash and deposits, as mentioned, stood at $200,000,000 giving net borrowings of $663,000,000 And that is 35% of the net book value of our owned fleet, which is a one percentage point increase compared to the 2018. And as previously mentioned, our liquidity position at $383,000,000 is very strong. I now hand you back to Mats for his wrap up. Thank you, Peter. Please turn to Slide 21. Looking ahead, we support IMO's ambitious goals of improving the global fleet's carbon efficiency by at least 40% by 2030 and then cutting our industry's total greenhouse gas emissions by half by 02/1950. This will require research and development of new fuels, engine technologies and bunkering infrastructure that are not yet available and will take time to develop. In the short term, what the industry can and should do to reduce emissions is to invest further in such initiatives that bring incremental energy efficiency gains and most importantly, to slow down the speed of existing ships and refrain from ordering new ships with old technology. In a few years, more detailed regulations will likely be introduced to drive the decarbonization movement so the industry meets the new IMO emissions reduction goals. To follow and contribute to this development, we have joined the recently formed Getting to Zero coalition committed to exploring how to achieve these goals. Meanwhile, we are already among the most carbon efficient companies in our segment, partly because our ships are laden with cargo over 90% of the time. That is a significant advantage compared to the average owner of similar ships, which spend more time in ballast. Additionally, we invest in fuel efficient secondhand Japanese built ships, energy efficiency technologies and fuel optimization practices that reduce our emissions. And importantly, we carry primarily non fossil fuel commodities that will be the mainstay of global seaborne trade in the long term. We are well equipped with an excellent team and good financial health to adapt and cope both practically and financially with compliance and new technology. On Slide 22, we share with you a summary of our key strategic priorities for the medium to longer term. We will maintain our business model as a fully integrated ship owner and operator, both asset heavy and asset light, with a strong focus on safety, cargo and customers with an office network that keeps us close to customers all around the world. Over the long term, we see upside in secondhand values and continue to grow and renew our own fleet with quality secondhand acquisitions. We still own a smaller proportion of our Supramax ships, so expect us to grow our own Supramax fleet more than Handysize. We are not contracting newbuildings due to their high price, low return and because of the uncertainty over new environmental regulations, which will impact future vessel designs and technology. We will continue to reduce the number of ships we take in on long term charters, replacing them with own ships and short and medium term charter ships. We're investing in further optimization on our existing ships, and we will invest in low emission ships in the future when they become technically and commercially viable. Our empowered local chartering and operations functions continue to be key as they are close to customers, benefiting from best in class centralized support systems and technology for optimum efficiency. We keep building our brand, applying long term thinking, safety, care and quality in everything we do. Last but not least, we will keep our balance sheet strong, enhancing our ability to take advantage of opportunities to grow our business and attract cargo as a strong partner. Wrapping up on Slide 23. We have worked hard over several years to streamline and focus the company and grow our core business. Our outperforming business model, including experienced staff and very importantly, a much larger owned fleet with an efficient cost structure position us well for the future. For Pacific Basin, 2019 was a year heavily influenced by investments and preparations for new environmental regulations, including scrubber installations, optimization programs, a record number of dry dockings and continued acquisitions of quality secondhand ships, all serving to set us up for what we believe will be stronger markets in the longer term. Having navigated a difficult decade, including a forty five year low in 2016 and despite the current turbulence, we are looking forward to a new and much better decade ahead for drybulk shipping. Thank you for joining us today, and thank you for your continued support. Well, thank you. And if I may, can I ask any of you to ask a question? Thank you, sir. We will now begin our question and answer session. After you are announced, please ask your question. We have the first question from the line of Paresh Jain from HSBC. Ask your question. Yes, hi. Thank you and thanks, Vince, for the presentation. And Matt, if I may ask two questions, I mean, and to Peter as well. Firstly, when we talk about TCE, especially what we have seen year to date, how should we think about the rates that you managed to get for your scrubbers at its Supramax versus Supramax did not have scrubber? And the rate guidance for 2020, would it still be TCE assuming a vessel does not have a scrubber? How should we think about that? And my second question, when we look at the operating cost and you appreciate that the costs in 2019 were accelerated because of the cost associated with retrofitting and dry docking, etcetera. Do you expect this to normalize going into 2020, 2021? Maybe if you can answer these two first. Thank you, Parash. Well, the TCE going forward for Handysize is obviously, as always, without any scrubbers. And we have 42% of the days covered at $8,900 per day in spite of current market levels having been 3,004 thousand dollars per day. So very strong value of our platform and cargo system there. The Supramax is a combination of all our Supramax ships, of which 28 are Supramax fitted. We completed the last installation very early February. But from here on, it will be 28 Supras with scrubbers and the rest will not have it, right? So overall, a vast majority of our fleets, if you base it on more than 200 ships as we typically have, it's about 15% of the fleet that have scrubbers and the rest do not. The scrubber benefit is totally dependent on the fuel price spread, which we show there on one of the slides. It's now around $200 per ton. Early in the year, it was $300 per ton. And we've obviously bunkered a lot of these ships early in the year. So we have a significant benefit, and we are happy with the returns that the scrubbers are giving us. Peter, maybe you want to comment on the operating costs? Yes. Thank you for asking your questions. Yes. I mean you're right to say that the cost increases in 2019 were, to some extent, a little bit one offs in that we took we did a lot of preparation for IMO 2020. We put a lot of equipment on, which kind of pushed up the depreciation, etcetera. I mean, I think you should expect the cost increases to sort of normalize going forward more to sort of an inflationary rate. Of course, it depends on whatever new regulation comes up that we have to comply with for the long run. But 2019 was a little bit exceptional from a cost increase perspective. Remember That makes sense. And just to follow-up on what Matt's talked with respect to the TCE. Can you give us a sense, let's say, at $200 spread, some of your modern Supramax probably must be burning around 2025 plan a day. Is it a fair estimate that the differential in TCE between supermax with scrubber and without scrubber hovers around 4,000 to $5,000 No, that is too high. You're in port for some 40% of the time. So you only have the benefit when you're in the open ocean. So roughly, a supermax consumes, call it, it depends on the speed, right? But on 11.5 knots, about 5,500 tons per year, of which about 80% is heavy fuel oil and the rest is MGO that you burn in ports and in the SEKA areas, etcetera, where you're not allowed to use the scrubbers. So 80% times 5.5% and then you apply the scrubber differential. But then you also have slightly higher operating costs on a scrubber ship. So at today's forward curve, the payback time is roughly three years. And we're it's but that has a higher, quicker return in the earlier periods than in the later period due to the curve of the forward price spread. Happy to give you more details offline maybe on that. We have the next question from the line of Sally MacDonald from Jingliang of Marbles. Thank you very much for the presentation and the results. I wonder if you can talk us through in more detail the rather moving target that we have in terms of the impact of the virus at the moment. In terms of the numbers of days that you have lost, What percentage of your costs are fixed costs as opposed to variable? Whether you're starting to see bad debt from your customers? Whether and you say you have undrawn facilities at the bank as well, but are the banks still prepared to lend on these? Because we're hearing some really terrible stories out there at the moment, and we'd like you to just clear a lot. Sorry, this is the Chairman speaking. So what is your question exactly? The impact of the coronavirus so far, the number of days that you have lost, the what percentage of fixed costs you have, whether you're seeing any bad debt at the moment, whether your undrawn facilities at the bank are still good to draw? Okay. So yes, yes. It is no to basically all these questions. We have not lost any days. There's no effect on availability of financing due to what's going on. There are no customers that have not performed under any of our contracts. Chinese ports are operational. We have ships in and out of there on a regular basis. Our ships are operating as normal. The effect is on the rate levels, which is lower than normal. The normal rebound after Chinese New Year has been delayed. But China is gradually coming back to work, as you can see on the spot market rate graph that rates are inching up. But the effect is on the overall freight rate level, which is low, lower than normal, but things are improving, and China is gradually coming back. Most of our customers are now fully back operational, but we have seen lower volumes imported to China than normal, and that is having an effect on the overall cost level. You're asking about fixed and variable costs. We have that in our disclosures there, how much of our forward is covered and how much is open. If I may, to the lady on the line, can I ask where you're calling from? Yes, The UK. And sure it's taken aback by Paul. Actually, I would like to ask you, what do you hear about the coronavirus? And what can you tell us about it? So in terms of what we're hearing at the moment, we are we're hearing that the ports in China have been closed. We've been we we've spoken to other companies who are saying that they they can't dock their ships, but they that sailors are having to be supplied with food because they are a 100 block outside the ship. We have other companies telling us that only only through the mention of being allowed in to China at the moment. And in terms of the bad debt, customers out there have had no income for two months, which is beginning to impact on quite a lot of them. For instance, if we look at something like the the auto chain, we need all sorts of inputs that that come across in in bulk and into the entire supply chain. They're saying that their sales were down 91% in January. February is expected to be even worse. That the but things have basically just halted. So I'm really surprised. You're saying that you've seen no impact, no lost days, no bad debt. Yes, that is correct. There delays at the shipyards for people having ships in dry dock to install scrubbers now, etcetera. There are delays due to fewer workers there than normal. But as regards dry commodity movements, they have been ongoing. There have been no closures and ports have remained open. Cargo is stock levels at the ports are fuller than normal since less cargo have been moving out of the ports. But we have not had any serious impact. No customers have reneged, no force majeure declarations. None of our customers have performed under our contract. So other industries may well be differently affected. So maybe we should move on to the next question. Happy to speak more offline. Sorry. Sorry. Can I just come back on that? I'm just looking at an announcement from the International Chamber of Shipping at the moment in front of me, which says that all major ports across the world have adopted a fourteen day quarantine period of vessels arriving from or transiting through China. That's So how can your vessels be not doing that? Well, I don't think that is correct. Australia have such a rule and Vietnam. But it takes more than fourteen days to get from China to Australia. So that fourteen day rule starts to count when you leave the Chinese ports. So if you discharge your cargo or load a cargo in China and head to Australia, you will be free to enter Australia because fourteen days have already passed when you get there. Okay? Right. Okay. Why don't we take offline afterwards? Sure. Next question, please. We have the next question from the line of Andrew Lee from Jefferies. Please ask your question. Yes. Thanks for your time for the call. I've got a few questions. The first is in terms of the overall outlook, right? You mentioned that it's initially challenging volatility. Is that are we talking about the second half will be a recovery? Are we talking about maybe after that? I know it's very hard to tell. My next question is on like towards the end of last year, deliveries were actually much stronger than expected, right? What was the reason? And does that do you think that, that will continue into year as well? And then my next question is on your post Panamax contribution. That was actually I know it's relatively quite small, but that was lower by around 25%. I thought these were mainly on long term fixed contracts. So I just wanted to get a little bit of update. Thank you. Yes. It is impossible to speculate about when this outbreak will be contained. We do believe in a rebound driven by catch up demand and stimulus activity. China will work really hard to get back strong after this. When that happens, it's impossible for us to speculate about. Yes, the deliveries were higher than expected. And as explained, our view on that is that the shipyards had a lot of contracts on their own account, which they and also blocks that they had built, right? And they have resold those only now. And this is to get around the Tier three engine requirements. And that's why Clarkson and many others underestimated the number of actual ships that actually delivered from the shipyards. Every other year before, we have had significant shortfall, but suddenly, we do not have we hardly had any shortfall recently. We do think that this will come to an end in July 1 this year because then you can no longer deliver these ships without harmonized common structural rules. So it may continue for a while during the first half of this year, but not thereafter. And we're also seeing now due to the extremely weak rates, we are seeing scrapping picking up significantly. And then you have these IMO 2020 effects on the supply side, slower speed and continuing many ships. You're having more delays in the shipyard, so that's also affecting deliveries early this year. So longer term, it looks better, fewer orders and the order book will finally come down to much lower levels in 2021. And on the Post Panamax, Peter, I think that is the HKFRS 16 effect you're seeing. There's no change in the cash inflow from the post Panamax. It's just an accounting effect due to the IFRS 16 accounting methodology. Then it's maybe one yes. Okay. A follow-up question. In terms of your revenue days, your HandyFiles last year was down 4%, Supramax was up 12%. For this year, how do you will that trend continue? I know you mentioned before that you've more focused on Supramax owned vessels. But in terms of your total revenue days, is it a little bit of guidance? Would that be flat, higher or lower? I think you expect Supramax to continue to grow in proportion. But the number of short term days that we have opportunistic. It depends on the market situation. In times of weak rates that we have had during last year and certainly recently, we revert to use more of our core ships, our own the long term chartered ships against our core cargoes. And hence, we use fewer short term chartered ships, and that's why you're seeing a slight decrease in the Handysize. So where that will end up during 2020 totally depends on how the market develops. But we have fewer ships on the water now due to the very weak market. Okay. Thanks for your time. Thank you, Andrew. Thank you very much. If no further questions online on the phone, we have questions online. First question is, it seems the long term shorted vessels that were fixed at relatively higher cost will have less vessel date in 2020. Does that imply our vessel cost per TCE can be lowered in 2020? Yes is the answer. We like seeing the long term charters gradually expire. Many of these are legacy contracts, seven year contracts taken many, many years ago, and they are at above market rates. So and they are coming off. So yes is the answer. Another question on our drybulk supply chart on Slide nine. Have you taken into account the vessels taken off into docks for scrubber retrofit in the second half twenty nineteen and the delay in their time leaving the docks now due to the situation in Chinese yards? No, we have not. So this is straight off Clarkson database on the order book and estimated deliveries. There are no delays of ships in dry docks or speed reduction in these graphs. So hence, we should expect the real supply growth to be smaller than you see on these graphs. It's very difficult to exactly quantify how much that effect is. But speed will be the most important factor, right? And a 10% reduction in speed has roughly a 6% reduction of overall capacity because you're in port for part of the days, right? But 10% lower speed means 6% lower capacity. No, no, no. Please do not prompt this anymore. So if people want to ask, do it now. Otherwise, we're closing this meeting. Thank you. Thank you very much. As there are no further questions. Thank you very much indeed for all of you calling in and asking your questions. Thank you. Good night. Thank you very much, everybody. Bye bye.