Ladies and gentlemen, welcome to today's Pacific Basin 2019 interim results announcement call. I'm pleased to present Chief Executive Officer, Mats Berglund, for the first part of this call. All participants will be in a listen-only mode. Afterwards, there will be a question and answer session. Mr. Berglund, please begin.
Thank you, welcome, ladies and gentlemen. My name is Mats Berglund, I'm CEO of the company, and I'm joined by our CFO, Peter Schulz. Please turn to slide two for our interim results highlights. We made a net profit of $8.2 million, an underlying loss of $0.6 million, and a positive EBITDA of $101 million. Weaker dry bulk market conditions early in 2019 negatively affected our results for the half-year. We benefited from our continued TCE outperformance, as well as our competitive cost structure. We have taken delivery of five modern Supramax vessels and one Handysize in the year-to-date. Two of the Supramaxes were delivered after the reporting period. We also completed the sale of an older, smaller Handysize which we committed to sell last year.
These transactions have increased our own fleet to 116 ships on the water today, and including chartered ships, we operated an average of 230 Handysize and Supramax ships overall during the first half of the year. In May, we closed a $115 million revolving credit facility, carrying a competitive interest cost of LIBOR plus 1.35%. We will be fully repaying our $125 million convertible bond in August. Some of the negative demand disruptions from the first half are easing, and market rates in July have been increasing, especially in the Atlantics. Slide three. In the weaker market environment, we generated average Handysize and Supramax daily TCE earnings of $9,170 and $10,860 per day net. We covered 56% of our Handysize days for the second half of 2019 at about $9,050 and 76% of our Supramax days at about $10,790 per day net.
Our cover numbers for the second half of 2019 so far primarily reflect the voyages fixed during the weaker earlier months, while the first half actual numbers include voyages from the stronger rates fixed in 2018. Hence our forward cover TCEs are slightly lower than our first half actuals. Regarding our 2020 cover, please note that it is backhaul heavy. Slide four. The blue bars in the graphs represent our average quarterly TCE earnings, while the lines represent average quarterly spot market indexes. You can see clearly that the three-year positive trend from the 45-year low of early 2016 was broken. Average Handysize and Supramax spot market rates in the first half of 2019 were 30% and 26% lower, respectively, compared to the same period last year. However, in comparison, our daily TCE numbers were down only 6% and 7%, respectively.
Our outperformance increased in the period as it typically does in a weakening market due to the effect of having cargo contract cover and due to the one to three-month lag between spot markets fixtures and execution of those voyages. You should assume that in a rising market, as we have seen recently, our outperformance narrows a bit. Slide five shows the spot market rates in more detail. You can see that 2019 started weaker than the last two years with a more pronounced Chinese New Year dip, which significantly impacted market freight rates in all dry bulk segments. The market has since gained momentum, especially in July, for Supramaxes and larger ships in the Atlantic region. In slide six, we explain why the market was weak in the first half and what factors can make it stronger.
In addition to the usual seasonal lull in activity early in the year, and especially over Chinese New Year, a few one-off negative demand factors undermined the dry bulk market in the first half. The U.S.-China trade war and African swine fever both impacted soybean imports to China. Flooding in the Mississippi River impeded grain exports from the United States, and damage to mining infrastructure disrupted Brazilian iron ore exports, while severe weather disrupted Australian iron ore exports. On the positive side, dry bulk activity is typically seasonally stronger in the second half of the year. There are several other factors that can continue to drive a market recovery. Our business continues to see healthy levels of minor bulk growth, infrastructure development stimulus in China. Chinese steel production is at an all-time high, and coal imports to China were strong in the first half.
Iron ore exports from Brazil and Australia have resumed after the first half disruptions. We are seeing strong grain volumes out of the Black Sea and East Coast South America. Last but not least, reduced supply as ships are taken out of service for scrubber and ballast water treatment system installations, and slow steaming incentives for the majority of ships as they start to burn the more expensive, low sulfur fuel oil later this year. As you model our performance for the remainder of the year, please remember that there is a lag between spot markets fixtures and execution of voyages. The recovery is so far more Atlantic-centered, while we typically have a majority of our ships in the Pacific, and we have an unusually many ships that will be out of service and in the Pacific for dockings and installations of scrubbers and/or ballast water treatment systems.
Longer term, on slide seven, Clarksons estimates total dry bulk demand will grow 1.3% for the full-year of 2019, and 3.1% in 2020. Minor bulk is expected to drive demand in the coming years, with Clarksons estimating global minor bulk demand growth of 4.5% for the full-year and 4.8% in 2020. We see growth particularly in Chinese imports of minor bulks such as bauxite, nickel, and manganese ore. The weakness this year is primarily in iron ore and grain, but this is now bouncing back, Clarksons' forecast growth in iron ore and grain again next year, although not as strong growth as in minor bulks. Please turn to slide eight, where we look at the supply side. Clarksons' estimates a net increase in overall dry bulk capacity of around 2.7% for the full-year.
Scrapping increased to 0.5% of existing dry bulk capacity in the first half, but is still at a very low level. The supply fundamentals for the Handysize and Supramax segments looks more favorable. As you can see, the line in the right-hand graph shows that net fleet growth is on a steadily reducing trajectory from 5.7% in 2015 to an estimated 1.3% for 2020. On slide nine, we contrast in further detail both the order book and age profile of the smaller ships with the larger vessel sizes. Handysize benefits from the smallest order book and the highest percentage of older ships, pointing to a better balance between new deliveries and scrapping going forward. While for Capesize and larger vessels, the situation is the reverse. In slide 10, we show Clarksons' yearly demand and supply levels for the overall dry bulk markets in the chart on the left.
Estimated ton-mile demand growth of 1.3% for 2019 is outpaced by net supply growth of 2.7%. Clarksons estimates demands to grow faster than supply again in 2020. On the right are two graphs showing the same demand and supply data, but separated out for the minor bulk and major bulk segments. As you can see, it looks more favorable for the smaller segments, with demand growing significantly more than supply. Slide 11. Despite weaker freight market conditions, values for modern ships have been relatively stable in 2019. New ship ordering is expected to be restrained, discouraged by the continued gap between newbuilding and secondhand prices, as well as uncertainty over upcoming environmental regulations and their impact on future vessel designs. We still see upside in secondhand vessel values and hence will continue to cautiously grow by looking opportunistically at good quality secondhand ship acquisitions.
I will 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 13. The group posted a net profit of $8.2 million in the first half of 2019, compared to $13.8 million in the first half of 2018. However, EBITDA increased from $99.3 million to $101.1 million due to the adoption of the new lease accounting standard, HKFRS 16. Adjusted for these accounting changes, our EBITDA would have been $78.9 million. Owned vessel costs increased during the year, mainly because we added more owned vessels to our fleet, but we also had slight increases in the per vessel per day costs. G&A increased by $2.1 million, primarily due to an increase in our staffing overheads, but it has reduced on a per vessel per day basis.
The underlying loss of $0.6 million was lower than the net profit, mainly because the net profit takes into account an $8.6 million mark to market gain from our unrealized bunker swaps due to the increase in bunker prices since the start of the year. Since the underlying result was roughly breakeven, the board has decided not to declare any interim dividend for the period, but will consider a dividend of 60% on net profit for the full-year in line with our policy. Please turn to slide 14. Before moving on to the detailed numbers, allow me to explain the impact of the new accounting standard, HKFRS 16 leases on our P&L balance sheet and cash flow, which is important to understand, particularly since we have not restated previous periods.
The new standard requires us to capitalize all our chartered in contracts over 12 months in duration on our balance sheet as right-of-use assets and corresponding lease liabilities. The right-of-use assets are depreciated in a straight line over the remaining life of the charter, and the lease liability accrues interest and is amortized over the remaining life. Before adoption of HKFRS 16, all long-term charter hire costs were just expensed over the P&L as operating costs. Chartered in contracts with a remaining life of less than 12 months, which are the vast majority of our charter commitments, are not affected by the new standard and are still treated as operating expenditure in the P&L. In general, charter out contracts are also not affected by the new standard.
The effect of the adoption of HKFRS 16 on our revenue and net profit is minor, but our EBITDA increases as long-term charter hire costs, which were previously treated as an operating expense, are now accounted for as depreciation and interest. Similarly, in our cash flow statement, operating cash flow increases and financing cash flow reduces as long-term charter in costs are reclassified from operating expenditure to interest on and amortization of lease liabilities. Please turn to slide 15. Compared to the first half of last year, our Handysize revenue base decreased by 3%, and our TCE earnings fell by 6% to $9,170 per day, resulting in a Handysize contribution of $21.2 million. Our Supramax revenue base increased by 5%, mainly due to acquisitions of Supramax vessels, and our TCE earnings dropped by 7% to $10,860 per day, resulting in a Supramax contribution of $7.4 million.
The otherwise stable post-Panamax contribution has reduced by $500,000 because of the adoption of HKFRS 16. On slide 16, our Handysize owned vessel cost increased by 2.4% to $7,590 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 costs have slightly increased because of the installation of ballast water treatment systems. In relation to chartered in costs, we no longer have the benefit of onerous contract write backs, and as you can see, the cost per day of the long-term charters were above market rate, and we are losing money on these contracts. 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.
In addition to the direct vessel cost, we have G&A, which we divide between owned vessels at $940 per day and chartered in ships at $540 per day. The blended G&A per day across our entire owned and chartered in fleet is $730 per day. Please turn to slide 17. Our Supramax owned vessel daily cost increased by 1.6% to $8,220 per day. Mainly due to higher operating expenses and depreciation costs, partly offset by slightly lower finance cost per day. As is the case in the Handysize segment, our cost of long-term charter Supramaxes is above market rate and loss-making in 2019 so far. On the next slide, we have significant operational leverage. On this slide, we aim to illustrate how our earnings move in relation to changes in freight rates.
The chart sets out our first half 2019 Handysize and Supramax TCEs per day compared to the all-in cost per day, depending on whether a vessel was owned or chartered in on a long-term or short-term basis. Our 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.
It is important to remember that our reported 2018 long-term chartered-in rates were positively affected by a $60.1 million relief of onerous contract provisions, which will not be available in 2019, as these provisions were fully written back at the end of 2018. Our short-term and index vessels are largely variable costs, which depend on the freight market level when the charter was entered into. Hence, for the purpose of this analysis, we do not assume any relevant sensitivity for short-term and index vessels from overall movement in the freight markets. Now please turn to slide 19. At the end of June 2019, we had vessel and other fixed assets of $1.8 billion. Our vessels were financed by $1 billion of interest-bearing liabilities. Cash and deposits stood at $314 million, giving a net borrowings position of $687 million.
At the end of June 2019, our net borrowings were 37% of the net book value of our owned vessels, which is a three percentage point increase on the end of 2018. Please turn to slide 20. During the first half of the year, adjusting to include all long and short-term charter hire payments, we had an operating cash flow of $72 million. This is roughly in line with the operating cash flow in the same period last year, despite the weaker market environment, as the cash flow last year was impacted by build-up in working capital. In May 2019, we closed a new $150 million syndicated seven-year reducing revolving credit facility secured against 10 vessels at a very competitive interest cost of LIBOR plus 1.35%. Including this new loan facility, net of scheduled amortization, we increased our borrowings by $37 million.
CapEx of $106 million during the half-year included cash payments for acquired vessels, regular maintenance CapEx, dry dockings, as well as the installation of ballast water treatment systems and scrubbers. A total of four vessels were added to our fleet in the first half of 2019, plus two more in July, and we docked some 22 vessels during the period. In general, 2019 is a major investment year for Pacific Basin. We have chosen 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 a stronger market ahead. Consequently, we would have lower dry docking CapEx next year. Including proceeds of $6 million from the sale of one of our older Handysize vessels and the payment of $22 million in dividends, our cash position decreased by $28 million during the period to $314 million.
As almost all of our holders of the convertible bonds exercised their right to put the bonds back to the company at 100% of the principal amount, we paid out $122 million in July. We have exercised our option to redeem all the remaining convertible bonds, for which we will pay the $3 million balance to bondholders in August. Pro forma for this redemption and the additional drawdown on our revolving credit facilities following the delivery of the last two Supramaxes in July, our cash position stands at $212 million. This is a strong cash position, sufficient to service our debts, meet our capital expenditure requirements, and continue to grow our owned fleet should opportunities present themselves. I now hand you back to Mats for his wrap-up.
Thank you, Peter. We recap our business model on slide 22. This is a strong platform that continues to deliver a 90%+ laden versus ballast ratio at a premium over index earnings. It takes all the components of our business model listed to the left of this slide to deliver this high utilization and outperformance. As shown in slide 23, it is not only on a TCE level that we are competitive. Our vessel operating expenses is well controlled at $3,990 per day, driven by the scale benefits and uniformity of our fleet and our sector-leading in-house technical management team. Our G&A overheads average $730 per ship date, spread across our total fleet of owned and chartered-in ships. We achieve this competitive G&A primarily through scale benefits, efficient systems, and a lot of hard work on our cost structure.
Our access to capital and cost of capital also represent a significant advantage. 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 newbuildings. To demonstrate the strength and to quantify the value of our platform, we encourage you to compare those four numbers with other listed dry bulk companies. Slide 24 provides a quick update on environmental regulatory changes coming. There are three recently introduced regulations that impact our industry. The first requires the installation of ballast water treatment systems. 30 of our owned vessels are now fitted with ballast water treatment systems, and we have arranged to retrofit our remaining Handysize and Supramax ships by the end of 2022. The second new regulation is IMO's global 0.5% sulfur limit, which takes effect on the 1st of January 2020.
We expect the majority of the global dry bulk fleet, especially smaller vessels such as Handysize ships, will comply by using more expensive, low sulfur fuel. We are not fitting any scrubbers on our 82 owned Handysize ships. We are preparing thoroughly for this new regulation, including cleaning our fuel tanks, securing availability of good quality compliance fuel, and training our crews to ensure compliance and seamless service delivery to our customers. Some owners of larger vessels with higher fuel consumption, including some Supramaxes, are planning to comply by continuing to burn cheaper heavy fuel oil in combination with installing scrubbers. We have chosen a balanced approach with scrubbers successfully fitted and operational on 10 of our Supramaxes so far. We have arrangements in place with repair yards and scrubber makers to install scrubbers on the majority of our owned Supramax vessels.
Including chartered-in ships, we expect 85%-90% of our combined Handysize and Supramax fleet will comply by burning low sulfur fuel. The future fuel price differential is uncertain, having 10%-15% of our overall fleet scrubber fitted provides us some optionality in how we manage our fuel needs to comply with the new rules. The dry bulk trade market is expected to benefit in the second half of 2019 and early 2020 from many larger ships being taken out of service for several weeks for scrubber installation. We believe the market for smaller dry bulk ships like ours will benefit also over the longer term as they will consume more expensive, low sulfur fuel, and therefore are incentivized to operate at slower speeds, which reduces supply.
The third new regulation coming is IMO's ambitious longer term strategy to cut CO2 and total greenhouse gas emissions from shipping. We believe that these environmental regulations will discourage new ship ordering until new, lower emissions ship designs become available. On slide 25, we share with you a summary of our key strategic priorities for 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. We will continue to grow our owned fleet with quality secondhand acquisitions and opportunistically, but cautiously, trading up smaller, older ships to larger, younger ships. We still own a smaller proportion of our Supramax ships, expect us to grow our owned Supramax fleet more than Handysize.
We are still avoiding contracting newbuildings due to their higher price, lower return, and because of the uncertainty over new environmental regulations and their impact on future vessel designs. We will continue to reduce the number of ships we take in on long-term charters, replacing them with owned ships and with short and medium term chartered-in ships. Again, a very important task this year is to continue to prepare thoroughly for IMO 2020, both technically, operationally, financially, and commercially. As already mentioned, we have chosen to do a lot of drydocking this year, especially in the second half, to install ballast water treatment systems and scrubbers on a majority of our Supramaxes to set us up for what we believe will be stronger years ahead.
2019 is a bit of an interim year so far, with a lot of both one-off market disruptions. IMO 2020 preparations causing a pause in the market and earnings momentum. We do think it will come back. Wrapping up on slide 26. We have worked hard over several years to streamline and focus the company and grow our core business. With our outperforming business model, including experienced staff and very importantly, a much larger owned fleet with competitive cost structure, we are well-positioned for the future. We expect to see seasonally stronger average freight market conditions in the second half of 2019, and we have seen stronger rates in the last few weeks, especially in the Atlantic.
Again, do remember the lag between spot market fixtures and the voyage execution, the differential in market strength between Atlantic and Pacific, and that our fleet positioning is more geared towards the Pacific. Overall, the demand and supply fundamentals for the years ahead look favorable for our Handysize and Supramax segment, and we are well-positioned to benefit. Ladies and gentlemen, that concludes the results presentation, and lines will now open for any questions you may have. Operator.
Thank you, sir. 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 time, please press the pound or the hash key to cancel your question. Again, it's star one if you have any question. We have the first question from the line of Andrew Lee. Please ask your question.
Hello. Hi. Thanks for your time. I have two questions. First question I have is, are we starting to see any U.S. grain exports picking up? I think that could be a driver going forward. Just a little bit of view into when do you think that will start rebounding. Second question is this whole dry docking and installation of scrubbers. How long additional time does that take to install the scrubbers away from the normal dry docking? If it takes a significantly longer period, how much supply or effective supply do you think that will be taken out of the system into the second half? Thanks.
Thanks, Andrew. As regards to U.S. grain, the lack of soybean early in the year there, which, fourth quarter last year, which is the high season, is kind of back to normal, as regards soybean from U.S., exports from U.S. This is not the high season, right? What's partly driving the market up now is South America and the Black Sea. We see strong grain volumes out of both Black Sea that have good crop this year, and also although it's unseasonal, we see good volumes out of South America, and Argentina have a much better crop this year than last year. Volumes out of the U.S. have been decent. Now it's corn moving, not soybean, but it still remains impeded by strong floodings, high water levels in the Mississippi. It's South America and Black Sea that's driving grain right now.
As regards to dry docking time for scrubber installation, if it's a ship that dry docks anyway, the dry docking time would typically be between 15-20 days. For us, we are assuming 15, 18, 20, let's call it 15-18 extra days, for the scrubber installation.
Just to follow up, on the Supramaxes that you have on the scrubbers, have those already started or is that for the second half?
We have done 10 so far. We have arrangements in place to install scrubbers on a majority of the Supras. It's also installing ballast water treatment systems on all the ships, not only Supras, but also Handys that are dry docking. We have a busy dry docking year. We estimate roughly 50 dry dockings this year, of which 22 was done in the first half to get you a feel for the dry docking activity. You mentioned, does this scrubber installations have an impact on the market? Yes, we do highlight that we think it will. It has already arguably, right? The recent market uptick started with the bigger ships with Brazil iron ore returning, resuming at the same time as many of these larger ships have been repositioned to the Pacific, to China for scrubber installations.
Yes, we do think it has an impact on the market and it's shrinking supply. Longer term, we think that the low sulfur fuel will incentivize the majority of dry bulk ships to go slower, right, which in turn pushes up freight rates due to the supply shrinking.
Okay. Maybe one final question this. For IMO 2020, 1st of January, is there a grace period where you can still use the high sulfur? If there is, do you think that will be extended?
There is no grace period, and we think it will be very strictly enforced. You are allowed to carry the heavy fuel oil until March, but you're not allowed to burn it. It means, from all practical standpoints, that all ships need to get rid of the heavy fuel oil well before December 31. Most of the work will happen well before year-end, and you do not want to get stuck with 3.5% heavy fuel oil on board your ship because you're going to have to debunker it, which is costly and takes time, et cetera.
Okay. Thanks for your time and making time for the call, doing Q&A.
Thank you.
We have the next question from the line of Sally MacDonald. Please ask your question.
Hi. Good afternoon, guys. Can you hear me okay?
Yes.
Hi. Thank you very much for your presentation. I wonder if I can ask you a little bit about China's dash for gas and the shift to higher standards for emissions, or if you like, lower emissions from all sorts of businesses that currently burn coal, whether those are steel plants or power plants or whatever. How do you think that's going to impact your business, please?
Chinese coal imports were up 6% in the first half this year, continued strong growth in their seaborne coal imports. Chinese coal imports are driven by many things, and it's very hard to forecast them because it's driven by price arbitrage, it's driven by political decisions, et cetera. It's true that China are very serious about their efforts to improve the environment and lower emissions. That also has a substitution effect, where they are incentivized to import higher quality coal grades and reduce their production of lower grade domestic coal. Seaborne imports remain quite a small percentage of China's total coal. It's about 7% or 8% of China's total coal. Most of the coal comes domestically. The seaborne is a little bit on and off. We think coal as a commodity has a very long remaining life.
Someone told me there's 250 coal-fired power plants as part of the Belt and Road initiatives in other countries. There's a lot of new coal-fired power plants coming on stream in other Asia. Coal is showing very strong resilience so far. As regards their other efforts to lower emissions, they have already implemented low sulfur rules along their coast, et cetera. They're serious about this, but we think that the low sulfur fuel regulations will be a net positive for the dry bulk industry and for our company because the cost of the higher fuel is passed on to the customer. The customer is very used to carry the fluctuation in the fuel prices, while the higher fuel cost has a speed reducing effect. That tightens up supply, which is pushing up the balance between supply and demand.
Okay. That's great. Thank you very much.
Thank you. Going to online questions. There's a question, I'll read the question. "For those old vessels aged 20 years or older, do we need to modify the engine to burn low sulfur fuel? I heard that old vessels are not able to use low sulfur fuel without modifying the engine. If this is true, how long does it take and the cost to upgrade?" It is not true. Older ships, we can't speak for all ships, but certainly the dry bulk vessels that we are involved in can all burn low sulfur fuel. It takes minor modifications, minor cost. You may have to put in some blowers, and you need to be a bit careful managing these various types of low sulfur fuel if they're blended, et cetera. You do not need to make any major modifications to the ship.
There's another online question asking. The Handysize market dropped a lot this half-year. Was this supply or demand size driven? Well, not only Handysize market, but all dry bulk markets dropped a lot this year, and we tried to lay out the reasons for that on slide six on the left side. It's primarily grain and iron ore that is down this year early, and for us, it is the grain part that affects our and the Handysize markets. More demand than supply, right? Supply is gradually coming down.
The reduction early this year was demand, but we are hopefully getting a bit of a bounce back on these factors as we list on the right side of that slide six. We have seen a pickup in rates, in the first three weeks of July, right? Primarily driven by the larger ships, but also, coming down to Supramax and Handys. You can see the line graph on slide five that we are up to last year levels again on the Supras and we're well on the way there on the Handysizes. Touch wood, we're expecting stronger market conditions in the second half this year and into 2020. Another online question. What has been the effect of the U.S.-China trade disputes and the Korea-Japan trade disputes on, A, the international dry bulk market and, B, Pacific Basin?
The U.S.-China trade dispute, as mentioned, the primary effect of that is less soybeans moving from U.S. to China. We had a big impact of that in the fourth quarter and early this year. Now coming more back to normal, a lot of supply coming from other areas other than the U.S. It takes a while to adjust, South America is back strong and exporting a lot of grain there now. As regards the Korea-Japan trade disputes, I would say, no significant, if any at all, impact on us and the dry bulk markets. Peter, you have anything to-
No.
Yeah.
No. I mean, the Japan-Korea is mainly about specialty chemicals, et cetera. It's not a big dry bulk trade at all, so no impact there.
We have a question from the line of Karen Lee. Please ask your question.
Hello, can you hear me?
Yes.
Hi. Okay, thanks. Thanks so much for very detailed presentation explanation to the questions. I have a few questions. First of all, my understanding about the scrubber strategies, a lot of shippers actually taking very different view in terms of how, once the IMO 2020 is implemented, the supply of low-sulfur fuel will adjust according to the surging demand. Obviously, I think a scrubber in terms of the prices come down. There's also a cost involved, including, I think, the loss of revenue for the dry docking. I would like to just understand a little bit more why we decide to do such investments for the larger-size vessel that we have out, i.e., Supramax. The second question, it might be, I think, quite factual.
I just want to understand why in terms of the secondhand vessel value for Supramax, as shown in your chart, is the same as the secondhand vessel value for Handysize. The revenue per day is 20% higher. Is there any particular reason driving that? Yeah, I think that's the reason why we are working to acquire Supramax. How come the other players in the market is not replicating such strategy? Lastly, is a question regarding the BDI. Given our coverage in the space, we've been very often asked about the recent surge in BDI, although it's not really directly impacting Pacific Basin given different focus on the market.
I just want to understand a little bit more your view in terms of why driving the huge surge in BDI, given if we look at the iron ore inventory levels in China actually has been padding up. Also, I think the imports of iron ore hasn't really increased as much. We have seen a very strong increase in the pricing. Of course, I think recently it has come down a little bit. Last year, I think, why the Handysize freight index has not really adjusted accordingly? Okay, thank you.
Thank you. As regards to first question about the scrubber financials. We're doing scrubbers on 10 of our Supra so far, and we have arrangements in place to fit on the majority of the Supras. We own 32, right? We're not saying we're going to install on all, but we're aiming to install on a majority. We spoke about the off-hire time there, but the financials are such that the investment all-in is roughly about $2 million per ship, about $1.8 million for the equipment, CapEx wise, and then we calculate the extra off-hire time to be another $200,000. Roughly $2 million investment. The benefit is the ability to burn cheaper, low sulfur fuel going forward. How much cheaper remains to be seen. The forward curve indicates a stronger price differential early in this new regulation period, and then gradually coming off a bit.
The forward spread between 3.5% sulfur and an MGO, which is 0.1%, is roughly $250 per ton for the first two to three years on average. You have to assume that the compliant fuel is 0.5% sulfur, so that will be cheaper than the 0.1% MGO. How much cheaper remains a bit to be seen because the forward market is not so liquid yet for 0.5%. There's a lot of uncertainties here. Safe to say, heavy fuel oil will be cheaper and there is a benefit. The question is how much. We estimate, based on our estimations, with the spread having narrowed a bit, maybe a payback time of four to five years' time on that. There's a lot of assumptions in there, and it may well be a quicker payback time. For us, it is a balanced approach.
We will not have scrubbers on the majority, it does add some flexibility, some optionality for us to have scrubbers fitted on some of the ships. It allows us to execute some of the longer voyages with more seaborne time, higher fuel consumption with the scrubber-fitted ships and shorter voyages with others, et cetera. I think that's what we can say on scrubbers. Your second question. I heard you a little bit vaguely there. I don't know if you can repeat the second question as clearly as possible, if you don't mind.
Sure. What I was asking is the secondhand vessel price for Supramax is about the same, which is $17 million, as the Handysize secondhand vessel price is showing in your slides. However, we noticed the revenue today for you is 20% higher, hence driving the plan to acquire more Supramax. However, I just wonder why driving the same, in terms of secondhand vessel price for the larger vessels as compared to the smaller ones, despite the higher revenue per se, and why the other players in the market is not replicating such a strategy.
Yeah. I understand. It is a bit unusual to have the same price for a five-year-old Handys and Supras. These are Clarksons numbers. Maybe the real value is slightly higher on the Supra and slightly lower on the Handy. They have come together. There's much more liquidity on Supramaxes than it is on Handysize. It is much more difficult to find good quality secondhand modern Handys than it is finding Supras. Maybe that has something to do with it. These things fluctuate a bit over time. You should also note that on that graph and on slide 11, for the Handysize, Clarksons changed their typical Handysize vessels from a 32 to a 38. The recent increase in the Handysize secondhand value there is more reflecting that they changed from a 32,000 tonner to a 38,000 tonner.
The real development is more flat than that increase that you see on Handysize values. On your third question, you're asking why did the BDI surge? It's now coming off a little bit again, but we're not a BDI company, as you point out, right? You should watch the Handysize index, the BHSI and the BSI, the Handysize and Supramax indexes to get representative indications for how our market is moving. Our understanding of why the BDI is surging was and is that we got both increased iron ore and grain volumes in the Atlantic region, at the same time as more ships than normal, more Capes and Panamax ships than normal, were positioned and are positioned to the Pacific for scrubber installations. A combination of increased demand in the Atlantic, and not as many ships as normal in the Atlantic.
What's caused the increase in iron ore, again, is the resumption of the Brazilian exports again after the Vale disasters. What's causing the strong grain volumes is Black Sea and South America exporting lots of grain at the moment. Your fourth question was on why has not the Handysize Index followed? It is following, although as normal, it lags and it comes later, and Handysize does not have the same volatility. You see a stronger increase on the Supramax and less so on Handysize. It typically comes, it just takes a while before it trickles down. Again, the Handysize is what looks better fundamentally longer term. I wouldn't put too much emphasis into these kind of short-term, month-to-month movements, but look at the longer term and we're comfortable, and it looks good for the minor bulk, both demand and supply-wise.
Okay, I got it. Super clear. Thank you so much, Mats.
More online questions. Do you feel that you get sufficient, adequate, and appropriate levels of information from miners in Australia when they suffer damage from adverse weather effects such as cyclone? I would say yes. We are close to our customers and don't see any reasons for why our customers should withhold information from us to the extent that it affects our business. The disruptions we referred to in the first half were primarily affecting iron ore exports, which we are not carrying much, if at all. Another question. Just to confirm, management said the source of grains is switching from the U.S. to Black Sea. Is this referring to grain imports into China? Management also said it took a while to adjust. Do you mean for the company to adjust shipping capacity? No, I don't mean the company.
I mean, you don't plant a lot more soybean in South America in a heartbeat, so to speak, right? Obviously, the world is not sitting still when China is introducing tariffs on Chinese soybean, right? China is looking for other suppliers, and the South American exporters, I'm sure, are doing everything they can to take market share from the U.S., and U.S. farmers are suffering. That's kind of more what we're referring to. You asked specifically about switching from the U.S. to Black Sea. Well, it is more seasonal in the Black Sea, right? Black Sea is the export season now after this summer. We're somewhat back to normal in the U.S. this time of year because now they're exporting primarily corn and wheat and not soybeans. That's not going to China, that's going to other countries, right?
It's not affected by trade tariffs, but the U.S. grain export is affected by logistical problems in the Mississippi River due to floodings there. Another question. It's the same question. Okay. We've done really good. Another online question: What effect would climate change-induced adverse weather effects, such as more cyclones in Australia, have on the dry bulk markets in the future? It's very difficult to kind of translate that into dry bulk market effects. The majority of dry bulk trade is kind of adaptable and adjusts to things such as weather disruptions and trade tariffs. Again, it takes a little while maybe to switch things around, but ships are movable and you can either buy grain from here or from there, et cetera. We're having these weather effects all the time. Again, Argentina had a smaller crop than usual last year.
This year, they're back to normal or better than normal. We've had some effects in Australia already this year when they had droughts on the west side of Australia, and we saw grain movements from the west coast of Australia to the east coast, which is highly unusual, and these all have certain impacts on the dry bulk industry. I don't think we can conclude that climate change will have a particularly positive or negative impact. It just switches things around as these things happen. I think that's it for online questions.
Thank you, sir.
Anything else on the phone?
Thank you, sir. Once again, ladies and gentlemen, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. There are no further questions, we will now begin closing comments. Please go ahead, Mr. Mats Berglund.
Just to thank you all for joining us today, and thank you for your continued support and interest in our company. Thank you very much.