Earnings Call: Q3 2018

Oct 11, 2018

Ladies and gentlemen, welcome to today's Pacific Basin 2018 third quarter trading update 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. Afterwards, there will be a question-and-answer session. Mr. Berglund, please begin. Thank you very much for joining us. My name is Mats Berglund. I'm the CEO of the company. I'm joined by our CFO, Peter Schulz. As mentioned, I will start with a brief presentation. Then we will invite for questions. I hope you have the slides in front of you, starting with a summary slide with highlights of the quarter. Please turn to slide number two. Handysize and Supramax indexes were the highest third quarter since 2011. Our third quarter TCE improved with 24% for Handysize and 30% for Supramax year-on-year. Our own fleet continues to grow. We bought one Supramax during the third quarter. That will take us to 112 owned ships by January 2019. Despite trade tensions, we remain cautiously optimistic for the years ahead. We base that on GDP and demand slowing a bit, still reasonable at around 3% demand growth, more importantly, on a favorable supply side with low deliveries in the years ahead. On top of that, IMO 2020 regulations that we believe will reduce the supply side further. Turn to slide three, please. This shows you that the trend is very clear that our rates have improved significantly since the extremely low market of early 2016. Slide four gives you all our numbers. Our third quarter TCE was $10,080 for Handysize and $12,180 for Supramax. Year-to-date, our Handysize rates are $9,870 and $11,780 for Supramax. As mentioned, this represents significant improvements on last year. We continue to outperform. Our year-to-date outperformance versus the index rates is 22% for the Handysize and 9% for the Supramaxes. Our fourth quarter cover rates are at higher levels. We have 68% Handysize covered at $10,560 per day and 78% of our Supramax days covered at $11,970 per day. For 2019, we have 17% of our Handysize days covered at $9,100 per day. We got 20% of our Supramax days covered at $11,640 per day. We'll note that our 2019 cover is backhaul heavy and typically results in a higher round trip average when combined with a higher paying fronthaul leg. More details on our market developments on slide six please. Handysize index rates are shown to the left here. Supramax index rates to the right. You got three lines. They are 2016, 2017, and 2018, improving rates pretty steadily. The pattern is pretty similar over the years. Handysize index rates are now at $8,900 per day and Supramax index rates at $12,700 per day. Market has edged up in the last few weeks. The Handysize now is about the same level as last year. Last year, Handysize rates were quite high at this time, but our actual TCE continues to show good year-on-year improvements, partly due to strong outperformance on the Handysize front. The demand drivers for the first three quarters this year have been strong North American grain in the Atlantic, strong Indonesian coal and minor bulk exports in the Pacific. Chinese import volumes are up for coal, logs, and other minor bulk. In addition, Indian coal imports have been strong, and the bauxite trade is also growing at healthy levels. Also the increasing crude oil price is increasing fuel prices, which in turn is slowing down the fleet. Since May, we have seen the overall Handysize and Supramax worldwide fleet slow down with about half a knot. That also helps to tighten the supply-demand balance. If we turn to slide seven. For the full year, Clarksons Platou expects ton-mile demand growth of 3.1%, with coal and minor bulks being the largest contributors. Grain is expected to have a slower growth for the full year, that brings us to the trade war situation. The biggest commodity impacted on the dry bulk side is soybeans, that is affected by trade tariffs, soybean from U.S. to China that is. China is not buying. The export season is starting typically with big volumes in October, it seems the Chinese are trying to make a case and not buy from the U.S. We are seeing new moves. Soybean is moving from the U.S. Gulf down to Brazil and Argentina. It's moving to Europe, et cetera. The volumes there are not big enough to replace China as a buyer. The good news is that the market is improving in spite of not having these volumes. We believe that the soybean will come back first half next year strong, we do think that the Chinese will try to avoid the U.S. this export season. It will come back strong next year, either from the U.S. again, if the tariffs goes away, or from Argentina and Brazil. Two other commodities are affected by tariffs, logs and cement, U.S. logs to China, those volumes are much smaller than soybean and can be replaced. China will source it from other regions. Cement going from China to U.S. is also impacted by tariffs, that is still moving. Also those volumes are very small and U.S. can simply buy cement from other takers. It comes down to soybean, good news is the rates are holding up in spite of China not buying. We want to reiterate that our belief is that trades tend to shift and not cease when we see these tariffs. We may see a shift also a bit in timing, these trades will not go away. Again, still demand growth of 3.1% ton-mile growth as per Clarksons for the year. Turning to the supply side and asking you to turn to slide eight. The supply side remains favorable, especially for Handysize and Supramax segments. We have an order book of about 5% combined for Handysize and Supramax, 5.5%, that is the lowest since the 1990s. Note that this 5% order book is spread over three years. We also have an older fleet profile on the Handysize front in particular. Even with very low scrapping, we expect fleet growth of below 2% per year for both 2019 and 2020. With 3% demand growth, below 2% fleet growth, that's a gradually recovering market. Slide nine. The point to make on this slide is that the newbuilding ordering remains low in our segments. That little arrow on the graph to the right points to 1.5% annualized newbuilding ordering pace. We have been there for about two years. That is well below average replacement level. This bodes well for the longer term. Note the very little scrapping in the graph to the left. In spite of that, we will see low fleet growth in our segments. Slide 10 shows demand and supply for total dry bulk in one graph going back a couple of years. It shows last year demand growth of 5% and slowing to 3%, fortunately, total supply is growing less. We are of the view that the minor bulk segment will fare better both on demand and the supply side with 4% demand growth below 2% supply growth for 2019 and 2020. Slide 11. Underpinning this forecast of low net fleet growth is the wide gap between newbuilding prices and secondhand prices. What happens in a strong market is that first rates go up, that in turn drives up secondhand values. If you look on the graph to the left are the Handysize values here, for example. The top line is the newbuilding prices, the lower line are the secondhand prices. In a strong and improving market as we had in 2010 and also in 2013, the secondhand prices starts to go up to get close to or even touch the newbuilding prices. We are very far away from that level now. Before that happens, first we got to have rates going up further. Until we have this happening, we believe that newbuilding ordering will remain very low. It's simply a much better idea to buy a secondhand ship than to order a newbuilding today. We call this kind of self-correcting supply-side factors, where newbuilding orders will not be very large until the market firms up further. Keep an eye on this ratio between secondhand prices and newbuilding prices, and we expect still a significant upside in secondhand values from the point we are now. Please turn to slide 12. This is a slide with a lot of words on it's about new regulations, we'll spend a little bit of time on this because it's very relevant in the current situation that we have. We list three new regulations on this slide. If we start with the ballast water treatment system regulations, the first one here, this is fairly undramatic. It comes in over a five-year period from 2019 to 2023. It's about $500,000 per ship for us, hopefully a bit less. We have it on some ships already. We are going to install it on 100 ships and spread over a 5-year period. If you assume half a million per ship, that is $50 million over 5 years. Fairly undramatic, but we do think it will help to push some older ships to scrap. If I can skip the low sulfur cap and go to the longer-term regulation first, which is IMO's ambition and targets to reduce greenhouse gases by 50% by 2050. To focus our minds a bit, they have also put a 40% reduction target of CO2 by 2030. 2030 is only 11 years away. If you order a newbuilding, it lasts 25 years, this is very relevant as regards newbuilding orders today, and is one of the reasons why we are holding back ordering new ships, many others are doing this, too. We choose, many others choose to instead wait for engines, for fuels, which allows us to reduce CO2 in a whole different way than current heavy fuel oil engines do. Even if you buy a brand-new ship today, it has an engine that is built to burn heavy fuel oil, a fuel that you are not even allowed to carry from January 1, 2020, unless you install a scrubber. This long-term regulation is important. The only practical way to reduce CO2 with the existing technology is to reduce speed. Again, another factor that may lead to reduced supply and tightening of the supply-demand balance. More importantly, the long-term regulation will keep newbuildings in check, in our view. If we can turn to the, in our view, most important regulation for the short and medium term, this is the low sulfur cap. A 0.5% sulfur cap kicking in from January 2020. This is not coming in gradually over a 5-year period or anything like that as the ballast water treatment system does. It comes in at the cliff, January 1, 2020, for the worldwide fleet of ships. You can comply two ways. Many of you have heard a lot about this already, but the two options to comply is either to buy and burn the more expensive low sulfur fuel or to continue to burn the heavy fuel oil, which generally has 3.5% sulfur. Install a scrubber on board to take out the sulfur through a process on board the ship. Either way you do this will reduce supply and is good news, in our view, for tightening of the supply-demand balance. For Pacific Basin, we are well prepared for both the low sulfur fuel and scrubber options. We continue to believe, as we had said before, that the vast majority of the geared drybulk fleet, geared means ships with cranes, i.e., Supramax and Handysize ships, and especially the smaller Handysize ships, will comply by using low sulfur fuel. Why do we prefer that solution, why do we think that that will be the case for the smaller ships? Well, smaller ships consume less fuel, it is less attractive financially to install a scrubber. The low sulfur fuel, more importantly, is reducing fuel consumption, speed, and CO2, while a scrubber is increasing fuel consumption, speed, and CO2. A scrubber is not necessarily moving in the right direction in the context of the ambition to lower CO2. It is also, in our view, easier to pass on the fuel cost, i.e., the higher low sulfur fuel costs to the customer, than it is to pass on the CapEx of a scrubber investment. Again, smaller ships with less fuel consumption will go for low sulfur fuel in our view, and this will have the reducing effect on the speed. As you know, if fuel is expensive, the optimal speed is slower. If fuel price goes up, the effect is the reverse. Some Supramax owners have announced that they will install scrubbers. We are preparing for it in the event that a lot of Supramax owners is going in that direction. We do not think they will. We do not want to go in the direction of scrubbers, but we may be forced to if a lot of other people are doing it. We will certainly not lead the Supramax segment in that direction towards scrubbers. But we have both the technology and arrangements in place with repair yards and makers if we have to do it on the Supras. But the main takeaway on this point is positive, and either way, it will reduce the supply side. Again, that is either by way of lower speed for the people who go for low sulfur fuel oil or increased time out of service off hire for vessels taken out to install scrubbers. A very interesting dynamic that we will see in our view in the short to medium term, driven by these low sulfur regulations. Please turn to slide 14. This shows our cargo mix, the composition of our fleet over the last few years. You can see the steady increase at the bottom here of our owned fleet. As mentioned, the fleet will go to 112 ships in January 2019, 112 owned ships. This graph shows the average number of ships during the year. So we have more than 104 owned ships now, but this is the average for the year, will be at 112 in January. The growing owned fleet provides us with greater operational control and earnings leverage. It allows us to control the service quality much better since we have our own crew and our own technical management. Our own vessels are replacing long-term charters. You can see the middle field here decreasing a little bit, and you see that happening a bit more in 2019 and 2020 when more of our long-term chartered ships expires, and we are replacing them with own ships. Our short-term chartered fleet fluctuates with market requirements and achievable operating margin. The reduction since 2017, as we have mentioned before, is mainly due to the reduced Chinese steel export volumes, which in turn is due to the strong domestic demand in China. Please turn to slide 15, where we repeat our very competitive breakeven levels on the owned ships. $8,300 per day for our Handysize ships and about $9,000 per day on our Supramax ships. We contrast that with the two rates on top there. We first show $9,980 per day, and that is the full year rate so far for 2018. Almost $10,000 per day we are looking to make on the Handysizes. We made $8,320 per day actual last year. As you recall, we were just at or above break-even levels last year. That's an improvement of about $1,660 per day on the Handysizes year-over-year. On the Supramax side, we have full year 2018 days at $11,800 per day, and we made $96 last year. That's about $2,200 per day up compared to last year. The purpose of this increment or this delta is that you can apply our sensitivity guidance to this improvement. You will recall that we have said $1,000 per day improvement means $35 million-$40 million per day better bottom line. You just got to remember to apply a weight of about 75% to the Handysize front and 25% weight to the Supramax front, because we have a much larger core fleet on Handysize than we have on Supramax. Last year result, if you recall, was just above break-even, about $3 million. If you apply this increment and then use the sensitivity, it will give you a decent forecast for where we will end up for the full year 2018. Please turn to slide sixteen, and now just starting to wrap up. This is our business model slide. I won't go through it all, but it remains very strong. We continue to focus a lot on customers, on the high laden percentage, on cost control. We continue to outperform, as you can see. To create this outperformance, it takes all the components listed to the left on this slide. Slide seventeen. Again, our outperformance about $1,800 per day for the last five years on Handysize. That's also the case for 2018. The much larger owned fleet with substantially fixed costs is what gives us this very good leverage now as we are into profitable territory. We have worked so hard with our cost structure, and you should not expect any dramatic changes there. The OpEx we have managed to reduce over the years, and it was about $3.8 today for the first half in 2018. We consider ourselves very well-positioned and in a strong position to benefit from the stronger market rates. You have our sensitivity here on the bottom right of this slide. Slide eighteen. A final slide. We repeat, we remain cautiously optimistic for a continued market recovery. There may well be some volatility on the way. Demand is slower, as we mentioned, but still good at 3%-ish. Importantly, the fleet growth, in our view, will be less than that. We have this very interesting dynamics with the regulations that we believe will create inefficiencies in the fleet, reducing the supply side further in the years ahead. We're well-positioned to make some money and to pay some dividends. With that, we would like to invite for questions, and thank you very much for listening. Operator? Thank you. 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're announced, please ask your question. If you find that your question has been answered before it is your turn to speak, please press the pound or hash key to cancel the question. Once again, if you have a question, please press star one. Your first question comes from the line of Parash Jain from HSBC. Please go ahead. Hi, Mats. Thanks for the presentation. My question is more on slide 10. Just big picture, I mean, 2019 is far away, but where we stand today and perhaps the higher take-up of scrubbers by the ship owners across the different segment in the last six months. Is it reasonable to assume that some part of the supply will be absorbed at shipyards, as many of those ships prepare themselves for 2020 in the process of retrofitting or dry docking? At the same time, when I look at demand, does the 2019 demand growth have a downside from permanent reduction in the soybean consumption by China as they are trying to change the diet of how the soybean needs to be consumed for the pig farm? Maybe if you can throw your contribution on this, that'll be very helpful. Thank you. Thanks, Parash. On the first question, yes, scrubber installation will take supply away. In our view, it's a 30-day shipyard job. You may be able to coincide that with your regular dry docking, which may be 15 days, so the additional if you're so lucky that you have a regular dry docking planned for just this time. In most cases, if you're planning to install scrubbers on all your ships, you have to take the ship out of service. We do think that this is a significant impact on the supply side, which will be positive. Again, I repeat, for our segment, scrubbers will be the very minority and a vast majority will logically go for low sulfur fuel. It's extremely few, if any, Handysize owners that are going for scrubbers. If you go for low sulfur fuel, the fuel price will be more expensive, which automatically triggers a lower optimal speed. In both the two compliance options, you will have a reduction in supply in our view. It's also worth mentioning that the low sulfur fuel will also come with some complications, and we're certainly doing our homework at Pacific Basin there as well. That may also cause some inefficiencies to get the right low sulfur fuel. Blended fuels are difficult to work with. You may have to segregate your bunker tanks further. You may have to deviate to get the right bunkers, what have you. It will be a period of interferences in the supply side. Your second question on the potential permanent reduction of the soybean trade, we do not think so. We think that it will come back. We think we will see a delay in those soybeans moving. It will not go away. The U.S. farmers is going to do something with these soybeans. They can be stored. It's tougher to store than corn, but you can certainly store it. I think we're going to get that demand back later. Trust me, everybody who can buy soybean today will buy from the U.S. because the price has gone down quite a lot. It's just that the Chinese volume is so big, so our view is that it's difficult to replace it in the short term. Longer term, the Brazilians and the Argentinians, remember that Argentina had a very poor crops this year, and next year they will likely be back and these guys will be all over China to sell to them. Four times more protein, I think, in soybean than in corn. The product is in big demand. It's just that China is trying to make a point and avoid buying from U.S. It will shift, it will not disappear, in our view. That's very helpful, Mats. Thank you. Your next question comes from the line of Baiding Rong from Barings Asset Management. Please ask your question. Thank you, Mats, for sharing your views and the updates on the company. A few questions from me. The first one is, just following up on Parash's question on the soybean, how do you see the ton-mile if Argentina's yield turn out to be better than this year, next year, in 2019, and the overall ton-mile change on the soybean trend? This is my first question. All right. There may well be some increased ton-miles. We are moving soybean today from the U.S. Gulf down to both Argentina and Brazil. That goes into the crushers there. Again, these volumes are very small compared to the 32 million tons that China has been buying. The distance from Argentina and Brazil to China is longer than from the U.S. Gulf to China if you go through the Panama Canal. Some soybean is moving in bigger ships that can't go through the Panama Canal, then they have to go around Africa, and that's a bit longer. For our segments, South America is a longer distance than U.S. Gulf. Okay, I see. Second question is, how does the trend so far, you mentioned that there's a bit of slow steaming now and do we have further room to slow speed? I mean, for the industry, is there any further room to further slow down speed? Yes. There is further room to slow down. It all depends on the fuel price and the freight rates. When fuel price goes up, what tends to happen over time is that the market finds a new equilibrium at the same engine speed but at a higher freight rate, right? It has the effect of pushing up freight rates or all things equal. Compared to the speed in 2014 where the bunker costs were seem to be higher than that now, how is the current speed? Don't have that graph exactly in front of me, we're currently at around 11 knots, a bit below 11 knots. It depends on how you measure it, et cetera. The highest observed speed is 13, which we last time saw in 2010. The lowest observed speed tends to be nine and a half or 10. We can go slower. We've been going at nine. There is still room to slow down the fleet. More importantly, the way this works is that the fleet cannot slow down because every ship we have today is needed. There is zero surplus ships. When you have demand growing more than supply, the fleet cannot slow down. Over time, what's happening is that you have some ships starts to slow down, as every ship is fixed with a slower speed, that tightens the market and that's pushing up freight rates, which is again, is increasing the optimal speed to where you started from. It will end up being about the same speed a higher freight rate if you have higher fuel prices. I see. Thank you. Maybe the last question for me is that, I see on the freight rate chart, slide six, it seems that to me, Handysize rate is a bit flat compared to Supramax. What kind of driver do you see behind that and how do you expect the trend to be heading into 2019? I think it's more that 2017, you saw a very strong increase on the Handysize front, right? I wouldn't read too much into that. We are fixing a fourth quarter at higher levels, as you can see from our cover. As mentioned, our actual year-on-year performance is much higher than the index year-on-year graph shows you on this slide. We're still in a pattern of year-on-year improvements in our view. Okay. Thank you very much. Thank you. The next question comes from the line of Andrew Lee from Jefferies. Please ask a question. Yeah, very. Hi, thanks for the call. I have three questions. The first question you mentioned was that for 2019, you mentioned that it's backhaul heavy. What's the reason for this and was this the same as last year? Second question is on slow steaming. You mentioned that the current speed is around 11 knots. If it goes down to 10 knots, how much capacity will be taken out? The final question I have is on newbuilding deliveries. Do you have any numbers in terms of what is the slippage rate on a year to date basis? Thanks. Thanks, Andrew. Yes, our forward cover is typically backhaul heavy when you look on a real cargo contract, right? When you look at the next quarter, there's a lot of spot business in there, so that may not be backhaul heavy. When you look into the next calendar year and our cargo contracts, they are typically backhaul heavy and that has to do with our business model and to make sure that we have control over the legs, over the positions that are most difficult to move the ship, right? Especially in a weak market, we defend our backhaul cargo contract very strongly. In spite of freight rates being low, we protect the most valuable backhaul cover. Maybe our backhaul cover is a little bit higher than normal now because we're coming from a very weak market. In a very strong market, we would be happy to take overall cover, right? We certainly have not been looking for cover in the very weak freight market that we have been coming from in 2016 and '17. That has led us to renew the backhaul cargoes more than the kind of neutral cargo contract. On your second question is what effect does slow steaming going from 11 to 10 knots have Well, kind of theoretically, you would then have about a 10% change in speed. Remember that in our segments, the ships are only at sea for 205 days a year or something like that. The rest is loading and discharging and maneuvering and going between load and discharge ports, slow speed. You need to apply, maybe take 60% or 65% of the speed change, and that gives you the impact on the overall supply. A 10% speed change would be a 6% reduction in supply, which is impossible, by the way. You understand why. Demand is going up, so you cannot take away 6% of the fleet. What happens over time is that it's pushing up freight rates, which in turn is pushing up the speed back to where you started. Your third question was newbuilding deliveries, which you have on, I think, slide 24, the shortfall in the appendix there. We had a 29% shortfall in the nine months for Handysize and Supramax and 20% shortfall in the overall dry bulk fleet. When you look at the forward deliveries in '19 and '20, remember that you may well still continue to see shortfall there. Take off some scrapping and you will understand, looking at the graph to the right on slide 24, that it's quite reasonable to expect below 2% fleet growth when you deduct shortfall and scrapping from these order book numbers. Okay. Thanks. Maybe a final question. On the scrapping side, as you mentioned earlier, has been much weaker than expected. Do you think that's going to continue to be low into next year as well? Excuse me, what is lower? The scrapping. Scrapping. Yeah. Yes, sir. I think scrapping is very much a financial question. Super high freight rates and super high scrapping is very unusual to have at the same time, so to speak. We're not having super high freight rates. We do think that the regulations will drive scrapping. We've had an extremely uniquely low scrapping rate. I think we're at 0.4% or 0.5% level or something. If you assume that a ship lasts 25 years, you would have 4% scrapping per year on average, right? Now you got 0.4. We're just way below normalized scrapping. We think that the ballast water treatment system and the higher fuel price due to the regulations, if you have an old, poor, high-consuming ship, it will become more uncompetitive as a result of these changes. Long as you've got these very attractive secondhand prices, you can buy arguably a five-year-old Handysize ship for $15 million. That's a five-year-old ship that arguably has 20 years to go. Are you going to invest a lot of money in a 25-year-old Handysize or a 20-year-old Handysize? It may be a better idea to scrap it and buy a five-year-old instead. It's not a bad arbitrage. Especially if the ship is in bad shape to start with. We do think that scrapping will increase. We're not banking on massive scrapping because we think freight rates will be pretty good. People tend to keep the ship alive if freight rates are good. Okay. Thanks for your time. Next question comes from the line of Mohsin Gaddar from Arqaam Capital. Please ask your question. Hey, guys. Thank you very much for taking my call. I really appreciate it. Just one real follow-up. Regarding this soybean trade for China, if you could just help me understand that 32 million tons that goes into China, are they just choosing now not to import that at all and just use their existing reserves, or are they replacing that with additional demand for corn? Or is soybean going from the U.S. to Brazil and Argentina and then getting rerouted from there to China such that they'll eventually get to their 32 million ton target? Yes. I think that they are drawing from stocks. There's news about reducing the protein content, maybe temporarily, et cetera. They're doing everything they can to avoid buying from the U.S. farmers to penalize U.S. We do not think that it can be replaced from other sources. Some is. The soybeans that we're moving down to Argentina and Brazil is getting crushed to some degree there, at least in Argentina, and then the soy meal may go from there to China. Again, these volumes are not big enough to replace the full 32 million tons. We do think that they are using every tool in their toolbox to skip this season, so to speak. Sure, they're buying everything they can from Brazil and Argentina, but it's not the season now. We think it will come back. We think they're going to pull down their stocks to absolute minimum and then the trade war gets sorted, or the Argentina and Brazil are back in with the next crop. We will probably be in a couple of months into next year before we can see that. Now, we are not soybean farmers, but that's our intelligence and our own assessment of the situation. Again, remember that the total soybean trade, this 32 million tons, is only 0.6% of total dry bulk trade. Remember that the reduction in the soybean trade is included in the full-year forecast. This is partly why demand is going down in the full-year forecast that Clarksons does. Excuse me. Okay. Understood. Thank you. Next question comes from the line of Rahul Kapoor from Bloomberg. Please ask your question. Hi, Mats. Coming back to scrubbers. Your majority of the listed peers, if you see in the U.S. particularly, they've all adopted scrubber over the past few weeks, as in past few months. What is actually driving that? What explains this surge in adoption? It's not only limited to the bigger segments, but even the Supramax owners, let's say Genco, Scorpio, Northern. Well, a scrubber investment is all contingent upon the price spread between heavy fuel oil and the compliant fuel. Again, the bigger the ship, the easier it is to defend such an investment. They make an assessment about what that future price spread will be and are going for that option. They have to speak for themselves. There are a number of uncertainties in making these calculations. First, we don't know what the crude price will be, and this price spread obviously varies with the underlying crude price. Crude is certainly in backwardation. Second, you have to make an assumption about the price difference between heavy fuel oil and low sulfur fuel. Third, you have to make up your mind about what will the price be of 0.5%. 0.5% doesn't exist today. Many of these companies, they assume the price spread will be between three and a half and 0.1%. We certainly believe that 0.5% will be cheaper than 0.1%. It's five times more sulfur in the capped regulation than in the current MGO. Four, you need to make assumptions about availability, both of heavy fuel oil and low sulfur fuel if you're going in that direction. Five, you have to make an assessment or forecast about what other people will do. If everybody is running towards scrubbers, you will reach a tipping point when the freight market may well revert to get set by heavy fuel oil, then you have no benefit. Then you're back to heavy fuel oil. Each segment, I think is different. The biggest uncertain in our view is the ability to pass on the cost, which again, we think we are fortunate in our smaller segments because a vast majority will go for low sulfur fuel and it will be a more level playing field. It will be a freight trade market that will be set by low sulfur fuel. It's perfectly normal for the customers to accept and absorb the variation in crude price. Remember, crude was $110 per barrel for 2010 to 2014, fuel was very high, then it suddenly dropped and the customer took 100% of that change in cheaper fuel price. Right now, we've been benefiting from a higher fuel price. The customer takes all of that increase and we get the speed effect of that. There's so many uncertainties here and each company have to make their own assessment. I think the U.S. companies may well be hard pushed. Maybe Peter, you want to comment on this. They may be hard pushed by analysts who are short-term minded. These often uninformed calculations are thrown around where the assumptions are not necessarily correct, it looks like a fantastic investment, the analysts are pushing them to do it. Peter? Yeah, no, I think, again, we shouldn't speak for our competitors, of course. As Mats mentioned, there are a number of uncertainty factors here. You can also add, will the customer ultimately be willing to pay for the implied spread, which is what the scrubber investment assumes. In some of the segments, the bigger segments, you have few customers. We have a lot of customers in minor bulk, but in some of the segments, we have very few customers. If they take a view that when they price these contracts, they're going to look through the vessel and say, "Well, you're using high sulfur fuel oil, which is much cheaper. Why are you charging me as if you're using low sulfur fuel oil?" These are big, powerful companies. They can very well take that view, it's not surprising if they would. In other segments, not in dry bulk for the moment, but think about VLOCs, for instance. There's only about 750 VLOCs out there. You don't need that many scrubbers on those vessels for that market to switch from a compliant fuel pricing to a high sulfur fuel pricing. You don't need that many vessels to switch that market. In minor bulk, we have Handysize and 3,500 Supramax. It's a much more diverse sector. There's a lot more uncertainty about these investments than I think the average investors perhaps fully appreciate in the U.S. market, at least. Sure. It varies a lot depending on your business model, right? If you have a time charter out business model, you simply ask your customer what he wants, right? If he wants a scrubber, you adjust the time charter rate, et cetera. In the tramp sector, it will be a market that will be set by the majority, so to speak, right? The takeaway is that either way, it has a positive effect on the supply side. Definitely, and longer term as well on the low sulfur fuel option and in the smaller segments, even in the larger segments, it will take away a lot of capacity to install these scrubbers for the bigger ships. We are only in Handysize and Supramax. It will be a majority low sulfur fuel option in our view. Sure. Thank you. Just lastly, quickly, we are hearing that some of the operators who charter in vessels, they are not chartering vessels, or they are trying to avoid taking in vessels beyond 2020. Are you seeing that? The ones which are being chartered in, they're getting a premium paid because is there a two-tier market being created in this segment? I think it will be eventually the time charter market, we are an operator, we don't time charter out, it's a different market. The tramp sector will be set by the low sulfur fuel in our segments. Does that release more TC vessels in the spot market? No, I don't necessarily think so. There's not many long time charters out there to start with. I think, certainly on the customer side, on the cargo contract side, some customers are taking a wait and see mode. I think that's kind of the default position because every owner, at least in our segment, he has to price his forward contract based on low sulfur fuel, and the customer sees it going up, so he takes, "Oh, I'm going to wait and see a bit." It will be, again, very interesting dynamic that will be played out in the second half 2019 and already from now and through 2020. Indeed. Thank you so much. Thanks, Mats, Peter. Thank you. If no other questions, again, thank you very much for dialing in and for your interest in our company. Thank you very much. This concludes our conference call. Thank you all for attending.