Welcome to today's Pacific Basin 2026 third quarter trading update conference call. I am pleased to present Chief Executive Officer, Mr. Martin Fruergaard, and Chief Financial Officer, Mr. Jimmy Ng. 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. Fruergaard, please begin.
Thank you. Welcome and thank you for attending Pacific Basin's 2026 third quarter trading update. We will as usually highlight the key points in the published presentation before we proceed to Q&A. Please turn to slide two. Dry bulk market conditions further strengthened during the third quarter of 2026. Geopolitical uncertainty, disruptions, and weather related events continued to affect several key shipping routes, supporting ton mile demand. Freight rates further strengthened with BHSI and BSI increased by more than 25% year-on-year. In the third quarter, our Handysize and Supramax fleet recorded average net daily TCE earnings of $16,020 and $17,990 respectively, marking strong year-on-year increases of 37% and 34%. For the first nine months of the year, we continued to outperform the respective indices with Handysize and Supramax outperforming by $1,730 and $1,440 per day, or 13% and 9% respectively.
We continued to enhance and renew our fleet. During the quarter, we exercised the purchase option on one long-term chartered Handysize vessel, took delivery of one new long-term chartered Handysize new building, and we sold and delivered two 20-year-old Supramax vessels. In addition, we also declared a purchase option on three-year-old long-term chartered Handysize vessel with delivery in the fourth quarter of 2026. As at the end of September 2026, we have a total of 258 vessels in operations comprising 106 owned vessels, 30 long-term chartered vessels, and 139 short-term chartered vessels. Our current order book consists of six Handysize and four Ultramax new buildings with expected delivery between 2028 and the first half of 2029.
We hold an option for two dual fuel Ultra new buildings that is declarable in February 2026, and we hold purchase options on 11 modern long-term chartered vessels already in our fleet, which are declarable between 2027 and 2031. We have two long-term chartered new buildings joining our fleet in 2027, one Handysize, and one Supramax, both of which come with fixed price purchase options. These purchase options and our new buildings on order maximize our flexibility, enabling us to renew our fleet and allocate capital in a disciplined and value accretive manner. Now I will hand over to Jimmy for an overview of the third quarter performance.
Thank you, Martin. Good evening, ladies and gentlemen. I will share with you some observations on the market and a snapshot of the market, and also our operational performance for the period. Please turn to slide four. Market freight rates maintained the momentum during the third quarter of 2026, supported by healthy dry bulk trade flows and continued inefficiencies across global shipping networks. During the quarter, market spot rates for Handysize averaged approximately $14,670 per day, representing an increase of 27% year-on-year. Market spot rates for Supramax averaged approximately $18,290 per day, which was 28% higher year-on-year. The freight market conditions year to date have been materially stronger than the last two years across both the Handysize and Supramax segments. Geopolitical developments and other disrupting factors such as adverse weather conditions continued to create inefficiencies in the industry.
The U.S.-Iran tensions remained, causing ships to reroute and affecting trading patterns due to severely restricted vessel transits through the Strait of Hormuz. With the limited progress in the U.S.-Iran relations, the timing of any reopening remains uncertain. Freight market volatility is expected to continue with the various disruptions that are unlikely to be fully resolved in the near future. FFA rates for the remainder of 2026 also point to strong market conditions ahead. Please turn to slide five. In the third quarter of 2026, as Martin mentioned earlier, our average daily TCE earnings of $16,020 for Handysize and $17,990 for Supramax represented an increase of 37% and 34% respectively compared to the same period in 2025. In terms of cover, we have currently covered 65% of our committed vessel days for Handysize and 76% for Supramax at $16,480 and $18,960 per day respectively.
We have retained exposure to the market through open vessel days in attractive positions, giving us the opportunity to benefit from a seasonally stronger market in the remainder of the year. For 2027, we have currently covered 7% of our Handysize vessel days at $13,180 per day and 19% of our Supramax vessel days at $15,590 per day. Complementing our core business, our operating activity generated an average daily margin of $2,190 on about 6,610 operating days in the third quarter. This operating activity margin was significantly higher than that of last year. Please turn to Slide six. In the third quarter of 2026, our Handysize TCE earnings outperformed the spot market index by $1,350 per day or 9%, whereas our Supramax TCE earnings were $300 per day or 2% below the index.
That is primarily reflecting the Atlantic Pacific rate differentials and also our deliberate backhaul positioning into the higher paying Atlantic market ahead of the typical strong fourth quarter. For the first nine months of 2026, we continued to record outperformance with our Handysize TCE earnings outperforming the market spot rate by 13% or $1,730 per day, and our Supramax outperforming the BSI by 9% or $1,440 per day. This sustained outperformance reflects the strength of our operating model, the resilience of our commercial platform, and the effective execution of our long-term business strategy in a highly cyclical market. I will now hand you back to Martin to run you through the market dynamics and outlook.
Yeah. Thank you, Jimmy, and please turn to Slide eight. Seaborne dry bulk trade continued to expand during the third quarter, supported by ton mile demand growth across several major and minor bulk commodities. Cargo volumes for minor bulk, particular fertilizers, were weaker, but continued geopolitical disruptions and trade inefficiencies resulted in broadly stable minor bulk ton mile demand. Turning to grain, trade volumes benefited from stronger Argentinian exports following a record soybean harvest and increased U.S. and Brazilian grain shipments. This was partly offset by the continued disruptions in the Black Sea. Iron ore trade recorded healthy growth supported by robust demand in China, with continued high volume of Chinese steel being exported. Coal demand also remained resilient amid continued disruption to energy supply and regional trade flows. In summary, dry bulk demand remained resilient during the third quarter.
Ongoing geopolitical disruptions and trade inefficiencies resulted in longer voyage distances, which supported ton mile demand and tightened effective vessel supply. Please turn to slide nine. Global dry bulk net fleet growth is forecasted to be 3.8% in 2026 and 4.4% in 2027, driven by higher scheduled new building deliveries across the sector. However, Handysize and Supramax net fleet growth is expected to be about 3.9% in 2026 and 3.8% in 2027. The total dry bulk order book currently stands at 15% of the existing fleet, while the order book for Handysize and Supramax represents 8% and 16% of the existing fleet, respectively. Both remain moderate, and overall, the order book in dry bulk remain much lower than in tanker and container sector. Please turn to slide 10. While the market fundamentals remain constructive, the outlook continues to be influenced by several macro uncertainties.
U.S.-China relations appear to be more stable in 2026, with U.S. exports to China recovering but remaining below the pre-2025 level. Current U.S.-China trade arrangements have been extended to January 2027, and the suspension of the USTR Section 301 measures have reduced near-term uncertainty. However, the longer-term direction of trade policy and its implication for trade and shipping remain uncertain. The Arabian Gulf conflict continued to create disruption across global trade routes, which has contributed to longer voyage distances and greater freight market volatility. The reopening of the Strait of Hormuz remains uncertain. El Niño caused adverse weather in different parts of the world. Extreme weather conditions, including hot and dry summers and typhoon, impacted trade flows and caused congestions to major ports. These environmental disruptions also affect both energy demand and agricultural production.
Stronger power demand is supporting Pacific coal volumes in 2026, while hot and dry conditions could weigh on grain production and reduce Atlantic grain volumes. These contrasting effects may affect trade patterns and increase volatility across coal, grain, and other minor bulk markets. From a regulatory perspective, the details and future direction of the IMO Net-Zero Framework remain unclear. Global and regional regulatory developments will continue to influence investment decision, vessel specifications, and future fuel strategies. Please turn to slide 11. Looking ahead, we expect the dry bulk industry will continue to be influenced by geopolitical disruptions, trade inefficiencies, and changing cargo flows, leading to stronger market outlook for the remainder of 2026 and also into 2027. El Niño weather-related disruptions, which are expected to continue into 2027 and will shift seaborne trade patterns, may also affect ton-mile demand.
Despite these macro disruptions, IMF's forecasts point to a positive direction with expected global GDP growth of 3.4% for 2027, meaning an improving global economy. FFA rates for the fourth quarter of 2026 remain at healthy levels, averaging approximately $16,230 per day for Handysize and $18,980 per day for Supramax. In the dry bulk sector, overall dry bulk ton-mile demand is projected to increase by 3.7% in 2026 and 3% in 2027, while minor bulk ton-mile demand is projected to increase by 2.7% this year and 3.1% in 2027. This is driven by demand in iron ore, grain, and minor bulk cargoes and long-haul trade routes that support ton-mile demand. On the supply side, net fleet growth of overall dry bulk is expected to increase to 4.4% in 2027, but minor bulk net fleet growth is forecasted to slow to 3.8% next year.
However, the aging global fleet, tightening environmental requirements, and continued market inefficiencies are expected to narrow the supply-demand imbalances longer term. Overall, the macro environment and trends points to a positive direction for the dry bulk sector, as supported by the strong fundamentals and persistent disruptions in the market. With that, I would like to conclude our 2026 third quarter trading update presentation and hand the call back to the operator for Q&A.
Thank you. We will now begin our question- and- answer session. If you have a question for today's speaker, please press the raise hand button and you will enter a queue. After you are announced, please unmute yourself, state your company and name, and ask your question. You may also type your questions in the Q&A box. Our first question comes from Parash Jain from HSBC. Please go ahead.
Hi, Martin. Hi, Jimmy. Thank you for the presentation. I have a question now that 2026 is pretty much in the bag. If you can talk about your initial thoughts on 2027 and looking at today's rates, are there opportunities to get into one-year TC rate kind of a market, or you would still continue to expose yourself to the spot rates given relatively higher rates? Secondly, with respect to the recent weakness in the Capesize because of iron ore, is it more cyclical because of the maintenance of the factories in China? Or you would think it more there are other reasons, and will that have an impact on the smaller vessels? Thank you.
Yeah. Thank you, Parash. Good question. First of all, I think we've been quite successful this year actually positioning ourself correctly in the market. We took less cover. I think what really went well, a lot of things have gone well so far this year, but basically also we got the timing right and have positioned ourself quite well for this market. I think we're still quite well positioned with the fleet, all in all. We are, as you say, 2026 is, it's not all over. We still have some earning capacity still. We have good cover, but there's still some upside in the market normally in fourth quarter, and we also have open days to cover. I think
Yeah
we have a good position for that. I think Q1, if you look into next year, would we take cover? We have taken a little bit of cover, but it's not much as you can see on our cover on that part of it. We are actually quite positive about next year. It's hard to find something when we sit and look at it that, world economy and all these things can of course change things, but when we look fundamentally at our business and this demand and when we talk to the customers, we are actually quite optimistic about the market. We are getting into the contract season, and I think what also a little bit happening at the moment that maybe our industrial customers, I think they will continue to extend the contract into next year.
I think those who are maybe a little bit more trading oriented would probably pull back a little bit. It is not only the freight rates, but also the oil prices, of course, is very high, bunker prices. I think many are holding back on taking contracts into next year. Also if you very aggressively want to take cover next year, you actually have to discount quite a bit on that part. We are not really willing to do that at the moment. We'd rather take the earnings here now and maximize our short-term earnings and with a view that these disruptions that we see at the moment, I'm sure some might go away, but it's very hard, Parash, to see that these will disappear. On top of that, you have El Niño and so on.
I would also say that something we are looking at as well is the demand in the market. Our volumes on the minor bulk has not really increased. But when we talk to the market, our customers and so on, demand is there. Fundamental demand is there. I think that promise quite well for at least a shorter period going forward. So we are, of course, have positioned ourself on purpose in the sense that we are actually quite positive about the market also going forward. The Capesize market, of course, much more volatility in the Capesize rates, you know that from the past. Got more liquidity in the FFA part of it. So, we are not experts on the Capesizes, but we see it again.
Again, our earnings are normally much more stable, and of course, there's not as much liquidity in the derivative market as you see on the Capesizes. I'm not going to say that I know what's happening, but I have a little bit of feeling maybe the rates came too high in Capesize. They don't have a lot of customers. Much of it is actually going to China. I'm sure there's a little bit of that going on as well. But I do actually have to say that seen from our point of view, the outlook for iron ore and coal and bauxite is still very positive, and ton mile is still very positive for the Capesizes. We see this probably more as a short-term correction, and then let's see what happens. But of course, it has an impact that you can see our share price today, of course.
Unfortunately, the BDI has an immediate impact on our share price. Actually, our earnings have not moved at all, at least for now.
No, fair enough. That's very, very helpful. Thank you and have a lovely evening.
Thank you, Parash.
Thank you. Our next question comes from Nathan Gee from Bank of America. Please go ahead.
Hey Martin, hey Jimmy. Thanks for the call. Maybe two questions from me. Firstly, if I am looking at your Supramax 3Q rates, it seems like it came in under what you secured at August. Just help me understand that in a market where market is going up, and I think that this rate had not included a scrubber premium, which I think was good. That is the first question. Second question, just in terms of operating activity margin, we will not be extrapolating this, but just help us understand what drove the $2,000 for the quarter. Thanks.
What was the. Say the last question again, Nathan.
Just operating activity margins. How did it get to the $2,000?
Yeah. Thank you. You have to pinpoint the Supramax underperformance in it. Thank you for that. It's actually a multiple. First, you're also right, our cover going into the third quarter was, rate-wise, a little bit higher than we actually ended out with. It's actually, of course, there's always multiple things. Reality, it has to do a little bit with the weather. We have some typhoons in Pacific, and we do quite a lot of steel out of China, and lots of activity on that part of it. The weather pattern actually had an impact on that operation, and we lost some time on that part of it. The market actually for the Ultras, the market in the Atlantic was much better than in the Pacific. Many of our open positions were in the Pacific.
We didn't get the full value out of it. This is, of course, an average of the two. That was also part of it. We also, because fourth quarter is normally when the Atlantic market starts going up, and we have actually positioned quite a bit of our ships, of the Supramaxes into the Atlantic, so backhaul. We actually have more than half our fleet on the Supras now in the Atlantic, in an attempt to capture the market for the grain season when that comes up. Of course, we hope we are right in that positioning. That also had an impact on the performance. There's probably a few more things in it.
It's not just one thing, but it's partly how we have positioned ourself, it's partly weather, and it's partly also the indices that Pacific, Atlantic, that was actually on the Supras a big difference. On the Handys, it was the other way around. Again, it shows a little bit about the situation now with all the disruption going on, that market sometimes actually develops a little bit peculiar compared to in the past. That, of course, has an impact on our performance on that part. I do hope and believe that in fourth quarter, you'll see an improvement. Also, I have to say, you probably have to look at it a little bit more than just quarter by quarter. I think we probably have to look at it a little longer distance.
Fair enough, and of course, it's also something we look at immediately when we see it. In respect to the operating business, yeah, but I think partly we are just maybe getting better at it and, of course, having more focus on that part of it. It is an important part of our business, of course, to do the operating the business. I think this year, the commercial people had maybe focus a little bit more on the margins than maybe less on the volumes. I think that's part of it. Maybe also a little bit part of it that early in July, the market, the indices in the market actually came down. Normal summer market came down and then, of course, it started increasing again.
Normally, our operating business is always doing well in an upgoing market, whereas our outperformance does the other way around. I think also there is more focus on the operating. Of course, focus on the core fleet, but there is no doubt that we have a good model on the operating business, and it actually contributes quite well to our results.
That is perfect. Just to follow up, Martin, you have normally guided operating activity margin, I think $700, $800 per day. In this context of the commercial team focusing more on it, should we be thinking more than the $700, $800?
I hope over time. Again, a little bit like the overperformance, I think we have to look at it over longer period. There will be some volatility or some changes over time in that. I think hopefully we can see a trend going forward on that part of it. We would also like to do more volume. Of course, the margins are super important. I think the $750 is probably more just saying that if we can calculate $750, we would be interested in doing the business on that part. Hopefully there is a little bit of an upside on that part. I hope to see a trend going forward, and that is, of course, our aim to see at least we get a good margin and hopefully an increasing margin over time.
There is probably a limit to how much you can get, but hopefully we can do better over time.
Perfect. Thank you, Martin. Thanks, Jimmy.
Thank you. As a gentle reminder, if you would like to ask a question, please use the Zoom raise your hand button at the bottom of your Zoom screen. You may also type your questions in the Q&A box. We have a question from the Q&A box. Hi, Jimmy. Sorry, unable to speak on the call, but if you could address how you would answer the share repurchases if not reaching the $40 million threshold. Will that transmit still in the form of higher dividends?
Yeah. Thank you. Thank you for the question. Just to remind everyone on the call, we have announced earlier this year, that we have the intention to repurchase up to $40 million worth of shares. And in the first half of the year, in our interim result announcement, we did announce that we bought back approximately $3.5 million worth of shares. Since 2024, we have actually repurchased around $84 million worth of shares in total. Given the price that our shares are trading at at the moment, it may not be the best timing to execute the remainder of the buyback that we aspire to do.
For the remainder of the year, of course, we will see how our share price performs and see if there are any pockets of windows, pockets of opportunities that will allow us to. That would means that it makes sense to buy back our shares, which, of course, needs to be value accretive to the company. On the other hand, on the dividend policy, we announced earlier in March this year our enhanced dividend policy, which I will just quickly recap, which is to distribute up to 100% of net profit, excluding vessel disposal gains, when the company is in a net cash position at year-end. Again, in the first half of 2026, we distributed $102 million worth of dividend, which was exactly 100% of the first half 2026 net profit, excluding vessel disposal gains.
I am not allowed to provide a proper forecast or cash flow forecast under the regulatory framework, but as you would have seen from our interim results, we distributed $102 million worth of dividend. Also from the presentation that you have heard just now, we did have a very solid third quarter performance and also a pretty constructive outlook for the remainder of the year. I guess that can shed some light in terms of what sort of financial numbers that we would land for the full year.
Yeah, and maybe I could just add that also the development we see also over the entire year to here is that the asset values continue to go up, actually quite a bit for the secondhand values. Of course, we own 106 ships, and so of course the NAV is also increasing for us. That does not mean we will do the share buybacks necessarily, but that is something we evaluated on an ongoing basis. But the asset values are actually also increasing quite a bit.
Thank you. Our next question is from Parash Jain from HSBC. Please unmute your line and ask your question.
Yes, sure. Martin, if I can just follow up, how should we think about your capital deployment in terms of the cycle, will you be a buyer of secondhand or new build vessels, or you will rather be a seller of your older fleet going into 2027? And how shall we think about some of the optionality that you have in terms of crystallizing that in this year or the year after?
Yeah, I was just about to say all of the above. We will be super disciplined. We of course enjoying that the asset values are high. We haven't really bought secondhand ships in the market for multiple years. When the asset secondhand value started going up, we started doing a little bit more on the long-term charter deals with the purchase options that we have. I always forget the exact number. We have 13. Next year with the two delivery, we have 14 purchase options, but we already declared one, so we'll have 13 left. So next year with the two deliveries we have, we have declared one. We have 13 purchase options on the long-term charter deals. We have 10 new buildings, plus two options. All in all, that is about, what?
25 ships in the pipeline, of which we are committed to 10 at the moment. I really like to be in that position because you could say if asset values or something happens in the market, we are only committed to 10. If the market stays strong as it is at the moment, we do have a pipeline of 25 ships in it. We will probably continue to look at more opportunities both on the long- as we are declaring options on some of the long-term charter deals. We are looking for other options, other long-term charter deals with purchase options. Of course, we constantly look at the new buildings, and we have the two option ships that has to be exercised in February next year. We're also looking at that and see what can we do about that.
I think we're super disciplined, respecting the asset values are high. On the other hand, when we look at the yards, the yard capacity, we look at inflation in the world and so on. We also look at the age profile of the fleet and so on. We are probably getting closer to where we actually also see that actually supply, demand, and requirements for new buildings, it may be a little bit more balanced than it was a year or two ago. Because we are getting closer to where there is quite a big fleet that has to be renewed. We will still be super disciplined on that part, and ultimately try to ensure that it is value accretive to the shareholders, whatever we do on that part. I really like the optionality we have in the business.
Still committed to something, but there's a lot of optionality. That's a good position to be in at the moment.
Yeah, absolutely. Thank you very much.
Thank you. As a gentle reminder, if you would like to use the raise hand button at the bottom of your Zoom screen, or also type your questions in the question and answer box. As there are no further questions, we will now begin closing remarks. Please go ahead, Mr. Martin Fruergaard.
Yeah, thank you very much. Our continued TCE outperformance and increasing operating margins reflect the strength and resilience of our operating model, our well-maintained fleet, industry cost competitiveness, and our long-standing customer relationships. Coupled with our robust balance sheet and disciplined approach to fleet growth, these strengths position Pacific Basin well to manage near-term uncertainty and to seize opportunities as they arise. Our business strategy is centered around disciplined capital management and maximizing flexibility for future growth, with the ultimate goal to deliver sustainable shareholder returns. Thank you again for joining the call today. If you have any further questions, please feel free to contact us. Thank you for your continued support, and have a great evening. Thank you very much.
Thank you. This concludes our conference call. Thank you all for attending.