Good morning, if you're joining us from Europe and good afternoon, if you're joining us from Asia. My name is Christian Mark. I'm the CEO of Odfjell Essi, and I have the pleasure of welcoming you to this year's Capital Market Day. We had hoped to invite you again this year for our physical Capital Market Day like we did last year in Oslo. But due to the COVID-nineteen concerns, we have decided to livestream it here from our office in Bergen.
It also means that the agenda will be a little bit more compressed than we have planned for and hoped for. So we will cover quite a lot of ground during this presentation. We will, however, be having a Q and A towards the end of the presentation where we are your questions are more than welcome. And if there are things that you find we do not cover in great enough detail during this presentation, you are as always welcome to reach out to any one of us after the presentation today and get more information. I'm joined today by Terje Ebersen, who's going to come on after me, CFO of Odfjell SE.
And I'm also joined by Christian Roel, Head of Investor Relations and also Head of Research in Odfjell SE. Before we start, as I said, we are more than happy to answer your questions towards the end of this presentation. And I'm told that on the top right hand corner of your screen, there will be a button you can press on and post your questions, and then we will be taking those questions towards the end of the presentation. So thank you again for joining us, and we will dive right in. I will start by giving you a short overview of a quick overview of where we are.
We are not going to I'm not going to spend too much time on the numbers. We have recently had the Q1 release. So today is more about strategy and operations. And Thierry will, of course, cover a lot of the finances later. But I will cover the strategy and the operational update and a few comments on the COVID-nineteen effects.
Thier will then come on and talk about the finances and liquidity and balance sheets and so on. And then Christian will come on and speak about our latest market view and the fundamentals for our market. And then as I mentioned a few times already, now we will have the Q and A session. If we start by looking at the key highlights for Odfjell at the moment, we allow ourselves to say that we have had a good start to the year. The first quarter this year was the best quarter we have had since 2017.
And the way that the second quarter now is developing the quarter has not gone yet, but the way that it is developing, we believe that the second quarter will be stronger than the first quarter. So it's been a good start to the year. Our spot markets have been slightly softer lately, but activity remains good. And we have had quite a good help from the CPP markets in the first and the second quarter. Our COA rates continues to be renewed at increased rates, which is a very good sign.
Our COA coverage is about 50%. It's slightly lower than it has been historically, but there's a reason for that, and I'll speak about that in a moment. But also very importantly, the portfolio itself, which means the way that the COAs interlink with each other in terms of efficiencies is also stronger than we have had for quite a while. We continue to operate safely. We have high utilizations of the ships.
We have high utilization of the terminals. And we have 100% of our capacity operational. And that has been the case throughout the pandemic. The cost cutting that many of you know that we have been through the last couple of years and the efficiency gains is really helping us right now because it means we have a quite competitive platform, and we can focus all our attention on the operations. And I'll speak about that on the next slides.
But of course, when something like the pandemic happens, it's natural that we also change our short term focus. We have taken precautionary measures. We are doing what we can to make sure we have enough liquidity. If the bond market does not open, we have a bond that matures in the first quarter of next year. And in general, we are, of course, taking a quite defensive view.
We do not know what the future future will be bringing. But all in all, as I said, it's a good start to the year. It's also been a good test of our platform. And we believe that we have shown in the first quarter and will be showing in the second quarter that the platform we have is quite competitive and our business model is resilient. But we keep talking about the platform.
And what do we mean when we talk about having a competitive platform? So on Slide number four, we say that, of course, the COVID-nineteen has been a disrupting factor. Saying that we have not been impacted by COVID-nineteen is not true. Financially, that is absolutely the case. But operationally, of course, it has been quite a challenge.
Our key concern is that we cannot move the seafarers around the world. We cannot get people on and off our ships. And what used to be small operational challenges are now big operational challenges, but the net effect of that has not been measurable to a significant degree for Atrial Sea. And that is, I think, because of the platform that we have. First of all, we have a truly global setup, which means that the challenges that we meet, we generally have people on the ground that can help us solve those problems.
And that's a great benefit to have in these times. The second part is that we have most of our fleet is technically managed in house. And those that are outhouse is managed by one provider, which means we have very good control and very close contact with the ships. Many of our captains and officers and crew have been with Offshore for many, many years. And it's much easier in times of crisis to kind of communicate and execute when you have that kind of a setup.
Our COA coverage is around 50%. As I mentioned earlier, it's a little bit lower than it has been historically, but it's still high enough to give us protection from a downward market and it's still low enough to give us the flexibility. When you suddenly see that some trades are a little bit slower in those trades, we have the flexibility to either cancel sailings or put in smaller ships or bigger ships if that's necessary. So we do have some flexibility in our system. And we also have the flexibility to free up ships to participate, for instance, in the CPP markets, which we have benefited from in especially in the second quarter.
On our fleet composition, we have a TC fleet. When you look at the box, second from the left here, you're looking at the TC fleet, you can see that since 2017, we have systematically been reducing our exposure to the TC market, which means we have less commitments, we have less monthly payments of TC hires. And at the same time, we have been replacing that with the pool ships. Now a pool ship is not the ship where we have any downside. We don't have any fixed payments up higher to those ships.
But we do have we do get a fee for operating those ships. And we also have a share of the upside if we do well on those ships. So there it's not very dissimilar from the upside from a TC ship, and it gives us quite a more agile fleet base. And the final part that I want to remind everybody is our ships carry every year around 600 different commodities. They are chemical tankers.
They're designed to be chemical tankers. But a lot of our ships actually trade in CPP and other commodities just as well as any other ships. So in the second quarter, we have been releasing tonnage from the chemical trades that has gone into the more standard CPP and EC CHEM traits. So all that means that we have a very competitive platform. And if you look at the bottom slide, I've mentioned a couple of times that we are comparing apples to oranges a little bit.
But at least we believe that we have shown that we are consistently outperforming the market. So the COVID-nineteen, I mean, question we do get a lot is how does this resemble the last crisis that came in 2008 and 02/2009? And the honest answer to that is we do not know that yet because we do not know what comes after the COVID-nineteen, how deep the recession or even depression may be or if it's going to be V shape or WVW or whatever. But there are a couple of key takeaways that I would like to highlight. First of all, if you look at the demand picture in 2008 to 2010, I think what has surprised a lot of people or is surprising a lot of people is that demand continued to grow throughout the last crisis.
It grew by an average a compounded 3% per year. What So happened in 2009 with the financial crisis was never a demand crisis. The February was also a structural crisis where this what we're looking at in the COVID-nineteen is a pandemic with voluntary shutdowns. And of course, that leads to unemployment and probably one of the biggest dips in the world economy. But from a shipping perspective, the data we're looking at, demand does not contract.
That's not the picture we're seeing now. It has to go quite bad for the world economy for us to see a contraction in demand. We have lowered our demand growth forecast, but sorry, I put something there. We have lowered our demand forecast a little bit, but it's still a positive demand growth. The single biggest difference between 2009 and what we're seeing today is that in 02/2009, we came out on the back of a significant growth in supply of ships.
The number of new ships coming into the market each year was around 14%, 15%. And at the moment in 2020, we are seeing a supply growth of 1.4% and next year only less than 05%. So we believe there are good arguments that in 02/2009, what you saw was actually a supply driven crisis, not a demand driven crisis. And that also means that with a very limited addition of supply at the moment, then this market is going to be fairly resilient. But as I said, I cannot if there was ever a time for a disclaimer, as I've said earlier, this is probably it.
But because we do not know how big the impact is going to be on the world GDP, But we are encouraged by IMF, who says that next year is going to grow by around 5%. But we will have to see and also prepare for an alternative where it doesn't. The next point is a little bit about our strategy. I'm not going to spend too much time on it. I mean, our long term strategy stays in place.
That is about efficiency for our customers, efficiency for Odfjell. It's, of course, about growth. It's about scale in tankers. It's about our terminal footprint start growing again and so on. So that entire strategy stays in place.
But like any good strategy, you have to adapt to the terrain around you. So it's only natural that in due to the pandemic that we are also changing our short term priorities. And what that has meant for us this year so far is, first and foremost, our focus has been to keep everybody safe and healthy on both the ships, on the terminals and in the office. And we have so far been blessed with no confirmed cases on both our ships or the terminals or in the office. The second priority is to keep the fleet operational, keep the terminal operational, keep delivering our promises to our customers, keep loading the ships, keep discharging the ships, keep collecting our freights, so really operations.
The third one is to derisk. Thierry will talk much more about that. We have been accelerating some refinances. We are working we are close to completing a refinancing that allows us to repay redeem our bond in the first quarter of next year if the bond markets should not open. And in general, of course, take a cautionary approach, reduce CapEx where you can, reduce spending where you can.
And finally, and that's an important thing is to keep distractions to a minimum. At the moment, do not feel it's about operations, operations and operations and in general keeping engagement levels high. Our global organization have been working for their homes. Some of us work for our homes for nearly three months. And when we look at the fact that we keep delivering to our customers and we have not any had any measurable effects on our operational KPIs, then I think it's a sign that things are working well.
And that I'm proud to say that the team has done a fantastic job. On the next slide, I'm going to talk a little bit about sustainability. This was a section that we had hoped to expand quite a lot on the Capital Market Day. This time, you're only going to get one slide. So I'm going to try to make that quick, and it doesn't do the subject justice.
But there are a couple of things I want to say. And first of all, I want to say that the sustainability has always been very close to the heart of Otsville and something that we've been working systematically with. We have just not been very good at explaining to the outside world what we did. So since 2018, we have been issuing a sustainability report and I encourage you to read it. And at the moment, we are also working on a more ambitious plan with some fairly, I'll say, targets for how we're going to keep improving on the ESG.
And we are working on a reorganization that will also ensure that ESG is anchored on all levels of the organization in Optia. But if you just allow me to give a few highlights on what we have already done on the ESG front. The EE, of course, is environmental. And I think it's a quite confusing picture when you start trying to understand the energy efficiency of ships. I mean, are several ways of measuring the energy design index.
There are several ways of measuring the operational indexes. So I think the industry has to kind of come together and to make sure that we're all working from the same baseline. And that's a little bit of a at least for my sake, I get a little bit confused when I'm looking at that. But we like to keep things simple in Odfjell. And the if you total fuel we have burned over the number of tonnes we have transported over distance, it's a fact that we've reduced our environmental footprint by 30% since 02/2009.
So that's a significant improvement in our energy efficiency. We're also happy to see that in many of the comparisons that I've been doing on the design indexes because of all the fleet changes we have recently done that we are right on top of those comparisons compared to our competitors. But that does not mean that we should be standing still, but it just means we have a very good starting point. And finally, I want to say that in 2021, we plan to do a test of a pilot, a fuel cell auxiliary engine on one of our ships, that's going to be first of its kind in the industry. And hopefully, we will that's the path to zero emissions to begin with at least when the ships are in port.
On the social part of ESG, Austria does not compromise on safety. We have a very strong safety culture. And I'm happy to say that we have not had any LTI since August. I hope I'm not jinxing anything by saying that. But we do have a good safety statistics in the company.
And we also have a set of corporate conduct principles, which the our vendors have been asked to sign up on. We have a strict gender diversity program in place. We signed up to UN Global Compact and so on. On the governance part, we have a clear policy on anti corruption. We have a clear integrity framework.
We have a mandatory training of code of conduct. We are a member of the anti corruption network. And we also support, of course, the recommendations of the ship recyclings and so on. But more will come on that. One slide does not do this justice.
We hope that in connection with our Q2, we will be able to communicate a clearer plan and our revised ambitions on the ESG front. Terminals is also a subject we wanted to expand on here. You're also only going to get one slide. I think the highlights from an investor perspective is, first of all, that the exit from Lindsay Goldberg, our previous partner in terminals, is coming to an end. They are still our partners in one Chinese terminal and the terminal in Korea.
And we have said that if the opportunity is there, we will tag along on the Chinese terminals and exit China with that divesting. But Korea is a strategic terminal for us. Other than that, we have a very successful terminal in Antwerp. And we have our main terminal two terminals in The U. S, one in Charleston, one in Houston.
And I think the one in Houston is one we have that has we have been talking quite a lot about. It's our biggest terminal, but it's also the terminal where we're going to be focusing our growth. So on the slide, Slide number eight, if you're looking at that on the left hand side, you're seeing a picture of Houston Terminal. And we really have three growth projects. And maybe before I just dive into those three projects, we recently announced that we have succeeded with the refinancing of the terminal.
So the growth in the terminal in The U. S. Will be self funded within that joint venture together with our new partners. The terminal in Houston has three and eighty thousand cubic meters. We have available land bank to grow that by around 50%.
And the way we go about that is if, first of all, we have Base 17, that is three tanks that are in operational. They are existing tanks, but they need some work. And that work is ongoing, and we expect that to we expect those tanks to be in operation, I think, by the end of this year with fairly limited CapEx. The second phase is Phase two, we call it Base 13. Base 13 is in the smack in the center of the terminal.
It is where our old control office used to be. And control building, we have moved that and freed up land to build around 30,000 to 35,000 cubic meter. And we expect to take investment decision on that shortly. Those tanks will be able to use the existing infrastructure on the terminal. But the biggest build out on Houston is what we refer to as the point.
If you look at the picture on the left hand side, you can see a red circle in the right hand the bottom right hand corner. And that is really a piece of brownfield land that with waterfront access that we are looking to building out. If we build that out, we need to build the wharves as well. So it's a bigger project than the other two. And it's a project that where we are really waiting for an anchor customer to sign up and make this to make this investment happen.
This is going to be around 150,000 cubic meter to deepwater docks. Our share of the CapEx will be around $100,000,000 But those are, I would say, ballpark figures until we know exactly how this is going be built out. And as I said, we are waiting for an anchor customer to sign up before we take that step. Finally, capital allocation priorities on Odfjell Tankers. The remaining newbuildings in Odfjell are fully funded.
We have zero CapEx investments beyond 2020. Any growth we are looking at in tankers will have to be capital efficient. We don't have any plans of newbuildings and secondhand acquisitions at the moment. So I think we have fairly good visibility on CapEx within the tankers. On offshore terminals, they are we keep sticking to the principle that they have to remain self funded.
We have refinanced The U. S. Terminal and they will be able to fund their own growth. But it is soon time to start moving forwards because we have been selling off over the past couple of years. And then finally, the last two points.
We still have ambitions to delever and, of course, return money to our shareholders via dividends. But both of those will be market dependent. And how fast we will be able to go, we don't know. But at least, I think, if you judge from the first two quarters of this year, even with the pandemic and the uncertainty, we have had a good start to the year. So we hope that, that will happen soon.
I think that was the end of my slides, and I'm going hand it over to Thierry, and then we will come back for the Q and A.
Thank you very much, Christian, and good morning and good afternoon to everybody. I will start giving a recap of our finance strategy and also give some thoughts around how we think about creating an efficient capital structure and how that should impact our financial ratios and then to ensure that we are able to reach our long term financial goals for the company and also then support the long term overall goals for the group. If I start talking about the capital structure, as I said, that is very much the key how we can succeed in reaching our financial targets. And I'll also get later in the presentation go through the various financial targets, where we are today and what we think about how we are going to reach those targets and also indicate how and when we think we can reach those targets than to complete and fulfill our strategy for the final spot. If we go into the details about the capital structure, of course, reducing debt is higher on the agenda and has been that for a while.
Even though we have seen that we have had increasing debt levels in the last twelve months because we have taken new builds delivered from the yards. However, we have been having a very good access to external debt in today's situation. And also, I would say that we are attracting debt at attractive levels, very much stable compared to what it had been in the last few years. Now also talk about how we are optimizing the debt structure. We have been tapping into available sources, and we are focusing very much on keeping those sources available.
And of course, also maintaining a flexible debt structure is important for us. Having various structure for various different assets and making sure that we are not locking in long term expensive financing structures, but keep the necessary flexibility to manage the risk and cyclicality that we have in our business. And of course, also to lower the cost of equity, that is a remaining challenge for us. We think that when we are comparing the cost of capital to our competitors, we are quite competitive. However, it's a challenge to see how their share is priced compared to our book values, making it impossible for us to use the share as kind of a currency to make M and A transactions and similar.
And then I'll go through the relevant financial targets, where we are today. We have an equity ratio today around 28%. That is not the level that we are targeting. And we'll come back to that how we could approach that level. And also, as we have mentioned a few times before, to decrease cash breakeven is higher on the agenda for us.
We have been partly succeeding in that for the last couple of years. But as I mentioned, we are attracting a bit new debt now because of the new deliveries. So it will take some time before we can reach our targets and goals, but we will get there and we are working quite constructively to reach that target. And also optimize the debt structure according to the collaterals available for various structures and also having a long term value average for our fleets that is within the range that we are targeting and of course then lowering the cost of capital on the long term. I'll also go through the return on invested capital, how we think about that.
We have invested a lot in new vessels the last couple of years and also streamlined our terminal portfolio. I think that should lead to improved return on invested capital going forward based on the market expectations we have for today. And if we succeed in reaching these financial targets, we should then be able to reach our long term target for the company, meaning that we have attractive capital resources available, meaning that we are able to manage risk. We are in a cyclical business. We are living in uncertain times, and that will continue.
We need to make sure that we have a capital structure that is taking care of that also when the market is turning down. And of course, having a cost competitive cost of capital and be able to secure growth and flexibility, We have a platform where we can grow today. The balance sheet is putting a strain on us, but it's important then to create the capital structure going forward, where we are then able to take advantage of opportunities that may arise in the markets. And of course, as also Kristian mentioned, to secure attractive returns to our shareholders long term is very much the overall goal for what we are doing. Starting with the capital structure and the debt side, this is a slide we have shown a few times before.
We have an overall ambition to reduce the total debt in the company from today's level at around US1.2 billion dollars to be in a range of US750 million to US900 million dollars That is divided into various initiatives here. And if we achieve those initiatives, we should be able to reduce the necessary cash breakeven of $3,375 per day, meaning that we reach our target of around US18000 $19,000 per day in cash breakeven, which is done kind of very much comparable with the lowest rate we have seen in the last ten years. And that should enable us to also have a positive cash flow in the downturns that may and will come into the future as well. We have done, as I said, a few things on financing side lately. That means that we have increased the debt actually, while the long term ambition is to also decrease the secured and mortal sized debt.
But going forward, when all the new debt billings have been delivered, we have a clear ambition to start reducing the overall debt in the company. We are also working quite constructively to extend the average amortization profile for our loans. Today, it's around eight point five years in average. Target is to stretch that to twelve years. And if we achieve that, we are talking about the reduction of US2000 dollars per day in cash breakeven.
So far, we have over the last twelve months, we have done a lot of refinancing. We have extended the profile for 11 out of 14 vessels in total. Also plan to leave some unencumbered assets. We have actually financed a few unencumbered vessels this second quarter, but that is due to the bond maturity in January that we will come back to. And then as a total asset, we have an ambition to reduce the cash breakeven to $2,300 per day.
So far, we have achieved $290 per day for our total fleet. And moving on with the capital structure and the debt side, we have quite limited refinancing needs in the coming two years actually. Most important is the bond that is maturing in January 2020. We realized that the bond market now is more or less closed, especially if we want to do that at decent terms compared to what we have done lately. We have done initiated a plan to hold to take care of that maturity without going to the bond market and having to pay the prices that are offered today.
We started with that earlier this year. We did a tap issue in January, securing USD 33,000,000 in liquidity. We have mortgaged a few unencumbered vessels with around US15 million dollars And we also did a transaction a couple of months ago where we sold our terminals in Dalian, which will increase our liquidity by around US27 million dollars In addition, we are in quite advanced processes to add on further liquidity to have a buffer. We are considering to refinance a few of our vessels with a quite low long term value. That process is very much developed, and we have a plan to secure up to US50 million dollars in new liquidity with refinancing those vessels.
In addition, we are in discussions with a couple of banks to secure a new liquidity facility, also kind of targeting possible repayment of the bond in January 2020 without issuing a new bond in the markets. That facility will be available. Of course, we don't want to draw on that facility before possible repayment of bond in January. So we will not add too much interest cost on our P and L. If we succeed with these initiatives, we should be more than covered to take care of the bond maturity in January with around USD 83,000,000 to be repaid.
And also to make sure that we have the necessary flexibility to not increase the cost of capital debt capital, we can use the revolving credit facility that we secured last year in total USD 180,000,000 and temporarily repay that loan in the period where we are taking up new loans to be prepared for repayment of the bond. So we will not take too much debt on the balance sheet. I will not increase the cost of capital too much based on this plan that we are working on. Capital structure, we cannot talk about that without talking about equity. As I said, we are think we are quite competitive in the cost of capital.
Cost of mortgage funding is very much stable compared to where we were one year ago. I also see that the sale and leasebacks interest are quite stable, slightly increased. That has to do with the average age of the fleets or the vessels that we are refinancing. And also looking at the time chart and bareboat arrangement, we have an interest cost around 5%, which we think is quite competitive. The bonds, we did a tap issue in January, but we did that at better level than we had seen in a couple of years actually.
But of course, looking at the bonds of their price today, that is quite different from what we are actually paying on these outstanding bonds. And of course, that is also tying into what why we are preparing a plan for taking care of the bond maturity without going to the bond market in today's situation. But our biggest challenge remains the equity. How that is priced? We have updated some NAV estimates here to give an indication what we think about our values.
What we have used here is indicative broker values. We summarize that in also installments on the newbuildings and excess values on the newbuildings. Our total fleet should be valued around US1.5 billion dollars The debt attached to those vessels is around US960 million dollars giving a net fleet value of US551 million dollars If you then add just the book value of our joint ventures in Terminals and of the gas, we should be in the range of US700 million dollars before the bond that is on the balance sheet. If you just like that, we are around US500 million dollars in NAV compared to a book value just above US500 million dollars And of course, if you look at the market cap for the shares priced, we are looking at the price book of around 40%, which we think is a challenge for us and makes it very difficult to use our share as a currency. So I hope to address that.
That is the biggest challenge. But of course, we think that working with a more efficient capital structure, reducing the cash breakeven and also making sure that we are able to paying dividend also throughout the cycle that should be working in advantage and be something that the shareholders appreciate and should influence the price on the share in the long term. And of course, also being able to deliver profitable results, we think should be beneficial for how the share is priced and liquidity of the share. If you look down at our financial targets, what are our targets, where we are today and what we think going forward. As I mentioned, the equity ratio is not at the level we would like it to be.
We are around 28% today. We have an ambition to be in a range of 30% to 40%. But depending where we are in market cycles, we are certainly below that. Even though we have positive market expectations, so we think it's kind of dependable to have an equity rate of 28%, we would like to be high up in that range. And that also underlies why we are focusing on deleveraging the balance sheet and why we are focusing on decreasing the cash breakeven for the company.
And also looking at the loan to value, we have rather high loan to values on our fleet today that has been increasing for a couple of years. Today, we are on 64%, increased stable since 2016 at 59%, with an aim to be an average for our fleets within 55% to 60%. But even though we have some still some headroom in today, we have some vessels that are booked or have a loan to value close to 90%, while we also have vessels with around 40% loan to value. So we have a flexibility there. But on average, going forward, we'd like that to be decreased.
And again, that's essentially what we are focusing on to leverage our balance sheet and reducing the debt going forward. Cash breakeven, I mentioned a few times. This is showing how that has developed since 2014. We see that cash breakeven has come down quite substantially, I would say, from 26,000 in 2014 to around twenty one thousand today. Main reason for that is that the cost initiatives that we initiated in 2014 and 2015 has impacted our cash breakeven positively.
However, we saw the increase in the cash breakeven in 2019, mainly due to our fleet growth and the fleet renewal. We have to attract new debt and then also kind of increasing the cash breakeven, but our aim to reach 18,000 to $19,000 stays. And as I said, if we reach that level, we should then be able to pay out dividend throughout the cycle. And just to mention that cash forgiven, what we mean by that is the cash or the time charter we need to cover your OpEx, G and A interest and debt amortization. Of course, it's not dependent when we will deliver that and reach that level.
But we think that it should be reachable if we continue on today's path. As Christian said, we have delivered okay versus so far this year. And if the market develops how we expect it to in the coming years, we should be able to come closer to that level in 2022 based on what we are looking at today. Financial targets and free cash flow to equity. We get a lot of questions from our shareholders when we kind of are going to deliver positive cash flow to equity.
Of course, that is important for us as well. Looking at the historical figures, looking at annual free cash flow, that has been negative for a few years and also this year, mainly due to the loss that we have delivered, but also due to the investments that we have been doing the last few years. This year, we don't expect the negative 76,000,000 annual free cash flow negative. But based on all the newbuildings being delivered this year and very limited CapEx in the coming years, we should see based on average time charter earnings the last few five years. If that repeats itself for 2021 and 2022, we should then be able to deliver a positive cash flow of around US126 million dollars And also looking after financing, we should see improved cash flow to equity.
This year, again, we are doing a lot of investment. We are taking on new debt to cover those investments. So based on the earnings first quarter this year, if we annualize that, the net cash flow for equity this year will be around zero or plus US3 million dollars But if you kind of estimate future earnings the same level as average time charter last five years, we should be able to deliver positive cash flow to equity around US30 million dollars average for 2021 and 2022. We also included here kind of the volatility or the potential upside, showing that if we are able to increase the freight rate by around US1000 dollars per day, we should be able to deliver additional capital to equity around US24 million dollars And if we additional also are able to decrease cash breakeven with US1000 dollars per day, that should be additional US24 million dollars So it doesn't take too much to be able to deliver a much more positive cash flow to equity. But again, it's dependent on market and how fast that develops.
Return on invested capital, financial targets, we have been streamlining our portfolio for terminal assets for the last couple of years. Today, we have a much more sound portfolio assets. We also have slimmed down, the overhead for the terminal business quite substantially to our most solid portfolio and also more streamlined organization. And we see that first quarter this year, we delivered return on invested capital around 13%, which is the highest level that we have seen in a couple of years. So we think that's a good indicator of what we could expect from our terminals going forward.
Also on the tanker side, we have done a lot of investments the last couple of years, 28 new transactions in total, still a few newbuildings to be delivered. But looking at the returns from the newbuildings and what we have done on the three transactions the last couple of years, we see that that should also lead to increased return on invested capital. First quarter this year, we saw return on invested capital of 6%. If you look at the newbuildings, the new transaction we have done, we are around 6.4%, so not that much higher. At the same time, we need to keep in mind that these are newbuildings.
We are including maiden voyage, etcetera. So that will also then expect to be delivering increased returns going forward. Especially, we can see that the CTG acquisition, also the Sinocam development arrangement has delivered quite good returns in the first quarter. Of course, that is also reflecting good timing actually we had on those transactions we did when we did that in the market. Looking at the two time charters we have included here, it's delivering a negative return in the first quarter.
But of course, these are kind of more based on the new billing prices and it's in a section structure at that time, and we expect those to deliver an increased return on invested capital going forward. A short summary. We are very much focusing on the capital structure, reducing debt. We are well prepared to take care of the bond maturity in January year. We are keeping focused on reducing the debt when we have the newbuildings delivered to decrease the cash breakeven where we have an aim to come to a level of around US18 dollars to US19 dollars by 2022.
That is a tough target, of course, market dependent, but we are working quite actively to reach those levels in order to be able to deliver free cash flow to equity. And then, of course, we see our newbuilds our newbuild transactions have been delivering positive results to our total portfolio of vessels, and we expect that to continue going forward. So now I think I will leave the word to you, Joachristian. Thank you.
Thank you, Thaddean. Then I will take you through the market updates and the future demandsupply dynamics in light of the current economic turmoil we're facing. Before I start, just as a reminder, if you want to have post questions, you can do that as we go along, so we can summarize the questions towards the end. So starting then with the demand situation, I would like to start by taking a closer look in the rearview mirror as a start, as the last couple of years, of course, also plays a role in how our markets are faring in the current economic environment. Starting here on Slide 21, if you start by looking at the first and second quarter of twenty eighteen, that was the first quarters in a couple of years where demand outpaced supply growth.
And what happened in the third quarter was seasonality, of course, playing a role, taking a toll on demand. But you also saw the first wave of major competition coming from the CPP designed vessels, which pushed supply growth to very high levels and contributed to 2018 being one of the most challenging years in the history of our market. And then in the red stipulated line there, you will see the fleet growth for chemical tankers alone. So this is not reflecting the swing tonnage effect. As you can see then on the dark blue line, the ton mile demand grew quite nicely in the fourth quarter, and that stemmed from organic chemical plant start ups in The U.
S. And The Middle East starting to impact our market and especially the mild component of the demand for shipping. This was also supported by strong leg oil exports, and all this countered a weaker GDP growth sentiment in the market driven by the escalation of the trade war. So this strong demand environment continued up until late third quarter, where the attack on the Saudi oil installations took place, and that impacted chemical tanker demand in a way that's in the way that crude oil installations were shut down and so were the major refineries producing naphtha, which is the main feedstock for petrochemical producers. So this, in turn, of course, led to reduced shipments as the petrochemical producers were sidelined as there were uncertainties of when they would receive their feedstock.
Then we saw a catch up effect in the fourth quarter of twenty nineteen, where the market was much stronger, also driven by The Middle East. And also you saw the IMO 2020 effect, where we saw reduced linked tonnage, where the underlying fundamentals for chemical tankers and how strong it is came clearer into light. Adding the product basis on what has been driving the growth for the last couple of years, you can see here that the organic chemicals are contributing to this growth quite significantly. And then also the bag oils driven especially by palm oil has been very strong throughout 2019. And if you turn to COVID-nineteen, in the right corner, you see the orange there is bag oils, and that is related to Chinese imports.
So it's basically two routes that is driving that negative growth year over year. And that is 600,000 tonnes of reduced exports from Indonesia to China, and then you have a 1,000,000 tonne of reduced imports to India from Malaysia. So it basically stems from two routes, while the traditional chemicals petrochemicals in that sense are doing fairly well also in the first quarter on a year over year basis. A bit further on and this also relates to what we touched upon in the first quarter presentation. I mean the chemical industry, in light of COVID-nineteen, was quickly considered to be an essential industry in most countries.
So we can say that operations production has been ongoing. People have gone to work. You can see that also from our terminals worldwide. But of course, we have seen some shutdowns for some plants. We have seen some reduced operating rates for some selected products.
And then you have seen some new plants deferring their start up to later of the year. We've also seen some disruptions when it comes to maintenance from the chemical plants, where this has been pushed further out as components and equipment has not been able to they have not been able to source that. So fairly similar as the shipping issues when it comes to docking that we have experienced. The regional outbreak is also extremely important to take into effect as we are in the business of seaborne trade. And the outbreak in China, of course, concerned us back in February.
But in hindsight, this developing across the world and at the different times has, of course, been what has also helped our markets since this has stimulated seaborne trade of chemicals. We also saw in China that, this occurred during the lunar holiday or just before. So most of the business was closed down already, and that the business had been done prior to that. But when they returned, we saw that they announced export rebates, and we saw heavy port congestion because of COVID-nineteen, but also because of weather related congestion, which also helped the market absorb tonnage and tightened the market throughout the first quarter. The same we could say about Europe, where we saw immediately a shift into stronger exports, accounting parts of the reduced imports.
And also, of course, the Atlantic Basin was also fueled by a strong CPP markets as well. So based on the regional outbreaks out there, you can say that most of the trade routes are doing fairly well, all things considered, while imports into Europe and South America are among the weakest trade lanes. But combining all the routes together, as Kristian also said, we are have been doing fairly well so far. Naturally, also the feedstock dynamic has changed with the lower oil price in light of COVID-nineteen and also, as I will get back to a little bit later on due to the oil price war. Naphtha is the main feedstock for chemical production.
And of course, you saw that the producers of solids being PET plants, PTA plants, saw an opportunity to source cheap feedstock and kept their operations running. And this, of course, happened especially in Asia and, of course, supported deep sea shipments and supported our markets in the last couple of months. And then lastly here, I mean, demand for chemical tankers is highly diversified, both in terms of the number of products we ship, but also in terms of a highly diversified end user market for every product. So this means that they were both winners and losers in any potential prolonged economic downturn. The food and agricultural industry are the biggest consumers of liquid chemicals, accounting for more than 30% of consumption in total.
This consumer group is viewed as fairly resilient to economic downturns, and we are not seeing or expecting any material impact so far during the pandemic. We have 10% of the liquid chemicals being fed into electronics, various home supplies, packaging and various other hard plastic appliances, where demand output becomes mixed in economic downturns. And during COVID-nineteen, it appears to have a neutral to only a slightly negative effect. The textile industry accounts for 10% of the demand for products shipped by chemical tankers. And here, the demand is in large driven by Asia, which is recovering quickly.
And although the exposure towards shipments of the finished textiles are exposed to a potential prolonged downturn in the Western Hemisphere, we find that initially demand has correlated more with Asian demand rather than demand in the West, which is explained by a large share of the liquid volumes being fed into receiving plants that is targeting the domestic market rather than the global markets. The two end user demand groups that we wish to highlight that are most exposed to a prolonged economic downturn and where we have seen a drop in demand already is the construction and automotive industry. We see the construction industry having the potential to recover quickly in light of potential economic stimulus, so this will be important to follow going forward. When it comes to demand from the automotive industry, the potential, would say, is twofold, with one demand driver being auto production, driving demand for parts and various under the hood equipments, likely the most vulnerable when it comes to a quick recovery in demand. While the other side of automotive demand relates to various fuel blends, which could recover quickly when lockdown eases across the globe.
Generically speaking, though, we count less than 30% of the liquid chemicals we shipped to have a negative exposure to a prolonged economic downturn, while the remaining products should range from slightly negative to neutral to also positive in some instances. This, in some, makes us not see a prolonged downturn in demand, which should follow the trends seen in the aftermath of the two thousand and eight financial crisis. But of course, the jury is still out on that. But based on what we are seeing, we are and also performing in a way, it looks like we could weather the storm as well. COVID-nineteen situation aside for a couple of minutes.
There was also other major events taking place in the first half of twenty twenty. And of course, they're now speaking about the oil price drop and oil price war on top of the COVID-nineteen outbreak. As initially mentioned, I mean, we have been focusing the last couple of years a lot about the growth of gas based chemicals out of The U. S. But it's important not to forget that the vast majority of chemical crackers around the world are heavily reliant on naphtha as a feedstock.
Today, you have 70% roughly of the global cracker capacity is consuming or preferring naphtha. Some of them are also flexible, of course, through LPG and other sources. But of course, when this oil price drop hit the market, as the middle graph here shows, naphtha price closed the gap quite significantly towards ethane based crackers in The U. S. So of course, this led to a reduced competitiveness, but also as the graph highlights, the competitiveness is not gone.
So while this initially had a positive effect and while we do expect U. S. Volumes to continue flowing in such an oil price environment, It's clear that that this has been a help so far. So the negative effect is more of long term investments based on U. S.
Chemical producers rather than not being able to sell their products at all. And of course, as the producers themselves state that if the competitors are making good money, it's more difficult to gain market share across the globe compared to when they are having a much bigger spread towards the naphtha based crackers. On the right side, we just highlighted three of the liquid organic chemicals. And this just confirms the picture of the middle graph, where you saw there was a short term spike in European and North Asian's competitiveness when it comes to margins. But this has come quickly down again as oil prices has increased.
And also, we have seen some correction in the end user prices. Further on, Slide 26. We mentioned briefly the last couple of years the growth, and that has been fueled by organic chemical capacity being built and expanded in The U. S. And The Middle East that has been driving tonal demand growth to historical high levels in our segments.
This is expected to normalize going forward, though. And this is, of course, in light of the economic uncertainty driven by the trade war that escalated in the late twenty eighteen, which did not create a healthy environment or a positive environment for further investments. Another factor, of course, accounting to why we don't see a major round of new investments taking place is, of course, that there has been a heavy investment period for the chemical producers, and several of these product chains have already faced margin pressure even before COVID-nineteen as they enter into an oversupply situation. So of course, this should lead to a slower contribution from that growth driver in the next couple of years. We might see some, but in general, this should normalize demand growth going forward.
And of course, COVID-nineteen is not exactly fueling sentiment when it comes to new investments going forward. So turning to the supply side. There has been a lot of encouraging developments for demand in the last couple of years. It's still encouraging, we have to say. But of course, the COVID-nineteen situation is clouding the picture.
But turning to supply, here we have highlighted three of the main drivers going forward. If you see the top graph, we have combined all the tanker segments, crude tankers, product tankers and chemical tankers and the size of the order book compared to the trading fleet as of today. As the light blue graph or bar tells you on the top graph, this has reached historical lows, where chemical tanker order book share is 4.5%. And we find it encouraging that also the rest the neighboring tanker segments also are not experiencing high order books in the current phase or current situation we are in. Further to the second factor here is the age distribution.
And it's important to remember that the chemical tanker fleet grew by 70% in the mid-2000s based on the China boom and their entrance into the World Trade Organization. And of course, in the next five to ten years, a large share of that fleet is going to become older, less inefficient and not necessarily technically advanced vessels. So here, we've highlighted the ships in Arpelit today between 1991 and 2010, accounting for roughly 50%, where suddenly you can say that in the next five to ten years, you have to consider whether you're going to continue selling it, are you competitive, etcetera, etcetera. So in these two environments, of course, with a low order book to share order to fleet ratio and also an aging fleet across the tanker segments, you should have expected an appetite for new orders. But as the bottom graph shows, that is also at an all time low with a year to date orders of the total trading fleet is at 1% level.
Normally, this happens when you don't have belief in the future. But as I will point out in the next couple of slides, it's all about regulations. That, of course, makes us encouraged about the future supply situation for the first time in many, many years, not only for chemical tankers, but I guess for shipping as a whole. So the next slide, Slide 28. IMO has gone from many years of a main focus being on safety measures for the shipping industry.
We turn the main focus now towards environmental regulations for our industry. We have just passed the sulfur cap regulations, and then the industry is turning its eye towards new environmental regulations to further reduce the carbon footprint of the shipping industry. The long term target is to reach a 50% emission reduction by 2050 compared to the 2008 levels or baseline, as we call it. On the way to 02/1950, though, there will be a target to reduce emissions by 40% by 02/1930, which is where the biggest hurdle for the shipping industry is today. That being said, it's very important to highlight that final details on the road map is not yet ready.
And it's also very important to highlight that the 40% reduction by 2030 is for the shipping industry as a whole and not for every ship or every segment, which means you should expect some segments and vessel types will have to carry more of the weight than others. But as mentioned, the details surrounding how this will play out is something the industry is still waiting to get clarity on. And this clarity has been delayed due to the COVID-nineteen situation. But what it is clear, though, and what we wish to highlight on this slide is that by 02/1930, we have reached a point where we believe alternative fuels needs to play a part of the role to achieve further improvements. This, of course, on the next slide, brings us to the dilemma facing ship owners today.
What kind of fuel should you choose for your next ship? Naturally, choosing the wrong engine or opting for the fuel that won't be the fuel of choice or being competitive for the twenty five year lifetime of your ship would be disruptive for this investment, and the residual value on your ship will be a large risk factor. Here, we highlight 10 various fuel types. The four fuel types on the left, LPG and methanol, DME and LNG, where technical and availability are in various degrees not the biggest problem. None of them will, however, be the long term solution to meet the relations on emissions and should be viewed as intermediate fuels before a long term compliant fuel is in place.
To the right of these fuels, you have the fuels that will be emission free and therefore most likely a part of the long solution. However, as the circles and the percentages highlights, there are technical and availability hurdles. Batteries, for example, we would need three sister ships to sail with batteries behind our ships to conclude a voyage. A viable solution for short sea ferries, ferries on the water for ten minutes at the time? Yes, but not for deep sea and larger ships.
Torium, highlighted could be one solution, but but everything related to radioactivity is politically difficult as you are aware of. But should this be the solution for the future? You could fuel your new building at delivery, and you won't have to fuel again for the next thirty years. Further, the solutions, that as of now could be a part of the long term solution is hydrogen and ammonia. Well, while we do see hydrogen more as an energy carrier than as a fuel due to this high energy density, where 25% of our hull will have to be utilized.
And in new liquid form, this problem is smaller, but creates questions on the temperature that gets as low as minus 250 degrees Celsius. That puts this fuel type also into question. That leaves us with ammonia. And although not completely optimal as the orange colors implies, this could be a realistic solution in the long term, but this is still at a very immature stage. So hopefully, this slide creates an image of the dilemma faced for the shipping industry when it comes to ordering a ship.
The short answer is, of course, no one knows what the future will bring as of yet, and there will be potentially also various changes to this slide as well when it comes to technology development, etcetera. But the main message here is basically that I hope you see that this could potentially keep a lid on speculative larger rebuilding orders in the next couple of years. It leads me to summarize. We do expect demand growth to remain positive. We have tweaked and tried to create very negative scenarios on a product by product basis, but it's really hard to say that this should collapse based on how we see the world today and how our products are faring and the dynamics and the drivers behind them.
So they expect 2% to 4% demand growth in the next couple of years, with the 2% scenario being a prolonged economic effect from from the COVID nineteen shutdowns and the recovery from that part. And 4% is more normalized growth, which is still considered high in a historical context. But then we should see a recovery in light of what external economists, etcetera, are seeing starting from 2021. On the supply side, which is encouraging, which leads to us seeing deviation between demand and supply being fairly unchanged in the next couple of years. We expect 1% supply growth driven by lack of new orders in the short term.
We also see positive supply dynamics in the neighboring segments, which hopefully will keep control of the swing tonnage effects. And of course, we are seeing very low order book to fleet ratio also in our own segment, which should lead to roughly a 1% supply growth in the next couple of years. That's it for me on the supply and demand side. And then I'll just leave the word back to Christian for some final remarks before we are ready for questions. Thank you.
Thank you, Bernd Christian. I'm not going to summarize try to summarize everything that was said in the last hour. I can see that we have had two questions posed. And while we address those, please do post more questions if you want us to cover them during this presentation. I think as you saw today, our main message is that 2020 has started quite well.
Operationally, we're doing quite well. Despite the coronavirus, we are encouraged by what we see and also in terms of the data from the demand picture that Bjorkhasten spoke about. But it's also clear that we are approaching the second half of this year with caution. And we are less and less concerned about the pandemic itself and more concerned about what may come after. Personally, I think one of the biggest risk is, of course, if there's a second wave of pandemic and so on.
But we will have to deal with what's in front of us. And in the meantime, we are happy to see that our platform is performing. And as I said, you would need to really stretch your imagination to think if we're going into negative demand territory. But the future will show. But so so I think that was the comments that we have.
I think let's take the two questions that are posted. And as I said, please remember to post questions if you want us to cover anything here last minute.
Starting with the first question then to you, Christian. Are you considering merging the A and B shares, past shares to increase liquidity in the shares? If not, why not?
Yes. I think that's a question we get a lot. And I think the short answer to that question is this is something we would really like. I think it would make sense to do it. But you also have to consider a couple things when you consider that question.
First of all, you have to convince all shareholders to do it. We had a process some years ago that stopped just short of that. But it is something that we would like to do, but we need to convince the shareholders. And then I also want to remind I don't know who asked that question, but I want to remind everyone listening here that it's not only bad things that come from the two share classes. In times of crisis that the ones that we have been through in the last couple of years and with a share that's trading at half of book value and even less than NAV, we don't have to worry about any hostile attempts on the shares and so on because we have a shareholder that's in good control.
And that's actually a blessing. The second thing you need to consider is that, yes, of course, it would solve some of the liquidity issues. But I'm not personally convinced that it would be one silver bullet. But that's not a way of saying that we're not considering it. This is something that I think we would like to do.
And when the shareholders are ready to accept it, this is something that we, as management, would absolutely recommend.
And the next question to you, Thaddean. How do you calculate cost of capital in return on invested capital with the time charters and variables in no invested capital, in my view, with the TCP?
I think I understand where the question is coming from. We showed in our view of vessel transactions that our two new time charter long term time charter has have delivered negative 4% return on invested capital since we took over the vessels. And of course, there are no attached investment to those time charter. That is correct. There are no upfront payments.
You are paying a time charter per day monthly. But the way we book it in our accounts, we took it in what we call right of use of assets according to IFRS 16 from the January 1, meaning that we are decomposing the time charter rate that we pay and decompose it up to installments, interest and depreciations. So the way we book it, we can calculate theoretically what is the return on invested capital from an accounting perspective. But you are correct, there are no actual investments that we are calculating the return on.
Further to you, Thadde, will debt repayments have preference over dividends in the coming years in order to reduce cash breakeven?
I think that is correct. And based on what I've said and we have said, repaying debt is high on agenda. We want to increase our equity percentage and deleverage our balance sheet. We could potentially also pay some dividend, of course, depending on the actual returns that we are delivering in the coming years. But the first priority will be to reduce debt to have a deleveraged balance sheet compared to where we are today.
Buying own shares seems to be a very good investment at the moment, better than buying ships. Is this a topic?
Today, we have an authorization and the Board has an authorization to buy our own shares, but that is more or less fully utilized. We own close to 10% of our own shares. So instead of buying more shares, we could potentially do something with the shares we have on our balance sheet. But today, that is not an agenda.
Okay. And then a question for you, Christian, I guess, the operational side. How do you think about future contract coverage?
Yes, that's a really good question. I think we have said previously that we don't want it too high because if you are contracted around 80% or 90% or whatever, you lose the flexibility in your system. You need to commit the tonnage to go whether you're full or not. And that's a very it's a very rigid system. So you don't want it too high, but you don't want it too low either.
This is not like a product tanker company where you are purely exposed to trading. I mean, many of our customers move their products in fixed trades. And by having contract coverage, I would say, less than 50%, we have a base cargo and a base understanding of where the fleet is going to go. So I think the sweet spot is probably around 50% to 60%. That's where we like to be.
But of course, the lower the contract covers, the more dependent you are on the spot market. But if you have a flexibility in the fleet at the same time, then in the scenario where things kind of become really bad, you also have the ability to redeliver ships because you're not committed to contracts. So I think the we think that the sweet spot is probably somewhere between 50% to 60% as an average. In some trades, it's higher, and in some trades, we are happier with lower coverage.
Thank you. There appears to be no further questions online at the moment. So I guess I'll some final remarks.
Yes. No, all right. This was the first time for an online Capital Market Day. I hope that you enjoyed it. And the fact that we had to make it a little bit more compact than usual might leave outstanding questions.
So as I said in the beginning, if you have any questions after this, please feel free to reach out to Christian or Thierry or myself. We'll be happy to answer the questions. Also, this is the first time that we are live streaming ourselves. So if you have any comments or questions or good advice in terms of what how we can improve on that, we are always looking for good feedback. So please also drop us a line if you think there are things that we could learn and improve.
And meanwhile, I hope that everybody stays safe, and we look forward to seeing you again live maybe next time.