Good day, and welcome to the Stolt-Nielsen Limited second quarter 2018 results presentation and conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Niels G. Stolt-Nielsen. Please go ahead, sir.
Thank you. Good afternoon. Good morning. Thank you for joining us for our second quarter 2018 result presentation here in Oslo. I will be going through the normal presentation. Together with me here in Oslo is Jens Grüner-Hegge, Chief Financial Officer. I will be referring to a presentation which is on our website. On page four, we have the agenda. We will go through the second quarter highlights for the group. I'll take you through all of the businesses. Jens will take you through the financials. At the end, we will open up for questions and answers. On page five, we reported this morning a net profit of $9.5 million, and that is after an impairment of $11.8, which we took on our two bitumen ships.
This compares to $38.7 million in previous quarter. As you might remember, we had a tax related gain of $33.1 million in the first quarter, which we unfortunately don't have in this quarter. Stolt Tankers reported an operating profit of $26.5, and that is up from $10.9 in previous quarter. $9.2 of that is because of the paper hedge we have on bunkers, but there is also an underlying slight improvement in operations. Stolthaven Terminals reporting operating profit of $20.2. That is down from $25.9, but also there in the first quarter, we had an $8.2 million gain on an adjustment to the deferred taxes that we had in our joint venture in Antwerp. Also here, taking away the one-offs, we see an improvement in the operating performance.
Stolt Tank Containers is reporting an operating profit of $18.8. That is up from $16.2 as shipments grew by 7.6%, which is a reflection of a solid and healthy tank container market. Stolt Sea Farm's operating profit before the fair value adjustment of inventories was up $2.4 compared to with $2.2 in the first quarter, reflecting improved margins. Corporate and others reported an operating loss of $20.9. Again, the $11.8 million is included here compared with a loss of $3.6 million in the previous quarter, bringing them the second quarter at $9.5, year to date at $48.3 million for the year. You can also see here that the weighted average number of shares outstanding is slightly down from 61.9 to 61.6, and that's because of our share buyback program that we have had or have executed upon in the quarter.
Moving on to page 6, the net profit variance between first quarter and the second quarter. We reported a $38.7 million net profit in the first quarter. We don't have the reduction in deferred U.S. tax liability in the prior quarter of $24.9 million. We saw a stronger tanker operating profit by $15.7 million, slightly down of $5.7 million down in terminals because of the deferred tax liability there too. Higher STC operating profit by $2.6 million. Lower Stolt Sea Farm operating profit after the fair value adjustment of $1.6 million, and an impairment of the two bitumen ships, bringing them down to the current market price for those types of ships, $11.8 million. Lower corporate and others of $5.6 million, others of $2.1 million, bringing us up for the quarter of $9.5 million.
Moving on to page 7, out of the $4.5 billion assets that we have, $2.5 billion or $2.4 billion are in ships, by far the biggest segment in our group. The total volume increased by 3.5% that we transported during the quarter. This increase was mainly driven by higher operating days and also higher volumes under our contracts of affreightment. The deep sea revenue for the quarter increased 4.3% as a result of the additional operating dates. The regional fleet revenue also increased by 6%. This is partly due to an increase in demurrage that we incurred during the quarter because of quite a bit of congestion, both in Europe and in the Caribbean for the regional fleet. The COA rates decreased due to a product mix while the spot rates were up. Now the COA rate decrease is just of the product mix that being nominated.
During the quarter, we had quite a bit of phosphoric acid that we transported, which is larger volumes and lower freight rates. The positive note, spot rates that we booked during the quarter were up. COA freight rates renewals in the quarter were down on an average of 3.8%, which compares to 4.1% in the previous quarter. There's still a decrease in the contract of affreightment that we are renewing. There's still competition. As I wrote in my comments, I think that maybe we are now starting kind of seeing a leveling off, hopefully. Moving to page 8. Here we analyze the operating profit variance between first and second quarter in Stolt Tankers. Previous quarter, $10.9 million. We had the higher trading results by $6 million. We had bunker hedge variance of $9.5 million. That's the paper hedges. Bunker cost variance of net $300,000.
Increase income from the joint venture of $0.7 million. Gain and loss on sale of some assets that we sold of a loss of $800,000, others of half, bringing us up to $26.5 million operating profit for the quarter. Page 9, the bunker costs. Bunker costs net of bunker surcharge, but excluding bunker hedges, increased $300,000. As a result of the bunker clauses that we have in our COAs, even though the average price of purchase IFO during the quarter at $398 for the quarter versus $379, we only saw an increase in our cost of $300,000 because of the bunker clause. Of course, on top of that, we also have the hedges that are reflected on the right-hand side. We realized $3 million in the quarter. We have unrealized gain of $6.3 million, which gives us a total gain of $9.3 million.
We still have these hedges in place, the paper hedges, in addition to our bunker clause. For the remaining volume under those contracts are 56,000 tons for the remainder of 2018 at an average weighted price of $263. In 2019, 48,000 tons at an average price of $260. If you look at the percentage, 60% is hedged under the COAs. Then I said half of that, the remaining that is unhedged, the remaining 40, 20% are covered under these paper hedges for 2018. Another 20% is covered in the first half of 2019. This is just for your reference. We have done some sensitivity analysis on page 10 of how it impacts our line.
If you look at, let's say, if we see a 5% increase in the bunker price, bringing up to $401 per ton, will give us a cost of $60.9 for the quarter. That's an increase of $2.9. We expect out of the $2.9 million increase to recover $1.3 through the bunker clause. We also have then the paper hedge, which will give us a $2.1 million gain. For your reference to see what impact it will have if you look at the COA bunker clauses and also the paper hedges that we have in place. Moving to page 11, spot rates versus bunker and time charter index sensitivity. The top part here, you see clearly We had a challenging market in 2009, 2010, 2011, 2012, 2013, and 2014.
In 2015, the oil prices started to fall, you saw that the spot rates didn't fall. The reason that we were making money in 2015 and 2016 wasn't because the freight rates really went up or the volumes went up, it was because the bunker prices went down. You see towards the end of 2016 or beginning of 2017, that the spot rates started falling reflecting the, of course, more supply of ships, but also the lower bunker prices. We see then that the challenge that we're faced with now is that the spot rates have come down, the bunker prices have gone up. On the bottom left, you see the sailed-in time charter index, what the sensitivity is. If you see a 5% movement in the index, we'll have a $5.9 million bottom line impact per quarter.
You can see then on the STJS sailed-in time charter index that we have reported for quite a while. We see a little uptick at the bottom there, which is a positive sign. Let's hope it continues. Moving to page 12. This is the order book as we see it. These are a summary of what we call our main competitors and what is an order. According to our, these are ships that are 16,000 tons and above, what we categorize as our competitors. The order book currently stands at 11.2%. You can see that 2018, there is still ships to be delivered. There's still some ships to be delivered in 2019, but a dramatic drop-off.
We are not seeing any orders coming in and hoping that it will remain so for a while for the market to be able to absorb the tonnage that has been ordered. The reason that we have a bit of optimism is that in 2018, once 2018 is passed, we see the supply of new ships coming into the market will hopefully be absorbed by the relatively healthy growth in demand that we are seeing. Moving to page 13, market development. Most markets remain subdued as tonnage delivery continue to outstrip the demand of growth. Again, we hope that that's going to be more balanced in 2019 and beyond. I'd just like to remind you that we are today renewing COAs, as you saw at the reduction. Those COAs are carried usually 12 months, but sometimes also 24 months, two years.
The charters are, of course, taking advantage of today's competitive environment. They said, "We would like to lock in these rates for one year or two year. They try to go long on duration because they also see the same picture. Even though we believe that there's going to be recovery in the market in 2019, a lot of the business that we're locking in today will have to be serviced in 2019. Even if the market is recovering on spot rates in 2019, there will be a time before that will be showing in our earnings. Strong COA competition continues, driven by owners seeking to secure cargo in advance of newbuildings being delivered in 2018 and 2019. Outlook remains stable for fundamental petrochemical shipping demand. I would say the demand is relatively healthy.
The growing risk of adverse impact from new tariffs on chemical products, we haven't seen anything specific yet, but of course, that's always the risk in the escalating trade war that is growing between China and the United States. The MR market remains weak, negatively impacting the chemical markets. Once you see the VLCC market, the correlation between the VLCC, the MR, and the chemical, you will see that more of the MRs will operate in the crude. That will mean less MRs going into our segment. Historically, there is quite a correlation between the three segments. Higher fuel prices and excess newbuilding tonnage will limit gains in the year ahead. Although we believe that the market has bottomed out, we do not expect to see a meaningful recovery until the start of 2019. Let's hope it's in 2019.
I think that we will see the recovery in 2019, but again, the impact on our results will take a little longer because we are being forced to lock in today's rate for next year. Stolthaven Terminals, steady continuously. Steady improvement every quarter. Revenue increased by $1.4 from last quarter. Utilization in our wholly owned terminals was at 90.2%, and that's up from 88.5%. That's because we've been able to lease out more of our Houston, New Orleans, and Singapore tanks. Utilization in the joint venture terminal decreased to 92.2%, and that's from 93.4%, primarily driven by the weak CPP market in Europe in our joint venture with Oiltanking in Antwerp. The operating profit increased by $2.5 million from last year after excluding the first quarter one-offs related to the reduction in deferred tax liability in the joint venture terminal in Antwerp.
The underlying performance in the terminals continue to improve. Page 15, $25.9 million operating profit in the first quarter. We didn't have the deferred tax liability positive impact in the second quarter, which we had in the first quarter, but higher equity income from the joint venture of $1.1 million, higher operating of $1.4 million in our wholly owned. Higher operating profit of $900,000 and others of $900,000 plus brings us to $20.2 million. A steady, nice improvement in the terminal division. Houston is performing well with increased revenue driven by high utilization, excess throughput, and railcar activities. The exports remain strong, but again a bit uncertainty in regard to the U.S.-China tariff dispute.
What we're really working on is getting the utilization up, but also getting rid of the lower paying, lower margin business, replacing it with higher margin business, taking advantage of the strong demand that is out there in Houston. Singapore market remains challenging, but we have had some good luck and good success in getting additional business. We have seen improved utilization of Singapore terminal. South Korean market, where we have our biggest terminal in a joint venture, is stable with an increase in leased capacity. Europe remains stable for chemicals, but as I said earlier, there's a weak CPP market. We continue to pursue the development of long-term contracts with potential pipeline-connected industrial customers. Major capital projects in the terminal division includes the Jetty 11 in Houston, which is expected to be finished this year. Oh, sorry, in the first quarter of 2019.
Also, we have a nice expansion project in the strong market of Santos, Brazil. Stolt Tank Containers continues to be the star performer in our group. Revenue growth of 8%, reflecting both growth in shipments and higher demurrage revenue resulting from customer holding the tanks longer for inventory storage. We continue to develop the global depot network to support the business, which has served us well, having these depots strategically around the world. Utilization was slightly up to 74.6%, up from 73.9%, and margins remain stable. Healthy demand in this segment. Quickly through on page 18, the first quarter versus second quarter operating profit variance. $16.2 million in the first quarter. Higher transportation, demurrage, and other revenues of $10.6 million. With that additional activity, also have a higher operating expense and depreciation of $9.1 million, slightly lower A&G and others bringing it to $18.8 million.
Thinking we will continue to see an improvement in quarters to come from the Tank Container division. Tank container market, the key initiatives, strong demand driving increased shipment in most regions, focus on improving both utilization and turns per tank, fleet grown by 3.9% in the first quarter or in the second quarter. Operating revenue up 8% from prior quarter. As always, we focus on system development and implementation of global platform to increase efficiency and scale and improve margins. The key to the success in this business, as I've said before, is to have the systems and the tools available so that you can price your service, so that you ship your Tank Containers to regions where you're not long Tank Containers. The key to the game is to make certain that you minimize the number of empty repositionings.
It's easy to ship a tank from Houston to Singapore, but if you have to bring it empty back, you will lose money. If you have the right pricing tools in place you minimize the number of empty repositioning, which is the key to the success in this business. We continue to develop our depots, which serves us very well. We have one large depot under construction in Saudi Arabia, which will be finished by the end of this year. Fish, page 20. Small part of our business. We see that the turbot sales went down slightly in the second quarter. That's because the first quarter in our fiscal year includes the Christmas sales. The price increase is 2.4%. The volume of sole remains flat, prices increased by 4.6%.
I'm not going to go through the variance analysis, it is relatively small, the outlook for both the turbot and the sole looks very promising. Stolt-Nielsen Gas strategy. We continue to focus on the markets to deliver gas to stranded demand. People that are not connected to the grid that would like to replace gas or LNG, replace diesel, heavy fuel with LNG or gas. We see a huge opportunity, many opportunities, not only in bunkering, but in power, in transportation in the form of trucks. We see an explosion in the use of LNG as a mode of transportation or for fuel for trucks, both in the U.S. and China. It's phenomenal, enormous growth. Our strategy here is to be able to have the assets and build supply of small scale LNG to serve these what we call stranded demand.
We have on order two 7.5 that we had ordered. We would like to order more to exercise the option, we also like to order some larger ships that we see there's going to be demand for in 2020 and beyond. We are, as you know, under restrictions on our investment capacity, we will need to find other ways of achieving that same goal. This is an area which we have strong belief in and something that we will pursue. That brings us to slide 23, financials. Jens will take you through financials.
Thank you, Niels. Good afternoon, and good morning to those in the U.S. I will provide the details about the financial results released today for the second quarter of 2018, I will also give some further guidance on certain of the P&L items for the next quarter. I also want to remind you that we have today filed our interim financials for the second quarter with the Oslo Stock Exchange. You will also find the press release issued this morning together with the interims, as well as this investor presentation posted on our website, which is www.stolt-nielsen.com under the investor section. Going over to the net profit. Operating profit before the one-offs for the second quarter of 2018 was $61 million. That's up from $46.7 million that we posted in the first quarter.
As mentioned by Niels, the tanker's performance improved from the prior quarter, we also benefited from the bunker hedge gain of $9.2 million, compared to the bunker hedge loss that we had in the first quarter of $300,000. Before one-time adjustments, terminals operating results were slightly up. STC had another strong quarter with solid underlying demand driving an increase in shipments. Stolt Sea Farm's performance continued to benefit from rising turbot prices, although the caviar volumes and prices still remain below our expectations. The major one-off for this quarter was really the $11.8 million impairment on the two bitumen ships. That contributed to the reduction in the operating profit for the quarter. It went down by $6.4 million to $48.5 million compared to the prior quarter where we were at $54.9 million. Net interest expense, that was in line with the prior quarter.
The tax, as mentioned in the first quarter, reflected the reduction of the lowering of the U.S. income tax rate from 35% down to 21%, resulting in a $24.9 million gain that we recognized in the first quarter. After all this, the net profit in the second quarter came in at 9.6% for the quarter. At the same time, we saw quite a substantial increase in the EBITDA which increased by over $18 million to $127.7 million. Go to the balance sheet. Debt decreased by $11 million from the prior quarter to just over $2.5 billion. The debt to tangible net worth ratio, which is one of our key covenants, remained flat at 1.55, which is a marginal reduction, but not showing up here.
The EBITDA to interest expense ratio for the quarter, which is another key covenant, that improved quite a bit from 3.49 in the first quarter versus 3.77 in the second quarter. The debt to EBITDA ratio, which is important in that it drives the pricing of our revolving credit line, that is now below 5 to 1, that puts us in an area where we will see a reduction in the interest rate or in the margin on that facility, and hence we should see a lower interest rate expense going forward. Or interest expense. Now at the quarter end, the availability that we had under the revolving credit line was $197 million. That is quite a reduction from the last quarter, but I will come back to that. As you will probably have seen, we did repay a bond in the second quarter.
We also had cash of $80 million, in addition to those two, we had uncommitted credit lines of $76 million that we could draw on. In total, available liquidity, just in excess of $350 million. The average interest rate for the quarter was 4.98%, marginally up from 4.92% in the first quarter. We are expecting the interest expense for the third quarter to be in line with what we have seen so far, so around $34 million. Go to next slide. Cash flow. The cash flow from operations was a positive $91 million, that was up from $57 million in the first quarter. This was primarily due to a $39 million swing in working capital, that came as a result of an increase in trade receivables that we saw during the first quarter, subsequently an increase in trade payables in the second quarter.
Those two combined cost the $39 million swing. In March, we drew down $155 million on the revolving credit line, that was to repay the bond that matured on March 19th, with an amount of $148 million. If you recall, this repayment of the bond was originally funded by the bond we issued back in September 2017. That was $175 million USD bond with a fixed rate of 6.375%. That bond, the September bond, has now been listed on the Oslo Stock Exchange, and the ticker symbol is SNI0 7, for those interested. Also during the quarter, we paid a dividend of $13.7 million. We also bought back shares, you will have followed the buyback program. During the quarter itself, we bought back 621,000 shares, spent just about $8.7 million doing so.
Now following the blackout period, we currently have $14.6 million remaining under the buyback program. With all that, the net cash flow for the quarter was $10 million, putting us at $80 million at quarter end. I'd like to remind you that our priorities cash flow-wise still remains to reduce debt, carefully review our capital expenditures, continue to reduce our operating expenses. Next slide is EBITDA. Just as a reminder, if you look at the Stolt-Nielsen Ltd EBITDA in the bottom right quadrant of the slide, the figures here are presented excluding any impact of the IFRS fair value adjustments to Stolt Sea Farm's inventory, gain or loss on sale of assets, other non-cash one-time items. In the top right quadrant, you have Tankers EBITDA, which increased mainly due to the improved trading and favorable bunker hedge variance that we have discussed.
Terminals increased due to the improved EBITDA at Houston and the JVs, while STCs increased as trading results continue to improve. As a result, we now have an EBITDA of $128 million, which was up from the $109 million in the prior quarter. Next slide is the administrative and general expense. The A&G for the quarter increased to $57.5 million. That's up from $57 million in the first quarter of 2018, very close to the guidance that we gave at the end of the first quarter, which was $57.4 million. In the second quarter, we have higher corporate and other expenses. These were pretty much offset by lower business A&G. Our guidance for the third quarter of 2018 is a marginal reduction down to $57 million. In line with what we had in the first quarter. Next slide, the depreciation and amortization.
The depreciation amortization for the second quarter was $68.2 million, compared with $67.2 million in the first quarter, a guidance that we gave at the end of the first quarter of $69.2 million. The increase in Tanker depreciation was the main driving force really behind the quarterly movement as a result of additional days in the quarter and slightly higher dry docking amortization. As we noted earlier, as you see below there was an $11.8 million impairment of the bitumen ships taken in the quarter to bring the value of those ships down with what we have been indicated in the market, seen indicated in the market for ships of that configuration. The guidance for the next quarter, then, is $68.8 million, which puts us slightly above the second quarter. Over to the next slide, share of profit and JVs and tax.
Our share was $7.1 million in the first quarter, that compared with $14 million in the previous quarter. I need to remind you that in the previous quarter, we took an $8.2 million gain at the terminal JV in Antwerp. Removing that, there's a slight increase this quarter. Our tanker JVs saw an increase due to more operating days and a reduction in the operating expenses. Also worth mentioning that in our terminals division, in our terminal JV in Antwerp, we also took a $1.6 million gain related to a cancellation fee that we collected from a customer. Our guidance for the next quarter is $7 million, so pretty much flat with what we had in the first quarter. Tax expense for the quarter was $4.9 million. The prior quarter included that gain related to U.S. tax.
Excluding this gain, the taxes for the terminal division increased from first quarter to second quarter by about $800,000. That was due to an increase in taxes that we saw in New Zealand and a reduction in our tax loss carry-forwards. Moving over to the capital expenditures program. We spent $31 million during the second quarter and have year to date 2018 spent $61 million. The quarter expenditure was primarily driven by terminal expansions, including capital expenditures for improvements, the jetty expansion in Houston, and the jetty expansion in Newcastle, Australia. With the completion of our tanker new building program at Hudong-Zhonghua Shipbuilding in China, our capital expenditures for tankers have declined substantially, as you will see. What you have left there is predominantly related to ballast water treatment systems.
If you look at the overall capital expenditures, that has now declined to $401 million from what we saw in last quarter, $435 million. For terminals, just to give you some detail on what we spent in the second quarter, you'll see that terminals is now the biggest portion of our capital expenditure. It was $24 million for the Houston jetty. We have spent $27 million for capital improvements at Houston Terminal. We have $12 million coming for the expansion in Santos, and most of the remaining capital expenditures for terminals is really earmarked for maintenance and CapEx. At Stolt Sea Farm, we are constructing two new farms in Cervo and in Tocha for the production of sole, and that's what that capital expenditure predominantly relates to. Stolt-Nielsen Gas capital expenditure relates to the two 7,500 cubic meter LNG new buildings. The debt maturity profile, next slide.
Debt repayments for the next five years includes our regular scheduled principal payments, and you see those in the dark blue at the bottom part of the columns. The orange section or yellow, depending on how it shows up on your screen, those are regular secured debt balloon payments. The light blue on top, that's the bond maturities that are coming over the next four years. The $156 million balloon payment that you see in 2018, that is the remaining debt that we took on when we bought Jo Tankers and refinanced their debt. That matures at the end of the fiscal year, and we are in the process of dealing with that. The 2019 bond repayment of $148 million is then the next big maturity that we have, and that is in September 2019.
You will also see that we have added a big orange block in 2022, that's the new bonds that we issued in September 2017. We feel that with these changes that we now have to the debt maturity profile, we have a well-balanced and evenly spread profile on our debt. With this, I hand it back to you, Niels.
Thank you. The key takeaways. The second quarter, $21.5 million, if you take away or exclude the one-offs. Slight improvement in Stolt Tankers, still in a challenging environment. Hoping for an improvement or a turnaround in 2019. Continued strong demand for Stolt Tank Containers and strong fundamentals for the Terminal division. Stolt Sea Farm [interpreting Stolt prices] should continue to increase, which we are achieving by expanding the market for these products. Strong earning base from the businesses ensure positive free cash flow, which will reduce our debt, which is very much on our focus. I'd just like to remind you that we have been growing our businesses aggressively in the last 10 years. Since 2007, 2008, we have spent over $3 billion investing in our businesses. We have grown them. We are now very much focusing on getting a return on those investments.
I think we have positioned ourselves quite well. In the Tankers, we have expanded our fleet by over 20%. We have acquired new buildings. We have consolidated by buying Jo. I think the earnings potential there, just with realistic earnings scenario, if you take the second quarter of 2016, which was really the last peak we had, unfortunately, again, driven by the bunkers, if you take the sailed-in from that period and apply it to today's fleet, I don't think that's unrealistic assumption. I think you should be able to see an EBITDA closer to $400 million just from our Tanker division alone.
From the Terminal division, by the improvements, just by the capital expenditure that we have done, that we have committed to, and that we are in the process of delivering, with the normal utilization and margins where they have historically been, I think we should get maybe at close to $150 million from that division. Tank Containers will continue to grow, even though it's a low CapEx asset base. It's healthy. I think we should be able to achieve an EBITDA of $100 million not too far in the future. We are very well positioned in each of our businesses. We don't need to do any more further capital expenditure to be able to achieve significant improved earnings in our business. Our focus will still continue to be to reduce our debt level.
There are still huge opportunities that we would like to pursue in the terminal division. There's growth potentials just by organic growth, that we would like to continue or to develop. Again, not before the debt level has come down. With that completes the presentation. We will start off by asking questions here in Oslo before we open up for people on the phone. Any questions in Oslo?
Couple questions. For me, [Aksel Engebakken], Nordea. First, on the tank containers. You previously mentioned there's been competition in particular from the Chinese, and that seems to have leveled off. In today's market, is this improvement driven by the reduction in the price pressure from the Chinese, or is it driven by underlying growth in demand?
The question is, what is the underlying driver for the improvement in tank containers? I would say that if you looked at, we went from $62 million at the top, we went down, the year before last to $32 million, and you can see that that was very much utilization falling from 75%. We were even up at utilization at 80%, and that fell down to 65%. Now we are back at 75% again. The margins are lower, the biggest driver is, of course, stronger competition, we've been able to aggressively compete and winning and getting the utilization up and turns per tank up. There's strong competition, there's healthy growth in demand. We are doing more shipments at a lower margin.
I think as I've said before, it's unrealistic to believe that you can be in such a fantastic business for such a long time alone. Return on capital employed at 25%. That has come down, and I think we have now reached, as I also said before, I think we reached a level where not everyone is making money or has healthy returns at these levels. If you have the systems in place so that you can achieve that utilization and the number of turns per tank, you can make money. We see growth today driven by more products being produced in more locations, being shipped to new locations. There's a growth not only by taking distances away from drums or taking distances away from chemical tankers, there's more products being produced in more locations being shipped to more destinations.
Again, there's a lot of new operators that compete. We are able to make money, lower margin, but making more shipments, higher utilization. I think that will continue.
Second question, about the trade tensions. You briefly mentioned it, have you seen any changes in volumes going from the U.S. to China so far?
Nothing. I checked before because I knew you were going to ask. We haven't seen anything yet.
The third question, IMO 2020 situation, we discussed that a couple months ago, what are you doing? What have you done the last couple of months? Can you please update us on your plans?
For scrubbers?
For scrubbers or do you think there will be, for example, so much new blended fuel that the price is down there and maybe it's not going to be any big challenge for you?
That's the biggest challenge that we have, is that what are the alternative fuels, the low sulfur fuels? Today, with the difference between heavy fuel oil and the premium that you have to pay for the marine gas oil, the scrubbers makes huge sense. If there's an alternative fuel that will be developed where the difference is not as big, it is a more difficult decision to make. We have a case internally now to look at installing 27 scrubbers. We haven't made the decision, but these are primarily focused on the large ships and the younger ships. We haven't made the decision yet, but as it looks now, it's a strong case to go towards. We already have five scrubbers, but to do it further.
One thing is clear, is that if the owners. This is still a very small percentage that have announced that they're going to do scrubbers. It's growing, but if you look at the global fleet, it's very small. I think if we're not able to pass this cost on to our customers, we will go very quickly out of business. Everyone will. I think a lot of companies believe that they will be able to pass that on. The question is of course, how will your customers react when you turn a scrubber on? Will you be able to achieve the freight rate based on MGO prices versus heavy fuel oil prices? It's a tough decision. It's not a no-brainer. We are now leaning towards scrubbers. Next question.
You said we are under restrictions in terms of further investment. Can I just clarify that self-imposed restrictions?
Yes.
How in terms of ranking your priorities is paying dividends versus further injections into the LNG ship option, for example? What is the thinking there?
Our thinking is, as you have seen, the smartest investment we can do now is buying back shares, which we are doing. We impose on ourselves this safe harbor rule, so there's limited amount of shares that we can buy per day. That's what we do. It is also a priority to, once the earnings in the company comes back, to continue with the $1 dividend. We have a self-imposed capital expenditure. There are things, we're looking at several contracts for the terminal division, where you have to spend a couple, $2 million or $3 million to upgrade a tank or build new pipeline. That will continue. We have to run the business. Major investments you will not see until we have got market level on.
For instance, listing of your Avenir LNG, that's going to be a self-funded thing, not something you plan on injecting more equity?
We have said that we would like to develop this business. Because of our own capital constraint, it is the intention for us not to commit further beyond the two ships that we have committed to, but see if we can bring in partners so that we can continue to pursue it.
In a way like a loan.
Something like that, yeah. Yes.
In terms of containers, you have $15 million invested in CapEx this year. Is that the floor?
That's primarily depots. There are also some tank container acquisitions, so buying new ones, but it's primarily depots. The leasing rates for tank containers are quite attractive, and the leasing commitments that we are taking, even though it comes up at that, is not included in the CapEx list.
How many containers roughly?
That we are-
Adding on
adding on, I think we are committed to add on another 2,600 to around 3,000 over this year and next year.
The order book is up during the second half of the year.
Difficult to say. I think that the uptick that you saw in the second quarter, it's too early to say if that's the beginning of a recovery. It's too early to say. We will not see anything fundamental until we see a reduction of supply of new ships. That is, as you can see from the chart, going to happen in 2019 and 2020 and beyond. 2019, in your analyst report, I don't think you should expect a big take off of the market, or at least in our earnings. That unfortunately, I don't think it's going to happen until 2020 and beyond.
The new segment is what, of the
Vice president. If you
Good question. It will hurt us more for not having that volume in 2018 and 2019 and rely on the spot business. Remember that most of the business that we carry of specialty chemicals are carried on the COAs. If we don't take those contracts, and if we don't compete 10%-15% down or 3%-5% down, we will not be able to replace with better paying spot rates. We know from experience that unfortunately, we are trying to hold back and all the time, we are only referring to the contracts that we did renew. There are some contracts that we didn't renew because they asked for too much, and then we say, "Okay, listen, we believe the alternative of going to the spot market is better." In most cases, the COAs are a better alternative to compete with than losing the business.
Yes. On the topic of COAs, do you think you will be able to maintain such a high COA coverage in your fleet that it should be quite next year?
Yes. Why wouldn't we? We have to compete. Yes, I think actually, right now, we used to be more at 70%-75%. We are now at about 65% or 63% contracts.
75.
65%-70% contracts. Yes, I think we will continue to have that.
In terms of coverage, looking into 2020, why don't you give them the same price then for the scrubber fitted vessels in 2020 and then you can take back what you lose on the 2019 low price?
We don't fix any contracts which doesn't have a clause stating that we are able to either leave the contract or negotiate a compensation for the higher fuel price. Nobody's willing to give you the benefit yet for having scrubbers, but they're willing to let us sit down and talk to them where we are free to drop the contract if we don't come to an agreement.
In terms of the scrubbers and competition, how important is it to you to sort of adapt to whatever competition would do in this context?
Our decisions are driven by what we think is the right decision. Of course, we are not blind, we listen to what the market trends are. Our decision process is driven by what we think is right. Looking at what, or any of the other competitions are doing, I think no. It's our own decision, and it's driven by what we think is the right thing to do.
Last question on bunkers. Just to understand that table you showed on page 10. Is it so that you are on long bunkers now?
What do you mean long bunkers? That we are
It looks like if your hedging result is more than offsetting your payouts after the bunker explanation. It will be 1.3 versus the 1.6 versus the 2.1.
Yeah. You can say that we are actually under that scenario making the cost of the paper hedge in addition to the bunker clause. Yes.
Copy that.
Yeah.
It's a good trade.
Yeah, when you get it right. Yeah. It's really not our business, so that's why we try to cover as much as possible with bunker clauses in our COAs. Any other questions? Operators, are there anyone on the phone call that would like to ask any questions?
There appears to be no questions over the telephone. As a reminder, it's star one to ask a question.
If there's no question, that completes the second quarter earnings presentation. Thank you very much. Please enjoy your summer. Thank you.
This concludes today's call. Thank you for your participation ladies and gentlemen. You may disconnect.