Good day, ladies and gentlemen, and welcome to the Stolt-Nielsen Limited second quarter 2016 results presentation conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Stolt-Nielsen. Please go ahead.
Thank you. Good morning, good afternoon. Thank you for joining us here in Oslo for our second quarter results presentation. I will be referring to a presentation which is on our website. Page three. Together with me here in Oslo is Jan Engelhardtsen, CFO of Stolt-Nielsen. As always, we will go through the highlights for the second quarter, then we will go through each of the businesses. Jan will take you through the financials, then we will open up for questions and answers. Moving on to page five. Stolt Tankers operating profit came in at $45.3, and that is up from $31.2, and that is mainly due to strong COA volumes and the gain on the hedges that we made earlier in the year. We will talk more about that under the tanker division. Stolthaven Terminals operating profit was at $13.8, and that is up from $10.5.
That is due to the improvement in utilization and also we are starting to see results from the business optimization program that we have started. Stolt Tank Containers reporting an operating profit of $10.7. That's down from $11.8 in the previous quarter, as an increase in shipments was offset by narrowing margins and lower results from the joint ventures due to competition. Stolt Sea Farm operating profit $3.4. That's down from $5.5, mainly due to seasonally strong first quarter. Our first quarter includes the Christmas sole. Corporate and others, a loss of $3.9. This brings us to a net profit for the quarter of $37.8 versus $30.4 in the first quarter. Comparing that to the second quarter of 2016, you take away the gain that we had on the change in the pension plan, we see a significant improvement compared to last year.
Going to page six, first quarter to second quarter net profit variance. $30.4 we had in the first quarter. We had a higher tanker operating profit of $14.1. We had higher terminal operating profit of $3.3. Slightly lower tank container operating profit of negative $1.1 compared to previous quarter. Lower Sea Farm operating profit of $1.6, and also the reevaluation of the inventory. Lower corporate and others, higher tax, higher FX, others brings us to $37.8. As you can clearly see, the improvement comes very much from Stolt Tankers. We then move on to page seven. Deep-sea revenue increased. Deep sea, that's our large fleet from 16,000 tons that weigh up to the largest ship of 44,000 that we have. Deep-sea revenue increased 2.6% from the previous quarter, mainly due to strong COA volume. Average COA rate that we booked in our cargo was 3% down.
That doesn't mean that the COAs renewals were down, they were actually up 6.8%, but the cargo mix of the COAs that we loaded, in other words, we loaded quite a bit of large parcels, cost the COA freight for the quarter being 3% lower. Spot rates increased 7% compared with the prior quarter. That again is not a reflection of what happened in the spot market, but because we had such a large COA volume, we could hold back more on choosing which spot cargo we would like to fix. We were able to get a 7% increase on the spot cargoes that we fixed. COA renewals annual rate during the quarter of the contracts that we renewed were up 6.8% on average. We also recycled two ships in the second quarter. Moving on to page eight, Stolt Tankers first quarter to second quarter operating profit variance.
First quarter being $31.2 million. Higher trading results of $4.4 million. Lower bunker costs of $2.9 million. A gain on the hedge of $8.6 million. We get lower surcharge from our customers because the bunker prices are low. Lower depreciation of $2.8 million due to less ships. A higher ship-owning cost of $1.5 million. In the first quarter, we had a sale of some emission credits, which we didn't have in the second quarter, bringing us to $45.3 million. You can see here that really the trading results improved by $4.4 million. On to page nine, Stolt Tankers bunker cost. Bunker cost net of bunker surcharge, but excluding bunker hedges, decreased by $2.2 million from the first quarter. The average IFO consumed decreased to $174 per ton from $195 per ton in the first quarter.
The bunkers that we consumed in the second quarter was $174 per ton, versus $195 in the first quarter. The average price of bunkers that we purchased in the second quarter was $194 per ton, compared to $169 in the previous quarter. We burned cheap fuel that we bought in the first quarter, you can see that the bunkers that we purchased in the second quarter was significantly higher, as a result of the oil prices increasing. You can expect that the bunker price that we consume in the third quarter will be in line or close to $194 per ton, if you exclude any bunker surcharge or bunker hedge. COA bunker surcharge clauses covered on average, approximately 80% of total volume in the second quarter due to our high COA volume.
Bunker hedges that we realized, we had a gain of $0.5 million compared to a realized loss of $0.3 million in the prior quarter. Of the hedges that we have done, we gained $0.5 million compared to $0.3 million loss in the previous quarter. We have the remaining hedges outstanding. We have an unrealized gain of $6.1 million. Moving to page 10, which is the index of STJS, Time Charter Index. You can see that it has picked up nicely. Moving to page 11. On the top graph, you can see that our spot rates that we fixed in the second quarter was up. While the market reports, basically most of them show a downtick in the spot market. That's again, because we had strong large COA nomination.
We had very little spot space left. When we have little space, we have more time to be selective on the spot cargo that we fix on our ships. Moving to page 12, chemical tanker fleet and order book in the second quarter of 2016. The order book still remains at around 27%, out of which close to 23% is stainless steel. Still a large order book. Out of the order book, 33% is going to be built in China. The question mark, which we have stated in our earnings release and stated several times, there's a question of will all of it be delivered? When will it be delivered? In other words, we expect that hopefully some will be canceled. If it's not canceled, we from our own experience, have six months delay on our ships.
I would expect some of these ships will be late in delivery. Moving to page 13, outlook. Global spot market indices have been declining since first quarter 2016. While spot rates out of the U.S. have been relatively strong, the U.S. Gulf to the Far East is by far the strongest market that we see. The other markets are suffering. We see weaknesses out of areas both in Europe, Middle East, and Asia. Even though we're able to get our ships out from the U.S. Gulf to the Far East, it's a dog fight to get them back with cargo. The MR market has fallen from $30,000 per day in the mid-2015 to the current level of $10,000 per day. That is not helping or supporting our segment. The large order book will put a lid on freight rates, though cancellation and delays are likely.
The World Trade Organization predicts that the trade growth in 2016 will remain sluggish and unchanged at 2.8 after the increase registered in 2015. Risks to the forecast are on the downside due to the sharper slowing in the Chinese economy. We can all speculate what the eventual outcome will be of a Brexit. Moving to page 14. This is a picture of Stolt Pride, which was christened a couple of weeks ago, that's the first ship in the new buildings. We will expect her to be delivered, or that we'll take over the ship within a couple of weeks. Moving on to Stolthaven Terminals. It's nice to see that it's not where it's supposed to be, it's moving in the right direction. Revenue increased in line with high utilization and throughput at most of our own terminals.
The overall utilization increased to 90.5%, that's up from 87.5% in the previous quarter. Joint venture equity income increased to $5.3 million from $4.5 million in the previous quarter. Cost saving initiative are slowly starting to have impact on cost per cubic meter. If we look at page 16, the variance analysis on our operating profit between first and the second quarter. The operating profit of $10.5 million in the first quarter, we had higher storage and throughput revenue of $3.7 million, slightly higher operating revenue of $0.9 million, higher income from our joint venture of $0.7 million. Higher A&G expenses and consultancy fees. That is, of course, we are putting a lot of resources primarily on Houston, that's why we have higher A&G and consultancy costs. Others of $1 million brings it to $13.8 million. Page 17, Stolthaven owned terminals.
We added 9,500 cubic in Singapore and 36,000 cubic in Newcastle, with further expansions ongoing. We expect to add an additional 65,000 cubic meters of capacity over the next 12 months. The average lease capacity improved at all owned terminals. The biggest improvement in New Orleans and Houston. Stolthaven Houston continues its business optimization program. Again, we're putting a lot of resources to upgrading and also reviewing on our operating procedures. The underlying demand for storage is strong, and we expect improved performance as we resolve the issues encountered in recent years. As we have always said, it will take time. I think you will not see the big improvement until 2017. Stolt Tank Containers. Revenue driven by growth in shipments. You can see that we've picked up on revenue. What we have done is that we have actually dropped our price.
We have aggressively competed to get the number of shipments up, getting our utilization up. As a result of being aggressive, the margins have held. It's unrealistic, as we have said earlier, to believe that the tank container market could have been that strong for such a long time, and we're now seeing stronger competition. Still, it's a very healthy and good business. It is still the most profitable business that we're in. I'm hoping, actually, that we are now starting to see the bottom. Even now we've reached the bottom, it's still a healthy and a good business. STC operating profit first quarter to second quarter. Operating profit variance. In the first quarter, $11.8. Higher gross profit of $0.7. Higher A&G of $1.1. Jan will talk about that $1.1 a little later. Lower equity income from our joint venture of $0.7 leads us to $10.7.
The $1.1 was a bit of an adjustment, a one-off, I think you won't see that going forward. Page 20, Stolt Tank Container market situation. Continued strong competition is putting pressure on rates and margins, as I said. We continue to take an aggressive view on pricing to drive utilization and increase turns per tank. Newbuilding orders that we have in place are almost complete. We also returned some lease tanks, resulting in a small reduction in our fleet size. We will continue to develop our depot network in strategic locations in order to support our global operation. Stolt Sea Farm. The turbot prices over the fourth quarter and the first quarter, we were able to push the prices up, and the market has supported us. We see a much better supply and demand balance in that segment.
That's also very much due to our competitors having production difficulties. sole. The volume improved marginally, the growth remains lower than targeted in Iceland. Until we see the production of Iceland coming up to where we need it to be, we will continue to see slower growth on Iceland. Caviar prices increased during the quarter, volume was down following the seasonally high first quarter. Most of the caviar is sold for Christmas and New Year's, and of course, then you drop down the volume in the second quarter. The fair value adjustment of inventory at the gain of $3.3 million compared to a gain of $3.4 million in the first quarter. Very quickly, on page 22, the variance analysis on the operating profit. $5.5 in the first quarter, $0.6 lower on the flat fish. Lower flat fish fair value revaluation adjustment.
Lower gross profit on the caviar because of the seasonal sale. Higher caviar fair value adjustment of $1.6 and other brings us to $3.4. Just remind you of the LNG investments. Our plan is to build a global business of small scale regional LNG distribution projects focusing on terminals in strategic location serviced by a flexible fleet of small ships which are underwritten by a committed base load demand. Develop an integrated model to include sourcing of LNG, shipping to small scale terminals, and distribute from the terminals via trucks or ISO containers to the end user. We are exploring opportunities, we are actually receiving a lot of inquiries, and I think we have found an area where there's going to be a growing demand for these projects.
Again, the project is to supply LNG to stranded customer that don't need two or four million tons per year, but that needs 500,000, 200,000. We are seeing projects all over the world in Europe, in the Caribbean, South America, Indonesia, Canada, everywhere. Project aimed at serving stranded demands customers out of reach of conventional pipeline gas. Offtake agreements are currently in the 10-15 year range with suitable counterparty credit. I think I received some feedback from the investors last time, but I'm committed to this. I think this is a huge growth area for Stolt-Nielsen and to use our logistical experience through tankers, terminals, and Tank Containers , I think we can create value by pursuing this in the LNG segment. Moving over to financially. Jan will take you through the financials.
Thank you, Niels. Good afternoon and good morning. We are now on the net profit slide 25. The operating profit, this is before one-offs, for the second quarter was $73.4 million compared to $3.5 million. There's been a nice improvement. As we heard, most of this improvement is coming from tankers who have had very strong trading results, and we have had an environment with low bunker costs, and we also had gains on our hedges. Terminals is also up, but the tankers and Stolt Sea Farm is down in terms of operating profit for reasons that Nils just has gone through. If we look at the one-offs, the tanker accelerated depreciation, what we're doing here is that for 2016, we have six ships who are planned to be retired.
As you know, the steel prices have come way down, which basically is impacting the residual value of the ships, and therefore has necessitated that we increase and accelerate the depreciation during 2016 for the ships that we are recycling. You can see here that in this quarter, we took $3.7 million of accelerated depreciation compared to $6.9 million in the first quarter. Out of the six ships, of which one is actually in a joint venture, so you don't see it go through the depreciation line. Out of the six, we have done three, plus the one in the joint venture, so that's four. We have two more to go during the year, and that basically explains, if you will, in the second quarter, why also this figure is down.
We will continue for next year, 2017, we have an additional seven ships that we will recycle. Four of them are much smaller, so the impact will be less. Niels mentioned that in the first quarter of this year, we had a gain on sale of assets for $2.5 million, but that of course includes the sale of the emission credits that we had, and we didn't have anything similar in the second quarter. If you look below the operating line, net interest, basically the same as in the first quarter. FX gain, you may recall that just as we got into the new year, the dollar got extremely strong.
In the second quarter, it has actually come off some of its levels against various other currencies, which has led to translation losses, if you will, on some of our intercompany balances and also the net account payable, receivable outstandings. That has resulted, if you will, in the quarter, to a $1.4 million loss. As I said, mostly translation. Income tax, we're doing better on the terminal side, and that has resulted in an increase in our tax side. That basically leaves a profit of $38 million versus $30.4 million. There's a nice improvement, which I think has been recognized by most of the analysts today. Just a quick note on the six months. Again, I think it is worthwhile to stress that the operating profit before these one-off changes for the six months of 2016 is up to $136.9 million versus $120.8 million.
There's a good improvement, again, underlying the improvement here by the tankers and also the terminals. The reason why the net profit, the bottom line, is below, you can see $68.3 million for the six months versus $81.6 million for last year, is the fact that last year we had a cancellation, if you will, of a defined benefit plan that cost almost $20 million of gains. These are one-offs, so it's very clear that is not part of the operation. It's a one-time arrangement, so you have to sort of put that to the side when you're going to interpret the figures. Now on to page 26, balance sheet. The shareholder equity is $1.37 billion, and that is up from $1.33 billion. Here again, part of the increase, of course, we had $38 million in gains. We gave out $27 million in dividends.
We had a further improvement on the OCI. We talked about that earlier. The slightly weakening of the dollars basically led to a reduction of the OCI, which obviously is improving the equity situation. On the debt side, our debt went up. You can see here to $1.853 billion. On the last day of the quarter, we concluded a sale and leaseback transaction for our tankers worth $129 million. We couldn't really get all of those proceeds into our revolver to pay it down. You can see that as a result, debt went up, but also cash went up from $64 million to $152 million. The debt-to-tangible net worth ratio, 1.18 to 1. That's up from 1.11 to 1. EBITDA interest, 4.82. That also shows a nice improvement from the last quarter where it was at 4.4. That's good news.
78% of our debt is fixed, 21.6% is variable. Average interest rate come up slightly from 4.7% to 4.89% in this quarter. Again, I think that can be envied by many of our competitors. The third quarter interest that we expect is around $27 million, which is pretty much in line with where we were in the second quarter. I'll come more into this later, but we have with the cash and the unused revolver or the credit facility that we have, we have $569 million at the end of May of available liquidity. This is before $85 million of additional uncommitted lines. As most of you know, since the end of the quarter, we have repaid the SNI 01, which was $300 million bonds, and we tapped and raised $130 million. Going to page 27, cash flow.
Net cash flow generated by operation, $82 million up from $76 million. Not much really to say here. Net cash used in investing activities, $43 million for the quarter, which is a little bit less than in the previous quarter. You can see here the $44 million in pure CapEx really is what we have put into our terminals, both in Houston, in Singapore, in Australasia, and also in London, in Dagenham. Net cash provided by financing activities. Here the proceeds from the transactions that we did in the second quarter of $206 million. Again, we raised it, we paid $104 million in long-term debt, and we paid down on our revolver by $23 million. Whatever the proceeds we got in was mostly offset or at least partly offset by what we repaid. You can see here we paid dividends of $27 million, I mentioned earlier.
Also we purchased treasury shares for $2 million in the quarter. You may know that we announced March the 2nd, a repurchase program of shares of $2 million, and we have so far completed $2 million towards that program. At the end of the quarter, we had then a cash position of $152 million up from $64 million. Of course we will aim to bring that cash position down. Slide 28, the EBITDA, just to remind you here in these figures we have taken out and removed any sale or gains or losses on sale of assets. We have also taken out other non, let's call it, one-time, really non-operating items. You can see tankers, very nice improvement here in the second quarter. It's actually the highest we've had since back in 2013.
Similar improvements, you can see $5 million improvement in the quarterly EBITDA for terminals. On the tanker side, you can see the trend has been on the down slide. Overall for Stolt-Nielsen, as a consolidated company, we are $124 million for the quarter up from $115 million. For the full year of 2016, for the first two months, we're at $239 million in EBITDA versus $222 million for the same period last year. Again, the improvements you can see is coming through the cash flow. A&G, $52.3 million for the quarter. I think we guided at $51.2 million. The increase, there's a little bit impact here of the weakening of the U.S. dollar, the strengthening of the non-U.S. dollar cost that we have tied to some of our offices.
Sorry, is there a problem?
Yes.
Start over again.
I think I should just continue. Again, we're a little bit higher on our A&G side. Niels has already mentioned that tied to the terminal in Houston, where we have a lot of resources focusing on getting the profitability and utilization of the terminal back into where it should be. We have professional fees that we have paid that, of course, goes through the A&G line. We had the impact on foreign exchange, as I mentioned, and we also had some additional BT costs and also some higher personnel costs to backfill some positions that have been open for a while. We expect for next quarter to be roughly about $52 million to $52.4 million. Depreciation, $57.9, which is down from $60. One, I've already talked about the accelerated depreciation. We got the full impact, if you will, in the first quarter.
We recycled two ships in the first quarter. You can then expect that the accelerated depreciation would come down. We already saw that in one of the previous slides. We now expect that as we go into the third and fourth quarters, that the accelerated depreciation, if you will go down, but we will take delivery of new ships which will bring it, if you will, back up. For the third quarter, we're estimating $59 million. Slide 31. Again, profit from JVs, $8.8, $10.7 in the first quarter. Tanker JVs are doing well for reasons we have covered. Stolthaven Terminals. We had very good performance by our JSTT terminal in Korea, which basically had a positive impact on the results there. Tank Containers had a little bit more issues with some of the depots we have.
In Tank Containers, we only have JVs tied to our depots around the world. Also 1 other small JV in China. That brings it down to $8.8 million. I think that going forward next quarter, conservatively, I think we're saying that it will be around $8 million. Taxes, I already dealt with, saying that the terminals had better results, and therefore we have accrued $1 million more in taxes there. Capital expenditure program, $877 million left in our five-year plan, of which $423 million is for the remaining half of 2016. That most probably is too high, maybe to the tune of between $50 million-$75 million too high. It, of course, relates to delivery of the new buildings.
It also relates to the purchase of 2 ships that we have exercised purchase options on that we already have in our fleet trading and that we've had for a long time. We'll take delivery of those in September. Terminals, $91 million, further capacity expansion in a number of locations, plus jetties in Houston and jetties also in Australasia. Like I said, more money is going into, if you will, automating and improving the operational side of the Houston terminal. Tank Containers, $32 million. We're almost done with taking delivery of new containers, but the rest of this is really for more investments in our supporting depots. Debt maturity profile. This is page 33. It shows that in 2016, we actually have paid back the SNI 01, $300 million, so you can see what is left for this year.
You can see as far as the five-year, the plan here out to 2022, we have now bonds maturing in 2018, 2019, 2020, and 2021. Most of those bonds have actually increased because those were the ones we tapped In June. It may be worthwhile just to talk about the 2 green parts of the bar in 2017 and 2018. The 2017 refers to the maturity of financing we have on our Singapore terminal. That is coming up in 2017, and we will start to work on refinancing that terminal. Based on feedback we have, that's not going to be a problem. The 2018 maturities here refers to a financing that we have for 6 ships that we bought some 4 years, 5 years ago. What we will do, we're in the process of renewing our revolver.
The plan is that we will take the ships in that facility that matures in 2018, put them into the new revolver, increase the amount of the revolver from $450 million to $650 million, and that we expect to have that in place by September of this year. Far, in terms of commitments by the banks, we are way oversubscribed on that facility. That's again, way ahead of our original plan because the revolver actually matures, if you will, in January 2018. Just to summarize on some of the transactions we have done. The $131 million sale-leaseback transaction, this is the 2nd one we did of tank containers. The tank container still stays on the balance sheet. You won't really see any difference. It's just a way of utilizing those tanks to raise financing. This is something we have done through time.
This time with sale-leaseback transactions, we did limited partnerships in Texas in the '80s. We did KS's in Norway in the '90s. We did tax leases in the U.S. in 2000. Now we are doing this Japanese lease where the all-in fixed cost to us is around 3.6% all in, 100% financing. Very attractive financing. We couldn't resist. SNI, we raised $130. We talked about that. We paid off the SNI 01. We talked about the 650 revolver and the refinancing of the Singapore terminal. With that, back to you, Niels.
Thank you, Jan. Key takeaways. Continued strong performance in the second quarter with a net profit of $38 and an EBITDA of $126.6. The second quarter annualized earnings per share is $2.73, which gives a P/E ratio of 4.55 and price to NAV of 0.5. That is taking a share price of NOK 103. The current dividend yield as long as we continue to pay $1 per year is 8%. You both get 8% and the potential upside in the share price. Good liquidity position with approximately $400 million, as Jan showed you. Solid performance in Stolt Tankers. Steady Stolt Tank Containers result in a competitive market, and a start of a turnaround in Stolt-Nielsen. Our entry into LNG space will be leveraged on using our experience in chemical logistics. We are targeting the small scale LNG demand stranded customers. That completes our presentation. We will now open up for any questions.
Operator, we will start here in Oslo before we go over to the phone. Any questions? Yes.
Peter Fjerstad, DNB. Are there some costs associated with the?
There's no additional cost in association with the new buildings. To the contrary, because they're delayed, we are actually getting some compensation for the delay. I think the increase that you see in Stolt Tankers is that we used our purchase option on a ship that we had on time charter for one of the Japanese ships, two Japanese ships that we acquired.
Yeah. You also seem to have been increasing your capital expenditure guidance under other. Can you explain what?
That's the $45 million that was under other.
Yeah.
If you remember way back, we used to have a line that showed $60 million every year in the five-year plan, we have decided to remove that $60 million because that's what we call delegated authority. The board gives me $60 million to use without having to go to the board to support the business. Small things that, if you win a contract at a terminal that needs a new lining or a new pump or something. That is really capital expenditures to For me to invest or the businesses to invest without having to go back to the board. That just shows that we have out of the $60 million that I have in delegated authority, we have used $45 million on various projects.
Doesn't this say that you have 45 left in extension?
Is it 40?
Why have you suddenly stumbled upon some new initiatives? Have you made any progress that you can comment on?
There are various projects. The one that we have been talking most about is the Sardinia project. We have signed LOIs for offtake agreement on that project. We have not yet signed a binding agreement. We will not, of course, take any FID before we have a binding agreement on offtake. We're getting close. Once we get the offtake in Sardinia, we will take the FID on building of the storage terminal in Sardinia and also order the small- scale ships. We're looking at 7,500 cubic meter. We still haven't taken the FID yet. We are also looking at various projects in Europe, there's another project that we're working quite actively in Europe, where we will source the LNG in Antwerp or in Rotterdam and bring it to-- I don't want to tell before we have it, but it's quite exciting.
Again, tied up against contracts. Yes.
Just things I can find. What's the buy so far? Is it coming or is it?
The spot market is weakening, as you can see from the reports. The COA nominations are lower, that I think is a bit seasonality. What is encouraging is that we're able to fix nice contract renewals. The 6.8% we got in the second quarter is the highest that we have, I can't remember, that's quite high.
Four
Yeah. I've said it before, is that the contracts that we focus on are the major chemical producers. They don't operate in the spot market. They are dependent upon having somebody that can consistently service them regularly, the quality that they require, and the flexibility that they require. They're clearly seeing that there are not that many that can do it. It's encouraging to see that we're able, in the declining spot market, as you say, that we're able to still renew with nice increases.
If you think of the Sardinia project, how much of this is in this project?
I will tell you when we announce it. It's not clear how many ships we order and how big tanks, because it depends on if we get 200,000 of offtake agreement or 50. It depends on the tank size and also the number of ships that we order. The ships that we are looking at, it's very attractive right now to order ships. We have gotten some very attractive orders. I will tell you when we have a better idea of the size of the offtake agreement in Sardinia.
What would be the construction time for terminal?
The constructions of LNG ships, it needs to be ready in two years. Yes.
Going into 2016 and continue the core volume. What happens after you reach the export from the U.S. port?
The reason that we have a significant jump in the COA is that the normal COAs, this partial business, was normal volume. It was a significant pickup in acid that we transport. I would say that the COA pickup in volume was not our core business. It was the acid trade that picked up very nicely this quarter. I wouldn't use it in your model as a strong indicator that we would expect that this volume will continue in nomination. The spot rates that we were able to benefit. You saw the spot market was down, and we were able to get nice spot increases. That is due to there came quite a bit of sophisticated parcels into the spot market that was not carried under a COA which there's a limit of who can carry, and we were able to benefit from that.
The acid trade where in the world?
The acid trade, most of the acid goes to India. It goes from West Africa and from Aqaba to India.
There's a better market out in the U.S. Gulf, and that's also lending some support, taking some of your vessels out of the fleet. Those are the swing tonnage supply. Is that mainly the thinner steel vessels going in and picking up the methanol volume?
I think it's the swing tonnage that are picking up or the export of methanol has picked up. We don't operate in it, but that has taken easier tonnage, less sophisticated tonnage out of the segment that we operate in, and has had a positive effect. I've said earlier that I wouldn't get too carried away with this prediction of methanol being produced in the U.S. Gulf. We have said that how much will be exported. We've seen nice export both. There is an order book coming of 27%. Hopefully the export from U.S. Gulf to Asia will continue of methanol. If that methanol increase is enough to absorb all of the additional tonnage coming into the market, it's too early to say.
You can also see that there's a decline in import of methanol into the U.S. Gulf, which it's natural when they increase the production. Overall, if you look at the ton miles of the methanol being shipped, it is not as high as you would expect. Yes.
The increase in utilization in your terminal business, I think was a bit higher than most expected it. Was there any kind of positive bonuses included in the utilization, or should we expect it to continue increasing?
I think that's a good indicator of how it should be going forward. Most of the terminal contracts that we try to fix are long-term. We got some short terms in short-term contracts in some of the terminals, the fundamental terminal market is strong. I think that once we get the capacity in place and also when we get back on track in Houston, I think that the utilization should be above 90, it should be at 95%.
How far have you come in the optimization process in Houston terminal? Is it 20, 50, 70% complete? Can you give us?
No. Utilization in Houston hasn't really dropped that far. Utilization in Houston is still at low 90s. The problem in Houston is the cost side. We need to upgrade it so we can have less people. It's extremely manual and to be able to automate it, you need to first look at the way you do the business. We have done a significant study where we have gone through the whole business process, the operating process. We used external help and have gotten a very good report, that's the easy part, now it's to implement that. I expect to see significant improvement in margins once we put that in place. You got to remember that also in Houston, we have split the terminal into two. It's really the east property and the west property. The west property is developed. That is full. That's the old terminal.
We have also invested in the east property where we have invested the infrastructure, the rail line, the filling bays for the trucks. Well, we haven't filled up the land yet with tanks. That terminal is going to be properly profitable once we have started to fill up the space that we have on the east property. We also will build an additional jetty on the east property so that we get better throughput, more throughput in our terminal. That will take time. Again, Houston, the fundamentals are strong. The demand is there. Any other questions? Operator, if you can try to see if there's anybody on the phone that would like to ask some questions.
Okay, thank you. If you would like to ask a question over the telephone, please press star one on your telephone keypads.
No, we have no questions.
Thank you very much. That completes the second quarter earnings release. I wish you all a sunny summer. Thank you. Thank you, operator.
That will conclude today's conference call. Thank you for your participation. You may now disconnect.