Good morning, welcome to this second quarter presentation for Wallenius Wilhelmsen. Very happy to have people here in the audience, and also thank you for following us on the stream. As always, we will have a Q&A session afterwards, starting in with the audience, and then also take questions in the chat from those who are watching online. Let me start with saying that the second quarter was very strong for Wallenius Wilhelmsen, both financially, operationally, and commercially. Also, we took the first step in renewing our fleet towards a net zero emission future, and we will come back to all that. Let me start with the biggest highlights.
We saw a very strong financial performance in the second quarter, yielding an EBITDA of $477 million, and a cash flow of close to $400 million. Shipping delivered a very strong and historically strong result, that's partly due to volumes, very efficient trading, and also operational improvements and cost improvements across the operations. We see a increasing and a persistent strong demand for logistic services around the globe, and particularly improving in the U.S. In our government business, we're still seeing strong volumes from U.S. government in supporting their operations in Europe and the Europe area.
We have also signed a multi-year contract so far in the quarter, and we are working on several and are close to completing several multi-year contracts during the quarter, reflecting the current market conditions. And I'm also very happy to report that we see improved performance across all our sustainability KPIs, most notably and most importantly on safety, and also on environment and emissions. And then we have taken a step towards renewing our fleet by writing an LOI for four newbuildings and eight individual options for the next generation of vessels, and I will come back to that in more detail later. Before we go into the details, let me also take you through a couple of the key financial highlights from this quarter.
Looking at EBITDA and return on capital employed, we have, in this illustration, shown the rolling 12, last 12 months on EBITDA and return on capital employed. As you will see, the rolling 12-month average is increasing steadily on EBITDA and is up 58% year -on year. Also, return on capital growing steadily, and we are now at 16.5%, up 2% from last quarter, and up 8 percentage point from same time last year, and well above what we have said as our financial minimum target of 8% return on capital employed. All financial parameters are pointing in the right direction, and Torbjørn will give you all the details you need about that a bit later in the presentation. All right, we will follow the normal agenda.
I'll talk you through the market, looking into the shipping segment, logistics segment, sustainability. Torbjørn do the more detail, deep dive on the numbers. We'll share how we see the future, and then we'll take your questions. Starting with the auto market, in the quarter, we saw another strong growth in the deep sea volumes transported, these volumes grew by 5.6%. The overall sales of new cars grew by 5.1%, meaning that there was a bigger growth in the deep sea volumes than in the than in the sales volumes, I'll come back to part of the reason for that. Our outlook for the global sales of vehicles has not changed since the last quarter, at least just marginally.
We are still expecting a total sale of 84 million cars this year, growing into 88 next year. These are quite close to consensus numbers across the industry. Notably, you can see in green, that's the deep sea share. The one relevant for shipping activity, that's the green, where we are moving vehicles across the globe, while the gray one is also relevant for logistics, where we are doing a lot of processing for domestically produced cars. As you will see on the deep sea, there's not a significant growth in the absolute numbers or relative share of deep sea volumes. One main reason why the demand for deep sea transportation is so strong is China. On the right-hand side, you can see the numbers for China, growing steadily.
Since 2020, it has grown by more than 6 times, and this is export out of China. A very important driver for the demand in our market are long-distance transport of vehicles exported out of China. Another noteworthy thing in China is that they have about 2/3 of the car they are exporting to Europe are electric vehicles. On the left side of the chart, you can see the development in electric vehicle sales and the prospects, this is upgraded more or less every quarter. In general, we can say that the development and the penetration of electric vehicle cars are going faster than most players expect, and are all now also certainly outpacing and replacing a lot of volumes on the hybrid segment.
In many ways, you can say that China is extremely well-positioned for this EV market that is growing. The EV growth is also very relevant for our business in logistics, as we are, with these new players, processing and delivering new services, and I will come back to that a little bit later on the high & heavy still see very strong volumes. In general, we can say that the there is not enough transport capacity to support the high & heavy goods around the globe, and we have customers, we talk to every day that are not able to move all the products they want to move.
There is still a big backlog of orders for all the different segments. This is the main driver for why we see the strong volumes, as we see it has somewhat slowed down in new sales. If you look on each segment, we are supporting the principally three, call it, verticals. In the Construction segment, due to the financial conditions of the world, the residential construction activity is slowing down, particularly in Europe, but also in general. This is more than replaced by infrastructure investments, in the same areas, also in the Middle East. The general high & heavy equipment, excavators, and all different equipment, is strong for construction. Mining, still going strong, and the interest for new investments, is still strong in that industry.
Noteworthy there is also we see a very strong drive for autonomy. Due to new technology and lower higher efficiency, we now see that even smaller mines can use autonic autonomy, autonomous operations, meaning that the replacement of vehicles and equipment goes faster than historically. Agricultural, we clearly see a softer sentiment on new orders. Farmers are careful in investing in new equipment when interest rates goes up, and the price, perceived price at least, of equipment is strong. Also in that segment, we have a very strong backlog.
As I mentioned last quarter, John Deere has told us that they are, and the market, so it's not a secret, that they are completely sold out already for 2023, and they are starting to get, very strong numbers also into 2024. In general, we can say that the, that the demand for services, both from high & heavy, is very strong, partly due to, partly due to, backlogs, but also due to new orders. high & heavy going forward, we expect a somewhat increase in the global high & heavy, but with an average price increasing, we also expect a somewhat lower, number of vehicles, and, and equipment transported.
Having said that, there is a big buffer between what our customers need in terms of transport and what currently the market is able to provide of deep-sea capacity. We are also using this market actively to partner with our customers and renew our book of business. We have announced that we have one big contract that we have made in the last quarter with both a deep-sea engagement and also actively using our logistics operation. Not least, partnering with us on the road towards net zero, and already now paying a premium for biofuel used on our vessels. We are working on several multi-year new contracts at the moment, and we are renewing the book of business as we speak.
As we have announced earlier, we have a strategy of partnering with customers that want to join our journey, meaning that they are using the whole network we have, from vessels to logistics, and also partner with us on decarbonization. Just to give you a feel of the magnitude of what we're working on, we are, this year, renewing around $850 million worth of business, as compared to 2022 numbers, and this represent approximately 18% of the volume. Next year, we will have around $1.2 billion of 2022 revenue, and as much as 30%, close to 35% of our book or our volumes.
The main reason why the number is much bigger next year is that, as announced to the market, previously, we are, next year, renewing our contract with Hyundai Kia, which is our biggest customer in the portfolio. More or less exclusively, these contracts are for 2024 and 2025 onwards. The effect of these contracts will be seen in next year's numbers and onwards. Last on, on the new building market, there has been new ordering activity also through the second quarter. These are just including the numbers that happened in second quarter, also a few orders after second quarter. We are now seeing an order book by the end of second quarter of 29% of the global fleet.
This sounds like a lot, but looking at the historical development of the fleet, we had 0 growth in this fleet for many years, as you will see. In our view, with this fleet order that we have today, we are getting back more or less on the long-term trend on the need for vessels. There is also a significant potential for phase out at the second half of this decade, with vessels getting older and certainly new requirements coming in, in terms of CII and others. In the long term, we see that this fleet renewal is needed.
Still, there is a challenge with port congestion around the world, and I think this is something that we are used to now in the, in the industry, and we need to get used to. There is simply very tight margins on capacity all around the globe when it comes to the ports and terminals. We had a big issue last year in Europe. First quarter this year, it moved to Australia. It's still a problem in Australia, but the absolute number of waiting days goes down because there are less sailings to Australia. The problem is still there. We are now seeing that the congestion is growing on the U.S. West Coast and on the Canadian West Coast.
This is largely because operators are turning their vessels on the West Coast instead of going to the East Coast, and land bridging into the markets in the U.S., but there is simply not enough rail cars and trailer cars to move the vehicles. A new element that came up recently is also the Panama Canal, where they have more limited water than have had historically, meaning that they have less capacity on transits, and we see an increase in congestion also there. All in all, this quarter, pretty similar to last quarter, we had 10%, give or take, 10% of our fleet sitting and waiting at ports at any given time during the quarter. Let me move in, move into the shipping update.
As we said last quarter, we were affected by the Australian congestion that came strong and abrupt during the quarter, so we had less sailings, for instance, out of Asia. A lot of this were solved during first quarter, meaning that we have had very strong volumes out of Asia during the second quarter, and more than catched up for the effect in the first quarter. Looking more into the details of the, of the numbers, we increased the volume transported quite significantly with close to 10% during the quarter. The main growth in volumes came out of our best-paying areas, which is Asia to Europe, Asia to North America, and Asia to South America. The cargo mix is somewhat stable, a little bit down to 28% in terms of volume.
This number has been somewhat higher earlier, but as we said in Q1, now due to the softening in container, we see that a lot of volume on breakbulk is moving back to container. These were volumes that came into RoRo during the container, strong container markets, but these are now going back to container. But we are still having the structural volumes on bare, on breakbulk that we have had for many years, and we still have a solid breakbulk business, but very limited spot activity in that area. The net rate is down from $51 to $50 on a CBM basis. This probably sounds a little bit strange, as we are delivering very strong results.
The net rate is partly affected by a one-off in Armacup, and, and I'm sure, you will cover that. There's also a lot of factors affecting the net rate. It's the exact customer mix during that quarter, it's which trades we are in, it's the cargo mix. There are a lot of factors, but the general impression we want to leave is that our vessels are completely full, and we are delivering more volume than we have done more or less ever before, with the same amount of vessels. Maybe more notably, you can look at the time charter earnings. This is basically what the vessels earn every day, and as you can see, this is steadily and clearly improving across the last few years, and it's up 34% since the same time last year.
This is another indicator of our earnings that is probably more relevant looking at our earnings potential than the net rate, which is affected by a lot, a lot of factors, which is not that easy to follow quarter-on-quarter. We announced today that we have made an LOI of four new vessels, and this is part of our fleet strategy. In our strategy, we have said that we want to continue to be our customer's first choice in shipping, and that we want to shape the journey towards net zero emissions, and have an ambition to be able to deliver a net zero service in 2027. Both of these have been guiding posts for us when we have now designed a fleet strategy and taken the first move on fleet renewal.
We believe that we should maintain the current fleet size we have of about 125 to 135 vessels. This is back to the strategy point number one, that we want to be our customer's first choice. We need a certain network and a certain regularity within our trades to be able to deliver on our customer needs. We do not have a strategy of significantly growing the number of vessels. As the average size of the vessels will increase, we will also somewhat increase our capacity going forward. We have a very clear strategy saying that all new investments needs to contribute towards the net zero agenda. We are very serious about driving and shaping that. We do think that the current time charter market is very high. We are very cautious on making new time charters.
Last but not least, we cannot make this transition alone, so we need partners, and I'll come back to some of them. I've also already covered our customers that are really now leaning in and partnering with us to make the effort to start the journey towards net zero. To the LOI itself, this is a nice illustration of the new generation of vessels. As we said, we want to shape the journey towards net zero, and that's why this new class of vessels will be called the Shaper Class. They have a capacity of 9,350 CEU.
They will, upon delivery, be methanol capable, meaning that we are able to run on green methanol or biomethanol from the day of delivery, and this is key for us to be able to deliver on our strategy of net zero service in 2027. In addition to the four firm vessels in the LOI, we have been able to secure 8 individual options, declarable in two batches, giving us a lot of flexibility and optionality going forward on how and when we renew our fleet. The vessels will be built at Jinling in China. We consider that being a very capable yard, maybe the most experienced yard in building these type of vessels.
We have also, of course, done a very thorough ESG due diligence, and we see that they are running an operation that is very comfortable to the standards and the needs we need when it comes to environment, safety, and all other elements of governance. These vessels are specifically designed to support our trade, meaning that we need a lot of flexibility with the liftable decks. We need to be able high & heavy, and breakbulk, and cars, and they are certainly also fitted for the future, which will be dominated by EVs.
These vessels are made ready for ammonia, and we do have an agreement with the yard that if we see that we want to have some of these vessels, probably not the first ones, converted and built to burn ammonia, we will be able to do that and decide on that at a later stage. By this LOI, we believe we have taken a first step towards renewing our fleet. Doing so, also delivering on our decarbonization strategy and creating very good optionality in terms of possible new vessels in the future. As I said, we cannot do this alone. When we're now moving towards our strategy of net zero, we need partners. We need partners that can help us with providing these new green fuels.
We need partners that can help us with developing and deploying technology that makes the vessels even more energy efficient. The only thing we know with the transition is that it's gonna be more expensive than what we burn today. The Oceanbird partnership, which we call the Orcelle Wind, is one example of technology partners, where we work actively together to see how can we deploy new strategy, new technology. Not least, when we are now having our customers paying for decarbonization, we need trusted, verified data, so all parties agreed to the emission accounting that we are proposing. On the fleet, as I said, we have a cautious approach to time charters. We have redelivered two vessels over the last quarter, but we have a relatively stable fleet.
We are considering, of course, also time charters and we need, will need to do some renewal of time charters, but we are very cautiously looking at the spec of the vessel, the CII performance, and also how it fits into our trade. Moving on to logistics, this is a picture of our Orcelle Terminal, opened in Zeebrugge in Belgium this year, earlier this year. This is a, what at least we call, a state-of-the-art terminal, specially made to support the growth in EV vehicles. This is very key when we now look into the new contracts that we are renewing.
As you will see with, and as you know, with a lot of the new EV players, they do not have dealers, and they depend on a player like us, that can cover the whole scope from picking up the vessels, basically from the factory, bringing them into Europe. In this Orcelle Terminal, we are processing them, meaning we're putting in the accessories, that, that is needed in addition to the standard model. We are cleaning them, we are inspecting them, and we are making them ready. Basically, for the customers we're now doing contracts with and that use Orcelle, they- we deliver the cars more or less directly from the Orcelle Terminal to the consumer. This is a very strategic development for us in Europe, where we see EV demand is growing fast.
Very happy to see that the activity and the numbers across logistics are strong. There is an increase in the activity and volume in the U.S., that's around 3% volume increase, but the revenue increase is 4%, meaning that we are adding even more value into the cars and processing them more than in high & heavy volumes, also strong in the U.S., but also very strong in Australia, and I must say our team down there has done tremendous in supporting customers and winning new processing high & heavy. terminals, a little bit down, but that's due to an exceptional first quarter this year in Australia, where we had a lot of biosecurity activity. Now, as the volumes are decreasing due to congestion, there's also a somewhat decrease in the activity on that terminal.
Generally speaking, our terminals are very busy and are doing well. We're also very happy to see that there is a development in the inland. That means all the distribution and orchestration we do to transport the high & heavy off the terminal to the dealer or to the consumer. One of our companies that we are now fully owning is Syngin in the U.S., which is a leading digital orchestrator of moving used cars around in the U.S. market. We still believe there is upside to the volumes in the U.S. We have a very strong activity base in the U.S.
We are still not up to pre-pandemic levels. There is a very strong investment into new EV factories in the U.S., and we are well-positioned to support our customers in those operations. As you might know, we have a significant activity we call end-of-factory line, meaning that when the car is close to finished, we finish off the car, we make it ready for shipment, and we ship it off. We see those services are certainly also needed in the new factories now coming up in the, what they call the EV Belt in the U.S. Let me close up with sustainability. This is not last, this is very first in our priorities.
Safety is very key for us, and I'm very happy to see that we had no lost time incidents in shipping last quarter. We saw a very good improvement in our logistics activity, and we will keep working very systematically on driving safety culture across our company. Also happy to see that we are improving on emissions. This is partly due to a strong volume, but certainly also because we are actually reducing fuel consumption. During last quarter, we were able to reduce absolute fuel consumption on a comparable basis with 4%, which is quite significant. We have started, and we are now already transitioning into new fuels. We have secured a contract for biofuels that we announced earlier this year, and we are now in talks with suppliers of green fuels.
Most notably then, methanol, both biomethanol and green methanol. We are seeking out for new partners to make sure that we are able to deliver on our strategy of a net zero service in 2027. With that, I leave the floor to Torbjørn.
Thank you. Thank you very much. Good to see everybody, see a few tan faces. I guess you've either been in northern Norway or somewhere abroad. Very happy to be here to present the financial highlights and financial details for the second quarter. In short, Q2 was a really, really, really good quarter. We had a solid improvement in revenue and EBITDA across all the segments. The adjusted EBITDA came in at $477 million, which is up 20% quarter-over-quarter, and 56% year-over-year. Net profit came in at a strong $332 million, and thanks to the net profit, this basically offset the amount of money that we paid in dividends, hence leading to an increase in the equity ratio in the quarter.
We see that the scheduled debt repayments that we have done in the quarter has led to a reduction in net debt. When it comes to the financial targets on the right, we're hitting new records in terms of all the parameters, ROCE notably being more than double the minimum target that we have set. Going into each of the segments. Shipping delivered a very solid quarter, and we saw an all-time high EBITDA margin in this segment. Total revenues came in at $987 million, which is up $31 million, or 3%, quarter-over-quarter. Again, this is very much driven by the increase in volumes that Lasse talked about earlier.
The EBITDA came in at $402 million, up 18% in the quarter, again, on a higher volume, also on a favorable trade mix and improved voyage efficiency. Voyage efficiency, meaning we had more laden voyages, we also had increased CBM per port call. Year-over-year, you know, the EBITDA is up 44%, again, this is very much driven by the tight RoRo market situation and a repricing of the book of business on top of all the volumes. Logistics, in the middle, has had another good quarter, we see good, strong, stable volumes in this area. Total revenues was $283 million, which is up 2% in the quarter. Again, it's mainly on strong auto volumes in the Americas.
The EBITDA had a jump to $47 million, which is up 29% in the quarter. The percentage increase is in part driven by the fact that we had a lot more high-margin business-type accessorization that Lasse talked about, but also because, you know, when you calculating the percentage, the Q1 number was a bit lower due to the payment of a $6 million one-off bonus to employees for all the good efforts in 2022. So if you were to adjust the EBITDA in Q1, it... a comparable number would be $43. Government delivered strong results. EBITDA came in at $30 million, so it's up $7 million in the quarter. Again, this is very much driven by the high demand for U.S. flag cargo.
We have had strong growth, both in the quarter as well as year-over-year, thanks to the U.S. and NATO response to the Russian invasion of the Ukraine. We have seen high U.S. flag cargo since the third quarter of last year. Looking at the revenue and EBITDA bridge, if we start with the revenues, you can see that overall revenues is up $47 million in Q2. The volume effect is $73 million. Due to slightly lower revenue per CBM, that takes away $21 million, and fuel surcharges were $20 million lower, demonstrating again that it was really the volume that drove things in this quarter. We also saw a $16 million increase in other revenues, roughly $7 million in, in logistics and $7 million in government. On the adjusted EBITDA improvement, this was $79 million quarter-over-quarter.
If you look at sort of the percentage contribution to the improvement, roughly 78% of the improvement is shipping, 13% logistics, and 9% government. Again, here, we saw the EBITDA improvement in all segments. We did see a $31 million reduction in the fuel cost in the quarter, which leads to a $11 million decrease in the net fuel cost quarter-over-quarter. I touched briefly on it. As you can see in the top chart, the net fuel cost declined $11 million in the quarter. If you were to strip out the accounting effects that we had in Armacup, basically what we're doing is we're harmonizing the accounting standards in Armacup to that of the rest of the group as part of the integration effort.
We own 65% today, we will own 100% at the end of 2024. As part of that, we've had some movement between net revenues and fuel surcharges, as well as some periodization effects from Armacup. If you strip out the Armacup effect, essentially, the change in net fuel costs quarter-over-quarter would be flat or zero, so it would be the same level. We do expect that the fuel surcharges will continue to taper off, but they are expected to stabilize in Q3. Cash on hand decreased by $93 million. This is total cash. This is driven by a large dividend payment in the quarter, as well as regular debt service, in part, countered by the solid operational performance we saw.
If we start on the left, we can see that we had operating cash flow of $396 million. This represents a cash conversion ratio from EBITDA of around 83% in Q2. The net CapEx that we have includes dry dock, vessel maintenance, and other investments. We paid out $270 million in dividends in the quarter, of which $219 million was paid to the shareholders of Wallenius Wilhelmsen ASA, while the rest was paid to non-controlling interests, such as the HMG Group, in EUKOR. Net debt includes schedule repayments on bank and lease debt. At the end of the quarter, we had undrawn credit facilities of $397 million U.S. As shown by Lasse, we've had a steady improvement in operating cash flow.
If we look at it on a rolling 12-month basis, and the percentages you see above the operating cash flow remains the cash conversion on an LTM basis as well. If you look on the right side, you can see the cash flow. If you take operating cash flow, you take away amounts invested, take amounts debt repaid, that leaves you with what we can call cash flow to equity. Dividing that by share, by the shares outstanding, excluding the shares that we hold on our own books, you can see that we've had a steady improvement of free cash flow to equity per share for a long time now. Finally, we end the quarter with a robust balance sheet and a strong liquidity position.
The net debt decline to $2.46 billion on the debt repayments that I talked about earlier. We have no bond maturities until September 2024. As announced this morning, we are now contemplating a bond issue. The net proceeds from the contemplated bond issue will be used for partial refinancing of existing debt. As part of this, we are considering buyback in next year's bond maturity, and that you can see as a gray part of the 2024 bar on the right there. We also have some maturities of vessel refinancing that will be repaid with cash during the year. Finally, we are in the midst of refinancing a revolving credit facility of $303 million, which is well progressed. We expect to conclude that well within Q3.
With that, I will stop and hand it back to Lasse for the prospects.
Thank you, and thank you, Torbjørn. Let me close up with how we see the future on a high level. In general, we are following a strong first half. We see a similar market and a similar performance for the second half of this year. The demand is still strong, and we have a pretty good visibility on the activity later in this year. We expect a second half, similar to first half in 2023. We are also, as I said earlier, renewing contracts now that to a large extent will hit our books in 2024 and onwards, and we are doing this at significantly higher rates than what we had in the previous contracts.
We still believe, despite a strong new building order book, that the underlying fundamentals in the industry is strong. Of course, moving forward, further out, there is large uncertainties, not least on geopolitics. As I said, China is a key element to this, also this market, as to all shipping markets, that's the situation we need to follow closely. Overall, we see that we will continue to strengthen our financial position and make sure that we can reinvest in our business, and also delivering on our dividend policy. Those were the words in the presentation, and then we open up for questions. Anders, do you want to join us on the stage? You want to introduce Anders, Torbjørn?
Yes, very happy to introduce Anders Redigh Karlsen, who recently joined us as our new head of Investor Relations and Market Insight. Joined us from Kepler Cheuvreux, has covered us as an equity analyst, so knows us very well. Very happy to have Anders here.
Thank you. Anders will follow the questions coming in on the chat. Let's see, are there any questions in the room first? This is a personal record. We have been able to tell everything. Very good. Seems not to be. You can chip in later if you want. Any questions that has popped up online, Anders?
Yeah, we have a few questions from Petter Haugen at ABG Sundal Collier.
I'm sure.
Yeah, not surprisingly. The first question goes, you know, on, on, on the break bulk cargo. How important is the break bulk cargo going back to the container market for the development of the net rate in shipping?
Yeah, that's, that's... It's important. Period. Rule of thumb, a CBM of breakbulk pays 3 to 4 times more than one of auto, so it's certainly a high-paying segment. We need to look at Breakbulk in two different dimensions. One are the call it structural volumes that are transported with RoRo and have been for a while. We have a very strong position ex-Japan on machinery. There are also big pieces like rail cars and other things that fit into our service. While we also saw when the container market was really strong, that we came a lot of new cargos into our segment, that is now going back to container.
In our view, the Breakbulk segment is normalizing back to the levels that we saw prior to the container, very strong container market in 2021, 2022.
Okay, next question from Petter goes, on-
Having said that, all of these effects are already in when you look at Q2. There are, we don't expect any big change in the break bulk picture going forward.
Next one goes on, on, on the guidance. Petter is asking second half similar to the first half, 2023, does that mean same EBITDA in H2 as in H1?
Well, we are not guiding specifically on EBITDA, but we see a strong market. We saw that we had a somewhat lower Q1 due to some one-off effects in Australia. We have a very strong Q2, and we believe that in average, the first half is representative from what we expect in the second half.
Okay. Going back to the rate, there is a question from Eirik Hovi at Nordea. "Can you talk about the net freight and TCE?"
Yeah, I tried. I can try again. The, the net rate, as we said, is basically if you take out one-off effects that Torbjørn mentioned on Armacup, as we are aligning our accounting practices, it's basically flat. Following the net freight quarter-on-quarter is quite challenging, as it has all different elements into it. Generally, when you take out all the quarter-on-quarter effects on net rate, the net rate is slowly increasing. When we look at the contracted rates, what we actually had in the contracts that we performed in 2022 were 10% higher than what we saw in 2021.
When we're now renewing, contracts in 2023, we see strong improvement in rates to levels that we believe are sustainable for us to reinvest in our business and also deliver on our dividend policy. I think that's as much as I can say about that. When it comes to the Time Charter Equivalent, of course, that's a number we have now included in the presentation, because we think it's a very relevant one. That's really where you can see what the shipping operation is yielding of returns.
That is slowly and steadily increasing, partly due to high utilization, partly due to a good trade mix, meaning that we are in the right trade areas, that we are filling up the vessels, that we are filling them up high & heavy, and not least, that the team is doing a tremendous job in increasing voyage efficiency, reducing fuel costs, and also managing extremely well the difficult congestion situation we have. It's not a coincidence that we see good low congestion numbers in Europe. That's real hard effort. That's why we're including the TCE, because we think that tells that the underlying earnings of the vessels, even though the net rate picture is a bit skewed, shows a continuous and steady improvement.
Okay, then there are multiple questions on, on the new buildings and, and the LOI.
Yep.
You know, many of them are linked to what price are we paying, what are, what is the delivery schedule.
Yes.
What kind of payment terms are we, are we looking at here?
Unfortunately, as in most contracts, a lot of the details are confidential, so we are not able to share. We cannot share the exact price, neither the payment terms. What we can say is that we are really happy with having Jinling and China Merchants Group as our partner. The vessels will start to deliver from 2026, and for the firm program, they will deliver into early 2027.
Okay. Awesome.
Thank you.
There is, questions around, you know, are we planning additional new builds? Is this sufficient for our fleet, fleet renewal, or, how are we looking at that? Is this the start of something bigger?
Well, what we have been really concerned about in this LOI is to create optionality, allowing us to make decisions later when we see how the fleet need is and how market developments are. We're very happy with having options in two batches, with quite a good time spread after we have signed a contract, if we sign a contract, and after we have potentially signed a contract, allowing us to make these decisions in stages. We will not. We're not able now to say what we will do in the future in addition to this, but the only firm agreement we have now in terms of the LOI are for four vessels. Having said that, of course, we have a fleet renewal need going forward.
We have an ambition to develop towards net zero, and we will reinvest in the fleets, but we will do so cautiously, and also with the view on the overall market, and certainly also how we are phasing out our own vessels. That's a very round answer, but that's basically where we are.
Yeah. There is also questions around, you know, TC, and are we also evaluating that as an option?
Yeah, we need to, always. We evaluate it every day, every hour, but very often we end up saying no, because it's, the current TC rates, in our view, are not sustainable. Having said that, we have core vessels in our fleet, which we have on time charter, where we certainly will look at renewing. Also looking at time charter for, vessels that can really provide value in our fleets. In general, we are cautious, and we will not use, the time charter market to grow in this market. We have a strategy of keeping the fleet size we have today and not significantly growing it.
Okay. There is a question more on, you know, the strategy behind the new building order. What, what our thoughts are, you know, before making the order. Can you say a little bit about that?
Yeah. Well, we talked, I, I talked about it. First of all, is that we would like to maintain the product we have to our customers, and then we need vessels. We have a quite unique trade, and that means that we need unique vessels. We cannot just turn to the market and take standard vessels off, off the market or from a new building yard. We need to design the tools we need for our vessel, for our shipping activity ourselves. That's what we have done. These vessels are bigger, they can carry more cargo, they are more flexible, and they are certainly more energy efficient. All of these elements have been important when we design the new vessels, also making sure that they can adapt to a new market of EVs.
On the energy side, we have studied this in depth, and we believe that the shortest and most viable way towards net zero today is with methanol, either biomethanol or a green methanol. Only problem with methanol, it still has CO2, so it's captured CO2, meaning that we think also that the world will transition into new fuels after methanol, and that's why we want to have optionality to turn the vessels into ammonia-driven in the future. We are working actively with now different vendors of fuels to see how can we source the fuel we need in this period.
When it comes to number of vessels, there is no doubt that we are at a relatively high cycle in the new building market, so that's why we're cautious when the number of vessels that we commit to now. Having said that, though, in the trades we have and with these vessels, they will deliver very solid returns and well above our return requirement, when we look at the average market across the cycle. Even though they are historically maybe expensive, they are still a very good business case for the business we intend to use them in.
Okay, there is some questions from Fredrik Ness around the order book. How does it impact our contract negotiations? Secondly, in terms of volumes, how are we seeing, you know, contract volumes now? Are there typically maximum and minimum allowances on the contracts, et cetera?
Well, we I would say so far this year, we have not really seen a big impact of the new building order book, and that's obvious because they deliver from second half next year and into 2025. Although, of course, customers are watching this as well, and so it's in all negotiations. We want longer contracts, they want a bit shorter contracts, and it seems that the we end up somewhere in the middle, and typically we are now looking at three-year contracts starting 2024 and onwards, with options. When it comes to the rate picture, we do not see an impact of of the order book yet, and we do not expect to see that for the rest of this year neither.
Okay. There is one for Torbjørn. In terms of leverage...
Mm-hmm.
What kind of leverage are you thinking about, concerning the new builds or the LOI?
Look, I think the, it's, financing these type of vessels is straightforward, and we have a lot of capital interest when it comes to the refinancing of those. Like most investments, it'll be a combination of debt and equity that we will utilize in the financing of this. As it relates to, vessels themselves, it's a very, very established market. We have very good financial partners, all of whom are very keen to support us in financing this, and this is, of course, something that we will explore as we move forward towards delivery of these, vessels.
Okay. Then a few final questions here. One relates to Chinese EV exports. Can you, you know, quantify the importance of that growth? Secondly, our forward coverage ratio, what kind of % of, you know, our capacity is committed on the contracts?
First, on the Chinese, and the impact of that, as I showed on the previous picture, is very strong. If you'll see on the average percentage on deep sea across the last few years, there's moderate variations. The big factor is Chinese exports. There's no doubt that the growth in China export has been a very strong impulse in this market, and one of the key reasons why the auto market is high & heavy, it's partly that too, but less clear. Also worth mentioning that Korea, which is a very important market and customer for us, is also performing extremely well, both in terms of sales and in growth. They have been very successful in penetrating the U.S. market.
There's also increasing volumes out of Korea, where we are strongly exposed. Then this is countered a little bit by the somewhat reduced Japanese volumes over the last few years. They are now also really pushing on the pedal for EVs, so we'll see how that develops. In general, China is very important for the overall demand in this market. Then I forgot your second question.
The second question was, what kind of coverage do we have in terms of % of capacity? You know, what are-
Yeah, well, we have.
plans are forward?
Let me ask, answer it this way: we're sold out, and we have very limited space for spot cargoes, meaning that we are very well-covered with contracts, in the short term, and we are now renewing the book of business, in the medium to long term. We are also moving towards more specific contracts when it comes to volumes. Historically, there's been, there has been a different structure on the commercial contracts. We are now, to a large extent, only doing contract where we have defined, volume commitments in the contracts.
Okay, then we'll have, I guess, a final question, linked to, contracts. You know, if there are additional questions, we're happy to answer them if you reach out to us. It goes on the, on the contract again, again, and it's from Fredrik Ness. What contract vintage are we renewing now in 2023 and 2024, so?
That, that depends a lot, but typically, we have, I mean, very few one-year contracts, but that's, that's the view. Typically, they are two to three years old. We are renewing, as I said, around close to 20% of the volume this year, which is a little bit on the low side. We are renewing more next year, but if you look across, if you look across this year and the next year, we will renew more than 50% of the volume in our business.
Yeah. I guess that, that concludes the Q&A session.
Thank you, and thank you for coming, and, see you again next quarter.