Good morning, everyone. Welcome to Ardmore Shipping 2024 Investor Day, during which we will also be covering the company's results for the fourth quarter and the. I'm Brian Degnan with the IGB Group. Administrative points before we get underway today. It is being recorded and broadly distributed via live webcast, which, along with today's slides, is accessible at www.ardmoreshipping.com. An audio replay of the event will be available on the website from later today. Earnings press release was issued pre-market this morning and is also available on the website. Later in the event, following the prepared remarks, there will be a Q&A session, at which point we will take questions from the people with us in the room today. For those joining remotely, please feel free to submit any questions that you might have at any time to ardmore@igbir.com. That's ardmore@indiagolfbravoindiaromeo.com.
Throughout the event and for the benefit of those joining remotely, we'd ask that all those with questions utilize the provided microphones. Slide three, please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause the actual results to differ materially from those in the forward-looking statements is contained in the fourth quarter and full year 2023 earnings release. Slide four, I'd like to introduce you to the members of the Ardmore leadership team, whom we will have the pleasure of hearing from today. We have with us Curtis McWilliams, Ardmore's Chairman, Anthony Gurnee, founder and Chief Executive Officer, Bart Kelleher, Chief Financial Officer, and Gernot Ruppelt, Chief Commercial Officer.
That, I would ask Curtis McWilliams, the Chair of Ardmore Shipping Corporation, to please join us on stage to provide today's opening remarks.
Good morning or good afternoon, now. Excuse me. On behalf of the Ardmore Board and its senior management team, let me welcome you to our annual now, investor conference. To say that we live in interesting times would be an understatement. Wars in Europe and the Middle East and congestion caused by the deteriorating climate, drought-related conditions in the Panama Canal have resulted in profound changes to trade flows for our product tankers. Over the course of the next hour, you will hear how Ardmore's strict commitment to three guiding principles, those being, one, performance and progress. We believe these are not mutually exclusive endeavors, but in the long run, support Ardmore's ability to excel in both arenas. Two, our well-articulated capital allocation policy. And three, our ongoing efforts to ensure that we have best-in-class governance.
We believe that these continue to position the company well to drive our financial performance, both in the short term as well, and more importantly, in the long term. With that being said, I want to again thank you for your continued interest in Ardmore and your support of our company. We remain solidly committed to being good stewards of your investment. With that, I'll ask Tony, our CEO, to come and begin his remarks.
Curtis, what happened to your foot? Okay, so, firstly, I'd like to thank you, Curtis, for those kind remarks. I would like to outline the format for today's meeting. Bart and I are going to start off by presenting our results for the fourth quarter and full year 2023, and then we're then going to pivot to the Investor Day segment, which Bart and Gernot are going to lead, focusing on our strategy and how we're converting these strong markets into earnings. And then, at the end, I'll offer some closing thoughts before opening up the meeting to questions, either from you here at the floor or remotely. And again, for remote questions, please send them to ardmore@igbir.com. So turning first to Slide six for highlights.
We're pleased to report another successful year for Ardmore, with earnings of $113 million or $2.71 per share, continuing what is now a multi-year trend. Our fourth quarter performance reflects robust product and chemical tanker market conditions, with adjusted earnings of $26 million or $0.63 per share, and with further strength building into the first quarter. Our MRs earned $32,500 per day for the fourth quarter and $35,400 per day so far in the first quarter, with 60% booked. Our chemical tankers, on a capital adjusted basis, earned $29,300 per day for the fourth quarter and $30,100 per day so far for the first quarter with 70% booked.
Our markets are clearly experiencing significant strength as a result of geopolitical and climate-related trading restrictions, bolstering already tight supply-demand fundamentals, and all of which are going to be the themes and focus of our presentation today. Meanwhile, we continue to execute on our long-standing capital allocation policy. Today, we're declaring another quarterly cash dividend of $0.21 per share, consistent with our policy of paying out 1/3 of adjusted earnings. As a part of a gradual fleet upgrade and modernization plan, we've acquired a 2017-built MR tanker, while also simultaneously selling our 2010-built Ardmore Seafarer.
In addition, we've opportunistically chartered out one of our chartered MRs to realize a $7,500 a day spread, and a profit of $2.7 million over the remaining one-year period. Overall, we believe that Ardmore is in an excellent position to benefit from these ongoing strong market conditions. So turning to slide seven, near-term product to chemical tanker market outlook. I want to take the opportunity now to briefly introduce the geopolitical and climate-related trading restrictions that have been affecting our market. Disruptions in the Red Sea and the consequent rerouting of vessels around Africa are adding significantly to voyage lengths and therefore, to ton mile demand.
But before we go further, we need to remember that, numbers aside, we're dealing with real people, with real-world issues, and I'd like to acknowledge the key role of our seafarers in this increasingly dangerous world and to emphasize that their security is our top priority. From a pure economic standpoint, as you can see from the graph on the upper right, refined product ton mile demand is up 11% year-on-year, with the Red Sea disruptions playing a substantial role. At the same time, the impact of the EU refined product embargo persists, further exacerbated by European diesel inventories approaching historical lows. In addition, restrictions in the Panama Canal have reduced traffic by up to 30% overall, and quite a bit more for MRs.
Bottleneck is resulting in prolonged voyages and reduced effective supply of all ships, including product tankers. The aggregate impact of all these disruptions are illustrated on the graph in the lower right. While demand fundamentals remain compelling, and not just the demand side, but on the supply side, we see very low levels of scheduled newbuilding deliveries for at least the next two to three years, which should really limit fleet growth. With that, I'm happy to hand the call back to Bart.
Thanks, not at all. Tony.
Moving to Slide eight. Ardmore continues to build upon its financial strength. The result of our effective cost control, reduced debt levels, and access to revolving credit facilities, we've managed to lower our breakeven level to $13,900 per day. This is a noteworthy achievement during a period of elevated interest rates and high inflation. In addition, we have a strong liquidity position, with nearly $50 million of cash on hand at the end of the quarter. We have a total debt of just over $125 million, representing a leverage level of approximately 20%. Ardmore is focused on optimizing performance, closely managing costs in this inflationary environment, while preserving a strong balance sheet. Turning to Slide nine for financial highlights.
I just want to reiterate how pleased we are with the continued strong performance, with adjusted earnings of $2.71 per share for the full year and $0.62 per share for the fourth quarter. We're correspondingly reporting strong EBITDA for the year and the quarter. Continue to frame EBITDA as an important comparable valuation metric against our IFRS reporting peers. While I won't go into all the details here, there's a full reconciliation of this presented in the appendix on Slide 43. Our significant revolving debt capacity has allowed us to manage our leverage levels and reduce our interest expense, even in this elevated rate environment. Also, please refer to Slide 48 in the appendix for our first quarter guidance numbers. Moving to Slide 10.
In accordance with our Energy Transition Plan, as part of our ongoing dry dockings program, we've made some significant investments in our fleet to further improve operating performance, reduce emissions, and enhance earnings. In 2023, we completed seven dry dockings with a total capital expenditure of nearly $40 million, of which $25 million was spent on scrubber installations and a number of other energy efficiency technologies, which we'll discuss in more detail later in this presentation. As we complete these dry dockings, we'll have more than half of our MR fleet outfitted with carbon capture-ready scrubbers. Importantly, as you can see from the chart in the upper right, the majority of our remaining dry dockings are in the first quarter, so we'll have the benefit of our full fleet and its earnings power for the balance of the year.
Also noteworthy, we had very strong on-hire availability for the fourth quarter at practically 100%, a result of the close coordination of our teams at sea and onshore. Turning to Slide 11. Here, we're highlighting our significant operating leverage. As you can see in the chart, for every $10,000 per day increase in TCE rates, earnings per share is expected to increase by approximately $2.30 annually, with free cash flow generation of nearly $100 million over the same time period. Given the range of TCE rates shown on this slide, it's important to note that we've recently been booking at the upper end of this scale. If these rates were to take hold more widely, it would naturally have a material impact on our earnings....
This is why we're really excited about the market outlook, and we find Ardmore's position compelling. With that, I'm going to hand it back to Tony to sum up the earnings portion of our presentation before we transition to the Investor Day section.
Yeah, so just briefly in summary, first, regarding the market, we're seeing already robust conditions strengthening into the first quarter on the back of geopolitical and other climate-related disruptions and with supply-demand fundamentals remaining very favorable. And then, with regard to the company, we continue to perform well on both an absolute and a relative basis. Our strengthening balance sheet gives us the ability to execute on all of our capital allocation priorities simultaneously, including paying a dividend representing 1/3 of earnings. We're investing in our fleet to improve efficiency and reduce emissions, which has the added virtue of simultaneously improving earnings. And regardless of market conditions, as always, our efforts are focused on driving performance today while positioning Ardmore for long-term success. So that concludes the earnings portion of the presentation today.
And, we're gonna move now to the Investor Day content. And, Bart's gonna give a more in-depth view of the company and our strategy. And then, Gernot is gonna provide his insights on how we're translating these strong market conditions into earnings.
Thanks, Tony. Slide 14. When it comes to strategy, Ardmore has been very consistent over the years, with a focus on MR product tankers and chemical tankers and the overlap that these ships trade in. Furthermore, the company's development has been marked by a gradual increase in scale while building organizational capability. Today, our global platform, with our shoreside team strategically located across key regions, working closely with our seafaring colleagues on board our modern fuel-efficient fleet, gives us the scale to service a diverse customer base. We also find ourselves at a juncture where our nimbleness and agility will take on even more significance. Changing market conditions, driven primarily by the energy transition, which we'll discuss in detail, we are well-positioned to take advantage of opportunities in these dynamic times. Turning to Slide 15.
At Ardmore, our guiding principle, which we frequently discuss, can be captured as a combination of performance and progress. Highlighted just a few notable examples on this slide of how we do this. Both absolute and relative performance are very important to us. We place a significant emphasis on our performance relative to our peer group across a key number of metrics. Our entire staff is collectively measured this way, leading to an exceptional degree of performance, focus, and team effort. There's a powerful flywheel effect between this performance and our company's progress. Performance today allows us to invest in progress, which further enhances our future performance. With a diverse and talented team, strong collaboration between our seafarers and shore, we're driving progress at Ardmore and across the shipping industry, uncovering and executing opportunities that might otherwise be missed. Moving to Slide 16, where we turn our attention to governance.
A long-standing and key part of Ardmore's philosophy and approach from our inception in 2010, to our IPO in 2013, and well before the industry recognized Webber rankings were even created. This is a cornerstone of our business today. We are very pleased that our principled approach to corporate governance continues to set a leading standard within the industry. We're proud of the recognition that we are once again the number one ranked publicly traded company, tanker company in the Webber ESG scorecard. Essentially, when you invest in Ardmore, you invest in a company committed to both excellence and integrity. Turning to Slide 17. Here, we'll discuss how we balance the energy transition with what can be termed energy reality. This challenge entails increasing our fleet's efficiency and reducing emissions, while continuing to meet the ongoing demand for the transportation of refined products and chemicals.
At Ardmore, we recognize that this energy transition will take time. Evolution, not a revolution. With this in mind, we introduced the Energy Transition Plan in early 2021 as a natural extension of our strategy. To focus on seizing opportunity, decarbonizing, and continuing to build value in a changing market environment. The plan is rooted in a sound commitment to deliver tangible results today in terms of efficiency gains and carbon reduction, while strategically positioning Ardmore for the future. Most importantly, it fosters a forward-looking mindset rooted in performance reality. Central to this approach was the establishment of an internal team dedicated to the energy transition. The team possesses marine engineering and naval architecture expertise and operational experience... led by our Director of Innovation, Garry Noonan. The team is focused on working collaboratively with customers, technology providers, and our broader organization to develop valuable projects and investments for our fleet.
crucial aspect of their work involves true experimentation towards the development of novel as well as practical solutions to execute across Ardmore. Additionally, I'd like to emphasize the valuable support and guidance provided by our newly formed Sustainability Committee of our board, which is chaired by Dr. Kirsi Tikka, who holds a PhD in Naval Architecture and has extensive experience in the design and classification of vessels. She's joined by Helen Tveitan , Head of Clarksons Shipping, and Mats Berglund, the former CEO of Pacific Basin Shipping. In summary, this dynamic plan aligns seamlessly with our overarching principles of performance and progress. Turning to Slide 18, we focus on some of the key initiatives outlined within the energy transition plan. As we just discussed, we're actively in deploying energy efficiency technologies across our fleet.
In addition, with the expected increase in demand for the chemical and specialized product trades, including renewable fuels, we expect to gradually shift our fleet composition and revenue mix more towards these cargoes. Furthermore, we emphasize our commitment to collaboration through energy transition projects, which involves partnering with customers as we aim to address their specific energy transition priorities. Since introducing this plan in 2021, we've really come a long way, and these initiatives are fully embedded in Ardmore's culture today. As we turn to the next slide, we'll examine some key ETP technologies. Moving to Slide 19. This slide highlights some of the latest technologies we have implemented last year and are piloting this year.
Notably, since the inception of our energy transition plan less than three years ago, truly embraced the spirit of experimentation, conducting diligence on over 200 potential solutions and successfully implementing 14 of them to date, with returns ranging from 40% to well over 100%. As you can see in the image, our team has examined a wide range of efficiency projects across all areas of our ships, from the propeller to the engine room, to the bridge, and beyond. This also extends ashore to cutting-edge software utilized to optimize performance. On the next slide, we'll drill down into a case study for one of the solutions in more detail. Turning now to Slide 20. Installation of micro boilers on our vessel is a great example of one of these very practical investments.
Modest cash outlay of $225,000 per ship, with a strong return of 40%. This unit creates tremendous efficiency when our vessels are in port, enabling us to reduce the level of fuel typically consumed by the ship's larger main boiler by harnessing the heat naturally emitted from the operation of our generators. By the end of the first quarter, 50% of our fleet will have these units installed. Importantly, when we undertake multiple projects of this nature, the cumulative impact to our performance is significant. Moving to Slide 21. We highlight our long-standing capital allocation policy, which remains our guidepost and one we know that we frequently discuss with all of you. Given our strong financial position and low breakeven, we have ability to pursue all of our capital allocation priorities simultaneously.
With this strong earnings environment and a robust financial position, we are pleased to declare another dividend. Since the reinitiation of our quarterly dividend policy in the fourth quarter of 2022, Ardmore has paid $50 million of total dividends to our shareholders. Represents nearly 10% of our market capitalization. As discussed earlier, we've invested significantly in our fleet's efficiency, improving performance, and ultimately the quality of earnings. In addition to these investments, as Tony describes, we have recently taken advantage of some selective transactions to modernize our fleet by acquiring a 2017 Korean-built, eco-designed MR tanker, while concurrently executing an agreement to sell our 2010-built Ardmore Seafarer.
To put this into perspective, when considering the increased fuel efficiency of the new vessel and avoiding the expense of upcoming drydocking for the Seafarer, we see this as an interesting investment, effectively buying seven vessel years at a cost equivalent to the current average annual depreciation rate. Examining our balance sheet, we aim to sustain leverage through market cycles, supporting a resilient financial position and a high quality of earnings, while giving us the foundation needed to opportunistically execute well-timed investments. Turning now to Slide 22. Just discussed, Ardmore's team is focused on leveraging our platform and consistently creating value through shipping cycles. An industry challenged by technological and regulatory uncertainty, we recognize the volatile and dynamic nature of the shipping landscape. At Ardmore, we're built to thrive in such conditions.
Conclude, I want to emphasize that our purposeful strategy, Energy Transition Plan, capital allocation plan, and dedicated team at sea and ashore are all aligned and focused on generating long-term value for our shareholders. With that, I'm very excited to hand it over to Gernot and hear what he has to say about the volatile tanker markets and how Ardmore is delivering industry-leading performance.
Thank you, Bart, and good afternoon. It's good to be back in New York and to present to you on another successful year and on why we believe there is more to come. For the next 15 minutes, I will take you through main drivers on the demand side, touch on supply fundamentals, then I will provide some real-life examples of how Ardmore continues to capture the full benefit of these extraordinary markets. Turning to... Here we go. Slide 25. This is the world today. This slide highlights some of the key changes in cargo movements over the past two years. In green, you see how cargoes move today. Contrasted in red is how they used to move before. Difference in voyage length, red versus green, represents the increase in the demand picture in product tankers. What is behind these very long-distance trades?
To begin with, Europe is structurally short refined products, in particular, diesel and jet fuel. It has been like that for a while. Europe has been increasingly sourcing its refined products from overseas. That was purely for economic reasons and largely on the account of Europe's aging refinery system. Add on top of that, the EU refined products embargo. No more diesel from Russia. European product inventories are around historical lows. To cover those shortfalls, long-haul imports from the U.S. and from East of Suez markets are replacing short-haul voyages. What used to be a one-week voyage, Baltic Russian ports to Northern Europe or the Black Sea to the Mediterranean, that now takes three to five weeks. That is a significant jump in itself. On top of that, you add substantial disruption in the Red Sea, which all of us see and read about in the news every day.
Vessels are navigating around the Cape of Good Hope to avoid the Red Sea. This adds another 30%-70% in voyage length, depending on origin, and that is on top of what is already, a very long voyage to begin with. Then in the West, completely unrelated to any geopolitical events, the Panama Canal has essentially run out of water. Panama traffic through the canal has reduced substantially. You can see what used to be a very typical trade on the left, in red, from Houston to places like Ecuador or Peru on the west coast of South America. Crossing the same products from Asia is about three times the voyage length, and we're seeing exactly this play out.
For the past 150 years, the world has relied on the Suez Canal and later the Panama Canal, to connect global trade at significantly shorter distances. Well, today, once again, merchant ships are going around the Cape. So to summarize, what are the factors in play? Long-term demand drivers, Europe, structurally short diesel, two separate, yet concurrent geopolitical events, Russia, Ukraine, and the reasons of the recent events in the Red Sea. And third, climate-related changes, and water shortages in Panama. This confluence has resulted in a substantial increase in ton miles and a remarkably tight supply in product tanker markets. Slide 26 is providing more detail on the points I just made, and I will not run through them one by one, but the charts on the right paint a clear picture.
The number of product tanker tanker transits to the Suez Canal is down by 60% and decreasing further. The number of Panama Canal transits is down by 40%. It is an evolving situation and the trend line continues to point down. Turning to Slide 27, where we continue on the theme of demand drivers. As Bart alluded to earlier, the energy transition is unfolding as an evolution, not a revolution. Demand for oil remains a steadfast factor. Reflected in the upper right graph, the International Energy Agency, aligning with industry projections, foresees continued growth in oil demand. Beyond the persisting demand for oil, there is a consistent pattern of refinery expansion in the East, strategically located near points of production. This expansion results in heightened ton miles for product tankers, meeting the consumption demand in the West.
Adding another layer, the chemical sector, a market we actively participate in, is poised for substantial growth as well. This is attributed to the significant petrochemical capacity set to come online in Asia over the coming years. In summary then, these robust long-term demand drivers point to continued strength in the product and chemical tanker markets. Moving to Slide 28, supply. Matrix on the left provides a visual of the evolution, indeed, the tightening of tonnage supply in our industry. The two dimensions are average age of the fleet, size of the order book. If you looked at the top left, the quadrant in red, about 15 years ago, we were looking at a fleet that was already very modern, plus a very large order book. As the years progressed, follow the progression there, the order book declined and fleet age increased.
Today, we are on the opposite side of the matrix, in the green, in the green quadrant on the bottom right. A low order book, and the fleet on the water is the oldest it has been in two decades. Looking at the graph on the right, the current product tanker order book stands at 13% of the existing fleet. The MR order book is under 8% of the existing fleet. In five years, nearly half of the global fleet will be older than 20 years of age. And yes, there are some niche markets for older ships to operate in. However, the capacity of these niche markets is far too limited to absorb what is essentially 50% of today's MR market. There are only 8 million deadweight tons on order for MRs.
55 million deadweight tons will be within the scrapping age profile in the next five years. So by order of magnitude, seven times the amount of deadweight capacity could potentially be scrapped compared to what is on order today. As we mentioned on our last earnings call, it is important to point out the impact that Aframax crude tankers have on the overall product tanker order book. Currently, Aframax crude tankers, their net fleet growth is forecast at near zero. This implies that an increasing proportion of LR2s, most likely older vessels, will naturally transition to trading crude to cover the shortfall in Aframax tankers. And we are already seeing a clear trend today of LR2s shifting into dirty trades. Turning to Slide 29, this pulls it all together.
We can see from the green bars in this chart the strong forecast on ton mile growth. Long-term demand fundamentals, 2024, enhanced by the full year impact of the EU embargo, and then the further uplift from the Red Sea disruptions. In contrast, we can see the limited net fleet growth across product and chemical tankers, indicated by the gray and blue bars. Moving out, then I want to reemphasize the clear contrast of low net fleet growth with the escalating ton mile projections. This gap is setting the stage for continued market strength and resilience. Turning to Slide 31. I will now demonstrate how some of these market drivers are reflected in the way we trade our ships. Essentially, what we do revolves around three key themes. One, fully capturing these very firm markets.
Two, embracing the increasingly complex nature of our business environment and unlocking the opportunities this creates for a company like Ardmore. And finally, building value through creative spread plays, adding incremental profitability on top of prevailing market levels. Turning to Slide 32, this is a snapshot of our global setup across time zones, covering our key markets in the Americas, in Europe, and in Asia. This enables us to engage a broad and diverse range of high quality customers. A selection of them can be found here. Importantly, we are also engaging with and trading with an increasing number of chemical, agricultural, and other non-petroleum focused companies. Ultimately, this is about having lots of trading options for Ardmore to ensure we can capture these strong markets in the most optimal way, both in terms of timing and voyage combinations. Turning to Slide 33.
Here are now some examples of what is achievable in these markets. These are actual voyages we have undertaken in recent months. Starting on the right-hand side, you can see a long-haul Asia to Europe voyage. The original routing is shown as the red dotted line. As repeated ship attacks unfolded in the Red Sea last December, we negotiated a Cape routing option, which we subsequently exercised. Incremental fuel, cost, and time was fully priced in to maintain our TCE despite the longer route. At the same time, we can see an example on the left of how we are servicing the Pacific markets from Asia. In addition to the original voyage leg from Asia to Mexico, we found lucrative onward employment options that were combined in a creative way.
We achieved a strong TCE of $36,000 a day over four and a half months, and the vessel was laden much of the time. As you can see in both examples, duration of voyages originating in Asia is extended drastically, both due to the disruption of the Panama Canal and in the Red Sea. The impact this has had on Asia Pacific, Asia Pacific trade is notable... The box at the bottom right there shows freight movements since the start of the attacks in the Red Sea and the following escalation. Realized TCEs on these routes essentially doubled from seasonally already high levels, around $30,000 a day, to now $60,000 a day. Just to mention, about 65% of our fleet is trading currently in the eastern regions. Turning to Slide 34.
Idle days and ballast days, or you could say empty voyage legs, are expensive, especially in this market. Let's look at an interesting combination we have done on one of our chemical tankers, essentially reducing all ballast over half a year. These ships are half the size of our MRs, but they are more versatile in terms of carrying non-petroleum cargoes, and they can then be combined in lucrative ways. Starting at the bottom left of the map, in Argentina, with a long laden leg into South Korea, followed by a China run into Europe, followed by Europe to the U.S. Then from there, back to South America. A full circle earning close to $30,000 a day over six months, with only negligible ballast and 95% laden days. Again, these ships have half the intake of an MR. Turning to Slide 35.
Once more, this slide shows what is possible in this market. As Bart mentioned earlier, we had a large number of dockings this past year. Typically, the way we trade our ships is all about maximizing flexibility and maximizing optionality. When you are positioning for dry dock, you are working towards a very defined place and time. To do this in a sensible way is both an art and a science. This example, we're looking at a vessel that was open in Northern Europe earlier last year. As you can see, we wanted to bring it to China for dry dock. We put together a repositioning plan and combined a transatlantic voyage with the U.S. Gulf to South America run. This was followed by a South America export cargo that brought the ship within a stone's throw of her dry dock location.
Also here, we see a 4:1 laden-to-ballast ratio, and more importantly, a TCE close to $40,000 a day over four months. These are incredible earnings in their own merit, and truly remarkable when you consider these were really repositioning voyages. Now, the examples I've just shown you were only three examples of a much larger data set, yet we hope they demonstrate to you some of the key themes we have been dealing with commercially. Of course, in aggregate, all this will show up positively in our TCE results. Turning to page 36. Here, I would like to show you one important way of how we have created additional value on top of a strong market. In this case, through a high-performing time charter book and spread place. Allow me to explain what we are looking at here.
The green line is the spot market. The bars in blue are the number of ships we have on time charter out. The bars in gray are the number of ships we have time chartered in. While the world was still on lockdown during the COVID pandemic, the need for mobility was limited. Product tanker markets were weak. During that time, we benefited from strong time charter coverage, at one point up to seven ships. At the same time, we started to execute some attractive time charters in with forward optionality. When markets started to recover, the number of ships we had on time charter increased. The number of ships we had on time charter in increased, and we let our time charters out expire. This was near perfect timing, as you can see.
We pivoted from a more defensive stance in 2022, we pivoted from a more defensive stance in 2021, when times were bad, to really opening up our charter portfolio in 2022 to fully capture the market strength that has ensued since. For another example, this past summer, we extended one of our chartered-in vessels for min 12, max 18 months in our option. We continued to trade with spot for about half a year to capture the strength of the past winter market. Then we recently locked in for a 12-month period to cover the remaining charter period, including the optional period. The guaranteed profit spread on these 12 months alone was $2.7 million, so on top of the previous high spot earnings.
We also want to mention that we hold in-the-money call options for time charter extensions, specifically time charter in extensions. Those are declarable later this year, on three ships for charter periods until mid-2025. The option rates are at less than half of today's actual spot earnings. Therefore, we believe these options will still be very much in the money by the time they're due. At the current market levels, these three options will create additional value of $17 million. So do stay tuned. It is important to note that we were able to create these structures in both weak and strong markets. Slide 37, this is the team. Strong markets are great, but you need the right team and the right platform to capture them. A very diverse team, as Bart pointed out... It's diverse by design, because we know that diverse teams create stronger performance.
Diverse in terms of cultural background, professional background, personality, and diverse along other dimensions. This enables better decision-making and better access to our global markets, hence, better performance. Our trading mantra is rooted in a nimble, yet methodical approach to our ever-changing markets, leveraging both experience factors as well as a suite of digital intel tools and AI-supported performance optimization systems. We believe that any market, or any voyage for that matter, offers infinite opportunities for incremental performance gains. Our whole system, and how we are approaching things philosophically, is set up to capture that. This concludes my section. Thank you for your attention, and I look forward to answering your questions later. Tony.
That lunch really looks and smells good. All we got was a ham sandwich, so. Great. Well, listen, you know, we've gone through a lot of detail now. And what I want to do actually is kind of zoom out quite a ways and think a little bit about where we are in the cycle. So, forgive the really dumb imagery here, but it's a serious question. I think it's the most important questions, you know, as investors that you face looking at. So I started in this business in the late 1980s as a banker. And since then, anybody that's been around that long, and I think some in the room have, will count it up and think: Yeah, actually, we've been through six cycles.
When I started as a banker, it was at, you know, back when banks actually lent money, and so we were taking real risk, and we were looking back a couple cycles. So altogether, I feel like I've got sort of in you know my bones about eight cycles. Thinking about where we are today and kind of looking at all that experience, it does feel like there's some patterns that are important. So I think the first pattern is that of those eight, half were relatively, in hindsight now, fairly short upturns. They felt very important and exciting at the time, but they didn't last long. But the other four, and I would include this one in that, and we can discuss that in Q&A, are fundamentally different.
They are longer and more persistent, and they share some common characteristics. And forgive me, but we're going back to 1957, but the truth is that the dynamics in our business and supply and demand haven't really changed, at least since World War II, maybe even further back. So, the first thing they all have in common is that they were preceded by 10, 11, 12, maybe even 13 years of fundamentally bad markets. And in that period, fleets got older, order book shrank. There were some bumps along the way of activity, but fundamentally, you know, yard capacity shut down. So, you know, like, when was the last time we were in a strong market? 2008, 2009.
I think shipyard capacity is substantially lower today than it was then. So that's the setup. And then, what they all have in common is that some unexpected positive demand event occurs, usually geopolitical, that kind of lights the fire. And it's usually not just one event, it's several things that happen. Now, I mean, each of these upturns is different and unique, but there are some similarities, right? And I don't want to do this now, but if you want in Q&A, we can think back to what were the specifics and... But kind of ignite this unexpected, you know, jump in demand through not just one event, but a series of events. And then it becomes clear that supply is not going to be able to catch up.
And that's really the foundation of one of these strong markets. They last anywhere from four to six years. And they all end the same way, which is when a really deep economic crisis hits the global economy. So I'm going to leave it at that. I think the questions are: where are we in the cycle? And what is Ardmore doing to position itself for, you know, different probabilities of outcomes here? So happy to engage in that discussion with you and then anything else. Just last thing I want to do, though, is thank you all for joining us today. And in particular, thanking Curtis for coming up all the way from Florida, in spite of the weather and in spite of his gammy leg there.
That's an Irish expression. Happy to open up the floor for questions.
For the benefit of the people on the webcast, we do have microphones that will be circulated, so. For those, again, on the webcast, if you want to ask a question, please email ardmore@igbir.com. I will, I'll feed those into the mix here, but for the time being, please go ahead. Thank you.
That's, that's an easy question. However, operationally, they may not want to do that. So in fact, South Africa is becoming a bit of a bottleneck. So because if you carry more bunkers, you're shutting-
... Yeah, that we didn't touch on this, but, you know, bunker planning becomes definitely one of those operational elements aware of to, you know, bunker where you're intending to bunker, not, you know, squeeze into. Yeah.
Whenever you move away from the main bunkering ports regions, you might find yourself, exposed to scarcity of bunker supply, higher pricing, infrastructural bottlenecks, like, barge availability, waiting time. And of course, every time we either pay more for our bunkers or extend our voyage length without any revenue to put towards it, bit of impact on our TCE. But that's labor shortages, it's just, you know, pricing and availability and the infrastructure. And of course, by being very proactive and forward-looking in your voyage planning, you can avoid to find yourself in those messy situations. But it's just one of many examples where, and I think it's a great example, as the world changes, trade patterns, there's always a lot of things to consider.
In itself, that creates, of course, volatility around some of those bunker supply lines with a further knock-on effect on the entire oil system.
$100 a ton. Like, you know... I think for the other two questions.
Yeah, I think there's certainly been some around to what extent does, you know, find their way back into the supply chain. Crude oil from Russia in refineries anywhere in the... At some point, will they be refined and blended and... I wish I could give you a definitive answer. We of course, we don't track, you know, we don't have the ability to blockchain the oil, oil chain in that sense, but I, and I'm... Lots of answers. Yeah. So, there has been for the earlier part of last year, up in crude in China, pretty much on the back of just weaker domestic demand occurrence in the Chinese economy. Part of that, we have seen a general trend towards declining Chinese exports.
That being said, we know that, you know, a lot of the, you know, Teapot refineries , the independent refineries also operate with a main purpose, you know, overseas. And we are now actually seeing towards the latter part of last year and into this year, China is very much on the rise. New export quotas have been issued. Now, export quotas aren't a perfect predictor of actual export volumes, but everything points towards a likely increase of Chinese product exports again.
Here. Tony, you the last bit why this could be a four to... And Michael, how are you thinking about your strategy on that?
Yeah. So, I think it was Mark Twain that said that, "History, but sometimes it rhyme." So you know, there's no... But there really is parallels and... And, you know, I think there's a general view that for another couple of years, nobody knows how it's gonna end. We all do know how it's gonna end. All your portfolios are gonna... So, so and it's, it's also interesting when you look at those prior periods, there were spikes within those. Overall, it's just much. So, but it seems like a really persistent. So in terms of what are we doing about it, we like where we are.... Those are terrific. You know, we just by selling the 20 were planning to, but we saw the opportunity, the value of that older ship.
And so opportunities to grow, we will. We've seen a lot of growth in the last 10 years. So, you know, so we're nimble, and with that really optimizing the voice, but also having, having optionality in the way you, which is difficult. But I think the other thing, it's people over again, it doesn't quite register. Our sector, only 5% of the market. Very, very fragmented trading, and what really matters is how you market side, you know. That's a bit of a ramble, but go ahead and ask me the question.
Well, no, I mean, it's just back to it. So it, it's that your position in the...
We were really excited. We're settling in and getting used to. So, you know, a year ago, we were thinking, right, this is a bump, a blip, you know, and it's going to be over, and when it's over, we're... In terms... That's a little more difficult, but compelled to do anything. Go ahead.
Yeah, yeah. Do you hedge any of us? Do you lean-
Generally, you know, we don't really hedge. We hedge our fuel needs. There could be certain specific examples if we had a corresponding, a long or short exposure on a particular freight element. If we want to then lock in the corresponding TCE, we could, in theory, lock in the fuel as well, but we generally don't do that, essentially markets as such.
On the question on vessels and financing. So I guess one, we don't have any new builds on order coming in that we on leasing structures or draw down debt. But the company, the last year and a half, has really focused on just the balance sheet and the shifting of debt back to the traditional shipping banks, predominantly European-based, and where they've been able to provide us 100% coverage, in some cases, of revolving credit facilities, which gives us the ability, even within a quarter, to manage debt levels in depth. At delevering, we've been able to break even down. On that, it would be $1,500 a day, north of $7 a day, and it's below.
and so I think the key thing for us is always maintaining a really wide network and relationship, financial capital providers, and, we've had significant lead structures in the past. We still have a few, but much more focused on the trad-
If I could just say, if everybody could please make sure you speak into the microphones. I appreciate that we took a moment to get to you, but in general, speak into them. And if we could, could we turn up the volume on the mics here on the webcast, that it's a bit tough to hear. So...
Thank you very much, guys. Tony, you've mentioned, like, the past four or six cycles. One thing that seems a little different this time around is that a lot of the companies have less leverage after these kind of those... flow, and now it feels, like, very different. Balance sheet is... Take on this particular.
You know, I'm trying to think, like, the last strong market we had was in the... We were busy ordering ships at that point for incredible prices, and when it all off, there was a lot of carnage. So it feels like companies are a lot more sensible, also being held back by, you know... You know, like, if you look at the dry bulk sector, they've been at this, and there's been remarkable-
... Could be, yeah. All right, if we could get one more-
Turning on the microphone.
Gotcha.
California refineries are shutting down. They're not connected by pipelines. Barrel of gasoline. Oh, what type of market could product tanker?
On a few really interesting points. I mean, one, something we certainly see right now are the conversations that are changing with our also petroleum-based customers. Some of the sort of really large and main commodity traders are now quite actively engaging in trading, and certainly also more forward-looking discussion on biofuels, fuels, blending components for biofuels. And with that, just comes more complexity. We need different components, different feedstocks to generate those biofuels. We need blending components for that. We need different ships and different onshore capabilities and organizational capabilities to handle those in a first of all, a safe, but most importantly, also, an economic way.
This mismatch that you describe, where any refinery already today has a given product slate, and a lot of things to adjust that product slate, but it will never be perfectly matching a market. As a matter of fact, it will continue to change, and that creates a product overhang that essentially then gets discounted in terms of price, and that will get exported somewhere else. So for us, this is kind of part of this really exciting story where, driven through the energy transition needs and some focus on renewable fuels, but also just an increasing complexity. You know, conversely, imagine a world where there was only one fuel that fits, moves, that would be a far less complex world and probably would be a lot less interesting in terms of tanker demand.
From that, towards more complexity, more product grades, that creates different trade lanes and more interesting ways for us to also arbitrage that. Yeah, but it's, it's very much happening. I mean, some, you know, some of those conversations two or three years ago just simply didn't take place. And just recently, we had one of the, one of the European refiners approach us and basically ask us for, you could almost argue like a tutorial, like a walkthrough on some of these cargoes and what to observe when shipping those cargoes from a, from an operational and commercial standpoint.
You know, we find that as a nice validation of the reputation we have created in those markets to be well beyond just, you know, diesel and gasoline, which of course, still today is a bulk of what we do, but we can do a lot more than that.
Up here, and then Chris.
Also, the philosopher Heraclitus, whose only constant in life is... Questions regarding on the horizon. I was looking at... Suez Canal blockage, you know, that's just happening right now. How is that going to return to... How is that going to benefit?
I can take a stab at this. So I think just maybe a comment on timing and, you know, the quote that you just mentioned is highlighted in various next debates we have, and I think it's very much of our, as I said, our trading mantra is based on we are in a very changing environment, and for us to trade well in this, we just have to face that. I don't think that, you know, unfortunately, the situation itself overnight, and I've been factors like, you know, the... Some of those trades that we're seeing now that have changed as a result of this will be quite sticky. Won't necessarily foresee back to just how then overnight.
I think, that valid question, and the question we ask ourselves all the time, if we take those components out of the equation, where would the market be today? And, that's a tough one to answer, but I think what we certainly shouldn't take as a baseline is 2021, which is COVID. The world went into this, you know, lockdown and, you know, this double tanker market that ensued. A lot of positive things were actually happening. The fuel switch created a lot of complexity around diesel, diesel shortages. Europe is already structurally short of diesel. All of a sudden, there was a higher demand for marine diesel fuels. So there was actually a lot of interesting things happening in the winter of 2020-2021.
Coming out of COVID, before the Russian invasion of Ukraine, the market was actually really already on an upswing, which was able to kind of... Outbreak of war coming when we opened up our time charter portfolio, we saw the world normalizing in terms of its mobility needs.
... is already a fairly healthy and substantial baseline, and we go back to that, I think, would not be, would not be at the same time, how quickly would that happen considering the stickiness of rates, new trading relationships, new trade patterns, and the relatively cheap cost of freight still and the overall profit margin on from A to B in this, in this elevated environment for a good while.
Hi, how are you going to- Well, as,
Back to our capital allocation policy and ours that has been in place for the current market increase. And if we think back, the policy has always been one where, in the past, it was to have modest leverage, always be looking for potential, and then to return capital to shareholders. And actually that simultaneously. So that was a key part of reinstituting, starting with Q4 2020. Capital allocation broadly, we still have runway to further invest in the current more efficient. We have further runway to leverage. And then, you know, always very prudent about the current market conditions, business and also the gravity, all while balancing. Have a guidepost, but we take a dynamic-
Thank you. My final question is about interest rates. The company came around when interest rates were 0. Now we're having higher for longer normalized interest rates. Can you talk about your debt and how you're going to again sustain a dividend, invest and, you know, operate in the higher cost of capital environment? Thank you.
Sure. And that's one where the company really took a very deliberate approach a year and a half ago, and shifted and got revolving bank capacity from the traditional European lenders. Bought back and exercised purchase options on the lease vessels. That actually is one where, coming into a stronger market and knowing that we could actually manage the debt levels within the quarter lower as the interest rates. Very deliberate as we've had this increase in earnings, that a part of that has been to delever. So now at breakeven of $13,900 per day, if we hadn't delevered and in these rising interest rates environment, north of $17,000 per day.
And now I think we have that luxury position lower that level, that we can, you know, range of different, higher for longer scenarios, but it doesn't impact our ability to actually location policy and-
Chris, next, I would ask again, though, if everyone could please make a point at front table as well, to speak directly into the microphones. They're having some difficulty on the webcast. If we could raise the volume on the mics at all, guys.
Yeah. Thanks, guys. Let me just follow up on that question with regards to the debt levels and leverage. Assuming the market continues to remain strong for the next coming years, are you happy with the current leverage ratio? How low could that go? And what's the ultimate bottoming, let's say, of the cash breakeven level in your minds that you could get to?
Dynamic situation. I think the way that we think about it is, you know, we're market today. There's the full range of scenarios of how it could evolve and develop. But again, it comes back to having the capital allocation policy and that guidepost. You know, we like the current leverage levels. It really increased—it's increased the quality of earnings, lowered the breakeven. I think we still have some runway on the breakeven. I mean, certainly, you know, we tackled the interest expense side of it, very tight when it comes to cost management internally on both the OpEx front and G&A front.
I think we just have to remind ourselves that we were very early managing the balance sheet and getting the arranging the revolving credit facilities. I think we have actually some further ability to work with our banks to get even more revolving facility as opposed to term. So that's something that we're working on as well. Look, I mean, we take a longer-term approach through the cycle, so you don't know exactly how it may play out. But, you know, it's important to delever and have your dry powder available should a cycle play out or interesting opportunities emerge. And we think then plant the flag for future forward value.
But I think, you know, it's just very much a conversation that the team has on a daily basis.
Here. Actually, just in the interim, I'm gonna... I mean, feel free, but I'm gonna have a couple of these from the webcast, so please do keep sending those in, Ardmore@igbir.com. I'll try not to take yours, Omar.
... But just on scrubbers, how are you thinking about that? Why does it make sense now? It didn't make sense then. Broadly, scrubbers. Apologies, Bart, that was yours.
Let me start with that. Yeah, no, so we've now begun to install scrubbers on our ships. These scrubbers are lower cost, better technology, they're modular, and the installation time is a fraction of the traditional scrubber. So we're very pleased with those investments. In particular, they can be upgraded to carbon capture, so it fits really well into our business model. Why didn't we do scrubbers three to four years ago? You know, we were in a very financially strained situation at the time. Everybody was, and the cost of the capital needed for those installations would have been very high.
We, in fact, instead of doing scrubbers, you know, we bought a ship at a really good price, and calculate what the scrubber spread would had to have been, the returns we got on the ship that we just sold, and it's $6,000 a day. So, you know, so that, you know that... You know, so, but every company has their own specific set of conditions and decision points, and we're comfortable with the decision we made back then, and we're really happy with what we're doing now.
Thank you. Just wanted to, Tony, follow up on, I think, Ben's line of questioning early on in the Q&A about strategy. You know, he was asking you about how you thought of things today versus a year ago. Wanted to ask, given, you know, Gernot, you went through the different choke points that we've been seeing and a lot of the disruption, the Black Sea, the Baltic Sea, Panama Canal, Red Sea recently. Given what's been going on geopolitically recently, has that at all changed how you are thinking about strategy? Has it caused you to pivot or think about capital allocation differently, or just strategy differently given what's going on right now in the Red Sea?
Question, hard to answer. So I don't think it's really affecting our, you know, our thinking there has been mostly operational and safety related. So I was very clear, when choosing, you know, we, our ships was attacked, and we were very lucky in getting away, without being hit. Others haven't been so lucky. You know, it was an easy to avoid the, the, let's see. Let's see what, you know, how things unfold and how that solves itself, how long that takes, and how long it takes for ships to return that route. Generally, I think geopolitically, it just these events, as long as you're kind of smart and safety conscious in the way you operate, they just add to aggregate ton level.
Then it's just a matter of very tactically, which is looking to maximize returns in that market.
Yeah, maybe just the only point I can add is that, you know, you asked, you asked about strategy. I'm not sure if being agile really qualifies as strategy. It probably doesn't, but I think it's just part of more of who we are, part of our DNA. And if you then just consider that there will always be these kind of events, high impact events, that you have to adjust to very quickly. I think that is just a testament that as an organization, in terms of our balance sheet and in terms of our capabilities financially, but also just in terms of how we approach things strategically at every level of the company, just to preserve that culture.
If somebody told me a year ago that, you know, we're going to be going around the, the Cape by the end of, by the end of last year, I probably would have called that person crazy, yet here we are, right? And, and I think, who's to say that we won't see something completely different in a year from now? So again, not really strategy, but I think agility will continue to play a really big role in terms of how Ardmore approaches things.
Yes, thank you for your time today. You were very explicit in sharing your mindset and how you view the market. Can you give us a little bit your insight about how your customers view this market, and if there is any discrepancy in how shipowners forecast the next few years versus charters? Where your discussions about long-term charters stand, have you seen any more appetite, increased appetite, for charters to take longer positions than what we have seen so far?
Yeah, that's a great, great point, and I might just respond with a little anecdote. I was in Singapore during the last APAC conference, which I believe was around the fall. So, you know, we were in a strong market, and freight was pretty high. And I sat in with a room, which was really more sort of the refining side of the business. I think I was one of the only shipowners that really came from the western side to attend. And they took a survey in terms of what the room was considering the biggest risk for them at the moment. And the top three on top of that was upside volatility and freight.
So I think from a customer standpoint, there's still a really strong concern that freight might move up further, given everything that's what's happening here. And time charter markets have adjusted as a result of this. And I guess I am really surprised by how you know positively surprised by how there is a much more lateral way of approaching some of these security situations around the Red Sea, where we have been able to really negotiate fairly amicably all these Cape routing options at no detrimental commercial impacts. And that's a positive surprise, and I think probably also you know indicative of how strong demand or how inelastic demand is at the moment.
Again, Europe is structurally so short at the moment that these products just have to move, and even though you price, you price in, an increase that essentially offsets 30%, 40%, up to 70% longer voyage distances, that, that is, that is not leading to a point where those, those cargo movements get choked off. If anything, they, they could, to move at quite, quite strong, volumes. If that answers your question.
One here, and then, Chris, you had a follow-up, and then we'll come back to the top table.
Yeah, hi. Thanks for all this. Maybe just to hear what your strategic thinking is on the dividend versus a buyback, and how you guys thought about it in the beginning, starting last year, Q4 2022, and knowing where the strength is today. Obviously, I think 2019, you guys had about 30-35 in the stack. Today, you're about 42. So I want to just kind of hear some of your thinking on that and why you thought a dividend was the best route.
Sure. Sure. So I think, I mean, one, I think coming back to the capital allocation policy and the fact that with the changing market backdrop and cash flow generation, that we could pursue all those priorities together, and return of capital to shareholders, was an important priority that then, you know, we had waited a long time to be able to actually put into place. And I think we studied when we put the capital allocation policy in place, other industrial companies and well outside the shipping sphere. And looked to and felt that a level that was 1/3 of earnings and in a cyclical business where you're gonna have fluctuations, both seasonally and cyclically, was actually quite significant within the industrial realm and sphere.
And then when we think about that and versus, for example, a buyback, and when we instituted the policy and kind of today as well, we like the liquidity and the average daily trading volume for our share and the 100% free flow. And we felt that continuing to promote that while using the dividend as a tool for returning capital to shareholders was appropriate.
Appreciate the comment. Thank you.
I, I'd be remiss if I didn't ask about the e1 Marine investment. As you guys look at that, are you thinking more of licensing that technology in the future, or would you manufacture the units for sale to others? How are you looking to monetize that?
Guys, could I ask, just for the benefit of the wider audience, maybe what e1 Marine is?
Sure. I'll give a backdrop. So, as a reminder, when back a few years ago in 2021, the company made an investment in Element 1, which has proprietary technology to take methanol and produce pure hydrogen, which then can be used in a wide range of fuel cell applications. And important to remember that that was actually a multifaceted deal that also put $40 million on the balance sheet in the terms of our preferred, and that was at a time when capital was really needed to bolster the company. It also coincided with the company's energy transition plan and rollout, and so very early and important part of the company's ETP plan.
And then as we've broadened that with, you know, examining this full range of technologies that we talked about that we've installed on our vessels, Element 1 remains one component to that. Like other industrial companies, where you have proprietary technology, and then you're looking to, you know, to monetize that and achieve value on a global scale, they've been really active now in terms of their scaling, looking at different licenses across geographies and across verticals. So it's actually not just marine, and in fact, some of the other markets are accelerating more rapidly. So yes, so definitely significant progress there. I think we have to remind ourselves from our overall context, that was a $10 million investment.
Certainly, when we think about our asset base, you know, our fleet and our core competency in the fleet, but that happened to be a unique investment that you know met other criteria for the company. But again, I think our ETP focus today and go forward is, it's much more on testing and piloting technologies that then we can deploy on our fleet, and improve operational perspective, but not necessarily making-
The front table here.
I, too, have been wondering and struggling with demand. Every dollar chases away a customer that arrives at a thousand dollars. How, how have you seen customers economizing?
... And then just mention that the transport cost is roughly 5% of the cost of fuel. I think the real question is, when oil traders are trading-
... I think that almost answers the question entirely. I mean, I think as of yesterday, the 3-2-1 cracks, you know, the refining margins were still at a roughly $30 a barrel. So I guess they're still making good money, both in terms of refining and trading those commodities. And the fact that even though those higher higher freight levels are quite sticky, product is still moving down. We're in peak U.S. Gulf refinery turnaround right now. U.S. Gulf PADD 3 rates are down to 77%, which is extremely low. Normal run rates would be 92%-95% maybe. And you know, it's not notable.
I mean, your freight is, you know, as high as mid-30s on certain routes and as low as I think, high 20s . So those are really good rates still. And again, not at this point where we're meeting inelastic demand for the transport of those goods. Again, at $30 a barrel, at crack spreads, I think it's... Everybody still has a chance to make a lot of money.
I'm gonna one more from the webcast here. Did you have? So I'm gonna do one from the webcast, and we'll have one more question up here, guys. So this has been posed in a couple of different ways, and, and Ben from in the room addressed this earlier as well. But Tony, insofar as you said that you closed the presentation by saying that cycles inevitably end. I guess the through line for the various questions I'm getting is: What do you do in the interim to make it worthwhile? What's the point if it all eventually ends? How do you get, how do you get there without it? I mean, that's the bigger question than it sounded like. We're talking about-
Eventually.
How do you start the next cycle, not at square one?
If I understand, the end of the cycle is not the end of Ardmore Shipping. In fact, I get really excited at downturns. If you asked me a year ago, what were we thinking? Well, if this ends, we're going to be in a great position. I think from an investor standpoint, it's really important to understand the concept of, you know, potential cycle, how long it's going to last. For us, we're playing the infinite game, and we're going to keep playing it, and our objective is to platform every day, but build long-term value by making really good...
Yeah. Hi, Tony, Tim. You know, as I look at everything you've talked about today, there's been a lot of focus on demand, a lot of questions about demand, but you're in a business where it's what matters. And also, interestingly, I think the variables determining future supply are much more predictable. I want to focus on those variables. The first one is, a year ago, I think you mentioned, the order book was particularly light because of uncertainty about what the environmental requirements of future... That's a big variable. An update on that would be helpful. Second thing is, I look at a lot of other assets and equipment that moves around, and in every category I can think of, the useful life is being increased.
Why might that be the case or may not be the case in your industry? You also mentioned today, you know, just the lack of capacity, production capacity. How serious is that? The final question is: What would it take you-
To answer that stack of questions. So I think the question on fuel is an interesting one. There are ships, a lot of ships are being ordered that are methanol dual fuel, but nothing ammonia yet because the. But they're all either in sectors that are very front-facing to customers, carriers, containers, or they are, you know, more belt-type businesses where a customer is prepared to make it worth their while. If it is happening, nobody's building for spot trading. Market won't pay for it. So that's not happening yet. Ships are being built with engines that can be created. Cost now is not that much, but they can be retrofitted. That is happening. So there's a lot of uncertainty. So I think that definitely is a component.
Answer the last question first and then try to remember the... So, would we order ships? Yeah, possibly. It depends on when they deliver price, if they're really, you know, project, if there are other strategic, you know, to doing it. It's, you know, question around shipyard capacity. You know, the Clarksons tracks this, but I, I think the yard capacity from 2008 is down at least. And disappear in 2008, it took a while for yards to keep building and overpopulate, yards going bankrupt. So there, there are, there are... I think there's yard capacity there for quarterly. There's this wave of older ships that is not addressed, and that's, that's still, you know, to come, but it's.
Oh, yeah, that's a good one, 'cause I get really frustrated with, like, dishwashers. So, long answer, but the short answer maybe we'll do here, which is that I think in terms of the structural technology of ships and the way they're being built and the way that the steel is being coated, et cetera, hasn't really changed. And I think that means that for our ships, they're gonna last 20. I don't think there's any initiative. There should be, to be honest. Not sure we care about economics all that much, but, you know, we should find ways to extend the life, you know, to build ships that have a longer life, you know, and life by way of modularity, upgrades, maybe better treatment of the steel. Am I missing anything? Technology that's-
No, or, or maybe also just that, I think, you know, the cycle matters in terms of the useful life, and I think that that side of it, separate from the technology and... So studying the product tanker fleet, and you see a large component of the fleet, 40% that the next five years is at the age of 20, that if a cycle plays out, those are natural scrapping candidates. But if the market remains strong, the owner is trying to keep incremental and-
Yeah.
Yeah.
They'll go out very fast. The other thing that also to keep in mind is those older ships are really, really inefficient. They might burn eight tons a day more than...
One from Ben. Tony, we're good. There we go. You asked me before we started to something along the lines that you really wanted me to give you the zinger or something like that.
I was only joking.
Yeah, I know. You said that something along the lines of, the key to making money in shipping or cyclical business is buying low. I would argue the key is selling high.
Mm-hmm.
We're kind of high now.
Right. Good question. And it's not a zinger, it's logical. Why don't we just sell half the fleet? Well, we do run a really high-quality platform that needs a certain scale to be able to generate the returns it does, and we do have a lot of future value as well. We don't need to sell ships for investors to be able to sell their... So, you know, you know, not in a position where sell down ships and distribute cash. Gradually, you know, what we've not done is grown a lot. Again, I want to emphasize, we've had plenty of opportunities to buy a lot of ships, but we haven't done that.
So I think we're just focused on performance and the cash flow that we're generating from the model that we have today and waiting for opportunities. I think that if we were to fall back through vessel sales now, I think that would impair our ability. Question. So, again, you know, the great thing about having a lot of liquidity and 100% free float is that anytime an investor wants to sell the whole thing, they can sell the whole thing. Right? So it's, you know, we don't have...
Got another question here.
How flexible has the regular shipping, ship that you have, become over the years in terms of dry cargo versus a wet cargo? And,
Mm-hmm.
Can you change the mode of-
Mm-hmm.
shipment, pretty quickly, with newer technology?
So I think, you know, we work in a world of liquid bulk. So we... There are ship types that can switch back and forth, dry to wet. But one of the aspects of our ship type and our business in particular is the wide range of liquid bulk cargos we carry. And, you know, theoretically, we could, you'd never want to do it, but you can carry crude oil products, petrochemical. So I'll actually hand this over to Gernot to answer a little bit, because I think one of our underlying strategies to maximize our trading options by looking at as many different cargos as possible.
Follow up on a different subject.
Yeah.
What about insurance costs, given what's going on in the world today? How much have they risen or-
Our D&O just went down by a lot, but that's-
Yeah.
That's the next meeting. But, yeah, do you-
I mean, with regard to war risk premiums and Red Sea transits, to the extent, you know, we yep. To the extent that, you know, anybody would still engage in those trades, obviously, as I showed, we have just negotiated options around the Cape, so we don't really need to worry about war risk premiums. But typically, those would be a voyage cost, and is either priced in or absorbed by the charterer. But yeah, they have gone up, no doubt.
I would say that the standard insurance package that's in OpEx in terms of hull and machinery and P&I that's renewed on typically an annual basis, more at regular market levels and, you know, remains a highly competitive process and hasn't been impacted.
If the world gets more peaceful, will those insurance costs drop and give you a better margin?
It would be more of a voyage expense impact. But in terms of all the machinery and, and P&I, I think-
Yeah, that, that market is driven more by, you know, kind of non-con, non-kinetic type of events, big oil spills, you know, catastrophes.
It's amazing how shipping our slip would be absorbed through reinsurance and absorbed into the whole, you know, Lloyd's world, the world of reinsurance. That we get impacted by things that you'd never imagine.
Maybe just to add, the way we conduct our business, our track record with the insurers, our safety standards, and how we've been able to, you know, avoid incidents where we would have to call into insurance cover, that certainly has an impact in terms of how you can do in terms of relative renewal rates, and that's been quite favorable to the company.
Okay, I'm seeing no further questions here in the room, and we're good on the webcast. So Tony, I turn it to you if anything you want to say in closing?
No, just again, thank you all for coming. Good questions. I think we're over, so thanks, everybody.