Euroseas Ltd. (ESEA) Earnings Call Transcript & Summary

Thank you for standing by, ladies and gentlemen, and welcome to the Euroseas Conference Call on the Second Quarter 2024 Financial Results. We have with us today Mr. Tasos Aslidis, Chief Financial Officer of the company. [Operator Instructions] I must advise you that this conference is being recorded today. Please be reminded that the company announced their results with a press release that has been publicly distributed. Before passing the floor over to Mr. Aslidis, I would like to remind everyone that in today's presentation and conference call, Euroseas will be making forward-looking statements. These statements are within the meaning of the federal securities laws. Matters discussed may be forward-looking statements, which are based on current management expectations that involve risks and uncertainties that may result in such expectations not being realized. I kindly draw your attention to Slide #2 of the webcast presentation which has the full forward-looking statement, and the same statement was also included in the press release. Please take a moment to go through the whole statement and read it. And now, I would like to pass the floor over to Mr. Tasos Aslidis. Please go ahead, sir.

Good morning, ladies and gentlemen, and thank you all for joining us today for our scheduled conference call. I'm Tasos Aslidis, CFO of Euroseas. Together with me is Simos Pariaros, our Chief Administrative Officer; our Chairman and CEO, Mr. Aristides Pittas, who is usually hosting our earnings calls is not available for this presentation this quarter due to overlapping engagements. The focus of today's call is to discuss our financial results for the 6 months and quarter ended June 30, 2024. Let's turn to Slide 3 of the presentation to go over our income statement highlights. For the second quarter of 2024, we reported total net revenues of $58.7 million, and a net income of $40.7 million or $5.84 per diluted share. Adjusted net income for the quarter was $34.3 million or $4.92 per diluted share. Adjusted EBITDA for the period was $42.3 million. A reconciliation of adjusted EBITDA to net income is presented in the press release that was released earlier today. I will provide you with some further details on our results later in the presentation. As part of the company's common stock dividend policy, our Board of Directors declared a quarterly dividend of $0.60 per common share for the second quarter of 2024, which will be payable on or about September 17 to shareholders of record on September 9. The annualized dividend yield of our stock remains at around 6.5% based on our -- on the current share price. Our continuing dividend payments, not only highlight our stable performance, but also reinforce our commitment to delivering sustained shareholder value. Along with our dividends, we return funds to our shareholders via our share repurchase program. As of August 6, 2024 and since the initiation of our repurchase program in 2022, we have repurchased 400,705 shares of our common stock in the open market for a total of about $8.2 million. Our share repurchase plan of up to $20 million was extended for a year during 2023, and last month, our Board has extended it for yet another year. We will continue to use our share repurchase program at management's discretion depending on the level of our stock price to enhance our ability to increase long-term shareholder values. Please now turn to Slide 4, where we discuss our recent sales and purchase charter and other operational developments. Starting first on the S&P front, we can report that the previously agreed to be sold vessel, motor vessel EM Astoria, the [ 2,780 ] teu feeder container built in 2004 was delivered to its new owners. The vessel was sold for approximately $10 million, resulting in a gain on sale of about $5.7 million or $0.82 per share and having contributed to the company's total earnings of more than $42 million since its acquisition in 2017. During the last 4 months, there was quite an activity around our newbuilding program. On May 13, 2024, the delivery of our fifth newbuilding vessels from a series of 9 M/V Monica took place. M/V Monica is a fuel efficient 1,800 teu feeder vessel. Following the delivery, the vessel commenced a charter for a minimum of 10 months to a maximum of 12 months at a rate of $16,000 per day. Subsequently, the 6 of our buildings M/V Stephania K, newbuild fuel efficient 1,800 teu feeder containership from [indiscernible], sister to Monica, was delivered on June 24, 2024. Like its sister, this vessel is equipped with a Tier 3 engine and other sustainability-linked features, including alternative maritime power installation. After delivery, M/V Stephania K commenced a charter for a minimum of 23 to a maximum of 25 months at the rate of $22,000 per day. Furthermore, on July 19, 2024, we took delivery of our 7th newbuilding, M/V Pepi Star, an eco-friendly 1,800 teu feeder containership from the same yard like the others. Again, the vessel is EEDI Phase 3 compliant and features a Tier 3 engine along with other sustainability enhancements, including alternative maritime power installation. The acquisition of M/V Pepi Star was partly financed with a loan from Piraeus Bank, and following the delivery, the vessel commenced a charter for a minimum of 23 to a maximum of 25 months at a rate of $24,250 per day. From the above items observed the progressive increase of the rates the 3 sister vessels were charted, which fully reflects the market developments during the quarter. There are 2 more vessels remaining in our newbuilding program, 2 2,800 teu vessels. Their deliveries initially scheduled for November and December 2024 have been rescheduled to January 2025. Continuing our fourth year on the chartering side, M/V Hydra charter was extended for a minimum of 10 to maximum 12 months at $13,000 a day starting from May 2024. While M/V Joanna, its charter was extended for a minimum period starting from the beginning of August to a maximum period until August '23, at an average gross daily rate of $13,500 per day. The vessel will then proceed to the Far East to have its fifth special survey and drydock performance. She was then fixed and she will commence a charter for a minimum of 23 to a maximum of 25 months at another $16,500 rate that is targeted. So the first 17 months are at $19,000, the next 6 months of $9,500 while the 2 months of the delivery period at the option of the charter at $16,500. Finally, vessel M/V Spetses was fixed for a minimum period of 18 months to a maximum period of 20 months at a rate of $18,100 per day starting from middle of August. We are happy to report that during the second quarter, we had no idle period or commercial off-hire time. Regarding drydockings, Motor Vessel Synergy Keelung underwent a scheduled dry dock, which lasted approximately 19.5 days during the second quarter. Next, please turn to Slide 5 for an update of our current fleet profiles. Our current fleet consists of 23 vessels in the water, including and includes 16 feeder containerships and 7 intermediate container carriers with total carrying capacity of just about 67,100 teu at an average age of about 14 years weighted by teu. Turning to Slide 6, you can see the 2 remaining vessels that are under construction, which are to be delivered, as I mentioned earlier in January, in the first quarter of 2025. After the delivery of these 2 feeder containerships, our fleet will consist of 25 vessels with a total carrying capacity of just under 73,000 teu. Let's now turn to Slide 7 for a graphical presentation of our vessel employment. As you can see in the slide, we have secured very strong charter coverage over the next 2 years, with approximately 95% of our fleet fixed for 2024 and nearly 44.5% for 2025. This robust charter coverage combined with profitable rates for the remaining of our charters for these results for higher profitable quarters, enhancing our fleet liquidity through 2024 and 2025. Our chartering strategy is crucially maximizing our revenues across market cycles and ensuring that we will capitalize on favorable market conditions. At this point, let me pass the floor to our Chief Administrative Officer, Mr. Simos Pariaros to go over recent market developments. Simo, go ahead.

Thank you, Taso. Good morning from me as well, ladies and gentlemen. Let's now move to Slide 9 for a broader market review. Let's take a look first on charter rates, focusing on the development of 6 to 12 month time charter rates over the past 10 years. In the second quarter continuing through the end of June 2024, containership charter rates experienced a strong increase across all segments. If we look at a reference the rate of 2,500 teu containership, the 6 to 12 months charter rate stood at about $34,000 per day, much more than triple, the almost $9,250 per day, which the market paid at the end of 2023, and well above the 10 year average of approximately $15,719 per day. These trends are consistent across both smaller and larger containership sizes, showing similar favorable comparisons to medium and average rates. Now moving on to Slide 10. We go over some further market highlights. We mainly want to highlight here that after climbing through the beginning of July, the market has shown sign of sub-stabilizing in the past 3 to 4 weeks, indicating possibly a temporary pause in the upward trend. Let's hope that this will reverse in the weeks to come. The increase up to the end of June is primarily attributed to ongoing disruptions in the Red Sea, return to some degree of post congestion and an early peak season with unexpectedly high volumes from Asia predominantly to developing economies, leading to a very tight market. Average rate per day during the second quarter of 2024 increased by about 48% compared to the first quarter of 2024, while vessel prices increased as well and are now closer to the peak levels of 2022. The average secondhand price index also increased on average by about 15.5% in the second quarter of this year over the first quarter. The newbuilding price index increased by about 1.4% in the second quarter of 2024 over the first quarter of the same year. Newbuilding prices continue to stay elevated due to inflation and extended yard forward cover. While newbuild contracting has moderated from the exceptionally high levels observed during the COVID-19 pandemic, it still remains relatively robust. This sustained activity is primarily driven by cash-rich liner companies eager to renew their fleets with alternative fuel capable vessels. However, this is primarily focused on high -- on bigger sized ships. As of July 15, 2024, the idle fleet, excluding vessels under repair stood at a near 170,000 teu represented just about 0.6% of the total fleet, and it basically consists of ships that are under sanctions as they are owned or related to Iranian interest. So essentially, we can say that there is no hydro fleet at all. I will now give you some figures about container vessel recycling within this year. During 2024, up to now, 39 vessels accounting for about 54,000 teu have been scrapped. We expect demolition activity to increase moderately in the remainder of this year after a number of very quiet years due to the very high margin. In the second quarter of 2024, scrapping prices softened slightly to approximately $545 per light weight ton on average, though still remaining above the average observed in the pre-pandemic year of 2019 by about 33%. Please now turn to Slide 11. The latest update from IMF from July 2024 sees the global economy to experience modest growth over the next 2 years, with basically a cooling activity in the U.S., a stabilization in Europe, and stronger consumption and exports in China. Risk to this outlook remain more balanced. However, there are upside risks to inflation and price pressures stemming from the new trade or geopolitical tensions that may appear. Any further escalation of trade tensions could raise near-term risks by increasing the cost of imported goods along the supply chain. As a result, the IMF has maintained this year's growth forecast at 3.2%, consistent with its April projection. In the meantime, the forecast for 2025 were slightly reduced by 0.1% to 3.3%, with China and India bringing the most notable upwards revision. On the other hand -- on the other end, Japan's growth has been revised the most downwards for this year from 0.7% -- to 0.7% from 0.9%, and Russia's in 2025 down to 1.5% from 1.8% in their previous forecast, and much lower than the 3.2% that is predicted for Russia for 2024. Overall, we see that the fleet continues to grow at a very fast pace, having expanded by about 6.5% only this year without accounting for idle vessel activation, which has been significant during 2024, as the idle fleet has strengthened from about 800,000 teus about 12 months ago to just 170,000 teus today. Now as China's economic momentum is faltering as the country's economy has further matured, the world is looking for the next tiger or tiger that will lead its economic growth. In that respect, India's growth is projected to remain robust at 7% this year. This upward revision is attributed mostly to improved private consumption. However, the IMF cautioned that growth is expected to slow down slightly in 2025 in India to 6.5%. In the meantime, the Asian 5 economies remain the main agent for the global economy with the forecast remaining broadly unchanged from April. Now according to Clarksons' forecast, containership trade demand is anticipated to rise by a record 16.7% in teu mile terms in 2024, up from the previous estimate of 9.2% back in April, and this is happening due to further rerouting through the Red Sea caused by ongoing disruptions in the area, and also exceptionally good volumes from Asia to Europe and the U.S., along with the developing countries. However, the effects of the Houthi attacks in the Red Sea that have caused these disruptions, are expected to normalize at some point going forward, something that we expect will create significant challenges in the market for a period of time. Now please turn to Slide 12, where you can see the total fleet age profile and containership orderbook. The containership fleet is becoming older with about 30% of the capacity being older than 15 years, something that will work as a significant buffer in the medium future, when these ships enter the historical average scrapping age. As a result, 2024, the orderbook as a percentage starts at around 22%, reduced from a peak of 30%, which we saw last year. Turning on to Slide 13. Please take a note that the fleet age profile -- at the fleet age profile of the smaller ships of the feeder sector of the 1,000 to 3,000 teu range. These sizes of vessels are the backbone of our operations and the primary focus of our newbuilding program. The orderbook here stands at a near 4.7% as of the beginning of August 2024. Now according to Clarksons, new deliveries are projected to be approximately 8% within the entire 2024, with the vast majority of these ships already delivered. The number drops to 1.8% in 2025 and 1% 2026 and beyond, suggesting that going forward, we will have minimal deliveries of this size segment. With over 50% of the fleet of this size segment being over 15 years old, these favorable fundamentals suggest an anticipated reduction in fleet size in the coming years. Let's now move to Slide 14, where we discuss our outlook summary for the containership market. Despite the stabilization in July, the container shipping market has seen significant gains throughout 2024. Freight rates have shared the highest level outside the pandemic period, while charter rates have climbed steadily to historically robust levels. These strong market conditions are largely driven by disruptions in the Red Sea, as mentioned before, which have forced vessels to divest around the Cape of Good Hope leading to increased vessel demand and port congestion. Additionally, healthy container volumes are bolstered by continuously strengthening global economy. Freight rates have surged, and charter rates have more than doubled since the end of the year of the previous year, reaching their highest level outside of the COVID-19 period and the strong markets of the -- of 20 years ago of around 2004, 2005 period, where the market was also at extremely high levels. The Contex index has increased by 164% since the end of 2023. Looking into the second half of 2024, the developments in the Red Sea will play a critical role in saving the sector's immediate outlook. The situation remains uncertain, with any resolution heavily depends on the political landscape. Even if conditions improve, the distraction is expected to continue for several more months. In such a scenario, charters are likely to opt for much shorter duration charges. As we move now into 2025, the container shipping market is anticipated to face challenges, particularly if disruptions in the Red Sea ease. The fleet is projected to expand, creating capacity management challenges due to significant cumulative supply growth. Nonetheless, forecasts indicate expectable year for container trade volume growth. Additionally, potential reductions in the vessel speeds, driven by efforts to reduce emissions and adhere to bring policies may help alleviate some of the supply pressures potentially stabilizing the market. The energy transition and the decarbonization process of the world's fleet is steadily gaining momentum in the containership sector and definitely at a much faster pace than the rest of the shipping sectors, creating much more favorable dynamics for the newer eco-vessels, something that has worked very well for the newbuilding investment program of Euroseas. Going forward, we anticipate that the premium for charter rates achieved by eco-vessels will further widened. This is because charterers and the industry as a whole are becoming increasingly sensitive to greener transport options, thereby placing a higher value on vessels with lower environmental impacts. Furthermore, the introduction of further environmental measures and carbon taxes worldwide will further boost the premium on this kind of ships. Now moving on to the last slide of my part, Slide #15. Please take a note of the significant increases in both charter rates and asset prices that we have seen during 2024, following the Red Sea developments. What is most interesting though is that the newbuilding price index is almost at the highest historical levels, something that gives further value to our investment program and proves the rightness of our decision to proceed with the vast expansion of our fleet throughout our newbuilding program just a few years ago. Euroseas with healthy cash balance to fund the remaining equity portion of our newbuilding program, we plan to continue returning money to our shareholders through dividends and share buybacks at management discretion, and we continue to plan the renewal and expansion of our fleet with strategic investments that we believe will create further value to our shareholders. And with that, I will pass the floor back to our CFO, Tasos Aslidis, to go over our financial highlights in further detail.

Thank you, Simos. Let me continue, and this I indicated in the beginning, I will provide you a little bit more detail on our financial results. For the 6 and 3 month periods ended June 30 and compare them, as I said, with the same periods of last year. For that, let's turn to Slide 17. For the second quarter of 2024, the company reported total net revenues of $58.7 million, representing a 23.1% increase over total net revenues of $47.7 million during the second quarter of last year. This was the result of increased time charter rates on average that our vessels earned in the second quarter of this year compared to last, but primarily due to the increase in the average number of vessels we own and operated in the second quarter of 2024 compared to the same periods of last year. The company reported net income for the second quarter of 2024 was $40.7 million compared to $28.9 million for the same quarter of 2023. Interest and other financing costs for the second quarter of 2024 amounted to $3.5 million, partly offset by $1.4 million of imputed interest income and because of the self-financing of the predelivery installments of our newbuildings, which -- and that imputed interest is capitalized. This is to be compared to $2.4 million of interest expense -- interest and finance cost in the second quarter of 2023, again partly offset by $1.2 million of imputed interest income. This increase of interest expenses is primarily due to the increased amount of debt we had in the current quarter compared to the same quarter of last year. Adjusted EBITDA for the second quarter of 2024 was $42.3 million compared to $30.6 million achieved during the second quarter of last year. Basic and diluted earnings per share for the second quarter of 2024 were $5.89 and $5.84 based -- calculated on approximately [ 6.9 million ] basic and 7 million diluted weighted average number of sales outstanding compared to basic and diluted earnings per share of $4.17 and $4.15, respectively, for the second quarter of last year, calculated on approximately 6.9 million and 7 million basic and diluted weighted average number of shares outstanding. Excluding the effect on the income of the unrealized gain on derivatives, the gain on sale of a vessel, the amortization of below market time charters acquired, and the vessel depreciation charged on portion of the consideration of vessels acquired with attached time charters allocated to the below market charters, the adjusted earnings for the quarter ended June 30, 2024, would have been $4.95 per share basic and $4.92 per share diluted, compared to adjusted earnings of $4.19 and $4.17 per share basic and diluted for the same quarter of last year. We made these adjustments because usually security analysts do not include these above items in their published estimates of earnings per share. Let's look now at the numbers for the corresponding 6 month periods ended June 30, 2024, and compare them with 2023. So for the first half of this year, the company reported total net revenues of $105.4 million, representing a 17.6% increase of total net revenues of $89.6 million during the first half of 2023. The company also reported a net income for the period of $60.8 million compared to $57.6 million for the first half of last year. Interest and other financing costs for the first half of 2024 amounted to $6.6 million, again, partly offset by $2.7 million of imputed interest income, compared to $4 million in 2023, the first half of 2023, offset by $2.3 million of imputed interest income. Again, the increase of the interest expense is due to the higher levels of debt that we carried on average this year versus last year. Adjusted EBITDA for the first 6 months of this year were $66.9 million compared to $56.6 million achieved during the first half of 2023. Basic and diluted earnings per share for the first half of this year were $8.78 (sic) [ $8.77 ] and $8.71, respectively, calculated to an approximately 6.9 basic and 7 million diluted weighted average number of shares outstanding, compared to basic and diluted earnings of $8.28 and $8.25, respectively, calculated about 7 million shares outstanding for the same period the first half of 2023. Excluding again the effect on the net income for the first half of the unrealized gain on derivatives, the gain on vessel -- on sale of a vessel, the amortization of below market time charters acquired, and the related vessel depreciation. The adjusted earnings per share for the 6 months period ended June 30, 2024, would have been $7.63 and $7.57 basic and diluted, respectively, compared to adjusted earnings per share of $7.29 basic and $7.26 diluted for the same periods of last year. Let's now turn to Slide 18 to review our fleet performance. As usual, we'll start our review by looking at the fleet utilization rate for the second quarter of 2024 and 2023. Our fleet utilization rate is broken down into commercial and operational components. During the second quarter of 2024, our commercial utilization rate was 100%, and our operational utilization rate was 99.8%. On the average, we had 21.3 vessels owned and operated during the second quarter of 2024, earnings on average again about $31,639 per day compared to 18 vessels for the same period of 2023 earning on average $30,151 per day. Our total daily operating expenses, including management fees, general and administrative expenses, but excluding drydocking costs were $7,193 per vessel per day during the second quarter of 2024, compared to $7,829 per vessel per day for the second quarter of last year. If we look further down in the table, we can see against the cash flow breakeven rate for the second quarter of 2024, which amounted to almost $13,700 per vessel per day compared to $13,841 per vessel per day for the same period of last year. And finally, if we look at the very last line of the table of the slide, we can see the common dividend that we paid expressed in dollars per day per vessel. So for the second quarter of 2024, that amounted to $2,147, while for the same period of last year it amounted to $2,117 per vessel per day. A couple of slide left to discuss. Let's now move to the -- to review the 6 month figures for 2024 and 2023. So during the first half of 2024, our commercial and operational utilization rate was 99.9% each compared to 99.1% commercial and 98.7% operational for the same periods of last year. On average, we owned and operated 20.4 vessels in the first half of this year, aiming $29,836 per day, compared to 17.5 vessels earning another $29,714 per vessel per day for the same periods the first 6 months of 2023. Operating expenses, again, including management fees and G&A, but not drydocking costs, other $7,563 per vessel per day in the first half of this year, compared to $7,948 for the same periods of last year. If we look again down to our breakeven levels, for the first 6 months of 2024, we had $15,372 per vessel per day breakeven level compared to $13,996 for the first 6 months of 2023, until we include dividends in our breakeven, but on a per day per vessel basis, in 2024, our dividend payments amounted to $2,238 per vessel per day, compared to $2,194 for the same periods of last year. Let's now move to the next slide, Slide 19 to review our debt profile and our forward breakeven levels. As of June 30, our total debt stood at approximately $208 million, and that figure does not include to the loans we drew to finance our last delivery Pepi Star, which we took delivery in July. The chart below that we show there, the repayment -- shows debt repayments over the next year, those bars do include the repayments that come -- that are related to the Pepi Star. As you can see, in 2024, we already made loan repayments of approximately $17 million in the first half, and we expect to make an additional $17.1 million of repayments and balloon payment of about $1.8 million in the second half of the year for a total loan repayment amount of about $35.9 million. In 2025, our projected loan repayments are about $22 million, along with balloon payments of around $17.5 million, and we typically -- we refinanced our balloon payments. And in 2026, we do not have any balloon payments due, but we have to make loan repayments of around $15 million. We also show in this chart, our payments for -- loan repayments and balloon payments for 2027. Our senior debt sales and average margin of about 2.17% and assuming a base off rate of 5.25%, our senior debt has a total cost as of June 30 of around 7.4%. If we include in the cost of the debt, the savings we have achieved by swapping a portion about 10% of our debt at the base rate of 3.4% instead of 5.25%, the overall cost comes down to about 7.1%. We expect to assume additional debt for the 2 vessels to be delivered towards the end of the year, beginning of next now of around $55 million, so the $208 million that we said as of June 30, plus the loan we do for Pepi Star, plus the loans for the upcoming deliveries will be report our total indebtedness. I'd like to draw your attention to the bottom of this slide, where we present the levels and components of our expected cash flow breakeven for the next 12 months and show the breakeven advisers definitions and concentrate on in the final one, including interest and loan repayments. Our projected cash flow breakeven level for the next 12 months is expected to be around $12,921 per vessel per day. To sum up our presentation, let's move to the next slide, Slide 20, to review our balance sheet. This slide presents our assets and liabilities in a simplified format. Our assets mainly include cash and other current assets, advances for vessels under construction and of course, our book value for our vessels in the water shown here. As of June 30, 2024, we had cash and other current assets amounting to about $85.5 million, which have paid advances for our newbuilding program of about $41.5 million, while the book value of our vessels stood at around $420 million, resulted in total assets at book value of about $547.5 million. On the liability side, as I mentioned, as of June 30, our debt stood at $208 million, which represents approximately 38% of the book value of our assets. We also get other liabilities like the fair value of below market charters, and other liabilities altogether amounting to about 3.5% of our total assets, leaving the rest to be our net book value. However, it is important to highlight here that the market value of our fleet significantly exceeds its book value. We estimate that the charter adjusted value for our fleet to be around $550 million, which translates to a net asset value for the company of about $458 million or around $65 per share. Our closing price yesterday was just under $36 a share, a level that indicates a significant discount to our NAV, and thus, we believe represents a considerable appreciation potential for our shareholders and investors. With that, we'll finish our remarks -- our prepared remarks, and we would like to open the floor for questions. If there are any.

[Operator Instructions] And our first question is from the line of Tate Sullivan with Maxim Group.

My question is on charter coverage. I mean, already 95% for this year and 44% for next year and probably to increase. Can you talk about how you view your counterparty is, and how your customers honored contracts in the last 5 years? I think maybe you had just one customer to pull out of a withdrawal from an existing contract. Can you talk about that, please?

Yes. That's correct, quite Tate. We had pretty much the overwhelming majority of our customers stayed true to their signature and to the contracts. We have only one instance a couple of years ago that of a charter that defaulted. So we expect to be able to collect on our charter contracts. As the market recovers the portion of our contracted revenues that represents above market charters has declined. So while at the end of last year that we had -- we estimated about $150 million worth of contracted revenues that were at above market charters, that number now is significantly lower, is below $30 million, I believe, in the last calculation. So as long as the market stays at the current levels, so fluctuate around the current levels, I think that risk is minuscule.

In any case, the liner companies have extremely strong balance sheets and extremely profitable year this year. It would be a very big surprise to see that request for negotiating older charters. At the moment, liners makes tons of money on the ships, even on expensive ships that they have chartered over the last few years. So I think the question at the moment, it's not much of an issue for us. It's -- there is no risk at the moment on that.

And then with the increase in the ship values, particularly and then newbuild prices increasing with your leverage level relative to the ship's asset value, would you look to acquire secondhand ships more than possibly place newbuild orders at this time?

I think, as I believe we have discussed in the past, we have our antennas out for opportunities that may appear. We try to make sure that we evaluate properly the risk of every others' acquisition. Prices -- now the rates high, prices are also high. And we would do a [ second investor leave ] the residual value risk at the end of the employment of a vessel is acceptable, typically bringing the value of the vessel below historical average or even lower than that. So we are looking -- we have the capacity, we have the liquidity, and we're looking both at the second-tier market and also on the newbuilding market. But for the time being, we are sitting tight, I guess, given the developments.

Our next question is from the line of Lars Eide with Arctic Securities.

First of all, congratulations on the great quarter. I just have a couple of questions. I was wondering your voyage expenses trend positive for the quarter. How large was the bunker gain effect on voyage expenses following the sale of Astoria?

I guess, the voyage expense have to do really with sale of bunkers when we can change charter. It's -- I don't think there was something that was dramatically out of the ordinary, simply -- we typically have very low voyage expenses because the vessels are chartered. And in certain cases, we might have some gains because we -- when we sell the fuel to the next charter, we make money on the transaction, and that I guess is what is reflected in this quarter. So it's a small amount compared to the overall level of revenues in any case. But it has to do primarily with what I said, sometimes we -- when we change charter, we sell the fuel that is the inventory that's on the board and that could result on a small gain or a small loss.

Yes. Additionally, in terms of drydockings, you had 2 vessels to drydocking during the quarter. How should we -- or what can we expect for the second half of '24? Any cost [indiscernible] any potential dockings?

Yes. We had 2 vessels completing the drydock. The one was primarily done in Q1. We had really one drydock that took place this quarter Synergy Keelung. For Q3, I believe we already said in the presentation, we have Joanna that is going to go through drydock. On the top of my head, I don't have any other vessels that we expect. But I can get back to you on that. I mean, about what -- we have 7 newbuildings of the [ 23, ] so 16 vessels is on the regular drydocking cycle. So on average 1 to 2 vessels would be going through some form of special -- of survey, either in water or drydock every quarter. I can get more specific about the profile of the upcoming drydockings.

But from the 9 newbuildings, we don't expect anything.

[indiscernible]

[Operator Instructions] The next question is from the line of Mark Reichman with NOBLE Capital.

The premium that eco-vessels garner, and I was just kind of curious on your thoughts, where exactly does the containership market stand in terms of lowering emissions over time? And what are the implications for your fleet? And how are you planning in terms of developing your fleet as the demands for lowering emissions grows? So that's the first question.

Okay. I mean there are a couple of ways we're looking at these. One, increase the -- we have embarked on a pretty significant fleet renewal through our newbuilding program. These vessels consume a lot less fuel and have a very direct effect on reducing emissions. The second component is that, we are pursuing a retrofit program. We have already kept 3 vessels gone through that, that involves a significant investment from us, which, in some cases, we share with the charter of the vessel, because they benefit as well. And in the cases that we have done it, we have registered a reduction of fuel consumption of the order of 25% to 30%. So correspondingly, emissions of the same magnitude have been reduced from those vessels. As we move through our drydocking cycle of the vessels, depending on the market conditions, we are judging with the buyers of doing it or pursuing retrofits for our elder vessels. The newbuildings, I think are the best vessels that can be built with today's technology and contribute directly to lower emissions. Simos, do you have anything to add or?

Yes. I wanted to add, Mark, on the retrofits because this is -- this has a better cost with it. We are trying to share that with some of our clients if they have the interest, which they usually have because they have the vessel under their charter, they make most of their savings. So they have interest to participate and that works well for us as well. Also, I wanted to mention that the newbuildings of the same size of the same capacity, we have noticed that our 2,800 teu vessels and the 1,800 ships that we have gotten delivery of, they perform about 40% lower fuel consumption than ships of the same size that we own or have owned in the past, which is impressive. And this is strongly for the conventional ships. If you add the -- or the LNG option or you use the LNG, the savings are even more. So we are happy with the developments and our actions in terms of renewing our fleet and try to contribute from our side as much as possible to the decarbonization throughout process of the world fleet.

And the second question is, when I look at Slide 10, and I see the shipping rates, it kind of implies that the third quarter should be pretty strong as well with maybe hard to say whether rates have peaked in July or August, but certainly looking at these numbers, it seems like the third quarter should be a pretty strong one with good cash flow. So as you think about capital allocation going forward, in your press release, you mentioned evaluating accretive investment opportunities. But with the market values exceeding book values by a fairly large margin, it doesn't seem like the best time to go out and buy secondhand vehicles, so -- or secondhand vessels. So would you be more inclined to invest in newbuilds? Or will there be the timing will be right where if you can pick up secondhand vehicles closer to book value, so to speak, and then retrofit them, how are you -- kind of you thinking about newbuilds versus acquiring secondhand vessels and retrofitting them?

As I mentioned earlier, I think we are looking always for interesting investment opportunities. We realize that the second term prices are elevated. And the deals that we will be willing to do the transactions, that we will be willing to enter, which have to have acceptable residual value risk. That could be the scrap price if the vessel is over or a price that is well within historical averages or some time -- or below historical averages. So we will not buy, obviously, vessel without being able to secure a charter at the same time that brings down our cost to the levels I mentioned. We do look also the newbuilding market, and we try to create a balance between returning funds to our shareholders. The dividends and the share buyback as well is approved on that, retaining certain liquidity in case opportunities appear. And of course, we still have to complete the funding of our newbuilding program. So our balance sheet starts building more liquidity in the second half of the year and to the next year. And this question that you're asking will become more pressing than how we can use that extra liquidity, but we are trying to balance it between those 3 areas.

But the bottom line Mark is, that we won't take market exposure today secondhand prices. As Tasos said, there has to be a very low residual risk and any secondhand project that we may look at needs to be covered with its asset that breaks down the residual value to very manageable levels. At the moment, the market is not offering such projects. So we're not really interested at today's secondhand prices. The newbuilding front has opportunities that we are exploring. The yards are extremely busy, and they're offering slots way down the road. So this is something that we are evaluating. We feel that newbuilding prices although high for several reasons, including the very high numbers that the world -- the inflation was in the last 3, 4 years in the world which has created a trend that cannot go back. And also the fact that modern ships are of different quality and different specifications than older ones, meaning that the cost of building a modern ship of the same size is the fact of more expensive today than it was a few years ago simply because of the specifications of the ship. And this can also not reverse. So I think bottom line is that at the moment...

We're evaluating.

We're evaluating. Exactly.

Our next question is from the line of Climent Molins with Value Investor's Edge.

I wanted to start by asking about the vessels coming open later this year, which accepting the Synergy Busan are mostly in the feeder segment. Should we expect some of these vessels to be forward fixed over the coming weeks, or are you comfortable waiting until closer to redelivery?

I think, we are in the market to look for charter for these vessels. Of course, you cannot dictate on the market your wishes. As you -- I'm sure you know the market became a little softer in July compared to June. So I think, which is a function of many developments, one is that there is an evolving geopolitical scene with all the troubles around the world. At the same time, it's a seasonally low period in the summer. So we believe that at the end of the summer, we have a clear picture of how forward we can fix some of these vessels. The market is still there, but it's a little softer, we have to admit in July on that compared to June.

We still have received a few indications from the ship that we could have replied, and they could have been extremely profitable, but we have decided as a company to wait a few weeks and reevaluate things after the summer holidays come closer to an end, and as people get back to their work and reevaluate the conditions at the time.

That is very helpful. You also mentioned you expect the spread between modern and older vessels to widen going forward. I was wondering if you could provide some commentary on the EU ETS. And whether you expect it to have a significant -- like to lead to a significant portion of recent newbuilds to be employed in Europe? And if so, do you think this could lead to some inefficiencies?

Clearly, the more -- I don't use the word penalties, but the more fees are placed on the emissions and -- which are higher from the older ships, the bigger the difference, the gap will be between young ships and older ships, and that naturally could create on sort of a 2-tier market chartering wise for younger versus older ships. It would make younger ships more attractive, and we would justify our newbuilding program even more so.

And as a company, we anticipated that things will go like that when we took the decision to invest such a big amount of our capital, especially for the size of our company to a newbuilding program which at the time was 50% of our current fleet. The decision was based on these fundamentals. But the industry will have to pay for the pollution that it creates, and going forward, this will even intensify. So we have great beliefs in those modern ships.

Makes sense. That's all from me. Thank you for taking my question, and congratulations for the quarter there.

Thank you. We have reached the end of the question-and-answer session. I'll turn the call back over to Mr. Aslidis for closing remarks.

I would like to thank everybody for your interest and for joining our call today, and I would like to renew our -- to see each other at least via the earnings call in 3 months' time. Enjoy the rest of the summer everybody.

Thank you also very much from my side.

This concludes today's conference. We disconnect your lines at this time. Thank you for your participation.