Navigator Holdings Ltd. (NVGS) Earnings Call Transcript & Summary

I am Nicolas Bornozis of Capital Link, and I would like to welcome you to Capital Link's Trending News Webinar Series. We are pleased to have with us today the senior management team of Navigator Gas: Mr. Mads Peter Zacho, the CEO; Mr. Gary Chapman, CFO; and Mr. Randy Giveans, EVP of Investor Relations and Business Development. As you all know, Navigator Gas plays a vital role in the liquefied gas supply chain for energy companies, industrial consumers and commodity traders, with its sophisticated vessels providing an efficient and reliable floating pipeline between the parties, connecting the world today and creating a sustainable tomorrow. The company's shares trade on the New York Stock Exchange under the ticker symbol NVGS. Now in terms of logistics, I will be covering today topics such as Navigator's business development, company strategy, growth prospects and overall sector outlook. Our discussion will be followed by a live Q&A between Navigator's management team and the webinar participants. [Operator Instructions] Now before we begin, kindly note the usual disclaimer that this discussion is strictly for informational and educational purposes and should not be relied upon. It does not constitute an offer to buy or sell securities or investment advice or advice of any kind. Now let us begin with our discussion, and I'd like to welcome the management team of Navigator.

So starting with our first question. Going back to your first quarter results and on the topic of bank charter rates and fleet utilization trends, during the earnings call, you mentioned that your time charter equivalent, or TCE, rates have increased by 11% compared to the same period of last year. Now what factors drove this increase in rates? And how do you expect these rates and trends to continue for the rest of the year?

Yes. I mean, if we just back up a little bit, our total revenue, our top line is being really produced from utilization and from rates. And if we quickly start at utilization, you could say we came in close to 90%. And whenever we reach a level of 90% or thereabout, we actually really pleased. It's an environment where we can be allowed to gradually move the rates northwards. So it's been a good environment with that respect in Q1. But in reality, the big driver of our result in Q1 was the rates. Total rates, as you mentioned, come up from $25,600 on average the same quarter of the year before and up to $28,300. So there is a pretty significant improvement in overall rates. And it's really that the supply-demand picture has been improving. And it's a process that has taken quite a while. It's taking place over almost a handful of years with gradually improving supply-demand balance in our markets. We see that the fleets of handysize gas carriers has been pretty stable, relatively little new building, but the production predominantly in North America, the production of natural gas liquid. So you could say the raw material for the gases that we are transporting, it has just grown gradually and steadily over the past couple of years. And that's what we've seen also into 2024. More demand for our shipping services because of increased production of natural gas liquids in North America and a pretty stable world fleet of handysize gas carriers that has led to a tighter supply-demand balance and thereby given us a chance to push up rates. So it's good to see. And that means that we can now create returns that are providing a reasonable return to our shareholders.

So I will be coming back with more questions on the various segments that you're covering in terms of outlook. But let me ask you now that you have 17 vessels scheduled for drydocking in 2024 with a total expected cost of $24.6 million and 422 off-hire days. Now could you talk about the installation of energy saving technologies, devices during these drydocks and how does this align with your long-term operational efficiency and sustainability objectives?

Yes, I can do that. We have a number of ships. We have 17 ships going into drydock this year. So it's a heavy drydock year. And most certain companies wouldn't really like that much because it means that they don't earn revenue while they're in drydock. And of course, it costs money too. But we know, of course, that this follows the natural rhythm that at least every 5 years you need to put them into drydock. And the fact that we have a relatively heavy schedule for drydock in this year is exactly great because the timing works well for us. And we made a strategic decision to focus in a major way on energy efficiency on our ships. And that allows us now to, while these ships are in drydock, also install some of the different technologies that will reduce the overall bulk consumption and thereby our emissions as well. So we are looking at an anti-fouling paint as an example, which will create much less friction over time between the ship hulls and the water. And that means that they will continue to perform as well as a new dock ship for much longer than in the past. New paints have been developed. They're a little bit more expensive than the traditional ones, but they make the ships much more energy efficient all the time between the 2 docks. So that's an important one. Another one could be propeller boss cap fins that optimize the -- you could say, the friction between the propeller and the water around it, so really giving the vessel more traction when it's sailing. So we're installing those on many of our ships. We're also installing software in terms of sensors and different other types of equipment that allows us to better monitor the fuel consumption and also the speed that can make us intervene much faster. If the ship is either going at the wrong speed or if the trim is wrong and so on, so we can quickly take action if something is out of sync. And that means that we will have ships operating at much more efficient speed consumption rates throughout. So this is a great opportunity for us to really get our emissions down over time so that we will save on bunker and also of course have a smaller footprint when it comes to CO2 emissions. So we're super excited about it. We're investing more than $5 million into this just this year. And that's of course creating a very significant impact on our overall emissions trajectory so that we can, over time, move towards the net zero ambition by 2050 that we are committed to.

It's obvious that taking advantage of drydocking is a great opportunity to do all these fleet upgrades, and fleet upgrades can contribute, as you described, quite significantly in the overall emissions reduction of operational efficiency with a result and impact on the bottom line. Now that takes me to the next question on operational leverage. As you mentioned in your Q1 conference call, you achieved a record EBITDA of $74.1 million. And we expect an average time charter equivalent rate during the second quarter to remain quite robust and well beyond. So average TCE rates, to give a few numbers to our listeners, were $28,339 per day with a net 2024 cash breakeven of $20,705, so quite a margin there. Now what impact would you expect any additional $1,000 uptick in daily rates to have on your annual EBITDA?

Yes. Hi, Nicolas, thanks. I'll take that one. Yes, I think also we've just pointed out that actually in 2023, we also recorded our annual highest ever recorded EBITDA as well for the year, and we followed that up in Q1 2024. And I think as Mads has said as well, these rates per day versus our cash breakeven are a really key reason for those results. And actually, we're expecting rates to hopefully stay robust in the following quarters. And for every additional $1,000 in TCE, albeit across all of our 56 ships, we would expect around $18 million of extra EBITDA. So that's quite sizable. And as rates hopefully stay robust and even keep rising, we can return other record quarters and record annual results, and that's certainly what we're targeting.

So that takes me to the next question about liquidity and capital allocation, actually have two or three questions on that. Now let me start by saying that your net debt, as you mentioned at the end of the first quarter, stood at 33.3% with a net debt to EBITDA of 2.4x. So your balance sheet shows a very strong cash position with over $172 million in cash and cash equivalents, and total liquidity of just over $200 million. So overall, a fairly robust picture of your financial condition. And you mentioned that Navigator Gas balance sheet is in its best shape ever, providing flexibility for both growth and returning capital to shareholders. So now the question I wanted to ask you is, how do you prioritize between expanding into new markets, which you've done quite well and quite a few times, investing in your existing operations, reducing debt, which you have done, and at the same time returning capital to shareholders? So you have all these alternatives, how do you prioritize between them?

Yes, it's a good question. I mean, we, of course, want to return capital to our shareholders. And that's -- we understand that's a critical thing for us to do. And we've introduced our return of capital policy as well. But of course, we also do need to keep investing in the business. We have depreciating assets, and we need to have fleet renewal whether that's through consolidation or new builds. So we understand that that's also necessary. And I think when you look at all of those things that you've talked about there, whether it's return of capital, which we do today in cash, and we have also been topping that up with share buybacks each quarter. And in fact, also we did the $50 million share buyback in 2023. I think with our net asset value where it is today, share buybacks are still attractive in terms of shareholder value. But our debt is quite low today. We've had aggressive pay down of debt over the last few years. And so we're in a position where actually when you say, how do you prioritize, probably we don't need to pay too much more debt down beyond our scheduled repayments. I think that's probably where we are very comfortable right now. And I think it leaves it open to return of capital and investment in the growth of the business. And I think when you look at what the company has done over the last 1, 2 years, it's actually done all of those things. We've bought newer vessels, we've sold older vessels, we've done share buybacks, we've introduced the return on capital policy, and we've still finished, as we are today, with almost pretty much $200 million of liquidity. So we're in a very fortunate position to actually probably be able to do a bit of everything. And as I say, probably we won't prioritize paying down debt beyond what our scheduled payments are, given where we are at 2.4x. But yes, I think all the other things, we're certainly targeting all of them. So when you talk about priorities, all of them are priorities actually. We're in a fortunate position to be able to do that.

Yes. But let me ask you, clearly you have a very robust balance. Your net debt is only 33.3%. But still you have significant repayments and refinancings coming the next year. You have $100 million unsecured bond maturing in September 2025 and another $190 million of remaining 2025 maturities. So what are your plans for these in terms of refinancing, any timing?

Yes, I'll take that one as well then. I think the markets for us, the lending markets right now, are incredibly favorable for us. I think the shipping market lenders have seen huge repayments from a lot of shipping companies with all of the cash that a lot of shipping companies have been generating. So a lot of the lenders are very keen to lend new money. And I think we're a beneficiary of that with our strong business and our ESG credentials and also the outlook that the business has. So I think we're in a very good position to secure new refinancings. And potentially given where asset prices are, we may be able to upsize a little bit of that debt and release some more cash for some of our growth projects. I think that's probably something we will look to try to do. And in terms of the bond, the bond market is also really strong at the minute. And I think if we have got a choice around March next year to either extend or repay, I think we will have choices there to do either of those two things. But we think it's very good for us to be in the bond market. So I think potentially, we will look to stay in there, but we haven't made that decision yet. But we're in a very fortunate position that we've got lots of options, and we've started discussions on the traditional bank refinancings already. And that so far, all of the indications we've had, have been very positive indeed.

If you allow me, let me go back now to the other components of the capital allocation. Let me go back. Your return of capital policy includes a fixed quarterly cash dividend of $0.05, with the additional return of capital equal to at least 25% of net income. And as I know, return of capital includes both the cash dividends and the share repurchases. And you have stated that you would have disclosed your NAV at $25. So I guess when you're trading below that, that's a good timing to look at share repurchase, and you've done a number of them. But as you're coming now, looking forward, how do you prioritize or how do you look at the balance between cash dividends and share repurchases?

Yes, fair question, Nicolas. And I know we get a lot, but as you mentioned, it's a pretty easy decision when you're trading at a 35%, 40% discount to NAV to opt for share buybacks for that additional return of capital. When we first implemented this policy, we did not want to be pigeonholed into having to pay a dividend regardless of share price. So that's why we're -- we want to include a dividend, right? So investors know they will always get a dividend on a quarterly basis. And in this case, a $0.05 fixed dividend, but also giving us the flexibility and optionality to repurchase shares at very attractive prices like they are today, $17 on a NAV of $25 plus, right? So with that, what we've done on the last 4 quarters and will likely continue to do so is the fixed dividend plus additional share buybacks. Another question we've gotten a lot is 25% of net income. Why that number? Why not 50%, 75%, 100%, right? A few things. One, we haven't gotten that marketed outsize earnings yet in terms of we're not making $100,000 a day currently, but those rates should continue to improve, maybe not $100,000, but higher than currently today. Secondly, we have growth prospects. We have this Ethylene Export Terminal, which I'm sure we'll get to later on in the conversation. We have a lot of CapEx for that with no EBITDA contribution this year. Next year, that flips, 0 CapEx, and a significant amount of EBITDA contribution from that terminal expansion. So there is not a stated goal or a stated mandate of 25% of net income perpetually, but when we first announced this policy a little under a year ago now, we thought 25% would be a good starting level. And that's kind of where we are today.

So now let me go forward to the market outlook. Navigator transports -- you're essentially active in 3 major segments, petrochemical gases, LPG, and ammonia. So can you give us a breakdown of activity between the three, and also can you give us an outlook of these 3 segments?

Yes, sure, I can do that. And when Navigator initially ordered its first 5 vessels 25 years ago, they were ethylene-capable vessels, but it actually turned out that in many of the initial years, it was mainly our vessels that were mainly carrying LPG. That has changed a lot in recent years. The mix had improved, and that means that we have now spread, you could say, our different types of cargo across LPG, ammonia, petrochemicals. So if you look at it today, probably LPG is around 30%, where maybe in the initial years were 70%, 80%. Also, ammonia has grown. It used to be just maybe 5% of our total revenue, but today it's grown. It's become around 20%. So we actually believe that we are amongst the shippers in the world that have most ships transporting ammonia on any given day, so ammonia has become important too. And then thirdly, petrochemicals, which has grown steadily over the years, not least due to our Ethylene Export Terminal in Morgan's Point. So today, probably petrochemicals would be around 35% of our mix when we look at it. So it's the biggest one today. And I probably think that these trends are going to continue. I would probably expect that over the next 3 to 5 years, that LPG gradually becomes a smaller part of our overall business. We love LPG and transporting it, but it's also an area where we are in stiff competition with the larger vessel segments. That's not the case so much in petrochemicals here. We are the operators of the largest -- larger ships, and that means that we have a good cost proposition when vis-a-vis our customers. And we think that we'll have more petrochemicals in our mix going forward. And we also think that ammonia is probably where it should be for now. But in the mid to longer term, we think ammonia can be a bigger part of the mix when blue and green ammonia production starts ramping up. That's not going to happen over the next quarter or the next year or 2, but that's from the midterm and onwards. So in short, yes, more petrochemicals, probably a little bit less LPG over time and ammonia pretty stable. That's, I guess, how we see it right now.

Now let me go to the supply side. The market for handysize and small size vessels appears to be relatively stable. With low new vessel orders and a significant portion of the existing fleet approaching recycling age. So how do you prepare to address the opportunities, I would say, given the fleet composition profile and what opportunities do you see in terms of expanding or renewing your fleet given the changes in the market?

I mean if we zoom in on the handysize segment, there are about 130 vessels globally trading right now. And out of that, we own 42. So it's a decent proportion of that. The new building book is about 8% of the fleet on water. And that is a relatively small number, both in a historical context, but also particularly when you compare to other shipping segments. Add to that the fact that probably around 20% of the current handy fleet are 20 years or more. So that means that there will be several of the vessels that are trading today that will be going into some regional or coastal trade over the next couple of years and disappear from the international trading that we are competing in. So I think that probably means that over the next 2, 3, 4 years, we might see a fleet in our segment that is either stable or even reducing a little bit. So it's a very favorable supply outlook that we are looking into. Well, we have a Ethylene Export Terminal that will be ramping up its capacity over the next 2 quarters, and that means that we will need more capacity. So we will be looking around to scout for consolidation opportunities where we can bring more ethylene-capable handysize vessels or similar onto our platform. And if we're not successful in that, there's of course always the opportunity that we can go to the new building market. Over time, we will be building more ships. We don't have anything on order right now, but I think over the next couple of months and quarters, we probably will end up ordering new vessels simply to service the terminal that we're expanding to service our customers here. So there will be new building opportunities coming as well. But yes, both consolidation and over time also new buildings.

It seems to have a very interesting and exactly supply-demand balance quite favorable, I guess.

Yes. I mean if you compare to some of the other segments -- if you look at the VLGCs and mid-sizes, here the order book is quite a bit larger, but also they have good growth prospects. So I don't think necessarily that's a bad thing. But of course, many people are watching an order book that is similar to around 30% of the fleet on water. So if you look at the segment with smaller gas carriers below 15,000 cubic meters, there's almost not any new building book at all. So here you will see a decline in fleets over time because those ships have become older too, and they will be scrapped quite a bit of them over the short to midterm. So I think the supply-demand picture for this particular smaller segments and the segments we are right now is really good.

Very interesting. So now let me go to your JV. The expansion of your JV Ethylene Export Terminal is on track for completion in the fourth quarter of 2024, and you have already invested $51 million in progress payments. Now you mentioned in your Q1 presentation that the capacity expansion of the Morgan's Point Ethylene Export Terminal will have a positive impact on demand for seaborne transportation. So can you give us some more details on that?

Sure, yes, the existing global ethylene trade is around 6 million tons per annum. Our existing terminal is 1 million tons per annum. We are converting a 2.2 million ton ethane train at Morgan's Point to be able to do ethane or ethylene. Additionally, we are buying 1/4 of that capacity directly for ethylene chilling. So that's going to be a expansion of 550,000 tons on top of 1 million that we currently have. We have the opportunity to go much larger, right all the way up to 3.2 million tons. 1 million existing costs the entire 2.2 million ton train over the coming years. So initially that 550,000 tons will be available to be sold, and we're starting to those contract discussions now. By January 1, 2025, so 7 months from now. The project completion date is early to mid-December, so making a lot of progress on that. We've paid $51 million to date. We have another, let's call it $80 million, a little less than that over the course of the next 6 or 7 months. So that again will be fully completed. The CapEx will be fully spent by the end of the year. And then next year that terminal turns on. So in terms of the shipping demand, right, if all of those molecules go to Europe, it will probably demand 5 or 6 more vessels. If it all goes to Asia, maybe 10 to 12, we think there'll be a hybrid, like some of the bound going to Europe, some going to Asia. So certainly increasing the demand for ethane and ethylene capable ships.

So you have larger output and, of course, longer distances. So you mentioned that also in your Q1 presentation about the first multi-year off-take contract for the Ethylene Export Terminal. Can you provide some color on the potential timing and the scale of the off-take contracts for the terminal expansion? And what about the EBITDA contribution from this terminal expansion?

Yes, it's a fair question. Now unlike most projects that our partner enterprise does where they'll announce a project, they get some long-term off-take contracts committed, then they get financing, and then they go and build the pipeline, the terminal capacity, the storage, whatever it may be. This is kind of the burden, right? We announced we were doing this, knowing that the off-take contracts will come. And it's great to see the first one signed, right? The first multi-year off-take contract has been signed. We expect a larger one, frankly, to be signed this summer, along with additional ones thereafter. So the full portfolio we can sell forward is 1.55 million tons per year. We'd like to sell and expect to sell the vast majority of that. Is it 1.2 million, 1.3 million, 1.4 million tons? To be determined, but we do expect more contracts to be signed before the project commences in January. As for the EBITDA contribution, there's a lot of variables to that, right? If you are a trading house who wants 50,000 tons for a year, obviously the rate is going to be higher than someone else who may want 200,000 tons for 5 years. So the duration and the scale of each off-take contract will determine the price. And obviously, that price will determine the EBITDA contribution. All that being said, we do expect it to be a attractive project, even at the, let's call it, 90% take or pay level with 1.4 million tons of the 1.55 million. So EBITDA contribution will be obviously higher than what we have been getting in recent years, but more details to come in the coming months.

So moving on, you have been quite active entering new markets, new projects, and Navigator's Board has approved a new investment plan in an early stage clean ammonia export project in the U.S. Gulf. So can you provide us some more details about this project, particularly regarding the expected time line, the potential market impact, and how this aligns with your long-term strategic goals in the clean energy sector?

Yes, there's two things there. One is Navigator has been very active in the ammonia market for decades, right? We have 9 vessels currently carrying ammonia. Now that is gray ammonia for fertilizer. We have the investment in the same fuel solutions for ammonia bunkering. So we've done a lot with ammonia. Now for this new project, the Clean Ammonia export facility, it's in the U.S. Gulf. So in the Texas, Louisiana region. We'll give more details on the exact location, the exact partners, all of these things, hopefully, here in the coming weeks. But with that, our initial investment is $2.5 million for development capital, right? The pre-FEED and FEED studies for large-scale projects like this are in the tens of millions of dollars. So this is a portion of that. There's a larger financial backer and other partners that are going to also contribute to these development capital needs. So that's the initial investment. That will likely take, I don't know, 18 to 30 months, really depending on the pre-FEED and FEED study progress. So that is kind of the CapEx committed for the next couple of years, let's call it. Thereafter, we will have the opportunity to make a larger investment. Similar to what we've done on the Ethylene Export Terminal, we don't produce the ethylene. We just chill it at the terminal, store it, and then put it onto our ships. Similarly, on this Clean Ammonia project, we will probably not participate in the production of that, but certainly the terminally, the storage, the ship-shore logistics of that commodity. So projects like this scale can be in the billions, right, for a 1 million, 2 million, 3 million ton Clean Ammonia project. So it won't be a 50% joint venture, meaning we're not putting in a $1.5 billion into this Navigator's capital. But focusing on the terminal, right, it could be $50 million to $200 million, right? The scale is still pretty wide at this point because again, we need to do these pre-FEED studies and the FEED studies to really nail that number down. But that should give some scope around the timing and scale of this project. And again, we expect to carry a lot of them value on our vessels.

Randy, very detailed reply. Thank you very much. So since we are on these new activities on the JVs, let me ask you if you can give us an update on your CO2 transport JV, which I find fascinating.

Yes, yes, no, I can do that. We've worked on, you could say, developing the technology and the know-how within CO2 transportation for probably about 5 years now, so we've spent a lot of time on it. I'd say the takeoff in this market has maybe taken a little bit longer than we would like to see, but that's of course because CO2 is a waste product. It relies on external regulation and subsidies really to make the business case work here. We had a great joint venture set up together with Bumi Armada to deliver the whole transportation chain so that we can be a one-stop shop for emitters where we can take off the CO2 from the ports and then bring it out to sea and sequester it into depleted oil wells. So we are talking to emitters, we are developing the project, but so far, we haven't yet committed to any larger contracts with emitters for off-take nor have we started building CO2 carriers yet. So we're a little bit impatient. We'd love this to go faster than it does, but we think the potential is so great that we want to be in full position once this market takes off. So more to be said about that in coming quarters, and we'll do everything we can to help drive this market so that CO2 sequestration becomes a reality and a successful role.

Well, clearly this market is going to come through one way or the other. It's a question of time, but I think the trend and the fundamentals are point that way.

I mean we are literally talking millions of tons. It can become a very, very large shipping market, but of course, the business case had to work. Otherwise, very few have the nerves to start building ships against it in the hope that it will start inevitably. So we're a little bit in the discussion mode, the development mode still, but we are eagerly awaiting for a very exciting market to come.

So responding to a few of the questions that came through. With time charter rates now higher than the existing rates, how much of the fleet will be reconstructed, reprised in the coming quarters? I guess that probably the...

Yes. So could you repeat that question again? I'm sorry, I missed that one.

The question, the way it came through is with the rates being higher now, do you plan to have longer-term contracts at reprised levels, at the new higher levels?

I mean our contracts are reprised gradually throughout the year. And if you look at our cover for the next 12 months, it's typically in the 40%. So that means that we, particularly within ammonia and LPG, we have 6 months' time charters, we have 12 months' time charters, that's the norm here. In ethylene, it's more often that it's spots or single voyages. So we will see gradually that some of our contracts will be repricing as the year progresses. And so far, year-to-date, we've seen them reprised at higher rates. And so it's been a good development so far with the supply-demand tightening. And we will probably see that effect continue and feed into gradually higher rates on average for our feed.

Another question that came through is, if you can talk about the seasonality, the seasonal variation in your fleet utilization and how you expect it to play out this year?

Yes. No, it's been -- if you look at it in Q3 of '22, that was a typical Q3 that where we saw weaker demands, and it was not the best quarter of the year for us too. If you look at third quarter in 2023, it was a very robust quarter for us. So when we typically say that Q1 and Q4 are the strongest quarters for us through a year, I mean, that would be typical seasonality. But I think if we look over the past 2 years or so those patterns have not been particularly clear. So yes, I don't count on it being necessarily cyclical following the normal patterns over the time to come, and we'll be working as if we're just going see a gradually strengthening market overall. There are always blips around, say Chinese New Year and run up to it and so on. And obviously, there is a season when it comes to energy use in Europe for Q4 and Q1 where it's colder and so on. So there's still those effects, but they haven't been very strong, those seasonalities in the past couple of years.

So this has been a particularly positive and upbeat conference call -- I mean, webinar, and for a good reason because you provided very good evidence of how positive things are. So I guess that gave the floor to one of our participants to ask, what is the major challenge that you are facing for the next 6, 9 months? Is there something that you worry about?

Yes, I mean, there are many things that we're keeping our eyes out for. Of course, there is the global economy, how is the global economy faring? Are we going to have continued positive growth as it seems to be the case right now? Or have we missed something? Is there a risk that inflation is going to pick up so that the global central banks will have to tighten instead of losing interest rates? That will have an overall impact on global demand and also impact our business here. So that's all -- it's always something that we're keeping our eyes out for, but it seems okay right now, but we're always cautious about that. I think trade friction is another big one. We've seen a gradually worsening international climate over the past couple of years with the war in Ukraine and with the trade tension between the U.S. and China. And we are acting in international business, we are trading globally, and we rely on there being trade between different countries, different regions of the world. It would be quite bad for us if it ended up in a situation where all regions and countries started to just focus on being self-sufficient and free trade would decline over time. So that's probably my biggest worry in addition to, of course, the different wars and so on that are going on in the world.

Mads, I didn't ask you about sanctions or the Panama Canal, but I'm not sure how big of a role these play in your business.

No, I mean we -- in the Panama Canal, we did have more ships going south of Africa instead of going through the canal for a period over the winter when the number of transits were reduced. But what we're seeing right now with more rainfall in Panama, it's the normalization happening, and we started to send more ships through the Panama Canal. We go through the old blocks and here the normalization has happened faster than expected. It's not necessarily a bad thing for us because that means that the overall cost of transportation because of longer-term miles is coming back to a more normal level. And that will induce more traders to arbitrage between the lower price, typically of ethylene in North America and the higher price in China. So there's more product going through. There's more room for transportation, so to speak. So we don't have a particularly positive or negative impact from whether the Panama Canal is operating as normal or not. When it comes to the Red Sea, we don't go through the Red Sea a whole lot. We start on the 27th of December as one of the -- most shipping companies did at that time. And we haven't started going through the straits right now. And we think it may take some time before it normalizes, but we don't send a whole lot of ships through. And that's mainly because most of our loading takes place in North America, most of the discharge in Asia or Europe, and that means that we don't have many ships going through naturally.

So one of our participants would like Gary to look into his crystal ball and tell us what do you see for interest rates in the next 6 to 9 months?

Well, that's a very good question. I wish I had the answer. Well, it's interesting, the yield curve -- if you look at interest rate swaps, the yield curve has moved a lot over the last 6 months. If you were to plot it out, the shape has changed. I think the expectation of dramatic falls in interest rates from between sort of 6 months to 18 months out has kind of disappeared a little bit. And I think future rates are now much higher than what people were previously predicting. So I think it seems that the consensus, and I tend to agree that probably rates are not going to come tumbling down as people once thought. And I think it's going to be a much more gradual decline. And probably we'll see rates staying where they are for a little while. I think a lot of central banks are nervous about bringing them down, and certainly bringing them down too quickly, but even bringing them down at all. So I think when you see that uncertainty into -- and there's a big difference in views amongst even advisers, I think there's a lot of people sort of sitting there and waiting to see what happens. In the meantime, lots of companies are doing business, and loans are coming from maturity, et cetera, so decisions are having to be made. But I think optionality is a really good place to be right now, because I'm not sure anyone's really got a handle on the timing. I think there is a consensus that rates will come down at some point, but yes, when that will happen is still subject to change, I think.

So I asked you before about capital allocation and market-based alternatives, but here we have one of our participants who wants to know, how do you allocate -- how do you make your investment decision between more terminals on one hand versus more vessels on the other hand?

I think we're not very different from most ship owners in that. When we are comparing different types of investments, we are looking at the return that they generate at the net present value and making sure that they meet our investment criteria here. So we are pretty hard-nosed about how we invest. Even though we like to, and we want to be drivers of the green transition, we only want to do it when it's good business. The business case has to work, but we're comparing where we get the best risk reward, the best return for the least amount of risk here. We are, of course, very interested in investing into the core business, one that we know well, where we know the customers and where we have a good track record in the past. And when we're looking outside that core business we are in right now, we are, of course, more careful and want more -- less risk, you could say, in a sense. So we have a very clear status intention to grow our business. So we want to consolidate the segments we are in because we see very good synergies for our customers where we can deliver, you could say, better service and more cost efficiently. We also want to grow our business. So that means that we want to build new vessels, either within our core segments or in some of the new areas like ammonia and CO2. And we also want to invest into infrastructure as well. So we have a 3-pronged approach into investments here. And we see that we have capacity for doing all. Because at the end of the day, we want to protect and develop the position we have right now of being a leader in the gas tanker business where we operate safely, reliably, and efficiently, as you can see, right behind Gary here. And at the same time, be a good corporate citizen where we deliver on ESG that we have the best-in-class corporate governance where we have focus on safety, focus on diversity, equity, and inclusion, or of course, also and not least, being a driver of the green transition. So that means that we'll have our hands full. There'll be very strong privatization between the different opportunities that we have, but you can rely on us making sure that we will do it with the ultimate goal of handing back dividends and buying back shares. And that's the only way to develop the company.

Thank you. I mean we have an avalanche of questions here, but I think you've answered a number of them. For example, did you feel comfortable with the leverage levels of your company for the next 12 months? I think Gary responded to that. I don't know if you want to say something more, but I think you replied to that. Another question, I don't know if you would like to add something more. Please share some more -- some developments on your Bluestreak CO2 venture in the U.K., North Sea. I mean you talked about that. I don't know if you would like to add anything more.

Yes. No, as I said, I hope that we'll be able to come back and give you more news. I hope it will be developed and pick up pace so that we see that the regulators, but also the emitters, have the confidence to establish long-term CO2 capture projects so that we have some CO2 to transport. But the business case has to work for the emitters, for us, and that probably requires the nation and the subsidies can make it happen. And that always takes a little bit more time than we would all have liked, but we are ready, and we're looking forward to playing a big role there.

So Mads, Gary, and Randy, I'd like to thank you for this very interesting discussion. I appreciate all the insight that you shared with us. Any concluding remarks before we close our webinar?

Well, the best is yet to come. We are in a good place right now with a strong optionality because of a robust balance sheet and good cash generation as it is right now. And we think we have a number of good opportunities, but we'll be very careful about how we distinguish between and pick between those because at the end of the day, we know that the business case has to work. We want to return capital to the shareholders. And the only way of doing it is to pick the best projects. But we have many of those in front of us, and we will pursue those as we go along.

I'd like to thank you again, all three of you, for your time and insight. It's been a very successful webinar, and you've got an avalanche of questions. Some of them I did not -- for the sake of time, I didn't ask you about. I'd like to thank our participants for joining us. And this webinar will be available for replay on our website, capitallinkwebinars.com (sic) [ webinars.capitallink.com ], and also on Capital Link's YouTube channel. And we'll also have an article on LinkedIn. So thank you very, very much.

Thank you.

Thank you.

Thank you, Nicolas.