Pacific Basin Shipping Limited (2343) Earnings Call Transcript & Summary

Welcome to today's Pacific Basin 2020 Analyst Day. I am pleased to present Chief Execute Officer, Mr. Mats Berglund; Chief Financial Officer, Mr. Peter Schulz; Asset Management Director, Mr. Morgan Ingebrigtsen; and Pacific Chartering Director, Mr. Surinder Brrar. [Operator Instructions] But First, Mr. Berglund will start the introduction session. Mr. Berglund, please begin.

Thank you very much, everyone, for joining us today. Sorry for the slight delayed start. Please turn to Slide 4. And I will start with just 1 or 2 overview slides because I know that there's some of you who do not know us that well, I apologize for those of you who already know this. But just briefly, we, Pacific Basin, operate the world's largest Handysize fleet, we're the largest owner and operator of Handysize ships, and we also have a significant Supramax fleet. We have what we say, cargo system business model. We are not a tonnage provider, i.e., we do not time charter out our ships on 1, 2, 3 years. We deal with the cargoes and the shippers directly, and we have built a very efficient cargo system, which we will talk more about today. We own 117 Handysize and Supramax vessels. And today, we have a total of 271 ships on the water if we include also chartered ships. We are based and headquartered here in Hong Kong, we're listed here, but we do our business all around the globe. We have 10 commercial offices on all the 6 continents. We have about 300, 400 chartered-in fleet and more than 4,000 seafarers. We have a strong balance sheet with $362 million at the end of December this year. Our organization is one that is very experienced, an experienced board and an experienced management team. You see the flow chart here, I myself, as most of you know, will retire on July 31, and I will be replaced by Martin Fruergaard, who comes here to Hong Kong in June. He started July 1. We overlap for a month, and we look forward to introduce him to you on our 6-month earnings call on July 29. Again, we're fortunate to have a very experienced management team. I did the math here, the average time with the company is 18 years, and most of us are lifelong shipping career people. People like Martin, who you will hear from later, has probably sold -- bought and sold more Handysize ships than anybody else on the planet. He has been with us for 32 years. People like Suresh, Captain Suresh Prabhakar who runs Commercial Operations has probably seen everything you can't see as regards loading and discharge in minor bulk commodities. And again, we're very fortunate to have an extremely experienced management team. Next slide. I use this slide just to describe to you where we fit in, and why we only have Handysize and Supramax ships. It has to do with the versatility of those ships and the ability to build the cargo system with cargoes in both directions. The top section of this slide, the very basics, we don't have any container ships. We don't have any tankers. We only have bulk carriers, who drive our carriers. And we have the types that have cranes on deck. So if you see the left column, you see the 4 main vessel types within the dry bulk, the biggest ships at the bottom are called Capesize, and then Panamax and the upper 2 are called Supramax or now Ultramax, it's the same type of ship and then Handysize. And you can see the difference that Handys and Supras have cranes on deck. And it makes them very flexible, very versatile. And we do not need shoreside facilities to load and discharge. So we use our own cranes to lift-on and lift-off predominantly our cargo. And we carry minor bulks, which is more than 25 different types of commodities. You see some of them listed on the right column of this graph. And the bigger ships you get, the smaller versatility you have. So a Capesize ship is almost only carrying iron ore and a little bit of coal. And what that means is that you only lay them in one direction and you're going empty back. We don't like these larger segments because we cannot really be different, and we cannot really build a more industrial-efficient cargo system with cargoes in both directions if we own these ships. So it's very difficult to be different. You don't really control your own destiny in the Capesize market. You're all at the mercy of Chinese iron ore imports and its lowest cost wins. What we can do with our much more versatile commodity mix is that we can build a much more industrial system of cargo contract that complement each other, and we can build a very high utilization rate, more than 90% of all the days at sea, we are fully laden, and that's how we are different, and I'll talk more about that in a minute. This is why we're only in Handysize and Supramax. The key components of our business model are listed on this slide, and it's been built up over many years. We makes -- we have a track record of outperforming market rates, and that is primarily because of this higher laden percentage. It's not because customers pay us more than the market rate, the market rate is the market rate and we use our ships more efficiently, and that's why we make more dollars per day because we have fewer empty days, fewer days in ballast, as we say. And to do that, we've got to have all of these components that I have listed here. #1 is the versatile ships, the Handys and Supras with cranes on deck and access to all the various minor bulk commodities. The second point is that you need scale so that you can build a worldwide system. And you need interchangeable ships, so you need ships that are very well equipped, so that we can freely swap ships in and out. If we have different design ships, for example, if we only have some ships that can carry logs and others could not, it will be very difficult to reach 90% laden. As an example, in Handysize, every ship that we own other than one is logs fitted, and it means that we can always use the ship that closest to the load port, and we can build this very efficient system. Predominantly, our ships are built in Japan or else at least Japanese design, and they're very well equipped and very reliable, very high-quality ships. Since I came, we have only bought one non-Chinese ship, and we have bought a lot -- all others are Japanese. As I mentioned, we have experienced staff. And I want to make the point that in this segment, skill and expertise really makes a difference, right? I mentioned to you loading and discharging. To load steel on the ships, you really have to know the ins and outs on how to distribute the weight on deck, how to stack it, how to put [indiscernible] in between and the more skilled you are in loading and discharging and cleaning in between, that makes a big difference. That can be the difference between making a voyage profitable or making it loss-making. The global office network that we have built is critical. We would not be able to get the cargoes out of South America, out of New Zealand, out of Australia, out of Japan, et cetera, if we didn't have local offices there in that time zone, that speaks the language, and that is close to our customers. And it takes -- it costs money to have this worldwide office network. So you need scale to distribute the costs. Only the most important is, of course, our customers and our cargo contracts, the relationships and the direct interaction that we have with our end users, right? The direct contact that we have with our customers gives us excellent market intelligence. We know what's happening in the market. If you're a tonnage provider, time chartering, leasing out your ships, you're not really talking to the end user, you're time chartering your ship to another operator or owner. So of course, the cargo network to build this high utilization rate is key to us and the cargo contracts and the relationships. I would say that maybe half of our repeat business is contractual. The other half is informal relationships where the customer always comes back to us. We say in the last point here that we are both asset heavy and asset light. But what we mean with asset heavy, that's our core business. That's the own ships and the long-term chartered ships. And that is really the key in a strong market like we have now. But we also have what we call an asset light business, that's all these short-term chartered ships and a piece of that is what we call operating activity. Surinder will speak more about that later. But that's a complementary business to provide a service to our customers, even if we do not have our own ship or long-term chartered ship in position and we can make a margin by combining a cargo and a ship opportunistically very valuable, especially in a falling market or in a weak market because it's the margin there that is the profitability to us. So it doesn't really matter if the market is strong or weak. Especially in a weak market, when we cannot make money on our own ship, it's very valuable to have both. But I will say that I would not want to run a company that was only asset-light because I think it's a very weak customer offering. You're not offering your own and managed ships to your customers. You're shortening in some, mostly the spot market, other people ships each and every time. So you have no control over the quality, over the service, over the reliability over the crews on board, right? Because you're taking a ship that's cheapest from the market every time and you're combining it with a cargo. So our core business is our key, and that's what allows us to get cargo contract and to build our business. So that's a little bit on our business model. And for those of you who doesn't know us well, hopefully, you do understand kind of the basics of our business model now. And this next slide is just to prove that it works. It does work. You can see that we have a track record of outperforming market rates with $1,700 per day over the last 5 years on Handys and $1490 per day on the Supras over the last 5 years. Even more on the Supras recently, thanks to our scrubber benefit. But it's not only on TCE that we have performed and that we are competitive. We also have very competitive cost structure, and you see down below there that compared to our peer group, we also have lower Opex, G&A and finance costs than our peers. So the combination of higher earnings and lower costs provided benefits of $1,500 per day compared to our peers on the Handys for the calendar year 2020 and more than $3,000 on the Supramaxs compared to our peers last year. Again, the wider margin on Supras is due to the scrubber benefits that we have on most of our owned Supras. Turning to the market. Slide 9. You can see clearly here that the positive trend continues. And for the second quarter, we were -- when we reported here a while back about 80% cover that $16,000 a day on Handys and $18,000 per day on Supras. And this is well above our breakeven level, which we remind you over here by where the dotted line that you see on this graph. It's easy to do the math between the breakeven level and what we're now making. I remind you that we have about 90 core Handysize ships and we have about 45 core Supramax ships. And I'd just like to mention as well that we've had quite a different situation in Q1 versus Q2. And Surinder will mention this later as well. The Atlantic market has been significantly stronger than the Pacific market in Q1 and that is especially beneficial for our Supramax segment because we have more Supras in the Atlantic than we do in the Pacifics. And you can see that we caught more of a stronger market in Q1 on the Supra than we did on the Handys. But this has now reversed in the second quarter. And now the Pacific market is stronger than the Atlantic. And that is extra beneficial for our Handysize segment because we have more Handys in the Pacific than we do in the Atlantic. And you can see that the difference between Supra and Handy is narrowing and handy rates are catching up very nicely and especially good for us since we have about twice as many Handys as we do for Supra. So very positive market rate development right now. And you can see on the next slide that we're kind of on a different planet than we have been in the previous years. And encouragingly, you can see that the market has actually turned up again in the last week when we reported here a week ago, we did communicate that it felt like the market is finding support at the levels we have, and we are now seeing a rising market, again, which is very encouraging. And again, it demonstrates a tight balance between supply and demand and that is not just a one-off situation that we had with the slide earlier about a month ago. I would want to remind you here about the lag between the fixing a ship and earning the money on that voice because we're fixing forward, right? So there's a 1 to 3 months lag between fixing and earning. So the fixtures -- spot fixtures that we did during the strong spike in late February, early March, is not really showing up until in the second quarter earnings, which you saw on the TCE rates as well, right? So it is not meaningful to compare index rates for Q1, those rates, by the way, that you're seeing here are index rates. We can't really compare the average index rates for Q1 with our earnings of Q1 when rates change as dramatically as they have done now early this year because of this lag. You need a longer period to compare with maybe some ups and downs, and then you can compare again between index rates and our earnings. It's really apples and bananas to compare quarter-by-quarter when change -- when rates change as much as they have done recently. Next slide, why our rate is so strong. I'm not going to go through all of the details here, and Morten will speak more about the market factors later. But it is China, it is grain, it is construction materials that's growing strongly, it is coal that's coming back to same levels as before. And there's also some temporary factors that we have benefited from, including a few inefficiencies in the fleet and also from high container rates, very high container rates, more than twice as high as our rates, which is causing some container cargo to move to dry bulk carriers. And we're now entering the South American grain season, which is kind of what drives the market right now. Next slide, I just want to touch-up on the biggest change during the company during my 9 years have been a significant growth of the own fleet, and we have reduced the long-term chartered-in fleet as well. We much prefer to own ships. So we have gone from owning 34 ships in 2012 to now 117. And again, the benefit of this is in a market like we have now because the costs are substantially fixed. So we have tremendous upside and leverage now that market rates are finally at the rewarding level. And we have specifically grown our Supramax proportion. As you can see, we hardly owned any Supramax ships back in 2012, now we own 40. And that's been a conscious strategy in Supramax rates to have larger upside in strong markets, the larger ship tends to -- rates tends to go up more in strong markets, and we are benefiting, as you can see in Q1 and Q2 with even higher Supra rates than Handy rates. And we have continued to grow the fleet, in particular, with Ultramax ships. And most recently, we bought 4 ships in November from Scorpio, 5-year-old ships at $16.7 million each, a fantastic price for extremely well equipped ships, including brand-new scrubber installed on those ships included in the price. And you can see on the graph to the top left how nicely such ships have developed in recent months. So this is the market that we have been waiting for. This is the market that we have worked so hard to build up for and set up for with our now much larger core fleet. And we are back to the levels that we last had in 2010. And just looking back at 2010, our Handysize rates averaged $16,700 per day in 2010. And we are kind of back to those levels now. You saw that we were covered at $16,100 for the second quarter. Now back in 2010, when the calendar year averaged $16,700, this company made just about $100 million. And I mentioned this before, I'm going to mention it again, if we get the same rates again for a full year, we would not make just over $100 million, we would make $400 million. And I'm using this just to make the point that there is still upside in our company, in our earnings and in our share price and market cap. Back in 2010, our market cap was about the same as it is now. I repeat, the market capital was about the same as it is now, but our earnings capacity now is 4x as high. And we have the same rate levels or about the same rate levels. Now it's only for a quarter yet, but we think it will last and I will revert to that. Next slide, I just did some back of the envelope calculations the other day, which I would like to share with you to also show you that there's still plenty of upside in our business. And I'm showing you here, the values, the market values of various age ships 2010 and in -- and what the value is now. And the third line on this slide is called upside to 2010 values. I'm comparing how much current values needs to go up to match the market price that we had at the end of 2010. Earlier, 2010 values were even higher without taking the end 2010 values. And you can see the percentage increase that it still takes to get up to the same levels as 2010. I should say just to clarify, right, that this is not a forecast, this is not a projection. We're not making any forecast. We're not forecasting to make $400 million. We're just making math. But the rates are at that level. And the point I want to make here by showing these various age vessels is that the older ships have much more upside left. That's always the case and that's why we like to work with secondhand ships. Our average age is around 10 years. We have some that are older, we have some that are younger, but we like 10-year-old ships. One, because the earnings is much higher, the return is much higher. You can see on the lower section here, what tremendous returns we're making at today's level by dividing the EBITDA by the value of the ship, right? So take a 15-year-old ship that's worth $6.8 million now as per taxon, it's a 28,000 toner. At current rate levels, of $15,000 a day. I've taken off a little bit since the ship is a bit smaller, right? So at $15,000 a day, the cash contribution to capital is about $3.1 million a year, and the scrap value is $3.3 million. So by adding the scrap area with 1 year of earnings cash flow, you got $6.4 million, and you can buy a ship for $6.8 million. So there's just tremendous earnings capacity left in these ships and a lot of upside on the value. Next slide shows the same thing. But on Supramax, you can see the same trend, right, that the older ships have much more upside left. And the earnings are tremendous on these middle-aged ships. That value of Supra is $4.8 million. You're holding in more than $4 million and a 15-year-old is worth $10.3 million. Next slide. Now you may ask, why don't we go out and buy a lot more 10- or 15-year-old ships today. Well, it's very difficult to do because competition is very stiff today to buy ships and prices are going up. There's a lot of people inspecting ships, et cetera. So we are very fortunate to have so many ships already. We have 117 of them and we do not have to go out and chase -- buy more ships if vessel values start to get really high. I'm showing you this just to put things in perspective, right? That if there's any segments where these strong rates should have capacity, it's in our segment. You can see that the order book in Handysize is 3.5%. And for Supramax, it's about the same that overall, dry bulk 5.6%. This is the lowest order book in living memory. And this bodes well for the market in the coming years. So final slide to wrap up. We have a healthy demand outlook. Morten will speak more about it. We have vaccine and stimulus rollouts in the world. We have global growth forecast that's being adjusted up to 6% most recently. Clarksons thinks minor bulk demand will grow 4.8%. It's very unusual to have minor bulk grow slower than overall GDP. So chances are that minor bulk demand growth will be higher than 4.8%. It's certainly a lot higher than that so far this year. The order book is low 3.5% for Handysize. The net fleet growth this year is by Clarksons expected to be just below 2% and even lower in 2022. So you could contrast a demand growth of around 5% with a supply growth of 2% or less than 2, that's why we are reasonably optimistic about the market balance going forward. And we have mentioned before, we'll mention again, who in his right mind calls up for a shipyard today to order a new ship with a fuel oil engine that you need typically 25 years to depreciate that delivers 2 or 3 years from now when we have this environmental greenhouse gas reduction movements going on. You still have to be extremely strangely minded to do that in our view. And that is why the -- so far, touch wood, the order book remains benign, and that is why we believe that we will not shoot ourselves, our industry in the foot again by ordering too many ships. We do think that it continues to make so much more sense to buy second-hand ships because we can see very clearly that we can use those ships for another -- at least another 10 years. There's no question about that. But to order a new ship that delivers 2 years from now into a market that you're not certain of how it will look, but you then need a very long time. You have a very high capital amount to depreciate by secondhand ships instead. And that's why there's also more upside in our view in secondhalf values. And very importantly, starting '23, the way it looks like IMO will come in with medium-term or short-term rules that will force power limitations. And a lot of the core design ships will have to slow down already in those years or soon thereafter. So that's another factor that will moderate supply and keep the supply-demand balance tight. It is the time to now harvest and to make money and to save that money in order to order real new technology ships, but that will take many years. We cannot order real new technology ships today because they are not available. And even if they were available, there would be no fuel available for them. So we're watching the new technology developments very, very closely, participating in a lot of programs in research, but it will take time before new technology ships will be available. And meanwhile, we intend to make a lot of money. And that based on our strong leverage, the larger fleet, our competitive costs, and we are in a very good position now to benefit. Again, thousand dollar rate -- if rates go up $1,000, that changes our bottom line between $35 million and $40 million. The math is easy to do. We encourage you to do it. And we also encourage you to listen in again on July 29 when we will report our 6-month results that I think will be very exciting to report. So that concludes my introduction and overview, and we, I think, invite for, if there's any questions already now. So any questions, please feel free. And after that, we will have more to talk about the market.

[Operator Instructions] Our first question comes from Parash Jain with HSBC.

Exciting times. I was just wondering, given this forum, I think I should take the opportunity to understand from you. Can you talk a bit about what does IMO's Jan 1, 2023 EEXI EDI regulation mean? I mean, is it possible to quantify, i.e., ballpark, let's say, vessels older than 20 years may need to speed by -- slow their speed by half naught or something? Is it any way possible to quantify the impact on the effective supply growth? And is it fair to say that, that could be a driver to drag supply growth into negative?

Yes, it is. But it's not decided upon yet. It's a bit -- we have elected so far not to show a lot of details on this because the rules are still work in progress. They haven't decided whether IMO is going to go for a 2% per year decrease on an issuance or what 1.5% decrease. But it follows this trajectory of reducing CO2 with 40% compared to 2008. And each ship will also be different, Parash. But there's no doubt that -- I mean, if we were to simplify, we will probably say that, a, the best designed ships will be able to continue at decent speeds while the worst designed ships will start to have problems already 2024, maybe -- I mean, we haven't done work on the worst designed ships, but they will have -- they will start to have severe speed restrictions, power limitations already when this kicks in. It will, of course, be up to the charter source to kind of discriminate, right? But ships will be rated A to E, where A is the lowest remitting ship and E is the most effective, right? An A ship will be allowed to continue with higher speeds and an E ship will have to come up with a plan how it's going to move up. It's ABC, you do not have any restrictions other than speed. But if you're -- after 3 years, you have to come up, and there may be charters who say that I'm only going to charter ABC, et cetera. So these poor design ships will not -- they have to go down below 50%. They have to go down to maximum slow MCR, which is 30%, 35%. And that's only 9 naughts or something, right? So a lot of charters will find that, that's a bit too slow, and they're not going to look good chartering these types of ships. So we think this will be very helpful for our markets. And thankfully, after having predominantly good design fuel-efficient Japanese ships, we will be affected, everybody will be affected, but we -- our fleet is good, and we will be less affected than others. And a vast majority of our ships as far as we can see now will have no problems trading although at slower speed for some of that.

And Matt, so are we expected to get final outcome or more visibility by mid-June when IMO will be meeting later this year?

I think close to final, at least, you never know how these meetings goes if some countries come in and protest and try to change it. But it looks set to be substantially decided upon in the June IMO meeting. But again, it will not kick in until -- I think they will start -- 23 will be used -- today, April '23 will be used as the starting point. And then January 1, '24, it will start to kick in hard probably.

You mean, that's correct?

That is correct, yes. So what we're hoping to do, Parash, is assuming we feel that the IMO has been clear enough and is there are lots of rules available so that we can analyze and look at in a little bit more detail than we've done today. We're planning to have -- perhaps incorporate in our Investor Day later this year. We also want to do a little bit of teaching on these rules, how it will affect us. But maybe more importantly, how it will affect the market overall because what we're talking about is potentially mid-decade, a substantial part of the fleet we'll struggle to operate profitably and commercially. And this is before there will be a 0 carbon alternative available, right? And that's the key. I have a question coming from online from Andrew Lee from Jefferies. He asks that on Slide 14 to 15, given the EBITDA returns, do you expect vessel prices to rebounce sharply? Yes. Vessel prices have already gone up, Andrew, right? And whether they will continue to go up or not, will most likely depend on how rates develop going forward. I -- sure these slides do indicate that we nowhere close to the values we had back in 2010, but 2010 these rates average for the year at those levels, right? And so far, probably people are not 100% sure will rate stay there, they're not prepared to pay up, right? And maybe -- again, it's the good designed ships that people can see, also including these IMO rules coming, right? When we look at -- we're still looking to buy ships, but we are very particular about ships that we buy, and we would only buy the most fuel efficient ships that we can clearly see from trades through 2030 with these rules in mind. So if you can buy a ship today, then you're confident under these IMO rules you can trade until 2030, you have at least 10 years of trading, right? So if you're making $4 million to the capital every year, that's a lot of money, right, if you think that you have many years at these levels. So yes, definitely more upside on secondhand values. But again, we're not predicting that a 5-year old Handysize will be worth $15 million, right? We just have to wait and see, but it's only upside for us, right, it's all upside. And one last question for this Q&A session coming from Nathan Gee from Bank of America. Mats, do you see current spot rates as the single in the second half of this year? Or do you think that current FFAs are reasonable pointing towards [indiscernible]? See, FFA rates are fairly accurate in the short term, but the long-term value is not there in FFA, right? I mean, just look at 2012, FFA rates are very low. Try to charter a physical ship at that level, and you're left with right is -- if you look at the physical 1-year time charter rate now, I think Clarksons has a 61,000 toner at 18.5 or something, Mats has it higher than that, 19.5 or something, right. And the FFA rates for Supramax for calendar year 2022 is like 12.5 or 13 or something, right? The physical market is much higher if you go out 1 year or further. So to answer your question, yes, we do believe that there's certainly a good potential for these strong rates to continue. And again, it's very encouraging to see rates going up now, right? And it's not one particular reason and you can put Morten who is our most experienced and data intelligent person that we have right. He looks at all these factors. And it's not one factor, it's many factors, and it's taken a long time to get to this level, right? So we've suffered for many years to finally get into tight situation. But again, I can only repeat that the demand outlook looks good with 6% GDP and 5% minor bulk. And we know that the fleet will grow much lower than that. So with those fundamentals, we can only say that, yes, of course, there is a chance that these strong rates will continue. Thank you.

[Operator Instructions].

Shall we go to you, Morten?

Sure. Now we will move on to supply and demand fundamental session. Mr. Ingerbrigtsen, please begin.

Yes, good morning, good afternoon, everyone. I'm sorry that I'm not able to be in Hong Kong today due to COVID travel restrictions. I'll do my best from this end to take you through the market slides that we have presented for you today. And starting with the overview. I'll go through this relatively quickly. A lot of this is covered by Mats already. As he mentioned, supply and demand balance improved. We have seen sort of a vast improvement in the first quarter this year. And I think it's fair to say that this -- that we hit a tipping point, evidenced by the increase in earnings. This is obviously not something that has happened overnight. As Mats mentioned, it's something that's built up over time. And at some point, the market simply just runs out of ships, and that's what we've seen happening in the first quarter when earnings reached trending highs. On the supply side, we had the dry bulk fleet growth peaking at the middle of last year, and it has been declining since that time. We do have visibility for this for the next sort of, I would say, definitely this year and also next year. And we can see that this will decline further as we go forward in time. The dry bulk order book is at a record low. And as Mats mentioned, contracting is helped by the uncertainty of the future vessel design, somewhat is compliant when you look 25 years ahead to meet emission reduction targets. We'll talk a little bit more about that later on. When looking at last year, the severe lockdowns that we had, I think it's fair to say that the dry bulk demand was surprisingly resilient. It did drop a little bit, obviously, rates were lower last year than the year before. And we have had good recovery and good growth in the first quarter of this year, especially, again, as Mats mentioned, grain and minor bulks have supported the market. And we've also had some assistance on the tight container market, where cargoes have shifted out of containers and back into dry bulk. Looking ahead, we have the normal seasonality applying to dry bulk shipping, which means that rates and demand is typically higher in the second half of the year. We also have the stimulus in the background that we think will support demand growth further into 2021. So if we can move to the next slide, please. So this is basically a repeat of what Mats mentioned, but I think it's worth talking a little bit around this. We have rates at a 10-year high, and it's tempting to look a little bit at what happened in 2010, and why rates dropped at that point. And that was, of course, when the deliveries of ships that were ordered in 2007, 2008, started to deliver, which, of course, today is vastly different. We have -- instead of having a high order book, we have a low order book, and we got declining deliveries. So that's one key observation of the start when you compare 2010 to 2021. We -- also worth mentioning is that if you go further back in time before 2010, rates were significantly higher. So I think it's wrong to say that where we are now sort of a unique sort of peak that will not be sustainable. And indeed, as Mats said, we have seen at the end of last week and early this week, that rates are beginning to come up again, which is very comforting to us. I think also when these things happen, people who have cargoes tend to hold back when rates go up. And at some point, they have to show they have and go out and get transportation for those cargoes. And that is also part of the reason why we see this volatile move forward. I would also mention here that the -- we've been looking hard at data, and there isn't any specific single big reason why this is happening. The growth is spread across a wide range of commodities and that is also helpful. And that also explains why Handysize and Supramax earnings have done particularly well this year. So if we can have the next slide, please. On the dry bulk order book, we have set out here the order book in percentage of the fleet. And as it stands at the beginning of -- as of the start of March, we had a 5.6 nominal order book for dry bulk carriers. And that is the lowest that it's ever been across this period here going back to 1995. And also interesting is that if we focus on the sort of 4 big major sectors of dry bulk, we find Handysize at the bottom at 3.5% and Supramax a little bit more 5.4%, which is an all-time low for that sector. And also Panamax and Capesize at historically low level, 6%. A little bit about the reason why there is a lack of ordering. Normally in a situation where you have a bullish sentiment like today, you would have a lot more ordering and people going to the yards to book new tonnage, that is not happening. There is a little bit of ordering but nothing like what you would expect if you had a normal bullish sentiment like what we have today. And it's also worth mentioning that it's not just the risk of having a uncompliant vessel perhaps halfway through its 25-year lifetime due to stricter environmental regulation and requirements, it's also the fact that these new designs, whatever you choose whether you go for the sort of intermediate solution, which many people regard as L&D to more sort of carbon neutral forms of propulsion. It's a lot more expensive than what you have today. So it's not just the risk that you're taking by getting the wrong vessel and the wrong design, but it's also paying more for that in the process. And I think this is holding back the appetite for more ordering. If we can have the next slide, please. We have here a -- I would call this accrued or broad-based annual estimates for supply and demand based on the forecast that we have from Clarksons research. This is, of course, on an annual basis, it doesn't actually explain what's happening on a sort of month-to-month basis or what is happening today. But it is -- it does give you a sort of a broader overview that tells you in what direction the market is going. And you can see here from 2020. On the left-hand side where we have minor bulk against Handysize and Supramax fleet that we had a positive balance with demand growing higher than supply is expected to develop. Similar for dry bulk, the total dry bulk, including all ships and all cargoes, we have a positive balance this year, and the spread remains positive also for next year and indeed widening. One thing is demand -- forecasting demand, which in itself is difficult if they're in front of us, but I would add also that on the supply side, underlying this is not just deliveries but also scrapping our vessels. Clarksons is forecasting that the scrapping will decline this year. And perhaps it will decline a little bit more than what they have set out -- sorry, decline a little bit less than what they have set up. And at the moment, we have almost no scrapping due to the strong market. So that's -- I think scrapping is the variable that will determine the supply demand -- sorry, the supply side as we move through 2021 and into 2022. Next slide, please. We have here for the demand side split into the 4 sort of classic groups: gains, minor bulks on the left-hand side and iron ore, coal on the right-hand side. This is based on cargo tracking that we get from a company called AXSMarine. It is a tool that didn't exist a few years ago. It basically tries to identify what is onboard vessels as they move from load ports to discharge ports. It is also -- it's not absolutely perfect. The system is not able to catch absolutely everything that is onboard ships. But for broad categories like the sort of volume -- big volume categories, it is reasonably accurate. We have tested this against our own ships, our own fleet and our own trading, and we find it surprisingly accurate. I think as you drill down into individual cargoes, it's a little bit more -- it tends a little bit more error. But at this level, we think it's reasonably representative. So starting with the -- on the grain side. We can see good growth for this year. Grain, obviously, is not a cargo that is driven by sort of industrial production GDP, that sort of thing. It's more about crops. It's about people eating. It's about China having a more meat-based diet than before. And all of this is supporting the grain markets. We've had, this year, particular support out of the U.S. and also the beginning of the South American grain export season, which I'll get back to a little bit later on. Moving down on to minor bulks. The first observation to make here, I think, is that we have a particularly bad development due to the COVID lockdowns in the second -- in the first half of the year, particularly around April and May, so things were dropping back and that we've had good growth so far this year. This is where the sort of broad-based cargo growth is coming in. I'll cover that in a little bit more detail later on. Iron ore is also growing. The feature of the iron ore market, it's very much about China. China is overwhelmingly the biggest importer of iron ore. We can see on the iron ore price, which we'll get to a little bit later on, that has increased substantially from bottoming in 2016 that there is a problem on the supply side of the cargo. There's plenty of demand, and supply is struggling to keep up with the demand side. We have growth out of Australia, first of all, and also out of South America, which are still struggling to get back to the level they were before they had that disaster, the dam breaking, in 2019. We've also seen this year due to shortage out of these traditional iron ore suppliers increased volume out of India, which is very much Supramax -- Ultramax trade, which has helped the market as well. Lastly, on the coal side, I think this is the only cargo group that we could see a sort of a real COVID decline last year. You see the red line well below the 2 years before. We've had a recovery in this from -- in the last quarter of last year and continuing into this year. Coal is a little bit more political as a cargo than many of the other ones. It depends on Chinese policy on importing versus domestic call output, and it's also for other countries, driven by the use of electricity, which is the most of the coal volume, thermal coal. So we'll move on to the next slide, which we -- which deals in more detail with the grain trades, which has been growing strongly. You can see here on the upper left-hand side, we have combined U.S. and Canadian grain, soybean and soymeal loadings, with a 57% growth in the first quarter based on these cargo tracking data that we have used for these starts. Very encouraging. We saw the U.S. coming back. We'll get back to that a little bit later on, but we saw that coming back again strongly in the second half of last year. We have the beginning of the South American grain export season, which started late due to late planting, but coming back very strongly with Brazil exports in March actually exceeding the level of last year, which in itself was very high. Australian grain, which is really just grain, it's not much soybean coming out of there. But the Australian grain exports this year have been very, very strong. We've had a couple of years with -- we've had a couple of years with low exports, and this has increased substantially. It's not a huge, big trade when you compare the volume to the other ones, but it does have a significant impact in the Pacific region -- Pacific region, but that has been helpful as well. Black Sea is covered also just to show also the seasonality of the price. It's a little bit down. This year, there is some export restrictions coming out of Russia, where they prefer to keep more of the grain domestically to lower the domestic price, but we should see a significant pickup in the second half of the year as the seasonality chart indicates. If we move to the next slide. We have here 4 examples of commodity prices, just to illustrate the strength of buying, if you like, what has been happening lately. I would start with the iron ore on the upper right-hand side. And as it happened, we had a new high, actually set yesterday at $188 per tonne, which is the highest. We have to go back to 2011 to see anything similar. And this is really just -- this is a sign of the supply of cargo not being able to meet the demand. There is talk in China about the Chinese steel production actually reducing this year. There is sort of a policy to say that this will happen. Everything that we see on the ground tells us opposite. The steel production in the year-to-date is up 16%. China is short of steel. The fuel prices in China have gone up significantly. The margins to produce steel is positive. So the steel mills are incentivized to produce more. I would also add that China still has about more than 800 million tonnes annual domestic supply of low quality, which is due to be replaced at some point. And by doing that, they will actually also reduce the emissions from steelmaking by using imported ore, which has a higher Fe content, which again means that you need less power to convert this into steel. Corn, we have here as an example of the grain prices that have gone up significantly. A lot of that is due to increased buying out of China that we'll also get back to you a little bit later on. And then lastly, we have copper as a representation of industrial metals. If we move to the next slide, please. So what we've set out here is, again, using the cargo tracking data that we get from AXS. And we thought it would be interesting to show you just how that varies. If you split the trade and combined Handymax and Supramax -- Handysize and Supramax trades by sort of oceanic basins, you have your Inter-Pacific, you have your Inter-Atlantic, and then you have trades going from the Atlantic to the Pacific, which is what we refer to as front-haul and going in the other direction from the Pacific to the Atlantic so-called backhaul. In general, the biggest -- the sort of largest group is the Inter-Pacific trading that you can see here with a 16 million tonne increase in the year-to-date. We've also had strong growth out of the Atlantic. I think part of that is due to the some decline last year due to the COVID restrictions in Europe. That is coming back again. But there's also other things like steel moving into Europe from other places. And also the general recovery story, I think, is behind the Inter-Atlantic increase. What is interesting on the last 2 slides is the fact that the Atlantic to Pacific, the so-called front-haul trade is larger than the backhaul trade. So ships are moving with cargo on a net basis from the Atlantic to the Pacific and much less cargo going the other way. And this cements also the -- it creates inefficiencies in a way. So you have to move ships from the Pacific back to the Atlantic to carry the cargo, but you haven't got the cargo base to do that. So this is all what we do. This is what we -- what our tracking is all about, getting those backhaul trades, moving ships to where they have to be where there's loading going on and making use of the differences between the oceanic basin. Can we move to the next slide, please? So what we've set out here are the grain trades, and we focused specifically on U.S. grain exports to China. First of all, on the upper part of this slide, we have total sort of worldwide grain loadings for China discharge, i.e., Chinese imports. This is based on loading data. So that's why we don't -- that's what is the basis behind it. You can see here that we had from the, I would say, from April last year, we had significant growth in the Chinese grain imports. Part of this is soybeans with the Chinese pig population coming back again after the African swine fever. And you've also got China branching into other commodities, other grains that they are starting to import that they have not imported before. Corn is perhaps the most prominent example, a lot of corn going into China, but also minor grains, more wheat. We've also seen sorghum. We saw last week a weekly export of 860,000 tonnes of sorghum to China, which is very unusual. It's the highest ever weekly export of that grain from the U.S. to China, covering more than 30 data period. And all of this is telling us that China is needing these grains. The prices they're going up, and they are taking opportunity to import this from a variety of places, including and most prominently the U.S. So if we look at what happened in 2020 on the upper right-hand side, you can see that China increased its total grain imports, including soybeans by almost 40 million tonnes, and the vast majority of that came from the U.S. If we move to the lower side, we focus here on U.S. grain loadings, specifically out of the U.S. for China discharge. And in the year-to-date, we've had a 20 -- 228% increase. So it's from a low level because it's classically not the period of time when the U.S. is exporting grains. But if you look on the right-hand side, we've had a 43% increase in that trade, 11 million tonnes so far. And the vast majority in total, the vast majority of that is coming out of the U.S. again. So these are very strong grain trades that supports the markets. If we can have the next slide, please. We take a little bit step away from the cargo data and look quickly at the Chinese minor bulk import. This is based on customs data. It's not specifically on dry bulk carriers, but what the sort of real imports, if you like, in volume is covering. So we got here 10 trades or 10 commodities that we are tracking with the China customs data. For the first 7, we had data covering the first quarter. And the last 3 are still waiting. That's another week before we have the data for logs, bauxite and nickel ore. But you can see here, for all of it, except coal, we've had good growth on all of these, and that is for the first 7. The last 3, I would say, I fully expect logs to go up next month. Based on preliminary data, that's certainly the case. Nickel ore is very much a trade these days that is driven by exports out of the Philippines, where you've had a rainy season for that to come back again. And bauxite is a little bit negative. It's mainly actually a Capesize trade bauxite into China. So if we can have the next slide, please. I talked earlier about minor bulks dropping back in 2020, particularly around the sort of April-May period. Minor bulks is a little bit more difficult to cover because they cover a wide range of commodities, but we thought it would be useful to dig a little bit deeper into this to show sort of why we have that growth and what has happened this year. The bar charts on top are basically the minor bulks divided into 7 main categories, 6 more specific and 1 more general, which we have referred to as others. This is a function of the way that the AXS cargo tracking system works. When drilling into the minor bulks, as I mentioned, this covers a wide variety of commodities. So the deeper we dig, the more difficult it is to track. But I think we can make some general observations a little bit behind the category that we've referred to here as others. I think last year, one of the main reasons why we had a big decline, we have 41.6% -- 41.6 million tonnes year-on-year decline was due to nickel ore. Indonesia introduced at the end of 2019, a ban on export of nickel ore, which was a trade, which at the peak in the last quarter of 2019 was running at about 6 million tonnes per month. And that went to an abrupt halt, stopped completely from 2020, and that explains the vast majority of the decline that you see in 2020 for the other category. There was also aggregates dropping back. You also had some positive bauxite actually last year with growing limestone as well, but generally speaking, nickel ore was a big feature in that decline. What has happened this year is you can see on the right-hand side is that all of these cargoes, except for iron products, very small trade and pellets also very small trade, all of these are coming strongly back again. I would mention specifically nickel ore is starting from a low base, actually, obviously, with the Indonesian exports being stopped. That has grown this year in the first quarter, 23% up based on preliminary numbers. Aggregates also, which dropped last year, has come back again. You got manganese ore or you chrome ore. All of these are coming back strongly, which are a result of the coming recovery out of lockdowns last year. We also have Breakbulk that on the right -- upper right-hand side stands out with the high-volume growth. And I wanted to cover also quickly the -- touch a little bit on what also Mats mentioned the moving of cargo out of containers in into dry bulk. It's very difficult to get date on this, the container lines. I'm not talking about it. They don't want people to know what they carry in the containers. So I've been struggling to try and find a way to sort of describe this or put numbers on it. I narrowed down on Chinese steel exports. It's a big trade. It's about -- it's up to sort of 4 million, 5 million tonnes a month. So what I've done here is to look at the total exports out of -- from based on customs data and combine, compare that with what the AXS cargo tracking says on field exports out of China. These are crude measures. We're using 2 different data series that have slightly different definitions. But I think on the sort of overall -- in an overall way, it is possible to see the effect that the strong container markets has had. You see that the portion -- the indicative portion share of Chinese steel exports that is carried on dry bulk was declining from, say, the middle of 2014 and come the end of 2020 and into 2021, when we have seen the container markets pick up strongly, that portion has gone up strongly. I think it's long to say -- I think it would be misleading to say that this is exactly 70% as the end of this line here indicates, but I do think it does tell us that there has been a shift of steel cargoes out of containers and into dry bulk. The reason this is happening is not just the cost side of moving things in containers, which has become more expensive, but also the lack of empty containers where they are needed, typically in China and the Far East for moving containerized, whether it's exercise bikes or computers or whatever, back to the Atlantic. In the old days, when there was more slack in the container system, there were more empty boxes moving around that could be sold with dry bulk cargo, typically on container backhaul trades. That is not the case now. The containers are needed immediately in an empty state and therefore, means that there is much less ability and willingness from the container liners to carry dry bulk cargo and delay the whole sort of empty container coming back again. The other part of this is obviously Breakbulk, which is -- consists primarily of bagged cargoes. I think there has also been a move back to dry bulk out of containers and strangely also logs. We have seen log movements from log exports from Europe into China absolutely exploding in the last few years. And based on data from -- for the first 2 months of the year, we should have March data in a few weeks' time, that has dropped back significantly, which obviously is helpful for our sort of traditional log trades out of the U.S. West Coast and out of New Zealand, which we have seen strongly this year as well. So next slide, please. What we've done here is to try and look a little bit closer at the Australian coal exports, particularly due to the Chinese, well, policies around the Chinese sort of ban in some form or shape of buying Australian coal. The bar chart on the bottom with lots of colors shows you basically whereas the total Australian coal earnings has held up. It's dropped back a little bit, but it's held up relatively well. But you can see China, the blue bars at the bottom, basically disappearing during 2020. And this has caused a shift in the way that the Australians export coal. They moved more into India. And also Japan has grown as well. And you could see these sort of shifting patterns, which I'll try to illustrate on this chart. If we go on the upper 2 for the smaller charts volume 2020 and the year-to-date 2021, you can see here that China, in both cases, have dropped back. It dropped 25 million tonnes in 2020. And so far, in 2021 year-on-year has dropped 16 million tonnes. Whereas others have been sort of more scattered in 2020, but in 2020, it's up. What is interesting about this is that if you try and convert these data into what has been carried on what ships, which is what I've tried to do on the left-hand -- on the right-hand side, I've got again 2020 on top and then year-to-date 2021. And instead of measuring volume here, we have measured the days on which these ship types are carrying Australian coal to whatever destination it is. And obviously, if it's more volume, then you have more days, you have more ships. And also, if it's a further distance, that also adds to the number of days that ships are employed carrying Australian coal. We could see in 2020 that both cape -- Panamax 65,000 to 120,000 tonnes and Capesize 120,000 tonnes plus both of those dropped by 4% and 9%, indicative based on these cargo tracking data, whereas Supramax 43,000 to 65,000 tonnes actually increased by 41%. It's not a huge trade, but you could see the way that the trade is shifting as a result -- partly as a result of the Chinese absence as a buyer that have pushed cargo on to Supramax/Ultramax ships. The same happening in 2021 year-to-date, year-on-year comparison. Here, we have a 9% drop in the number of days that Panamaxes have carried Australian coal, a little bit less drop for the Capesize. But again, Supramax, Ultramax cargo days with Australian coal has picked up. So these are sort of -- this is an example of the way that even though the trade in itself is dropping, you have sort of shifts within the trade but has benefited, in this case, Supramax and the -- Supramax and Ultramax bulk carriers. So apologize for this being a little bit sort of busy, this char, but I hope I've been able to explain it reasonably well what is behind -- what the thinking behind it. And then finally, we've got to the last slide, which is about looking ahead. As mentioned, we have a tighter supply-demand balance, and we can see that to greater volatility. This is something that you would expect to see happening when you have a type of supply and demand balance. So we think that we will have rates moving up. It's not going to always move up. It will move down again. But you will have this happening from a higher base level. And that, I think, is what we've seen just these days. When I think many people, particularly on the cargo side expected rates to crash down again to what they were a couple of months ago at the beginning of the year or perhaps last year, that is not happening. It's starting to move up again. So that is part of the volatility of a higher base level. We will have the net fleet growth will continue to decline. I would mention again, perhaps we're not going to have quite as much scrapping as what Clarksons is indicating. But even so, we will see a declining trend for the fleet growth going forward. Dry bulk cargo volume has a seasonal boost effect later in the year. There's always more cargo moving in the second half of the year when you have higher earnings, and that should be happening this year as well. We also have, obviously, a widespread stimulus that continue to support dry bulk trade. We saw also, I think, in March, we had a new sort of an 8-month high for U.S. steel imports. They're also importing active lumber from Europe these days. So there are things that are happening on the back of the stimulus that will take us to the next few -- 2 years I'm sure. And we also obviously have the lockdowns. Recovery happening over here. We are still very much locked out. This will turn back into a more normal economic development later on, and that should be supportive as well. And then lastly, just to drive down again the point about high newbuilding prices and risk of getting the wrong design where you find halfway through your newbuilding's life that it's no longer compliant and fit-for-trade with new emission standards and regulation coming in. I think the only thing that is fair to say that we're not going to have less environmental pressure on. So I think it's going to be more about, I think, as seen by many in the industry, which is why people are holding back and putting their bets on the next 25 years based on the old design with an oil-based propulsion. So that, ladies and gentlemen, was the end of my presentation. So if there are any questions, I'd be happy to address that.

[Operator Instructions] We do have a question that comes from James Teo with Bloomberg Intelligence in Singapore.

I would like to find out more about this seasonality that you mentioned. You mentioned that I think going into 2021, especially second half, I believe, there will be stronger seasonal trends. So what are some of the seasonality that we expect? Is it from particular cargoes like grains or something else? Could you elaborate a little bit more on that?

Yes. Thank you, James. That's a very good question. I would say generally, it is something that we see, and it's for the normal shipping year. You have -- you always have sort of a higher -- the peak of the earnings typically is in the third or the fourth quarter, around that period. I think iron ore is a prime example of that. There typically is more iron ore moving in the second half of the year. Part of that is due to Chinese stocking, prewinter stocking. Part of it is also due to more rain and weather issues in the first part of the year out of Brazil and also out of Australia. So that is definitely a driver. You also have on the coal side the beginning of the heating season when more coal is needed. You have also the stock up, prewinter stock up. On the grain side, you have U.S. exports kicking off from sort of September, October. Typically, that peaks around sort of November -- October-November period. Last year, we had a very strong, also December. But typically, that should be more sort of an October-November story. And the similar can be said for many of the minor bulks. They're just moving greater volume in the latter part of the year. Also, just on the seasonality from a market perspective, there is also more ships delivering in the beginning of the year, even sort of disregarding the trend whether it's moving up or down. There is always more ships delivering at the beginning of the year. This is what we referred to as the sort of new year effect, but owners prefer to get the ship delivered in January with a new delivery year rather than in December or even November the previous year. So all of these are things that play into the seasonality for dry bulk cargoes. I mean if you look at the grain side, you can see here also strong growth out of the Black Sea, although it's a smaller volume than North and South America, but these are also drivers that help to explain the seasonality.

Okay. Great. I have an online question coming from Nathan Gee from Bank of America. This question relates to U.S. stimulus. Do you have any thoughts on what materials the U.S. would need to import via dry bulk ships that these materials where U.S. has sufficient domestic supply or where materials can be imported via land from Canada or Mexico?

I think it's -- from my point of view, I think it's 2 sort of main groups that I would tip that into. One is cement. U.S. has cement industry, but it is polluting, and it's difficult to get permission to make new cement capacity in the U.S., and that is something that I could see is -- could be a driver once they sort of -- once they start employing the funds that they have sort of politically put in. And this will take a little bit of time. It doesn't happen overnight, but I can see cement and cement clinker being one of those cargoes and also steel. Steel is sort of political in the sense that there has been support in the U.S. for sort of putting trade barriers up to support local industry. But I think that, that can only go so far. And at some point, they do need the steel. And that will encourage them to import more steel, particularly from the Far East. There is obviously some trade going although from Canada, but it's not huge. And I think once this gets going, we will see steel imports into the U.S. picking up, perhaps not sort of the advanced expensive steel, but more steel driven towards construction, which is the sort of simpler stuff you get out of places like China. As I mentioned also briefly, I saw a headline, I think, last week saying that the steel imports in the U.S. hit an 8-month high in March. I haven't seen the data yet, but it will be interesting to see where that is coming from. And I expect a lot of that is out of the Far East.

Thank you for that. And one last question coming from Andrew Lee from Jefferies. Here's the 2-part question. The first question, from the different commodities, which area will you see strongest growth whether it be grain, iron ore, coal or minor bulk? And then the second question being, which [ area ] you're most concerned of? And sorry, third question, container building new orders have been increasing. How is the logic difference from the minor bulk sector?

I'll adjust the first question. I might come back and ask you for the second. I didn't quite get that. But I'll -- firstly, the first one initially. I think grains will continue to grow. I mean, I think it's not just a sort of a crop issue where you have some good years and some years. I think there is genuine driven demand out of China based on the shifting sort of diet towards more meat based and less vegetables. We can see that happening. There is still the -- the swine population is still growing. I think also it's difficult to get a real sense of what is happening in China when it comes to grain. But I think what we're seeing with these sort of huge purchases of corn particularly, but also what I mentioned also sorghum, which is not a huge trade, but it is very much dominated by China, I can see that happening going forward. I think minor bulks, a wider variety of cargoes. It is very much a recovery driven. I think that we will have industrial demand for these minor bulks, and I think that will continue, not just in China but also outside of China as the recovery moves forward. Many of these sort of big -- other big importers like Korea and Japan have still not got back to where they were sort of pre-COVID, I would say. So there's still a potential for that to increase. Iron ore where I talked a little bit about. I think China will continue to be driving this, not just to produce more steel but also to shift away from the more polluting low Fe ores that they sell employ in sort of relatively large quantities, but is due for replacement. We also see China investing into despite saying that they will -- they intend to produce less steel this year and less the next year, we see that they actually are investing into new mining capacity where they can, in Africa. There's also apparently Morocco. There's a project to try and develop a very expensive iron ore deposits, therefore, by Chinese sort of investment. And all of these are things that tells me at least that there is still plenty of demand for iron ore going forward, not the least the higher iron ore price is telling us that. On the coal side, a little bit more difficult. As I mentioned, it is sort of a slightly more political cargo. China has -- China continues to rely overwhelmingly on call to produce electricity or produce power, whereas you have alternative sources of electricity, wind, solar, nuclear, that's sort of thing growing at high percentage levels, but from a very low base. So even if the percentage levels are high, China continues to be reliant on coal, and we have seen that this year, particularly in the March figures, the hydroelectric power disappointed, and China has to turn into call. How much of -- how much they prefer to import and how much they prefer to source domestically, it's difficult to say. Traditionally, they have been -- this has been a price issue. China imports coal not just because they need it, but also as a way to control the domestic price. Coal prices have been increasing, and that should mean that they will be opening up to tap a little bit more to make sure that the domestic coal pricing doesn't run away by simply just having more imports. I think coal is on the way down in Europe. I don't see that really coming back. But I can see in the Far East that there is still potential for coal trade to grow. So I would say out of the 2, I would still point to grains and minor bulks as the most promising, which is what we've also seen so far this year. Can you repeat the second question?

Yes. And I think Peter will take on the last question for that part which was, container newbuilding orders have been increasing. How is it -- how is that budget for newbuild ordering different for ours?

Yes. Morten, obviously, you can add to this, but the dynamics of dry bulk and container shipping of later are quite different. What we see at the moment on the container side -- and by all means we're experts on it, but we're looking at this from the outside, but we are seeing orders for large vessels, which are not necessarily readily available to container guys in the secondhand market. In dry bulk, we are fortunate. Every type of vessel more or less is available in the secondhand market. If you recall last time, reordered ships, which is early part of the last decade now, we did that largely because at that time, they weren't large Handysizes available in the secondhand market. We felt we needed that type to meet our customer demand. Since then, we've not felt that need in dry bulk. And that goes for a lot of other dry bulk and most of the dry bulk orders as well. We can't find a vessel type we need to service our clients. In the containing market, that's not necessarily the case. They need to order ships to service their customers because they don't have the sizes. Also, container ships are obviously very large, generally speaking. And in many cases, it's easier to retrofit these with more future-proof fuels than we can do on bulkers, especially smaller bunkers as well. So I think a lot of the container guys -- their market is more concentrated. Their part of the market share is completely different way for what we're doing. We're not fighting for market share necessarily in dry bulk because it's so fragmented where it's more concentrated there, so they're fighting for market share. So they don't want to wait to find the perfect shift 5 years from now that they can invest. But what they rather do is they order a ship today as they feel like a retrofit or use future-proof fuels down the line, and they feel more comfortable about that for technical reasons as well. So I think those are some of the different aspects between the industries, while the container guys feel they need to add particular sizes for capacity and the competitive dynamics that are slightly different. It doesn't mean that there won't be a slight increase in ordering in dry bulk. I mean we make it sound like there wouldn't be any ordering, and that's not correct. I mean there will be ordering. We are seeing orders coming in, but not similar to what we've seen in recent market spikes. I should add, it is much, much more muted than it has been in the past. And as Mats said before, knock on wood, we hope for that to continue, but there will be some orders. Peter or Morten, if you want to add anything on the container segment, please feel free to do so or anything else.

Yes. No, I think just to add, the container order book basically was dropping from 2008, basically until the mid-second half of 2020, and it dropped back to -- nominally back to 6% of the fleet, which doesn't sound that low. But actually, that's substantially lower than what has been lows in the past. I mean if you go back to the last -- back to the period from 1996, it never dropped below 15%. So container order book historically was much lower than what the lows have been in the past. And therefore, I think that's sort of spur them on to ordering more while dry bulk has just recently dropped back to the lows that we had in the '90s and early 2000s.

I mean I think we better figure [indiscernible] yes.

Yes. And the other side of it is also the deliveries. The container deliveries has dropped back to about sort of 3 -- just over 3%. And whereas in the past, it never sort of really dropped much below -- I think in the '90s, it dropped back to about 6%. So you had sort of record low actual deliveries out of the yards whereas bulk carriers were about sort of, looking at the last 12 months, were about sort of 5% -- 4.5% to 5% delivery pace. And we've been lower before. We have been down to sort of 3% in the past. So we still haven't sort of breached the lows in terms of deliveries. And I think lastly, also, bulk carriers are less profitable for the shipyards. It's much more difficult for them to make money, particularly on smaller ships. And that makes it more attractive for them to get orders for containers.

Yes. There seems to be a stronger strategic rationale for older container ships today. There is no strategic rationale order for dry bulk ships today. I think that is a difference, but time will tell.

It is the end of the session of Q&A session. And now we will have a 10-minute break, and the call will start again at 04:25.

Mr. Brrar, please begin.

Thank you very much. Let's say, this is a market we've been waiting for. So if I can go to the first slide overview, I'll be discussing the Pacific Basin business model again on a -- with a chartering sort of overview. A little bit update on the chartering market as well as what's happening in the 2 basins, the Pacific and the Atlantic Basin. We'll talk about cover, explain a little bit about the backhaul and how the backhaul cover actually works and give you a conceptual model on when we need to lock in front-haul cover, when is the right time, but it's a conceptual model. I'll go through fleet optimization, what we are doing at the moment. And then wrap up with the TCE outperformance discussion, and we'll have the Q&A discussion -- Q&A questions after the session. So first, we can go to the Pacific Basin business model. Our business model has been refined over many years. In the longer term, we're able to generate a TCE earnings premium over market rates because of our high laden percentage with minimum ballast legs, which is made possible by a combination of fleet scale and interchangeability. With the Handysize fleet, we are trading up in size and getting younger ships as well. With Supramax, we're growing the fleet in number and size as well because the newer ships coming in are larger. So overall, we have versatile ships in our fleet and the trades that we do as well as diverse in minor bulk with a large proportion of owned fleet, and the reason for that is the large proportion owned fleet means there's low fixed cost, and that is super important in this market. We also have experienced staff and global office network. We've discussed it over and over already. So I won't spend too much some on this, but we operate globally, and we connect with the customer locally. We speak the local language, and we are in the same time zone as our customers. Importantly, we will discuss about the backhauls later on. We need to position the fleet where our customers want it. Arbitraging cargo positions with multi-dimensional requirements, size of ship, location, the type of ships, the time, the duration of the voyage and the values we can get by positioning those ships. Also, we want to make sure that we honor our cargo contracts, and this is part of positioning the fleet. So in order to get the maximum of our cargo contracts, we need to position the fleet to where our customer wants it and where the relationships and the direct interactions will end users are. So this allows us to strategize where to position our fleet. As Mats earlier on mentioned that the Handysize fleet is largely in the Pacific and the Supramax fleet is larger in the Atlantic in general. Also, we discussed about ongoing optimization process. In terms of technical, we're doing a lot of speed management and fuel consumption. That is so important, especially with the sustainability requirements coming up. Operations, in the operations team, we're doing ongoing processes and cargo care. For chartering, we are improving contract clauses. The higher market allows us to discuss the contract losses that we had to follow earlier on because the poor markets, we didn't have much leverage, now we do. We're focusing on improving our post stay management, trying to reduce and find the areas where we can improve that and simplify our systems and processes. And what's also important that we are doing is the data analysis, including big data and small data, the data that's already in our systems. So I think it's worth mentioning again, the chartering market, the positive TCE trend is continuing. If you read the lower -- the line at the bottom, last year, the core fleet P&L breakeven, including G&A for Handysize is $8,720 and for Supramax is $10,120. As we can see, the current market is substantially above that. So the trend is definitely in our favor at the moment, and it's according to our view. With the demand and the supply situation, it may last a lot longer than we originally thought earlier this year. So in terms of the chartering market, Morten has spoken about the big picture of our demand, but I'd like to spend a bit more about the underlying demand. So firstly, it's quite important to what we're seeing on a day-to-day basis in the chartering desk globally. Firstly, there's a strong synchronicity in this demand in almost all global markets. I will discuss later on what market came a bit later in the Pacific. And when that came in, the whole market got really big boost. What we haven't discussed is the decontainerization, decontainerization from box into bulk. And the MPPs who used to compete with the smaller Handysize ships, they are largely out of the dry bulk sector because the container market is much more heavier, much more better paying. So the decontainerization of box into bulk, I'm getting calls now from people I haven't spoken for 15 years. So they want to come back to us, because they can't get containers -- they can't get enough containers, they can't containers to arrive in time for their customers. So the issue is we can't give you -- we don't have a firm number of how much cargoes is actually moving to bulk, but certainly, the anecdotal experience at the desk globally we're hearing is strong. There's a lot of movement from box into bulk. The volume-wise, we don't have a clear handle on it. The third point here is the Pacific swing cargo, the Indonesian-China coal demand. And initially, I wrote here in this presentation, it may add fuel to the demand story, and you probably remember seeing Morten's presentation where he said the coal was down in the first 3 months of the year. We're now seeing a lot of demand coming up. The big demand in this swing cargo, which comes in and out, which is almost impossible to predict, it is best. And you can see also the Chinese coal prices going up. So a lot more demand is coming up from Southeast Asia. And market is strong despite many ships speeding up, so that is a very, very positive sign. Also some inefficiencies we're seeing in trading patterns: firstly, crew change crisis, many ships now had to divert to Manila, sometimes some other ports, including Guam as well. We've seen quite a lot of ships there diverting just to make sure that the ship can get their crew changed and the old crew get some rest at home with the families, and new crew get some employment to earn enough money to send back to their families. Vessel quarantine requirements, there's a bit disparity in different ports. Even in Australia, some ports allows to unberth without a quarantine, some ports don't. In China, same thing, some ports have their limit, some ports don't. So those requirements make it more complicated. And of course, the China-Australia trade dispute. That's been going on for a long time, and there are numerous reports on how many ships are still waiting in China. The last I saw was 36. But we don't really have a firm handle on actually what that number is. But the issue with the Australian coal going to China is no longer there. Australian logs going to China is also no longer there. That's causing some -- a lot of inefficiencies in trading patterns and it's really helping demand. And the front haul trades. In the Pacific, we see very strong demand in the Indian Ocean, in Australia, in New Zealand and the Southeast Asian market. North Pacific is the last to join this demand story and really [ stopped them ] in the last week, so all the key markets are now in the upswing. In the Atlantic, the market turned positive after just a few weeks of slight weakness, I'll call it. But certainly, it dropped from where it was in earlier March, caused by the U.S. Gulf grain season concluding despite the highest fleet count of Handysize and Supramax ever in the basin. So we'll go through the fleet count later on as well. Back-haul trades, our customer requirements really are in the front-haul region. We need to make sure that we position the fleet to capture the last front-haul premiums available especially in a strong markets. Also the cost to position the ship on a backhaul voyages -- voyage is reducing significantly. In my view, this is a fantastic opportunity to capture strong backhaul rates and then capture the front-haul positioning, which is a to bring large premium. The alternative of cost is to go empty, to ballast and empty and we don't -- we very rarely do that. We have a 90% utilization rate. In terms of fleet positioning also, we use a dynamic approach in pricing and positioning our fleet in Atlantic and Pacific for both Handy and Supra. The Indian Ocean is becoming a premium trading area as well because it's been pulled by the 2 strong basins. Both the Pacific and the Atlantic are pulling it, and that's creating a huge dynamic where ships can go almost anywhere, and depending on where the highest return is for that ship at that time. So as a global operator, Pacific Basin, we can trade anywhere, anytime, and any duration. I'd like to go through this next slide now, a little bit slowly. If you have a look at the top 2 graphs, you notice the first quarter, there is a big Atlantic premium for Handy and Supra for the 38 and 58. And the Atlantic premium dropped dramatically in the last few weeks in April and started in late March and similarly for the Supra as well. And the difference is now $6,900 between the Handy Pacific paying more than the Atlantic and similar for the Supra as well. This is a very, very rare occasion. I think, it's probably a 12-year high where we're seeing. So just to recap, again, in quarter 1, Pacific didn't gain as much as Atlantic, we improved, but we were always behind the Atlantic and that reversed dramatically in the last few weeks. And why is that? So if you look at the top 2 graphs, you see the record high levels of the Handysize ships in the Atlantic and you look at the very low levels of Handysize ships in the Pacific. If you look back into the last year, which is 2020, if you look at the red line, you see the Atlantic fleet size growing. And in terms of the Pacific, the fleet size is reducing. The number of ships in the Pacific reducing and the Atlantic growing. So eventually, that just went up because a lot of owners wanted to position their ships in the Atlantic, which is the -- which is what's causing the sudden disparity. In terms of Supra, the story is almost the same. So you can see the large amount of Supramax is in the Atlantic. And in the Pacific, only slightly higher than normal. And despite all this, the market is actually still quite strong. So in terms of capital management, the -- I'd like to spend some time to explain the front-haul and backhaul just to give some people -- some analysts here need to go through it. The best example would be the -- for example, if you look at Tokyo and Vancouver in the chart, Vancouver going to Tokyo is actually from the North Pacific going into Asia, that is a front-haul. That is where cargo -- majority of the cargo is. And from Asia back to Vancouver or North Pacific, that's a backhaul. Not many cargo go back that way. So the direction front-haul means it's more cargo going in -- coming out of Vancouver and that region into Asia and less cargo going back. So normal cargo system comprises of 1 ballast leg, which is empty and 1 laden front-haul. So we try to combine the backhaul and front-haul cargoes in order to achieve higher utilization and outperform the market in the long term. So how is it calculated. In fact, I put in a calculation here, which I tried to make it as easy to understand as possible. So in a $10,000 a day market, the backhaul voyage will be discounted. And assuming this voyage is average of 35 days, the discount of $100,000 on that voyage. So instead of a $10,000 TCE, you earned $7,143. The front-haul, on the other hand, similarly, because at a position value, you gained $200,000 for similar average duration of 35 days, the TCE for that voyage is $15,714. On a round voyage basis, because you've given up position value of 100,000 before and gained $200,000 net of front haul trade, you've left with $100,000 premium. If you divide that by the total duration of 70 days, you get about $1,429, and that is our premium, that is better than no backhaul, that is better than going empty. The -- we go to the next slide. This is a perennial question. When to lock-in cover. The conceptual model is that in the low market, we do tend to do spot business only. And as we see the market picking up, we start looking at longer-term COAs from the [ REM ] cover and at the top of the market, if you can find somebody who can say, this is the top, of course, we don't know that. But we feel that when the market is quite strong, it's time for us to take longer-term contracts -- contractual power. And on the other side of the cycle when it starts dropping, we can still take medium-term COA at decent numbers. But when it starts to come down, we need to start reducing our charter-in exposure and just go spot and keep playing on the front page. So we watch the cycle very carefully. And we stay close to customers and we take cover as they come step-by-step, choosing shorter-term cover when a market is low and longer-term when the market is higher. And we continue to position our ships to where our customer base requires them. Fleet, customers like the fact that we have a scale. We turn up when we say we will. So overall, Mats also mentioned the total ships we have is 117 with 16 long-term chartered-in, 138 short-term chartered-in and total of 271 ships in our fleet. So we've grown the large owned fleet, which, of course, has lower fixed costs. We are continuing to reduce the long-term chartered ships. And strategically, we are topping up the short-term chartered-in ships to allow for higher vessel utilization, to help to position the ships and make sure we have enough ships if we expect -- anticipate a larger requirement, larger demand out of a certain region, we can start positioning ships into that region before the market comes up. It also allows us the ability to execute on arbitrage opportunities. And, of course, we maximized TCEs by optimizing our vessel positions. And part of this discussion also is, we also have some optionality on some long-term charters to extend them. It's in our option well below current market rates. This is a big potential upside. We do operating activity to opportunistically capture value in the market, and customers always look for strong counterparties with large in-house and owned and managed fleets who can meet the obligations in all markets. So we have the low fixed cost, which really is the key part here. Low fixed cost, very good fleet, in-house managed to really benefit from the stronger market. In terms of what is our core business and operating activities. So Peter will talk about it as well. But I wanted to clarify the -- what is core business. It's contract cargo and spot cargoes on owned ships, long-term chartered ships and short-term chartered ships carrying contract cargoes. The cost of our business there is largely fixed, and we also disclose it. The key thing to measure here is the TCEs per day. We have significant leverage and profits in strong markets as we think -- as we're seeing it now, and maybe there's going to be -- this market leg, it might last for longer than just a short period of time that we -- that some -- that we think it is going to be long. It's an asset-heavy business model. It's predominantly our own crew, quality, safety, cargo care as well. The customer wants his cargo to arrive in the destination in as good a condition when he loaded the cargo. It enables us to sell our reliability. Our goal is to be first choice partner for our cargo contract partner. And also it provides brand equity, brand name value in the industry. Currently, it's about 80% to 85% of our total vessel days. About 15% to 20% of the vessel days come from the operating activity. That's spot cargoes carrying -- short-term ships carrying spot cargoes. The cost, of course, will fluctuate with the market and key measure there is the margin per day. It can generate profits in weak markets. That's very important for our business, which is why we do it and can be a bit more challenging and risky in higher markets. It's an asset-light model with third-party crews, quality, safety. It's harder to control quality. And allows us to -- we actively participate in this side of our business because it allows us to enhance and expand the service for our customers. Because if you want to have a ship in place when our customer requires it, we can take a ship up to the market to execute on that cargo. So in terms of TCE outperformance, wrapping up, really our outperformance has been developed over time to primarily optimize in global markets. Now we're swiftly changing it to readjust to optimize in higher markets and using our low-cost -- low fixed cost base, that is a tremendous strength. There will always be a lag in both rising and falling markets because we fix ahead of time. So if it's a rising market, we'll fix now and 2 weeks later when it's being executed, there is a lag in that. Similarly, when the market comes down, we fix -- we always see a much better number, much better TCE than a market -- in a falling market. With the rising market, there is a lag. The market dynamics itself necessitates reoptimization of routes. Key part is, for example, [ North Pac ] was weak for earlier part of this year compared to the rest of Asia, still very strong, but compared to the rest of the Pacific, it was weaker. We dynamically adjusted the fleet and kept more fleet in Asia rather than open in [ North Pac. ] And now it's up, it's increasing; again, we adjusted it. So our free interchangeability, together with in-house management, global office network positions us to capitalize on cover opportunities. Customer service levels, our fleet size also allow us to offer an unprecedented opportunity to lock-in solid profitable TCE over long term. And the backhaul business for us leads to higher utilization rates, which in turn leads to long-term outperformance. As I mentioned before, the alternative is go empty. So we choose to backhaul our cargoes in order to get a better margin. And next, if I can remind you, again, next, this is a market that we've waiting for an opportunity for chartering. This is a market that every chartering manager at Pacific Basin has been waiting for. So we look forward to seeing this market go through in the next coming few months. So for -- any questions for a Q&A session?

[Operator Instructions]

I have a question coming from online from Deepak Maurya from HSBC. He asks how long will we continue to see continued cargoes moving to both ships? And if this ships continues, what impact does this have to rates for dry bulk?

Of course, we don't know the future. But from what I can see, basically, the container guys are reporting a high market for the rest of this year and maybe substantial part of next year as well. So this could continue for much longer than initially thought, last year. But of course, we don't know the future. We think that this market has a lot of legs. The container demand is very, very strong. New ships, as Peter mentioned earlier on, it will take some time 2, 3 years to come. So the longer it comes, is better for us.

[Operator Instructions]

I have one more question coming from online from Nathan Gee from Bank of America. He asks, what is your strategy around forward contracting now? And are you prepared to secure the medium long-term COAs yet?

Thank you, Nathan. Yes. We are ready to fix long-term and medium-term. But the real change will come when the market feels that this sustained highs will be here for longer term. That's when we see a sustained push by our customers to fix longer. At the moment, the market has only risen and our customer base -- I think, every customer base in the dry bulk business don't yet have a belief that this market will stay. So it will need some time. And that's -- we look forward to seeing that time. Usually, the contract season is in fourth quarter so it could be later this year.

The question comes from Andrew Lee from Jefferies. He asks, do you or other -- do you know any other commodity types that are currently being decontainerized and moving to the bulk side?

I heard about grains. There used to be a large grain shipments out of Australia in containers and also heard of logs. Actually such thing is -- I've heard of steel being moved out of containers into bulk. So that's the 3 cargoes, I have personally heard, but I'm sure there's others as well because -- sorry, timber, that's the demand that I've got from my old friend 15 years ago who contacted me because he can't get containers for putting his timber in anymore. So based on, I think it's a big swell of demand that's unmet that -- which will come to bulk, but volume details is too much to guess.

I don't think if I may, and I don't think we should overemphasize the importance of it in the overall context. This is a help, but it is not the kind of a bigger driver of the current market strength. I mean, things like Chinese continue the strong import of coal. There's a quality and size of the Latin American grain exports will have a far bigger impact on the market. This is very nice to have, don't get it wrong, but it's not a...

That's not a key driver.

It's not a key driver, though.

Yes, yes.

We do have a question here, and this comes from James Teo with Bloomberg Intelligence.

To follow-up on the question earlier on forward cover management, you mentioned that you are open to medium and longer-term contracts now and maybe -- and that's heavily in the fourth quarter. So what kinds of, would I say, length of contracts would you be referring to by medium- and long-term? So could this -- and would you basic aiming to secure, say, 50% or more of 2022 cargoes then? Or could you give us any guidance on what you're looking at in terms of lengths and percentage that you would want to or target to aim? I know you said that the market is not quite ready yet, but assuming that you can by 4Q, what would be your targets like?

Yes. I think it's too early to mention the target because it's driven really by our customers and the market as well at that time. So we can't really share that because it's entirely dependent on many, many factors: customers and competition as well. We haven't mentioned that, but there will be competition, not just -- Pacific Basin will be keen for that. So we are not in a position to say anything at the moment.

In terms of the length, what is medium and long-term is? Is it 1 year, is it 2 years is long term? Or could you elaborate a bit?

I guess, so there's a defined definition, right? So we think under 3 years is medium-term and longer than that is long term.

And now we will move on to the Forecasting Our Business session. Mr. Schulz, please begin.

Okay. Thank you very much. I'll just wait for the camera to come to me. So good afternoon, everyone. I will just have a very short session on 2 topics: One is how to forecast our business. You recall that we changed the disclosure last year, and we went through a lot of sort of on how to look at that. So we thought it would be worthwhile just to repeat the key methodology on how to look and analyze our business. So that if you take a view on TCE, you can get to our underlying profit almost on the dollar. So we think that is very helpful. So we will go through that again and reiterate how this is done. The second area I wanted to cover is a little bit about capital allocation because we get a lot of questions about that. And it's also, of course, very profitable as should the market continue to rebalance in our favor, our cash flows will strengthen. And what do we do with that, right? So we'll cover those 2 topics quite quickly, and then we'll take a few questions if there are any. So if you turn to page number 50. Surinder went through what's the core businesses and what's the operating activity, so I don't need to reiterate that. What I would like to say, though, is that sometimes what confuses people a little bit is that we have short-term ships, which are not operating. So the key to understanding these, what we call core short-term ships is that we put them into our core business and we deal with them and we bake them into our overall TCE, and that's the key thing to remember. So if you actually turn to the next slide, there's a lot of text on this one, but the core business is, as Surinder has mentioned, is to optimally combine our owned and long-term ships with cargo contracts and spot cargoes and the purpose is to achieve the maximum TCE. But in order to achieve this optimization, sometimes an owned long-term chartered ship is not ultimately available to carry, say, a contract cargo, and we will then use a market ship i.e., short-term chartered-in ship to carry that cargo. And we do that so we can optimize our all trading system. The way we deal with that ship in our disclosures is that the margin on that ship i.e., the difference between, say, the voyage rates and the time charter rates is simply added on to the TCE of the core fleet, right? So we don't disclose separately the cost or the revenue on those ships. They are baked into the core TCE. So that's important to remember. The operating activity is in a way completely separate. These are short-term ships, the spot cargoes, right? So if we do this, this is sort of an opportunistic business. It's a business we engage in to make sure that we are not complacent, that we are always in the market. And it's also a business where whether the market is going up or is going down, we have the opportunity to make a good return. The core business has the operational leverage, costs are fixed, market go up, we make more money, market comes down, we make less money. In the operating, the idea at least is over the cycle, we can always make money on this business. It is worthwhile pointing out though. It's always a bit more difficult to make money when the markets go up a lot like they had recently and you see that in our disclosures as well that the operating have not had particularly high margins in the last quarter, et cetera. But that is because we -- I think we always -- and then we match it with a ship. But if ships are getting progressively more and more expensive, the margins are squeezed. You saw, for instance, last year, when the situation was different, the markets were coming down like this, our operating margins increased a lot because we took cargo and then we got cheaper and cheaper ships that we could use, simply speaking, right? So those 2 businesses, remember, the short-term core ship is in the core business, but only -- we only bake it in as a margin. So at the bottom of this page, you see the calculation of our core TCE, which is the revenue we make on owned and long-term chartered ships plus the short-term core ships with margin over the number of owned and long-term revenue days. So look, if you want to model our business, you never have to worry about how many short-term core ships do we have? What's the margin on those? Are you losing money? Are you making money? It doesn't matter from a modeling perspective because the TCE that we give you includes all of that stuff, right? The operating activity, even simpler, basically, the profit of the operating ships over the number of operating days, very simple. Simple margin, this is. So if we move onto the next slide. So this is the very simple way of estimating our underlying results. And the only thing that is highly variable here is the core TCE that we earn and the operating margin, the cost, the G&A, the post-Panamax contribution, they're all pre fixed. But if we go through it from top to bottom, so for instance, to calculate our Handysize contribution, you take the core TCE, which we disclose. You multiply that with the owned and long-term chartered revenue days, which we also disclosed. Then you have your revenue of that business. And then you need to deduct the cost, which is a blended cost times the owned and long-term chartered cost to date. And all of those are also disclosed, right? So the uncertainty here is what's the core TCE going to be? And it's important to remember, it's not always as simple as just taking the long-term cover because as Surinder has explained, often that it's backhaul heavy. That is where we invest a lot in these ships. We call it investing. We're taking a cost -- positioning cost earn the high transport going back. So often -- and we all are in an extreme situation at the moment because the market is so high and many of our long-term COAs, which are core part of our backhaul cover are much lower. The difference between the cover and what we will actually achieve later on is quite large. And I think you've seen that when we've disclosed sort of cover for forward quarters recently versus what we then actually achieved, I think you'll see a quite big difference. So Handysize and Supramax both work in exactly the same way. You can add those 2 up. You have your operating activity, you need to make an assumption. Well, we provide you with a margin and the number of days. And historically, you have the information. But you need to make an assumption about what the operating margin is and how many operating days we will have. This will fluctuate, of course, in the days less than the margin, but what we're trying to achieve is the profit over a period of time, in a way, not shorter than a year, right? Because you can't measure this business on a quarterly basis because sometimes, you have to take positions and all these kind of things and -- it's trying to optimize it over a slightly longer period than on a quarter-by-quarter basis. And that's why we show you what the average margin has been in the last 12 months, all rates, in addition to what it's been in the last quarter. But here, obviously, there is a certain amount of estimation that has to be made. But fresh thoughts, this is also difficult for us, right? I mean we have no greater visibility than most people even going out of year what it's going to be. Because there, market dependence favors the core TCEs actually. It's a notoriously difficult market try -- to actually try and forecast. So then, after operating activity, we have -- now we have 1 Panamax ships. We used to have 2. One will be redelivered at the end of this month. So we have 1 Panamax ship. I think the annual contribution there is a little over $4 million a year because it's a steady contract, the better contract that just ticks along. So that's very simple. The G&A, I think, is also quite simple. We disclose what it is, and it increases sort of with inflation, generally. And then you add that up, you get your underlying results. And the sensitivity, we will go through now how to calculate that. So if you move to the next slide, as Mats mentioned before that for every $1,000 increase or decrease in the core TCE, we -- our underlying profit moves up or down by between $35 million and $40 million. And the way to calculate that, again, it's quite simple. You stop, you take the number of owned and long-term chartered ships, which I think at the moment is around $135 million, something like that. You multiply that with the number of cases in a year that they're on-hire, 360. Remember, there's always a bit of off-hire there where they are dry docking or something breaks down, et cetera. You multiply it by $1,000 a day. And then you also multiply it by, in the next 12 months, not all days are open because they always have some base cover. And we estimate that this base cover is between 20% to 25%. So the open dates will be in the 75% to 80%. So you have to adjust for the fact that we always have some base cover in our book, and then you do get that sensitivity coming out, you could try that at home. Let's, of course, assume that there is no change in the margin, number of days in the operating activity. So that can -- obviously, that will impact your underlying profit, and it can go up, and it can go down. I mean last year, we had a phenomenal year in operating activity. It was a strong revenue contributor, likely to be a bit less this year. So don't forget that, but it doesn't play into this particular sensitivity. Also, the G&A changes do not play into this particular sensitivity. But there, I think the G&A is reasonably stable. We add at the bottom of this slide, just the cost so that you get a sense for where we are at the moment. So on the left, you have a Handysize-owned long-term costs and then they are blended, and the same for Supramax on the right-hand side. And of course, you can contrast that with the second quarter forward rates, $16,100 Handysize versus $7,800 cost before G&A and $18,000 Supramax versus $9,200 cost before G&A. Again, you saw the numbers that Mats showed before on profits on that is very, very attractive. So that's just a quick recap on how we calculate our sensitivity. Now lastly, I wanted to talk a little bit about capital allocation on the next slide. We get questions about this quite a lot. And of course, the future is unknowable, but should the market continue to recover and rebalance, we will earn a very healthy operating cash flow. We are doing that today. And for every month that the market are at these levels, we are continuing to earn a phenomenal operating cash flow, thanks to the operating leverage predominantly in the core business. Of course, what happens if the market continues to be strong? We showed before that there is still upside in secondhand values; so we might -- we are still looking to buy a few ships. We are expecting ships. We are looking at that after our long-term strategy, particularly, of growing our Supramax fleet, as you all know. But there will be at some point where we might feel that values are becoming a little bit toppy or they're not as attractive as they were before, perhaps, I should say. And because we are under no obligation to buy ships, we have so many. We can kind of hold off a little bit if we feel we want to focus on making money on the ships we have rather than buying more ships. So you should probably expect the pace of buying ships might reduce a little bit. We've been buying 7, 8, 9 ships in a year over the last couple of years, at least as long as I've been here. And the pace of that might go down, and there might be periods if the market is good and the value is high we buy those ships because we don't need to. You should also expect, of course, if values come up that we might accelerate some of the divesting of older tonnage. We've had a strategy of divesting ships when they get to about 20 years or ships that, for whatever reason don't fit into our trading assets or for whatever reason is not perhaps as good as some of the other ships. So we have been selling ships. I think we have sold 4 last year. And of course, as values come up, we might sell a little bit more. But all this points to is an increasing cash flow, right? More operating cash, more cash from selling ships and less cash out from buying ships. So what will we do with this cash? One priority, the first priority is to continue to delever the balance sheet, in line with our amortization profile. You might recall a year ago when the market uncertainty was very high, we did add all leverage, we did add all liquidity to ensure that we have the maximum possible cash run rate, should the world go into a prolonged COVID sort of winter. That didn't happen, of course. I mean in hindsight we could say COVID probably is one of the best things that could happen for dry bulk because it really -- in a way it's driving the market, right? But at that point in time, we were uncertain about the future. So we and a lot of other companies took advantage of the liquidity being pushed out into the system and we did increase our facility to leverage as much as we can. So now it's the time to do the opposite, to actually delever. And this also ties in very much with our fleet. It's getting 1-year-old during the year. It's about 10, 11 years on average now. As we go into the mid part of this decade, it's going to be increasingly difficult to finance some of our oldest ships, and that's perfectly okay. They will be fully paid off by then. There will have been earned more money than they would worth many times over, hopefully. And they don't need to necessarily be financed. But at that point in time, we want to have a lower leverage in general, which I think is -- makes a lot of sense. So deleveraging is something that we will look at. We will always try to optimize. Of course, we don't need more cash at the moment, so we don't necessarily -- we're not necessarily going to go out and squeeze every penny after the increase in the market value. I don't think that makes a lot of sense. But we can't push out the tenants, if we can, and that's something that we could look at. But again, it's not a do or die kind of thing. But deleveraging is priority number one. Priority number two is to maintain a strong liquidity position. We had about $360 million of cash at the end of last year. We should have probably something around there. Around $300 million, I think, is a good, strong liquidity position to have. We do this because it underpins a number of things. Over time, as I mentioned before, as ships get older, we want to focus more unsecured financing, which we are working on and we're getting at the moment. More of the corporate risk profile and having a strong liquidity position enables us to get better and attractive terms on that type of financing. And we also always want to keep sufficient dry powder for good opportunities. Even in a strong market, we do come across ships, which we feel part is positive price. And we will eventually, of course, as Mats mentioned before, we will have to start making investments in future green technology at some point. Even though I would like to say, though, at that point in time, all else equal, the ability to finance green ships, I think, will be incredibly good. This is something that every bank in the world, every sustainable bond investor in the world wants to do. So our ability as a big, a recordable ship owner to finance green ship when they become available to us, I don't think will be a problem. And I think we'll be able to do that even more attractively than what we've done on our older ships actually, but time will tell. But we still need to have a good cash buffer because we want to have that kind of flexibility. But as long as we maintain that cash buffer and as long as we delever the balance sheet, we will, of course, then have the cash to distribute. And we have a policy today of distributing at least 50% of net profits. I would expect that to be the Board's intention to do that for this calendar year. But longer term, should we have excess cash, then I think the Board will have discussion whether we should distribute more. It's early to say. But if markets continue to be strong, and we do not grow the fleet aggressively as we have in the past, there will be opportunities down the line to have a higher dividend. But I don't think we should expect that in the short term. I think it's more of a medium-term ambition. So -- but even if we look at your consensus forecast for us for calendar 2021, and we assume we're going to pay half of that as a dividend, interim and then 3-year dividend. The yield today on -- specific base of dividend yield, I think, is around 7-ish-percent so that, I think, is a good starting point for a company restating dividends. So that's what I wanted to say about capital allocation because I know there's a lot of questions around that. And I'm happy to take questions.

[Operator Instructions] And our first question comes from James Teo with Bloomberg Intelligence.

Question is on core TCE. And there was a mention just now that core TCE includes positive or negative margins from using short-term ships to carry contract cargoes. So I suppose this was the reason for the underperformance versus the market index in the first quarter. So could you maybe give us some color on how the margins are for this type of business in the second quarter so far?

Yes. No, short answer. No, that was not the reason for the underperformance. The reason is what Mats mentioned before, it's predominantly the lag between when we fix the voyage and when that voyage actually start to impact our P&L and our earning. And that lag is between 1 and 3 months depending on the voyage and the customer, all these kinds of things. So when the market goes up a lot, the indices will run ahead of us, as the -- our P&L will take time to catch up. So that is the main reason. Of course, it is also more difficult on short-term core ships. It's -- we have cargo contract and then ships getting more and more expensive. It is, of course, the same dynamic that we have in operating. It's a little bit more difficult sometimes perhaps to make money on that -- on those ships in a quickly rising market. But again, I think it's important to remember, we optimize the whole portfolio. We don't optimize these short-term ships as a part of the portfolio. We use them to optimize the whole core business, right? So in that [Technical Difficulty] and we will need time to catch up, and that's very, very natural. And it wasn't really purely on the -- or too much on the short-term ships. But again, it's always more difficult to make money on short-term ships when the market goes up quickly. The other thing is, of course, you didn't ask about this, but I can mention also, the operating margins are negative in the first quarter. So it's the same dynamic there, right, that we and many other operators thought that the Chinese New Year was going to be a slump in the Chinese New Year, so we take a lot of cover, that didn't happen. So of course, then we need to find ships to meet that cover and then you have for a period of time a negative margin. But that over time also turned positive again, as the market kind of stabilized, right? So that's the reason for the underperformance. Surinder, anything you want to add to that?

No. We are okay.

Our next question comes from Andrew Lee with Jefferies.

I have 2 questions, right? The first is on the cash side. How much cash would you say -- did you -- was it possible -- is it -- sorry, let's say it again. So is it fair to assume that the cash buffer would be $300 million? So as long as you have at least $300 million in cash at the end of the year, that's the target you need and the rest could be paid out as dividend? Second question is on divesting ships. What's the criteria you're looking for? Is it the age, that it must be 20 years? Yes. So how -- what would you look for to divest ships?

So on the cash, I was deliberately a little bit vague on that, right, because I don't think the Board wants to tie themselves to a particular number. What I'd like to say is, if we have $300 million of cash, no one is going -- no one in management or the Board or amongst our shareholders were going to worry about our cash position. And I do think that, that gives us a sufficient flexibility. That doesn't mean that $250 million isn't good enough, right? So I don't think we want to tie ourselves to a particular number. But -- and I think that's important. But we're -- we think the positions we have today are good. We can come down a little bit. We're still very happy, but we don't tie ourselves to a particular number. I think you guys as analysts kind of can take a view of what you think is reasonable and sort that into your model and then you kind of think what do you think is the excess cash, right? Yes. I mean, on divesting of ships, Surinder and Morten will probably have views on this as well. But I mean, obviously, age is one factor and a lot of that has to do with the dry docking schedules, right? I mean when the ship is 20 years, you do a fourth special survey, and you want to do -- you do necessarily want to do a full special survey on a ship that for whatever reason you feel maybe it's too small for the trades you're having, et cetera. So 20 years, we kind of have -- we have said that, we would look at divesting a ship that is getting up to 20 years. There will be exceptions to that rule, so it's not a hard. We have in the past on occasion divested ships that were not of good quality for whatever reason, but it's quite unusual because we tend to be quite diligent when we buy ships, but we have done that, but it's a while ago now. So I think age is the most important factor. But it is important to bear in mind at the moment, these sort of older ships that many people found upon purely because of an issue of age, banks and other people, they are the most profitable ships at the movement. I mean they are making half their value sometimes on a single voyage, right? I mean it's just -- if you do believe in the market strength, I mean, you could kind of say, well, maybe if you hold on to a ship, just another year, it makes itself again, and then you can still sell it, right? So it is perhaps tempting to keep some of these older ships, right? So I think the key thing is not to have a too stricter rule about it. But there is no doubt there will come a point where we feel the markets are a little bit toppy at least on asset values, and we will divest a little bit. So I think that will come. I think that will come. But we are not there yet, as Mats showed before with his calculation, we're not there yet.

Okay. And then my final question is, Mats mentioned earlier about the -- if you -- if the rates were at the same level, right, as 2010, net profit would be close to $400 million. What's the assuming for the Supramax? Because in 2010, the Supramax rates was higher, right, than the current levels. What's the assumption there?

I think the point is, if we have the same average rate as we had in 2010, we hand it down Supras, we make $400 million. I think it's just an overall point.

[Operator Instructions] And this concludes the conference call. Thank you all for attending.

Thank you very much, everyone. Have a good evening.

Thank you.

Thank you.