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

Welcome to today's Pacific Basin 2021 Third Quarter Trading Update Call. I'm pleased to present Chief Executive Officer, Mr. Martin Fruergaard. [Operator Instructions] Mr. Martin, please begin.

Thank you. Yes, welcome, ladies and gentlemen, and thank you for attending Pacific Basin's 2021 Third Quarter Trading Update Call. As you know, my name is Martin Fruergaard, I'm the CEO of the company. And I'm joined by our CFO, Peter Schulz. Please turn to Slide 2. The dry bulk freight market continued its strong upward strength in the third quarter. Handysize and Supramax monthly average market freight rates reached 13-year highs in September, driven by robust global demand for commodities and reducing fleet growth, and that was aided by fleet inefficiencies. The upward trend was briefly interrupted by the seasonal reduction in Australian grain export in July and also the impact of Hurricane Ida on the U.S. grain export in September. Market rates have continued to rise in October, although Supramax rates stabilized somewhat early in the month due to marginally increased tonnage availability in the Pacific and the recent National Day holiday in China. However, Supramax rates are again improving on increased Chinese demand for coal. Please see Slide 3. Our core business generated average Handysize and Supramax daily TCE earnings of USD 24,350 and USD 36,270 net per day in the third quarter, representing our strongest quarterly TCE performance since 2008. Our TCE improved with each month, and the progressively stronger fixtures in the third quarter will obviously benefit our fourth quarter earnings. If you apply our September TCEs and other already published data to our model on Slide 18, you will see the model showing an underlying profit in the range of $90 million to $92 million for September. We have already covered most of October at $29,070 and $40,200 net per day for Handysize and Supramax, respectively. And with over 30% of our core vessel days still uncovered in the fourth quarter overall, mainly in December, we have significant opportunity to add cargo fixtures to our book at what we expect will be strong market spot rates. Please turn to Slide 4. Due to the sharp market rise and the 1- to 3-month lag between fixing and executing voyages, our relative performance has lagged the spot market for most of 2021. Our Supramaxes have now caught up and are again outperforming the BSI index, supported partly by a current scrubber benefit of around $800 per day. Our Handysize will need more time to catch up, and that's for a couple of reasons. First, the BHSI rose more sharply than the BSI during the period. And also, we have a higher proportion of lower-paying backhaul cover in our Handysize cargo book secured in earlier, weaker markets. Our operating activity margin was -- has increased significantly, partly due to our decision to take in tonnage early in the market recovery, especially for the Supramaxes. Please turn to Slide 5. Global minor bulk loadings in the quarter grew about 13% compared to the same period last year, which is consistent with the increased level of trade and inquiries we have observed in the recent month. Demand for construction materials was the main driver, in particular demand for cement and clinker, steel, aggregates and forest products. After a strong first half year for the global green trade, grain loading reduced in the third quarter due to Hurricane Ida, delaying the start of the U.S. grain export season. What the graph does not show is that U.S. grain exports are now picking up, which we expect will support dry bulk demand in the fourth quarter. Coal volumes in 2021 are significantly increased compared to last year when coal exports were hard hit by lockdowns. And coal demand is now additionally supported by power shortage in key countries, including China and India, and a short supply of gas ahead of the northern hemisphere heating season. Growth in iron ore trade was limited by cargo availability in Brazil and Australia. Curbs on Chinese steel production have caused iron ore prices to fall, but the Capesize freight market has not been impacted and has instead increased -- instead strengthened to levels last seen in 2009, supported by renewed strong Chinese demand for iron at today's significantly lower ore prices. Please turn to Slide 6. Our segments are also benefiting marginally from exceptionally strong container rates, which are driving some commodities and even containers to be shipped in geared bulkers and also driving multipurpose vessels away from bulk cargoes in favor of containers. In addition, the strain of increased cargo throughput, combined with COVID-related protocols in ports, is resulting in congestion in many ports around the world, particularly in China. This has further constrained the availability of tonnage to meet global demand for dry bulk shipping. Looking ahead, we expect demand, especially from minor bulk grain and heating coal in the fourth quarter and going into 2022 to be broad-based and supported by healthy economic growth and continued stimulus in many countries. The recent uncertainty over China real estate market, steel production curbs and energy curbs have caused jitters in the financial market. But we have not yet observed any connected impact on dry bulk demand other than reduced iron ore prices. Nevertheless, we will, of course, monitor development in China very closely. With a historic low order book and IMO rules forcing slower operating speed from 2023, the long-term outlook for dry bulk shipping remains positive. Please turn to Slide 7. Dry bulk net fleet growth has moderated further and is forecasted to grow 3.4% year-on-year in 2021 and actually less than 2% in 2022 because of the slower pace of newbuilding deliveries and despite minimal scrappings. Please turn to Slide 8. The total dry bulk order book has reduced -- has further reduced to 6.5% of the existing fleet, which is the smallest it has been in decades and significantly more favorable than other shipping segments. The Handysize and Supramax order book is even lower at only 5.1%. We are optimistic that dry bulk supply will remain under control. Despite some new ordering in the very strong market, we believe the dry bulk order book will remain at historical low levels until zero emission-ready ships becomes commercially viable. We do expect this to take several years still, although we strongly support initiatives that seek to accelerate the transition to zero emission shipping and makes zero emission-ready vessels the default choice by 2030. See Slide 9. Clarksons' benchmark 5-year-old Handysize vessels have increased around 70% since the start of the year and actually over 80% for the Supramaxes, and that's supported by the firmer freight rates and, of course, the increased vessel sales activity. Newbuilding prices increased around 30% and are still well above secondhand prices. And shipyards are filling up with orders of non-dry bulk ship types, which limits scope for new ship order ordering in the sector before 2024. We continue our strategy to grow our own fleet of Supramax ships by acquiring high-quality, modern, secondhand vessels and to sell our older and less-efficient Handysize ships and replace them with younger and larger vessels. This is resulting in an even more efficient fleet with greater longevity, and we are now benefiting from the larger earning upside that these bigger ships enjoy in the strong market. We have taken delivery of 5 modern -- sorry, we have taken delivery of 5 modern, secondhand, Ultramax ships and 5 Handysize ships in the year-to-date and 1 further Ultramax is expected to join our fleet in the fourth quarter. We are likely to slow our vessel purchasing as asset prices approach historical high levels. We will continue to look to sell some of our smaller, older Handysize ships, thereby crystallizing value and further optimizing our fleet to more easily meet tightening environmental regulations. Please turn to Slide 10. We have a program of carbon intensity reduction initiatives designed to ensure our existing ships can continue to trade for the foreseeable future and be in compliance with IMO's new EEXI and CII carbon efficiency rules coming in 2023 and beyond. If the carbon intensity indicator were now enforced, the vast majority of our business would have a C rating or higher. A few ships would rate lower than C, and that's actually mainly for operational reasons. That could be dry docks, port congestion or short voyages with long loading and discharging time or -- it is not actually because of any significant technical inefficiencies. In 2021, the global fleets' carbon efficiency has reduced somewhat as ships have accelerated to particular -- to practically full speed to meet cargo demand despite higher fuel prices. That will actually be reversed in 2023 when the global fleet slows down to comply with IMO's new CII rules. However, we at Pacific Basin remain largely on course to meet our current IMO-aligned target of a 40% improvement in carbon intensity by 2030, and our existing fleet will meet IMO requirements through continuously fleet renewal, energy-efficient operation measures and investment in fuel-saving technologies. We have a dedicated optimization team that will increasingly rely on digitization for better efficiency decisions by always looking for collaborative solutions with stakeholders, such as just-in-time arrivals, et cetera. With an eye on the longer-term goal of complete decarbonization, entirely new ship designs with zero-emission propulsion systems are required. Pacific Basin supports the alignment of shipping with the Paris Agreement temperature goal and is committed to owning and operating only zero emission vessels by 2050. So we will not order old technology newbuildings, we will only order newbuilding vessels when zero emission-ready vessels are available and commercially viable in our segment and appropriate global refueling infrastructure is being built out globally. Please turn to Slide 11. Our strategic priorities remain unchanged. We want to stay specialized in minor bulk ship types that we know so well and stick to our cargo-focused integrated owner and operator business model. We currently own 120 Handysize and Supramax ships. And including charter ships, we have over 260 ships overall. We continue fleet growth and renewal strategy, and we'll continue to look to sell some of our smaller, older Handysize ships as secondhand prices are strong, thereby crystallizing value and further optimizing our fleet to more easily meet tightening environmental regulations. We are also making good progress on other special focus areas. We are supporting our team to ensure we continue to deliver quality service to our customers while maximizing our earnings in the current strong market. We're doing our utmost to ensure our crew's well-being and that our vessel continue to operate safely and efficiently despite restrictions and continue to make crew changes and repatriation, very challenging during the ongoing pandemic. We are enhancing our focus on the environmental performance optimization. And then we are also finding ways to further leverage the increasing amount of in-house data to improve our operational efficiency, cost and environmental performance and, ultimately, to deliver additional value to our customers. Please turn to Slide 12. So to recap, the dry bulk demand outlook is positive for the rest of this year and also for 2022 and beyond. And we are optimistic that supply will remain under control, with the order book remaining at historical low levels. With dry bulk ships now largely operating at full speed, supply cannot be further increased through speed, and IMO and EU fuel efficiency rules enforce lower speed from 2023, which will reduce supply, giving further support to the dry bulk freight market in the longer term. Potential threats to the dry bulk market include excessive new ship ordering and electricity curbs and housing construction slowdown in China, both of which we will continue to monitor very closely. Please bear in mind that in minor bulk, China is not the dominant market with only 11% of global Handysize discharge activity being in China. And all that you can see on Slide 30 in the appendix. Thanks to a much larger core fleet with substantially fixed cost and increasing Supramax proportion, we have significant operational leverage with which to benefit from the current strong freight market. We have an excellent fleet and team with which to meet decarbonization rules, whilst continuing to provide a seamless and world-class service to our customers and we are committed to operate -- to owning and operating only zero emission vessels by 2050. And finally, our current attractive earnings, high return on equity and strong cash accumulation will enable us to return capital to our shareholders. And then finally, before we move on to the Q&A, I also just want to acknowledge our Pacific Basin colleagues at sea. The safety and wellbeing of our ship crews is our key concern, especially during pandemic when restrictions around the world continue to complicate crew change and repatriation, often keeping our seafarers at sea for longer than usual. Despite the hardship they face, our sea-going colleagues continue to demonstrate great loyalty, professionalism and attention to safety or operating practices, resulting in extremely good performance of our ships on the voyages and our best ever safety KPIs in the year-to-date. We are actually very grateful for their remarkable support, and it's important to remind everyone how vital their contribution is to keeping the global economy going. Yes, so ladies and gentlemen, that concludes our trading update presentation. Lines will now be open for any questions you may have. And operator, over to you.

[Operator Instructions] For the first question, we have Mr. Andrew Lee from Jefferies.

I'd like to -- in the presentation, Slides 18 and 19 is actually very useful, right? So that's very good. So my first question is on the fleet replacement, right? Could you give a little bit of sense in terms of what is the strategy. Is it a buy and then sell? Is it a sell and then buy? Or is it like if I sell, but I can't buy a new vessel, would I sell back? So would I do [ is a leaseback ] on those vessels, right? Sticking to same point is how many vessels have you identified which are smaller and over 20 years that have hit that level where you're looking to sell? Second question is on the forward coverage ratio, forward coverage, right, on the fourth quarter. Can you give me a little bit of sense in terms of why is the Supramax rate for the fourth quarter lower than the third quarter? And also, do you have any guidance you can give us in terms of what is the forward coverage ratio on the rates for next year as well? And then the final question I have is on long-term contracts, right? I think last time we spoke, there was a little bit of -- the last time we spoke, I think there wasn't that many customers who are trying to lock in long-term contracts. They were adopting a let's wait and see approach. Have you seen a shift from these customers who are now willing to lock in more of these long-term contracts?

Yes. Thank you very much, Andrew, for all these questions. Let's see if I can remember them all. But let's start with the first one, which I guess was the sale versus leaseback part of our older ships that -- and it's not our intention to do the leaseback, but the people that we have working on it, they will, of course, look at the different options. But I think what we'll do is that we'll probably do outright sale of the ships. But I'm sure we'll look at different options as we go along. But our aim is probably to sell them out, right? You also asked how many ships we are talking about, I think we used to have sort of a rule saying that when the ships become 20, we have an interest in selling them. And I think that's still the case. We probably delayed that a little bit due to the good market. And now we're sort of just starting up again doing the same. As I remember, I think we have 6, 7 vessels who are -- I think we have 2 ships that's over 20, and I think we have 5 or 6 ships nearing 20 years age, all on the Handysize market. I would also probably say that it's not necessarily -- of course, the older ships are probably on the list. But we also have some ships that may be on the IMO-compliant part are difficult ships. And they might also be ships that we are considering selling. They might not be as old, but they're on the list for that part as well. Then you had a question about -- yes, and what was the question again? It was...

Your coverage for the fourth quarter.

Yes. So we have about 68% coverage of both the Handysizes and the Supramaxes. And majority of the cover is, of course, in October. And then I think we have -- nearly fully covered in October. We have about half days covered in November. And about 30% in December, as I remember it. So that's -- I hope that replies to your question. You're probably going to ask about next year coverage. We do have coverage for next year. I think we have around 30-something percent in the first quarter on both of them. I think actually we had more coverage in Supramaxes than the Handysizes. That's around 30% in the third quarter. And then it's falling quarter-by-quarter. And I think we end up just below 20% in fourth quarter next year on the 2 segment. And then the last question you had was about the contract renewal. I think we said last time we had a call that before the customers probably were a little bit hesitant, also because the market is changing all the time. But the only change now that are in the contract extension period here in the Pacific -- mainly in the Pacific actually and less in the Atlantic, and we actually do see the pipeline of opportunities for contracts increasing. And according to our chartering team, it's a little bit like last year. So it seems like the customers are actually coming now and asking for an extension of some of the contracts. That doesn't mean that we can agree on the rate, so that has to be seen. But at least when we look at it right now, the pipeline is increasing and the negotiation is ongoing. Then we'll have to see where we end up. I hope that I -- yes, Peter?

Can I just add something, Andrew? I think you're also asking why the fourth quarter was lower than sort of what we're earning in September. And of course, as always, forward cover does contain a portion of sort of legacy contracts, COAs, et cetera. But I do think we see that new fix just being put into the book. We're quite hopeful that the fourth quarter could be stronger than the third quarter. So don't read too much into the current fourth quarter coverage rate because we are putting very, very good fixtures into the book today. So that cover rate, we do expect to move upwards.

No, no. That's great.

And I think it's something -- and then, Andrew, I think the next time, we will have to look at it at how we describe it, it will probably do a little bit better for you on that one.

Next, you have Mr. James from Bloomberg.

I'd like to ask about the China energy curb. I think you touched on it a little bit in your presentation, but could you elaborate more on like what are the possible impacts or concerns that you have? You touched on the iron ore and Capesize. But yours are mainly Handymax, Handysize and Supramax, right? So is there a risk that, that might get affected? Or can you help to put it into context into how it might affect Pacific Basin, please?

Yes. Yes. Of course, we can. I think, of course, we follow China quite closely, also what's happening. And it's not only China that has an issue on the energy side, also other places have it. I think the -- actually the short-term consequence of that is actually an increased demand for coal going into India -- sorry, China, and also to India, actually. And we already see that on the Supramaxes in the Pacific, we'll see more inquiries for ships to transport their coal into both China and India. So in reality, it actually has a positive short-term impact on our fleet. If it has a longer-term impact, I think it's a little bit too early for us to conclude on it. We'll just have to see what happens and how big the issue is. So I think it's a little too early to start concluding on that. But the short-term impact is more activity actually on the Supramaxes, especially in the Pacific. Probably also something we'll see in the Atlantic. I think there's also other countries who'll probably need more coal with the high gas prices and so on. Hope that replies to your questions, James.

[Operator Instructions] Next, we have Mr. Stephen from BlackRock.

Can you hear me?

We can hear you.

I got two questions. One is the demand going into next quarter. So we have talked about the iron ore has -- the price has fallen. But you are saying the demand or the demand of the shipping has not been impacted. I'm curious because, basically, China is reducing the utilization of the steel mills at the moment. So why do you think the demand of iron ore on the shipping side has not been impacted? Or is it too early to tell? Or actually, the iron ore are actually being shipped to somewhere else, so actually, it's not too much an issue. And secondly, regarding the grain and soybeans, you mentioned about the hurricanes. Is it fair to say that after the weather issue, going into Q4, it should be normalizing?

Yes. Thank you, Stephen, for both these questions. The first one about the iron ore to China. This is mainly for the Capesizes. We do not do much iron ore. But the way we see it is that market for the Capesizes have gone up quite a bit, and that is mainly driven by increased iron ore import into China. And I think China is taking a little bit advantage of the global iron ore prices that actually sort of halved within the last month or so. I think it's about half the price. And I think China is using that to restock on the iron ore in China. How long that will last? And so that, I can't say. But at least at the moment, we see the Capesizes getting very healthy rates driven mainly by the iron ore to China. Also, I agree to your statement about the grain and the soybean in the U.S. Gulf. As we see right now, September, of course, with the hurricane, a lot of things had to be dealt with in the U.S., but the grain, the soybeans and all that is still there and now they're starting moving it out. So the season has just been a little bit delayed. So you are correct that, as we see it right now with the orders and the lineup in the U.S. Gulf and the requirements, we're a little bit back to normal, just a little bit delayed due to the hurricane.

Yes, I understand. And maybe if I can ask one more follow-up question regarding cement. Can you describe like between what countries are the cements moving that is driving the minor bulk growth?

Yes. I think the good thing about the minor bulk is that it's quite broad, it's all over the world. So -- and I think if you look at Slide 20, you can see a little bit about where we actually discharge. And sort of compared to the Capesizes for about 58% China, then the Handysize is only 11%. But reality is they are transporting around the world. I think what's driving the market a little bit at the moment is actually construction material into the U.S., for instance. And it's also, of course, now the coal into China and India. And then, of course, finally, the grain season is a little bit delayed but has started off in the in the U.S. So when you look at minor bulk and you look at us, we're sort of about 2/3 is agriculture -- 1/3 is agricultural products, 1/3 is construction material. Metals, 16%. Energy is actually only 13% of what we do. So we are quite broad on the different commodities we move and also quite broad in where we sail around the world compared to the other dry bulk [ segments ].

And if I may add, I mean, cement is one of our sort of classic backhaul trade. So it's actually a trade that goes from Northeast Asia, sort of places like China and Japan, into Southeast Asia, Australia, South America, North America. So for us, it's a backhaul trade. So it's very good to see that, that trade is strong and vital because it underpins the sort of global and diverse basis of our business.

And maybe I could just add that I think it's 90% of our trading is actually done laden. We have a very good ratio between the ballasting and the laden. Which sometimes when you talk about the environmental impact, actually, the minor bulk, at least we're utilizing the assets quite well compared to many of the other shipping segments, which is probably more 50-50 on laden and ballasting.

Understand. If I can ask one more question regarding the -- on the supply side. So on Slide 8, we talk about the very low order book for dry bulk. It has been the case for a while. Do we have enough visibility about the carbon emission standard already? Because it always has been an issue that people do not quite understand what do they need to do. So therefore, they are not willing to order the ships. And I'm curious about the divergence versus container shipping, where the order book has been increasing quite rapidly. There's a theory that some people are saying that because the shipyards are actually getting filled by the orders from the container shipping, therefore, the dry bulk people cannot really make orders. So I'm not sure if it is really a bottleneck in the shipyard or actually people are still unwilling to put in orders.

Yes. I think it's a little bit of both, Stephen. I think, first of all, we usually say who in your -- who in their right minds will buy a ship with the old propulsion technology that they can deliver in 2024 and that they have to trade, depreciate over 25 years and then you are in 2049? Who would actually do that? That seems to not really make sense when you think about the decarbonization efforts around the world. And when I didn't say that, then some people had older ships, but I also think many of those have ordered either dual fuel or they have ordered at least ships that's ready for some sort of different propulsion systems in the future. And I think there's a huge difference between ordering a $160 million, $170 million container ship and then maybe over time you have to replace something on it, compared to ordering a Handy or a Supramax at $30 million, $32 million that also just -- also space-wise, physical space on the ship. So I think the challenge we have on the smaller, a little cheaper ships is a little bit different than the bigger ones in it. So and then, of course, I agree today, when you look at it now with all the other segments, especially containers, maybe also the PCTCs and so on, that order larger of ships, it's actually hard to get space at the yards. And finally, I think now with the energy prices and also with the COVID and also with the steel prices and so on, it's not going to be cheaper and easier to build ships for the shipyards. So you have -- but what came first, that maybe I can't even remember that, but I think it's a combination of those things, Stephen. And I hope that replies your question.

Yes. Because the IMO thing or the decarbonization thing, we previously have seen some additional details about what is actually required. So I'm not sure, from an industry expert point of View, Do we still expect more details going forward? Or basically, we are still waiting for something in terms of the information?

If you think about IMO, actually, well, there's a meeting now here in November, also with the IMO. But I think we pretty much know what it is we have to comply with by 2023. I think we in Pacific Basin, we probably have preferred that the rules were a little bit different, that it was more based on the cargo and less on the dead weight of the ship. So it was more the EEOI instead of the EEXI. But on the other hand, I think it's just important that we get some rules that we know we have to comply with and then we have to deal with that. And I'm sure over time that these rules will change and be improved and so on. But I think we actually do know what we have to do in 2023. And EU has come as well with some levy on the tax on the CO2. Those rules are a little bit more uncertain, because I think they have to be rectified still within the EU. But it's -- we think it's very sure there would be a tax on the CO2 in the EU. And I personally also believe that will spread to the U.S. and China over time. But right now, it's the IMO 2023 rules that we are focusing on for the existing ships that have. We have to comply with that.

Next, we have Ms. Lisa from Huatai Securities.

I have one question on the cost. So you mentioned on the announcement that we are seeing rising operating costs due to registration. So I want to ask, do we expect the cost to continue increase quarter-on-quarter if the market is rising? And how about the P&L breakeven levels? So do we expect a higher breakeven level for the company?

Yes. Thank you. Yes, we did mention -- that's true, we mentioned that costs are coming up a little bit. It's actually quite -- it's not much. If you look at the OpEx, I think the OpEx, compared to what we stated in July and what we expect now, I think OpEx per day will go up around $125 per day. That's what we're talking about on the OpEx side. Then our G&A will also go up a little bit. We have had a very good -- we will have a very good year. And we've also had a very, very busy year. So of course, we have also expanded a little bit on the organization. We've also invested in different things in respect to digitalization and so on. And of course, we also have to sort of -- we also have to look at the [ volume ] structure by the end of the year in such a good year. On the OpEx side, the cost increases are actually in respect to the crew. And that's, of course, a COVID-related cost. It's just with the quarantines and with the difficulties in changing the crew and also with the flight costs and so on, it is quite costly. And also this year, we -- I think our focus has been probably more on optimizing, making sure we have as many data available and we have a good operation and maybe a little bit less on managing the cost all the time. Because [indiscernible] [ if you save a day on each ship ], that's a lot more money because it's the daily rate, than actually sort of looking at -- and it didn't cost a thing. So we're probably a little bit more easy on the cost and maybe a little bit more focused on the time. So Lisa, overall, it's very little cost. I don't know, Peter, if there's anything on the...

No -- yes, I mean I would say a lot of the cost increases we have kind of taken, because we've had these repatriation issues accrued for some time now. So I don't think there should be an expectation that costs will continue to sort of escalate. But rather as the world sort of moves beyond COVID, borders open up, some of the costs will start to come down. So I don't think we should expect cost to continue to climb inexorably, but I think there will be some moderation in cost increases and maybe some reduction in costs as we move through 2022, specifically when it comes to crew repatriation, et cetera.

Next, we have Jain from HSBC.

I just have 2 questions. I mean everything is going great. So I don't want to play a devil's advocate, but can you help us understand what percentage of viable fleet is being impacted because of ongoing congestion? And when shall we expect that to ease going into 2022? And secondly, with this [ line ] of property sector, I mean, time will tell how much impact it will have on 2022. But not only the iron ore, but probably will it impact the construction material sector as well? And in that case, going into 2022, how do you see the effective demand and supply shaping up? And then probably another question for Peter. With a happy problem, how should we think about capital structure? Like shall we see the -- shall we see some sort of special dividend? Or you will take an opportunity to perhaps increase the regular dividend for the upcoming years? How should we think about it?

Yes. Thank you, Parash. If I just start with the congestion situation. According to Clarksons, it's about 3% of the dry bulk market. And we've been discussing this a few times with different people, and we don't -- maybe not on the minor bulk, we don't -- we see, of course, congestion in China. But I think as we said earlier, only, what is it, 17% of our ships are actually discharging in China. But of course, for those ships, we do see the congestion situation. But overall, when you look at it, we do not see congestion all over the world. I'm sure if you have a Capesize and you are 58% discharging in China, you probably feel it a lot more than what we do. So when that will be over, that's hard to say. I think as long as we have COVID and all the restrictions in the ports and these things, I think we'll probably have had a COVID situation. And a little bit here, the discussion is probably also working first the congestion or the high utilization of the assets. And I think, actually, demand came first. And usually, that actually also brings these inefficiencies along because there's not enough ships to do it. So I think that was the start of it and then it ends up in congestion. And then the congestion, very much in China, also because of the COVID restrictions in China, that's probably added to that part as well. But if you look at the rest of the supplier of our fleet, we're going full speed. There is actually not much runway left. We can't do more to create more supply than we do there. The only thing is, of course, the congestion, which I think is probably more on the larger sizes, a little bit less on smaller sizes. But of course, we also see the congestion. With respect to China and the construction part, as you also said, we will have to see what happens, right? It's a little bit early days. We haven't really seen any consequences in the minor bulk or in the bulk market yet. We do see -- maybe if I should be honest about this, we do see maybe a little bit expectation that there will be less [ locks ] into China. And then you're right when you say that for the construction part, the feedback I get is that we'll probably see a little bit less [ locks ] end of the year. On the other hand, we probably see less export of steel, because the steel production will go down. But then we actually see rising steel production and exports out of other countries in Southeast Asia. So you can say just because China doesn't reduce the number of steel, maybe other countries still need steel, so it will just come from other places. And so our trade is just changing again. And that might actually not be a negative thing all in all. But I think I agree with you, if you're hinting, Parash, that China goes down in activity, all in all, because this escalates, then of course it will indirectly also hit us a little bit on that time. But at the moment, I must [ say ], actually, we see more coal going into China and we see steel moving from other places. And yes, we might see [ locks ] reduce a little bit into China in the fourth quarter, yes.

Yes. No I think [indiscernible] there.

Yes. But of course, these kind of sort of demand -- long-term demand risks, we look at that and we're very, very pleased that the order book is at a 3-decade low. That time provides our segment and our industry with quite a lot of insulation against demand volatility, I would say.

Yes. I think, if we -- Parash, if we step back and look at the order book in 2008, I think it was 68%, wasn't it?

Yes, I think that around [ 18 ]...

Even 70% or about 70%. I think that's a big difference between the market we have today and what we had at that time. That yes, as Peter is saying, that the supply side of it is under control. It sort of have its hands under the market to a certain extent. So Peter, do you want to reply on the...

Yes. Yes. So just on the dividend, Parash, obviously, it's a nice problem to have. We are deleveraging quickly. We obviously are building up cash balances. We, of course, always want to maintain a minimum cash, a significant amount of cash in the business, as we always have. But if we have capital on top of that, obviously, we will think about what to do with it. We have a distribution policy. It's at least 50% of profit. So it gives the Board some flexibility. But how exactly to do and what we will do and what decisions we take around it, let's wait for the year to finish. And then I'm sure the Board will discuss around these issues.

Next, we have Yang from Pinpoint.

I have a couple of questions. Number one, regarding your Q4 cover, forward cover, you mentioned around 68% of your capacity in Q4 has been [ marked ]. May I know, is there any backhaul cargoes on track that is included in this 68% fulfillment of your capacity? That's number one. Number two, regarding your Panamax, which is a small part of the business. But is there any some restrike of this Panamax contract for next year or so? And then number three, regarding the crew situation. We have recently read a lot of articles about the crew members cannot -- not your company but other shipping companies crew members cannot go down. They got stuck on the vessels for so long time, et cetera, et cetera. My question is, is there any risk in the crew shortage at some stage becomes a new bottleneck for the industry? And what Pacific Basin is doing at the moment to ensure that you have enough crew in place in a compliant way. So 3 questions, Q4 cargo cover, is there any backhaul, Panamax and about the crew situation.

Yes. Thank you very much, Yang. Three questions. First, the backhaul, yes, you're actually very right that we have actually quite a bit of backhaul in our contract. Our legacy contract portfolio, there's actually quite a bit of backhaul business. And that is also one of the reasons where the Handysize is -- maybe also struggled a little bit with the benchmark to the index. They have actually in their contract coverage a little bit more backhaul. And hopefully, that will actually benefit them a little bit going forward. But we have to see. But historically, yes, Pacific Basin has always been very focused on the backhaul business as well, and that's still in the contract mainly -- more on [ Handysize than the backhaul ].

Sorry, Martin. My question is, I understand you do have the backhaul. But my question is for your -- did you count the backhaul cargoes into your 68% cover in Q4 capacity? Did you already count the backhaul into that cover ratio or not?

Yes, that we did. That's a yes.

Okay. So may I know possibly what kind of the portion of your covered cargoes or covered capacities are backhaul? 1/3? Half? Just approximate number.

I can't tell you. I don't think I know what it is, how much it is. Specifically, the backhaul figures, we'll have to come back to you on that one. I do not have that number. I don't know if, Peter, you don't have it either?

No. I mean normally -- I can't speak exactly for the Q4. But normally, we would have a COA cover, say, for the next sort of 12 months of sort of 20%. It's probably a bit lower at the moment because we have more spot exposure. But the mix between backhaul and front haul, historically, I think maybe has been a little bit more backhaul, say 60% of that. But that's more sort of historical averages, I would say. So I don't have -- that's sort of a rough guide, right?

Okay. That means your exposure to the -- your fronthaul capacity is actually bigger than the 30-ish percentage -- 30% of the uncovered capacity you specified in your presentation, am I right?

Yes. So if you're saying that there is a potential upside in the 30% uncovered because we actually ended up in loading areas, then you are correct in that assumption. But exactly how much it is, I have to come back to you on that part. But I agree with you, that's actually one of the drivers for why our earnings actually also looks better when we actually do the voyages, because our contract that we put in here, actually, some of it actually ends up in the loading areas with an upside on the other rates.

Okay. Okay. Yes, then the Panamax?

The Panamax thing, the Panamax contract, the one ship we have there, that continues unchanged. It will continue for additional 5 years is the contract, and there will be no changes for that for next year.

Okay. About the crew.

The last thing is the crew repatriation, and I have to be careful not to get too emotional about it. I think we have more than 4,000 crew members. We have everything in-house basically. So we do all the ship management in-house. So this is actually our colleagues we have at sea and they do a very good job. And in reality, they are the key actually to be able -- for us to be able to sort of benefit from the good market and keep servicing our customers. And they do a really, really good job at the moment. The thing that we have a problem delivering is actually getting them home in time, and we also struggle with that. And some of them are there for extended periods, which, of course, is not very nice, isn't it. But we must say that we still have a very engaged and loyal crew who helps us on what we do. Looking ahead, I think one of the things about Pacific Basin is that we actually have been able to buy 11 ships this year. And we can buy them with short delivery because we have our own crew and our ship manager, in-house ship manager, are actually able to sort of deliver qualified crew in short notice. And I think that has been a commercial advantage for us in this market. Going ahead, one of the concerns we have is, of course, to a certain extent, the way the crew are treated at the moment, I'm sometimes in doubt if they go home and promote a life at sea to their family and friends, because they go out for 5 months, but it takes 10 months before they come back. And when they go back, they have to be 2, 3, 4 weeks in quarantine before they get home. That is a tough life. But we will, of course, keep on pushing for the education and training and getting people into our pipeline. And we source the crew from China and from Hong Kong and from Philippines and from India. And we will, of course, keep doing that.

Okay. So it sounds like crew will not be a potential bottleneck risk for the industry.

No, I don't think so. It's definitely not for Pacific Basin also because we have it all in-house and we do it right. But as we also said, of course, cost is going up for some of them. Partly also -- partly the infrastructure cost, but of course, also, salaries are going up for some of them. And we just have to remember [ mainly ] recruitment. But they have a long education. They've been with us for many, many years. So we have -- both onshore and offshore, we actually have a loyal group of employees. So at the moment, we don't see it as a big issue. But if you go ahead 5 years, and also if the fleet is growing and also with new technology being implemented on the ships and so on, we need to invest in our crew continuously to ensure we have crew who can run these things in a safe manner. And that is -- don't forget that the requirements to the crew is not becoming less in the future with the decarbonization and so on, it's actually only becoming more.

Next, we have Mr. [ Xi Jian ] from [indiscernible].

Can you hear me?

Yes, we can hear you.

Regarding the IMO speed limits that you mentioned just now, is it possible that -- can you quantify for us like how much would that impact on the preferred shipping capacity? Yes, this is the first question.

Yes, I will have a little bit of a -- I would -- we are doing some calculations on that to see what it is. So I will be a little bit hesitant to put a number on it, what it is. But I think it's fair to say that in 2020 compared to 2021, we have sort of increased our speed with, I guess, a little bit more than 10%, maybe a little bit more than 1 knot. And you saw the slide where we had sort of the ranking, the [ EEXI ] part. And if we go back and have to slow steam, like we did last year, then we are taking out again 1 knot, about 1 knot on each of the ships. So I think we have to calculate a little bit on that. It's that -- we do not sail all the time, we probably only sail half of -- 60% of the time. So we have to do some calculations on that. So it's very hard to say exactly what it will be. But of course, that's something we're also looking at, what impact will that have on the supply side.

What is the limit they impose? And are you currently above or below the limit?

Sorry, can you repeat the question?

What is the speed limit that IMO impose from 2023? And currently, are you above or below that limit?

Yes, that depends on the vessel. They're not sort of saying -- they're not coming out saying and in fact speed. I mean it's depending on what ship it is and how it's designed and so on. So that's -- we have to look at it ship-by-ship to assess that part. Some ships actually don't have to reduce and some ships actually have to reduce quite a bit. And usually, what we talk about it, it's actually power will reduce of the ship and not the speed. But of course, as you reduce power, you also reduce speed. But there are actually ships also in our fleet that doesn't have to do anything to begin with because they are already in compliance. In Pacific Basin, we own 120 ships and most of them are actually built in Japan. And they're actually good quality ships, well designed and is already doing quite well. When you go in and look at the ranking or rating IMO is requiring, we are in a good position compared to many already from the beginning. But we also have to reduce power and thereby speed on some of our ships.

All right. And on the IMO 2030, 40% reduction in emissions, right? So may I know what type of ships -- or newbuilds, what kind of technology are you looking at in order for you to be able to meet that 2030 requirement, are you -- is it dual fuel or anything?

Yes, there's multiple things we do. So first, you can look at the technical side of it. And of course, there's things we can do in respect to propeller and antifouling and many other things. And I think we actually looked at that for years also because of fuel prices and so on. So our -- another advantage is having all our technicians in-house in the same building as us. So they've been looking at that and keep looking at what are the technical solutions you can implement on the existing ships in order to make them more efficient. And we have done quite a bit of things and we have a number of things in the pipeline. You can say -- secondly, is the power reduction and the speed reduction. I think over time, up to 2030, depending on the year-on-year requirements after 2023 that IMO will impose, I think most ships over that period would actually have to reduce the power or the speed over time. So one thing is to comply with 2023. But every year, you actually have to improve up to 2030. And we only know the requirements from 2023 to 2026. And after that, we actually don't know exactly what the requirements will be, but we don't believe it's going to be less than it was the earlier years, probably more. So speed reduction is, of course, also a major part of it. Then finally, what I will call the big thing is that we also had to look at the trades we do. And that's where we actually have to engage with our customers. Because the reality is these rules are actually quite dependent for each ship on what kind and how we trade the ship. So if you trade the ships in trades where you have to be a lot in port, a lot of congestion and maybe you have the seagoing part of the voyages in rough seas and difficult waters, then actually your rating will actually be quite poor even though your ship could be quite good. So actually, a big part of this has actually to do how we are trading the ships. So it's partly technical, partly speed reduction, but partly actually also what kind of voyages we do. And therefore, we need to engage with our customers in that respect because they also need to understand that the different voyages they have, they will have a different impact on the ships. And therefore, we have to work around that to make sure we do the right thing for the ships. So it's -- the rule is actually not that complicated to understand, but how to do it is actually quite complicated. There's actually many things that we have to work on at the same time. I don't know, Peter, if you have anything else to add.

One last question from me.

No, nothing to add, Martin.

One last question from me is how many of your long-term charters is going to go off next year and the following year? And if you plan to renew it, you will be in way higher rate than the old one, right?

Yes, could we just show the long-term charters. We have a slide of that, don't we? Hang on.

From Page 19.

Page 19, yes. So here, you can see how -- actually what we have of the short-term and longer-term charter. The reality is all our short-term charters, they will go off within a year. And the longer-term charters, they are in excess of 1 year.

We will be taking one last question from Mr. Nathan from Bank of America.

Martin, maybe just 2 quick questions from me. Firstly, just in terms of these incredible second half rates that we're seeing. Do you have any conviction around whether they could sustain into 2022? So that's the first question. And then second question, do you have any estimate around how much of a demand boost dry bulk has seen from shifts from container? So just 2 questions.

Yes. So it's 2 of the difficult questions to ask. What will the market do, it's always hard to sort of predict. But I think, all in all, our conclusion -- we're quite positive about it. Of course, we have to follow what's happening in China and other places. But when we look at the supply side, what ships are coming, we know that. And when we look at sort of the demand side of it, we are -- actually, on demand we are quite positive about the developments. And here, we could also see Clarksons is also -- their estimate on the demand growth is also quite positive. So it looks really good for 2022. And I think we all have to remember that, likely, when we enter 2022, compared to when we entered 2021, actually, the market is quite good. And we will have good earnings in the beginning of the year as well. That was actually not the case this year. I think we all tend to forget a little bit that this upturn has actually not been there that long. But they have been positive all along, but it only started early this year, and now we are in October. So we do see a little bit more runway on this upturn as long as we have transparency on the supply side. What happens in China and other places is a little bit hard to predict, but maybe you also know a little bit more about these things. But we are quite positive, actually, about the market for next year. Then container into dry bulk, we have had a lot of discussions with that. We do also actually move containers in our dry cargo ships. We've actually done that for years. I know people come out and say that's something new, but we have actually done this for quite a bit of time. This year, we have moved 2,200 containers, I think it is, from China to the U.S. on 12 different liftings. Actually, it's 53-foot containers that we are lifting, so a little bit odd size, but I don't think the container ships will move and we moved them to the U.S. where they are used. I don't think the big container lines are worried about us and our 2,000 containers. But that being said, I think actually, it's more the multipurpose vessels. I think that maybe a little bit more argument on that side, that the smaller multipurpose ships who usually also carry dry cargo commodities, they have probably gone -- as we see, probably gone more into the container business and container cargoes. How much it is, I actually don't -- we actually don't know how. But I think there's a lot of logic into it that they have caused because they are built to move containers as well, that they have entered into that market and taken advantage of that market. So of course, today their containers comes down and to -- they will probably migrate back again. And of course, that will have a little bit of impact on the supply side, all in all, for dry cargo. That's something we have to follow and see as things get more transparent as we go along.

As there are no further questions, we will now begin the closing comments. Please go ahead, Mr. Martin.

Yes. So yes, I'd like to thank you again for joining us today and for your continued support to Pacific Basin. I do urge you to look at Page 18 out to model Pacific Basin against your gut feel for how we're doing at the moment, and maybe also an ability to calculate the future earnings. So I think that's a quite important slide to look at. Thank you very much.

This concludes our conference call. Thank you all for attending. You may now disconnect.