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

Welcome to today's Pacific Basin 2022 First Quarter Trading Update Call. I'm pleased to present Chief Executive Officer, Mr. Martin Fruergaard. [Operator Instructions] Mr. Fruergaard, please begin.

Yes. Thank you. Welcome, ladies and gentlemen, and thank you for attending Pacific Basin's First Quarter Trading Update Call. My name is Martin Fruergaard, I'm Chief Executive Officer of the company, and I'm joined by our CFO, Peter Schulz. Please turn to Slide 2. The minor bulk freight market in the first quarter of 2022 was significantly stronger than the same period last year, driven by strong supply and demand fundamentals. Index spot rates for Handysize and Supramax ships averaged $20,550 and $23,900 net per day, respectively, in the first quarter of 2022, representing a 47% and 51% increase, respectively, compared to the same period in 2021. It was overall a good quarter despite increasing economic and geopolitical uncertainties, but still with minor bulk demand up, driven predominantly by loading of construction materials, cement, clinker and aggregates. Going forward, we believe growth in minor bulk loadings will continue to support rates despite normalizing global economic growth, war in the Ukraine and COVID-related uncertainty in China. Please turn to Slide 3. Global minor bulk loadings grew approximately 12% in the first quarter 2022 compared to the same period last year. Construction materials were the main driver, as I said, in particular, cement, clinker and aggregates, which are up 19% year-on-year. We believe increased global infrastructure spending and some relaxation of Chinese domestic property construction curbs will be supportive of minor bulk demand for the remainder of 2022. Reduced Black Sea grain exports in March contributed to lower year-to-date grain loadings of 3% compared to the first quarter of last year as both Ukraine and Russia exports have been disrupted. Expectations are for a significant reduction of Black Sea grain export in 2022. Some of these lost volumes will be replaced by other producers, most notably the United States, Argentina, Brazil and Australia as high grain prices will incentivize farmers around the world to increase planting for export with these volumes benefiting overall tonne-mile demand. The disruption is unfortunately also driving global food security concerns, especially in China, which could further increase seaborne trade. The South American grain exports are now picking up, which we expect to support dry bulk demand in the second quarter. Coal volumes in the first quarter of '22 decreased 1% compared to the same period in 2021. January coal loading decreased 14%, largely due to Indonesian coal export ban. Since the ban was lifted, we have seen a significant increase in inquiries as well as increased tonne-mile impact from higher demand from countries in Europe, which we expect will source more non-Russian coal throughout 2022. Iron ore volumes declined 3% in the first quarter of '22 compared to the same period last year, mainly impacting the earnings of Capesize vessels. The decline was due to seasonally weather impacting mining operations from key producers in Brazil and Australia as well as Chinese New Year holidays and emission control during the Beijing Olympics. 2022, Chinese steel production is expected to remain within 2021 levels, and we expect China's steel output to rebound in the second quarter when output cuts are expected to be eased in Northern China and the typical strong demand season begins. Please turn to Slide 4. Our core business generated average Handysize and Supramax daily time-charter equivalent earnings of $23,810 and $32,510 net per day in the first quarter, representing an increase of 117% and 122% compared to the first quarter of '21, respectively. Our earnings benefited from a very high first quarter employment cover when entering 2022, in particular, for our Supramax vessels. The decision to maximize first quarter coverage was made during the strong market in the fourth quarter of '21 in the expectations of usually seasonally weaker first quarter market. For the second quarter of 2022, we have covered 75% and 92% of our core vessels days at $23,970 and $31,250 net per day for Handysize and Supramax, respectively. So far, 26% and 35% of our contracted Handysize and Supramax days in the second half of 2022 are covered at around $16,440 and $21,590 net per day, respectively. The cover for the second half of the year comprises a higher portion of older long-term contracts, which are lower than the current markets. We have significant opportunity to add cargo fixtures and long-term contracts to our remaining 2022 book at rates which based on prior years, we would expect to be higher compared to the first quarter, which is normally the weakest quarter in the year and also because our contract cover contains a relatively large percentage of backhaul contracts, bringing the vessels back to the loading areas. Please turn to Slide 5. Both our Handysize and Supramax vessels outperformed the average Handysize and Supramax indexes by $3,260 and $8,610 per day, respectively. Our performance continues to benefit from our diverse cargo and customer base and the close customer interactions facilitated by our extensive global office network. Now turning to our operating activity, which in the first quarter generated a positive margin of $3,320 net per day over 5,160 operating days. Operating activity margins remain high, and we continue to see opportunities in this strong yet volatile rate environment to generate further positive earnings. This is a strong market outperformance by Pacific Basin in a volatile global environment, and it is again a testament to the great commercial acumen and operational excellence of our organization, both ashore and at sea. Please turn to Slide 6. Our vessel purchasing has slowed in recent months as asset prices approached historical highs, and we expect our vessel purchasing activity to be reduced compared to last year. During the first quarter of 2022, we sold 4 of our older -- smaller and older Handysize ships. Secondhand sales price development for Handysize ships that are 20 years or more of age have outperformed younger ships, while selling these smaller, older Handysize ships crystallizes value and further optimizes our fleet. Our long-term growth and fleet renewal strategy continues unchanged. Please turn to Slide 7. Despite strong earnings and healthy balance sheet for most dry bulk owners, we expect that the new ship ordering in particular, for Handysize and Supramax ships, will remain restrained, discouraged by uncertainty about the future fuels and vessel designs and technology that will be required to meet coming decarbonization regulations. According to Clarksons Research, only 36 dry bulk ships -- dry bulk vessels with a total of 2.8 million deadweight have been ordered year-to-date, a reduction of 70% and 74%, respectively, compared to the same period in 2021. The overall dry bulk order book is currently 6.6%, representing a reduction of 0.4 percentage points since the beginning of the year as deliveries has outpaced new ordering. In addition to a shrinking order book and lower future deliveries, we expect scrapping to increase in coming years as IMO fuel-efficiency rules will encourage owners to phase out older, less efficient ships. Please turn to Slide 8. Clarksons Research estimates dry bulk net fleet growth of 2.2% in 2022 and 0.4% in 2023, with scrapping of 0.8% in '22 and 2.3% in '23. We believe long-term scrapping in dry bulk will increase due to tightening environmental regulation. If current earning levels continue in 2023, we might consider Clarksons Research scrapping estimate a little on the optimistic side, but we see higher scrapping from '24 onwards, driven by tightening environmental regulations. Please turn to Slide 9. We continue to prioritize the quality of our service and the safety and wellbeing of our ships' crews. COVID restrictions still create inefficiencies and complications with the repatriation of some of our seafarers and the associated higher costs we described at our annual results presentation. While we commit to owning and operating zero-emission vessels by 2050, we must also focus our efforts on the current fleet we have as we target to achieve an AER rating of C or better from 2024 onwards. This will require us to install power reduction devices on approximately 73 of our own ships to comply with the IMO's EEXI energy efficiency requirements. I look forward to updating you further as we progress on our decarbonization journey. Please turn to Slide 10. So first quarter of 2022 has started firmly compared to the same period last year. We expect demand, especially for minor bulk, grain and coal in '22 to remain strong, and we see further tonne-mile demand due to change in trade flows and issues of food and energy security. At the same time, the order book is 6.6%, meaning fleet growth in '22 and beyond is likely to be moderate. Clarksons Research expects 2.4% Handysize and Supramax fleet growth for 2022. From 2023 onwards IMO environmental regulations will further constrain supply through speed reductions. However, there are a number of risks that we, of course, monitor. So far, changes in trade flows caused by the very sad conflict in Ukraine has positively impacted tonne-mile demand for some commodities, but we continue to monitor the impact that the military conflict can have on global growth and grain flows later in the year. We also monitor the COVID situation in China, even though we are positive on the full year 2022 demand outlook in China as policy support focuses on investment in infrastructure, manufacturing and green investments, which all rely on minor bulk commodities. However, despite these risks, we continue to be optimistic about the long-term health of the dry bulk market. This healthy market, our strong cash generation and limited expected CapEx spending enable us to continue to reward shareholders by returning capital. Ladies and gentlemen, that concludes our trading update presentation. I will now hand over the call to our operators for Q&A.

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

A very strong set of operating state, it seems. Martin, can you help us spend a bit about what sort of seasonality shall we expect this year and how different it is from the usual cycle given probably the impact of loss of cargo -- loss of grain cargo from Ukraine, some of the loss of volume from Russia, partially offset by tonne-mile at the same time, slower operating activities, probably at least in the first half or second quarter in China. When we put this together, does it seem like the second quarter could be a softer quarter in terms of demand growth versus the first quarter or the second half of this year? Any color on that probably would be very, very helpful.

Yes. Thank you, Parash. It's, of course, a very good question. There's, of course, a little bit of uncertainties in the market. But I would still say that the development we've seen so far this year is actually sort of is straight as it always is. You have a weaker start to the year that is picking up. And actually, it's quite normal that in April, you also see the market coming down a little bit, which it has -- actually has done, and now it's actually picking up a little bit, and we see actually the FFAs for the future is now coming, especially for the Handysizes and the Supramaxes, it's actually increasing at the moment. So if the year will follow the usual curve, we'll actually see a sort of improving market until end of the year from now on. And of course, as you mentioned, it is a little bit of an unusual year. And I think we also -- in all fairness, we also sit and look a little bit at what will happen. You did mention second quarter. I'm not -- I'm actually not so worried about the second quarter assuming should -- if there's any uncertainty in our market, I think it's in the second half when usually you have the grain coming out of Russia and Ukraine. And of course, you sit and look at the war, very sad to look at, but also how long will it actually last for. On the other hand, we also just have to say that what's happening at the moment is that much of these commodities, they have to be shipped from further distance away, so we have more tonne-miles at the moment. We also see the coal into Europe who import 40 million tonnes out of Russia, will ban that as we understand it, and they will have to find different ways to get it. And the same with Japan end of the year, who has 20 million tonnes out of Russia. There's a lot of things happening that actually also -- in these circumstances, unfortunately, circumstances actually could be quite positive for our markets. But I must also say it's a little bit too early to judge exactly the consequences of the Ukraine situation. But at the moment, we are actually quite positive about the market.

Okay, lovely. And just one more thing. If you -- I mean just so that I understand it clearly. Can you talk a bit about, the backhaul cargo or the cargo that you have contracted last year are up for renewals. Will they -- those be up for renewal sometime in second quarter? What percentage, is it still like 15%, 20% of overall volume remains in longer term? And do most of them renew around this time?

Yes. So we mentioned that for the second half -- we say first quarter is [ all bound ]. Second quarter, we have -- I think we have 92% covered of Supras and 75% of Handys. But that is already done to a certain extent. So it's the second half of the year, we are looking at. And there, we have 35% covered on the Supras and 26% on the Handys. And actually on the Handys, probably 60% of it is what we call backhaul. So that's actually voyages bringing us down to the loading areas. And on the Supras, it's 50% of the cover that is actually what we call the backhaul voyages. So you can say the range might look a little bit low. And some of it is also because it's older contracts, but it's also mainly because it's backhaul voyages with an offsite when you get into the loading areas. We do see at the moment all the uncertainties. We also see that you also asked about, we also see that with our customers. And I think the higher oil price as well -- the tonne -- the U.S. dollar per tonne for the contract is quite high because the oil prices also are high, the bunker price is high. So there's a little bit of reluctancy in the market to actually take -- come out with the longer-term contracts. We do a little bit, but I think there's a little bit of wait and see at the moment also from our customers. It is also for them a very high level, also driven by the higher oil price and higher bunker price. So some are coming and we are extending some contracts, but it's not easy to go out and take a lot of long-term contracts at the moment, especially if you want to keep a good level, of course.

Next question is Carol Li (sic) [ Karen Li ] from JPMorgan.

So I have a few questions. The first is regarding, you mentioned in the presentation that the grains in first quarter, the loading volume is down 3%, that is due to the conflict between Russia and Ukraine. Can I understand a little bit better why is that causing the destruction from this crisis as we know that the grain harvesting season for Russia and Ukraine should be in third quarter. And with regard to Pacific Basin, I think management in another call has mentioned our exposure to that trade route is probably less than 3%. Do we expect to benefit as I think if this conflict continue into a longer period of time, say, like second half or next year, there will be, of course, the rerouting of trade route. Do we see that as, I think, beneficial for us or net-net or negative? That is the first question.

Yes. The first question about -- there's, of course, grain and corn being exported out of the Russia and Ukraine whole year from storage. But of course, you're right, the main season starts in second half of the year or into third quarter. And then that's one of the issues as well in Ukraine, is that it's impossible for them to get it to the port. And of course, the port is closed at the moment. But you're right that the real volumes, of course, is after the harvest later in the year. And that's, of course, also what we look at. It already has an impact on the export volumes. I think you are correct that for Pacific Basin, the trade into Ukraine and Russia has been quite limited. And today, we are not doing any business in and out of Russia and of course, not in and out of Ukraine. But indirectly, of course, it's fairly big volumes of especially grain of Russia and Ukraine. And the question is, of course, is to where -- if the conflict or the war continues, will the world be able to replace these volumes from other places. And the figure we hear at the moment is that everybody else is, of course, planting more wheat and corn to sort of -- in the expectation that they have to replenish or they have to have a higher harvest at other places in order to supply the world with these commodities. I also hear one of the issues with that is that the cost of fertilizer has also gone up because fertilizer is also exported out of Russia and Ukraine, and that's, of course, also making at the moment. So it is hard to predict exactly what's going to happen. But I think it's fair to say that the world will need this corn and wheat and they would have to try and find it from other places and these other places will be further away than from Ukraine and Russia. So there will be more tonne-mile for shipping. And unfortunately, in these circumstances, it is actually good for shipping even though it's a terrible situation in Ukraine.

Yes. Got it. Okay. So the second question is kind of related to Russia, Ukraine crisis as well. We understand the worker -- sorry, the seafarers coming from Russia and Ukraine actually form a pretty large proportion of the seafarers globally. Can you actually share some update with regard to impact on Pacific Basin on that front, coming either due to adding these perspective or the China situation as we understand the mobility [ curbs ], quarantine requirements and so are making the ship changes nearly impossible?

Yes. First, I'd say that the real impact is actually on the well-being of our crew. This is -- being Chinese and having to change to or from the ships is a terrible situation at the moment with the quarantine rules around the world. And similarly, of course, with our crew who is -- we do also have Russians and Ukrainians aboard our ships, and that's really tough on them as well. So I actually feel a bit sorry for these guys. So I would say actually -- that is actually where I think the well-being and the mindset of these guys who are actually sort of important for us for the safety or the service we provide. That's probably my biggest concern at the moment. There is, of course, a cost and there is sort of a practical arrangement in these things, which, of course, is a little bit of a pain. I would say, cost-wise it is -- there has been -- we also mentioned that for last year, the full year result, we did mention that costs have come up a little bit. But in the bigger picture, it's not much. But I must say changing, we do have -- we have Chinese, we have Philippines and we have Indian crew and officers. And I must say, especially from our Chinese colleagues on ships, it's been really tough with the crew changes, I'd say, nearly impossible sometimes to send people home and get them to the ships. But we are managing, and I think our cost is under control. But of course, the air fares and the hotel quarantine rules and time, of course, have increased our costs somewhat. So we hope this would disappear soon.

Got it. Okay. Last question is regarding our fleet strategy. I think you mentioned that we will be upscaling, increasing the share of Ultramax. Can you share a little bit more detail on that front? Do we see Ultramax as a percentage to be a more meaningful proportion of our fleet in coming years?

Yes. I think we would like to have a little bit more balance in our fleet. So we have probably as many -- at least as many Ultramaxes as we have Handysizes, but I think we also have to admit that when we look over time, we can see that our -- that the largest ships, they have actually outperformed the smaller ships on the earnings. So of course, that's also quite attractive to us. We still have to remember that the Handysize is a very sort of important part of Pacific Basin, so is to our customers. And I think for us, it's not a question maybe of growing that, but we would like to maintain the size but also renew the fleet somewhat. And that's also why we're selling some of the older ones, and we'll see how to replace them over time. But our strategy is actually to grow our Ultramax fleet, maintain our Handysizes, but renew the fleet as we go along. And that strategy has not changed. The only thing that has changed now is, of course, that the asset prices have gone up. And we're probably a bit more reluctant to commit to the secondhand prices or buying at the current secondhand prices. And there's not many opportunities of good ships actually out there. So we are sitting looking a little bit at the market and see how that develops.

When we look at the fleet mix, Supramax, which includes -- roughly accounts for half of our fleet capacity in terms of number of vessels, for Supramax, that category, how much of the Ultramax ultimately will be accounting for percentage-wise?

What we said is that we'd like to grow that part of it. And I think our short-term ambitions would to have balance it. And we have about a little less than 100 Handysizes. I think, over time, we will hope to be the owner of a similar size of the Ultramaxes as we go along. But that will take some time.

Got it. Can I just quickly check how many Ultramax we have, sorry, if you have mentioned about that.

I need you -- probably need you, Peter, to find the slide.

For the Supramax...

Sorry, Peter, your -- I think at the moment, in terms of Ultramaxes, I think we have about 13 Ultramaxes.

Okay, 13. Out of 126 in total?

Out of 121 ships owned in total.

Okay. I'm looking at Slide 25. I'm not sure whether I'm looking it correctly.

Yes. That of course has a Capesize as well.

Okay, 13 out of 126?

No, 13 out of 122.

Oh, 122. Okay. Right. Okay. Of the owned vessel, I got it. Okay. I was referring to the total vessel for Supramax category. But I understand what you mean now.

Yes. Sorry, I see what you mean. Yes, yes, yes, sorry. We think of the owned vessels.

That's okay. Sorry, we're looking at different lines. You look at -- basically I look how [ we done through it ].

Karen, as you see on Page 25, we have balance in the total, but when you look at the [ owned ] side, that's what I'm looking at as well. When we talk about our asset strategy, we talk a lot about our owned and chartered vessel. And there we want to own more Supras, Ultramaxes, and we want to maintain our Handysize fleet, but renew it, and that's the 132 ships, it says here, we have 79 Handysizes and 42 are Supramaxes.

Just one last thing, Karen, on that Supramax fleet. Remember, your 126 number includes the short-term ships. And that goes up and down every day as we take ships that we deliver, so that number moves all the time. Yes, sorry.

Our website, I believe, has a fleet list for you.

Next question is Alan Choi, individual.

Congratulations on a very strong quarter again. I have 2 questions. My first question maybe is for Peter. With the expectation of rising interest rates, is there some work being done on the debt carried on the company's book to move towards more of a fixed rate category. If you don't mind sharing any kind of percentages from floating to fixed, that would be helpful. And then my second question is, do you have a view on kind of any future industry consolidation for dry bulk as a whole? That's 2 questions.

Okay. Thank you, Alan. We actually have very, very limited interest rate exposure. The majority of our facilities are either already on a fixed rate or they're hedged with interest rate hedges. So that's a fairly small proportion that is open. There's a little bit more information about the exact percentages in the annual results announcement, so I'll urge you to have a look at that. But if you also add the amount of cash we have on the balance sheet, which acts sort of as a natural hedge because as interest rates go up, we can make a little bit more return on that cash, we're actually making more money when interest rates go up. So we actually have a positive correlation with interest rates, which is a little bit unusual for a shipping company, but that's a reflection of the hedges that we have and our strong balance sheet. I'll hand you over to Martin on the question of consolidation.

Yes. And we, of course, always look at the opportunities we see in the market. I think it's hopefully fair to say, and hopefully it doesn't sound too arrogant, but Pacific Basin is actually sort of, we've done quite well, sort of, on the top line, outperforming the market, both on our Supras and the Handysizes. So I think we are market leader on that part. As you think on the cost base, we are also quite -- doing quite well, probably also a market leader on that side. So should we merge or consolidate with somebody, it should be somebody who brings us some value. We do have 260 ships that we control today. Do we believe that being a lot bigger will give us a lot, it might give us some, but I'm not so sure. We're quite sort of lean and the way we have everything in-house, we're quite lean in our focus on minor bulk, Handysize, Supras and Ultras. So should we consolidate with somebody? It should be somebody who can bring us some value to what we do today. And I'm sure there's somebody out there who, of course, do quite well and they could help us and give us something. But it's not that clear that just -- that any consolidation actually makes sense. So I think for us, it's also very much focusing on what we do. We have a good market at the moment, let's harvest, let's make sure we do what is right. Let's not complicate our business by taking in consolidation or mergers and so on because it will complicate things, and it will take focus away from what is the core of what we do, and that is actually delivering good service to our customers, making sure we do it safely and making sure that we keep our cost down and maximize our top line. And I think we do quite well on that at the moment. And I think that is where focus should be at the moment. But that doesn't mean that -- we do follow the opportunities in the market. We're always open for discussions. But we will be very careful before we do anything. We want to make sure that we maintain the good things that Pacific Basin has developed over many years. I hope that is a fair reply and not too arrogant.

Next question is Adrian Lee (sic) [ Andrew Lee ] from Jefferies.

I have a few questions. The first is related to the fleet size, right? You mentioned that you sold 4 of the vessels year-to-date of the older vessels. Two parts to this. The first is how many more of these do you plan to sell? And second part, does that mean that your capacity for the Handysize for this year would then be lower on a year-on-year basis? Because if I look at your long-term chartered rate, it's roughly flat on a year-on-year basis. So if you sold 4 of these vessels, does that mean that your capacity will fall into this year. And then into next year, your chartered -- long-term chartered falls again, right? So does that mean that you'll have 2 years where what you'll get is that your revenue days or capacity will be shrinking? Okay, that's the first question. Second question is, if I look at your first quarter update compared to last year, it seems like you have a higher covered percentage, right, for the Supramax. Is there a reason why it's a higher percentage? Third question, I would say is, could you give us what the scrubber premium was for the Supramax? I think that's all I have for now.

Let me see if I can remember those. So if we first take the [ chartered ] part, yes, it is correct that if we -- last year, we bought 12 ships, and I think we sold 4. And this year, so far, we have received delivery of one Ultramax and we have sold 4 ships. Those 4 ships have not been delivered to the new owners yet, but it'll be done here within April, May and June. But you are absolutely correct that when they leave the fleet, of course, we'll have less ships in the fleet unless, of course, we take in short-term chartered ships in or longer-term charter ships in. But of course, if we do that, that will, of course, be at rates that somewhat higher than on the cost of our own core fleet. So you're correct. If we keep selling, we'll have less ships in the market unless we do something else. Our ambition is still to buy if the right opportunities come up. But at the moment, we are leased on our older ships. We have seen that the asset prices have gone up 200% since early last year. So that is actually 3x up on the asset prices. And of course, we do the calculations looking at what is the future expected market, and we compare it to the market price we can get on the ship now. And we have decided that some of these ships, especially those who are due for dry bulk and also those that we know might have a little bit of issue with the upcoming IMO regulation next year, that maybe it's time to sell those ships to other owners who are probably better at handling those ships in the changing market. So that's the driver of it. But of course, we are still -- we will still be there to grow our fleet when we find the right opportunities, but we also feel that part of our business is selling at the right time. And we feel it's the time to sell some of the ships. And I'm fairly sure we'll sell a little bit more. We have a few others of ships that is close to the 20-year age, and we will sort of look at those as we go along the market. Second question was, just remind me again. Well, I'll take the scrubber part. Yes, the scrubber, we usually say $1,200 a day. We have 32 vessels, Supramaxes, who has scrubbers onboard, normally it's $1,200. It is actually, at the moment, somewhat more than $1,200 due to the high oil price, has driven up and the spread has also increased. So at the moment, it's actually a better deal than $1,200 per day.

Yes, my other question...

Yes, I remember, that was about the Supras versus the Handys. I think there's a little bit of difference in the market. There is a difference in how the market works for the Handysizes versus the Supras and the Ultras, where the Handysize is now a little bit more industrial to a certain extent, and the other ones is a little bit more trading part of it. I think it's just possible. It has just been possible on the larger ones to take more cover at better rates, and we have thought that was a good thing to do. Remember that actually, today, the spot market is pretty much the same for Handy and for Ultramax. And maybe we have [ filled ] a little bit of the Handys, but let's enjoy the spot market and not take too much cover. But there's no sort of new strategy in it at the moment.

And then maybe a follow-up question. The China lockdown, COVID lockdown in Shanghai, et cetera, right, are you seeing any impact on volumes in April? Because I see that your first quarter, right, was up 12% in terms of minor bulk. Have you seen any -- like is that a big fall off so far in -- like for the first 2 weeks of April?

I have not seen that, and I have not heard that, that has had a major impact on our business so far. I think it has a big impact on the container business at the moment. But -- and I'm sure it has an impact on the minor bulk as well, but I have not focused the debate on whether this has a huge impact on us at the moment. I don't know, Peter, if you have to share anything different?

No, I think it has maybe impacted the Pacific market maybe a little bit negative when it comes to sentiment. We had a very strong Pacific market for a while and a relatively weak Atlantic market that has rebalanced in recent weeks. And I think the sort of lockdown concerns is partly responsible for that. But we also think that at some point, when they get out of the lockdowns, there will be a great need and we're already hearing it from the Prime Minister of China to stimulate the economy to reach the growth targets, which I think this year, particularly, are very important to drive. So there's a lot of talk about further infrastructure investments. There's a lot of push to keep the logistics chains open. There is talk of reducing property curbs, local governments taking sort of initiative on these things. So -- whenever you close something down, you tend to have the pendulum effect, just like we had in the -- after the lockdowns in the west. And if you tackle that with a bit of stimulus to get back on track, this could provide some support for the latter half of the year, but it all depends on how this COVID fight evolves, right? It's still early days, I think, for China to kind of grapple with this. But we haven't seen any sort of falloffs in loadings in the last couple of weeks. That hasn't been the case.

[Operator Instructions] Our next question is [indiscernible].

Martin, I understand there's about 500 bulk carriers waiting off PRC ports at the moment. Clearly, that's been good for demand at the moment. Will there be a significant reduction in demand when China gets back to normal?

I'm not sure that these 500 ships are -- I think when they say dry cargo, I also think they're also talking about containerships, that's at least the opinion or the feeling that I have. I think we have had -- COVID is nothing new in China, and the lockdowns in China have actually been ongoing for a period of time. So I don't sit with a feeling to say that this will disrupt the market in any way when things is clearing up for the dry cargo. Remember that for Pacific Basin, loading and discharge in China is about 10% of our loading and discharge operations around the world. So for minor bulk, of course, China is directly and indirectly important, but maybe less so than it is for Capesizes and other ships. So we don't sit and feel it's a big threat. We actually do feel that when China opens up again, it actually will mean increased steel production and that actually might be better for our market than it is today. But I don't think the 500 ships are pure dry cargo ships in the sense of the bulk carriers as us. I think it's also containerships we're talking about.

Also, with your sort of selling of the ships, obviously, those haven't been received yet. I think you said they are being delivered from April through June and your strong cash flow at the moment, when do you think Pacific Basin will be debt-free on a net basis? I'm not suggesting you'll pay off all your debt, but when would you be net cash?

We're already net cash.

Already net cash, okay. And just the final concept. On the dividend, I remember asking you, Peter, last time about quarterly dividends, one sort of halfway house to that. I just feel it's a little bit unwieldy having such a large percentage as a final dividend. And I just wanted to sow the thought for you that when you announce your final results, you could pay half of whatever you announce as a second interim dividend at the time of your final results in February. And then perhaps the balance as a final dividend in May, which would perhaps just make trading a little bit more even in the shares of the company.

Yes. No, it's something to think about. We haven't changed our methodology of paying dividends or how we report as well, mean we don't do a full P&L for the first and the third quarter as well, right? So we haven't changed that for some time. No, we do take onboard any suggestions, and we do know many shareholders would like a more distributed dividend stream, and we take that on board. We'll always have discussions on how we can improve these kind of things.

Yes. I remember last time you said because you're only doing a trading update, you didn't want the quarterly dividend. And I think I agree with that. But this one, as there's obviously quite a long time between getting accounts out, getting AGMs to approve things, that might just give between February and May, so we've got a few months and that might just spread it out a bit. So I just -- but that's for you to consider.

[Operator Instructions] And currently no more questions, I'll pass back the time to Mr. Fruergaard.

Yes, I'd like to thank you again for joining us today and for your continued support to Pacific Basin. If you have any further questions, please contact Peter Budd from our Investor Relations Department. Thank you again, and goodbye.

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