Operator: Welcome to today's Pacific Basin 2024 Interim Results Announcement the Conference Call. I'm pleased to present Chief Executive Officer, Mr. Martin Fruergaard; and Chief Financial Officer, Mr. Michael Jorgensen. [Operator Instructions] Mr.

Fruergaard, please begin.

Martin Fruergaard: Thank you very much. So welcome, ladies and gentlemen, and thank you for attending Pacific Basin's 2024 Interim Results Earnings Call. My name is Martin Fruergaard, CEO of Pacific Basin, and I'm joined by our CFO, Michael Jorgensen. -- so, you have already reviewed the presentation, we will briefly highlight some of its key points before moving on to the Q&A session.

So please turn to Slide 3. First half of 2024, we generated an underlying profit of USD 44 million and a net profit of USD 58 million with an EBITDA of USD 158 million. This resulted in a 6% annualized return on equity with basic earnings per share of HKD 8.7. Our large core business generated USD 77 million before overheads with our Handysize vessels contributing 41% and our Supramax vessels contributing USD 36 million. During the period, our operating activity, which includes vessels chartered for less than 12 months, experienced significant growth in both vessel numbers and operating days with the contribution of USD 550 per day, over $14,120 days, which iterated an additional USD 8 million for the business.

We have utilized our strong cash generation to reduce debt and enhance our fleet's deadweight carrying capacity, maintaining a healthy financial position with USD 537 million in committed liquidity and net borrowings of just USD 32 million. In view of our first-half financial results, the Board has declared an interim dividend of HKD 4.1 per share, amounting to USD 28 million, which represents 50% of our net profit for the period, excluding vessel disposal gains. Please turn to Slide 4. Since 2021, we have generated profits of USD 1.7 billion and paid out approximately USD 1.1 billion in dividends to shareholders, representing 65% of net profits, highlighting our ability to deliver attractive long-term returns over the shipping cycle. In addition, we have launched a share buyback program of up to USD 40 million to be completed by the end of 2024.

Since the commencement of the program, we have repurchased and canceled approximately 42.7 million shares for a consideration of approximately $14.6 million. We aim to create shareholder value through optimizing our capital structure, investing in value-adding and countercyclical growth opportunities, and distributing profits to our shareholders in accordance with our distribution policy. Please turn to Slide 5. In the first half of 2024, average market spot freight rates for the Baltic Exchange Handysize Index and the Baltic Exchange Supramax Index were $10,970 and $13,280 net per day, respectively. Higher market freight rates were driven by increased demand for commodities, further supported by fleet inefficiencies related to ongoing disruptions in the Suez and Panama Canal and manageable newbuilding deliveries.

Year-to-date, we have seen a notable reduction in seasonality attributed to the imbalances in tonnage between the Atlantic and Pacific regions. These imbalances are primarily due to the fleet inefficiencies caused by the continuous disruption in the Suez and Panama canals. This disruption led to an unusual large portion of the minor bulk fleet being held up in the Atlantic, resulting in a shortage of vessels available in the Pacific. This scarcity positively impacted the Pacific time charter rates, reminiscent of the peak demand conditions we saw during the height of the COVID pandemic in '21 and '22. During July and August, the balance of tonnage between the Atlantic and Pacific has reverted to levels observed in 2023.

Please turn to Slide 6. Which is a decrease of 9% and flat compared to first half of 2023. For the third quarter of 2024, we have covered 87% and 98% of our committed vessel days on our Handysize and Supramax vessels at $13,750 and $13,440 net -- sorry, per day, respectively. We have covered 60% and 82% of our Handysize and Supramax vessel days for the second half of 2024 at $12,670 and $12,640 per day, respectively, while our Supramax/Ultramax scrubber for the in remainder of the year, will limit our potential upside if market freight rates continue to strengthen, we anticipate benefiting from an improving market in the fourth quarter of 2024 and into 2025. Nevertheless, we are maintaining sufficient levels of exposure to current spot rates in the Handysize vessels.

Current values of scrubber benefits are approximately $30 and $250 per day across our core Handysize and Supramax fleet, respectively. Current forward freight agreements commonly referred to as FFAs for Q3 are at $12,320 and $14,430 per day. And for Q4, $12,490 and $14,550 per day for Handysize and Supramax vessels, respectively, indicating stability in the market going forward. Please turn to Slide 7. In the first half of 2024, we outperformed the BHSI and BSI on both our Handysize and Supramax vessels by USD 840 per day and USD 410 per day, respectively.

However, our Supramax outperformance was affected by the increased costs associated with chartering short-term core vessels in the Pacific. This was necessary due to the high near-term cargo cover. We had anticipated this high near-term cargo cover would benefit our outperformance provided the market follow historical seasonal trends. Our customer and cargo focused business model requires to take in short-term charter vessels to optimize and supplement our own and long-term chartered fleet. As always, our outperformance is negatively impacted by the upwardly moving freight rate environment due to the lag between fixing and executing voyages.

However, an improving market is ultimately beneficial as we will benefit from higher freight rates as we secure new cargo contracts over time. Our outperformance continues to benefit from the scrubber installed across our core fleet of Handysize and Supramax vessels, which have contributed with $30 and $720 per day, respectively to our performance over the first half of 2024. As previously discussed, our operating activities have seen significant growth with the number of operating days increasing by 29% year-over-year. We are pleased with our ability to scale these activities efficiently, demonstrating the support we enjoy from our customers. To support this growth, we have been investing in our workforce and systems, while recent office openings in Dubai and Singapore have increased our access to customers and cargo.

Our strategy continues to focus on increasing profitable operating days on a year-on-year basis and restoring our performance on our Supramax fleet. Please turn to Slide 8. Handysize owned vessel costs have decreased mainly due to lower crew repatriation costs as COVID-related controls have normalized. We continue to improve our cost competitiveness with our indicative owned fleet cash breakeven level reducing to USD 4,620 per day, which is a 6% reduction year-on-year. Please turn to Slide 9.

Our Supramax and Handysize owned vessels depreciation costs increased mainly due to higher dry docking costs and investment in fuel-efficiency technology, including silicone and antifouling dates. Our blended Supramax cost remain cost competitive, and we are scheduled to deliver 5 higher-cost long-term chartered vessels during 2024, which we chartered in during the higher rate environment of 2022, and we expect the last of these vessels to be redelivered by September 2024. Our indicative owned fleet cash breakeven level is $5,120 per day, which is a 1% increase year-on-year. I will now hand over to Michael, who will present the financials.

Michael Jorgensen: Thank you very much, Martin, and good evening, ladies and gentlemen.

Please turn to Slide 11 for an overview of our P&L statement and financial performance. As you can see from the slide, despite the rise in our daily TCE earnings, both our underlying profit and EBITDA have declined. This decline is primarily due to a significant increase in chartered vessel costs, along with higher expenses related to bunkers, port disbursements and other words costs, all driven by increased business activities. Below underlying profit, our net profit was further improved by gains on vessel disposals, our hedging portfolio, and the write-back of a provision related to a settlement in the period. Please turn to Slide 12.

As you will see, our cash position remains unchanged at $261 million, and we ended the period with USD 537 million in available liquidity. Looking at the details, our operating cash inflow for the period was $103 million, and that is inclusive of all long and short-term charter hire payments. This compares with $150 million in the first half of '23. We had $8 million in proceeds from the sale of one small Handysize vessel, which we delivered in the period. CapEx spending remains well controlled, and for the first half of 2024, totaled $48 million, of which we paid approximately $25 million for the remaining balance of 1 second-hand Ultramax vessel and around $23 million for dry dockings and investments in fuel-efficiency technology, which Martin discussed earlier.

We expect CapEx for '24 to be approximately $65 million, predominantly relating to dry dockings and investments in fuel efficiency technology and excluding any vessel purchases. We have paid out $38 million in dividends, which relates to the 2023 final basic and special dividend of HKD 5.7 per share, which we paid in May 2024. As mentioned earlier, since the commencement of our share buyback program, we have repurchased and canceled approximately 42.7 million shares for a consideration of approximately USD 14.6 million. However, only USD 40 million was concluded by the end period 13th of June. Over the period, repayments following the normal amortization profile of our loans amounted to USD 32 million, while our borrowings only decreased by USD 4 million as we extended and increased an existing term loan by an additional USD 29 million.

Please turn to Slide 13. Despite significant shareholder distribution through our dividend and share buyback program, we continue to maintain a healthy financial position with USD 537 million of available committed liquidity, which includes USD 261 million of cash and deposits. Our net borrowings are unchanged at 2% of our own vessel net book value, and we currently have 61 unmortgaged vessels as of 30th of June. We continue to maintain optionality in our long-term charter portfolio with purchase and extension options, allowing us to exercise if we see value. Our goal going forward is to ensure that we maintain a robust, safe and flexible capital structure.

Our distribution policy is to pay out dividends of at least 50% of our annual net profit, excluding vessel disposal gains, and whereby any additional distributions can be in the form of either special dividends and/or share buybacks. I will now hand you back to Martin for his outlook and strategy slides.

Martin Fruergaard: Thank you, Michael. Please turn to Slide 15. Global dry bulk loading volumes grew approximately 2% year-on-year.

Minor bulk loading volumes were up by 2% due to higher loadings of bauxite, forest products and steel. Bauxite continues to be the main driver of increased minor bulk loading primarily from Guinea and which are mainly carried in Capesize and Panamax vessels. Grain loadings increased by 4%, driven by significant contributions from Argentina, Ukraine and Brazil. Argentina experienced a 29% increase in grain loadings compared to the previous year, recovering from crop yields that were previously affected by droughts. Ukraine Black Sea loadings surged by 53% year-on-year, reflecting the country's enhanced export capabilities since the onset of the conflict.

Additionally, China's import of Brazilian grain increased by 21% year-on-year, supporting tonne-mile demand, while imports from United States decreased by 18% year-on-year. On the other hand, coal loadings decreased by 2% year-on-year primarily due to reduced loadings to Japan and Europe despite increased coal demand from India, China, and Vietnam. China significantly increased import of Australian coal since the lifting of the coal ban, which continues to support tonne-mile demand, while import from Indonesia and Russia decreased. Iron ore loadings decreased 5% year-on-year due to increased loadings from Brazil and India as well as record demand in China. Brazil and Indian iron ore loading increased 15% and 19% year-on-year, respectively, positively impacting tonne-mile demand, while China's housing construction remains subdued.

The decline in steel demand is being compensated by growth in the infrastructure and manufacturing sectors. Additionally, excess steel production is supporting record level of export out of China. Please turn to Slide 17. The water levels in the Panama Canal have progressively improved as we have now entered the rainy season, which extends from May to December. While some restrictions continue to be in place, vessel transits are expected to increase over time.

We continue to monitor development in the Red Sea and the Gulf of Aden, which remain complex and a safety concern for shipping. This has added to tonne-mile demand as vessels have been rerouted around the Cape of Good Hope. These eases will continue to reduce effective supply and provide support for rates going forward. Please turn to Slide 18. In the first half of 2024, we observed a nearly 13% decline in new building orders for Handysize and Supramax vessels.

This decrease is primarily attributed to rising new building costs and uncertainties surrounding environmental regulations. We interpret limited scrapping over the period as a positive indicator of the improving dry bulk freight rates. The positive market outlook will encourage owners to invest in dry dockings for older vessels, ensuring they can continue trading for a little longer. Decarbonisation regulations are expected to have significant implications necessitating vessels to reduce speed progressively and eventually leading to an accelerated scrapping of older, less efficient ships, currently around 40% of the Handysize fleet and 11% of the Supramax fleet are over 20 years old. Additionally, 1/3 of the fleet, which was built between 2009 and 2012, will reach 20 years of 8 starting in 2029.

Well-balanced fleet growth combined with the timely retirement of outdated vessels will help to maintain a favorable supply-demand balance in the future. Please turn to Slide 21. We remain committed to our long-term strategy to expand and renew our fleet. Our focus remain on growing our Supramax and Ultramax fleet while replacing our Handysize vessels with younger, larger and more efficient ships. This approach not only enhances our operational efficiency, but also ensure that we are well prepared to meet the increasingly strengthened environmental regulations.

Due to the rise in vessel prices, especially in the second-hand market, we have been selling our older vessels since 2021. This has included 20 Handysize, 1 Supramax and 1 Ultramax vessels all at attractive prices. Over the same period, we have purchased 20 modern second-hand vessels comprising 6 Handysize and 14 Supramax/Ultramax vessels. By staying selective and disciplined in our investment strategy, we have managed to expand our fleet with newer, larger and more efficient vessels, achieving our highest carrying capacity to date. Based on the estimated market value of our own fleet of USD 2.2 billion, we retained significant value well above our net book value of USD 1.7 billion.

During the period, we sold 2 of our older Handysize vessels. Please turn to Slide 22. In addition to acquiring vessels from the second-hand market, we can grow our core fleet through long-term inward charter or vessels that showcases the latest Japanese design, maximum fuel-efficiency, and in some cases are equip with scrubbers. These long-term chartered vessels offer options to extend the charter agreement period at a fixed rate and all purchased the vessels at a predetermined price. Extension and purchase options provide optionality as markets develop, allowing us to exercise HPC value.

In the first half of 2024, we received the first of 4 long-term chartered 40,000 deadweight Handysize new buildings. And in July, we took delivery of the second, and we have 6 more being delivered before Q1 2026. We also declared our intention to exercise a purchase option of a 58,000 deadweight tonne Supramax vessel built in 2016 with delivery in the second half of 2024. This option highlight the potential value of retaining purchase options on long-term charters. With this particular option priced in Japanese yen, a unique feature, not shared by all purchase options.

To achieve our goal of complete decarbonisation, we will need to invest in dual-fuel low-emission vessels. Collaborating with our Japanese partners, we have made good progress on a design for vessels that can run on both fuel oil and methanol. We will consider in 2024, whether we are ready to contract to build such vessels with delivery well ahead of our original 2030 target. Please turn to Slide 23. Over the period, we have seen increased demand for dry bulk commodities, even amidst concerns about global economic growth, high interest rates, conflict in Ukraine and Palestine and the negative effect of reduced Chinese housing construction.

Despite these challenges, we have seen growth and continue to remain optimistic about the supportive fundamentals of our industry and the overall global economic outlook. Our strategic vessel positioning aligned with our commitment to our customers and cargo focused approach. This will necessitate short-term charter to complement our own and long-term chartered fleet, which over the period were higher costs than anticipated due to reduced seasonality in rates. While we won't get the market right every time, we are pleased to see a healthy dry bulk market in which we continue to see limited new vessels -- vessel ordering and broad-based demand for the commodities we ship. We are optimistic about the industry's future.

This optimism is borne by promising future contract rates and volumes, our increased activity level and our industry low cash breakeven level, additionally supported by positive optionality in our core fleet. In the second half of 2024, we anticipate an increase in global dry bulk loadings, fleet inefficiencies and tonne-mile demand due to the limited transit of dry bulk vessels to the Suez and Panama Canals. Ladies and gentlemen, that concludes our 2024 interim results presentation. I will now hand over the call to the operator for Q&A.

Operator: We will now begin our question-and-answer session.

[Operator Instructions] Our first question comes from Huang Jun Jie. Jun

Jie Ng: Thanks. I have 3 questions here. The first question, I think earlier, you mentioned dry bulk loadings, you expect them to increase in the second half of 2024. Would you mind to share which specific commodity types that we actually expect a sequential pickup in demand in the second half? The second question I have is with respect to the environmental regulations.

I think there's 2 parts to this question. One is on scrapping. I saw your announcement today, you indicated that scrapping is going to progressively pick up from 2030 to 2037. Do you mind if you could share a little bit about any color to why we think scrapping will see no material pickup during this time frame and not maybe from 2025 to 2030, given that environmental regulations are more stringent? And then the second part of the question is on dual-fuel ships, earlier, you mentioned that methanol is probably the option we're going into. But recently, within container shipping, we're seeing a lot of liners, including Maersk pivoting back to LNG as a dual-fuel.

Do we have plans to do a similar strategy?

Martin Fruergaard: Yes. Thank you very much for those questions. The first one about the growth we see, it's -- we are actually entering into the grain season from the Northern Hemisphere, starting in the Atlantic. So the U.S. and Europe, Ukraine, and other places will have the harvest coming out and normally in October, at the rest of the year, you will see increased activity on that part.

That's also how we have positioned ourselves for that, and that's normally how the market works. On the other commodities, we actually see quite stable volumes going forward on those. But for second half year, I think from September, October, it will be the grain season starting up that will drive the market. On the environmental part, on the scrapping part, when we say that scrapping might only sort of start in 2030, that's basically just looking at the age profile of the ships. So assuming that the market stays healthy going forward, then there's no incentive for the owners of the older ships to scrap them as long as they have a positive cash flow that will justify the dry docking.

So as long as we have a very good market, people will try to keep the ships going as long as possible. But when you get to close to the 30 years, it will be very, very difficult to keep them running. And on top of that, you will have the environmental rules, which gradually will come into play. So when you come closer to 2030, I think it would be very difficult to run the older ships. But I don't -- I think it's important to say there's nothing negative in that there's not so much scrapping.

It's actually just an indicator that we have a very strong market that actually makes sense for everybody to run the ships a little bit longer. But there's, of course, a deadline to these ships, both in respect to the aids, but also in respect to the environmental rules in it. And I think what we have indicated a little bit what we talked about it, we just wanted to show you, when you look at the age profile of both Handys and Supers, you can see that 1/3 of the ships were built within 4 years from 2009 to '12. And of course, by 2030, then they will 2029 they will start becoming 20 years old. This is a little bit of a date in our market.

Not all our customers want to take ships that's older than 20 and not all these ships are built at quality yards so that -- under the speed consumption efficiency is not very good on these ships either. So that we also foresee that something will happen at that time. And the last question on dual-fuel, it's -- I think, first of all, I would say, I think there will be room for all kinds of fuels going forward because that is actually needed. We have, of course, looked at everything in the project we had in Japan. We've been working on this for 2 years with our Japanese partners.

And I think our conclusion is there will be a need for all of these fuels. But when you look at our smaller size ships and you look at the extra CapEx and the requirements we have, we just see methanol as the best option for us. For sure, LNG, LNG actually has some favorable rules, I wouldn't say they're unfair, but I would say they're a little bit favorable in -- so in the short term, it probably would make sense for people with big ships to put LNG on them in it. But in the longer term, that will also be an issue for them in it. But I think the answer is there is a need for all kinds of fuels.

And I think that's also what you see some of the big players are doing. They are sort of betting a little bit on all of them in it. But when you look at our smaller size ships, if you look at the extra CapEx, the extra OpEx and so on, we think methanol is the right choice for that kind of shift to begin with. Jun

Jie Ng: Maybe I. Yes.

Thanks, Martin. Maybe I can just follow up one quick question on scrapping and the time line for 2030. Given we are seeing a lot more stringent regulation, EU ETS, fuel, EU maritime regulations soon as well. Do you mind if you could share is there any potential enforcement penalties in the event of noncompliant if we don't get to -- if we don't comply with other speculation?

Martin Fruergaard: Yes. You can say that the brews you see now are very much EU-based.

So that's the EU ETS and the now first of January fuel EU coming in. And both of those comes with it, you can call it a penalty or tax. If you don't comply with fuel EU, you will have to pay a penalty, which is quite big, actually. I think -- and we are waiting for IMO, their meeting here in September, October to discuss more global fee or tax or whatever you will call on the CO2 that it will be very interesting to see what would happen there. I think for IMO, it will take some years before they can enforce it, and we'll enforce it.

But EU is happening at the moment. And I think what's happening right now is you probably see the most fuel-efficient ships will trade into Europe and older less fuel efficiencies will have to find somewhere else to go because it will not make sense for them to go there. So the rules have an impact already. But for the scrapping, I think we probably need IMO to do a global or we need other countries, other regions as well to put attacks on the CO2 emissions. So that would take a little bit of time.

But eventually, that will come up.

Operator: Our next question comes from Nathan Gee. Our next question comes from Andrew Lee.

Andrew Lee: So I have a few questions, right? My first question is, if I look at the slides you have on supply-demand for the Handys, right, it seems as if this year and next year, supply growth could outpace demand growth. Is this what the view is? And if that's the case, does that mean that rates will come down? Second question is on the outlook.

You mentioned that you are positive on the long-term outlook. Does that mean in the short term, near to medium term that you're not as optimistic? Or is it just a view that the market will be strong until long term, right, so in the next few years? Another question I have is on the share buyback. -- you have booked to, I think it's $40 million. I think you mentioned that it was that you exercised for '14. Given the recent weakness in the share price, will you accelerate the share buyback quickly? And if you want to raise it above the $40 million, right, what's the procedure involved? Maybe I'll just start with those questions first.

Martin Fruergaard: Okay. Well, first on the supply debate, we are in general, there's always some uncertainties, of course, when you look ahead. But when we look at the market, the back and look at the market, we are, in general, quite optimistic about the demand outlook and also about the world economy. Of course, there's always like in one day, that was last month, something. There's always something happening in the market.

But fundamentally, when we look at it, we see an upside in the demand picture, and it's fairly positive about that part of it. And we also do believe that these disruptors you see are not just going to go away quickly. So they will keep on supporting us. And of course, at the moment, especially on the Handysize, we see actually maybe a little bit back to the COVID time also because the container market is so strong at the moment. We see also support from cargo's coming over to the smaller ships from the container market.

Also, we are lifting containers. So fundamentally, if you put it all together, we are actually quite positive about the outlook going forward. And whether it's long and short, we can discuss, I guess, a long care about what's long and what's short. I think we are very well positioned for 2025 and onwards in it. And our model is, of course, to be long on ships, and we will be that in 2025 going forward.

And of course, we maintain a very low cash breakeven. So we think we are very well positioned for that market. And also I think fundamentally, when we look at the age profile of the fleet and even though there is, of course, new buildings coming and we can look -- we can see when the yards are able to deliver new buildings in bigger scale, it's only 28%, 29% now. And we can see that the yard prices are high. We actually -- yes, in many ways, a little bit positive about the outlook for also for the supply side.

It looks good at the moment. You want to ask.

Michael Jorgensen: You had a question, Andrew, about the share buyback program. As you know, we launched a program this spring after the AGM is a program up to $40 million. So far, we are 1/3 into the program.

There are, of course, limitations when we have blackout period. We cannot really do the trading. But the plan is that we continue this program and will complete it before the end of this year. So we still have firepower left. We still have 2/3 left of this program.

Martin Fruergaard: Yes, and we will not accelerate it. I don't see that as an option because we also have to look at the liquidity of the shares. So I don't think that's the way. And I think it's also important to say that we are not obviously, we're not really speculating in our own share or trading our own share. We have a program that we will run and we will keep it running that part.

I think by the end of the year, we will, together with the Board, of course, evaluate is I think it's the first time ever we've done share buybacks. And I think we will evaluate with the Board, the pluses and the minuses of that. And maybe also with our shareholders and then see if this is something we will do. But we are very pleased actually that we now have had that in our toolbox as well besides the dividend, we can also do the share buybacks, and for us a very interesting process also for us.

Andrew Lee: Maybe a follow-up question.

I'm not sure whether you can answer this question, but I'll ask it anyway. What would you say your -- and your current NAV would be, right? Is it around the current share price? Yes. So I'm just trying to work out in terms of how you see the market, how you see your current NAV, right, compared to the share price?

Martin Fruergaard: Yes. So of course, we allowed ourselves to put in what we thought was the fair market value of our assets, and we have no debt. So our fair market value of the assets is $2.4 billion, and our book value is $1.74 billion.

So there is -- in that -- that's quite clear. So the difference there is $462 million in it Andrew. So if we should be priced based on the value of the assets we have, we are $462 million short on that part. And that's, of course, also the driver of the share buyback that we have done. I also have to update, of course, we -- our earnings has -- we have to, of course, improve our earnings over time to justify that part of it.

But it just also shows how optimistic and positive the market is about the future, I would say, since they have driving up the asset prices to this level up. So there's a lot of positivity in the market and people are willing to buy these ships at these high prices.

Michael Jorgensen: And we think there's some strength in our business model showing the value of their own fleet. And that's why we have this disclosure. We have really benefited from the increase in asset prices.

Martin Fruergaard: Yes. I think it's fair, that's also -- we also said that we have declared an option of 58,000 Supramax for delivery, but one of the time-charter ships we had an option. We have declared it. We pay $18 million for the ship. And if you compare that to what the market -- what the last done in the market, this is not for Japanese built like ours.

It's about was $28 million, $29 million -- that also shows a little bit of value in some of these things at the moment.

Operator: Our next question comes from Nathan Gee.

Nathan Gee: Two questions from me. Firstly, I want to drill a little bit more into the short-term charter costs. So it seems relatively elevated.

I think you've called out what seasonality patterns as well as the Pacific Atlantic Basin issues. Can you better explain-- can you give us a little bit more detail around that? And then also, are they going to continue into the second half, just these elevated sort of short-term charter costs? So that, firstly. Secondly, in terms of the Supramax negative rate premium, just to help me better understand that. So was there an element of over contracting as well? Or is it just related to the charter cost issue?

Martin Fruergaard: Yes. I think it's a little bit the same question actually.

So let me explain on how the market has developed. So we come in to 2024 and of course, with an expectation or not, of course, but with an expectation that we will have the normal seasonality. So you normally have a dip in the market before Chinese New Year. We had that, but not to the same extent we have seen in the past. And I think that was also due to the Red Sea and the Panama Canal that took a little bit of that seasonality out of it.

And then as we move into the summer period, we normally have a reduction in rates as well. And that has also not happened. And the market has increased a little bit or staying flat, which is, of course, super positive, but you can say, normally, our outperformance also comes from these dip that we sort of position ourselves to avoid. On top of that, and as you're actually saying -- rightly saying is that if you look at our Supera Ultramax fleet, we had too much cover. We should have had less cover.

That would have helped us a lot. But reality is it's not bad cover. We had the challenge we got into was that -- also what happened due to this disruptor that the Red Sea got closed is that we actually this year had -- in the first half, we had historically high number of minor bulk vessels in the Atlantic compared to the Pacific not because they had a hard time getting the ship back to the Pacific. So actually, what happened, which is quite unusual actually is that you had a market where activity Atlantic was lower than the Pacific. So there was a premium in the Pacific.

And a big chunk of our cover is actually in the Pacific in it and to, of course, deliver to our customers, which we always do, we do take ships from the market to perform some of the cargoes to optimize the program. But reality is those rates in the Pacific because there was a shortage of ships where it's much higher than in the Pacific and also higher than the contract cover rates that we have. And of course, that has put pressure on our outperformance on the Supramax fleet. I hope that makes sense, and but that's the situation. That situation has now changed.

So reality now we are back to normal where we actually have a higher market in the Atlantic compared to the Pacific. So that's the ships have moved now and there's a more-normal balance in the market. And actually, we think we are well positioned now in the sense that we still have quite a bit of ships in the Atlantic preparing ourselves for the October grain season, and hopefully, we can take advantage of that. And hopefully, in the Pacific we can get ships at a little bit more fair price. But reality is that for Q2 into Q3, our cover on the Supera's are a little bit too high.

So that trains a little bit the situation where it's hard to optimize the fleet. It's not easy at the moment on the Handysize because our cover is so much less on that part. So I think there's a little bit of learning in that. But it has also been a super different year. You can say the Red Sea and the Panama Canal is quite unusual.

And I think for our commercial team who normally actually outperformed quite well over the many last years. It's very hard for them to predict this situation. And of course, we got a little bit caught in that. But if we look at our earnings, it's not -- the Handy's are actually doing quite well compared to the indexes and the Supera's are trailing a little bit, but hopefully, we can improve it over the year.

Operator: Our next question is from Yang Liu.

Yang Liu: Just a follow-up for the chartering cost question is that you just mentioned about the changes or the expectation coming from this angle. So any changes for your covering strategy in the future? And the second question is about the order book for the dry bulk. It seems that it's still quite low compared with the order ship type. So what takes you guys post the ordering for the dry bulk replacement or even for upgrading for our fit?

Martin Fruergaard: Yes. That's good question.

So first, on the cover strategy, it's always dangerous when you come from a point where you feel you have a little bit too much cover. And of course, we have to look ahead, and we have to look into 2025. Our cover of 2025 is sorry, it's very low at the moment. Of course, our job and our commercial colleagues job is now to position ourselves correct for 2025. And the big question again is if these disruptors stay persist, will be also next year not have these seasonality changes of the market.

So that's very -- that's the big question, of course, and that's what we spend a lot of time on doing. Our model will allow us actually not to take too much cover in the sense that we have a very low cash breakeven. So we can afford to take a risk on that part. So I could actually foresee that maybe we will take a little bit less cover going forward. But it all depends on how the market develops.

And you can say the high cover what it actually does, it takes a little bit of your flexibility away in it, and you're probably running a little bit after. We're probably running a little bit after the market in it. So maybe a little bit less cover will give us a little bit more flexibility to do arbitrage and optimize it. So I think there's a little bit of learning in that part. And then a very good question on the -- when you look at the order book and growth, and you can say we have bought quite a bit of ships lately.

I think the I think we probably look at this year is that when you look at second-hand values or secondhand prices, you pay today -- when you buy a ship today second-hand, let's say you want a modern one because you wanted to have a -- to be good on speed and consumption. It's a high price you have to pay. And there is actually some uncertainties on the life of such a ship because this is a -- this is not a dual-fuel. This is just a regular fuel oil shipment when you come into '25, '26 -- sorry, 2035, '36, '37. The rules will actually make it a little bit more difficult to trade this ship.

And when you look at the price of a modern second-hand, actually a new building seems to be cheaper than buying the second-hand. Of course, the second-hand has the benefit that you have immediate cash flow when you buy it and a new building you have to wait for. Of course, we, of course, see the look at that part of it. So I think we're holding back a little bit because we are a little worried about these environmental rules. You buy ships now and the lifetime, how long can you -- or how long time can you actually depreciate the asset? And you can say, actually, a new building today seems to be cheaper and you can actually -- that's the project we have in Japan, maybe we can actually do dual-fuel and therefore, ensure that we are able to extend the life of the ships.

The other thing is what all ship owners are sitting looking at the moment. And of course, that's probably also why the new ordering is a little bit less. Prices are high uncertainty on the environmental. So I think that's actually very supportive to the market as well that nobody will go crazy at the moment in ordering these ships. Does that answer the question or?

Yang Liu: Just one follow-up is that at what point of time you're expecting such the new ship build ordering will come into place? It means that there will be more and more dry bulk orderings at what time you are expecting like 5 years later or 3 years later, any time during that you can imagine about it.

Martin Fruergaard: Yes, but it's already happening in some segments. And also in our segments, there's actually people ordering dual-fuel ships, not very much, but it is happening. And I think the big question -- so you can say the technology of building these ships, that is that we know how to do. And I think we also, at least in respect to methanol and LNG, we know how to do that. Ammonia is probably a little bit more difficult for us-- so we know how to do it.

The challenge we all probably have is that how do we get the fuel. And that's probably to the point where it's very transparent that the fuel is available in the scale that makes sense of it. Then until that point, I think it will be -- still be some of us. Some of us will probably try out and do it, but the big scale will only happen when everybody is sure they can get the fuel -- so I think that's what everybody is sitting looking at. And of course, that the rules even though EU has good rules and they're enforcing it, we are still waiting for iron ore and others to sort of come up clear on the rules and how they're going to enforce it.

That will also help on this transition. But I think basically, we at least, and I think many body many others also know that we have to decarbonize. And we know that when we buy a ship, it will normally be depreciated over 25 years lifetime. And today, that is actually going into 2050 something. And I think we all know that, that's probably not realistic that we will be allowed to run those on normal fuels.

So there has to be a transition at certain time.

Operator: Our next question is from [indiscernible].

Unknown Analyst: So I have one question to add here. Would you give us some color about the TCE recovery next year, first half of next year, especially for Handy, we have covered like 7% of -- so why is it so?

Martin Fruergaard: Because more than half of it is backhaul voyages, and we do not give the position a value afterwards. So I'll cover normally because -- especially at Handy's because it's always a very backhaul heavy will always be a little bit lower than the actual results when we end up performing the voyages.

Operator: Our next question comes from Andrew Lee.

Andrew Lee: I have just 2 more questions. If I look at the FFAs in your slide, it's actually at a slight discount to your covered rates in the second half. Could you give a little bit of color in terms of how you see the FFAs? Is that really a reflection of the market? Second question I have is, you over table that has your long-term chartered capacity, right, in terms of revenue days? Does that include all the long-term charters that will be delivered next year? The reason I say that is that I'm trying to model in terms of total revenue days next year versus this year. So I just wanted to sense that is that accurate reflection of the total long-term charter.

And maybe you can give a little bit of guidance in terms of -- based on the existing fleet and also the long-term deliveries, new builds, et cetera. How much capacity in terms of Supramax and the Handy's into the revenue days would be higher on a year-on-year basis or lower on a year-on-year basis for next year?

Martin Fruergaard: Thanks, Andrew. First, the FFA, if the FFA really reflects the market.

Michael Jorgensen: Yes, that's a good question. I think the FFA gives you an indication of where -- when you look at the FFA looking forward, it gives you a little bit about what's the expectations, what's the trend.

Of course, the FFA cannot predict where the market is. And especially for our Handy's, the liquidity of the FFA is not actually to make it a sort of a real indicator of where things are going. But it does give sort of a feeling of where we're going. Are we going up, going down in that market? I have not looked at how precise the FFAs have been in the past. But I think, I don't think anybody can predict the market, but the FFA at least gives us a feel for what is our customers and how is the market actually viewing the future in it.

In respect to the TCE tonnage. I think the information we provide if you gives you a good feel for -- gives you a correct picture of the days we are having -- that we have firm commitment to. And then, of course, there's a lot of optionality and other things into it. I think I don't know if that confuses a little bit, but we have -- we still have 5 ships. Those we took in 2022 that is actually ending now and the last ship is re-delivered here in September.

Maybe that's confusing it a little bit. But I'm sure we can clarify that dividend Andrew if you call Peter later. But I'm clearly sure the numbers we have provided provides a good picture of our third commitment to it, but not the optionality, of course.

Andrew Lee: Maybe are you expecting that next year's like total revenue days will be higher than this year? Or is the target to be flat, higher, lower?

Martin Fruergaard: Well, I think when you look at the -- that's a good question. I think the I think it's going to be -- it depends, of course, what happens and what we're doing and if we buy second-hand.

But when we look at the moment at it, I would say it's going to probably be similar as today because we might do some purchase options, but these purchase options, of course, still core ships that we had in the fleet already. Sorry, and of course, the operating part, but you're talking about the core fleet, I think the operating part, we definitely hope that's going to be bigger, and also the margin is going to be better on that part. But for the core fleet, as I think we have shown you what new buildings we have coming. And of course, we have some ships that also comes off of charter, and especially the 5 1, if you look at the average cost on the Ultra Supramax, there's 5 ships coming off there, they will actually reduce the average cost of our Supramax fleet. So we have to get rid of those.

And they might be replaced by some purchase options and other things we do.

Operator: Our next question comes from Nathan Gee.

Nathan Gee: Just a follow-up just in terms of shareholder returns. So I just want to understand, is there still room for a special dividend in the second half? And the reason I'm asking the $40 million buyback looks a pretty substantial chunk of potential full year profit. So just help us understand, is that still scope for special?

Martin Fruergaard: Yes.

So Nathan, as always, my excuse is that it's a core decision of the Board in that way. But I think what we've done so far, 50% now is actually in line with what we did last year. And I think what we want to see is how -- we want to see how the rest of the year is going. We have basically no debt, and we are generating quite a good cash because our cash breakeven is $5,000. So that looks very positive.

Let's see what happens the rest of the year. We would actually love to acquire things and grow our business and so on. But it's clear, if we can't do that and can't find attractive value-adding investments, then I'm sure we'll have to look at how to distribute in line with our distribution policy. That's at least 50%, but let's see how that ends up.

Operator: As there are no further questions, we will now begin closing remarks.

Please go ahead, Mr. Martin Fruergaard.

Martin 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, and goodbye.

Operator: This concludes our conference call. Thank you for all attending.