Pacific Basin Shipping Ltd
HKEX:2343
Earnings Call Analysis
Q2-2023 Analysis
Pacific Basin Shipping Ltd
In the midst of a fluctuating market, the company has managed to produce solid financial results in the first half of 2023, with an underlying profit of $76 million and a net profit of $85 million, built upon an EBITDA of $189 million. Solidifying its efficiency, the return on equity reached an annualized 9%, and a basic EPS of Hong Kong dollar 12.9 cents was achieved.
The company's operational prowess is evident in both the Handysize and Supramax vessel categories, where they surpassed industry benchmarks by $4,390 and $3,770 per day, respectively. This success translated to a net operating margin of $1,550 per day across 11,000 operating days, reflecting a robust and efficient business model.
Expanding its fleet strategically, the company welcomed seven new vessels into its core fleet and initiated long-term time charters for three state-of-the-art Japanese-built Handysize newbuildings, two of which are slated for delivery in the latter half of 2023. Progressing on sustainable development goals, the company expects to be ready to contract its first generation of zero-emission dual-fuel newbuildings by the end of 2024, well ahead of the 2030 target.
Despite aggressive expansion and shareholder rewards, the company maintained a disciplined financial approach. Their net borrowings have been reduced by net repayments of $38 million, contributing to a well-balanced liquidity of $375 million, with a low net gearing of 7%. A noteworthy total of 65 vessels in the company's fleet now remain unencumbered, unpinned by prudent financial management.
The company marked an operating cash inflow of $150 million for the period, indicating strong cash management even when compared with the previous year's $486 million. Capital expenditures were $210 million, attributed primarily to fleet investments, and are expected to be approximately $60 million for the remainder of 2023, directed towards maintenance and regulatory compliance upgrades excluding further vessel purchases.
Economic uncertainty looms, with the threat of recession posing challenges for short-term global dry bulk demand, potentially dampening freight rates throughout 2023. However, long-term forecasts remain positive as the company prepares for a boost in dry bulk demand propelled by global infrastructure development, particularly in emerging markets, and stricter environmental regulations expected to keep new vessel orders in check. With new building prices elevated and the dry bulk order book at historically low levels, the company is positioning itself to generate sustainable earnings in the long run.
An interim dividend has been declared at 6.5 Hong Kong cents per share, totaling $43.7 million, which accounts for 51% of the net profit for the period. This reflects the company's commitment to a consistent distribution policy and an expression of confidence in the strength of the balance sheet amidst fluctuating global dry bulk demand and freight rates.
Considering the revised and ambitious greenhouse gas strategy by the International Maritime Organization, targeting net-zero emissions by around 2050, the company is actively participating in the inevitable green transition of maritime shipping. They remain focused on developing designs for zero emission vessels, which would fit into a future where international shipping moves towards sustainability.
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Welcome to today's Pacific Basin 2023 Interim Results Announcement Call. I'm pleased to present Chief Executive Officer, Mr. Martin Fruergaard and Chief Financial Officer, Mr. Michael Jorgensen. For the first part of this call, all participants will be in listen-only mode and afterwards there would be question-and-answer session.
Mr. Fruergaard, please begin.
Thank you. Welcome ladies and gentlemen and thank you for attending Pacific Basin’s 2023 Interim Results earnings call. My name is Martin Fruergaard, CEO of Pacific Basin, and I am pleased to have our new CFO, Michael Jorgensen, with me today, who will speak later on the call. Assuming that you have already gone through the presentation, we will briefly highlight some of the key points discussed in it before we proceed with the Q&A session.
Please turn to slide 3. I am pleased to report that in the first half of 2023, we generated underlying profit of $76 million, a net profit of $85 million and EBITDA of $189 million. This yielded a return on equity of 9% annualized, with basic EPS of Hong Kong dollar 12.9 cents. Our large core business generated $96 million before overheads despite the weak freight market, while our operating activity which includes vessels chartered in for less than 12 months, contributed $17 million, having generated a margin of $1,550 net per day over 11,000 operating days. We continue to maintain a healthy financial position with available committed liquidity of $375 million and net gearing of 7%, as we continued to expand our owned fleet over the period. Additionally, we have increased our list of unencumbered vessels, with 65 currently unmortgaged. The Board has declared an interim dividend of 6.5 Hong Kong cents per share, amounting to a total of $43.7 million, which represents 51% of our net profit for the period. This decision is consistent with our distribution policy and reflects our confidence in our strong balance sheet, despite the current uncertainty surrounding global dry bulk demand and freight rates, which continues to impact our industry.
Please turn to slide 4. In the first half of the year, average market spot freight rates for Handysize and Supramax were $8,640 and $9,930 net per day respectively. Despite increased dry bulk demand overall in the first half, freight rates were under considerable pressure due to the unwinding of congestion that increased effective supply. Looking ahead, we expect grain activity to increase with the onset of the East Coast South America and US Gulf grain seasons, while China’s reopening has helped dry bulk demand, additional stimulus would be needed to boost demand further.
Please turn to slide 5. Global dry bulk loading volumes grew approximately 2% year-on-year, mainly due to China reopening which increased demand for both coal and iron ore. Minor bulk loadings decreased 0.1% in the period, due to reduced loadings of cement and clinker, forest products and alumina; however, there was an 8% increase in bauxite loadings primarily from Guinea and despite an export ban in Indonesia starting from June 2023. Grain loadings decreased by 3% year-on-year, primarily due to reduced grain export from Argentina caused by drought. In the United States, adverse weather conditions and logistical problems led to higher costs for transporting grain on the Mississippi River, which made US grain prices uncompetitive, reducing grain export during the first half of 2023. Despite delays in the harvest and export process, Brazil was able to export a record amount of grain. On the other hand, coal loadings increased 6% year-on-year, largely because of the low base created by the temporary Indonesian coal export ban in January 2022 and record China imports. Iron ore loadings increased 3% year-on-year due to beneficial weather conditions in both Australia and Brazil, as well as increased demand in China as economic activity increased post-Covid.
Please turn to slide 6. Our core business generated average Handysize and Supramax daily TCE earnings of $13,030 and $13,700 net per day respectively in the first half of 2023, which is a decrease of 51% and 60% compared to the very strong first half of 2022. For the third quarter, we have covered 82% and 92% of our committed vessel days for Handysize and Supramax at $9,800 and $12,700 net per day respectively. For the second half of 2023, we currently have cover for 57% and 72% of our core vessel days for Handysize and Supramax at $10,000 and $12,770 net per day respectively. Current Forward Freight Agreements, commonly referred to as FFAs, for Q4 are at $9,180 and $10,710 per day for Handysize and Supramax respectively.
Please turn to slide 7. In the first half, both our Handysize and our Supramax delivered an exceptional performance and we outperformed the indices by $4,390 per day and $3,770 per day respectively. Handysize and Supramax vessels have outperformed the index over the last seven and eight quarters respectively. The Supramax outperformance benefited from the 33 scrubbers installed across our core-owned fleet, with scrubbers contributing $1,050 per day to our outperformance over the period. The current value of Supramax scrubber benefits is approximately $610 per day. Our operating activity generated a positive margin of $1,550 net per day over 11,000 operating days. Operating days increased 20% compared to the same period last year. Operating activity margins benefitted from the re-delivery of more expensive short-term time charter in vessels from previous periods.
Please turn to slide 8. Our Handysize owned vessel costs have decreased mainly due to lower crew repatriation costs as Covid-related controls have been relaxed. We continue to improve our cost competitiveness with our indicative owned fleet cash breakeven level reducing to $4,920 per day. Please turn to slide 9. Despite the increase in costs on a small number of long-term chartered vessels, our blended Supramax costs remain cost competitive. We continue to maintain our cost competitiveness with our indicative owned fleet cash breakeven level reducing to $5,010 per day.
Please turn to slide 10. During the period we continued to grow and renew our fleet. Specifically, at the beginning of the year, we capitalized on Supramax vessel values which softened due to market weakness, allowing us to make counter cyclical purchases. Meanwhile, we continued to also focus on selling smaller, older Handysize vessels during the period. We acquired five Ultramax vessels, one Supramax vessel, and one Handysize vessel, with all vessels delivered into our core fleet. We sold two Handysize vessels over the period, with both now being delivered. We received the first of three Japanese-built 40,000 deadweight ton Handysize new buildings to our core fleet through long-term time charters, and expect the remaining two to be delivered in the second-half. Including all currently agreed sales and purchases, our fleet consists of 120 owned Handysize and Supramax vessels and, including chartered ships, we have over 280 vessels on the water. We continue to progress with the design of methanol-fuelled zero-emission vessels in collaboration with our two Japanese partners. We expect to be ready to contract our first generation dual-fuel zero-emission new buildings by the end of 2024, with delivery expected to be well ahead of our original 2030 target.
I will now hand you over to Michael who will present the financials, and I will be back afterwards with outlook and strategy summaries.
Thank you very much Martin, and good evening ladies and gentleman. I am delighted to join Pacific Basin as its new CFO, and I am eager to engage with the investor and media community. Without further ado, let's dive into the next slide.
Please turn to slide 12 for an overview of our P&L. As you can see given our lower daily TCE earnings, both our underlying profit and EBITDA were lower, despite decreased owned vessel and chartered costs. Our G&A has decreased mainly due to lower discretionary remuneration provisions, given our result for the period. Below underlying profit, our net profit was further improved by gains on vessel disposals and our hedging portfolio. Please turn to slide 13. Our operating cash inflow for the period was $150 million, and that is inclusive of all long and short-term charter hire payments. This compares with $486 million in the first half of 2022. We had $43 million in proceeds from the sale of three smaller Handysize vessels and one Ultramax vessel which we delivered in the period.
CapEx spending remains well controlled, and for the first half 2023 totaled $210 million, of which we paid approximately $187 million for one second-hand Handysize, two second-hand Supramax, six second-hand Ultramax vessels, and around $22 million for dry dockings and Ballast Water Treatment Systems. We expect CapEx for 2023 to be approximately $60 million, predominately relating to dry dockings and Ballast Water Treatment Systems, and excluding any vessel purchases. We paid $174 million in dividends related to the 2022 final basic and special dividend of 26 Hong Kong cents per share we paid in May 2023. Our borrowings decreased due to net repayments of $38 million.
Please turn to slide 14. Despite significant shareholder distribution, we continue to maintain a healthy financial position with $375 million of available committed liquidity and have reduced debt while expanding our fleet. Our net borrowings now represent 7% of the net book value of our owned vessels, and as Martin previously mentioned, we have increased our list of unencumbered vessels, with 65 currently unmortgaged. Our goal going forward is to ensure that we maintain our strong available liquidity position for potential growth investments, while still providing returns to our shareholders through payment of dividends. We have a distribution policy of paying out at least 50% of annual net profits.
I will now hand you back to Martin for his outlook and strategy slides.
Thank you, Michael, Please turn to slide 16. China Covid-reopening policies are supporting dry bulk demand. Coal loadings to China increased over 70% year-on-year due to energy security concerns and low hydroelectric output, despite record domestic coal production. China has continued to import coal from Australia, but still relies heavily on Indonesia and Russia for its coal imports. China’s minor bulk demand increased 5% over the period, with the main minor bulks including bauxite, ores & concentrates and forest products. Please turn to slide 18.
High new building prices, uncertainty around emissions regulations and long delivery times of about three years have continued to discourage any significant new ship ordering over the period. First half 2023 new build ordering was down 18% compared to first half 2022, and the dry bulk order book is at near decades low of 7.4% of total fleet. World shipyard capacity remains limited, and well below peak capacity of 10 years ago, with the majority of incremental new shipyard capacity concentrated on higher margin non-dry bulk vessels. We continue to think that new building order will remain limited as designs for zero emission-capable vessels are developed over time.
Please turn to slide 19. In July, IMO adopted a revised and more ambitious greenhouse gas strategy with a goal for international shipping to achieve net-zero emissions by or around 2050, with indicative interim checkpoints. IMO’s target is therefore now aligned with our own net zero by 2050 target to which we committed in 2021. Initial targets will be a reduction of 20% of total emissions by 2030, and 70% reduction by 2040. These regulatory pressures are on the rise, and we expect new regulations to be introduced in the future. The consequence of de-carbonization regulations will result in the need for vessels to further reduce speeds over time and, in due course, for accelerated scrapping as older and less efficient vessels become no longer fit for trading. The low order book and efforts to reduce carbon intensity will potentially create a shortage of vessels and provide long-term structural undersupply to the market.
Please turn to slide 22. In the short term we believe that global dry bulk demand will continue to be impacted by higher interest rates, inflation and weaker global economic activity with the potential for a recession in some economies. While China’s reopening has helped dry bulk demand, additional stimulus would be needed to boost demand further. These headwinds will continue to have a negative effect on dry bulk freight rates in the short term and potentially for the remainder of 2023. In the longer term, we remain optimistic about the supportive fundamentals of our industry. Dry bulk demand is expected to be supported by substantial global infrastructure investment with a focus on emerging markets such as India and ASEAN countries, as well as concerns over food and energy security worldwide. Our view is that environmental regulations, both existing and upcoming, will deter excessive new vessel orders for some time and support dry bulk rates. We have a positive outlook on the future of the dry bulk market, and expect to generate more sustainable earnings in the long-term due to underlying demand and supply fundamentals. We are excited about the future of dry bulk shipping, supported by our modern fleet that can meet the diverse needs of our customers. Our staff operates globally with a local presence, which we utilize to drive insight and knowledge back into our business, so we can deliver the best service and access cargo opportunities.
Ladies and gentlemen, that concludes our 2023 interim results presentation. I will now hand over the call to our operator for Q&A.
We will now begin our Q&A session. [Operator Instructions] Our first question today is from Parash Jain. Parash, Please unmute yourself and go ahead with your question.
Lovely, thank you. Hello, Martin. Hi, Michael, welcome on board. Can you hear me well?
Yes, we can hear your Parash.
Lovely. I have two questions essentially. First to Martin, I mean, how do you see the second-hand vessel market at the moment? Shall we expect that your intensity in terms of acquiring the right type of vessels that you started at the start of the year will continue going into the second half, i.e. is there a CapEx target that we shall work around for the remainder of the year? And secondly, in terms of the operating costs, is it fair to assume that we find the new normal in the first half? And if that's the case, then at your current rate, is it fair to assume that probably the second half profitability will be more around breakeven than anything else? Thank you.
So I guess the first question is about the CapEx and the development, the secondhand prices, if I understood the right, Parash.
Yes.
I think we have -- what we've seen actually is that in the first half and actually in the beginning of the year, there was a dip in the prices and that's actually when we bought and then we saw increases in the prices and if you look at license [Phonetic] numbers, I think we said 5% increase over the first half year in it and of course with the spot market at the moment, we of course sit and look a little bit at the second hand prices to see how that is developing. But you can say a modern nice ship is probably also held up a little bit by the replacement cost. So, the new building prices are still actually very, very -- actually, historically high. So, far modern ship, one thing is the spot market and other thing is, what is the replacement cost at the shipyards. We are still buyers of ships. We have bought earlier this year and probably at the moment we sit a little bit at the market and wait for if there's some good opportunities comes along during the year.
And then the second question was about the operating cost.
Yeah.
And I think as we said, our operating costs is -- we feel they are under control and you can say we are back to levels we saw before the COVID. Of course, during COVID, there was an increase -- some pressure on some of the OpEx costs but we have sort of -- we are on the way back to normal and, as we say, our cost breakeven is I would say industry low so we are in a in a very good position on that. And then you can say in respect to the market and what's the next six months going to do, I think, of course, we look at the FFA and as we say that the FFA looks actually like it's -- there is some expectations in the market that the rates will come up from where they are now. And I think there is of course some seasonal, which is quite normal in our marketplace, there is some seasonal changes, so normally third and fourth quarter is stronger than the summer market. So we are -- actually, that seems positive about the market that there will be some seasonal changes to it.
And one final question and I'll get back into the queue. Have you seen any short-term impact of the Black Sea grain trade, especially with Russia pulling out of the contract or is more of a -- more or less anonymous?
Yeah, it's a -- I think it would have been better if we don't have a conflict in Ukraine. I think that will be in many ways for everybody, but also for our market would probably be better. But I think the export out of Ukraine was always already down quite a bit. I think it's down to 1.5 million tons a month. So of course it has an impact but I think that 1.5 million tons can probably be replaced somewhere else and when that is done, then actually, I would say [Indiscernible]. So, I don't think it has any major impact on our business at the moment but of course, you can say they were plus 5 million tons a month before the invasion, before the war, and, of course, I'm not sure all of that has been replaced from other places. So, it would be nice if we could get back to that part but I don't think the last part -- it is not -- that it's not going to make a big difference at the moment.
Lovely. Thank you, gents. I'll get back into the queue. Thank you.
Thank you, Parash.
The next question comes from online. Can you provide your outlook on the minor bulk market in the second half and what are the expected drivers?
Yeah, I think we -- first of all, I think it's important to remember that actually the volumes and demand for first half has actually been quite stable for the dry cargo -- for the minor bulk segments. And also that China has come back after COVID has actually also been quite supportive for us but what's going to drive it going forward is of course, especially China, of course, that we see some of the subsidies that they're talking about that they actually come into play and that actually creates more activity around infrastructure and also about the property market in China. So, that is of course, also what has been talked about and, of course, also what we hope will happen. And then also I think it would be helpful if the US and Europe of course can come over the inflation pressure and hopefully we can see interest rate coming down again so we see further investments in some of the projects that we have seen.
In respect to minor bulk, we’re also quite optimistic in the sense of the green transition and the need for green fuels. We also think that will actually drive minor bulk demand for cement and steel and different minerals used in windmills and solar power and -- hopefully also in second half, but probably maybe a little bit more in the longer term for those things.
The next question coming from the online. What is management's rationale for the 50% dividend payout, down from 70% last year?
I think last year was a very exceptional year. And of course, I think our dividend at that time was also an exceptional year. I think we are now more back to a normal earning and I think the Board have also decided that looking at our strong balance sheet and liquidity and so on then that paying 51% here first half was prudent, so that's why -- so we are actually just back to our distribution policy.
Right. And the next question, when do you expect to see increased scrapping given current rates in the market today?
Well, I think we already see increased scrapping, it's still at a very low level but it's clear if the current market continues, I think people who has older ships that is due for drydock, they will probably reconsider a little bit. But we are still in a market where the outlook of the players or anybody’s outlook for the market is actually quite positive, maybe not for the short term, but for the longer term, so I think a lot of people still like to invest in the ships to keep them going. Have to remember that the order book is historically low, the new ordering is down every half year, so we are, in that sense, very positive about the supply-demand fundamentals going forward and I think that actually impacts people when they sit and look at the decision if to take the ship to drydock or send it to recycling.
But we have seen a little bit more activity in the scraping but I think there's potential for more. And also, please remember that you can probably postpone, you can go through one drydock and postpone your scrapping for one drydock during the cycle, which is about two and a half years, but when you have to do it again, it's going to be very difficult. So we are actually building up a fairly large pool of scrapping candidates, which at a certain stage, of course, has to go. So I think that's also actually positive for the market.
Another question coming. Can you give us an update on your zero emission vessel projects and when you expect to order and when will the market [Indiscernible] this? How long will these take to be built? And when do you expect the market and what costs to build these?
Yeah, first of all, our project with Mitsui and MSI is progressing as planned and we have now worked for more than a year with our partners. And we continue of course to develop the design and then, of course, try to make sure that the entire ship is zero emission vessel in it. So that's a project that is still ongoing, we are not ready at the moment to place an order but the project is moving forward as per plans and all partners are active in the project. I think we have said here in the presentation and we also said that, realistically, we should be able to order next year and of course it's also paid to market and price and so on. But I think if you order now that if you just order a normal ship today, you will probably get delivery if you're lucky in 2026. And I think if we next year order any ship but also a zero emission ship it will probably be 2027 and maybe even 2028.
So there is no way at the moment that you can get early delivery and that has nothing to do with your order book for dry cargo ships but that is all the ships being ordered at the moment and I think at the moment there's a lot of tech has been being ordered at the yard, so the yards are actually quite full but the project is moving forward. Price of these things is still a little bit difficult to talk about in it but I think it's fair to say that building the ship today at the yards is at historical high prices. So it's a --if you just disregard the zero emission part of it but just a normal ship, whatever ship it is, that the assets -- the prices at the yards are higher. That's also why I think people are little bit more worried about ordering new ships in the drag cargo segment.
[Operator Instructions] We currently have no other questions from the Zoom link. A question coming from online. Can you advise on CapEx forecast 2023 and, given high secondhand prices, what is management's focus on returning cash to shareholders?
Yeah, I think I can reply a little bit on our CapEx. Our CapEx for 2023, we expect CapEx to be around $60 million for the ones that are not confirmed yet, ship sales and so on. If there's more, you can say purchase of ships, that will, of course, increase our CapEx program. But we have not committed any CapEx right now for second half. So that's our best view out right now. And I think also for the year overall, 2023, we will stick to the dividend policy that we have communicated earlier.
A second question coming. Besides China, are there any other drivers that you've received to improve the rates in the second half, given where we are in the market today? And does Pacific Basin use biofuels on any of their vessels currently? And where would you progress in terms of sourcing these biofuels?
If we take the last one, the biofuels, yes, we have. We have tested and completed -- completed a test. So we have run biofuel on one of our ships and we know we are capable of doing so. It's not something that we have -- we do have no major commitment into that but of course, it's something we evaluate also in respect to the EU ETS that is starting next year. So of course, it's something that we constantly evaluate to see if that's the right way forward in it. And the second question was?
In terms of where the drivers are in the market besides China?
First of all, I think -- we think China, of course, is probably where we see the biggest opportunity of upside. Remember, China is still 40% of the drybulk market and therefore we see them coming back after COVID. I think we all have expected it will grow faster. I think the learning is it just takes a little bit more time. Also with the subsidies, it's not something you just do overnight. But, all the signals that we hear from China, also from the government is of course, that they will progress with those things, so, in that sense, we were quite positive about that part.
On the other hand, I would also say that Southeast Asia, India, these countries actually still continue to have good growth and good activity level. And that has actually benefited us on the minor bulk side. And I would also say that the US, even though, of course, there is an attempt to try to put the brakes on the economy and get the inflation down, they aren’t still quite exit and things like cement and linkers and construction material still continues to flow quite actively into to the US. But it's true I think that the biggest upside drivers should be China. And let's also see how things are landed in the US and Europe but I also think there is an upside on that but if that impact us here in second half and let's see but hopefully we are getting to an end of the interest rate increases and maybe see some improvement. We have seen that the stock market is improving around the world, so I guess that's an indicator that things are maybe about to turn.
We have another question from Parash Jain. Parash, please unmute yourself and go ahead with your question.
Yeah. Martin, I have two questions, if I may. First of all, can you remind us was the current scrubber premium your scrubber fitted vessels are enjoying and with the current grain trade gravitating towards P&L cost, are you seeing that the scrubber fitted Supra will invariably put pressure on a scrubber fitted Handysize vessels, given the price differential? And my second question is that, have your team done some on the back of the envelope calculation of potential impact of EU ETS next year and fuel EU the year after? Thank you.
I'm not sure I got the full question of the scrubbers but I'll just try to. So I think, as we also said, first half the scrubbers have -- 33 ships that we have scrubbers on, they have contributed with $1,050 on average for all Supra and Ultramaxes and I think that's 50 ships. And if you look at how much do they contribute at the moment, they will contribute around $640 per day, not just for the ships, which is robust, but for the entire -- our entire Supramax, Ultramax fleet divided over them. So you can see that if you go in and look at the ship with a scrubber, it's probably around $1,000 or a little bit less at the moment. You can say the spread is, I wouldn't say low, but it's lower than it was a year ago.
And the second question was, yeah, EU ETS, yes, we are -- of course, we have already -- we are already doing this for next year into Europe and, of course, in that respect, so we are absolutely ready to do that and we already doing the calculations and setting ourselves up to buy these ETS. So that's already been done. So the deals we've done already for next year into Europe, includes the ETS in it, and at the moment we about to set ourselves up. I wouldn't say -- well, maybe it's wrong to say it's complicated, but it takes a bit of time to get the setup right practically in Europe but we're doing that and we are absolutely ready for next year to do that. I was saying now EU will start and US has also started talking about it and about having similar things. I wouldn't say -- it's actually complicating things somewhat but on the other hand, I think -- we think it's good that we get started getting these rules [Phonetic] in but it does actually complicate things somewhat, it does require a little bit of resources to get those things right.
Okay. Can you share what percentage of your, I don't know, revenue days or capacity of the fleet is spend time in a Europe water, on an year basis?
I don't remember the exact number. It was in the book material, but on reservation vessel, but I think it's less than 10% I think that we have but we will get to that, but it's not a major thing but our trading pattern is quite dense around the world. So I think it's less than 10% that we are out of Europe but we will get the right number.
Yeah. No, that's great. I will probably get in touch with Peter. Thank you, Martin. Have a lovely day.
Thank you, Parash.
The next question is coming from online. Looking further into your cover in the second half, how are you utilizing cover in this low rate environment?
Have you used the cover in but I think of course cover in a low market that you can say for the first half part of the success is of course that we had good cover coming in to the market. And we of course continue to have very good cover for second half. However, we of course will have some open days, also, because we can see that there are some expectations that the market will improve at least by fourth quarter. And I think with our fleet and size, and so on, we have been able to optimize and improve the results, so you can say when you look at our contract cover, that's the starting point and, hopefully, as we have done again and again, we are able to optimize and get a little bit more out of the business than is in the numbers. So that's how we use it. And of course, we have taken some cover, as we could see, probably the market wouldn't recover as quickly as we originally had expected. I hope that answered that question.
Another question coming from the online systems. What is the impact that IMR’s new zero emissions by 2050 means vessel speeds, scrapping and supply going forward?
As we said, we already had our own target was zero by 2050 but I think it's a very positive thing that IMO comes out and say, now it's zero by 2050. And of course, that is a strengthening of the rule, so that the demand is becoming bigger. We still have to see how IMO will enforce these rules which I think we will know in 2025. So there's no doubt that depending on how they're going to enforce it, there's no doubt that this will have an impact on the speed of the ships, we can already see that. If you look from now to 2030, we will have to reduce the speed of the ships. Already doing it because we have a environment with quite high oil prices and low market, so we already slow steaming but I think that has to continue because as the rules will get at the moment and what it absolutely will do within the next three, four years is that we -- four, five years is that we are not able to increase the speed because of the rules. And I think after 2030, as the rules are now, we'll definitely see lower speeds -- the reduction of the speed of the ships that will take supply away and it will make it very difficult for some of the ships who are older and less efficient, it will be very difficult for them to keep trading. So I think that -- we are actually quite positive about IMO and how they have changed the rules and we think it's absolutely correct that we need to be zero by 2050. Now I think the pressure is on them on how they're going to enforce the rules, so that we all understand exactly how to deal with that, so we look forward to that by 2025.
We have another crest question from Parash Jain. Parash, please go ahead, unmute yourself and ask your question. Apologies, it looks like Parash has dropped off the call. [Operator Instructions] It looks like we have no other questions for this time. We'll now begin closing remarks. Please go ahead Mr. Martin Fruergaard.
Thank you. I’d like to thank you again for joining us today and for your continued support of Pacific Basin. If you have any further questions, please contact Peter Budd from our Investor Relations department. Thank you and goodbye.