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DHT Holdings Inc
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Good day and welcome to the DHT Holdings, Fourth Quarter Earnings Call. Today’s conference is being recorded.
I would now like to turn the conference over to Eirik Uboe. Please go ahead, sir.
Thank you. Before we get started with today’s call, I would like to make the following remarks. A replay of this conference call will be made available at our Web site dhtankers.com through February 13, 2018. In addition, our earnings press release will be available on our Web site and on the SEC’s EDGAR system as an exhibit to our Form 6-K.
As a reminder, on this conference call, we will discuss matters that are forward-looking in nature. These forward-looking statements are based on our current expectations about future events including DHT’s prospects, dividends, share repurchases, and debt repayment, the outlook for the tanker markets in general, daily charter hire rates and vessel utilization, forecast of world economic activity, oil prices and oil trading patterns, anticipated levels of new building and scrapping and projected dry-dock schedules. Actual results may differ materially from the expectations reflected in these forward-looking statements. We urge you to read our periodic reports available on our Web site and on the SEC’s EDGAR system including the risk factors in these reports for more information regarding risks that we face.
I’m joined today by DHT’s Co-CEOs Svein Moxnes Harfjeld and Trygve Munthe.
And with that, I will turn the call over to Trygve Munthe.
Thank you, Eirik. Good morning and good afternoon everyone and thank you for joining the DHT fourth quarter 2017 earnings call. Before we open-up for your questions, we will go through a presentation highlighting the key issues in the quarter. In addition, we will give you a brief refresher on our strategy, and highlight some of the key market drivers currently at work in the large tanker market.
The fourth quarter was unusual and disappointing in VLCC market. Towards the end of the third quarter and into the fourth, we saw indications of a normal seasonal upswing in the VLCC freight market. Unfortunately, this freight recovery faded quite rapidly as we witnessed a market slowdown in the amount of cargoes being tendered in the Middle East in particular. List of available tonnage grew longer and too long to allow the market to recover once the fixing activity go back to more normal levels.
So, then, to the quarterly highlights. We generated an EBITDA of $33.5 million in the quarter, resulting in a net loss of $7.5 million, equal to $0.05 per share. Adjusted for impairment of $1.1 million and loss in sale of vessels of $3.3 million, adjusted earnings per share came in at a negative $0.02. Our VLCC earnings came in at $23,200 per day of which the spot ships earned $19,600 per day.
As of today, we’ve 60% of our first quarter '18 spot days at the rate of $20,000 per day. During the quarter, we fixed two additional VLCCs on 12 month time charters. Both the charters have base rates around cash breakeven levels with profit-sharing on top, and there are no options attached to the charters. Following these new time charters about a quarter of our 2018 VLCC base are covered.
Then on to the income statement. I have already mentioned EBITDA and net income for the quarter. In addition, you should note that VLCC OpEx for the year came in at $7,800 per day. G&A for the fourth quarter was unusually low. The main reason for this is a part reversal of accruals for performance-based compensation.
For the full-year, we generated $152 million of EBITDA and net profit of $6.6 million. Adjusted for the non-cash impairment charge and loss on sale of vessels, the bottom-line came in with a profit of $18.7 million.
And as you've already seen we will pay a cash dividend of $0.02 two cents per share for the quarter. This exceeds our capital allocation policy of 60% of ordinary net income and in March the 32 consecutive quarterly dividends for DHT shareholders.
Let us then turn to the balance sheet. We continue to enjoy a healthy balance sheet. We would like to highlight the following. First, at year end we had cash of $77.3 million. Additionally, we have $45 million available under our revolving credit facility.
Second, leverage is moderate with interest-bearing debt to total assets at 50% based on market values for the ships. And third, during the year, we’ve repaid $124 million of debt, 46% of it through ordinary scheduled repayments, 40% related to sale of vessels, and 14% through buybacks or convertible bond.
As you know, we are to take delivery of four new buildings over the two coming quarters. Remaining CapEx net of borrowings amounted $40 million, with $16.5 million due in the first quarter this year and net cash inflow of $9.2 million in the second quarter, and the balance of $33 million during the third quarter.
With respect to maintenance CapEx, we have a very light year. We’ve just taken the Aframax DHT Sophie through her third special survey, but have no further adoptings scheduled for 2018.
Next I’d like to take you through the cash flow highlights for the quarter. As you can see, we had positive cash flow from operations and as much as EBITDA cover full debt service maintenance CapEx and dividends. Further, net cash from sale of DHT Eagle and DHT Utah exceeded new building CapEx in the quarter. The third ship in the unblocked sales, the DHT Utik was delivered to its new owners on the 12th of January.
Net proceeds of $12.5 million from that sale is not included here, but will be part of the first quarter '18 accounts. Finally, changes in working capital consumed $18 million for the quarter. This was predominantly caused by increases in bunker inventories and receivables at the end of the quarter. This was a bit of an unfortunate combo with bunker bills just before year-end and receivables coming in just after New Year. Net receivables have since normalized.
And with that, I'd like to turn it over to Svein.
Thank you, Trygve. We will on the following slides provide you an update on how DHT is positioned. We own a large modern quality fleet of primarily VLCCs. The fleet consists of 23 VLCCs and two Aframaxes in the open. Additionally, we’ve 4 VLCC new buildings, except for delivery during the coming two quarters.
Our VLCC fleet is modern with an average age of 6.3 years and enjoys a healthy age distribution with more than 50% considered Eco through competitive fuel economics. 14 of our VLCCs have Ballast Water Treatment plants installed. The remaining part of our VLCC fleet has been ground to the extensions, resulting in [indiscernible] dates between 2022 and 2024.
As Trygve mentioned, 24% of our VLCC fleet is sometime chartered for 2018. Five of the charters are of 12 months duration with no options and with base rate in line with our cash breakeven levels, complemented by additional tranches of profit or profit-sharing due to us.
The fixed time charter runs until 2021 with a base rate of $40,000 per day, plus a profit-sharing structure. We have a solid track record and this slide illustrates our discipline in pursuing our strategy and doing what we’ve said we were going to do.
Between the third quarter of 2013 and second quarter of 2014, we acquired 16 VLCCs in anticipation of a market recovery. The acquisitions consisted of the first secondhand assets, new buildings, as well as M&A. During 2015 and 2016, a period of healthy earnings, we did a number of things.
We paid a total number of $1.40 per share in cash dividends and used additional cash flows to prepay some $121 million in bank debt. We also took advantage of the markets by securing or extending a 11 time charter contracts. Lastly, we repurchased about a third of our convertible bond at a discount.
During the second half of 2016, we had some record identifying 2017 as a potentially interesting year for growth. We executed on this by contracting 2 VLCCS in January 2017 at very competitive terms and importantly acquired BW Groups in 11 strong VLCC fleet during the first half of that year, resulting in a 50% expansion at what was accretive terms for DHT shareholders.
We take the liberty to suggest that you should expect a continued disciplined execution as the market evolves over time. As we’ve stated time and time again, our focus on robust cash breakeven levels both dwell in the highly cyclical and volatile nature of our industry. We estimate that our spot VLCCs need to earn about $19,200 per day during 2018 in order to cover OpEx, interest, debt amortization, G&A and maintenance CapEx.
Importantly, as cash breakeven seems to mean different things to different people, our cash breakeven includes debt amortization of some $6,500 per day for the VLCCs totaling $59 million for the year. The growth [indiscernible] () our 2018 spot cash breakeven level in historical perspective. Annual averages have only 3x times since year 2000, been as low as VLCC's cash breakeven levels for 2018. We believe this to be very competitive.
Following on from our focus on protecting the downside, we’ve still retained plenty of upside participation. On this slide, the Y axis illustrates estimated annual EBITDA of 29 teams. And the X axis daily earnings per ship per day. The orange dots indicates annual EBITDA at different market levels in $10,000 per day intervals.
We have further made an illustration of what annual EBITDA in 2019 could be assuming market levels equivalent to 2015. We apologize for some confusion here on the slide deck. So as you see in here, we’ve further made an illustration of what annual EBITDA in 2019 could be assuming market levels equivalent to 2015. That illustrative EBITDA is an excess of our to our current market capped underscoring the operational leverage in DHT.
Continuing on the topic of upside potential. We are on this slide comparing our current NAV to our current share price and NAV based on its cycle values. The NAV is calculated using our year-end balance sheet and the prime ship values from Clarksons. We are illustrating what prime ship values are at the three different share prices.
Clarksons, the world's largest ship broker is currently valuing a resale at $84 million, a 5-year old at $63 million and a 10-year at $40 million. This is in stark contrast to the implies of the corresponding ship values in our current share price reflecting a 15% discount to the estimated market prices for our ships.
Asset values have appreciated over the nine months or so, although modestly. It seems that asset prices bottomed out last year and we’ve seen an increasing buying interest for VLCCs, especially in the seventh or eighth year or younger category. The leading shipyards are now fully committed for 2019 and have consequently revised their prices upwards. For your easy reference, a 10% change in vessel values equal to a $1.11 per share change in VLCCs NAV.
I then hand it back to Trygve for some discussion on the market.
Thank you. Let me now walk you through three quick slides to point out what we think are the key drivers for the freight market in the near to medium term. First, on the demand side, we'd like to highlight that global demand for oil is robust and is growing.
It should come at no surprise to anyone that the main engines of growth are China, India, and Southeast Asia. And importantly, all of these regions need to import oil in order to meet the increasing demand. This bodes well for the freight market. Further, the increased export of U.S crude is becoming an important factor in the tanker market.
We now see VLCCs ballasting from the Far East to load cargoes in the U.S Gulf, the fact that it would've been completely incomprehensible just a few years ago. And of course this consume significant tanker capacity and is therefore a positive for the tanker market.
But the main headache in the near-term is and it has been for some time the oil inventory cycle. This graph shows you how the inventory cycle has been driven by OPEC actions. In November 2014, OPEC announced an effort to defend market share. This led to the oil price collapse and to a significant inventory buildup. Then in November of 2016, OPEC reverse course and agree with certain other countries to curb production and will be in an inventory drawdown phase since then.
And if you add VLCCs spot rates to the graph -- apologies for a little technical glitch. There we go. And if you add VLCC spot rates to the graph, you see a pretty good correlation between the tanker market and the inventory cycle. Last year the wells consumed 800,000 barrels per day from inventory and this is of course -- and this of course has being held in the freight markets.
But the good news is that we're making meaningful progress towards the alleged goal of getting inventories back to five years historic averages. It is certainly been a tough period for tanker owners that we eye an end into the inventory drawdown phase in the not too distant future.
Finally, on the supply side, we see positive developments in the making. Last year we saw a significant increase in scrapping. We sold 14 VLCCs going to the breakers compared to just two in each of the two preceding years and the trend seems to continue. Just in January this year, we’ve seen five VLCCs committed to recycling. But even more encouraging is the accelerating replacement needs over the coming years.
As you will see from the graph on the right, the number of VLCCs turning 20 will increase dramatically in the next couple of years. Last year it was eight ships. Next year it is 19 ships and in 2020 a full 37 VLCCs will phase there for the special survey. And we expect that many, if not, most of these ships will retire from the trading fleet.
So in sum, as we’ve stated before, we are currently being hit from both sides. Demand for tanker transportation is hit by inventory draw downs and on the supply side we're hit by deliveries on new buildings exceeding retirements of older ships. However, at some point in a not-too-distant future, we hope and expect both of these forces to reverse and that the tanker market will be pushed to the upside for both the demand and supply side.
And with that, we are ready to take your questions. Operator?
Thank you, sir. [Operator Instructions] And now we will take our first question from the queue of Spiro Dounis from UBS Securities. Please go ahead. Your line is now open.
Hey, good morning, Trygve. Hey, Svein. Thanks for taking the question. Just wanted to start off with the new time charters which I guess are rare thing just being today's market. And just given your comments that you expect things in a not-too-distant future, maybe turnaround or improved. Can you just provide us some color on what the driver was behind chartering right here and maybe what we can expect in terms of additional charters for the rest of the year?
I know in general, there is very little liquidity in the two time charter markets. Importantly, the structure of these charters reflects our general thinking in DHT. They offer some protection to the downside, yet they offer full participation, or if not full, plenty of participation on the upside. So the rates are fixed at around our cash breakeven levels. These charters typically have a free sum up to in the 30s, whereby we will participate with 100% of the earnings. And then with a 50-50 profit sharing above that. And keep in mind that these charters are for 12 months only and we do think they offer some good downside protection for these here. There are no options to these charters and we are not being willing to entertain charters that are one plus one plus one years in the 20s and giving away upside as such. So to the extent we can do more of these is difficult to say, but again the liquidity is very thin in the term market in general.
Understood. I appreciate the color. And then just turning to the dividend, could you maybe remind us again how you view that? I think it's been a few quarters now where you sort of paid out that $0.02 level despite as you noted earlier that being outside your payout policy. Should we view that as basically the unofficial floor? At one point you just make that official and then sort of tagging on to that. Why is she buying back your shares at today’s prices, not a better use of that cash?
Spiro, I think the key word here is least 60%. So the Board has elected this occasion and also the prior quarter to exceed and I think call 60% of net income. Although it's quite a nominal number just $0.02 a share, but that’s what they’ve elected to do. And when you look at dividends compared to buybacks, I think this total is $2.8 million and that really is not a meaningful buyback, that type of amount and that’s part of the reason why we’re focused on dividends rather than buybacks.
Yes. That’s a fair point. I will back in queue. Thanks, guys.
Thank you.
Thank you. And now we will take our next question from the queue Jon Chappell from Evercore. Please go ahead. Your line is now open.
Thank you. Good afternoon. Svein, you mentioned that 2017 was an interesting year for acquisitions and you certainly acted on that. How do you view 2018? In one regard, the market is obviously much more difficult to difficulties tend to breed opportunity, but at the same time it is much poorer market than was in 2017 and it seems at least with the time charter strategy you’re kind of preparing for the worse this year. Are there opportunities for you to continue to add at the bottom of the cycle this year or is it more about playing defense in 2018?
Firstly on from a asset price perspective, it has moved sideways. It's not marginally upward. It seems we have made our acquisitions last year. But I think from a DHT standpoint, our balance sheet does not allow us to really make any growth efforts this year. And our share price is well below NAV. So as such it’s not the currency that we intent to use and that would not be accretive to our shareholders and as such we will not do it. So I think one of these things have to change unless you can do, say a share per share transaction and very share pricing NAV to NAV, then we do not expect any growth until these things change.
That makes sense. And then just a follow-up, you’re one of the few companies that actually publishes a -- an NAV, and I don’t know it's that’s going to be consistent or if it's just given the widespread right now, the discounts huge, obviously turmoil in the markets making it bigger by the day, it seems. As you mentioned, balance sheet is not exactly there for a lot of liquidity, but you do have some credit remaining on your facility, I think you said $45 million. It seems like an interesting arm opportunity to take some cheap leverage, especially given that you're only 50% levered right now to market values to buy back your stock. Is that something you'd consider in this type of broader market turmoil?
I think as we alluded to the development in the -- from the mid fourth quarter onwards took us quite frankly by a little surprise. And I think in this environment we really want to play for the conservative and preserve over financial muscle and until we get a clear picture of how long this downturn is going to last.
Okay. Understood. Thank you.
Thank you. And now we will take our next question from the queue Fotis Giannakoulis from Morgan Stanley. Please go ahead. Your line is now open.
Yes. Hello, guys and thank you. I would like to follow-up on Jon's question on your NAV slide. You obviously trade at a steep discount, the value of your fleet. What are the measures that you are considering of taking to try to close this valuation gap? And if you can also comment how much excess liquidity do you think that you have that can be used for corporate taxes, perhaps share buybacks or any other transactions that will increase your stock price and bring it in line with your -- with a value of your fleet?
Well, I think the general effort that we will make is, what we’re partly doing on this call, we will try to illustrate to the market in general terms, how we’ve protected the downside in our business, yet there is plenty of upside and call it price dislocation. But I think everybody knows that this is not DHT specific. Our industry at large is currently trading at discounts to the underlying values. And I guess the current turmoil is adding some more paint to that. But I guess, if history is anything to go by and with the inflection point down the line as Trygve talked about, capital markets have the tendency of -- kind of moving ahead of events taking place. We have experienced quite a bit of incoming interest for calls and meetings from investors. A combination of both new investors and investors that we have met in the past, that are starting to do work on the tanker sector. And I guess, you guys as analysts must be seeing the same. So I think one could be -- one should expect at some point that the industry community in general will look at this space and pick the companies with good balance sheets and where kind of potential dilution is not there or at least to minimize, and picked these companies as the winners.
So as far as the second part of your question on the firepower, I think, of course, with a moderate leverage we have we could potentially lever up some. But it really slides in the face of our desire to have a competitive cash breakeven and we think where we’re today is where we need to be in this part of the cycle. So it's -- we don’t think it's very likely that we will lever to buy cheap assets at this point.
Thank you, both. I’d like to focus a little bit more on the drivers of recovery. You obviously mentioned the end of a destocking that -- at some point is going to come. I also want to ask about U.S exports. How do you view them developing and how -- your activity has changed? Do you see more demand for VLCCs through reverse lightering to export crude out of the U.S? And what is your outlook about the U.S exports in the next couple of years?
I think you saw from our slide deck that there has been a marked pickup in exports in total and certainly in amount of VLCCs loading in the Gulf and part of it is by lightering and as you alluded to. Going forward, it is -- it seems to us that the main players in this are there to sell their domestic production on the international market. But of course its dependent on relative pricing between different types of groups. But having spoken to people on the ground in Texas and our impression is definitely that this trend is going to continue as U.S production is keep on climbing up.
And we also see people making investments in infrastructure to make logistics more competitive. So that’s another thing I think that they expect to stay in this business.
Can you remind us what is the incremental cost for loading a VLCC through reverse lightering? What is the burden of the reversal lightering and what kind of WTI brand spread do you think that we need to have in order to see the continuing ramp up in U.S crude exports?
Fotis, I think there is other people that are more up-to-date figures for in terms of lightering costs today, but speaking from my own experience in this trade some years ago, it typically was $0.50 a barrel or something like that to do a proper lightering at that time and a reverse lightering I would imagine isn't very much different. And it could of course come and go a little bit with the general Aframax market in the region. But that’s just by $0.02 worth and as I said not very up-to-date.
Thank you very much. That has been very helpful.
Thank you.
Thank you. And now we take our next person from the queue, Herman Hildan from Clarkson. Please go ahead. Your line is now open.
Good afternoon, Svein and Trygve. I very much agree with your core perspective on the market. Just curious some and obviously I’m not sure if you’re going to answer this, but another way, exiting the typically strong part of area and we are looking at Q3, Q3 which particularly isn't the fun part of the tanker market. Kind of what’s your view on the potential strength in the VLCC. I think that’s something that’s acute for possibly in 2019. And then do you think that we can see some strength before that.
As we’ve said before, we think it's very hard to pinpoint when this is going to happen. But we’ve tried to position DHT, so that we are in good shape, whether it's happening very quickly or if it is going to be a couple of quarters down the road or more. So again its very much our strategy, protect your downside and don’t give away your upside. I think with 25% of the fleet on time charters with the base rate and profit sharing and the rest in the spot market. We have more than a -- plenty of upside participation. Yet, we maintain a very competitive cash break even. So we in all modesty do believe that DHT is well positioned for these uncertain times and we will not be standing as elusive or the market takes away in a month from now, or if it's going to be a year from now.
And if I may add to that. Some four weeks back we experienced rather quick bounce in this spot markets that we've probably only a couple of 2, 3 ships to fuel for some positions and spot market reacted by some -- almost 15 vertical points equivalent to about 10,000 today. That gain has since been lost, but I think it indicates that the underlying balance is now totally out of act. So it doesn’t take much to move the market either.
Yes very helpful. I appreciate that point. Also your guidance for Q1 '18, obviously you don’t know how the, I guess, , slightly higher but significantly lower share of the quarter being fixed. But what is a good spread to what the official rates are? Could you possibly provide some color? Obviously, bunker prices have moved up and that could happen parts of it, But there is still a pretty decent gap between what official, call it rates are on a run rate basis, and we actually to achieve. Have you kind of squeezed your feet towards the western markets or kind of how do you explain that difference?
I think some of the result areas that -- it really depends on your trading strategy for each quarter. But there is some component of triangulation in this. So a combination wise is that is serving as well. But I think it is important that the investors and analysts as well with get their performance over time. And we think to start off the first quarter as you say competitors top market, it's a good start for us. But it will be volatile. So it's hard to stay that you can do this quarter in --- quarter out every time. But I think if you look back since we started operating ourselves, our program -- our performance is not really standing back from any one.
Okay. Thank you. And my final question is on -- I mean it's the first time you really spend time talking about the NAV and obviously as you mentioned quite a few times, you’re well positioned with a strong balance sheet and low breakeven and fully capable of taking the [indiscernible] of your new builds. And still have quite an excessive margin, if you increase the undrawn demand from the revolving facility. When the market comes, if you fast forward what you see today in terms of pricing relative to underlying values, so had unexpected DHT is more likely to call it repurchase their own shares, until the evaluation in the stock market reflects then the quality of [indiscernible] value of the company or do you think it's where this is going to be cash payments to the extend they can actually make comments on the behalf of the Board, I guess.
I think it is going to one others boring answers to have on that. It's really is up to the Board, to decide on that. But we’re certainly very aware of the big discount to NAV and it's something that irritates us and we will do everything in our power to close the gap.
Thank you. Still I need to have. Thank you very much.
Thank you. And now we will our next person from the queue, James Jang from Maxim Group. Please go ahead. Your line is now open.
Good afternoon, gentlemen. Yes, most of my questions have been answered. I just had two quick ones. With the Euronav January merger, has there been any more increase into possible business combinations with DHT.
It’s only a rather modest part of the large tanking manager that is public. So as you’ve seen on our M&A efforts over the past couple of positive years. This has been bringing private fleets into the public domain through M&A. So it doesn’t necessarily have to be public efforts. So I think as we comment on that earlier what is restricting versus right now is that our share price, it’s not the currency that can be used to make accretive acquisitions.
Got you. And one on the chartering side, do you guys certainly consistently outperformed the spot rates, the quarter spot rates. Can you tell us where the fleet was trading in Q4? Was it more Caribbean based? But then you’re loading some Iran but what helped boost the rates?
In the fourth quarter we did not have much western cargoes. Our tactics was partly positioning the fleet for an anticipated upturn in the [indiscernible] market that didn’t happen. So as such rates were -- although they were better than maybe [indiscernible] it's not level where we’re delivering seen them, But I then we have a better start to their -- to the first quarter. So let's see how things will play out.
Okay. All right. Great. That’s all I have. Thanks, guys.
Thank you. And now we take our next person Noah Parquette from J.P. Morgan. Please go ahead. Your line is now open.
Great. Thank you. I wanted to ask with bunker prices going up from here. Can you a little bit about the spread you get on your eco-VLCCs versus your non eco-VLCCs? And if there is any sort of slowdown in related to balance sheet? Thanks.
To your first question, the eco fleets today is earning some $6,000, $6,500 premium over a standard type of VLCC that to it's kind of be 10 years old. If you like the average fleet is close to 10 years old. On the speed, we are trying to manage that as good as we can. So we only really control the balance sheet. So there we are slowing down to not kind of add too much waiting time and also of course to say bunker cost.
Okay. Thanks. And then, just a follow-up on what you mentioned about ships ballasting to U.S to pick up cargoes. How sensitive do you think that is to spot rates at $6,000 a day. Will that go away or is it profitable enough that you think that will be kind of a part of the market for the teacher.
I’m sorry, I didn’t get that full question. Could you please …?
How much -- we’ve been talking about ballasting from the far east to the U.S Gulf empty? How much of that is just a function of spot rates being where they’re. Do you think that’s sensitive to that or is it kind of the premium part of the market now.
I think when you trade a ship, you look at all your options and the way you can trade your ship and what you’re expected TCE level is. And there is no freight that we expect to get when we get to the Caribs or to the U.S and you look at that on around which basis compared to transmitting an AIG or doing all the types of combination. So we are going to West Africa. So if we get call on a regular basis and to what extend do you expect cargoes being available for your ship. So most of our kind of Atlantic to the far east trade has been in combination if the cargoes going west, but now you do see more cargoes heading east from the Americas. So there is an imbalance there. So some ships in empty, we will have to balance to pick up that Cargo?
Okay. That’s helpful. Thank you.
Thank you. And now we will take our next person from the queue Robert Silvera from R.E. Silvera and Associates Marine Surveyors. Please go ahead. Your line is now open?
First of all, let me thank you gentlemen for your conservative approach and your very China's part presentation of all the numbers. My questions are going to center around the rate premiums for newer ships versus the older ships. First of all, you have 6.3 years as your average age. Does that include the new builds that you will be launching during 2018?
Yes, and they’re accounted as zero years old this year.
Okay. So they’re part of the 6.3, Thank you. Now the rate premiums for new ships versus older ships, are you seeing that premium expand stay the same shrink, etcetera. And in your minds does that give some indication of what’s going on in the market as far as the near-term future?
I think there are two types of premiums. One is the premium that relates to the fuel efficiency that is better on newer ships, so they consume less bunker simply and that will impact your earnings. When you look at ships that are typically older and 15 years of age, there is more waiting time involved and less customers that can use your ships. So that as an added -- I mentioned if you like of increasing this spread between a very new and then an older ship.
Okay. Yes, so I realize that it can change the spread, but I’m asking you about what is the trend now? Do you see an increasing spread or is it basically staying consistent -- constant?
I think in a spot market it is important to recognize that its really driven by the cost of bunkers. So we under the eco ships you consume 20 tons or so less than on a commercial tanker. And as bunker prices go up, your savings or the delta increases. But if you’re referring to a period market, that’s a different type of premium and I hate to say, but I think the majority would really go to the time charter. And that’s quite frankly why we try to keep our eco ships in this spot market.
Great. Okay. Thank you and Thank you for doing such a good job as far as I’m concerned.
Thank you.
Operator
Thank you. Our next question from the queue is Richard Diamond from [indiscernible]. Please go ahead. Your line is now open.
Hi. This is really more about current markets. If the U.S, introduces sanctions on crude imports from Venezuela, how would that impact ton mile demand? I would assume it would increase, but I would enjoy your thoughts. Thank you.
I think we'd agree with you on that. If the Venezuelans were forced to leave the U.S market, they would have to sell their barrels elsewhere and it would be 9/10 longer transportation. And the U.S would need to substitute to the void after the then barrel. So I think, all in all that should be a positive for ton miles for the bunker bit.
Is it significant enough that it could tighten the market or would it just be additive on the margin? Thank you.
I think it will depends a bit on -- what type of crude the U.S refiners will substitute to Venezuela and imports with. So it is domestic crude. Then you will get lesser impact as of if it's being substitute to buy say Middle East and Group. So it depends really how old that plays out and it will be the spreads between the WTI and Brent and so forth, that will impact it. And I guess also what type of crude they can crack and it depends on the products that they want to -- the refined products that they want to sell. So if you get Venezuelan exports going [indiscernible] and the lack of Venezuelan imports being substituted from Middle East, of course that’s double positive in a way for the tanker market and we will certainly be positive.
Thank you very much.
Thank you. And now we will take our next person Spiro Dounis from UBS Securities. Please go ahead. Your line is now open.
Hey, hello again. Thanks for [indiscernible] back on. Just I did have some more questions and I wanted to get your updated views on IMO 2020? I think you’re a bit unique in your decision to have the new builds [indiscernible] scrubbers installed. So as Fotis referred, I think most owners are shying away from scrubbers, especially on the retrofit. So do you view that as part of the IMO2020 solution and would you consider retrofitting some of the older vessels and just some updated thoughts there would be great?
I think fundamentally we don’t think scrubbers is a long-term solution to the loss of regulation. But of course they could be an opportunity for a ship with an ideal dry dock position before this event maybe you can make a good pay back in a year or two. But this is really not high up in our agenda. We are of course looking at the cost and what it will take and so forth. But we expect the market really to consume compliant fuel and we understand from some of the larger refiners that they do have that fuel available and -- but it will have a price. So that’s really a game plan if you like and the cost of this we will have to be borne by the end users.
But at the same time, Spiro, we could -- one of the majors being in the market to take new builds, which scrubbers installed for the 3 year time charters and so forth. So somebody is concerned about the availability of compliant fuel and are they actually take ships with scrubbers at this point.
That’s interesting. Have you reached out to a lot of your shorter counter parties to run through this and sort of make them where the fact that ultimately they’re going to sort of bear this cost and what sort of reactions have you -- you’ve gotten so far?
Of course we’ve made our customers aware that we have ships coming with scrubbers, and people are looking at this and studying it. But it still have -- almost a couple of years ahead. So we haven't really seen anybody pulling the trigger to make any quick decisions on this with the exception of one customer that one big oil company that we understand are now in the process of taking maybe up to a handful of ships with scrubbers for '19 delivery.
Understood. One more from me. You guys have the ability or even the appetite to delay any of the new buildings that are coming this year, just given where rates are?
That is -- there is not really point in that. We have a meaningful amount of capital put in and to delay them. It will have to be -- to get to [indiscernible] certificate which is a long time. So we don’t really see any sense in that so. We will take delivery of these ships and get them going, get their [indiscernible] approvals in place. And then it will be a fully ready for anything that could happen in 2019.
Okay. It makes sense. I appreciate the time guys. Thank you.
Thank you. Our next question from the queue is [indiscernible]. Please go ahead. Your line is now open.
Yes. Hi, guys. Just a question on what’s going on at the moment. I mean, in January there was the worst marketed in many years and it comes from the back on December, being the worst December since early 2000. I guess, you can point to the inventories, but it seems that the number of cargoes fixed in the spot market for the last couple of months has been well above 3Q level. And then by the looks of it 4Q deliveries was down quite potentially and I guess in January you only saw a handful of VLCCs versus 12 I think in the same period last year. So, I mean, the current core market, if that’s a reflection of the structural over capacity or is it something else we are missing. And I guess, I mean, what does that mean for the typical system seasonality that you have?
I think part of this is also local psychology. Of course the market is currently over supplied with ships. But the question is by how many and I think you ask different people you get different answers. But I think what we’ve experienced in 10 days into January is that on the Monday or Tuesday when the market was moved rather quickly by just a couple of more cents. So I think it is an indication of the underlying balance. But it takes a bit now to work on the number of ships that are available in the Middle East, in particular. And certainly people get maybe too cocky and they hold back cargoes for too long. And then you get this famous capture perfect with too many guys coming in on the Monday morning with cargoes again and that could quickly move the market. But as Trygve pointed out earlier, we are not too hopeful for the air as a whole to be a strong year, but it really depends on when this inventory draw down phase is going to be over really coming to a close.
All right. Thank you.
Thank you. And we take our next person Randy Giveans from Jefferies. Please go ahead. Your line is now open.
Hey, guys. Thanks so much. Just one quick question on the time charters. So it looks like you locked in the interim cash breakeven of $19,000 a day something like that whereas current time charter rates are $24,000 plus for the one year. So obviously had that 50% upside, is that something you were leaving towards at the charter, kind of one of the lower rate with higher upside?
I think it's the latter. I mean, keep in mind that some of these blocking quarter $24,000 a day is not something you can go up and do. And if you aren't going to entice a counterparty to be enrolled in this, they will typically ask for options at least one year, if not two at the rates that we think are frankly unattractive. So we'd much rather have the structure that we had in place where we kind of protected the downside, get plenty of outside participation and importantly kept the duration of the charter to 12 months.
Q - Randy Giveans'
Sure. Good idea. Well, that’s it for me. Thanks so much.
Thank you. And now we will take our next one as a follow-up from Robert Silvera. Please go ahead from R,E Silvera & Associates Marine Surveyor. Please go ahead. Your line is now open.
Hello, I wanted to make one additional observation that I think is what you’re doing is the right approach, not going after buying shares at this disturbed level, but with the market disturbed as it is, it’s better to conserve your cash keep yourself in a very well-known position by knowing how much you have in cash etcetera and running the business the way you were are running it now. In the future, the market will recognize fully the good job you’re doing and as things improve, the stock price will follow. This is simply a opportunity for people like ourselves who have invested in you to get some more at very depressed prices. So I encourage you to not go out and buy shares in the marketplace at this point in time, except for your preferred if they become available. Okay. That’s just my comment.
Thank you.
Thank you. And there are no further questions over the phone at this time, sir.
All right. It remain for us to say thank you for your continued interest and have a good day.
Thank you. So ladies and gentlemen, that conclude today’s conference call. Thank you for your participation. You may now disconnect.