Odfjell SE

OSE:ODF

Earnings Call Transcript 2019-Q4

[Kristian Verner Mørch, Chief Executive Officer]

Okay. Good morning, and welcome to the presentation of the fourth quarter results and the preliminary 2019 results for Odfjell SE that we're presenting here from Oslo this morning. We are live streaming the presentation, so I kindly ask you to wait with questions until the end -- after the presentation where both Terje and myself will be available to answer questions.I think from a safety perspective, I don't think there's any planned test of the alarm system, so if the alarm system goes off, we should take it seriously and follow the exit signs that you will find out in the foyer.I will start with the highlights. And then Terje, he will come on and cover the financials, and then I will come back and cover the operational review and comment on the strategy, and then I will finish off with the prospects and the markets update, and then we will have, as I said, Q&A towards the end of the presentation.Fourth quarter highlights. The short version is that it was a better quarter, driven by improvements in the chemical tanker markets. Our EBITDA in the quarter came out at $58 million. That was up $7 million compared to the third quarter. And out of those $7 million, $5 million came from tankers and $2 million came from terminals. That gave us a net result of $10 million minus compared to $1 million in the last quarter. But if you adjust for nonrecurring items, the result was minus $7 million in the fourth quarter compared to minus $15 million in the third quarter.Spot rates on the main tradelanes was up 12% compared to the third quarter, and it was up 25% over the year, as you will see on the next slide. And the COA renewal rate was up 6.5% in average for 2019.And then finally, the last month of the year, December was the first month of underlying operational profit in Odfjell since May of 2017. You can say that's a little bit self-inflicting to highlight it like that, but I think it's nonetheless important to see that everything that we've been working with, it becomes visible now that the markets pick up and we are back where, I think, close to where we should be, hopefully.On the key figures on the right, I'm not going to spend too much time on this slide. I think, Terje, he will cover the figures in more detail as we get to the financial section.What we are guiding is that we believe that the markets have turned and there are strong fundamentals. There are also some risk items out there that we are watching. But if you look only at the fundamentals, then we do believe that the markets have turned and we will see a continued improvement into first quarter and that the markets will be firming throughout 2020.Highlights for the full year of 2019. As I said, the chemical tanker markets improved compared to '18, 25% spot rates up, if you measure it over the year, and COA rates were up by 6.5%. Now 6.5% does not sound like a lot, but if you add to that, that we have been able to pass on the full risk of the compliant fuel cost to our customers, 6.5% is quite significant when you work that back to -- on a net basis.The full year estimate -- the full year results was minus $37 million compared to $211 million in 2018. But if you again adjust for nonrecurring items and IFRS 16, the net result improved $33 million in '19 compared to '18.We also, in 2019, concluded the reorganization of Odfjell Terminals. As you'll see later, we now have a smaller but healthier and more efficient platform on terminals, and we have sold our terminal in Jiangyin at an attractive price.In terms of market development, we continue to see that demand is outgrowing supply now for the second year, and the supply picture looks very promising with basically no new orders being placed. But I'll get back to that when we cover the market forecast towards the end of the presentation.At this point, I'm going to hand it over to Terje, and then I'll come back afterwards.

[Terje Iversen, Chief Financial Officer]

Thank you, Kristian, and good morning to everybody. I will start going through the detailed P&L for the business areas. I'll start with the tankers. We saw this quarter that the revenue went slightly up compared to the third quarter ended at $215.6 million. It was, as Kristian said, an improvement in the rates and the earnings, but at the same time, we had fewer days. So we didn't see that large increase in the gross revenue that you should expect, mostly due to off-hire -- scheduled off-hire during this quarter.We see that the waste expenses were down to $85.9 million this quarter, also related to fewer selling days and also fewer time charter vessels in this quarter. Odfjell pool distributions of $13.5 million, we ended with a time chart earnings of $116.2 million compared to $113 million in the third quarter. Time charter expenses went down from $10.5 million to $8.8 million, mostly related that we redelivered 2 time charter vessel this quarter. Going forward, we will enter more time charter vessels into our fleet, so we expect that figure to increase, also then contributing to more gross revenue from the fleet at the total.Operating expenses, slightly stable as preceding quarters, slightly down with USD 1.5 million. G&A ended at $16.9 million, up $1.1 million compared to the third quarter, and that led an EBITDA for chemical tankers at $50.1 million.Depreciation slightly up to $24.2 million due to delivery of 1 additional newbuilding from Hudong, which increased the depreciation this quarter. Then we had a small impairment of USD 2.4 million, that is related to 1 vessel that we have agreed to divest in the first quarter, but we are selling this vessel built in '95 at USD 4.1 million, and we have taken impairment already in the fourth quarter. That leads to an EBIT of $10.5 million compared to $8.7 million in the third quarter, but then including the impairment of $2.4 million.Net interest expenses went down from $21.8 million to $19.9 million in the fourth quarter, mostly related to the impairment of a bond in September, but also related to reduced LIBOR towards the end of the year.Odfjell other financial items and taxes. We ended then with a net result for the chemical tankers at negative $9.4 million compared to negative $14.8 million in the third quarter.Looking at the terminals, we see that we have an increase in the gross revenue from $16.4 million to $18 million, that is mostly related to increased revenue in the U.S. business and also at the terminal in Dalian in China. Odfjell OpEx at $6.8 million and G&A at $3.4 million. We then ended with an EBITDA of $7.8 million, a small increase compared to $6.0 million in the third quarter.Depreciation, very much the same level as last quarter. And then we had impairments of some small items within -- in the terminal business of $0.7 million and then we ended in EBIT at $1.4 million compared to $16.6 million in the third quarter, but that included the gain from the sale of the Jiangyin terminal with $15.9 million in the third quarter.Odfjell finance, other financial items and taxes. We ended then with negative $0.2 million compared to $13.2 million in the third quarter. But again, that was included with a capital gain from the Jiangyin terminal.Looking at total, also including gas. We ended then with a time charter earnings or gross net revenue at $135.1 million, EBITDA of USD 58 million and an EBIT of $11.7 million. Odfjell finance, we ended then with a net result of negative USD 10 million, earnings per share of $0.12. Adjusting for nonrecurring items, the impairments both within the chemical tanker business and the terminal business, we have done an EPS of negative $0.08 in this quarter.Looking at the balance sheet. We see that ships and newbuilding contracts increased this quarter due to delivery of 1 newbuilding from Hudong. At the same time, we see that we have cash on the balance sheet around USD 100 million, down USD 10 million compared to the third quarter. And we also see that the total equity now is around USD 550 million, which is around 27%. If you adjust for debt related to right-of-use of assets, we are around 30% equity share end of the fourth quarter.We also see that the noncurrent interest-bearing debt is increasing somewhat. That is related to the delivery of the newbuilding, taking off the final installment and drawing up on the loan for that vessel. And we also see that net or the current portion of interest-bearing debt is reduced this quarter with -- from USD 199 million to USD 158.7 million. And then on total assets, we are now trading around USD 2 billion at the end of the fourth quarter.Looking at the cash flow. We see that we have delivered improved cash flow from operations in the last quarters compared to the beginning of the year. That is mostly related to the increased earnings. But at the same time, we see that we had a larger improvement in the third quarter, but that's what's -- mainly related to improvement in the working capital in the third quarter, which is no more on a normalized level in the fourth quarter.Investing activities related to the last installment from the Hudong newbuilding, $57.8 million, therefore. And then of the finance, more kind of business as usual, negative -- or positive $21.8 million. We ended with a net cash flow for the quarter at negative $10.7 million compared to $7.0 million positive in the third quarter.Bunker expenses, of course, one of our main cost components. We see that we are very stable from quarter-to-quarter, measuring our bunker costs. That is also related to the bunker adjustment clauses we have in our contracts, that is adjusting that volatility. In this quarter, we had around 52% of our bunker cost coverage to the bunker adjustment clauses, and that is also what we expect going forward in the range of 50% to 55% will be covered through the bunker adjustment clauses. And as Kristian mentioned, we have adjusted all the bunker adjustment clauses to reflect the new regulations related to compliant bunker fuel going forward.We also have very limited financial hedges going forward. So it's the contracts really that is covering the exposure for the bunker costs going forward, but we expect that to be quite good taken care of because we also see that going back 1 year in time, we see that actually the spread between the prices of MGO and VLSFO today compared to HFO at the beginning of the year is not that large. So actually, the bunker cost has not increased that much. And as I said, we also expect the contract to take care of that and also the spot market will take care of that part of the business.We did -- a few weeks back, we did a tap issue on some of our bonds around USD 300 million. It was secured through a few hours out in the market quite successfully, we think. The margin fully swapped to U.S. dollar around 5.2%, which is lower than the current outstanding bonds. At the same time, we plan to use that to facilitate to repay some of the more expensive financial lease structures we have, where we today are paying around 70.2% for 2 of the vessels that we intend to refinance based on this, which then will reduce our cost breakeven for those vessels with around USD 3,000 per day. It's not material, but it's showing how we are kind of focusing on our balance sheet to take down capital cost and also be more competitive on the financing expenses for the company.Debt development. Going forward, we see that we have quite limited repayments, outstanding balloons in the remainder of the year. We have some balloons in the third quarter that we will most likely refinance during the first half of this year. And then we have the bond maturing in the first quarter in 2021, which we may consider to refund at some stage, most likely during the fall this year.Going forward, we expect the gross debt will increase in 2020 due to increase in the fleet. We still have 3 newbuildings to be delivered from Hudong yard in China. And we will draw up on that financing, increasing the total debt for the company. But going forward from that, we expect to see a declining gross debt in the company and also as a part of this aim to reduce the cost -- the breakeven cost for our fleet, we should also target to increase the total debt for the company.CapEx program, not very much new actually compared to the previous on the tanker business. We have still at this time 4 newbuildings from Hudong to be delivered during 2020. That has been totally 100% financed already. So we don't need to inject an equity to take delivery of those vessels. In addition, of course, we have expected docking expenses of some newbuilding or some installments on equipment on the vessels, but that's quite limited compared to the total investments.Tank terminals. We have not guided very much on that in the previous presentations, kind of moving forward around plans for the U.S. business for the terminal in Houston. So we're indicating here what we think will kind of materialize in expansion CapEx in the coming years. We estimate our part to be around USD 32 million. Only a small part has been approved so far, and it could also be a larger amount, but this is the kind of the project that we are looking at, at the current stage and which we think will materialize in the coming years.As we have indicated before, this is planned to be financed within the joint venture without any capital injections from the business, from the owners into the joint ventures. In addition, we also have planned maintenance CapEx for the terminals, which come in addition to the planned CapEx program.And I will give the floor to you, Kristian.

[Kristian Verner Mørch, Chief Executive Officer]

Yes. Thank you, Terje. So it says operational and strategic review. I think it's going to be more on the operational this time. I think we plan to cover our strategy in-depth when we get to the Capital Markets Day. So we're not going to touch too much on the strategy today.If I start you off on the bottom of this slide, you are looking at the COA rates and the spot rates. The light blue bars is a spot rate and the dark blue bars are the contract rates. And a few things jump out when you look at that. First of all, it's clear that the spot market has been increasing throughout the year. It's up 25% over the year. And it's -- if you only look at third to fourth quarter, it's up 12%. So that's absolutely a stronger spot market we are witnessing.What you're also seeing, although not as clearly, is that the dark blue bars on the bottom has been -- it's been a sliding scale in terms of our contract rates for the past couple of years. And you're seeing that trend beginning to reverse by the middle of last year. And one of the reasons we think why that happened is that we believe so strongly in the fundamentals in this market that it did not make sense for us to extend contracts or renew or take new contracts at the current market levels or at loss-giving levels, so unsustainable levels, as we call them. So we have had to say no, and we have had to be very, I would say, take a firm stance in terms of how we were rating those contracts. And whether it was the market that helped us or whether with us taking a stand, who knows, but at least, the result is that now we are seeing that the average contract rate is coming up, and that's quite an important rate. So spot market will come up and down a little bit, but it looks that that's also a fundamental increase.The result of that is what you are looking at on the top side, and that is that our contract coverage has gone down from around 60% to around -- that's 52% in the fourth quarter. And that does a couple of things. First of all, of course, it exposes us more to a spot market. But as long as that spot market is stronger, that's a good thing. The second thing it does is that it allows us actually to operate a little bit more efficiently. And that's one of the things that you will see on the next slide when you look at the ODFIX index against the chemical tanker spot index.We are talking about the cargo mix in Odfjell Tankers, like any market will work the way that if there's a tightness on supply that will -- that means that if you have the freedom to pick and choose, you can package the ships better than you could if you're locked into a very rigid contract program. And that's kind of what we are seeing now that we have higher contract rates, we have a stronger spot market. That will -- if you blend those rates, that means that our average rates will go up, but it also means that we can pick and choose and optimize the ships better than we have been able to with a stronger contract portfolio. So as long as the spot market stays stronger, that's, of course, a good thing. If the spot market should take a dip, then we are exposed more to the market. But as I said, the fundamentals are so strong in the market that we believe that this is probably a good spot to be around, 50% of our capacity sold forward on average about 1 year.What you're seeing on the right-hand side, and if I also start you on the bottom, is that our days, number of ship days, is flat in the fourth quarter compared to third quarter. And actually, on top of that, we've had a quite high number of off-hires. But what you're seeing on the top bar is that the volumes have decreased in the fourth quarter. That's basically caused by the disruption that was in the beginning of the quarter in the Middle East and the ripple effect of that. So the volumes have been lower. That has now picked up, but you will see those in the quarterly figures.One of the key things we have been discussing in the last couple of years has been the impact of IMO 2020. And 1st of January is behind us, and it's kind of interesting to see what actually happened. This -- what you're looking at here is the comparison of bunker prices in November, December, January and February. And then on the right-hand side, you are looking at the forward curve for fuel. And there's a few interesting things. First of all, the spread between HFO and low sulfur fuel oil was widening when we got close to the turn of the year between December and January. In January, that spread was $250 and the scrubber believers declared victory because it was -- if that spread stays like that, it's a huge financial gain to have a scrubber installed. But what you're seeing after January is that, that spread is starting to come down. Part of that is probably the drop in oil price. But a part of it is also that we think that the markets are now kind of normalizing. And when you get into the second half, we believe that, that spread will be even lower, but we will see what happens.The other thing that's interesting from this graph is if you look at the dotted lines, that -- the vertical dotted lines, the yellow and the red one, that's the last 2 years average fuel cost that Odfjell paid for HFO, and that was around to $425. So if you compare that to the forward price of compliant fuel as it looks today, $428, it looks like the total fuel cost for Odfjell and the impact of IMO 2020 will not be significant in any way.And I also remind you, when you look at this picture that 50% of our capacities includes bunker clauses that prevents us -- that insulates us from any effects of a spike in compliant fuel costs.So that's, of course, the contract part, but what about the spot market. Now this slide gets a little bit busy, but as I said, half of our capacity is sold forward on contracts. We have bunker clauses there, the 50% of the spot. What we're seeing now is here, the top 2 graphs is U.S. Gulf exports to Europe and to the Far East and the lower 2 ones are the Middle East to Europe and the Far East. And the dark bars are -- is the gross rates as reported by Clarksons. And as you will see, September, $54; October, $53; November, $54; December, $55. And then you can see, there's a $2 increase in December because you have to start burning compliant fuel. So the added cost per tonne for that tradelane is $2. So we have to add that in reality to the gross rate in December.And then you go to January and you see that the gross rate is now $62. So if you net out those 2 -- extra $2 of cost, you get to a net rate of $60. So the markets have more than absorbed the additional bunker clause. And the feeling and the sense in the market is that owners not only also fairly disciplined in passing on that extra fuel cost to the market, and it's pretty much the same figure you are seeing on all the other trades.U.S. Gulf to Europe, it's another $5 on top of the bunkers. U.S. Gulf to Far East is also another $5. And the Middle East, it's $2 or $3, if I remember correctly. But at least, the point of this slide is that the market is absorbing the fuel cost.If we turn our picture -- our view to the terminals for a little bit, I mentioned earlier that we have a healthier portfolio, and we have a clean setup and we have lower cost. So what you're looking at on the top right-hand side, you can see our EBITDA margin growing steadily since, I would say, the third quarter '18. And we are now, on average, around 45%, and we believe that, that has to grow even further, but we are on the right track.Terminal in Houston is full. It's at capacity, 100%. And we have, as Terje just mentioned, plans to expand that terminal within the current footprint, the land footprint of that terminal. The average occupancy for our total portfolio terminals is at 93%. And there are, especially 1 terminal in China that's not producing in Tianjin as it should.I also maybe add a few comments on the Lindsay Goldberg exit. They are out of most of the regions. They are still in Asia, which means our terminal in Korea and the 2 remaining terminals in China. And what we're seeing here is, depending on what price Lindsay Goldberg gets offered on the 2 Chinese terminals, we might consider to take along for those 2 Chinese terminals. But it's too early to say. And with the coronavirus going on, there's some uncertainty to the timing of when that can happen.Prospects and markets update. If there are any crude and product people in the room, they will say that this is not the current -- picture of the current market. The point with this slide is we're comparing the third quarter to fourth quarter. And the point is that when you're seeing a general firming trend in the tanker market, that absolutely rubs off on the chemical tanker market. Since this picture, the market has been falling back somewhat. I mean, MRs are no longer 21; it's 18 or something like that. 18 is still a very healthy number. So -- and I think the fundamentals in tankers is still quite strong. Some nervousness now about macro and what that virus can lead to. But in general, we are seeing a stronger tanker picture, and that should be helping us both in terms of sentiment and in terms of the swing tonnage that I'll be speaking to in just a minute.That was a short minute because here it is. Swing tonnage is really tricky to measure because when does a ship actually enter and exit the chemical trade and going back into CPP when she is ballasting, and from discharge, from loading and there's a time lag also from when the ships clean up and turn around and so on. But we have been tracking it systematically. And what you -- and this is a picture of the percentage of all MRs, how many of those trade in what we call easy chemicals or vegoils. And as you can see, as the number of IMO -- [ 2 ] MRs got delivered, there was naturally a bigger part of those that venture into kind of the methanols and the vegoils. And it came -- on the peak, it was 27% of the total MR fleet. But now we're seeing that beginning to reverse. And by January, that number is down to 25.1%. So we are seeing that reversing. And when you look at the supply picture for chemical tankers and a very, very limited order book, then this is a real -- this has a real effect also on the real supply picture in the chemical tanker market. And we're feeling that positive momentum in our markets.And swing tonnage is not only a bad thing because there's also what we like to call reverse swing tonnage because if the CPP markets are very strong, it is also an opportunity for Odfjell's ships to trade into CPP. Most people forget that a big stainless steel tanker is absolutely capable of trading a full cargo clean if that makes economic sense. There's nothing that prevents us from taking share of the CPP market when that's really strong, and we do, especially for backhaul and repositioning the ships.So when you look at the bottom part of this graph, you're looking at Odfjell's share of spot lifting in CPP on our backhaul routes. And that is in the second half of 2019, that was a third, up from, yes, 15%, 20% up to, say, 33%, and that's a backhaul. And we do also take some front haul. And then in our bigger ships, if there's suddenly an arbitrage to be made to have around voyage and gasoline, diesel or jet or whatever, then we do that and we have ships in those trades as we speak. So swing tonne also goes the other way. A very strong CPP market will absolutely mean that we also take an opportunistic view on that market. So indirectly or directly, it also helps us that the CPP markets are strong.I spoke about the order book already. It's at historically low figures. On the left-hand side, order book to fleet ratio going back to 1999, and this hasn't been lower than it is today, around 6%, 6.2%, or what's the latest number? And that means that the projected fleet growth in 2020 is going to be 1.4% in '21, which could be an interesting year, 0.4%, basically, no growth at all. And then 2% from 2022. And after that, that's very, very limited order.Now we, of course, keep our ears closely to the ground in terms of who are speaking to what yards and are people considering order new stainless steel ships. And it is very, very far -- that is very far between people who are looking at this segment. If anything, people are actually on the way out instead. A lot of the financially based investors wants to sell; they don't want to invest. And people like Stolt and the Odfjell and MOL -- that doesn't seem to be ordering either. So I think the supply picture is pretty much under control for the moment.If we do get a big spike in the market, and if history repeats itself, we will see orders. But at least for the moment, it's very limited, and it helps to under -- helps to support our view that the fundamentals for the chemical tanker market is quite strong.So our market outlook, nothing new in terms of the message that low-cost production capacity is ramping up in the U.S. and the Middle East. This is not paper projections. These are actually production facilities coming on stream and beginning to ship. And the good thing about U.S. and Middle East is that it will have to travel long distances, which means that increases the tonne mile demand. So there's a quite strong demand picture out there. We are saying that the demand is going to grow by roughly around 5%. Some uncertainty with that. I will talk about the risk factors in a moment, but it might be a little bit higher, a little bit lower, but the fundamental demand for transport of chemicals is absolutely a strong picture.There's a reduced swing tonnage. Improved fundamentals for crude and product, as I just spoke about, will help that. And the lack of new orders will also keep the supply picture under control, and we are saying around 2% supply growth. So now we are the second year of demand outgrowing supply, and that seems to be also the picture for the coming 2 years.Then about the risk factors, mainly related to macro. Material global economic slowdown is, of course, discussion, there's a discussion about the trade wars and the discussion about the coronavirus. I think the world is collectively holding its breath at the moment. Is it a black swan or just a white one that got dirty, but we'll see. I think that's a very, very scary scenario, but the world is taking quite strong measures. So touch wood. Hopefully, it will not be as bad as some people believe it will be, but it is a risk factor, and it could be the thing that pushes the world economy into a recession, but who knows. It's something that we all follow very closely. And I also maybe want to say we have 2 terminals in China that continues to operate, but we have quite a lot of activities and ships calling China. So it is something we are very much on top on.So in summary, markets are better. Our results are better. December was the first month of profit since 2017. First quarter is also looking good. We believe that we are going to improve further in the first quarter compared to the fourth quarter. The transition of the compliant fuel has been successful and the costs, both on COAs and on spot have been passed on to the customers. We have a lower contract coverage, which means we can operate more efficiently and enjoy the benefits of a stronger spot market.On Odfjell Terminals, we have improved margins driven by Houston and Dalian. The reorganization is completed. We still need to figure out how do we get Lindsay Goldberg's exit in place for the remaining terminals in Asia, and Houston will be the main target for growth, as Terje also touched upon.In terms of the market outlook, strong demand fundamentals and limited fleet growth and the main risks relates to macro. So we expect to report improved results in the first quarter '20, and the chemical tanker market recovery is expected to continue throughout 2020, but there are things to watch in relating to the virus and the macro picture.And finally, we are having a Capital Markets Day in Oslo on the 9th of June. And I hope that many of you will take the time to join us.So with that, we'll take any questions you have.

[Kristian Verner Mørch, Chief Executive Officer]

We try to invite you so early in the morning that you are tired and don't have the energy. Yes?

[Petter Haugen, Equity Research Analyst]

Petter Haugen from Kepler Cheuvreux. The COA rate renewal is said to be up 6.5%. And looking at the chart, I'm just -- that's the marginal cargoes, and their increase in rates not the average COA rates?

[Kristian Verner Mørch, Chief Executive Officer]

It's the average -- it's actually the average increase for the -- for a contract that has been renewed. And it's a mix of front haul and backhaul. And some of them will be up 10% and some of them would be up less. So it's the average blended like-for-like improvement in dollar per tonne rate for the contract renewed.

[Petter Haugen, Equity Research Analyst]

Which brings me to my next question, where is those rates improving the most? And where are you leaving volumes that you otherwise would have -- or where are you leaving volume that you no longer find profitable? And where are the improvements best?

[Kristian Verner Mørch, Chief Executive Officer]

I mean, we have 120 COAs. So it's really a difficult question to answer in a simple way. I mean, we have given up some big contracts that were big contracts out of the U.S., both for Europe and the Far East, but we have also taken our other contracts in those tradelanes. And we have also given up 1 big contract that was backhaul out of the Middle East back to the U.S. and Europe. But I don't think there's a kind of a simple answer that will give you a good overview. It's very much dependent on where that specific trade is. And we go contract by contract and see if that contract is accretive to the earnings in this tradelane or not. And some, we have also extended at less than 6.5% because that volume is crucial in filling the ship up. And then, of course, we don't let that go if it's operationally important. So it really is a matter of going contract by contract, and I don't think -- Bjørn Kristian, do we have a better answer than that? I think it's -- I don't think there's an overall pattern.

[Petter Haugen, Equity Research Analyst]

Okay. So just 1 more from me. And that's about bunker prices going forward. You are, as I understand now, not going to put on any derivatives, trying to hedge out, and you're simply just going to have the COAs, which is still all of them incorporating an escalation clause. But for the spot volumes, you'll stay open?

[Kristian Verner Mørch, Chief Executive Officer]

No, I think we -- I mean, we have some contracts in place in -- for the first quarter, where we have hedged physical contracts, but effectively, it's a swap hedging the low sulfur fuel price for the first quarter. And in the past, we have been using derivatives, and we have a mandate to do so. So I wouldn't rule out that we're going to do it when we think it's right. But at the moment, we don't have any in place. 50% is covered by bunker adjustment clauses, but the rest, if we feel there's an opportunity to take some coverage at below what we think is a reasonable level, we might take some derivatives. But at the moment, we don't have any.If I can just add 1 comment to that, the scary part about doing derivatives now is that it's a derivative of what? Is it a derivative of gas oil or HFO, right? And until you know what the base risk you're taking on then any derivative is just a scary thing to do. So yes, we don't have any at the moment.

[Petter Haugen, Equity Research Analyst]

I have a lot of things that I wonder about.

[Kristian Verner Mørch, Chief Executive Officer]

Yes, yes, go.

[Petter Haugen, Equity Research Analyst]

So about the coronavirus. I mean, that's the question I get daily. How is that affecting shipping? And now I'm passing it onwards, how is affecting you guys in terms of operational measures taken? And also, if you can quantify what has happened in terms of slowdowns in terminals and port operations and so forth?

[Kristian Verner Mørch, Chief Executive Officer]

Just 2 sides of your question. I think in terms of what impact it may have, I mean, of all the global chemical trade somehow China is involved, and it is 26% of the world capacity. So if it really goes badly and the contract gets shut down, it will have a significant impact on demand and tradability. If we look at what has happened so far, we have not seen any cancellation of nominations of orders. We have not seen any slowdowns in nominations or any major disruptions to how the ships are traded. The main impact have been, for instance, when you're planning a dry docking of ship in China in the beginning of March, do you like send your ship there and let people stay in the shipyard with a big crew of engineers from Norway? Or do you try to reroute that ship to another destination for dry dock? Those kind of discussions. We have a ship that we have sold that's going to be delivered in China. The crew is obviously nervous about going to China and repatriating from China. We hope that it looks like now we -- that delivery of that ship has been moved to Korea, for instance.So these are kind of the disruptions, and when ships are at shore or at -- in port, we don't allow the crew to go ashore shortly. General precautions, sanitizers and normal travel restrictions and vigilance in general, stay away from big conferences and so on. But if you look at the actual tradability, the volume impact and ships being detained and so on, we haven't seen that yet. That doesn't say that it can't happen, but we haven't seen that happening yet.

[Petter Haugen, Equity Research Analyst]

About the implementation of the carriage ban, that's coming now, if you reach down the road. But as you experienced in your -- on your vessels, any port states that are checking whether you are carrying HSFO on vessels, which is not scrubber fitted?

[Kristian Verner Mørch, Chief Executive Officer]

I actually don't know. It's a good question. I would presume so. I think we know that by 31st of December at 1 minute to midnight, we had totally on board all of our Odfjell ship worldwide. We had 8 tonnes of heavy fuel left, which I think was -- is quite an achievement that we got it that close. We burned the last drop on the last day. Whether we actually have had port state controls, I would presume so, but I don't know that for frank, but I can check it. It's a good question. I don't have the answer.You ran out of questions? That's good. No other questions? Okay, but we're going to be available afterwards as well. And then as usual, please never hold back. Thank you for all the questions, and thank you for your attention and the interest in the company and stay safe.