Okeanis Eco Tankers Corp

OSE:OET

Earnings Call Analysis

Q2 2024 Financial Highlights and Commercial Strategies

Okeanis Eco Tankers reported strong financial results for Q2 2024 with an adjusted EBITDA of $63.9 million and a net profit of $39.7 million. The company declared a dividend of $1.10 per share. Their fleet achieved an average daily rate of $65,000 per vessel, with VLCCs at $73,000 and Suezmaxes at $55,000. The balance sheet shows $98 million in cash and a market-adjusted leverage of 38%. The quarter also saw strategic refinancing and drydock management. Looking ahead, despite expected Q3 seasonal weakness, the company anticipates a strong winter market supported by a favorable crude tanker environment.

Strong Financial Performance in Q2 2024

Okeanis Eco Tankers reported robust financial results for the second quarter of 2024, reflecting a continued focus on strategic operations amidst a dynamic market. The company achieved a fleet-wide time charter equivalent (TCE) of approximately $65,000 per vessel per day, characterized by its VLCCs bringing in $73,000 and Suezmaxes at $55,000. Overall, adjusted EBITDA reached $63.9 million, with an adjusted net profit of $39.7 million, translating to an adjusted EPS of $1.23. Commitment to shareholder returns remained strong, with the Board declaring a capital distribution of $1.10 per share, which accounts for about 90% of the earnings per share.

Successful Drydock Transactions

During this quarter, Okeanis completed drydocks for two vessels and is scheduled to complete drydocks for the remaining four VLCCs by early Q4. This strategic timing avoided operational downtime during peak trading periods, enhancing fleet readiness for expected market demand in the latter half of the year.

Optimized Capital Structure

The company made significant strides in optimizing its capital structure, evidenced by three new financing transactions that improved its financial position. Currently, cash reserves stand at $98 million against a total debt of $669 million, resulting in a book leverage ratio of 57%. Adjustments in market value assessments have reduced the market-adjusted net loan-to-value ratio to about 38%. Okeanis has successfully transitioned its financing costs from LIBOR to SOFR, achieving an effective weighted pricing reduction of 110 basis points across its fleet, thus lowering the total breakeven cost to $1,700 per day per vessel.

Navigating Market Challenges and Opportunities

Despite facing seasonal weakness towards the end of the quarter, Okeanis managed to outperform its peers significantly. The fleet achieved an average TC rate of $64,900 per day, with VLCCs generating approximately $73,300 and Suezmaxes at $54,600. The operational focus involved limiting exposure and strategically trading vessels to optimize earnings based on market conditions. The ongoing geopolitical tensions and logistical challenges, particularly in the Red Sea, have played a vital role in shaping operational strategies.

Guidance for Q3 and Future Outlook

Looking ahead, the company expects continued strength in Q4, driven by preparation for the winter market. Current strategies to maximize earnings include ensuring that remaining drydocks are completed promptly and maintaining a balance between operational efficiency and market positioning. The guidance for Q3 indicates rates dropping significantly, with VLCC round voyages trading between $25,000 and $30,000 per day, and Suezmaxes fetching low $20,000s. Despite these challenges, Okeanis maintains confidence in achieving above-average earnings relative to peers due to its strategic decisions and fleet positioning.

Capitalizing on Clean Trade Opportunities

Notably, Okeanis has also ventured into cleaning its dirty trading VLCCs to engage in the lucrative clean product markets. This initiative not only extended the trade durations during the seasonal downturn but also positioned vessels for higher earnings as the company transitions back into the West market. So far, four ships have been cleaned up, showcasing Okeanis's adaptability in leveraging market opportunities while managing risks effectively.

Market Position and Future Growth Potential

The outlook for global oil demand remains positive, with expectations of 1.1 million barrels per day increase in 2024. The company is strategically positioned to capitalize on anticipated demand and price increases. Ongoing geopolitical instabilities are expected to continue increasing ton-mile demand, thus maintaining higher freight rates. Okeanis's modern fleet is anticipated to benefit from the current aging fleet dynamics in the market, creating a favorable supply scenario.

Earnings Call Transcript 2024-Q2

[Operator]

Welcome to OETs Second Quarter 2024 Financial Results Presentation. We will begin shortly. Aristidis Alafouzos, CEO; and Iraklis Sbarounis, CFO of Okeanis Eco Tankers will take you through the presentation. They will be pleased to address any questions raised at the end of the call. I would like to advise you that this session is being recorded. Iraklis will begin the presentation now.

[Iraklis Sbarounis, executive]

Thank you. Welcome to the presentation of Okeanis Eco Tankers' results for the second quarter of 2024. We will discuss matters of the forward-looking nature and actual results may differ from the expectations reflected in such forward-looking statements. Please read through the relevant disclaimer on Slide 2.

So starting on Slide 4 and the executive summary. I'm pleased to present the highlights of the second quarter of 2024. We continue on the track of strong commercial and financial results. Since the beginning of the year, we are effectively fully spot exposed. We achieved fleet-wide time charter equivalent of about $65,000 per vessel per day. Our VLCCs were at $73,000 and our Suezmaxes at $55,000. We report adjusted EBITDA of $63.9 million, adjusted net profit of $39.7 million and adjusted EPS of $1.23. Fully committed to our strategy of delivering value to our shareholders, our Board declared the ninth consecutive capital distribution of $1.10 per share, which is about 90% of our EPS. On a 4-quarter rolling basis, we have distributed $3.46 or 93% of our adjusted net income.

During the quarter, we have successfully completed our 5-year drydock for the Nissos Keros, Nissos Despotiko, with four more of our VLCCs expected to complete the drydocks in the next couple of months. Furthermore, during the quarter, we announced three new financing transactions, further optimizing our capital structure. I'll go into further details on this in a couple of slides.

On Slide 5, we show the detail of our income statement for the quarter and the half year. TCE revenue for the 6-month period stood at over $160 million. EBITDA was close to $130 million and net income was approximately [ $80 million ] or $2.50 per share.

Moving on to Slide 6 and our balance sheet. We ended the quarter with $98 million of cash. Our balance sheet debt stood at $669 million, translating to book leverage of 57%, while market adjusted net LTV based on our most recent broker values has continued to decrease, now standing at approximately 38%.

On Slide 7, we have our usual slide summarizing our corporate and capital structure. Since our last update in May, we have executed three new transactions and have also fully repaid the sponsored debt when that became due. In May, we refinanced our VLCC Nissos Kythnos with pricing of SOFR plus 140 basis points. And we also amended our existing facility on the Nissos Donoussa, reducing the price down to SOFR plus 165 basis points. Finally, we executed on the high anticipated purchase option of the Poliegos. We closed the transaction on the first day of July, opening up a new financing market and improving significantly the pricing, now standing at SOFR plus 160 basis points.

These transactions marked the completion of the full refinancing of our fleet except for the two VLCCs, Nissos Rhenia and Nissos Despotiko, whose purchase options kick in the first half of 2026. This is a good segue into the next couple of slides as we want to demonstrate the value creation achieved by all these transactions.

So Slide 8. We only have to look back a year to have things due in June of 2023, prior to any of these transactions and prior to the transition from LIBOR into SOFR. On the left, during the LIBOR era, our banking cost of debt on a weighted average basis stood at 3.22% over LIBOR. Assuming the application of a credit adjustment spread of 26 bps across our facilities, to compare apples with apples post the SOFR transition. Our overall implied cost stood at 3.48% over SOFR. All our financings and amendments, of course, eliminated the credit adjustment spread. And along with the new margins negotiated with our financiers, we reduced the effective weighted pricing to 2.39% above SOFR. This takes into account our latest expensive leases that still remain outstanding and which offer for a great opportunity for further optimization in 2026. All that translates to an improvement of 110 basis points across the entire fleet or 130 basis points against the 12 refinanced vessels. Assuming our current outstanding bank debt of $675 million, we achieved a direct reduction on a breakeven of $1,700 per day on each of the 12 vessels at $7.4 million in a year.

On top of the cost reduction exercise, moving on to Slide 9. We have also added flexibility in optimizing our structure. We have full start all the loans previously scheduled between 2024 and '26. All the opportunity to refinance the Rhenia and Despotiko. We have no maturities before 2028. All of them must stagger between '28 and 2032 providing for both a significant runway, but also a balanced and extended time frame to pursue further extensions or refinancings in an optimal way. Overall, we're very pleased with the effect of these transactions with improvement on the cost side, the extended maturities and the flexibility assets. We will continue to be on the lookout for accretive deals, but the benchmark is not set at a very different level. And we very much look forward to bringing the outliers Rhenia and Despotiko back along with the rest of our vessels at competitive terms.

I'm now passing over the presentation to Aristidis for the commercial aspects.

[Aristidis Alafouzos, executive]

Thank you, Iraklis. In Q2 2024 was the second quarter of our fleet having 100% spot exposure. The main objective of this quarter, as we had alluded to in Q1 was to favorably position our VLCCs that require special surveys and complete the company's drydock requirements during the weaker summer months. This was planned and organized well in advance, which required close coordination between the commercial department and the technical manager to time the vessels to have staggered deliveries at the shipyard and avoid delays. We also brought some drydocks forward and off-hire during the weaker summer months instead of during the winter. Given OET's preference to trade our VLCCs in the West, which outperforms the East market, we were able to fix many long high-earning front haul voyages for our drydock positionings. We also took advantage of the strong spring market to fix front haul business [ on our Vs ] that did not require drydock to cover for the weaker expected summer as well.

The West to East fixtures, we concluded loaded from the North Sea, the Mediterranean and South America. A number of these fixtures only occurred because of the Red Sea avoidance and voyage economics which made more sense to parcel the cargo up on a VLCC and sail via the Cape around the Africa in comparison to fixing two Suezmaxes also via the Cape and around the Africa. The disruptions due to the Ukrainian war and Houthis in the Red Sea created many triangulation opportunities that allows you to [ trans-trade ] the ship of VLCC much more like a Suezmax. Seeking these opportunities and being comfortable to the trade of VLCCs outside the usual [ TD3 ] or West to East round voyages produce a significant outperformance for us, and we're happy we took these risks.

An unexpected highlight of the quarter was progressively turning our dirty trading VLCCs into LR4s. I will go into more depth about the idea and process later in the call. There was a huge spread between crude oil and product freight rates, though, which made the cleanup trade profitable for the trader when he was incorporated the cost and time of cleaning up the crutches and the cost and time of the inefficiencies of lightering to load and discharge a vessel. Cleaning terminals at the load and discharge ports were not all designed to fully load VLCCs with diesel. We successfully cleaned up three VLCCs on a spot basis. Why do we do this? It generated premium time charter equivalent rates relative to the crude trade. It extended voyage duration during the seasonal weaker summer months, covering us for a longer period of the summer than the crude voyage would have done and simultaneously position our vessels in the [ West ]. We have the added bonus of a future clean trading optionality, but this is not our base case scenario.

To date, we have cleaned up 4 ships, which one has ventured dirty trade already. We are now experiencing the process and trusted by our counterparties. We spend a lot of time and effort commercially and technically to get these deals concluded. 2 out of the 6 VLCCs planned for this year, to drydock completed their drydocks during the second quarter being the Despotiko and Keros with the latter sailing in early July. The remaining three are planned for Q3 and one in early Q4, aiming to have the ships ready for a strong Q4. Given we do not transit the Red Sea and the decrease in Suezmax stems from the AG that are sold to the West, we have found it more challenging to trade our Suezmaxes East of Suez.

Before the Red Sea situation developed, it was very easy to find backhaul cargoes, repositioning the vessels from the AG to Europe. Now this is more challenging in their fewer cargoes. We could not risk having multiple Suezmaxes open in the East and compete against each other and the market for backhauls. Therefore, we had to calculate earnings on the Suezmax front haul voyages from West to East with a long ballast reposition back to a location where we were comfortable finding cargoes like West Africa. This deteriorates the time charter equivalent earnings significantly and in most cases, will not outperform trading the ships locally in the West. For this reason, we strongly focused on keeping them in the West with only one vessel being fixed East where we found a lucrative opportunity in comparison to the Western market earnings.

Despite the seasonal weakness prevailing in both segments towards the end of the quarter, we achieved a fleet-wide TC rate of $64,900 per day. Our VLCCs generated [ $73,300 ] per day in the spot market, a 39% outperformance relative to our tanker peers that are reported in Q2 earnings. Our Suezmax has generated $54,600 per spot day a 17.5% outperformance relative to our tanker peers were recorded in Q2 earnings. These numbers reflect our actual booked TCE revenue within the quarter as per accounting standards.

Moving on to Slide 11 for guidance on Q3. Q2 was a relatively strong quarter, which mitigated some of the Q3 seasonal weakness which we had done by fixing long-hauls on haul voyages to drydock and cleaning up the three VLCCs. This positive trend continued into Q3, where we cleaned up an additional VLCC for product trading with one more ship in the works. As mentioned previously, this move generated a premium time charter equivalent and extended the trading duration compared to accrued backhaul trade. Additionally, as again mentioned previously, we positioned ourselves back in our [ beloved, in West ] market for Q4. We hope to find market outperforming opportunities to continue trading clean following this charge of the first clean cargo, but this is not a given. In Q3, we continued our focus on positioning the remaining four VLCCs that are due for drydock with long-haul voyages East and discharging in proximity to the [ yard ]. For our Suezmaxes, we focused again in the West and on voyage optimization by limiting waiting times and balance days. Given the seasonally weaker summer in both segments, our focus and strategy to now to conclude the remaining drydocks. Already one vessel, the Nissos Rhenia has completed drydock, while the remaining 2 scheduled for the latter part of the quarter and 1 will enter in the beginning of Q4. Meanwhile, we maintain a wet positioning on the trading fleet to capitalize one seasonality changes. Once we complete the drydocks on the VLCCs, we will likely return to minimizing balance and focus on trading our VLCCs in the West. Current Q3 rates have weakened significantly with VLCC round voyages trading around $25,000 per day for AG East and $30,000 for U.S. Gulf [ PA ] while Suezmaxes are earning in the low 20s on a round voyage basis.

So far in Q3, we had 56% of our flee-wide spot days is at $51,300 per day. 58% of our VLCC spot days is at $46,100 per day, a 24% outperformance. 53% of our Suezmax spot days is $58,000 per day, a 39% outperformance relative to our tanker peers that have reported in Q3 earnings.

On Slide 13, we demonstrate how -- our ability to adapt and capitalize on the market opportunity is proven with consistent outperformance relative to our tanker peers in almost every turn of the market. We are very focused on maintaining this consistency going forward. I would like to note that the outlook for the next year is great, and our outperformance grows in front market environment. Significant softening has been seen into the summer, mainly driven by weaker Chinese crude exports, weak refining margins [indiscernible] and ongoing OPEC+ cuts. The outlook and conditions remain firm in the crude tanker market for the winter and seasonality provides for meaningful upside. Rates in both segments are at quite healthy levels and way above the 2019 to 2023 average, while expectations for seasonality boost should start appearing on the horizon soon.

Global Oil demand is expected to continue its upward trend with the IEA forecasting an increase of 1.1 million barrels per day in 2024. This growth is bolstered by increased production in the Americas, particularly U.S.A., Canada, Brazil and Guyana. However, OpEx production is expected to remain relatively stable, which may limit some of the supply increases from this group. In addition to the above, ongoing geopolitical instabilities forcing tankers to take longer routes to avoid higher risk areas. This rerouting is expected to continue increasing ton-mile [ demand ] significantly, contributing to higher shipping volumes and sustaining higher freight rates. In recent years, we have seen the winter market arrive later in Q4, but also extend deeper into Q1. We are confident seeing a strong winter market and are perfectly positioned to capture this with our 100% spot fleet and no planned drydocks.

Moving on to the following slide, I want to explain in greater detail about our decision to put so much focus into our cleaning up of the VLCCs into LR4s in Q2 and Q3. The summer is always the most challenging period of the year in terms of freight, and we look for ways to protect ourselves from this. Other than the vessels requiring drydock, we also fixed 2 VLCCs from [ our fleet ]. We had a large Eastern presence with the strategy to reposition them in the West for the winter. In addition to this, a vessel sailing from drydock will always have to fix at a discount to avoid -- to a vessel that's not in drydock for the first voyage. We saw in the market that traders like [ Mercuria and Trafiguria ] fixing dirty trading Suezmaxes on time charter and proceeding to clean them up and trade them in the clean market.

A similar voyage for crude cargo on a large dirty ship was cheaper freight than a clean cargo on a smaller clean ship. Our VLCC for the same phrase could carry 3 to 3.5x the cargo of a product carrier. As our Suezmax we're trading the West and these opportunities develop in the East, it was not an option for us Suezmax fleet. Also at the time, the spread between the clean and dirty Suezmax market was not large enough to make sense for us. The VLCC dirty market, though, was comparatively weaker and the freight we believe we could earn if we cleaned up the vessels were significantly higher. This is where we had to start taking some commercial risks. We did not market the VLCCs we had for Crude business. Instead working with the specialists, we started cleaning up the VLCCs on spec while trying to develop cargoes.

A vessel that is trading dirty will have cargo tanks covered in crude oil, a thick waxy substance. Each tank on a VLCCs is about 28 meters tall, and there are 17 of them. Every surface needs to be cleaned until it's pure bare metal. This involves hot water washing, sludge removals, chemical washing and at times having over 120 people on board scraping, cleaning and removing all the crude residue. On each ship, we removed an average of around 150 tons of sludges in sludge disposal and also in garbage size bags. This was a huge feat. The total cleaning process took about 20 days which is factored into our TCE and the total cost is amortized in the single spot voyage. We assured our charters of the quality of the work we've done and secure the business. Instead of fixing the traders, we aim to work with the refiners who own the cargoes and do not have to develop the trade as extensively, thereby reducing our risk of the voyage not materializing.

There is not an independent owner that was able to clean up over 50% of their VLCCs fleet on a spot basis. And Chris and the team did an excellent job executing this plan. If we fix on a time charter basis instead of a spot basis, we would have given up optionality and extended duration to the charter. Now let's discuss why we did it, which we mentioned earlier as well. The market was weak and the drydock ships would need to be discounted. So the [ CTP ] opportunities allowed us to outperform in earnings all the different crude voyages, whether a backhaul or a round voyage. Incorporating the time to clean and the slower discharge in loadings due to multiple [ SPS ] lengthen the voyage to take a season into the seasonally firmer Q4. The demerge rate was much higher than the crude, so inefficiencies in discharge will only improve the voyage economics. The voyages were all for discharge in the West, which is exactly what we wanted to do to reposition our ships for Q4, and we have the future clean trading optionality without any cleaning costs are time.

As already discussed, we have cleaned up 4 vessels so far, and hopefully, 1 more soon, showcasing our operational flexibility and adaptability to market conditions for the benefit of our shareholders. Lastly, on Slide 16, we look at the setup that as we discussed in the previous quarter, seems still too good to be true. An aging fleet with no order book, especially for the VLCCs and no yard capacity in Tier 1 yard until at least before 2028 creates the perfect supply scenario, especially for Okeanis Super Eco modern fleet. For 2025 onwards, we observed a significant increase in scrap candidates, especially for vessels over 20 years old in both segments, which can easily absorb the incoming deliveries.

Handing you back to the operator. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Liam Burke with B. Riley.

[Liam Burke, analyst]

The conversion of -- if I heard you right, you converted your 4Vs from dirty to clean on spec went out and you've got excellent economics on it, justifying the time to clean it, and the time and capital to invest in there. So as we look into next year into another slow quarter -- seasonally slow quarter, you have the experience of actually doing this. Would you anticipate not only doing it again, but deploying more VLCCs in the clean trade?

[Aristidis Alafouzos, executive]

Yes, I mean we're willing and always going to evaluate every commercial opportunity we get. It really depends on the strength in the clean market. So if an LR2 is as firm as it was this year, sometime next year, and there's a seasonal weakness again on the VLCCs, for sure, we'll consider doing it again.

[Liam Burke, analyst]

And do you have to have a newer vessel to be able to do this? Or could it be done with any type of VLCC?

[Aristidis Alafouzos, executive]

Well, I mean the older vessels, they may have more residue stuck inside. I mean on the private side, we have a 13-year-old ship that we cleaned up and we did it successfully as well.

[Liam Burke, analyst]

And just on the macro, you highlighted weakness in the Vs on the China trade and the OPEC+ cuts of production cuts. Is there anything else out in the market that is creating any pressure on the VLCC rates?

[Aristidis Alafouzos, executive]

I mean, obviously, the OPEC cuts and the reduced cargoes from the AG play a large role. The yards not being open as much, especially to the East, have reduced the amount of available -- the amount of cargoes that are going long-haul business from the Atlantic as well. And there's a general impact just from OPEC+ reducing exports. Russia has been over compliant as well, and that's been affecting the Aframax and Suezmaxes as well.

[Operator]

[Operator Instructions] We now turn to Petter Haugen with ABG.

[Petter Haugen, analyst]

I'm sorry, I'm sorry, that was my mistake. I was muted. Congratulations on those clean [ fixtures ]. It's something I never heard about before, to be honest. And while you answered many of my questions in your detailed walk through, there is a couple of those reminding. So just in terms of what type of products did you actually transport? Is this sort of the very clean jet fuels of the world? Or is it a condensate type of qualities?

[Aristidis Alafouzos, executive]

No, I don't think that we'd be able to carry jet fuel unless it was used for blending purposes. All the ships that we've done have carried diesel except for one that also carried some naphtha. You have a diesel car, you may be burning OET's cargo this winter in Europe.

[Petter Haugen, analyst]

So if I'm stuck here somewhere between home and my office, I'll blame you guys for contaminating the diesel, obviously. So that's my second question, really. Are there any sort of -- well, first of all, are all the clean voyages now discharged or the cargo owner is happy with the quality on the other side?

[Aristidis Alafouzos, executive]

None of the cargoes are discharged. But the way we have structured the contracts is that the responsibility for any cargo contamination is with the charter. So together with the charter and our specialists, the ship is inspected prior loading, it's deemed acceptable. And then within the contract, there is the liability of any future damages or discoloration or contamination of the cargo is it's not our responsibility. So you would have to pick up any issues with your car with the charters.

[Petter Haugen, analyst]

Okay, I'll do that. Does that mean that it's easier if you were to try to do another clean cargo now that you've sort of -- if you now discharge this is okay. Wouldn't it be, well, likely that you could repeat it with the same ship?

[Aristidis Alafouzos, executive]

Yes, you could. I just want to understand like geographically, let's say, Singapore where the previous voyage ended to the AG as a ballast is much shorter than the vessel opening up in, let's say, Rotterdam ballasting all the way back around Africa to the AG loading a cargo and going back. So we won't have that benefit of a shorter ballast, which we did. It will be around voyage. But even more importantly, clean freight has come off very significantly since then. So I think that the rate that we could fix has fallen materially as well. So at the moment, the clean cargoes are not as easy because of the weakness or the relative weakness compared to two months ago in the clean market.

[Petter Haugen, analyst]

Understood. And that also brings me to my other question. Could you share your sort of round voyage equivalent TCEs for these clean [ fixtures ]?

[Aristidis Alafouzos, executive]

I mean, yes, the first one was in the mid-50s. That was like timing -- very good timing and the following two were in the mid-, high-30s and low-40s.

[Petter Haugen, analyst]

Yes, it's probably one of the reasons why we had them. Well, we were at least surprised both of your -- or partly of the Q2 earnings, but also for the Q3 guidance given.

[Aristidis Alafouzos, executive]

What's good about -- sorry for interrupting you. The benefit of these voyages is that if there is any inefficiencies in the discharge because a VLCC cannot go in discharge into some small port in Europe that would usually receive 30,000 or 40,000 tons of diesel. We're going to have to go in [ lighter ] in Malta or off to Rotterdam. And if there's any weather delays or vessel inability to source vessels for lightering, we can easily rack up demurrage and the demurrage is quite a bit higher than the time charter equivalent rate. So as the voyage is prolonged due to inefficient discharge, we will improve in our time charter equivalent of the voyage.

[Petter Haugen, analyst]

And this is going directly actually to what I was coming to. Any guidance for the remaining 40%-plus of the days for Q3? Yes, because my understanding from your earlier comments as well, was precisely that it could be better than at least the current spot and [ FFA ] market for the latter part of Q3 is suggesting today.

[Aristidis Alafouzos, executive]

I mean, I mentioned that on a round voyage basis today, these are somewhere between $25,000 and $30,000 and Suezmaxes are in the [ low 20s ]. Now we'll do everything we can to outperform this like we try to always do. But if we were just fixing around voyage, that's where the rates would be for the balance of the Q3.

[Petter Haugen, analyst]

Right. Understood. But if instead, you're sort of slow moving outside Malta, you would have 2 to 3x those $25,000 per day, if I understand you right?

[Aristidis Alafouzos, executive]

Yes. That's correct.

[Petter Haugen, analyst]

Okay, this was very interesting. Have you seen any other shipowners doing it at the same scale as yourselves?

[Aristidis Alafouzos, executive]

I think the only other companies managing to be so active and been the traders like Trafiguria and Mercuria. There are other owners that have done that one or two ships, but I'm not aware of anyone else doing more than that.

[Petter Haugen, analyst]

Understood. Do you think that this crude tankers coming into the product trade is a reason for what you just -- well, also referred to the declining product tanker rates?

[Aristidis Alafouzos, executive]

It definitely affected product tanker rates in the East because you've had -- I think now there's 10 to 12 VLCCs and even more Suezmaxes competing for LR2 business and LR1 business. So it definitely impacted that.

[Operator]

We now turn to Bendik Nyttingnes with Clarksons Securities.

[Bendik Nyttingnes, analyst]

Congratulations on another strong quarter. I just have some questions on the fixtures for 3Q. Last quarter, you had quite some large portions of your [ VLCC coverage ] and now that portion seems quite a bit smaller. I mean besides the slightly earlier reporting date, are there any fundamentals driving that decrease in coverage?

[Aristidis Alafouzos, executive]

In terms of time charter coverage or percentage of the spot fixed?

[Bendik Nyttingnes, analyst]

The percentage of the spot fixed?

[Aristidis Alafouzos, executive]

I think definitely one impact is that we have 2 ships going to drydock. So instead of being able to be commercially chartered they're in the process of being drydock. The Suezmax , as I mentioned earlier, they're staying local in the West. So they're doing shorter voyages overall. So they're coming open quicker. If we had fixed something U.S. Gulf, China or Brazil, China and Suezmax rather than Turkey to Europe, it shows you the difference. And we're also reporting slightly earlier as well. [ So those two impacts ].

[Bendik Nyttingnes, analyst]

Yes, that make sense. And another question. Previously, you've been really good at finding routes that are sort of niche and higher earnings. And recently, we've seen, I guess, the tension in the Middle East increasing. Are you experiencing any change in competition for those sort of more niche routes as potentially in the [ MEG ] increases.

[Aristidis Alafouzos, executive]

I mean I think like most Western owners, especially listed owners, the Red Sea has been an area that we've stopped trading through. And it's been a while now that we've transited the Red Sea. So there are some niche businesses that go through the Red Sea, like fuel oil that gets delivered into the Red Sea or AG to Red Sea business that we can't do. And there's even some European charters who still like to transit via the Red Sea, their cargoes. So I would say the impact of the tension in the Middle East and the Houthis is closing the Red Sea for a large part of the fleet has impacted everyone and opportunities have formed because of this.

So one of these of the niche markets that we had found was that while Europe had been come accustomed to importing Iraqi crude on Suezmaxes via the Suez, while they were transitioning and finding alternatives to this crude instead of taking one Suezmax, they were taking -- they were parceling up 2 Suezmax cargoes on to VLCC. So in Q1 and Q2, we were quite quick to fix a couple of those voyages and taking 2 Suezmax cargo and the VLCCs from [ Basrah ] to Europe around Africa. In addition to that, there were also cargoes from Europe that were going to Korea to China on Suezmaxes. Again, it became inefficient to go around the Africa, and we were quick to grasp opportunities to parcel up 2 Suezmax cargoes and go around the Cape on VLCCs. So we look for opportunities. And for sure, all these conflicts create them.

[Operator]

This concludes our Q&A. I'll now hand back to Iraklis for closing remarks.

[Iraklis Sbarounis, executive]

Thanks, everyone, for dialing in. I wish you the best for the remainder of the summer and look forward to speaking again in November. Bye, everyone. Thank you.

[Operator]

Ladies and gentlemen, today's call has now concluded. We like to thank you for your participation. You may now disconnect your lines.