Eneti Inc (NETI) 2018 Q3 法說會逐字稿

Hello, and welcome to the Scorpio Bulkers Inc. Third Quarter 2018 Conference Call. I would now like to turn the call over to Hugh Baker, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Thank you all for joining us today. On the call with me are Emanuele Lauro, our Chairman and Chief Executive Officer; Robert Bugbee, our President; and Cameron MacKey, our Chief Operating Officer.

The information discussed on this call is based on information as of today, October 22, 2018, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release that we issued today as well as Scorpio Bulkers' SEC filings, which are available at www.scorpiobulkers.com.

Call participants are advised that the audio of this conference call is being broadcast live on the web and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days.

Now I'd like to introduce Emanuele Lauro.

Thanks, Hugh. Good morning, everyone. Thank you for joining us today. I'm pleased to report our best quarterly revenue and EBITDA since the formation of the company. Strong sequential improvements continue and the business is starting to generate good levels of operating cash flows. We're focused on investing this cash for high returns or returning it to shareholders. With that in mind, the board has agreed this quarter to maintain the company's dividend and to increase the buyback authorization to take advantage of current share price.

Also, the board elected to make a significant investment in Scorpio Tankers, at an interesting moment in the company's development, and more broadly, in the product tanker market cycle. Investment in STNG was evaluated at length and ultimately approved by a committee of independent directors of Scorpio Bulkers. It has the support of the most significant shareholders of Scorpio Bulkers, and it followed a deliberate process overseen by professional advisers and underwriters. In short, while this investment has garnered some controversy, it was not, and is not, taken lightly.

Returning to our core business. The supply dynamic in dry bulk continues to improve. In our view, the industry remains disciplined, partly driven by an ongoing shortage of capital. This is allowing us some visibility into 2019, and we expect the steady recovery in rates to be sustained. In our Kamsarmax and Ultramax segments, this is particularly the case.

To preempt the inevitable question on trade wars and emerging economies, our demand patterns have remained steady. This is particularly due to the diversity of cargo shipped by our midsized vessels.

Our industry faces a huge dislocation from the changes in fuel regulations, mandated by the IMO from 2020. Regulatory changes can often lead to perverse outcomes. Scrubber technology may be one such example. However, in adversity, there is often opportunity. And after significant talk and analysis, we recently announced the measures we are taking to install scrubbers. This is a significant industrial undertaking for the company, and as a result, I'm glad that our COO, Cameron MacKey, will share his thoughts with you on this call and provide an insight into our thinking.

Finally, we have undertaken important capital and liquidity measures this quarter to extract value from the fleet and preserve maximum balance sheet flexibility going forward.

With that, I will hand over the call to Cameron.

Thank you, Emanuele. The decision to install scrubbers in the majority of our vessels was made after careful analysis of the risks and potential benefits. Our initial posture of patience or wait and see opens up the valuable optionality and additional information on this decision to a point. In this regard, we're happy to be fast followers rather than a first mover.

Of the major risks, they include: the pen stroke risk or the risk of further changes to regulation or delay; the risk to availability of different fuels in the market; and obviously, the risk on the spread between gas oil and 3.5% fuel oil.

In addition, many of our vessels delivered between 2014 and '15, and therefore, have previously scheduled dry docks due in 2019 and '20. We've secured yard capacity for these dry docks in advance. Thus, we're fortunate that we are coordinating vessel scrubber installations with their previously scheduled dry dock.

The potential impact of 2020, given that the vast majority of the world's fleet will not be initially fitted with scrubbers, leads us to believe that slow streaming, market dislocations and enhanced levels of scrapping will further tighten supply. And those in the best position to benefit from these favorable conditions will be modern, fuel-efficient vessels equipped with scrubbers.

With this, I'll hand the call over to Hugh to discuss our financial results in greater detail.

Thank you, Cameron.

Rates for our ships increased sequentially each month over the third quarter of 2018. And in the quarter, our Kamsarmax fleet earned $13,649 per day per ship, and our Ultramax fleet made $11,342 per day per ship. We continue to make healthy cash flows, with rates increasing to date in October, and visibility into November bookings suggest November is stronger still. In our earnings press release, you will note that we booked 49% of our Kamsarmax fleet days to date in Q4 at $14,382 per day and 47% of our Ultramax fleet days to date in Q4 at $13,388 per day.

The outlook for our dry bulk business into '19 and 2020 looks very positive, and we are optimistic. We recently announced a small amount of time charter cover to take us through to past Chinese New Year and this was fixed at attractive rates to support this optimistic market outlook.

We have the best fleet in the dry bulk sector. The most modern vessels, built at high-quality yards, already 100% fully fitted with ballast water treatment systems, and which will be fitted with scrubbers during the next 18 months. As Cameron has explained, the scrubber investment decision is a reflection of our strategy to maintain our fleet as the best-in-class Ultramax and Kamsarmax fleet as well as comply with the 2020 regulations.

Business is strong and rates are currently attractive, so we are generating strong cash flow and liquidity. During the quarter, we executed a number of financing initiatives, which further increased our liquidity. Our current liquidity is $58 million, but we anticipate this will increase by a further $38 million over the next few weeks, as we close 2 previously announced financing transactions as a result of this, and the strong rates we are forecasting for the fourth quarter, we expect our available liquidity at year-end to be substantially higher than today's level. We're comfortable that we'll finance our recently announced scrubber program at attractive terms, and we expect to announce scrubber financing initiatives during the fourth quarter and the first quarter of 2019. The complete cost of our scrubber program will be paid for by a combination of loan finance, both specific scrubber loans and non-scrubber specific loan finance, current liquidity and cash generating -- generation from our existing fleet. And we expect to be able to comfortably manage this burden.

At the moment, we do not see but significant buying opportunities for fleets of ships of our caliber at attractive levels, and believe a better strategy to produce value at this time is to run our existing fleet and reap the benefits of an improving operating environment. We're currently not looking at any other opportunities. At its current valuation, we consider that our own stock presents an excellent opportunity, and for this reason, following on from $11.9 million of our own stock purchased from the beginning of quarter-to-date, we are now resetting our available buyback amount to $50 million.

We want to get the money to work at the best potential return. And so, we recently invested $100 million in Scorpio Tankers, an investment which was supported by our leading shareholders. We perceive that to be significant upside in the product tanker sector, and we believe Scorpio Tankers with its large modern fleet and market cap is the best available company in this sector. We were able to secure a good position in this sector we know very well at a very attractive price level. This investment supports our focus on creating the most value over time, and not overnight.

In conclusion, we're optimistic about rates and the cash flow generation is strong. So we look forward to the future with great confidence.

With that, I'll open the call up to Q&A.

(Operator Instructions) Our first question comes from Magnus Fyhr with Seaport Global.

Just a couple of questions. First, on the chartering strategy. Noticed the fixed employment has increased a bit. Rates aren't expected to increase further going into the winter. Can you just, kind of, elaborate a little bit on what your strategy is as far as fixed percentage of the fleet going forward, or if it's just opportunistic?

Magnus, I think that primarily, this was opportunistic. At the time of fixing, you have this sort of really extraordinarily good, strong market in the sense that your markets in Contango for the ships that we have and your time charter rate, the time in fixing was higher than the paper rate, which was higher than the spot rate, and you're able to fix that first quarter, which traditionally, has been the weakest quarter at higher than what you're actually fixing in the fourth quarter in the present spot market. So that seemed a very, very good, sort of, risk reward. And we may continue to fix a few more ships up there in those levels to cover that first part of the year. But either way, we've left -- we'll leave the majority, the vast majority of the fleet on the spot market into what we think will continue to be a strengthening market related to demand and lack of fleet new tonnage next year.

So, I guess, on the current percentage, it's about below 25% or around 20%. You don't see that going over 30% during the winter or...

I don't think so, no. But that depends on where the rates go to. But I don't think that if -- over the winter is a long way into January, February. So you may get a point in time where you're technically at 32% or something, but I would doubt if it goes beyond the high 20s.

Okay, very good. And maybe for Cameron. When you're looking at putting scrubbers on the ship and calculating the economics, what -- how many sailing days are you expecting to use scrubbers for after 2020 on an annual basis?

Obviously, Magnus, it depends on the trading area and trading pattern of the vessels. But just as a rough guide, you can use between 260 and 300 days.

And our next question comes from Amit Mehrotra with Deutsche Bank.

So just, Cam, just following up on the scrubber question. Just on the investment and timing, are all the orders firm or does any of the orders reflect options? And I think most people that know much about IMO 2020 think the market could get very dislocated shortly after the mandate or right at the mandate. So just want to understand the strategy of waiting to install some of them until 3Q of 2020. That was really, kind of, the source of the question in terms of maybe some of that reflects options that you guys were looking at to maximize your optionality.

No, thank you for that. It goes without question, and we've said this on previous calls, that the analysis is a bit more nuanced in Ultramax or Kamsarmax than it is on a VLOC or a Newcastlemax. And certainly, it's more nuanced because of the age and fuel efficiency of our vessels. So for all these reasons, we wanted to really get our hands around, particularly, that pricing and availability, those 2 risks that I spoke of before, let alone the political risk. As it appears, once the big guys, whether it's container operators or large tanker or bulk carrier operators go for scrubbers, the supply chain, the bunker supply chain in the industry starts to get reassured on demand post 2020. And therefore, we can then piggyback on that reassurance to be more confident in our investment decision. When it comes to the timing, you're right, there is a bunch of optionality in our agreement. So I'd say, it's neither -- our orders are not entirely -- they are firm, but I would also describe a fair bit of flexibility or optionality in our program to move around timing and installation as the market develops further.

Interesting. So basically, you're saying that half -- maybe more than half of the fleet may actually not be installed until maybe early 2020. And then, you may start accelerating the installation process.

Let's put it this way. I think, as a modeling assumption, you can say between, say, the second quarter of '19 and the third quarter of '20, you should look at pretty much a linear distribution. But in that time frame, should we face unforeseen risks, we will adjust as necessary, or to the account handlers.

Okay, that's helpful. Just one last one for me. Cam, I can't hang up without asking about the 800-pound gorilla in the room, which is the STNG investment. So Robert or Emanuele, in an environment, I guess, where capital for shipping is quite scarce, following the investment, where does SALT exactly fit among the dry bulk peers, just given now that 20%-plus of the net asset value of the company represents an investment in a product tanker company? And then, also you keep on reiterating, for obvious reasons, why the deal -- that the deal was supported by the most significant shareholders. Obviously, SSH is the biggest shareholder for SALT. Can you just give us some more color on that because the reaction, to be quite fair, has been almost across-the-board negative on the investment? And so, I just want to understand how much of the share capital base did you get locked up before you decided to do this investment? Or was it just SSH, just given its position as the largest shareholder?

Thanks for the question. Okay. So let's take the last question first, which is clearly an important one. Over 50% of the outstanding shares of SALT were supportive of the transaction. And so, in that sense, I would say, highly supportive, not only in just the idea of SALT doing it but also in the actual STNG position too. I don't really think that we've taken into consideration how we fit with our peers. We've only really taken into consideration the idea of creating value over time. And when we look at the product market and we look at the product market related to 2020, there is a product market that is really at the cusp of its recovery. And certainly, you could look at the dry bulk market as somewhere in the 4th or the 5th innings maybe. And the product market, they're still throwing out the -- whatever it's called, the practice pitches or the celebrity pitches. And STNG itself is in a position where the product market doesn't just gain from the improvement of the product market and the tanker market but it really is the main beneficiary under this 2020 with its new fleet and its size and its position, and that the pricing that the STNG deal was done, it created tremendous value as an investment for the SALT shareholders. And touch -- cross fingers already, the product market has been improving every day since SALT made its investment and the tanker market itself led out...

Yes, but the stock is down $0.11. The stock is down $0.11 since you priced it though.

Sure, but we're not -- it's not daily mark. The SALT is not making a daily mark on the position of it. We're looking to see what happens in 3 months, 6 months. So you could arguably -- if you want to do a daily mark, SALT is down, STNG is down less than the Star Bulkers in the last 10 days. But if you make the comparison to other dry bulk stocks, STNG's stock has outperformed every dry bulk company in the last 7 days. 7 days is irrelevant.

And our next question comes from Randy Giveans with Jefferies.

Two quick questions on the scrubbers for me. So who is the supplier of the scrubbers? And how much downtime is expected for each vessel?

We're -- thanks, Randy. We're not prepared to disclose the scrubber suppliers right now, but we will in time. We're still working through some follow-up terms on our agreements. The downtime that we expect for installation is about 28 days, including commissioning. Of that 20 (sic) [28] days, as I mentioned, most or many of our vessels have previously scheduled dry docking that will take up somewhere between 60% and 75% of those days. So in other words, the scrubber work -- installation work will be going on concurrently with other regularly planned maintenance on the vessels.

Okay. And just for our own analysis, you were saying days at sea: 260-plus days. What is the daily fuel burn for that kind of full speed on the Kamsar and Ultramax in terms of tons per day?

It actually depends a great deal depending on the type of cargo and the order-to-speed in the charter partly so we might take that off-line, but we can walk you through some indicative analysis, if you like.

Okay. Now switching over to the $100 million investment in STNG. Is that kind of a sign that you believe those shares are a little better valued than SALT shares?

No, I don't think you should -- life isn't that simple. We've been -- you can that we've been buying back shares of SALT at every opportunity. We've been in the market almost every day. You can imagine there've been a lot of blackouts with SALT. You have the official earning windows that you can't deal and then, if you're preparing to do a deal, you can't buy, and if you're doing a financing or material information, you can't buy either. So of the days that we've been allowed to buy, I think SALT's been virtually in the market every single day. We've also been asked and tried to do block deals every single day in the market, and we've been unable to get those block deals. Right now, look, I understand that some people, if they want to sell a company, don't necessarily want to do it in a public way, so contact us, contact the company if you have a block of shares that you want to sell. We'd like to know about that. So we really believe that SALT is a great value. We bought back shares where we could this quarter. We have been buying through the year. It's not -- we're not just re-upping the shares buyback to $50 million with -- for show, or without the ability to do it. We can clearly do that off our balance sheet and our expected forward earnings. And as shipping companies go with buybacks, you can see we've made a concerted effort to do that. You just could not go and take, efficiently, $100 million of SALT. We couldn't buy that through the market, and we couldn't efficiently append it to buy $100 million of SALT, knowing how close and tied-up our shareholder base is. So it's certainly not a confidence -- a lack of confidence in SALT that we buy STNG.

Okay. And then following up on that. How long do you expect to hold these STNG shares? Is there a lockup period?

Well, we -- there is a lockup period but we expect to hold STNG shares for considerably longer than the lockup period. The lockup period was 90 days from the actual deal itself. You can see from the balance sheet -- there are a few people who didn't really follow the company properly or understand the SALT balance sheet properly, who may have thought that SALT would've been under pressure to sell the STNG shares if the dry cargo market went south, but you can see from our balance sheet, there is no pressure to do that. So we're running out the investment, if you were to look at, we've already said that we think that the product market is poised and it's very early stages of recovery. But it's got this rare event coming in shipping, which is a clear positive demand-side catalyst coming toward in '19 4Q, '20. So that would indicate that we -- for the foreseeable future i.e. the next year or 2, we'd expect to be owners of Scorpio Tankers' shares. Can -- whether Scorpio tanker doubles in value and in a relatively short time, who knows, and whether our shareholders then say, okay, let dividends and shares out, that's okay. But in terms of our actual shareholders, whether it's directly through SALT itself or through our individual shareholders via dividend, which we will follow their advice over time, who knows.

Okay. And then, I guess, since SALT is or has been or still is a dry bulk company mostly, how would you -- how are you seeing, kind of, the US-China trade war concerns, tariffs, apparently Brazil, Argentina starting to import U.S. soybeans, are you seeing some of those flows on your ships?

Yes, I think we've been a beneficiary and continue to be a beneficiary in the soybean trade. We're probably, in those smaller ships, becoming a beneficiary too in the regions around China growing, the Chinas, Vietnams and other areas. We could become an even greater beneficiary if some of the talk related to -- some of the worries related to the Capesize market, which is China's own domestic steel demand slows, we could probably -- we may become a -- sort of, an accidental beneficiary to that if China on the other hand, is upping its exports of steel itself.

And our next question comes from Noah Parquette with JPMorgan.

I wanted to ask about the sulfur regulation. I mean, there was a news last week, the Trump administration wants to put in an experience-building phase and obviously, there was a report couple of months ago from Intertanko and some other flag states. Do you guys see any risk of that happening or any, even, path to some sort of experience-building phase? Or is that just not really something to think about?

We don't have -- or we can't predict the future, but up till now, it's appeared to be a very remote risk, very remote. Now, different constituents of the IMO obviously, have their own agendas. So I would say, much towards disappointment, Intertanko and some of the larger flag states don't really represent our interest, either in the short term or in the long term. I'd call them more apologists for your typical small undercapitalized ship-owner, who obviously seeks a delay and doesn't have the capital to install a scrubber. Trump, I think most people believe, is looking to high gasoline prices with some sort of interest in talking them down. Of course, the U.S. could withdraw from the regulation but that doesn't change what happens in the rest of the world. And furthermore, there's some debate over whether that changes, what happens in The States in their own local ports. So the short answer is, it doesn't really bother us, and we don't see a significant change because of those headlines.

I'd just like to add one thing on these charters. I think, it's important to look at the charters themselves that they're basically -- the longest charters are about 6 months, the average is about 5, 6 months on the position, I think there's 1 or 2 that are a little bit longer. So that itself is a pretty bullish statement in that we're really only looking to see recoveries for the first quarter in the minority of the fleet itself. So I'd just add that as a point.

Okay. And I just wanted to ask, I think you guys said the share count -- and maybe this is more of a modeling question -- was 75.4 million now and the weighted average was 72.7 million last quarter and obviously, you've been buying back shares. What's the discrepancy between those two? Is that restricted stock or is it something else I'm missing?

It's restricted stock.

Can you give any sort of guidance on what the weighted average for EPS purposes will be in Q4? Or it's early?

2.7 million shares.

And our next question comes from Ben Nolan with Stifel.

Robert, I wanted to follow up on what you just sort of mentioned there about sort of how you're thinking through your charter coverage, and marry it in maybe with the scrubbers. I know in recent conversations that I've had with a number of the charters, they are looking to lock in cover for scrubber-fitted ships for longer durations beyond 2020. I'm curious now that you guys have made that move, or is there a degree of then reverse inquiry into you guys saying, hey, great, we would really like some of your Supramaxes or whatever and here's the rate we'd be willing to pay? Or is that just not a conversation you're having?

There -- Ben, it's Cam. There is inquiry and yes, it's not a conversation we want to have. Obviously, we're used to this type of inquiry from the time we ordered our vessels being the most modern and most fuel-efficient. So it's a new iteration on an old conversation. But as you know very well, the charters aren't willing to pay a rate that makes sense for us. So given that our charters and a lot of our wages are on either short term TCE or, call it, dollars per ton business, the rent that we're able to keep by staying spot is much more attractive than looking to fix out and sharing that rent with a big charter.

Cam, do you think that discrepancy closes as we get closer to the implementation day or it's not?

Absolutely. No, no, absolutely, it will. Like -- I think if I had to predict, you'd be looking at in a year's time, a real 2-tier market, scrubber-fitted and nonscrubber-fitted for a lot of the shorter period. And then as you get further out the charter curve, as you do in other asset types, you get much more to a return on capital type discussion as opposed to a utilization and state-of-the-cycle type discussion, right?

Sure. And do you think as we -- should that develop, and we get to 2-tier market and as we get a little bit further out, is there a point at which you would be willing or open to having those conversations saying, fine, we'll charter you at x but we want that premium for 3 years or whatever? I mean, is that too far afield from, kind of, the spot model that you currently have?

No, I mean, those types of conversations go on all the time. But I'd like to say that our customers appreciate that we're spot-oriented, and we're in for a cyclical recovery in a cyclical play. So it would be somewhat of a counterintuitive, let alone a significant change in our commercial strategy, to start to entertain longer-term fixtures either in any respect but certainly, on the basis of scrubbers alone.

I think, Ben, also you look at it, like right now, if you took, in simple terms, the value of a modern Ultramax without scrubbers and the net time charter rate, you're throwing off around a 10% gross cash flow to valuation. If you moved up into -- as a result of putting scrubbers on and the market improving and you moved up to -- rose 25% return on your valuation or 20% with the valuation moving up maybe 10%, 15%, 20% as a result of rates, it's a different prospect then. If you're locking a ship out and you're able to return all your equity within a 3-year period, then I think it's a sensible thing anyway to probably fix some ships out.

And our next question comes from Liam Burke with B. Riley of PRP.

In terms of the up-in-the-air regulation, how are you addressing open versus closed systems on the scrubbers?

Thank you. Our scrubbers will be fitted -- or called hybrid-ready, which means they will be fitted to operate only in open-loop condition. And then, in the future, should the regulatory landscape change, we can further modify the vessels and the systems to operate in full hybrid mode. So it's like buying a cheap option or installing open-loop scrubbers with the option to turn them into hybrid or closed-loop systems in the future.

Okay. And would that require any more dry docking? Or could that be done relatively easily, the upgrade?

No, a closed-loop system is a bit more entailed work. So like I said, the environment would have to change significantly enough for us to count additional dry docking work for that. But the flip side of it is, just to be clear, the world is not mandating, at this time, closed-loop scrubbers, and it will take some -- significant time horizon for that to come through the IMO or reach a critical mass in the world.

And our next question comes from Max Yaras with Morgan Stanley.

Going back to the 2-tier market for scrubbers, what percentage of the Ultramax or midsized fleet you expect to have scrubbers? And then what percentage does that have to get to where you start to not realize the full economic benefit of the spread?

We -- thank you for the question. We don't have very detailed statistics, but in general, those who are installing the scrubbers have to have access to significant amounts of capital. And as you know, from where the dry bulk market has been only a couple of years ago, there aren't a lot of owners that have access to that capital. So it's a very, very small number, occupied mostly by publicly listed players or very large well-capitalized private owners. So of the total Ultramax fleet, I can't imagine that's more than a couple of percent of the entire fleet. And it will take -- again this is just a guess, it will take several, several years before you get to a significant number of Ultramaxs being scrubber-fitted.

Okay. And then on the financing, I know it's not fully announced yet, but what kind of rate do you expect to achieve on that financing rate? And is it with existing lenders or new lenders?

Max, we haven't really determined yet how we're going to do it, but we have a pretty good idea of the sort of general direction of travel. We would anticipate that the majority of the finance will come in the form of, sort of, conventional bank lending. It will come for our existing lenders, and we're not anticipating that we'd have to pay more than the current cost of finance for scrubber financing. Now currently, we're getting financing done from, sort of, conventional European shipping lenders at around LIBOR plus 230 to 240 basis points. And I think that that's sort of where we're going to expect the majority of our scrubber finance to come out at.

Okay. And then one final one on the STNG investment. Are you looking at any other investments outside of the dry bulk space?

No.

And our next question comes from Jon Chappell with Evercore ISI.

Cam, I just have two follow-ups for you on comments you made before. So the dry dock schedule, you said most of the ships that are going to do the scrubbers would already, kind of, plan for dry dock. Can you just tell us how many off-hour days are expected for 2019 pre scrubber decision and then post scrubber decision?

Jon, I'm going to defer to Hugh for that and he might not have it handy right yet because we're still getting final documentations on our slots in our scrubber schedule.

I think I can -- all I can say is that what we've obviously, put in indicative of higher periods in our own internal financial projections, I don't think we're really in a position to share that, but I would go back to what Cameron has said is that, we are -- most of the scrubber installation is going to be concurrent with normal dry docking schedules of the vessels. And generally speaking, we're looking at -- dry docking and scrubber installation is generally in the, sort of, 28-day range with -- if it's scrubber installation on its own without a dry docking, you're looking at less than that.

Okay. Well, maybe Hugh, how many were scheduled for dry dock anyway in 2019? And then, is there any way to say how many that you've decided to put scrubbers on weren't in the normal 2019 schedule and now will be added on top of the normal schedule?

I don't have my -- the schedules at hand but obviously, all of our vessels that were built in 2014 will be dry docked in 2019, and all our vessels built in 2015 will be built -- will be dry docked in the year after and that may -- and then we will potentially include other vessels that we will just simply be putting scrubbers on without dry docking. Cameron, can you...

Yes, that's about right. We can -- if you want, Jon, we can schedule a call after this to walk you through the schedule and the math.

All right. I appreciate it, Cam. The second thing is you mentioned the fleet slowdown just benefiting the industry in general, and certainly one of the catalysts we've been expecting as this regulation has phased in. But we're starting to hear from some industry players, and maybe they're pitching their own book from the charting side, that the fleet's already operating, kind of, near optimum speed, given just the proximity to the deep downturn in 2016. Is there, kind of, any way to gauge how much more potential slowdown could happen from running on the compliant fuel? Or are these charters, kind of, on point where the fleet's kind of already running at optimum speed?

No, not necessarily, Jon. I'd say, look, laden speed is what the charters care about. And you've seen charter party speeds move around a little bit with the cycle. 13 knots down to 10.5, 11, back up to 12, et cetera. Now ballast speed is entirely at the discretion of the owner. And so, what we're predicting is there's a certain self-correcting mechanism, or part to this, but still the same where less well-capitalized or older ships, if you take the additional cost of compliant fuel into account, their ballast speed could go well down to 7, 8 knots, if they really want to optimize. So when you say optimize, it depends on whose perspective you're adopting.

I would just like to add before we wrap up a pretty significant data point, which I think is quite bullish. This is the first conference call we've ever had with SALT, where there's not a single Norwegian or European analyst asking a question. So with that, I'd just like -- Hugh, if you'd like to wrap up?

Thank you all for being on this call. We have no further questions, and thank you for joining us today, and we look forward to speaking to you all in the future. Thank you very much. Thank you, operator.

Not a problem. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone, have a great day.