Ardmore Shipping - Q1 2020
May 5, 2020
Transcript
Operator (participant)
Good morning, ladies and gentlemen, and welcome to Ardmore Shipping's first quarter 2020 earnings conference call. Today's call is being recorded, and an audio webcast and presentation are available in the investor relations section of the company's website, ardmoreshipping.com. We will conduct a question-and-answer session after the opening remarks. Instructions will follow at that time. A replay of the conference call will be accessible anytime during the next two weeks by dialing 1-877-344-7529 or 1-412-317-0088 and entering passcode 10143555. At this time, I will turn the call over to Anthony Gurnee, Chief Executive Officer of Ardmore Shipping.
Anthony Gurnee (CEO)
Good morning and welcome to Ardmore Shipping's first quarter 2020 earnings call. First, let me ask our CFO, Paul Tivnan, to describe the format for the call and discuss forward-looking statements.
Paul Tivnan (CFO)
Thanks, Tony, and welcome, everyone. Before we begin our conference call, I would like to direct all participants to our website at ardmoreshipping.com, where you will find a link to this morning's first quarter 2020 earnings release and presentation. Tony and I will take about 15 minutes to go through the presentation and then open up the call to questions. Turning to slide 2, please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from the results projected from those forward-looking statements. Additional information concerning factors that would cause the actual results to differ materially from those in the forward-looking statements is contained in the first quarter 2020 earnings release, which is available on our website. Now I'll turn the call back over to Tony.
Anthony Gurnee (CEO)
Thank you, Paul. Let me first outline the format of today's call. To begin with, I'll discuss quarterly highlights and then key industry developments, after which Paul will provide an update on tanker market activity, a summary of our performance, and a detailed financial update. Then I'll conclude the presentation and open up the call for questions. Turning first to slide four, we're reporting adjusted net profit of $6.5 million or $0.20 per share for the first quarter 2020 as compared to an adjusted net profit of $2.5 million or $0.08 per share for the fourth quarter of 2019, reflecting substantially improved tanker market conditions. The MR charter market was performing very well even before the full impact of the oil price war and pandemic, which is reflected in our first quarter performance.
Our MRs earned $19,300 per day compared to $17,700 in the prior quarter, and our chemical tankers earned $19,700 per day compared to $14,300 in the prior quarter. Throughout April, the pandemic and the price war increasingly impacted the oil market, resulting in overproduction, physical supply demand dislocation, record volatility and steep futures contango, and rapidly depleting oil storage capacity. Tanker demand jumped as a consequence and pushed rates to record highs, initially for crude and more recently for product tankers, as evidenced by our recent activity. Our MR voyages, booked in the second quarter to date stand at $24,000 per day, with 55% of voyage days fixed for the quarter. Our MR voyages in progress, representing roughly the last three weeks of activity, now stand at $28,200, and most recently we've booked voyages as high as $72,000 a day. So clearly, the market's been building over time.
Any increase in TCE performance goes straight to the bottom line, with every $10,000 a day increase in TCE performance adding $90 million to earnings and cash flow annually. In this volatile but strong tanker charter rate environment, we intend to remain on the front foot commercially while remaining financially conservative, adhering to our capital allocation priorities, which we announced in March. Turning next to slide five on key industry developments. Every quarterly earnings release, we have to call it the way we see it regarding the product tanker market, even under circumstances such as this. What we've seen is an unprecedented collapse in oil demand and massive overproduction exacerbated by the OPEC-Russia price war and the filling up of a substantial portion of global oil onshore storage.
In spite of the OPEC+ cuts, some production declines and a modest recovery in consumption, the overproduction may be lower, but we believe not enough to avoid shore storage reaching max capacity in the near term. A demand rebound is expected sometime in the third quarter of 2020 if the virus cooperates, but it's unlikely to occur before shore tanks are functionally full. Already, about 10% of the world's large tanker fleet is engaged in floating storage or carrying elevated levels of oil on the water, and we expect this to continue rising. Under these conditions, our view is that the value of oil storage, including floating storage, could go extraordinarily high, resulting in a second round of strong tanker rates.
When an economic recovery does occur, oil demand would rise with it, with oil products available but in the wrong locations and a significant portion of the world tanker fleet still tied up in storage. This, we believe, could result in potentially a third round of strong rates. As a consequence, we expect the product tanker market to remain volatile with spikes and lulls but at overall elevated rates for the near term, possibly into next winter. This is not the only potential scenario out there, but at the moment, our view is that this one has the most logic. With that, I'll hand the call over to Paul.
Paul Tivnan (CFO)
Thanks, Tony. Turning to slide seven for an update on current tanker market activity. The product tanker market enjoyed significant strength from November to February as a result of IMO 2020 demand overlay and winter market conditions. COVID-19 and the associated disruption has effectively turbocharged demand for tankers to date. As you can see on the chart on the upper right, the oil price war coupled with the demand impact from COVID-19 saw a dramatic collapse in oil price and heightened volatility. The oil market went into steep contango, opening up trading and storage opportunities, and bunker cost declined, reducing voyage expenses and boosting charter rates. Product tanker charter rates are now at unprecedented levels, driven by a number of factors. As you can see on the chart on the lower right, oil price volatility, a key indicator of trading activity, has reached record highs.
The OVX in March was nine times average levels for the past five years. At the same time, there are significant regional imbalances of refined products driving demand for cargo movement. Global oil oversupply is resulting in a surge in demand for floating storage due to unprecedented imbalance between oil supply and consumption. Diesel, jet fuel, and gasoline markets have moved into sharp contango in Europe, U.S., and Asia Pacific. The collapse in oil price has boosted demand for substitute products. Oil and gas products are displacing coal for power generation, while demand for naphtha has surged given the low price relative to propane. Finally, COVID-19 restrictions are causing significant disruption and increasing the demand for ship time and supporting charter stronger rates, notably logistical bottlenecks, port delays, and congestion. Moving to slide eight for a near-term market outlook.
Onshore oil storage is forecasted to reach capacity as early as mid-May. The OPEC+ cuts are unlikely to be enough to offset near-term oil demand losses. Estimated oversupply for May and June is expected to be significant, and based on the IEA's estimates for 2Q20, oversupply of crude is estimated at 11.9 million barrels a day, with refined products estimated at 5.5 million barrels a day. As can be seen from the graph on the upper right, the IEA estimates that there are approximately 100 million barrels of available operational capacity in storage as of the end of April. Based on these levels of oversupply, approximately 20% of the world tanker fleet could be committed to floating storage by the end of June, which is unprecedented. Floating storage is expected to rise rapidly as a practical and viable option.
Oil traders need to manage existing contracts and hedges, while oil producers need to weigh the cost of reducing or shutting production. As a consequence, near-term demand for product tankers could remain very strong, potentially through next winter. The oil market is expected to remain very choppy and volatile, while the global economic recovery could fluctuate, resulting in continued uncertainty. We expect more disruption to oil trading flows as the economy reopens in various stages, and a large portion of the world tanker fleet tied up in storage would limit ship supply, as oil in storage would also need to be redirected to immediate points of immediate consumption. Moving to slide nine for a view of the medium-term market outlook. Oil consumption demand is likely to take some time before returning to pre-COVID-19 levels. However, disruption to existing trade patterns could benefit product tanker ton mile demand.
There's potential for restructuring of the refinery industry, with less efficient and smaller refineries expected to lose out to megascale refineries located closer to points of production. This would be an acceleration of the secular trend evident over the past 10 years. For example, European refineries have been under pressure for some time, and the post-COVID-19 market could add further pressure and accelerate their decline. A continued or accelerated dislocation of trading patterns and regional imbalances is likely to result in less crude and more refined products moving over longer distances, with the Middle East and Asian refineries increasing exports of refined products. This could result in increasing volumes of gasoline from Asia to the U.S. instead of Europe to the U.S., and increasing volumes of gas oil from the U.S. and Asia into Europe. Meanwhile, product tanker net fleet growth remains exceptionally low.
Total order book stands at 173 product tankers, or 5.8% of the existing fleet, delivering from the second quarter 2020 to the first quarter of 2023. We are forecasting 76 MRs to deliver for full year 2020, assuming no delays, while scrapping run rate is approximately 30-40 ships per year. Looking at scrapping, there are currently 79 MRs over 23 years old, and across all product tankers, there are 220 ships representing 7.4% of the fleet over 20 years old, which would be expected to be scrapped in a weak market. We expect total product tanker fleet growth net of scrapping to be approximately 1.6% in 2020, 1.8% in 2021, and the MR fleet alone expected to grow by 1.7% in 2020. Moving to slide 11 for a summary of our quarterly performance.
As Tony highlighted upfront, we're reporting net profit of $6.5 million for the quarter, up substantially quarter on quarter and on the prior year. We will go through the rates in more detail on a later slide. Moving to the fourth bullet, we completed dry dockings on three ships in the first quarter. We do not have any dry dockings in the second quarter, as the schedule has been pushed out due to COVID-19 restrictions. Operational challenges are evident and being carefully managed. Areas impacted include availability of supplies, labor, dry docking space for both routine maintenance and special surveys, crew changeovers, and crew health and safety. Overall, the fleet continued to perform very well operationally in the first quarter, with the operating expenses coming in below budget. Moving to slide 12, we take a quick look at fleet days.
We are expecting 8,890 revenue days in 2020. The three drydockings completed in the first quarter accounted for 91 drydocking days. As mentioned, three originally planned drydocking days for 2Q have been pushed to 3Q and 4Q. In the second half of the year, we expect to complete seven drydockings and install one ballast water treatment system. Turning to slide 13, we take a look at charter rates. On the left-hand side, you will see a strong recovery in rates starting in the fourth quarter of 2019. Spot MRs reported a TCE of $19,307 per day in the first quarter, while the fleet average came in at $19,390 per day basis discharge to discharge. The chemical tankers also rebounded strongly. Charter rates for the chems were $19,707 per day for the quarter, up from $14,284 per day in the fourth quarter.
Looking ahead as of today, and already mentioned, for the second quarter, we have 55% of days booked in the MRs at $24,000 per day and $16,000 a day on the chemicals, with 45% of the days booked. Turning to slide 14, we will take a look at our financials. As you will see on the second line, we're reporting EBITDA of $21 million and a net profit of $6.5 million or $0.20 per share. Moving to the fifth line, we'll take a closer look at overhead. Corporate overhead costs were $4 million for the quarter, and commercial and chartering expenses came in at $900,000. As mentioned before, in many companies, the commercial and chartering costs are incorporated into voyage expenses, which means that our corporate cost is the comparable overhead.
For the second quarter of 2020, we expect total overhead incorporating corporate and commercial to be $4.9 million, including both cash and non-cash items. depreciation and amortization, total $9.1 million in the first quarter, and we expect depreciation and amortization for the second quarter to come in at $9.5 million. Interest and finance costs were $5.3 million for the first quarter, comprising cash interest of $4.9 million and amortized deferred finance fees of $4.4 million. We expect interest and finance costs for the second quarter to be approximately $5 million, including amortized deferred finance fees of $400,000. And moving to the bottom of the slide, operating costs came in under budget at $15.7 million for the quarter. Standard OpEx for the Eco-design MRs was $6,361 per day. Eco-mod MRs came in at $6,559 per day, while the chemical tankers came in at $6,743 per day.
Looking ahead, we expect OpEx for the second quarter to be approximately $15.4 million. Turning to slide 15, we will go through the progress on our capital allocation policy. As you all know, we initiated our capital allocation policy on March 9th of this year. Our objective is building long-term shareholder value in a highly cyclical industry through operating performance, capital allocation, and effective risk management. The policy is designed to ensure that Ardmore is well positioned to capitalize on opportunity through the cycle and developments in the industry. Looking at our progress in the first quarter, we had CapEx of $2.8 million, which included three dry dockings and an additional investment of $500,000 in performance-enhancing upgrades. We repaid $7.8 million in scheduled debt amortization while we're maintaining our evolving credit facilities for liquidity and additional financial flexibility. Our priorities under the policy are unchanged.
Top priorities are fleet maintenance and debt reduction. In terms of fleet maintenance, we expect to complete 10 dry dockings and won't install one ballast water treatment this year. For debt reduction, we have scheduled debt and lease amortization at $9.3 million in the second quarter and $36 million for the full year. On slide 16, we are maintaining a strong balance sheet and liquidity position. At the end of March, our total debt and leases was $423.6 million, while our leverage was 51% on a net debt basis. Our cash at the end of March was $64.5 million, and we have $25.6 million in net working capital. We are continuing to pay down debt, all debt and leases, and amortizing at a run rate of approximately $38 million per year in the aggregate. Finally, as you all know, LIBOR has been declining, which is reducing our interest expense.
With over 90% of our debt and leases being LIBOR-based, every 25 basis points reduction in interest rates is expected to contribute an additional $1 million in earnings and cash flow. With that, I would like to turn the call back over to Tony.
Anthony Gurnee (CEO)
Thanks, Paul. To sum up then, much attention has been placed on the extraordinarily high charter rates achieved by crude tankers, more recently, those conditions that arrived for the product tanker market too, which we believe may be more persistent, potentially for many months, as the physical oil market continues its extreme gyrations around supply and demand. To better explain, we have to describe our recent chartering activity. Last week, we fixed a 55-day voyage at $72,000 per day, equivalent to a VLCC at $200,000+. MR voyages in progress, representing roughly the last three weeks, fixtures, now stand at an average of $28,200 per day, equivalent to VLCCs at around $84,000 per day. While this is lower than rate estimates from some brokers and analysts, let's face it, this is higher than any of us have seen since the supercycle, and the financial impact is significant.
If, for example, rates for our fleet average $28,200 per day for the full year, taking the first quarter costs and ship days as a base, we estimate that our annual earnings would be approximately $110 million or $3.30 per share. To be clear, we're not estimating or forecasting any future results, but rather just contextualizing what's happening in the market. In terms of near-term outlook, if and when the oil market reaches max capacity for onshore storage, we may enter a new and potentially more volatile phase of the product tanker market. If and when oil demand rebounds with an economic recovery sometime in the third quarter, we would expect more volatility, this time consumer demand-driven. In terms of the medium-term outlook beyond 2020, there may indeed be a reckoning from high oil inventories, and oil demand may recover slowly.
However, we also expect the global refinery landscape to shift, with older, inefficient refineries shutting down, resulting in more product shipped over longer distances from modern, efficient refineries geographically closer to points of oil production. That the tanker market is soaring when virtually every other industry is suffering is not illogical. Shipping rates strengthen with volatility and disruption. Of course, we're saddened by the widespread suffering from the pandemic, but it should be understood that as an industry, we respond to demand through a market mechanism whose function is to optimally allocate transport and storage resources, often in surplus, sometimes in scarcity. And with that, we'd like to open up the call for questions.
Operator (participant)
We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. The first question is from Jon Chappell of Evercore ISI. Please go ahead.
Jon Chappell (Senior Managing Director)
Thank you. Good afternoon, Tony and Paul.
Anthony Gurnee (CEO)
Hey, John.
Jon Chappell (Senior Managing Director)
Tony, first question for you. You mentioned on your first line you intend to stay on the front foot commercially. So floating storage in MRs, that is obviously very rare. We've seen a lot in the LR2s, LR1s. How are you trying to balance the positioning or availability of the fleet to take advantage of storage options, versus keeping them in the right regional position, if there's any follow-through from what were traditionally the LR2 or LR1 cargoes, that don't have the capacity available?
Anthony Gurnee (CEO)
You know, to adopt an old adage, we simply follow the money. Storage contracts are really just time charters. The ship happens to sit. There are some consequences afterwards. You might have hull fouling, etc. And of course, if you're sitting there, you don't move around, and potentially, you do miss out on the opportunity to reposition. So that's what we leave to the chartering team. I think they're doing a terrific job so far. We expect they'll continue to do so. But, you know, it's all just part of the mix of opportunities within which we try to maximize our performance.
Jon Chappell (Senior Managing Director)
Okay. And then just in the follow-up, the MRs and the chemical tankers put up very similar numbers. And they had quarter-to-date when you guys reported in February, and they basically finished the first quarter in the same ballpark. In Q2, there's been a pretty big disconnect, which has still been driven by the upside from the MRs, although it looks like the chemicals have also come off a little bit from the 1Q average. Is there any substitutability of the chemicals into the MR space where you can see similar performance like 1Q when the market gets as tight as it has, or are they just truly really specialized and have completely different supply-demand dynamics altogether?
Anthony Gurnee (CEO)
I think the truth, John, is somewhere in between. So, first of all, our chemical tanker fleet is relatively small, and therefore, the portfolio of their voyages can, you know, change over time. What we also notice is that those ships tend to do extremely long-haul voyages. And so, you know, that, that does create a pattern of kind of front-haul, back-haul that can extend, you know, over even, even as much as a quarter. The other point is that, within those six chemical tankers, we've got two 37s, and their earnings pattern is much more similar to the MRs. The 25s operate not fundamentally differently, but they do seem to have a different pattern of earnings. Overall, we think they do very well. I think return on capital is good, but they tend not to catch the spikes the way the bigger ships do.
So I think that's probably what we're seeing. It's a combination of back-haul versus front-haul on long voyages, combined with, you know, the MRs and the 37s catching the wave quicker than the smaller ships.
Jon Chappell (Senior Managing Director)
Okay. If I could do just a super quick follow-up on that. If the MRs are average 24 Q2 to date, but the current market you're saying is 28, and of course, you do that 72 out there per voyage, we'll just ignore that for now. If the chemicals have done 16 quarter to date, is there a representation of where the market is today to think about how the remainder of the quarter may act, or is it still right around that 16 level that you said quarter to date?
Anthony Gurnee (CEO)
No, I think I can mention things that are happening in the market that, you know, because this is full disclosure, but, you know, we fixed a 25 earlier today at $23,000 a day. Maybe that's still a little bit short of what the potential market is, but, you know, that is probably a better estimate of where the market is today. And like I said, those ships tend not to get these spikes quite the same way, but then their voyages are longer, and they actually tend to do about the same over time on a return on capital basis.
You know, I think there's some confusion about the rates that we're mentioning, and I might just take this as an opportunity to clarify that, because the numbers that we're providing are not really guidance. They're what we've actually booked in the portfolio for the quarter to date, okay?
Jon Chappell (Senior Managing Director)
Mm-hmm.
Anthony Gurnee (CEO)
Typically, voyages in progress get improved over time. As an example, we just, for a voyage that we actually commenced on March 3rd, just completed now, it was a fairly long voyage and it incorporated a backhaul, that started off at $19,000 a day, and we just concluded it at $26,000 a day. One key point to make here is that these are his portfolios of historical voyages, and for voyages in progress, they do improve over time.
Jon Chappell (Senior Managing Director)
Okay.
Anthony Gurnee (CEO)
The second thing is that, you know, whatever the market, whatever level, you know, the market delivers, we're gonna earn it, right? So if for the rest of the quarter, the MR market's at $30,000 a day, we're gonna earn that, maybe a little bit more. The fact that quarter to date we've earned $24,000 reflects voyages that we booked as early as late February, early March, right, in part, okay? You know, so it's not forward-looking. It's historical. And I think, based on some of the notes that we've seen this morning, I think people are misconstruing a little bit. The final point I wanna make is that it just seems like when you get into these extreme periods of volatility, the indices that people are quoting, the, the rates that broker, you know, ship brokers are throwing around tend to be somewhat detached from reality.
As you know, as our chartering team likes to refer to that, it's, you know, it's basically fairy dust until you actually fully fix it, right? So, you know, I'm not saying the market's not at $35,000-$40,000 a day. I don't think MRs are at $50,000 a day as a lot of the broker reports are suggesting, right?
Jon Chappell (Senior Managing Director)
Yeah.
Anthony Gurnee (CEO)
But let's face it. That's a pretty good level, right? And the financial implications are pretty extreme. So I think if we've sort of somehow disappointed, based on our "guidance," we're providing estimates based on what we've booked so far, going back to as early as late February, early March, and maybe the numbers that people have been hanging onto that have been quoted by brokers and indexes, etc., aren't, you know, quite there.
Jon Chappell (Senior Managing Director)
Yeah. That's completely clear. I appreciate the explanation. Thanks, Tony.
Operator (participant)
The next question is from Randy Giveans of Jefferies. Please go ahead.
Randy Giveans (Senior VP)
Howdy, gentlemen. How's it going?
Anthony Gurnee (CEO)
Very good, Randy. How are you?
Randy Giveans (Senior VP)
Good. All right. So, you know, as you mentioned, they are talking about the headline rates we're seeing, $50,000, $50,000, even $45,000. How robust is that market? You know, is that one charter? Is it, you know, a handful of charters every day? How often are those kind of being fixed? I know you had that benchmark out there that you hit at least one in the 70s, right, although most are again in the 20s. How robust are those kind of charters?
Anthony Gurnee (CEO)
They're robust. I mean, you know, we, you know, we at the moment, we would assess the global market at MRs at $35,000-$40,000 a day. We've got voyages that we've booked at substantially higher rates than $28,000 a day. And we've got some that are largely historical that were lower, right? So, you know, this, this is a, you know, it kind of builds and then, you know, plateaus, etc. The strongest market at the moment is the Arabian Gulf. We think that, that, you know, that, that kind of rate level, $70,000 a day, is close to achievable in that market today, meaning that there are ships fixing at those kind of levels, right? Elsewhere, the rates are lower. So for example, the Atlantic, especially I think in Northern Europe, it's come off, you know, quite a bit.
But overall, we would assess the global market at $35,000-$40,000, not at $50,000. But I think, you know, again, I mean, we have to put this in context 'cause these rates are quite extraordinary in and of themselves. And I think anybody that, you know, finds those kind of rate levels to be disappointing, I think is, you know, I, you know, it's they might have been looking at numbers that were more broker talk than reality.
Randy Giveans (Senior VP)
Sure. That's fair. And then how have you?
Anthony Gurnee (CEO)
And maybe if I can just add.
Randy Giveans (Senior VP)
Go ahead.
Anthony Gurnee (CEO)
Yeah, sorry. We've got a time lapse, so I'll let you go ahead. Sorry.
Randy Giveans (Senior VP)
Oh, I was just saying in terms of, you know, the strength in the market that we're seeing in spot rate, has that translated to time charter rates? And then what about asset values? You know, has that kind of cascaded down from the strong spot rates we're seeing? Has that moved time charter rates much? Has it moved asset values much? And then with that, do you still believe your NAV is in that $10-$11 range?
Anthony Gurnee (CEO)
Mm-hmm. Yeah. Just to finish up, maybe a point on the last question. We don't know how persistent this market's gonna be. We think it's gonna be volatile and overall at very elevated levels for the reasons we mentioned. It doesn't feel like the MR market right now is in any kind of free fall. There seems to be real support at the levels that we've mentioned. In terms of the time charter market, you know, let's face it. The spot markets move very, very rapidly, literally over the last kind of two weeks in the MR space. And while time charter rates have moved up, probably not as much as you would think. And as a consequence, not much is getting done at the moment because we think that the differential between, you know, bid and offer is, is, is probably pretty wide at the moment.
As these conditions persist, you'll see the time charter rates come up. You can imagine that the asset market is even further behind that, right, because, you know, let's face it. The overall macro picture is quite scary-looking, right? So if you're talking about newbuildings or buying relatively modern ships, these are fairly long-term investments, and I think there would be understandably a degree of risk aversion. A 2010-built ship recently sold for $19 million, very recently, like in the last week. We think that's, you know, a good support level, given what's happening in the bigger macro picture. Can these go higher? Yeah. But we'll just you know, I think it really would require two things. One is for the spot market to play out, you know, over a longer period.
I think for some of the concerns about 2021 to begin to dissipate. You know, in terms of our NAV, you know, we don't talk about what our NAV is. The number that you've quoted sounds to me like a price level that would build in future earnings expectations. But in principle, obviously, as you know, vessel values go up, so does the NAV, by roughly $0.80 a share for every $1 million in asset value.
Randy Giveans (Senior VP)
All right. Well, that's it for me. Thanks for the time.
Anthony Gurnee (CEO)
Thanks, Randy.
Operator (participant)
The next question is from Ben Nolan of Stifel. Please go ahead.
Ben Nolan (Managing Director)
Hey, guys. Tony, Paul. I first wanted to ask just on the asset allocation side of it. Obviously, you guys have sort of changed how you're doing things with respect to the dividend. And I think given the uncertain times that we live in, that makes perfect sense. But maybe from a longer strategic standpoint, can you maybe kind of talk through what you want the balance sheet to ultimately look like? You know, you go through a period of excess earnings here that certainly builds the balance sheet, but where's the target, would you say?
Anthony Gurnee (CEO)
Well, I mean, we stated our target at 40% based on mid-cycle asset values. We think the reasoning behind that is we think that begins to put us in a position where we can be truly countercyclical. Everybody sees opportunities in a weak market, but very few people can act on it. That's the principal reason. We think that it's a better approach to building value over the long term.
Ben Nolan (Managing Director)
So, I don't know. Let's say this elevated market were to last for six more months, and you get to that or get below, you know, that kind of threshold. At that point, do you revisit sort of capital allocation, or, you know, I don't know. Is that a real threshold, would you say, or just kind of?
Anthony Gurnee (CEO)
Yeah.
Ben Nolan (Managing Director)
Okay. All right. That's helpful. And then as it relates.
Anthony Gurnee (CEO)
Yeah. No, no. I mean, that's exactly what we said. And yeah.
Ben Nolan (Managing Director)
Okay. As it relates to just the market, and we've discussed a little bit here and rates being elevated and floating storage and everything else. But, you know, clearly, what's going on is refineries have not turned down to the same extent that or at least their production remains higher than consumption. And, you know, that's relatively obvious. But, you know, I'm curious what you're hearing from your customers with respect to what they're thinking about going forward. Would you expect there to be some more refinery pullback, or, you know, do you think that maybe some of the coastal refineries will maintain their high production levels relative to maybe inland refineries?
Just, just sort of how you obviously, you know, none of us know for sure, but how you envision this playing out with respect to the demand for product anchored floating storage and, and transportation?
Anthony Gurnee (CEO)
Good question. No, you know, it seems like there's a lot of talk in the market about refineries curtailing production, reducing utilization levels, etc. And I'm sure that's happening. But more than that, it seems like whether you're an oil producer or a refiner, to a degree, you're just trying to make it to the rebound. And I think that's prompting a lot of continued production. And of course, refineries will, you know, if they have a buyer and they can buy the crude cheap enough and make money, that's the business they're in, right? So, I think, you know, I think there's that dynamic that's gonna result in maybe more production and more throughput, and more shipping than you'd otherwise think.
The second point is that with all the extreme volatility going on or, you know, which is really a reflection of, of price dislocation, we're just seeing voyages over much longer distances. And that, that just has a dramatic impact on ton-mile demand. And, you know, as we've seen before, you arrive at a discharge port, and, you've gotta wait. And so of course, that you know, that may not be contractual floating storage, but it is floating storage. The other thing we're hearing more and more of is, requests from charterers to slow ships down because they know that when they arrive, it's gonna be a long time, right? And there's a mechanism in the charter party that allows you to benefit from that as, as the, as the owner. But that, that basically results in, elevated levels of oil on the water.
So all of this contributes to, you know, either ton-mile demand or it takes supply out of the market.
Ben Nolan (Managing Director)
Okay. So, is that what you might attribute to the fact that MRs, although they have pulled back, and product tankers in general have not nearly seen the pullback that we've seen in the crude market? Is that sort of a differentiation between sort of the activities of the refiners? Is that what's going on here?
Anthony Gurnee (CEO)
Yeah. I wouldn't really even characterize what's happened with MRs as a pullback. I mean, rates have come off. But like I said, rates, you know, rates are still up at those close to those record levels in, you know, out of the AG, which has been exporting, you know, a hugely increased amount of CPP. And yeah, this activity is supporting, you know, it's, you know, that market dynamic, you know, that we just painted, is supporting, you know, those kind of price levels. Now, will it dissipate a little bit? Possibly. Will it tighten again? We actually think it will, because we just see more and more product getting stuck on ships.
Ben Nolan (Managing Director)
Okay. And lastly, if I can squeeze one more in, given all the volatility and everything else, just I'm curious from a broader macro perspective. If you think there's been any change in either the banking side of it, whether, clearly, you're making good money now, but whether you think that there's been any pullback in terms of capital availability from the banks and/or any change in how owners are thinking about it, you know, maybe being more or less aggressive with respect to consolidation or M&A, or asset-specific buying and selling.
Anthony Gurnee (CEO)
Well, I think if, if capital was relatively scarce before, it's even scarcer now. You know, I think I think banks that we talk to are there to support their customers. But, you know, we're very, very lucky, you know, being in the tanker sector just at the moment. Others aren't faring so well. So I think there's probably overall pressure in every aspect of a bank's portfolio, not just shipping, but, but in shipping too. And, there'll probably be consequences, you know, in terms of overall access to capital. In the long run, we think that's a good thing. It'll keep, keep capital away from new buildings. Will it spur any, any more consolidation in the industry? We, we don't know.
Ben Nolan (Managing Director)
Okay. Perfect. Appreciate it, Tony. Thanks.
Operator (participant)
The next question is from Mike Webber of Webber Research. Please go ahead.
Mike Webber (Managing Partner)
Hey. Good morning, guys. How are you?
Anthony Gurnee (CEO)
Good, Mike. How are you?
Mike Webber (Managing Partner)
Good. Tony, a lot of this is kind of been picked over, but I do wanted to touch on storage again, and I guess first and foremost around, and a lot of this is oriented towards some of the larger tonnage things, some of it in MRs. But just curious in terms of the length of inquiry, and at least maybe I guess if it's not directly related or as robustly related to MR is what you're seeing in the broader market in terms of people maybe looking to extend beyond six-month storage contracts, and take a bit more length.
It seems like it's been pretty clustered around six months, but I'm just curious whether you've seen people starting to kind of extend their gaze, and maybe get a bit worried about what to do with a cargo after a six-month period.
Anthony Gurnee (CEO)
Yeah. It's a good question, Mike. I'm afraid we're not quite in the right sectors to speak on it knowledgeably. You know, we have had some discussions, even on MRs, about six-month storage, at good rates. But that's really more for the bigger ships, even for.
Mike Webber (Managing Partner)
Sure.
Anthony Gurnee (CEO)
You know, LR2s, etc. but it does seem like the real interest is around six months. But if you're an oil trader and you do a new job, you're probably getting options to extend.
Mike Webber (Managing Partner)
Sure enough. If I look at slide eight, and you guys kind of put some illustrative examples of where floating storage could go, and even in the market for a long time, and a lot of the.
Anthony Gurnee (CEO)
Mm-hmm.
Mike Webber (Managing Partner)
A lot of the storage decisions or kind of the mechanisms are largely gonna be driven by that refining behavior, which you guys certainly get a ringside seat for. So I'm curious, you know, as you're looking at the market now, where would your best guess be in terms of how much tonnage actually gets soaked up by storage? I mean, we can all kind of put the parameters out there of what could happen, but I mean, you've got a pretty interesting vantage point and certainly more institutional memory than just about anybody. So I'm just curious, as you look at it now, knowing it could certainly change tomorrow.
Anthony Gurnee (CEO)
Yeah.
Mike Webber (Managing Partner)
You know, where would you put that number?
Anthony Gurnee (CEO)
Yeah. So unfortunately, experience doesn't count for much right now because these are unprecedented conditions. But, you know, we spent a lot of time looking at this analytically as, as everybody has, and you guys more than more than anyone probably. If we were overproducing by 30 million barrels a day of demand in April and let's say the OPEC effective OPEC cuts are 8 million barrels a day, that the shut-ins and curtailment is another 3 million-5 million barrels a day globally, and you've got a rebound or, you know, a gradual, you know, sort of slight increase, in demand of maybe 3 million-5 million barrels a day, you're still probably 12 million or 13 million barrels per day overproducing globally. And so that's.
Mike Webber (Managing Partner)
Mm-hmm.
Anthony Gurnee (CEO)
Over the course of May. And so that's another 400 million barrels. Of course, there's you get a double effect because that is essentially production. Some of that goes through refinery, and then can end up, you know, you know, on the other side of the refinery, on our side of the world.
Mike Webber (Managing Partner)
Yeah.
Anthony Gurnee (CEO)
As additional, you know, excess production. So those numbers are pretty significant. Right now, I think the estimate is that as of the end of April, 370 million barrels of oil were in, you know, officially floating storage or elevated levels of oil on the water. How much of that 400 million ends up, you know, actually out on ships, you know, is just pure conjecture.
Mike Webber (Managing Partner)
Mm-hmm.
Anthony Gurnee (CEO)
But if it's, let's say, half, that's a significant number. That could result in, you know, the utilization of the world tanker fleet going from, you know and when we say large tankers, we mean Aframax and up and kind of MR and up. So we're not talking.
Mike Webber (Managing Partner)
Mm-hmm.
Anthony Gurnee (CEO)
About 10,000 deadweight-ton ships. But, you know, on that basis, 10% could go to 20%. And then if you factor in other, you know, you know, longer voyages, other, other disruptions, then, you know, that's, that's where the support for the market is coming from right now.
Mike Webber (Managing Partner)
Gotcha. All right. That's helpful. Just, just maybe one more on asset values. You know, I think you kind of mentioned the upside to NAV with every $1 million of value. If you look at, you know I know there's a debate around whether, you know, the market's at $72 or $40, but we're kind of talking about stupid numbers at that point anyway, right? So, you know, at $35,000-$40,000 for an MR, you know, you're talking about justified values that are probably, you know, $41 million-$42 million, a little bit north of where we're at today. I'm just curious, you know, based on.
Anthony Gurnee (CEO)
Mm-hmm.
Mike Webber (Managing Partner)
Again, the conversations you're having within the industry, you know, should we keep marching up a little bit from here? You know, and we index these equities off of NAV. You know, do you think the market ends up clearing it at some of these prices? Do you think there's enough liquidity and/or really a lack, you know, of the friction's minor enough for dealers and people to transact that we actually see some asset values, some assets trade on the kind of the prompt or newer side in the high 30s and the low 40s, or beyond?
Anthony Gurnee (CEO)
I think it's a really good point and interesting question. Look, obviously, when you really see values moving up, it's because people have a belief that something's gonna continue for a long time. I don't think anybody believes this is gonna continue for a long time, you know. And nine months would be fantastic, right? After that, you know, if we get back to decent market levels, I think we're all happy. But the reality is if you go back to what happened in the supercycle, it was just a whole different mindset. But what's happening now is that rates are so high on the front end that you could see you know, I, I've never been a big believer in this idea of adding future earnings to NAV, you know, forward NAV type of thing.
but I think it makes some sense now because the, you know, the near-term cash flow is potentially really, really significant.
Mike Webber (Managing Partner)
Right.
Anthony Gurnee (CEO)
Just has to be added in, right? So, you know, for example, for us, if we make $90 million of, you know, cash you know, cash over a certain period of time, you know, that's $3 a share. But that's NAV, right, because it's in the balance sheet, right?
Mike Webber (Managing Partner)
Right.
Anthony Gurnee (CEO)
So, you know, so I think on a forward NAV basis, yeah, you can you can start, you know, kind of projecting significantly higher numbers.
Mike Webber (Managing Partner)
Just to follow up, sorry, just to follow up on your answer there a bit, you mentioned, you know, this lasting nine months. To what degree is that view predicated on a relatively orderly and linear recovery? You know, if we're looking at a scenario where, you know, we have fits and starts of economic recovery and kind of, you know, the general kind of linear storage trade kind of gets turned on its head, do you think that scenario is still reflective of kind of a nine-month timeframe, or do you think it could extend beyond that? Sorry. That's a yeah. Very high-level question that, you know, but just curious.
Anthony Gurnee (CEO)
Yeah. No, no. No, no, no. I think no, we've been spending a lot of time thinking about this. And, you know, we went from having no sense of visibility a month ago to all of a sudden beginning to see what could be happening here. And the first piece is this, you know, onshore storage situation, right? And, you know, we think, look, it's not guaranteed to happen. We think it's likely to happen. And I think there's a difference between theoretical and functional storage capacity. You know, for example, 50% of all the remaining oil storage in the world is in the U.S. and China, right? That doesn't help you if you're in, you know, the Mediterranean or something, right?
You know, I think there's potentially a very disruptive event coming up in the near term, right, like in the next, you know, few weeks.
Mike Webber (Managing Partner)
Mm-hmm.
Anthony Gurnee (CEO)
I don't think it has to do much to have a, you know, provide real support to the current market and maybe even drive it higher. That's our personal view. We might be completely wrong on it. And I think what's happening is everybody's just trying to survive to the rebound. But what does that rebound look like? Well, it's, it's probably I mean, when you're coming back from 25% down, 15% is one-half rebound, but you're still 10% short, right? So in terms of, you know, this kind of snapback and whiplash of all of a sudden demand coming back to life after this traumatic, you know, phase that we've been through and perhaps.
Mike Webber (Managing Partner)
Mm-hmm.
Anthony Gurnee (CEO)
Going through even more, that could really generate a lot of volatility and chaos in the oil market, right?
Mike Webber (Managing Partner)
Right.
Anthony Gurnee (CEO)
You know, the oil will be out there, but almost certainly not in the right places, right? So then you get into these, you know, incredibly long-haul trades. And, you know, the old you know, our famous example is, you know, if you go from Houston to East Coast Mexico, that's very different from Houston to China, right?
Mike Webber (Managing Partner)
Mm-hmm.
Anthony Gurnee (CEO)
In terms of ton-mile demand. And, you know, you could, you know, theoretically, if, you know, if you have setbacks and recurrence of coronavirus in certain parts of the world, you could have, you know, more, you know, more volatility, more physical dislocation of supply and demand in the oil market. And so that's why overall, we think that this just could carry on for a while. Could it carry into 2021? I don't know. I mean, it just you know, we'll take what we're getting right now if it will continue for nine months. But going into 2021, we would expect things to stabilize. We are really interested in learning more about what's happening to the refinery, to the global refinery landscape.
Mike Webber (Managing Partner)
Mm-hmm.
Anthony Gurnee (CEO)
Because we think that could really accelerate trends that have been going on a long time. And the world could look quite different in terms of trade patterns and ton-mile demand for product tankers, you know, in that situation.
Mike Webber (Managing Partner)
Gotcha. Okay. That's enough from me. Appreciate the time, guys. Thank you.
Anthony Gurnee (CEO)
Yep. Thanks, Mike.
Operator (participant)
The next question is from Omar Nokta of Clarksons. Please go ahead.
Omar Nokta (Managing Director)
Hi. Thank you. Hi, Tony and Paul. I know I'm jumping in a bit late, but I just wanted to follow up on, maybe the voyage dynamics you were discussing. I think it was with Ben. You know, you mentioned charterers asking to slow speed down, because there's obviously a log jam at different ports worldwide. Are there any issues that are arising where a charterer may want to declare something along the lines of a force majeure when it comes to having to pay the added demurrage cost?
Anthony Gurnee (CEO)
So far, no. No, I think there's a lot of worry about what could be coming down the road. But the reality is that, you know, the demurrage bill is the obligation of the charterer. And these are typically big oil traders and oil companies and oil majors and national oil companies. So that's not an that's really, at this point, not a direct and immediate concern.
Omar Nokta (Managing Director)
Yeah. Okay. So the counterparty risk, obviously, you're not chasing, you know, you're not chasing bills here. You know, maybe just a bit more color.
Anthony Gurnee (CEO)
Mm-hmm.
Omar Nokta (Managing Director)
Let's say when you are fixing a ship, you know, when you're agreeing on a spot rate, how different is it, especially in today's market where spot rates are just through the roof? What's the difference between the spot and the demurrage? And, you know, because if, if delays persist globally here for an extended period, or should we be thinking that maybe there, there is some risk to the rate that we think you're gonna be reporting, relative to, you know, the, the indexes?
Anthony Gurnee (CEO)
Yeah. I, I think that's a good question. I, you know, demurrage is always heavily negotiated. And very often, it's you kind of consider it's pretty far out on, on the futures curve, if you will, or the forward curve of where the market ought to be. And so let's say if you're in a hot market, and you're able to get a, you know, good, good rate now, that doesn't necessarily mean you entirely believe on, you know, what the market might be in a month, right, when you, you know when you're sitting on demurrage, right? So you're right. Typically, very often, the demurrage rates are, are lower. But they're still at very, very high levels. Like, nobody, nobody's fixing at $40,000 a day and agree-agreeing demurrage at $17,000. You know, you fix at $40,000 a day. You agree demurrage at $35,000-$30,000, right?
Omar Nokta (Managing Director)
Oh. Okay.
Anthony Gurnee (CEO)
So.
Omar Nokta (Managing Director)
Yeah. All right. That, that's helpful.
Anthony Gurnee (CEO)
And there are sometimes you deliberately enter into trades that you call demurrage plays where, you know, you're going for the demurrage, and then it becomes the main point of your negotiation, so. But I wouldn't, I don't think typically in our business, people sell themselves too short on demurrage. Very often, it's a, you know, kind of a forward-looking, you know, indicator of where people think rates might be coming out of a certain market. But there's usually not a huge disconnect between, you know, the spot voyage and the demurrage rate.
Omar Nokta (Managing Director)
Got it. Thanks, Tony. That's all, that's all I had.
Anthony Gurnee (CEO)
Okay. Thanks, Omar.
Operator (participant)
The next question is from J Mintzmyer of Value Investor's Edge. Please go ahead.
J Mintzmyer (Founder)
Morning, Tony. Morning, Paul. Thanks for taking my questions.
Anthony Gurnee (CEO)
Hey, J.
J Mintzmyer (Founder)
I think we've covered most of the fixture nuances pretty well in the call thus far. But looking at the numbers you reported for the Q2 guide, it seems like a lot of fixtures came a little early, which, you know, is understandable. It's for the rest of the fixtures in Q2, is that pretty evenly spaced out, or are we gonna have several coming up the next week or two?
Anthony Gurnee (CEO)
We do. You know, I think it's a relatively smooth flow. So, you know, if you know, we're probably fixing on average a ship every one or two days in a fleet of our size. So yeah. So I think we're in position to grab any near-term upside. And over time, whatever you know, whatever the market delivers, we're gonna get, right, so.
J Mintzmyer (Founder)
Excellent. Makes sense, Tony. You, you mentioned one fixture you just did at 72,000. Was there anything else you did recently, like, over the 50,000 range, or is that the only one that's kinda eye-popping at this point?
Anthony Gurnee (CEO)
I think we've done two over 50,000.
J Mintzmyer (Founder)
Okay. And then, final question on your capital allocation letter. You mentioned wanting to get down to 40% debt to assets. I think that's pretty reasonable. But at the same time, we kinda had a discussion earlier with Randy about your NAV. And we have different numbers, but we show you guys about $7.50 right now as of Q1 financials and probably a little bit $8.59 range by Q2, which, you know, we're almost halfway through that quarter. And your stock right now, it's been trading down pretty poorly. It was about $6 flat earlier. Now, it's rebounding slightly. At what point do you say we're gonna take advantage of some of that huge dislocation and perhaps do a repurchase? Is there an opening to do that perhaps this summer, or is that something you wanna wait until you get to the 40% leverage first?
Anthony Gurnee (CEO)
I think there's a really interesting philosophical discussion to have around short-term value versus long-term value orientation on that question. Probably now is not the time. But bottom line is that we're just very, very focused on building value over time, building long-term value. You know, we've, you know, come out with our new capital allocation policy, and we've kinda stated our priorities, you know, very clearly. You know, they can shift over time. So, for example, I can almost guarantee you if our stock went to $0.50 and we were earning this kinda money, we'd probably buy a lot of stock, right? But the other thing maybe I'll mention is that, you know, share buybacks are not particularly in vogue right now.
But in any case, you know, the SEC rules, you know, around share buybacks actually really limit the amount that you can do in a quarter. Very often, you get, you know, stuck against, you know, blackouts, etc. So I think in terms of buying shares back cheap, it's a little bit elusive anyway, something good to talk about and maybe, you know, a signal to the market. But again, we're just trying to figure out what's the right thing to do, you know, to build value, you know, on a long-term basis. Obviously, you know, maximizing earnings is a really good way to do it.
J Mintzmyer (Founder)
Yeah. Absolutely, Tony. Well, you can never go wrong with deleveraging and making sure that balance sheet is solid. So really looking forward to your Q2 results, and hopefully, these MR rates will stick around. Thanks for your time.
Anthony Gurnee (CEO)
Yep. Thanks, J.
Operator (participant)
The next question is from George Burmann of Cabot Lodge Securities. Please go ahead.
George Burmann (Senior Managing Director)
Good morning. Thank you for taking my call. I wanna congratulate you to a very good quarter, even though the stock doesn't reflect it yet. Got a couple questions for you. We often see that various tankers are booked on a subject, and then a few days later, the subject calls in as failed. What happens to your tanker? What kind of weight do you negotiate then?
Anthony Gurnee (CEO)
That's a really great question, George. It's especially when you get in these volatile markets, it's a very prevailing feature. It's called fixing and failing, as you say. And it really has to do with, you know, the oil trader, whether he's in an oil company or at an oil trader firm, whatever. They'll basically secure the ship, and then they'll, you know, give it to the oil traders who will then try to complete the trade, the oil trade. And very often, if the market's moving around as much as it's been recently, you can grab something and then, you know, at the peak of the market, then lose it because, you know, conditions change or they don't lift, you know, they don't lift the physical side of the oil trade. So what happens then?
You just keep on working the market. Companies that develop a reputation for fixing and failing find it hard to get ships. So I think it's the, you know, there is a bit of good behavior monitoring that goes on in the market, you know, on that basis. But look, it's a very typical feature of our own trading team. But they're great at it, and they just keep at it until they, you know, until they get a good fixture done.
George Burmann (Senior Managing Director)
Okay. Fair, fair enough. Then, next question would be on storage. Are there any time limits due to, say, degradation of the cargo as to how long you can store your clean products, that being gasoline, diesel, and jet fuel, I guess? Is there any, like, effluent, or does it evaporate, or what's happening on the time that you store a load?
Anthony Gurnee (CEO)
The only cargo I'm aware of that can actually go out of date, quote-unquote, is jet fuel. The rest of it, I think, is fairly stable. What you might find is that that grade of gasoline, for example, may not be suitable for the season that you're in. So, so, you know, so there might be some impact of that. I think the other factor is that if you let a ship sit too long on, on a storage contract, it can develop significant, significant hull fouling, and, you know, and might need to go into dry dock, etc. So, you know, I think there are operational considerations. But as far as I'm aware, there's not, you know, other than jet, there's no real kinda cutoff dates in terms of, you know, the cargo going off in any way.
George Burmann (Senior Managing Director)
Okay. Great. And your fleet predominantly is not on storage. It's a voyage fleet, correct?
Anthony Gurnee (CEO)
Yes. But very often, we find ourselves arriving at a discharge port, and lo and behold, their shore tanks are full, and they, you know, we can't discharge the ship. Then it goes on demurrage, and it's effectively in floating storage at that point.
George Burmann (Senior Managing Director)
Okay. And then, last one maybe. Have you seen any of your competitors in your size range switch from clean to dirty crude oil storage or transportation, or is that not a factor in your class?
Anthony Gurnee (CEO)
Mm-hmm. In our size, there is a limited amount of dirty trading MR activity. It's quite small. It's more prevalent with LR2s and LR1s, mostly LR2s. We, you know, up for the last, you know, probably since November, we were tracking more and more LR2s that were trading clean going into the dirty trades. More recently, because LR2 rates have gone sky-high and Aframax rates, which is the uncoated description of that ship size, they, you know, they're not earning as much. And so we hear and we haven't seen anything yet, but we hear of some ships trying to find ways to clean up and go back into clean trades.
George Burmann (Senior Managing Director)
Okay.
Anthony Gurnee (CEO)
But so far, we don't see it as a major factor in the market.
George Burmann (Senior Managing Director)
Thanks very much for your time, and look forward to another great quarter.
Anthony Gurnee (CEO)
Thank you, George.
Operator (participant)
The next question is from Greg Weiss of Boston Partners. Please go ahead.
Greg Weiss (Portfolio Manager)
Hey, guys. Just want a little more, some comments on two quick things. You know, you mentioned a couple times now the delays when some of your ships are reaching port. And obviously, MR voyages are oftentimes not that long, you know, 20, 30, 40 days. So if you add a couple days to that, it's effectively a big percentage of capacity coming out of the market. So is this trend increasing, decreasing? What, effectively, you know, how long are the typical delays? You know, in other words, how much supply is being taken out of the market potentially from this, which obviously people have been talking about floating storage more than just delays. And then secondly, on the order book, it's extremely low.
Back in the fall, the one thing everybody was worried about was new orders could disrupt the supply-demand balance. Now, we're in this environment where rates are high, but no one's ordering. Will this give us a little bit of the shipowner's mindset if you think we're gonna see ordering here because obviously, we don't. It extends the length, we could be in a constructive supply-demand environment post whatever hangover we have. Thanks.
Anthony Gurnee (CEO)
Mm-hmm. Yep. Good questions, Greg. I guess to answer the first one, maybe to use an example, we just we just completed a voyage where the ship sat at a discharge port for 40 days. That's unusual. It was probably gonna sit there anyway, but this was much longer than was expected. And so if that's, you know and we're not you know, we have other ships doing similar things right now. So I think the, the effective floating storage component of the market right now is significant, and it's growing. The slow steaming is effectively the oil-on-the-water, you know, calculation. So we think these are very real, and we don't see them going away anytime soon. In fact, we think that that's gonna increase, right?
So, you know, analytically, I, I think other people are much better positioned to try to figure out what percentage of total supply or demand or whatever that, that represents. In terms of new buildings, you know, we talked earlier about the fact that capital, if anything, is more scarce than it was a few months ago. That's certainly gonna, you know, I, I wouldn't wanna go into a bank right now and say, "By the way, we wanna order some ships. What do you think?" I, I think they might tell you just to kinda stick with what you have and be happy. But there are a lot of very cash-rich owners in the world, and, they've succeeded by being, countercyclical and speculative and will always see a trickle of that kind of activity.
It just doesn't feel like a great time to access capital and go order a bunch of ships.
Greg Weiss (Portfolio Manager)
Have you, in your history, you know, in your career in this industry, have you seen a period where we have very strong rates, and a low order book and the rates not stimulating orders, or is this kind of, given the backdrop, a unique situation?
Anthony Gurnee (CEO)
This, you know, look, I think you can look to two prior periods. Like, this one is 2014, 2015, and maybe 2008, 2009. Both, you know, both resulted in strong markets at a time when it was acknowledged that they were gonna be short-term. I think what's different this time is this whole issue of shore storage filling up. And it's just taking it into a new dimension, we think. We've just never seen this kind of volatility in oil price or oil demand. So, you know, like I said earlier, I can't say there's anything in what we're talking about that feels like it's a multi-year trend. So we have to think of it in the short term.
But, you know, if you earn five times as much, you know, in one-fifth the time, that's the same thing as earning that over, you know, a longer period.
Greg Weiss (Portfolio Manager)
Got it. Thank you. Thank you, Tony.
Anthony Gurnee (CEO)
Yep.
Operator (participant)
This concludes our question-and-answer session and today's conference. Thank you for attending the presentation. You may now disconnect.